What a fun market this is!
After being totally bored making money on bullish bets in 2017, 2018 has been a non-stop thrill-ride with money to be made in both directions. Yesterday, we got yet another chance to short the Russell (/TF) at our 1,550 line and we got another 20-point drop to 1,530, which was good for gains of $1,000 per contract and our call to go long on Coffee(/KCH8) at $119 from yesterday's Morning Report is already percolating at $120.50 and that's good for gains of $562.50 per contract already and gold (/YG, also from yesterday's Report) has jumped from $1,327.50 to $1,330.50 but that's only good for gains of $96.60 per contract, as it's a cheap contract.
Meanwhile, we're not at all fooled by the pre-market bounce in the indexes as we're still not clearing those strong bounce lines and it's the same lines we've been using since the crash, which I last updated in Wednesday's Report:
Since then, have we made any improvements?
No, apparently not, so don't lose perspective and, most importantly, don't get excited when the market, like a ball, bounces less than half of what it fell – especially when it's two weeks later and you're still not moving higher. It's more likely, at this point, that we're consolidating for a move down than a move up but +180 on the Dow at the open is the pre-market push that reels the Retail Suckers in while the Institutional Investors dump their holdings into the weekend.
Keep in mind all cryptocurrencies are silly so, if you have more than a double and don't take half off the table (leaving you with half for free) – you are simply being a fool, who is likely to soon be parted with his money!
Less foolish is our relentless shorting of the Futures at our Strong Bounce Lines which are also the 50-day moving averages this week with the S&P right at 2,728 along with Dow 25,212, Nasdaq 6,650, NYSE 12,970 and Russell 1,550 and it's great when we see the moving averages move right into our Bounce Lines as it means our 5% Rule™ is working, which means the market is being traded by robots (as that's what the 5% Rule assumes) and, therefore, predictable.
Predictable works for me because Monday, at the NY Trader's Expo, I will be participating in a Live Trading Challenge at the open so see who can make the most money in 60 minutes so we'll be putting all this BS to a test live, in front of a pretty big audience. I'll also be giving a 4-hour Master Class to open the show on Sunday from 9am to 1pm – so come on down if you want to learn all of our trading tricks! We got the whole thing underwritten so it's now free!
Meanwhile, we're shorting the indexes this morning at 25,150, 2,725, 6,825 and 1,540 with tight stops if any of them go back above. As you can see, we're already up about $2,000 on our Coffee Trade for the day so tight stops at the $122 line now but, long-term, we love that trade and, if you are futures-challenged, there's always the Coffee ETF (JO), which is at $14.80 and the way I'd play it is:
- Sell 5 2020 $14 puts for $1.30 ($650)
- Buy 10 2020 $15 calls for $2.50 ($2,500)
- Sell 10 2020 $20 calls for $1.25 ($1,250)
That's net $600 on the $5,000 spread, so the upside potential is $4,400 (733%) at $20. We need Coffee (/KC) to be up 33% over two years, which would be $162, which is roughly the 2016 highs but well below $200+ in 2014 and $300 in 2011. On the whole, we're playing for Global Warming disrupting the growing patterns and causing shortages – something Bloomberg just did a special report on.
$122 to $162 is up $40 and Coffee Futures contracts pay $375 per $1 so $15,000 per contract but we will be in and out hundreds of times between now and than – usually buying the dips, getting out on pops (like this morning) and then starting the cycle again on the next dip. We don't mind making the same play over and over again – not when we can pick up $2,000 in a morning, right?
Have a great weekend,