TGIF – Dow’s Down Week Comes to a Close


8 days a week

Well, 8 days in a row that the Dow has been down after topping out at 25,400 back on June 11th and having tested 24,400 for an even 1,000-point drop yesterday afternoon. That's right about a 4% correction on the nose and the 5% line is 24,130 so, if we assume that is the full pullback (not yet completed), then the fall is 1,270 points and we'll call that 1,250 and look for 250-point bounces so a weak bounce would be 24,380, which is the 4% line again and the strong bounce, to the 3% line, would be 24,630 so that's the line we need to see the Dow take and hold today in order to be impressed. In fact, 24,658 is the 50-day moving average on the Dow – so let's make sure we get those extra 28 points too!

The Dow is down 1% for the year so up 1% (250 points to 24,750) is also very important to make.  Meanwhile, as you can see from the chart above, the Nasdaq is still up 12% for the year – though we made a lovely $5,535 on Wednesday's short position (see yesterday's Morning Report) and we HOPE it bounces back towards our shorting line at 7,300 so we can do it again.  

As I said to our Members in our Live Chat Room yesterday morning:

I'm still on the 6,500 bandwagon but I don't know when so better to make $1,000 80 times than spend 3 months waiting for a big drop!

Well, now we can cross 5 of those 80 times off the list!  Overall, it's just been a small correction but it's more the failure at the top that we're watching, and we'll see if we can retest that next week.  As I noted earlier in the week – nothing really matters unless the NYSE can retake 12,800 and I doubt we'll even get to test that today so it's a "watch and wait" day into the weekend.

The big news today is, of course, the OPEC Meeting and it appears they have settled on (over Iran's walk-out objection) increasing production by about 600,000 barrels a day effectively, though they will announce the 1Mb/d we expected.  The discrepancy is caused by spare capacity issues among the partners so this is considered a little bullish vs what was feared.  Oil is trading at $66.50 at the moment and, if it were not for the upcoming July 4th holiday, I would short it but there should be some good demand numbers over the next 10 days as gas stations look to top off their tanks in anticipation of demand from drivers.  That makes Gasoline (/RB) a good long at the moment above the $2.04 line with tight stops below.

As we discussed in this week's Live Trading Webinar (replay here), we HOPE oil goes a lot higher into the holiday so we can short the crap out of it.  $68.50 is what we expect to hit between now and than so you could play Oil (/CL) long over the $67 line – but it's not a trade I have conviction on compared to /RB, which I think is very easy money at $420 per penny, per contract….

Meanwhile, I don't think we're out of the woods on the Trade War stuff at all.  China still hasn't reacted much to what Trump has proposed but they are never quick to act (unlike some Presidents we know) and tend to play the long game.We heard a profit warning from Daimler yesterdayand the market tanked but there are 500 other large-cap companies on the S&P alone and just because they haven't jumped the gun to get out their warnings early, Q2 reports are right around the corner so we could start hearing from a lot of manufacurers over the next couple of weeks.

Another thing strangely getting no real reaction is yesterday's court decision that will force Amazon (AMZN) and other on-line retailers to collect the proper sales tax.  Previously, it has been up to the consumers to pay their own state whatever they owe in taxes for on-line purchases and, well, what am I telling you for – you certainly fill out those forms every year, right?  

Have a great weekend,

  • Phil