Thank Trump it’s Friday – President Claims Deal with China is Coming

Why is everybody impressed with weak bounces???


We are officially back to where we were on October 12th on the S&P 500 and still below where we were on the 19th, when I wrote:"TGIF – Closing out a Weak Week in the Markets,**" saying:**

> That's right, we opened on Monday at 2,763 and closed at 2,750 on the S&P(/ES)and this morning we're at 2,782 and climbing on a supportive note out of China,whose entral bank governor and banking and securities regulators saidrecent volatility in Chinese stocks didn’t reflect the nation’s economic fundamentals and “stable financial system.”

> That flipped the Shanghai up 2.5% into the close, reversing a sharp downturn as China released weaker (6.5%) GDP data than expected (6.7%). Chinese exports, by the way, held steady from last quarter as they are not, so far, being affected much by Trump's tarrifs, which is actually bad because that means that there's more potential trouble for their economy ahead.

So here we are again, two weeks later, a little worse for the wear yet people, including reporters who should certainly know better, are calling me on the phone and saying "can you believe this rally?" Well no, I really can't believe it – it seems kind of unbelievable that we rally yet again on the same "progress" in China trade that both countries trot out to boost their markets when it suits them.

Oct 19th was options expiration day and we opened at 2,775.66, ran up to 2,797.77 and closed at 2,767.78 so we could have another interesting day ahead of us – especially with the Non-Farm Payroll Report coming out at 8:30 to provide us with real data that might move the market. Our last Non-Farm Payroll Report was on October 5th, when the S&P opened at 2,902.54, up a little from the previous days close despite a big miss in payrolls but we finished that day down 7 at 2,885.57 and we WISH we were less than 120 points (5%) away from that this morning.

Even China's beleagured Shanghai Composite Index gained 2.5% this morning, bouncing exactly off the -30% line we said it would bounce off but -30% means even a weak bounce is a 6% gain from 350, so 371 is the weak bounce and 392 is the strong bounce – why is everybody impressed with weak bounces??? People are so silly. In our own indexes, we're finally over the strong bounce lines we told you we'd be at before the market turned lower after the election – we're a bit ahead of schedule but the lines are:

  • Dow24,300with a weak bounce at24,800and a strong bounce at25,300
  • S&P2,640with a weak bounce at2,710and a strong bounce at2,780
  • Nasdaq6,870with a weak bounce at7,080and a strong bounce at7,230
  • Russell1,485with a weak bounce at1,530and a strong bounce at1,575
  • NYSE11,880with a weak bounce at12,150and a strong bounce at12,400

For the record, the current, pre-payroll (8:20) levels are: 25,548, 2,756, 7,075, 1,555 and 12,500 – good progress but we'll see what sticks in 10 minutes. As usual, 200,000 new jobs are expected but last month was a disaster at 134,000 and, as an even bigger disaster, the Fed said that won't stop them from raising rates – which is usually the consolation for weak jobs reports.

Frankly, I don't know what would be considered positive as more jobs = more Fed – especially if wages are up as well and also means a stronger Dollar (more Dollars demanded to pay wages), and the Dollar being down 1.25% has beein the fuel for the rally of the lat two days.

8:30 Update: 250,000 Jobs! That's a huge improvement and hourly earnings are up 0.2% which should send the Dollar a bit higher (so long /DXover 96), which will put a bit of downward pressure on commodities and the indexes but, overall, it's very bullish as more jobs equal more demand for the economy so we're still liking Oil (/CL) long at $63.50 and Gasoline (/RB) at $1.72 but tight stops below those lines and we'll probably have to wait for the Dollar to calm down so Dollar first, then flip to Oil and Gasoline when the Dollar stops going up.

Hmm, looking at the report, last month has been revised DOWN 12% to 118,000 and 20% of 250,000 is 200,000, so we're only a revision away from having ordinary job growth but, for today, I guess we'll take the win. It may not be a market win, however, as this means the Fed HAS to tighten at their meeting next week (8th) and, of course, the election is on the 6th so next week is likely to be INSANE!!!

So, despite the positive jobs numbers an despite hitting our strong bounce lines, we're going to maintain our well-hedged stance for our Member Portfolios and, as I noted yesterday, we'd like to add a hedge with a $35,000 upside as $70,000 was the maximum damage our Long-Term Portfolio sustained during the sell-off (all better now) and, since the Nasdaq is kind enogh to be back at 7,100 I think we'll make the following adjustments:

In the Options Opportunity Portfololio (OOP):

  • Buy to close 25 (1/2) SQQQ June $17 calls for $1.80
  • Buy 25 June $12 calls for $3 (50% more)

That will leave us with 75 June $12 calls and 25 short June $17s into the weekend with $37,500 potential return at $17 and no cover on 50 after that (so another $10,000 at $19, etc.). SQQQ topped out at $16 and is now $13.20 and we're very surprised AAPL isn't dragging the index lower yet as it's set to open around $208, which is down 6.4% so about a 1.2% drag on the Nasdaq all by itself!

In the Short-Term Portfolio (STP):

  • Buy to close 80 June $17 calls at $1.80

That leaves us with an aggressive 160 June $12 calls 1/2 covered by short March $14 calls, which we can alway roll back to June $17s for about the same price so either they expire worthless (and we gain $15,000) or we're left with a a June hedge of 160 $12s and $180 $17s so $80,000 up to $17 and $16,000 for each $2 move above that in protection gives us the extra $35,000 of downside protection we wish we had last week.

AAPL is already testing our initial retrace at $207 but below that is $184 and there's no way the Nasdaq doesn't follow AAPL lower if they fail to hold $207 – so watch that line very carefully but I think those changes leave us well-hedged into the weekend and then we'll have to wait and see how the election and the Fed play out.

Meanwhile, you know how all year I've been banging the table to have plenty of CASH!!!? It's the only asset up for the month and the only other asset up for the year:

Have a great weekend,

  • Phil