Thrilling Thursday – A Brexit Deal (sort of) Brings Us back to 3,000 (again)
Isn't this fun?
IBM had a big miss, Netflix had a big beat, the indexes and futures are all over the place and Boris Johnson has Schrodinger's Brexit but he dares not look in the box because – as long as he doesn't, he has a deal that is dead and alive at the same time – which is quite the sweet spot for a politician – very much like Trump's secret China deal we are still waiting for the details of.
Nonetheless the US Futures are back to yesterday's highs but that was based on the "Deal" that was touted at the EU open (3am, EST) but has already fallen apart as details are painting a less enthuiastic picture than we had overnight. That doesn't stop our beloved S&P from testing 3,000 though – so it makes a great short below that line (/ES Futures) with tight stops above.
We get the Philly Fed Report at 8:30, which is likely to be trending down from last monh's 12 and Industrial Production is likely to slip into contraction while Capacity Utilization was already a miserable 77.9% so 22.1% of our capacity is already idle – not a good thing at all… There's also some housing data but that's it until tomorrow's Leading Economic Indicators (probably flat) along with China's GDP and we have 6 Fed Speeches tomorrow, so we'll probably finish the week at the 3,000 line – somehow – so quick profit-taking on the /ES shorts.
On Tuesday at 11am, we put out a Top Trade Alert to our Members for the Marijuana ETF (MJ) at $18.40, which we added to our Short-Term Portfolio with the following spread:
Sell 10 MJ 2022 $20 puts for $5.40 ($5,400)
Buy 30 MJ 2022 $15 calls for $7 ($21,000)
Sell 30 MJ 2022 $30 calls for $2.20 ($6,600)
Sell 5 MJ Jan $20 calls for $1.65 ($825) That's net $8,175 on the $45,000 spread so there's $36,825 (450%) of upside potential at $30 but, even if we don't get to $30, we have 829 days to sell and we just sold 94 days for about 10% of our cost on just a 1/6th cover. That's what I always liked about this ETF but we were too enthusiastic and failed to sell short-term calls, which is what really hurt us last cycle*.*
I happen to be in California raising capital for our new Cannabis Fund and I liked what I was hearing about the industry settling down after the recent shakeout and we didn't want to miss a pop in the ETF on positive earnings reports from its holdings. Turned out we got a nice pop the next day and another one should be coming this morning as Cronos (CRON) has jumped 22% on their earnings and we'll see if it sticks. CRON is the 4th largest holding for MJ, making up 7.4% of the portfolio so we should see at least a 3.5% gain plus whatever pop the rest of the sector gets this morning. Congratulations to all who followed our Top Trade Alert!
With a possible Brexit deal on the table, the Euro is popping and the Dollar is dropping and that too is lifting the markets and commodities into the open. The Dollar is down almost a full 1% since Tuesday morning and the S&P is back from 2,970 to 3,000 again. See – Magic!
So color us less than impressed and still mostly on the sidelines but that doesn't mean we can't find fun things to trade. We played Netflix (NFLX) to stay below $300 and, so far, it barely is and we are hoping for IBM (IBM) to go lower so we can have aother run at last year's Stock of the Year (we cashed out our first play), hopefully back around $125 as they actually beat on Earnings but missed on Revenues by a tiny bit – not bad for a transition year where they are absorbing Red Hat.