The response to Mario Cavolo’s glowing take on China and the global economy was eye-opening, to say the least. It’s not hard to understand why someone who lives and works in China, as Mario does, might believe that the country’s economic prospects are so spectacular as to all but preclude the possibility of a deflationary depression elsewhere in the world. We’re not so sure ourselves and have a few things to say about it below. But we were nonetheless persuaded by Mario’s argument, and by comments made by others in the Rick’s Picks forum, that China is doing many important things right, economically speaking. Some Westerners don’t come easily to this notion, since it requires one to put aside very troubling concerns about China’s repressive, authoritarian political regime; for it is both unfortunate and undeniable » Read the full article
Because T-Bonds have been dancing smoothly with Hidden Pivots lately, we should assume they are on their way up to at least 130^08 now that they’ve exceeded that Hidden Pivot’s sibling midpoint at 128^05 on a closing basis. Accordingly, traders should position from the long side — and please note that camouflage opportunities have been cropping up on charts up to the 30-minute level. Use of the single-bar ‘C’ would have been the key to any such trade that panned out.
We are short the August 102/August 98 put spread in a 1:2 ratio three times @ 0.76. It’s time to write off the likely trading loss of $228, even though we’ll continue to carry the position toward expiration. In retrospect, the loss came from my having missed exiting some long puts on July 7. We had a profit of nearly $1000 in the position at one time and I should have suggested nailing some of it down. Indeed, there will never be a good excuse for not taking at least a partial profit when puts “come home” as they did for us, however briefly (which in the world of put options means three days, tops).
Silver’s ostensibly sharp rally on Friday, like Gold’s, looks mediocre even on the 15-minute chart. We should want to see a push this week to at least 18.680 before we take serious encouragement, since that’s where a bullish impulse leg would be generated on the lesser charts. As always, the number of prior peaks surpassed without a pause will be crucial to our assessment of strength (or weakness) in the underlying vehicle.
For all of the jacking around on Friday, buyers were unable to create even a single impulse leg on the lowly 15-minute chart. The day’s rallies, such as they were, exceeded one peak but failed to muster the required second, and so we are inclined to see this modest upwardliness as just noise and no more. Even so, to avoid being caught unawares we must monitor two prior peaks on the daily chart carefully, since any unpaused rally that exceeds both would presage more bullish action well into autumn. The peaks lie, respectively, at 1129.50 and 1142.75, so it wouldn’t take much to reinvigorate the bear rally begun nearly a month ago.
Gold has backed off a small precipice, rallying from within just 0.60 of a well-advertised Hidden Pivot support at 1155.00. Look at the accompanying chart, however, and you’ll see that bulls will have their work cut out for them if they want to restore a positive look to the lesser charts. For starters, any rally this week will need to take on external peak #1, and at least one peak “along the wall” (#2=1206.70). I’ll wait to see what Monday brings before I exhort you to get excited. (Note: We’ll move to the December contract starting tomorrow. The corresponding peaks lie, respectively, at 1207.50 and 1210.70.)
Subscribers are working two bullish calendar spreads (x16), but I would suggest increasing the size of the position if TLT corrects down to the 115.18 target shown. For now , we are long September 20 118 calls against short August 19 118 calls that we will roll into August 29 calls this Thursday and Friday. We’ve already done the roll twice, reducing the cost basis of the spread to 0.04. This week’s roll will entail covering (buying back) the short calls and shorting a like number of August 29 calls, effectively selling the August 22 118/August 29 118 calendar spread.
It was marked on Tuesday at 0.17, off a 0.26 offer, but any price higher than 0.04 will effectively turn the position we’ll have – long the Sept 20 118/August 29 118 calendar — into a credit spread. This means we can’t lose – will make a profit no matter what TLT does. Ideally, come September 20 , TLT will be sitting at 118, our spread will be trading for around 0.50, and we’ll be carrying it for a credit of perhaps 0.50. The imputed profit would be $1600 — not bad, considering our risk is already close to zero.
My long-term outlook for T-Bonds is very bullish, a view that goes sharply against a consensus which clings to the belief that interest rates – and the stock market — can only go up. That is a bet we should be eager to fade. We may have a chance to do so at still better odds if T-Bonds continue to sell off on the manufactured idea that the Jackson Hole conference will open the floodgates for more stimulus and inflation. _______ UPDATE (10:38 a.m.): The Sep 20/Aug xx calendar spread is recommended at this point only for those who did the original spread, since there’s not enough time left on it to roll its cost basis down to zero or less (i.e., a credit). If you are new to the spread, try buying the Nov 20/August 29 calendar for 0.90 with TLT trading around 115.80. The spread has a delta value of 0.20, implying that being long one spread is equivalent to being long 20 shares of stock. This means that, using a spread price of 0.90 as a benchmark, you should adjust the price you pay for it by one penny, up or down, for each 5 cents that TLT moves away from 115.80.