As The Great Recession tightens its grip on the urban slums of the U.S. and Europe, a darker side of social networking has begun to emerge. Last week, the civilized world was appalled to read about rioting British “youths” tweeting their friends and comrades-in-arms to join the fun. “We need more MAN than Feds so Everyone run wild, all of London and others are invited! Pure terror and havoc & Free stuff…just smash shop windows and cart out da stuff.” Ahh, “da stuff!” Such swag as has seldom been seen in London’s dismal rookeries: bowler hats from Locke. Brigg umbrellas. Church shoes. London’s bobbies should have no trouble picking out the perpetrators on Monday. They’ll be wearing bespoke suits that fit as poorly as O.J.’s infamous glove. Yobs will be firing up Cohibas with (unmonogrammed) Dunhill lighters, broad-tossers’ wrists will be adorned with Patek Phillipes, and louts will be ordering up Dom Perignon by the flagon in Piccadilly taverns. » Read the full article
The rally target at 1227.75 that was in play in Friday is still in play. As I’d noted earlier, choppy action has brought the futures to within two ticks of the 1187.25 midpoint associated with that target. The fact that that midpoint was precisely achieved by the day’s two failed rallies suggests that the 1227.75 target will be useful to us. However, because the target is by now perhaps too well “advertised,” I’d suggest using camouflage on the 15m chart or less if you plan on using this high-odds Hidden Pivot to get short. In the meantime, because there is 50 points of implied upside if and when the futures break decisively above the midpoint, using camo tactics to get long is strongly advised. Initiating bull trades near these levels may be easiest for Sunday night-owls, since the September contract created the kind of tedious chop on Friday that tends to leave our trading competitors waiting for “something” to happen. Our specialty, of course, is using impulse legs to alert us to the very first sign that something is about to happen. Want to learn to use the Camouflage Trading Method yourself? Click here for information about the October 5-6 Hidden Pivot Webinar.
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.