Going sharply against a bearish consensus, Rick's Picks has been enthusiastic about Treasury paper since late 2018. Going back a year or more, few except hardcore deflationists saw yields on the Ten-Year Note crashing 2%, especially with GDP hitting 3%. Today's powerful rally pushed them down to 1.87%, precisely matching the forecast sent out to subscribers on July 2, a month ago. So what next? If rates don't turn from right here, expect them to continue down to at least 1.81% over the near term. That is equal to a 'midpoint Hidden Pivot' support shown as a red line in the chart. A bounce from that number should be presumed not only likely but tradeable. However, if $TNX were to close below 1.81% for two consecutive weeks, or trade more than 50 basis points below it at any time, a 1.47% target would be in play.
The 'mechanical' set-up I detailed here last night caught this morning's trampoline bounce two pennies off the low. The subsequent rally was a doozy, adding 7.4% to the value of GDX shares in just a few hours. Subscribers who bought call options as advised saw them at least double in value, and in one reported instance quintuple. It depended on which strike and expiration date you used, but the gains would have been impressive regardless. I posted my own bet in the chat room shortly before the trade filled: bid 0.26 for 6th Sep 29 calls. I subsequently closed out 25% of the position when the options doubled in price, then offered 6th Sep 31 calls short for 0.27 to create a riskless $2 vertical spread. If I am filled on the order, I'll have a chance to make $200 per spread with no loss possible. I am not establishing a tracking position because all who took advantage of this opportunity are solidly in-the-black and presumably capable of managing your own positions. I will, however, continue to post any adjustments I make to my own position. _______ UPDATE (Aug 2, 11:06 a.m. ET): My order to short GDX 6th Sep 31 calls @ 0.26 has filled, making me long the Sep 29/31 vertical call spread at a cost of zero. If GDX rallies a mere 10.7% over the next month, I stand to make as much as $200/spread (which I have done in size). No loss is possible. Since each spread makes me long the equivalent of 20 shares, I may scalp against it. It is a positive-gamma spread, or backspread, meaning I will get somewhat longer if GDX rises. _______ UPDATE (Aug 6, 10:21 p.m.): I plan to add 6th Sep 30 calls to my long position if GDX
On July 9, we ran a chart from our friend Peter Eliades of Stockmarket Cycles that showed the New York Composite Index head-butting a trendline whose provenance traces back to the 2009 start of the bull market. With the selloff of the last two days, the trendline appears to have racked up yet another prescient call (see graph above). Three separate attempts in July to get past it failed, and the resulting top is looking more important with each new wave of selling. If you count the number of times the trendline "worked" since last August, there were no fewer than five instances where it provided support, and then five since October where it acted as resistance. This is quite impressive and would become even moreso if the weakness we've seen this week starts to snowball. Put Options Doubled Peter's trendline resistance closely coincided with a Hidden Pivot target for the E-Mini S&Ps at 3028.75 noted here on July 23. The actual top occurred three ticks above it, at 3029.50, allowing subscribers and Facebook followers to get short in timely fashion using DIA puts. Numerous subscribers reported 'doubling out' on those puts in the Rick's Picks Trading Room today. By closing out half of their options for twice what they paid, the half of the position that remains is effectively free and riskless. Closing out half of every 'doubler' is a strategy we recommend for virtually all option trades. If you don't subscribe but would like to follow the discussion in the Trading Room (and in the breezier Coffee House), take a free two-week trial subscription by clicking here. No credit card is necessary.
[I will be running this commentary over the weekend so that more people find it. It sounds a bearish theme that I believe will put traders a step ahead of the news for weeks to come. RA] Powell gives Wall Street a scoop of ice cream, and how do the spoiled little brats react? For starters, by setting the curtains on fire and peeing on the living room carpet. The Dow Industrials plummeted 480 points Wednesday after the Fed announced a 25-basis-point rate cut that had been universally expected. Some gratitude! It's safe to say this won't be the last time investors act like a five-year-old throwing a tantrum as they try to pry another 50 basis points from the Open Market Committee. Every parent has been through this and knows the consequences of giving in. The correct reaction is to deny the kid his treat or he'll start demanding one before every meal. The first few times, the kid will stomp his feet, cry, kick and scream. But once a parent gets past the withdrawal stage, things will calm down. How Far? Unfortunately, the banksters have done just the opposite, serving up a dollop of ice cream when the stock market is trading at record highs, America is at full employment and GDP growth is stronger than it's been in a generation. It is unprecedented for the central bank to loosen under such circumstances, but by doing it anyway they have created a monster. How far will stocks have to fall to make Powell & Co. cough up another 50 basis points? We're about to find out.
Apple shares took an exuberant leap Tuesday evening, propelled by strong revenue growth announced after the close. DaBoyz were able to trigger off a short-squeeze because revenues increased with iPhone sales in a relative funk. This likely surprised many traders, since they had been hearing about iPhone's slump in the U.S. and China for the last two quarters. However, a look behind the numbers suggests that AAPL's nearly 4% rally may have been undeserved. For one, although it's true that every area of the company's business other than iPhone grew, the 13% rise in revenues for iPad, Mac and services including music and the apps store was the smallest quarterly increase in nearly four years. Also, profits actually declined for the third straight quarter, falling 13% to yield a slightly-higher-than-estimated $2.18 per share. A Competitor Shows Pluck There was one more reason to view the after-hours rally as at least mildly heedless: Huawei, an increasingly strong competitor in smartphones, announced very strong revenue growth despite the company's blacklisting in the U.S. Under the circumstances, if Trump strikes a trade deal with China that takes some pressure off Huawei, look for AAPL to give up today's gains in a trice when the news hits the tape.
Rick is on a brief hiatus, celebrating a birthday with friends and family. Commentary and trading guidance will resume as normal on Wednesday.
Rick is on a brief hiatus, celebrating a birthday with friends and family. Commentary and trading guidance will resume as normal on Wednesday.
The 50th anniversary of the moon landing gave Americans a chance to reflect on one of humankind's greatest technological achievements. And yet, for all of the digital-age benefits the space program brought us, there are reasons to doubt that we could muster a consensus to continue exploring the solar system and outer space. Even the word "we" in this context is fraught with conflict, and still moreso Neil Armstrong's "giant leap for mankind." Is mankind capable of making such a leap again? Of course, anyone even posing such a question would be flogged in the public square for not using the gender-neutral "humankind". That, unfortunately, is the spirit of this age, and even if we could get past semantics and build a space ship capable of interplanetary travel, there are no guarantees we could find a crew with sufficiently diverse ethnic backgrounds and sexual preferences to get the vessel off the launching pad. In a recent essay online, Daniel Greenfield skewered those who would inhibit America's can-do spirit with tendentious concerns over political correctness, climate change and all the rest. "Fifty years ago, a nation that we now know was racist, didn't care about the environment and drank too much soda, landed on the moon," he notes. For the full essay click here.
Add to stock market bulls' wall of worry a drop in West Coast home prices for the first time in seven years. This is part of a larger trend that saw U.S. home sales down 2.2% compared to a year ago. That's the 16th straight month of annual sales declines, even as mortgage rates have fallen since last October from 4.95% to 3.75%. Some observers profess to be mystified, since the economy appears to be going great guns. Unemployment is near 50-year lows, wages are rising and GDP growth has been solid. The trouble is, home prices are so inflated that first-time buyers, even those with good jobs, have been priced out of the market. The fortunate few employed by Google, Facebook, Amazon et al. who can theoretically afford to buy a home in the Silicon Valley, Seattle or L.A. are understandably skittish about paying top dollar in a bull market so mature as this one. They can see what the rest of us see -- i.e., a pronounced economic slowdown in China and Europe that is certain to spread to the U.S. As long as they believe there's no great rush to buy, home prices will continue to weaken. If the bull market in stocks were going to boost home sales, it would have happened already, since the broad averages are trading at or near record highs. If shares move higher nevertheless, it will only heighten fears of a bubble ready to pop.
Stocks continue to move effortlessly higher, although there seems to be little enthusiasm driving the rally. Sellers appear to have abandoned the playing field, and who can blame them? The last time they caught a favorable breeze was in May, when the Dow actually finished significantly lower for two consecutive days on several occasions. Perhaps the 27,463 Hidden Pivot rally target proffered elsewhere on the home page (see DJIA tout below) will provide a respite?
