Like a few other bellwethers we've been watching closely, QQQ has been loitering near a potentially important Hidden Pivot target for weeks without being able to get past it. The target lies at 312.29, a mere 31 cents above the record high recorded on December 18. Although the shallow retracement so far suggests buyers are eager for more, there is no telling how much supply may be out there at these levels, especially if the headlines should take a menacing turn. We own some Feb 19 240/250/260 put butterflies in any event, since bulls are long overdue for a comeuppance, but also because the 312.29 target looks so compelling. A financial collapse -- The Big One that we all know is coming -- is never going to be an odds on bet for timers, but our odds are certainly improved when the charts are as closely aligned for a multi-index top as they are now. _______ UPDATE (Dec 28, 5:54 p.m. EST): The Cubes topped our benchmark by half an angstrom, earning a begrudging 'So what?'. ______ UPDATE (Dec 29, 7:50 p.m.): And now they've closed above it for two straight days, although not by much. Let's give bears another day to show us what they are made of. _______ UPDATE (Dec 30, 7:30 p.m.): Bulls, too, are acting pretty timid, but if some stray piece of 'good' news should buck them up, look for the rally to continue to 321.43, or 329.40 if any higher. Both of these Hidden Pivots are shortable, tightly stopped. Their provenance is shown in this chart.
The pattern shown is so gnarly-perfect that I can scarcely imagine it not working. By this I mean to imply, looking ahead, that 1) QQQ will not thrust decisively above it soon, meaning within the next 2-3 weeks, and 2) Friday's top just 31 cents below the target could conceivably mark the start of a bear market. The E-Mini Nasdaq made a corresponding top not at a 'D' target, but at the p2 'secondary pivot' of a larger pattern. If you were able to buy put butterflies on QQQ using 240/250/260 options expiring on Feb 19, please let me know in the chat room so that I can determine whether to establish a tracking position. Unless the Cubes fall apart straightaway, there are likely to be additional opportunities to buy the 'fly on-the-cheap. _______ UPDATE (Dec 21, 6:10 p.m.): A bid of around 0.20 still looks about right for the butterfly spread, but you can go 2-3 cents higher if none come at the lower price. _______ UPDATE (Dec 22, 8:36 p.m.): Numerous subscribers have reported buying the butterfly spread for as little as 0.21. Accordingly, I will track four of them for 0.22. For now, do nothing further if you own the spread.
The cubes came within inches of a 312.29 target we've been using for months to keep us agreeably on the right side of the trend. Subscribers who got short near the actual high at 308.60 should take a partial profit on half of it and hold the remainder for a swing at the fences. We hold no official position because the gap between the actual high at 308.60 and the target was too large. It's too early to tell whether the downturn will get legs, but usually it is a bearish sign when a target as narrowly missed as this one gives way to a nasty countertrend leg of 3% or more. That would be about twice what we've seen so far. ______ UPDATE (Dec 15, 5:26 p.m. EST): Let's try to get short at a potential major top, bidding 0.16 for eight Feb 19 240/250/260 put butterfly spreads. Stay tuned, since I may adjust the price or strategy as the Cubes approach the 312.29 target. _______ UPDATE (Dec 17, 10:11 p.m.): We're getting close, since the midpoint of the spread as quoted is 0.18. If the butterfly remains just out of reach, or if you'd like to try something different, try bidding 0.68 for eight Feb 19 260/250 put spreads. This would give us the first leg of the butterfly if QQQ subsequently drops. If we were then to short eight 250/240 put spreads, we could conceivably put on the 'fly for pennies or even a credit.
Friday's coy feint above p2=299.25 cracks the door slightly for a shot at 312.99, our longstanding target while the Cubes were cooling their jets for the last three months. They've been waiting for the perfect vaccine and, more recently, a clear indication of who will next occupy the White House. The geniuses who are paid to throw Other People's Money mostly at a half-dozen stocks would have us believe they can live with Biden, but we shouldn't believe this for a minute. The story has given them cover to distribute stocks, however, until investors come to their senses as they inevitably do, sometimes with such epiphanies spaced decades apart. We can assume for positioning purposes that the next 'oh-god-what-have-we-done?' moment is most likely to occur with QQQ cavorting near 312.99. It will provide a speculative opportunity to get short in any event, so stay tuned. _____ UPDATE (Dec 9, 8:30 p.m.): The plunge from within inches of the 312.29 target is mildly bearish. If the selloff continues without pause, exceeding November 30's 294.78 low, that would turn the short-term picture outright bearish. _______ UPDATE (Dec 10, 6:15 p.m.): Sellers turned docile. Let's see how they set up for the weekend.
We hold a small short position consisting of four Nov 27 272 puts that have flatlined. QQQ shows no inclination to break up or down, even if a Hidden Pivot target well below, at 272.84, remains theoretically viable. My gut feeling is that the Cubes will head higher, but not before they've corrected to at least p=285.99, or perhaps p2=279.42. The rally would have potential to 312.29, the Hidden Pivot target of a pattern going back to July 24's 251.32 low. The pattern looks authoritative, implying not only that the target will be reached, but that x=273.16 could be bought 'mechanically' with stop-loss at 260.11.
A rally to the green line would trigger a mechanical short using the unconventional rABC pattern shown. We can attempt to leverage it by buying puts if QQQ touches the line on Monday or Tuesday. For now, bid 0.80 for four Nov 27 272 puts, contingent on QQQ trading 292.62 or lower. There's a lot of guesswork in that bid, but don't pay up or jump the gun, since I will adjust it as warranted on Monday. We may also have an opportunity to turn the position into a riskless spread if we get filled on the puts and QQQ subsequently falls as expected. I am taking pains to minimize risk in order to provide new subscribers with a positive experience. _______ UPDATE (Nov 16, 10:12 a.m. ET): The puts are getting crushed. I'll recommend a 0.70 bid, which will be closer to fair value if the stock reaches my 292.57 target. It has gotten as high as 292.45. If you bought 'em already, offer half for 1.60 gtc. I tried -- unsuccessfully, it would seem -- to emphasize that you shouldn't jump the gun on this trade. There is no urgency and no need to pay up. Every penny counts, since the deck is stacked hugely against retail customers making directional bets with naked options. ______ UPDATE (Nov 16, 7:34 p.m.): We hold four Nov 27 272 puts for an average 0.70, based on reports in the chat room. Kiss your $280 good-bye and avert your eyes for a few days. We are speculating against one of the most powerfully irrational rallies ever.
The Cubes made strong headway last week toward a 312.29 target that we've leveraged with some Nov 20 305/310/315 call butterflies. We bought 16 of them for 0.10 before the election, and I advised subscribers to take profits on half when the price doubled days later. The spread subsequently traded for as much as 0.50, allowing more profit-taking at five times the original price. The spread can widen to 5.00 with the stock trading at 310 on November 20, which would imply a $500 payoff per, or 50-to-1. I would therefore suggest holding a couple of contracts until expiration, but feel free to take profits on the remaining six (or multiple thereof) at any time. Keep in mind that $5.00 ($500) is a theoretical maximum and that we would be doing well to exit for $350 or so -- still not bad. That's because the middle strike we are short would carry $1-$2 of risk premium even with the stock trading at exactly 310 seconds before the options expire. Their theoretical value would be zero, but traders would be willing to pay up for them to avoid the uncertainty of being assigned over the weekend. This is done by lottery, and it could leave one unexpectedly short $30,000 worth of stock on Monday for each option left uncovered. If you would like to learn more about butterfly spreading, go to your account page and check out the video recording I've prepared on the subject. _______ UPDATE (Nov 10, 7:20 p.m.): The likelihood of the 312.29 target being reached before our spreads expire diminished with today's plunge, which created a bearish 'island reversal' on the daily chart. ______ UPDATE (Nov 11, 6:14 p.m.): Nice rally, but I'm not persuaded it's capable of going much higher. We'll give it the benefit of
Our lowball bid last week for 16 Nov 20 305/310/315 call butterflies was filled at 0.10, giving us a speculative exposure to an explosive post-election rally. Presumably this would occur if Trump is the winner, since there would be precious little to celebrate on Wall Street if a socialist and her senile running mate emerge victorious. I've altered my expectations for the rally, however, and now think it will be short-lived in any event. That means we might have to settle for less than the potential 50-to-1 payoff if QQQ ascends toward 310 between now and November 20, when the options expire. It's still a pretty good bet in my opinion, one for for which we are getting distant-longshot odds. Please note that those odds would change for the worse if QQQ slips below 260.11 on Monday or Tuesday, since that would negate the bullish rally pattern itself along with the 312.99 target. _______ UPDATE (Nov 4, 11:44 p.m. EST): Today's strong rally allowed subscribers to exit half of their positions for as much as 0.25 -- two-and-a-half-times what we paid for each butterfly spread. QQQ rallied 15 points today alone, so a further rally of 18 points to the 305 sweet spot over the next 20 days is hardly unthinkable. In the meantime, we have reduced our risk on the remaining eight spreads to zero, with the theoretical possibility of making as much as $500 on each spread, or $4,000 for the lot of them. Our initial outlay was just $160. ______ UPDATE (Nov 5, 9:09 p.m.): The spread traded for as much as 0.52 at the top of today's blast -- more than five time what some subscribers paid for it last week. You're on your own now, but be sure to keep a few contracts for a
Assuming the selloff doesn't take out the 260.11 point C low shown in the chart, the bullish pattern projects to as high as 312.29. This would not be farfetched if Trump wins, so I'll recommend putting on some butterfly spreads centered on the 310 strike. Specifically, you should bid 0.10 for 16 Nov 20 305/310/315 call butterflies, good through Friday. Alternatively, you can try to leg into the position, first by buying 305/310 calls spreads for 0.20, day order. QQQ might have to fall by 3-4 points to get this order filled. If the bid succeeds, offer the 310/315 call spread for 0.20. This is how we would leg into the spread for no cost, but I may adjust the order depending on how QQQ behaves on Thursday and Friday. ______ UPDATE (Oct 29, 9:53): The quoted midpoint on the spread is around 0.16, so we'll give out 0.10 bid one more day. If it doesn't fill, we may have to pay up on Monday.
The Cubes laid an egg on Friday to end a week that had begun with a scorching rally. The news concerning Trump caused bulls to turn tail and left bears less than eager to cover short positions ahead of the weekend. From a technical standpoint this vehicle failed to trigger a 'mechanical' buy on the drop to the green line because it had failed to reach the red line first (see inset). There is nothing bearish about this per se, but it is most unusual for QQQ to miss an opportunity to signal a 'mechanical' long following a decent rally leg on the hourly chart. Since the failed upthrust was impulsive nonetheless, having exceeded some distinctive 'external' peaks, we should give bulls the benefit of the doubt as the week begins. All bets are off, however, if the news from Walter Reed Hospital is concerning. _______ UPDATE (Oct 5, 5:23 p.m.): If bulls are going to put Friday's punk performance behind them, they'll need to push this hoax up to at least p=286.20 -- or better yet past it, to demonstrate some of the mettle it will take to achieve D=312.29. _______ UPDATE (Oct 9): Even with a short-squeeze gap on the opening, the Cubes still fell a millimeter shy of p=286.20 when they ought to have exceeded it. We'll give bulls the benefit of the doubt for the moment anyway, but the yellow flag will be out until such time as they impale the red line. _______ UPDATE (Oct 12, 7:12 p.m.): My gut is saying D=312.29 will be reached eventually, but you can try shorting p2=299.25 anyway. Use puts priced under 0.65 that expire this Friday, but do the trade only if QQQ is within 0.07 points of the target. Stop yourself out if 301.40 is touched. Here's
