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The Morning Line

Fevered Investors Eager to Forget the Latest News

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Index futures were wafting higher Tuesday night, evidently unfazed by mounting evidence that coronavirus has already slowed the pace of global economic growth significantly.  Such worries as occupy investors’ tiny, fevered brains these days centered on Apple, the most valuable company in the world. (I don’t count Aramco because, well, who cares that it’s actually bigger?) The Cupertino manufacturer of egregiously overpriced cellphones and accessories, and of late an aspirant in the overcrowded streaming-content business, announced Monday afternoon that Q1 results would take a big hit from work slowdowns and weakened sales in China. Apple shares had to play along with the announcement, since it would have been unseemly and even a little bizarre for the stock to have risen on such news, emanating as it did from Apple’s own PR desk.

Other stocks in the FAANG/lunatic sector were not so deferential, however. Most chalked up solid gains on the day, implying they are chomping at the bit as they wait for Apple’s troubles to be perfunctorily discounted and forgotten in perhaps a few more days. (Note: Technically, AAPL looks primed to fall for reasons covered in my latest tout, below.) That the FAANGs and other multinational giants are themselves vulnerable to the same virus-related forces presently impacting on Apple will not likely be a concern on Wall Street, where the sole imperative is to throw Other People’s Money at a relatively small handful of stocks.  Actually, Apple’s bearish guidance may ultimately help this Ponzi scheme along, since it will afford analysts an easy opportunity to do what they are paid to do: underestimate earnings ahead of the next round of announcements.

Rick's Picks for Wednesday
$ = Actionable Advice + = Open Position
List of Symbols to use in Search:

$+GDX – Gold Miners ETF (Last:29.23)

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On February 2, based on reports from subscribers, I established a tracking position of 400 shares @ 28.39. I am still suggesting that you exit half at 29.42, but we’ll keep the remainder for a shot at much higher prices (see chart inset). If GDX eventually reaches the 36.66 target, we could book a profit of as much as $1,886. It could take a a while, but we’ve already proven we can endure a brutal grind waiting to collect our first payoff. It is not yet in the bag, though, since the stock was still 27 cents shy of the 29.42 profit target at today’s high. Fortunately, the uptrend looks sufficiently robust to get us there on Wednesday.

This trade is what I’ve described to you in the past as the kind of no-brainer opportunity Rick’s Picks tries to offer from time to time in order to make your annual subscription pay for itself. It was relatively cheap and could have been done on margin in an account with less than $12,000 in it (or $6,000 if you halved the size to 200 shares). The trade was deliberately chosen and precisely timed to address subscribers’ keen interest in gold and to ameliorate their recurring frustration trying to make money in a precious metals sector that has been become notorious for misbehavior. The actual buy recommendation was simple and straightforward, allowing subscribers to buy the stock near the bottom of a hellish dive. We came close to getting stopped out, and although it’s been a grueling ‘hold’ that caused me to lose patience at one point, I stuck to my discipline nonetheless and let the trade run. I hope you learned something valuable about risk management in the process. The trade was about as good as it gets at Rick’s Picks, and if you have not profited on it, you surely should have. Why not?  Only you can answer that question, but it may be helpful to try, lest you miss out on the next no-brainer opportunity that I provide.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

$+DIA – Dow Industrials ETF (Last:293.47)

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I like the 301.60 target shown in the chart enough to suggest a play linked to it. Buyers took a couple of days to get loft above the 291.61 midpoint pivot, but it looks now like it is about to become support for a shot at D. If we assume that it will take perhaps two weeks to get there, we can use the target to set up an option trade that will risk very little if we are wrong but produce a substantial gain if we are right (aka ‘leverage’). Accordingly, I’ll recommend  buying the March 6 299/302/305 butterfly spread four times for 0.32 or better, contingent on DIA trading 292 or higher, good through Friday. If you can leg into the position for less using, for one, an rABC pattern to do the long side first (i.e., buy four 299s; the 305s can be acquired later, since they won’t move that much), then by all means do so. If you don’t know much about butterfly spreads, you should pass up the trade and wait for an opportunity you fully understand. A simpler strategy would be to leg into a vertical call spread, such as the 300/302.50 for 0.30 or less. Stay tuned to the Trading Room for further guidance on this, since it will require real-time strategizing. You can help out by letting me know of your interest. _______ UPDATE (Feb 18, 8;22 p.m. EST): In the Trading Room this morning ‘Hammer’ reported doing the butterfly for 0.32, so I’m establishing a tracking position of four spreads. The worst loss possible is $128 for a shot at a gain of up to $1,000 — pretty good odds if you think the bull market will survive coronavirus.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

$ESH20 – March E-Mini S&P (Last:3380.50)

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$DXY – NYBOT Dollar Index (Last:99.12)

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AAPL – Apple Computer (Last:324.87)

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$SPX – S&P 500 Index (Last:3370)

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$GCJ20 – April Gold (Last:1571.40)

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TNX.X – Ten-Year Note Rate (Last:1.933%)

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Although some notable long-term bond bulls are close to throwing in the towel as U.S. Treasury yields continue to climb, the chart suggests the bull market begun nearly 40 years ago still has farther to go.  Yields on the long bond settled Friday at 2.41%, up from 1.90% in August, while T-Notes have gone from 1.43% to 1.93% over the same time. The rallies have been impressive if not to say scary, since they have subjected hundreds of trillions of dollars of borrowings to a deflationary turn of the screw. The burden of debt promises to lighten before it becomes fatal , however, when the uptrend in interest rates reverses.

Is This a Good Thing?

Hidden Pivot analysis says relief could come soon, with the 10-Year topping at 1.984% and the 30-Year at 2.477%. How far might they fall thereafter?  My forecast calls for major lows at, respectively, 0.84% and 1.64%. This implies that the negative-rate weirdness of Europe will not afflict U.S. debt. Is this a good thing? Don’t ask the ‘experts’, because they don’t understand negative yields any better than the news media hacks who write about it.  Sub-zero yields reflect the central banks’ increasingly desperate efforts since the 1990-91 recession to avoid a catastrophic deflation. Predicting they will fail is not exactly rocket science, even if not one observer in a hundred expects this.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.