The Madness of Trade Liquidation (TLT,AAPL,OLN,PM,MO,GDX,IYT)

The Madness of Trade Liquidation (TLT,AAPL,OLN,PM,MO,GDX,IYT)

You’ll have to forgive our French, but there are several sectors of the market that are taking an absolute ass-kicking at the moment, and we’d be completely remiss if we didn’t pony up and say something about them.


The first is the long bond – the entire Treasury complex, in fact – that’s been given a vicious stomping of late; its worst takedown in a year and a half.  But when you throw in the technical damage done, we can’t remember seeing a month this bloody since the meltdown of 2009 gutted close to 30% from Treasury investors’ pockets.


The second is the precious metals, including gold, silver and the miners, all of which have seen tremendous declines in the last three months and which could stand to lose significantly more if the stock market continues on its sexy way, drawing in fresh flows of funds from all manner of suitors domestic and foreign.


The third is a number of big tech and internet names that we’ll likely have to address in a coming letter.  There’s just too much to deal with given the space we have.


The Coming Madness


We’ll look at the charts now to get a better indication of the scale and drama of the latest riotous selling, but before we do, just one idea to consider.


It’s not finance related, so we’ll keep it brief.


It’s about your mental health.


We’re about to embark on a journey that has never been taken before, a voyage as promising and dangerous as ever was, and sadly, one that will leave a great many souls – perhaps even the majority – in a forlorn and desolate mental wasteland.


The beginnings of the onset of the ‘General Madness’ (as we’re terming it) have been seen for some years now, but the accelerated nature of the plague is only now at hand.


In short, people left and right of you are going to start breaking down, and we hope you won’t be one of them.  The reason for the popout is varied.  It has as much to do with diet and sleep and work habits as it does with the friends and family and associates with whom we choose to mix.  It includes also what we read and listen to and watch, and how we’ve come to think about the world and ourselves over the course of the last several decades.


We want to say is that it won’t be easy voyage, and traversing the stormy waters that await will depend in large part upon where you seek your advice, because there will be plenty of ‘respectable’ people offering you ‘sensible’ thoughts on a host of issues that are in actuality a pack of lies and outright detrimental to your health and well being.


As we advance, we’ll do our best to offer you what we can in terms of compass and map, referring you to sources we believe impeccably sound and throwing in the odd word of our own when the storm is breaking most violent upon us.


Stay tuned, stay healthy and guard your mind.  Best to turn off the mainstream media, while you’re at it, we believe, as it’s from that quarter that the greatest poisons continue to slip unnoticed and deadly into our consciousness.


To the charts!


We’ll start with Treasuries.


Take a look –


This is the iShares 20+ Year Treasury Bond ETF (NYSE:TLT).  After breaking below all support and seeing her moving averages begin to fold over, TLT can adequately said to be cooked.


The oversold RSI read (in orange) likely means we’ll get a pop higher to the long term moving average (or slightly above), but that’s it.  From there on out, it’s bearish.  As we’re currently in the midst of a tightening cycle, it would be ludicrous to assume anything else.


The bond market will continue thereafter to hemorrhage at the rate that it chooses, but the vast majority of blood that leaves her carcass is destined for equities.


Speaking of blood, the PMs are squirting their own blue variety all over the goldphiles’ new pink dresses in what amounts to gold’s first real test in a year.


Look here –


This is the SPDR Gold Trust (NYSE:GLD), best stock proxy available for the price of gold.  And as you can see, what happens when gold hits her long term moving average will determine the direction of the yellow metal for the next year and a half (red circle).


It’s hard to say what will be, but a divergence forming in the RSI and MACD indicators (in green) could be pointing to a coming bounce.  We’ll keep a sharp eye on it for you.


But now…


We’ve got a bevy of trades to tend to, so listen up.


First is our December 31st trade featuring MO and PM from a letter called Smokin’ New Year’s Dollar Trade.  There, we said buy the MO January (2017) 67.50 CALL for $1.08 and sell the PM January (2017) 100 CALL for $1.01.  Total debit on the trade was $0.07.


And today, the MOs go for $0.25, and the PMs for $0.15.  Sell the former and buy back the latter and you come away with three cents on seven invested.  Call it a wash.


Next was our August 25th trade featuring OLN from a letter called Radical Preparations.  You’ll remember that we urged you to sell the OLN November 22 PUT for $1.60 and buy the OLN November 22 CALL for $1.20.  Total credit on the trade was $0.40.


Today the CALLs trade at $2.89 and the PUTs at $0.50.  Sell the first and buy back the second and you net $2.99 on nothing spent.  That’s 1893% after adjustments for minimal commissions!


Third on the roster was from our September 15th letter called New World Volatility.  There we sold a strangle on AAPL from which we emerge with $2.25 on nothing expended.  That’s 1400%.


Our penultimate trade report comes from Hop on Your Boxcar, Willie!, our October 13th initiative, that had you buy the IYT March 144 CALL for $9.40 and simultaneously sell two (2) IYT March 140 PUTs for $4.40 each.  Total debit on the trade was $0.60.


Today, the CALLs trade for $1.55 and the PUTs for $0.02.  Sell off the first and buy back the second, and you net $0.91 on $0.60 spent.  That’s a fine 152% in just a month.


And last but not least, 400 Decibels and Climbing, our November 3rd letter, suggested you buy the GDX November 25th 23 PUT for $0.49 and sell the GDX November 25th 26.50 CALL for $0.51.  Total credit on the trade was $0.02.


Today, the GDX PUTs are fetching $1.55 and the CALLs $0.02.  Dump the first and buy back the second and you net 933% on nothing spent.




We’re going to close today with a trade on the long bond (TLT), whose chart we featured above.


It’s a simple spread that wagers we’ll get a bounce, but that it won’t carry above the long term moving average seen in yellow on the chart.

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Many happy returns,


Matt McAbby

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