Monster Chiller Horror Market! (QQQ,DIA,USO,IYT,GLD,SLV)
There’s a point in every horror movie in which the terror and gore can get no worse. And then, as if the gods had collectively reached into their cruel joke handbag, it manages to do just that.
It gets much worse.
The freight train has just leveled the town, the bodies are strewn everywhere, widows and orphans and crying babies, fires burning, carnage, mayhem, bubonic sores and pus galore … and whaddaya know, that neo-Viking motorcycle gang from Peoria arrives, thirsting for a good mead-induced blood-letting and plump, diabetic children to sacrifice to Odin.
It’s precisely at that point that the fright turns almost comic. Sure, there are those who get up and leave because they can’t handle what they know is going to be barbarism for the most barbaric. But for others, it’s hard to contain; the giggle is on, and it’s gathering strength, because the whole affair has been transformed into some sort of ‘surreal state of cognition’ – a dreamlike situation where you’re watching the horror, still somewhat involved, but you know it’s a dream.
Welcome to the Stock Market!
The current market set-up bears a striking resemblance to that terror-comic state described above.
On the one hand, we’re in the midst of a giddy, decade long, bull run in equities, with new highs being notched daily by a goodly number of stocks both large and small.
On the other, it’s unclear how long the thing can continue.
As the bears will tell you –
- We’re post the ‘Trump-Bump’.
- We’ve priced in all highly anticipated and beneficial tax cuts.
- We’re in the early stages of a real and growing trade war with all our biggest trading partners.
- North Korea… hmm… how to frame it? Is it a breakthrough in the making? Or are we headed toward more tension and potential hostilities?
- China…? Here, too we see increasing gunship diplomacy in the Spratlys, adding heat to the aforementioned trade friction.
- There are real-live volcanoes erupting, spewing lava and killing people.
- Italian bonds are spewing lava and killing people.
- Domestically, there’s a genuine impeachment effort underway.
- Overseas, our troops in war-torn Syria, Afghanistan, Iraq and elsewhere are under real fire as casualties continue to trickle in.
- And then, of course, there’s –
The results are in…
And in case you think, “so what? – All that dread and angst hasn’t amounted to a thing. It can’t hurt me…” Well, consider the following: it has made a marked impression on the so-called smart-money – and not for the good.
Look here –
This is a quarter century’s worth of something called the ‘Smart Money Flow Index’, an indicator that synchs remarkably well with selloffs in the broader market.
The red arrows at the bottom show unequivocally that powerful sales action on the part of those with the most knowledge directly precedes massive declines in the indexes.
And that’s key for us now, as the smart money flow is remarkably close to levels struck after both the dot.com bubble burst in 2000, and the Lehman Bros. fiasco of 2008.
Are We Doomed!?
Not necessarily. The sell-off could be rapid, as it was in 2008, or it could be a drawn-out affair, as we saw at the turn of the century. Either way, though, it appears we’re close to a top.
A look at the VIX over the last week shows a complete squishing of volatility expectations, a condition that normally aligns with more gains in the offing – until, of course, the squishing gets a little too mushy.
See here –
We also see the NASDAQ Composite breaking to new highs just yesterday. And unless it’s a fake-out bear trap, we’re very likely to get some piggy-back buying in the days to come.
Take a peek –
Not only that, but the Dow Transports, which generally lead the industrials both higher and lower, look poised to break higher in the next few days.
There’s a little bit of static at the 10,800 level, but it appears the test is nearly complete. Higher numbers for the trannies should be imminent.
All of which leads us to believe that, yes, the potential for an end to the current run higher might be close. But closer, still, is another juicy squirt northward that we plan to exploit with today’s trade.
Before we get there, however, we have three trades to close out.
The first was sent in our May 11th letter from 2017, Gold Is History, wherein we urged you to buy the SLV January 18th (2019) 16 CALLs for $1.90 and sell the GLD January 18th (2019) 145 CALLs for $2.16. Total credit on the trade was $0.26.
Today, we’re pleased to announce that the SLV CALLs go for $0.89 and the GLDs for $0.59. Sell the former and buy back the latter and you net $0.56 on nothing spent. Accounting for minimal commissions gives you a 273% profit.
Next up was our March 15th trade from A Tale of Two Markets, in which we recommended buying the QQQ June 29th 172 CALL for $7.00, and selling the DIA June 29th 250 CALL for $7.50. Total credit on the trade was $0.50.
Today, the QQQs go for $4.18 and DIAs for $3.55. Sell off the first and buy back the second and you take home $1.13 on zilch laid out. That’s a wild 653% in less than three months!
We’re going to take cover here, and try to avoid a disaster.
On May 3rd we wrote a letter called Out With The Old War In With The New, in which we encouraged you to buy the USO October 19th 14 CALL for $0.87 and sell the IYT September 21st 210 CALL for $0.90. Total credit on the trade was $0.03.
But the trade moved against us, and we feel it’s prudent to close out the short IYT CALL today for $1.75.
We’ll keep tabs on the long USO CALL and, Odin willing, we may yet see a profit here!
Wrap it up, Matty!
Our trade is very simple, friends. We’re making a short term bullish wager on that most horrifying of ETFs, the QQQ Trust Series ETF (NASDAQ:QQQ). And it goes like this –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,