The Denizens of Intelligenz (WWE,GLD,SO,NFLX)
By definition, exactly half the population possesses below average intelligence.
And that’s not a comfortable statistic.
So who’s the dumb ones?
Well, it certainly doesn’t break down on socio-economic lines. Don’t think, for example, you got smarts because you got cash, Giles. It don’t work that way.
And intelligence, by the by, we don’t measure by how many letters you have trailing your name, either; academic credentials have absolutely nothing to do with a person’s ability to intelligize, if you’ll permit us some new coin.
Brains in the Service of Life
Rather, intelligence – as we read the dossier – has everything to do with an individual’s ability to respond to whatever predicament he encounters, and to navigate it successfully. That may be a business deal, an unexpected visit by the ‘authorities’, a crisis in the street, or anything else that might befall a person in the course of his or her life that generally tests what we would call his ‘survivability’.
Because it clearly does not behoove a man to be the planet’s best trial lawyer, or essayist, or jet pilot or code writer if, when push comes to shove, he can’t save his own ass.
Intelligence is a quality that has more to do with correctly perceiving reality and adjusting to its dictates than with any book learning or game theory or genetic heritage one might possess.
Not that those items don’t add to one’s potential to correctly ascertain and appropriately respond to the reality in which one resides – they may well assist in that exercise. But they are neither sufficient nor necessary.
So when we comment on half the population being of less than average intelligence, we’re remarking on precisely that quality that’s less adapted to looking after itself and providing for its own (and its family’s) welfare, and that most often finds itself both surprised and trampled when a petulant herd of elephants stampedes through town in search of the latest paleo restaurant.
In the market, intelligence is measured over the long haul and is also a matter of survivability. Anyone can be streaky with a few trades, but performance over the decades is the truest test of a trader’s worth – and if he can sustain it through a genuine bear market or two, that’ll speak best to his trading acumen.
The one with the highest average annual gain over, say, 40 years, can safely be declared the winner.
Reading the investment landscape is the whole game, friends.
And today that means accounting for the near term downside risk in front of us, regardless of our overall bullish outlook.
The Market’s Headed Lower
It’s no secret that the market is well overdue for a rest. After the juggernaut climb into the New Year, we pulled back appreciably. But the run-up since then has been just as manic, and there’s little reason to suspect the underpinnings of the rally are as secure as those that supported the January top out.
But our job is not to pick tops; that’s a battlefield upon which too many have perished during the course of this greatest of all bull markets. No, what we’re here to do is pick our battles, bring overwhelming force into play, and drive the enemy like a frightened, naked sinner before us.
Before we get to the trade, however, let’s wrap up a few loose ends.
Last week we launched a trade that urged you to buy the SO November 16th 46 CALL for $1.61 and sell the NFLX July 6th 450 CALL for $1.67. Total credit on the trade was $0.06.
The letter was called Behind the Scenes and Under the Radar, and the trade was based on the spotlight turning from the techs to the more defensive names, including utilities, staples and telecoms.
And whaddaya know…?
A week later, the SO CALLs are fetching $1.70 and the NFLXs go for $0.16. Sell off the former and buy back the latter and you come home with $1.60 on nothing spent. Accounting for minimal commissions gives you a gain of 967%.
In One Bloody Week!
And that’s all right.
Our trade this week pits two disparate ends of the investment world against one another. In fact, it’s hard to imagine a more extreme trade than what we’re about to offer.
We’ll start with gold, the conservative investor’s most conservative investment. Here’s a chart of the SPDR Gold Trust ETF (NYSE:GLD) for the last six months.
An outright disaster.
Though we’re still keen on the precious metals – as we are all commodities – gold has taken a roundhouse head shot that has sent her reeling some nine percent since mid-April.
And the losses in the past two weeks have been especially severe, pushing GLD’s RSI read to near oversold levels (in green).
And yet we’ve a mind to believe that the selling has nearly come to a close. We’ll get some sideways to slightly lower drift in the weeks to come, potentially, but the greatest likelihood is for a bounce higher to resistance in the $123 area.
Against gold, we have a formidable opponent: Vince McMahon’s World Wrestling Entertainment Inc. (NYSE:WWE), a business with a $5.35 billion market cap that runs a P/E ratio of 100!
Is that expensive?
Take a look at the daily chart –
The last six months have seen gains of 150%, with two thirds coming in just the last six weeks.
But is it sustainable?
According to the RSI read – massively overbought since mid-May (in green) – this is a match whose end is near.
We would add that both the weekly and monthly charts are also showing overbought RSI reads, meaning Mr. McMahon’s stock is a big fat ‘sell’.
Have a look here –
There’s little more to be said. Pair ‘em up, and wait for that grand body slam into the turnbuckle to unfold.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
Wall Street Elite recommends you consider buying the GLD January 17th (2020) 127 CALL for $5.95, and selling the WWE January 18th (2019) 80 CALL for $6.00. Total credit on the trade is a nickel.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
And note: the long CALL has an extra year duration!
With kind regards,
Hugh L. O’Haynew