Things We Like. And Things We Don’t (QQQ,AAPL,PIR,SPY,DIA,AOBC)
Ed. Note – the devastation in Florida and across the southwest warrants a word of hope and encouragement for all those who experienced the wrath of Irma … Hang tough, friends. And be good to each other. Our thoughts are with you.
There are currently a number of discordant trends in the market that are worthy of our scrutiny, and that we believe point to precisely where we’re positioned in this longest and most powerful of all bull markets.
We hope that a firm understanding of that position will also reveal to us an appropriate trade for the week, as unlikely as it may appear as we begin.
We start with a look at the dollar, in the midst of one of its worst declines in recent history, a bearish move that began on New Year’s Day and has spiraled lower by 12.5% as of this writing.
Here’s the buck –
It doesn’t look good.
The dollar’s struggle seems to grind on despite the threat of higher interest rates, despite the rally in both the stock and bond markets, and despite the jawboning of the Treasury Secretary and others of the need for a strong buck.
Technically, DXY has been taking on water for better than six months, with both the RSI and MACD indicators sub-waterline for the entire period and little proof that it’s going to end.
We would add that the moving averages are also in the process of rolling over and the weekly chart MAs (not shown here) have also begun to turn down.
Comparatively, we haven’t seen a year-to-date decline in the dollar of this magnitude for better than thirty years!
Of course a week dollar is good for commodities – and we see how well everything from base metals to gold to foodstuffs have been trading of late.
It’s also good for exporters, whose wares are cheaper to purchase when the dollar slides.
It’s good for the tourism industry, too, as foreign travelers jump on the chance to spend their relatively stronger currencies stateside.
But with tropical storm and hurricane cleanups facing us, we’ve a hunch that tourism won’t see its greatest year of receipts in 2017. We also face the possibility of at least one or two more severe weather events in the months ahead.
All told, a sliding dollar is a sign of failing confidence in the prospects of American assets. When the dollar begins a bullish rebound, we’ll know that faith in America as a place to invest and do business is also on the rise.
As the chart above illustrates, the move out of risk assets and into ‘safe-haven’ sectors has gathered momentum of late, signaling that precise negativity we just alluded to.
Yet against this, there are signs that Americans themselves are perfectly peachy in their outlook for markets.
Have a gander –
According to daily surveys from the Gallup Group, not since the dot.com bubble at the turn of the century have we seen so much optimism.
What that optimism is based on, we’re not sure. But it might be connected to recent statistics from the Census Bureau that show the average middle income earner reaping his best haul since 1999, again, at the height of the dot.com buying frenzy.
Take a peek –
Apparently, the number of people suffering at the low end of the scale has also declined.
See here –
So, are we confident, or no? And for the right reasons? And what of the confidence contradiction? Is it meaningful? Can it be safely disregarded? How exactly do we behave when the news is so at odds with itself?
We’re going to review a number of trades before returning to these questions and offering a distinctly Norman solution to the problem.
And so it begins…
We start with our July 13th rollout of Apple CALLs, which today requires another rollout!
The letter was called Confusion, lies and the Trades They Inspire and in it we wrote as follows – “The AAPL July 21st 140 CALL trades at $6.10. Buy it back and sell the AAPL September 15th 140 call for $8.55, and you add another $2.45 to the coffers.”
Today, the September 15th CALL goes for $19.90. Buy it back and sell the December 15th 140 CALL for $21.15, and you pocket an additional $1.20. and three additional months.
Our February 23rd trade came in a letter called Volume Precedes Price. There, we urged you to buy the PIR September 15th 7 CALL for $1.25 and sell the PIR September 15th 7 PUT for $1.30. Total credit on the trade was $0.05.
The CALL will expire worthless tomorrow, but the PUT is in-the-money. So we’re buying it back for $2.45 and selling the January 9th 7 PUT for the same $2.45.
With PIR on the rise, that gives us four more months.
Trade Number Three!
On the 23rd of March we wrote What Tuesday Wrought, a letter that advised you to sell the SPY September 15th 198 PUT for $1.88 and use the proceeds to buy the April 13th (2017) 232 PUT for $1.78. Total credit on the trade was $0.10.
And that’s where it will end tomorrow. Failing a market crash today, you’ll officially pocket your dime.
And today we roll it out a third time.
The DIA September 15th 210 CALL sells today for $12.25. Buy it back and sell the December 15th 210 CALL for $13.05. Another three months and another $0.80 finds its way into your pocket.
Finally, we roll out our Smith and Wesson options, which we’ve already done once here.
We have five (5) AOBC 22.50 PUTs coming due tomorrow, and they’re in-the-money.
So, buy them back for $8.20 each and sell the December 15th 22.50s for $8.18 each, and for another dime on your AOBC bill, you buy three months’ time.
Trade it, Matty!
When the signals are haywire, as they are today, there are only two possible routes for a Snowballist to travel. The first is to venture to some far quarter of the earth, like Singapore or Kuala Lampur – anywhere there’s little correlation with local markets – and find a trade to play there.
The other is to pull in the time horizon and go very short term on a near sure thing.
And that’s the road we’re driving today.
Have a look at the last three months of the Power Shares QQQ Trust (NASDAQ:QQQ), a proxy for the NASDAQ 100.
It’s a perfect ascending triangle that we expect to be resolved in bullish fashion in the next 45 days.- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,