The Undecided Market (DIA,WMT,XRT)

The Undecided Market (DIA,WMT,XRT)

It always used to puzzle us, how voters could be ‘undecided’ going into an election.  How they could say, ‘we’re going to wait and see how the debate turns out’, or ‘we’re not sure how our interests are going to be served under an enter name here presidency’.


What the sheet!?


How could someone be ‘undecided’?  For the last half century at least the policy differences between the two parties has been stark.  What the hell could a person want to wait for?  To see who dresses nicer?  Who has more wit or panache?  Whose stage manner is superior?  Again, what the freakin’ sheet!?


Undecided voters, we came to understand, were simply unprincipled people who blew with the wind and chose to vote according to the rules of Hollywood – who selected candidates according to star status, popularity levels, who their friends voted for, who the media admired, etc.


Until now.


This election has seen such a firestorm of challenges to the status quo and to our traditional understandings of party platforms that if somehow Mr. Sanders were to take the Democratic nomination (yeah, yeah, we know, it’s a longshot – FBI indictment pending), we can’t say for sure what would happen under the guidance of either candidate.


Would Mr. Trump or Mr. Sanders do anything even remotely like what we’ve grown accustomed to?  For most of their supporters (and us, too, to a great degree), the answer is a very vocal: ‘WE HOPE NOT!’


But that still leaves the question of what would actually occur.


Under a Hillary presidency, to be sure, we’d be fed more of the same krupp we’ve come accustomed to over the last two or three decades.  But that’s patently not what we want.  We want something new, and the insurgencies of both Trump and Sanders prove it.


But how will it affect our lives?  And more importantly for us, how will it affect markets and our investments?


If the latest results of the American Association of Independent Investors (AAII) is any guide, again, the uncertainty is palpable.


Here’s a chart of the latest AAII bullish sentiment reading – a shocker!


The number of bulls in the latest survey is at its lowest level in a decade – even lower than at the Lehman Brothers bear market lows of March, 2009 (left end of chart, red line).


And that’s stunning.


The 17.75 read (circled) comes with the Dow above 17,800 – a full 11,400 points above the bottom of the market.


So does that mean the bears have taken control?


No, again.


AAII bearish sentiment also sank in the latest survey, to 29.39, leaving the biggest bloc of investors in the neutral category, uncommitted either way – with the S&P 500 less than 2% from its all-time high water mark!


Did we already say it?  That’s stunning!

chart 2

Neutrally inclined investors keep emerging at every run to new highs.


Undecided Voters at Every Turn!


The presidential election is on everyone’s mind, and that could have something to do with the extraordinary number of neutrals in the latest market sentiment survey.  Historically, the S&P 500 has moved very little in an election year, and as this election is growing increasingly hard to call, and the policy issues are anything but clear, we have to believe that the number of market enthusiasts will stay muted unless and until we see a decided break to the upside that persists and attracts large investment flows.


Until then, the worry on both Wall and Main Streets is the real story and pushes us – indeed, all market contrarians – decidedly into the bullish camp.


Evidence!  Evidence!  Spread it thick!


We would add that in the options pits, too, we’ve seen the entire world and her mother loading up on PUT options, in a massive bet that the indexes are about to take a dive from these levels that will make millionaires out of every man Jack of them.


The CBOE PUT/CALL ratio and the comparable ISEE numbers are showing a staggering skew toward demand for downside protection, just the type of action one sees at market bottoms, after steep declines convince everyone that the markets will fall forever.


Downside options bets on the order we’ve been seeing are statistically indicative of strong markets for the next four to six weeks, just enough time (potentially) to strike new highs on all the major market indices and warm up some of the colder bodies out there with cash in their jeans.


Don’t wait on it, friends.  Get in.


New Trades and Old


We have one trade to report on today that requires your attention and action.  And what’s that action?  Well, we’re sorry to report that it’s a bit like kissing your sister.  The trade will be folded for lack of movement in any direction.  Neither a win nor a loss, this puppy goes down in the breakeven column.  Tough nuts to us.  Frustrating.  But so be it.


The trade was launched on February 2nd in a letter called Who Woulda Figured? A Retail-Tech Connection, and there we recommended you buy the WMT June 72.50 CALL for $1.13, and sell the XRT June 43 CALL for $1.22.  Your credit on the trade was $0.09 per pair traded.


Today the WMT CALLs sell for $0.30 and the XRTs go for $0.32.  Sell the former and buy back the latter and you close out with a seven cent profit.


And another…


On the 10th of May we penned a letter called Dow Jones Goes to War, wherein we urged you to sell a near term strangle and buy a longer dated one on the SPDR DJIA ETF Trust (NYSE:DIA) for a debit of $1.50.


Today, we’re recommending you dump the short straddle and hang on to the long.  The numbers look like this –


You sold the DIA June 24th 183.50 CALL for $0.58 and the June 24th 172.50 PUT for $2.22, for a total credit of $2.80.  Today you repurchase the former for $0.24 and the latter for $0.73, and you wait for the long to start earning its keep.


And earn it, it will!


We’re so damn decided on the short term bullish picture that we’re going to sell a little more premium here on the DIAmonds.


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Wall Street Elite recommends you heed the above trading advice on the WMT/XRT and DIA trades and consider, too, selling a DIA July 171 CALL for $1.13.



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Wall Street Elite recommends you heed the above trading advice on the WMT/XRT and DIA trades and consider, too, selling a DIA July 171 CALL for $1.13.




With kind regards,


Hugh L. O’Haynew


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