Failing Friday – Market Supports Collapse Ahead of the Fed

Well, don’t say we didn’t warn you…  

Last week, we gave you hedging plays in Futures that are up over $10,000 in just over a week and we gave you an options hedge on the S&P Ultra-Short (SDS) that will be up about 200% this morning and, in order to get past the censors at Seeking Alpha, who consider any link that doesn’t point back to their site to be “too promotional” – I’ll point out that even people who are not PSW Members could have gotten these trades, FOR FREE, over at Seeking Alpha.

Did ANYONE call the market like that last week?  Feel free to leave comments on the post if so because I need to start subscribing to them myself.  This week, we did it again and again on Monday you could have read it FOR FREE at Seeking Alpha (we’ll pretend I don’t have a site), where I said the following:

We’re still shorting the top (2,100) on the S&P and this morning we’re at 2,090, which is close enough to begin adding a few short positions on the /ES Futures. 17,850 is our spot on Dow Futures (/YM) 4,725 on the Nasdaq (/NQ) and 1,185 on the Russell (/TF) but if ANY of the indexes are over those lines – we pull the plug on the shorts because this market is irrational and our favorite position is still CASH!!! until we can finally put 2015 in the rear-view mirror!

That’s a gain of $14,470 on just 4 contracts since Monday.  That’s what we mean when we say we can teach you how to use Index Futures to hedge your portfolios.  The nice thing about the Futures is you can get quickly in and out of them and this morning we’re going to play bullishly for a bounce at 17,300 on the Dow (/YM), 2,020 on the S&P (/ES), 4,590 on the Nasaq (/NQ) and 1,130 on the Russell (/TF) but if ANY of them are below their line – all bets are off as that’s a strong sign that we’re not done going down yet. 

The Dow is in a very dangerous technical place below 17,600, let alone 17,300 and 17,600 on the Dow was our “Must Hold Line” on our Big Chart and that became the 3rd Must Hold failure – indicating it may be time to get more bearish on the indexes.  That doesn’t mean we don’t expect a bounce, but now we’ll measure whether the bounces are strong or weak using our fabulous 5% Rule™, which is the only form of TA I believe in.

Our 5% Rule™ tells us that, if we are going to turn around, we should get at least a weak bounce back to 17,400 today and that then needs to hold for the day and then our next goal would be 17,500 on Monday.  Anything less than that today or Monday indicates we are more likely consolidating for a move lower from our 18,000 top.  17,600, as I mentioned, is our Must Hold line for the Dow, so that packs a lot of significance and 17,380 is the -1.25% line – so we’re going to watch that closely this morning for signs of weakness.

It’s much easier to call the markets when you know what they are going to do in advance, don’t you think?  Our 5% Rule™ allows us to make our targets, but only AFTER we do the Fundamental Analysis that shows us the directional bias.  There’s nothing fundamentally bullish going on – we’re just looking for the weak bounces and we already have our downside hedges in place.  

As we mentioned back on Dec 2nd, most of our hedges are in our Short-Term Portfolio and we were at 313K (from our $100K base) at the time and we’ve added $21,000 to $334,000 in the past 9 days, despite the weak market.  Likewise, our Options Opportunity Portfolio (which is featured at Seeking Alpha – how’s that for pandering?), has held steady through this market chop – because it is well-hedged.  

We have the Fed coming up next week, with their decision announced on Wednesday, so strap in for a wild ride.  Very Grinchy of them to raise rates the week before Christmas and that’s why I wanted them to get it over with in October – so we’d have a chance to recover.  This could end up being a very bad idea.  We’ll also get CPI and a lot of housing data next week ahead of the Fed along with the NY and Philly Manufacturing Reports – none of which are expected to be very exciting.  

Have I mentioned how much I like CASH!!! lately? 

Provided courtesy of Phil’s Stock World.