Thrilling Thursday – Nasdaq Makes New Highs, Ethereum Flash Crashes

Wow, what a ride!  

The #2 Crypto-currency, Ethereum had a bit of a flash crash yesterday, trading as low as 0.10 from the high of the day at $317 as a single seller tried to sell $30M worth in what is really an illiquid market.  Even after the first wave reversed, a second wave took the currency down to $130 on even heavier volume than the first, forcing the main exchange, Coinbase, to go offline.    

Even though the “Status ICO” (selling program called an “Initial Coin Offering”) is over, there are still a huge number of transactions clogging up the network and the only way to get transactions in is to pay huge fees (which most of the exchanges probably don’t want to do). Until it clears out, people are going to be missing ENS auctions, unable to withdraw from many wallets and exchanges, etc.  As noted by Emansipater, one of Reddit’s crypto experts:

“Badly designed ICOs, plus selfish and foolish miners = major delays and maybe even substantial losses for everyone else.” Judging by the ensuing flash crash, this was an accurate assessment.

Inexperienced traders on amateur exchanges – what could possibly go wrong?  

That’s what I like about the Dollar – it hardly ever goes off-line, freezing my assets while it’s value goes up and down 99% in a day.  Have I mentioned how much I like CASH!!! lately?  We certainly have tons of CASH!!! in our 4 Member Portfolios and, as noted in this weekend’s Portfolio Review, we’re very well-balanced but still tilted a little bit bearish as we simply can’t endorse the insane valuations that are driving indexes, especially the Nasdaq, to record highs.  

I was on Money Talk last night and we discussed the trade ideas from yesterday’s morning Report and I called a bottom on Oil (/CL), which was trading at about $42.50 last night after testing $42 during yesterday’s carnage.  That’s well below our $44.50 entry but we’re sticking it out (down $2,000 per contract) and hoping oil recovers a bit into the holiday weekend.  

Gasoline (/RB) is a bit more encouraging, already racing back to $1.435 (up $630 per contract) after hitting $1.395 on yesterday’s lows.  $1.42 is our long spot on /RB with tight stops below so it’s game on again this morning, as it is with Oil (/CL) at $42.50 – if you are brave.  We still like Coffee (/KC) at $1.22 but it doesn’t like us and Natural Gas (/NGV7) went from $2.95 to $3 (up $500 per contract) yesterday and now it’s back at $2.95 so why not take it again?

Index-wise, we are forcing ourselves to find bullish trades because the Nasdaq 100 (/NQ) is back over our 5,780 resistance and now we’ll see if they can get over 5,800 and we’re off to the races for our next major up-leg to 6,000 (3.8%) and the way to play that is to go long on the Russell (/TF) over the 1,400 line with tight stops below but only if the Nasdaq is over 5,780 and it will need to hold it all day today for us not to start shorting at that same line (/NQ 5,780).  

In yesterday’s Live Trading Webinar, we decided to go long on the Biotech Ultra-ETF (LABU) with a nice $4,500 spread that will net us $15,000 (up 255%) by December if LABU hits $70.  As you can see, we’re well on our way already as it really took off into the close!  

Biotechs have been strangely underperforming the rally and we need a defensively bullish play in our Short-Term Portfolio to offset the hedges so LABU is perfect for that purpose – especially with it’s very high option prices (which is what sold us on using them as a trading vehicle).  We did very well with our LABU trade last year and we’re not ashamed to go back to the well a second time.  

If you want a real bull market, look no further than China’s Non-Performing Loans, which have tripled since 2014 but now the price of the loans themselves (not the interest, the paper) has gone up 30% as confidence that the Government will “fix” the bad debts and that bubbly real estate will keep the borrowers from going underwater, driving would-be lenders to pay an average of 0.50 on the Dollar (or Yuan, in this case) – up 66% from 0.30 last year.  According to Bloomberg, there are even bids at par – for NON-PERFORMING LOANS!  

Sure, why not?  What could possibly go wrong?  The end stage of bubble markets is a gross misallocation of capital which, ultimately, starves more productive segments of the economy from obtaining capital but this can go on for quite a while because, mechanically, the banks who made the bad loans are able to dump them to 2nd-tier investors at high prices, allowing the banks to recover and, having learned nothing at all from their previous bad actions – continue to lend at ridiculous prices to under-qualified investors.  Since the new lenders are just beginning their cycle, it pushes back the collapse for 6 months to a year but also magnifies the effect when it finally does all hit the fan. 

Meanwhile, let’s enjoy the ride and see how far it takes us!  

Provided courtesy of Phil’s Stock World.