• This Week's Trade Ideas:
Bullish: Spirit Airlines > SAVE > $36.20 Last.  Warning: The transports haven’t been working lately (XTN) but are oversold.  This idea would require the XTN and the major indices to be moving back up to support SAVE. Buy the Dec. 15th 35 Calls for $2.65 or less with a close or anticipated close above $36.60 in an up market with expectations for continued strength in the XTN and the major indices.  If the market’s unending rally is to continue, and the economy is improving as we’re told, the transports will need to start confirming that by moving back up.

Bullish Mentions: JACK, VOD.

Bearish: US Steel Corp > X > $26.67 Last.  Buy the Dec. 8th 27.5 Puts for $1.80 or less with a close or anticipated close below $26.30 in a down market with expectations for continued weakness in the XLB and the major indices.  This sector has been weakening and we’ll likely need another round of it to trigger and profit while the major indices finally experience more selling as well.

Bearish Mentions: OLN

• Market Overview:
It will take something VERY substantial to push the major indices below the various support levels. It’s possible but frankly we’d be surprised if it happened without major news to back the selling. Last week’s calendar was very light, but his week’s is fairly-heavy with important reports and many speeches by “luminaries”.

• Below the Radar:
During this week’s rummaging of the Interweb we began realizing more and more that this unusually long bull market has snuffed out many a voice that would question it. Fewer and fewer commentators seem to be capable of summoning up the requisite energy to make a part of the case that what we continue to witness is the most hyper-engineered Ponzi scheme in recorded history which, by implication, is fraught with risk. That said, what we came across this week was stellar…

• Options Academy:
We’re picking up where we left off last week in this week’s “OA”. Where were we? Ah, yes, we were “naked” in Apple.

There’s no Joy in Dullsville…

The Trade(s):

We strongly suggest attending tomorrow morning's Advantage Point Morning Call for full details with respect to these idea(s), last week’s and options education.

The Great Melt up finally paused a little last week and found several of the many support levels that we noted in the newsletter and our webinar.  Where we are now is where we effectively were a few weeks back but we’re now at the midpoint of November.  Not much has transpired and it’s getting pretty-darn boring as volatility continues to remain super-dormant.  There’s not much to be made by bulls or bears in this market, at the moment, as even the bullish moves have lacked power and bearish moves evaporate in no time.  Without movement of some kind, it’s very difficult to profit from directionally-oriented trading strategies or remain awake or both!

Bullish Ideas:

Spirit Airlines > SAVE > $36.20 Last.  Warning: The transports haven’t been working lately (XTN) but are oversold.  This idea would require the XTN and the major indices to be moving back up to support SAVE. Buy the Dec. 15th 35 Calls for $2.65 or less with a close or anticipated close above $36.60 in an up market with expectations for continued strength in the XTN and the major indices.  If the market’s unending rally is to continue, and the economy is improving as we’re told, the transports will need to start confirming that by moving back up.

Bullish Mentions: JACK, VOD.

Bearish Ideas:

US Steel Corp > X > $26.67 Last.  Buy the Dec. 8th 27.5 Puts for $1.80 or less with a close or anticipated close below $26.30 in a down market with expectations for continued weakness in the XLB and the major indices.  This sector has been weakening and we’ll likely need another round of it to trigger and profit while the major indices finally experience more selling as well.

Bearish Mentions: OLN.

Outlook:

“The financial sector.  Many stocks within it have shown very early signs of a short-term cyclical turn.  We'll see soon enough if those signs are onto something.  JPM, GS and BAC would be examples of stocks we're keeping an eye on.” – that snippet is from last week’s newsletter.  That sector still has issues but is short term oversold.  However, it is a key sector and if it can’t get off the mat while the major indices rally (should they), that could be a major tell to keep an eye on, which we’ll certainly do!

“The NOT-EVEN-A-HINT of volatility environment is making it near impossible to find good bullish ideas with stocks jacked to all-time highs and well overdue for a pullback.  We can't get "beared" up yet and fortunately we've been patiently avoiding that trap.  It's been another rough week for easy ideas and a week that should see a pullback in the major indices but then again, we very well may not.” – that entry is also from last week but it is déjà vu all over again for the umpteenth time this year.  We can modify the “NOT-EVEN-A-HINT” part to “low volatility” environment and we did have the very overdue MINOR pullback we sensed but we STILL CANNOT get fully “beared” up as the uptrend remains intact and there’s been no breach of any meaningful support.  The Wall St. gang is 2 weeks away from the end of a key month for closing out their trading years and 6 weeks from booking a great calendar year.  They typically try to rally in front of major American holidays and we have a very big one on next week’s calendar.  The seasonality is with them now as well as for the balance of the year.  It would take something very significant to knock these indices down right in front of “bonus time” in our estimation.

Technicals:

Will be discussed in-depth in the Advantage Point Morning Call webinar.

Fundamentals:

These trade idea(s) and mentions are technically-driven.

(Editor's note: This trade idea may be updated periodically, in keeping with market conditions. It is intended solely for educational purposes.)

Recap of Last Week:

XOM, our bullish idea from last week, never had a chance to trigger as shortly after we covered it the major indices finally went into sell-mode for a few days.  That really capped things out for the bulls we did more or less expect that there’d be a little weakness we were just hoping there wouldn’t.

Bearish Mentions in the financial sector (XLF), were JPM, GS, and BAC.  The cyclical weakness in those names did evidence itself and those stocks all fell rather nicely.  They’ve all fallen to a support level that we highlighted last week.  They’re a little oversold and it will likely take surprise major market weakness for them to fall any further in the very near term as they’ll likely try to rally if the indices do the same.

The SPYs are really all we need this week:

This may be one of the most congested charts we’ve ever chosen on which to focus but it is only because we must.  There’s almost more support that we count near the $256.00 level and several other levels just below there.  It would take something VERY substantial to push the major indices below these various nearby support levels.  It’s possible but frankly we’d be surprised if it happened without major news to back the selling.  The other major indices currently show a very similar complexion hence the SPYs are all we need.  It’s most likely that they hold this initial time down and then rally from here and we’ll see where that takes us…

Last week’s calendar was very light, but his week’s is fairly-heavy with important reports and many speeches by “luminaries”.  The combination of speeches and releases should provide the operators with all they need to justify the market movement of their choosing.  We’re not going to get into much detail until such time as reports and speeches actually matter again in a “real” way.  It’s difficult to say when if ever that will happen again given the previously unfathomable financial engineering that’s accompanied this nearly 9 year old bull market.

During this week’s rummaging of the Interweb we began realizing more and more that this unusually long bull market has snuffed out many a voice that would question it.  Fewer and fewer commentators seem to be capable of summoning up the requisite energy to make a part of the case that what we continue to witness is the most hyper-engineered Ponzi scheme in recorded history which, by implication, is fraught with risk.  That said, what we came across this week was stellar, although much of it comes from an unheralded source: Chris Hamilton

Just a regular guy but his recent entry is “one helluva piece” that we encourage all BTR readers to take a look at if they want to better understand where the FED has brought us while the politicians and the Street of Schemes cheers them on as it’s working for THEM:

https://econimica.blogspot.com/2017/11/how-federal-reserve-destroyed.html

Sometimes it’s best to just tip our figurative caps and say: “Well done”.  That’s the case this time around with respect to this extremely effective take-down of the FED.  Since this subject matter is so close our hearts and potentially extremely important as well, we’re going to hit the high points as we see them.

The first thing we LOVED about this entry was its STRONG START:

“I hope this article brings forward important questions about the Federal Reserve’s role in the US.  It attempts to begin a broader dialogue about the financial and economic impacts of allowing the Federal Reserve to direct America's economy.  At the heart of this discussion is how the Federal Reserve always was, or perhaps morphed, into a state level predatory lender providing the means for a nation to eventually bankrupt itself.

Against the adamant wishes of the Constitution's framers, in 1913 the Federal Reserve System was Congressionally created.  According to the Fed's website, "it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system."  Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest.” 

We confess that the second paragraph above contains added emphasis that we couldn’t help but add to Hamilton’s original mark up.  If you have maintained your composure to this point allow us to tip our cap to you!  We’ll grant that the FED has certainly made our financial system more “flexible”, (to put it almost impossibly mildly!, more like “Stretch Armstrong” flexible!) but as for the rest?  That reads like part of a script from a mothballed Zucker Abrahams Zucker parody project!  At what point do folks en masse, finally think “Wait, this entity is actually producing the EXACT OPPOSITE and highly deleterious effects of what it supposed to produce.  Why are allowing this continue?”? – Great question but apparently the time isn’t yet right as it’s not happening as far as we can tell.

Our next stop in the piece is with a graphic that shows the tremendous drag that’s been and still being caused by the enormous build-up of FED generated debt:

Look no further to seek to understand why this extended period of “growth” hasn’t felt at all like an extended period of growth.  Debt is choking off economic progress of a meaningful kind.

How did we get here?  How did we get to the point where our “go to” strategy became: “Hey, I got an idea, let’s talk on more cheap debt.  Waddya say boys?”  The answer is: Courtesy of the FED!  That’s always the answer!

The FED made taking on debt less and less painless (deceptively misleading) and thus EVERYTHING has become much, much more debt dependent!  We’ve discussed it before but for quick review, consider the following:

Homes

Automobiles

Higher Education

Health Care

Food

Fuel

Travel

Entertainment

Recreation

Which of those seem cheaper to you?  If you answered “NONE”, you are correct!  Anyone that’s lived in a non-zombified state for the past 4 decades KNOWS that each of those categories and many more have become much costlier.  Cheap, borrowed money in the hands of people conditioned to spend it, surely chases prices up and results in more borrowing by others needing to keep pace and thus the vicious cycle gains strength as it constricts tightly around the neck of the economy.

It’s clear as to where the FED has chased folks into when they’re not “spending” in the consumer sense of the word:

Stocks and housing were in an unsustainable bubble roughly 10 years ago and now the prices of both have been jacked through the figurative roof!  Are they sustainable now?  Our guess is “YES”, at least for a little while, since, as can be seen in the graphic above, the FED will simply continue to drop interest rates into negative territory so it becomes even more painful to be a saver.

As it has been easier and easier to borrow and consume, naturally, that’s what’s happened on a massive scale for a long time and thus our debt has mushroomed along with debt servicing payments.  How much prosperity do we really have if it’s based on borrowing, plain and simple?

Now to be fair, the country has taken enormous debt in the past but until modern times, there’s been a more pressing reason beyond “Well this is how we conduct business now.  This is the new normal.”:

Another sadly interesting graphic from Hamilton’s piece shows the “sudden surge” coming from the folks in and effort to own the debt of the federal government while receiving extremely low interest on those loans.  This surge seems to have come out of nowhere, hmmm:

We’re EXTREMELY curious as to the veracity of this FED claim but while ours may be to question “why” and “how”, it’s likely to never know the answers as the FED’s tentacles aren’t for us to audit.

We need to allow Hamilton to conclude this section of BTR since that’s only right:

“No, this is nothing like WWII or any previous "crisis".  While America has appointed itself "global policeman" and militarily outspends the rest of the world combined, America is not at war.  Simply put, what we are looking at appears little different than the Madoff style Ponzi...but this time it is a state sponsored financial fraud magnitudes larger.

The Federal Reserve and its systematic declining interest rates to perpetuate unrealistically high rates of growth in the face of rapidly decelerating population growth have fouled the American political system, its democracy, and promoted the system that has now bankrupted the nation.  And it appears that the Federal Reserve is now directing a state level fraud and farce.  If it isn't time to reconsider the Fed's role and continued existence now, then when?”

Now, moving beyond the reach of the FED’s tentacles, if only for fleeting moments, we’ll target other areas of interest as we wrap up.

Related to Hamilton’s piece but perhaps more-timely is this:

We will let that bit from Zerohedge speak for itself and we’ll do the same, mostly, for the one from ZH below:

The “bottom 80%” continues to see it’s disposable income be outpaced by the rising costs of living.  But remember, there’s no inflation and wage-growth is just around the corner!

Let’s see what else has bubbled up under the serene surface of this rising tide of low volatility.  That didn’t take long!  Let’s look at the current state of the Case Shiller CAPE and put it into perspective:

And that’s where things sit before we conclude with this…

Although we can’t seem to even enjoy a minor pullback for more than a day or two at most, we have to believe that most buyers have already bought, and many are sitting on very healthy gains that they’re clinging to the ever-popular “hoping to book them” notion for year’s end.  Will they get what they want?  Or more?  Will the so-called “Santa Claus” rally appear on cue?  If it does, we know that CNBC beats it like a rented mule every year even if just a whiff of it shows up.  Will CNBC’s Santa chatter carry us into 2018 higher than where are even now?

Still though, we must consider that many players may be nervous and waiting in the ready to sell if need be even with the finish line so close yet so far.  EVERYONE should know that we’re really on borrowed time this time around!  “For how much longer?” - will remain the BIG question until it’s been answered:

Management of many kinds need to stay focused to close out this year.  Fund managers have to worry about one of their own herd panicking and thus creating a profit-taking stampede while the managers over us all need to worry about the same thing.  After all, we remain in a very managed and apparently manageable situation for better or for worse.  Mostly for worse…

We’re picking up where we left off last week in this week’s “OA”.  Where were we?  Ah, yes, we were “naked” in Apple.

To be more specific, we explored the lucrative strategy of selling “naked” puts on strong stocks (like AAPL) in strong bull markets.  We saw how, assuming we’re hellbent on buying shares of stock anyway, we either eventually own them at a nice discount to where the shares are currently trading, or we walk away with some nice monthly income even if we were to only sell 10 puts in a stock like AAPL.  We asked: “What’s not to love?”  We also made it clear that we like the idea of selling puts this way other than the fact that we’re “naked”.  “Naked” in this context means that we’ve sold puts that we do not have any hedge or protection against financial damage they could cause for us.  It indirectly means that we’ve opened ourselves up to experiencing PRACTICALLY unlimited losses if forced to buy the stock at a much higher strike price than the stock would be trading if it plummeted for some reason.  Now that we’re caught up…

We have big problems when it comes to selling “naked” options of any kind be they puts or calls.  Certainly, it can be lucrative to sell options and we’re all for it provided that we do not embrace unlimited or practically unlimited losses in the process.  AND, it’s really not that hard to avoid doing so.

Allow us to demonstrate…

We’ll stick with AAPL and keep the same starting point in place:

AAPL Stock Price $174.60

AAPL Dec. 8^th Expiration with a Strike Price of $172.50 at which the Put can be sold for $3.10.

As per our math work from last week, that puts the break-even point for us at $169.40.  If AAPL were to fall below that level, we’d know that we could’ve waited and bought it cheaper than where we contractually and effectively took delivery of the shares: $169.40.

Most folks really don’t care though about his outcome as they’ll say “Yea, but I still got it cheaper than buying it straight out”.  True, very true.  But, as the instructors, we’re forced to ask: “Are you sure you’d still want the shares if say Apple’s stock price dropped to $100.00 per share on a massive scandal?  Would your take on Apple have changed if you learned that they faked 10 years of accounting?  Would you still feel so strongly about being an “Apple Shareholder”?” – That’s about what it takes to help these folks see through things.  They realize very quickly that they love Apple now but that things can change in a big way and they can change quickly.  It’s unlikely, but it happens.  And that’s why we always strongly suggest that folks do not engage in naked selling.  “News happens” and when it does it can dramatically alter our perspectives.  Knowing this, this is exactly why we encourage folks to buy protection even when aggressively selling.  In other words, sell the put spread not the naked put alone.  Even if you buy your “doomsday” protection at a much lower strike you’ve still limited your risk significantly and you can still do very, very well as an aggressive put seller.

On the same day at the same time as we sold the puts from last week (above) we could have purchased the Dec. 8^th $160.00 puts in AAPL for about $0.45.  When we take into account that debit with the $3.10 credit we received for selling the $172.50 puts, that nets out to a $2.65 credit to us or $2650.00 if we sold 10 of those put spreads and “got away” with it and kept the money.  Or we’d have bought AAPL shares for an effective price of $169.85 if the stock had dropped somewhat and we had the 1000 shares (via the 10 short $172.50 puts) put to us by the owner of the puts we sold.  Still a nice discount!  If AAPL really plummeted below $160.00 on awful news, we’d have gotten smoked on a trade, that’s for sure, but we wouldn’t be dreading the forced purchase of 1000 shares that we probably no longer want.

Being prudent will likely cost you profits over time.  We’ll make no argument against that.  However, it will also help prevent unlimited loss scenarios from unfolding when you can least afford them and in doing so will keep you safely in this game to continue to profit handsomely over the course of time.

Now may be a better time to ask: “What’s not to love?”

Have a great week!

The Advantage Point Team