• This Week's Trade Ideas:
Bullish: Haliburton > HAL - Buy the Oct 6^th 40.5 Calls for $1.65 or less with a close or anticipated close above $41.51 in an up market with expectations for continued strength in the XLE and in the indices.  Somewhat countertrend and therefore speculative.

Bullish Mentions:
Anadarko Petrol Corp. > APC – very speculative and counter-trend for sure.  Could be putting together a powerful pattern and could also be on the verge of swinging to a buy cycle from a very low level.  Costco Wholesale Corp. > COST > Interesting technical qualities and if the gang comes back to other retailers aside from AMZN this could be one that seeks to eliminate a gap that occurred much higher.

Bearish: None at this time.  Too many vulnerable names are perched just above support and absent a stock-specific catalyst or an unexpected event, we have little faith that they’ll break down below support in any meaningful way.  Additionally, North Korea may or may not launch another missile soon and in either case that’s good news.  Also, hurricane Jose may or may not cause tens of billions of dollars in damage if it makes landfall, which in either case, is in fact, good news!

Bearish Mentions: None.

• Market Overview:
The interesting juncture that we guessed on last week did seem to arrive. It seems as if the PPT would yet again have nothing to do with a breakdown and incredibly powerful futures buying began to occur just as it needed to at just the right time. As a result, markets now have a little more room to run before hitting any form of resistance. We’re very close to new all-time highs if we haven’t made them already. It depends on what index or ETF we chart. But, the bottom line is that we’ve been brought into the safe zone, at least for now. Nearly all major indices are at least several poor trading days away from real jeopardy. That wasn’t the case the prior two weeks but it is now, plain and simple.

• Below the Radar:
This week is about “All is well” and that’s left us asking questions and remaining curious with respect to several observations. On we go…

• Options Academy:
With the markets levitating away from key support levels and back on the attack and targeting higher resistance levels, we’re moving away from protection concepts and going back to a few basics. Working with a dozen or so clients recently, we were reminded that we should never lose sight of the basics. We were also reminded that things we take for granted aren’t nearly as “embedded” in the operating procedures of folks that are new to options-based investing and trading.

Wall St.’s Rescue Operation Continues...

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.

Last week the Wall St. gang was able to right the ship and has since sailed nearly effortlessly through the aftermath of one major hurricane and the ongoing destruction of another.  As we noted in our Monday update, the overnight futures ramp job produced a near 1% pop higher on the opening.  They then tacked on more and held the gains as we expected.  Tuesday’s open tacked on even more and then the gang was able to add even more.  We’ve seen this “movie” before and many times over the past few years in Wall St.’s Theater of the Absurd.  Stocks are sold on balance for several days on respectable volume but are marked back up via futures manipulation and begin post pull-back days much higher than the close prior.  Thus, no real buying is needed to drive equities back up.  The explanations for these “jam jobs” are even more absurd than the hollow nature of the act and the frequency at which it has occurred.  As we pointed out in Monday’s update, it’s been labeled as “good” for stocks when missiles are not launched over Japan as well as when they are in fact launched over Japan.  It’s been labeled “good” when hurricanes “hit” and cause massive destruction and it is also “good” when they nearly miss.

We stopped buying Wall St.’s BS shortly after we got started in the business nearly a quarter century ago.  We also quickly grew tired of their stooges in the “financial press” that disseminate with a straight face the nonsense we’re highlighting above.  Therefore, we rely on the charts.  Although this level of absurdity has never been good for the market’s health in the long run, we have no problem whatsoever trying to profit from it in the short run.

A few weeks back we noted that several key areas of the market were in jeopardy and needed to be “saved” from technically precarious circumstances.  Well…that’s exactly what has happened.  The gang came after key areas with a vengeance and did so in the teeth of two hurricanes.  The show must go on and the music must never be allowed to stop!  Check out the heroics in the oval:

Transports in trouble you say?  Not anymore!  Jammed up as if they were the best value on the planet!

FAANG languishing?  Say what?  Check out the pink oval:

They’re working them right back up again on cue.  How about financials?:

Below the 200 SMA for a few minutes, gotta fix that!  Jammed right back up via overnight futures fun.

So YES, the save we spoke of that had to take place has in fact taken place.  Mostly everything that had to be brought back from the brink has been and then some.  As we noted in Monday’s update, the futures jamming has likely been even more successful than merely saving things.  It’s likely strong enough to propel most key areas to new all-time highs.  The buy-cycles that we often speak of should still be in an early stage.  We will see…

Bullish:

Haliburton > HAL - Buy the Oct 6^th 40.5 Calls for $1.65 or less with a close or anticipated close above $41.51 in an up market with expectations for continued strength in the XLE and in the indices.  Somewhat countertrend and therefore speculative.

Bullish Mentions:

Anadarko Petrol Corp. > APC – very speculative and counter-trend for sure.  Could be putting together a powerful pattern and could also be on the verge of swinging to a buy cycle from a very low level. 

Costco Wholesale Corp. > COST > Interesting technical qualities and if the gang comes back to other retailers aside from AMZN this could be one that seeks to eliminate a gap that occurred much higher.

Bearish:

None at this time.  Too many vulnerable names are perched just above support and absent a stock-specific catalyst or an unexpected event, we have little faith that they’ll break down below support in any meaningful way.  Additionally, North Korea may or may not launch another missile soon and in either case that’s good news.  Also, hurricane Jose may or may not cause tens of billions of dollars in damage if it makes landfall, which in either case, is in fact, good news!

Bearish Mentions:

None.

Outlook:

Last week we remained concerned due to several areas, that we noted above, being vulnerable.  That all changed with the rescue heroics we’ve just witnessed.  They’ve moved nearly everything out of harm’s way and gotten nearly everything back above trend.  We’d expect them to make more upside hay now that everything has been moved away from the precipice.  Is it a coincidence that this “saving” pattern appears in the nick of time and plays out nearly the exact same way every time in the form of inexplicable futures jamming?  That’s for you to decide!

Technicals:

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

Fundamentals:

These trade idea(s) 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:

Last week we sensed weakness, mainly in the financials, and that played out accordingly.  The market never got itself into too much trouble so bullish idea (inverse) SH remained on the launch pad.  BUT, bearish idea BAC did weaken and weaken further as did other financial sector bearish mentions CFG and USB.  We noted in an update to be careful on entering as the initial drops were severe and may have hurt the reward to risk ratios.  In other words, entering too far below trigger levels and too close to a support target should have been a consideration for put buyers.  Those stocks continued to fall a bit but they’ve risen even faster off their lows as they too have been caught up in the futures jam-job shim sham we’ve seen over the past few sessions.  Monday morning’s update focused on the jig likely being up as the magnitude of the futures movement was beyond absurd and could only being explained by honest, long-time observers as heavy-handed short-squeezing.  It was clear, to us at least, that the PPT marshalled forces in the name of truth, justice and the American Way.  DAL also fell but too fast and it too has participated right on back during the jamathon.  EWG and FEZ never got close to our breakdown line yet again.  They both seemed to enjoy a flight to Europe from hurricane worries here in the US and Mario Draghi speaking all things dovish never hurts them as well.  We’re not sure why anyone would flee US equities which are a buy under any scenario that plays out.

All in all, we couldn’t get close enough for most of our ideas and mentions to trigger and the ones that did were already down a great deal from our triggers and closer to initial target levels.

The interesting juncture that we guessed on last week did seem to arrive.  It seems as if the PPT would yet again have nothing to do with a breakdown and incredibly powerful futures buying began to occur just as it needed to at just the right time.  As a result, markets now have a little more room to run before hitting any form of resistance.  We’re very close to new all-time highs if we haven’t made them already.  It depends on what index or ETF we chart.  But, the bottom line is that we’ve been brought into the safe zone, at least for now.  Nearly all major indices are at least several poor trading days away from real jeopardy.  That wasn’t the case the prior two weeks but it is now, plain and simple.  The cycle has refreshed and we’re poised to leave the corrective consolidations we’ve been in for quite some time.  With the exception of an outlier event or a damaging tweet, we expect the Wall St. Boys to keep their foot on the accelerator pedal.  They can practically smell those fat, juicy year-end bonuses sizzling on the grill all the way from the Hamptons!  Just a few more months of levitation and they’ll be feasting once again but this time with a 20,000 square foot beach home.

As can be seen in the chart of the SPY above, room remains for the SPY to push higher before hitting the intermediate-term resistance line to the north.  PLENTY of room remains to run before the SPY would ever encounter a long-term resistance line to the north.  That line is so far from current price levels that it doesn’t even appear on this chart!  So…once again, despite all other things, the charts remain our guide and they inform us that there is room above.  Will we get there?  We will see…  But for now, the trial has passed and the bulls are back in control, at least momentarily, and they’ve left those vulnerable levels in the dust.

We’re now back to a relatively heavy week of economic reports after a lighter one last week.  The back half of the week, as usual, is the weightier portion and has quite a bit to offer.  There’s no point in adding any more to our commentary on “numbers’ because explanations and apologies for everything have become so absurd as to no longer matter.  Whatever numbers are published, we already know that they’ll be spun as “good”.  Just realize that these releases can serve as catalyst for whatever action needs to be justified on any given day.

This week is about “All is well” and that’s left us asking questions and remaining curious with respect to several observations.  On we go…

For starters, a familiar question to BTR readers:  As all is well, why have Central Banks bought nearly $2 trillion of assets so far in 2017?

http://www.zerohedge.com/news/2017-09-08/central-banks-have-purchased-2-trillion-assets-2017

The best argument as to why stocks never selloff anymore remains that they’re simply not allowed to.  “Buy the dip” keeps working because traders aren’t alone when they’re BTDing.  They’ve got company in the form of Central Banks.  Why?  It’s nearly 9 years later and CBs still feel the need to fake it?  You can read more at the link above which will get into bond yields vs. stock prices but the headline is really all you need to know if you’re trading the global equities ponzi-scheme on the long side.

We’re not the only ones wondering how things can be so wonderful yet require so much barely-covered-by-the-media support.  Here’s a nice graphic we found in this piece by Lance Roberts: https://realinvestmentadvice.com/weekend-reading-the-real-vampire-squid/

This is the best summary of the current climate that we’ve come across recently and it happened to conclude Roberts’ piece.  It never hurts when it echoes our sentiments:

So, what is it?

If you actually have “solid and broad-based” economic growth across countries and sectors, why are you still flooding the system with “emergency measures,” and keeping interest rates near zero?

That’s a rhetorical question.

The reality is that Central Banks are keenly aware of the underlying economic weakness that currently exists as evidenced by the inability to generate inflationary pressures. They also understand that if the financial markets falter, the immediate feedback loop into the global economic environment will be swift and immediate.

This is why there continue to be direct purchases of equities by the ECB and the BOJ. Which is also the reason why, despite nuclear threats, hurricanes, geopolitical tensions and economic disconnects, the markets remain within a one-day striking distance of all-time highs. (Charts courtesy of Yardeni Research)

Before we finish on this, we’re going to sprinkle in a few graphics below that we tracked down on our own.  We believe that these provide a little more perspective.  First, the total involvement in the engineering process of all major central banks:

Above is a very important graphic from our perspective.  If you’ve wondered why tend to focus on the underlying economic conditions and GDP levels as frequently as we do, look no further!  The policies that the money-printing-kick-the-can cartel have put in place spiked net worth and left real underlying economic activity lagging well behind.  “Worth” at this level is the most stretched from economic reality (that’s even a stretch from where we site) on record.  When we say that they need to “save” the market from breaching key technical levels to maintain the illusion we literally mean that they need to save the market from breaching key technical levels to maintain the illusion.  In short, we’re firmly entrenched in another age of Panglossian dismissal.  All is well even if it really isn’t… Moving on…

Most people, especially TV commentators, are partying like the good times are here to stay forever.  They seem to love the asset inflation programs/parties that the central bankers are throwing for those that hold all the assets.  The fact that structural economic and societal problems are being largely ignored is no concern of theirs.  Much the same as common sense in investing, crusading reporters seem to be a relic of history at this point.  Therefore, although they faux lament rising college costs, they never seem too motivated to connect the dots between DC entering the student loan business in a big way, and the relentless march higher of tuition prices.  Unfortunately, regular folks can’t imagine currency into existence to paper over shortcomings nor can regular folks use the threat of arms to confiscate wealth from their subjects to meet their debt obligations.  Maybe it’s for those and other reasons that regular folks are finally wising up to the historically awful value proposition the colleges in cahoots with the government are now offering.  Acquiring that “ticket” to work that colleges offer is losing its luster according to John Rubino: https://dollarcollapse.com/welcome-to-the-third-world/welcome-third-world-part-25-losing-faith-college/

One of the hallmarks of a successful society is the widespread belief that education is a key to success. For that to be true there have to be 1) enough jobs farther up the food chain to make four more years of studying worthwhile, and 2) schools that are good and cheap enough to make the equation work financially.

The US is losing both:

The education/government loan complex is now presenting the worst high cost to lowest reward proposition on record.  Regular folks are just using common sense to evaluate the current state of dismal economics offered by the cartel.  Regrettably, some must still take to the plunge as they’ll never be hired without the ticket in hand.  Many professions simply require it and prospects simply won’t be considered without having acquired the proper ticket.  In the long run, it can still be a good thing but it is becoming less and less so and it will only create even more challenges down the road, which with mass roboticization looming, are already set to be challenging enough for 10 tens of millions that have never recovered during this “recovery”.  Rubino concluded with this:

College is clearly still a good thing, just not at current prices. Put another way, higher ed has been in a bubble fueled by government loans and deceptive marketing, and now that bubble is bursting. The old model of extended adolescence in which mom/dad/Uncle Sam cover five or more years of partying and sampling various majors is now beyond the means of more than half the population.

And the trend is just getting started, as soaring debts make it harder for future governments to subsidize higher ed and automation makes an ever-longer list of degrees pointless.

The result: The gap between educational haves and have-nots will continue to widen, as formerly middle-class kids find themselves with – at best – working class prospects. And the political and financial instability that flow from inequality will define the coming decade.

Speaking with trading colleagues recently, some of which we’ve known for over twenty years, we all found ourselves wondering where intraday volatility has gone.  And we can add to that “surprisingly negative” news.  One reason we never lost our concentration, even during easier to trade bull markets, was due to the fact that even within one day’s action there can be wild swings.  Additionally, bearish news that actually impacts can and does typically arise with little notice.  It’s historically caused pullbacks of a meaningful kind that seemed to come out of the blue.  Where did that “stuff” go?  A sure sign that you’re living in a managed environment is the lack of randomness and we certainly have an abundance of that!  A cottage industry of volatility sellers has sprung up as a result and well, that can only exacerbate things if the men behind the curtain ever fall asleep at the levers.  Yet again, we’re not the only ones concerned about such things, Jim Rickards is too in a piece we’ll conclude with this week.  It’s worth the time if for no other reason than to remind us to remain “on” as we manage our bullish positions and holdings: https://dailyreckoning.com/era-complacency-ending/

Physicists say a “subcritical” system that’s waiting to “go critical” is in a “phase transition.” A system that is subcritical actually appears stable, but it is capable of wild instability based on a small change in initial conditions.

The critical state is when the process spins out of control, like a nuclear reactor melting down or a nuclear bomb exploding. The phase transition is just the passage from one state to another, as a system goes from subcritical to critical.

The signs are everywhere that the stock market is in a subcritical state with the potential to go critical and meltdown at any moment. The signs as elevated price-to-earnings (P/E) ratios, complacency, and seasonality — crashes have a habit of happening around this time of year.

With the markets levitating away from key support levels and back on the attack and targeting higher resistance levels, we’re moving away from protection concepts and going back to a few basics.  Working with a dozen or so clients recently, we were reminded that we should never lose sight of the basics.  We were also reminded that things we take for granted aren’t nearly as “embedded” in the operating procedures of folks that are new to options-based investing and trading.

We’ll use the graphic above that we pulled from LIVE CSCO options.  We highlighted 2 September expirations and 1 October expiration.  They have 10, 17 and 24 days remaining until expiration.  They’re “days to expiration” are highlighted by the shaded rectangles to the left.

Investors that are new to options are understandably in search of guidelines, rules and “rules of thumb”.  They want to be told what to do and how to do it so they can apply techniques consistently and robotically to be successful.  As this is the case, authors and trainers will often suggest that newer traders “go out in time about a month” and buy a certain delta option to get started.  The certain delta can be anything depending on the type of trade that’s being discussed but when it comes to converting stock traders to options as their investment vehicle, high delta calls are typically suggested.  That’s what we’ll be focusing on here.

As many know, longer dated options should cost more to acquire than shorter dated ones.  More time = more opportunity.  More time = longer control over the underlying shares.  More time = more potential movement in the stock price and thus more profit potential.  About that…

Notice that the Ask price of the CSCO Sept. 22 expiration 30 strike calls (top orange arrow).  They’re offered at $2.59 and they have 10 days of life left at this point.  NOW drop down to the Sept. 29 expiration 30 calls with 17 days left until that expiration.  They’re offered at $2.52! (light green arrow).  Finally, look at the Oct. 6 expiration 30 calls that are offered at $2.60 and have 24 days remaining.  All 3 calls have a very high (near 90 or above) delta so that’s not an issue.  The issue, of course, is price.  We can spend less and lower our breakeven point yet pick up 1 more week of opportunity should we purchase the Sept. 29 expiration 30 calls instead of the Sept. 22 expiration.  Furthermore, if we compare the Oct. 6 30 calls to the Sept. 22’s, we can pay 1 penny more for 140% more time.

We’re often asked: “why should I buy more time if I won’t need it?”  Our answer is two-fold: 1. If the market is offering you something for “free”, and it has value (as time does), take it!  2. How do we really know we won’t need the time?  It’s often the case that stocks perform better for longer than initially forecasted.  Having the ability to ride a winner longer BUT ONLY IF WE WANT TO DO SO is something certainly worth having, especially for free (or better!) or 1 extra penny!

It’s always worth a quick peek at similar options and performing break-even calculations.  It doesn’t take much time and the options markets may surprise you in a pleasant rather than unpleasant way.

If you have any questions please bring those to our next Advantage Point Morning Call webinar.

Have a great week!

The Advantage Point Team