Update on Portfolio Hedges and Rolling Market Correction
Hey Subscriber,
Well, I slept very well this morning (a little late actually) after checking the QQQ futures and crude oil prices Sunday night--I hope you did too.
BUT--because of late information on a proposed OPEC+ settlement, we were only able to get our XOP put option trade to our All-Access members via our All-Access Discord trading room--and that is just because markets right now are moving so fast.
My point here is IF it's important for you to get ALL our All-Acces options hedging advice, you gotta join and log into our All-Access trading room at least when markets are rumbling, ok?
Here is the download link: https://discord.com/
Also--we published advice in the All-Access room this morning on moving up our sell stops on both positions--again a moving target where we closed out our .15 SQQQ calls for 38 cents and closed out our $1.10 XOP put options for $3.10.
We also shorted/sold OMP calls from last week OMP Aug 20 2021 22.5 Call $0.925 0.2254 (19.59%).
And of course, we are still short September 17 USAC calls from $1.25 now .40 and on the road to expire worthless once again (this trade would be our 5th option premium sale aka "portfolio insurance.
Why is hedging important? #1 like I always say--when the market technicals give us a set-up to fall farther after breaking support and are overdue for a normal correction--via these hedging strategies we can protect our portfolio values (and like today be in the green on a historically bad day for the market especially the Dow1).
More important, our MacroMarket Index hedging in late January 2020 and going to cash in February ahead of the pandemic literally changed to financial lives of hundreds of subscribers. I can't tell you how many emails and texts we have received that told us those moves out and then into the insanely cheap MLP, preferred stocks, mREITS and others allowed them to RETIRE EARLY with more $$$ than they ever thought they would have.
THOSE LIFECHANGING OUTCOMES is why we research and publish Transformity Investing, ok?
Using smart hedges in portfolio management is basically portfolio insurance. Writing options against your positions IS insurance--the difference is YOU GET the premium when you write calls or puts against positions.
Key Point: We are now in the weakest seasonal time for stocks--July 15 to September 30th--especially AFTER a 15%+ gain in the first half of the year.
Here is a message from StockCharts.com (our fave charting service) just to make my point that the PTSD from covid-19 crashing stocks kicked in with a vengeance.
Action to Take: You are a DIY investor. You run your own money. But I can tell you this: for my personal accounts and our managed accounts, we have been taking capital gains on everything we bought in April-July last year to build cash as the variant infection curve went exponential in early July.
Why? BECAUSE it's prudent to--especially in IRA and ROTH accounts where there is no cap gains haircut. But it is also because there is no playbook for a pandemic where 30% of citizens will absolutely NOT get vaccinated and an exponential rise in the pathogen mutation is exponentially creating a "Pandemic of the Unvaccinated."
Plus there is very real PTSD from the last March/April market crash.
What I Have Done: IN our managed accounts we took 3X profits on average--that took us to about 60% cash. Personally due to MY PTSD from watching the Dotcom crash wipeout so many people (we were long gone stocks at my ChangeWave Investing service in March 2020) . . .
I will gladly pay 20% capital gains taxes on those incredible profits--and LOVE HAVING CASH when this normally WEAK seasonal time period for stocks July 15-September 30 ends ( and take advantage of great entry prices in our favorite digital enterprise and consumer platforms and enterprise API functionality stocks--they were almost ALL green today!)
PS: While I am SO GLAD we took enormous profits in our mREITS earlier this year...REML is on the chopping block with the unusual latest bond moves.
Plus again--it never really dawned on me till July that 30-40% of Americans were not getting vaccinated and would never get vaccinated. These folks would rather risk suffocating to death on a ventilator or have long-haul issues for the rest of their lives than get a vaccine proven to have a death rate of a negligible .0004 death rate vs. a 2% death rate for Covid-19 infections with 98% of new hospital admissions non-vaccinated (and in some countries 40% of hospital admissions vaccinated infected with the delta variant).
Also, let's also be real here--many of these red-state anti-vaxxers are not the paragons of health and fitness (to put it nicely). They are at 2x-3x higher rates of serious health complications and death--but they don't care.
We are also now getting anecdotal news from our intelligence network and even subscribers about how fully vaccinated parents are getting infected with the delta variant primarily from their asymptomatic but delta variant infected kids (or grandkids).
As schools open up--this risk of infection rates skyrocketing obviously. This eventuality kills the re-opening trade for economically cyclical stocks and makes jacks up values in our New Hybrid Workplace Knowledge-Economy digital platform stocks.
All of this above adds up to a REAL 10% ish correction into earnings going into earnings season on the variant fears, sticky inflation fears, and pandemic PTSD muscle memory to sell first and ask questions later.
AND--with such high EPS expectations and EPS/PE multiples--if the leaders beat expectations but talk about lower margins and the exponential variant infection rates--those beats won't matter--the market will sell them and the market will fall until long term stock buyers see real value.
Finally--this recap from John Murphey--one of my fave old-school technical analysts--captures the technical damage.
DOW SHATTERS THE 50-DAY LINE... Stocks are opening the week sharply lower and on the pace for one of the year's biggest losses. Although all market averages are under pressure, the Dow is leading the decline.
Chart 1 shows the Dow Industrials plunging below their 50-day average. The next level of potential chart support is at the mid-June low.
Small caps have been declining lately and issuing warning signals of their own. Chart 2 shows the Russell 2000 iShares (IWM) trading below their mid-May low.
That's a (very) negative sign for them and the rest of the market.
All eleven market sectors are in the red today with the biggest losers in economically sensitive sectors like energy, financials, industrials, materials, and discretionary stocks. A big drop in the price of oil is pushing energy stocks sharply lower.
A sharp drop in bond yields is weighing heavily on financial shares.
Chart 1
Chart 2
10-YEAR TREASURY YIELD BREAKS 200-DAY AVERAGE...Bond yields are falling with stocks today in a flight to the relative safety of bonds.
Chart 3 shows the 10-Year Treasury yield falling below its 200-day moving average to the lowest level since February.
That's hurting financial stocks. Chart 4 shows the Financial Sector SPDR (XLF) threatening its June low.
A big drop in the price of oil is punishing energy shares (but not natural gas shares) which are the day's weakest sector. Chart 5 shows the Energy SPDR (XLE) falling to a three-month low.
Chart 3
Chart 4
Chart 5
Final point: ALL these charts are very oversold and due for a short-covering bounce. Futures are up about 1% indicating the bounce is here.
IF the bounce runs out of steam (as is a most likely scenario) and/or earnings beats are met with selloffs, we will reload QQQ DOW XOP IWM and financials put options.
Prudently yours,