Weekend Update: Everything Else Is Just Noise

This weekend I'm sending out to AllAllan free subscribers the actual  Blue Line Weekend Update in its entirety. Enjoy. 


Everything Else Is Just Noise

In the end, it's the grim reaper who holds all the cards. David Koch, best known for his money, a net worth of $50.5 billion, died on Friday at the age of 79. An official statement of cause death merely said "[he] fought various illnesses over many years." You would think a $50-billionaire would have enough for the best medical treatment money can buy... he did. At expiration, it wasn't enough. Or maybe it's a case of medicine lagging behind wealth. In this Weekend Update I revisiting, "The Big Picture," but the really big picture has nothing to do with the market or making money trading stock options. No, the really big picture is something of which we have little, if any, control. I turned 70 this summer and more than at any time during my life I realize that when it comes to health, life and death, everything else is just noise. 

Big Picture Update

The direction of the market over the next six-to-eight weeks is becoming clearer every day: A downward sloping short-term bias has now morphed into an intermediate term downtrend that has the potential to end in another one of those scary spike lows, not unlike the 4th quarter of last year. The charts below make the graphical case for that unfolding, putting the markets just past the beginning of the that downtrend with a lot further to go. 


The 2018 mini-crash into the end of the year wasn't without a number of counter-trend bounces, lasting from a few days to a couple of weeks. Following that same script this year will provide opportunities to take profits and roll-over into new strikes and expirations, thus compounding gains realized on the way down. We are looking for exponential growth in our option accounts. 

Drilling Down


VXX has not always been a friendly trade as quick rallies have a tendency to be short-lived. But in July VXX spiked up from $22 to $31 in just two weeks, an almost 50% move. A similar 50% rally now takes VXX to $40 and those Sept $28 calls we will be worth $12 (our cost was between 2.20-2.50). An equivalent move to last year's October market dive and VXX rises into the mid-$50's, maybe even before Sept expiration, taking those calls to $30+, for a 10X increase. Consider this: How many fake or real news headlines will it take to cause a multi-day market panic? This trade is so compelling on the reward side that we are risking (for now) 100%, so allocate accordingly. 

Intermediate Term Buy Signal


On Friday and between the two trading services we added puts in IWM, FXI and calls in VXX, GDX and GLD to already existing positions, already weighted in stock puts. As I wrote on Wednesday to the members of the short-term PRO Service:

"As strong as the market is today I am not finding many bullish set-ups, outside of the gold complex."

That ended up being more prescient than intended.  The Trade Tables have been updated: