Options Trading: One of the Best Ways to Exploit Herd Mentality

Options Trade: One of the Best Ways to Exploit Herd Mentality   In 2005, 450 sheep jumped to their deaths.   One sheep dove.  Another followed.  All of a sudden, a flock of sheep began jumping off a cliff for no real reason. Shocked shepherds would watch as another 1,500 jumped.   Hundreds of sheep perished, as they got caught up in herd mentality.   Each followed and jumped simply because every other sheep was doing it.   And as uncommon as this may sound, it’s not.   In fact, this very same thing happens each and every day among traders and investors.   We buy because everyone else does.  We sell because every one else does.   But we never question what we’re really buying or selling, which can be quite costly.  Instead, we take the leap simply because every one else is doing it.   And if every one else is doing it, it must be right.  Right?  Well, not exactly…   In 2009, Kiplinger’s ran an article by Robert Frick, titled, “Don’t Trust the Crowd.”   It noted:   What’s scary about the herd mentality is how insidiously it gets you to see things differently. In fact,…

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Pot Stocks: Three Ways to Trade a Modern-Day Gold Rush

Pot Stocks: Three Ways to Trade a Modern-Day Gold Rush   The marijuana story is taking the world by storm.   Canada will legalize it in October 2018.  U.S. states are pushing for further acceptance. Polls show that Americans highly favor its legalization at 61%.   Corporate America has woken up to the opportunity.   In fact, Coca-Cola may be looking to get into the pot-infused drink business.  Beer companies like Constellation Brands just invested $4 billion in Canopy Growth.   Related stocks have exploded over the last year.   Canopy Growth (CGC) ran from $12 to $57 Tilray Inc. (TLRY) ran from $30 to $300 OrganiGram Holdings (OGRMF) ran from $2.25 to $6 Aphria Inc. (APHQF) ran from $$7 to $17 Marijuana ETF, MJ just ran from $26 to more than $44   All of these are still great opportunities by the way.  Even TLRY, which just did this:     And unbelievably, there are stocks that are still dirt cheap with significant upside potential.   By 2030, marijuana sales could eclipse Soda Sales   We’re seeing signs of a modern-day Gold Rush in marijuana stocks.   Analysts say that by 2030, pot sales could eclipse U.S. soda sales.……

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Buyback Magic (DIA,QQQ)

Buyback Magic (DIA,QQQ)   There are two distinct and opposite forces currently operative in the domestic equity market, both of which have significant clout.   The first is bullish, and, as our partner in crime, Hugh L. O’Haynew, outlined earlier in the week, it’s accounted for exclusively by the corporate buyback tsunami that began shortly after Sir Trumpendonald’s tax relief regime was passed into law late last year.   The size and scope of those buybacks has been ginormous, and we’ll have more to say on the matter in a moment.   The second active force in the market is bearish and is accounted for by everyone else who plays the investment game, including fund managers, institutional investors and regular hacks like you and me.   The reasons for their selling are manifold and include, among others, weakness in emerging markets, European politics and debt, trade wars, rising interest rates and a general sense that stocks have just gotten too pricey over the last year and a half.   Indeed, a 39% rise for the Dow and a 56% percent climb on the NASDAQ since the Trumpendonald won the election is something that should get everyone squinting.   We’ll have more…

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Summertime Blues (GS)

Summertime Blues (GS)   OK, so it was the Fourth of July, and a lot of folk took leave from the markets, but does that really explain it? We’re talking about a significant decline in trading volume that occurred at the end of last week amidst a market rise that now, on second glance, is looking wafer thin.   Oh…?   Yes, a great number of the leaders advanced, including the FAANG crowd and their associated partners in crime, Microsoft, Nvidia, Qualcomm and Cisco, among others – and Facebook even logged an all-time closing high.  But as mentioned, it looks more and more like those big names are churning, with a number moving straight sideways on diminishing activity.   Have a look – So what’s it all mean?   Time will tell, of course, but it appears we’re preparing for a summertime doldrum to set in before earnings season, a kind of “sell in July before we head to the sky” phenomenon.   So there’s more “bull” to come?   Yes, we haven’t given up on the bull market yet.  We hold that there’s a ways to climb before sentiment levels are truly slap-happy, and the majority of the country…

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How to Escape a Market Head-Lock (AMZN)

How to Escape a Market Head-Lock (AMZN)   There are folks in the investment world, many of whom get a lot of airtime, who’ve been down on the equity market for years.  Their claims that stocks are over-bought and wildly expensive according to every traditional historical marker are absolutely right, and in that regard no one can gainsay their research or their understanding of how the markets have worked for the last 60 or 70 years.   But sorry for them, something changed.   In the last two decades, governments the world over have begun to involve themselves in the market’s workings to a degree that’s not only unprecedented but alarming.   The bank of Japan, for instance, now owns at least 75% of all that country’s listed ETFs, making it a top-ten shareholder in 40% of the nation’s equities! It also holds a full 42% of the country’s bond market, a sum equivalent to Japan’s entire annual economic output. Staggering.   Japan has been in an economic funk for decades, and this, apparently, was their best thinking on how to break out of it.   Plainly, it hasn’t worked. But that didn’t stop other nations from following the same…

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The Denizens of Intelligenz (WWE,GLD,SO,NFLX)

The Denizens of Intelligenz (WWE,GLD,SO,NFLX)   By definition, exactly half the population possesses below average intelligence.   And that’s not a comfortable statistic.   So who’s the dumb ones?   Well, it certainly doesn’t break down on socio-economic lines.  Don’t think, for example, you got smarts because you got cash, Giles.  It don’t work that way.   And intelligence, by the by, we don’t measure by how many letters you have trailing your name, either; academic credentials have absolutely nothing to do with a person’s ability to intelligize, if you’ll permit us some new coin.   Brains in the Service of Life   Rather, intelligence – as we read the dossier – has everything to do with an individual’s ability to respond to whatever predicament he encounters, and to navigate it successfully.  That may be a business deal, an unexpected visit by the ‘authorities’, a crisis in the street, or anything else that might befall a person in the course of his or her life that generally tests what we would call his ‘survivability’.   Because it clearly does not behoove a man to be the planet’s best trial lawyer, or essayist, or jet pilot or code writer if, when…

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Get A Haircut! (FXI,QQQ,DIA,USO,IYT)

Get A Haircut! (FXI,QQQ,DIA,USO,IYT)   Earlier this week, freewheeling Hugh L. O’Haynew over at our Wall Street Elite desk decided to push the toothless FAANG narrative.  He was keen on portraying them as no match for the traditionally more defensive sectors going forward.   Well, no sooner had the words spilled out of his Visconti fountain pen, than old Huey was once again proven King Solomon, wisest of all men. Our fellow Modern Bully got his timing wham-doggy perfect.  The market did a flip like a four egg omelet down at the Canary Restaurant on Cherry Street, splashing the butter and bacon fat this way and that, and scorching old Netflix by a greasy 6.5% on the day. There were signs over the weekend, of course (for those without crust on their eyelids – thick crusts like you find on the toast down at the Canary), that a selloff was in the making.  But Huey already laid it out here.   What remains for us to determine is whether the selling will continue or was just a one-off, bad hair day for the big tech NASDAQ honchos.   And the answer is…   A look at the chart of the…

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Behind the Scenes and Under the Radar (SO,NFLX,FXI)

Behind the Scenes and Under the Radar (SO,NFLX,FXI)   It’s a political world, friends.  Has been for a while.   Everything that’s done or said or written these days, it seems, is employed to further an agenda.   Truth be damned, is what it’s all about; let ‘the story’ carry the day, whatever it may be.   If it makes me look good, so be it.   If it makes him look bad, so be it.   If it makes my team more popular, so be it.   If it hides my wrongdoing, so be it.   All that matters is that it’s done artfully and remains undiscovered.   Because truth is relative.   And if I win, it means my truth is the real Truth. It has become so difficult today to discern between what’s real, what’s psy-ops, who’s the good guy and who’s the criminal behind the lines we’re being fed.  Even what’s at stake and who’s to profit from the stories we’re told is unclear.   And we’re not just talking the world of geopolitics, friends.  The markets are equally drenched with stories that don’t hold water. Take, for example, the following –   As we come…

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Child’s Play (GDX,XLP,DIA)

Child’s Play (GDX,XLP,DIA)   It’s fun to be a kid in the summertime, and play all those games.   When we were little, there were a bevy of inventive minds on our street, children who were just as happy to make up their own amusements as play ‘Kick the Can’ or ‘Hide and Go Seek’.   There was Stewie Ferguson, for example, who invented a real doozy of a game called “Smell my Finger”. The Viccari twins, I think, made up “Where’s the Worm?” And both those games, of course, became threateningly exciting when a blindfold was added to the mix.   It was rompus fun for all, summer and winter, too, when the O’Malley dog had puppies and we sat in a circle around the Sedgewick’s chestnut tree playing “What’s Barney Licking?”   How Little Things Change…   Today, the blindfolds are still on while investors carouse with “Run up the Techs” and “Valuation Revulsion”. And while no one seems ready to join in a round of “Pliny the Prudent”, we’ve decided to initiate a bout of that classic game today, regardless of who throws in with us. We’re not the only ones peddling the commodities story these days….

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Oil vs Wheels (IYT,USO)

Oil vs Wheels (IYT,USO)   It’s the interplay between the following two factors that we’re keeping our eye on these days, the better to apprehend the market’s immediate trajectory: oil and ‘market leaders’.   We’ve discussed this combo before, and how they work together.   The ‘leaders’ are the current sexy tech group, not related to oil directly, being themselves more a gauge of investor sentiment toward equity investing in general.  The transport stocks, too, are leaders; as a group they indicate where equities are likely headed, because shipping arrangements have to be made well in advance when new orders arrive at the factory.   In fact, shipping details and contracts are normally finalized anywhere between one and six months prior to industrial orders actually being produced.  And that advance warning gives us some lead time into understanding market direction over the intermediate term.   That said, the whole ball game gets thrown a curve when oil prices are in flux.  As the sector that’s most reliant on energy inputs, transportation stocks can be thrown into a tizzy when crude futures are trending fast. When they’re stable, of course, the game is a whole lot easier to play.   So…

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