Break Out the New Silverware (SLV,C,FAZ)
There are those who go through life happy to be around people, cajoling and backslapping, but desperately uncomfortable in their own skin. And then there are those who prefer solitude, but are quite content with who they are. The former we often refer to as ‘extroverts’. Some prefer to call them ‘politicians’. The latter are labeled ‘introverts’. But a better term might be ‘wise’.
Now, of course, there’s a broad spectrum of people that fall in between these two extremes, and our point in offering all this today is to get you thinking of roughly where you fall in that space. Why? Because it’s more than likely that if you’re from the latter, quieter camp, you’re going to fare better at the trading game than your more boisterous comrades.
And that’s because individuals who possess an inner calm, who know themselves better, as well as their abilities and limitations, who aren’t given to an exaggerated sense of self-worth, who don’t need the affirmations of others, who don’t need the latest model or biggest automobile to prove their worth, who get along just fine being an anonymous presence, and needn’t be laughing and ribbing with the crowd, touting their latest achievements – those are individuals who, in the end, will be better able to admit their own folly. They’re perfectly at peace saying “I forked up.” And they can therefore more easily move on to correct their errors and reassess their next move.
So if you have trouble expressing yourself, or you don’t quite feel you measure up, or you need others to tell you what a great chap or lassie you are, then it might be best to get into a different line – or, at the very least, to put your financial future into the hands of someone who does possess those qualities. You’ll do far better over the long haul than placing it in the grasp of some bellicose, arrogant know-it-all who makes one heck of a first impression, but then steadily loses your trust (and your hard earned funds) drip by precious drip.
Before we get on with this week’s trade, we have one initiative to examine. It was issued back on the 19th of January in a letter called Short Sellers Disappeared? Time to Short!, wherein we urged you to sell the C March 17th 60 CALL for $1.10 and buy the FAZ March 17th 23 CALL for $1.05. Total credit on the trade was $0.05.
The FAZ CALL expired worthless, but the Citi 60 was in-the-money just one day before expiry, so we rolled it out for another month, writing in our brilliant Long Legged Copper Trade that you ought to –
…buy back the C March 17th 60 CALL for $1.60 and sell the C March 31st 60 call for $1.94. You profit from an additional two weeks play on the trade and pull in another $0.34 credit.
And that’s precisely what we accomplished. The March 31st CALL died out-of-the-money last Friday, offering us a total take on the trade of $0.39 on nothing expended. Adjusted for minimal commissions gives us a profit of 160%
Let’s turn now to look at the market itself, and in particular to the narcotics that have been juicing the stock market’s performance over the last nine years.
The drug was delivered by America’s central bank ‘pusher’, the Federal Reserve, in the form of something called ‘quantitative easing’ – essentially a monetary laxative – whose sole purpose was to grease up the system to the point where money slid through it like a monkey on wax.
Below is a chart of just how much lube the Fed has pumped into the system over the last ten years. It’s truly formidable.
But it now appears to have come to an end. After three quantitative easings that expanded the monetary base nearly four-fold in just six years, we’ve presently entered a period of rate hikes that almost assure we’ve seen the last of the government’s open-spigot strategy of economic stimulation.
The Fed’s latest moves indicate a desire to rein in some of that liquidity and to slow the pace of spending, which they apparently feel is beginning to heat too quickly.
And as those rate hikes ensue and the monetary base is sopped up – as you can see it beginning to do on the far right end of the chart – we’re going to see just what kind of legs this market really has.
That is to say, in short order we’ll come to find out if both institutional and retail investors step in to take up the slack and push equities to new heights, or if this was a genuinely a government engineered phenomenon all the while.
Tell it like it is, Matty!
For our part, there’s little doubt that the rally will continue. The only difference will be the more extreme swings we’ll witness going forward, a phenomenon that makes it increasingly difficult to identify and trade the existing trend.
It will be volatile precisely because the major players will be testing the system all the way up, pumping it up and pulling out – waiting to see how the hoi polloi respond. If the little people indeed jump on board, the big guys will goose it higher. If not, they’ll dump and run.
There’s too much money in the system, however, to expect anything to dry up yet. Even with rates starting to rise.
So how do we play it?
On the volatility end.
That is, as the market zigs and squirts, shooting and swooning higher and lower, folks are going to start looking for a ‘safer space’ for their money.
And they’re increasingly going to turn to the precious metals.
And whaddaya know, the technicals there just turned bullish.
This is a chart of the iShares Silver Trust ETF (NYSE:SLV), a proxy for the metal –
The news is all good.
- RSI and MACD have been signaling higher prices since last October, when they began diverging higher from price (in green),
- MACD just confirmed RSI’s break above the all-important waterline this week (in black),
- The stock has completed three waves lower over the last seven months (in red), a signal that the bearish intermediate trend that began last summer is over, and
- Price is trending above all her moving averages (in blue).
SLV is now at $17.32. Any break above $17.50 would complete a head and shoulders bottom pattern, and likely send her toward $21.
So…- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,