Cancel the Rally! The Prez is a Ruskie! (LUK,HSY,GDX)

How many times do you have to be told?

 

When your betters know what’s good for you, you don’t question them.  You bloody well listen up, take your medicine and shut your bellyaching trap.  The days of you choosing what’s best for you are over, dearie.  You’ll simply have to get used to it.  Those in the know will decide.

 

Or, as someone once pithily put it – the strong do what they will, and the weak suffer what they must…

We’ve come a long way from democracy serving the will of the people, from elections being a test of ideas, and from public service stemming from a desire to enact the decisions of the commons.

 

As they say these days, everything is now political.

 

The aim of political parties and individual representatives has lost its idealism altogether and has veered off in blind adherence to whatever orthodoxy is currently espoused by party elites.  That means the idea of elections being an expression of the people’s will was buried some time ago in favor of them being simply an opportunity to steamroll people with a messianic, win-at-all-costs campaign that, in turn, enables the implementation of an agenda that further ensconces the power of those already governing.

 

Full Stop.

 

That’s precisely what the goal has become – wielding power and developing any and all means necessary to cement that power against challengers.

 

It’s an evil game, really, with a great many participating unwittingly, and it’s apparently still being played a month after the latest polls have closed and a winner has been declared.

 

So be it.

 

Perhaps the gamesmanship will stop.  We can only hope.  And then, perhaps, we can return to some of those quaint old notions we used to live by, namely restraint and civility.

As for the markets, there ain’t no restraint there at all.  And the truth behind it is a lot plainer than most imagine.  Within a day or a week or a month – however long – the Dow will strike the 20,000 bell.  It’s less than 100 points away from that level today.  And when it happens, there’s going to be quite a party.

 

It’ll start on the trading floor, of course, but will quickly migrate to the financial press, who will find in it a great cause for celebration and stock-taking (pardon the pun), and from there to the banks and brokerages, and then on to Main Street, all the while gathering revelers and reinforcing the “stocks for the long-term” narrative.

 

There will be charts trotted out that go back to the 1980’s, others that go back to the Great Depression, and still more on log scale that venture back to the 19th century – all with the same theme: that “stocks for the long haul” is the only way to travel.

 

And sure enough, the effect will be bullish.  Everyone will pile into the market over the course of calendar year 2017, and not only from our own shores, where there’s money available to invest.  But from overseas as well, we should also see massive inflows into the Dow 20,000/America Great Again/Stocks for the Long Haul story, one that’s filled with hope and glory and pride, after a significant stretch in which people hadn’t felt those things.

 

And the markets will rise, of course.  And we’ll be bulls and make lots of money, and people will be happy with us – most of them, at least – even if the whole enterprise is based on a spurious foundation that has nothing more to vouch for it that the self-feeding loop of sentiment itself (which is all that’s really required at both bottoms and tops to make the stock market overreach too deeply into the overbought or oversold, as the case may be).

 

Ahh, sentiment.  That greatest of catalysts.  Happiness.  Joy.  Hope.  Change.  How it ever offers new, clear springs from which to drink.

Until the bottom falls eventually out.

 

Fortunately for you, we’re here to guide you through the coming maelstrom, both on the way up and down, and assist you in making money hand over fist as we go.

 

But before we offer you a new trade for today, we have to close one down.

 

Sort of.

 

With just a day to go before expiry, we’re going to move on our October 6th trade, posted in our letter called Icing the Miners.  There, we urged you to buy the GDX December 20 PUT for $0.67 and sell two GDX December 18 PUTs for $0.27 each.  Total debit on the trade was $0.13.

 

And today, the 20 PUT goes for $0.42 and 18s for $0.04.  Our take is to sell the 20 and leave the 18s to wither.  We see little chance of a 10% decline before tomorrow’s expiry.

 

Do it now and you’ll come out with $0.29 profit on $0.13 spent (should the short PUTs, indeed, expire worthless).  That’s 223%, and it’s nothing to scoff at.

 

And now…?

 

This week’s trade is based on a pairing that matches the darlings with the dirtbags.

We’ve zeroed in on two companies that have completely disparate ratings from Wall Street’s so-called experts.

 

In the first case, we’ve selected Leucadia National Corp. (NYSE:LUK), an $8 billion financial conglomerate that’s seen a huge rise in the last month, and that has a perfect 100% of Wall Street’s analysts offering  BUY ratings on the stock.

 

Against them, we’ve chosen chocolate factory Hershey Co. (NYSE:HSY), for whom Wall Street has barely a kiss to offer.  A mere 4.8% of analysts covering the stock consider it a BUY.

 

Take a look at the two charted against one another –

Since the summer, the two have charted wildly different courses.

 

But it won’t last.

 

We’re proposing that the next few weeks will prove the analysts the fools they are, as the stocks close the gulf that has opened between them.

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Many happy returns,

 

Matt McAbby

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