Guilty. Not Guilty. (NASDAQ ,DIA,CSH)

There was an unwritten rule in college that once you left a party, you didn’t go back to it.  Unseemly, it was considered, to appear a second time after dismissing the do as unworthy. (NASDAQ)

 

It’s not that way in politics, though, where many a power-hungry bloke regularly returns to the fray like a dog to his own vomit.  And all the more so for us voters, who’ll shortly mark the quadrennial trek to the presidential polls, eager for more of the same putrid slop, however it’s served up – old, cold, burned to a crisp – that we’ve gotten used to over the last half century.

 

A revolution is what we say we want, a new life on the foundations of what once was, a better, simpler way of living, without the complexities of the current system, more pastoral, safer, friendlier.

 

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Al Capone

 

But neither do we have the energy or the courage, apparently, to go out and demand it.  In a country such as ours, with all the wealth and distractions and institutional impediments, not to mention the pressures of our own daily rigamarole – trying to earn a living, looking after kids and remembering to put a call in to grandma, we just don’t have the time.

 

The reality is that there’s a great gulf between what we want and what we’re ready to fight for, and it’ll take a one helluva roundhouse kick of suffering to make us pick up a pitchfork and take to the streets.

 

That’s Where We’re Headed (NASDAQ)

 

We don’t mean to alarm anyone, but the current period of American life is one of gathering disintegration.  Systemic cracks are appearing everywhere, in education, in health, in the judicial system, including law enforcement agents, parole officers, prison attendants and judges.  Our financial system and our military, too, are showing signs of breakdown in a number of significant and dangerous ways.  The world about us is not the one we grew up in – both at home and abroad, the stability we knew until a decade or two back has been irretrievably lost.

 

And a new order, far less orderly, is emerging.

 

As uncanny as it may sound, that same disorder we see on the nightly news will shortly be mirrored in the action of the major market averages.

 

We want to have a look at those averages now in order to get an indication of both immediate and intermediate market direction, but first we have two trades to close.

 

Line ‘em Up! (NASDAQ)

 

The first was opened on May 12th in our letter entitled Pawn it Babe!, wherein we recommended you consider buying the CSH December 40 CALL for $4.40 and selling the December 40 PUT for $4.30.  Total debit on the trade was $0.10 per pair.

 

Today, the CALL sells for $4.69 and the PUT changes hands for $3.38.  Sell the former and buy back the latter and you net $1.21 on just $0.10 down.  That’s a phenomenal 1210% gain in less than 60 days.

 

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Next.

 

We managed the worst possible outcome on our June 23rd trade, both in terms of frustration and cash losses.  The letter was called U.K.E.U.X-IT, and there we advised you to buy two (2) DIA June 30th 179 CALLs for $2.05 and the June 30th DIA 179 PUT for $1.76.  Total debit for the trio was $5.86.

 

And what happened?  On the 30th of June, DIA rose higher, and higher and closed… where?  At exactly 179!

 

No joke!  We bought a weighted straddle that would have given us a gain had the stock stopped anywhere, ANYWHERE but at precisely $179.

 

Yet that’s what it did.

 

When the market gods are cruel… they’re so cruel.

 

We lost the entire premium in what’s generally considered in this business a statistical impossibility.

 

This Week’s Trade (NASDAQ)

 

We’re going to begin our discussion of this week’s trade with a look at all three major market averages.

 

Take a peek –

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Dow Jones, S&P 500, NASDAQ Comparison July 2016

 

From the top down, we’ve got the Dow, S&P 500 and NASDAQ Composite, the first pair of which has again pulled above all its moving averages, which, in turn, are also all rising – a clearly bullish development (red circles).

 

The NASDAQ, on the other hand, is struggling.  Not only has price failed to climb above all her important moving averages (black circle), but the MAs themselves are also declining.

 

We would add that the RSI and MACD indicators for both the Dow and S&P 500 are above their respective waterlines, adding to the bullishness of their price action.  The Composite Index, however, is at least several days away from confirming a similar bullish posture.

 

The Swings of the NASDAQ

 

Let’s look now at some weekly chart data from all three indexes to get a bearing on the longer term movement of the market.

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Dow Jones Technical Indicator Analysis July 2016

 

What you see here is a weekly chart of the Dow for the last three years and its weekly RSI and MACD readings (boxed in black).  Below them are included the RSI and MACD indications for the S&P 500 (in blue) and NASDAQ (in red).

 

And what do they show?

 

Well, we’ve had bullish, super-waterline action on the Dow and S&P for roughly three months, as seen in the green boxes.

 

But the NASDAQ (in blue) has just this week seen both indicators surface – the first time that’s happened since early January.  And that bodes well for the longer term.

 

Put Your Money Down (NASDAQ)

 

Now, we like trading the NASDAQ, because it’s got more wumph! than the other two averages, composed as it is of the Apples and Googles, Amazons and Facebooks of the investment world, stocks that swing like teens in a trailer park.

 

And we also believe for that very reason that the NASDAQ will play a quick game of catch-up now that the breakout appears to be upon us.

 

With that in mind, we’re going to enter a synthetic long position on the PowerShares QQQ Trust Series (NASDAQ:QQQ), a sturdy proxy for the NASDAQ.

 

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Many happy returns,

 

Matt McAbby

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