The war is on.
And not only is our water muddier for it, our minds have also gone fuzzy.
We won’t make light of these elections; there’s obviously a lot at stake here. And though it may not make a tremendous difference for the country fifteen or twenty years down the road, at this moment the differences between the two candidates couldn’t be starker.
They may never have been.
In fact, as far as modern democracies go, it’s not likely since Juniper Redbottom defeated Harryass Chewman in the Canadian federal elections of 1871 that such a wide chasm existed between competing platforms.
As many may already know, that election was later deemed a fraud by authorities and was summarily re-balloted with new candidates. It seems our northern neighbors were not impressed with the spanky campaigns waged by the two, both of whom later admitted to be members of a Moonie-like cult that engaged in patently un-western derriere devotions.
Oh my! Lunar Lovers!
It’s all a bit frustrating of course, to watch the market drift sideways, awaiting the catalyst that will eventually send it Apollo-like to its ultimate orbital space-stop. Could it be the election results that light the match?
We’re guessing yes.
We’re also looking at a report from Sam Stovall, Chief Investment Strategist at CFRA (formerly at Standard & Poors), that’s calling for a Republican victory.
It’s still a week away – and in politics, that’s eons – but apparently a drop in the S&P 500 index between July 31st and October 31st in an election year has an 86% record of predicting an incumbent loss.
We’re now down 2.2% over that period.
Lies! Damned Lies! And Ballistics
Before we get on with our trade for the week, we have two earlier initiatives to report. The first is a month old, the second just a baby at three weeks.
And they go like this.
On the 27th of September we sent out a letter called Keel-Haul the President!, in which we offered a fix for a Tesla trade opened on April 26th. As we were holding two lots of Tesla stock at the time, we offered you a covered CALL trade, selling two TSLA October 28th 107.50 CALLs for $7.00 each.
And as luck would have it, last Friday those CALLs expired worthless, giving us 100% of the premium collected and setting us up to rewrite the trade for a second time.
And that’s what we’re doing now.
The at-the-money TSLA November 25th 200 CALLs are now going for $5.95, and we’re going to advise you to write two of them, to cover the two board lots you now possess.
That lowers your adjusted cost base for the shares to exactly $199.40 and puts you in a position to eke out a profit should the shares be called away by expiry.
The second trade to report was opened on the 4th of October in a letter called Trade Secrets! There, we implored you to open a skewed strangle: buy both the DIA October 28th 185 CALL for $0.85 and the DIA October 28th 178 PUT for $0.95. Total debit on the trade was $1.80.
To our great dismay, both options expired out of the money last Friday, and we go down by the full premium advanced, a loss of $180.
The wait, and the frustration, mount…
As we head toward D-Day, it’s becoming clearer that we may be in for a short term nosedive in prices before the bull snorts its final huzzah and heads for the milky way.
Sam Stovall’s statistics quoted above add some credibility to the charts we’re already watching, all of which point toward some softness in the indexes directly after a Trump win (if it happens) and then an outasight climb that closes the equity door for a generation.
And to that end, we have a little more anecdotal evidence to offer. It’s a chart of Facebook (NASDAQ:FB).
Here’s how it looks – our analysis follows.
First up, as we’ve said repeatedly, Facebook is the poster child for this bull market. Whither FB, whither the stock exchange.
There is no stock on the planet that so embodies today’s reality, that so symbolizes the sickness and boredom of an economy and culture that’s based on nothing but marketing, marketing, marketing and is so representative of the pernicious tie-in between corporate interests, big government and its spy agencies.
Facebook’s fortunes are also the fortunes of the Fortune 500 and the most fortunate of this country’s kingpins of fortune.
And just what are FB’s prospects.
According to the technicals we’ve highlighted above, the near term looks sour.
We’ve enlarged the bearish engulfing pattern (red circle, black square) that appeared directly after FB struck new highs last week. Since then, we’ve seen a stumble and a mild recovery, but what comes next is all but certain, because the bearish engulfing pattern is a statistically high probability pattern. It would not be surprising to see Facebook shares now tumble to the 137 day moving average (currently at $122 and rising), since the stock has not touched that line in 120 days.
Though nothing is proven definitively by the RSI and MACD indicators (in green), the former is now dangerously close to taking on water, while the latter appears to be rolling over. It may take another day or two before both these items can be checklisted, but if and when they are, the descent will be fully underway.
A Trump breakaway in the polls might be exactly what gets that ball rolling.
We’ve Got a Fiver on the Likelihood of an Obama Third Term
We’re not going to comment on the outcome of the elections, but we will say that it’s still possible that contingencies for a continued Obama presidency are already in the works.
But that’s for another time.
Today, we’re going to make a little money off the Zucker-man.
And we’re using a short CALL and long PUT to do it.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
With kind regards,
Hugh L. O’Haynew