We want to lead off today on a serious note, with a quick word of tribute for a giant in the world of investment advisories: the late Richard Russell, a man who shaped the way the industry functions and whose integrity and intellectual honesty should be a beacon to us all. Richard Russell passed away on the 21st of November after 57 successful years writing the Dow Theory Letters.
His sweet, straightforward manner and his willingness to stand by unpopular positions will be missed by all who read and knew him.
Open Trade Report
We’ve got two trades to comment upon today. The first is our ongoing FXI saga.
You’ll recall that we’re currently the proud holders of three board lots of the iShares China Large Cap ETF (NYSE:FXI), and that we’ve been selling CALL options against them in order to recoup a small loss from a former trade. As it stands today, we’re long three FXI December 31st 40 CALLs and by the looks of things, we could see our shares called away as the calendar flips into 2016.
Have a look at the chart –
What’s most exciting for the China bulls is the action from yesterday – a strong move higher that engulfed the previous day’s trade – and all on twice daily average volume (in black).
This is a Japanese candle formation that’s referred to as a ‘bullish engulfing pattern’ (in red), and we’ve leaned heavily upon it to identify numerous tradable reversals in trend.
So is that it? We’re China bulls now?
It would appear it’s a much safer wager after yesterday’s action. After all…
- We have in place a growing positive divergence on FXI shares from early July that speaks to an ongoing strengthening of sentiment in the stock (in green at bottom),
- We also have a flatlining set of long term moving averages – a neutral indication, but after a nearly 40% decline through August, we’ll take it.
- And lastly, we have a growing set of higher highs and higher lows (purple circles), which bespeak an ongoing bullish rally in progress.
Although both RSI and MACD indicators are still playing about their midway waterlines, they’re both close enough to forge above that marker on just a day’s notice.
And that’s precisely what we expect to occur.
Here is how to play it and profit:
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We’re therefore recommending that you consider adding to your already open long FXI January (2017) 51 CALL position (originally purchased on the first of June in China at New Highs? Buy China!) by purchasing two more. They currently sell for $0.52 each. That’s a debit of $1.04 that we’re going to suggest you immediately erase by selling two FXI February 33 PUT options for $0.54 each. You end up with a credit of $0.04 on the deal.
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The stock still has to rise above its long term moving averages in the $41/$42 range, and there will certainly be a struggle when it gets there. But we have confidence that by options expiry some thirteen months out, we’ll have long since waved goodbye to the 40’s for FXI stock.
Race Car Rallies; Huey Takes Checkered Flag!
We want to return now to our Tesla Motors trade of September 29th that just last week was a hairline below break-even.
In last week’s letter, Go Suck on a Fish, we wrote –
As it turns out, TSLA expired at $206.93, so we now own the shares. But with the stock now trading for $217.75, we’re down a mere $65. We recommend you hold, but for those with aortic strain (or any undiagnosed bowel condition), please feel free to shut down here at near breakeven.
Our bowels, thank heaven, run like an old fashioned diesel pickup.
And thanks to some favorable technical signals, so does Tesla!
Take a look here –
TSLA rallied quickly – from about 205 to 230 in just two weeks. That’s a 12% hike in the blink of a dinque. And the fact that it brings the shares directly into line with the two long term moving averages means we could face a struggle here (red square). The shorts are also keen on making some money, after all, and the meeting of these two MAs at precisely 230 could give the bulls some jitters.
In any event, it’s reason enough for us to sell our shares and take a very healthy profit until we can be more sure of the stock’s short term direction.
Summary: we bought the shares for $218.40 (see here) and they’re now going for $230.26. Dump ‘em now, and call it an $1186 profit.
The Golden Hearse
We’ve said it before, so we won’t go into great detail at this stage, but please, please, please, friends, don’t listen to anyone who tells you it’s time to buy gold. We’ll get there, but it’s not yet time.
The precious metals are falling, having just this week busted below support to a new bear market low.
And look here –
The biggest bullion ETF on the planet, the SPDR Gold Trust (NYSE:GLD), has resumed selling its holdings, bringing its net worth down to levels that last obtained when the gold ‘bull’ was still in its earliest days.
The selling will continue, GLD will shrivel, and the gold-buggerers will forever wail about anything and everything, all the better to divert themselves from the simple fact that they’re on the wrong side of the trade.
Be smart. Sell GLD CALLs.
Wall Street Elite recommends you consider selling the GLD March 109 CALLs for $1.17 each. Also, act now on the FXI initiative (as described above), and sell off your Tesla shares for a wild profit (as above).
With kind regards,
Hugh L. O’Haynew