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Whipsaw Wednesday – Monday Market Gains Gone in a Flash (Crash?)

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LOL, what a joke!

Unfortunately, the joke is on us as Monday’s silly low-volume rally has already been completely erased in this morning’s Futures, which is fantastic news for people who joined us for yesterday’s FREE Live Trading Webinar, where we shorted the Dow Futures (/YM) at 17,477 and overnight we got a drop back below 17,000 fro a $385 per contract overnight gain.

Whipsaw Wednesday – Monday Market Gains Gone in a Flash (Crash?)

Futures trading is NOT complicated – it’s actually more straightforward than options trading as you simply pick a spot on the chart and say “I think the index will go above or below that line.” The trick is getting the above or below part right but the rest is just placing a bet and crossing your fingers. We do live webinars every Tuesday at 1pm and often teach Futures trading as it’s a wonderful way to make quick adjustments to your portfolio (see “Using Stock Futures to Hedge Against Market Corrections“).

In our Live Member Chat Room, we also picked up Russell Futures (/TF) short at 1,220 at the market open and there we caught a nice ride down to 1,205 for a $1,500 per contract gain. On the S&P Futures (/ES) our line was 2,092.50 and those paid $50 per point down to 2,084.50, which is +$400 per contract and the Nasdaq Futures (/NQ) fell from our 4,545 line back to 4,525 and that was good for a $1,000 per contract gain.

Aside from being a really fun way to pick up some extra money in an otherwise dull trading day, Futures can be very valuable hedges and they are not just used by traders but by companies as well. In fact, despite oil averaging below $50 this year, many oil companies are getting far more than that because they sold their oil on the Futures markets at much higher prices:

That has somewhat shielded them from falling oil prices (oil averaged $85 last year) but now those hedges are running out and oil is still down below $43 (we’re long) and you know these companies don’t want to lock in that price but what if it goes even lower? The next earnings cycle is early November for the oil majors and things are going to get extremely ugly as those hedges begin to cycle out – we’ll be watching that with great interest.

We’ll also be watching our Free Trade Idea on Greece from our 7/15 post (“China, Greece, Japan – Oh My!“), where our trade idea was to buy 50 Greek ETF (GREK) Aug $9 calls for $1.50 ($7,500) and sell 50 Aug $11 calls for 0.65 ($3,250) for net 0.85 ($4,250) as those options expire on Friday but it looks like our timing (and logic) was PERFECT as Germany just approved a third bailout this morning, which paves the way for EU approval.

Fitch is already jumping on the bandwagon and upgraded Greece’s credit rating from CCC (horrible, smelly junk) to CC (horrible junk), which is pretty meaningless but GREK should bounce back to our $11 target on the news and that’s all we need for a better than 100% gain in just over 30 days – congrats to all who played along!

Another 100% trade that’s coming along nicely is our bull call spread on GLD from the 8th (“Introducing the 5% (Monthly) Portfolio“) and that trade idea was the first trade for our 5% Portfolio, where we bought 20 Gold ETF (GLD) Sept $104 calls for $2.50 ($5,000) and sold 20 Sept $106 calls for $1.50 ($3,000) for net $1 ($2,000) on what could become a $2,000 spread. I won’t bore you with the logic again but GLD did make it over $107 yesterday and that puts us well in the money and on track.?

Nonetheless, the Sep $104 calls closed yesterday at $3.90 and the $106 calls were $2.38 for net $1.52 and they still have 0.48 more to gain, which is 31.5% in the next 30 days if gold stays over $1,110 (now $1,122). Unfortunately, we’re very spoiled and 31.5% just doesn’t seem like a lot but, for ordinary traders – it’s their whole year!

We’ll keep an eye open for brand new 100% opportunities like this one and our 5% (Monthly) Portfolio is only 2 weeks old and these are exactly the kinds of trades we look for to produce those 5% gains. Keep in mind that these are not magic beans – as with our Futures trades, they are high-risk, high-reward ideas and you MUST use a good stopping discipline to control losses but, with 100% winning potential, if you keep your losses below 50%, you only have to be right 1/3 of the time to break even!

Things are going to volatile ahead of the Fed minutes at 2pm but we already know they didn’t raise rates so it’s like reading a book after watching the movie – no major surprises are expected.

Provided courtesy of Phil’s Stock World.

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