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Federally Fueled Thursday – Traders Get High With Janet

Published 06/19/2014, 03:51 PM
Updated 11/14/2024, 05:08 PM
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That tiny little woman sure packs a hell of a punch when she wants to goose the markets.  

Yesterday the Fed said nothing, essentially changing about 10 words from their last statement:

Jan. 20, 2014

Information received since the Federal Open Market Committee met in March April indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditionrebounded in recent months. Labor market indicators were mixed but on balance generally showed further improvement. The unemployment rate, thowevugh lower, remains elevated. Household spending appears to be rising more quickly. Bderately and business fixed investment edged downresumed its advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

P/Es And The S&P 500

Seriously, that is about it, yet the market took that statement to mean that our indexes should plow on to record highs into the close. The S&P 500 closed at 1,956 – 5 points over the June 9th high and, as the p/e chart on the left shows – we are now back to valuations we haven't seen since just before previous, massive market corrections.  

Can this time be different? Sure it could! This time we have crazy Central Banksters printing $29Tn and putting it into the markets or directly into the vaults of their Member Banks (because the Fed is a Banking Cartel and not a Government entity at all) at the expense of the people they supposedly serve. As detailed by Lee Adler:

The Fed has expanded its Term Deposit Operations, moving more spaghetti around on the plate, the plate being the liability side of its balance sheet- aka “money.” The Fed announced that it would do 8 weekly operations with its member banks beginning on May 19. The first 4 are at approximately 26 basis points, then the next 4 at 30 basis points. These deposits are like bank CDs with a term of 7 days.+

The Fed's Term Deposit Operations

This is a direct giveaway to the banks at the expense of US taxpayers. Subject to the $10 billion per bank limit, the banks will shift as much of their excess cash as they can from their regular deposit accounts at the Fed (aka reserves) to these higher interest bearing term deposits. This is cash which the Fed has given them for free in the first place. Earn free income from free money. Nice work if you can get it.+

The Fed's Balance Sheet

Last week those term deposits grew by $16 billion on the Fed’s balance sheet from an operation conducted June 2. That’s just a drop in the bucket compared to what’s coming. The June 9 operation shifted $78 billion into these giveaways.+

 Financial Select Sector SPDR Fund

THIS is the madness that is moving the markets. Financial Select Sector SPDR Fund (ARCA:XLF) knew that this was coming on Tuesday and yesterday's confirmation by the Fed took that index back to the top at just under $23. And why not – they can't lose!  

Again, we don't mind a scam – as long as we can make money off it – and this one is a doozy! We added long trade ideas in Tuesday's Live Trading Webinar and yesterday I re-emphasized Barrick Gold Corporation (NYSE:ABX), which popped another 2% on the day along with our other gold favorites as Yellen hits the accelerator on the Dollar's race to the bottom.   

The Dollar dropped 0.5% yesterday and the market went up 1% in the usual 2:1 ratio between the two. Now we'll see what's real (as if anything is) as the Global Markets absorb this new data.  

Light Crude

Speaking of scams – you're welcome on oil as yesterday's suggestion to short it again at $106.90 (which we hit again just before inventories at 10:30) coincided with a drop all the way to $105.80, which was a LOVELY $1,100 per contract gain for the day.

I know that I have been ranting and raving about oil since it hit $106.50 last Thursday but that is because IT WAS SUCH AN OBVIOUS SHORT.  As I noted in yesterday's post, since then, we've had almost daily Futures trades that have made $500 to $1,000 EACH DAY and today we shorted them again to the $106 line for another $400 before breakfast and TODAY we are done with it (except for October shorts and our USO puts) until after the July 4th weekend.  

Hopefully, if you missed this opportunity, you will be motivated to PRACTICE your Futures trading over the summer so that, next time we get a fantastic entry like this – you will be prepared to take advantage of it. That's why we do monthly Futures Trading Workshops in our Live Webinars (Tuesday's at 1pm, EST) – this is a tool EVERYONE should be able to use!

We did short the Russell Futures into the close as the day's 20-point gain (2%) seemed a bit outsized in reaction to the 10-word Fed change but this morning we are already being burned for 4 points (at 1,181.50) so we'll double down and average 1,179.50 and see how that goes but over 1,185.50 we'll have to give up on those with a $600 loss, though we'll probably take the opportunity to grab some (ARCA:TZA) (ultra-short Russell ETF), which hasn't been this low since March, right before a 30% run (10% drop in the Russell).  

The Ultra-Short Russell ETF

We may be early in our call, so we'll scale into the position but the TZA July $14 calls are just .85 so we can buy 50 of them for $4,250 and pay for those by selling 4 AAPL 2016 $87.14 puts for $10.20 ($4,400) for a net $150 credit and our worst-case scenario is we end up owning 400 shares of AAPL at $87.14 (now $92.18, so 5.4% off) for net $34,856 while the 50 TZA July $14s would pay back $20,000 if TZA were to make it back to $18.  Since the risk is owning a stock we want to own anyway – the risk/reward profile on this trade is excellent!  

By scaling in I mean we would start (assuming we have $100,000 allocation blocks that allow us to ultimately own 1,000+ shares of (NASDAQ:AAPL) at $100 or less) with perhaps 2 and 25 and then we would look to take advantage of moves in either direction by selling more puts, more short calls or buying more long calls as we build towards our goal . 

While I'm writing this (now 8:54), oil is plunging to our goal at $104.50, which was our goal from our Live Member Chat Room this morning, when I said to our Members at 7:56:  

Oil/Wombat – LOL – I just checked and there are 666(00) open barrels left on the NYMEX for July.  Coincidence?  Figure 20M actually get delivered so they only have to dump 46M in 2 days – that's not terribly difficult so we should expect one blow-off move down and that should be the end of it.  Maybe $105.50 but I wouldn't hope for more (on /CLN4).

Remember, we don't control oil – we merely keep track of the way others are manipulating the price of oil and we make it a practice to understand the system and that allows us to place our bets AGAINST what they are doing, since we can bet against a fake move and profit from the correction as easily as we can participate in the fake move.  

As I said yesterday, I prefer to be Robin Hood than the Sheriff when I can, so we short oil and force the fakers to pay us, rather than jump on the long train and tricking retail suckers into buying our contracts.  Will it change the World?  No – but I sleep a lot better at night…

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