MODEL PORTFOLIOS CURRENT POSITIONS
1. The Bullish Cross SPY Model Portfolio
1. Short SPY @ $155.52 x 15,000 shares
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2. The Bullish Cross Alpha Model Portfolio
1. Long GLD @ $161.51 x 835 shares
2. Short IWM @ $91.20 x 2,250 shares
3. Short SPY @ $161.50 x 7,500 shares
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3. The Bullish Cross Trading Portfolio
1. Long Apple April 19, 2014 $500 – $520 Call-Spread @ $5.35 x 325 contracts
2. Long Apple January 18, 2014 $500 – $520 Call-Spread @ $5.00 x 200 contracts
3. Long Google March 22, 2014 $800 Puts @ $22.10 x 80 contracts
Cash: $1,515,100.00 (70%)
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4. The Bullish Cross Trend-Trader Portfolio
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THE LIVE BLOG 9:30 AM – 4:00 PM
9:40 AM — so as we noted at the end of trading yesterday, we’re watch the SPY/VIX/$NYMO closely right now to determine whether to increase our short-term long exposure to the SPY. We need to see the $NYMO pus down to -80 or lower, the SPY ChiOsc push to oversold territory and the $VIX remain overbought. Those are generally strong conditions favoring a larger position. The $VIX is still oversold and despite today’s small move up in the, the $VIX remains above the upper b-band right now. Yet, the SPY 60M ChiOsc and the $NYMO are still quite a bit away from oversold territory. We need to see further selling to get there.
11:30 AM — with today’s strong push down we now have the $VIX trading deeper into overbought territory, the $NYMO pushing down to -73 and the SPY ChiOsc nearing oversold territory. We’re getting very close to adding to our position. We’re currently watching the December $170 SPY Calls right now. We’re also looking to sell puts against our open short positions in both the SPY Model and the Alpha Model Portfolios. So there’s at least a fair chance that we will be executing a trade into the December $170 Calls.
1:35 PM — so it’s officially unlikely that we will be increasing our long exposure to the SPY near-term. We needed to see the SPY drop down to something like $163.90. That would have probably done the trick for a 10% increase. Then once we got an extreme $NYMO we would add another 10% position thereby increasing our exposure to 45% which is what we do whenever we have an extraordinary set-up.
Right now, we just have a strong set-up worthy of the 25% position we currently hold. Now we will just wait to sell it in a week or two. If the SPY turns lower and gives us that opportunity then we will take it. Now let me turn to a few other issues here. First, we have Google which is briefly tested the neck-line today and has since bounced off of it. Totally normal for that to happen on the completion of the head & shoulders top which it has officially completed today. Now we just need to see if Google breaks under the $840 level. If so, then it’s probably a head & shoulders breakdown. When that happens, what you tend to see occur is a huge swoosh to the downside — maybe something like $800 a share — followed by a re-test of the neckline. That almost always happens. See below:
That’s sort of how we expect things to play out with Google. Right now our Google March $800 puts we purchased at $22.10 are now trading at $33.00. That’s a 50% gain in the position. If Google drops down to $760 as we expect, then it’s likely we see a 200% to 300% gain. If that occurs it has the potential of resulting in an overall portfolio gain of 20% to 30% off of a 10% position. So you can see how this pushes the needle without putting on so much risk. The downside is probably a 5% portfolio loss at this point. Totally worth the risk.
1:41 PM — the other thing I would like to talk about is Netflix. But before I get into it, let me say that it’s already behind me. We made the trade we wanted, and now it’s sort of over. If we were ever to consider Netflix again, we would need a good set-up. Don’t get too concerned with situations where we sell a position and the stock skyrockets. Because we’re not in the business of trying to catch every dollar. We just want to catch the obvious dollars. For me, the fact that Netflix was so close to its highs made it nearly certain it was going to test $300 a share or breakdown to $200 a share. So the trade back then made perfect sense. If Netflix decides to go to $700 a share after I sold at $300, that’s not my concern. Because I have no visibility in making such predictions. I’m only betting on the obvious.
Take the SPY short we put on after the Fed for example. If you remember, just a few weeks ago we purchased the SPY $170 November puts at around $2.00. We sold the position for an average exit of something like $3-$4. Our highest exit was $5.08 last week. Today, those puts are worth $5.74 which is almost triple the original purchase price. But I’m not in this trade to catch every downside dollar on the SPY. Instead, I take these to make solid portfolio moving gains and move on. What was obvious at the time of the trade was that the SPY was too far above its upper b-band, and the history following huge up days on the Fed. If you remember, I posted a historical table that showed how in the overwhelming majority of the cases (80%+) whenever the market was up huge on the Fed, it completely reversed all of those gain and often went straight into a sell-off. We caught the bulk of that. I think we sold the last of our puts near $168 a share.
So now that I’m clear about this, let’s talk about Netflix since someone asked about it. As I see, Netflix is in a very very dangerous place right now. Remember the analysis we posted for weeks on end. The test of $300 a share on the long-term chart was going to either amount to a double-top or a clear-cut breakout. For the latter to be in place, we need to see Netflix takeout $300 a share and then skyrocket right through it. The fact that it’s back under $300 a share should be extremely alarming. What should have happened is Netflix should have taken out $300, ran up to $350 and if it wants to take a breather, it can pull-back and remain above $300 a share. That didn’t happen here. Instead, Netflix had a tiny breakout relative to the long-term trend and then sold back off under $300 a share. You can see it more clearly in this daily chart below. You can see how this looks like a double-top. It’s dangerous:
Now that being said, I do think there is an excellent trade set-up with Netflix here. And it’s this. Since we’re sitting up here at $300 a share, Netflix is either going to breakout and move forward or it’s going to breakdown and it will be all over. We have the same sort of set-up we had back in July. And like July, it would have to be a multi-month trade set-up which would probably have a drawdown if we executed the trade ahead of earnings. Which has its advantage because if Netflix does make a massive move on earnings, then it will result in large gains. It just so happened that last time it went nowhere on earnings. And even when that happened, we still ended up with a huge gain on Netflix overall. That’s because we put on a complex trade. We may do the same here. Let me look into it a bit.
4:10 PM — well today’s close muddles things a bit. We need to wait to see more as it isn’t very clear whether we’re seeing the beginning of a rebound here or a near term consolidation ahead of another leg down. We’ll get more clarity in tomorrow and Friday’s session.