Will We Hold It Wednesday – S&P 1,920 Edition
Philip Davis | Jun 04, 2014 10:18AM ET
Yesterday was a close one!
We briefly failed our first test of 1,920 (see yesterday's notes ) but another low-volume rescue kept us from fulfilling the "Wave C" predicion on this Elliot Wave chart – for now.
Not that I'm an Elliot Wave person, of course – my theory is that, if you are going to draw 5 points on a graph you can imagine all sorts of random patterns and SOMETIMES you will be right. About half the time, in fact.
I believe in bigger numbers and our own EXCLUSIVE 5% Rule™ says the S&P 500 bottomed out at 800 (in 2009) doubled to 1,600 last Spring, consolidated there for a quarter and now has made a 20% move to 1,920 – just like it was supposed to since it bottomed in 2009 (it was March of 2012 , with the S&P at 1,404, when we set our new goals for the S&P to 1,600. As I said at the time:
That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800. I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.
Once we did get the dip in June that we expected at the time (down 10%, back to 1,278 and, fortunately, we had wisely cashed out our Income Portfolio before things turned ugly ) we were happy to go gung-ho bullish with our Buy List. In fact, right in that 3/17/12 post, I laid out this play to profit from our prediction:
For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan (2013) $146/154 bull call spread is $3 and you can sell the $110 puts for $3.15 so a .15 credit on the $8 spread and all we need is that 1,550 that everyone is predicting to make 5,433% on cash. TOS says the margin on the short $110 puts is net $11 so a very nice return on cash too – if it works. As we can stop out the spread at $2, it's worth our while as long as we don't believe the S&P will fail 1,100 this year.
Get The News You Want
That one was actually disappointing as SPDR S&P 500 (ARCA:SPY) closed on 1/18/13 (expiration day) at $148.33 for net $2.33 and a profit of $2.48 on the .15 credit – only a 1,553% gain for the year. But the good news is we were able to flip to about the same spread for 2014 and THAT ONE worked out just fine. Our other bullish spread from that post was less of a disappointment, returning the full 3,100%:
Financial Select Sector SPDR Fund (ARCA:XLF) should also fly if we make it through this quarter without slipping into another financial crisis. The Jan $13/16 bull call spread is $2 and you make 50% in 10 months on that just by getting it right. You can also sell J P Morgan Chase & Co (NYSE:JPM) Jan $30 puts for $1 to knock the net down to $1 and making it a 200% potential upside or sell the JPM 2014 $28 puts for $2.10 and get a net .10 credit and a 3,100% upside potential gain on cash.
While we wait for the correction, we shorted the Index Futures again in our Live Member Chat Room this morning at Dow 16,700 (/YM), S&P 1,920 (/ES), Nasdaq 3,725 (/NQ) and Russell 1,120 (/TF) because we're not anticipating good data today (/NKD 15,000 is also a good short when it breaks and, of course, we shorted oil at $103.50 (/CL)). We'll take the money and run ahead of the Beige Book (2pm) but I'm pretty sure that will not show the improvement that is expected – now that the weather is no longer an excuse.
Nonetheless, I'd rather wait and see than make any big bets on the outcome.
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