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A serious look ahead into the China Bubble and last weeks trades
Fellow Friends and Traders,
Yes, there are still many economic problems for traders to worry about but for us this is Christmas in the summer. I said last week I wanted to continue to focus more on option and E-mini trading and wait for opportunities in stocks, etc.
These last 5-6 weeks have been a trader’s Xmas dream come true. We are trading at the biggest 40% sell of the '07-'09 bear market. The market is consolidating here, hopefully to go higher later. Meanwhile 90% of this time the market opens, goes lower, consolidates and then goes higher. I can't remember a more profitable trading time than this, except maybe Sep/Nov last year.
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I noted on my Thursday “C” Chart that I expected the multi-week trading range to continue into Friday. Cheap options should work. Buy cheap puts up, buy cheap calls lower. Overnight the market rallies back to the year's high, opens slightly lower. The OTM puts open at $0.45. About 60-90 minutes later the puts hit $3.50. Most were sold by then. See attached chart below.
The market gets hit early nearly every day like above. Friday was no different given the early bad economic news. The market retreats to the multi-week low at 989-92ish support then consolidates for almost 5-1/2 hours in about a 3+ point range. Yes, a narrow trading range but perfect for our hedging and parlaying trading techniques - buying calls and selling E-minis and then covering and buy more calls. We started buying calls around $1.40 scaling in down to $0.15 all the while hedging with E-minis. If you only hedged 50% we were paid over 3X for the average price of the calls. In conclusion, we were left with a free ride up- all the calls were paid for.
All this time I'm nervously saying in the Chat Room that "THEY" are going to pop this market higher. Still it's getting later and later. I even remarked in the room that "My God" the ATM calls are $0.30-0.40 OTM selling for only $0.20 -0.30. We should be buying 100s of these calls. 20-30 minutes later the S&P rallies almost 10 points into the close. My fully paid-for calls hit a $1.35, a major score. As the rally accelerated I shorted E-minis to fool the Trading Gods and gave back over 40% of my profits. Ugh!! What I won’t do for my friends. Nevertheless, I had a nicely profitable day over all. |
There is no reason to believe this pattern will change significantly in the near future. So, active traders enjoy. It's all noted on my posted Intraday Charts or covered in the Chat Room every day. If you haven't tried these trading aids by all means do.
The only serious negative I can find out there at this time is still China. See article from London Telegraph by Ambrose E. Pritchard -> http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard
He's one of the better financial writers I've read over the last 10 years. The article is titled “Credit tightening threatens China's ‘giant Ponzi Scheme'”. I do think as Goldman Sachs says we don't have to worry about this just yet. China doesn't want anything to spoil their 60th year anniversary of the Revolution of October 1. Still China’s Central Bank has said loan growth fell to $52B from $248B a month earlier. The China Construction Bank, the number two lender, is cutting loans by 70% over the 2nd half of this year.
There you have it. Enjoy this summer rally while looking forward to an interesting fall season. I can see why traders are looking to increased volatility come the fall. May we continue to live in profitable and volatile markets.
As always keep those thoughts coming. I do enjoy then all.
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