Good Day Traders,
Thanks for all the great comments about the ATTS service and the “How to Make Money Trading Stocks” webinar that blast out every Friday at 10 a.m. Pacific. Please let others know about this great webinar! You can either join live or catch the replay on YouTube.
Here’s the link for next Friday’s Show:
Next Training September 23, 2015
For Premium Members our Wednesday evening training is developing some fantastic traders!
Mid-Week Market Sanity Check Topic: Hidden Secrets of Pre-Market Charts
General Market Observation: The Fed spoke and then Janet said way too much in the news conference after the decision. The Market didn’t like it for several reasons and sold off. This led to more sell-off on Friday. An interesting note on Friday’s action was how the selloff could have been worse and less orderly. For this weekend’s Trader’s Report we have a special article from Mike Trager challenging the veracity of the Fed’s action and data. Give the Fed’s reluctance to act this past week this article is very timely.
Mike’s Macro Market Musings: Lies, Damned Lies, and Government Statistics
In one of my recent columns I discussed the lack of credibility assigned by me and others to our Federal Reserve Board. I also believe the same lack of credibility can be assigned to (or withdrawn from) those government agencies which put forth data upon which major fiscal and monetary policy decisions are based. Specifically, the BLS for employment related data and the BEA (Bureau of Economic Analysis) for macro-economic data (e.g. GDP numbers). GDP is an important data point for gauging the overall health and progress of the U.S. economy. Two consecutive quarters of negative GDP growth is the very definition of a “recession”. Therefore, and especially since the financial crisis of 2008-2009, the BEA has been bending over backwards to avoid having to report a negative quarterly GDP growth number, doing so in a seemingly juvenile way that reminds me of backdating homework assignments in junior high school to ensure they were submitted by their due dates.
For those who haven’t been paying attention, in order to boost GDP reporting, in 2013 modifications were made by the BEA to the methodology for calculating GDP which resulted in counting things toward GDP that had never before been counted, such as intellectual property. These changes created a boost to annual U.S. GDP of approximately $500 million, roughly a 2 1/2 – 3% increase. In case you missed it, this favorably impacts (lowers) the national debt/GDP ratio, a gauge of national fiscal health often referred to during the recent Greece melodrama. By the way, this ratio now exceeds 100% for the U.S., a problematic number even after the favorable revisions. As an aside, some European countries were so desperate to increase their reported GDP numbers that in 2013 they started including never before considered results from “industries” such as illegal drugs and prostitution (how they can accurately measure those “industry” financials remains beyond my comprehensive capacity). No, I am not making this up.
For the first quarter of 2015, the initial reported quarterly GDP year-over-year growth rate was -0.9%. Since a negative number is just not allowable (2 consecutive quarterly negative numbers means the media will begin reporting on a new recession, and we just can’t allow that to happen, can we?), the BEA has now made further adjustments and revisions to how this number is calculated, resulting in a revised reading of -0.2%. Still negative, further revisions were made to arrive at a final number of +0.6%, which can now be left alone. This is not your father’s or grandfather’s GDP number by any means. As always, a picture can be worth a thousand words (actually, physical space limits these articles to much less than a thousand words):
Note how reported GDP, adjusted for inflation, was beginning to show negative year-over-year changes prior to the 2015 revisions, but has now become positive. Further research shows the increasing disconnect between the “official” reported and manipulated numbers and what is really going on in the economy. Space limitations here prevent me from going into detailed examples of this disconnect but for those who would like to read more about it, here’s the link: http://streettalklive.com/index.php/blog/daily-x-change/2840-the-bea-is-still-overestimating-growth.html. As with the Federal Reserve, the economists that operate in the “ivory towers” of academia fail to grasp the disconnect between economic theory and Main Street reality. Just as with the idea that lower oil prices would drive consumption (since consumer spending on anything other than health insurance premiums did not increase as economists predicted it would when oil prices fell last year, we aren’t hearing much about that now that oil prices are down again, are we?), economic theory continues to miss the clues of a heavily leveraged, low-wage growth, and underemployed population. What the data does suggest is while the BEA can change the methodology for calculating economic growth, a change in the “math” does not change the “reality.”
I’m not even going to get into how changes were made in calculating inflation in 1982-1983 at a time when gross inflation was rampant in the U.S. in order to get the numbers down, or the changes in calculating unemployment to the downside following a recession in the early 1990’s, changes that remain in place to this day.
If “they”, the “powers that be”, don’t like the number and it doesn’t suit their purposes, they seemingly just change it. Credibility? Please. I beg to differ. “Propaganda” might be a more descriptive and accurate term.
SPX: The S&P looks primed to fall and perhaps retest the swing low at the 1866 level. The chart below shows an Evening Star pattern which is a negative (bearish) reversal signal. Friday’s close took prices below the moving averages and broke the short term trend line. TSI is turning over just above the zero line on the daily chart. Momentum is not showing any orderly pattern and on the weekly momentum has been very negative for the past four weeks. I will use the midsection of Friday’s candle or Friday’s low as my lines of demarcation for potential downside trades.
Preferred: SPY, UPRO and SPXL
NDX: The Nasdaq has held up better than the other indexes but also showed weakness on Friday closing below the 8 day EMA. If the overall other indexes continue to weaken the NDX may accelerate its decline. It has a much longer fall to retest the swing low from August 24th. This translates to a larger potential loss if trading the index ETF, QQQ to the downside. Watch the support level at 4285 for a potential downside trigger.
NDX: Preferred ETF’s: QQQ and TQQQ
RUT: Friday’s action on the Russell resulted in an Evening Star reversal pattern. Price held the short term uptrend line but if price accelerates to the downside the swing low at 1100 is an idea target. The daily chart looks primed to fall and a tack similar to the SPX can be taken for entering a Put trade with the IWM ETF.
Preferred ETF’s: IWM and TNA
The Early Warning Alert Service has hit all three major market trading point this year. See this brief update video for more details: https://youtu.be/PRLmPQLHjiI
If simplifying your life by trading along with us using the index ETF is of interest you can get the full background video at: http://activetrendtrading.com/etf-early-warning-alerts-video/
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Index Returns YTD 2015
ATTS Returns for 2015 through Sept 18, 2015
Margin Account = +3.4% (Includes profit in open positions)
Early Warning Alerts = -0.78%
Active Trend Trading’s Yearly Objectives:
- Yearly Return of 40%
- 60% Winning Trades
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated first full week of each month.
Managing Existing Trades: No Strategy 1. We have an open position for Strategy 2. We bought 3 contracts of the AMBA Oct 70P for 4.60 a stop at 3.25 and T1 = 5.95 where I will sell 2 contracts and then T2 when price of AMBA reaches $65.50.
Special Trades: Wealth & Income Generation Strategy 3 Trades: Friday’s action resulted in our short Call on IWM being profitable. Bought back 5 contracts of the IWM 116.50 Calls and netted a profit of $175 for the week. Because last week was the Fed meeting we held off on large positions with this strategy. I will be looking for entries for both legs this week to cover the Jan 2016 IWM 127 Calls and Puts.
My objective is to collect $814 per week to achieve a 50% return on this trade by expiration of the long LEAPS in January 2016.
I have also been running a test run of Strategy 3 with TSLA. Great results so far so I will buy a Jan 2017 Call LEAPs and then sell weekly premium. I will send out an alert on both buying and selling the TSLA position.
Several members have asked about this strategy and a more detailed explanation is available at: http://activetrendtrading.com/wealth-and-income-strategy/ .
I posted a video about how to choose the weekly options to short for this strategy. It can be viewed at: http://activetrendtrading.com/videos/
Additionally some of these trade may be selling weekly puts on up trending stocks. If you are interested in parallel trading this strategy register at this link: http://forms.aweber.com/form/99/1278533099.htm
Pre-Earnings Trade: No Pre-Earnings Trades
Potential Set Ups for this week: I still want to be long TSLA for all three strategies but have not had a good set up to enter. Many of the stocks on the private watch list are showing a similar pattern to the Indexes so they may provide opportunities in line with the direction of the Indexes. Moving into the final 3 months of 2015 I will be focusing on fewer stocks and specifically the Index ETF for short term swing trades. If the market continues to weaken with global concerns through the rest of September this may set up a rally in either October or November. This action has been a common occurrence over the past few years. I will trade what the market gives us and focus on the smaller moves going forward.
Upside: Looking for TSLA to retrace to at least the 50 day EMA. This will be a decision point for a potential set up. CDW on a pullback towards the breakout level.
Downside: Several downside candidates: NFLX, GPRO, AMBA, SWKS, AAPL and BIDU.
Toss Ups: The following stocks could go either way depending on market strength. These include: PANW, CAVM, FEYE, HAWK, YY and FIT.
Leveraged Index ETFs: Waiting for set ups for the Early Warning Alerts.
Outs & Ins: DY was added to the IBD 50 this weekend and is in extended. DY broke out a couple of weeks ago above 70.80 so any pullback towards the breakout may provide a long set up. Kind of interesting how DY broke onto the IBD 50 at the top of the list. This does not happen very often.
Only a handful of the IBD 50 have made new highs during the recent relief rally. CDW is one that has had a successful breakout that held. Watch this stock for a pullback test around the breakout level. HAWK is a toss-up. Strong downside candidates include MANH, ULTA, HA, V, and ABG.
No Off the Wall tonight.
Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at email@example.com or leave a post on the website. Thanks.