Markets flip flop and I hedge with puts on the S&P500. Oil keeps moving up. Profits taken in US banks as US yield curve flattens and in global 100 stocks.
<h3>Portfolio News</h3>
**Market Jitters - Tariff Tantrum**
The headlines tell me what changes in a day.
One day tech stocks sell off and the next day they join financials to rally. All that is changing is the rhetoric around trade policy. There was a downward revision in the first quarter US GDP data from 2.2% to 2%. These revisions are normal practice - they change the numbers and not the history.
<blockquote>Recent trading has largely been dictated by trade policy and shifting views over whether tensions between the U.S. and its major trading partners are escalating, and how severe an impact protectionist policies could have on the global economy.</blockquote>
https://www.marketwatch.com/story/dow-industrials-set-to-take-a-breather-after-their-166-point-drop-2018-06-28
Now it does make sense to pay attention to the yield curve though it has proved not to be a good predictor in the past - too noisy and inconsistent lag times and false positives.
https://www.marketwatch.com/story/why-stock-market-investors-should-stop-freaking-out-about-the-yield-curve-2018-06-28
European markets have been less volatile - they are just drifting downwards with occasional glimpses of light. This is proving to be a challenging part of my portfolios where I am heavily exposed to call options on the Eurostoxx50 Index. Time is proving to be my enemy with options starting to expire in December 2018 still out-the-money.
**World Cup** The Google search on Russia headlines covers some football, super gangs and the Putin-Trump summit
One never knows what to believe reading the media
<blockquote>This is not a mafia state... it's one in which the gangsters have come to realise that the state is the biggest game in town, therefore they need to stay within the lines that Putin sets.</blockquote>
http://www.abc.net.au/news/2018-06-29/the-vory-russias-super-mafia-world-cup/9899542
Is there a real fear that Trump will tilt things in Russia's favour?
<blockquote>What these three leaders (North Korea, China, Russia) have in common is that they are autocrats, whom Trump admires and believes he can win over with a brand of personal diplomacy that dispenses with briefing papers or talking points and relies instead on a combination of flattery, cajolery and improvisation.</blockquote>
https://www.smh.com.au/world/north-america/experts-fear-trump-will-tilt-russian-relationship-in-putin-s-favour-20180629-p4zoin.html
On the fields, two teams tried to lose (England and Belgium) and one did (England) to go into easier side of the draw. One team progressed on the fair play count but did not play fair to do it (Japan losing to Poland)
<h3>Bought</h3>
**Beach Energy Limited** (BPT.AX): Australian Oil Producer. Signal from research house. The chart shows a steady climb from April lows and steady cycling on a short term uptrend since the June pullback. With rising oil prices, price should break the resistance level around $1.80. The business is generating solid cash flows with this oil price and is steadily reducing debt levels. There is always scope for Beach being acquired as well.
<h3>Sold</h3>
**JP Morgan Chase** (JPM): US Bank. Markets have started to penalise banks on the back of a flattening yield curve. Banking profits depend on borrowing short term and lending out long term. A flattening yield curve (i.e., short term rates rising and long term rates not keeping pace or even falling) is bad for bank profits. I sold a portion of my holding for 186% profit since January 2012. This holding was opened by my previous fund manager. I still retain a holding in JPMorgan as I feel that there is still time for the interest rates play to work through (say 18 months). Of course, the trade war risk could derail that idea.
**SunTrust Banks, Inc** (STI): US Regional Bank. 93% profit since December 2016. My first options trade in this portfolio on SunTrust was a 32 strike call option in January 2013 and price closed at $65.71 = a 100% price appreciation in the stock. In comparison, my options trades have delivered a 332% profit in that time to add to 118% profits made on warrants trades.
**SPDR Global Dow ETF** (DGT): Global Index. I bought this stock in the early days of working with my investment coach. The broad idea was to buy a Global Index and hold until the market direction was clear and then focus in on the specific regions or sectors that were working. I did do the focusing in on Japan, Europe and more recently on Emerging markets. All the while I have kept on holding this ETF. A 19% profit since July 2013 is a low return for a 5 year holding at a time when S&P500 has gone up 68%.
The ETF is currently holding about half its holdings in US stocks - which tells me the other half has not done at all well in the last 5 years (and especially in the last 6 or 9 months).
http://etfdb.com/etf/DGT/
This has been lazy investing - though the 3.84% dividend yield has beaten interest rates.
<h3>Shorts</h3>
**SPDR S&P 500 ETF** (SPY): S&P500 Index. Markets are getting nervous and so am I. I read a post by @rollandthomas in which he highlighted the risks of topping out facing the US markets (he focused on the S&P500). Maybe it is time to start exiting the markets or to buy protection. As it happens my exposure to the US Markets is quite low but it is dominated by financials, technology and energy. The energy side is looking fine with rising oil prices. The financials, especially the banks are under pressure from the flattening yield curve. The trade war will affect technology stocks specifically and down the line this will flow to consumer stocks.
Price chart has some worrying signs - the lower highs in the last few runs and three 10% corrections (counting the last two as one).
I decided to put in place another hedging trade. I did a quick review and rejected using gold and/or silver at the moment because they typically under-perform when the US Dollar is rising. I will come back to review that some time later. I looked at buying put options on an ETF that tracks the S&P500 - I picked the SPDR ETF (SPY) as it has good liquidity in its options markets. The problem is the price is around $270 per share and a 3 month put was around $8 per contract - which means that each contract requires $800 cash. Let's use $270 as price and $8 as put premium. Price has to drop by 6% in 4 months to make 100% profit. As I look at the charts I can see 3 situations in recent times where price has dropped more than that. I then had a look at selling a put to recover some premium - pick a strike level that is 5% away from current price (I used $255) and I could get $5 back). That brings the amount price has to move down to 2.2% to make 100% profit - that feels OK. Choosing a timeline is tricky - it needs to be far enough away but not too far to get a reasonable premium offer. One should also take into account event risk. There are two events to worry about - the tariff discussion (no dates are known) and the US mid-term elections in November. I picked October as the poll uncertainty will be in stock prices firmly then.
I bought an October 2018 268/255 bear put spread for $3.35 net premium offering 288% profit potential if S&P500 drops around 5% in the next 4 months. [Means: Bought strike 268 put options and sold strike 255 put options with the same expiry]. I picked $268 as it was one strike out-the-money and $255 because it is 5% below $268. How does that look on the charts which shows the bought put (268) as a red ray and the sold put (255) as a blue ray with the expiry date the dotted green line on the right margin
I have modelled one of the price dips (the left hand pink arrow) as a price scenario. It matches the steepness and depth of a few other price drops. Get a repeat of a correction like that and this hedging trade will be a winner. Each contract entitles me to sell 100 shares at the bought put ($268) - i.e., $26,800 of value. I bought 4 contracts which gives me just over $100,000 of hedging protection which is 12% of the portfolio I applied it to. If I am wrong the trade will cost 1.5% of the portfolio value.
What could go wrong? Donald Trump could back off the tariffs to avert a trade war. Interest rates could go back to the course they were on and avoid the yield curve flattening. Europe could go back to solid growth trajectory. AND if they do the rest of my portfolios would improve commensurately.
Edit: I meant to add this. The next chart shows the cumulative advance decline line (ADL) compared with the S&P500 for the last year. The ADL has kept making higher highs even though SPY made lower highs. This is why I chose to do this as hedging trade and not as a change of direction trade. Be aware - this is a daily chart and not a weekly chart. The ADL is telling me that more stocks in number are advancing than declining. It does not take much change in sentiment to drive the bigger stocks to advance again.
<h3>Cryptocurency</h3>
**Bitcoin** (BTCUSD): Price range for the day was $347 (5.6% of the high). The sideways movement turned into a search for the lows to test the support levels. There are simply no buyers.
**Ethereum** (ETHUSD): Price range for the day was $28 (6.3% of the high) and still in "no mans land" inching closer to a support level around the $400 level
<h3>CryptoBots</h3>
**Outsourced Bot** No closed trades on this account (212 closed trades). Problem children list was unchanged and a little more ugly (>10% down) - (18 coins) - ETH, ZEC (-50%), DASH (-49%), BTS, LTC, ICX (-49%), ADA (-50%), PPT (-62%), DGD (-51%), GAS (-68%), SNT, STRAT (-58%), NEO (-63%), ETC, QTUM (-49%), BTG (-65%), XMR, OMG.
Worst coin honour remains with GAS (-68%) with ADA now joining the 50% down group.
**Profit Trailer Bot** No closed trades. Dollar Cost Average (DCA) list was unchanged at 12 coins. The ordering did change as 4 coins went to a first level of DCA (VEN, EOS, IOTA, ICX). Overall 5 coins were better, 1 flat and 6 worse. It is still going to take some movement to get the newly DCAed coins to profit.
The format of reporting is a little different as 3 coins were not allowed to go to DCA - they go into Watch Mode.
**New Trading Bot** Positions dropped 3 points to -58.9% (was -56%).
All 4 coins dropped between 2 and 3 points.
<h3>Currency Trades</h3>
**Forex Robot** closed 10 trades (0.39% profit) and is trading at a negative equity level of 2.06% (higher than prior day's 1.65%).
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search. DGT mix chart comes from etfdb.com. All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
Crypto Trading: get 6 months free trades with Bitmex for leveraged crypto trading. http://mymark.mx/Bitmex
Bitcoin: Get started with mining Bitcoin for as little as $25 http://mymark.mx/Galaxy
June 28, 2018