Subject: See Terry's thoughts on the current market and how to prepare and prosper in 2019
Terry's thoughts on the Current Market Conditions and how to prepare for 2019
Excerpt from our Weekly Saturday Report that goes to Terry's Tips Insiders:

Some Thoughts About the Market: It has always been difficult (or impossible) to consistently predict the short-term movement of the market. That seems to be more than true right now. The only thing that seems to be predictable is that it will be volatile. There are so many things happening right now, or are soon to happen, that will spook or encourage the market in one direction or the other. For example, this week, a Fed official mentioned the words “just below” in a speech, and sent the market soaring up 500 points on Wednesday afternoon.

Big things on the table right now, all fraught with uncertainly:

1. The trade war. Will it escalate and eventually contribute to a recession or will it suddenly be resolved, possibly this weekend? The president is using it as a threat to negotiate a fairer deal with China. If he succeeds, the market might soar. If it drags on, the outlook is not so good. Everything we buy from China will start costing more. Already, farmers have run out of storage to handle the wheat and soybeans that China isn’t buying, and they are beginning to grouse in spite of government hand-outs designed to help them cope.

2. The Mueller Report. It will likely be issued in the next couple of months. Will it include damaging news for the president or not? Or will it matter? What will be the market’s reaction to it, if any? Surely, there will be some sort of response, but who can guess what it might be?

3. Trump’s tax return. With the Democrats controlling the house, the Judicial Committee has promised to ask the IRS for a copy of Mr. Trump’s tax return. It probably includes something that is not good for the president (otherwise, he would have offered it up long ago). This is another uncertainty similar to the Mueller Report.

4. The Fed. Will they continue to push interest rates as they suggested in the past, or will they slow down or stop making increases? Every monthly meeting is likely to move the market one way or the other. 

5. The season for market prognosticators. The next few weeks will see a spate of annual projections for the market published by the financial press. What will be the common theme(s)? Barron’s has predicted a slow-down or recession in 2020. Jim Cramer says we are already in a bear market. Others will join in with their predictions. They are likely to be all over the place, with all the uncertainty that seems to be out there right now.
I have no idea of which way the short-term market is headed. The economy seems to be progressing along just fine. P/E ratios are on the high side, but less than what they have been for the last few years. Earnings are up, unemployment is near a historic low, consumer demand seems to be high (but might fall off when everything for sale at WalMart gets more expensive). Earnings seem to be increasing across the board (helped by lower corporate taxes and depreciation write-offs). So why did the market drop by 10% over the last two months before getting some of it back this week?

The one thing that seems certain to me is that the current volatility is likely to continue. This does not seem to be a good time to have a lot of calendar spreads in place. It has recently hurt us in the Rising Tide portfolio, for example. On Tuesday this week, JNJ fell over $1.50 in the morning, causing us to adjust to lower strikes. The stock rose over $3 in the afternoon, and again by that amount the next day, causing the portfolio to lose a big chunk of its value. Rather than owning calendar spreads (which by always do well when the market is quiet), this might be a good time to take a breather from the market and take some money off the table.

It might be a good time to buy straddles. A one-week at-the-money straddle on SPY costs a little more than $6. Most of the time, the smart move would be to sell a straddle at that price. But SPY has moved by more than $5 on a single day in each of the last three weeks, making a purchase of a straddle an interesting alternative. I have always preferred selling short-term options to buying them, but maybe this is the time to change my tune. My problem with buying straddles is deciding when to sell. One thing I have tried (with mixed results I’m afraid) is to buy a straddle, and place an order to sell either side of it when it reaches what I paid for the straddle. If it gets triggered, I then hope for the market to reverse itself and the other half of the straddle soars in value. But, inevitably it seems, is that whenever I buy a straddle, the market doesn’t do much of anything, and I end up closing it out on the morning it expires, usually getting back about half my investment.

In the few instances when I have bought short-term options rather than selling them, I have had more luck waiting for the market to move by a very large amount on a single day, and then betting that it will reverse itself shortly thereafter. This involves buying either puts or calls, and not both. But I don’t do it very often. Again, the biggest problem seems to be deciding when to exit the position.

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Happy trading.

Terry


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After 17 Years in Business our subscribers see Great Value:

"I've always had the greatest respect for Terry's experience and teachings. There are numerous individuals now trying to sell option schemes. This new guy sending out emails, (name deleted), charging $5000 knows just enough to be dangerous--his free videos are bogus! In my humble opinion, Terry's one of the few that's got it right."  ~ Robert Y
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