Warren Buffett famously said “You only find out who’s been swimming naked when the tide goes out.”  This past week we started to find out who was swimming naked when the energy markets after weeks of moving down with crude and up with natural gas moving up.  These were extreme moves and when there are extreme moves someone or many people are on the wrong side.  This weekend we found the first person who was caught naked when the tide went out.  James Cordier, who ran “Optionsellers.com” eerily appeared on You Tube to let his clients (290 of them) know that everything he managed for them was gone AND that they were all liable for a significant margin call.  If you had $1m with him, you were in debt for $250k after your million was wiped out.  The options market is inherently risky and selling naked uncovered options can result in unlimited risk.  Yet selling volatility has been a wildly profitable popular strategy in recent years.  Money has poured into these strategies and there are even ETF’s dedicated to these strategies.

I’ve sold naked puts and calls my whole life but it’s not a strategy that takes up much of my portfolio and usually I sell covered options.  Where this guy went wrong, really wrong is that he must of had massive leverage into options on the futures markets of just the energy markets.  I preach diversification and proper position sizing all the time and this guy just gave us a good reminder of why it’s so important. I don’t feel bad for him but feel very bad for his unsuspecting clients who no doubt could have ever envisioned this. Here’s the link.  Be prepared it’s 10 minutes that is really uncomfortable and wearing a fancy gold Rolex with expensive cuff links was an ill advised call.

The equity markets are under significant pressure today and it is due to several factors.  First the underlying issues after last Friday’s option expiration left this week with few traders delta hedged, fewer options dealers working on the holiday week which means liquidity will be even worse than as its been lately.  They will come back in December and put on more hedges.  Secondly, the Fed rolloff this week is the largest ever at $17b in treasuries and $9b in MBS.  Third, the large cap mega cap names continue to break down following a story in the WSJ saying Apple is cutting production of all three iPhones.  Fourth, the positive China news stories that lifted the markets from Friday only saw more acrimony over trade with VP Pence and President Xi over the weekend.

Sentiment remains low and prices are headed lower and if the recent lows break, significant selling is likely to occur.  There wasn’t a true capitulation and selling so far has been mostly orderly.  I’m watching the DeMark wave patterns which have much deeper price objectives and we are only in wave 3 of 5 so this is far from over.  Please understand this is the type of setup that could see very sharp moves lower so I continue to recommend a large cash position and tight stops.

Password resets have been sent to all clients and we thank you for your patience as we continue our move to the new platform.  A few hiccups and duplicate emails but for the most part it is running fine. Tomorrow we will be doing a Sector Focus on US markets.

US EQUITY MARKETS

S&P bullish sentiment is at 25%.

S&P Daily has the potential for the wave 3 downside price objective into the 2400’s

The 60 minute tactical time frame SPX shows a wave 3 price objective of 2601.  The last 5 wave down move achieved the wave 3 (exceeded) and wave 5 targets.

Nasdaq led the market higher and now it is leading on the downside.  If today makes a new closing low it will be in wave 3 with downside price objective 10% lower

Dow Jones 60 minute tactical has a downside wave 3 price objective at the late October lows

Russell 2000 not yet in wave 3 of 5 on the downside.

TRADE IDEAS

STOPPED OUT OF TSLA TODAY -6.5%.  ALL OTHER POSITIONS REMAIN WITH 5-7% STOP FROM INCEPTION.

Amazon is only on day 11 of 13.

FOCUS OF THE DAY

I collect clips and research reports at times in folders when I think I see something that will be a major blow up and or just rediculous.  This is from a year ago.  Anyone remember what happened in February?  They never learn.

The Rolex and cuff links were not a good look after you lost everyone’s money

ENERGY MARKETS

Crude bullish sentiment hit 96% a month ago and 4% late last week.  This could chop around under 30% for a while

WTI Crude concerned me late last week when a new downside DeMark secondary Countdown was on day 3 of 13.  Now it’s on day 5 of 13 and this could slip lower.  By the way, I only heard people wanting to buy this and even saw reports of “generational lows”

Traders rushed to short this and could see a potential squeeze but my bet is once this flushes a little lower

Brent also has a secondary Countdown.

Brent has been down 6 weeks in a row.

Natural Gas still has a bid but buying here is not recommended.  3.50 – 4.00 is a better zone

This is pretty scary and likely claimed more than the options sellers people

CURRENCIES

US Dollar bullish sentiment has moderated a little off the recent +90%  levels

US Dollar Index chopping around and still above the 50 day.

Euro Bullish sentiment is at 20% and remains depressed

I could see the Euro try and make a run to the 1.15 level and fail.  There is a downside wave 5 price objective now at 1.0986

EUROPEAN MARKETS

Euro Stoxx 50 bullish sentiment at 15% remains very low but this can and likely will stay in this lower range

Euro Stoxx 50 like most of the other European markets continues to trade poorly nearing lows again

US BONDS

Bond bullish sentiment is at 70% and continues higher.  Recent highs have been around 80

US 10 Year Yield continues lower in a risk off type trade

 

DEMARK SCREENS – Daily Upside/Downside Exhaustion Signals for November

Daily/Weekly DeMark upside/downside exhaustion signals (Sequential and Combo)  updated daily.

The upside 13’s are sell signals and downside 13’s are buy signals. Price flip’s are confirmation signals that increases potential for a price trend change.

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