Tag: 2019 Crash Live Event

By Jeff Clark – the editor of the Delta Report Newsletter and Breakout Alert

Check out this chart of the ETFMG Alternative Harvest ETF (MJ) – an exchange-traded fund holding multiple securities in the cannabis sector…

This is perhaps one of the ugliest-looking charts in the market today. MJ is trading lower than it was last Christmas Eve, when the rest of the broad stock market hit bottom. And, the pot sector is down nearly 50% from where it peaked in late March.

In other words, while the S&P 500 has rallied nearly 31% since bottoming last Christmas Eve, the pot sector has fallen another 20%.

In fact, MJ now trades for about the same price it traded for back in early 2016, before recreational pot was legalized in Canada, California, Nevada, Michigan, and a handful of other states.

And this is what offers a potentially exceptional opportunity…

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You see, the pot sector today is in far better shape than it was back in early 2016. Pot smoking is legal in many more states now than it was back then. Several more states are likely to legalize marijuana for medical and recreational purposes in 2020. And, there’s little doubt the U.S. government will legalize marijuana in the near future.

So the demand for marijuana is going to increase – perhaps exponentially – in the near future. Meanwhile, the price of marijuana stocks has collapsed.

That’s our opportunity.

Let’s take another look at the previous chart.

Ever since MJ peaked in March and entered a sustained downtrend, the chart never showed a definitive higher low. Every bounce off each short-term low failed to make a higher high.

So, the trend was obviously lower. And, there was no reason to try to “bottom fish” in the sector.

In other words… there was nothing on the chart that suggested a potential bottom was in place.

Until now…

After a seven-month decline, MJ is now starting to show signs of bottoming. The stock traded down to $19 per share in early October. It bounced back up to test its 20-day exponential moving average (the green line on the chart) as resistance. And, it pulled back – just as it has every time it tested the 20-day EMA since late March.

But this time, it looks like MJ has formed a higher low on the chart. This is the first step in establishing a new uptrend.

There aren’t any guarantees, of course. But, if MJ can hold above the early-October low and then break above the 20-day EMA, then the odds favor the start of a new intermediate-term uptrend for the pot stocks.

And, given the horrendous performance of the sector over the past nine months, the “catch up” rally could be quite substantial.

By Jeff Clark – the editor of the Delta Report Newsletter and Breakout Alert

High-yield bonds are sending the stock market a warning sign.

Yes, the S&P 500 made a new all-time high on Wednesday. Yes, the Fed’s easy money policy is helping to boost stock prices. Yes, President Trump wants a higher stock market. And yes, we are entering a seasonally bullish period for stocks.

And, if high-yield bonds were making new highs along with stocks this week, then I’d have to wipe the bearish egg off my face and concede that the stock market isn’t in as much trouble as I thought.

But…

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As we’ve pointed out many times before, the action in high-yield bonds tends to precede the action in the stock market by anywhere from two days to two weeks. So, it’s notable that while the S&P was posting a new all-time high on Wednesday, junk bonds were falling.

And, by the look of the following chart of the iShares iBoxx High Yield Corporate Bond ETF (HYG), junk bonds look vulnerable to a much more serious decline.

Take a look…

This chart is forming a rising wedge pattern with negative divergence on the MACD and CCI momentum indicators. In other words, as HYG has been pushing higher and making higher highs over the past few months, the momentum indicators have been making lower highs.

This pattern usually leads to a breakdown – which means a selloff in the high-yield bond market.

That would be bearish for stocks.

And, if we combine this setup with the recent increase in bullish investor sentiment (a contrary indicator), the complacent level of the Volatility Index (VIX), and the huge price difference in VIX call options over VIX put options…

Then that gives trades plenty of reason to be cautious – or maybe even bearish – on the short-term prospects of the stock market.

By Jeff Clark – the editor of the Delta Report Newsletter and Breakout Alert

The single best short-term market timing indicator just flashed a “sell” signal.

We look for extreme conditions in the CBOE Put/Call ratio (CPC) to give us an idea of where the broad stock market might be headed over the next few days.

And, so far this year, the CPC has been 100% accurate as a contrary indicator.

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The CPC is a short-term, contrary indicator. It compares the action in call options to the action in put options. A reading above 1.20 shows extreme bearisness among speculators and can indicate a good time to buy stocks for the short term. A reading below 0.80 shows extreme bullishness and could indicate a good time to sell.

The CPC closed at 0.78 last Thursday. Traders were buying far more call options than put options. And, from a contrarian perspective, that should lead to weakness in stocks in the days ahead.

Take a look at this chart of the CPC…

The blue arrows on the chart point to times over the past few months when the CPC dipped below 0.80 and generated a sell signal. The red arrows point to when the indicator jumped above 1.20 and triggered a buy signal.

Here’s how those signals played out on the S&P 500…

In every single case, buying the S&P 500 when the CPC popped above 1.20 and shorting S&P 500 when the CPC dipped below 0.80 was a profitable trade.

I don’t know of any other indicator that has been so remarkably accurate this year. And, I don’t know if this indicator will continue its winning streak. But, this new CPC sell signal is enough to keep me cautious going into this week.

This isn’t a long-term signal, of course. So, we’re not using it to figure out where the stock market will be several weeks or several months from now. Trader sentiment is far too fickle to provide long-term insight.

We’re just looking out several days. And, based on the “sell” signal that triggered at the close of trading last Thursday, the setup looks bearish for this week.

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Lately, another important indicator has been on my radar.

It only works on a specific corner of the market, but so far it’s yielded excellent results – for me and subscribers.

I’m offering access to this new research only for a couple more days. So, if you’re interested, find out more here.

Editor’s Note: When it comes to reading the daily activity of the market, few are better than master trader Jeff Clark.

Over the years, he’s predicted the 2005 gold correction… the 2011 gold crash… the August 2015 market correction… the January 2016 market correction… the 2016 gold boom… the December 2018 mini-crash… and the January 2019 market bounce.

One of the reasons his technique is so effective is because it’s simple. And today, he shares an easy-to-follow rule that can save you a lot of money…

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By Jeff Clark, editor, The Breakout Alert

In February 2000, I spotted an irresistible option trade. It was a no-brainer—almost as if the guys on the option trading floors were holding up signs announcing, “FREE MONEY.”

So I backed up my wheelbarrow and loaded up.

It was the most profitable trade of my career. But it almost bankrupted me first.

The story is 19 years old, and my memory isn’t what it once was, so the finer details may not be exact. But here’s basically what happened…

PALM, the maker of smartphones and other handheld technology products, was scheduled to go public on March 2, 2000. The company was a wholly owned subsidiary of 3Com—which was issuing about 20% of the company to the public and taking advantage of the insane valuations of the internet mania.

The IPO price was set at $38. Of course, we all knew the stock would open for trading way above that level because, well… that’s just what stocks did back then.

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In January 2000, shares of 3Com were trading at about $50. By the last week of February, they were crossing the tape at more than $90.

The market was already pricing in the increased valuation of 3Com shares as a result of the PALM IPO. In the option markets, the expectations had risen to purely foolish levels.

The 3Com March $120 call options were trading for about $6. In other words, call buyers were willing to pay $600 for the right to buy 100 shares of 3Com at $120 per share over the next four weeks.

3Com was trading at $90—already up 80% in the past month! It would have to go up another 33% in the next four weeks for these calls to be worth anything at all by the time they expired.

Sellers of the call options would receive $600 for each contract and would be obligated to sell shares of 3Com at $120 if the stock was above that level on option expiration day.

The pricing of these options was just nuts, and it was the result of tremendous hype surrounding the PALM IPO—hype that would disappear as soon as the stock went public. I did the only thing I could do… I sold the call options and collected $600 on each contract. In fact, since the premium was so large and the potential for profit was so high, I took a position that was about three times my normal size.

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And the hype continued…

The next day, just three trading days before the PALM IPO, shares of 3Com rallied to $95, and the option premiums inflated further. The March $120 call options, which I had sold the day before for $6, were now trading at $10. I was down $400 per contract in just one day.

So I sold more.

That’s right. I increased my position size even more. Not only that, I started telling my clients about this trade and encouraging them to take positions. I even put my own brokerage firm’s money into the trade. I was THAT certain it would be a winner.

3Com went higher the next day, too. It was now at $96 per share, and—in a further display of the power of hype—the March $120 call options went up more than the stock. The options I sold at $6, and then again at $10, were now at $14.

I sold more. I also started selling the March $130, $140, and $150 calls as well. The option premiums were just too large not to. And the probability of the stock rallying above $120 (let alone $130, $140, or $150) was so remote that I rationalized it was okay to keep the exposure.

Then came the morning of the PALM IPO. I hadn’t slept at all the night before. I was sitting at my desk and staring through an assortment of half-empty Pepto-Bismol bottles at the television screen on the other side of my office.

Maria Bartiromo and Bob Pisani were on CNBC. They were talking about the tremendous interest investors had in the PALM IPO. Early indications were that PALM—which was priced at $38 for the IPO—would open for trading somewhere north of $150 per share.

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My stomach sank, and I slammed my forehead onto the top of my desk.

If PALM was worth $150 per share, then a quick “back of the napkin” calculation told me 3Com was worth more than $300 per share.

I had agreed to sell it for $120. My exposure was so large that anything above $180 would bankrupt me. It would wipe out my account, put my firm under the minimum net capital requirements, and create huge losses for my clients.

I started to panic. I started typing an order to cover the position and take the loss while there was still time. 3Com was trading at $105, and the March $120 call options were $18. It would be a tough loss to swallow, but I’d remain solvent, and I’d be around to trade the next day.

Just as I finished typing the order and was about to hit the “send” key, I stopped. A voice in the back of my head said, “It’s all hype. You’ve seen this before and you know how it’s going to end. You used logic and common sense when you got into the position. Now you’re about to panic to get out.”

I erased my order entry screen. Stood up from my desk and unplugged the television. I then left my office for two hours.

PALM started trading about one hour later. It opened at $140 per share, the high of the day, and then began drifting lower.

3Com never traded above $110. And as soon as PALM went public, 3Com started to sell off. It was a typical and predictable “sell on the news” situation.

When I returned to the office, 3Com was trading at $85 and the March $120 call options, which I had sold for $6, $10, and $14—and which had traded as high as $20 earlier in the day—were now worth just $0.06. Every contract I had sold for a minimum of $600 now cost just $6 to buy back.

The trade that had threatened to bankrupt me just a few hours earlier had now made a fortune. My clients were rich. My firm was rich. And my own net worth nearly doubled as a result.

I shut my office door, turned off the lights, sat down at my desk, and closed my eyes. And I swore I would never, ever do that again.

There’s no need to.

The market provides any number of ways to take advantage of mispriced, overhyped situations without exposing yourself to tremendous risks.

I could have employed a relatively simple strategy that would have been equally as profitable, but considerably reduced my risk had I just done a little extra homework.

So if you ever spot the “FREE MONEY” sign while you’re searching for trades, be sure to keep your risk level in check. It’s the best way to succeed, long-term, as a trader.

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Based on what I’ve seen, I’m confident I can find at least 12 other opportunities for gains over 100% in the next 12 months.

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By Jeff Clark – the editor of the Delta Report Newsletter and Breakout Alert

The price of natural gas almost always blasts higher at some point during the fourth quarter of the year.

That makes sense. Temperatures fall. People use natural gas to heat their homes. And, the price of natural gas goes up because of the increased demand.

So, buying natural gas as we head into winter seems like an easy, no-brainer strategy.

But, as anyone who has been around the financial markets for more than a week can tell you, there is no such thing as an easy, no-brainer strategy.

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The problem is that it’s hard to get the timing right on a natural gas rally.

For example, back in 2016, the price of natural gas fell 20% in October before it reversed and rallied 40% into the end of the year. If you were one week too early buying natural gas, you probably would have stopped out of the trade for a loss before the price turned around.

In 2017, the price of natural gas fell almost 20% between Thanksgiving and Christmas. It recovered that entire loss by New Year’s Eve. And, it rallied another 10% in the first week of 2018.

Last year, the “traditional” natural gas rally started in late September. And it peaked around Halloween. The price of natural gas jumped more than 60% in just one month. But, if you held onto the trade, looking for bigger gains going into the winter months, then you gave up almost everything from the start of 2019.

My point is… no matter how “logical” it seems that natural gas prices should rally heading into winter, profiting off of that logic is really hard to do.

Sometimes though, it makes sense to try anyway. This is one of those times.

Take a look at this chart of natural gas…

Natural gas made a recent bottom around $2.20 a couple of weeks ago. As the price dipped to a lower low, though, several of the technical indicators (like the MACD, RSI, and CCI ) at the bottom of the chart made higher lows. This sort of “positive divergence” often marks the end of a decline phase and the beginning of a rally phase.

The price of natural gas then bounced up towards its early October high. It pulled back from that resistance level. And, so far at least, the price is holding above the $2.20 low. So, we just might have a “higher low” in place.

This action, along with the positive divergence on the technical indicators, is a bullish sign. As long as the price of natural gas doesn’t close below the mid-October low of $2.20 then the path of least resistance is higher.

Natural gas could be sharply higher by the end of the year than where it is today. And, natural gas stocks should be higher as well.

In fact, this is probably my favorite sector heading into the end of the year.

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