RF's Financial News

Sunday, January 18, 2015

This Week in Barrons: 1-18-2015

This Week in Barrons – 1-18-2015:

Thoughts:

Dear Ms. Yellen:

Were you ‘tipped off’ in advance of last Thursday’s announcement by the Swiss National Bank (SNB) deciding to: (a) cut interest rates to negative 0.75% and (b) remove the Euro floor & ceiling cap on their currency? Obviously this threw the world into a currency avalanche as people scrambled to square out of positions. After all, prior to Thursday the Swiss Franc was pegged to the Euro, and this move by the SNB resulted in an overnight 23% spike higher for the Swiss Franc. By Friday morning two currency brokers were already declared insolvent, and one of the publicly traded companies (FXCM) was halted in pre-market trading as they tried to find capital to keep from declaring bankruptcy. The SNB believes that next week the EU will launch a form of QE, which will lower the value of the Euro. For the past 3 years, the SNB has been buying Euros to keep the Swiss Franc capped and balanced. However, if you're buying a currency that you know will be devalued, and therefore you will lose a lot of money – you can either: (a) take one for the team, or (b) decouple your currency and move on. What also is interesting to me is that for months Mr. Thomas Jordan (the headman at the SNB) has been telling the Swiss that all is well, and that they didn't need any ‘gold-backed’ currency. And then (out of the blue) they remove the peg to the Euro, cause a massive avalanche in the Swiss economy, and crush many exporters. I understand that the SNB Balance Sheet was completely out of control, and it was going to be a bloodbath when the EU announced its QE on January 22^nd. But that isn't my issue. My issue is that the SNB (for 3 years) has looked their people in the eye and said point blank: “We've got your back.” Then in a flash they said: “Sorry, we changed our minds.” The SNB directly lied to the Swiss people. All those who were deluded into voting against a Swiss gold initiative in November – are now in shock because they now realize that all of the promises that the SNB made to them were lies. I’m assuming that our FED is NOT doing the same thing (behind the scenes) to us?

And what about Mr. Draghi? For 2 years, he’s been jawboning about pulling out all the stops, and going ‘all in’ for QE. Now (on Thursday January 22^nd), he has everyone wondering whether he will be true to his word, or whether he’s going to be like the Swiss and stab everyone in the back. But if the SNB was willing to make such a monumental move ahead of the EU announcement, at minimum the SNB thinks that the announced EU program will indeed be big enough to bash the Euro definitively lower. So despite the EU courts giving their approval for QE (with restrictions), many now feel that Draghi’s announcement will be significant enough that everyone gets their fair share of the "Free Money Pie”.

Unfortunately Ms. Yellen, Mr. Jordan proved that the global economic situation is far beyond what most people think. In the past we could all be assured that the Central Banks would work together to promote their agenda. But because of breakdowns between the major players, we are beginning to see an ‘every man for himself’ type of attitude shaping up. We're in a fiat currency war that will end badly for everyone. In the end, I believe that it’s whoever owns physical gold that will win the war. Even Alan Greenspan can't talk fast enough about how the only real money is gold, and how not even the U.S. dollar can touch it. That's because after being a central bank insider himself, he knows that fiat currencies are avalanches waiting to happen. He is simply trying to tell us to get out of the way.

The Markets:

Factually last week:

- The Michigan Consumer Confidence survey came in at a record high of 98.2. The U.S. consumer clearly loves their lower gasoline prices.

- Citibank and Banc of America missed their own earnings estimates.

- BP is cutting 300 workers due to the drop in oil prices.

- The PPI (Producer Price Index) fell 0.3% on lower gas prices.

- J.P. Morgan missed their own earnings estimates, and announced that they had incurred yet another $1B in legal fees as investigators continued to probe JPM’s currency fraud and manipulation techniques.

- And December Retail Sales completely missed the boat as actual sales ‘decreased’ 0.9% over estimates.

Last week’s market action was ‘choppy’ to down, and there are several reasons for this:

- Investors that have been riding the ‘market gravy-train up’, have decided to lock in some profits and take money off the table.

- Earlier this week there was a question over whether the European courts would actually allow some form of QE to be enacted.

- There is a major push/pull going on between the people that believe the economy is firing on all cylinders, and those who look at the economic reports and realize we are sinking.

- There is the continued yes/no debate over whether the FED will raise interest rates this year.

- And the Central Banks themselves are manipulating the markets by ‘jawboning’, and by actually buying stocks and bonds.

The whipsaw action (in and of itself) isn’t terribly important. But when a market gets this wickedly volatile, it generally means that the prevailing trend is coming to an end. So that means that the general ‘UP’ trend that has been in place for the past 5 years – could be coming to an end. Therefore, all of this insane chop could be warning of an impending market avalanche. After all, other than ‘free money’ from the EU, India and Japan, there is very little reason for our markets to move higher. Banks and financials are missing their earnings targets. Retail sales are coming in well below estimates. And the energy sector remains weak, and getting weaker as the layoffs are starting.

This coming week should continue our market volatility. If the EU unleashes a massive QE program, it will cause a short-term market run-up that could challenge the highs of Jan 8 - 9. But it will also cause some major players to realize that the Europeans subverted their constitution and printed money just to keep the wheels from coming off their own economy. That thinking should lead to higher gold prices, and lower yields on Treasuries as the world eventually flocks to safety. But it won't be until Thursday that we hear what the Europeans are going to do. If the markets decide that the EU is doing ‘too little – too late’, then we could see the market roll over and plunge in a big way. I'm going to base any buying of gold and the mining stocks on what I hear from Europe on Thursday. If they go big, then I think the miners and gold will continue to push higher. If they go ‘quietly into this good night’, then the metals may temporarily cap here. The stage is truly set for Mr. Draghi at 8:30 am on Thursday morning.

TIPS:

Factually:

- Copper (/HG) can be used as a economic leading indicator. When the price of copper is over $3 per pound, the world economies are growing. Why? Because 400 lbs. of copper are used in each home, and 50 lbs. of copper are used in each automobile. Right now copper is $2.50 per pound, and that is telling me that overall global demand is slowing.

- The falling price of gasoline is putting (on average) $150/month additional into a family’s pocket. Since most families live paycheck to paycheck, these additional funds are being spent on restaurants such as Buffalo Wild Wings (BWLD) and Papa John’s Pizza (PZZA).

- The bond indicator (TLT) is flashing a ‘flight to safety’ sign as it is hitting all time highs.

- And gold is moving higher, which compliments the ‘red flag’ that copper is giving us in terms of a global slowdown, currency fears and a ‘flight to safety’.

The 3 C’s of trading (Comprehension + Confirmation = Confidence) will never be more apparent than over the next several quarters as many are looking for a 10 to 20% correction in the equity markets. I personally am going to:

- Begin to sell my winning puts on the Yen currency (FXY) and buy more puts on the FXE after Draghi’s January 22^nd announcement – assuming that he does announce European QE.

- I also started playing NUGT (the triple leveraged gold miner ETF) this week to the long side.

- And I also re-initiated my 3% per week play on NUGT & DUST. (NUGT and DUST are the same ETFs only one is the exact opposite of the other. Therefore if you purchase both in equal quantities (thereby off-setting their stock movements) – you can then sell ‘weekly covered calls’ on both – pocketing the proceeds without fear of the underlying ETFs moving against you.

My current list of potential candidates for this week is as follows: Restoration Hardware (RH), Lumber Liquidators (LL) – look at a Feb / March Calendar trade, Costco (COST), Kroger (KR), Starbucks (SBUX), John Deere (DE), Nordstrom’s (NORD), Amgen (AMGN), and the Energy Sector ETF (XLE). I’m also looking at some after earnings plays for: American Airlines (AAL) and Federal Express (FDX). You’ll find that after earnings there will be a volatility crush and it’s the ideal time to buy a Calendar trade.

For next week I’m mainly selling into this increased volatility with:

- AMZN – JAN5 – SELL the +245/-250 to -350/+355 Iron Condor,

- GILD – JAN5 – SELL the +89/-90 PCS,

- IBB – FEB – BUY the 310 / 320 / 335 Call Broken Wing Butterfly,

- AAPL – MAR – SELL the +95/-100 PCS,

- AAL – SELL the 45 / 47 PCS – and BUY the 52.5 / 55 / 60 Call Butterfly,

- RUT – MAR – SELL the +1040/-1050 to -1290/+1300 Iron Condor,

- SBUX – FEB – BUY the 80 / 85 / 90 Call Butterfly,

- SPX – FEB – SELL the 1870 / 1870 PCS, and

- TLT – BUY in the 125 to 126.5 zone.

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

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If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28

Investing = http://vimeo.com/user8991651/review/105373016/a5e84dd610

Marketing = http://vimeo.com/user8991651/review/105373015/d7237d026d

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Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

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Remember the Blog: <http://rfcfinancialnews.blogspot.com/> Until next week – be safe. R.F. Culbertson

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Sunday, January 11, 2015

This Week in Barrons - 1-11-2015

This Week in Barrons – 1-11-2015:

Thoughts:

“Just when you have all the answers – I change the questions”… Rowdy Roddy Piper

Dear Ms. Yellen:

As I understand it, the game plan was to: a) lower interest rates and increase the money supply, b) this would spur borrowing, c) then borrowing would spur spending, d) spending would boost revenues and profits, and e) increased revenues and profits would boost job hiring. The theory was that this would create a weaker dollar – which would also help to increase exports and more U.S. manufacturing jobs. With a bonus being that the weaker dollar would allow us to repay our debts with a devalued currency. The weak dollar would also make U.S. real estate attractive to international buyers. However, every other nation also devalued their currency making the U.S. dollar the strongest horse in a very week race. Isn’t this strong U.S. dollar working against you? I remember from your writings that a strong dollar increases the risk of deflation, which causes recessions and economic stagnation to a nation. So how far will you allow the dollar to rally before you take action? Will you (if the dollar remains strong) continue with your zero interest rate policy (ZIRP) and perhaps launch another QE program?

Ms. Yellen, you obviously knew that the other Central banks (Japan and Europe) would launch huge QE programs of their own. And by now you must have heard The Ben Bernanke’s quote from last week – when in the U.K. he said: “See, we did it. We solved the nation's problems". But to quote the great WWF hero - Rowdy Roddy Piper: “Just when you have all the answers, I change the questions.” I’m guessing that you were surprised by the strength of the strong dollar, and you’re only recourse (now) is to continue to talk ‘up’ how good things are, and then increase interest rates by a small amount in late 2^nd quarter. I do NOT think that you will introduce any new QE. I do (however) think that you will look for any event on which to blame our weak economy and reinstitute a new QE program. Right now, that event seems to reside in the Ukraine.

Ms. Yellen, it’s my guess that the U.S. will try and lure Russia into a confrontation in the Ukraine. Russia will generate a response large enough to make a major newspaper headline. Our response will be that Putin’s a madman, hell bent on taking over Europe, and therefore, we will be forced to build more jets, bombs, nukes, and high ticket defense items. This political reaction will give the FED the opportunity to institute a new QE program due to: war fears, defense spending, and a sagging economy. At that point you may even ‘take back’ the rate hike that you gave us before this all happened. I think that you will accept virtually anything big that goes ‘bump in the night’ as a reason to come up with more stimulus and thereby weaken the dollar.

That’s my 2 cents.

The Market...

This week:

- The ISM Services Index and the Factory Orders Report were both lower than expectations,

- The Prices Paid Index fell to levels not seen since 2009.

- Oil continued to fall, and fall hard,

- The Baltic Dry Index (a measure of the shipping industry’s health) continued to fall,

- Global bonds continued to trade below zero yield (negative interest rates),

- Greece is on the rocks,

- The Eurozone is being rocked by the sanctions placed on Russia,

- And even China announced about a Trillion dollars of infrastructure spending to try and boost their economy.

On Friday we had the monthly Jobs Report. The headline told us that our Unemployment Rate fell more than expected to 5.6%, and that we created 252,000 jobs in December. On the surface this appeared like a great report, but the markets fell. So let’s dissect the report a bit:

- Average Hourly Wages fell 0.2%, and over 273,000 people dropped OUT of the labor force in December.

- This lowered the Labor Participation Rate to 62.7% - a level not in almost 40 years.

- Doing the Math: 246,000 NEW jobs were created, but 273,000 people dropped out of the workforce = creating a net LOSS of 27,000 individuals.

- Factually: 6.75M people have LEFT the workforce since 2008.

- If we ADD back the 6.75M people who have left the workforce (and count them as being unemployed), the unemployment rate becomes 9.5%.

- So the REAL unemployment rate is 9.5%, which is a ‘far cry’ from the headline report of 5.6%.

- So, THAT is the reason for the market decline following the jobs report on Friday.

Our markets are being propped up by Central Banks that have purchased over $29T worth of stocks. We are (however) beginning to see cracks: (a) In 2014, the longest losing streak for stocks was 3 days. In 2015, we’ve already had a 5-day losing streak. And (b) the S&P has not suffered a 1.5%+ down day during the first week of a year since 2001. We broke that record in 2015. This market has been so ‘bizarre’ for so long, it’s finally getting ‘back to normal’. For example, during 12 days in December the market moved almost 2,000 poionts. And in January, we lost 452 points in 3 sessions, and then proceeded to gain back 533 points in two other sessions.

We are all witness to computer driven, algo-trading gone wild. However, I’m noticing that the algorithms are ‘volume-biased’ to SELL harder than they BUY. In other words, on the bad ‘down’ days the volume is usually really strong, but on the up days the volume is normally weak. How can this be? Well, when the selling hits, it is on fairly good volume, and when the selling is over it doesn’t take too much buying to produce oversized moves. This is an indication of a ‘troubled’ market.

This week marks the beginning of earnings season. A company’s ability to ‘fudge’ their numbers will be the determining factor as to whether this market kicks into high gear and rallies, or if this choppy consolidation breaks to the downside. To support a market at these nosebleed levels, earnings would normally have to be spectacular. But in our current FED, QE, Japan carry trade, and zero interest rate policy environment earnings could stink and we could still go higher. How? A mere mention by a FED official that they won’t raise rates, or Mr. Draghi (in Europe) passing a giant QE program would ignite this market.

I do NOT think we're past the extreme volatility. Between trying to game the earnings season, guessing what the EU might do concerning Greece and QE, and guessing what our own FED will do – we are going to see more chop. The tug-of-war between those wanting out of the market and those wanting in – will continue. Right now, it feels like we have a better chance at fading lower, but that could change in an instant if companies start telling us how wonderful things are.

TIPS:

Volatility is here in a BIG way. Intra-day swings are adding up to 500 point moves. There’s a big push between those that know the economy is a fraud, and those that toe the Wall Street line and see the U.S. as a shining beacon of strength. Some want out, some want in, and that is causing this entire chop.

My current list of potential candidates for this week is as follows: Gilead Pharmaceutical (GILD), Russell Small-Cap Index (RUT), Bio-Tech Index (IBB), S&P Index (SPX), Nasdaq Index (NDX), Costco (COST), Restoration Hardware (RH), Starbucks (SBUX), Nordstrom’s (NORD), Amgen (AMGN), Kroger (KR), Celgene (CELG), and Disney (DIS).

For next week I’m selling into this increased volatility using Iron Condors, and by using a specific stock’s bias via Put Credit Spreads (PCS) and Call Credit Spreads (CCS) – and playing the other side with a Broken-wing Butterfly.

- AMZN – JAN5 – SELL the +245/-250 to -350/+355 Iron Condor for $0.62,

- GILD – JAN – SELL the +90/-91 PCS – and BUY the +94 / -99 / +102 Call Butterfly, there is an upside ‘weekly squeeze’ in place,

- IBB – JAN – SELL the +297.5/-300 PCS – and BUY the +307.5 / -315 / +320 Call Butterfly, there is an upside ‘4-hour squeeze’ forming,

- IBB – FEB – BUY the 310 / 320 / 335 Call Broken Wing Butterfly,

- LULU – JAN – SELL the +53/-55 PCS – and BUY the +58 / -60 / +61 Call Butterfly, there is an upside ‘Daily squeeze’,

- PFE – FEB – SELL the 30 / 31 PCS – and BUY the 32 / 34 / 35 Call Butterfly, there are 30-min, 1-hour, and Daily squeezes forming,

- RUT – MAR – SELL the +1040/-1050 to -1290/+1300 Iron Condor,

- SBUZ – FEB – BUY the 80 / 85 / 90 Call Butterfly,

- BABA – JAN – BUY the 90 / 97.5 / 105 Put Butterfly (playing the downside),

- NFLX – JAN – BUY the 290 / 300 / 310 Put Butterfly (playing the downside), and

- TLT – BUY in the 125 to 126.5 zone.

Look for:

- UNH as it approaches my buy zone of $101.54,

- DPZ as it approaches my buy zone of $96.60, and

- PZZA as it approaches my buy zone of $58.28.

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28

Investing = http://vimeo.com/user8991651/review/105373016/a5e84dd610

Marketing = http://vimeo.com/user8991651/review/105373015/d7237d026d

Sales = http://vimeo.com/user8991651/review/105373014/0e44b43962

To unsubscribe please refer to the bottom of the email.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, January 4, 2015

This Week in Barrons - 1-4-2015

This Week in Barrons – 1-4-2015:

“There’s gold in them thar hills. Black gold. Texas tea.” TV show – ‘The Beverly Hillbillies’

Thoughts:

Ms. Yellen – As I remember the line from the TV show, I’m having trouble getting past the recent commodity prices. Why are so many commodities coming under pressure? My first reason would be the strong U.S. dollar – because that is the denomination in which most commodities are priced. My second reason would be governmental price fixing – especially in the case of gold and oil. I always worry when nations start disrupting the normal flow of supply and demand. Don’t you worry about the physical demand for gold and silver out-striping supply – and creating a run on the commodity? Don’t you worry about our relationship with Saudi Arabia – and the U.S. ‘basically’ forcing Saudi Arabia to embrace the BRIC nations and become the dominant oil supplier to China and South East Asia?

Speaking of artificially controlling supply and demand, your QE programs artificially controlled the ‘demand’ for bonds by artificially raising bond prices, lowering yields and making bonds unattractive for investors who are seeking a ‘safe heaven’ income. For investors seeking any kind of return, you made the only option the equity market. The artificial environment allowed investors to easily borrow more money, buy more equities, and force higher equity prices. The December numbers for the NYSE Margin Index (investors borrowing funds to purchase more stock) hit new highs at over $450B. Ms. Yellen, I’m wondering, when will this party truly end? I’m thinking that you will never end the party because the U.S. has passed the ‘point of no return.’ What were once considered emergency room measures are now considered the norm. You can’t stop buying our bonds, because with a ZIRP (zero interest rate policy) there aren’t enough ‘other’ buyers. Increasing rates will attract more buyers, but that will cause the stock market to fall. If our market declines rapidly, it will have a dramatic impact on the economy and moral – which could lead us into another recession. I think you’re stuck. But, does this mean that you’re considering investing in the stock market (aka like Japan) – in order to be able to increase rates and simultaneously prevent a stock market decline? Because if we did suffer a market decline, many investors would receive margin calls – which would only increase the selling pressure. Remember, a stock only has two ‘real’ prices – one when it is born (goes public), and the other is when it ends (is bought out or goes out of business). All other stock market pricing is based upon perception influencing supply and demand.

And yes Ms. Yellen, I know – this time it’s different. But time and time again, when investors have access to capital they will borrow and buy something – regardless of the fundamentals. However, this time you and other governments are active participants in the markets. You are out there purchasing assets and fixing rates – actively influencing supply and demand. You are trying to control the story and drive perception. I only see two stock market outcomes for 2015. One is that we will all keep the faith – the party will continue – and the market will increase between 8 and 12%. The other scenario is that we will see a significant market correction of over 25% - not due to specific stock scenarios, but rather our country’s complete reliance on your monetary policy along with government intervention. I’m not sure you have the ‘bullets left in the gun’ to fight the next correction. Interest rates are already at zero, you’ve already printed trillions, and you’re buying bonds and mortgage-backed securities.

Honestly, maybe there’s more ‘gold in them thar hills’, or just maybe the FED’s oil well / printing press (along with many fracking situations) will be forced to shut down until everything stabilizes.

The Market...

Looking backwards and forwards:

- In 2014, the U.S. remained the world’s largest economy (17.8T), but China is gaining quickly (10.0T). By 2025, China will become the world’s largest economy, and by 2024 India will become the world’s third largest economy. Russia is predicted to remain in 10^th position through 2030.

- In 2014, unemployment rates hit 26% and 24% in Greece and Spain. In 2015, will Germany continue to want to prop them up?

- Will 2015 be the year that the U.S. ‘stops’ being the world’s belligerent bully? Using the Sony disaster as an example: (1) The U.S. was "absolutely sure" it was North Korea doing the hacking. (2) Then it became: "The Russians did it." Now, (3) it seems that it could have been some 3^rd-Party hackers (including X-Sony (laid-off) employees) that were pulling a prank. How is it that we continue to make Page 1 headlines by pointing fingers at countries saying that we “have proof” – only to print a Page 12 retraction and go in a completely different direction?

- Will 2015 be the year that our FED continues to ignore the laws of supply and demand? In the case of currencies, nations are pseudo-defending and simultaneously devaluing their currencies in order to spur inflation and boost exports. Nations want to reduce the value of their own currency in order to pay down their own debts with inflated money.

- Will 2015 cause the oil market to completely come apart? The current situation is OPEC versus ‘all comers’. Due to the rise in ‘fracking’, the U.S. has increased oil production over 30% in the past couple of years. Currently the U.S. is almost in a oil production ‘dead heat’ with Saudi Arabia (9.3M barrels versus Saudi’s 9.7M barrels). I’m thinking that oil prices are going to have to come under serious pressure (enough to bring Saudi and the U.S. back to the negotiating table) before the oil pricing situation is resolved. During that time we will see the stock market cheerleaders come out and tell the world how ‘low priced oil’ is good for the world. All the while, entire regions and communities are losing their jobs. After all, energy drives the economy and it takes a lot of $20 savings at the pump to replace even one $90k / year job that is lost. Eventually oil will bounce back into the $70-$80 range, but the first quarter could be in for some oil volatility which will cause market volatility as well.

- In 2015, I think we will see an early increase in the value of the dollar. Whether this causes the U.S. Mint to finally say ‘no mas’ in terms of issuing additional physical gold and silver coins and bars – is anybody’s guess. Also, I’m wondering (with the initial strength of the U.S. dollar) how long oil will continue to be priced in Petro-Dollars.

- In 2015, because the dollar strength is going directly against the FED – we could see them architect a pseudo-collapse in the dollar in order to spur inflation and increase commodity prices. The danger here is if the world starts ‘dumping’ dollars (much like in the 70’s) – what will the FED do? We are 7 years into the ZIRP (zero interest rate policy), bond buying, mortgage-backed securities buying, and QE policy – which is causing physical demand to be disconnected from the paper market. Will this gap be bridged in 2015?

On Monday, we may see a bit more selling, but nothing horrible. The volumes will come back up and on Tuesday and Wednesday we should see a decline in volatility, and a renewed push higher toward the end of the week. I think we could be setting up for a sell-off in January – perhaps a 3 to 4% correction. But watch the Russell index to see if and when this may happen. I think that market valuations have moved beyond the traditional guidelines of company fundamentals and earnings. This market’s value has become ever more dependent upon Fed intervention and perception.

TIPS:

Obviously I’m a big believer in learning how to manage your own finances, because of the fee structure that is being charged by financial advisors for ‘sub-par’ performance. Over time, 96% of the total mutual funds will under-perform the S&P. Vanguard offers an S&P Index Fund that only charges a 0.14% annual fee. This compares to: (a) the average Non-Taxable Account fees of over 3.17% annually (20X Vanguard), and (b) the average Taxable Account fees of over 4.17% annually (30X Vanguard). These fees are a percentage of the amount invested. If I compared them to the profits that they generate, these fees account for over 30% of an average managed account’s profits.

My trading goal for 2015 is 2.3% per week – hitting fewer ‘home-runs’ and more ‘singles and doubles’.

- I will introduce a ‘Trade of the Day’ – that will appear on both my Twitter and StockTwits.com feeds – simply follow me as ‘taylorpamm’

- Due to dramatically increased market volatility, I will be reducing my emphasis on the weekly, ‘out of the money’ Iron Condor. I will be giving myself the ‘gift of time’ by concentrating more on investments 30 days out, and cashing them in 10 days out.

- I will be concentrating more on the directional and closer ‘to the money’ side of things. This will allow me to tilt the Put Credit Spread (PCS) or Call Credit Spread (CCS) risk/reward more in my favor.

- This will allow me to do ‘free’ trades, by using the proceeds from the sale of the PCS or CCS to either purchase a Debit Spread (Put or Call) or a ‘Broken-Wing Butterfly’.

- I will begin exiting trades when (a) 80% of the profit has been achieved, or (b) when a two times the ‘average true range’ stop loss has been ticked.

- I will also (on a regular basis) buy TLT Calls when it reverts back to its 21-day moving average, and sell those same TLT Calls when they exceed their 1.272 extension or their 1 standard deviation. This trade worked like ‘clockwork’ during 2014 and I see no reason that it will not continue working in 2015.

Here’s an example of how to construct a virtually ‘free’ trade.

1. Let’s assume you believe that American Airlines (AAL) is headed higher after earnings (earnings are on 1/27 before the open).

2. American Airlines ($53.91) has a ‘Daily Squeeze’ forming – and all indications are that it will fire long.

3. Step 1 = SELL the February (monthly – 2/20) -55 / +52.5 Put Credit Spread for $1.24 per contract – 10 contracts netting you $1,240 (cash – pushed into your account) – with a maximum risk of $1,260. A virtual 1:1 risk to reward ratio.

4. Step 2 = BUY 7 contracts of the February (monthly – 2/20) +52.5 / -57.5 / +60 Call Butterfly – costing you $1,134.

5. Netting this together with the Sale of the Credit Spread – you have a ‘free’ trade.

6. If AAL closes above $55, you net an additional $2,000 to $4,000 when you sell your 7 Butterfly contracts. If AAL closes between $52.50 and $55 you will basically have a ‘scratch’ trade. And if AAL closes below $52.50 you lose $1,260.

My current list of potential candidates for this week is as follows: Apple (APPL), Gilead Pharmaceutical (GILD), Russell Small-Cap Index (RUT), Bio-Tech Index (IBB), American Air Lines (AAL), and Southwest Airlines (LUV).

For next week I’m selling a specific stock’s bias via Put Credit Spreads (PCS) and Call Credit Spreads (CCS) – and playing the other side with a Butterfly.

- AAPL – JAN – SELL the +105/-107 PCS (Put Credit Spread) – and BUY the +115 / -117 / +118 Butterfly to take advantage of an earnings run-up,

- GILD – JAN – SELL the +90/-91 PCS – and BUY the +94 / -99 / +102 Butterfly, there is an upside ‘weekly squeeze’ in place,

- IBB – JAN – SELL the +297.5/-300 PCS – and BUY the +307.5 / -315 / +320 Butterfly, there is an upside ‘4-hour squeeze’ forming,

- RUT – MAR – SELL the +1040/-1050 to -1290/+1300 Iron Condor,

- AAL – JAN – SELL the +48/-49 PCS – and BUY the +54 / -56 / +57 Butterfly, there is an upside ‘Daily squeeze’ forming, earnings are on 1/27, working on the FEB trade as we speak,

- LUV – JAN – SELL the +38/-39 PCS – and BUY the +42 / -43 / +43.5 Butterfly, there is an upside ‘4-hour squeeze’ forming, earnings are on 1/22, working on the FEB trade as we speak, and

- TLT – SELL our existing +122 / -128 Call Debit Spread – and be ready to re-load on a pullback to the 21 EMA.

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28

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