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Prepared by and Scott
Writing under the nom de plume of J.L. LORD

Thursday | August 20, 2020

Hello Eizell.



YESTERDAY: August 19

The day started with the indexes opening slightly higher (SPX +$4) and very gently wafting higher in very slow trading. Two hours after the open, the SPX hit its high of 3399.54, just a smidgen under SPX 3400 – the new ceiling.

It sat there until 1pm Chicago time when the Fed stated the market's Fed rate trajectory expectations tightened quite significantly with negative rates now off the table for Dec 2021. Well. That is all the markets need to hear. It sounded like rates are at the lows, so why is the market so enthusiastic? What traders forget is that money supply is much more powerful than interest rates. It didn't matter.

After the Fed released its minutes, the market had no intention of blasting through 3400, and then sellers came in. The market sold off and sat for an hour, and that woke up many other long stock holders who decided to lighten their portfolios. More selling took the SPX down to 3369.66. The Fed took back $5 of gains in AAPL shares. It took Tesla from 1911 down to 1878.


TODAY: August 20

TODAY – Weak today, and then strong again.

LONG TERM – NEW ALL TIME HIGHS (possibly), and then a NASTY trade war sell-off – probably after the election (This one has been here for WEEKS. Nothing changed).

KOYAANISQATSI – Hopi Indian word meaning “life out of balance”.

The world is still out of balance, and we are still going higher – just not the day after the Fed.

Today we will likely see the market sell-off lower. It is what the market does when Powell speaks. In recent years, the response to the Fed occurs the next day for some reason. It would make sense if Greenspan was the Chair (because no one understood him); however, the current group of Fed Chairs have been quite colloquial.

After today's selling, and maybe Wednesday too, we will continue climbing. A market bull does not end because it is at all-time highs. It ends when it looks like it will never end. Right now, this is the most hated bull market in history, and we have politics involved. The best thing that could happen to the Democrats in November is the market crashes. I am not directly accusing them of politicizing the corona virus. I don't have to. Kamala Harris last night used the virus to shout racism. Biden already said Trump is a xenophobe for stopping flight in from China.

The nonsensical manner in which rules and protocol are mandated, and the often draconian and egregious methods of enforcement are enough proof of either incompetence and/or interference. Some of the stuff is just plain stupid. Drones are being used to spy on non-compliant mask wearers. Somehow a church with 5 people in it is more dangerous than a smaller bar with 200. Rioting in large groups without masks is apparently safe, but schools with masks are not safe. Apparently there is something about carrying boxes of Nikes and TV's that makes one immune to the virus.

So despite my stance, it is not impossible to conceive of another major market fall in the next 74-days if we have a second mutated wave of the virus – real or not. Very sadly, my guess is that the virus will become no big deal the second week of November.

People: Orwell wrote his works as a warning – NOT as an instruction manual.


Sept 29 – Presidential debate #1
October 15 – Presidential debate #2
October 22 – Presidential debate #3

I am still standing by my prediction (made December 31, 2019) that we will be positive for the year and making new all-time highs by the end of the year. I maintained this stance even when the SPX was down -36% for the year (this has been here since January 1).

S&P 500 Price Limits

From 8:30 a.m. to 2:25 p.m. CST, there are successive price limits corresponding to 7%, 13%, and 20% declines below the previous trading day’s reference price.

From 2:25 p.m. until the 3:00 p.m. CST close of the cash equity market, only the 20% price limit will be applicable.

Average year with lots of intermittent volatility
(4.46% so far)

POT Logo

Class was broken down into two topics—

BILLY BAROO: The Billy Baroo is essentially a time spread for vertical spreads. They are great tools to implement if you want to have on downside put insurance in a market that you think is not really going to go far in either direction; yet, you can not sleep at night without an adequate amount of insurance. We last talked about this in 2017, and since the market is slowing down and I intend to use one, a review was important.

SHORT BUTTERFLY: Traders embrace the long butterfly for the low cost, low margin and potentially large reward. Yet someone has to see butterfly spreads for a trader to purchase one. Why would they do it? It is difficult to pick the closing price of an underlying in the future, especially with an index. We are talked about the short butterfly as a means of being used as a stop loss. Buying a call spread (for example) in a disciplined manner requires an exit point. What happens if you buy a call spread for $1.50 and the market moved against you, and you want to sell it at the current price of $1.20 You will lock in a $0.30 loss? By turning the trade into a short butterfly for $0 sounds horrible, but if it expires worthless, the trade has lost $0 instead of $0.30. We are going to be implementing all of this and more for the rest of the week.

Thanks for the great questions and huge interest.



Up and Running for POT students (so far).

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