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

Tuesday | June 16, 2020

Hello Eizell.




Pre-markets / OPEN

The E-Minis fell in the middle of the night to a low of -100 (negative net change) before recovering half of the losses before the open. The cause of the decline was fear of a second wave of the coronavirus, and the deterioration of the Chinese economy.

Right before the market opened, the Minis were indicating an open of -600 to -700 Dow points, with the Minis -60 and the SPX going well below support of 3000.

As has been usual of late, the opening print was the low of the day, and the market slowly worked its way to the unchanged line for the day. The SPX sat near SPX 3040 for an hour until news came out that the Fed was going to start purchasing corporate bonds.

As suspiciously close to socialism as this sounds to me, it is going to be viewed as another Fed put option on the stock market. After the news was released, the market ran higher to a +40 in the Minis and +200 in the Dow.

Stocks like AAPL that were down -$5 on the day closed up 4.19 (342.99). Boeing (BA) had been as low as 175 closed higher by 1.43 at 190.94. The Dow closed higher by 157 at 25,763 which doesn't sound like a big climb until you realize the low of the day was about 900 points lower.


TODAY: June 16

TODAY – HIGHER – Unless....

LONG TERM – NEW ALL TIME HIGHS (possibly), and then a NASTY trade war sell-off

Yesterday's news of the Fed buying corporate debt is HUGE news. It is scary as the line between government and the private sector are now going to be very blurred; however, it is very bullish for equity prices. I was surprised we didn't close higher than we did, like above SPX 3100 or Dow 26000.

These gains should come today UNLESS people think too hard about why the Fed found it necessary to make this decision. Once traders start to worry and get the thought in their heads “What does the Fed know that it is not saying”, the market will fall hard.

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 -35% for the year.

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
(-5.08% so far)

POT Logo

What a day yesterday was. The Dow opened 700 points lower where we sold SPX put spreads and bought BA call butterfly spreads. Once the market reversed 900 points as the Minis were at the highs of the day, we sold long deltas in the form of Risk Reversals.

Tomorrow is POT class.



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