Fundamental & Technical Impacts & How We'll Position Accordingly


Trump’s latest tweet has had an impact on the stock market. New rhetoric that suggests further North Korean threats will be met with ‘fire and fury’ caused the Dow to drop 80 points, the Nasdaq to drop 40 points, and gold to rise $20 to a 2-month high. Archived interviews are making the rounds that reveal Donald Trump has been speaking boldly against North Korea for 18 years. There’s a good chance this conflict may define his presidency. For purposes of hunting alpha & hedging risk, our task is to determine how it will impact the stock market relative to the technical setup in play.

If North Korea were to strike Guam or Japan or South Korea it would unleash a historic response from the United States. Secretary of State Rex Tillerson calmed immediate fears after his weekend visit to Asia by reminding American’s that there is no imminent threat. Military experts concur that tens of thousands of American citizens would first be evacuated from South Korea, 2 or 3 aircraft carriers would set up in the Korean Peninsula, and a battalion of ships, submarines, air force bombers, etc… would be deployed from the Middle East and Afghanistan in anticipation of imminent war with North Korea. As precedent, consider that it took 5 months after Iraq had invaded Kuwait for the United States to bomb Iraq in Desert Storm. As Tillerson mentioned, today’s tweet was more of a warning shot in language that Kim Jong-un would understand. Tillerson’s comment was followed up by General Mattis who cautioned Jong-un from doing anything that would force a regime change or lead to the destruction of the North Korean people. Clearly, tensions are escalating in the aftermath of United Nations sanctions. Nothing is likely to happen today or tomorrow, but this could evolve into an Asia Pacific conflict over the next 3-6 months. Japan, South Korea and now Guam are on high alert.

We are not ignorant of risk. We hear the warnings. As the market just reached new all-time highs for the 9th consecutive day we are well aware that Warren Buffett has raised $100 billion in cash, Jeff Gundlach expects to generate a 400% return with S&P puts, Alan Greenspan expects a bursting of the bond bubble, and countless other hedge fund managers stand close to the exits because the Fed will soon reduce the size of its balance sheet. If volatility returns to the market, a shift in portfolio strategy is warranted. For us, the initial trigger to change portfolio strategy will occur when SPY drops below $245 and QQQ drops below $142. Many of the bears like Gundlach have sounded the warning bell for over a year and have gotten killed on the short side. Recent 13F filings reveal central banks have continued to buy massive amounts of equity exposure which continues to explain market stability in the face of risk. In Q2 the Swiss National Bank boosted equity exposure by 5% to $84.3 billion. As of August 9, 2017, central banks remain firmly in control.

Don’t listen to what central banks say, watch what they do. They’re still buying. AAPL was positive again today and our April 2018 150 calls are working well. Coordinated liquidity of billions and even trillions of dollars will increase if geopolitical tension requires. This bull market is unlike any before it. Heed technical indicators and mistakes will be limited.

As a note…Alibaba’s earnings were changed from August 10th to the morning of August 17th.



Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”