On Dec. 24, 2018, with the S&P 500 trading at 2,351, I tweeted out the following comment concerning the crash in the S&P 500: "The time to be short has passed. . ." The RSI (Relative Strength Index) was under 20 and a new bear market had finally (technically) arrived.
Yet, despite the overwhelmingly bearish headlines and the pervasive panic gripping traders around the world, Christmas Eve 2018 turned out to be the best buying opportunity (and the worst shorting opportunity) since March 4, 2009, having now advanced over 16% since those closing prices were booked.
While I did not take advantage on the long side, I was, nevertheless, free of all short positions with the eight-bagger on Goldman Sachs put options booked and in the bank. I further elaborated on the rally on Jan. 10, with the predictions that "the napping bear will be awoken at S&P 2,720–2,740." In this post-SOTU trading session, the S&P touched an intra-day high of 2,738.08, which represented the upper end of the 2,720–2,740 range mentioned back in January. So, with RSI now approaching—but not yet above—the overbought 70 level, I am going to take the RSI, the 50-dma at 2,742, and the percentage lift off the Dec. 24 lows as a completion of the Powell/Mnuchin-fueled relied rally.
In other words, this is a logical level at which to assume that the bear market rally will terminate. Phrases such as "bombs away!" and "look out below!" will soon dominate. . .
Jan. 4 – S&P @ 2,450
Jan. 10 – S&P @ 2,550
Putting all of the MAGA baloney behind us, I think the way to play it is in the SPY put options, and because I am suggesting a sale of the S&P at around 2,730, the $SPY April $260 put options @ $3.00 look fine. If it turns out to be an ill-timed move, I am placing a mental stop on a 2-day close above S&P 2,750 as a method of using "risk management" as an excuse for a "lousy trade."
Also, as I firmly believe that Goldman is going through severe pain with Blankfein retired and Indonesia on fire, so a retest of the December lows at $150 would take the April $180 puts to a minimum of $30, no time premium attached. It worked great in Q4/18 and it should work well assuming the retest kicks in sooner rather than later. Again, dump the position on a 2-day close above $205.
Feb. 6 – S&P @ 2,730
Feb. 6 – GS @ $196.69
Lastly for today, I am out of the SLV and GLD call options and I am getting seriously nervous, to the point where my dog has vamoosed from the house and must be burrowing his way through the snow and ice to get under the toolshed, where he is free from the rants and ravings of his master and all of the attendant flying objects such as ashtrays, wine bottles, and various office items such as pencil sharpeners, staplers and the odd computer monitor.
Taking one look today at the HUI, ahead 0.3% on a day that has gold down $3 per ounce and silver off $0.10, gives me great agitation and anxiety and a ominous dread that I may miss a $50–100/ounce overnight move in gold, and the associated $30-bagger on the calls. I view gold stocks and their performance on a relative basis as critical to any sustained advance in the precious metals because the miners are the ultimate barometer of investor sentiment.
Not all investors, either retail or professional, are able to participate in futures and/or options, and instead use miners as proxies for leverage that adds alpha to their portfolios and excitement to their daily lives. While the miners have provided us with little in the way of exploration excitement lately, companies such as Kirkland Lake Gold ($43.90) have been extraordinary performers. Kirkland Lake is a four-bagger since April 2017. Not a bad 21-month investment horizon by any assessent, especially since it has been driven by operations rather than new discoveries.
Nonetheless, I like the action in gold and silver and am beginning to entertain the notion of a return to the NUGT (GDX double-leveraged ETF) as a proxy for gold leverage and excessive alcohol intake. If I use the NUGT call options, it will further augment the leverage and demand ample applications of selected sedatives and a working combination on the medicine chest lock.
Accordingly, and with great angst, I am going over the charts of a number of the GDX components to try to arrive at a decision. But critical to my pulling the trigger on the NUGT calls will be a thorough and complete restocking of all liquor cabinets and medicine dispensers before taking the plunge. Wish me luck.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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Charts and images courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
