Live: Thursday, Aug. 2, 2018

11:20 a.m. New York time

SPY declined in early trading to a new low in its downward march since July 25, and then rose back into the prior day’s range. My Elliott wave analysis shown in the most recent chart continues to be valid.

Long-time readers will have noticed that my pace of trading has slowed considerably this year. Blame the bear market that began Jan. 26.

Most of my trading before this year was in the form of earnings plays: Selling options positions before the earnings announcement, at high implied volatility, and then buying them back after the announcement, when volatility had fallen.

That works if I can have a theory of how the price will respond to the announcement. In an optimistic time, during a full bull market, or during a pessimistic time, during a full bear market, that assessment is fairly easy to make. There’s a lot of clarity.

But half a year into this bear market, public mood is still in the transition phase. It is deteriorating in many areas — the political mood is as dark as any I’ve seen since the 1970s — but the hopefulness of the post recession bull market continues to hold a degree of sway.

Under such circumstances, reactions to an earnings announcement can be outsized and shocking large.

The FB chart covers 10 days with 5-minute bars.


FB and TWTR’s similar fall confirmed my earlier assessment that earnings plays weren’t a smart move at this point in the market.

So my trading has dropped off, and I have uninvested funds. What do I do with those?

Uninvested funds present three problems: They aren’t earnings trading profits, they’re eroded constantly by inflation, and they present a temptation for spending on consumer goods.

To avoid those problems, I turn to the U.S. Treasury, and in particular, the TreasuryDirect website, which is agency’s vehicle that allows people and businesses to buy government bonds.

It has two advantages: There are no transactions fees or commissions, and it is granular with wide limits, allowing purchases at auctions of as little as $100 or as large as $5 million per auction.

My chosen vehicle is 13-week Treasury bills, which are paying 2.2% annualized. That beats the inflation measure used by the Federal Open Market Committee in its analysis, the Personal Consumer Expenditures (PCE) deflator, which stands at 1.9%, and also the expectation of future inflation implied by the 10-year Treasury bond rates, which is 2.13%

As many do, I’ve structured my holdings as a tree, with a portion of the bills maturing each week, for withdrawal or reinvestment.

It’s not as profitable or exciting as earnings plays, to be sure, but it’s a calm port for shelter during our early bear market storm.

By Tim Bovee, Portland, Oregon, Aug. 2, 2018

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.


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