Over the last five days, we’ve seen a change of sorts in the direction of the stock market, as expectations seemed to have finally caught up with reality and investors come to grips with more than a few high profile companies issuing lackluster guidance. We touched on this in yesterday’s Tematica Investing. Even the Fed’s usually perky as a cheer leader commentary was a tad more sober about the economy exiting yesterday’s April Federal Open Market Committee meeting, which we detailed our thoughts on in yesterday’s special alert.

So what do we know now that we didn’t a week ago?

For starters, even the Fed is finally seeing a sluggish economy, and it will continue to be accommodative in its policy until such a time that the economic or inflation data suggests it is time to act. In other words, at a minimum, it will be a few months until the Fed does something if anything with interest rates.

This morning we learned that despite the building expectation that the Bank of Japan (BoJ) would pile on more monetary stimulus in an attempt to fan the embers of its economy, the BoJ instead has opted to stand pat and not add any more fuel to the fire. Quite the shock that is reverberating through the world markets and very much like the shock and pain an addict suffers when rather than getting its next fix he or she has go cold turkey.

The windup has sent the Yen climbing, and when paired with the once again dovish Fed, it means it is time to exit our PowerShares DB US Dollar Bullish ETF (UUP) shares and salvage what we can from the UUP June $25 calls by selling the position.

On the heels of this lack of BoJ action that will have the investing world looking to adjust to the new reality that in a slowing global economy leaving rates alone and unchanged will be viewed similar to boosting rates.  This means investors will be looking for safe harbors especially as we run the gamut of a few thousand companies reporting their quarterly earnings over the next few weeks.

We already have our inverse ETF positions in place — ProShares Short Dow30 ETF (DOG), ProShares Short S&P 500 (SH) and ProShares Short Russell2000 (RWM) — which should soften the renewed volatility we will more than likely feel, but we want to add some additional measures.

We are already invested in iShares Barclays 20+ Year Treasury Bond ETF (TLT), but we want to go step further and will add the TLT June $135 calls (TLT160617C00135000) that last traded at $0.50 and expire on June 17th to the Tematica Pro Select List. Remembering that volatility cuts both ways, so we are setting a protective stop at $0.30. Given the overnight news, we expect we could see a pop this morning in TLT shares and we would recommend not chasing the trade past $0.75.

As the dust settles today and tomorrow, we will look to deploy additional capital within the Tematica Pro Select list where it makes sense. At times like these when the rumble of volatility is likely to become a boil, it pays to remain calm and collected. We’ll continue to let the data talk to us and move accordingly. As we saw with the inverse ETF additions over the last few weeks, sometimes it takes a bit of time for the market to catch up with us. Like a good scout, it’s always better to be prepared rather than to be caught wanting and wishing. That’s especially true on the downside… just like car or homeowners insurance.

Boosting the Stop Loss on our DIS calls 

As the positive chatter surrounding Disney’s (DIS) latest high profile film, “Marvel’s Captain America:Civil War” has swelled due to stellar reviews and even better advance ticket sales, DIS shares climbed past $105 with last night’s market close and the DIS May $105 calls on the Tematica Pro Select List have climbed as well. With last night’ market close DIS May $105 calls were up just shy of 53%.

Given the market news we discussed above, however, there is a high probability we will see DIS shares give back some of their recent gains and this will weigh on the May $105 calls. While we continue to see upside in DIS shares as the company reports an upbeat quarter and the aforementioned Civil War looks to break box office records, we have to remember the market. As such, we are boosting our protective stop loss on the DIS May $105 calls to $1.60 from $1.15. Should that be tripped, the trade won’t kill it, but it also means we won’t take any losses either.

Housekeeping Items

Over the last few days we’ve been stopped out of several positions including not just our Paccar (PCAR) May $55 puts, but as of yesterday also the short position in Paccar shares was tripped when the shares moved past our $60 protective stop. We were also stopped out of our Consumer Discretionary SPDR (XLY) May $90 calls.

While it is never enjoyable to see a position breakdown, the renewed focus on risk management with Tematica Pro Select List positions means losses were limited. Even though the fundamental data for the deterioration in the truck market remains intact and it’s tempting to jump back into a bearish position, today’s market is likely to see a sharp move and we would caution restraint lest whipsawed pricing getter the better of us.

Recap of Action Items from this Week

• SELL PowerShares DB US Dollar Bullish ETF (UUP) shares
• Exiting the UUP June $25 calls (UUP160617C00025000)
• Adding iShares Barclays 20+ Year Treasury Bond ETF (TLT) June $135 calls (TLT160617C00135000) that last traded at $0.50 and expire on June 17th to the Tematica Pro Select List. We are setting a protective stop at $0.30, and would not chase the trade past $0.75.
• Boost protective stop loss on the Disney (DIS) May $105 calls (DIS160520C00105000) up from $1.15 to now $1.60.