Terrible Tuesday Wrap-Up
by Phil - July 31st, 2007 11:38 pm
Oh dear!
I find it mildly amusing that there is a huge headline in the WSJ reading: "Murdoch Wins His Bid for Dow Jones" on the same day we find ourselves on the brink of a stock market apocalypse.
What no one found mildly amusing was the movement of the market today, which pretty much sucked. Fortunately my morning sermon, "Be led not into temptation" was followed by most of the members and we enjoyed yet another profitable disaster as I called the top at 10:22 with: "XOM cannot get it together, nor can BA, CME pulling back, FDX treading water, SHLD not buying consumer confidence (or is real estate falling off a cliff?) and the DIA $135 puts at $2 are my put of choice at the moment. If the Dow can’t hold 13,450, I’ll grab the $134 puts a little early because $77.55 is a lot of money for oil, even in Euros…"
We also got great, but sad, news as our OLED’s are being taken away from us for $12 a share, this is one of the few actual stocks we buy on a regular basis. Back on Dec. 30th this great small company was one of the only straight stocks I picked as a set-up for the new year:
- "OLED – the old rule on them is buy them on the 10th of the month (arbitrary) whenever they are under $6 and sell half whenever they get to $7, we’ve owned this stock for over a year that way and it’s one of the few proper stock positions I maintain.
- "This stock will one day be at $25 but that day may be a very long time from now as the very cool technology is still in development but I’m betting they will be a winner in this field.
- We did do a full dump in October when they topped out at $7.50 after having gone scary low on us but we came back in on 11/10 at $5.75 with another shot on the 10th of this month and a sale of 1/2 yesterday at $7 that reduced the basis to $4.50. Next time I buy at $6 I’ll be in for $5.25…"
The doom and gloom mood of the day did not stop us from buying more AAPL as it hit the bargain basement price of $130 but and we will be…
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by Phil - July 31st, 2007 10:34 pm
LDK – don’t forget what you are ALWAYS supposed to do!!!
NMX flying! Beat by .02, I thought they’d do better so I’m selling the $130s, now $3.65 against for the moment. I’ll take some off if we break $127 but not otherwise. XXX
VLO didn’t last long. XOM cannot get it together, probably because refining was a good portion of their weaker-than expected profits.
Cramer on again, another sign not to trust the rally – it’s always scary when they put a tie on him…
NMX – I lucked out so far as it turned up before I got my sell in, I’m sticking with my plan but I’m waiting to see how far up it goes first of course. XXXX
IMB 8-(
TASR – I’m getting worried about the $17.50s I sold! Will buy out 25% while they are way low. XXX
OSTK – great call MrN! Their loss narrowed, yipee! Losing “just” .58 a share vs. .78 last year on declining revenues – woo hoo! Just remember the reality of what you are holding and ALWAYS sell into the initial excitement!
GRMN – expectations are way high but, if they beat them, look out! Your $90s are $4 of pure premium and if they should miss by a penny they will probably lose 50% or more of value before you can sell them so you might want to consider taking some off the table of moving to the Sept $90s at $6 and selling 2/3 the Aug $90s which would be the same as taking about half off the table but would leave you with a pretty good upside and less downside volatility (but still screwed if they miss).
IMB – I’d take some off the table if you were behind and rolling to catch up but I also want to hear the CC. Remember, the reason we took these guys is the CFO was ADAMANT that they did not have default issues and he said they reiterate guidance which, at the time, had them going to…
Tempting Tuesday Morning
by Phil - July 31st, 2007 8:24 am
The pre-markets are soaring!As of 7:30 am the Dow is up over 100 points in pre market trading as everything that was a catastrophe last week is suddenly just a speck in our rearview mirror.
The hardest thing we have to do as investors is to be patient but we have plenty of bullish plays in place (I mentioned yesterday that we had 3 times more calls than puts) so we can afford to wait before jumping back on the bandwagon. Yesterday we grabbed the SPY $150s at $2.80 as a new upside hedge to our mattress plays but a weak open left us with less than we would have liked and the run-up in the afternoon forced us to sell half at $3.40 as it triggered our 20% rule for the day. It is MUCH easier to get in and out of index puts and calls on momentum than it is to go in and out of multiple trades so we use them to "mattress" our other plays in both directions.
I find the pre-market movement very surprising ahead of what is going to be a very heavy data week. Next Tuesday at 2:15 we have the FOMC statement and investors are now betting heavily on a softening which I don’t believe is possible, especially if this week’s data comes in heavy:
| Date | ET | Release | For | Briefing.com | Consensus | Prior |
|---|---|---|---|---|---|---|
| Jul 31 | 08:30 | Personal Income | Jun | 0.5% | 0.5% | 0.4% |
| Jul 31 | 08:30 | Personal Spending | Jun | 0.1% | 0.1% | 0.5% |
| Jul 31 | 08:30 | Core PCE Inflation | Jun | 0.1% | 0.2% | 0.1% |
| Jul 31 | 08:30 | Employment Cost Index | Q2 | 0.9% | 0.9% | 0.8% |
| Jul 31 | 09:45 | Chicago PMI | Jul | 59.5 | 58.5 | 60.2 |
| Jul 31 | 10:00 | Construction Spending | Jun | -0.1% | 0.2% | 0.9% |
| Jul 31 | 10:00 | Consumer Confidence | Jul | 109.0 | 105.0 | 103.9 |
| Aug 01 | 10:00 | ISM Index | Jul | 56.5 | 55.5 | 56.0 |
| Aug 01 | 10:00 | Pending Home Sales | Jun | -0.6% | -3.5% | |
| Aug 01 | 10:30 | Crude Inventories | 07/27 | NA | NA | -1103K |
| Aug 01 | 17:00 | Auto Sales | Jul | 5.4M | 5.4M | 5.2M |
| Aug 01 | 17:00 | Truck Sales | Jul | 6.9M | 6.8M | 6.5M |
| Aug 02 |
…
Monday Mop-Up
by Phil - July 30th, 2007 11:27 pm
That was a pretty good day.
Unlike last Monday, we had some pretty good overall strength in the markets, spurred on by GMAC beating low expectations with "only" a 63% drop in profits, driven by its Residential Capital unit "only" losing $254M this quarter, much improved from the $910M loss last quarter.
The financial sector finally made a bit of a comeback, with the XLF recovering off a low open to finish just under Thursday’s gap down, indicating a possible fill of that gap may be in the cards tomorrow. MS’s credit rating was also raised by S&P, which should also give the financials renewed strength for at least a day or two.
We also had a "nice" comeback in the oil patch with crude finishing just under $77 and XOM got an upgrade to Buy from AG Edwards, a move we expected as we flipped bullish on that stock last week. The premise for taking up positions in the Aug $90s and Sept $95s was that XOM would hit the 50 dma at $86 and had taken a huge bounce off that mark in late June as well as their usual option expiration shenanigans. We’ll see if we get the follow-through today as breaking below $86 will be tragic (we still have our Sept $90 puts as a hedge). We’ll keep a close eye on $88 and $90 as a failure at either of these points can lead the stock to a serious correction – it will likely be up to the lemming-like analysts, who are likely to follow AG Edwards in declaring XOM undervalued.
On the whole, we got a weak move from the Nasdaq and a strong move from the S&P:
When things don’t do what you expect it’s best not to jump in so we took few positions yesterday but they were all bullish ones, so that is a good sign (assuming, of course we have a clue) for the markets. One stock Happy Trading and I have been watching closely is LVS, which had a nice breakout yesterday, brutalizing our poor Aug $85 putter (which we sold against our Jan $80 puts last week).
My underlying concern remains the same as it was in the morning as this rally was sparked by low expectations from GMAC as well as Citadel Investments decision to buy the failing…
Monday Mourning?
by Phil - July 30th, 2007 9:07 am
Is it time for bottom fishing?
Not on a non-merger Monday!
Oh sure VZ bought someone for $757M and South Korea’s Doosan is buying Bobcat from IR for $5Bn but come on – what is that? After the $100Bn we discussed last Monday (which gave us a whole 90 point, one day boost) we are pretty much at zero one week later. The market likes BIG deals and we can not lie and the other bourses can’t deny when a deal comes in with an itty bitty premium then investors won’t be buying in (I can keep going but at this point you either get it or you don’t! Click Pebbles for clues).
So the BOTTOM LINE is that the thrill is gone and without someone to show us the money, either in blockbuster earnings or on the M&A front, this is no time to be diving back into the market. If you are ahead then this is a good time to count cash, watch sectors for signs of strength and select a second half strategy (see this week’s newsletter for our first sector pick), if you are behind, it’s a good time to be thankful for what cash you have, reviewing the behavior that got you here and looking over your losers for possible hidden gems.
Some of our biggest misses of the year are likely to be the second half’s biggest gainers. That’s because I’m generally a fundamentals player so when a company we’re betting on misses, we don’t tear up our tickets and go home – we reanalyze, reposition and redeploy our capital looking for a better opportunity down the road. As option traders, we are acutely aware of the fact that timing is everything and we don’t blame a good stock for going down nor do we get too excited about a poor stock going up – we just like go get a little ahead of the game and then go with the flow.
So this week we are going to shake it, shake it, shake our virtual portfolio and decide which of our babies are coming back (this song is going to be stuck in my head all day!).
Asia’s got back today with the Nikkei making a spectacular end of day recovery from an early 170-point drop and Hong Kong also got a nice, non-suspicious boost at the close much like…
Weekly Wrap-Up
by Phil - July 28th, 2007 8:10 pm
What a wild week that was!
For the second week in a row the rewards of being bearish were very rich indeed despite our move to a substantially cash position.
I think I really nailed the market’s direction in Monday’s wrap-up when I posted this picture and said "That was the least exciting 90 points we ever gained." It was a tired and pathetic attempt to get to 14,000 and, if anything, made us even more bearish on Monday as we loaded up on mattress plays, the index puts we use to cover our virtual portfolio.
That led to a huge lucky (some would call it skill but I’m not that delusional) break on Tuesday as the market began a 700-point, 4 day decline that generated incredible returns on what were originally intended to be covers on our remaining calls. The nature of the drop was such that we had a scare on Tuesday, a chance to get our calls off the table on a rebound on Wednesday (that caused us to buy even more puts, including XOM et al!) followed by 500 additional points of decline on Thursday and Friday when we were pretty much all bearish.
How could we not have had a great week?!?
As Bryan E said in Tuesday’s comments: "Today reminds me of that Barrons commercial…”The market goes up you make money, the market goes down you make money….but this time it’s because of PHIL, HAPPY, and ZMAN."
We were so hot predicting this week’s action that we even nailed the titles for the day with "Whip around Wednesday," "Thursday Thump" and "Freaky Friday" so I won’t even bother going into detail on what we said as there are no highlights – the whole week was a highlght! Option Sage got the week started with his excellent title "The Four Horsemen (of the Apocalypse?" which warned us that Apocalypse isn’t traditionally a BUYBUYBUY celebration.
Far be it for us to fight the markets, we just like to go with the flow and enjoy the ride and what a ride it was this week! Fundamentals really did start to matter in the market and even the mighty XOM corporation felt the pull of gravity as the company shed $50Bn worth of market cap in just 2 days.
Exxon is one of the most discussed (?disgust?) stocks in all of PSW…
Navigating the Stock Market – Isn’t it Ironic?
by Phil - July 28th, 2007 1:29 pm
"It’s like rain on your wedding day
It’s a free ride when you’ve already paid
It’s the good advice that you just didn’t take
Who would’ve thought … it figures"
Alanis Morissette
It’s been a very bearish two weeks for me and the last few days in particular I started to get the feeling the party was over, at least for the short haul, as I didn’t like the look of the last leg of our rally to 14,000 and I especially did not like the look of the first few days of this week. As I said on Monday: "That was the least exciting 90 points we ever gained."
Barry Ritholtz published a great cartoon that summarized yesterdays action quite nicely:
While we are not entirely immune to this sort of behavior on the member site (yesterday, for example, we decided to do shots every time the Dow crossed 13,400 in either direction, leading to 6 shots between 2:15 and 3:00!), we do try to keep a level (if not sober) head about this nonsense.
If you’ve been keeping up with us this week, you know we loved yesterday’s action. Despite the fact that we wish the market would recover, we always keep our post-it firmly affixed to our monitor which reads "It is NOT my job to save the market" which kept most of us from hitting the buy button during the 4 "recoveries" we got in the past 48 hours.
The members were certainly pleased:
"Phil I’m up 28.2% over 2 days and you can FP that number if you want, I blew away the other guy you quoted last night by 2X, much thanks to PSW!"
"Phil, really looking forward to more emphasis on the LTP! For the most part, my spread positions have been pretty good but I keep getting dinged on swing trading and now have to stop it. I’m one of those who needs a good working port like the LTP that doesn’t require constant attention all day long. I stupidly left 3 long leaps uncovered for just a bit trying to leg into a spread…
The Mircowave Oven Theory of Behavior
by Phil - July 28th, 2007 8:47 am
I started the day with a very simple statement: 
Don’t you wish other people would be that honest with us? It’s very hard for people who give opinions for a living to stand in front of an audience and say: "I don’t know." Somehow they seem to feel that they have to know and, what’s worse, once they force themselves to make a decision, they somehow feel obligated to defend it, even if new evidence comes out to the contrary.
This is exactly what’s wrong with financial reporters and analysts, especially the clowns on TV (as well as pretty much anyone who makes a living giving you their opinion). My members are familiar with something I’m going to share with you now. It is a Nobel Prize-worthy theory that I feel helps make me a better trader and I thought this would be a good time to share it with you:
People love to make random decisions and stick to them like they were directly given it as a commandment!
How does this relate to microwaves? Well, aside from the fact that our brains are constantly being fried by the things every day (ever drive on the highway and see one of those dishes aimed right at you? Do you know birds die if they fly too close to them?), this is what I observe:
You put something in the microwave, say pizza, and you put in a time, say 3:33 (or maybe you are a whole number person and do 3 or 4 minutes). Now, unless you are a chain store pizza buyer your pizza slice is probably not always the same size or maybe it has different toppings etc., but you probably put in the same number every time.
Theory number 1: People tend to repeat behavior, especially if it was successful in the past.
So the light goes on and the little thing spins and you are either a watcher or a walker (as you may have guessed - I hit the button and leave the room!), but either way you usually end up standing by the oven with 20 or 30 seconds to go waiting for it to stop.
Here’s where the Nobel Prize committee has to recognize me:
Theory number 2: Everyone likes to think they knew (not know) something.
- Now you are standing there
…
Friday Virtual Portfolio Moves
by Phil - July 27th, 2007 7:45 pm
CROX – I don’t think yuou guys get the fact that we only spent .05 on this play so we have a ton of options. If we had the margin for it the proper move would be to take a couple of Septs off the table into the initial excitement (the naked play is gone already) then wait for the same thing that happened ot AMZN and BIDU to happen to our boy but, in the case of the $10KP the best move is to roll the Sept $52.50s to 2X $57.50s and roll the caller from the Aug $50s at $8 to the 2X the $55s at $4.35 XXX
IMB – missed your chance to get out even already! Maybe a flush on the way down… 8-(
In general – remember what I said yesterday about trading curbs leaving a lot of sell orders backed up at the brokerages. If we don’t get off to a good start then those orders will be reupped today so we let the DIA and Q calls die and don’t take the puts off the table until we break positive. Until we get back to 13,600 nothing we see will be more than a minor bounce.
CVX is going down on those earnings so what does that tell you?
This time I’m not going to miss shorting Google against 1/2 my longs, probably the $510s, possibly the $500s as a mo play down. XXX
Emergency White House “Economic Summit” will attempt to spin the GDP and the economy this morning so watch those puts in case we have to dump them.
Rolling logic – only the assumed margin restriction of a $10KP. If CROX takes off, that will be our next roll, rolling the caller up to 2x the $60 calls, which right now are $2.55 of pure premium and already outgaining the $55s.
VLO – great call Z! They are already turning off…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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