Archive for
February, 2009
by Phil - February 24th, 2009 7:17 am
Well we are up in the pre-markets (7am) – that’s something…
Interestingly the global markets took our dip rather well. The Shanghai fell 2.8%, the Hang Seng gave back yesterday’s 3.5% gain, India hit the 2.5% rule, and the Nikkei fell 2.2% – a bad day but not worse than ours, as is often the case in Asia. The DAX is, of course, leading Europe lower with a 2% loss into lunch but the CAC and FTSE are down just a point. I had a busy evening doing a Big Chart Review and indulging in my political rant of the week about the budget fiasco but maybe that will be a weekend article as my comments alone in the members section were over 2 pages.
We went mildly bullish into yesterday’s close, mainly by covering our long index puts, looking for at least a bounce off what is now a 1,100 point drop since February 9th, when we did our previous Big Chart Review. We are actually 14% below the 8,280 on the Dow that we held that morning so another 1% down to go before we hit our next bounce, just over the 7,000 mark. The gravity of the 5% rule dictates that we are more likely to go down than up now that we blew through 12.5% and finished at yesterday’s low and getting back to that 12.5% line (7,245) will be our challenge for the day. On the S&P we’ll be looking for 760 to be taken back but we are just a hair over 738, which is the 15% drop off that 2/9 open. The Nasdaq is about 2% over 1,352 and just under the 12.5% line at 1,392 so we’ll be looking for leadership there to the upside.
The NYSE is our most worrying index. They are aleady down more than 15% (4,675) at 4,633 and the Russell (see David Fry’s chart) is the NYSE’s partner in crime, failing the 15%, 400 mark by 5 points already. So it’s going to be an easy day to look for a turn as we need the NYSE to break over 4,675 and 4,790 is our next stop. The Nasdaq needs to hold 1,352 and get back over 1,392 and the Russell must break over 400 and return to 411 in order for us to see anything more than a weak bounce in today’s action. …
Tags: DAX, DIA, FTSE, IWM, SKF, SPY
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by ilene - February 23rd, 2009 10:06 pm
Adam Warner warns on the potential for the SKF to gobble up the world.
Courtesy of Adam Warner at Daily Options Report
A reader who I will call Racer X sent me some numbers on the bell on Friday in regards to that SKF we had talked about. And the numbers Friday were even more staggering
than these from last week.
What’s it all mean?
Each share of SKF (or any equity ETF for that matter) could be arbed against a basket of the underlying. In other words, if someone owns 100 shares of SKF, he could theoretically lock in money if he could buy the entire basket of stocks in the IYF for less than he paid for SKF. Conversely, a short in SKF could theoretically lock in money shorting the whole basket of IYF stocks.
All the above of course adjusted for the leverage and the dollars involved.
The salient point is that the stocks in IYF will move in line with the price of SKF on a given day. And if SKF volume comprises such a huge percentage of volume in the underlying names, you clearly have the potential for a "wag the dog" situation.
For example, let’s say Evil Short Manipulating Hedge Fund Guy buys 1000 SKF at $195. That translates into $390,000 of financials that the opposite side of the trade has now gone long. JPM comprises 9% of that. So that one trade produces about $36,000 of selling pressure on JPM, or about 1800 shares.
Now remember, 40 million shares of SKF traded Friday. As did 32 million shares of FAZ, which translates into an additional $7 billion of so in the financial space.
Before we get all Conspiracy Theory, keep several things in mind. Remember that most shares of these pups just flip between parties. Over and over again, they are primarily trading vehicles. At least they should be.
The point though is the potential exists for someone to cause their own meltage in the underlying stocks when the volume of the ETF can account for such a large percentage of the volume of the underlyings. On Friday, the Travelers (TRV) volume accounted for by SKF actually exceeded the volume that actually traded in
…
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by ilene - February 23rd, 2009 9:36 pm
Allan updates his technical analysis of the market with his usual variety of unique indicators and charts.
Courtesy of Allan
S&P Weekly
Above is the Weekly S&P chart. On it is placed a horizontal blue bar with two vertical black bars and the numbers 650-670 along side. That is where my EW software is suggesting the next level of market support lays. The vertical black bars are the weeks most likely to achieve that level.
S&P Daily
The same tool drawn on the Daily chart gives similar levels for this part of the decline. Another 100 or so S&P points.
S&P 240 minute
S&P 60 minute
The above Sixty minute chart is the most bearish of the EW charts, suggesting we are in the midst of a 3rd Wave decline that seems to be targeting a minimum of 100 more S&P point decline, maybe much, much more. It is this chart that lends credence to fears that something nasty is about to befall Global markets, a no-place-to-hide financial disaster.
Oh yeah, the respite part. A week ago I introduced a Cycles generated road map that suggested a straight down market, which was spot on in its accuracy. One more time, clicking on the insignia above my name for the Foundation for the Study of Cycles, will bring up more information on these Cycle programs. Here is a current chart generated after today’s close:
The implication of this chart is that a cycle low is due the first week of March, followed by a one-week rally.
The one scenario that might satisfy all of this speculation is for a significant low to be put in place in the next couple of weeks, followed by a substantial rally.
How low and how much of a rally?
Stay tuned.
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by David Fry - February 23rd, 2009 8:32 pm
Dave Fry at ETF Digest, February 23, 2009
So we move to more trial balloons as the new administration tries another deal that may help Prince Alwaleed and Sandy Weill’s (cough) legacy.
But it was another Bronx Cheer for the new administration’s repeated remedies. A small gap opening higher was all bulls could muster and it only lasted a few minutes before sellers took complete charge.
Volume was average but breadth was horrible and with a little more time we’ll see if it was a 90/10 day on the downside.
Another trial balloon shot down. Since Obama was elected SPY is down 23% which only means the problems we’re experiencing are deeper than lofty rhetoric can cure. But, all these baby steps aren’t being met in the markets by any enthusiasm.
I can’t say we’re happy to be so heavily in cash when there seem such excellent shorting opportunities but markets are ridiculously oversold. The markets have been the playground recently for day-traders. That includes trading desks and hedge funds. In the meantime, we can only keep our powder dry and wait patiently.
Let’s see what happens.
Disclaimer: Among other issues the ETF Digest maintains positions in: IEF, TLT, GLD, DBP, DGP and GDX.
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by Phil - February 23rd, 2009 8:22 pm
What a disaster!
Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long. Today we finished near 11-year lows on the Dow and S&P, so much for that decade of savings….
I said this morning that we had a "wall of worry" to climb this week and we didn’t get very far up it before falling off a market cliff of our own. Fortunately, as I mentioned in the morning, we went pretty bearish into Friday’s close and I said at the end of the morning post "we’re certainly not going to be impressed by anything under 1.25% today." It’s very important to have a trading plan and we peaked out right at the open, well below our 1.25% target. My opening comment at 9:36, despite the "rally" was: "AAPL and the Qs not doing too well this morning. Financials up 3% already, SKF below $180 . We need a nice move in the Transports to shut up those Dow Theory people but this is a very weak morning move so far. Dollar is strong and that’s keeping us down (stocks are a commodity) but weak is weak so, like I said, roll up the long puts when you can and no need to cover the other half with short puts until we pass 1.25% at least."
Nonetheless our F play went well as an agreement with the UAW was announced at 9:44 giving us a quick trip to $1.90 before pulling back to a 10% gain on the day. We bottom fished a little on UNH and X but I said to members at 11:39: "Watch out if $7.40 breaks on XLF, that can drop us 5% fast in the financials. Hopefully it will hold." XLF finished the day down 3.5% but we ended up deciding it may be a little overdone. We shorted FAS and that went well but then we tried to day-trade them to the upside and that led to two aborted attempts to go long as we were trying to catch a wave up that never came. It was all over at 2:34 when CNBC broke a rumor that…
Tags: Big Chart Review, CAC, DAX, DBC, DIA, MDY, SKF, SPY, XLE
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by ilene - February 23rd, 2009 8:22 pm
Greg Newton introduces an interesting article on Madoff, The Monster Mensch, by Steve Fishman in New York Magazine.
Courtesy of Greg Newton at NakedShorts
The thief and his fat idiot enabler
In the sublime structure Ezra Merkin had built for himself, money was the mother of beauty and refinement. The actual business of making it amounted to a kind of plumbing, a slightly unseemly necessity, about which it was best not to go into details. Men like Teicher, or Bernie Madoff, could roll up their sleeves and make it flow, and you could take your cut, without getting your fingernails dirty. The details mattered less as long as the money kept flowing. The fact that Ezra had a blind spot for the way his money was actually being made—and in this he was not so different from many others during the boom years, even his own clients—functioned as a kind of soft corruption, which could enable the hard corruption of Bernie Madoff. 
New York Feb. 22 2008
What made Bernie Madoff, a man who helped revolutionize Wall Street and built a completely legal billion-dollar business, perpetrate the greatest fraud in history? And what led Ezra Merkin, born to immense privilege, to enable him?
A little more than a year before he blithely confessed to masterminding the largest Ponzi scheme in history, Bernie Madoff attended the wedding of his niece. That Saturday evening, September 29, 2007, Shana Madoff, the daughter of his younger brother, Peter, his partner for almost four decades at Bernard L. Madoff Investment Securities, married a former official at the Securities and Exchange Commission, an irony that Bernie couldn’t quite keep to himself. He tossed an arm around the neck of one young guest and directed the young man’s attention across the dance floor, toward a clean-cut group sipping cocktails. “See them,” Madoff said, pale-blue eyes flashing incongruously in his kindly face. “That’s the enemy.”
Continue here.
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by Option Review - February 23rd, 2009 4:56 pm
Today’s tickers: LTM, AA, JCP, LEG, INTC, ADS, FXI, GE, APOL & MDCO
LTM – Life Time Fitness, Inc. – The fitness and health brand edged onto our ‘hot by options volume’ market scanner after a large sale of puts was transacted in the March contract. Shares of the professional fitness company are currently down by over 5.5% to $9.42. It appears that one investor sold over 9,700 puts at the March 7.5 strike price for a premium of 25 cents each. Is this some optimism on behalf of an investor despite the decline in share price today? The chunk of puts observed represents nearly half of the existing open interest on the stock, and thus may indeed be tied to a short stock position. If it is not tied to stock but rather is naked put-selling, this investor faces real downside exposure should shares continue declining.
AA – Alcoa Inc. – A large 10,000 lot put spread just traded in the April series of Alcoa whose shares are taking a 7% beating today at $5.85. An investor traded the 5.0 and 7.5 puts at a net 1.41 premium. Implied volatility on the options is running at around 104% given the slip through the existing 52-week low.
JCP – J.C. Penney Company, Inc. – The major retailer popped onto our ‘most active by options volume’ market scanner after more than 27,000 puts – representing about 20% of the total open interest on the stock – traded at the March 12.5 strike price. JCP is lower by 4% at $14.50 today. Open interest of only 6,129 contracts currently resides at the 12.5 strike confirming that today’s trading has fresh impetus. Within today’s total volume at the strike, over 14,000 puts sold for an average premium of 37 cents. This indicates that a trader is either selling puts in conjunction with shorting the stock or just outright confident that the shares won’t slip below $12.13 by expiration. If they do, this investor would be happy to own them.
LEG – Leggett & Platt, Inc. – The manufacturer and producer of a variety of engineered products has declined slightly by 3% to $11.87 today, and appeared on our ‘hot by options volume’ market scanner after over 10,200 puts were shed by one investor at the March 10 strike price for a premium of 15 cents apiece. The lot of puts sold represents more…
Tags: AA, ADS, APOL, FXI, GE, INTC, JCP, LEG, LTM, MDCO
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by ilene - February 23rd, 2009 4:54 pm
"If you stare into the Abyss long enough the Abyss stares back at you." – Friedrich Nietzsche
Courtesy of Clusterfuck Nation by Jim Kunstler
The public perception of the ongoing fiasco in governance has moved from sheer, mute incomprehension to goggle-eyed panic as the scrims of unreality peel away revealing something like a national death-watch scene in history’s intensive care unit. Is the USA in recession, depression, or collapse? People are at least beginning to ask. Nature’s way of hinting that something truly creepy may be up is when both Paul Volcker and George Soros both declare on the same day that the economic landscape is looking darker than the Great Depression.
Those tuned into the media-waves were enchanted, in a related instance, by Rick Santelli’s grand moment of theater in the Chicago trader’s pit last week when he seemed to ignite the first spark of revolution by demonstrating that bail-out fatigue had morphed into high emotion — and that the emotion could be marshaled against public policy. The traders in the pit on-screen seemed to color up and buzz loudly, like ordinary grasshoppers turning into angry locusts preparing to ravage a waiting valley. "Are you listening, President Obama?" Mr. Santelli asked portentously.
In the broad blogging margins of the web that orbit the mainstream media like the rings of Saturn, an awful lot of reasonable people have begun to ask whether President Obama is a stooge of whatever remains of Wall Street, with Citigroup and Goldman Sachs’s puppeteer, Robert Rubin, pulling strings behind an arras in the Oval Office. Personally, I doubt it, but it is still a little hard to understand what the President is up to. For one thing, the stimulus package, so-called, looks more and more like national sub-prime mortgage itself, a bad bargain made under less-than-realistic terms, with future obligations fobbed onto whoever inhabits this corner of the world for the next seven hundred years — and all to pay for a bunch of granite counter-tops and flat-screen TVs.
I suppose Mr. Obama is burdened with the knowledge that the economic truth is so much worse than he imagined back in November that there is simply nothing to do at this point except pretend to serve up a "tasting menu" of rescue plans in
…
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by ilene - February 23rd, 2009 3:51 pm
Not surprising, John Thain is stonewalling Andrew Cuomo’s questions.
Former Merill Lynch CEO John Thain has refused to testify on certain apsects of Merril Lynch’s bonus awards, prompting state attorney general Andrew Cuomo to file a motion in state court accusing Bank of America of interfering with its investigation. Thain has offered some answers to some of Cuomo’s questions, but claims that Bank of America’s attorneys are prohibiting him from addressing the bonuses of certain individuals.
Charlie Gasparino broke the story on CNBC. Cuomo has been investigating the billions of dollars of bonuses paid to Merrill Lynch employees shortly before it merged with Bank of America. After the merger, it was revealed that Merrill Lynch had lost tens of billions of dollars in the last quarter of 2008. Both banks were operating with TARP fund injections in the fourth quarter.
Cuomo’s motion reportedly seeks to compel Thain to address the questions he claims Bank of America has ordered him to keep quiet about.
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by ilene - February 23rd, 2009 1:32 pm
Confused about Bank Nationalization? Read this by Karl Denninger. 
Courtesy of Karl Denninger at The Market Ticker
Let’s deal with this directly, since there have been articles on both Bloomberg and The NY Times in the last couple of days, among other places.
First, some definitions. Some would claim that we have "already" nationalized the banks via the TARP. I disagree – a capital injection is not "nationalization", although it shares some characteristics with one.
An FDIC takeover is also not "nationalization". In an FDIC takeover, such as happened with IndyMac Bank, the FDIC (a government agency) strips off the assets and liabilities and then either runs down the portfolios or sells them off. There is no intention to return the firm to private ownership or continue operating it in its present form – it is dissolved,
"Nationalization" is control of a financial or other institution by government while it continues to operate "transparently" for its customers and creditors.
The NY Times said:
"The aim is to clean up the banks efficiently, rather than allow the problems to become bigger, and then — as soon as possible — to sell the banks back to private investors. They will be smaller institutions. And there will be proper regulations in place to ensure that this catastrophe does not happen again."
Unfortunately Nationalization will do no such thing. Nor is it similar to other takeovers done thus far, as is also alleged:
"Critics will charge that government bureaucrats do not have the skills to pull this off. But the United States has a successful history of seizing insolvent banks through the Federal Deposit Insurance Corporation. The takeovers contemplated here are larger in scale and would be more complex than those that have generally fallen under the F.D.I.C.’s purview. But the notion that the government totally lacks the know-how to nationalize insolvent banks is not valid."
Of course it is valid. When the FDIC comes in and takes over an institution it is not to "clean it up"; it is to resolve it – or rather, to dissolve it. The insolvent institution effectively goes into a vat of acid, with the precious metals and other valuables dropping to the bottom where they are fished out and sold. The
…
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January 27th, 2012 1:40 pm
Reminder: David is available to chat with Members, comments are found below each post.
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January 27th, 2012 12:55 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
...
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January 27th, 2012 12:35 pm
Courtesy of Doug Short.
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
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January 27th, 2012 11:15 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
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January 27th, 2012 10:05 am
Courtesy of Benzinga.
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
...
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January 27th, 2012 12:00 am
Top 5 RisersStockRatingAnalysis
ASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.
CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.
STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.
PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
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January 26th, 2012 6:16 pm
Courtesy of John Nyaradi.
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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January 26th, 2012 1:38 pm
Today’s tickers: DB, ATHN & LSI
...
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January 23rd, 2012 8:56 am
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
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January 22nd, 2012 10:09 pm
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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January 22nd, 2012 2:52 am
NEW: Elliott and Ilene are available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
Click this link for this weekend's newsletter, and sign in or sign up.
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January 18th, 2012 1:09 am
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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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...
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