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Monday Market Meltdown

Finally a down day!

I thought I was going crazy.  We keep going bearish into the weekends and the market refuses to go down – it’s very frustrating.  There is no particular bad news, mainly this is a long overdue pullback that we’ve been expecting, led down by oil, which is off 5% in pre-markets (8am) back at $47.50 now that the NYMEX shenanigans around contract expiration have run their course.  This is nice for us as we were shorting oil futures since Thursday and I had just said to Members in in Friday’s chat: "Oil is still at $52.28, that’s a total joke.  Also been flatlined since yesterday’s ridiculous pump (they did spike ti to $53.50 for a bit at Europe’s open)."

Today the joke is on the oil bulls as crude plunges on the same fundamentals that have been evident for weeks to anyone who read the actual inventory report and ignored the Criminal Narrators Boosting Crude and their ridiculous parade of industry "experts," who, along with the pump-monkey in chief, attempted to herd the sheeple back into the energy sector.   OIH has been the focus of our shorting so far and we noted the weakness in XOM last week as a leading indicator that the party was over. 

Now we’ll see how well our levels hold up during a commodity correction and we will, of course, be holding off on our bullish selections we made in both the $100K Hedged Virtual Portfolio this weekend until we see if we can hold the same old levels were watching on Wednesday:  Dow 8,000, S&P 847, Nas 1,585, NYSE 5,321 and Russell 456 as those are our dollar-adjusted support levels.  Below that are our chart levels of Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444, below which is a full 5% gap to the next level of support so we get very bearish if we lose 2 of 3 of those levels.

As I mentioned in the Weekend Wrap-Up, where we reviewed all 30 of last week’s featured Trade Ideas, THIS is the week when the games really begin with 150 of the S&P 500 reporting and very little economic data to distract us from the fundamentals of earnings week.  China did its best to distract the masses from clear signs of a slowing GDP and diving export numbers by having Premier Wen Jiabao say Saturday that the country’s stimulus package is working and the economy is "better than expected," but he cautioned that complete recovery will take much more time because the global financial crisis continues to spread. 

Wen pledged to pull the country out of its slump by expanding domestic demand, building major infrastructure projects, finding jobs for college students and improving the social safety net.  So it’s a chicken in every pot in China and that was enough to boost the Shanghai 2.25% this morning with the Hang Seng adding 149 points (1%) to finish at 15,750 after bouncing off the 40 Week Moving Average at 15,000 in afternoon trading.  That’s good enough for us to roll up and increase our FXPs (ultra-short China) calls because it’s now or never on a China pullback.

Europe is down 2-3% ahead of our open (9am) despite a big $2.9Bn merger between GSK and Stiefel Labs.  PEP also announce a $6Bn deal to buy out two of their bottlers so be VERY aftraid that this action is doing nothing to support the pre-markets.  Germany has a "Bad Bank" plan and Trichet has indicated the ECB may cut rates again, which is boosting the dollar against the Euro but the fact that these steps are needed is causing investors to take profits out of the EU markets this morning.

Of couse the big acquisition news today is ORCL grabbing JAVA away from IBM for $7.4Bn, a 50% premium to Friday’s close and another thing you would think would help the market but it isn’t…  BAC reported a big beat but the internals were not all that great and outlook isn’t so great and that is becoming a theme with banks, who are lending less and less despite all the government’s efforts to push cash through the system.  So banks are being filled up with cheap money, aren’t lending any of it out and are making a fortune on the high-interest loans they haven’t written off yet – BIG FRIGGIN’ DEAL!  This is not a recovery people, it’s a robbery – it’s your tax dollars being funneled to the bottom-line of the banks while more and more Americans lose their jobs and their homes.

This is not something we are going to be able to build a read recovery on.

 


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  1. RMM

    Phil: so its SDS.
    with bearish stance , do we uncover DIA puts ?

  2. Cap

    So that DIA short at 81 and 81.50 did work out nicely … covered for now.
     
    Won’t be posting much today or tomorrow; on  a trip to FL w/ wifey; the beach outside my window beckons. 
    Was already on the beach at 8:30; Nice.  Here for first 1/2 hour.

  3. Phil

    DIA/RMM – We’re watching our levels:

    If we hold: Dow 8,000, S&P 847, Nas 1,585, NYSE 5,321 and Russell 456 – we are still bullish overall. 

    Below those levels we don’t flip more bearish (removing DIA May putters) unless we cross 2 of 5:

    Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444

    You can roll down the current covers to 2x whatever is even at lower covers if we blow the first set of levels and then remove 1/2 the lower cover if we break 2 of 3.  So if you sold 1/2 the May $81 puts at $3, now $3.20, you can roll them to 2x the May $77 puts, now $1.55 and then set a stop to buy 1/2 back at about $2.50 if you have to.  As long as the rolling relationship is about even though, there’s no pressure for you to take action.

    So far it’s not looking too bad but that may be because the 2.5% rule is acting as weak support here, it’s another 2.5% down to our failure levels and that would be 5% in one day so not too likely things get that bad without some particular additional bad news.  Holding here means we just had a little 2.5% pullback and holding 8,000, even if we flatline into the close isn’t a bad thing as long as we don’t follow-through another 2.5% tomorrow. 

    Overall though, I’m sure not seeing anything to be very bullish about this morning so be very careful out there!

  4. Anton Chigurh

    Anybody shorting June crude? $49 now, looks in trouble to me.

  5. pstas

    Phil
    Since my exposure to PSW, I now know to like occasional down days. I took your comment on Fri re: FCX/ commodites and doubled up on those May $43 puts. Avg cost-$3; Placed a sell at $3.75 and wala, the gap down this AM netting me a better than expected $3.95 for a quick 32% in 4 days. Lucky or good, I still like it!

  6. Phil

    Have a nice trip Cap!

    FCX and other coppers flying down – that was a good premise from last week but makes me sad as it means there’s not much of a base to global recovery.

    MA heading back to lows and FSLR getting hammered again.  OIH down 4% (so far) with the front-month crude contract just getting dumped down to $46.93 at the moment but once they get rid of all the May barrels they don’t really want (almost all of them) then they’ll shift quickly to pumping up June so NOT a good time to short oil if you aren’t already there from last week.

    Congrats Pstas – way to play!  As long as doubling up is SCALING IN to a full allocation and not doubling down your overexposed problem positions, it’s a great way to play the moves against you.  That’s the key to having balance is the re-balancing you do along the way.

  7. Phil

    FXP May $21s at $2 are a nice way to hedge the market going lower and dragging Asia with it tomorrow.

  8. lunar

    phil, i forgot to remind you over the weekend.  any thoughts on NFLX?

  9. Phil

    Watch the Qs at 32.50 for a real breakdown (Nas 1,625), someone is goosing the horesemen big-time at the moment, trying to forestall a technical breakdown that looks inevitable I think.

    Volume is still low so this can turn ugly if we really start failing but, so far, only the Dow has fallen below our first set of marks and the VIX is already up 10% which means it doesn’t like this direction at all (or it could just mean that people are buying puts like mad). 

    S&P is critical here at 848, which is the 2.5% rule for them, if they fail it then the Dow has to go to 2.5%, which is just a bit over 7,900 and the Nas would drop below 1,625 and then we’d see if they have the strength to hold it in a real test. 

    Right now I see very light dip buying, doesn’t look like funds though so be careful when we run out of those knife catchers.

    NFLX/Lunar – Since I didn’t look I don’t have any thoughts at the moment but I’ll look now as this market is very boringly doing exactly what we expected!

  10. oncmed

    Phil,
    ..still holdn GOOG 370P from your earnings play….should I hold or dump?  

  11. ephmen85

    DIA  My mattress is in a sweet spot at the moment ( + 8 Jun 81 / – 4 May 79), but I need to roll my puts out.   I’m very tempted to sell 3 more May 79s right here to pay for a lateral roll.   If DIA breaks 7900, what’s a reasonable downside target?

  12. ephmen85

    DIA Actually, I’m better off, I’ve got Jun 82s.

  13. Phil

    NFLX/Lunar – I’d sell June $50 calls naked for $3.75 and buy the stock if it breaks $52 with a stop at $51.50 (and rebuy if it gets back over $52 again).  While they do seem to be making good progress, I don’t think they are recession-proof enough to justify the current price and there are many things that can go wrong at earnings and everything has to go right for them to go higher.   That’s about the only play I like on them though as the premiums are crazy and, if they do hit their numbers there could be a short squeeze (which would include you if you take that play!).

    GOOG/Onc – No need to dump if the market’s diving.   GOOG underperformed in the CC and there’s no compelling reasont to buy them at the moment with so many other, very cheap stocks around.  As we’re way up on the put side, we can just keep a trail on them at $8 ($2 trail) but we could end up at $14+ on this end too.

    Dow and S&P below 2.5% now, Transports and SOX are leading us down to 5%, very bad when Transports fall with oil prices….

    DIA/Eph – Next level is 7,632 and very bad news below that.

  14. occam

     DAX & CAC down more than 3.5%

  15. RMM

    Phil: the drop continues, its edging lower,
    DIA sep 82 puts with 1/2 may 81 putter,
    is it time to roll to may 77,

  16. ephmen85

    CHK  My spread is + 3 Jan 15 / – 3 Jul 20.  I’m thinking of taking advantage of this dip by rolling back at least one of my callers to Jun 19 for a credit.   waddayathink

  17. occam

     Zero Hedge has an interesting article on the plunge protection team on his site.
    I used to think that the plunge protection team was a fairy tale.   Guess not.

  18. RMM

    phil: have nice gain with DNDN stock, have no options,
    any more news about the takeover speculation ?
    probably more time required,

  19. ajaytoo

    Ah, very nice morning! Like matt, I had become a little too bearish the last couple weeks. It was nice to finally see a ton of my buy-writes get called away this weekend. It left my portfolio a little too bearish though, which is great for this morning. Time to lighten up on some of my naked puts and reposition…. I’m glad I let myself get called away and didn’t roll up the callers.

  20. matt1966

    Very interesting flatline in the financials.  They aren’t tracking with the indices very well.  With these pathetic volumes they could easily take them up.  But I guess flat lining them is sufficient?

  21. JohnC1

      Phil:  Does it make sense to you to add to a CAT position here (earnings are tomorrow).   How about selling June 27 puts as well?  GE?  BHP?   Thanks.

  22. RMM

    Phil: is there a remedy for my SRS, if not , I close and take the loss, no more buying FM calls,
    have may40 call and 2/3 cover with may 28 caller.

  23. drumkeerin

     Matt-your note of 10.34
    "very interesting flatline in the financials" what do you mean? thanks

  24. Phil

    UNH impressively bucking the trend.

    PCLN $100 puts at $11.50, stop if they break $92, looking to sell $95 puts for $11.50+.

    DIA/RMM – May $81 puts now $3.80, May $77 puts $1.95 so still better than even on 2x roll so still no reason to worry and we still haven’t broken 7,900 nor have any other indexes crossed the lower set and we said when 2 of the 5 cross – this is none of 5.  Once you do the roll, the May $77 puts will lose far LESS than your Sept $82s on a move back up – keep that in mind.

    CHK/Eph – I would sure go tighter as I have no faith in them. 

    PPT/Occam – totally real.  We joke about it but it’s no joke, the government manipulates the markets.

    DNDN/RMM – Take the money and run.  Buy some calls if you want action but don’t sit on the stock.

  25. barfinger

    How do we feel about VNO now? I had the Apr35 puts which expired for a $4.20 profit. Do I try it again with the May40s for $3?

  26. RMM

    Phil: buy the jan 7.7 and sell jan 10 on DNDN: still a good move ?

  27. texasmotion

    Phil/GOOG
     
    I have the Jun 400 (@28.47) puts fully covered with the May 380s (@11.27). I am down 20% from two rolls I should not have taken. What would you suggest?
     
    I think GOOG should pull back further.
     
    Thanks very much.

  28. edro

    DNDN
    How about a fly
    DNDN at 19.61
    Sell -1 DNDN MAY 2009 20 Put (.UKOQD)    $4.50    ($450.00)
    Sell -1 DNDN MAY 2009 20 Call (.UKOED)    $3.72    ($372.00)
    Buy 1 DNDN AUG 2009 15 Put (.UKOTC)    $3.60    $360.00
    Buy 1 DNDN AUG 2009 25 Call (.UKOHE)    $3.25    $325.00

    Price    Profit / Loss
    $11.25    $178.80
    $15.00    $574.50
    $15.09    $584.90
    $19.13    $1,131.60
    $20.00    $1,252.30
    $23.17    $1,057.90
    $25.00    $960.50
    $27.21    $883.80
    $31.25    $743.50

    Requirements
    Cost/Proceeds     ($137.00)
    Option Requirement     $1,000.00
    Total Requirements     $863.00

  29. Singapore Steve

    edro
    What platform did you use to calculate your P/L?

  30. ephmen85

    USO  I’ve got a double diagonal with Oct 33 Puts and Jan 25 Calls.  I’ve got 1/2 covers at the moment (29 putters/30 callers) and was going to sell my other putters on this dip.   Normally, I try to sell ATM/OTM, but in this case I’m thinking of selling more 29 puts to maximize my cash.   Likewise, on a runup, I’ll look to sell ITM 30 callers.   Reasonable plan?

  31. edro

    Singasteve,
    OPXS – they have a new trade calculator.
    I was able to copy from OPXS to notepad to PSW

  32. Singapore Steve

    edro
    I had problems in the past with OXPS not calculating P/L correctly on calendar spreads.  It was how they handled the volitility assumptions.  And they were about 30% off.  Maybe they fixed that but something to watch out for.

  33. Singapore Steve

    Seems about time for the ball to bounce. 

  34. matt1966

    From the blog my brother is member of…..
    "The weakness today should be respected.  The Market appears poised to test 1602 soon.  If that test happens, we should be ready to buy according to established plan.  If support breaks, we should short.  This is cut and dry.  The current bias is down.  This is a major turn of events and will likely force neutral channels onto the mid term and near term charts.  This will also extend the timeframe we have set for a test of resistance.  If this weakness persists, it could even put a test of 9054 in the Dow in jeopardy."  I’d say!

  35. RMM

    Phil:
    have rolled may81 DIA putter to may 77, 1/2 to 1/1.

  36. Phil

    Bearish/Ajay – Cash is king and it’s good to get called away at expiration and be auto-bearish into the weekend.  It’s always easier to add upside plays in a rally than try to cover in a sell-off.

    Financials/Matt – XLF down 6%, hardly a flatline is it?   And this is with "great" earnings from BAC this morning.

    CAT/John – I would not add up here.  Russia just slapped some protectionist tarrifs on that hurt CAT – not that they were buying anything anyway…  Lack of credit means I don’t think they had a great quarter and I’ll be thrilled if they hold $28 and really surprised if they break $32 on earnings.  GE I like because we heard their earnings and they look fine but BHP is like FCX, which we’re short on.

    SRS/RMM – A vertical?  You are in a bearish spread, that’s a disaster if SRS heads higher.  You need to just stop playing this index IMHO.

    SOX and Transports busted through 5%, RUT getting close and 457 should be about 5% for them.   NYSE would be next at 5,225, which is also their lower level test so that’s going to be very significant.  Dow is right at 7,900 now so bad if they fail, of course.  Nas is the other index most likely to test and 1,580 is a bit below the 5% line for them but not that the Nas has tight lines between the 5% rule at 1,589 and the first breakdown at 1,585 and the lower set at 1,580 so they should hit a lot of resistance around 1,585 and will probably break the floodgates for all if they fail.

    VNO/Barf – I’d short them here with the $40 puts at $3 and just get out if they break $45 again.

    DNDN/RMM – 2011 $7.50s for $13.30, selling 2011 $10s for $12.15 is net $1.15 for a $2.50 spread.  Ordinarilly I wouldn’t like the timeframe but a buyout lets you cash in early so you may as well save money by playing it that way.

    GOOG/Texas – You shouldn’t do anything, the May $380s are all premium and you have a superior position to them.  You have lost nothing, you are in a $20 spread for $17.20 and GOOG is below your target, that’s what you need to focus on, not the current price of the contracts.  Do you only have on of each contract or several, maybe you can manage the moves with some stops as well to do a little better than a $2.80 profit….

    DNDNfly/Edro – Very nice combo but a buyout would leave you owing the caller $5 more than you get on the leap so you will realize your full loss if they get bought at $25 or better. 

    USO/Eph – Oil could crash back to the $30s so don’t overexpose your downside until we get some better economic numbers.

    BY THE WAY – Someone pointed out this weekend that last week’s dip in unemployment reflected a week in which we were closed Friday!  That means employers who were mean enough to lay someone off ahead of easter weekend had only 4 days to do it anyway so this Thursday’s number may not be as pretty!

    OXPS calculator/Steve – Hugely inaccurate when calculating diff strike months, pretty good on same month.

    A pause at the 5% rule is not a bounce! 

    9,054/Matt – ???

  37. edro

    SingaSteve,
    OPXS P/L – interesting
    TOS shows at 5/16
    DNDN at 15 – $196
    DNDN at 20 – $725
    DNDN at 25 – $405
    What do you use??

  38. ajaytoo

    Phil, on 3/31 I bought some FAZ Oct 24 covers at 10.6. Should I just cash them out? Roll? They’re pretty much useless now.

  39. ajaytoo

    sorry, those were long FAZ Oct 24 calls.

  40. maxt1234

    Phil, was pcln a MO play or can I catch coming around?

  41. Singapore Steve

    edro
    That is pretty close to what I get in Power Options.  Don’t trust OXPS unless it is for the front month.   TOS looks like it is accurate too.   Can’t understand why OXPS does not fix that problem.  Must a been about a year ago when I noticed it and had sent them a email about it.

  42. Singapore Steve

    Hey, finally got some green on the ES and DOW!

  43. edro

    P/L on DNDN
    Optionshouse has a new P/L calculator that agrees with TOS (more or less)
    Stock Price P & L
    10.00 -$156.02
    12.50 -$1.01
    12.51 $0.00
    15.00 $202.65
    17.50 $451.34
    19.99 $738.53
    20.00 $738.38
    22.50 $563.93
     

  44. matt1966

    Phil / 9054:  That’s not my prediction.  It was this other blogger’s.  But that was last week.  Sounds like he’s back peddling this week.  My brother has been following his advice closely and has been making bank.  He’s been beating the hell out of me without thinking.  There in lies my problem.  ;-)

  45. texasmotion

    Phil/GOOG, I have 3 of each (400/380s)

  46. Phil

    Dow hit 2.5% just around 7,900 so 220 points down and a 20% retrace is 44 points or -176 or back to about 7,950 before it’s anything more than a weak bounce.

    FAZ/Ajay – Why not sell the June $13 for $2.50 and use that to roll the Oct $24s to the Oct $7.50s – then you have a very useful spread.

    PCLN/Maxt – It’s not a day trade but if the market is bouncing up you are better off waiting to see if we hold 7,950 or not.

    Thinking/Matt – I keep telling you it’s a bad habit!

    GOOG/Texas – Well then you can perhaps, remove one putter when they cross below $380 and use that as a stop to get back in if you have to.

  47. 1020

    Phil, any thoughts on UNG?

  48. microflux

    Time to buy FAS again :) ?

  49. microflux

    Time to buy FAS again :) ? or hold on to the cash for now ? I am 100% cash now

  50. pstas

    Phil
    I missed the FXP and $2 and wont chase it . Is this a day trade or would you reload on a pull back?

  51. pstas

    Phil,
    Also, any read on the weekend buys? GE; UNG; FAS; URE?
    Trying to pick up some trading knowledge here. With a gap down @ open; how to handle bullish plays?

  52. Singapore Steve

    ICE
    A nice 5 point run off of it’s low.

  53. texasmotion

    Cheers phil.

  54. oncmed

    Phil,
    seems SHLD has had a monster run…any thoughts, insights on them.  thinking of shorting…

  55. Malai

     phil,
     Mark to market should help the banks for the next quarter’s earnings.  Does that mean we should be long on banks on this down trend.
      Another questions – how does these banks report better than expected earnings?  They are not lending enough, they still have lot of losses to cover and how come these banks are reporting few billions of profits?
      Thanks.

  56. bcfla

    Phil – in terms of adjusting the hedges in DIA
    If we are covered (now May 77) on the 82 puts – I need clarification on choosing when to roll versus when to take profits on the LONG portion of this.
    Assume we have a gain on the long portion and therefore, a loss on the putters…I realize that eventually we can roll the puutters or simply collect the $…however on the LONG part, what happemns if we have a huge gain in them?
    What is the adjustment you make at this point.
    thanks

  57. Phil

    UNG/1020 – Not today of course but I do like the play I set up on the weekend.  We’ll see if they can hold $14…

    FAS/Micro – Cash for now.  I’d be more inclined to buy FAZ.

    Dennins on CNBC is such a sickening conservative hack that Kudlow has to take the liberal side against him! 

    FXP/Pstas – If we finish low, China can drop 5% fast and FXP gains 10% so not really too late with a 10% gain on the calls.  This is not a day-trade, I’m thinking China pulls back 1,000 (7%) and FXP goes back to $24 and maybe the $21s are a double.

    Weekend buys/Pstas – Did I say paitence to someone else this morning?  We’re only just now testing our first set of levels.  We keep cash and watch where things settle out.  If we start to form a solid-looking base then maybe we do a little scaling in but this is weak, weak, weak so far…

  58. eplasencia

    Phil,
    I would like to set up a similar play as the DBC from the weekend post but I want to use GDX instead as I want to build a position  in it.Jan 2011 20 calls for 15.5 and sell the May 33 calls for 1.7 and sell the may 30 puts for 1.What do you think overall and should I adjust any of the strikes?

  59. ephmen85

    FAS/Micro   I just sold a May 6 put for .80.  That’s a way to go if you feel like nibbling

  60. ephmen85

    DIA  What’s a reasonable price for a lateral roll?   I’m looking at .90 for Jun 82 --> Jul 82 and thinking of taking it.

  61. Singapore Steve

    EU closed 3-4% down so we are estentially there.  Maybe you just churn flat the rest of the day.

  62. RMM

    Phil: what may puts of FAS is it worth selling for daytrade ?

  63. occam

     I can see 9088, a spike high of $indu, but 9054 is bizzare.  Sounds like someone who should get a Philsstockworld discount--I think that loony’s luck is about to run out.  
    Speaking of loony technical analysis--if you chart the 60 min.  $SPX, you’ll see that we are on the third up leg of an elliot wave.
    Or you’ll just see that on this third leg the slope of our upturn is significantly smaller.  

  64. ephmen85

    UNG  Oct 10s are down to 5.00, would you do at least a partial buy here?

  65. ajaytoo

    Thanks Phil for the FAZ adjustment. Very good idea.

  66. jomama

     phil, do you still like uaua for a buy/write?

  67. occam

     or maybe that blogger is Rainman, "9054, 9054, $indu high in two weeks--did I tell you I’m a really good driver?"

  68. pstas

    Phil,
    OK- patience it is.
    How do you define "settle out"? Remember , I am still learning- What do I look for?
    FXP- I was planning to scale in on 3 buys for total of 3 ea. I was thinking $2 to $2.10 range for the buys but I don’t like to chase things. How would you set this up given the upside?

  69. pstas

    RE: levels – just went back and read earlier posts- answered my own question.
    Too many irons in the fire this AM

  70. matt1966

    Could this be a FMD for SKF?  So far so good.  This seems very methodical. 

  71. Singapore Steve

    CAT    

    CAT
    Caterpillar Inc.
    30.68 (-1.61)
    09 MAY 31.0 (26)
    2.23
    09 AUG 29.0 (124)
    5.10

    Some nice calendar cals on CAT.  1 dollar strikes too.   And for less than a dollar, you can get the Nov contracts for your longs.

  72. Phil

    SHLD/Onc – They are more of a commercial real estate play than a retail play.  The value of their 5,000 great locations in every American city that matters is far more important than whether or not their children’s clothing line is selling.  I wouldn’t bet against Eddie.  They do look overextended on this run but we liked them at $35 and I don’t hate them at $60.  They should get support at the 200 DMA right at $60 so you can use that as your line to watch.

    Mark to Market/Malai – I think it’s already baked in.  Listening to guidance, I’m not seeing it having much effect.  The banks report BTE because they already borrowed $100Bn at 2.25% and lent out $1Tn at 7% but then the government comes in and gives them %50Bn at 10%.  Since they make no new loans, all it does is lower their average borrowing cost against existing loans and, presto, magic profits.  Also, since they insured against losses with AIG and the government gave AIG money to pay the banks – they got that "profit" too against losses they already wrote off.  There are so many ways the financial industry can steal your money under the guise of "public good" that it’s hard to keep track…

    DIA/BC – If we have a huge gain, we roll down to a lower strike.  That takes money off the table and decreases our upside delta.  Usually we’ll go from a .75 delta to a .55 or less so if we were in the Sept $88 puts at $12.30 with a delta of .71, we may want to move down to the $82 puts at $8.50, putting $4 away but still leaving us in very good position to make more gains.  Then we simply offer .50 per $1 to roll back so we could end up in the $88 puts again but it would only cost us $3 to get there and, presto, magic $1 profit for doing nothing.

    GDX/Eplas – Don’t sell the $30 puts unless you REALLY don’t mind owning the index at $30.    My problem with that concept is that, if they hit $30, I wouldn’t want them.  Better to give yourself better coverage by saving $5 on the leaps and taking the 2011 $25s for $10.60 and selling May $33s against them for $1.62.  The roll to the $25s is $2.10 and you collected 1.62 already so that plus $.50 of the $5 you saved is all you need to roll them lower if things go well.  If the GDX sinks, your caller is wiped out, your long calls hold value better than the $20s would have and you can roll down even cheaper.  Keep in mind it’s an 18-month process, you don’t need to be at your goal position on the long side right away.

    DIA/Eph – A reasonable price for any lateral roll is the amount of premium you think it will let you collect in the extra month you are buying.

    EU/Steve – I don’t kno – looks like they simpl;y ran out of time to go lower!

    FAS/RMM – That’s a gutsy play.  For a day trade you don’t want a lot of premium or it won’t move so you need to sell at least the $9 puts, now $2.50 but get out if they can’t hold $7.50.

    S&P/Occam – Or any fool can look at the weekly chart and draw a pretty similar conclusion.  I will be thrilled if we dribble though this week holding 800.  It means we may be forming a reasonable consolidation after a huge run from 666 but we are far from out of the woods until we can hold it through the summer.  Unfortunately, no one wants to know about a pattern that takes more than 48 hours to play out…

    UNG/Eph – Oil is now $46 but nat gas is holding $3.69 at the moment, down from 3.90 on Friday but this is where they should be.  I think wait until we see Nat gas back over $3.75 before jumping on UNG.

    UAUA/Jo – Oh for sure I still like them.  $46 oil is not bad for them at all, especially coming into their busy season.  The stock is at $5.84 and you can sell the Jun $5 calls for $1.75 and June $4 puts for .55 for net $3.54/3.77, that’s about 40% off if put to you.  Buffett may not like airlines but I know he likes 40% discounts!

  73. Anton Chigurh

    Some of you may like this pair-trade I’ve just entered: short crude oil/long nat gas
    Here’s my chart of the ratio of gas to oil, it’s about 13.2 times right  now and as this shows 13 times has proved a great reversal point in the past, the green line is the 200 day MA and a pullback to that is a 20% move down in the ratio…
    http://www.sierrachart.com/userimages/upload_2/1240244777_10_UploadImage.png

  74. john

    Phil,
    Been out since last week, just got on. I have java shares should I sell now or hold out till $9.5, the offering price.
    Thanks

  75. RMM

    Phil: what about rolling DOWN DIA sep82 puts ??

  76. RMM

    Phil: the other day I asked about commodities and shipping: these are usually the first to move up when economic activity improves,
    what are your ideas about copper, nickel, platinum, fertilizer,  DBC, etc ?

  77. RMM

    Singapore Steve: when is it time for an entry back into AAPL ?

  78. Phil

    LOL Occam – 15 minutes to Wopner.

    Settle/Pstas – As in stop falling or stop jumping around.  With low volume on a Monday we have no idea what this means yet but it sure doesn’t look good.  In the types of plays we’re looking at, we don’t have a pressing need to jump in at a low price.  If the stock goes up, the calls we’re selling go up too so no biggie.  We’d love to have good timing on our entries but that’s no reason to try to force it.  Let’s say that you are at a horse race and you can make one bet per race on a horse when it’s 50 yards from the gate.  If there are 10 races and in the first race there are 3 horses (possible outcomes) that are neck and neck 50 yards out – is that the one you bet on?  Of course not!  If the 2nd, 3rd and 4th are close too – still no reason to make a bet.  Only around the 7th race, do you need to consider that you may never get a clear outcome to bet on but, if race 7 goes off and, with 50 yards left to run, one horse is 50 yards ahead – you’ll be damn glad you patiently waited for that race right?  The market is like that:  They run the race every day.  Wait for clarity – then make your bet.

    FMD/Matt – I don’t believe in Free Money Days in an index like that.  Today is simply a day the financials pull back.  FMDs are days when the markets look like they’re going up in the morning and they just keep going up and up all day in such an obvious fashion that everyone who plays does well.  All SKF is doing is following the broader markets as they go lower with the normal boost you expect from an ultra-fund.  I’m sure anyone who bet them last week will tell you there’s nothing "free" about it.

    Gas/Oil/Anton – That’s great!  I like the premise a lot.

    Java/John – I’d take the money and run – look what happened last time you didn’t…

    Rolling/RMM – see above comment on that.

    Commodities/RMM – I made a commodity play in the $100K Portfolio, those got nice and cheap today but the DBC is holding its line quite nicely at the moment right about $19.50 so we’ll see how they hold up.

    AAPL/Steve – Tough ahead of earnings unless they head back to the $90s where it’s worth a gamble.

  79. MrMocha

    Anton, are you using futures for your pairs trade or ETFs or shares?  Thanks.

  80. swbedell

    Anton >>  Interesting ratio.   How do you play that (i.e. with which stocks/etf’s/futures etc) ?

  81. Highlander

    phil, in europe dax, cac, et al down 4%!

  82. Highlander

    phil,
    aapl needs to close a gap at around 117??

  83. Singapore Steve

    RMM
    I got back in about 30 cents ago but only for a day trade.   I should have gotten into ICE.  ICE was one of the stocks that looked good on a pullback in my search this weekend.  But I rolled the dice and AAPL came up.  Maybe it will come back up a dollar or so.     I think I will start playing CAT.  Nice pullback and plenty of strikes to adjust.  Thinking about time to be safe playing calendar calls since this market feels like it is turning up.  We know how those than kill you in a down market.

  84. RMM

    Phil: in your Hedged portfolio update, under the DBC writeup, you say " 10 DBC 2011 $15 calls …….., selling 5 July May $21 for 1.18$,
    the july may should only read july ????

  85. Phil

    Don’t forget how happy we are from a buy/write perspective to have the VIX back over 40 while our entries are getting cheap!

    AAPL/High – AAPL NEEDS to test the falling 200 dma at $115 and will probably test the rising 50 dma at $105.  If I were just going by the chart I’d short them below $120 with a stop at $120.50 looking for those two targets.

    Funny how no one has even mentioned the EPA ruling, which I think is far more detrimental to the markets than this nonsense about whether or not the TARP will be paid back by this and that bank

    Miners are holding us up at the moment as gold flies back to 890.  Dow stubbornly holding 7,900 so far but I think if DIA breaks 78.95 that wiill be the signal that the damn is breaking.  Qs now need to be watched at 32.  Bright spot is SOX getting back to -4.5% but RUT below the 5% line at 455 means no hope for the others so lets watch them.

    Oops, there it goes!

  86. microflux

    Well the EPA has put out a request for comment for 6 months or so, but yea it would be bad.

  87. RMM

    Phil: which sep DIA put strike is good ?

  88. matt1966

    One thing about this market is when it makes up its mind.. it’s very determined.  There weren’t many pullbacks on the way up.  And today, at least, there haven’t been any pullbacks on the way down.  Now, if we can get about 4 more weeks of this I should be about even! ;-)

  89. ajaytoo

    Phil, if I’ve had a long term strategy of holding DITM AAPL Jan calls and selling premium each month, and then last month I got run over by my caller (Jan 70 covered w/ Apr 95s). You suggested adjusting to 2x Jan 110s w/ 2x Jul 120 callers. So far, I’m in 1x the new position….if we think AAPL is headed down (which I agree), should I just be selling the Jul 120s naked? Or because I’m in a slow and steady premium harvesting phase and to minimize margin requirements, is my long call + caller strategy still a good one? 
     
    If AAPL heads down to 95, then I will have collected the premium for my caller, which will enable me to roll down and sell a new caller and keep playing the game? Correct?

  90. occam

     Sir Allen Stanford Interview on CNBC
    -  Something fun to watch — Stanford gives FACS leakage that says he’s lying.  (You know what I’m talking about if you’ve seen the program "Lie to Me", based on the work of Paul Eckman’s Facial Action Coding System.)
    Basically, on the last interview with CNBC he shrugged his shoulders so many times, it was laughable.  So when you shrug your shoulders when you lie, your body is saying "So I did it!  So what?" when your lips are saying, "I didn’t do it."  Stanford basically couldn’t stop shrugging his shoulders.
    Anyway, stanford has massive leakage problems.  Going to have to clear my Quicktime browser so i can scan it easily!!

  91. DB

    Can we forgo the stick save tonight please ?

  92. RMM

    Phil: under the DBC hedged portfolio update: you say (the price of the puts we sold…) but its calls we sold.

  93. mSquare

    AXP – Think it goes down more. Likely below $17.50 by May OpEx. As the PUTs are kind of costly and I do not mind owning it around $15-ish, did a Buy-Write – Buy stock and sold May $17.50 Calls for $3.50.
    Is there a better pure option play rather than a Buy-Write?

  94. pstas

    Phil
    RE: short AAPL- buy puts? If so, what do you suggest?

  95. Singapore Steve

    Obama is starting to sound like Dave.

  96. billman

    Phil  Is thre a play with bac being down over $2 thanks

  97. RMM

    Phil: the description of trades and the comments about stop/loss target, downside coverage etc, etc is VERY GOOD, it gives a good picture, TXS a lot.
    just bought DBC 2011 15% calls, waiting for DBC to rise before I selll the july 21 calls.

  98. occam

     very funny Steve.  Actually, I wonder if any one on his team consulted on Dave.  

  99. occam

     $VIX above 39, and full of piss and vinegar.  I thought that 39 might stop it as it was the barrier last Monday.  Looks like we may get back in the 40s baby!!  That may make for a scary close.

  100. RMM

    Phil: from hedged portfolio:
    you say: see 10 FAS may 6 puts for .5 naked,
    now one can sell may 5 puts for .50 naked, I guess you would now pick the may 5 ???

  101. craigzooka

    Woohoo, thank you plunge protection team!  It looks like they had to jump in a little earlier than planned to save the financials.

  102. Phil

    DBC/RMM – I think I meant the July’s, the May $21s are nowhere near that price.  $6.50 is a good price on the 2011 $15s to get started but I’d still wait and see as below $19.50 could lead us lower.

    DIA/RMM – The same $82 puts or $83 puts if they can be gotten for .50 (but they can’t now). 

    Movement/Matt – I think GS et al have decided they can make a fortune making these V legs up and down every 6 weeks.

    AAPL/Ajay – This is nothing about not liking them long-term, just a play on possible panic around earnings on Weds.  I think stay in 1x and put the cash to work AFTER you know which way we’re going.  You can always double up on the longs if things go well and roll the callers to 2x the whateverrs and, meanwhile, you are decently protected with lots of cash on the side to roll down or add to your longs if AAPL disappoints (and you still like them long-term).

    FACS/Occam – That’s great, I like that show but I suck at spotting those things.  I know he’s lying because you can tell going over the records, what he says/does in an interview is just silly and shame on CNBC (who are shameless) for allowing this BS spin job to pass as an interview.

    Stick/DB – I think we have another day of this to go at least.

    DBC/RMM – Thanks, I’ll fix that.

    AXP/M2 – Keying off the fact that you don’t mind owning it at $15, you can just sell the July $14 puts for $1.10 naked.  Also, you can sell the July $19 calls for $3.55 naked and the July $17.50 puts for $2.20 naked and buy 1/2 the number of AXP calls so say 100/2/2 which puts you in for $19.82 – $7.10 – 4.40 = $8.35 out of pocket with the posiblility of 200 more put to you at $17.50 for net $14.45 on 300  if put to you.  Since you are in 1/2 at $8.35, you can hold off on covering the other 100 shares until you are over $20 (average $14.17) with a downside stop on that 2nd 100 at $19.50.  Even if you went in and out 4 times, losing .50 each time, it would only raise you net basis $1.  Just be careful of what margin you need for the naked calls.

    AAPL/Pstas – I do not suggest shorting AAPL, it’s too dangerous.  If I were going to short them I’d sell the May $120 puts for $6.50 and buy Oct $125 puts for $17.88.

    BAC/Bill – I would just sell the July $8 puts naked for $2.29, they can roll down to the 2011 $5 puts, now $2.13 and I’ll take my chances with BAC at net $2.21.  You can sell the calls too for $1.51 but just make sure you buy some stock, kind of like the above AXP play, maybe working an in at $9 with a stop below $8.50.

    FAS/RMM – Yes and those are fine to take for .50 as we REALLY don’t mind owning them long-term and they are easy to roll.

  103. merkhava

     As far as the bank story today….I think banks have started to realize the TARP is more appropriately called the TRAP.
     
    DIA broke through 79 and the dam looks like it is cracking. Was the PI Cycle correct in predicting this weekend was the top of the bear market rally?  
     
    Is PPT manipulating the markets now with all fingers and toes plugged into the dam cracks and holes? 

  104. Singapore Steve

    CAT
    They report tomorrow.  That explains the 20% difference in IV.  Either way one way to suck some premium out anyway it goes.

  105. RMM

    phil: sold 10 FAS may 5 for 50 cents. NAKED.

  106. Phil

    Our downside has cerrtainly slowed.

    RUT holding 5% line on the button,  VIX couldn’t crack 40 (good sign) and SOX are hold -4.5%.  Qs are not cracking so it’s going to be very much up to earnings tomorrow but if we finish below -4%, then that’s a 5% rule signal that we can expect at least a 1.2% drop before reversing the next day, very possibly 2.5% and poor earnings can send us much lower.

    Obviously, we’ve blown Dow 7,900 but only NYSE is close to breaking the line at 5,225 otherwise which means we technically still need to wait and see what happens.  You would think 23 points would be a cakewalk for the NYSE, now down 231 for the day (-4.2%) as it’s not even the 5% rule and the fact that the broader index is holding it and that the silly Dow is the only one below it may mean this is not a very sustainable sell-off.

    Watch that NYSE line but if the PPT shows up before they break, we could head back up quickly.  Watch 32.50 for the positive line on the Nasdaq and 10.50 on XLF ($10 is still the breakdown point there).  Overall, it would be better if "THEY" left the markets alone and let them sell-off for a change but they haven’t done that for 6 weeks so I’m not sure if today will be different.  

    Watch VNO at $42 – they’ve led us up and can lead us down.   BXP is about the same at $42.50.  AAPL needs to hold $120, GOOG needs to hold $380 and Russell needs to hold 455 but it’s a long way to the close but, if we don’t go below those levels and lose the NYSE 5,225 – we have to be a bit more bullish into the close.

  107. texasmotion

    Interesting reading on ZeroHedge by Tyler Durden and crew about a reversal and liquidity in the markets. Any feedback from anyone around here? I’m curious if this would be considered the beginning of a reversal?

  108. occam

     PPT Conspiracy Theory
    One thing about the PPT is that there are few firms with the computing and quant firepower able to be part of the team.
    One firm with that power is GS, and it is kind of strange that they had so much volume over the last quarter and so little profit (I assume if you are part of the team you dont get to keep your profits on plunge protection [and you don't take losses], but maybe this assumes too much).  Perhaps that can be explained by being part of the PPT and having to sell PPT trades back into the market.
    Other members are probably hedgies like DE Shaw.  Maybe that’s why hedge fund volume is off so much in march/april, having peaked as part of a PPT action.
    To draw the conspiracy further, maybe the banks that got the AIG money were part of the international PPT.  
    But I don’t get what happens when the PPT team buys at 666 S&P and sells at 800.  Where do the profits go?  

  109. RMM

    Phil: is the GE play as per hedged portfolio ok ?
    when do they report ?

  110. matt1966

    TX, I will come out and call it a reversal.  It’s not all down from here.. but it wasn’t all up to get here either.  I also don’t think we’re going down to 6500 on this attempt either.  That retest, and failure, will come later.  Maybe not even until next year.  Unless unemployment reallly takes off or one of Phils calamedy scenarios plays out.
     
    Phil / GS / 6 Weeks:  Wouldn’t it be great if we had a 6 week channel to trade within!  And why not?  How long would it take before people caught on?  I think at least 18 weeks.  8-)

  111. matt1966

    Occam:  Tarp III.

  112. 1020

    RMM/GE reported this past Friday

  113. RMM

    1020: TXS, what did they report ?

  114. merkhava

     GLD could be double bottom formation off 85 support. I would like it better if it can gain enough steam to get over 88 and start forming a nice impulsive wave formation.
     
    RUT breaking thru 455.

  115. 1020

    They beat by .05

  116. Peter D

    Hi Folks, I’m back from the Aussie land and trying to adjust driving on the wrong side of the road.
     
    Hey Motolov, the SPY May 87 short CALL in our short strangles looked dicey for a while, but are doing good today.  I’m checking my portfolios and try to hedge against another 300 point drop tomorrow/this week (I know Phil is a litle bit more bullish).   We need to protect the Short Strangles, as VIX would increase on the downside, doing more damage than the upside. Since my portfolio was vacation proof (i.e. mostly cash), I’m looking at June contracts to start new Short Strangle positions. 
     
    For the newbies, please do NOT take the trades that I’m discussing here yet, as I do have Portfolio Margin that provides more flexibility than normal accounts.  Moreover, Short Strangles (and naked shorts) are only for the experienced traders only. 

  117. RMM

    Phil: how many strikes from ATM do you want DIA puts to be ???

  118. texasmotion

    GOOG/Texas – Well then you can perhaps, remove one putter when they cross below $380 and use that as a stop to get back in if you have to.
    We’re below 380. When you say "remove" a putter.  Do you mean sell one of my 400s? 
    Thanks for the clarification man.

  119. texasmotion

    Phil/GOOG
    question below… thanks

  120. RMM

    Phil: withy my DIA puts 17 % green,  270 Dow points, 3.4 % drop so far, how does one take advantage of this gain ?

  121. Phil

    Zero/Texas – It’s very easy to construct a rational premise for everything to collapse but I don’t think anyone has a handle on how much money the Fed has pumped into the system.  We all live on the dry side of the wall and all the money is pouring into the banks but we are all still thirsty.  You can see the money in the form of bank earnings and the "tough" talk on banks from the Government is all aimed at getting them to lend right now.  If they start lending, things can go nuts very fast as 92% of the people still do have jobs and they can get cheaper mortgages and buy cheaper cars that take cheaper gas and they can go out to stores and buy things on sale so a "relief" rally can pump a Trillion into the economy in 30 days and blow the doors off a whole quarter’s projections.  Will it happen?  I don’t know but you have to consider the possibility alongside the doom and gloom.

    PPT/Occam – As you can see from last weeks chart on GS doing half the market’s trading, you don’t need a lot of guys on the team.  Basically the government gives then $50Bn to play with for free for a few days and they keep the profits.  Maybe sometimes they lose but not often.  All they have to do is give back the money before it starts to look like more than a normal overnight Fed Funds transfer.  

    GE/RMM – If you can’t stand to wait for tomorrow, sure.  They already reported, that’s why we like them.

    18 Weeks/Matt – LOL, I think you give them too much credit!

    Welcome back Peter!!!  I’m not bullish at all at the moment, just waiting to see where this little ride takes us. 

    Speaking of bullish though – Selling FAS $7 puts for $1.45 – how can we not!

  122. maxt1234

    Phil,
    for us slower folks can you gives us what you think we might do on covers overnight?

  123. RMM

    Matt:
    come and say something encouraging .
    I have order in to sell FAS may 6 puts.

  124. Singapore Steve

    The four horsemen look rather dead today.  Will any buyers show up in the last half hour?  

  125. matt1966

    Isn’t it amazing how they can ‘move the sticks’ at will.

  126. matt1966

    RMM, I’m looking for +25% in SKF at close.  We should continue to drop AH.   But I’m looking for a pop in the am so I’ll be selling my SKF etf, half at close, half AH and buying FAS before 8 tonight for the morning pop.  Then I’ll most likely dump it in the morning for more SKF.  Or at least I hope so…

  127. chuckb74

    PUMP UP THE VOLUME

  128. Phil

    DIA/RMM – It depends on what I think will happen.  Right now I would go with the same 1/2 cover on $81 puts we had no reason to roll yet, now $4.20 and the $77 puts are an even better roll than before at $2.22 each so still no worries.  Only if my target changes do I care at all and it hasn’t.  I think MAYBE another 2.5% down, which is just around 7,700 where I’d want to roll down my Sept puts and roll the May $81 puts to max premium at the $77 puts, flipping bullish.  If we went down from there, I’d buy more Sept puts to get more bearish but you have to play the Dow for at least a bounce after a 5% move and, since I plan ahead, I haven’t had any reason to worry all day….

    As to what to do with 17% green puts.  Nothing really.  They are covered and they are there to protect you from a BIG drop.  A 2.5% pullback is not a big drop.  Call me when they are up 35% – otherwise, just keep collecting the caller premiums and enjoy the protection.

    S&P beating the NYSE to the line at 835 (833 is the line), although I guess %-wise it’s about the same.  The NYSE is at 5,234 (5,235) and the Nas is at 1,608 (1,580) with the RUT bringing up the rear at 453 (444).  All are now below our dollar adjusted levels but the dollar itself is stuck at 86, just under the 50 dma at 86.17. 

    A breakout in the dollar could send the market down sharply so be careful of your bets as POOR financial earnings can really send us off a cliff becasue it will tank the S&P AND panic people into the dollar (Treasuries) which can really whack the markets hard.

    On the other hand – small bank earnings were legitimately goood and we had a very strong earnings day this morning.  Tonight we get IBM earnings as well as BXS, BSX, BRO, CNI, HWAY, NARA, PKG, PNFP, SYK, TXN and ZION (who people are running from today) and tomorrow morning it’s AKS, BK, BJS, BLK, EAT, CAT, COH, KO, DAL, DD, FCFS, FRX, HBAN, JEF, JCI, KEY, LXK, LMT, MTB, MAN, MRK, EDU, NYT, NTRS, NVR, PNR, BPOP, RF, ROH, SGP, STT, TASR, AMTD, UAUA, UTX, UNH, USB, USG, WBS and WU.  That’s just the morning!

    So some of this is just panic ahead of a day that can really screw us if things go wrong, especially in the banking sector, which has lots of reporters tonight and tomorrow but, overlall, this has been an orderly sell-off on not too much volume so possibly profit taking ahead of a volatilie day and nothing more. 

    I’m liking the big FAS volume at $7 and I’m very pleased with selling $7 puts at $1.45.

    Since we were going to roll to 2x the DIA $77 puts anyway from the 1/2 May $81 puts sold, no big deal to sell the 1/2 $77 put cover now at $2.20 and go full covered into the close – in case we get a stick save but we’re holding our levels and we’re way ahead so why not take the money and take a chance?

  129. chuckb74

    SO FAKE It JUST MAKES MY SKIN CRAWL

  130. RMM

    Phil: what’s the cover for DIA puts for tomorrow ??

  131. matt1966

    Take that stick save and put it up your….. !

  132. matt1966

    XLF breaking 10 is pretty huge..

  133. microflux

    sell call put with buying half FAS may at 7 ?

  134. matt1966

    LOL!  They did NOT like XLF breaking 10!

  135. ephmen85

    SLG  Any news or just normal ridiculous volatility.   I sold my 15 callers last week and wondering whether to sell 12.5 putters today.

  136. Phil

    FAS flying down now – XLF broke $10, that’s bad and volume really picked up so people are panicking over something.

    Just sold $6 puts for $1.05.

  137. matt1966

    WHOOO HOOOO!  LOVE that exponential dagger to the heart!  Boy that looks familiar.  Been on the revieving end of it far too many times lately.  Couldn’t resist.  Sold my SKF and bought FAS at 6.56.  Might get more AH.

  138. RMM

    Phil: sold mor FAS puts may5 and 6.
     
    Interesting day, txs, UNTIL TOMORROW.

  139. Highlander

    phil,
    aapl holding 120 looked awful artificial and manipulated to steer mkt!!

  140. occam

     Ok here comes Stanford’s interview--watch his shoulders--it should be really funny!

  141. merkhava

     WOW… no EOD stick save today!

  142. Peter D

    I’m resisting my tendency to sell more FAS PUTs or initiate bullish positions after a down day (unless it’s a day trade for a small bounce).  Since we had 6 weeks of gain, we may be spoiled in expecting a bounce back tomorrow.  As far as I can tell, many people couldn’t wait to lock in profits, and many did today.  I guess many more could dump their positions tomorrow, given the confirmed weakening upside momentum.

  143. Phil

    Wow, that was fun! 

    All up to earnings now.  RUT, NYSE, SOX and Transports all down 5% (NYSE just over) with S&P down 4.25% and the Nas and Dow "leading", down just 3.5%.  Worst day since the turnaround on March 9th but it’s JUST LIKE DEC 1st, when we came off the Nov V bottom and took a big spill at the top of the V – that one was 700 points in a day and we made it all back by  the next Monday so we’re not very impressed by a 300-point drop just yet….

    On the downside, Dec 1st was a 50% retrace of the gains and we gained 1,500 points so either 450 more to go down or maybe this is just a very minor pullback off a great run.  I’m sure we’ll find out this week but the thing that turned me bullish was the nasty rumors that are floating about banks needing $400Bn more capital that came out right when they needed to break $10 on the XLF (and our NYSE level) and I’m as willing to call bear shenanigans as I am bull shenanigans and that rumor was made to make sure we didn’t get a stick save today. 

    5% rule says the Dow and the Nas need to finish the test so another 1.5% down for them tomorrow.  That’s 7,700 for the Dow and 1,575 for the Nas but, with earnings, anything can happen. 

    IBM made $1.70 a share, a .04 beat but revenues were a little light and they’re selling off but there’s a lot of currency conversion in their numbers so the people dumping it after hours may be dead wrong.  Gross margins look good and they are guiding $9.20 (in-line) so a p/e of 10 and $10-11 in 2010, which is better than 10% growth so I think it’s a buy at $97.50.

    Very fun AAPL-specific pump job into the close to print $120.  GOOG tried to get $380 back and failed. 

    Tomorrow will be interesting to say the least!

  144. qcmike

    Phil
    Is PEP a buy at less than 50.  ?
     
    Thanks

  145. Phil

    BAC earned $4Bn this Q.  They only earned $4Bn all of last year.  This year the market cap is $50Bn, last year it was $200Bn.  Investors are dumb-asses!  If BAC heads back down, I see nothing wrong with accumulating them. 

    PEP/QC – Long-term I like that they are buying out their bottlers but short-term, people are worried about them sprending $6Bn on somthing they already pretty much controlled.  That’s why KO had a good afternoon, people jumped ship but stayed in the sector.  Let them go down first but we liked them last time at $45 and, long-term, that hasn’t changed.

    FAZ still going after hours!   Gotta love selling those puts….

    ZION lost .39 (estimates were -$1.77) but also took a  $5.55 non-cash impairment from goodwill (not assets), that took their net loss to $7.29 per $13 (now $11.50) share!  I like them down here, this is where we entered the last buy/write on them:

    "In what continues to be perhaps the most difficult economic environment in over half a century, our balance sheet remains strong, with record levels of liquidity," said Harris H. Simmons, chairman and chief executive officer. "After several quarters of significant increases, net loan charge-offs actually declined this quarter. And over the past two quarters we have reduced the goodwill on our balance sheet by nearly 50%. While these noncash goodwill impairments impact reported earnings, they have no impact on regulatory and tangible capital ratios,"

    Yet another case of clueless after-hours traders handing out discounts I think.

  146. cisco

    Hi Phil,
       AH question for you. I work at Cisco, and have stock options (mostly at the money). Obviously I cant use them as leaps and sell monthly calls. (Work agreement prohibits this).
      What do you think of my selling JNPR (Juniper) calls against my Cisco options? Is it safe risk-wise? What ratio would you sell would it be 1:1. 8 JNPR :10 CISCO.
      Please advice.
    Regards
    Krishna

  147. Phil

    TXN kicked ass!  .07 profit vs. .03 loss expected.  Revenues beat nicely too and they are guiding up!

    Qs are picking up already, NAS at 1,315 in futures, not a bad entry with a stop at 1,313 ($20 a point per contract).

  148. Phil

    JNPR/Cisco – Hmm, what if JNPR gets bought?  Even worse, what if CSCO buys them and their stock goes down while JNPR goes up?  How about IGN?  They are about 8% CSCO and 5% JNPR with QCOM and GLW and others thrown in.  They are at $19.70 so close in price to CSCO and you can sell May $20s for .77, while the CSCO $18s are only .53 so not a bad deal.

  149. occam

    Stanford  Interview – one contradictory head shake "no" but he corrected it, rather conscoiusly, and then tried to shake his head "yes."  He’s definately being coached.  Just a little repressed shoulder shrug.

  150. RMM

    Phil:
    NOW that you have spoken that CALLS of SDS, the Ultrashort, should be used to hedge my 50000 $ worth of MF, here are the questions;
     
    1) what %age drop should be planned for: 5% or more, this determines the # of calls, but maybe I start out with 20,
    2) is this dropping market the right time to enter into this: for the LONG yes, for the SHORT, wait ??
    3) which LONGs and which SHORTS to use:
    4) Strategy to be used (like what we do for DIA):
    buy LONGS ITM or ATM
    sell SHORTS OTM,
    SHORTS expire 0 or buyback if 90 % gains,
    or
    buyback if 20% loss max. then roll SHORTS UP,
    LONGS: roll DOWN using 0.5/1$ rule and the gains from the shorts,
    Goal: collect premia from callers and have protection from calls.
     
    TXS for patience.

  151. RMM

    Phil: one more question is:
    should nthe MFs be converted to something better ?

  152. KeyserSoze

    PEP – Nooyi is smart on this one.  KO will need to follow to keep up.  I think PEP has decided that 10 years of "negotiating" with the bottling group on virtually every thing the consumer sees in-store was just getting in the way of growing the business.  It might be fair to say PEP "controls" the bottling group today but only after lots and lots of conversations (and time).  This move gives them fast control and at some point, speed will probably worth the extra 8b.  This will cut down cycle time on new products and reaction time in the store. 
     
    PEP may see 45 on this dip and I think it’s even a stronger buy than it was when it went on the list a couple months ago.

  153. Phil

    Stafford/Occam – Compared to Madoff, the guy’s a Prince (actually a Knight)!

    Fund/RMM – Let’s start with the last question first.  Yes, I don’t know what the point of having mutual funds is.  You would be better off just going with that SPY/SDS combo in its entirety or, better yet, the DIA because you will give me a huge headache if I have to start looking as SPY and SDS every time the market moves a couple of percent.

    Here’s a fun thing to try.  Selling FAZ calls and FAS puts (same direction bet) whenever one of them is around $6 since we figure $3 is the worst.  So if we sell FAS $6 puts for $1 and FAZ $20 calls for $1 and we roll them whenever they hit $1.50 to 2x something else at $1, as soon as the trend reverses they both pay off nicely.  FAZ would be more dangerous as it’s heading up but the $20s can roll to the July $40s and those can roll to the Oct $70s and Jan doesn’t even go that high because no on thinks it’s sustainable.  Just seems like a fun thing to do…

    PEP/Keyser – Very good point!

  154. microflux

    Also phil doesn’t the FAS buy/write call puts for the may 7 or 6 look good ?

  155. RMM

    Phil:
    sorrry but you did not answer the questions on the SDS options to trade, as SDS is an Ultra, I nwill use that one.

  156. PharmBoy

    Love the article that follows this one about the Stress Test being leaked …  BAC is insolvent …

  157. Phil

    FAS/Micro – At these great prices I’d rather sell naked puts first.  You can always add stock and sell calls when we turn back up.

    SDS/RMM – Well I was hoping you weren’t going to do it.  I will NOT sit there and babysit this trade for you.  It will NOT be my problem.  I am not interested in spending time every day pouring over the optimal SDS/SPY position to cover the market.  I play the DIAs because they provide good, reliable coverage and because they do NOT swing wildly and require constant adjustments and the do NOT blow me out of position.   In SDS we have a very simple goal, make money in a big S&P drop – try not to lose too much otherwise.  So the positon is selling 1/2 the May $72s for $4.70 and buying Sept $60s for $17.  You do need to cover more if the S&P goes up and you do need to set stops on 1/2 whenever you have a full cover and you do need to use the $4.70 you got from the cover to roll down if the S&P runs up on you ($2.50 takes you to the $55s).  Other than that – it’s pretty straightforward.

    BAC/Pharm – Hal Turner is a loon.  I hope he wasn’t the main source for this rumor as that would just be sad but I do see that the Treasury has already said there is NO BASIS in his claims that 16 Banks are insolvent (out of 19).  That would be the opposite of what was floated last week, that all 19 passed.  I didn’t know what it was but I could see the panic selling into the close – which is why I started buying and covered the DIAs fully, news like that generally gets a reversal as soon as people sober up…

  158. RMM

    Phil: if I pick the DIA, its DIA puts and putters ? wild swing I do not care for.

  159. merkhava

     If you want basis for, then consider what Dr. Martin Weiss writes today,
     

    "The authorities SAY that all of the 14 largest banks have earned a “passing” grade in their just-completed “stress tests.” But just six months ago, the authorities swore that, without a massive injection of taxpayer funds, those same banks would suffer a fatal meltdown.
    Was the bad-debt disease magically cured? Did the economy miraculously turn around? Not quite. In fact, we have overwhelming evidence that the condition of the nation’s banks has deteriorated massively since then."
     
    http://www.moneyandmarkets.com/big-bank-profits-are-bogus-massive-public-deception-33228
     
    How can there be "glimmers of hope" if what this alleges is true? When the basis of "economic recovery" is founded upon deception and fraud by men who are at best incompetent and quite arguably much worse and malicious in their real agendas, then how can I or any other ordinary American have any confidence? Do I expect things to be better a year from now? No. In fact I am quite anxious and dreading what is coming.

  160. Phil

    DIA/RMM – If you are good at it and using it as a successful cover, then why not stick with it?  Don’t forget the idea of these covers is to mitigate damage on the way down, not to make money on their own, if you keep in mind the basic premise that we want to be in position over every weekend to survive a 5% drop and 2.5% on most nights, then you can manage your coverage well.
    Come on Merkhava – Why do you guys insist on believing any anyone with a web site has all the answers?  From Wikipedia:
    "In 1971, while beginning his doctoral work, Weiss founded ‘Martin D. Weiss Research, Inc.’, later renamed ‘Weiss Research, Inc’, to evaluate the investment reliability of banking and insurance institutions. Five years later, in 1976, Weiss began publication of his flagship newsletter, now published monthly and called the Safe Money Report.
    In January 2002, Weiss published The Ultimate Safe Money Guide, which was addressed to the high-income 50+ age-group and which suggested that "hype and distortion" were the norm, both on Wall Street and in corporate financial disclosure statements.  In February 2005, Weiss published Investing Without Fear, which in narrative style described the brokerage community’s "deceit, crimes, and blunders."
    So, perhaps a little biased from this guy….  I’m not saying he’s wrong, but I am pointing out that he made up his mind long before any facts came out. 
    This is what a hyena attack is – they float all sorts of half truths and release the media hounds in order to stampede the sheeple out of their posiitons.  Don’t you find it just a little strange that all this comes right on the day that regional banks start reporting?   We went up and up and up last week and suddenly all the bad news comes out on the same day?  The timing alone should make you wonder. 

  161. Phil

  162. ephmen85

    merkhava,  I skimmed the article that you linked to.   I don’t know the guy other than the fact that he is selling one of the "Armageddon Porn" books right in the same article.  I don’t  think he can get any more credible about the solvency of banks than if he was short C, JPM, and BAC.
     
    I don’t think anyone without access to the actual books can give an actual assessment of there solvency risk.   I do think it is highly likely that there will be more writedowns, but I don’t think any big banks are going to implode.   In the strict sense of being able to immediately meet all their obligations if people want to withdraw their money at once, all banks everywhere are always "insolvent."  That’s the nature of fractional reserve banking.   As long as the merry-go-round keeps going, banks will be able to earn their way out of the problem eventually, and the Fed and Treasury have given no indication that they are going to stop the music.
     
    Dilution could still cause the big banks to be lousy investments, but I think the danger of a complete breakdown of the financial system has passed..   We might have Zombie banks for a while, but we’re not going over the cliff.

  163. silentstorm44

       Ephmen, I like your comments.  Which bank will become most "diluted"   (  C ?)  is what we have to determine.

  164. corleone

    ms said it may be acquiring regional banks—the next move up for banks will consist of good news about the stress tests--only because they have now scared the hell out of everybody and it will be a feeding frenzy--remember last week when they stated that they were going to release some information early? this is the perfect excuse to add fuel to the fire and release positive information --also there will be some acquisitions and mergers in the banking field that drive up the stocks————i think phil is right when he says that this was a organized herding of the sheeple—-

  165. Phil

    Good morning!

    Well something spooked the futures in the past half hour.

    I see the WSJ is spinning IBM negative with "IBM Proftit Slips Amid Weak Sales" as the headline (it’s all about the headline).  The fact that they guided in-line for the year and up 15% next year escapes the casual reader but at least they mention that revenues were only down because the strong dollar meant they collected less foreign revs.

    Next article on the WSJ is "A $4.2Bn Profit Isn’t a Fix for BofA."   Imagine what they would have said about them if they had a loss!

  166. merkhava

     ephem85,  why was "Armageddon porn" and book peddling the focus of your attention?
     
    The article is about how Citi cooked its book for the quarterly report it just filed. A few years ago such a things was a crime that would land a CEO in jail. The allegations are serious and should be verifiable since the man did site how he came to his conclusions.
     
    Confidence and recovery must be based on honesty, integrity and transparancy in our free market system. Does anyone really think we can rebuild this wrecked economy through deception and fraud. Does anyone really trust the whorehouse of Goldman Sach executives filling the ranks of the US government? Am I the only one cringing at the site of coporations and government entities merging?
     
    Benito Mussolini had a word for that….

  167. merkhava

     I’ll uz spel chek when I have more tyme….  ;)

  168. matt1966

    Damn!  That FAS play at close really bit me in the ass today.  They are pushing it down fast.  Oh well, it normally works after an all up or down day like yesterday.  You have to respect the trend.. I will.  Until proven otherwise.

  169. matt1966

    Boy, things have moved so much in the financials since close yesterday that it’s either one of two things.  1) there’s a huge correction coming NOW, or 2) this is a big headfake and we’ll climb up today.  Not sure what to think at this point.  The correction is definately coming.. but usually it’s a little more controlled than this.  Not sure why all the panic all of a sudden.

  170. Phil

    Well the correction was long overdue and 5% is about right so 1.5% more to go but (see morning post) for the most part I think they are hearding a new round of bears into a trap.  I was bearish because I thought earnings would be much weaker than what we’re seeing.  You really can’t have worse conditions than we had in Q1 yest 62% of the companies reporting so far have beat (albeit low expectations). 

    All the wild rumor-mongering also makes me think the bears are panicking but we’ll see.  It takes very little to push the Dow around pre-markets, the S&P is down only 3 to the Dow’s 70 at the moment so we’ll have to wait for the open to see what’s what.

  171. matt1966

    … but the financials are down huge.  FAS is down 12%.. which is alot even for an ultra financial.  Did Cramer say ring the register last night?

  172. matt1966

    FAS now down 15%!  This is friggin criminal.  The crooks that run this market should be drawn and quartered.  This is not the sheeple.  This is GS, MS et al. 

  173. Options Trader: Tuesday Outlook | Buffett Junior - Investment Blog - Stock Blogging

    [...] Yesterday I predicted a test of our lower levels: Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444, and we finished at Dow 7,841, S&P 832, Nasdaq 1,608, NYSE 5,220 and Russell 452, so an interesting balance there. The Dow is, by far, the easiest index to manipulate and the Russell is the hardest. It took the Russell all afternoon to leg below our first breakdown point at 456 though, so it’s possible they’ll catch up today but that would be bad as they’re holding us up at the moment. As I said yesterday, below these levels is another 5% gap down to Dow 7,636, S&P 805, Nas 1,525, NYSE 5,075 and Russell 420 before we hit any real resistance. [...]

  174. Testy Tuesday Morning | Understanding The Stock Market

    [...] Yesterday I predicted a test of our lower levels: Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444 and we finished at Dow 7,841, S&P 832, Nasdaq 1,608, NYSE 5,220 and Russell 452 so an interesting balance there. The Dow is, by far, the easiest index to manipulate and the Russell is the hardest. It took the Russell all afternoon to leg below our first breakdown point at 456 though, so it’s possible they’ll catch up today but that would be bad as they’re holding us up at the moment. As I said yesterday, below these levels is another 5% gap down to Dow 7,636, S&P 805, Nas 1,525, NYSE 5,075 and Russell 420 before we hit any real resistance. [...]

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