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Monday Morning – 6 Unemployed People Per Job?

The number of unemployed people per job opening has climbed to 6:

27jobs-graf01

Six is a lot, as you can see from the above chart.  6 means that if you get a job, 5 people absolutely will NOT be able to get a job because you just took the last one.  Notice Job Openings are still falling and people without jobs are still rising – this is not a good combination, despite how great you hear things are getting on TV.   In the first 6 months of this year, there are half as many manufacturing jobs available, 17% less Government Jobs, 21% less Professional Jobs and 21% less Educational Jobs.

Call me old-fashioned but I still think you need people to work in order to have a strong economy.  If we have 10% unemployment (the "official" number) and only 1 in 6 people COULD get jobs if they filled every single available opening tomorrow.  That still leaves us with 8.5% unemployment.  We are miles and miles away from creating jobs and that is very scary.

68017.strip.sunday

As I predicted in the Weekend Wrap-Up, Merkel won her election in Germany and the new "Pro-Business" coalition is making investors happy but Germany has some silly rule about balancing their budget so it will be a long time before you see the massive tax cuts that investors are salivating over.  Also, one would think people would sober up and short the Euro if their plan is to start running the German printing presses in a US-styled Spendocracy but no action in the currency markets so far.    I wrote some extensive commentary on the German situation in Member Chat so I won’t get into it again here. 

This weekend, I also posed the questions "Are Fundamentals Making a Comeback," or are we just resting before the next big push to 10,000?  We’ll be keeping a very close eye on our 5% rule levels next week, especially the retrace levels from the 20% run-ups since early July:

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  9,665   1,044   2,091   6,824   599   1,932   21,024   10,266  5,082   5,581 
2.5% Up 9,950  1,077  2,160  7,034  617  2,001  21,577  10,808  5,206  5,745 
Prev Close 9,707  1,051  2,108  6,862  602  1,952  21,051  10,544  5,079  5,605 
2.5% Down  9,465  1,025  2,055  6,691  587  1,903  20,524  10,281  4,952  5,465 
July Base 8,200   880  1,750   5,600  480  1,650   17,500   9,200  4,200  4,600 
20% Up  9,840  1,056  2,100  6,720  576  1,980  21,000  11,040  5,040  5,520 
Retrace 9,512  1,020  2,030  6,496  556  1,914  20,300  10,672  4,872  5,336 

We can see from the chart that only the Nikkei has blown it’s retrace level but they have also never hit their 20% level.  All the other indexes have hit 20% up and the Hang Seng is in the most immediate danger of giving it back but the NYSE and Russell are playing it close to the bone while hitting the 2.5% line off Thursday’s close would put most of the indexes under the 20% mark so we are a small slip away from a very red chart

The DAX should do well today as Merkel won her election (stability is good) and that is sending the DAX right back to Wednesday’s close at 5,680 (up 1.5%).  The FTSE is up about half a point an hour before the  US open, also testing Wednesdays low of 5,120 and why should the CAC be any different as there’s nothing the French like better than a German show of force and that market is up 1.1%, back at Wednesday’s low of 3,780.  Other than the election, there is no major news in Europe but the Dow has jumped 100 points in the futures since Europe opened at 3:30 am.

Things did not go so well in Asia as the Nikkei stopped right down at the 2.5% rule and 10,000 but blew that critical 10,200 line on a gap down.  Hang Seng Gapped down 300 and the day got worse from there, finishing down 435, which is down 2% but they bounced right off the 5% line at 20,520 for their drop from 21,600 last week so they need to retake 4% (20,736) to be more than a weak bounce tomorrow.  The Shanghai composite also dropped 2.7% on the day.  As we expected last week, exporters got slammed as the Yen pushed new highs against the dollar.  The market was pricing in the risk of weaker-than-expected earnings due to the stronger yen, said Phoenix Securities manager Mamoru Nakajo. "Earnings at Japanese companies will be bad, with exports hurt by the yen’s strength and domestic businesses also struggling amid deflation."   

If oil fails $65, that sector has a long way to fall but a concerted effort has been made this weekend to make sure that doesn’t happen: Iran has been test-firing short-range missiles this weekend in order to keep oil above $60 a barrel next week, coordinating their efforts with the Taliban, who attacked the Afghan Energy minister and staged multiple suicide bombings in Pakistan as well as Palestinians, who held riots at the Temple on the Mount as Jews attempted to visit for the Holy Days.  Osama Bin Laden also worked overtime this weekend to help Goldman Sachs hit their oil target, demanding the EU nations pull their troops out of Afganistan or face "retaliations."  We’ll wait patiently to see who’s turn it is to have their Nigerian outpost attacked by Rent-A-Rebel – all in all, the usual nonsense that pops up every time oil needs defending at a critical inflection point.  

Metals and miners are also teetering on the verge of a correction so many, many things that can go wrong next week with lots of data on deck including Tuesday’s Case-Shiller Index and Consumer Confidence Survey ahead of the bell, our final Q2 GDP (-1%) on Wednesday with ADP Employment and the Chicago PMI.  Thursday is the very dangerous Personal Income and Spending along with Jobless Claims, ISM, Construction Spending, Pending Home Sales and Auto Sales.  Friday is our Non-Farm Payroll Report along with August Factory Orders – busy, busy…

We also have earnings from PBG, WAG, DRI, JBL, NKE, ZZ, WOR, STZ, BLUD, MU and Cramer’s TSCM, which will be interesting to me anyway….  So we’d better look sharp, things are sure going to be interesting… 

 


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  1. where

    Morning all!
     
    ‘Tis a little quiet here today.  Everyone just on vacation?

  2. where

    BTW, just had a few major higher-ups laid off here at Halliburton.  Dunno what it means exactly, but we are seeing major oil companies keep opex flat or declining for North Sea, European and West Africa for 2010.  Kinda fearing for my job as a "high paid ex-pat".

  3. aclend

    From GS:
    We reiterate our Conviction Buy rating on ITW, with 30% upside to our 12-month target of $55 (18x 2011 EPS of $3.05). Following recent weakness (–5% vs. multi-industry peers MTD and –2% YTD) valuation is at peer group parity despite superior early cycle exposure with 35% of revenues from auto, consumer, truck and resi construction vs. 22% for the group. We expect 4Q EPS guidance in October to be 4-5% above consensus and renew momentum in ITW shares. We also continue to see 2010-11 consensus EPS at least 9% too low, with greater impact from cost cutting, recovering early-cycle end markets and acquisitions (2011) key catalysts.
     
    Downgrading steel sector coverage view to Neutral from Attractive
    We are tactically downgrading our US steel coverage view to Neutral from Attractive on concerns that recent attempts by steel producers to push the HRC price to $600 may not succeed, and prices could even recede over coming months. Our channel checks indicate difficulty in getting prices to stick as supply restarts could overshoot the demand recovery in the near- term. Steel equities generally do not respond well to falling prices, and we believe that this scenario could repeat itself this time around.
    As macro conditions continue to improve, we expect demand to further improve. However, we are approaching the “shoulder period” (end of Nov to early Jan) when steel demand typically slows. With supply coming online faster than expected, we think US steel prices could retrace to $520-$530 over the coming months. However, at this level mills should also once again curtail supply, setting the stage for steel prices to move “2 steps forwards.” As this is a tactical downgrade, we will opportunistically look for a re-entry point, which could arise if Chinese and global steel prices rapidly recover and push US prices up faster than we expect.
    NUE our favorite pick; STLD off CL-Buy list but remains Buy
    We expect NUE’s earnings to accelerate as the woes of excess high priced pig iron inventories have passed, and expect it to outperform its peers. At the same time, we remove STLD from our Conviction Buy List but maintain our Buy rating. We also make several changes to our steel prices, earnings estimates and target prices across the entire sector.

  4. ssdirk

    Anyone with TDA having trouble with quotes?

  5. RMM

    Phil: I see SOLAR is being discussed to close, do you agree ??

  6. Phil

    Good morning Where.  I was expecting the oil service sector to decline as we are in for a prolonged period of lower demand so a lot of exploratory work wil be put off and more effort put into milking existing operations.  This will, of course, lead to problems later but I think the economics are inescapable as big oil must cut costs and you guys are a cost.  Still you seem to be a journeyman traveler and I think the flexibility is a good thing or at least I hope so…

    RIMM still getting pounded, down below $67 now. 

    We’re looking to see if the Dow can retake 9,840 (doubtful) or the S&P can retake 1,056 (now 1,049) for the markets to look like they are improving. 

    Holding Friday’s closing levels is vital so watch out for any redness at all as a sign that this huge pre-market push is failing.  After 15 market minutes just 14M shares have been traded on the Dow so this is the lowest volume open we’ve had since September 4th, when they ran the Dow up 100 points ahead of the holiday weekend (but note that the rally did continue for 2 weeks after that!).

    Hopefully, straight up action on no volume and no news already makes you suspicious.  We’re coming into the end of the month and also we have the 60th anniversary of communism so I like FXI at $41.25 as long as we stay green and you can lever that with the Oct $40s at $2.10, possibly selling the $41s for more than that on a good run for a free ride or just going for a quick $2.75-$3 and getting out

    I will be looking for this to reverse tomorrow unless they come up with something to back up this rally but today we can get back, like Europe, to Wednesday’s lows – which is Dow 9,800, S&P 1,060, Nas 2,130, NYSE 6,970 and RUT 615 – that’s where we’ll be looking for possible shorts.

  7. dmankoff

    Phil, seems like the Sept. 30 end of month is a big reason they want this market to go higher to print a really good number for the quarter.  does that make sense?  perhaps the Armaggedon is off the table, and there is so much cash around to fuel any rally on any kind of a dip….. so should we just buy, buy, buy, as Cramer says?

  8. diamond

     So, that is what that switch is for …

  9. mSquare

    Test. Comments had disappeared soon after 10am. Guess there was some technical issue, now resolved?

  10. Phil

    Yay, we’re back!  It was a down Data Server (the one that had comments I guess). 

    Don’t forget, whenever we do go down we switch comments over to the backup site on Seeking Alpha Stock Talks.  If you haven’t already registered, you can go to http://seekingalpha.com/author/philip-davis and click "Follow" under my picture

    ITW/Aclend – I don’t get how up 100% is conviction buy for GS.  How big is this list?  It doesn’t seem very exclusive does it?  They have earnings on the 20th and those should be almost 65% of last year but for the year they are down 50% unless a miracle occurs.  Certainly you can jump on them for the ride but I’d call that one a quick ride to $43.50 and then get super cautious. 

    Solar/RMM – What do you mean in general?  I have no idea what SOLAR is…

    End of month/Matt – absolutely they sure don’t want to end on such a down note but there’s nothing fundamental about this move.  Volume not even 50M at 11am due to Jewish holiday more than anything else. 

    LOL Diamond!

  11. where

    Did we have server issues?  Coulden’t see the comments for a while.
     
    Oh, and damn…didn’t see straight vertical takeoff on the indexes coming.

  12. Matthew - Web Developer

    The comments issue has now been resolved.  Sorry for the inconvenience.

  13. 1020

    Nice!!!

  14. ssdirk

    From an email someone sent to me:
    The Bailout Mascot:  The government today announced that it is changing its national symbol to a CONDOM because it more accurately reflects the government’s political stance.  A condom allows for inflation, halts production, destroys the next generation, protects a bunch of pricks, and gives you a sense of security while you’re actually getting screwed.

  15. lflantheman

    Phil….Seems it”s time to buy a portion of those shorts.  Your  market goals are essentially reached, per your earlier comments.  Any specific suggestions?

  16. Phil

    Europe up near the day’s highs, Germany up 2.5% and back to about where Thursday’s drop started.  FTSE is there too and CAC is a bit lower.  Our indexes have to double this run to get back to Thursday’s highs but if we throw out the sill Fed run, then we’re not too far under ourselves.  

    Oil up to $67 on Iran "fears," as if we never knew Iran could make a bomb before.  Gold at $995 but Dollar hanging out at 89 Yen and still $1.463 to the Euro and $1.59 to the Pound.  CNBC pushing gold hard today.

    Poor SRS down 5% this morning.  FSLR having a rough day, as is RIMM and WFR for some reason. 

    I don’t know if you caught my comments at SeekingAlpha but I still think this (here) is a top for the day and I thought buying back the DIA 9/30 $97 puts for .30 was a good move, now .35 and those puts are also a fun buy for a retrace, risking a dime on the stop and looking for .60+

  17. JRW III

    Hi Phil,
    I’m inclined to short here (TZA) but tomorrow’s reports should both be neutral to positive. Consumer sentiment, the U. of Mich number was a big up, and it seems to me that the average consumer is not that bright anyway. Case-Shiller won’t look that bad as banks have refrained from forclosure and what they have taken they refuse to list, so it appears less downward pressure than really exists. So do we short ?

  18. gel1

    I have been attracted to CME for a long time but have never dated her. I like the long history of earnings and the lack of competition. For a long term relationship, could you recommend a buy/write – short straddle position. I’ve been considering Nov 330 calls and Nov 280 puts – both short.

  19. aclend

    Do you have an email address that I can send you a message?

  20. Phil

    LOL/SS! 

    Shorts/Iflan – Well the DIA as a speculative downside but we should wait for clear breaks back below our watch levels first as a little pullback off a big morning run does not a reversal make. 

    End users have cut derivatives exposure to a seven-year low, Felix Salmon finds digging through the OCC’s quarterly report (.pdf) – but dealers have increased theirs to another all-time high: $78 of exposure for every $1 of end-user exposure. And "dealers" means four banks: JP Morgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC) and Citibank (C).

    Dallas Fed Manufacturing Outlook: Texas factory activity shows first signs of bottoming out as production index was close to zero (nearly equal increases and decreases). Shipments and new orders turn positive. Other indexes improved but remained negative. 

    S&P expects "persistent ratings pressure" on emerging-market countries, saying that the fiscal positions of almost every government will be worse than the previous five years and GDP per capita will be flat or worse in two-third of the 42 rated developing nations.

    Another bad sign for recovery: the sharp drop in start-ups. Businesses in their first 90 days of life accounted for 14% of hiring between 1993 and 2008. Business starts usually dip in recessions, but this decline has been steeper, with start-ups dropping 14% from Q3 2007 to Q3 2008.

    The latest sideline cash report: American investors have $3.5T in cash – equal to 73% of the S&P 500′s net assets – even after reducing money-market accounts by 11%, according to a new study. At the peak of the bull market in 2007, the figure was 62% of S&P assets.

  21. lflantheman

    Phil……AAPL.   I hold long shares in an IRA.  Which do you favor for maximizing return………selling covered calls, or trailing stops.?

  22. dflam

    HI Phil; I’m  up $1 on GSK stock ( $38.81 ,now $39.81) in 6 weeks. I sold Jan .$37.50 calls for $3.33 now $3.40 and Jan. $35 puts for $1.45 ,now $. 80. In general,if I believe GSK is going up past $40 by Jan, am I better off to close out these option positions for a net gain of $.58 even though they have $1.90 remaining in time premium and then sell the Jan. $37.50 put for $1.50 and the Jan $40 call for $1.95 for $3.45 in time premium.  I would then have an out of the money call, and a put with more exposure on the downside,but with more time premium.
    I guess the question I’m asking is : If your’e bulish on a stock,is it best to roll to the next option positions to get more time premium or  should I consider myself thankful my original position worked out & not get greedy & just lett he position ride to expiration.Thanks for your help & guidance.
    dflam

  23. lflantheman

    dflam….excellent question.  I’ve looked at the exact scenario many times.  We’ll see what Phil says.

  24. stevenparker

    I am fascinated by this mornings data on job openings and wonder if this will be a powerful leading indicator on the jobs that we all see are so important.
     
     
    I am fascinated because, in my experience, the number of vacancies in a company can change very quickly and much more quickly than actual employment. From managing 100 people, I could go from having 10 vacancies to -10 vacancies to 5 new vacancies all in the space of a few weeks. Indeed, the more aggressively we laid people off the more aggressively we had to hire at first signs of an upturn. Very often the downturn was a spur to focus management on laying off the least productive workers as attention shifted to costs. At the first sign of confidence returning, or even simply on completion of the layoffs, we quickly switched back to replacing those employees with new ones. If common  I think this process could make this indicator quite volatile.
     
    I wonder how this matches others’ experience, and whether this is a number we should be watching very closely.
     

  25. RMM

    Phil: does not know what Solar is, so, I make it easier for you, LDK and SPWRA ???

  26. Phil

    I must share a server with Stockcharts, they just came back up too!

    Short/JRW – I don’t think we want to commit to more short positions until Wednesday as clearly someone wants these markets to go up in a very bad way.  You see that opening move up in the markets and you know that a buyer(s) is just buying at ask over and over again for a whole hour as if the world was going to end if they didn’t buy every stock in the market for 2% more than it was on Friday by 10:30.  Not something I’m inclined to follow but not something that’s easy to play against either. 

    CME/Gel – I like them but very tricky to play.   The pending legistlation is scaring people off but to me that’s more a problem for ICE than CME. Best to play CME like a long bullish GOOG play, taking advantage of front-month sales to pay for your leaps.  The 2011 $230s are $94 and have $24 in premium.  You can sell Nov $300s against them for $20.65 for a net $74 entry on the $70 spread.  As long as you are willing to DD on the $230s if things go well (giving you a low average entry deep in the money), then you have no rolling worries as you can move the Nov $300s to 2x the Nov $330s (now $9.30) or 2x the Dec $340s (now $9.75) etc.  This commits much less than the buy/write and is less limiting to the upside and more protective to the downside since the $20 you collect pays for you to roll the 2011 $230s all the way down to the $195s, so $35 in protection.  If you buy/write at $301 with the Nov $330/280 short straddle, that’s net $280/290(ish) with a $50 upside committing 3x more cash and margin than the spread, which will pay $60 for 2x if "called away" at the same $330. 

    EMail/Aclend – admin at philstockworld dot com, Greg will send me whatever mail.

    AAPL/Iflan – Would you like AAPL to go to $220?  You can guarantee it buy buying the 2012 $220 puts for $62.  That puts you in AAPL for net $248 and you have 27 months to sell calls to bring your net down.  You can start by selling the Jan $200s for $9.20, which drops your net to $239 and if you do that once a quarter for 8 more quarters you’ll be in AAPL for net $167 with a guaranteed sale at no less than $220 in Jan 2012.  Since you like AAPL, you can be even more adventurous and sell the Jan $165 puts for $6.70 too.  Do that 9 times and that’s another $60 off so maybe worth taking the chance on having some more put to you (and there’s always rolling down).   That’s how I’d do it if I wanted to play it safe(ish).  Don’t forget if you just sell the Jan $165 puts and Jan $210 calls, that’s $13 for 3 months and that’s another $52 (27%) per year – isn’t that what a retirement account is supposed to do for you?

    GSK/Dflam – I’m glad you had that or at the end or I would have had to say it.  It’s one thing if they are blowing you out but this is not a huge move up for them and you are talking about blowing off protection and paying premium etc all to make an extra $2.50.  Look at it this way, you are willing to spend $1.90 in premium (and .80 out of pocket) to remove 1/2 your downside protection and obligate yourself to buy the stock for 6% more if they drop more than $2.  

    There are a couple of ways to get more bullish.  For $2.30 you can buy the May $37.50 calls and sell the $42.50 calls, that pays more than 100% if GSK makes it to $42.50 and doesn’t force you to change current coverage.  You can also just buy the 2011 $45s for $2.20 as you won’t miss anything that way and, of course, if you have the $45s, that means you can roll the Jan $35s at $3.40 up to 1.5x the Feb $40s, now $2.30 or the March whatevers if things take off.  Also, you can roll your putter up for another $1.80 to the Jan $40 puts which have $2.40 in premium and if the stock stays between $34 ad $43.50 it’s a win for you as you have collected $6 total and then you roll out and try again.  Any outcome between $36 and $41.50 has you owing less than you do now plus you have the extra $1.80 in your pocket to roll with. 

  27. EricL

    The dollar is showing surprising strength this afternoon given the rally, which is a reason to be skeptical of the rally until we know that the correlation with the dollar is breaking down. I see no reason to think that yet.

  28. Phil

    Jobs/Steve – I just think the extremeness of this particular cycle is worth noting.  I remember in the mid 70s, when unemployment was high (but peaked at 9%) there were jobs – just not good ones.  Also, that spike in unemployment was caused by the end of the Vietnam war so there were lots of "new" people coming back to the workforce.  Unemployment went back down to about 7% through 1981 but then we had the "Economic Recovery Tax Act" in Dec 1981 and that sunk us, sending unemployment up to 10.8% in late 1982 but again, there were jobs around.  This is very different, there ARE NO JOBS.  That’s systemic unemployment and it’s not going to go away by itslef. 

    Solar/RMM – Oh solar, not SOLAR…  That’s different.  I don’t like them yet because they haven’t fallen enough. 

    Tricky doing with the dollar as they work on getting it up to 90 Yen again without doing too much damage to the Euro. 

    Oil back to $66.50 with just 20 mins left on the NYMEX and gold looks like it may test $990 into the close.

    Came real close to stopping out on those DIA puts, not good for Asia if we have a bad close but even holding 1% gains would impress them.   That 2.5% line was too much for the RUT and the SOX…

  29. gel1

    Phil
    Thanks for CME strategy (brilliant). I finally blew out of my PALM short position. Have received today some long recommendations for them. Do you have any sentiments re Palm? I’m real confused.

  30. chakra108

    Phil
    I have a couple of positions that may require a fix and would appreciate your input.
    1) DIA PUTS - I own the OCT 96 @ 1.43.
    2) EDZ – $7NOV/$8 OCT PUT SPREAD
    Thanks. Like everybody I was looking for a sell off but……..Looks like we have to wait for the earnings to kick off for some volume.

  31. EricL

    gel, one PALM idea is selling the Oct. 16/17 strangle, which nets you 1.60 and is slightly bearish at this price. IV is still very high on PALM, although the stock moves have been big recently so I guess it’s justified. For comparison, selling a near-money RIMM strangle nets you only about twice as much for a much more expensive (= much higher margin) stock that’s also highly volatile. I’m short just a couple of those PALM strangles.

  32. chuckb74

    Phil I am long Sep Qtrly DIA 98 and 99 Puts, any problem with holding overnight since they are both ITM?
    Thanks

  33. Phil

    PALM/Gel – Well they have their "next big thing" rolling out and favors are obviously being pulled as they are getting plenty of lovin’ from the media and Wall Street but what exactly is our rationale for giving a $2.4Bn company that lost $2 last year and will lose another .35 this year and HOPES to make .42 per share in 2011 a share price of $16.67 (p/e of 40)?  They are not coming off an R&D cycle, they actually spent 20% LESS last year than normal.  Their SG&A is also down 20% already and they’ve cut inventory in half and dealt out $306M worth of warrants while selling $500M in stock to raise cash to stop the bleeding from $753M in losses. 

    PALM is not a biotech firm, that gets an approval and suddenly makes a 10,000% mark-up on what they sell.  These guys, in 2007 (which was a good year) made just $56M on $1.5Bn in sales.  Last Q, they had $68M in sales and lost $164M, the Quarter before that they "only" lost $104M on $86M in sales and the Q before that, it was $98M lost on $90M in sales.  Is this the kind of company you would buy fro $2.4Bn?  Don’t forget the only reason they came off the floor at $9 was on buy-out rumors that turned out to be BS.  The only way I’d play these guys is to hope they jump up and short them at some ridiculous price like $20 but I wouldn’t chance it down here as they are way too manipulated – and that’s coming from a guy who plays oil!

    DIA puts very annoying. 

    DIA/Chakra – They are just down a bit and lots of time left.  I’d DD to lower the basis to $1.24 and get 1/2 out there.  On EDZ is fine as you have a long time and the Oct $8 can be rolled to the Nov $7 about even and then you can roll to the Jan $7s, now +.50 so not too bad.

    DIA/Chuck – Yes, the problem is you can get blown out tomorrow with no time to recover.  I’d take the Oct $98 puts for $1.80 and keep tight stops on your Septembers and definitely out EOD. 

  34. concreata

    Phil – GLD – bought back $99 call last week for 50% profit but still hold JAN 105 long call (down 50%). Should I sell front month covers or do something else, thanks

  35. jomama

     sold xom 70 call for 1.2.   the XOM 70 trade is still working.  

  36. chakra108

    DIA SEP 97 PUTS @ 0.29 – Can we still play that for a snap back or do you feel its too late? 

  37. Phil

    Speaking of oil, big pump to $67 at the close and that helped gold stay at $993.  

    Still no volume, 95M at 2:45 but I think we had our stick already at the open. 

    GLD/Concreata – See last post.

    DIA/Chakra – I’m looking for the exit on that one at this point.  It’s a crap shoot into the close but if you don’t mind losing a dime it might make you .20.  That’s when I like to play those – I REALLY don’t think it’s going to lose more than a dime and it can just as easily make a dime and there’s an outside chance it could make .20 to .40 into the close so it’s worth playing from a percentage basis.

  38. Phil

    Five pension funds are leading a class-action suit seeking billions of dollars in damages from Bank of America (BAC) over the Merrill Lynch takeover, Ohio AG Richard Cordray said after filing the complaint in Manhattan federal court. The suit also goes personally after BofA CEO Kenneth Lewis, former Merrill chief John Thain, other execs and the board.

    Report cards are in, so who’s going to hide them from the parents? Global Finance grades 30 central bankers, and while ECB President Jean-Claude Trichet and six others get an "A," Ben Bernanke gets a "C" (though his grade is up from last year’s "C-").

    It’s too early to unwind emergency measures in a "gradual recovery," says European Central Bank President Jean-Claude Trichet, but: "The ECB has an exit strategy and stands ready to put it into action when the time comes."

    "Cash-for-clunkers" critics are ignoring two things, writes Matthew DeBord: Nobody was expecting demand to miraculously bounce back to 2006 levels – automakers are reorganizing to profit on fewer sales – and the credit crunch had basically killed the industry. The program may have pulled demand forward, but the economy needed the boost now, not in November.

    Americans’ savings rate has been steadily climbing and could surpass 8% for the first time since 1992 – which will hurt spending and weigh down any recovery, says Pimco’s Richard Clarida. "I’m in the glass is half empty camp."

    Rising unemployment and reduced demand pushed property insurers’ sales down 4.8% in the second quarter, equaling the biggest decline in 22 years. Written premiums fell to $106.3B, but the industry is keeping 0.5 cents of every premium dollar, more than it has since 2007.

    Natural gas prices could plummet 19% as U.S. storage reaches capacity for the first time. Facing penalties for exceeding limits, producers will face pressure to dump excess fuel on the market.

  39. Pharmboy

    If savings is up to 8%, and the consumer is not buying anything for consumption….what are they doing with it?  Could this be a market driver, which, if our premise here is right, will tank the market yet again (I use tank loosely).  Doesn’t seem like savings accounts, CDs, etc are a good place to park UR money right now.

  40. Pharmboy

    I should clarify, GS & band of 12 Co. tanks the market, taking the hard earned money again.

  41. aclend

    Anyone,
    Is the ARNA play still viable? What looks good on that one?

  42. EricL

    Another PALM trade is an Iron Condor selling the Oct. 16/17 strangle and long the 15/19 strangle for .90 credit against 1.10 margin (which is also the max loss). Much safer than the naked strangle, also slightly bearish at this price. 

  43. Pharmboy

    ARNA/Ac – I have the underlying, and have sold the 5 Oct & Nov P.  You can roll the Octs to Novs for a creadit, and even to the 4 Nov most likely.  They have good support here, as the fast money has left.  You can sell the Nov 5s for 50c if you buy the stock and if called away, that is a nice 20% in a month.  If you sell the Ps, even more.  I am long ARNA now.

  44. EricL

    I meant 2.00 margin.

    REITs getting pumped hard again now.

  45. EricL

    Adding back some of the SPG put calendars I sold last week.

  46. matt1966

    Question:  If these ultra etfs are dangerous to hold overnight and therefore are only designed for day trading.. there should be a selloff EVERY afternoon.  But in reality, these etfs usually close at their high or low for the day.  RARELY is there a selloff in them at the end of the day.  How does this happen?  And don’t say it’s retail chasers!

  47. RMM

    Phil: I have DIA oct 98 puts, base 1.77$: close or keep until tomorrow ??

  48. Phil

    Tanks/Pharm – That’s what they do.  They are trying to cause an event that drives that cash into the market so they can unload the stocks they’ve been accumulating on the sideline people.  They keep pushing it up and up but, ultimately, they need that final bagholder to rape. 

    ARNA/Acelnd - They are not that fascinating.  You can do an Apr $2/4 spread for $1.20 if you think they will hold $3.20 but it’s really not an exciting stock to play now that the event is past.

    PALM/Eric – Do you trust them to stay in that range for 3 weeks?

    Ultras/Matt – Depends on the ETFs but the bull ETFs get stick saved with everyone else but even the bear ones attract the overnight gamblers into the close.  It’s just people chasing gap moves.  Also, there is no reason to get out every day but you do have to understand your ETF if you are going to sit on it long-term.  We barely got out of our SRS plays but we did play them for a couple of months before we finally got a break.

    DIA/RMM – Not getting much of a stick into the close and I wasn’t picking the Oct puts for a day trade so as long as you are willing to roll or DD, then stick with.  Out of Sept DIA puts for sure, still naked on Dec/Jan puts.

  49. EricL

    Phil, I expect PALM to bounce around but not go much higher. The stock has support from July around 15. Much below that, and the condor takes a 0.10 loss, which is its maximum loss to the downside. So my hunch is that it settles down around 16.

  50. EricL

    By the way, if PALM drops quickly the condor can be exited for a small profit before opex; so it’s a very conservative bear bet, basically, that takes advantage of the high IV.

  51. ssdirk

    Bears don’t stand a chance with this volume.

  52. chaps

    Phil:
    re: APPL in retirement account. "Don’t forget if you just sell the Jan $165 puts and Jan $210 calls, that’s $13 for 3 months and that’s another $52 (27%) per year – isn’t that what a retirement account is supposed to do for you?"
    Since there’s no margin in retirement accounts, you’d have to tie up the money for the stock (roughly $185) plus set aside $165 in cash for the put. So your basis is the sum of the two ($350), not $185, right?

  53. Phil

    Condor/Eric – Ah clever!

    Volume all of 123M with 7 minutes to go.  Pretty poor showing but they got the job doen with good gains across the board on the day.

    VNO up 6% today – that’s just amazing when you consider a $12Bn property company, which should have a pretty straighforward valuation, can go up and down $700M in a day.  Kind of makes you question the logic of getting an appraisal on any single bit of property…

  54. EricL

    REITS going vertical now on volume, keeping us propped up.

  55. matt1966

    Just preposterous.  FAS extreme hi of day.  FAZ extreme low of day. SRS extreme lo.  IYR extreme hi.
     
    I would like to know just HOW MANY days these things do sell off at end of day.  I’m thinking it’s less then 10%.  That could be an even more reliable play then Mr. Stick..

  56. Pharmboy

    Eric – gotta ask, as i am not getting the PALM pricing on the iron condor – selling the 16C and 17P Oct, and buying the longs 15P?? and 19C??  Oct.  I get 1.9 credit….Thx.

  57. EricL

    matt, the leveraged ETFs do have a daily re-balancing issue that was in the news a few months ago. When daily moves are large, they all basically have to buy in the direction of the trend, as I recall, which can lead to surges at the end of day.

  58. ssdirk

    Took back almost all of last weeks losses.

  59. gel1

    Phil/Eric…. Thanks for the sentiment and strategy re Palm. The risk/reward ratio is too much for me. I will add to my positions in AAPL as they are the dragon slayer when everything settles out. (safety first).

  60. Phil

    Retirement/Chaps – Is that true of all retirement accounts?  Well, if then you want to spend the $60 for the $220 puts in the safer play as that way you are covered on your downside sales.  Don’t think like you are wasting the money because AAPL is $185 now, not $220 so $35 of the $60 you spend goes right to your net value.  Then you have $25 to make up and selling $13 9 times in 27 months is $117, less the $24 is $93 against $245 committed (only at first as it gets lower over time) is 38% over 27 months.  Not as good as the naked puts but you have to accept your limitations.  Of course, there’s no need for you to actually own AAPL as the 2012 $120s for $82 would do the job just as well and that would knock $105 off the commitment and you add back $17 in premium with the same $93 in sales is 57% over 27 months.  The nice thing about this play is you buy the $120 calls for $82 and the $220 puts for $62 and that’s $144 and you can’t possibly get less than $100 back.  You can get more if AAPL goes past $220 but not less. 

    Well that was very impressive but also the lowest volume I’ve seen in months.   We finished at 163M.  Oil at $67, Gold at $991 and now it’s up to Asia to keep things going (which means they need a reverse). 

  61. EricL

    Pharm, I meant selling the 16P and 17 C. But if you get that 1.90 price for it, leverage everything and sell as many as possible!

  62. matt1966

    I’m sure that there is an element of psychology involved in these kind of closings.  Thinking back to that Cramer clip on how to manipulate the market, he said that a gap up open followed by a fade is a very powerful thing for creating fear.  Well, the same can be said for these closings.  It’s all about instilling greed in the bulls and fear in the bears.
     
    I’ve noticed this for a long time.  But I’m so hardwired to expect a pullback I rarely take advantage of them.  Even back last November/December when I was riding the SKF crazy train up 20% in a day, I would sell before the end of day (3:45) and miss out on another 2 -3% sometimes.  I really need to work on this!  This is an opportunity that we could exploit.

  63. Pharmboy

    Eric – LOL.  Got it.  Thx.

  64. chaps

    Phil:
    AAPL retirement accounts. Yeah, it’s the law. Just went through this in spades talking to Fidelity to confirm you must fully set aside cash for selling puts in retirement accounts. I agree it makes selling the $220 2012 puts the way to go on the AAPL trade.
    I’ve started developing two sets of buy-write models. One for marginable accounts, the other for where margin is not allowed.

  65. chaps

    AAPL/ margin in retirement accounts: Clarification, Fidelity told me it was the law..lol. Just talked to TOS. They have the same requirements (e.g., can’t sell naked calls, and naked puts must be cash covered in retirement acouunts.) Don’t know it it’s actually the law. But if it’s not, the brokers may be restricting people to minimize people blowing up their retirement accounts.
    Anyhow, when you have to fully set aside cash for selling puts, you obviously need to consider that in your evaluations.

  66. Pharmboy

    Told ya’ on SQNM.

  67. ssdirk

    Pharm, luckily I don’t have SQNM.  What did you say?

  68. ssdirk

    Pharm, I found it.  You did warn of manufactured data.

  69. matt1966

    I’ll bring this up in afterhours because I don’t want to be responsible for starting something during the day.. but who’s going to see M Moores new flick?  It’s a rhetorical question.  But it’s also a soul searching one.   Woaaaaa.
     
    At first glance, it’s kind of hypocritical to make money while lambasting capitalism.  After consideration, if he won’t speak out on a large scale about where we are and where we are heading then who amongst us will?  So, more power to him.  And as a true capitalist, I’ll rent it on Netflix.

  70. qcmike

    ssdirk
    Did you pick any of these to invest in ?
    SUN, COP, BA, HON, MRK, DD, PM, KFT?  

  71. ssdirk

    qcmike, I did not yet.  I do have the buy/writes worked out that I would eventually like to initiate.  When I asked Phil he advised I not be in any hurry, as I suppose he is anticipating the stocks to get cheaper (as I am as well).  He actually said he has a list he prefers better, and that I should ask him later.  If you are interested in my proposed plays let me know and I’ll be glad to share.  For me, this is a way to park some cash and collect dividends.

  72. qcmike

    ssdirk
    Thanks  I would be interested in the plays.

  73. ssdirk

    qcmike, I am not the expert, but I am trying to come up with plays beyond the ones Phil puts out.  He can tell us what he thinks. If I wait until the stock pulls back (hopefully) these buy/writes are even more attractive and the dividend is higher.  Notation: BS = buy stock, S = Sell, CA = called away (not annualized), PT = Put To % less than today, DIV = Collect Dividend
    SUN – BS for 28.10, S 2011 25p/30c for 8.30, net 19.80/22.40.  CA = 52%, PT = 20%, DIV = 6%.
    COP – BS for 45.69, S 2011 45p/45c for 14.10 net 31.59/38.30.  CA = 42%, PT = 16%, DIV = 6%.
    BA – BS for 53.41, S 2011 50p/50c for 16.90 net 36.51/43.25. CA = 37%, PT = 19%, DIV = 4.6%.
    HON – BS for 37.45, S 2011 40p/40c for 11.30 net 26.15/33.08. CA = 53%, PT = 12%, DIV = 4.6%.
    MRK – BS for 32.03, S 2011 30p/30c for 12.00 net 20.03/25.02. CA = 50%, PT = 22%, DIV = 7.6%.
    DD – BS for 32.68, S 2011 30p/30c for 10.20 net 22.48/26.24. CA = 33%, PT = 20%, DIV = 7.3%.
    PM – BS for 48.02, S 2011 45p/50c for 10.20 net 37.82/41.41, CA = 32%, PT = 14%, DIV = 5.7%.
    KFT – I want to see what happens with Cadbury first
    These plays are similar to the one Phil advised on VZ for a long term play.

  74. gel1

    ssdirk
    Good stock choices IMO – Why 2011 straddles?

  75. edro00

    ssdirk
    thanks

  76. ssdirk

    Straddles/Gel – I wish I had a better answer than I just used Phil’s VZ example, but that is what I did.  I picked these stocks because they have good cash flow/share to withstand another possible meltdown.  Hopefully, if that were to happen the cash would preserve the dividend.  When considering the lows of this year, SUN, COP and MRK have the best down side protection.  Restated, if these 3 stocks were put to you the put to price would be near their 2009 lows.  The others fell considerably lower than the put to price this year.  If you wanted to completely protect the dividend then selling the call and buying the put would be the way to go.  Of course, this would change the profit % completely if called away.

  77. gel1

    Leap Straddles/ssdirk – These are all good plays, however I prefer the front month expirations better, as my desire to pocket premium is enhanced through higher delta applicable to the front month options. Comparative ease of adjustment (rolling) in the front month positions is also an advatage. My preference involves a lot more handholding whch gives the leaps an advantage. I would love to get a position on these two approaches from Phil.

  78. Phil

    Good Morning!. 

    Closing/Matt – I was reading David Fry’s column tonight and he was totally disgusted by the action today.  It was really just a big run at the open and then nothing.  They took the Dow from 9,580 at 3:40 am to 9,780 at 1:50 pm on no news at all – it is sickening if you are playing for fundamentals but our job is to recognize that fundies are being ignored and play the game that’s in front of us, not the one we wish for. 

    Stocks are buoyant, so you might expect the dollar to be down … but no. Crude? Up. Metals? Mixed to up. Treasurys? Yes. Everything’s up – except volume and VIX.

    Heck, no one cares that the FDIC is broke.  Think about that – the thing is a joke at the best of times with $50Bn on deposit guaranteeing $4Tn worth of cash people think they have in the bank (and they don’t – it’s all levered 10x into home loans of all things!) and this "insurance" is the only thing standing in the way of a panic leading to a meltdown of the entire US economy.  The only way people can accept the fact that our "Insurance Corp" is operating with no money is that people firmly believe AND ACCEPT the fact that the government can just print money whenever it wants to and that will cover up any disaster. 

    You would think the banks themselves would complain that the insurance they pay for is woefully underfunded but no one (including me and other analysts) wants to make a big deal about it because we know it’s just a fairy tale to help the people sleep at night knowing their money is "safe" in the bank.  It’s very easy to tell people there is no Santa Clause but why ruin Christmas for the kids – it’s the same with the FDIC, just a myth that people cling to with no ability whatsoever to handle a major failure. 

    AAPL/Chaps – Well, as long as you are willing to accept a lower return for a safer investment, you can construct leap spreads as we discussed and, once you set it up, you can just roll it along each year.  It costs $15 to roll the AAPL 2011 $220 puts to the 2012 $220 puts.  That’s $1.25 a month and you can cover that by selling Nov $210 calls for $3.  If your stock runs up $30 in a month and puts your caller in the money, annoying but not a big deal.  Meanwhile, we talk about losing no more than the $40 premium on the spread and don’t forget that if you only lose that $40 premium on a market crash so terrible that AAPL is down to $90.   You would still have $220 a share and you can increase your holdings of AAPL by 100% and still pick up some other bargain basement deals as you would be the guy with cash at the bottom of a market.

    Moore/Matt – It’s only out in limited release at the moment.  I wish more people would see his stuff but the media does it’s best to make it seem unpatriotic just to entertain the notion that he may have a point. 

    Good list by SS!  I think I like PFE better than MRK and VLO better than SUN, despite the lower dividend.  COP would worry me too as they are no bargain at $45.  I do like 2011 plays on dividend players as "set and forget" positions but you do have to watch the downside as a greater than 20% drop in the markets is not off the table yet. Gel has a good point, you can always do MUCH better with active management.   The 2011 COP $45 puts and calls are $14 and you can sell the Oct $45 combo for $2.30 which is $39.10 and that’s an additional 50% ROI so, over time, it’s generally worth the hassle and the additonal risk (as a big monthly swing can throw you off).  

    There’s no right or wrong on these, some people don’t have time, some people can’t take the chance on a single month crushing them (which is why diversifying is essential) but I do advocate looking at the Quarterly sales like the Jan $45 puts and calls at $6, as just 4 of those sales is $24 and that’s still $10 more than the leap sale and another 22% on the year vs. going straight for the 2011 sale.

    Meanwhile, we got the move we expected from China (up 450) but Europe isn’t buying it and they are having a weak open and our futures are dipping very slightly.  Copper is looking worrisome and Japan had a -2.4% CORE CPI fall – that is severe deflation and is 6 consecutive months of declines so no surprise except to inflation hawks who like to ignore facts in favor of rhetoric. 

    Busy day ahead of us:



    7:45 ICSC Retail Store Sales

    8:55 Redbook Chain Store Sales

    9:00 S&P Case-Shiller Home Price Index

    9:30 SEC panel on short selling, Day 1

    9:35 Business Roundtable’s Q3 CEO Survey

    10:00 FDIC Board meeting to discuss restoration plan for Deposit Insurance Fund

    10:00 Dallas Fed’s Fisher reports on the economy

    10:00 Consumer Confidence

    10:00 State Street Investor Confidence

    5:00 PM ABC Consumer Confidence Index

    7:00 PM Philly Fed’s Plosser speaks on the Fed’s role in the economy

    WAG in the morning and DRI, JBL, MDRX, MU, NKE, WOR and ZZ after the close. 

    S&P lowers MBIA’s (MBI) insurance unit rating to junk status, noting that losses on its structured finance products from 2005-2007 could be higher than S&P had expected.

    The government’s latest $35B infusion for local housing is 35 billion more reasons we haven’t learned from the crisis, says Daniel Indiviglio. So housing finance agencies are having trouble finding funding? Everyone is; credit was too easy before.

  79. matt1966

    Good Morning Phil,
     
    Yesterday’s action to me was alot like all the other ‘miraculous’ turn arounds starting with March 9th.  There is more and more money beng deployed into the market.  Maybe some is from retail.  But most is from money borrowed from the Fed in the hopes of getting more retail money into the market.  Larry Fink of BlackRock said in this interview, link, that due to the short term Fed rate being so low that it is ‘only responsible’ to put some into the equity market.  He thinks 20% from here "should be in doubt".  That leaves 10% very possible!  He’s not worried about inflation (2-3 yrs out).  He’s not worried about CRE.  He’s not worried about anything that is already KNOWN.  He’s worried about unknowns and intangibles.  Derivatives and America’s competitiveness.  I think it’s a candid interview worth watching.
     
    These are unprecedented times.  It’s very hard to trade the liquidity flood play.  It really takes alot of faith.  And how long does it last?  I guess until rates go up.  I just find it so dangerous that these banks, who are already over leveraged, are pushing a market because of cheap money and not fundamentals.  I guess the consolidation in the financial industry doesn’t hurt their confidence any to do so. 
     
    http://www.cnbc.com/id/15840232?video=1259071126&play=1

  80. matt1966

    Well, this, http://www.philstockworld.com/2009/09/29/money-markets-are-the-new-suspenders/ , explains everything. 
    New term:  Bank Non-Borrowed Excess Reserves (NBER)  is money the banks have on hand that they haven’t borrowed.  This has increased dramatically since March 09.  Providing the closest correlation with the stock market.  Some of it comes from increased retail deposits, most comes from the Fed buying up crap assets from the banks.  Some of this money is then plowed into the market.  We go up.  Presumably, when the Fed stops buying, banks will stop playing the market.  Looks like March ’10 is a big turning point for Fed purchases.. and therefore will likely mark the top in the market.  It will have been a year long rally by then.  The trend should continue to be up.  With only a small correlation to fundamentals. 

  81. lvmoda

    Matt,
    Thanks for highlighting that ZH article. 
    It’s the first definitive evidence of the conspiratorial "recovery" that we are having.  For my own part, I believe the premise that this is all being done for a positive goal, namely avoiding the complete destruction of the financial markets and the consequential unrest of the masses.  And, so far so good, as the MSM take the bait and most uninformed parties simply think it is ‘market forces’ at work.   Since there apparently no restrictions placed on these NBER, they simply went to recapitalize, on a market value basis, the whole financial industry which has been a great deal of the volume and gain in this move.   Now I have my answer to why C and AIG and the other weak financial players had moved so much in a such a short period of time.
    So all this leaves me with the distinct feeling that enterprising journalist is going to blow this wide open and cause the markets to crater to a new low, given that the fed will be found out and that the money did not really get put to good use (like solving the housing crisis, lending to business and providing tax relief stimulus).   When will the Fed turn off the spigot that is liquidating the US and the dollar, or when will some Rolling Stones writer break the greatest conspiracy story of our time ?! 

  82. Phil

    Good article Matt.

    LV, you are right – it is being done for "noble" purposes by some (well-meaning gvmt people) and for greed by others (gang of 12) but the bottom line for me is this is very much like pretending you have cured someone of cancer by shooting them up with steriods, uppers and morphine so they can get out of bed and have their picture taken – you may get your photo opp but you didn’t cure anything and you may have made things worse.   We are bleeding jobs, families are getting thrown out on the street, wages are down, the wealth gap is widening dramatically, the middle class if dying, upward mobility has virtually ceased and properties are being siezed by the wealthy.  Now we have an entire generation of baby boomers, who worked all their lives to give their children a better life, who are now unable to retire and will ultimately become a burden on their children, further decreasing the possibility that the post-boomers will be anything other than wage-slaves their whole lives.  Oh yes, a real victory for capitalism once again!

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