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Jobless Thursday – Max Keiser Bashes Banks

This is a good one!

I’ve never embedded a video before but you just have to see this so I’m learning a new trick.  Keiser puts out some gems like:

  • Goldmans Sachs, JPM, CitigGroup are all engaged in accounting fraud
  • The American peasants have got to be the stupidest people in the World today.  They don’t mind becoming peasants, they don’t mind living like peasants and, if that’s the case, then we should do nothing to stop them from sliding into a peasant class. 
  • Banks are just stealing money outright from the World economy.
  • There is no liquidity being provided by the banks, they are hoarding their cash and non-disclosing their losses.
  • In part 2 of the video: "The reality is people are dying due to the actions of JPM, GS and the Wall Street Jihadists"

Max compares Wall Street bankers to suicide bombers and predicts it is only a matter of time before they are back before Congress with a gun to their heads threatening the destruction of America if they don’t get another bailout.  I’m glad he said it an not me because I get enough hate mail from GS fans…  Keiser makes the point that, while the American people may put up with this nonsense, the leaders of Europe and Russia and China look at what’s going on here and have no faith in our currency.

I think this is great as it saves me from ranting and raving this morning.  I had my fill in yesterday’s post when I said the only way to play this market to the bull side is to suspend all logical disbelief.  Fortunately, we had a huge, ridiculous run-up in the morning that gave us tremendous shorting opportunties.  Even as the market was rising, in my 9:56 Alert to Members, we targeted the DIA $99 puts at $1.30 and those finished the day at $2 (up 54%) and in my 10:32 Alert to Members we sold the FAZ $19 puts for $1.80 and those finished the day at $1.20 (up 33%).  We also took short plays as the market topped on MS, IYT, CS, ICE, V, GMCR, DD, EBAY and even our beloved AAPL as the market was just too ridiculous looking to be bullish

As usual, we jumped on top of the Beige Book and right at 2:02 I commented that the headlines didn’t seem so hot and by 2:50 we had a thorough breakdown and determined that SRS was the way to go as the statements regarding Commercial Real Estate were downright scary (highlights and colors are added from my analysis):

The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all Districts. Banking also faltered in several Districts, with Kansas City and San Francisco noting continued erosion in credit quality (often with more expected in the future). One bright spot in the banking sector was lending to new homebuyers, in response to the first-time homebuyer tax credit. Finally, labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement.

Of course we are not going to let all this negative data fool us into getting bearish again.  Our plan (which worked already) was to make a quick 20% on our bearish plays and get the hell out as 20% is plenty to make on a day trade and you have to be disciplined in this market as almost no trend lasts past the close.  

The bears did come out to play last night with Morgan Stanley’s Richard Berner taking aim at three recovery myths: that inventory cycle benefits are almost tapped out; that consumers will be deleveraging for years; and that last year’s store closings are artificially boosting spending numbers and Doug Kass explained why earnings season is a racket -  Sure, lots of companies reporting earnings are beating: "One of the single-most overhyped statistics extant given the degree to which estimates move around prior to reports," Kass points out.  . Investor relations departments and Wall Street analysts are very good at getting numbers down to the right level before reports are released. As a result, the actual results vis-a-vis expectations or consensus do not vary materially from historical experiences, in good times and even in bad times.  

Hey, don’t shoot the messinger, I’m still trying to get bullsih! 

It’s hard to maintain a PMA (positive mental attitude) when we lost another 531,000 jobs last week and it would look worse except they raised the prior reading by 7,000 jobs to 521,000 so it looks like we "only" lost 10,000 more jobs this week rather than 17,000 more jobs than the last BS number they gave us.  Continuing claims were also drastically altered, adjusted up from 5.992M all the way up to 6.021M last week, which made this week’s 5.923M look like an improvement as well – at least until it’s revised up next week anyway…

Of course, at $50 a tank again, many of those people couldn’t afford to drive to their low-wage jobs anyway so let’s consdider this just a normal market correction as we get ready to see the Leading Economic Indicators and the FHFA Housing Price Index at 10 am, which is the same time that Christina Romer (Chair of the President’s Council of Economic Advisers) spins the Administration’s outlook to Congress’ Joint Economic Committee.  That should be good for some quotes!

Asia held up fairly well this morning with about a 0.5% sell-off following the sharp afternoon dip in the US.  The Hang Seng was stick-saved off a 300-point morning drop and camee back to that 22,200 mark, down 107 for the day.  China’s good news of the day was official economic data showing China’s gross domestic product growing by 8.9% from a year earlier in the third quarter, following the 7.9% gain in the second quarter. The expansion in industrial output, the backbone of the manufacturing-heavy economy, accelerated further to 13.9% in September from 12.3% in August.  As I pointed out to Members in yesterday’s chat, China has no debt and a $5Tn economy with $2Tn in cash.  They can stimulate their economy at a rate of $1Tn a year (20%) for 7 years and they STILL won’t have a debt/GDP ratio as high as the US or Europe so don’t expect that party to come to an end any time soon.

Japan also had a big recovery after lunch, rising 120 points to retake the 10,200 mark and finishing down "just" 66 on the day.  This was despite the fact that Exports were down 30.7% on the year, perhaps because it was better than the shocking 36% drop measured in August and Imports "improved" to, down "just" 36.9% vs. down 41.3% in August.  This makes 12 consecutive months of declines for Japan, whose Central Bank is working very hard to keep the dollar over 90 Yen to try to turn those export numbers around.

Europe is down around 1% this morning (9 am) with UK Retail Sales flat for September (weaker than expected) but that may worsen as Mail Workers hold a 2-day strike this morning – perhaps this will finally stop the Pound from rising against the dollar for a day… CS had good results but not good enough (so a home run on our short sale!) and financials are dragging the EU markets as is ERIC, with a 71% drop in net profits.

The strong Swiss Franc tanked Nestle’s sales and they were the only candy maker to blow earnings this Q so shades of things to come for EU companies if the dollar slides any further.  The German government plan to cut taxes and run deficits by "reclassifying" expenses to get around those pesky rules that require a balance is being attacked by their former allies in the Social Democrats, who accused the center-right parties of planning tax cuts for businesses and better-off voters, and hiding the resulting public debt in a "shadow budget."  Some economists were also critical. Klaus Zimmermann, head of the German Institute for Economic Research, a nonpartisan think tank in Berlin, likened the proposed vehicle to a "slush fund" that would allow the new government to neglect the hard work of balancing the budget in coming years.

Lots of data at 10 am and now we have to work hard just to get back to our "must hold" levels of:  Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623, all of which were blown yesterday.  Until we get back over 3 of 5 of those levels, we have little interest in new bullish plays. 


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  1. oldgoat

     Phil,
    What about Dec or Jan puts on FCX?

  2. ssdirk

     Phil – thanks for the Keiser video link…I think it’s obvious Bonnevay doesn’t even believe the crap he’s speaking…

  3. pstas

    Video- "grab your pitchfork and ride to the sound of the guns"

  4. aclend

    GS raises FCX price target to $95 (from $90) and PJC target to $66 (from $60).

  5. balancenv

     It’s embarrassing to state that, at 3:50am Asia time and my brain was only 20% working..
    So instead of your advise of “EBAY Jan $26s for $1.35, selling Nov $25s for $1.30”, I ended up with “Jan $26s@1.37 and selling Nov $25s PUTs(!) for 1.22”.
    If you have time, please advise how to salvage this.  
    On the other hand, I sticked with AAPL 200s calls (including the later DD) and end up with a small profit. Thanks!
    Next time you’re in HK, I’ll take you to the best Dim Sum place for a treat! J
     
    On the Apple iPhone: Foxconn of Taiwan (world largest EMS shop) is ‘rumored’ to be asked to produce 25% more than the original 8M units for Apple.
    On the other hand, Google’s Android-based smart phones are gaining all the major OEM manufactures endorsements. HTC, who OEMs T-Mobile’s G1, is also responsible for the upcoming Google/Verizon models. Other Android players includes Samsung, and Moto, etc.
    With the power of Google’s services, I think it will be a strong contenders in the smartphones segments in the near future.
     
    In terms the state of the economy, from Asia’s (well greater china to be more precise) perspective?the tech is almost back to the level of 07/Q4 to 08/Q2 periods. With TSMC (World #1 semi foundry) running in full capacity, and IC design houses, LCD panel (Samsung, LG, AUO, the top 3 panel players) are also ‘almost’ in full capacity. Same stories for notebook OEM factories.
    Who’s buying all those you’ll ask? My reading is China, India, and emerging markets much stronger than US and Europe.
     
    China Mobile subscriber # has just reached the 500M(!) mark and still growing >20% rate. In addition, they just start lunching the 3G services. Imagine the market potentials for Apple!
    I think going forward, the technology companies with strong int’l market coverage (Intel, Apple, of course) will be those I bet money on. 

  6. jromeha

    Phil, I know it’s not a big market mover but the jobless claims has got to be discouraging to the bulls but it seems like the market just shrugged this off. If leading economic indicators are worse than expected do you see the market having another selloff or do you think it will continue to shrug off bad news? Maybe it’s just wishful thinking but this rally does seem pretty tired…..

  7. samz3700

    General Question -
    Really want to be short the dollar – but that conflicts with my bearish stance -
    I am assuming – perhaps incorrectly – if we get a good move down – the risk trade is going to come off and the dollar will bounce – with so many short the dollar – might be a hard door to get through -
    Anyone have similar thoughts and suggestions on way to play it

  8. Phil

    FCX/OldG – Tempting but a little dangerous with the dollar so week and money relentlessly pouring into commodities. 

    Don’t forget to keep stops on those short plays – we got a huge break yesterday and there’s plenty of ways to play additional downside (like more SRS, SKF, FAZ…) so cash is a good thing.

    No reason to be bullish unless we get back over 3 of 5 on: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and, amazingly, that’s already looking like a tall order isn’t it?

    Most likely turn-around is the 10am data.  If that doesn’t do it, we might leg down some more.  Oil is holding $80, gold is still over $1,050, copper is still $3 – this is not very bearish.

  9. EricL

    samz, as you say it’s a crowded trade, but if you’re already bearish on the markets it could make sense for you as a hedge trade against your bear portfolio.
     
    You could go long UUP puts, perhaps doing it as a spread, like a diagonal. Or you could short dollars against something like the Euro, buying FXE calls or call diagonals, or going long whatever currency index you prefer. One advantage with option spreads on these is that if there is a big short squeeze, you could take that as an opportunity to buy back the short leg.

  10. ephmen85

    IBM   My position is + 3 Jan 110, + 2 Apr 115 / – 1 Nov 120, -1 Nov 125, so 40% covers.   About right for now?    I was hoping for a recovery to $125 before selling more callers and it’s still early in the cycle, but I’d rather err on the side of caution I think. 

  11. dlastor

    Whats the likelyhood that the masses are shorting the dollar, and eventually a couple upticks will start a short squeeze as soon and start taking out stops?  I realize there are many others power at play, but curious if this is a viable scenario.
     
    BTW – New here — love the place, the calls, and most impartant the education.

  12. Phil

    AAPL coming on strong. 

    EBAY/Balance – It’s not so bad, you’re in for net .15 and you just have to hope Ebay gets back to $25.  Either way those puts are .80 in premium so you just have to wait paitently for your very bullish position to play out.  The premium should drain out of the puts pretty quickly as EBAY recovers and they should as those numbers were not too bad.

    Indicators/Jrom – I think there will be some stunned bulls if the indicators aren’t improving and I’m not so sure they are.  I would be sure if I understood the measurement cut-off dates but clearly our economy deteriorated drastically between Oct 1st and 15th.  Maybe we started trending down in late Septermber, maybe not but the whisper on indicators is up 1% and that’s what the bulls are counting on.  Last month was 0.6% up and it would be a good thing even if we pull off a 0.8 but it all depends on how fast Clunkers trailed off and, even if good, we can guarantee a negative number for October so Thanksgiving is going to be vcery dicey for the market.

    See, who was worried about RIMM?  Nice bouncy action there…

    Dollar/Samz – I like the TBT plays as the less the dollar is worth, the more likely it is we have to raise rates to borrow money.  The most likely way the dollar improves is we raise rates and, even if we do neither, rates can rise on their own if foreign countriies decide they don’t want to keep lending us $150Bn a month (or maybe they will just run out of money themselves).  So many, many ways for TBT to go up.

    SRS through the roof!  The Jan $11s are just $1.35 and, when things calm down, you can sell Nov $11s, now .55 against them

  13. Fabregas

    CS naked calls – Thanks Phil, I got them too.  You going to bring them in today?

  14. ephmen85

    TM  I’ve got + 2 Jan 75 / – 1 Nov 80…stay at 1/2 covers or look to fully cover at $2

  15. seaquill

    Phil,
    Are you still OK with the long spread on C Jan 2011 5/7.50 or should I get out of it.?

  16. emcginley

    Are we still keeping the SRS Nov 9 Calls if we do the Nov/Jan trade or do we take our 45% profit?

  17. javaben

    On the 100KP BAC, we are long Jan 11 $10 Call and $20 put, but only short the Nov 09 $17.5 put.  So over all the position is positive deltas, and is losing money.  Is the reason we didn’t sell any BAC calls because we are anticipating BAC going up?

  18. Phil

    IBM/Eph – I think they are very fairly priced here.  I hope you had more cover than that into earnings…  I’d move the Jan $110s to the Apr $120s or Jan $120s to either take some off the table or get some length and then I’d sell at least a 3/5 cover otherwise what is your strategy if you are not collecting any premium?  You are tying up $5,000 ($1,600 in premium) and you sold $400, which is fine as long as everything is perfect and you collect $400 4 times and IBM doesn’t drop at all and eat into your intrinsic value.  Do you expect IBM to go to $130?  If so, you stand to make about $3,000 if everything goes off without a hitch but you can buy 10 IBM Jan $120 calls for $5.60 and sell 10 IBM Jan $125 calls for $3.40 and that’s $2,300 with a $2.700 upside and you can offset that by selling 5 Apr $105 puts for $3 for another $1,500 in your pocket and that’s $3,800 if IBM just makes it to $125 and it only costs you $800 as long as IBM holds $105 through April.   That’s how I’d play it IF I were that bullish on IBM but I’m not that bullish and advocate move cover and less exposure….

    Dollar sqeeze/Dlastor – I agree, sentiment against the dollar is near 100% and it won’t take much to panic people into the dollar.

    Oops, Leading Indicators were up 1% but last month was revised down to up just 0.4% but the real reason the market is selling off is the FHFA Housing Price Index fell 0.3% for August vs. up 0.3% expected.  That is our 3rd poor housing indicator of the week.  Tomorrow we get existing home sales at 10 am (5.45M expected vs 5.1M last month).

    So far the floor (Friday’s lows) is holding up and the volume is light so nothing to panic about unless you are in one of the 2,561 firms that engaged in Mass Layoffs for September, resulting in 248,000 job losses!

  19. Peter D

    SPX/RUT short strangles – if the Delta of your short strangles turns positive, it means the spreads are bullish on the market, it’s time to roll the short CALL down at least 2 strikes, 20 points for SPX (roughly 2%), 10 points for RUT (roughly 2%).  Since we are still OTM, there is good incentive to hedge on the downside with a larger CALL value.  No move on the PUT side as we are still 10-15% OTM.

  20. cmcgreene

     What is the best entry for a bull spread play on TBT ?   I was looking at Mar 42 and Mar 50  3.20 / to make 8 ?  or should we look at different exp months ?

  21. cmcgreene

     BTW …. Bought back CAL 15 puts at 2.3 …. Sold 1x 13 puts at 1.2, .5x at 1.3, and now looking for .5x at 1.5  …. that will put me in on a DD rolled to 13 puts at 1.3.    Any other suggestions ?

  22. stevenparker

    I am confused. How can we expecting home sales to increase when we saw mortgage applications drop? They think people are buying with cash?

  23. pstas

    DIA- rolling along for now with Jan 102′s ; 1/2 cover with Nov 100′s (sold @ 1.90)
    Up or down 1-200 pts- no worry. What should I be watching as a ‘signal’ to roll these down?

  24. Phil

    CS/Fab – Stop at $1.50 (.25 trailing) is non-greedy way to go.

    TM/Eph – They need that Yen to hold up so watch it carefully.  Jan is not very far away, a big fall can really hurt you and on Nov 9th you’ll find out just how badly that recall is imacting earnings.  Again, if I were going to have $1,350 at risk on TM with a $200 cover I’d rather just sell 2 Dec $70 puts for .90  (but hold out for $1) and figure I can roll those to $65 puts and $60 puts etc but that returns $180 with little risk and you can roll your $6.70 calls (50% premium) into 4 Apr $75/80 bull call verticals at $2.70 and those return $9.20 at $80 while you need $86.30 and no money owed to your caller to make the same on the Jan $75s.

    China’s Q3 GDP comes in at 8.9%, just below the 9% economists forecast. Separate reports showed industrial production and retail sales also accelerated. China’s return to robust growth continues to raise the question of when policy makers will withdraw record fiscal and monetary stimulus in order to avoid another bubble.

    C/Sea – I am going to be OK with that until about March where I may get nervous if C isn’t back at $5.

    SRS/Emc – I have too many SRS plays to know which one that is but 45% profit is generally something you want to protect. 

    Speaking of TBT being my other favorite play (SRS still #1): The U.S. could lose its AAA rating if it fails to reduce its deficit over the next 3-4 years, Moody’s says. Earlier this year, markets were spooked after S&P cut its outlook on Britain to Negative from Stable. Meanwhile, Moody’s said today European countries’ rising debt won’t trigger across-the-board downgrades.

    BAC/Java – Yes, I don’t want to sell BAC calls for less than I think they are worth.  If it turns out I am wrong we will end up woning 500 for net $16.50 (where they are now) and then we’ll probably flip to a buy/write but the overall portfolio is very bearish so this is a fairly mellow bullish balance. 

    TASR shaping up for another buy opportunity but let’s see how they shake out.

  25. bgbigelow

    Phil – Any adjustments closes to the earning plays SNDK, STX, EBAY?

  26. Fabregas

    CS naked sells – covered at $1.20 just now.  Yay!

  27. cmcgreene

     Luv SRS too … comment on buying Dec 9 Call and paying for the premium by selling Dec 9 Puts

  28. ssdirk

    What component in the DOW is holding it up with the other indexes down?

  29. bgbigelow

    ICE – Phil what are your thoughts on the 110/105 P vertical from yesterday?

  30. ephmen85

    IBM/Eph – I think they are very fairly priced here.  I hope you had more cover than that into earnings…  I’d move the Jan $110s to the Apr $120s or Jan $120s to either take some off the table or get some length and then I’d sell at least a 3/5 cover otherwise what is your strategy if you are not collecting any premium? 
     
    Are you kidding?  I live to sell premium!   I was fully covered with Oct 125 callers headed into earnings!    I just don’t have time to trade that much now that I’m working full time, so I check in for updates.  I was planning to roll out my longs, but I like staying at least 2 strikes below my callers (where did I learn that…hmmm).  Anyway, I took your advice and sold 2 more Nov 120 callers for $3 and used the proceeds to laterally roll my Jan 110s-->Apr 110s for $1.95.   All in all I brought in a small credit, went to 80% covers, and moved all my longs to Apr 110/115…..I can now return to my normal job.  (I’m also short a 120/115 put vertical which is another reason why slightly ITM callers work for me).

  31. Highlander

    ssdirk,
    mcd and mmm are dow leaders, up 2.02 and 1.55 % respectively!!

  32. Highlander

    s&p just went green

  33. Phil

    TBT/CMC – TBT pays huge on vertical spreads but has ridiculous premiums otherwise.   A March $43/44 bull call spread pays 100% if TBT simply doesn’t drop more than 5% by then.  Other than the November panic, they have held $42 and only spiked down there and generally hold $45, which is miles below where they usually trade.  Of course going further out is a bit safer and the 2011 $48/49 bull call spread is just .30, so a 233% profit if rates nudge up a bit over the next 12 months.  You can sell one June $42 puts for $3 (which can be rolled to 2011 $39 puts) and that pays for 10 of the spreads so the risk of selling 10 June $42 puts for $3,000 and buying 100 2011 $48/49 spread for $3,000 is is that you can be assigned 1,000 TBT at $42 (and rates would have to be half a point lower than they are now) vs a profit of $10,000 if TBT goes up.  TOS wants to charge me $5,284 in margin for selling 10 TBT June $42 puts so that’s what I lay out for the trade and, of course, there’s always the rolling if TBT does head lower

    CAL/CMC – At this point, patience.  You can,. of course, sell 1x (half of what you have) of the $14 calls for .50 as you have much more to gain than lose from a move back up and it would take 10% before you have to give the caller his money back.  I assume you are in the Dec $13 puts of course.  As long as you REALLY want to own CAL at net $11.70, it’s really a non-issue right? 

    Home expectations/Steve – That’s what I mean when I say the markets are totally irraitonal.  You can only ignore data for so long until it becomes pretty obvious that you are flushing money down the toilet – which is what REIT buyers have been doing for 3 months now.  We can sell IPhones to China but we can’t get them to buy unused US office space (although there is a Hello Kitty kiosk in my local mall) and we don’t even let them immigrate to buy US homes (that was a great con by the Bush administration to fool people into voting to kill housing demand).

    DIA/Pstas – Watch Friday’s lows (now today’s lows) as those should hold barring some really bad news.  We’ll see if we can now get back over Tuesday’s lows and, after that, back to our watch levels yet again but if Tuesday’s lows are a chanllenge (and only the Dow is gereen) then we may get another afternooon sell-off.

    Dollar is nice and weak.  Oil over $81, gold at $1,060 so it’s party on commodities at the moment

  34. yodi

    Hi Phil CAH holding 2011 short call sold at4.90 and short put sold at 2.80 trading today 5.35 and 2.25 respectly stock at 28.77
    must I make any adjustment as I hold the stock aswell thanks

  35. JRW III

    Phil,
    So what was tour final take on yesterday afternoon, Galleon, the Wells Fargo call, it reminded me a lot of the old afternoon deleveraging of last November. And what do you expect from the gang of 12 – 2 today ?

  36. pstas

    Anecdotal report from local (suburban Chicago) real estate agent- experienced and savvy- works a mid to upper end market.
    Mostly tire kickers and few offers made. Townhouse/condos- comatose to dead. Single family- some action on short sales and foreclosures- these are the best deals. Straight sales are getting no offers as the shorts are too good by comparison. Consensus is low mortgage rates not doing it. The lookers are expecting lower prices yet and they can see the local store closings and layoffs and are "scared".

  37. Cap

    COF … good short entry here IMO

  38. edro00

    AMZN earnings tonight -
    thoughts on plays??

  39. blair

    I have an ICE 110/105 Put spread I picked up yesterday. It’s up about 10-15% today. What should I do with it?
     
    Also, the SNDK puts from yesterday gave me 35%, thanks Cap!

  40. EricL

    Dollar near the day’s lows but now oil is failing, which means that OIH might be a day-trade short for the brave, although I’m not doing anything. Looks like a nice day for the daytraders to get chopped up, frankly.

  41. Phil

    Earnings plays/BG – Just letting them play out for now, all pretty much in-line.  SNDK I cashed out the long calls yesterday and left the naked caller so that one is way up and the $22 caller has a ton of premium so no worries. 

    CS/Fab – Good job, I agree, that’s plenty for one day’s gain!  At a certain point, it’s not worth the margin cost to make that last buck…

    SRS/CMC – You’re not "paying for the premium," you are doubling your risk.  As long as you are good with that and REALLY don’t mind getting stuck owning SRS for net $10ish, it’s a perfectly good play.  I think CRE crashes and burns by early next year so I like the Apr $7s at $3.80 selling the Apr $12s for $1.90 for net $1.90 on the $5 bull call spread.  You can offset half that cost by selling the Jan $9 puts for $1.10 as those can be rolled to Apr $8 puts (now $1.15) and 2011 $7.50 puts (now $1.90) and I’m pretty sure if CRE flies up like that I’ll be very happy to be 2x or 4x short on it down the line

    Mortgage rates inch up for the second straight week, with Freddie Mac’s index of 30-year fixed mtg. rates hitting 5% from 4.92% a week ago. Some industry watchers consider 5% a key psychological level; when rates drop below it, loan demand tends to rise, while the opposite holds true when rates rise.

    Time to begin unwinding TARP, Treasury’s Allison tells Congress this morning (webcast). But with the financial system is still fragile, the Treasury will scale back with caution, ensuring a "sustainable supply of credit for consumers and families," he says.

    Dow/SS – Holding up the Dow are: DD +1%, IBM up 1%, JPM up 1%, MCD up 4%, MMM up 2%, T up 2%, TRV up 6% and XOM up 1%.  Notable Dow downers are CAT -1%, GE – 1.5%, KFT -1.3% and MRK – 1.4% so TRV once again proving a great addition to the Dow, adding 24 points by themselves today.

    ICE/BGB – I’m happy with the ICE shorts.  We have 4 more weeks and regs are moving through Congress.  It’s certainly a position I’d roll out to Dec if it doesn’t work.

    Nice work Eph, I certainly feel better about the position now!

    CAH/Yodi – It would be helpful if I knew which call you sold but it sounds from the prices that you are right in line and 2011 is a long time from now. 

    Yesterday/JRW – I believe I predicted Galleon would be scapegoated for the sell-off.  That’s nice as that kind of thing gives the G12 the ability to dump a few billion dollars worth of stuff and blame it on someone else.  Does it make sense that Galleon, who has until Jan to unwind their positions, would dump them all on a Wednesday afternoon in October on a day when most of them were hitting 52-week highs?  Of course not but it makes a nice story to put investors to bed with.  What I notice with G12 action is that, if a story works once, they like to do it again right away so I’m expecting another sell-off this afternoon.  We’ll see what happens but I think it has a lot to do with the sheer effort of programming the TradeBots so, if they hit a winning pattern one day, they want to run it again before they have to redo the parameters for their next move. 

    Chicago/Pstas – I am worried that all of real estate is still priced about 20% too high.  Just like any other commodity, people simply can’t afford the high prices.  Homes were sold for 10 years not based on current value but based on the potential investment gains but the reality is a person can allocate 25% of their salary to a home as a non-investment and that’s $1,000 a month for the median American family and that’s a $150,000 mortgage at best.  Median home prices are still $226,000 so we are a long way from affordable housing and we’re not allowing people to move into the country with foreign capital so if we don’t generate demand through jobs and wage increases and we can’t convince people that "it’s not just a home, it’s an investment" then homes are simply still priced way above affordable levels

    COF/Cap – Be careful, totally irrational in the CC stocks.

    AMZN/Edro – They fell too much for me to like them as the only play I liked was short .  As it is I’m mulling over our stance in the $100KP, where we are short 20 $95 calls and up 36% on them.  Can AMZN justify $95 with a p/e of 60?  I don’t think so but I’m still very tempted to take the money and run despite the potential to more than double our gains tomorrow.

    ICE/Blair – On any vertical, if you make 20% in the first week, you should take it.  

    AAPL very close to breaking down here if they can’t get back over $205 soon.

  42. jromeha

    Phil – Usually when the market is up .5% REITs are up 2-4%, what’s holding them down today? I’m not dumb enough to suggest that fundamentals would actually playing a role in this market, so what is it?

  43. magret

    Phil, any adjustments tp MS naked calls……

  44. wiiboxer

    Phil,
    What do you think of Nokia sueing Apple for patent infringements?

  45. Highlander

    aapl just kissed the pp

  46. chakra108

    Phil
    Do you have anything for AXP as an earnings play? I may have missed any earlier posts in  this regard. thanks.

  47. javaben

    Want to do some research on TBT.  Per the prospectus, the index it inversely tracks is published under the Bloomberg ticker symbol LT11TRUU.  I want to look at the chart for the index on TOS, but I can’t find it on TOS.  Does anyone know the correct symbol to use on TOS to see the underlaying index for TBT?

  48. concreata

    Phil – TBT - Not seeing anything close to .30debit for the TBT bull call 2011$48/49 vertical mentioned earlier - the natural is at 1.40DR?  "Of course going further out is a bit safer and the 2011 $48/49 bull call spread is just .30, so a 233% profit if rates nudge up a bit over the next 12 months. ’

  49. matt1966

    Cap / COF : my bro, ex COF, says that AXP should do ok later but COF not so much.  So why not wait till after AXP reports or just before if it’s another sell on the news event?

  50. yodi

    Hi Phil
    BAC 13th OCT 18.38 today 22nd 16.31  drop of 2.00 in nine days is there anything going on we do not know about??

  51. ChuckW

    Thanks for the Max Keiser segment.
    Two questions. I’m holding $65 november puts on SHLD, which are underwater. Can you suggest a play at this point? I’m tempted to double down because when the stock gets around $73 gravity seems to kick in. Fundamentally, my feelings are the same as Martha Stewart, who explained her separation from Eddie Lampert & Co. last week by asking, ‘Have you shopped at a Kmart recently?’
    Second, what sort of play do you see for XOM right now? I own 600 shares.

  52. Highlander

    phil,
    ftse now recovering above (-1.0%) loss 

  53. dlastor

    Any thoughts on an AIG bear spread? Looking at the put side 38/37 or call side 40/39…any thoughts?

  54. Highlander

    aapl moving back toward maj averages, has been below them since 11:50

  55. jomama

    So excited about the new Microsoft store here in scottsdale (Insert big ass Sarcasm Font)  Are you kidding me – there are five apple stores here, including the new Scottsdale store which is freaking huge and always packed.

  56. Highlander

    jomama,
    yes but aapl does not have old roommate suckass (whoops i meant tech leader ) like balmer. so keep that in mind while trashing msft.

  57. Highlander

    boy is ebay doing a trash job on nasdaq today!

  58. Phil

    REITs/Jrom – There’s a lot of scary news floating around that sector.  There have to be at least a few people who think the party may be over.   Not even so much fundamentals as it is taking ridiculous profits off the table finally. 

    A quick U.S. withdrawal from stimulus likely means repeating Japan’s mistakes and causing a "lost decade," says Richard Koo of Nomura Research. "This isn’t a cold, its more like pneumonia," Koo says, expecting "three to five years to get out of this mess, even under the best of circumstances."

    House Financial Services Committee approves the creation of the controversial Consumer Financial Protection Agency.

    The euro zone’s current account swung back to a deficit in August (-€1.3B), as the economy’s export-led recovery took a breather. In July, euro zone saw a €3.7B surplus. Exports fell 2.7% to €105.5B. Imports edged up 0.5% to €99.5B.

    MS/Magret – What adjustments do you want to make?

    NOK/Wii – Those suits are meaningless as they only end up in settlement IF they have any merit.  NOK loves going to court, they have been annoying QCOM for years with similar nonsense.  I think NOK is committing suicide as AAPL will just get pissed and sure them for any copying of IPhone interface and it’s very easy for AAPL to change their back-end compatability but pretty impossible for NOK to get around AAPL’s touch-screen advances (not to mention the App store, which NOK already ripped off) without making a phone that sucks. 

    AXP/Chakra – We were loving them in the spring but now they are up 200% and I’m a litle worried about collections.  I wouldn’t bet against them, just not with them either. 

    Credit-card defaults fell from record highs, dropping to 10.72% in September from 11.49%, Moody’s says. Five of the big six card lenders posted declines, but loans at least 30 days delinquent rose to 5.97% from 5.8%.

    I just look at TLT Java.  Maybe not the same one but I think close enough.

    TBT/Concreata – How can a $1 spread be $1.40?  You just have to put the offer in good to cancel and wait for some volatility to fill it.  These are not super-liqud so they may take some time to fill and it’s not likely to happen on days when there isn’t a fairly violent move (you need a down move to fill).  I currently have an offer in for the $46/47 spread at .10 – it could happen, but not if you don’t ask.  If you don’t get a fill at the price you want, don’t make the trade.  Maybe TBT dumps back down to $42.50 (was there 2 weeks ago) and we just buy the $48s and wait for a bounce back..

    BAC/Yodi – Disappointing earnings.  It turns out that the banks aren’t 100% out of the woods yet and somehow this surprises people. 

    Sector ETF strength: Regional Banks– RKH +1.8%. Commercial Banks– KBE +1.4%. Retailers– XRT +1.3%. Financials– XLF +1.1%. Insurance– KIE +1%.

    Sector ETF weakness: Internet– HHH -2.3%. Biotech– BBH -2.1%. Solar– TAN -1.9%. Steel– SLX -1.6%. Coal– KOL -1.4%

    Down and down with SLX!  HHH is surprising as GOOG had such good numbers.  Coal can be a canary in a coal mine (that’s confusing) for the Oil sector so let’s watch that

  59. javaben

    CNN: 7,000 a day losing umemployment benefits.  I don’t get it….where’s the question about extending benefits when we are trying to inflate the economy, and stablize housing prices?

  60. harip

    Phil,
    Of the REITs with exposure to CREs which would you consider to be the weakest ?? This is to start building a short/put position
    thanks

  61. allen060

    SRS: Phil, modifying slightly some ideas that you posted earlier, how about the SRS vertical of buying April 9′s, selling the 13′s, and also selling the April 8 put for a total debit of around .05 or .10. I know you could sell the Jan 9 put instead. My question is if you know whether SRS suffers any significant time decay. If not, then the April 8 put is safer. Do you agree or am I overlooking something?

  62. stevenparker

    MSFT are opening retail stores? Can’t they think of ANYTHING useful to do with all that money?
    They’ll be moving all the buttons on excel again soon. Harrumph.

  63. kustomz

    good to see HAL 9000 in good spirits, the weakness in the nas makes me cautious going into the afternoon

  64. Cap

    COF has earnings today;  stay away, I guess, unless you want to sell volatility.
     
    I sold some 42 calls for 55 cents ….   That should be a safe enough level.

  65. Peter D

    Observation on local real estate tax: I was amazed that the assessed value of the homes around me is still at the 2007 high level, something like 1% off.  So the local governments are squeezing every penny out of home owners.  How about paying for tax on assessed value that is 30% higher than market value, and for a mortgage that is higher than the loan?  The land lords would pass these on to renters if they could.  Talking about consumers being squeezed.

  66. ephmen85

    FAS  What do you think about a strangle?   A 95/70 pays about $4.50 and if it breaks one leg on the other it’s very rollable?

  67. Peter D

    Ooppsie, should be read as "paying for a mortage that is higher than the market value" – Need some coffee.

  68. redfern1

    Phil

    What do you see for TASR – right now I have Dec 5 puts but no calls.

  69. EricL

    I’m selling a few OIH 130 calls here but my plan is to cover them buying Jan 120 puts by the close for slightly bullish calendars. Every dip seems to get bought and the chart still looks very strong.

  70. EricL

    "Slightly bullish diagonals" I meant.

  71. Pharmboy

    Peter – NJ must be getting crushed, and will hurt even more after all the Pharma layoffs that are coming.  My guess is > 100K people in the industry there is gonna get hammered in the coming year with the M&A activity.
     
    Now, on to JAVA – EU has some balls standing up to the DOJ.  If that deal does not go through with ORCL, then some head are gonna roll.  10% ROI if you buy JAVA here. 

  72. EricL

    And I meant buying 120 calls; apparently I also need more coffee.

  73. Cap

    Matt, I did not realize that AXP or COF were reporting today.  see my previous comment.
     
    I am still seeing that every single stock except AAPL and GOOG is lower now than when they reported earnings.
     
    AA, INTC, CAT, BA, IBM, SNDK …. every stock I can think of …. is lower now even if they popped after earnings.

  74. Phil

    SHLD/Chuck – SHLD is not a retail play, it’s a real estate play on 4,000 stores in some of the best locations in America.  Eddie would have sold off most of it long ago but the market collapsed on him so he’s running the stores to tread water while he waits for the value to come back.  The company has an $8.4Bn market cap, a brand that’s worth $1Bn, $10Bn in cash and inventory and about $10Bn in debt so they are pretty much worth whatever the stores are worth and if that number is just $2.5M per store, they are 20% undervalued.  Most likey an EU or Asian retailer ends up buying 1,000 stores for $5Bn when the economy pick up.  So I wouldn’t go too short on a company that’s run by a hedge fund manager that bought $2.5Bn of their own stock at prices higher than this in ’07.

    FTSE/High – Looks like they finished down 1%, CAC down 1.3%, Dax down 1.2% so we are outperforming at the moment.

    AIG/Dlast – Way too random for me. We sold naked calls when they were high but that’s not really an endorsement of a short position, although it is very tempting.  With the stock at $38.25 and the 50 dma at $40, I’d just buy the Dec $30 puts at $1.65 as those will make 50% if AIG hits $33 in a month and their 200 dma is way down at $27 so maybe you get lucky and do better. 

    MSFT Store/Jrom – What exactly are they going to sell?  Att the AAPL store, the apps are on a shelf occupying about 2% of the store – once you get past the Zune aisle, what exactly is Ballmer’s plan?  You can browse their exciting product line right here:  http://www.microsoft.com/en/us/default.aspx  Maybe they plan on bringing in partners.  That would, in effect, be MSFT attempting to be a PC retailer – not smart.  I challenge you to take the Windows 7 Demo - on my computer (XP) it just makes a jumbly mess.   And, of course, we can’t discuss MSFT without my favorite Steve Ballmer clip – dance monkey boy

    Roomate/High – Yeah, I always think Ballmer is so happy because he realizes that he hit the life jackpot by simply refraining from giving Bill Gates noogies when he met him. 

    Benefits/Java – Well we don’t want to appear all liberal now do we?  Speaking of benefits:

    The Treasury’s IRS watchdog found tens of thousands of people who may be defrauding the government of more than $600M on the first-time homebuyer tax credit, with 580 taxpayers under 18 – including a four-year-old – claiming a total of $4M in credits. The testimony to a House panel could dent efforts to extend or increase the credit.

    REITs/Harip – Hmm, there are so many weak ones I couldn’t tell you.  I really prefer just going with SRS as it’s very hard to tell who’s performiing well and who’s not.  

    SRS/Allen – You have to assume all ultras suffer decauy although they seem to have fixed FAZ and FAS (still worth $102 for the 2).  If IYR drops 5%, SRS goes up to $11.50 so it’s not too relevent unless we are just wrong and CRE goes up and up and up. 

    Dollar at day’s lows, market at day’s highs.  Same as it ever was…

    MSFT/Steve – Ballmer is probably the worst CEO in history.  He’s just lucky enough to be running a company that actually can be managed by a chimpanzee and still be successful.  WTF is wrong with them sitting on $40Bn in cash and not buying a single company during this crash?  They could have bought AAPL for $65Bn in the spring!   ORCL was $50Bn…  They could have bought game companys, hardwares storage, software security, Facebook, Twitter,  Hooloo, a movie or TV studio – ANYTHING.  They could have just bought their own friggin stock and made 100% since March.  I’ve never seen anything like that in my life – what a wasted opportunity…

  75. morxlntway

    Phil, when you reference CRE in re to SRS you are referring to commercial real estate in general, right? there is a stock with the CRE symbol but i don’t think that’s what you are talking about. In other words you are still talking abt SRS.

  76. kustomz

    Dollar picking up here

  77. CaFords

    POT looks a bit high at this level. Especially after those earnings

  78. Highlander

    phil,
    these bastards are relentless on trying to jam aapl below 204 and thus expose it to a gap retrace!!

  79. kustomz

    By Alexandra Schwarz
     
    VIENNA, Oct 22 (Reuters) – China could damage the delicate stabilisation in the steel market by ramping up its exports even more, the chief executive of Austrian steelmaker Voestalpine (VOES.VI) said on Thursday. Chinese steel production last year was equal to that of the next eight producing nations combined. This year its output has boomed while companies elsewhere cut back operations.
     
    "Overall the order intake has stabilised. There is a slight upward trend, we are at full capacity," Voestalpine CEO Wolfgang Eder said, speaking at a trade fair for retail investors.
     
    "(But) overall it is on very, very thin ice. We fear that there will be huge exports out of China in the first half of the year," Eder said.
     
    This could hurt the overall steel market and Voestalpine’s business in its fiscal fourth quarter to March, said Eder, who is also President of the European Confederation of Iron and Steel Industries (Eurofer).
    http://www.reuters.com/article/basicMaterialsSector/idUSLM55720320091022

  80. Phil

    1pm Dow volume 110M, about normal but very slow since 60M at 10:30. 

    COF/Cap – Well they pay such a nice front-month that you can sell the $38s for $1.80 against Jan $41s for $2.10 so net .30 on the spread and COF is almost $40 before you owe the caller their money back

    Taxes/Peter – The assessed value doesn’t matter as, if they lowered the assessed value, they’d only have to raise the tax rate to balance it out with the town budget.  Property taxes went crazy when Bush cut income tax and reduced state aid to pay for it so the tax burden shifted from the top 1% to the other 99%.  This works out great for the wealthy as you can only own so many homes – perhaps 10 times more than a regular person – but you can make 1,000 times more money so not paying tax on money offets any increase in property taxes and most rich people write those off anyway. 

    FAS/Eph – A short strangle?  Sure, that works but you are only giving yourself 5% over 4 weeks movement on the financials.   Will be fine as long as we don’t crash or rally – let me know how it works out. 

    TASR/Red – I’d like to see them test $4 as the miss was due to R&D (doubled this year), which is not something I complain about in a company I intend to own for 20 years.  Sales were up and ahead of estimates – that should be what people focus on.  Revs w2ere 23.3M and 20.9M was expected!   Here’s a tick for buying TASR – buy the March $2.5s for $2 and sell the 2011 $5s for $1 (net $1 spread).  That puts you in for $3.50 and by the time we get to March, the roll to the 2011 $2.50s will be very cheap (the roll from Nov to March is less than .20). 

    OIH/Eric – They will stay strong as long as oil is over $80.  OIH is pretty much formula driven off the price of oil and what level of activity that is likely to lead to.  I’m expecting a disconnect as XLE companies slash their CapEx to cut costs and then the OIH holders will have to rethink outlook.  SLB reports in the morning, that will be interesting.

    Banking analyst Dick Bove says he’s out of the instant-analysis game – shedding some light on the seeming contradiction between his positive morning CNBC comments on Wells Fargo (WFC) and a downgrade to "sell" that helped spur an end-of-day market selloff yesterday. "I’m not going to do it anymore. I’m going to have to see the numbers before I go on air," he says.

    On a unanimous vote, the FCC kicks off months of rulemaking on Net neutrality with proposals barring big network operators like AT&T (T) and Comcast (CMCSA) from blocking or slowing access to any site.

    As to this rally – all I see is the rails going down and down and down and it just brings back that nagging question of "If no one is shipping anything – what is all the excitement about?"

    CRE/Morx – Yes, Commercial Real Estate, not Care Investment Trust, Inc…

    POT/Cafords – We already shorted them but, hell yes, short them again if you want.  The Nov $100 calls can be sold for $6.20!

    AAPL/High – Not a good sign when AAPL has to be propped up.

    Gold closing at $1,058 but copper failed to hold $3. Oil at $80.50 with an hour left to their trading. 

  81. jomama

     phil, what are your thoughts on bmy after their earnings.  thinking about est. long term position.

  82. EricL

    I didn’t know about SLB reporting Phil so thanks for mentioning it. I may leave some of those 130s uncovered then, since I do not think OIH is justified at these levels. I am really looking for momentum longs here to keep from getting too bearish, having sold many long positions recently.

  83. Pharmboy

    Jo – BMY went down on the Diabetes drug with Astra showing an increased infection rate.  The drug has a completely new mechanism, and many are trying to become fast followers.  IMO, I would buy here and sell the 22.5 Jan10 C & P for 2.15.  I still think they are takeover bait for NVS, SNY or even JNJ if they want to stay in the business.

  84. javaben

    ah Phil – you keep forgetting – I’m not a conservative.

  85. kustomz

    Dollar just got slammed and guess what the markets just moved 20+ points

  86. aclend

    Is FNF doing what you expected or is there a plan to stop out on that one?

  87. matt1966

    So was that our pullback?  Two days ago we drop and pullback halfway before closing.  Yesterday, we rocket up at open only to slowly give it all back until the plunge in the afternoon.  Today, we open down and that’s pretty much it.  Boy oh boy.  I’ll be looking for a selloff again tomorrow but not for long.  We could be heading back to new heights by today’s action.

  88. mrmocha

    ZION bouncing big, remember that’s Phil’s uptick predictor!

  89. kustomz

    4 year olds now own homes
    “We will hear today that taxpayers claiming the credit include those: who already owned a home, who had not yet bought a home, and who are children—some as young as four years old. There are possibly hundreds of millions of dollars that have been paid to taxpayers who are not entitled to the credit. We want to, and we need to, stop this fraud and abuse.”
    http://blogs.ajc.com/political-insider-jim-galloway/2009/10/22/john-lewis-4-year-olds-are-getting-federal-tax-credits-for-buying-homes/

  90. matt1966

    Just bought some SRS.  Will see what happens.  Tight stop cuz looking for a turnaround here.

  91. morxlntway

    Dang, just sold Care Investment Trust puts.
    Just kidding. Sorry for the dumb question. Maybe its a sign! Better get some.

  92. Cap

    What a joke this market is … completely annoying as well.
     
    COF 42′s for .70 or 43′s for .50  look interesting here.

  93. Cap

    As sales ahead of earnings.

  94. kustomz

    matt, the markets are betting on a collapse in the dollar this should send the markets to new 52 week highs…

  95. Cap

    Long SRS now

  96. javaben

    TOS just painted a spiked drop to 202.51 (about – 2), which was an anomaly.  What was that?

  97. javaben

    sorry – on AAPL

  98. Peter D

    Let’s smoke some POT for the downside or nothing.  Buy Nov 90 PUT, Sell Nov 80 PUT, Sell Nov 120 CALL for a net credit of 0.07. 

  99. pstas

    Property tax- for a scary Halloween treat, I suggest a visit to your local township/whatever assessors office to experience firsthand the workings of government hands on. Be cautious though, especially for those with a left-leaning political persuasion as the experience has been known to cause instant burning bush type epiphany conversions to libertarianism. For bigger thrill seekers, try appealing your assessment up the bureaucratic ladder. My bet is you will come away with the realization that higher property taxes have nothing to do with Bush. You are just having to deal with idiots.

  100. matt1966

    Look at your 30 min charts and check out the volume.  Big spike.  I think we maybe turning here..

  101. Phil

    BMY – Well the 5% dividend makes them a good deal regadless.  Nice for a buy/write or a long call.   Buying the stock at $22.35 and selling the June $22 puts and calls for $3.95 is net $18.40/20.20

    Nice crazy move up as the dollar heads lower (even against the Yen), boosting oil, gold and stocks back to yesterday’s levels.

    FNF/Aclend – Not as good as I thought but fine if the market picks back up so call it a bullish play for now.

    Pullback/Matt – That’s why we take the profits.   Why should today be different than every other drop that’s been reversed the next day.  Of course now we are at our breakout levels again so things get interesting.

    ZION/Good catch Mr. M!

    Wimpy Fed rules kicked off this rally – Let the shenanigans continue!:

    The Fed acts, kicking off rules that would let it limit institution-risking incentive payments at banks it regulates. Twenty-eight large banks are targeted for special review, with modified reviews for smaller banks. The proposals look less strict than some supported in Europe – or in Congress.

    Tough one to watch happen if you are bearish but I’m inclined to ignore this 122-point gain and I’m looking to re-load the same shorts we had yesterday if we can get the same prices.

  102. matt1966

    Nope.  Just the PPT making minced meat out of the bears again.  F-ers.

  103. stevenparker

    Thinking about it if there is a lag of 1-2 months between being applying for a mortgage and owning a house, perhaps the mortgage approvals numbers leads the existing home sales number  by a month or two…..

  104. CaFords

    I am a firm believer in "efficient markets"

  105. javaben

    Phil, don’t understand your comment: "FAS/Eph – A short strangle?  Sure, that works but you are only giving yourself 5% over 4 weeks movement on the financials."  Per TOS analyze Risk Profile, at expiration this has break evens of about $66 and $100, so more then 5% movement before it goes negative.  Unless you are referring to return?  If so, I don’t see that either.  Thanks.

  106. JRW III

    Yeah, just another day for the naturally "efficient markets" in the reign of The Great Reformer.

  107. Phil

    Bearish buy list:

    • SRS Jan $11s for $1.05
    • SRS Apr $7s for $3.50 (covering on bounce with Apr $12s at $2+, now $1.50).
    • DIA $99 puts for $1.30 (hit $1.90 yesterday)
    • COF $38s sold for $1.90.  Jan $41s can be bought for part cover at $2.10 (3/4 of 1/2) or just go for it naked.
    • FSLR $165 calls, sold naked for $6.20
    • MS $35 calls, sell naked at $1.50 (DD on yesterday’s $1.10 sale)
    • AAPL $200 calls, sold short at $9
    • TZA $11 puts sold short for .75
    • TZA $11/12.50 spread for .55
    • CAL Dec $13 puts sold for $1.10 (bullish)
  108. pstas

    gel-HERO- you pick up any news/rumors on this? Up big today.

  109. EricL

    Gold futures going down with the dollar now; interesting.

  110. Highlander

    phil,
    so you are saying that during the next  30 days aapl is not going over 209 and not below 191 ??

  111. oldgoat

     Phil, I’ve done very well with Dig over the last month or so. I took profits. I want to get back into oil related calls. Maybe oil instead of oil co’s. Is USO safe from the regulators?

  112. Highlander

    phil,
    just make that aapl is not going over 209 ?

  113. yodi

    Phil On COF sell the 38 call and buy the 41 call or what?

  114. ssdirk

    Does anyone here NOT think that this is ridiculous?

  115. Phil

    Property Tax/Pstas – Propery tax is very simply your town budget divided by the assessed value of the town’s proprties times the tax rate they need to balance the budget.  Since the towns or counties must provide you with water, sewer, police, schools, ambulances, roads, garbage, recycling etc – if you actually looked into it you’d find pretty much the ONLY variable they have to deal with is how much Federal and State aid they get but you just keep in drinking that conservative Kool-Aid if it makes you feel better…

    3pm volume 150M – a bit outside the stick zone but it seems we already had ours….

    5%/Java – FAS is a 3x etf so a 5% move in the financials moves the $85 ETF 15% or 12.75 to $97.75 or $72.25 so maybe I was off by a bit but generally, it’s not quite the cushion one may think. 

    Earnings fun:

    • 4 AMZN $95 calls sold for $4.55, buying 5 Jan $100 calls at $4.80
    • DECK Dec $100 calls sold naked for $3.10
    • 6 NFLX $52.50 calls sold at $1.40 against 4 Jan $55 calls bought at $1.70
    • SPWRA Jan $30 puts sold short at $2.40
    • SPWRA 2011 $45s for $4.20, selling Dec $35s for $2.05.  This is a spread where more money will be put into the longs if they do well and otherwise we roll down to establish a long position.
    • WDC Dec $34 puts sold naked for $1.10 (STX did good). 
    • CACH at $4.90, selling June $5 puts and calls for $2.50 nets $2.40/3.70
    • MSFT 2011 $22.50s for $5.45, selling Jan $26 puts and calls for $2.60 nets $2.85 on the $3.50 spread.
  116. Highlander

    s&p looks like it might be going for the roses!!

  117. matt1966

    This is just the craziest $hit I’ve seen in a while.  They are squeezing everyone.  Guess they had to out perform yesterday’s sell off to get everyone comfortable again.  Or, the banks are just happy as pigs with the Fed’s new proposed rules on them.  And some people want to give the Fed more power to manage systemic risks?   Unbelievable.

  118. kustomz

    The greenback keeps heading lower and the markets keep heading higher, so dollar under 70 would result in dow around 10500

    Would love to see the dow close +200 today

  119. kustomz

    must provide you with water, sewer, police, schools, ambulances, roads, garbage, recycling etc
    All run by the mafia ;-)

    I have never seen so many state troopers in my life not to mention all the sheriffs and regular police cars i see around here in FLA, its like they are preparing for marshal law…don’t even get me started with Nassau county in NY..cops making 80k a year…please

  120. aclend

    I have the feeling that "they" are afraid to let it languish around 10K too long or else people might get skittish and we could lose the momentum and risk a real correction…or worse.

  121. Phil

    AAPL/High – I think they are in a fair range here.

    USO/OldG – Nothing is safe but a lot of this rally today is coming off the fact that those Fed rules have no teeth at all and if the CTFC wimps out the same way, we are right back to business as usual in commodities and they will be able to run oil back to $100 in no time. 

    COF/Yodi – BUY the Jan $41 call to the extent that you are worried about the SALE of the Nov $38 calls burning you.  I think a 1/2 sale is just fine.

    S&P/High – Yeah they just needed to get a running start, that’s all.  8-)

    Check out HOV, up 12% – all must be very well indeed. 

    Next week is Durable Goods, Case Shiller and Consumer Confidence on Tuesday.  Wednesday is New Home Sales.  Thursday is Q3 GDP (3.1% expected) and Jobs and Friday is Pers Income and Spending, PCE, Chicago PMI and Michigan Sentiment so Da Boyz are enjoying a data break today and tomorrow to give the markets a nice push. 

    Of course next week there are about 1,000 companies reporting too!

    VIX dropped 7.5% back to 20.55 as the market rises 200 points in a day because, of course, that’s not volatile at all….

  122. Pharmboy

    GLUU   … I mean glue…..sniffing it now.  AAAHHHHH. Look at all the pretty colors on my screen.

  123. raulsm

    Re. FAS/FAZ options, FWIW, I have done studies on them in detail. From a buyer point of view, it is much better to buy options on the underlying (e.g, XLF), they perform much better for the buyer. Thus, conversely, it is better to sell options on the leveraged versions. However, a 5% move on the underlying does not cause a 15% on the leveraged over anything over than 1 day (and that only if bought at the open). Both FAS and FAZ wil invariably both go lower overtime, so it is good to be aware of that.

  124. kustomz

    aceland, whats the risk? GS wont come to work tomorrow?

    VZ treated like the red headed step child

  125. pstas

    Kool Aid- actually, mine tastes pretty good. It’s the stuff laced with Hopium that causes delusions :)

  126. matt1966

    Phil / CFTC :  According to The Warning, Rubin’s lackee is now running that thing.  He’s been complicit on the ‘game’ since waaaaaay back.  Nothing coming out of that guy to rock their boat.

  127. Phil

    Dollar Kustomz – I said a couple of weeks ago the only way they’ll get to S&P 1,200 is to get the dollar down to 65 and, so far, that seems to be the plan.

    Cops/Kustomz – You’d have to pay me more than $80K to be a Nassau cop!  I’m sure that’s a long-time salary and where exactly is that guy supposed to live for $80K around there? 

    FAZ $19 puts cal be sold for $1.75 again.

    FAZ/FAS/Raulsm – That does not seem to hold true anymore.  After the reverse split we did an experiment and sold FAS and FAZ at $45 each, expecting both to trend lower, they are now $105.50.

    Oh come on, don’t tell me they came all this way and they can’t close the deal?

  128. yodi

    Phil Thanks for clearing COF possible you still remember you recom. on HOV where I lost my shirt on stocks at 10.00 you recom the 2.5/5  2011 call  possible will be paying off by 2011 thanks

  129. Phil

    Well it’s all up to the Dow and ther S&P to hold our morning targets:  Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623.  NYSE has an outside chance but I hope not as it’s a little late to flip bullish!

    HOV/Yodi – I hope so, for all our sakes! 

  130. JRW III

    Phil,
    The open tomorrow ? Only data is existing home sales, but that’s at 10:00.

  131. raulsm

    Phil, if you are saying that the combined value of a $45 FAS/FAZ purchase after the split is now $105, that is because the market has been in uptrend post-split (no?). In a trending env, the gaining leveraged side will to the the moon. But the market cannot go higher forever.
    Fas and FAZ have still lost $3B for their investors, after the split: http://nexalogic.com/fasfazloss-o-meter.html You are correct, it has recovered a bit, but it is still absolutely the same crap. It’s the volatility that kill it.
    Anyway, the point was on the options vs the underlying. Thanks.

  132. gel1

    Pstas/HERO… Nope, heard nothing here… Maybe that is why the moniker was assigned to them. I’lll post if I learn anything.

  133. japarikh

    Hey Pharmboy,
      Got anything new on the biotech side?

  134. ssdirk

    There you go AMZN through the roof.

  135. Phil

    Tomorrow/JRW – You would think they would go for it but I don’t see Asia trusting this move or Europe so we either open down on earnings misses or flat most likely and then it’s up to the pump crew if they want to post new highs to go into the weekend. 

    FAS/Raulsm – Yes, the IYF has gone relentlessly up and has distorted FAS, which really surprised us but, as you said, the real money was made selling puts against both sides. 

    Holy cow, AMZN crushed numbers and flew up over $100!  That sucks for the $100KP, I guess we should have paid $3.50 to get out of the $95 calls after all…

    Now we’ll see if it lasts.

  136. Cap

    What a joke, man !

  137. Cap

    Long SRS just a wee early today; but that will work out alright.

  138. Cap

    COF w/ a big EPS print; but as w/ WFC, the devil is in the details !   0.94 cents

  139. Cap

    Before taking into account TARP repayment; whatever that means ….  does it mean they don’t know how to calculate EPS ?

  140. Cap

    COF at 41.50 so far afer hours; hope nobody sold those 38′s naked; as for my 42′s we’ll see.
     
    Remember the pattern, whatever the pop; the stock will be lower in a day or two.

  141. Cap

    Oh man; didn’t even see AMZN !

  142. mampcs

    got out of amzn $95 calls today at 3.6 (sold at 6.35).  whew ! talk about timing..
    still have the amzn $85 puts sold naked.. those should be sitting pretty tomorrow morning

  143. jomama

    mampcs – better to be lucky than good – sounds like you may be both

  144. gel1

    Peter D/Taxes-Real estate  I have a home in Incline Village, NV  that I have listed for sale as I no longer ski (water or snow). There is a huge amount of activity here in real estate sales for Sept. and Oct., as a result of overtaxed California residents fleeing to a state that has no personal income tax, among the many other taxes that California imposes. The ‘Golden State" has killed the goose that lays golden eggs! It is really proof that oppressive taxation will act as an incentive, for people who are otherwise happy, to pick up and move. I am merely selling into a market that is hot, only because of political mistakes made by uninformed politicos who have an agenda that penalizes one group (business entrepreneurs) in favor of radical give-a-way programs, that will keep them in office. Like phil says -"sell into the excitement"

  145. Phil

    Wow, at this pace AMZN can earn almost $2 for the year.  That’s a p/e of just 50! 

    I had looked at taking them out earlier but we did sell the puts as well and we can always roll but I just couldn’t bring myself to bet that they would have numbers to justify $100 a share and, frankly, .45 earned in a quarter (mostly on huge Kindle numbers) really doesn’t do that. 

    COF up huge too.  If this doesn’t get us to new highs tomorrow, I don’t know what will.

    SPWRA a bit disappointing.  That’s knocking FSLR down. 

    DECK taking a hit.  NFLX not exciting. 

    AXP crushing numbers too.  WDC good as expected. 

    Good timing Mampcs!  Friggin $103 now, we’re going to have to wriggle out of that one.

  146. EricL

    Grabbed a few SPY calls after all those beats since we could gap higher. Still not inclined to hold long until we start closing above 1120, though.
     
    I wound up chasing OIH higher  — even legging into a bullish position is dangerous in this market. Sheesh.

  147. aclend

    Phil,
    What are your thoughts on the SPWRA sell-off on higher revenue?   Do I just have a knack for selecting the difficult plays from your choices?!

  148. Pharmboy

    Japa – I got nutin’ in the biotech space.  As I noted last month, we are in no mans land for biotech, and most companies go down in this time frame (PPH and BBH comparison).  SO I have been a bit more quiet as of lately.  I do like ITMN here (said that Monday), CRIS has moved a bit, but still worth a 1/4 buy, ARIA (1/4 buy here), CLDX (5 Dec option), ARNA (sell $4 Dec puts).  Sold SGP 29 Nov puts yesterday (noted on the board). 

  149. javaben

    Did the AMZN Nov -4 $95/+5 $100.  Took a look at the risk profile on TOS before deciding – looked good.  Was shocked after hours – the whole slope of the graph comletely changed.  Guess that must have been a jack up in the IV?

  150. Pharmboy

    Link was not right.  Try again.  PPH and BBH  both are moving in a downtrend.

  151. kustomz

    North America segment sales, representing the Company’s U.S. and Canadian sites, were $2.84 billion, up 23% from third quarter 2008.
    International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $2.61 billion, up 33% from third quarter 2008. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International sales grew 35%.
    Worldwide Media sales grew 17% to $2.93 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter sales grew 18%.
    Worldwide Electronics & Other General Merchandise sales grew 44% to $2.36 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter sales grew 45%.

  152. Pharmboy

    SPRWA – chart always has gaps after earnings, then they go and fill them up.  Look at the 1 yr chart with earnings….

  153. EricL

    java, the slope can change because it’s computing it from the option close price but the current stock price, which means that the 95s are wildly ‘underpriced’. So it shouldn’t be an issue tomorrow.

  154. kustomz

    AXP not so great
     
    The third-quarter results included a $180 million non-recurring benefit associated with the company’s accounting for a net investment in consolidated foreign subsidiaries
     
    Excluding that benefit, American Express posted adjusted earnings from continuing operations of 44 cents per share.
     
    Total revenue fell 16 percent to $6.0 billion.

  155. mSquare

    AMZN – Had a small portion of Nov 85/90 Put spread @ 1.70 credit.
    Tomorrow it should nice and green. Instead of cashing-out right away, I may roll the 85 Puts long to Dec and wait to sell the short leg later.

  156. Cap

    I hope any longs are selling into the AMZN excitement.   Good results; but still a very rich valuation and guidance aside, headwinds still lie ahead.
    then again, its such a manipulated bugger who cares ?

  157. javaben

    100KP: Man – AAPL just keeps getting worse!

  158. jomptien

    Pharmboy,
    What is your opinion of PARD? Own stock at 7.35 and sold Nov 5 P + C, about even all around now.
    Thanks

  159. javaben

    Eric, thanks for the after-hours pricing insight!

  160. javaben

    BTW – Larry McMillan (author Options as a Strategic Investment) is on TOS live today…. a little late getting to the site, but due any minute.

  161. lflantheman

    javaben/AAPL…….My take is that it is wise to stay  long on AAPL and…………… fuggedaboutit.   Well, not exactly forget about it, but the point is that AAPL is on a relentless upward trend.  There is NO negative news on this company and it isn’t likely to lose you money if you stay long for the next few months at least. 

  162. lflantheman

    AMZN 93.45 to 107.44…WOW!  No positions (regrettably). 

  163. Cap

    Very little after hours volume in AMZN now;  about 20,000 shares last 15 minutes. 
     
    Seems kind of odd …  16,341,000 for the day, including after hours; let’s see what it is by 8 pm.

  164. Phil

    Incline Village/Gel – Yeah, good for you.  I have a time-share at the Marriott and nobody wants to buy the damn thing….

    Futures are up near the day’s highs again.  Earnings great for stock but the not for the dollar, which is still at $1.50 for the Euro and a whopping $1.66 to the Pound but the BOJ has fixed it at 91 Yen. 

    SPWRA/Aclend – Outlook not so good but the play is just what we wanted, they’re not going below $27.50 and they’ll certainly recover over time so the put play is good and the spread is golden as we sold the $35s for a net $2.15 entry on the spread and now we get a cheap roll down and hang out until the stock comes back. 

    AMZN, on the other hand is freaking me out!  We sold 20 of those damn $95 calls against just 10 of the $85 puts so this is going to sting a lot tomorrow.  Hopefully, we can get a good price on a Jan spread…

    AMZN/Java – We’ll be looking at rolls for them in the morning.  You can actually catch some good rolls into the excitement.  The spread was net very little so if you can just roll the callers up to the Jan $105s even, you’ll be in a good vertical spread.

    AXP/Kustomz – Yep, 15% seems to be the magic number for how much slower global sales are this year than last for pretty much everyone.

    AAPL/Iflan – If AMZN is worth $100 then AAPL is worth $300 easy so we’ll see what happens. 

  165. Pharmboy

    WFR buying SunEdison (private company) which does commercial installation, sales and financing of solar systems.  Interesting.

  166. dmankoff

    Phil, what do you mean by this?
     
    TZA $11/12.50 spread for .55
     
    are you selling the 11 puts and selling the 12.50 calls  or what and what months?

  167. Phil

    Three things to look for to call the bursting of the commercial real estate bubble.

    • Between April and August of this year, the value of commercial loans in special servicing doubled to about $50 billion, according to Trepp, a firm that tracks the commercial real estate market.
    • When rents and property values fall, apartment complexes, malls, hotels, and major projects financed during the bubble become more likely to default on their debt.
    • Watch to see how banks such as Fidelity Southern and United Community Banks — identified in a SunTrust Robinson Humphrey report as having a high proportion of noncurrent construction loans — hold up over the next few months.

    Health insurer stocks spike again, on news that critical health-reform swing vote Olympia Snowe says she won’t support immediately creating a public insurance option.

    American Express (AXP): "While Q3 revenues declined because cardmember spending and loan volumes were down from year-ago levels, overall billings have stabilized during the last few months and we saw indications that spending by corporate cardmembers is beginning to pick up."  Wheeee – trickle down spending on Wall Street!

    A "very accommodative" monetary policy is top priority, with the exit strategy second, says Chicago Fed President Charles Evans at a University of Michigan gathering. Expects stable inflation: "There’s a lot of slack out there."

    Don’t look now, but real sovereign debt risk is back for the U.S., says Megan McArdle: America has no more money to spend. So how much longer will Treasurys be risk-free?

  168. dmankoff

    is there any member chats after hours in a different location, or is this here it?

  169. Pharmboy

    dman – chat is here until tomorrow.  TZA spread is buy 11, sell 12 (1:1) for net debit .55.  So you can lose 55c or gain 45 max.

  170. Phil

    WFR/Pharm – I like that idea…  They missed earnings though so down they go.

    TZA/DMan – It’s a bull call vertical, buying the $11 calls and selling the $12.50 calls for a net of .55.  If I don’t specify the month it is usually the front month. 

    Chat/DMan – This is the place until I put up a new post in the morning.  Sometimes on weekends I have more than one post but the default is the wrap-up and if I put up a portfolio or educational post, chat there generally stays on the topic at hand.

  171. Cap

    After hours update … AMZN shares now total 16,393,000.
    That’s another whopping 52,000 shares (likely most back and forth between market makers).   In 1/2 hour.
     
    You would think either buyers would be wildly buying or shorts wildly covering.
     
    To me, this is just another indication of a phony stock.  The powers that be want it up 15% on earnings.  So it is.
     
    I also have COF on my screen tonight.  About 1,000 shares have traded in the past 1 hour.
     
    There is no real demand for stocks. 
     
    The after hours action on earnings of these two companies is proving that.

  172. gel1

    Phil
    Time share at Marriott… that is at the Lake, and it is paradise for sure. You can walk to some of the best skiing in the world – Heavenly Gondola is everybody’s favorite, not to mention all of the other magnificent benefits of Lake Tahoe. The  real estate market euphoria is, at this time, isolated to the single family home, wherein business entrepreneurs are buying a home and moving lock stock and barrell to the area, in order to avoid the taxes imposed in CA. When capital is tight for a guy in the early stages of his business, or even after, and trying to expand, then every burden (including taxes) becomes very important. This is a great place to raise a family and build a business. California has taken for granted the psyche of the entrepreneur, and has assumed they will pay whatever is asked of them, but in their stupidity, the limit has been reached, and some of the best are leaving. Lots of changes are in the future, mostly politically, as a result of this miscalculation IMO.

  173. Phil

    US Steel Corp.(X), Nucor Corp.(NUE), and Reliance Steel & Aluminum Co.(RS) shares all dropped on the New York Stock Exchange after metal makers said prices may fall following four months of gains. Reliance Steel & Aluminum Co. fell as much as 8.7 percent after saying today that it wouldn’t offer a profit forecast for the fourth quarter and that prices may decline. Nucor shares fell as much as 3.5 percent after the company said it may have reduced operating volumes in the current quarter. U.S. Steel, which reports third-quarter results next week, fell as much as 4.3 percent. Other steelmakers including Steel Dynamics Inc., AK Steel Holding Corp. and Allegheny Technologies, Inc. also declined.

    Craigslist won dismissal of a lawsuit filed by the sheriff of Cook County, Illinois, that accused the classified ads Web site of creating a public nuisance by providing a forum for prostitution services.  U.S. District Judge John F. Grady in Chicago threw out the lawsuit filed by Sheriff Tom Dart, finding that the site was only a conduit for others to publish the ads and wasn’t legally responsible for their content.

    China is risking property-market “bubbles” to encourage growth in the world’s third-largest economy, according to former Morgan Stanley Asian economist Andy Xie.  “People are looking at the bubbles as a way to gain economic growth in the short term,” Xie said in a Bloomberg Television interview in Hong Kong today. “They are not sure of long-term damages that they may suffer.”  Property sales and values have surged as the government implemented a $585 billion stimulus package and banks extended a record $1.27 trillion of credit. China’s economy expanded 8.9 percent in the third quarter from a year earlier, the statistics bureau said today, while home prices rose at the quickest pace in a year in September, government reports showed last week.

    A months-long review of documents and interviews with Pentagon personnel has revealed that the Bush Administration’s military analyst program — aimed at selling the Iraq war to the American people — operated through a secretive collaboration between the Defense Department’s press and community relations offices.  Raw Story has also uncovered evidence that directly ties the activities undertaken in the military analyst program to an official US military document’s definition of psychological operations — propaganda that is only supposed to be directed toward foreign audiences.

    I find this whole Franken thing fascinating.  It’s still going on in the Senate as the 30 Republicans for Rape (as they are known) don’t want to let things go. 

    It’s actually a good thing this woman was raped in Iraq and not in the US as a woman who was raped in Florida was subsequently denied health care coverage because the rape was a pre-existing condition that may have led her to contract a disease.  Yeah, our health care system is just fine!

    Fox says that Obama’s Czar is condoning statutory rape and 10 other things Fox made up (click the Next buttom on the video). 

    Here’s a useful chart to help you determine whether you are a liberal or a conservative:

    Study finds the Republican base voters have very different world view than Dems.

    John Steward reviews the new GOP.com – too funny!

  174. Cap

    AMZN 16,518,400
     
    About 200,000 shares since 6 pm.
     
    Just came back from a softball vame; one of my teammates works for a big options firm.  Says all the volume is HFT.  Very little real volume in the market.  Says its a joke; complete illusion.  FWIW.

  175. Cap

    Phil, did you just come back from another Moveon.org meeting ?  :wink:

  176. matt1966

    Cap, if you don’t have the juice to weather out a HFT surge then it can be a costly joke.  The fact is, they can move the market pretty much at will.  As long as there’s no volume.  And it appears there is only significant volume when there is something upsetting the norm.  Which is infrequently and short lived.  If you’re not in it for the long haul, you kind of have to respect a move whether it’s low volume or not.  Low volume got us here from March.  Sad but true.

  177. Cap

    I know Matt ….. its unbelievable and it is getting shockingly little public discussion ….

  178. where

    It really bothers me that KBR and Halliburton ESG are still lumped together by groups like KOS.  It’s not even the same company!  I’ve worked for Halliburton ESG for close to 10 years now, and I’ve never met someone that worked for KBR even when Halliburton and KBR were under the same umbrella years ago.  Halliburton bought KBR for it’s upstream oil and gas construction business increasing it’s vertical integration in the energy business, but split them off years ago.  I have no idea how a tiny part of KBR that handled supply chain operations got associated with a good solid energy company.  Just an example of poor reporting I guess.

  179. magret

    Phil, can you indicate how the 5 % rule can be applied to gold / silver prices . I have tried it but results were disatrous…..re gold taking 1000 as base a pullback of 10 would have been due once gold reached 1050….is this a proper interpretation of the 5% rule…

  180. Phil

    Good morning!

    UK GDP was -0.4% vs up 0.2% expected.  Doesn’t bother our markets of course (nothing does) but it dropped the Pound from $1.67 to $1.64 really fast.  Didn’t change the Euro or the Yen and only tiny effect on oil ($81.27) and gold ($1,061).

    AMZN holding $107 in Europe. 

    HAL/Where – Unfortunately for HAL, they associated themselves with some real sleazebags and that’s all people remember.  Not that HAL itself has always been angels but KBR was involved in some really evil crap and now it’s just an easy stereotype that sells more papers.

    5% Rule/Magret – It doesn’t apply that well to commodities because they don’t trade on the same algorithms as stocks do in the US.  Also, dollar fluctuations throw things off drastically.  The 5% rule is based on the cumulative behavior of various "unique" trading programs that, by nature, tend to gravitate towards certain predictable points due to several factors.  One thing I noticed, wheh I used to do consulting was that the people instructing the programmers had a tendency to round to whole numbers and then the programmers themselves would round to a number because they were often fed conflicting instructions from various people and, of course, there is really no such thing as a random number in a computer and what you would end up with is a whole lot of people who think they all have "unique" trading systems actaully all having pretty much the same 3 or 4 systems, depending on what the core logic is based on.

    What that causes, over time and volume, is a tendency for stocks to fall into patterns that move in incriments of 5%, with more and more weight coming at each additional 5% level (the resistance becomes stronger).  If something is very liquid, it will also respect moves of 2.5% and 1.25% (and probably .67% but I can’t be bothered with that usually) as the vectors of all the various inputs by all the people who think they have the ideal targets tend to intersect.  There is also added weight given to Fibonacci levels at 25%, 40%, 50% and 60% so those become very key. 

    That’s the "science" part behind the 5% rule but the art of it is we then have to give added weight to whole numbers (another tendency trade program designers fall into as do the traders making decisions) and the biggest guestimate of all is determining what a consolidation point is as well as learning to ignore outlying spikes. 

    So, looking at gold.  We had a toppy move in 2007 at $700 and a run up to $950 and a pullback to $700.  Note how those lines are taken pretty seriously on the way up and down.  $950 is a 35% move off $700 and that makes sense as the real Fibonacci number is 38.2% so that zone between 30% and 40% is like moving through maple syrup for most things that treade internationally as foriegn traders (a big factor in gold) tend to use Fib levels a lot more than us traders. 

    By the way, notice I’m very comfortable with saying 700 and 950 even though the actual numbers may be 695 and 940 because this is in NO WAY an exact science and you can’t get all hung up on that stuff.  The idea is to look at something and see if the overall trends are respected and THEN, once you confirm the item in question obeys the 5% rule, THEN you can try to apply it going forward. 

    So, in gold, we’re pretty happy with that 35% range and that makes our new base $950.  That means we would expect significant resistance at 997.50 (5%), 1,045 (10%) and $1,140.  So now we can zoom into the daily chart and see how that works out..  

    Our big break above the $950 line came in early September and do we run into resistance around $1,000?  Duh, of course we do because it’s $1,000 so that doesn’t prove too much although notice the bunching just before we broke out – right about 997.50 so looking good there.  Does our next move hit resistance at $1,045?   Yes, but very briefly and now it’s bouncing around but holding a floor at $1,045.

    If we look back at the last two breakouts over $700 (Sept ’07 and Dec ’08), we see that both hit resistance around $840 or a 20% move but not much until then but the Sept ’07 move did sort of accumulate at $760ish so up 10% makes sense for consolidation and, if you look back at the weekly chart, the pattern we’re in now does look similar to that 50% move off the $650 bottom in mid-2007.  $650 x 1.5 = $975 so somewhere between that and $950 is probably the right place to base our new consolidation. 

    As you can see, the more you look, the more numbers you have to jot down.  Now I want to look back at the top to bottom pre-breakout and that’s about 650-700 which is a 7.7% gap.  If we add 7.7% to $975 that’s AMAZINGLY $1,050.  NOW we have a number we really like but what is it?  It’s probably the top of our breakout range with $950 acting as a floor.

    Now you need to step back and get some perspective because the moves we looked at on the weekly chart were, WEEKLY (see, this stuff isn’t tricky).  That means those sharp spikes up and down you see, the spikes we ignore as we look for consolidations, could have lasted for days and outlying moves, like the spike up to $1,033 in March of ’08, took 4 full weeks over $950 before settling down. 

    So yes, even if gold were obeying the 5% rule PERFECTLY, that won’t stop it from running 10% out of the range for a week or two but a couple of weeks over $1,050 barely qualifies and, should we drop back down towards $950 or $975 again, we’ll simply be forming a new channel in the expected range.  Notice the 200 dma is rising rapidly and heading straight to $950, which is where a strong dollar move should take gold pretty quickly but more likely $975 holds up as we seem to be in more of an uptrend. 

    The short story is:  Gold broke the $650-700 range and ran up 50% ($1,012 from the middle).  It then pulled back to $850 (15%), retested $975 (50% off the bottom of the range) and pulled back all the way to $700 last fall.  Now, in run #2 we ran back to $1,000 and pulled back to $850 (15%) but this time consolidated at $950 before breaking up to 1,050, 50% over the top of our range, which makes sense as this second run clearly came off $700, not $650. 

    50% is very powerful as it aligns the 5% rule (modern computer trading) with the Fibonacci Rule (ancient natural trading patterns).  I’d be surprised to see a real breakout without establishing a new base but the 60% level (1,120) is where I would want to short again (we took ultra long and shorts as we were not sure at $950).  If we get poke 1,120 and then pull back to $975 and hold that, I’d be gung-ho bullish on gold breaking much higher. 

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