Our winning streak continues!
With 335M barrels of oil still on fake order at the NYMEX, yesterday’s early morning short play at $100.60 gave us a ride back to $99 and that was good for as much as $536M pre-market. In the morning post, I said "hopefully we’ll get another crack at shorting oil at $100 or higher" and we did – right at the open – and that was good for a ride back to $99 for another $335M of potential gains (just following through with last Thursday’s plan to break the NYMEX speculators).
We took the money and ran on those USO June $40 puts at $1.40 (up 22%) in Member Chat at 10:53 but the next rebound in oil didn’t quite get to $100 ($99.88) and we missed the run down to $98.50, which is where it’s sitting this morning.
Of course, we don’t only short oil… In my 9:58 Alert to Members I, of course, reminded them that oil was at $100 and shortable again but we also grabbed the QQQ weekly $56 puts for .33 and those finished the day at .55 for a 66.6% gain (the mark of the Blankfein), which is not bad for 6 hour’s work (or so I am told). We also had a more complicated spread with DDM offsetting SPY as a sort of arbitrage on two spreads.
Thanks to David Ristau’s guest appearance in Member Chat pre-market, where he mentioned he was jumping on our short oil bandwagon, we selected HAL for a short trade in Member Chat at 10:10 along with our planned PCLN short play (mentioned pre-market in the morning post) and both of those were, of course, huge winners already so thanks for HAL David!
It wasn’t ALL bearish, we went long on XLF as it hit $14.90 with some short put sales along with a very long-term bull play on HOV but we took a loss bottom-fishing on IWM as the June $79 calls stopped us out after falling from $2.07 to $1.95 (down 5.8%) but we had to try something long to get a little balance or risk being too bearish. Our bullish sentiment didn’t last long though and we decided to short the Nasdaq futures at the 2,300 line at 11:42, those gave us a spectacular run down to 2,270 and, at $5 per .25 per contract, that’s up $600 per contract – also not bad for an afternoon’s work…
We cashed our Friday’s NFLX shorts with 80% gains as that wasn’t worth risking into expiration but we’ll be happy to short them again if they get back to $275. At 12:25, I did put up a list of 10 stocks I liked long for our Members as our first bottom-fishing expedition, laying our our long-term strategy for CSCO as an example at 1:25. AAPL got silly cheap at 1:37 so we sold the July $340 puts for $10 and we finished our day’s trading going long on the Dow with the DIA June $123 calls at .45, which we’ll probably sell on the morning pop as we look for something else to sell on this BS pre-market pump-job.
How’s that for a summary of our day? We’re not always so active in Member Chat but, when the market swings both wildly and predictably, why not take advantage of it? The short-term trade ideas get all the attention, of course, but we did slip in a dozen longs in that mix but those are duller, long-term trade ideas which reflects our attitude of being long-term bullish but short-term bearish although this chop forces us to flip-flop our short-term stance with great regularity.
Today, 12,200 is the magic number for the Dow and 1,300 on the S&P. I did the above, detailed S&P chart for Members last night to illustrate why we felt it was a good idea to play yesterday’s close for a bounce but also to illustrate the bigger picture within our 5% rule but we got that bounce pre-market already and that caused us to short the Dow futures off the 12,150 line in this morning’s Member Chat as the run-up was based on jamming the Dollar back to 74 and that’s never a good way to start a proper rally.
Our other "Must Hold" lines were originally 2.5% pullbacks off the 100% moves in the market off the March ’09 bottoms that we had hoped would hold in order for us to keep a bullish stance (it would have indicated we were merely consolidating at the top of our range). Well, they didn’t hold and now we have to contemplate a far greater drop – quite possibly back to the 5% line on the S&P at 1,235 along with 11,600 on the Dow, 2,600 on the Nasdaq, 7,866 on the NYSE and 775 on the Russell.
On the bigger S&P chart, we’re looking at the longer-term 5% lines and the rising 200 dma at 1,250 will hopefully put in a floor on the S&P but, if that fails – then look out below! We don’t think this will happen until after option expiration day next Friday and maybe not until the end of the month as we expect they want to end the quarter on a high not but, if "they" can’t keep it together now – we could be in for a long, wet slide back to reality.
It’s all up to the Bernanke, who gets the ball at 3:45 this afternoon as he gives his "Economic Outlook" speech at the International Monetary Conference in Atlanta and if you think it’s a coincidence that he scheduled his speech for 15 minutes before the markets close – then you need to do about a year of remedial reading in our archives!
It’s not just Uncle Ben we’ll be hearing from today, Lockhart gives his Economic Outlook to the Charlotte City Club at noon – sort of a test-drive for Ben’s speech later in the day. At 3pm we get the Consumer Credit numbers and then Ben at 3:45 and tomorrow, at 2pm, we get the Beige Book, which is probably going to be awful so it’s no wonder they are spinning their asses off today. All of this is a prelude to what may be the LAST POMO schedule, scheduled to be released Monday at 2pm so get ready for a wild week of rumors and speculation – we love it!
8:30 Update: Woops! Fed’s Fisher is on CNBC saying ABSOLUTELY no QE3 and QE2 will wind down as scheduled in June (that’s this month, you know!). This makes me very glad we shorted the Dow futures off that 12,150 line and we’ll see how the markets absorb this bit of news but I’m thinking – not well… On the other hand, Fisher is handing out carrots with his stick – forecasting "robust second half growth." Also, let’s keep in mind that Fisher tends to talk a tough game but hasn’t voted against the doveish majority yet.
Conditions are ripe for a sell-off after whatever pop they manage at the open as we had a silly, 0.5% run-up in the futures for no good reason and the Yen has once again been shoved down to the 80 line (too strong) so the BOJ has an interest in not letting the Dollar fail the 74 line, where it is at the moment. The Euro has already been shoved up half a point to the $1.465 line and the Pound hit $1.645, which are both levels we discussed in Member Chat as being shortable in the Forex market. So a little pullback in the Pound and Euro (and there are umpteen reasons for that to happen) and a little drop in the Yen (the BOJ will make reasons for that) and a little bounce off the 74 line for the Dollar and suddenly this little pre-market rally can vanish in a puff of smoke – just like the "ta-da" in any magic trick – it was all an illusion, yet the audience of retail investors fall for it every time….
Moody’s joins Fitch on the "voluntary" rollover of Greek paper, saying it’s hard to see how it would be truly voluntary, and would likely be a "credit event," i.e. default. EU and IMF officials have gone into "Orwell" mode, insisting just the opposite.
European Banks’ Capital Shortfall Means Greece Debt Default Not an Option. A failure by European regulators to make banks raise enough capital to withstand a sovereign default is complicating efforts to resolve Greece’s debt crisis. The “fragilities” of Europe’s banking industry mean a Greek default isn’t an option, European Union Economic and Monetary Affairs Commissioner Olli Rehn said in New York last week. By delaying a decision some investors consider inevitable, policy makers risk increasing the cost to European taxpayers and prolonging Greece’s economic pain.
“European officials are trying to buy time for the troubled economies to get their house in order and the banks to be strengthened,” said Guy de Blonay, who helps manage about $41 billion at Jupiter Asset Management Ltd. in London. While estimates of the capital shortfall vary, the vulnerability of European banks to a sovereign shock isn’t disputed. Independent Credit View, a Swiss rating company that predicted Ireland’s banks would need another bailout last year, found in a study to be published tomorrow that 33 of Europe’s biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10 percent, even before any sovereign default.
The IMF indicates it is open to an extension of maturities for Greek paper in order to avoid a restructuring. "This is a technical issue we can think about," says Bob Traa, the IMF’s man in Greece. ECB chief Trichet signals he could support encouraging investors to roll existing Greek debt into new paper. Previously taking a hard line against anything that reeked of restructuring, Trichet says of the new plan, "that is not a default." That may not be the ECB president’s call to make.
Meanwhile, Spain’s provinces are rebelling, led by Catalonia, who refuses to meet Spain’s deficit target risks encouraging other regions to join in rebellion just as Prime Minister Jose Luis Rodriguez Zapatero’s authority may be weakened by the approach of general elections. Catalonia is Spain’s largest region with an economy the size of Portugal. Their 2011 deficit is twice as wide as its target, in a move Moody’s Investors Service said yesterday was "credit negative" for Spain in general. Zapatero will have to decide between allowing Catalonia to sell enough debt to fund the shortfall or antagonizing a state that has traditionally backed Socialists in national voting.
According to the London Telegraph: "European Central Bank Risks Being ‘Wiped Out’ by Bail-Outs." The European Central Bank is "looking increasingly vulnerable" and may face "hefty losses" as a result of propping up indebted eurozone countries, a leading think-tank has warned. The International Monetary Fund’s partner in the recent international bail-out missions is itself in danger of becoming a liability, Open Europe has argued. In a report published on Monday entitled A House Built on Sand? Open Europe has calculated that the ECB has a total exposure of about €444Bn ($640Bn) to "struggling Eurozone economies".
The bank is now "23 to 24 times levered" as a result of bailing out Greece, Ireland, Portugal and Spain. The London-based think tank argued: "Should the ECB see its assets fall by just 4.23pc in value . . . its entire capital base would be wiped out." Open Europe said: "Hefty losses for the ECB are no longer a remote risk." It added: "The ECB is ultimately underwritten by taxpayers which means there is a hidden – and potentially huge – cost of the eurozone crisis to taxpayers buried in the ECB’s books."
Needless to say – let’s be careful out there. Any rally based on a strong Euro and a weak dollar should be considered highly suspect to say the least!