What fun this is!
Yesterday, in the morning post, I set our goal for the Dow at 11,340, which was the 5% move off the 10,800 line. That lined up right around with 1,200 on the S&P which, as you can see from Dave Fry’s chart, we popped through on that wild closing run but then failed again on that wild closing drop in a very, very silly last hour of trading.
Fortunately, at 3:50 in Member Chat, I put up 3 hedges using TZA, SDS and UUP but they were light hedges that are fully offset by bullish balances like shorting the RIMM Oct $26 puts for $1.30 or shorting EWG Oct $15 puts for .35 to cover the cost of the spread. That way, if the markets keep going up – the insurance is free. If the markets go down…. Well, you’d better REALLY want to be long on EWG or RIMM but, when we are "Cashy and Cautious" we’re always looking for some long-term opportunities so these protections are like killing two birds with one stone as they protect our bullish bets AND set us up for a new, cheap entry.
When you wake up in the morning and you’re not sure if you want the market to go up or down because you have some exciting gains to look forward to in either direction – you are well-balanced! At 2:06 we shorted TLT aggressively at $113 (still a good trade), at 1:53 we added very aggressive trade ideas on the Russell with the IWM Sept $70/71 bull call spread at .60, selling the $70 puts for $1, a net .40 credit which makes $1.40 (350%) if the Russell can hit 710 or more at tomorrow’s close. We also picked the TNA Sept $42/45 bull call spread at $1.45, selling RIMM (earnings tonight!) Sept $27.50 puts for $1 for a net .45 entry. In both of those trades, we will, of course, stop out if the Russell fails to hold yesterday’s goal of 700 and that’s all going to depend on whether or not the Dollar holds 77 today.
As noted above, our goal for Thursday it to take and hold S&P 1,200. We don’t need a big day, we just need consolidation up around these levels to prove we’re in the right place. The Financials are still our biggest worry and we have a lot of heavy, bullish betting in that sector that we hold the $12.50 line with both our FAS Money trade as well as our $25,000 Portfolio, which I just finished a full review of this morning.
The Fed begins their 2-day meeting next Tuesday, when it’s QE3 or BUST on Wednesday afternoon (another reason to pick up some hedges, no matter how bullish you are). Meanwhile, today is a data-palooza, with CPI, Empire State Manufacturing and Unemployment coming up at 8:30. That’s followed by Industrial Production at 9:15, the Philly Fed at 9:15 and, at the end of the day, we get a peek at the Fed’s Balance Sheet and statistics on the Money Supply, which was up 21% since August of 2009 at last report.
All that money sloshing around leads to a lot of risk-taking on the part of the Banksters who are swimming in it (with $1.6Tn of excess reserves at last count) and, in shades of 2008 again, a "rogue trader" at UBS seems to have lost $2Bn making "an unauthorized trade." This continues the amazing streak by the IBanks of 100 years without ever taking a loss on a trade that was actually authorized or made by a non-rogue trader.
Does Europe care? No, not at all. They are rocking AND rolling this morning with 2.5% gains heading into afternoon trading. After all, what’s $2Bn in the grand scheme of EU problems?
Spain sold €3.95B of eight and nine year notes at comparable yields to the last time it sold such paper. Demand was healthy, with bid-cover ratios varying depending on the exact note, but all coming in at 2:1 or greater. Yields are a bit higher in the secondary market, the 10 year up 6 bps at 5.41%. That’s helping the markets a lot.
Nonetheless, George Soros is calling for the creation of "a European treasury with the power to tax and therefore to borrow," as the ultimate solution to the debt crisis. This is a good trick because, by saying something is vitally needed that has no chance of passing, Soros can then spin the rejection of the idea as a Euro negative and clean up on his wagers. It’s like an oddmaker commenting on a Superbowl team and saying "If they are going to win this game they’d better have at least 3 400 pound guys on the line" – by setting a condition that can’t possibly happen, you push other bettors to put up money against the team – even though the actual play factors haven’t changed at all. Soros, like Murdoch, is a master manipulator of other investors…
8:30 Update: The usual 428,000 people lost their jobs last week but that trend is worse than expected so the Futures are not thrilled but still a bit up from yesterday’s close so far. Continuing Claims continue to trend down a bit but, more often than not – that number reflects people giving up on the Workforce (don’t forget NFP added ZERO jobs last month), rather than people finding suitable employment. The August CPI came in at an inflationary 0.4%, 100% higher than the 0.2% expected by Economorons at the Fed. Core CPI was still 0.2%, however so Bernanke is still in the game.
So the cost of stuff went up 0.4% and 428,000 people lost their paychecks while August Real Earnings FELL 0.6% – that’s a net 1% drop in spending power in just one month! It’s even worse when you look at weekly earnings instead of hourly, as those are down 0.8% in August. Also depressing is the September Empire State Manufacturing Survey, which came in at NEGATIVE 8.82, also 100% WORSE than the -4% expected by clueless Economorons.
Does this mean we should SELLSELLSELL? No silly – it’s BUYBUYBUY because "Job Creators" have increased the spread of what they pay workers to what they charge for their stuff by over 1% in a single month. There are 130M people left in this country who have jobs and 428,000 of them don’t anymore and that’s down 0.3% but the remaining 129,572,000 working people will pay 1% more for a net gain of 0.7% more revenues AND, best of all, those 428,000 jobless people will STILL buy some stuff so not even the whole 0.3% is lost. It’s a WINWINWIN for Corporate America!
Although the Global situation hasn’t changed a bit, we find ourselves still pretty bullish but we will keep pushing up our levels (as planned) as we make progress and we are ready to flip bearish at the drop of a hat (we only have to buy back our bullish offsets and we’re instantly way more bearish). We’ll certainly be angling to hedge back near neutral into the weekend and then next week is going to be a real thrill-ride as Greece boils over in the EU this weekend and Bernanke steps up to the plate on Wednesday.
The key to today is getting the Dollar below that 77 line – if we can do that, the S&P should have no trouble taking back 1,200 and, at that point, China will have to wake up (we went long FXI yesterday in our $25KP, but will pull it if we don’t hold 1,200) and do a little bottom-fishing of their own. We still have Industrial Production at 9:15 but scared workers are usually productive workers so that’s not going to be a big deal compared to the Philly Fed at 10 am but we already got past TERRIBLE Empire State numbers and I doubt Philadelphia will be much worse and if it’s better – then RALLY FUEL!
Strap in for a wild one folks…