Faith is a tricky thing.
Faith is easily shaken but hard to extinguish completely. Clearly investors have faith that the EU crisis CAN be solved, hence the strong reaction to "good" news out of Europe. But then, all it takes is a single naysayer and all but the most faithful lose their resolve while the whipsaw nature of the market punishes those who try to hold fast against the panicked crowds.
We have faith in our trading range but we PRAY that is gets broken – as it would be better for the Global Economy if we are able to make some progress in the markets. C had decent earnings, BAC made $5.9Bn last quarter (although really from a sale of their shares of China Construction Bank) – both have been priced for bankruptcy and I still think XLF ($12.20) is one of the best bargains in the market and you can play them through earnings with the Nov $11/12 bull call spread at .72, selling the $12 puts for .55 for net .17 on the $1 spread with a 488% upside if XLF just holds $12 through earnings season.
Matt McCormick had a great quote on BAC this morning:
"I think there’s a tremendous value opportunity in Bank of America shares, but it’s only for people with strong stomachs. I don’t have a strong stomach so I’m not going to buy it."
I was just telling Members in Chat this morning to keep the faith because charts can be deceiving – especially when you only look at ones that are priced in Dollars:
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See – priced in Oil, Gold, Silver or Copper that S&P chart is looking pretty damned strong, isn’t it? Priced in Euros, we also have strong support from a rising 50 dma and, according to our own 5% rule, we’re not bearish off the 125-point run until we get a 25-point pullback and we’re not there yet. In any case, we’re certainly going to give the S&P some leeway down to the 50 dma at 1,173, which is our -5% line on the Big Chart. Even if we "only" establish that as a new floor – it will be nice progress into earnings season.
We nailed it on the bear side yesterday with our Dow Futures shorts, which didn’t give us a reason to stop out until 11,400 (up $1,000 per contract) and you could have caught most of that from the morning post, even if you didn’t catch it in Member Chat earlier that morning. By the day’s end, we flipped to the bullish TNA Oct (Friday) $38/40 bull call spread at $1.20, offset with the sale of OIH Oct $113 puts at $1.25 for a net .05 credit on the $2 spread. We took a small stab at DIA Oct $115 calls at .95 but stopped out of those with a dime loss in the $25KP, which really didn’t need another bullish position – it just seemed like a good deal at the time.
The big news today is the 0.8% rise in September’s PPI (CPI is tomorrow, Doug Short’s chart above), 300% higher than forecast (0.2%) by leading Economorons, who really must be on a totally different planet than ours to be this clueless. Please MSM – there are Millions of people out of work – surely you can find random people who are better at predicting than the "expert forecasters" you continue to embarrass yourselves with week after week…
Not to worry though, our "core" PPI is just 0.2%, which is only double what the Economorons predicted and that’s good news for all the people who live without food or energy. We talked about the inevitable inflation in yesterday’s post so I won’t rehash it here and it’s no fun saying "nya, nya – I told you so" when it’s only 24 hours later so let’s just move on and enjoy the drop in TLT off our $118 target and the rise in the markets as Global Investors scramble back to equities to hedge against the devaluation of everything else.
UK Inflation came in at 0.6% in September and is running at a rate of 5.2% for the year and their "QEQE2" program is just getting underway. At the same time as we have runaway inflation in the US, Europe and Asia (did I mention China?) while, at the same time, the CTFC is voting on curbing commodity speculation.
So, as I often point out to bearish Members – where else are people going to put their money if not into US equities? If inflation is real, then 10-year notes that yield 3.5% are NOT the answer unless you plan on saving $100,000 for every $50,000 you plan to spend next decade. Only stocks (see yesterday’s list for a few ideas) are going to give you a proper, dynamic hedge against inflation as real companies make MORE money when prices go up and that makes their shares MORE valuable – keeping pace with inflation.
Don’t forget, dividends also rise as profits rise and most companies fix a rate of return to the price of a share so they too, tend to go up with inflation. And, for those of us fortunate enough to know how to play the options game – inflation is our friend too as it takes the risk out of our buy/writes and overpays us on long calls and bullish spreads as we can vastly outpace almost any rate of ordinary interest through option sales.
So let’s see what holds up today and enjoy the ride. Hopefully yesterday was simply the pause that refreshes and not another dip back towards our range as it’s already October 18th and another 4 week down and up cycle would take us pretty much to Thanksgiving – and that would be a bit late for our expected Santa Clause Rally so it could be now or never for the Bulls if they want to see 1,250 to 1,300 by the year’s end.
