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Will We Hold It Wednesday – S&P 1,360 Edition

Wheeeeeeeeee!

Isn't this fun?  We've been having a good old time watching our levels get tested and, as you can see from our fabulous Big Chart – we spiked down to EXACTLY the lines we predicted on the Dow, NYSE and the Russell – all on the same day at the same time, almost to the penny – that's pretty good predicting! 

The Nasdaq and the S&P went below but came back above their 5% lines but it's the S&P we were focused on in yesterday's post when I said it would be "1,360 or Bust" and the S&P was not fooling any of us with that BS move back up in the afternoon.   As I said to Members in Chat at 3:24:  

Holy crap – S&P flying up to 1,360 in Futures – index is back to 1,362 as it gains 10 points since 2:15!   For perspective, yesterday the S&P was at 1,360 in the Futures at 10:30 and took until 1:30 to get to 1,370.  Oh, and did I mention that it then dropped to 1,345 this morning? 

Moral of the story – CASH IS KING – this is a very BS market and these moves are crap.  All that matters is whether or not they can establish a breaking up TREND that last more than 2 days – other than that, all this intra-day nonsense is just noise. 

SPY 5 MINUTENot at all surprisingly, the S&P Futures are down over half a point this morning but we are testing the bottom of our bullish range and we're now at the point where we do expect a little Government/Fed intervention – if not from our own Bernank or do-nothing Congress, then perhaps from the EU, BOJ or PBOC – so many cooks to spoil the broth that we had to take some bearish profits off the table yesterday and move to more cash.   

PCLN was one of the short plays we cashed in as they had such a good sell-off pre-earnings (tonight) that we didn't want to risk the uncertainty.  The July $620 puts that we picked up at $13.11 (see 5/2 post's position updates) shot up to $22.50 and you don't have to offer us a 50%+ gain more than once to get us to take it and run.  

Our bearish positioning we also closed our short positions in the Financials, which we may regret today but, if XLF can't hold $15, then our previous shorts were not aggressive enough and we'll have to add more for the next leg down anyway.  

On the whole, the virtual $25,000 Portfolio we began for Members in January has now doubled up halfway through month 5 and we were THRILLED to get more cashy – especially when that cash is twice as much as we began the year with.  We took the bullish money and ran on 5/2 (see same post, where the $25KP was only up $15,098 at the time), which left us very aggressively bearish at what turned out to be an opportune moment as the S&P has dropped 50 points since then.  Looking at that post, I am liking my comment to Members during the last days of April (Friday, 27th) from the morning Alert:

I still just want to short everything.  My only reaction on Monday if we open down 500 points will be to kick myself for not shorting the crap out of this rally but it's just too crazy to make uni-directional bets.  It's the last week in April next week and if the "sell in May" crowd want to exit at good prices – this is exactly what they need to do – spark a BS rally, have Cramer scream BUYBUYBUY until the retailers think they are missing out and then, when the sheeple move in – the funds move out, right on schedule in May.

IYR WEEKLYNow the Dow is down those 500 points and we did, fortunately, short the crap out of the rally as we had a couple of extra days in early May before it all hit the fan – pretty much exactly following the script we expected.  Now we'll be looking to switch to fresh downside horses (see Long Put List in Stock World Weekly) like IYR, which Dave Fry notes he is long on but we're seeing it as a nice potential short for the same reasons he is concerned – rising rates.  

What makes a good Long Put candidate is mainly to pick a stock or an ETF that you don't think will go up much more or has a clearly defined breakout point where you can exit without too much damage.  Then you pick a strike and a time-frame that gives your play a chance to develop.  In the case of IYR, we think the entire move up from $60 to $64 in a month was nothing more than QE Madness so we can give it two months to reverse by picking up the June $63 puts for $1.10, which could be worth $3 if IYR pulls back to $60.  

Setting a stop on that trade at .60 risks .50 to maybe make $2 – a good risk/reward ratio on a very fresh downside horse – one that hasn't even come out of the barn yet!  A less aggressive stop would be using 3 of our 5 Must Hold lines as your stop – no reason to give up 50 cents when we have very clear recovery signals built right into our Big Chart that will let us know when the markets are ready to come back – just don't count on it happening too soon!  

Speaking of rates – Spanish bond yields popped over 6% this morning on the 10-year notes but even more scary (for Spain) is the 2-year notes hitting 3.57%, 140 bps higher than February's LTRO price which means the banks that jumped in on the EU "bailout" to buy Spanish Bonds are now facing massive losses on their paper (see our April 13th and April 15th warnings on this).  This does not bode well for other PIIGS as they look to move paper to banks who have now been burned twice (Greece and Spain).  In fact, the lead PIIG, Portugal, is already paying a whopping 11.47% on 10-year notes – and that is AFTER being backed by the ECB!  Can you say – DISASTER?

Disaster is the right word for Spain's market this morning – down a whopping 3.5% but not on the debt news – this is about the Government announcing they will force their banks to recognize and provision for the extent of their real estate losses – just like the US refuses to do!  Another reason we are short IYR is the "mark to fantasy" bubble that Commercial Real Estate is still in in this country and THAT is how news happening in Spain can affect our investment decisions in the US – even if our Government continues to allow our Banksters to extend and pretend on their balance sheets – investors will begin to question who else is sitting on Spanish-style time bombs.  

And let's not forget Greece!  Greece is still the word in Europe (as it was in Feb 2010, when I began warning about it) as Alexis Tsipras of Greece’s Syriza party squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they want to enter government. Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Samaras and Venizelos rejected the request. Samaras said he was being asked “to put my signature to the destruction of Greece.” “He interprets, with unbelievable arrogance, the election result as a mandate to drag the country into chaos,” Samaras said.

Wow is this going to be exciting!  


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  1. threeputt

    Congrats on the double in the 25KP!!

  2. Pharmboy

    PP for today:

  3. jthoma

    I guess all those who sold dollars yesterday afternoon decided they wanted them back this morning- LOL!

  4. 1020

    Good Morning!
     
    Phil, now that you're home, can we expect new highs in the market the next week or so?….  ;)

  5. stjeanluc

    Oil lines:

    R3 – 100.24
    R2 – 99.06
    R1 – 97.81
    PP – 96.66
    S1 – 95.38
    S2 – 94.23
    S3 – 92.95

  6. stjeanluc

    After cashing a lot of shorts yesterday (and it was the right thing to do in that sell-off) I am afraid we are going to be too long in the portfolios… 

    Looks pretty bad out there!

  7. jerconn

    Phil – methinks Silver is approaching buying territory – what say you to an AGQ play?

  8. jthoma

    Phil- I bought TZA weeklies yesterday near the close- the 19 call- would it make sense to see the weekly 20 on the open to take in the premium for 2 1/2 days as I am not worried about big rally?

  9. rustle123

    Cramer was screaming last night that people shouldn't panic out of stocks and he doesn't understand why people would sell any stock when the market comes down.  Ironically, he was panicking while he was begging people to buy, buy, buy and pleeeeeezzzee don't sell.

  10. jthoma

    woops- sell not see

  11. stjeanluc

    Today's numbers:

    Japan Leading Index / 96.6 (96.9 expected)
    German Trade Balance / €17.4 Bn (€14.3 Bn expected)

  12. stjeanluc

    What's behind most people's financial crisis…

    http://bucks.blogs.nytimes.com/2012/05/07/hope-stupidity-and-other-causes-of-your-own-financial-crises/

  13. morxlntway

    IYR puts 1.30. Chase?

  14. kustomz

    Fed will be all over the wires today…FU FED!

  15. Pharmboy

    AGQ/jerconn – I would wait until GLD hits 152ish then look at the chart.  I don't see metals moving up anytime soon.

  16. stjeanluc

  17. stjeanluc

    Phil – Should we balance the IWM position?

  18. jfawcett

    DIA Long Puts – Started at the May 124's, rolled, then rolled again to the Jun 129.  Never let the trade lose 50% before rolling.  I sold into the market  loss this morning for a small profit on the entire trade.  The education was priceless.  Thanks Phil and others on the board for the education on the proper rolling mechanics.

  19. jerconn

    Pharm, yeah thanks, I was thinking something like $26 on silver, maybe around the time gold hits 1552…

  20. stjeanluc

    We still have the SQQQ BCS in this portfolio and today is a good day to close it! Maybe we can take the money and run for the DMND calls!

  21. dpastramas

    Dilemma: push up more shorts or wait? are we reaching the bottom any time soon?

  22. stjeanluc

    FAS and BBY burning big holes in our pockets – taking $4K from us! BBY better have good earnings…

  23. scottmi

    DIA – think we hit the LOD already?

  24. stjeanluc

    Your next move Phil…

    http://www.betabeat.com/2012/05/07/follow-the-money-on-covestor-copycat-traders-buy-sell-and-hold-automatically-as-mirror-trading-takes-off/

     

    A few years ago, Covestor pivoted to emphasize an even weirder business: mirror trading. In addition to merely watching Mr. Sykes make his millions from his Columbus Circle apartment, one can share the wealth by automatically mirroring his moves. Just as television made celebrities out of Jim Cramer and other prognosticators with good cadence, Covestor hopes to make stars out of any old schmucks who prove they can beat the Street.

    The Boston-based research firm Aite Group named “copy trading” one of the top ten trends in wealth management in a 2012 report, perhaps because Covestor is just one of many companies allowing such investing. Los Angeles-based Ditto Trade launched in 2010. CurrenseeeToroand other sites support mirror trading for currency traders.

  25. kevinb63v

    Phi,
      Do you have any recommendations for scaling into stocks in portfolios that lack options ability, other than, I would guess, CHK?

  26. lolobear

    PCLN – when all the companies in this space are reporting good results, why would Priceline be any different? I just don't understand why alot of people are short.  We'll see tonight I guess.

  27. yodi

    Phil Yesterday you picked me out for not adjusting long calls before the 50% down. 
    ABX in March I rolled the call already down to 40c at 8.42 now 5.05 where do you roll from here? OK still hold the the Jan 13 caller sold for 3.95 now down to .55 so there it looks still even Steven. TIA

  28. jfawcett

    Phil / SDS – Been in this too long!  Any advice on 200 shares at a 10% loss (currently)?  Cut my losses?  Other options? TIA

  29. jabobeast

    lolo—people are short because the stock has flown to what the shorts hope is nosebleed levels (I know Phil--hope isn't a good investment thesis). It is similar to being short CMG into earnings when it was at ~~~$430. The shorts could be wrong but so could the longs who have pumped this POS up 50+% in such a short time.
    Personally, I think their website sucks and their competitors will eventually hurt them. Their current price assumes that they will be able to grow and grow and grow without any hiccups. Also, Europe has been their main source of $$$ I can't see that being a positive (will CHina save them)? Lastly, they might also be hurt by currency rates.
     
    I don't see why people would risk being long after the huge run?
     
    we will see in 6 hours I guess… 

  30. 8800

    Phil,
    Can't access SWW (am directed back to today's cmntry)- any other source for current put list?
    Thanks

  31. kustomz

    BBG says they may delay payment to Greece

  32. rainman

    From yesterday:
    3:33 PM A sophisticated cyberattack intended to gain access to U.S. natural gas pipelines has been under way for several months, the Department of Homeland Security warns, raising concerns that vital infrastructure could be vulnerable to hackers. No clue about the source or motive is offered, but one possibility is an attempt to access information about flows to use in commodities trading. (Read the comments on this)

  33. newt

    CHK: I am short the July $20 Put and in keeping in the spirit of tutelage, what a good work around on this position?
    Thanks in advance.

  34. scottmi

    DIA – i guess not..!

  35. angelcur

     i dont see how this doesnt get really messy….this is one of those periods where the bad news is overwhelming the system…so much traders cant keep track

  36. rainman

    WFR — Ouch.

  37. jomptien

    jfawcett/SDS,
    If you want out, maybe sell some calls good price for them today

  38. Phil

    Good morning!

    It is so nice to be home with all my screens – that's the only thing I don't like about traveling, I can't take my whole command center with me.  Of course, compared to what things were like just 10 years ago – I now have more power on the road than I had at home in 2002 so I really can't complain.  Between Siri, Mark II and my Google glasses – I should have everything I need to take with me in a year or two.

    So far, we're just double-testing yesterday's lows so we'll see how much conviction our dip buyers really have.  The Dollar is way up at 80.40 vs 80 at yesterday's lows with the Euro at 1.2912 and the Pound at $1.609 with just 79.57 Yen to the Dollar and EUR/CHF at $1.2009 so you know the SNB is going to be turning on the pumps down here.  The Nikkei is down to 8980 and that's down 250 from Monday's open and I don't think the BOJ knows what to do with themselves at this point.  

    Oil is heading to $95 and $95 is so bouncy I'm not liking oil shorts here and I do like a long on (/CL) over the $95 line.  Gold is a fail at $1,584 with $1,580 a critical line to watch.  Silver is $28.85 and someone asked earlier and no, I would not buy it at this price or at $25 but maybe at $22.50.  Copper is another fail at $3.62, nat gas is $2.45 – the star of the commodity sector but it's not helping CHK – down at $16.35.   Gasoline failed to take back $3 so far but $2.99 is a big move off yesterday's $2.94 bottom.  

    The VIX is heading back to 21 and that makes me wonder what the volatility of the VIX itself is at this point as it's been up and down about 10-15% a day for the past week.  

    Cummulative Inflation by DecadeTLT is at 119.75 and that's panic folks – who in their right mind would buy a 20-year note at 3.375% if they weren't expecting the Global economy to collapse?  That would, of compounded, make $1,000 about $1,944 after 20 years.  Not since the Great Depression has that kind of return kept up with inflation over 2 decades:

    Still, today is about watching and seeing if they can hold that line on the S&P (already a fail at 1,351) and then 12,800 on the Dow would confirm a failure, as will 775 on the RUT.

    Meanwhile, AAPL once again is down at our buy point ($550) – or close enough to sell some puts if you are long-term bullish.  Just because the Global economy may be collapsing, doesn't mean people won't buy IStuff long-term….

    We're not there yet but I am tempted to buy some things for the first time in ages.  As usual, XLF is always my favorite but they, like everything else, can go much, much lower if Europe continues to free-fall so, like the Fall of 2008 – it is prudent to let the market show us a real bottom and not try to jump in and be the heroes who try to save the markets by guessing the bottom.  

    Cash is still king – especially as we have a lovely double in our $25KP and we're not sure which way things will go so we watch and we wait for a clear signal.  The 10-year note auction is at 1pm and there's a 30-year auction tomorrow but, after that, it's a good time for more QE talk and the Bernank speaks at 9:30 tomorrow morning followed by two speeches by Kocherlakota in the afternoon.  The BOE also has an announcement tomorrow morning and we get a lot of data out of China on Friday and expectations are now down enough where they could beat them.

    So it's a good week for us to turn around – I'm not saying we will but I am saying that, if we are in a genuine bullish rally, then this (so far) is an ordinary correction that can be swiftly reversed as no technical damage has been done yet – we're merely back to consolidating around our Must Hold lines, which were our old breakout lines so anything up here is bullish in the long-term picture.  

    What we really need is a panic bottom with big volume – we haven't had that yet but conditions are ripe for it.  We're still not back to 775 on the RUT, which would go with 7,750 on the NYSE and we're right on that line (7,766) so let's watch that for a failure.  2,900 is still holding on the Nas and the Dow was at 12,700 on 4/10 so we're not too impressed by 12,776 at the moment from a bearish perspective.  The other indexes are lower than they were on 4/10 but the Dow has been lagging for a long time so they are just catching up to reality – which is not as good as the MSM would have had us believe.  

    Europe is not down as much as we are – we are simply catching up to them now and I'll try to do a multi-chart later so we can get a big picture of what's going on.

    Meanwhile, this is early-stage panic and it's a good opportunity to go long on a few things like CHK, CSCO, AAPL, GLW, GNW, FTR, FCX, AA, BA, BAC, GMCR (yes, I said it!), HOV, HPQ, OIH, SVU, WFR…  You get the idea.  It's a good time to sell puts against stocks you REALLY want to own if they drop another 20% – just in case they don't!  

    Woops, 10:30 already.  Big build in oil – 3.7Mb but gasoline down 2.6Mb and distillates down 3.3Mb so a net draw is bullish for oil – game on for long /CL plays and that should give us a bit of a bottom overall! 

  39. rainman

    Looks like a 10:30 bottom (again).

  40. scottmi

    KGC – looks like a good earnings report, but clobbered some more. it is really NOT feeling the love.

  41. stjeanluc

    That does seem to make sense:

    http://ftalphaville.ft.com/blog/2012/05/09/992321/think-sustainable-end-quarterly-reporting/

    We are way to focused on short term results!

  42. rainman

    SVU — buy write short the Jan 5p/c for $1.90 looks tasty.

  43. 1020

    A good sign of things to come?
     
    http://www.politico.com/news/stories/0512/76072.html

  44. Inkarri1982

    CQB – OUCH!!!

  45. stjeanluc

    XLF / Phil – From what I read in Europe I would not rush in the financial sector just yet. There is way too much still hiding and the small glimpses that we see are painting a pretty picture. Just today Le Monde was reporting that fixing Dexia (de-facto own by France and Belgium) would cost the French taxpayers about 20 Bn euros. And Dexia has 400 Bn euros in assets. Who knows what's really in there!

  46. ksone88

     
    Phil/SODA- any short play on that crazy move up.  

  47. nicha

    rainman – at work today so can’t look at charts. Can u pls give me a trade on FCX and BA for selling short puts? Thanks.

  48. stjeanluc

    That's a pretty telling chart:

    http://tpmdc.talkingpointsmemo.com/2012/05/obama-big-government-reagan-bush.php

    In previous recessions federal and local government actually hired more people – this time we cut thousands of jobs. Without local austerity the job picture would mirror nicely what happened in the past. 

    But broadly, the unemployment rate would be significantly lower than it is in the absence of the past three years’ public-sector job losses, which in turn were the direct consequence of the austerity Republicans at the state and federal level demanded.

    I guess that was a feature, not a bug!

  49. nicha

    rain – looking at stockcharts, I am thinking Jan $27 for FCX and Jan $57 for BA.

  50. kinkistyle

    Looks like MT is trading in the $15's again.  Dividend yield is at 4.6%

  51. stjeanluc

    To further the previous point:

    Had government stepped in like they did in previous recessions, unemployment would be under 7% today!

  52. kustomz

    GS low of the day 106.66…hmmm

  53. lolobear

    Another chartist rings in with AAPL prediction…
    http://blogs.barrons.com/techtraderdaily/2012/05/09/apple-merlin-chartist-sees-fall-to-527/?mod=yahoobarrons

  54. jabobeast

    FU PCLN!!!

  55. dpastramas

    PCLN / Jabo – Today is judgement day. Hang in there

  56. stjeanluc

    Save some FU for tonight Jabo… just in case they post good numbers!

  57. zeroxzero

    Stj:  Hollande and Merkel are reportedly negotiating a "growth pact."  Any idea where that goes?

  58. rainman

    Nicha — BA: Assuming a long term hold view — Jan $57.50's are only paying $1.71 (3.5% on cash cover) and are a long way down with BA at $74. $65's at $3.15 look better to me but still a bit cheap. If you use $65 as a support then the $70's at $4.80 would be my choice (break even at support and roll to he $57-58 level). That's a little under 1%/month which is what I'd consider a decent way to park cash. I'm usually looking shorter term and for about 2%/month. Shorter term I'd shoot for the Aug $72.50's @3.15 assuming the upward trend holds, or support at 72.50 holds or we get a bounce on the 200 DMA ($69.50)
     
    FCX — Same sort of logic would put me in the Jan $32's @3.30 which would get you 10%+ (1%+/month) that assumes the $28-30 level holds.  Shorter term I'd go for the Aug $34's at $2.32 assuming the $32 will hold. That'll get you about 7% in 3 months or the 2%+  I'm usually looking for.

  59. Pharmboy

    MRX beat nicely….those sold puts are, well, money in the bank.  I do like them as a takeover candidate for VRX, GSK, AGN or someone who wants to expand into specialized derm medicine…it really fits right up VRX's alley.

  60. exec

    I put an order in to sell puts on schwab lower than the current ask.  My price never showed up in level two.  Has anyone ever seen this before or know why this happens?

  61. jabobeast

    thanks dpast..
     
    stjean--hoping and praying that the FU turns into a thank you!

  62. Pharmboy

    Michelle Bachman – see ya!

  63. dpastramas

    PCLN / Jabo – Even if they beat today, i dont see how on earth they can keep current guidance going forward.  Europe (50% of their revenue) is in recession.  And then BAM we will spank it short!! Thats the game plan :-)

  64. rainman

    MCD trying to get some CMG customers back:
    6:49 AM McDonald's (MCD) and Coca-Cola (KO) plan to launch a fruit soda called Fruitizz in the U.K. The grapes, apples, raspberry, and fizzy water concoction falls in line with McDonald's goal to offer healthier products and could see a U.S. debut later this year. Unlike most of its drinks, Coca-Cola will distribute the drink – but not brand or market the product. (Read the comments on this)

  65. Pharmboy

    Wow, SGEN, THAT is a recovery….can you say that someone wants in?  Big buying at the open.

  66. Phil

    Sorry but SWW is in a revamp (anyone interested in writing or editing should let me know, by the way).  Last adjustments to Long Put List was 4/19 chat and that's the list that was in SWW that weekend.  I do not advocate chasing at the moment, I advocate cash and keeping an eye out for other shorting opportunities IF the S&P fails to get back over 1,360 for the week.  

    Thanks 3Putt and congrats to all $25KP players.  

    When you make 100% in 5 months, the wise thing to do is take a vacation and recharge your perspective.  I just got back from mine so I'm going to keep making picks but keep in mind that the people who did the best in the $25KP were the ones who PATIENTLY waited for us to have positions that FAILED to do what we thought and came in only when we were doubling down or rolling.  There's nothing wrong with that – that's SMART!   We are very good at being in the right place (like short on PCLN) – it's being there at the right time that gets kind of tricky but this is an aggressive portfolio that we expect and enjoy scaling into positions with so we don't try to optimize the timing of our entries – we just take plays on both sides and we HOPE (not the best investing strategy) that we don't move too far up or too far down without a reversal.  Of course, none of that does you any good if you don't cash in on the moves that go your way!  

    New highs/1020 – I don't see any reason for new highs but hopefully I timed my return to hit the bottom of our expected range and now we can go back to looking for buying opportunities.  

    Too long/StJ – We're supposed to be too long at the bottom of our range, just like we were too short at the top.  If the range breaks – THEN we adjust our strategy but, if we time it right and we catch the wave right at the crest – we can put up huge numbers, like the groove the $10KP was in last summer/early fall.  

    PCLN/Jabob – Big change of sentiment on them which, of course, makes me nervous.  I'm done with them for now – very satisfied with yesterday's dip to $705, which was matched this morning and now they are matching the move back up – already at $721 again.  It's a silly Momo stock, we had our fun and now we'll move on to something else that is CLEARLY overbought, like SODA was this morning at $39 – WTF?  

    Silver/Jerconn – As above, I don't think silver is a bargain here.  I have to net in for $20 to be comfortable with them.  Gold is down at it's 18-month lows and for silver, that would be $27.50 non-spike and $26.15 on two spikes down.  If you want to be aggressive on silver, THAT can be your floor but I certainly don't find $29 thrilling, especially if you are going ride that crazy ultra.  

    TZA/Jthom – Why not just take the money and run?  We're so close to the bottom (that we expect) on the RUT that you should be thrilled to have gotten this morning's sell-off and be done with it on the super-volatile weeklies.  

    Don't sell/Rustle – That has been the mantra on CNBC while the market has sold off for the past week.  It's such blatant manipulation of the Retail Investor that it would seem shocking that the Government doesn't do anything about it but then we remember that our Government is also just a tool of Big Business and everything is actually working exactly as it should be – which is why we are buying the F'ing dips this morning – we have to assume the same old tricks will work again – until they don't.  

    IYR/Morx – No way would I chase a 20% move.  If they are sincere about going down, we  can consider a spread but $1.10 was cheap, $1.30 is not.  

    DIA/Jfaw – Nice job!  It's all about getting the experience to have the confidence to make the necessary moves.  Your non-greedy exit was perfect – learning that discipline is just as valuable as learning how to make the trades in the first place.  

    Dilemma/Dpast – We have our levels to watch.  If the Dow can't hold 12,800 and the S&P can't hold 1,350 and the Nas can't hold 2,900 and the NYSE can't hold 7,750 and the RUT can't hold 775 – THEN we have a lovely set of watch levels to make new shorts from.  Otherwise, it's statistically more rewarding to play for the bounce.   Remember a few weeks ago I was saying that Gozer would come and it was only a question of choosing the form of the Destructor?  It could have been anything that set the markets off – the bottom line is we were ready to fall and just needed that last straw.  Now we're testing the low end of that 10% range and it's now a question of what flag will be waved to stampede the bulls back in.  What really matters is what happens after that – will the Bulls route the bears or vs. vs – THAT is how we begin to form a clearer long-term picture.  

    DIA/Scott – 12,800 is our line, should hold on first test.  

    Covestor/StJ – I've spoken to them but they still don't do options and I'm not too fond of their model anyway.  Tim trades penny stocks and it's frankly very easy to make money trading penny stocks when you front-run trades that people follow you in and out of.  How that is legal is beyond my understanding but it's the basis of Covestor's business model.   Notice their best 90-day performance is 33% but that's just one guy, next is 19%, then 3 guys over 7% (out of 175) and by the 25th guy they are negative.  No thanks – I'll stick with our humble little portfolios…

    Scaling/Kevin – For what reason can you not sell puts to initiate entries?  Even in an IRA you can do that.  Scaling into straight stocks is simply buying from that list I have and then just keep very tight stops on them if this does not turn out to be the bottom we we expect.  In other words, AA is $9.19 but was $9 on the dot earlier.  You WAIT PATIENTLY for a line like that to be tested and you buy your AA and you put a stop at $8.95 because, if $9 doesn't hold your premise is blown so why stay in it?  If a stock isn't going to bounce off support – then it isn't strong.  It may break below it and then come back up – like our indexes are doing this morning – but it's the same thing – that support line is your entry point for a bullish play – like XLF $15 at the moment or CSCO $19 or BAC $7.75…  

    Is anyone else having deja vu from yesterday's move up?  It was around the same time for the same no particular reason.  All seems like one big day to me as I left Vegas when the market closed, flew home, went to sleep and woke up and the markets were open again, doing the same thing as they did yesterday morning (but without the pre-market pump).

  67. Pharmboy

    I have the SGEN 22.5 May calls, and now I am buying gambling money 20 May calls.  I also have the June 20/25 Bull calls spread and lots of sold puts.  Something is up with this company…..

  68. stjeanluc

    Hollande-Merkel / Zero – There was talk about freeing up 200 Bn euros but based on what we heard yesterday it seems that there is little chance of getting anything done. 

    Keep in mind that Hollande doesn't have much incentive to negotiate anything in the coming month. There are congressional elections in one month and he wants to keep his stance strong until then to make sure he keeps his electorate happy. Not winning congress would mean having to govern with a prime minister from Sarkozy's old party.

  69. jrod0725

    I'm only up $1,600 (down $4K with commissions) in the 25KP because I didn't take some of the naked trades. FAS was one that would've ate up too much buying power in my TOS account. Still fun to watch and learning a ton. Would be nice to have a double!

  70. nicha

    rain – thanks. Good logic!

  71. qcmike

    Pharmboy
    what would be a new trade on SGEN  ?
     
    Thanks

  72. dpastramas

    Since we are sharing, i am down 20K since Jan on the 25$K :-( .  The first early trades killed me and then i didnt have the margin to follow the successful one.  Hopefully will recover the 2nd half of the year! 

  73. Pharmboy

    SGEN/qc – Depends upon appetite risk.  Sept $15/20 BCS, Selling the 17.5 Ps for $1.30 on the $5 spread that is all ITM on the BCS.  Stock with the Sept $20 Calls and puts is good as well.  I would do the latter for a 1/4 entry.

     

    Look at that candle on SGEN….I am pissed that I was driving and missed that move.

  74. sagemm1

    dpast, Jrod…down 8k in 25kp same margin issues…To be fair I did not know that we needed huge or as Phil says unlimited margin behind that account sonce it is ultra aggressive I walled it off in case I lost it all so it sat as 25k with no extra margin behind it. Like Jrod it is a learning experience which I do appreciate, but not being able to short FAS killed me then it seems I took or made varients of my own trades and well you already know the results. We live and we learn

  75. stjeanluc

    $25KP / Jrod and Dpas – As Phil mentioned a couple of times, this is a very aggressive portfolio carved from a very large conventional one. We have made a lot of money being short the 3x ETF but they do require a lot of free margin even with PM. At one point we were up to $250K of margin required so not for the average investor!

  76. kustomz

    UK FTSE -0.5%
    French CAC -0.2%
    German DAX +0.4%
    Spain IBEX -2.6%
    Italy MIB -1.4%

  77. Burrben

    Money Power Wall St PT 4 was awesome.  I never really understood the whole reason Europe got involved and screwed until now.

  78. rainman

    Phil / deja vu — They bottomed earlier today so the could close green but otherwise feels about the same.

  79. dpastramas

    StJ / Hey no worries, as Sagem said we live we learn.  The lessons are invaluable.  Its a matter of time until i break even. 

  80. Pharmboy

    OK, now the gloves come off…..Greek Euro Exit.

  81. zeroxzero

    Stj:  Thank you, very helpful.  I hadn't focused on the parliamentary aspect of it.  Although why Hollande would not jump at the chance to scare the Germans into stimulative concessions immediately, which might actually help his party in parliamentary elections, is not clear to me. Follow up comment welcome.

  82. rainman

    Pharm / gloves — Don't need gloves when it was a first round KO.

  83. shadowfax

    Phil
    This seems to be a different way of making a change. I suspect the plan is to show a pattern of short at close and take a profit the next morning to catch active traders. I am waiting for it to stop and show a direction. IWM 78 changed from risistance to support in January, always turning back up. Is this time different? Feels like a trap. Add to that the fact that JRW disappears every time this happens.

  84. shadowfax

    Anyone else get their email hacked?

  85. Pharmboy

    SGEN 22.5 May calls…..they won't sell them to me for a nickel……hmm…

  86. dclark41

    Dpast
    They are hard lessons indeed. At one point all of us have been down that road of big losses. I have learned the art of balance. That is both good and bad. I don’t lose money but I don’t make much either. My results more match the 5 k portfolio rather than the 25 k. I have more work to do on my exits. I am really intent on not losing money so I don’t let winners run as long as I should. It’s all part of the process. I only hope that there is a market left when I finally learn how to produce profits consistently !

  87. stjeanluc

    Hollande / Zero – That was actually my point, Hollande will keep up the pressure on the Germans for at least another month until the elections (which will turnout to be maybe even more important than the presidential elections now even though the president can dissolve parliament when he wants) before conceding anything to the rest of Europe in the way of austerity. And Germany probably is well aware of the political games and is probably reluctant to play a role (such as humiliating Hollande) as it could actually backfire.

    Also, Hollande must feel some support from Spain, Portugal and to a lesser level Italy and Ireland. If they can keep a united front (big if) in the face of German imposed austerity maybe they can get some "bones" thrown their way. But don't expect much in a complex machinery such as Europe!

  88. aussie260

    Shadow – My daughter's Yahoo! mail account was hacked… 

  89. dpastramas

    dclark – I am exactly at the same mental situation. I am so afraid of losing money i am closing trades only for 50$ gain. Yesterday went long CAT for the bounce, could have made 1000$, but  at the first dip i sold it. Also today , went long DDM during the morning carnage, closed it 2mins ago for peanuts. It really requires nerves of steel. I need a couple of good trades to get my confidence back.

  90. yodi

    Burrden How is your ECA play working out mine looks super

  91. Pharmboy

    Trading different styles is very hard…..I would try to stick with two, long buy writes and swing trades, use Opts method…I have found it very profitable when the rules are followed.

     

    As for the FAS trades and margin, I use spreads up a few notches from trades here.  Margin intensive still, but not as much.  So for the $100s sold a few weeks ago, I did the 105/108.  Not nearly as profitable, but not as much of a nerves issue either.

  92. aussie260

    Back from Australia..and sure glad I had a TZA hedge in place while I was away!  
    Observations:
    Retailers, really struggling.  Many, many shops have closed since my last visit.  
    Gas was A$1.55/liter.
    Food prices, still expensive compared to US.  The good news is Costco has finally arrived in Sydney, bringing some competition to the supermarkets.
    High-end housing market way, way down and not selling.  
    Banks are aggressively chasing retail deposit funding, trying to reduce their reliance on offshore funds.  
    Still a fabulous place…enjoyed the beautiful Northern Beaches of Sydney, especially the warm sea temp compared to Northern California!!

  93. shadowfax

    aussie26
    The others I know were hotmail but 2 that I know of use Yahoo as a primary search engine. Bing can't find anything and google gives too much information and asks too many questions about personal stuff. This time it disabled my security center and that is more scary than the past hackings. I now never check mail on my trading computer and rarely follow links. 

  94. kevinb63v

    Phil,
    As always, thanks for the comprehensive answer. I can't use options in the portfolio because the account is a basic one for which the owner is reluctant to apply for option privileges.

  95. Canuck

    Phil/buy writes,
     
    do you like ECA and/or ERF at these levels?

  96. jfawcett

    Email – I use Bluehost for my personal email.  I try to stay away from yahoo, gmail, etc. for that very reason.  I have a gmail acct. for my Droid, AOL for everyone that I do not want to communicate with.  Bluehost costs me 100 a year for more accounts than I can use.  At least no one is coming to hack the account.

  97. Inkarri1982

    Pharm – Do you mind letting me know what pharm cos you like again?  Thank you very much.

  98. zeroxzero

    Aussie: Any opinion on AUD?  I have some 96s, cashed 1/4 of 'em already, scratching my head about downside targets.

  99. Pharmboy

    lnk – small, medium or big boys?

    Small – YMI, PLX, CRIS

    Midtier – SGEN, VRTX, MRX

    Big – MRK, GSK, NVS (only options here, as the dividend is not great).

  100. yodi

    Is Phil still alive on the board?

  101. Pharmboy

    LOL yodi….

  102. rperi

    I am in the same boat with margin, but I have used a combination of the 5K Portfolio ideas (especially trades that piggy back off the ones made in the 25KP), the IRA portfolio that scottmi has been posting, and the Income Portfolio, along with portfolio related hedges, and I am flat for the year (actually up about $400 inclusive of commissions), not including dividends, which are reinvested.  In this crazy market I am glad to be at this point, as none of my buy/writes have fully matured so I have confidence the portfolio will have grown by year's end, and a good part of my unrealized loses are short puts which I roll or accept assignment at some point. 
    Papertrading on the other hand has gone incredibly well with more aggressive trades.  I am up $29,000 using the initial $100,000 you are given, and I have followed much of the FAS trades and other agressive trades (sans AAPL and the Momos – I don't have the moxie for trading those yet).  I'm not flippant about the papertrading either.  My stomach sinks as much with a papertrading loss as with my own money… It takes some reflecting to realize this is a process, a lifelong process and dedication to make your life better.  Oh, and watching the Man Who Planted Trees about ten times hasn't hurt either.

    Question that might be for after hours – is the belief here that it is beneficial to reinvest all dividends, reinvest nothing and move forward with the cash, or only reinvest dividends from those stocks which are planned long term holds.  At times like now when Cash is King I struggle with deciding to keep the cash versus trying to turn my initial 1,000 shares of Coke stock into a $1 million plus over a lifetime of investing.

  103. Inkarri1982

    Thanks Pharm!

  104. shadowfax

    jafawcett
    That idea of small may have merrit. This time it wasn't my account hacked first, good news. What I wonder is are you safe when everyone else uses the big accounts. I don't get any spam so the filters work as they should.

  105. pat_swap

    Hi,
    How is the DDM May BCS 67/68 for 0.45 or 0.50 to make use of a bounce if it comes? Any other trade?
    Thanks.

  106. Inkarri1982

    Hello Phil – Just to confirm, the strategy here is to just wait and see how things shake out today and maybe over the next couple of days before initiating any longs(including the ones you posted earlier) correct?  TIA

  107. Phil

    PCLN/Lolo – The other companies make their money off booking, PCLN makes their money off empty rooms.  It's possible that less empty rooms or seats may impact PCLN negatively but they also have a regular booking section so earnings will be a wild-card and, at this point, I do hope they zoom up to $800 so we can short them again but $710 into earnings is outside my comfort zone to make a guess.  

    ABX/Yodi – Sorry, not picking but when you happen to say something that makes a good general example, I do have to make the general point (better to learn from others' mistakes than only from our own).  ABX I like long-term and I guess you mean the 2014 $40 call, now $5.50 against the Jan $52.50 caller, now .62 for net $4.90ish vs net $4.47 on entry so not only are you not down 50% on the spread but you are up!  This is the time to take advantage (assuming you are still long-term bullish) of the dip in ABX and spend $5 to roll your 2014 calls down $10 to the $30s ($10.40) and you can sell the 2013 $40 calls for $3.10 to pay for part of the roll but I'd just buy back the Jan $52.50 caller for now and see how it goes.  As long as ABX holds $37.50, there's no need to worry and maybe you'll get a chance to sell those calls for $5.  If they break lower, you can sell the 2014 $35s (now $7.60) and that would pay for you to roll down to the $20s (now $17.60) and then you'd be in the 2014 $20/35 bull call spread for about net $5.50 – is that a bad thing?    See how easy it is to make adjustments when you don't wait to be down more than 50%?  ;) 

    SDS/Jfaw – No capitulating at our target lows!  If you were scaling in, then you'd be saying "Phil I got in 200 shares of SDS 10% higher – is now a good time to hit the DD?"  See how much more fun that is?  I don't like owning those ultra-etfs due to decay but I'd certainly wait and see how we hold up at these levels for more than a day before giving up.  As to other options, I'd ditch the stock ($16.02) with your $1.70 loss or whatever and play for a big finish to the year with 4 Jan $13/17 bull call spreads at $1.65 and sell 2 $15 puts for $1.60 for net .85 on each $4 long spread so your upside is 400 x $3.15 ($1,260), which is much more than the $340 you lost and your worst case to the downside is you are back in SDS at net $16.45, which is no worse off than you are now except now you need SDS to hit $17.70 to break even and you're tying up $3,200 while that spread only uses $490 of cash.  

    CHK/Newt – July is a long time but nat gas may be free by then as the pipelines are stuffed to capacity.  The $20 puts are $3.90 and they can be rolled to Jan $17.50 puts, now $3.60 for .30 so, as long as you are comfortable owning CHK for net $16ish (depending on what you sold the puts for) and as long as that roll stays around .30, there's no pressure for you to do anything with the position.  What you should have is sort of a stop based on the roll price that keeps it under control.  Say if it goes over net .50 to do the roll, you need to consider it more strongly before it gets out of hand.  Looking further down the road – the 2014 $10 puts are $1.90 so you can roll those Jan $17.50 puts (if you get there) to 2x the 2014 $10 puts for better than even and if you are not THRILLED with the idea of owning 2x CHK at net under $10 – then why the hell didn't you stop out of this trade ages ago?  

    Focus/StJ – We who?  I agree 100% and am a big fan of LONG-term investing.  

    SVU/Rain – I love it.  We have A&P on the East Coast and they have been going bankrupt since I was a little kid – still make the best roast beef sandwiches…  Supermarkets are a crappy little business that goes up and down with food margins and those cycles are very long-term but the bottom line is they all buy the same food and generally have the same overhead so they all tend to survive these little downturns.  SVU has not missed a dividend payment since 1985 and, at .35 per share, that's 6.5% of $5.33 so buying the stock for that price and selling the 2014 $5 calls for $1.40 and the $3 puts for .65 gives you a net of $3.28/3.14, which is another 42% discount if it's ultimately put to you but you also collect a 10% dividend while you wait so, essentially, you have almost 60% off the current price by Jan 2014 or you are called away with about a 66% total profit (including .45 of dividends) – that's what I call tasty!  

    CQB/Ink – That seems a bit overdone.

    And DMND turns green again!  $23.47!!!

    XLF/StJ – I'm just waiting on the Fed now.  Things are finally so bad, they may actually be good.  If not, we scale in but $13.50 is a great floor for them to get super-aggressive anyway.  XLF could be a flight to relative safety as Europe gets worse too. 

    SODA/Ksone – Too late I think as they are back to $37.  The key is to make it a reflex to short a Momo when some news spikes them like that.   Today it was, of all thing, positive spin from Motley Fool, who call it a multi-bagger – which would make sense if he were saying it was so ugly you would need to put multiple bags over its head to be with it but they mean it can go up 3-5x, which is beyond insane but listen to the expert that sparked the rally – his Mom says he really knows his stuff!  Back-seat driving the trade, you could have sold the May $40 calls for $2.65 this morning – they are already back to .55 – all it takes is for you to have conviction that $40 is too much for a quick move like that based on a relatively minor increase in guidance, which is not the same thing at all as actually earning the money.

    Jobs/StJ – Yes, it's all part of the game.  When Bush was in office it was stimulus, tax cuts, stimulus, war, tax cuts, stimulus, tax breaks, more war and more stimulus.  As soon as Obama got in office, the Reps found their cost-cutting religion – but only as it applies to stimulus for non-Banksters.  Sickening, disgusting, reprehensible – maybe even treasonous behavior by Congress is one of the reasons I'm giving up in this country long-term.  There's nothing wrong with living in a Kleptocracy if you are on top and don't have a conscience about it – unfortunately I do and I can't see a clear way off the path we're on at the moment.  I intend to do what I can to change things but, ultimately, I think it's very important to have an escape plan – sort of like not waiting for your spread to be down 50% before getting out of the position…

    MT/Kinki – Good catch, we like them down here.  At $16.13 you can buy the stock and sell the 2014 $15 puts and calls for $7.60 for a net $8.53/11.77 entry, which is a nice 25% off if put to you and it makes that .64 dividend 7.5% of the net entry – not a bad fee to be paid to wait to see if you get called away with a 75% profit at almost 10% below the current price (which is lower than the 2009 lows).  

    GS/Kustomz – I gotta say it's uncanny how many times that number comes up around them.  

    Growth/ZZ – That's strange after what Merkel said today.  No idea what will come of it but it's the kind of happy talk we expect as World leaders rush to stop the markets from going off a cliff. 

    BA/Rain – My only criticism on those picks is I would take advantage of the high VIX and sell longer contracts now – just in case those prices are never offered again. 

    Schwab/Exec – Maybe they try to process them internally first?  IB does that (which is why I don't use them).  

    Oh no – Roubini is coming on CNBC!  I guess they are trying to spook investors out of the markets again – or will we see the Bullish Roubini today – that would be interesting…

    $25KP/Jrod – It's not meant to be a stand-alone with low margin.  That's more like the $5KP, which is pretty flat at the moment (actually up the same proportion you are up in your non-margin trading in the $25KP, which makes sense as many of those trades are mirrored).  Hopefully the main thing you learn is how important it is to build up the reserves in an account so you can use margins in your trading!  

    $25KP/Dpast, Sage – Same problem, you must have margin to make those trades.  Certainly I'd be more patient next time and wait for the trades we press, rather than jumping into new ones with limited buying and adjustment power.  As StJ points out, this is an aggressive carve-out to a large, SENSIBLE portfolio like the Income Portfolio and is meant to utilize margin that is otherwise sitting around doing nothing.  Trading like this with just $25K is suicide.  

    The way to trade $25K is to try to make $5K this year and $6K the next year and $7K and $9K and $10K etc until you have $100K and THEN you can take $10K and make aggressive margin plays with that portion of the $100K portfolio you are going for a sensible $20,000 on.  At that point, if your $10K doubles and the other $100K does it's job, you make $30K in a year and that's huge.   If the $10K is wiped out but you make the $20K on the sensible side – you still make $10K for the year, which is fine.   If you are not willing to put in the time it takes to get from $25K to $100K BEFORE you begin to get into aggressive trading – then you risk the same total loss of the aggressive portfolio but without the income coming in from the other side to balance it out.  That means you are simply playing Russian Roulette with your investment account  and all it will take is one bad spin and you're done – is that a good plan?

    If you have an income that drops $25K into your portfolio each year and you don't mind wasting a year – THEN you can be foolish with $25K but it's the same principle – you have a source of income that will more than pay for your gambling losses.  Other than that, it's just poor practice to take risks with money you can't afford to lose.  The harder it is for you to earn it – the less you should be willing to gamble it away…  

    Oil back to $96 already after failing at $97.75 but a nice run up nevertheless.  

    Trap/Shadow – Don't mean a thing unless they can break the trend and getting back to even at the end of the day (if they can even do that) sure isn't it. 

    Consistency/DC – It's not that you should never lose money.  Markets go up and down and sometimes you will lose money.  Trying to never lose does mean you can end up never winning either.  Most of our hedges are designed to let us keep 90% of our money when the market drops 80%.  While that's still losing 10%, it means we're 12.5% better off than people who were not hedged, which means we can be very aggressive at the bottom with 12.5% of our money and, when the market does come back, we could end up 20% ahead of the rest of the pack or more.  In the crash, for example, BA fell from $100 to $30.  

    If we had a buy/write at $100 that put us in 2x at $80 and then we did another at $80 that put is in 4x at $64 and then we stopped out at $54 because we couldn't take the losses anymore – we'd have 400 x $54 = $21,600 after spending $160 + $128 = $26,800 and, when BA went to $30 – even if we didn't buy there, or $35 or $40 or $45 but we finally decided to buy back at $50 – we'd still be buying 400 back at $20,000 and now it's back to $74 and that's $29,600 plus the $1,600 we didn't put back in and we're way better off than people who bought 4x at $100 and rode it out to 4x at $74 through all that.  

    If you always buy your stocks with the assumption that they will drop 20%, then you can be pleasantly surprised when they don't and on target when they do – isn't that going to serve you better over the long run?  

    ECA/Yodi – They are doing what CHK should be doing without all this nonsense weighing them down.  

    For the $5KP, let's take advantage of CHK and buy 5 June $15/17 bull call spreads at $1.30.  

  108. Burrben

    Yodi / ECA
    Pretty good I think.
    I'm long 200 ECA at 21.07, now 21.97.  Profit of $187
    I'm short 2 ECA May22 Calls at 0.24.  Now 0.55, with all that premium.  Loss of $71
    Total Gain : $116
     
    I'm thinking of shorting more of the calls, what do you think?  I went in very small to practice this month to month roll.

  109. newt

    CHK/ Phil:
    Thanks.

  110. jromeha

    How the hell are fudtures almost UP!!!!!!?!

  111. Inkarri1982

    Jron – Magic would be my guess…

  112. jrod0725

    Thanks Phil. Is there any reason it would be unwise to trade a $50K portfolio by taking the 5K trades with 10x the options?

  113. stjeanluc

    Good article from Martin Wolf in the FT:

    http://blogs.ft.com/martin-wolf-exchange/2012/05/01/does-austerity-lower-deficits-in-the-eurozone/#axzz1uOYz36Fk

    Finally, structural tightening does deliver actual tightening. But its impact is much less than one to one. A 1 percentage point reduction in the structural deficit delivers a 0.67 percentage point improvement in the actual fiscal deficit. Even if we ignore the negative constant term (and so assume that we are not going to see another negative shock to eurozone member countries’ GDP, which is, in fact, optimistic), elimination of the 2012 fiscal deficits would take the structural fiscal tightening we see below: modest in Germany, Finland and Italy, but huge in Ireland, Greece and Spain.

     

    The obvious way of the trap out would be policies that could turn the negative constant in my simple equation into a positive one: in other words, generate an exogenous eurozone-wide economic boom. Only the European Central Bank is capable of delivering that outcome, via aggressive easing.

    Is that going to happen? No.

    Clearly not very optimistic but given the efforts required (12% in Ireland!) there was never much hope!

  114. zeroxzero

    "Multi-Bagger";  Oh, right on, Phil, that is very funny!!

  115. yodi

    Burrden
    ECA your play looks good but selling more callers put you in a naked position as at the moment the stock covers you with a delta of 1 . You still have .50 cents premium so be patient and smell the roses do nothing. Entering with one or 200 CC is the way to go do not put all your eggs in one basket!!!

  116. stjeanluc

    I know that it's becoming pointless now as I have posted this updated chart the past 5 weeks or so. But what are we going to do with all the oil we are storing? It's not like we can drink it or something…

    http://www.bespokeinvest.com/thinkbig/2012/5/9/oil-oil-everywhere.html

    If I were the president, I would go on TV with that chart and say: "Can someone explain to me why we pay so much for oil when we are swimming in that crap? Isn't a principle of "free market" capitalism that prices reflect supply and demand?" Unreal….

  117. yodi

    Burrden Other trade I am preparing today M bought stock for 38.20 waiting for the dust to settle and and sell the Jun12 38c
    but just do 100 stk. I could kick myself let that stock go when it was trading for 24.00

  118. aussie260

    Zero/AUD –
    Sold some AUD when I was in Australia last Monday when it carved out a top at 104.75, based on interest rate cut expectations and what we were seeing in the economy on the trip there.  Seems to have found support here at parity for the time being, as that info is all baked in now.
    If it was going to fall harder, it seems it would have done so by now.  You can still earn 5% in most cash accounts there as they are aggressively chasing funding, compared to the 0.20% my cash earns here.  Lots of foreign reserve money also sitting in AUD cash propping up the currency.
    If we get a big 'risk off' sell off in the markets, the AUD will go with it as it has in the past.  Barring that, seems to have found support here?  

  119. Phil

    LOL, that was a long time between posts – I was on a roll…

    Welcome back Aussie!  Thanks for the report, sounds a bit grim on the economic side. 

    Options/Kevin – Tell him to man up!  Actually then he has to keep expectations realistic and should be thrilled to make 10% a year, which is 25% better than the S&P historically performs.  

    ECA/Canuck – I liked ECA when they were cheaper, ERF I just don't like but I LOVE CHK at $17.  You can buy the stock and sell the 2014 $15 calls for $5.40 and the $13 puts for $2.90 for net $8.70/10.85, which is a 72% gain if you are called away at $15 (almost 20% lower than current) or a 37% discount if put to you.   Since you make $6.30 at $15, you can certainly afford to sell 1/2x the June $19 calls for .75 and that knocks .375 off your longs, which is 4.3% in 37 days for a 43% annual ROI just selling calls that are 10% out of the money.  Isn't that fun?  

    Watching The Man Who Planted Trees 10 times/Rperi – That is about the best advice for anyone who wants to get into investing!  I am not a big fan of reinvesting dividends if the stock is going up but happy to do so on the way down as it lowers the overall basis, which should always be your primary goal.  If you look at every stock you own and focus on:  "How can I get my cost basis closer to zero?" – you will end up with a very large, diverse and profitable long-term portfolio.  Also, you can look at dividends, which one day you hope to live off, as gambling money.  

    So if I have a $500,000 portfolio that throws off $15,000 in dividends (3%ish) then maybe I take that $15K this year and sell 10 CHK 2014 $10 puts for $1.90 ($1,900) and buy 20 of the $15/25 bull call spreads for $3.30 ($6,600) for net $4,700 on the $20,000 spread.  Risk is owning 1,000 shares of CHK at net $14.70 ($14,700) so there's my dividends at risk while the reward is getting $20,000 back plus the $10,300 I didn't spend on the spread for up to $30,300 – a nice double off my annual dividend check if it all works out.  

    DDM/Pat – That's a good one but a bit all or nothing if the Dow gaps down at the open tomorrow.  You are trying to make .50 but you can sell the $64 puts for .50 and that gives you a 5% cushion, which is 2.5% on the Dow down to about 12,530 but then those can be rolled to the June $57 puts that are 15% out of the money and that keeps you good until Dow 11,900.  So, would you rather risk .50 to try to make .50 when you need the Dow to go 1% higher or to risk .50 (a stop) to make .50 if the Dow DOESN'T go 2.5% lower?  

    Strategy/Ink – Yep.  We had a fall and recover yesterday and a fall and recover today and the Dow topped out at 13,200 (no spikes) and just bounced off 12,800 but is holding 12,900 so just 300 points is about 2.5% which is our rule so we'll look for the 20% weak bounce to 12,960 and the strong 40% retrace to 13,020 and THEN we want to look at bullish bets.  The Dow is still our laggard so we expect them to lead us higher in a real rally and a 1% pop is not too much to ask, is it?  

    Futures/Jrom – Because they predict the future?  

    $50K/Jrod – They are not really the kind of trades I'd make with $50K.  I'd look at the Income Portfolio (new one in 2 weeks) and try trading 1/10th of that instead.  I don't like the $5KP, it's very straight-jacketed as you can't day trade (foolish for a short-term portfolio) and you can't use margin.  The real answer to what to do with just $5K is to buy a suit and get a better job – not sit here messing around with the stock market!  

    Speaking of the $5KP et al – It's about that time…

    Oil/StJ – Amazing, isn't it?  

  120. yodi

    Phil I like that ABX suggestion thanks

  121. stjeanluc

    Here you go Zero – if you can freshen up your French or just Google Translate this article from Le Monde, that might answer some questions:

    http://www.lemonde.fr/politique/article/2012/05/09/merkel-hollande-et-le-traite-europeen-les-cles-pour-comprendre_1698348_823448.html

    There is a section validating what I told you earlier about the elections in June.

  122. shadowfax

    The market looks like it may be topping for the day or very close.  With an elastic effect the decending trend line has held but it is getting a bit old to not break out. Over the old 79.29 at close may signal a direction change but usually it already happens by now. FWIW

  123. Pharmboy

    1020 — gimme my XCO….

  124. Burrben

    Yodi / M & MT
    I like the MT trade Phil posted up, but I'm going to begin using a variation of the strategy.  So long the stock, short the 2014 puts, but sell the front month call, and keep "rollin rollin rollin" like you do to try and make more return.  Plus it gives me something to do and manage (sounds dumb, but I need something to do or I overtrade).  So this would be:
    Buy MT at $16.13, Sell the 2014 $15 puts for $3.65, Sell the June 17 calls for 0.71 and collect the Div at 4.6%.
     
    Why did you chose M? What do you think my MT play?

  125. aussie260

    zero/AUD – Good update on AUD, interest rate and growth expectations from Bill Evans at Westpac.   He has been the economist there for years, generally makes good calls.
    Expecting AUD to hold above parity…worth a listen.
     
    http://www.westpac.com.au/economic-update/

  126. Burrben

    SVU
    Adding to my position here.  Bought another 1000 at 5.34.  Trying to sell the Jan14 5 Straddle for 3.10 for a net entry of $2.24.  Not as good as the $1.90 this morn though…but I missed that.

  127. dclark41

    dpast
    Sorry, in and out today. Work is still an necessary thing for my true love staring at the markets all day! :) In regards to your last message there was nothing worse than feeling happy with my $200 gain on 800 contracts of USO puts that I worked over two weeks only to be disappointed with the woulda' coulda' should'a after oil went over a cliff and dropped $10 dollars! What a gain that would have been! Anyway Phil's advice (above) is sound and I will continue to work hard to adjust my strategies accordingly. Thanks for your comments.

  128. rainman

    Burrben / SVU — The 2013 $5 straddle is still around $1.90.

  129. Burrben

    Rainman, maybe I'll sell the 2013's then instead.  I already have 10 of the 2014 5's though, so I was trying to keep the same months.

  130. stjeanluc

    Exits / Dpas – That is the true secret of trading there! I have some very good entry signals but exits are the trickiest as you juggle with some many conflicting feelings at the same time.

    The best strategy I know (and Phil uses it from time to time) is to scale in and to scale out the same way. Raising stops as you scale out so that worse come the worse, you break even with the remaining "investment". For example, you have 10 USO contracts and you show a $200 gain. Cash 5 of them and raise you stop to the price you paid and let the other 5 ride. Worse case scenario, you make $100.

  131. jromeha

    lol, you know what I meant!
    Pharm – *IF* ARNA gets a thumbs up tomorrow, how high do you see it going?

  132. lflantheman

    Hello!   Thought I'd let you know how I'm trading AAPL right now.  They have recently tested 560 and that seems to be short-term support.  I'm using the July 570s to swing trade, and using buy and sell orders to let the computer make the decisions.  So I went to a full position on Monday at $32 per contract and placed sell orders to dump 1/3 at $35 (which sold earlier today) and the next 1/3 at $38, holding the final 1/3 for a future decision point.   Since I know AAPL likes to bounce off 560 I've placed another order to repurchase the 1/3 sold  today at $28, which would actually correspond to a price slightly below 560.    

  133. yodi

    Burrden MT I have bought the stock as well . Actually have many plays on that one. Just remember it is a lively stock between 31 and 14.77 up to 23 and today 16.27. So you might have your hand full on the rolling. Phil's suggestion is much more relaxed in this case I have gone Phil's way so you just have to keep an eye on the caller if runs worthless in to about 4.3% for June.
    M I like the stk and you need to check on a three year chart just about one way!  You just buying way to many SVU do not take everything what is recommended no one will be always right. I still hold 3x Jan13 10putters and still regret it!!! Learn how to be more like a Praying-mantis.

  134. Phil

    FAS Money – I'm done with the $100 call now as well (now $1.75), should have taken it down this morning as rule of thumb is we kill short option positions with 50% profits with more than 2 weeks to expiration and 70% profits during the week before expiration and 85% during expiration week unless we are over 90% certain they will expire worthless.  Clearly there was no way we felt that way about FAS as we flipped uber-bullish on it in the $25KP yesterday.  

    IWM Money – We lost $42 since yesterday!  LOL.   You know how much I like to be balanced so now it's a Jenga game and I"m loathe to change a position.  Also, no one reminded me to sell puts this morning as we hit 780 again?  Come on folks…

    $5KP – DMND we were supposed to get out of, now $2.05 for the $22 calls so PLEASE let's get out!!!  Gold got rejected at $1,600 but it is tempting to take GLL off the table at $2.50 so let's call a stop if gold does get back over $1,600.  EDZ at $15 is actually threatening our short calls now but that's fine as it's still a spread.  SQQQ is barely at $12 so I'm worried about them but, on the other hand, we want the May caller to die worthless so mixed feelings.  TNA we are hoping for a run up to $1.25 to get out and, otherwise, it's a $315 hedge we will lose if the market falls more.  

    $25KP – Funny how that happens, we locked in $7,000 of additional realized gains but the now bullish stance on our current positions took an $8,000 unrealized hit overnight.  Thank goodness we don't care about unrealized losses, right! 

    • DMND – On track
    • XRT – I am so sick of these guys but I refuse to give in as every FACT shows that Retail is WEAKER than it was last year, when $55 was the top and $43 was the bottom.  $60 is ridiculous… 
    • BBY – It's only net $4,000 in margin to sell 10 of the $25 puts so let's DD at $4.90 to average in at net $3.33 – they were at that price last week so pretty realistic we'll have a chance to get out there.  
    • FAS – Wow, that's bullish!  
    • GLL – Same as $5KP, we stop if gold goes back over $1,600.  
    • CHK – You know I love them.  
    • EDZ – Let's take that double off the table at net $2.  
    • LNKD – Not looking good there.  

    So our entire unrealized loss is technically the 20 FAS Oct $105 calls, down $10K.  I can live with that for the moment.  

  135. threeputt

    GOOG – I watched GOOG show relative weakness as the markets faded last week.  Now it is showing relative strength, and above 615, there is a small inverse head and shoulders pattern complete that was started on 4/26.  I like the June slightly OTM for a swing trade, especially if the Futures can take and hold 1360.

  136. jrod0725

    What is the ideal size for the IWM and FAS portfolios?

  137. Burrben

    Yodi – Good advice on MT, I'll take a closer look before I commit.  Regarding SVU, I do like them and feel like it's at a good price now.  The 2nd buy was just another 20% allocation, or a single DD.  I'm willing to buy in lower, since I'm building a portfolio for the long term.  Why do you feel it's too much?  

  138. zeroxzero

    Thanks, I did well short AUD and the momentum downward seems gone for now, I'll head for cash.

  139. kustomz

    Bears for the win or are celebrating too early?
    http://www.youtube.com/watch?v=ByeuZfKkvXs
     

  140. yodi

    Burrden SVU is just a food store. The competition is big Why do you think I sold the Jan13 10p look where they are now OK they pay a div. I sold only 3x. That is way I do not feel to bad about it. Just keep on rolling the sucker and hope one day they make it out of the cellar.  But regret I can not give any opinion how other members handle their portfolio. The final choice is always yours. 

  141. japarikh

    Phil,
      When I asked you last week about ERF you liked them at their current price and recommended selling the Oct 17 put/call. Why the change from last week?

  142. Phil

    By the way, Love (Beatles Cirque du Soleil) was a great show in Vegas.  They did the most amazing job cleaning up the soundtrack songs it sounded like a modern master recording of the Beatles.  My mom was crying during I am the Walrus as you could clearly hear my Uncle Ralph (her Godfather) on the violin - very moving, something I will never forget.   Whole show was fantastic, people were disappointed that it ended…

    Something to do/Burr – Try writing a stock newsletter and running a chat room all day – I find it does a great job of keeping me out of trouble!   

    Woulda, shoulda/DC – If we all made perfect exits then we'd be up 1,000% but if we all failed to take profits and set stops, then we'd only need to go down 100% before we were wiped out – not worth gambling on which comes first…

    GOOG/3putt – I think $600 is a good floor and they are quite the bargain down here.  MSFT has proven that it's VERY HARD to make a search engine to rival GOOG – that's a nice moat around their business.   I also like the way they are diversifying and trying different things – better than AAPL sitting on $100Bn in cash with no ideas at all what to do with it.  GOOG has proven that they know how to recruit and keep the best and the brightest – I don't care if they decide to open a bicycle shop, those are the kind of people I WANT starting businesses.  They don't go around buying other companies for silly amounts of money, which I also like and they don't try to please investors by pushing expansion plans to pretty up their books ahead of schedule – I like that too.  33,000 GOOG employees did $37Bn in revenues last year ($1.12M per employee) with $9.7Bn in profits ($294,000 per employee).   Whatever ideas they have to justify hiring more employees like that are fine with me!  

    GOOG 2014 $500 puts can be sold for $41 and TOS says that's net $49.50 in margin.  Of course, if GOOG drops 20% to $500, we have to assume the price of the puts would double and the margin would triple so dangerous if you don't REALLY want to buy GOOG for net $450 (25% off).  Since the 2014 $600 calls can be sold for a whopping $100, all you have to do is see what you can buy for $200 and that's the $440 calls and that puts you in the net $120 spread for $59 plus $49.50 in margin and all GOOG has to do is hold $600 through 2014 and you're up $61 (103%).   

    If you want to play GOOG to have a pullback possibly, you can do the 2014 $600/720 bull call spread instead for just $50 and then you're in for net $9 on the $120 spread with the same margin but you need GOOG to move higher.  The difference being, if GOOG does drop $100, then we can assume the roll would be the same as the roll from the $700s to the $600s, which is $43 and then you would be in the $500/720 bull call spread for net $52 (less than above) and you can potentially do fantastic if GOOG then bounces back or you can set a stop on the putter at $60 and a stop on the spread at $25 and that limits your loss to $44 in your attempt to make $111 – a good risk/reward ratio.  

    Once again we have end of day selling on the heels of light buying – certainly no real bullish signals from the market yet!  

    Ideal size/Jrod – They should be considered the high-risk allocation of your portfolio.  I suppose you could argue it's medium risk so maybe 5-10% in addition to a 10% aggressive carve-out as they are nowhere near as aggressive as the $25KP but, as FAS Money players from last year would attest – you can still get a very nasty sting from them if they move against you.

    Dollar bounced off 80.10 and back to 80.23 is pretty much the story of this drop.  

  143. Peter D

    Aussie/Aussie updates – Thanks and that picture is closer to what I talked about a couple of weeks ago.  Yes, Sydney harbor and the beaches along the coast are beautiful!  The high AUD is killing retails and businesses.  They are much better off at 0.8 USD.  Their mining powerhouse is much dependent on China, which in turn needs Europe and US to grow.  They will no doubt bounce back, but not so soon.  On the housing front, their pricing is not supported by rents, so more downside to come.  The banks there are cracking down on shaky loans too, so less buyers to the market. Rookie buyers are making the same mistakes.  A couple of fresh college graduate guys bought a condo in Gold Coast and by the time the building completed, the price was $150k lower.  They couldn't get out of the contract, so had to borrow cash as the bank wouldn't cover the difference.  Cars are 1.5x more expensive than the US, and luxury cars are 2-3x more.  I like their high interest rate too, good for savers and bad for business and mortgage holders.  But I wouldn't cover USD to AUD now as I think 0.8 is a healthy ratio.  They have been at 0.7 historically, but it will take a long time to get down to that level, if ever.

  144. Peter D

    cover = convert

  145. zeroxzero

    Stj:  The article gives you the distinct feeling that Germany is on it's back foot right now with it's "austerity+serious penalties for insufficient rigor" plan.  It makes no sense, and it never made sense,  I'm no economist, but throwing public employees in the street [a mistake the Americans have also made] and setting rather arbitrary fiscal "targets" in a recession is just plain dumb — a circumstance not overlooked by European voters as we have seen.
     
      Germany's taking a big risk with its monetary union — once Greece exits, which doesn't seem unlikely, there could be [and perhaps should be] a stampede out the door by countries that will not countenance years and years of subpar growth for, from the look of it, Germany's benefit.  Germans are a great people, but flexibility is not one of their defining characteristics.  You would think, after the voters turfed out Berlusconi, Zapatero, et. al, they might have found a clue, but it took Sarko and a looming Greek Euro exit to move 'em.  Too little too late, perhaps. 

  146. alik

    Hello Phil, what do you think about HES at the current price? An opportunity or a value trap?

  147. angelcur

    pres o flip-flopping on his gay marriage flip flop..he now supports it again…ha..actually glad but of course plays right into the hands of the CFF!

  148. 2nifty

    Please forgive what may be a dumb question, but I am but a learner, and inexperienced with longer term options. Am I correct in thinking that one would not do any adjusting or rolling during a trade such as the SVU trade (stock with sold calls and puts), but instead let it play out as entered?

  149. hextra8

    iTrade
    Do you still recommend the TSLA trade from yesterday? If so, would the trade be: BTO Jan 2013 $30 call; STO Jan 2013 $38 call; STC Jan 2013 $21 put? What price would you recommend now? Thanks.

  150. Peter D

    Consistent returns/trading – is hard no doubt.  After a while, it's all about risk management.  We can do 100% return on $50k by taking extraordinary risks, but what if you have $1M or $5M to trade?  You'll need a system that works and covers the black swan events.  If your heart is beating too fast with a $10k trade, would you able to keep it in your chest when doing a $5M trade?  We talk about missing a $1,000 profit for a $10k trade, how about missing out $500,000 profit on a $5M trade?  Remember that you can make 100% ten times, but one loss of 100% means you are knocked out!  That's why JRW, Optrader are in the top 1% of the pack as their brains are wired differently now.  Pharm and Phil are correct in saying that buy/write and conservative plays is the way to go for options learners.  I myself would look for a 1% to 2% return a month and that 12% to 18% a year is beating the market by a long way.  If you have dividend on top of the return, that's extra bonus!

  151. Pharmboy

    ANRA – $5.  They still have the PDUFA and FDA….so I would not hold my breath.  They probably will get past this round.

  152. doro165

    Thought you got out fo the SQQQ trade yesterday because of the upcoming reverse split?

  153. nicha

    Great advice, Peter!

    Remember that you can make 100% ten times, but one loss of 100% means you are knocked out! 

  154. morxlntway

    Phil – when you say that the EDZ call nearing 15 is threatening our short calls, how do you mean? do you mean it is more possible that it will move above the call price or that decay will be affected or something else?

  155. Pharmboy

    Nice conservative play on CVX…..bearish calendar Sept 95, selling June 95 for 2.30ish.  The chart is weak, and a bounce could happen in here, but scaling in would be warranted.  One coudl wait until the 5d MA catches up to the candle, but I started this yesterday, using May's as the beginning.  I will roll to June tomorrow or Friday.  1/4 position….looking to start a larger position.

  156. angelcur

     tech ramping up ahead of pcln, csco…those reports could be dicey

  157. Pharmboy

    Another lazy calendar, if things are hurting in the EU (I think I heard that somewhere) is the DD May/June 50 P calendar.  I think DD goes down below….and I don't care that they are dependent upon Oil for margins…they are over priced in here.

  158. iTrade

    hextra8
    TSLA – Tesla Motors 
    Yesterday I saw a huge change in share price 10% drop and wanted to take advantage of the volatility.
    Sell Jan 2014 $20 Put
    Buy Jan 2014 $30 Call
    Sell Jan 2014 $45 Call
    = I did this trade at $0.00 yesterday… today you get 10cents credit.
    -- I'm more than willing to own Tesla at $20 (IPO was $16-17)… So the risk in my mind is own something I want for $20. and in the meantime profiting the max $15 vertical.
    As you might know earnings is tonight after the close… it's a bit of a gamble before earnings. But tomorrow if they sell off I'll add more of a similar trade!

  159. Phil

    ERF/Japar – Sorry, I forgot they are a trust.  I don't like them as a stock but, as long as they keep paying that dividend and you protect yourself, they are OK but let's not confuse this comment with a glowing recommendation:

    ERF/Japar – I like them at this price ($18.17).  They are heavily invested in shale so you could get very screwed over by changes in fracking regs but, otherwise, it's like CHK and ECA – a chance to get in for a long-term play on the eventual recovery of nat gas prices.   I think a small intro position on a buy/write, selling the Oct $17 puts and calls for $2.80 nets you $15.37/16.19 which is as good as it gets on a 12% dividend payer.  If you stay small – you'd be HAPPY to DD at $16.19 and then again at $14 (on the next buy/write).

    At the time, CHK was $20 and I didn't love them as much but, with CHK at $17 and high-priced calls and puts to sell against it, ERF pales by comparison – even with the dividend.  

    Good take on Germany ZZ.  

    HES/Alik – They've had weak production numbers and the stuff they are producing is getting cheaper every day.  They keep missing their own numbers so part of the reason you see constant selling is some fund or funds are fed up with them and liquidating.  Still, it is mainly a sentiment thing and, once the sellers go away, I imagine they'll drift up as they are back to 2009 prices with 20% more sales and 100% more profits than they had then.  Again, it's the higher VIX that makes me love beaten-down stocks and you can sell the 2014 $40 puts for $5.30 for a net $34.70 entry (now $48.72) so we'll take 1/3 off every day.  If you want to be more aggressive, you can use that $5.30 to buy the $30/45 bull call spread at $10 and then you have the $15 spread for net $4.70 and your break-even is about $37.35 with a 240% gain if they hold $45 (the 2009 low).  

    The key to trades like this is not to be greedy.  If you allocate just $17,350 to the possibility of owning 500 shares at net $34.70 out of a $250,000 portfolio, your potential upside after using just $2,350 of actual cash is $5,150 which is a 2% pop on your ENTIRE portfolio after allocating just 7% to the worst-case scenario (or 3.5% at 50% margin).  If HES goes much lower – then you have plenty of firepower to make a bigger position out of it (assuming you still believe) and THEN you can allocate $25K for a 10% position at some ridiculously low price but that all comes from being HAPPY to use 3.5% of your margin allocation to make up to 2% at stage one rather than going for it on a position that may still disappoint.  

    SVU/2nift – Yes, as in our Income Portfolio, 90% of the time we do nothing with a long-term buy/write unless it is seriously off-track.  

    Good points Peter.  

    SQQQ/Doro – I thought so too but it was still there so I said get out again.

    EDZ/Morx – I mean that EDZ is near $15 and we sold $15 calls so if EDZ goes to $16, we owe them $1 and that sucks for us (although our long calls will do well).  So, not actually a big deal.  

    Bernanke speaking tomorrow makes it seem silly to short overnight.  Doutbful he'll say anything to tank the markets.  

  160. iTrade

    hextra8
    I also did a 2013 Option trade too.
    Sell Jan 2013 $21 Put
    Buy Jan 2013 $30 Call
    Sell Jan 2013 $38 Call
    This was a 5cent credit trade yesterday… looks FREE today $0.00.
    I was more heavily weighted on the 2014 options yesterday than this trade. But like both!

  161. jerconn

    PHil – SODA never made it to $39 today, Marketwatch shows the high at $37.95 and they're now at $36.80, up $7. Still looks like a good MOMO short, no?

  162. jerconn

    SODA up 27%, actually…that's a spike if you ask me…

  163. morxlntway

    EDZ – thats what i thought you meant, but i think we have the 16 calls. :)

  164. Pharmboy

    Hello PCLN….goodbye yellow brick road.

  165. newt

    Thanks to everyone here.  My understanding of this is elementary but your patience and willingness to share is bringing me along. I hope to return this gift to a newbie some day.

  166. dpastramas

    FU PCLN!!!!
    AHAHAJHHAHAHA Sold 2 785$ Calls!!!!! Pay day tomorrow!!! 
    Take it home Jabo!!

  167. jabobeast

    dpast—i will not pay attention to AH
     
    tomorrow at 4pm I hope to be smiling
     
    Phil-- can't wait to hear your opinion on PCLN?

  168. jabobeast

    FU PCLN!!!!

  169. Pharmboy

    CSCO was up, now is geeting creamed…..who opened their mouth?

  170. kustomz

    CSCO purchased 27m shares @ an average price of 20.28 worth 550M!! What a waste of money.

  171. Phil

    SODA/Jerconn – $39.20 was the pre-market high, lower once trading started but my point was to sell the $40 calls into that excitement.  Pre-market tops often give you a good clue as to where the main session will run out of gas.  Is it still a good short – not if people are bargain-hunting them again. They are too low in their range.  Overall, I think that in 3-5 years they will be worth about as much as any fondue company is today – it's the kind of thing that sounds cool and you take it home and use it once and then it goes to your next yard sale – that's not a business model.  They keep talking about the razor/blade model but what they fail to understand is that no one NEEDS soda every day.  People need to shave or, in the case of ISRG, they need operations every day – no one NEEDS to buy soda and, if they do, there are many ways to get it.  I live in a well-off area and we never buy soda unless it's 3 cases for $10 – the usual discount at the supermarket.  That works out to 27 cents a can for major soda brands.  If I wanted to save money, I guess I could buy a whole bottle for $1 and that's about .20 per can and that's any flavor I want and whatever my kids want in diet or regular and available the second we want it with nothing to open or clean other than the tab on the can.   Instead they want us to MAKE soda?  And sucky soda at that.    It's just silly.  We have an ice cream maker that makes better ice cream than Ben and Jerrys and that cost $2 per pint vs. $4 for Ben and Jerry's and we've used that about three times.  SODA is a fad which, like a fondue maker – is cheap enough to make a gift or be bought as a lark but it's not a long-term winner by any means. 

    Big anti-stick right at the end there.  Volume popped to 140M on the Dow, up about 23M in last 5 mins. 

    EDZ/Morx – Oh, then I'm much less worried.  

    PCLN/Pharm – Not so fast!  

    Priceline (PCLN): Q1 EPS of $4.28 beats by $0.33. Revenue of $1B (+28% Y/Y) misses by $40M. (PR

    Not so bad but CC will be key with guidance.  

    No problem Newt!  Glad you are enjoying. 

  172. denlundy

    NYSE Financial Index below 10 & 20 day moving average and broke 3/07 support level.  Looks like big banks will no longer lead nor prop up market.

  173. dpastramas

    I am curious to see how they are spinning the miss.  Well i think i am safe, still a long way to go to 785$…

  174. BertII

    Pharm/ Depo
    Are you still in Depo ? I have 800 shares with a cost basis of about $8.00 need to cut the string or sell some calls and put to start working some of the loss off

  175. dpastramas

    Jabo how did you play PCLN? May i ask?

  176. jerconn

    Phil – thanks for the long response on SODA.  I agree completely that they are a short, my question is why wouldn't they be an immediate short on a nearly 30% spike, esp in this market.  But if your answer is that they are too low in their range, that makes sense …as a matter of fact I know the founders and have toured the factory already some thirteen years ago. They gave us a complementary SODA machine and we didn't use it for more than a year.  Maybe they have more going for them now than they had then, but it's not a lasting business…
    Thank you PCLN, come back down to earth a bit…next, LNKD! 

  177. newbie

    Phil /  general 6 day down trend
    phil wrote earlier today>
    "The Nasdaq and the S&P went below but came back above their 5% lines but it's the S&P we were focused on in yesterday's post when I said it would be "1,360 or Bust" and the S&P was not fooling any of us with that BS move back up in the afternoon."
    "Moral of the story – CASH IS KING – this is a very BS market and these moves are crap.  All that matters is whether or not they can establish a breaking up TREND that last more than 2 days – other than that, all this intra-day nonsense is just noise. "

    ____
    Here's how I see it, watching the daily price action, and watching the charts. Please let me know if you are seeing things differently………
    A. Thursday and/or Friday will probably be an "up day" or 2, just because there has been such a long series of "down" days. A bounce for a day or two feels right.
    B.  We have now had 6 straight days of predominant DOWN movement  (ok, 5, if you eliminate the "flat" Monday). with significant gaps down Friday, Tuesday, and today. Even though much of the "gaps down" this week got partially filled in as the day went by, doesn't the "magnitude" of the gap downs "overwhelm" the later day rebounds?  Is that what you're saying by  "all this intra-day nonsense is just noise. " ?

     
    A six day OHLC chart, looking at the tops and bottoms of each day, and ignoring the close, would seem to show a significant 5 day trend (subject to sudden and probable reversal) of loss, which will not likely be "made up" in the next 3 to 5 days.
    Am I missing something, or simply misunderstanding?

  178. barfinger

    My son works at COST, and since they started selling the SODA product, they can't keep them in stock. Literally flying off the shelves. I told him a bunch of people will buy one and after a while, will tell everybody they know it makes no sense – I suspect the product isn't even very good.
     
    I finally gave in before the close and sold half my long PCLN puts for a 50% profit. The other half may be rewarding tomorrow.

  179. jabobeast

    dpast I am still short  Jan 850s,900s, and 1000s
    I covered all of my calls that I was short for earlier months (probably wrong but my position was too big and I didn't want Phil to rip my head off ;-) …and I had no guts ;-)
    This has not been a very fun ride but I hope it ends well.
     
    Phil's rolling guidance has helped immensely — thank you Phil!

  180. Lincoln

    jabobeast: patience
    come Jan no one will believe you could have even sold a 1,000 strike, at any price. ;)

  181. jabobeast

    hope you are correct Lincoln
     
    I would feel a lot better if PCLN was under 700

  182. Savi

    same here--no guts no glory—-sold a few weekly 800 calls on pcln—made a few bucks

  183. jerconn

    Hmm…I'm one of Phi's  "greedy bastards" (somebody's gotta play the role, right?) and I held on to my PCLN puts…hope I'll be okay tomorrow…I had better entries, got in direct at $600 and $620 without any rolls or DD's…

  184. Pharmboy

    Depo/Bert – I am no longer in them…as I rolled on to YMI with those funds.  You should always sell calls and puts against them to reduce the cost basis.  I still like them, but I can only hold so many Biotechs at one time.

  185. barfinger

    HCBK just paid out the dividend – 4.8% at closing value today. This one looks like a keeper

  186. jerconn

    Why does CSCO CEO repeatedly trash-talk his own stock and bring the whole market down?  He does it on at least yearly occasions…

  187. deano

    seems like chambers virtually assured a selloff tomorrow – should be interesting if europe is down again as well – got covers?

  188. jabobeast

    Phil--did you listen to PCLN CC?
    1.31 Euro?
    They are hoping China will be huge?
    Europe not growing as planned?
    I hope this AH drop is real!

  189. jerconn

    This is at least the third time Chambers does this – what is his problem?

  190. Lincoln

    Chambers I like, because someone has to point it out, like others on this site, when the emperor has no clothes. IMO

  191. strether

    Phil
    When you look at the overnight data, please indicate which you see more likely thursday, friday—a bounce or capitulation or neither or.. ….what is your sense?
    Thanks
    Strether

  192. stjeanluc

    Chambers is good usually for one thing – another entry point in the stock! That's not bad!

  193. stjeanluc

    PCLN / Dpas – You did take the jump after all I see… Might get lucky tomorrow!

  194. stjeanluc

    Not a pretty picture….

  195. drmtv10

    CSCO spent 550M buying their own stock for average price of around $20.28 (to make sure that they made / beat earnings target by $0.01),  keeping 7.7B for future quarters, where they could do the same thing again?  (Is this how companies are suppose to make their quarterly number, these days?)  Stock dropping big, assuring a market sell off and (promising) a bottom-less tomorrow!  
    Phil, thanks for commentaries on trade management and position sizing.  I have had many successful trades, following your recommendations but poor position sizing has resulted in overall losses on my portfolio.  
    My observation trying to follow 25k (which I am unable to follow completely because of margin) and 5k are similar – no doubles, just a few hits and miss.  But education – priceless!
    Still struggling to find proper trade balance.

  196. Inkarri1982

    PCLN – It's at $692 now….nice job to all who went short…hope it holds until tomorrow. 

  197. Lincoln

    Phil:Stjeanluc
    After seeing some of the comments related to the 25k portfolio it seems that understanding what the max margin available should be, (10x the cash?), as well as managing that margin can also be a key component of the the exercise/education.  I've been learning that margin is a very valuable asset but understanding how it is affected by price changes on different options takes some education.  Fidelity has an excellent margin calculator that can be used to evaluate the impact on margin on specific trades and also the impact of price changes of current positions on margin which I've found to be invaluable.  my 2 cents

  198. Peter D

    Hey newbie, I'm backing you up that tomorrow or Friday could be an up day(s).  The big boys need to make money and since the majority of people are thinking it's going down, then they'll drive it up for some short covering fun.  How many times that JRW surprised us by saying so.  Considering how well the market held up close to the end with the USD went up.  They may try a short squeeze again tomorrow.  Don't get me wrong, I make more money on the down side than up (higher VIX), but I'm ready in either direction.

  199. stjeanluc

    Portfolio / Lincoln – Maybe we should change the name from $25KP to the Aggressive Margin Portfolio! Like I mentioned earlier I think that this time we topped at around $250K of margin at one point. Even today for example, the long FAS Oct calls are good for something like $20K by themselves! The main goal of these virtual portfolios is the education and this time we got a good one, going for -$32K to +$25K in a matter of weeks! 

    Like Phil said, the point of this specific portfolio was to make some money using the spare margin that you have without any constraints. Of course, you could always reduce the size of your positions to match better what you can do. And then match your expectations to the portfolio size!

  200. Peter D

    stjeanluc, I had a passing thought that we should include AAPL in the index charts!  I double check the AAPL chart and the similarity is amazing, how it follows the indices (or the indices follow AAPL).  So it would be fun to include it.  Just a fun thought, not a need.  We can always pull up AAPL chart separately, if it's not already on everyone screen.

  201. stjeanluc

    AAPL / Peter – I am not against it as it's not much more work! But someone will have to calculate lines of support and resistance like Phil did for the indices and own them! As we have found out with the indices, well thought out lines (daily or long term) can be a tremendous help to make decisions. That's why I post oil lines in the morning! And why I try to update my volatility sheets as well. It's all part of a disciplined investing strategy!

  202. newbie

    Peter,
    Yeah, I just can't see another 6th or 7th down day, unless this market is in one hell of a lot worse condition than we might have thought.  I am expecting one or both of the days to be strongly up, and then next week will be interesting.
     
    Personally I'd like to see a nice 1000 point drop (I am in TZA).
     
    If  this "down move" has legs, then next week would see more down move than up. But if things even out next week and start back up by the end of the week, then who the hell knows……

  203. Burrben

    Margin / StJeanluc
    When you guys calc margin, are you using the RegT margin req, or the Portfolio Margin req?  Even with PortMargin selling FAS options is pricey, but I can't imagine selling them with only RegT.

  204. jabobeast

    PCLN
    http://seekingalpha.com/article/575661-priceline-com-incorporated-s-ceo-discusses-q1-2012-results-earnings-call-transcript?source=yahoo
    In total, we repurchased $254 million of our common stock in Q1.

  205. peedlew99

    Hey Phil,
    OXY is down to to $84.  The Jan 2013 $70 puts can be sold for $4.25.
     
     
    Any reason not to start a position here?  Any others that make more sense?
    Any shorts to offset this kind of position?  Maybe selling calls is some high flyers?  Mall retailers?

  206. dclark41

    Newbie
    That must be some position in TZA!? :)
    The Bernanke speaks tomorrow. He must feel a lot of pressure every time he speaks knowing that some are still looking for him to save the day. I am betting that he gives the markets a little help. Nothing substantive just something to quell the financial community and stop the bleeding. It seems a little ray of hope, if said right, will at least buy him more time before QE Something Act IV.

  207. Peter D

    stjeanluc, we have lflan-the-man for the AAPL lines.  lflan, volunteer quick!

  208. kinkistyle

    SNE just reported the worst year ever with a $6.5 billion loss.  (Almost) every business lost money and judging by the stock price — everyone HATES this company. 
     
    But that being said, heres something to chew on:  Currently $15.2 billion market cap. SNE still has $19.3 billion in cash and short term securities on its books. Despite the terrible performance, it still reported $81 billion in annual sales.   The cash burn rate is slowing down, and by some miracle the financial services division made money and is cash flow positive
     
    If you don't think SNE is going out of business and can do revamp its businesses and cut down some fat, there might be an investment opportunity here.  If you're into that type of contrarian investing thing. ;)

  209. jerconn

    Phil – good morning!  With the drop in PCLN, do you think it still has more downside?  Where do you see it bottoming?  

  210. Phil

    Good morning! 

    Not much happening overnight.  Dollar at 80.30 as we wait on Bernanke at 9:30.  

    Euro still dead at $1.296, Pound up to $1.615 as BOE holds rates steady (easing was expected).  79.65 Yen to the Dollar and 1.201 EUR/CHF shows those guys are still serious about supporting the Euro at all costs – and it must be costing them a fortune to do this.  I would say anyone who is holding large Euro positions and isn't taking advantage of the fact that the Swiss are backstopping it to get out is very foolish.  The Euro is closer to dissolving now than it was last year.  Greece will default on $500Bn in debt, Portugal will either default or need a huge bailout, as will Spain and just because Italy and France and Ireland are quiet at the moment, doesn't mean they are fixed either.  

    Clearly the only reason the Euro is holding $1.29 is because the Swiss are buying it – this is certainly not a reason to be holding the currency.  If the Dollar were only staying over 80 because Canada was buying them to keep the Loonie from going to $1.20 – would that mean you should stay in or get out before the game falls apart?  

    If the Euro is artificially strong, then the Dollar is artificially weak and if the Dollar begins to rise (and the BOJ would love to see that) then we know there will be a dip in the price of dollar-denominated equities and commodities.  So we need to continue to tread carefully because much of what we currently see is based on this artificial construct of a relatively weak Dollar and a relatively strong Euro – and that's distorting reality in many ways.  

    Also keep in mind that these little CB money-printing schemes can go on much longer than one would think logical so it's more of a big-picture sort of observation than an actionable item other than I sure wouldn't want to tie up too much money in Euros – just in case the SNB does run out of money one day.  

  211. jabobeast

    PCLN at 712..wtf?

  212. Phil

    Prognostications/Newbie – I don't know if we go up just because we've been going down but the S&P did put in a solid show of holding around 1,360 and that's all it takes sometimes – just one of our majors to hold their 5% lines can give the others reason rally back to theirs.  As to the gaps – it's not about those or the intraday, it's about where we close each day.  We got a blow-off top on May 1st and, since then, it's been down every day, now 1,354 so 56 point drop is 4%, which is where a 5% drop would bounce to (20% retrace) and 95% of 1,410 is 1,339.50 and that's close enough to 1,340 so it's natural that we should slow down as we enter this zone where some bots will be buying the 5% dip.  The strong bounce (40% retrace) from here goes to 1,366 and that's what we'll need to see now to call a reversal – anything between 1,340 and 1,366 is just noise in a downtrending channel.  So it doesn't matter whether the S&P goes up or down – the only thing that matters is which side it breaks to but, in absence of new data – I'd say this is the pullback we've been looking for and I'm more apt to buy the F'ing dip here and I'll be looking to make bearish covers IF we fail 1,340 but, otherwise, I'll treat this as the bottom of the range until it proves otherwise.  

    You're welcome Jabob!   Good job taking money and running.  

    PCLN/Jerconn – If it's July, you might be OK but the problem is, even if they are lower, they have to be enough lower to make up for the earnings premium draining out of the option prices.  That's a big reason it wasn't worth holding – $22.50 for the July $620 puts, which were $90 out of the money was simply a price that we sure wouldn't pay, right?  If you own a position that is priced to a point where you think it's a rip-off – then you should probably sell it while you can….

    HCBK/Barf – I like those guys because of their coverage area.   NYC area never took a huge hit and this is a very conservative bank.  

    CSCO/Jerconn- I like him, he actually tells the truth.  European CEOs do it all the time but it's so rare in a US company people freak out.  Doesn't seem to be bothering our futures, which are turning up.  

    Sorry Jabob – not much of a drop, bad news baked in at 1,354. 

    Bounce or what/Streth – We have to assume a bounce (and getting there now) on Bernanke at 9:30 – after that, it depends what he says.

    Big Chart looks ugly but it's just the retrace we were looking for to complete our "M" patterns and now we are triple-testing 2-month bottoms that have given us HUGE bounces twice so it's almost a no-brainer to say we are going to bounce but the key is – how high?  A weak bounce (20% retrace of the drop) is a given and a strong bounce (40% retrace) brings us almost halfway back and, for the Nas, that's about the critical 3,000 line and 8,000 on NYSE.  If that's all we get and we head lower – THEN we begin to have concerns that the next test of the lows will fail but this first (third) stab at these lines is almost certain to give us some sort of bounce.  

    Balance/DrM – I will try to get more into this concept with the new Income Portfolio (and feel free to remind me).  It's a long-term discipline but the key is to set up your trades so you are only "stuck" making commitments to blue-chip stocks that you bought 4x of very cheaply.  That's what Buffett's portfolio is – he buys lots of stocks and, when they get cheaper – he tends to buy more.   He ONLY buys things he feels are undervalued and, if they get cheaper – he simply believes they are better bargains than they were before.  Generally Berkshire is a long-only portfolio and, when the market crashed in 2008, he didn't sell anything – he bought more.   He made a huge bet that the S&P would be over 900 in 2013 (about $5Bn) by selling puts – no covers, no downside hedges because he REALLY wants to continue to own KO and WFC and IBM for the next 20 years – so what happens to them in any 2-year period is pretty meaningless.  This is probably the hardest thing to learn in investing – Patience – because it takes many years of experience to get used to thinking in the real long-term.  I was lucky to be taught trading when I was young by my Grandfather who was born in 1903 so I've always had the long view of the markets.  That's because when your Grandfather tells you how the World works when you are 7, you tend to believe him and, over the years – evidence tends to mount up that Grandpa's advice was and continues to be on the money.    Without that kind of benefit, it can take a person many, many years to internalize a long-term investing strategy and, sadly, most people don't even get started until they are 40 years into their lives already…

    Margin/Lincoln – The $25KP is not for the margin-challenged and we won't be changing it because many, many people here have very large accounts and WANT to learn how to trade that way.  If you don't have margin – YOU SHOULD NOT BE TRADING SO AGGRESSIVELY!!!  Why do people insist on having it both ways?  I think just yesterday I said that if all you have is $25K, then your goal needs to be making $5K this year and $6K the next… until you have $100K and THEN you can take $10K and trade aggressively.  If you want to follow the $25KP and keep the margin low – trade 1 instead of 10 or 5 – we rarely take positions that are smaller than that – simple enough?  As StJ notes, we maxed out around $250K in margin at one brief point in the portfolio.  If you trade 1/10th the size, then that would have been $25K in margin.  Don't trade over your head – learn how we trade an aggressive portfolio, determine how much margin you have available and size your positions accordingly – these are things you need to learn how to do, rather than change the parameters of the portfolio to suit your own needs.  This is why we have 5 Portfolios – not every one is for everyone.  

    StJ – Perhaps, to avoid any confusion – in the title of the $25KP, it should say: "(very aggressive and margin-intensive)"?  

    And what you said!  

    AAPL on charts/Peter – A single stock may have a strong correlation but, if it does, then what's the point of charting it?  If you want to know how AAPL is doing, look at the Nasdaq chart then but it's ridiculous to junk up the Big Chart with the fad of the moment.  

    OXY/Peedle – I don't think they are very lovable at $84, they were $65 last September and fell off a cliff in August.  I'm curious as to why you believe this summer will be the first one in 3 years they don't trade down to their lows?  Some inside information you have?  Some macros I'm missing?  What is the connection between OXY and mall retailers?  

    SNE/Kinki – I like that idea.  

    PCLN/Jerconn – I think $700 will hold and they'll trade with the market, more or less.  Over time, I think they will move lower but, for now, those were nice earnings.  

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