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Technical Tuesday – Markets Need a Boost, But from Where?

Is our rally getting tired already?

As you can see from our Big Chart, we're curling over right about our 50 dmas and we don't want to do that because those are declining 50 dmas and if we follow those down then we add negative data to the 200 dmas and, once they start curling down, we're pretty screwed

So, we need something to boost the markets and it's not looking like it will be a sudden solution to the Fiscal Cliff and it's already December 4th so only 14 trading days until Christmas and I think we're going to need a miracle to pull this one out of a hat.  

There's not much for data to move us this week – just Productivity, Factory Orders and ISM tomorrow, Consumer Comfort on Thursday and Consumer Credit and Sentiment on Friday.  Next week we have the final Fed meeting of the year Tuesday and Wednesday and next Thursday we get Retail Sales and Industrial Production on Friday so, if we're going to have some kind of launch based on data – that would be the time for it.

SPY MINUTEOtherwise, we're adrift and counting on Congress to "fix" things in order to get the markets moving again.  Dave Fry's SPY chart shows the relentless selling we got yesterday as soon as the bell rang in the morning – erasing all of the pre-market gains and dropping us back to just under 1,410 on the S&P.  

We're still holding our strong bounce lines of Dow 12,950, S&P 1,400, Nasdaq 3,000 (barely), NYSE 8,100 and Russell 805 but the Dow is too close for comfort and, as I said last week – losing ANY of our levels at this point is going to be a very bad sign.

That's why we've held onto our TZA weekly $16 calls (now .12) in our virtual $25,000 Portfolio and why we are 9/10 covered on our AAPL spread as well.  We took a lot of open bullish plays off the table last week as we approached this level test and, now that we may be failing it – we certainly aren't feeling more bullish!  

Worst of all, we're having this spot of trouble at our levels while the Dollar is getting weaker – usually we can count on a weak Dollar to boost the markets but the rats are leaving this sinking ship and even gold, silver and oil are dropping along with the Dollar – those are bad signs!

So we're going to take breaches of our levels very seriously but we need to remain aware that this market is poised to rally on news of a Fiscal Cliff solution – whether real or imagined – and will be rumor-driven through the middle of next week.  That's going to make it tough to trade and there's nothing wrong with going to cash into the new year.  It''s been a good year – no reason to blow it!  Our aggressive $25,000 Portfolio, for example, had a rough ride but is up 40% since 6/21 – about the same as our Apple Money Portfolio – although we only started that one on 10/21.  

And, of course, as 2012 draws to a close, we should check in on our "One Trade" for 2012.  Back on January 5th we identified BAC as the one, single trade to make for 2012 and put it in our "One Stock Portfolio" – for lazy people who can't be bothered to play the market every day (or maybe just have a life!) and just wanted to pick one stock that they could bet it all on as a make or break trade.  Our trade idea for BAC was:

Buying the stock for $5.75 and selling the Jan 2013 $5 puts and calls for $2.55 for a net $3.20 entry.  In our example, we talked about putting $32,000 into 10,000 shares of BAC and selling 100 puts and 100 calls for a max profit of $18,000.  10,000 shares of BAC are now $98,000 and 100 Jan $5 puts are $2,000 and $100 Jan $5 calls are $48,000 for a net of $48,000 at the moment – a 50% profit on our One Trade for the year.  That's better than we did on our $25,000 Portfolio in 6 months of rough trading!  

Even deducting $1,500 for the FAZ hedge (in our more conservative suggestion) – it's a nice annual return and, while it's too early to call our One Trade for 2013 – we are beginning to look for candidates that are just as obvious.

The bottom line is – don't fear getting back to cash.  Cash is good, cash is flexible, cash opens us up to opportunities that are difficult to see when we are juggling a book of trades.  We had what is called "a moment of clarity" regarding BAC in early 2012 and 2013 promises to be a year that is going to be just full of opportunities – if we're ready to take advantage of them….


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  1. stjeanluc

    Oil Lines

    R3 – 91.55
    R2 – 90.94
    R1 – 89.82
    PP – 89.21
    S1 – 88.09
    S2 – 87.48
    S3 – 86.36

    Yesterday's high and low – 90.33/88.60
    Daily Fib lines – 91.40/90.80 and 88.19/87.94

    And wheeeeeeeeeeeee……..

  2. 1020

    Good Morning!

  3. stjeanluc

    ORCL last on the list of companies accelerating their dividend payments… Ellison will receive something like $198M and pay 15% instead of possible 40% if they can't resolve the tax issue in DC.

    But don't these people realize that what's important is not what you pay in taxes, but what you keep. In Ellison's case, on one side he gets to keep 168M and on the other 118M. No matter how you look at it, it's still more than enough money to make it through life without have to worry much!

    That always amazes me when these people making 1M/year complain about paying 35% taxes and moaning that someone making $40K pays now taxes. Look at what's left after taxes rather than your tax rate and decide if you can live with it. I know plenty of people making $40K who would love to have $650K left after taxes rather paying no taxes. End of rant!

  4. Pharmboy

  5. Pharmboy

    SGEN/cee – why am I taking off the covers?  well, yes, I think that SGEN's stock could be higher than 30.35 at the end of Dec, and 35.15 by the end of March.  IF they are bought, I would expect them to fetch $37-42. 

    STJ/jfaw – pausible bounce levels.  They were there back in June as well, and now they have bounced.  They could very well blow through that level ($31.50) on the next trip.

  6. terrapin22

    Bloomberg TV will air an interview with President Obama at 12:30 p.m. on the "fiscal cliff." per dealbook.  

  7. Pharmboy

    France and Germany having a tissy fighty…here.  Makes sense for the Euro to go up, doesn't it?

  8. stjeanluc

    These numbers are not encouraging for Europe:

  9. Pharmboy

    Taking gold out and dumping it….interesting.  GLD has now hit the lower BB on the charts.  Double bottom?

  10. neetcorp

    Pharmboy
    Your thought on BLRX. Thanks.

  11. ceegee

    Pharm/SGEN: Thanks! It will be fun if they do!

  12. stjeanluc

  13. rpme

    Phil, could we see some movement on Friday from employement?

  14. stjeanluc

    Almost $5500 of profits in the short AAPL calls….

  15. Pharmboy

    BLRX/neet – flip a coin.   In their Phase 2a study, they had to to a reanalysis….now, I have not done a deep dive, but for the treatment of a psychological disorder, it is a very, very tough nut to crack. 

  16. stjeanluc

  17. yodi

    stjeanluc
    ORCL 50 million is a lot of difference buys a lot of strippers! They also want to get their pay.

  18. stjeanluc

  19. stjeanluc

  20. stjeanluc

    I would normally agree with you Yodi, but not for a guy already worth $20B…. How much more can you spend in a lifetime?

  21. yodi

    stjeanluc
    For these guys it is just a number game they are out of tough with real life

  22. stjeanluc

    Indeed Yodi, indeed….

  23. jabobeast

    Phil--I sent this http://seekingalpha.com/article/1041081-merry-monday-morning-will-santa-come-to-town to a women who is about to start law school and then she asked me if I watched Cramer since that is what the article made her think of (her old boyfriend use to make her watch Cramer, I guess). 
    I didn't know if I should laugh or cry when I saw her response…
    College…. Maybe, your kids should take the $250k and start a business!!!

  24. ariveraA

    Hi Phil:  Any thoughts on DRI? Down 8% today but good dividend. 

  25. yodi

    AAPL Rolling some longs further out and down
    Phil my question is do we take any covers of the weekly DEc callers?? TIA

  26. 8800

    Anyone have any  thgts/news on weakness in IMAX?

  27. phil

    Good morning! 

    Looks like our levels are holding so far.  

    TOL had very nice earnings and guidance – that's encouraging but DRI warns on China (like YUM):

    Darden Restaurants (DRIlowers its outlook for Q2 EPS to a range of $0.25 to $0.26, well-below the consensus mark of analysts calling for $0.46. The company says Hurricane Sandy impacted results by a penny per share and transaction costs from the purchase of Yard House will cut a nickel per share off profits, but the bulk of the downward revision has to be considered weakness with sales at Red Lobster, Olive Garden and LongHorn Steakhouse. DRI -8.8%

    The restaurant sector is on watch after a profit warning from Darden Restaurants points to weakness, not in Europe or China, but at home in the U.S. While increased promotional activity in the sector is behind part of the slip from Darden, the bigger question is why are sales so weak for big players if consumer confidence is supposedly bouncing back?

    More on Toll Brothers (TOLFQ4 earnings: Home deliveries of 1,088 units, +44% Y/Y. Net signed contracts of 4.86/community, the highest Q4 since FY2005. Backlog of 2,569 units, +54% Y/Y. Cancellation rate of 4.6% vs. 7.9% a year ago. Average selling price of $582K, +3% Y/Y. Gross margin of 24.6% vs. 24.2% a year ago. (PR) 

    Though the blowout numbers kind of speak for themselves, Robert Toll makes the bullish case for homebuilders in Toll's (TOL) earnings report: He notes a Harvard study showing household formations 1.8M-2.8M less than what would have been expected given population growth since 2007. Recent trends show these formations are starting to catch up. New homes built in 2012 will be about 750K, about half of what's needed to keep up with formations.

    AAPL having a bad morning, down 1.5%.  

    GLD is an interesting play down here for a bounce off $1,700 (as are the /YG Futures, of course) and the Dec $166 calls at $1.20 were $3 in the money two weeks ago but figure GLD makes it back to $167.50 and that should be Gold $1,740 and that should be about $2 on the calls so possible to make a quick .80 and keep a stop at .50 and it's risk .30 to make the .80

    At the open: Dow -0.02% to 12964. S&P -0.11% to 1408. Nasdaq -0.18% to 2997.

    Treasurys: 30-year +0.1%. 10-yr +0.06%. 5-yr +0.03%.

    Commodities: Crude -1.44% to $87.81. Gold -1.58% to $1693.85.

    Currencies: Euro +0.25% vs. dollar. Yen -0.44%. Pound -0.12%.

    Market preview: Stock futures are just about holding on to small gains, while London and Frankfurt have turned lower after rising earlier. The S&P benchmark is +0.1%. The market continues to remain hostage to the ebb and flow of the fiscal cliff talks. The focus should turn to Baxter after it says it's buying Gambro for $4B, while Toll Brothers jumps 4.1% following earnings, although MetroPCS is -6.9%after Sprint appears to lose interest. Later: Daniel Tarullo 

    10:00 AM On the hour: Dow +0.21%. 10-yr +0.04%. Euro +0.26%vs. dollar. Crude -1.01% to $88.19. Gold -1.25% to $1699.55

    Based simply on recent PMI levels, Western stock marketsare 15-35% overvalued, says Deutsche Bank, which believes the Fed's QE∞ and the ECB's OMT have allowed equities a 6-month grace period. If early 2013 economic prints don't start to improve, look for stock markets to give up and adjust downward.

    The strong loonie may have Canadian shoppers showing up at U.S. malls, but it's the "heart of a renaissance" in business spending, says a bullish David Rosenberg. Still contracting in the U.S., capital spending in Canada is a full percentage point above the norm, promising to generate the productivity and job growth necessary for sustainable recovery. 

    Booming trade between Mexico and the U.S. is proving a boon to railroad, trucking and logistics firms. Union Pacific's (UNP) cross-border carloads, for example, increased 6% in the first nine months of 2012, well above its overall volume growth of 1%. Other companies that are benefiting include Kansas City Southern (KSU), CSX (CSX), Norfolk Southern (NSC), J.B. Hunt (JBHT), Swift Transportation (SWFT), Celadon (CGI) and Pacer (PACR).

    Outgoing CFTC Chief Economist Andrei Kirilenko has highlighted the profits that high-speed traders make from traditional investors, with the average gain reaching as much as $5.05 per each S&P 500 futures contract traded with small investors. The findings come amid increasing concerns about whether high-speed traders have an unfair advantage and whether they pose a threat to the financial system.

    The disconnect between the aviation sector and the rest of the economy is set to continue in 2013, with Boeing (BA) forecasting that industry growth and fleet replacements should keep demand for aircraft stable and attract sufficient financing. Boeing predicts jetliner deliveries at $104B. The feared withdrawal of EU banks from aircraft financing hasn't occurred, due to the attractive returns. (PR) 

    Airline stocks trade higher with oil prices easing off and more M&A talk swirling around following news from yesterday that Virgin Atlantic was up for sale. Another underlying factor to watch in the sector is if European or U.S. regulators relax on foreign ownership rules to put a charge into consolidation plans. Advancers: DAL +2.9%,LUV +1.5%UAL +1.4%LCC +1.3%.

    Tesla Motors (TSLA -1.8%) is under investigation over whether or not the electric vehicle automaker used its foreign trade zone status to bypass requirements that it buy parts from American companies. Though the issue will draw attention with Tesla a bit of a political lightning rod, a tweet from Elon Musk indicating the company was narrowly cash flow positive last week could balance sentiment.

    Gaming companies with operations in Macau are feeling the pressure in early trading from reports on a crackdown by Chinese authorities on corruption. Though a few token arrests is considered the same old song and dance by a number of industry watchers, it's the pace of revenue growth in the region that is the larger story to watch for them. For November, Macau gaming grew at 7.9% vs. a consensus estimate of 8%. Premarket: MPEL -4.5%WYNN -1.5%,MGM inactive, LVS -1.8%.

    A banned ad in the U.K. may be a shot in the arm for SodaStream (SODA) after the oft-discussed commercial was viewed over 1.2M times on YouTube. Though the Israel-based company continues to hammer away at packaged drink sellers such as Coca-Cola and PepsiCo over environmental issues while shares keep their winning ways intact, the real test for SodaStream will be to see how the holiday shopping season shaped up in Q4. (banned ad)

    It looks as if Intel (INTC +1.3%) again plans to issue debt to finance stock buybacks: the chip giant says it will make a senior notes offering of undisclosed size, and intends to use the proceeds "for general corporate purposes and to repurchase shares." Extremely low interest rates and a stock trading near its 52-week low both act as incentives. Intel had $7.16B of debt on its balance sheet as of Sep. 28, and $14.9B in cash and investments. (2011 debt offering)

    Apple (AAPL) nearly doubles the geographic reach of its iTunes store by extending it to another 56 countries, including Russia, India, South Africa and Turkey. The expansion takes the number of countries in which iTunes is available to 119. Prices will vary considerably: a song will cost 15 rubles ($0.48) in Russia but just seven rupees ($0.12) in India.

  28. phil

    $25KP and AAPL Money – Let's buy back the 3 weekly $580 calls, now back to $6.60 as it's only Tuesday and they bottomed out at $5.25 this morning so not worth the risk/reward trying to squeeze the next 50% out of them.

  29. qcmike

    Pharm
    SGEN  would it be a good trade to sell Mar 22.5 puts  ?
    Thanks

  30. scottmi

    EDZ/Phil – why is this so weak today? RoW strong against USA?

  31. phil

    Taxes/StJ – There's plenty of people who would love to pay 90% taxes on $10M in income.  In fact, even when top marginal rates were 90% – I don't recall any kids ever saying they didn't want to be millionaires because then they'd have to pay tax.  

    Obama/Terra – That can move the market.  

    Europe/StJ – It's a recession, what could we expect?  

    Gold/Pharm – Yep, tempting enough here to take a stab at it.  

    FAS Money – All is well.

    $25KPs – Not much to do but tempted to go cash.  

    AAPL Money – See above for adjustment.  

    Cramer/Jabob – Nope, can't take that as a compliment….  I've said that about college many times, better off keeping the cash and getting real experience.  

    DRI/Arivera – Look at YUM.  No recovery there.  No reason to expect more from DRI on essentially the same news.  Give them time to come down if you are interested.  

    AAPL/Yodi – Hopefully answered above.  We'll see if they can hold $575 but, if not, we'll sell something else for $10.  

    IMAX/8800 – I know Guardians was a big flop.  China slowdown news from YUM and DRI should be a concern too.  They make a nice entry point around $20. 

    EDZ/Scott – Commodities coming down hard hurts them.  Weak Dollar not good either.  

  32. rpme

    Consumer Confidence may be picking up but restaurant operators are pessimistic, traffic is declining, and commodity costs continue to escalate, could have the highest beef prices ever for the next 2 years before herds are replaced.

  33. ariveraA

    Thanks! 

  34. yodi

    Phil Thanks AAPL however I am not sure it is wise to close the door now to the long calls as AAPL is still in todays dip??

  35. rj_jarboe

    Phil/msft
    I know you don't love them, but a b/w with the 2015 $25's is looking very interesting. Roughly $18.50/21.75 with a decent dividend. Too early?

  36. 8800

    Phil
    Thx for IMAX thgts. Most of news I see has been expansionary and theoretically accretive to eps. Re China slowdown, used to be during recessionary times, defensive sectors like bars, beauty salons and movies did well. In the 20 neighborhood (now 20.89).

  37. Burrben

    Phil / BAC  -  Wouldn't someone have called you on the short 5 calls, which would taken the stock away?

  38. dclark41

    Phil
    What's your plan with the naked TZA weeklies? Are you now looking at them as just protection for the week? Not looking so hot as a straight directional bet.

  39. rexx

    Phil – TASR – you like it here? I have small buy write (Jan 13 5 Calls and Puts vs Stock bought at 5).  So no problem.  Just trying to decide either (1) let it get called away or (2) roll the calls and add to the position to make it a reasonable size for me.  Thanks

  40. phil

    Beef/Rpme – But still you can get a McDouble for $1.

    AAPL/Yodi – If it goes lower, we want to sell something with more heft.  Going lower now, in fact…

    MSFT/RJ – If Ballmer stepped down,  I would love them.  A bit of a falling knife here, maybe wait and see how they handle $25?  Or, if they get back over $27.50 – then you can feel better about buying.

    Recession/8800 – That was when movies were a nickel (coffee was a dime) and offered a cheap escape.  I don't think $15 IMAX tickets with $5 sodas and $5 popcorns per person in the family has quite the same recession-busting spirit.  

    11:00 AM On the hour: Dow +0.14%. 10-yr +0.06%. Euro +0.26%vs. dollar. Crude -0.95% to $88.24. Gold -1.15% to $1701.35.

    The disconnect between analyst sentiment (bearish) and the direction of stocks continues to grow, notes Ryan Detrick, hoping to combination represents a contrarian buy signal.

    Most Accurate Economic Forecaster Sees Lethargic U.S. Expansion. Shapiro has scored the top spot among forecasters of the U.S. economy for the two-year period ended on Sept. 30, according to data compiled for the annual Bloomberg Markets ranking of global forecasters. Shapiro sees monetary policy, with the Federal Reserve benchmark interest rate at almost zero, as having a limited near-term impact on growth. And he considers the $1 trillion U.S. fiscal deficit an important drag on future expansion. “There is an element of repetitiveness in being an economist these days, because adjustments that affect the economy are all very long-term and are not going to change anytime soon,” he says.

    The Trulia House Price Monitor - which measures asking prices – rises 0.8% in November and 3.8% Y/Y. Of note: Taking out the seasonal adjustment, prices still rose 0.8% Q/Q, pointing to unusual strength as prices typically decline after the summer season. The Trulia Rent Monitor rises 5.6% Y/Y. 

    Housing is just fine (Bloombergsee also No its really not (Credit Slips)

    Europe’s property loans go unpaidMore than 70 per cent of the European commercial property loans that were at the heart of securitisation deals structured before the subprime crisis and that reached maturity this year have not been repaid. Fresh figures from Fitch Ratings point to the continued difficulties facing issuers and investors involved in European commercial mortgage-backed securities deals that were structured in the securitisation boom between 2004 and 2006.

    The Nobel Foundation looks to hedge funds to improve returns after a decade of poor performance forced a 20% cut in cash awarded to prize winners (the first cut since 1949). "We see that we can get more return with less risks by doing that," says Executive Director Lars Heikensten. You don't need a Nobel to know that's not necessarily true.

    Previously benefiting from European banks' need to offload U.S. assets, Wells Fargo (WFC) isn't seeing as much action lately, says CEO John Stumpf. The pressure is somewhat in Europe at the moment, but there's also the competition. "We are asset-hungry, but then again, most companies are right now," he tells a Goldman conference. (presentation) 

    As Washington obsesses about the fiscal cliff, Pres. Obama is putting in place the building blocks for a climate treatyrequiring the first fossil fuel emissions cuts from both the U.S. and China. A State Department envoy is in Doha this week working to clear the path for an international agreement by 2015 that could help cut U.S. greenhouse gases 17% by 2020. 

    Islands Seek Funds for Climate Damage at UN DiscussionsIslands that are most vulnerable to rising oceans are seeking an insurance program to protect against damage related to climate change, adding to pressure on industrial nations to increase aid committed to fight global warming to more than $100 billion a year

    Auto parts sellers slump after AutoZone's earnings report set a dour tone. Though Advance Auto Parts (AAP -1.5%) and O'Reilly (ORLY -0.9%) trade lower, it's shares of Pep Boys (PBY -12.4%) that are really getting clobbered after the company showed weak results of its own for Q3. The sector isn't getting any help from a mild start to the winter, but underlying service and merchandise sales trends are worrisome.

    Coca-Cola (KOannounces it took an equity stake in the newly-created Fair Oaks Farms in partnership with Select Milk Producers. The company sees the new venture providing new brands and products in the active lifestyle dairy segment. The lynchpin product may be protein milk shake Core Power, with a national rollout already in the works.

    Some marquee Chinese Internet stocks are slumping, potentially on worries about the SEC's suits against the Chinese arms of the Big-4 U.S. accounting firms. Baidu (BIDU -5.1%), Sina (SINA-6.6%), Youku Tudou (YOKU -4.2%), Sohu (SOHU -3%), Perfect World (PWRD -1.2%), and NetEase (NTES -4%) are among the losers. Renren (RENN +2.5%) is higher following yesterday afternoon's Deutsche upgrade.

    Some stats from Mary Meeker's 2012 Internet trends report: 1) China now has 538M Internet users (+10% Y/Y), though penetration is still only at 40%. It also has 270M smartphone subs; penetration (as a % of mobile subs) stands at 24%. 2) Globally, there are 1B smartphone subs, compared with 5B mobile subs. 3) Mobile data now makes up 13% of total Internet traffic. 3) Total mobile app/ad revenue is expected to hit $19B in 2013, up from $15B in 2012. 4) About 1.5B Wi-Fi devices and 2B Bluetooth devices will ship in 2012.

    Thanks to the impact of recent job cuts, AMD (AMD -1.7%) is pushing back the launch of its Radeon 8000 GPU line to Q213 from Q4, sources tell Digitimes. The 8000 chips, which succeed the 7000 line (Southern Islands), are seen as pivotal to AMD's efforts to take back GPU share lost this year to Nvidia's (NVDA +0.5%) GeForce 600 line (Kepler). Digitimes also claims Nvidia will release its Tegra 4 app processor in 1H13, and an integrated baseband/app processor in 2H – the latter is badly needed to compete against Qualcomm's Snapdragon line.

    Apple (AAPL -2.1%) roundup: 1) Sterne Agee's Shaw Wu is lifting his FQ1 estimates; plummeting iPhone 5 lead times make him think there's upside to a consensus for 45M-46M iPhone sales. However, Mac sales (a much smaller % of profits) could disappoint due to iMac shortages. 2) Judge Koh has ordered Apple to make public which patents are included in the HTC deal, though pricing and royalty details will only be available to Samsung lawyers. 3) Apple has apparently moved some iMac assembly work to the U.S. (iTunes expansion)

    Microsoft-Intel Push to Combat Apple in Tablets Sputtering (Bloomberg)

    Grand Bargain Inadequate to Fix U.S. Fiscal Woes, Study Finds. (video) Even a so-called grand bargain might not be enough to solve the U.S. fiscal woes. A $4 trillion combination of spending cuts and tax increases over 10 years envisioned by Democrats and Republicans as a long-term fix would be inadequate, according to a Bloomberg Government study. Almost $6 trillion in deficit reduction will be needed in the next decade "to make a minimum down payment that puts the nation on a sounder fiscal footing," the report said.

    Screen Shot 2012-12-01 at 4.13.19 PM.png

  41. yodi

    Burrben
    Did you get my take on T early this morning still Monday's post?

  42. kustomz

    UK FTSE -0.1%
    German DAX -0.1%
    French CAC +0.3%
    Spain IBEX +0.3%
    Italy MIB +1.0%

  43. phil

    BAC/Burr – Sure, we might have gotten paid in full early on the bull side – not sure what's wrong with that.  Actually, we called for closing this trade way back in March when BAC ran to $10 and the trade was up over 40% in less than 90 days – could have gotten back in again when they were back to $6.70 in May or again in July for a triple-dip as well but we're just talking about what happened with the basic trade.  

    TZA/DC – If we don't use them today, we'll lose them as this bottom holding is a good sign. 

    TASR/Rexx – Hard for me to like them at $8 when we were buying in at $4.  That one is my stock of the decade though so next time they are $6, I'll be liking them again.  If you have the stock at $5 and sold the Jan $5 puts and calls (now $3.25), you're net $4.90ish and, unfortunately, they have a short window to roll but you can sell the June $7.50 calls for $1.50 to knock your exposure to $1.75) and then sell the June $7.50 puts for .75 so now net $5.90ish (less what you sold original puts and calls for) and your call-away bar has been raised $2.50 while you wait for Jan option to roll out to.  That way, you only add capital if you have to (and at a lower price than we have now).  

  44. stjeanluc

    Taxes / Phil – In effect, by raising the top tax bracket by 4%, we are just bringing them back to above the average cut for everybody else then. What's the big deal about that?

  45. williex

    Stjean
     
    What ever happened to the F trade in the income portfolio?

  46. Burrben

    Phil / BAC –   Sure I understand that there were many ways to close, etc.  I just don't think that you can sum up all the numbers since the stock blew through the short calls and would have gotten called away.  Then there were many options on how to profit.  I think the original premise is the way to say it was successful….+18K
     
    Yodi / T  - I did, thank you.  I'm slowly planting trees, and I like to hold the stock hoping for the 15% div tax to stay in effect.  I'm also adding to ECA as it's been very good to me.  TY!

  47. Pharmboy

    SGEN/qc – sure.  Start with a 1/3 or 1/5 entry.

  48. stjeanluc

    F / Willie – We have a Jan 14 trade in there – 30 long calls and 30 short puts. Is that what you are looking for?

  49. yodi

    Burrben
    15 % tax wishfull thinking listen to him now at Bloomberg

  50. williex

    F/ Stjean
     
    yes thanks.  Wondering if it was still on or took profit

  51. rainman

    Phil / McDouble — Are you really comparing those things to beef?  Whatever part of the cow they make them out of probably can't be sold in grocery stores. 

  52. kustomz

    Bloomberg story Spanish budget minister, Spain will miss its deficit target for 2012.

  53. Burrben

    Yodi – I never listen to politics.  It's all just fluff…until it isn't.  Once a actual decision is made, then I'll care.  "Plan for the worst, hope for the best", but I don't spend my mental capital worrying about anything until it's fact.

  54. rperi

    Would like to play for a continued recovery in the housing sector.  Did well on an earlier suggested trade on HOV and would love some other ideas.  Looking at XHB you'd think the recovery has been going on for some time now.  Any other thoughts on housing stock?  Thanks ~

  55. stjeanluc

    Portfolio / Willie – Do you have the link? The spreadsheets are up to date.

  56. Laddoo

    GLD Math/Phil


    From your earlier post:


    "…the Dec $166 calls at $1.20 …  should be about $2 on the calls so possible to make a quick .80 and keep a stop at .50 and it's risk .30 to make the .80".


    How did you come up with the .30 risk?
    Thanks !!!

  57. Laddoo

    Sorry for the JUMBO font…lol.

  58. phil

    Europe fizzled out into their close and AAPL is keeping us down no matter what everyone else wants to do.  

    Taxes/StJ – It's only a big deal to the people who have to pay them.  Even Tina was thrown into a Republican rage by a presentation at our town hall regarding how much taxes would go up if the Fiscal Cliff triggers but people need perspective.  It's never really about you unless you are TBoone Pickens or in that top 0.01%.  The top 1% made $1.685Tn last year and paid $392Bn in taxes – that works out to a 23% average rate.  The ENTIRE bottom 50% made $1.074Tn, 60% LESS than 1/50th the people made in the top 1% and they still paid $27Bn in taxes.  So they make 1/100th as much income but pay 1/15th as much tax – that's disproportionate!  

    BAC/Burr – You can what if things to death.  With calls, it's not unusual to never get called away because most people buying calls are doing so for the leverage, not to own the stock.  Either way, you make the same money – it's just a question of how fast you make it.  

    McDouble/Rain – Those are gross little hamburgers but I do like the chicken 

    Spain/Kustomz – No big surprise.  

    Housing/Rperi – TOL is not bad.  Surprisingly limited reaction on report that couldn't have been better. Home deliveries up 44% from last year, where they averaged $20 so current price of $32 is not accounting for much growth even though the trend seems to be firmly in place.  You can go artificial on TOL and sell the 2015 $25 puts for $3.50 and buy the $28/40 bull call spread for $5.50 for net $2 on the $12 spread that's $4.62 in the money to start and your worst case is owning 1x at net $27 (17% off).  

    Also, HOV not too pricey at $5.08 since you can sell the 2015 $5 calls for $1.30 and the $4 puts for $1.50 for net $2.28/3.14 – which is a lovely 38% discount if things go badly and you end up with 2x and, of course, it's more than a double if called away at the current price.  

    12:00 PM On the hour: Dow +0.12%. 10-yr +0.07%. Euro +0.20%vs. dollar. Crude -0.51% to $88.64. Gold -1.29% to $1698.95.

    Bank profits reached a 6-year high of $37.6B in Q3, according to the FDIC, but for the first time since the crisis, the better earnings were more about operations and less about reduced loan-loss reserves (chart).

    Newly-elected Senator Elizabeth Warren – a harsh critic of the financial industry – has reportedly been given a seat on the Senate Banking Committee. "The committee perch gives her a microphone, but she has a microphone anyway," says an industry official, waving off the move as not a big deal. 

    The Fed's Daniel Tarullo questions just how large banksneed to be before gaining the full benefit of economies of scale. More research is necessary, he says, to see if size benefits just the institution until things blow up and then society pays the cost. Tarullo – the Fed's main voice on regulatory matters - mused a couple of months back about capping bank liabilities.

    GLD/Laddoo – Wrong number.   The stop should be .90 to keep the risk down to .30 (already down to $1).  

  59. Burrben

    Interesting, this person feels the VXX decay is priced into the put premium, and prefers bearish call spreads (which I actually have a few on 2015 VXX options)
    Advanced Trading: Exposing the VXX to Understand Volatility Contango and Time Decay

  60. Laddoo

    GLD/Phil
     If you were going to try this now, would you recommend the same strike?
    Thanks!

  61. tommyt

    hi phil
    i got filled on dec 166 gld call at 1.01 instead of 1.20
    is that ok or is bouce premise blown at 1695 and i shouldnt have played
    also am i correct that if goes bad and calls drop to like .81 cents i should bail and take my 20% loss?
    thanks

  62. jromeha

    Greetings all – T-minus 2 weeks and counting till I leave this sh!thole :) . The air is getting so bad you get migraines after being outside for more than 45 minutes. It wasnt this bad in January when I came here, they are really burning a lot of shtuff…. Anyways, Phil, I know you love ABX and was wondering how you like playing them?

  63. Inkarri19

    Hello All – Was looking at some numbers today and for someone to retire and be okay, you either have to have about $1.5M in the bank or have one heck of a nice pension.  If they cut SS benefits. which at this point seems inevitable down the road as the SS Trust Fund money is gone, I hate to think what will happen to a lot of people in the US. 

  64. 1020

    Godspeed jromeha!   :)

  65. Burrben

    Someone big thinks Vol is gonna increase:
    http://communities.cboe.com/t5/What-s-On-Our-Minds/A-quot-Texas-Bull-Spread-quot-in-the-VIX-by-Marty-Kearney/ba-p/4485
     
    A customer bought 45,288 VIX January 25 calls
                      sold     45,288 VIX January 30 calls
    and
                     bought 35,742 VIX March       24 calls
                     sold     35,742 VIX December 24 calls    

    and
                     sold     45,288 VIX January 14 puts
     
    Coming in this morning;
    December VIX futures 15.55
    January  VIX  futures  17.15
    March    VIX  futures  19.30
     
    So this customer combined a bullish call vertical spread (Jan 25 – 30), a bullish out-of-the-money call time spread  (Mar – Dec 24 spread) and a bullish sale of puts (Jan 14). 

  66. stjeanluc

    VXX / Burrben – I don't know about the decay being built in the puts. The other day I was looking at a 35% return over 2 years and that ain't bad! 

    What strikes you have for the bearish call verticals. The problem I have with that is that VXX can run up in a hurry in which case I would buy more of the 20 puts. But for the calls, it depends on how far OTM you are to begin with. Did you run a ROI to compare?

  67. phil

    GLD/Laddoo – No, I'd go for the lower strike at the same price.  It's mostly a leverage thing to the upside we're looking for.  Of course, if we can't take back $1,700 – it's a moot point. 

    GLD/Tommy – The premise isn't really blown until we fail our downside stop but it's just a quickie trade – not even certain enough for the $25KP so it's not something you should over-think – we either make a bounce or we don't.  

    2 weeks/Jrom – Finally coming around.  On ABX, they are back where we like to establish and entry and you can sell 2015 $28 puts for $4 so what's not to like about net $24?  If you want to be greedy, you can add the 2015 $30/40 bull call spread for $4 and you raise your put-to price to net $28 (still 17% off) and you have a free $10 upside on the spread.  TOS says net margin on short puts is just $2.80 so a very margin-efficient play. 

    $1.5M/Ink – You must not have daughters!  Most people have less than $40K saved for retirement, without SS – they are screwed. 

    VIX/Burr – That's some pretty aggressive betting. 

    Dow volume just 57M at 2:15.

  68. Pharmboy

    SGEN….nice.  Missed the move up to 26.26…..more to come IMHO.

  69. 1020

    Just like I thought. boehner can't get the support he needs and is putting his next two years as Speaker of the House, at risk.
    http://nbcpolitics.nbcnews.com/_news/2012/12/04/15674350-boehners-fiscal-cliff-offer-under-friendly-fire-from-right?lite&ocid=msnhp&pos=1
     
    No Guts, No Glory,  Mr. boehner.  Time to walk the plank!    :)

  70. shadowfax

    1020 boehner, small b!!

  71. phil

    Boehner/1020 – That radical right will eventually do the whole party in.  

    So far, every attempt to rally has been harshly slapped down.  At least we're holding a floor so far but ugly day overall. 

    TLT ($125.26) and the VIX (17.25) both creeping up.  

    Dollar 79.63.  Oil $88.47, gold $1,697, silver $32.95, copper $3.65, nat gas $3.539 and gasoline $2.687.

    Euro $1.3098, Pound $1.6104, 81.83 Yen to the Dollar.  '

    As CNBC guy just said – "We're all just waiting to see that white puff of smoke come out of Washington."  

  72. dclark41

    Phil
    Just a reminder to kill those TZA weeklies

  73. stjeanluc

    Slow day today….

  74. stjeanluc

    That explains that big NFLX move today:

    http://www.engadget.com/2012/12/04/netflix-strikes-licensing-agreement-with-disney-will-be-exclusi/

    Netflix just announced a couple of new deals with Warner last week, and it's now landed a big one with The Walt Disney Company. While it's still a few years out, the company has announced today that it will be the exclusive US subscription television service for first-run live-action and animated films from Disney beginning in 2016 — meaning that theatrically-released movies will be available on Netflix during what's known as the pay TV window (ordinarily afford to HBO and the like). That deal also includes first-run rights to direct-to-video releases, which will begin appearing on Netflix in 2013. What's more, the two companies have also announced a separate multi-year agreement that will see popular Disney catalog titles likeDumbo and Alice in Wonderland be made available on Netflix beginning today. 

    I guess it's a big deal!

  75. phil

    TZA/$25KPs – Looks like we won't be needing them so may as well cash them in (.07).  

  76. scottmi

    GMCR – 15 min chart looks like a textbook parabolic curve.

  77. williex

    Stjean
     
    No i don't have the link.  It would be appreciaed.  Thanks

  78. neetcorp

    Pharmboy
    Roth set $10 target on $ALXA, Something   right ?

  79. stjeanluc

    Here you go Willie:

    https://docs.google.com/spreadsheet/ccc?key=0Anwf9je9MizqdGQzN2NZUjNfdjhrbjFwWlc1eDYtWnc

    Look for the tab for the Income Portolio.

  80. neetcorp

    Obama already talking no fiscal cliff deal – just an extension to kick it to the fall or end of 2013.

  81. phil

    No deal/Neet – Will be interesting to see what reaction that gets.  To me, an extension is the best we were likely to get anyway.  

  82. Inkarri19

    No Deal – I think it was Senator Bachus who said today that not only would the fiscall cliff be averted but that the US would regain its AAA rating. 

  83. shadowfax

    Bachus
    Been more wrong than right! Better chance of going to A than AAA.

  84. Inkarri19

    Mr. Burns – Fiscall Cliff
    http://youtu.be/c91usT4P1u0

  85. shadowfax

    Looking at IWM this looks like consolidation, but the SPY, USO, and QQQ look like a top.

  86. Inkarri19

    Shadow – That was a funny comment by him.

  87. 1020

    No Extensions!  Like Y2K, everyone was concerned what would Jan.1 would look like…pffft…nothing.
     
    We can't allow this to move back into a election cycle and I actually believe we have a better chance of regaining our AAA status by falling off said cliff and not by delaying it!
     
    Something needs to be done. In the meantime, who wants to do some cliff diving?   :)

  88. phil

    Well, not much to today's action overall. 

    We'll have to see what tomorrow brings. 

    Dow showing 83M with 3 mins left, should be lame volume like yesterday.  

  89. scottmi

    HPQ – what chaged them up today? starting a lawsuit?!

  90. shadowfax

    Inkarri19
    I lived in Montana until 1995 and they want to be important. As long as I was there it was all North Dakota jokes. I was stupid to leave, moved to Wyoming, worth up past a million and now 1/2 gone in a flash. Buy my house and I will return!

  91. neetcorp

    Chelsea Therapeutics International $CHTP halted

  92. Pharmboy

    ALXA – yeah, after a 10:1 reverse stock split.  I loved them a few years ago, then they imploded.  Drug works, technology works, FDA no likey ikey……not interested.  Dec 21 is the day of reckoning…..

  93. Pharmboy

    CHTP/neet….they are gonna explode!  Now, hopefully it is UP!

  94. Pharmboy

    Although, the FDA will not approve on this data set alone, it is validation that their drug works….sheesh, the FDA.  Who do they think they are?

  95. neetcorp

    $CHTP details inside PR – Per FDA this study not supportive of NDA filing.

  96. neetcorp

    Apple Is in a Multi-Year Decline, Shares to Fall 50-70% Says Schatz
    http://finance.yahoo.com/blogs/breakout/next-apple-131608918.html

  97. jelutuck

    Income portfolio question.  Phil, you've got several different kind of positions in the IP, including covered calls, short puts, BCS with and without short puts and even a short put long call synthetic stock position.  All are bullish positions. You also talk a lot about selling near-term calls against a BCS + short put position but you don't have any of these in the IP.  Can you talk about how you decided which strategy to use for a particular stock and are some of them equivalent in your view?  Do dividends play a role in your decision? Are you using these different positions as a teaching vehicle and would you recommend one over the others for a conservative, income-producing portfolio with preservation of capital a high priority?
     Thanks in advance.

  98. zeroxzero

    This will somewhere between alarmist and foolish, and is certainly an outlier in terms of geopolitical probability.  But the systematic emergence of Islamist movements in Egypt, Syria and Turkey, which have a certain momentum, will tend to increasingly isolate Israel.  Coupled with Iran's nuclear ambitions — although Iran is playing it's hand with dexterity — and the waxing isolationist tendencies of a U.S. that is less dependent on Middle Eastern energy sources, and which is in the process of downsizing its military, might chance the balance of force in that region and increase the geopolitical risks significantly.  Longer term, the shrinking Slavic population of Russia and increasing Muslim population  may also raise the Central Asian risk profile, and Europe is not in a solid position to moderate this tendencies.  I am looking more and more to North and South American countries and the Far East as investment loci in my diversification efforts. 

  99. zeroxzero

    "sound"

  100. augrusot

    Pharmboy, what do you think of CTIX?

  101. Inkarri19

    INTC – The world’s largest semiconductor maker, whose attempt with Microsoft Corp. to combat Apple Inc.’s iPad in the $63.2 billion tablet market is getting off to a slow start, issued $3 billion of 1.35 percent, five-year securities to yield 75 basis points more than similar-maturity Treasuries, $1.5 billion of 2.7 percent, 10-year bonds at a relative yield of 115 basis points, and $750 million each of 4 percent, 20-year securities at 130 basis points and 4.25 percent of 30-year debt at 150, according to data compiled by Bloomberg.

  102. stjeanluc

    INTC / lnk – I believe they want to use that money for buying back their own stock… Not sure if that's the right think to do but at least they would not do what most companies do – buy at the top!

  103. dclark41

    neetcorp
    That guy says absolutely nothing about AAPL. I sure would like to hear something other than "he thinks Apple should trade below $500 or $400".
    He doesn't say that the fiscal cliff is going to cause problems no matter what happens. Well what if they come up with a REAL grand bargain? (not likely-but what if they do) But according to him no matter what happens Apple goes down. Ahh OK.
    "Not yet, but I think it's close," he says about shorting Apple. "Whatever resolution we get with the fiscal cliff, whether it's good or bad, it's going to lead to problems with the economy, and Apple's gonna take it on the chin."
     
    …later the author says that Schatz believes the price of Apple stock went up to fast. I guess he has no regard for the incredible financials Apple produced during that time period. If a stock goes up to fast it must come down regardless of anything. I really don't understand why they give time to people like Schatz. 
     
    Bottom line: Schatz isn't buying the continued Apple growth story. He thinks irrational exuberance fueled the 220% rise over the last five years. He's looking for an exit strategy, not an entry point.

  104. Inkarri19

    INTC/StJ – Yeah….big win for INTC from a cash flow POV over the long run.  They should've gone for more at those borrowing rates! 

  105. albo

    Bought a little more WFR today.  Correlation high between FSLR and WFR, and FSLR had a big day today.  We'll see.

  106. stjeanluc

    It might still be consolidation, but we are only one bad day away from some death crosses… And the 200 DMA are going to start trending down soon. 

    Better fix that fiscal cliff soon!

  107. stjeanluc

    INTC / lnk – If these are guys are borrowing money to buy their own stock, might be worth a look as well. They are sitting on a ton of cash and they are willing to pay interest (albeit very low) to buy back the stock – that shows some confidence! Either that or they are not very good investors…

  108. stjeanluc

    Isn't time to put an end to HFT:

    http://www.motherjones.com/kevin-drum/2012/12/yet-more-evidence-high-frequency-trading-bad-us

    It doesn't seem to help – well except for the IB who skim on everybody's trades and make it impossible to even set limits on your trades because they get eaten even before you push the send button!

     

    Tellingly, the S&P rose on the days that were supposedly the worst for the quants.The reason why that is significant is that we've since learned that one of the things that made the situation so bad for the quants was a sudden loss of market liquidity.

    And what caused the loss of liquidity? Well, it appears that one big factor was the flight of high-frequency traders from the market. The algos of the quants just didn't work well when the HFTs refused to provide liquidity.

    The point here, however, is not about the quants versus the HFTs. It's about what a rising market in the absence of HFTs may indicate. If high-frequency traders are a net benefit to investors, their exit should cause valuations of stocks to fall. If stocks rise while they exit, this at least suggests they may be a net cost.

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