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Wednesday’s Wild Start to 2013

SPY 5 MINUTE Happy New Year!

And what a way to start it off with our Futures flying up another 1.5% – on top of Monday's 2% gains you might have missed as we celebrate the non-event of the Fiscal Cliff that we kept telling you not to worry about last year (see any post).  On Monday morning's Alert, and in our Chat Room, I reminded our Members, as the market tanked, not to be too bearish, saying:  

Keep in mind that we need to spend 2 days below our levels to be officially bearish so let's hope we do get some good news today and take back those 50 dmas so we can treat them as a blip and throw the spike out in our forward calculations.  

As you can see from Dave Fry's SPY chart, that was pretty good advice as we quickly reversed that bad open and flew higher.  We looked over our virtual portfolios at 11:52 and decided, fortunately, to maintain our very bullish stances based on the news available to us and, of course, our general attitude that the whole cliff thing was overdone.   

We added long plays on GDX and CIM but maintained general hedges (medium-term) on TZA and USO – just in case talks broke down or the cliff deal turned out to be a "sell on the news" event – which still remains to be seen after this morning's excitement.  As you can see from our Big Chart (welcome back StJ!), we still have a long way to go before re-establishing a bullish position – as opposed to confirming a double top in the high end of our channel.  

This morning, in Member Chat, we already had 4 pages of extensive commentary on the cliff deal and Europe, 2012 in review and 2013 looking forward, so I'm not going to get into that again here and I've made commentary over the last two weeks on why we are bullish about 2013 – especially in the housing sector.

Pimco's Mahamed El-Erian made the point well this weekend on why investors HAVE to have confidence in equities for 2013 – the Fed.  El-Erian said: "If you have an institution that has a printing press in the basement, you respect it."  That's a nice, simple, investing premise…

As the chart on the right, from Business Insider, clearly illustrates, the Fiscal Crisis is very clearly the Republican's Fault (their title, not mine) as Federal Spending (red) had simply gone out of control at the same time as Tax Revenues, (blue) had been cut to long-term lows.  It took Bill Clinton more than one term to reverse the madness of 12 years of Reagan and Bush the First and it is taking President Obama more than one term to reverse the madness of George the 2nd – this is not a complex issue folks.

Don't forget, Obama only did the 2010, 2011 and 2012 budgets and we're currently in the middle of Fiscal 2012 and look how drastically he's already cut the out-of-control spending – now the revenues need to catch up a bit and then we'll be making some progress – maybe on the way back to those Clinton surpluses that were squandered away at the turn of the century.  

How did Bill Clinton reverse the horrible Republican "don't tax and spend anyway" policies during the 80's?  Clearly from the chart – he cut Government spending significantly and raised taxes significantly, in fairly equal measures – until those red and blue lines crossed back over each other.  This is not complicated folks – you can see what needs to be done – we just have to have the will to do it and today is a good first step but it sure as Hell better not be the last!  

Unfortunately, we have what the Rude Pundit aptly calls "A Congregation of Motherf*ckers in the Senate" as well as the House, of course, of GOP hard-liners who are willing to throw this country into chaos rather than allow their precious contributors to suffer tax increases.  In fact, just to get this deal past those same MF'ers, $205Bn in Corporate Tax Breaks were handed out to the people who need it the least.

Like $1.6Bn in tax-free financing for Goldman Sachs to build a new headquarters along with $9Bn in tax loopholes to banks and other lenders like GE, who can engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan.  Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the Active Financing Working Group.”  With his $205Bn win for just $80,000, or even if you include $700,000 over the past few years, Elmendorf may be the most cost-effective employee in America (next to Grover Norquist, of course)…

$205Bn is more money in tax breaks than US Corporations pay in taxes – total!  It's also twice as much as the payroll tax cuts, which were lost by the people who work for these corporations (although 85% work for small businesses who don't get any benefits from these top 1% cuts).  There are not small business tax breaks here.  In fact, it's tax advantages like these that give large corporations unfair advantages that they then use to crush the life out of small businesses – further eroding the middle class – all the while crying crocodile tears about how eliminating tax cuts will hurt small business people.  MADNESS!  

We know we're going to get a knee-jerk rally as the shorts run for cover today but we'll see how long it lasts against incoming data, as well as pending earnings reports that will give us a much better picture of what to expect from this brand new year.  


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  1. cturb

    Morning Phil-are you still hanging onto march $124 DIA puts?

  2. Phil

    See previous post.  

  3. Pharmboy

    Let's not forget…

  4. Pharmboy

    This report is a dooms day report….wow.

  5. stjeanluc

    Short FAS calls getting murdered now – down 250%

  6. stjeanluc

    Let's see if AAPL can break the 555 line now… No more tax selling excuse at this time.

  7. stjeanluc

  8. stjeanluc

    Only a $25K jump in one day! Hang on…

  9. stjeanluc

  10. Amalfi

    Wow! Happy New Year everybody! Haha! Thx AAPL!

  11. stjeanluc

    Oil Lines

    R3 – 94.04
    R2 – 93.34
    R1 – 92.96
    PP – 92.26
    S1 – 91.88
    S2 – 91.18
    S3 – 90.8

  12. stjeanluc

    And an update of the strangle portfolio as we begin the year!

    I'll update the Income portfolio later today.

  13. Pharmboy

    GLD….nicey nice!  :)

  14. stjeanluc

    I am adding another VXX Jan 15 Put to my "Die VXX portfolio". My goal is to add one contract every time I get a sell signal on VXX, based on the fact that I expect these puts to be worth $10 when VXX resets before Jan 15.

  15. millcreek

    phil,
     
    im trying to work and understand the selling of calls and puts against a long position.  so your thoughts pls
     
    i have the feb164 gld calls.
     
    i sold the this weeks jan 1 161 puts (2.55 now .10)
    i also sold 1/2 (5) of the this week 163 calls (.57 now 1.30)  they are half premium and exp this friday.   with the run up in gld should i stay for now or roll to a reg jan 165 or something else. 
    beside action to take am trying to assimilate strategy/understanding.
    tks

  16. Phil

    Good morning!  

    Rally continues and we have to watch those 5% lines off the bottoms now but we have to use the Futures bottoms (and no NYSE futures) to get a proper picture and that's going to make things messy so here's my adjustments: 

    • 12,742 + 65 (current difference between Dow Futures and current Dow) x 1.05 = 13,447 on the Dow.  
    • 1,382 + 5 x 1.05 = 1,456 on the S&P
    • 2,580 + 332 x 1.05 =  3,057 on the Nas 
    • 823 + 2 x 1.05 = 866 on the RUT 
    • 10x the RUT = 8,660 on the NYSE and they're currently 8,594 with the RUT at 867 so that's about right. 

    Hey, the RUT is at 867 so testing it's 5% line already and the Nas is already over at 3,093 but once again, 30% of the Nas move is thanks to AAPL, which is up another 4% today at $551 (congrats to the AAPL faithful!).  

    It would be a shocker not to get a 1% pullback here and test the 4% lines (just multiply our base by 1.04 instead), which will be 13,319, 1,442, 3,028, 8,580 and 858.  As long as 3 of 5 of those are holding, we can stay bullish but good time to take a cover (same as Fridays – only cheaper) if we fail the 3rd with quick stops if we go back over again.  

    Even as I write this, the NYSE is just 8,591 so close to the bone on our broadest index means there's certainly no reason to chase bullish.  It also means it's way too early to worry about our short calls in FAS Money with FAS at $127.50 and XLF at $16.79.

    Very tempting to cover in $25KPs and AAPL money but we may as well stay for the ride and see where we land.  As usual, I will point out to $25KP players who were not comfortable with the dips last month (year) – GET THE F*CK OUT!  

    These are supposed to be 10% or less of a larger portfolio that is MUCH more conservatively invested and you should be VERY comfortable taking a loss on these plays.  They are aggressively positions and we are "going for it" – having played for exactly the rally we're getting now but it can still all blow up in our faces and then we're screwed and next time – I will not have the confidence we will come back – this IS the rally we were waiting for with the Fed throwing money at us and the Fiscal Cliff worries past us and AAPL acting like a real stock again (just hit $555) but no more catalysts ahead and I am concerned about Europe's crap economy as well as upcoming earnings so BE CAREFUL!!! 

    Pretty uniform gains today, which indicated the bots got a general BUY order and are simply accumulating.  You can see from the Sector Performances chart on the bottom of the page that there's a pretty even distribution of wealth, with Finance getting the short end as they certainly got the most of it last year:

    ETF_YTD

    So, if it's a real rally, we can expect energy to do a little catch-up and utilities should become interesting but note the news this morning about Europe's significant drop in energy use and we're seeing it here and the BRICs can't make up for that, no matter how well they do and I'm sure Japan is down as well with their declining population and overall slowness (also in the morning news) so energy could be lagging for very good reasons.  

    Overall, we need to let this week play out and watch our levels and next week we're into early earnings with AA on Tues along with MON, SCHN, WDFC and APOL, to name a few.  Also next week's earnings of interest include STZ, HELE, RT, SVU (Thurs) and WFC (Fri) and then we're off again and super-busy for the next month.  Huge Retail Sales Reports on the 15th and Consumer Credit next Monday will be interesting too.  We get Fed speak on Friday from Plosser, Yellen and Bullard so they must be selling something….

    So, given all that, we want to sell 3 FAS Jan $130 calls for $3.80 in FAS Money and put a stop on the Jan $119s, now $11, at $13.  If that executes, we will have collected $7 and paid back $13 so we'll be down $7 on the spread and then we can deal with rolling if we still have to.  Also, let's buy back the $102 puts for .40 as that's low enough and, if we go higher, we'll want to sell more expensive ones and, if we go lower, then we were smart to buy them back.  

    Much as it pains me, at this point it would be foolish not to take $15.20 for 3 of the AAPL Jan $550 calls.  Those calls are ahead of earnings and it's just a 3/10 cover and we like getting paid $4,560 and they expire ahead of earnings and the Feb $590s are $12.50 so not a bad roll if we have to.  That goes for AAPL Money and the $25KPA. 

    For the same reasons, we want to sell 10 QQQ Jan $67s for .82 and collect our $820 and we'll just see how that goes in the $25KPA.

    It's tempting to let things ride but let's start 2013 off doing the responsible thing and locking in some gains – even if it sacrifices some gains we may make later.  

  17. stjeanluc

    Looks like a Phil, Pharm and Stj day so far… Everybody still enjoying their vacations!

  18. millcreek

    sjl,
    i must have missed the latest on vxx could you give me the status tks including the recent trade
     
    we had talked of buying the 20 and selling the 15 ……..tks

  19. stjeanluc

    VXX / Mill – We had indeed talked about selling the 15, but I never did the analysis. I really should work on that… In the meantime I bought one contract back in early December and have an order for another one today as I got a sell signal on VXX – trying to get the best possible price as spreads are wide. I won't go over 10 contracts over the next 24 months as I don't want an oversized position in VXX.

  20. stjeanluc

    A closer look at the ISM numbers:

    http://www.bespokeinvest.com/thinkbig/2013/1/2/ism-manufacturing-back-above-50.html

  21. stjeanluc

    Speaking of manufacturing, this chart of European PMI is not that encouraging:

    http://qz.com/40073/heres-which-european-countries-manufacturers-performed-the-worst-at-the-end-of-2012/

    Manufacturing production in the euro zone contracted more than initially expected for December, according to numbers out today from Markit, while manufacturing in the UK grew at the fastest rate in 15 months on the back of surprising domestic demand. These figures drawn from polling purchasing managers monthly, suggest the euro zone could be in for another year of recession amid continuing weak domestic and international demand. Only Ireland showed improved operating conditions, while downturns accelerated in Germany, Spain, Austria and Greece.

  22. rdn4evr

    Bit of a buying frenzy.  My Schwab site keeps crashing 

  23. Phil

    Debt divide/Pharm – Do they have a current version of that?  Also, that report is very depressing – you shouldn't read those if you want to play with the bulls…  

    $25,000 a day/StJ – That would be the idea as we march on to $700!  

    MoMo Money – Notice the difference between the $25KPA and MoMo money is that, in the $25KPA, we invested in buying better position for ourselves as AAPL became weak and we reap our rewards as they bounce back.  It's a very dangerous position to hold if you don't have the conviction (and buying power) to make the necessary adjustments when the stock moves against you.  

    Congrats on AAPL, Amalfi – don't be too greedy if you were previously worried that the losses were too great.  

    VXX/StJ – Amazing one-day move on VIX, back to 15.89 from 22 Monday morning.  

    Selling/Mill – When you get a nice run and you think you are approaching resistance (as above with our 5% lines), then it's a good time to do a bit of selling.  On GLD, those short puts are toast so no point in keeping them unless you have no need for the margin.  On the other side, you did well selling 1/2 and GLD is just at $163.82 so the calls are 1/2 premium, which will burn off if you let it.  When and if you have to roll, THEN you can look at selling some more offsetting puts but, for now, best to just see if GLD can get over $1,700 before worrying about it.  Patience is a valid strategy.  

    Vacations/StJ – Too bad, these have been some pretty exciting days.  Finally some action!  

    ISM/StJ – Not sure prices paid rising sharply is a good thing.  The PMIs are totally depressing.  

    Frenzy/Rdn – 51M on the Dow at 11 is not that busy but much busier than usual.  I'm not too happy that we topped out in the Futures and have flatlined since – we'll see what happens when Europe closes but they may be buying because they missed Monday and, after that, we may succumb to the selling pressure.  

  24. Phil

  25. Savi

    Good Morning

  26. rperi

    we're probably just all watching the action.  What that sharp rise in the dollar? 
    interesting graphics – how did you come to stumble upon those?

  27. 8800

    Phil,
    Trying to further my educ and need a little help: Re  AAPL 10:24 post, since you're taking 15.20 per I assume you are selling 3 long 550 calls (after this AM runup), but the language makes me think these are short calls used to cover (3/10) a long position.  I don't see the AAPl 550s in the V. Port. Curious what the starting inventory in AAPL is.
    Thanks

  28. wappler

    VXX/stjeanluc,
    Do you mind sharing what you use as a sell signal for the VXX trade?  TIA!

  29. yodi

    8800
    AAPL play Phil expects you to read between the lines may be this year he puts a simple buy or sell instead of a riddle you should have sold the calls I guess.

  30. yodi

    8800
    AAPL most have long calls uncovered and in an excitment like this you sell some covers!!!

  31. 8800

    Yodi,
    Puzzles are what makes life a learning experience. Much like a Zen coan. Thanks for the input.

  32. terrapin22

    Phil / Atlantic City – While i was ringing in the new year with some friends at the Borgata (BYD), one lucky customer won a $3.8 million jackpot on a $5 wheel of fortune progressive slot machine on Sunday, one of largest payouts in Borgata's history.  I had no idea slots could have such big payouts!  I stuck to the craps tables and did well.  I want to try to organize a gathering in AC in early April which would be after Easter and most school vacations i think.  I believe you mentioned you would be interested if enough people signed up and all you had to do was show up.  I can't trade this month so have some time to look into it.  

  33. scottmi

    /DX – whipsaws in the currency market

  34. Phil

    Graphic/Rperi – It was with the casino one, which was a link I picked up something else.  You'd be amazed how much stuff I look at in any given day…  Dollar move is interesting but Euro rejected at $1.32 may have something to do with it.  Yen still weak at 87.08 and Pound at $1.625 so it depends on which happens first, Euro back over $1.32 or Pound back under $1.62 and that should tell the tale for the Dollar rejected at 80 or not (now 79.845).  

    AAPL/8800 – We are selling 3 AAPL Jan $550s for $15.20 each to cover our 10 long AAPL calls in the $25KPA (the April $530s) and in the AAPL Money Portfolio (the 2015 $500s).  $4,500 is 10% of the long position in the $25KPA and 3% of the AAPL Money longs and, if we fail to hold $530 in AAPL, we'll likely sell another $4,500 and that $9,000 will pay for a $9 roll of the long positions down about $20 to keep us in the money and set us up for our next sale.  

    Koans/Yodi, 8800 – Of course, since the answers are not written in stone, the intelligent seeker can always ask a follow-up question.  Speaking of questions – there's a really cool IPhone app called Akinator the Genie that sort of plays 20 questions with people and you can think of anyone in the World and it figures out who it is by asking you questions – it's pretty cool and shows you what you can find out if you are logical and ask good questions.

    A philosopher asked Buddha: "Without words, without silence, will you tell me the truth?" The Buddha sat quietly. The philosopher then bowed and thanked the Buddha, saying, "With your loving kindness I have cleared away my delusions and entered the true path." After the philosopher had gone, Ananda asked Buddha what the philosopher had attained. The Buddha commented, "A good horse runs even at the shadow of the whip."

    Daiju visited the master Baso in China. Baso asked: "What do you seek?"  "Enlightenment," replied Daiju.  "You have your own treasure house. Why do you search outside?" Baso asked.  Daiju inquired: "Where is my treasure house?"  Baso answered: "What you are asking is your treasure house."  Daiju was enlightened! Ever after, he urged his friends: "Open your own tresure house and use those treasures."

    AC/Terra – I'm there!  

  35. yodi

    8800
    Could be an expensive Puzzle

  36. Pharmboy

    Hey, those IWM Jan 90s are 13c…..YEAH!  Oh, damn, fell to 11c…come 2 papa….

     

    I am a bull Phil, just in my little island of biotech.  Otherwise, this pumped up Central Bank Rally will end…soon…but when?

  37. 8800

    Phil,
    Thks for the AAPL clarification. As in trading so in life,  sometimes we grasshoppers need things in slo mo …and large print. Interesting juxtaposition – references to Buddha and trading AAPL in the same sentence. From my time over in Asia (at an age when my consciousness was on other things which were in the province ruled by hormones anyway) I recall monk novitiates staring at a wall for 18 hrs/day. I maxed out at one hour. Tough sale in my neighborhood.

  38. yodi

    Phil well well excellent follow up on AAPL however I still will hold out a bit longer having mostly Jan14 calls.
    I phone sorry just have a cheap samsung fro phone calls just about functions in MX

  39. BertII

    We are all lurking today, waiting and not chasing this crazyness because in less than 60 days we'll be back down again

  40. seer

    What is going on with DMND today?

  41. dplatt

    I'm not sure how this is possible but:
    I sold on the 21st of december when VXX was around 33 a Jan 2014 bear call spread 33-34 for a credit of .30 

    Can anyone explain why this isn't profitable yet with VXX at 29?

    Thanks.
    Also looking into that CIM play Phil. I like it a lot. Had a lot of success with BAC(Thank you!) and I'm also currently in AGNC as well so I can dig a good REIT.

  42. Phil

    Speaking of IPhone apps – GOOG's search app has started talking to you like Siri and Google Earth is damned scary as it can see where you are in your house now (if you allow it to use your location) and you can see yourself walking around.  I was playing with an IPad this weekend in the super-crowded AAPL store at the Wayne, NJ mall and that thing is fantastic.  It's almost weightless and you can't possibly complain about the screen resolution and all the apps run as perfectly as they do on the IPad – and as fast.  

    One thing that concerns me is what are we doing to this country with all this web stuff in people's hands 24/7.  The drain on productivity must be stunning.  I myself am building a fort in Clash of the Clans and a killer car in Indestructible and my Hulk is up to level 3 in the Avengers game.  I usually do those while I'm watching TV so at least I'm wasting time efficiently but my kids and their friends can do that stuff all day long and Tina plays Words With Friends and does Facebook (I can't stand it) and Jackie does Twitter all day and Maddie plays Warcraft and Minecraft and even my Mom plays some crystal gems game along with FB and Words – it's an amazing amount of time spent on things that are simply adding nothing at all to the economy but sucking up stunning amounts of human capital.  I guess people felt that way about TV but all these devices seem much worse to me.  Maybe it is an insidious Chinese plot to supply Americans with cheap devices that suck up all their productivity until China dominates the World.  Clearly it's working…

    When/Pharm – I wish my IPad Genie could answer that one.  

    10:00 AM On the hour: Dow +2%. 10-yr -0.32%. Euro +0.46% vs. dollar. Crude +1.97% to $93.63. Gold +1.04% to $1693.15.

    11:00 AM On the hour: Dow +1.86%. 10-yr -0.29%. Euro +0.35%vs. dollar. Crude +1.64% to $93.33. Gold +0.98% to $1692.15.

    12:00 PM On the hour: Dow +1.66%. 10-yr -0.26%. Euro +0.01%vs. dollar. Crude +1.21% to $92.93. Gold +0.87% to $1690.45.

    1:00 PM On the hour: Dow +1.67%. 10-yr -0.21%. Euro -0.27% vs. dollar. Crude +1.14% to $92.87. Gold +0.75% to $1688.35.

    Dec. ISM Manufacturing Index: 50.7 vs. 50.3 consensus and 49.5 prior. New Orders 50.3 vs. 50.3 previous. Production 52.6 vs. 53.7. Employment 52.7 vs. 48.4. Prices 55.5 vs. 52.5. Supplier Deliveries 54.7 vs. 50.3. Backlogs 48.5 vs. 41.

    The JPMorgan Global PMI for December rises to 50.2 from 49.6 previously, the first time in expansion territory since May. New Export Orders contracted for the 9th consecutive month, but inventories continue to decline as well, suggesting at last some room for further expansion.

    Redbook Chain Store Sales: +2.9% Y/Y vs. +2.4% last week.

    ICSC Retail Store Sales: +0.6% W/W. +2.7% Y/Y vs.+3.2% last week

    Nov. Construction Spending: -0.3%, vs. +0.6% expected, +1.4% prior.

    TrimTabs provides an early look at December employment, estimating payroll growth of 145K-165K jobs last month, down from 220K in November. Wage growth jumped to 8.2% Y/Y as companies shifted bonus payments to December. Look for a sharp reversal in January. The company derives its estimates by looking at daily tax deposits to the Treasury from all salaried employees.

    It's a "high-beta" rally today, says Eddy Elfenbein, with the leaders being small cap stocks – the Russell 2000 (IWM) hitting an all-time high – tech, finance, and cyclicals. This is notable because high-beta rallies often pull along lower-quality stocks with them. 

    The fiscal cliff deal Short-term relief, and little else (Economist)

    Ten Things You Should Know About the Cliff Deal (Bloomberg)

    Buying the dip in the VIX (VXX -8.2%) is MKM Partners' Jim Strugger, who says we're still in the midst of a 5.5 year cycle of elevated market volatility which began in 2008. He expects one last "high-magnitude" event in the next few months.

    Massive sideline money:  U.S. pension funds have just 38% exposure to equities vs. 60% only 7 years ago, notes former Templeton chief Mark Holowesko. Fixed income exposure is 41% vs. 28% 7 years ago. The S&P 500 risk premium (earnings yield less 10-year Treasury yield), he says, is at an extreme level of favoring stocks over bonds. More (III, III) on the rush into fixed income with yields at historical lows.

    Could this be the year? Ten-year Treasury yields start the year moving higher, up 7 basis points to 1.82%. The early word on the fiscal cliff deal is it adds trillions to the deficit and raises taxes on nearly all households – nice work all around. A favorite trading vehicle for Treasury shorts, TBT +1.6% premarket.

    Shorting the yen appears to be nudging out long Apple as the most-crowded hedge fund trade, with BAML reporting more than a doubling in notional yen shorts over the last 2 months of the year (CFTC data shows the same) as some notable funds trim stakes in Apple. FXY starts off the year -0.5% after falling 10.5% in Q4. 

    Canada's December PMI is unchanged at 50.4, with the Q4 average coming in at 50.7, the lowest quarterly read in the short 2+ year history of the survey. "A weak global economy and a strong loonie have weighed somewhat on the broader sector," says RBC.

    Brazil's December PMI slips to 51.1 from 52.2 previously. The Employment index remained below 50 for the 9th consecutive month, and Backlogs continue to contract as well, as companies have no problem keeping up with orders despite smaller staffs. The Bovespa +2.6% in early action.

    India's December PMI rises to 54.7 from November's 53.7, led by New Orders rising at the fastest pace in 6 months, and Order Backlogs which rose at the fastest pace in the report's history. "Inflation eased only marginally," with respondents noting the weaker rupee. The India Earnings Fund (EPI+24.1% in 2012.

    "Time is running out" for bank managements to prove their low stock valuations are only short-term, says Mike Mayo. He again suggests breaking up the big banks will improve their stock prices, citing surging price-to-book values following the introduction of Glass-Steagall in 1933.

    More on the Bank of America (BACupgrade: Evercore isn't frightened away by the doubling in BofA's stock last year, noting the move came off a ridiculously cheap price. The bank stands out among its TBTF brethren as having the "greatest identifiable levers" for higher earnings. Knocked out as Evercore's top large-cap bank stock is Wells Fargo (WFC)

    ISI Group upgrades the machinery sector after it does a bit of channel checking, and while the firm cuts estimates to below consensus, it reckons that the bottom will come in H1 as inventories are reduced. Caterpillar (CAT), CNH Global (CNH), Cummins (CUM), Deere (DE), Eaton (ETN), Illinois Tool Works (ITW), Ingersoll-Rand (IR) and Oshkosh (OSK) all receive an upgrade. ISI tips Caterpillar to be among the best performers in H1 after it was a notable laggard last year.

    Automobile industry forecasters predict RDS.ARDS.B) floating oil rig stranded off the coast of Alaska with 143K gallons of diesel fuel an example of safe industry practices or the risk of potential disaster in Arctic drilling? No spill is seen so far after overflights in the area, but "oil companies keep saying they can conquer the Arctic, but the Arctic keeps disagreeing with the oil companies."

    Biofuel firms enjoy notable strength in early trading, as the fiscal cliff deal includes relief for all sorts of renewable energyBIOF+24.7%SYNM +24.1%GEVO +10.4%REGI +9.2%SZYM +5.9%,

    PEIX +4.8%FF +4%AMRS +3.9%ADM +3.4%KIOR +2.7%.

    Shares of Avis Budget (CAR +4%) show strength after the company picks up Zipcar for a hefty premium. Almost loss in the buzz over the deal is the news that the car rental company is backing its 2012 profit guidance.

    Shares of Dole Food (DOLE -13.3%) fall after the companyissues some comments over the "challenging" banana market environment. A 14% loss to the supply of bananas in the Asia market due to a typhoon and aggressive moves by importers in North America are factors mentioned by the company.

    Sterne Agee's Sam Poser defends Deckers Outdoor (DECK -4.6%) by saying final sales results for Ugg products were "less worse" than anticipated over the last part of December. Naturally, the bull-leaning analyst recommends buying shares off today's weakness.

    Shares of Best Buy (BBY) shrug off the resignation of two board directors to hold on to the mild gains from earlier this week. Retail analysts note Richard Schulze will have an easier time acquiring the company without the pair of execs reported to have had contentious relationships with the Best Buy founder.

    Another fad bites the dust:  Skullcandy (SKUL -9.4%) plummets to new post-IPO lows after receiving a two-notch downgrade to Underperform from Jefferies, which cites a lack of pricing power and growing competition. The headphone vendor, which had 39.7% of its float shorted as of Dec. 14, now trades at 7x estimated 2012 EPS.

    As I was saying:  H-P (HPQ +5.6%) rockets higher out of the gate after Bloomberg makes note of comments in the company's 

  43. Phil


    As I was saying:
      H-P (HPQ +5.6%) rockets higher out of the gate after Bloomberg makes note of comments in the company's FY12 10-K (filed on Dec. 27) about evaluating "the potential disposition of assets and businesses that may no longer help us meet our objectives." Wasn't Leo Apotheker kicked out in part for trying to do something similar? Regardless, H-P's FQ4 figures show there's no shortage of units that potentially meet its description.
     

    The Street's Adam Feuerstein makes 13 biotech stock predictions for 2013, with his number one being that the U.S. launch of Arena Pharmaceuticals' (ARNA) and Eisai's weight-loss pill Belviq "will be a major disappointment." Feuerstein also reckons that Belviq will fail to receive European approval. 

    "The (pharmaceutical) industry needs to spend more money on R&D and less on sales and marketing, says Novartis (NVS +1.2%) CEO Joseph Jimenez. He also believes "that in the future, companies like Novartis are going to be paid on patient outcomes as opposed to selling the pill." However, Jimenez warns that price cuts, such as those in Europe, "create a disincentive for us to build sales force."

    SA author Regarded Solutions bangs the table for Achillion Pharmaceuticals (ACHN +5.1%), citing its "wonderful balance sheet" and its four hepatitis C drugs, which could, "for all intents and purposes," cure the illness if approved. Achillion's promise has brought it several upgrades and made it a potential takeover target.

    Abbott Labs (ABT) completes the separation of AbbVie (ABBV), its R&D-based pharmaceuticals business that will start trading on the NYSE today. Wells Fargo maintains an "Outperform" rating on Abbott's shares, citing the company's above-average growth outlook and opportunities to significantly increase its margin. Wells Fargo sets Abbott a price target of $33-$34; its shares are $32.25 premarket.(PR)

    In addition to JPMorgan, Evercore and Morgan Stanley have issued bullish notes on Facebook (FB +5.4%), which is back above $28 today. MS predicts mobile will account from 20% of Facebook's Q4 sales, and predicts Gifts will soon be a meaningful top-line contributor.  Evercore pegs mobile's Q4 contribution at 24%. Also, all 3 analysts are high on Facebook's ad exchange. Cowen haslaunched coverage at Neutral, believing sales estimates are too high, but the Street doesn't seem to care.

    Chip stocks are outperforming (SOXX +3.4%) after the SIA reports global chip sales rose 8.5% Y/Y in November, albeit while falling 1.3% M/M. Though year-ago figures were depressed by an inventory correction and some were expecting a M/M increase, the sector has already priced in quite a bit of bad news. Equipment maker Lam Research (LRCX +5.5%) is one of the standouts after D.A. Davidson starts coverage with a Buy and $56 PT. 

    Intel's (INTC) pay-TV service is being developed by Intel Media, a unit "run like a startup in stealth mode," GigaOm reports. The division is led by Erik Huggers, formerly in charge of the BBC's popular iPlayer, and also features an ex-Apple exec who was in charge of iPhone/iPod marketing. It's working on a set-top Intel hopes will outshine Apple TV by requiring less user interaction; an announcement is expected soon, but (per GigaOm) not at CES. The initiative meshes with departing CEO Paul Otellini's goal of growing Intel's services ops. But will content providers play ball?

    Nokia (NOKjumps 6.3% after being the subject of a number of articles describing the strength of the Lumia line, including from SA author Muhammad Bazil, who writes that "Nokia's much needed breakthrough could be somewhere in China." The Lumia 920T sold out within just two hours of its Shanghai debut, "underscoring huge demand for the device." Also see here and here. 

    Amazon (AMZNreports that third-party sellers from the U.S. grew sales on its website 40% Y/Y during the holiday period. The rapid growth of third-party selling on Amazon has helped the company bring in more customers into the Amazon ecosystem, particularly into its Amazon Prime service.

    Physical sales of CDs, DVDs, and video games fell 17.6% in the U.K. during 2012, while digital entertainment sales gained 11.4% to clear the £1B for the first time. Of relevance for Amazon's (AMZN) Lovefilm service, digital video sales are increasing at a striking 20.3% clip in the U.K.

    Apple (AAPLcould begin migrating its app processor manufacturing from Samsung (SSNLF.PK) to TSMC (TSM) sooner rather than later: Taiwan's Commercial Times reports TSMC has been contracted to make Apple's A6X processor, which goes into the 4th-gen iPad, with trial production beginning in Q1. If the report is accurate, there's a good chance the next-gen iPhone and iPad will also rely on TSMC-built processors. (Bernstein) (new TSMC plant)

    As Apple (AAPL +2.7%) delivers another strong performance, Topeka's Brian White predicts the next iPhone will arrive in the May-June timeframe, and says checks indicate it will beoffered in multiple screen sizes. Additional colors are also seen as a possibility. Steve Wozniak and others have been calling on Apple to offer a bigger iPhone, as the popularity of 4.5"+ Android devices such as Samsung's Galaxy S III contribute to its huge international share gains. References to a new iPhone are already turning up in Apple developer logs. 

    More on Apple: 1) Rumors are floating around that Apple is thinking of bolstering iOS 6 Maps by acquiring Waze, developer of a popular traffic/navigation app that relies on crowdsourced data. 2) Sources tell The Next Web Apple is partnering with Broadcom (BRCM+2.7%) to support the next-gen 802.11ac Wi-Fi standard in upcoming Macs. Broadcom already supplies Wi-Fi/Bluetooth combo chips for iOS gear. 3) Raymond James (Outperform) has lowered its March quarter iPhone sales forecast by 5M units to 37M, albeit while raising its Dec. quarter forecast by 2M to 48M.

    Rachel Maddow’s Surge Is Fox News’ Worst Ratings Nightmare (Yahoo)

    Three breakfast reads:

    1) The Fiscal Stiff 

    2) The Real January Effect 

    3) The Better Burger Threat To McDonald's

    Three lunchtime reads:

    1) How to play the volatility of 2013

    2) QE3 and beyond

    3) The Japan story continues to evolve

  44. Pharmboy

    FXE…what the hell.  Shorting March 129s.

  45. rdn4evr

    Phil are we selling TZA puts yet? or are we waiting till tza $11?

  46. scottmi

    VXX/dplat – very possible becuase it is VXX. in my humble experience, no matter how you try to play it, you lose 3 out of 4 times. at least.

  47. Pharmboy

    IF you don't mind owning BMY…Selling Jan 2012 32 Ps for 22c is a nice dividend unto itself…..

  48. Pharmboy

    Adam….start reading PSW…..your predictions are about 50%…so flip a coin.

    Ones I like:

    By the end of the year, one or more of these companies will be gobbled up an M&A deal:BioMarin Pharmaceuticals (BMRN_)Onyx Pharmaceuticals (ONXX_)Medivation(MDVN_)Achillion Pharmaceuticals (ACHN_) and Incyte (INCY_).

    Celgene (CELG_) will be the best-performing large-cap biotech in 2013.

    Amarin (AMRN_) delays the commercial launch of its triglyceride-lowering fish-oil pill Vascepa to the second quarter due to manufacturing and supply issues. Vascepa sales fail to meet lowered expectations.

  49. Pharmboy

    SGEN….starting to load up on puts…STO that is.  These boys are gonna be my saviour this year, or my devil…..

  50. Pharmboy

    SGEN STO June 22.5 puts, BTO June 25 calls.  Net 5c.  A few to start.  Don't go hog wild!

  51. stjeanluc

    VXX / Wappler – I use an indicator based on ATR. Not perfect, but catches the big trends.

  52. yodi

    Pharmboy
    My humble correction sell BMY Jan 13 for .22

  53. yodi

    Pharmboy
    Matter of fact I sold this sucker already Feb 12 for 2.65 just squeezing the last .22 cents out of it. !!!

  54. Pharmboy

    Yodi…Yeah, I bought those back when BMY was in the $35s…what comes around…will again in this market.

  55. stjeanluc

    Speaking of VXX, these Jan 15 20 puts are trading at $7 and my bid didn't go through. No way I am paying $7 so I would rather wait! 

  56. RMax1

    PHIL:
    RE. CAT
    12/11/12 filled 10 BCS Jan15 75/90  Currently, CAT is trading $93.18. Would you
    recommend rolling and DD to cover 117?  Approximate high for 2012.
    Thanks in advance for your comments.  Wishing all  a happy and healthy new year!

  57. Phil

    Monks/8800 – Yet my oldest daughter can stare at a 17" screen for 18 hours, no problem.  I asked her yesterday afternoon if she had moved all day as I was in the living room since 6am and hadn't seen her even go to the bathroom and she said she thought she must have but she didn't remember – very Zen…  My most Zen-like experience was sitting on floor pillows upstairs at the Melkweg in Amsterdam in a room that was filled with people from all over the world and we were all watching silent comedies (as it was something we could relate to in any language) and drinking tea.  Of course the tea was cheating but it was a really great afternoon of sharing a common experience in silence – better than my runners up, which were skiing on several occasions (especially fresh powder on an empty mountain), riding in a catamaran on the netting and watching the sea go by underneath (still love that one) and walking on the beach in Brighton listening to Quadrophenia from start to finish – out of my brain on the 5:15 so to speak

    Another great Who video that reminds me why I love them.  My Uncle Ralph owned Tin Pan Alley studios in London – when I was a little kid, I used to see these things live…  

    AAPL/Yodi – I think the way AAPL has been behaving, it's a shame not to take advantage of a bump as they've given them all back for the past month.  We took most of last month off selling but not with only 4 months left in the Aprils and not with so much time to roll on the 2015s…  On the phone, I don't really use mine for much 90% of the time but that 10% is worth every penny.  

    60 days/Bert – Fine if you plan on vacationing but I'm happy to play this one while it lasts and we'll happily take a big wheeeee! on the way back down if it comes.  

    DMND/Seer – I don't see a catalyst but a good analysis by Motley Fool is here.  

    VXX/Dplatt – You've just lost more premium than the puts you sold so far.  Looks like you are on track, you just need to be patient.  VXX has very strange options action and 2014 is a long way away.  

    CIM/Dplatt – CIM just passed MOLX in cap and MOLX  is at the bottom of the S&P so, if CIM keeps it up (and MOLX keeps it down), they may get shuffled in when the S&P rebalances.  Also there are takeover rumors as they are trading under book with a strong portfolio.  NLY, who are their parent, just bough CXS for $12.50/share and, strange as it seems, at this price they may turn around and re-absorb CIM as it's cheaper than CXS was and complimentary as well.  

    TZA/Rdn – I think we were hoping for $1 on the April $11 puts (now .68) so close but no cigar yet.  We were guessing 880 would do it but maybe not as they are already 870 but it pays to be patient because the $13/17 bull call spread is still .70 so you can kill that spread with a .40 loss, sell the puts and still come out ahead or cash the $13s for $1.25 and sell the puts and still come out way ahead if the calls expire worthless so not an emergency and, of course, 670 is already the Russell's all-time high and it's not likely they'll break this out until/unless the other indices catch up.  

    BMY/Pharm – Nice one.  Right on M&A, name enough companies and one will be gone over the course of a year!  

    Markets holding up very well considering Dollar at 80.01.  

    Wow, Christie specifically blames "House majority and John Boehner" for screwing NJ and region on aid package.  No real surprise since these are the same jokers who let New Orleans die…

  58. rustle123

    Christie/Phil
     
    He's coming closer and closer to becoming an independent.

  59. scottmi

    SGEN/pharm – the Feb 22.5 short puts are giving the best return per day ('burn') at .80 or better.

  60. deano

    Pharm – And BMY Jan 33 calls can be sold for .28, and today is x-div day.

  61. Phil

    CAT/RMax – I'm not clear what you mean.  It's a BULL call spread, right?  So you want CAT to be over $90 in Jan 2015 and it's $93 now but you have two years to go and you bought the thing 3 weeks ago so what on earth are you adjusting and why?  Anything over $90 is a winner, why would you feel the need to roll and DD?  The spread is now $8.50 and can make up to 100% if CAT holds $90+ – not a bad pay-off for 2 years.  If CAT dips, then maybe I'd want to sell puts, roll the spread lower (maybe just the $75s) and see about selling some offsetting calls but only if they retest $80 and hold it.  

    Christie/Rustle – Would be interesting if people begin to defect from the party.   Problem with most Reps is the Dems won't want them.  

    The FBI reports it conducted a record number of background checks for consumers wishing to purchase a firearm in December as the number of checks almost hit 2.8M for the month. While the demand surge is positive for Sturm Ruger (RGR +0.1%), Smith & Wesson (SWHC +1.8%), and Cabela's (CAB +1.9%) – KeyBanc is out with a note warning that the current high level of demand for guns is unsustainable over the course of the year.

  62. yodi

    RMax1
    CAT I hold the Jan15 77.5/87.5 and 60p even hold short Jan13 90 and 92.5 I feel let the fever of today cool down this is a tree growing play and you need to let it grow, the short caller will never outgrow the long one and at the same time let the putter if you have one let burn the premium.

  63. millcreek

    phil.
    tks

  64. scottmi

    LULU – does anybody actually like LULU at 73.73? how about 66..or even 60? P/E still seems pretty high for clothing..with the overhead of retail shops even.

  65. yodi

    RMax1
    Just to follow up on the CAT play I hold as a conservative player 3 option of each. In Jan15 no matter how high CAT will climb I still collect my 3K only if it would drop to 59.00 I would not see any money. Meanwhile I play with 1 or two short month call plays to make extra pocket money without any further margin. Hope this helps

  66. RMax1

    Yodi,
    Thank you for your comments.  Again Phil thanks,

  67. kustomz

     /DX chart is pretty impressive considering all that the Fed has done and continues to do. A break above 80.14 would be $ bullish. You can start laughing……now.

  68. Phil

    LULU/Scott – Great growth and great margins overshadow crazy price.  They only have about 200 stores vs. 1,000 ANFs, which hits about the same price-points so logic is LULU can double up twice from here in sales but they are also growing a nice on-line presence so they are generally a shorts killer – like WFM – who also serve that very profitable market (top 10% health-conscious).  

    CAT/Yodi – Well played. 

    95M on the Dow at 3:25 is a busy day (comparatively).  A good sign that we're closing around highs (assuming no dip).  

    2:00 PM On the hour: Dow +1.61%. 10-yr -0.24%. Euro -0.28% vs. dollar. Crude +1.2% to $92.92. Gold +0.65% to $1686.65.

    Further measures to reduce the deficit are necessary for the U.S. to hold onto its AAA rating, Moody's senior credit officer Steven Hess tells the WSJ. He expects said measures will soon be forthcoming, and Moody's will await the outcome of those negotiations before any rating change.

    Among Byron Wien's 10 surprises for 2013 is a profit margin squeeze amid limited revenue growth, sending earnings lower and taking the S&P below 1300. Darlings today after a big 2012 run, financial stocks have a rough time of it amid intense banking competition and low trading volumes. Read the list for fun, but his "surprises" generally fare about as well as a stopped clock.

    Car registrations in Italy fell to their lowest levels in more than 30 years as only 1.402M units were tallied by the country's infrastructure and transport ministry, a drop of 19.9% compared to a year ago. Volkswagen (VLKAY.PK) performed better than many rivals in the nation by only seeing sales tail off 18.3% for the year, while Fiat (FIATY.PK) sold a disappointing 415K vehicles on its home turf.

    Gas producers are missing out on today's rally, as a forecast that colder-than-average weather in most of the U.S. this week would give way to above-normal temperatures leads to a sharp drop in natural gas prices. The late-2012 run-up in nat gas was driven by hopes of a cold winter and not fundamentals, Argus’ Phil Weiss adds.COG -3%CNX -3.9%BTU -3.2%EQT -1.8%.

    Harmony Gold (HMY -1%) says it will keep its Kusasalethu mine shut while it conducts a review of the operation following last month's labor unrest there. The mine produced ~181K oz. of gold and accounted for ~14% of HMY's total gold output during the FY ending June 30; HMY estimates it has lost 25K troy oz. of gold production due to the stoppage. 

    Solar stocks are outperforming once more today (TAN+4.2%). Short-covering and a general migration to risk assets are helping, and so might a fresh solar project purchase from Berkshire Hathaway's MidAmerican Energy (previous). Some of the big winners:LDK +9.7%SPWR +7.7%GTAT +7.3%STP +7.1%.

    Coca-Cola (KO +2.6%announces the acquisition of Sacramento Coca-Cola Bottling Company as it adds the sixth largest independent Coca-Cola bottler to its portfolio of bottling assets. The purchase price wasn't disclosed, but the company says the deal price came in at 9X EBITDA.

    Another one I pounded the table on in Vegas:  Cisco (CSCO) is open to making additional wireless-focused acquisitions to "fill gaps" in its portfolio, says marketing exec Murali Nemani, but it has no interest in making a larger acquisition to compete head-on with the likes of Ericsson and Alcatel-Lucent in the traditional base station market. Nemani adds Cisco views the market as "a slow-growing, highly commoditized space." Instead, Ciscowants to focus on the budding small cell market, via integrated solutions that feature its Wi-Fi hardwaremanagement software, andASR 5000 routers.

    Viacom (VIAB +5.7%) trades higher after pestering fears the fiscal cliff would spark an advertising slowdown abate and a key last-minute deal is struck with Cablevision to keep the company's slate of programming available to Cablevision customers.

    As Yahoo (YHOO +0.8%) makes new multi-year highs again, Nomura's Brian Nowak reminds us how much ground the company has to make up in mobile, clearly a top priority of Marissa Mayer's. Though Yahoo benefits from powering the pre-installed Weather and Stocks apps on iOS devices, ESPN has a 2.4x greater edge over Yahoo Sports in mobile engagement than it does for PC engagement, Nowak claims. Moreover, leading news/entertainment sites are said to have "anywhere from 46x to 1,034x more engagement." 

    Fresh off extending its licensing deal with RIM, InterDigital (IDCC +4.5%) has filed a new ITC complaint against Samsung, Nokia, Huawei, and ZTE, calling for import bans on their 3G and 4G-capable hardware. IDC originally filed a complaint back in July '11. Last August, an appeals court overturned an adverse ITC ruling in a separate case pursued against Nokia.

    Vodafone (VOD) is hoping to win smartphone converts (and thereby grow its data revenue) in the U.K. prepaid market by launching Nearly New, a program that offers discounts on lightly-used devices. The service launches at a time when European carriers are seeing big declines in voice and text revenues, making smartphone data plan adoption a crucial matter. 

    Google (GOOG +1.7%) will finish construction on its first 3 Asian data centers – in Singapore, Hong Kong, and Taiwan – in early 2013. The facilities will cost $300M to build, and could lead to big performance improvements for Asian users of Google services. Though the search giant shut down Google.cn and trails local players in the Korean and Japanese search markets, it has a dominant share in India, Indonesia, and other major local markets. (Google data center map)

     

    Click for larger graphics

    ~~~

  69. 8800

    Phil,
    Thinking of adding to a long AAPL position. Thinking of 525/600 Feb bcs (I'm intentionally using Feb since if they disappoint, esp this qtr, I would want to get out – at least of the 525s – and re-evaluate anyhow). Your thgts, please. TIA

  70. yodi

    8800
    AAPL Feb play my two cents you playing right in to the end Jan Div date!

  71. Jordan

    What a nice trap for now…  I feel very nervous after today.  You guys saw the news that Moody's is not buying the "deal"?

  72. dplatt

    I bought VIX Feb Calls. What is SPY's next resistance point? I can't tell on the Big Chart.

  73. 8800

    Yodi,
    Your 2c always welcome. What significance does the 'Jan Div' date have for earnings announcement?

  74. Phil

    Wow, Mr. Stick back from vacation.  

    You're welcome RMax.  

    Dollar holding under that 80 mark for now.  

    AAPL/8800 – NOW you are thinking of going long?  LOL, where were you at $505?  Feb too close for comfort, I won't even want to be in the April spread after next month unless we are comfortably in the money.  Don't forget earnings are probably AFTER Jan 18th so it's the Feb options that have the earnings premium and they will squash after the report and you won't be able to roll crap.  Also, I don't like AAPL spreads other than because we can sell the ridiculous front-month premium against them – if your plan is not to sell short calls against a long position – then you are just gambling on a stock that can go 10% either way in a week for pretty much no reason.  

    Big move powering the Dow to 13,412 at the close – another 2.5% move on the day and that's just under our 13,447 goal (see morning Alert) and the NYSE is also just 29 points below their goal of 8,660 so, as I said in the morning – it was a very bot-driven day of computerized buying across the board and, as we expected, the energy sector ended up with the most love while the Finance sector got the least.  Keep in mind I can only tell you what's going to happen in advance – I can't make you trade…  8)  

    This means Europe and Asia are still behind our rally so, as long as nothing bad happens, we should see more follow-through in the morning from the Global markets and the Nikkei Futures are already up to 10,875, up 1% from their close so a nice gap to start the day in Asia. 

    Moody's/Jordan – Not news, they've been saying that since the negotiations began.  We already lost AAA from S&P, Moody's is late to the party and will either confirm or negate that year-old call.  

  75. 8800

    Phil,
    So, for someone wanting to increase AAPl exposure (believing earnings will be good), I sense you would buy a naked ITM call (Apr?) and sell frt mth calls against it, e.g., long Apr 540 and sell Jan 570s, then Feb 590 – if AAPL moved up?
    Also, pls clarify words dropped after "I don't like AAPl spreads other than …."
    Thanks x 2

  76. Phil

    At the close: Dow +2.15% to 13387. S&P +2.38% to 1460. Nasdaq +2.96% to 3109.

    Treasurys: 30-year -0.92%. 10-yr -0.3%. 5-yr -0.04%.

    Commodities: Crude +1.21% to $92.94. Gold +0.59% to $1685.75.

    Currencies: Euro -0.08% vs. dollar. Yen +0.59%. Pound -0.02%.

    Market recap: Wall Street celebrated the last-minute budget deal, renewing enthusiasm for risk assets and pushing the Dow to its best one-day point gain since 2011. But opinions vary widely over how long the sugar high will last. Treasurys saw heavy selling, with 30-year and 10-year yields jumping to respective multi-month highs of 3.046% and 1.839%.

    Further measures to reduce the deficit are necessary for the U.S. to hold onto its AAA rating, Moody's senior credit officer Steven Hess tells the WSJ. He expects said measures will soon be forthcoming, and Moody's will await the outcome of those negotiations before any rating change.

    The shadow inventory of residential housing fell to 2.3M units in October, according to CoreLogic, a 12.3% decline from a year ago, and representing a 7-month supply. Half of the shadow inventory is only delinquent at this point. Given the length of time it takes to foreclose, there is little threat of a near-term big boost to housing market supply, says the group's Mark Fleming.

    I like this deal, HIG was an old favorite:  Prudential (PRU) closes on its purchase of Hartford's (HIG) Individual Life Insurance business 3 months after the initial announcement. The transaction consists of Prudential paying $615M to Hartford and reinsuring about 700K of its life insurance policies with face amount of approximately $135B. (PR)

    Gap (GPS +0.4%) reports on December sales tomorrow with a subtle warning out from SW Retail Advisors on the retailer's increased level of promotional activity and ongoing trend of negative international growth. A dampened mood in the sector has already prompted a number of other firms to trim estimates on Gap's Q4 earnings.

    Amarin Corporation (AMRN +0.5%) says it's submitted aSupplemental New Drug Application to the FDA seeking approval for BASF (BASFY.PK) as an additional Vascepa active pharmaceutical ingredient supplier.

    Gevo's (GEVO +17.5%) plan to repurchase as much as $15M of its stock this year may be a sign the company is making progress in its efforts to resume production of isobutanol at its Minnesota plant. Gevo's job now is to "regain a bit of credibility after the snafu they had in production," a Piper Jaffray analyst says. "This may be the first sign things are starting to move in the right direction." (also)

    Shares of Herbalife (HLF -2.3%) finish the day well into negative territory despite a higher opening in response to an earlierupbeat research note from D.A. Davidson's Timothy Ramey, calling the company a best idea for 2013. Ramey cites a possible takeout bid or a potential deal for HLF to snap up a peer. He says growth could accelerate this year given that forex should be less of a drag, and sales out of China are likely to become a significant part of it's revenue model. The firm maintains a Buy rating with $72 price target over the near term, while its long-term target remains at $120.

    More on Google: Sources tell AllThingsD the FTC will likely announce a settlement with Google this week similar to the one that was reported last month. The commission has postponed its decision in light of the EU's ongoing battle, but chairman Jon Leibowitz is reportedly pushing for a vote by week's end. The reported settlement involves "voluntary commitments" regarding the exporting of ad campaign data and the scraping of content for use in search results, but is widely seen as a slap on the wrist. 

    Apple (AAPL +3.1%) is indeed in talks to buy crowdsourced traffic/navigation app Waze,  a source tells TechCrunch's Mike Buctcher. In an update to his original column on the subject, Butcher reports Apple is offering $400M up-front + $100M in incentives, whereas Waze is holding out for $750M. Israeli media has also reported of a ~$500M bid (translation). Buying Waze wouldn't eliminate the huge data edge Google Maps has over Apple Maps, but it would give Apple a unique info source whose value would grow thanks to iOS integration. (earlier)

  77. Phil

    AAPL/8800 – To clarify:  I like long-term AAPL bull call spreads BECAUSE you can pay for the spread by selling front-month calls.  I do not like AAPL bull call spreads by themselves because AAPL can move 20% on you very easily and blow your spread.  So, as a new play, I would go for the July $525/595 bull call spread at $30 and I would sell 1/2 the Jan $560s for $10 and then you are collecting 1/6th of your long position in the first of 6 months you have to sell – isn't that nice?  

    If AAPL takes a big dip, you can use that money to roll down and THEN you can sell some puts as well (if you REALLY want to own AAPL for a discount), like the July $420 puts (now $10.25), for about $15, which would put you in a net $10 bull call spread (as you'd only be selling those puts after the calls you sold were way out of the money) and you could use that $20 you collected to roll the spread either down another $40+ or out to Jan to buy some more time.  THAT's the way I like to make an AAPL spread – so that a 10% drop is an OPPORTUNITY to get into a really good position and any kind of gain puts me into profits that can easily top 100%.  

  78. stjeanluc

    We are reaching some overbought levels:

    http://www.bespokeinvest.com/thinkbig/2013/1/2/sp-500-sector-trading-range-charts.html

    Today's big move higher has pushed the S&P 500 well into overbought territory at two standard deviations above its 50-day.  While the index is now overbought, it's still slightly below its prior bull market high reached last September.  The index now needs to gain a little less than 4 points to eclipse its closing high on September 14th.

  79. Pharmboy

    MLNX….here we go!

  80. Phil

    Yes but you would have said the same thing last Jan as we hit the top of the channel and then the next 3 months of action simply drove the channel higher.  That's why these charts are dangerous to stare at – you start believing they are telling you things…

  81. stjeanluc

    An amazing 2 day rally! Hard to imagine that we can sustain this much longer though (at least at this speed). This has to invite some profit taking. Interesting pattern on the NASDAQ and the NYSE. Not sure what the name is for that candlestick pattern – iRocket maybe! It also interesting to see the 50 DMA rising on the NYSE and Russell while they are still going lower (or stabilizing) for the other indices. But we have gone over the highs of December which hopefully can now provide support.

  82. stjeanluc

    Overbought / Phil – That's true, markets can (and do) stay overbought for long periods of time. What is more interesting I think are the sectors that are lagging the overall market – see the other charts at the link. Energy, consumer staples, utilities and healthcare are still in the middle of their channels. There are reasons for some – utilities got sold when because of the threat of high taxes on dividends for example. But will they catch up now?

  83. Pharmboy

  84. 8800

    Phil,
    Thanks for the add'l AAPL follow-up. Clarity always makes the day better.

  85. biodieselchris

    Pharm – I was in PGNX at 2.31.
     
    Do you still like it up here?

  86. yodi

    8800
    AAPL sorry I switched off after the close. For me earnings report and div. date are close to each other. In respect to AAPL I think Phil said it all Any spread in a close month range  is to close to the fire. I like my long calls with that stock as far out as Jan14 and beyond so in this case you can take short covers on and off. As you can see for one day that stock can move 15 to 25 pts in a day.

  87. zeroxzero

    Phil / Apps / Draining productivity:  You have often argued that most people need not work, assuming the economy were arranged properly.  You [and others] have also argued that "not working" means "not being economically productive", but certainly doesn't mean "doing nothing."  But if so many can waste so much time "doing nothing"  — I've watched my own brooding burning hours playing "DragonVille" today, which makes me slightly nauseous to see — I continue to believe that this is not a trivial issue in terms of our future. 
     
    I have always been certain that, if given eternal life, the average person would sleep in for the first thousand years, then think about brushing his teeth and making coffee — mortality is biology's great motivator.  But natural selection on random variation also works — some are genetically predisposed to do more than others.  Once society eliminates hunger, thirst and the need for basic shelter, a large percentage of them seem to me more likely to play virtual games endlessly, while other, rougher types, with more of a taste for reality, will evolve in a different directions — and now you have the Alphas and Betas I posited [not originally, of course] some six months ago on PSW.   I really have no firm opinion, but I continue to study the issue

  88. zeroxzero

    (cont.) because I cannot help but think that it will be highly relevant to the future trajectory of the global economy.  Here's some links that I found fascinating:
     
     
    http://ftalphaville.ft.com/2012/06/07/1031561/beyond-scarcity-the-parable-of-water/
    http://ftalphaville.ft.com/2012/06/08/1030801/the-end-of-artificial-scarcity/
    http://ftalphaville.ft.com/2012/06/12/1037001/redefining-labour/

  89. Pharmboy

    PGNX/BDC – sell 1/2.

  90. jfawcett

    APPL Money – Phil's comment — GET THE F*CK OUT!   Now that is priceless.

  91. zeroxzero

    Phil: Nice Who video, thanks.  Time sure flies when you're having a good time.  Loved Keefy, who kicked off my r&r career — on guitar!  After listening to the drum finale on My Generation, which had our Beatles-playing band dumbfounded, I figured nothing with that potential for crazy could be anything but good for you. I was right; nothing has made me consistently happier than hearing stuff I've never heard before jamming out of my fingers over the years, it melts away any blues that ails ya.   Joe Bonnamassa and John Petrucci are my current faves, but there are at least three dozen immortals by my way of thinking.  I saw Duane 7 times the year he crashed out, including the closing of the Fillmore East until 6 AM, and worked backstage security for the Dead and a dozen others.  Wish I'd had an Uncle Ralph, though!!!

  92. 1020

    Who invited this guy to the party?……
    http://money.msn.com/investing/an-epic-bear-market-is-coming

  93. diamond

    AAPL Q1 FY13 Earnings Release:
    Apple plans to conduct a conference call to discuss financial results of its first fiscal quarter on Wednesday, January 23, 2013 at 2:00 p.m. PT / 5:00 p.m. ET.

  94. scottmi

    Alpha, Betas/Zero – It's a brave new world. Don't forget the Gammas, Deltas and Epsilons..!

  95. biodieselchris

    pharm – my thoughts too, thanks…

  96. Phil

    Good morning! 

    No major overnight excitement, as we expected, and the Futures are off only a bit but we'll be watching those 4 and 5% levels to see if they hold and keep us bullish.  

    Dollar 80.235 keeping pressure on equities and commodities with oil $92.50, gold $1,661, silver $30.92, copper $3.73, nat gas $3.225 (down from $3.35) and gasoline $2.78.  Certainly was nothing in Global PMI numbers to make us think it's time to buy commodities.  

    Big Chart looks ridiculous and that's just common sense when you see an unusual pattern you have to be on guard that it will normalize sooner than later BUT, as I pointed out yesterday, it's these unusual breakouts that redraw the charts but the key is here – at the point of break-out – and we should always assume it's more likely a channel will hold than break.

    As I said, no additional catalysts expected and that's going to make things tough but the RUT is at new ALL-TIME highs and that's pretty significant and we're only at 1,450 on the S&P, which was my 12/31 target anyway so I don't feel too bad that my 2012 prediction was off by one trading day.  

    So, value-wise, I don't have any particular reason to be bearish.  This is the "right" price for the S&P prior to earnings and then we will have to re-evaluate as we get more data.  Our assumption at the moment is that we'll take a hit from retail, as they sold about the same amount of stuff but at steeper discounts so we assume margin compression and also from Finance, because money is not moving, M&A is weak, IPOs were weak and low rates are probably impacting their margins too.  On the other hand, Industrials (people who actually make stuff) should be turning up based on Durable Goods and improvements in Asia and the US offsetting Europe, who don't spend like we do anyway (same GDP, 60% more people).

    Euro not only failed $1.32 but also failed $1.31 this morning and is now $1.3089 and the Pound failed $1.62 and is now $1.615 so expect the Dollar to climb – especially as the Yen also continues to collapse, now 86.85 to the Dollar after testing 87, which is a 2.5-year low.  Essentially what's going on is the Fed is printing a fixed amount of money (they sort of, kind of have a plan with a theoretical limit) while the BOJ, who already print insane amounts of money, just said "you ain't seen nothin' yet."  We just did something (albeit something lame) to address our debt while Japan is at 240% of GDP and borrowing more every hour.  

    The thing about Japan is people in Asia will buy their bonds regardless because they don't trust Europeans or Americans with their money and the Japanese people absolutely don't trust anyone but other Japanese people to hold their money and you also have to realize that, economically, Japan is to most of Asia as we are to Mexico or Brazil – sure they are also "advanced economies" but where are you going to keep a Billion Dollars you want to store safely?  

    One lasting impact of the Financial Crisis is we lost the cachet that the US is the safest place in the World to keep money next to Switzerland.  Now we're barely on par with Germany, Switzerland, Luxembourg and Japan with Australia and China gaining respect too.  

    AAPL/Yodi – At $10/$545, the ex-dividend on AAPL is not a huge consideration.  Earnings date seems to be the 24th.  

    Productivity/ZZ – It goes back to Gladwell's 10,000 hours.  While a Japanese kid is playing the violin for 3 hours a day for 10 years and gets a music scholarship, our kids are leveling up their characters or growing imaginary vegetables and, when those Japanese children grow up, they have skills that last a lifetime and when our kids grow off and find another game to play – their old accounts eventually get deleted and all their works vanish into the ether.  How can that not have a negative impact on our society?  The problem is, like long-term investing, it's hard to see the true benefits of making better choices over time.  

    I agree the masses need to find ways to be occupied but I was hoping we'd have a resurgence in Arts and Craftsmanship – not Zombism in front of video games.  I guess the Matrix may be right, may as well just plug them into a big machine and make use of their bodies if they're just going to lie around all day anyway…

    Oops, after 8, I'm late for work!  

  97. palotay

    Phil/Oil – I think that the price of oil is going to have to come down over the next couple years, due to weaker demand, and increases in supply. Can you recommend a play to capitalize on this?  

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