Will We Hold It Wednesday – Fed Edition
by phil - June 19th, 2013 8:46 am
Oh who am I kidding, we're already shorting!
I sent out an Alert to our Members at 3:14 am, as the Dow Futures (/YM) hit 15,278 and the Nasdaq Futures (/NQ) hit 3,000 and the Russell Futures (/TF) hit 998.20 to short them all and we got one quick ride down for a nice profit (also available to our Twitter followers) and then a chance to re-load at 5 am (also noted in Chat, of course) and now (7:25), I just warned our Members to guard our profits (again) at Dow 15,230 ($240 per contract), Nasdaq 2,990 ($200 per contract) and Russell 995 ($500 per contract).
Our regular short-term positions were already pretty bearish heading into the close and so far, so wrong on those! So it's nice to make back a little playing the Futures with the early risers and we also caught oil (/CL) at the $99 line and that one could be the best ride of the day at $10 per penny, per contract.
We have inventories at 10:30 but, if they want to pretend to want a barrel of oil for $99, we're VERY happy to sell it to them because I can buy a barrel of December oil (actually 1,000 per contract) for $97.26 and net $2.50 on the spread less my rolling cost month to month (usually .20-.40). That's how fake this July "demand" is.
The Wall Street Journal is running an article on oil market manipulation this morning but it's deceptive (what isn't in Murdoch-Land?) as it focuses on a trader who "admits" to manipulating the price of Brent Crude LOWER. That's right, they can't deny the manipulation exists – as I pointed out Monday, you have to be blind not to see it.
So, instead, the industry PR machine is now rolling and planting stories like this one to confuse the issue so the talking point will be "well, there's manipulation on both sides, so it all evens out." NO, it does not, they are LYING to you. They same way we teach our Members how to make money by shorting into these BS moves up, the very few legitimate oil traders who WANT to have oil delivered have many ways not to pay the BS prices but, those delivered barrels on the exchange come out to less than 20M per month…
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Technical Tuesday – Gravity’s Rainbow or Bernanke’s Pot of Gold?
by phil - June 18th, 2013 8:23 am
“There is no real direction here, neither lines of power nor cooperation. Decisions are never really made – at best they manage to emerge, from a chaos of peeves, whims, hallucinations and all around assholery. ” – Pynchon
What madness!
It's a fun kind of madness, especially when we can make a quick 36% cashing in the EWJ calls we discussed in yesterday's post and $1,000 per contract on the oil shorts we also discussed in yesterday's post. What do we care if the markets are fixed as long as we UNDERSTAND how they are fixed and are able to play along with the fixers?
Gravity's Rainbow is a novel about V2 Rockets (and other weird stuff) and the title refers to the parabolic trajectory the rockets take. What's most significant for current market watchers is that the rockets are targeted from the ground, shot in a certain direction with a certain amount of thrust – and then, near the top, the engines cut out and gravity takes care of the rest.
Where the rocket lands is predictable but not certain, following a probability theory known as a Poisson Distribution. In other words, you give the rocket a push in the general direction of your enemies, but you're never quite certain where they'll end up. This leads to a lot of angst among some of the more sensitive rocket men but a sense of fatalistic determinism from most of them. Very much like our Federal Reserve's efforts at stimulus or, as Pynchon said:
“A market need no longer be run by the Invisible Hand, but now could create itself-its own logic, momentum, style, from inside. Putting the control inside was ratifying what de facto had happened-that you had dispensed with God. But you had taken on a greater, and more harmful, illusion. The illusion of control. That A could do B. But that was false. Completely. No one can do. Things only happen, A and B are unreal, are names for parts that ought to be inseparable…”
That is what we have now and that is what the Federal Reserve seeks to impart to us tomorrow – the illusion of control. As we can see recently, there are clearly some doubts creeping into the market participants, which leads to wild intra-day swings – based on the rumor of the…
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Monday Manipulated Market Malarkey – Welcome Greater Fools!
by phil - June 17th, 2013 8:45 am
What complete BS the Futures are!
We started out last night, at 6pm, with the Dow Futures right at 15,000, flat to Friday's close. However, MIRACULOUSLY, by Asia's close at 4am, we were back to 15,130 (Friday's high) and you have to be high if you could read the weekend headlines we were going over in early morning Member Chat and thought that kind of move was justified! We concluded that oil futures (/CL) would be the best short at a ridiculous $98.50 so we called that line and, already, less than two hours later (8:17), we're back at the $98 line with $500 per contract profits! Maybe we should just take the rest of the week off and quit while we're ahead.
We're very happy to take the quick Egg McMuffin money in the mornings as we already have proper bearish bets on oil via USO and SCO positions we took in our virtual Short-Term Portfolio. Hopefully we'll crack back through $98 to $97.50 and lower as the pressure mounts on the NYMEX pump crew to unload the last of their 110M barrels worth of fake orders (down from 350M earlier in the month) before Thursday comes along and they would actually have to take delivery (which would increase US inventories and our energy security so the people faking orders at the NYMEX and then cancelling the contracts with no intention of buying oil are actually sort of terrorists).
No drones, however, will be sent to stop this scam as the multi-Billion dollar oil and banking cartel is behind it and every extra penny they can squeeze out of you at the pump is multiplied by 378 Million gallons a day in the US and 1.5Bn gallons Word-Wide so it's worth $150M for each dime and $1.5Bn for each dollar the NYMEX traders can con out of the American people and that's why you see an order strip that looks like this (one contract is 1,000 barrels) with just 3 days until July trading ends:
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Friday Thoughts – Tremendous or Titanic Market Signals?
by phil - June 14th, 2013 8:30 am
Have you hear of the Titanic Signal?
I hadn't either until this morning, when I read this article from McClellan Financial that had this chart which shows the times (down arrows) in the past 30 years that the number of new 52-week lows exceeds the number of new highs on the NYSE within 7 trading days of a major market high.
Sound confusing? It's not, essentially what it's looking for is a broad sell-off where smaller amounts of stocks are propping up the indexes. That's something we pay attention to all the time in Member Chat (on an intra-day basis), so it's nice to know it makes enough sense to have a name amongst top-notch TA people like McClellan (yes, there are a few I respect). Per their analysis:
The top chart shows all of the instances since 1984 of these preliminary sell signals firing off. You can see that they do tend to cluster around major tops, but they also seem to cry “wolf” a lot at other times when an uptrend continues. Ohama noticed that too, and so he added further criteria to constitute what he called “additional evidence”. He wanted to see NL exceed NH for 4 out of 5 days, plus NH declining to less than 1.5% of total issues, and finally to have the DJIA (or SP500) decline for 4 out of 5 days. We now have 2 out of those 3 criteria met, but have not seen the DJIA or SP500 drop for 4 of 5 days.
As we know, we're also getting scary signals from the "Hindenburg Omen," which has some similar criteria to the Titanic Signal and John Bollinger, who created Bollinger Bands, has a good way of describing both of these indications. Rather than thinking of them as “signals”, it is perhaps better to think of them as “alerts”. Each can be useful for getting one to pay more attention to bearish signs in other charts and indicators, even as one retains the knowledge that it could turn out not to lead to a big selloff every time.
We already decided to short the Dow this morning (/YM in the Futures) at the 15,100 line and I sent out not one, but two tweets on the matter after sending out an early morning Alert to our Members at 5:26am. We're watching oil on the…
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Make or Break Thursday – S&P 1,600 Edition
by phil - June 13th, 2013 8:29 am
Wheeeee, what a ride!
There's nothing better than a good sell-off (see Dave Fry's SPY charts) when you're ready for it. The stocks we want to buy get cheaper and we're able to raise money to buy them by cashing in our hedges and the VIX jumps back (18.59) to levels that make it fun to sell short puts again (our favorite way to initiate a long position).
Take LULU, for example, they BEAT by 6.7% and the stock fell from $82.50 to $64 (22%) and now we can sell 2015 $50 puts for $4.30 for a net $45.70 entry.
The margin on that sale is about $4.50 to make $4.30 (95%) in 18 months if LULU simply doesn't drop another 22% and our break-even is another 10% below that! That's what we call a "set and forget" trade and we'll add 5 of those to our Income Portfolio and collect $2,150 now in exchange for our promise to buy 500 shares of LULU at $50 ($25,000) in Jan 2015 – if they are trading below that line.
Following through that trade – should LULU be put to us at, say $40 (50% off the highs), then we could sell the 2017 $40 puts and calls for at least $10 (the 2015 $65 puts and calls are $26) and that would drop our net basis to $30 with a commitment to own 1,000 shares of LULU at an average of $35 if they are below $40 in 2017. That's what we're committing to by taking a position in LULU at $64, buying 1,000 shares for $35. As long as we REALLY want to own 1,000 shares of LULU at net $35 in 2017 ($17,500 of ordinary margin), then there couldn't be an easier way to collect $2,150 today.
As I always tell people at our conferences, a good put sale is one in which you are UNHAPPY not to get the stock assigned to you at the net price. We're being paid $2,150 by the put buyer NOT to take their stock from them. They buy those puts because they FEAR it will go lower and they want someone to promise to buy the stock at a certain price, worst case. Once that worst-case scenario washes out – those short buyers are very regretful of their panicked decisions.
That's our job – to take advantage of…
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Whipsaw Wednesday – The Wild Ride Continues
by phil - June 12th, 2013 8:23 am
Wow, what a ride!
After making "just" 20% on our Nikkei trade idea over the weekend, we got more aggressive yesterday and went with the /NKD futures just after the close as I said to Our Members at 4:09:
Nikkei at 13,185 is a bull play over 13,200 as long as the Yen is over the 96 line but very dangerous stuff (/NKD).
The Nikkei is a great way to lock in bearish gains overnight as it tends to have spectacular recoveries, as you can see from a $1,500 per contract gain in just over 12 hours (much sooner if you were up all night playing the lines). Futures play is VERY dangerous but it's also a very useful tool we like to teach as, in situations like yesterday – it's a fantastic way to make sure you don't get blown out of your main positions by overnight changes.
We took the money and ran on oil at $94 (our goal #1 with $92.50 our next downside target) and now it's back to $95.50 pre-market ($33.90 on USO, see Dave Fry's chart), where we're now waiting for inventories at 10:30 to hopefully give us another leg down. In this case, we found a nice SCO (ultra-short oil) hedge to get into on yesterday's pump into the close. Later we'll add USO puts if we get a nice run-up as we're expecting a build in inventories to disappoint oil bulls.
Our key index this morning is the NYSE, as it finished just below its 50 dma line of 9,275 at 9,255 so that needs to stay over today if we're to stay bullish on this, so far, weak bounce (see yesterday's post covering all bounce lines). The Futures are up a bit but, with Dow at 15,200 and the Nikkei at 13,500 this morning – I expressed my doubts in an early morning Alert to Members (also tweeted!) that we'd go any higher from here.
Not enough to turn bearish pre-market but I just don't get that bullish vibe from the overnight moves vs. the news-flow I'm seeing which, frankly, sucks. Most of that sucking can be easily summed up in this one chart that shows the US Macro Surprise Index ( a compilation of upside or downside data points vs. expectations) is back to January lows as…
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Technical Tuesday – Will Our Weak Bounce Levels Stay Bouncy?
by phil - June 11th, 2013 7:59 am
Wheeeeeeee!
Down we go again. This time it's ostensibly because the BOJ, who are already pumping 15% of their GDP into BOJ stimulus, isn't doing MORE to boost the economy (which was up 4.1% on the 15% stimulus in yesterday's GDP report). Dave Fry's chart is from yesterday but the Nikkei neatly gave up everything it gained since Friday with a 500-point dive (which is why we wisely took the money and ran on EWJ yesterday morning!). I believe it was Prince who said:
Maybe you're just like the markets
They're never satisfied
Why do we ease qualitative?
This is what it sounds like
When (Fed) doves cry
Our Members are very satisfied with the drop as we got aggressively bearish in our Short-Term Portfolio on yesterday's little pop, which is now almost 200 Dow points ago! I called for making adjustments to our virtual portfolio in Member Chat at 10:08 and we hit all of our intended targets by 11:42 and there was not much else to do but sit back and enjoy the ride for the rest of the day.
What we'll be looking for today are re-tests of our weak bounce lines (see Thursday's post for details), which are:
- Dow 15,108 (weak bounce) and 15,216 (strong bounce)
- S&P 1,622 and 1,634
- Nasdaq 3,420 and 3,440
- NYSE 9,280 and 9,360
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Monday Market Movement – Japan Jumps 5% on GDP
by phil - June 10th, 2013 6:37 am
And up we go again!
This time we're led by Japan, whose market flew up 5% this morning as the Q1 GDP was revised up to 4.1% from 3.5% in an earlier reading. Fortunately, our last bet of the week in our Short-Term Portfolio on Friday was a long play on EWJ, grabbing the June $10 calls for $1.02 as a great upside cover to our still pretty bearish positions. 5% up in the Nikkei should give us at least 20% in our options – not a bad hedge, though we'll take that money and run at the open.
As you can see from the chart on the right, Dave Fry isn't buying the "rally" quite yet, either. The S&P finished well over our strong bounce goal of 1,634 at 1,643, which is why we wanted some upside hedges, but the next level we need to see is that 50% line at 1,645 – and it looks like we'll be testing that this morning.
All the other indices hit our Strong Bounce lines, except the NYSE – which finished just below it's 9,360 at 9,355. We're still DEEPLY concerned about the underlying Global Fundamentals and the fact that the US added 175,000 jobs in May, we're still 6M jobs short of where we were pre-Bush and, at this pace, it will take us the whole rest of Obama's turn in office to get back to "full employment" (4.5% unemployment).
So, on the bright side – it seems like the FREE MONEY train is never going to stop but, in reality, the Fed can't drop another $3Tn on the market and book it into what would become a $6.6Tn balance sheet. People will lose confidence in our Central Bank long before their balance sheet becomes bigger than Japan's GDP!
The ADP chart on the left illustrates how it's small business (Russell) that's driving our job growth with companies under 50 employees now creating MORE jobs than the "job creators" in bigger businesses. When Big Business refuses to pay living wages – Americans are still innovative enough to create their own jobs and, as that yellow line crosses higher, you'll see labor costs finally rise for Big Business as it becomes harder and harder to find cheap talent – as it is used against them in the local markets by their smaller competitors. …
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Non-Farm Friday – Payroll Data Sets the Pace
by phil - June 7th, 2013 8:04 am
Will bad news be good news again?
Or will good news be bad news. It would be very confusing if good news were good news or bad news was bad news as we'd have to go back to reading the news again and, we don't want to do that because the news is sooooooooooo depressing! As Dave Fry noted last night: "There is much to discuss about the Jobless Claims and the Employment Report since much of the data is now skewed by incoherent data. With Jobless Claims data it’s been more about people exhausting their benefits and falling off the rolls. Much the same can be said about the Employment Report since the percentage of workers, or the participation rate, is historically low at around 63% of the workforce. The Gallup organization for example has stated less people are working now than one year ago."
As you can see from Dave's chart, we got to our 1,622 "weak bounce" target, that our 5% Rule™ predicted yesterday morning, the very hard way but hit it right on the nose on that silly-spike close. We also predicted 3,420 on the Nasdaq and it finished at 3,424 and we predicted 9,280 on the NYSE and it finished at 9,260 and we targeted 975 on the Russell and that one got over at 979 right at the close, after spending over an hour at 975.
Well, we can't get them all, can we? The Dow was our biggest disappointment, falling way short of our 15,108 target at 15,040. Not that we care – those were just the lines we expected to bounce to and maybe they'll catch it this morning before failing into the weekend. That's right, we're still bearish BECAUSE the weak bounce lines failed on day one and ONLY catching the strong bounce lines into the weekend (15,216, 1,634, 3,440, 9,360 and 981.40) would change our minds.
Keep in mind that the Dollar (which these indexes are priced in) has fallen 2% this week and 4% this month so, if we apply a 4% discount to those index spike bottoms from yesterday, we get (in steady dollar terms) 14,250 on the Dow, 1,534 on the S&P, 3,242 on the Nasdaq, 8,784 on the NYSE and 926 on the Russell.
THAT's how far the markets have fallen off the top if not for…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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