by phil - June 3rd, 2013 8:20 am
And our Futures are up half a point.
Japan was up half a point too – before diving 2.5% after the close. We are now entering what I call the fakiest stage of the rally – the part where the Banksters haven't gotten all of their money out yet but they are racing each other for the exits while telling retail investors and even their own clients to BUYBUYBUY whatever crap they are dumping while telling you to SELLSELLSELL whatever they want to buy.
"THEY" will manipulate the Futures, "THEY" will manipulate commodities, "THEY" will manipulate the media (although it's not really manipulation when you own it, I think they just call that "setting editorial policy" in a Corporate Kleptocracy). "THEY" are the Fed (among others) so it's only natural that we'll hear from 5 different Fed Governors this week starting with Super Dove John Williams, who already spoke in Stockholm this morning (7:20) and said he's worried about DEflation – indicating the Fed may not be loose enough for his liking.
He noted that underlying inflation was at 1 percent, below the Fed's target of 2 percent. Indicating it was one of the factors the Fed should watch when deciding on policy, he said:
"If we see continued low inflation and, more worrisome, a fall in long-term inflation expectations, well below 2 percent, then those would be factors that argue for, all else equal, greater total purchases for our program than otherwise."
LOOK OUT, HE'S GOT A GUN! That's what you should be thinking when you hear something like this. Or maybe FIRE!!! would be more appropriate as every month the Fed prints $85Bn, they devalue the money you have spent your lifetime accumulating by 0.75% (because there's about $12Tn in circulation, up from $7Tn just 5 years ago).
People bitch and moan about taxes while the largest confiscation of wealth in the history of the Universe continues unabated. As I have noted before, the top 1%, even most of the top 10% don't care, because we are the Investor Class and we can play the inflation game. When we were still bullish, way back in April, we had our "5 Trade Ideas that can Make 500% in an Up Market" (and they did), as well as our "5 Inflation Fighters Set to Fly" (and part two) so, from our own greedy…
by phil - May 31st, 2013 8:09 am
What a great rally it's been.
Thank you all for playing – have a nice Summer, be sure to come back for our Santa Claus Classic run in November. As you can see from the chart on the right, even CNBC is noticing the disconnect between actual earnings and the performance of the market. Earnings are the same as they were in early 2012 but the Dow is up 20% since then (from 13,000ish). So, do we think earnings will pop 20% or the Dow will drop 20%?
These things used to matter. As you can see, there's usually a pretty good correlation between earnings and the price of stocks. I know, what a quaint, old-fashioned way of looking at things, right? Well, you know what they say about old dogs and new tricks so you'll have to humor me and my paranoia when the market gets this far ahead of what we used to call a rational valuation.
Of course, this time IS different as we have a runaway Central Bank that's throwing $85,000,000,000 into the economy every 30 days in the hopes of it stimulating the economy. As I often say to members, when you have a patient lying in a hospital that needs $85Bn a month to survive – don't be fooled into thinking they're fine just because they're not getting worse! Europe is getting worse as they're not getting $85Bn a month from their Central Bank and EuroZone unemployment hit 12.2% in April with 26.8% of the people in Spain out of work. That's SPAIN, the 13th largest economy in the World!
Money printing is forcing us to ignore the MASSIVE underlying problems that are still plaguing the Global Economy because we simply don't have room under our mattresses for $85Bn a month (and another $75Bn from Japan) so the money is forced into riskier and riskier assets and creating bigger and bigger bubbles as it moves up the chain. 13,000 + 20% is 15,600 and that's where we are now and 20% is right around where these bubbles tend to pop – or at least let some air out.
by phil - May 30th, 2013 8:30 am
Wheeeee, the Nikkei is down 5% today.
That's now down 14% off the top but a 20% retrace of an 85% run is 17% so, ugly as it seems – so what? Wake us up when there's a real correction. Another 3% down from here (14,000) is 13,580 so THAT's the line we'll be interested in seeing and, guess what, that's right where the /NKD futures bounced last night – gotta love that 5% Rule!
That same 5% Rule told us yesterday that SPY would re-test the 165 line and, lo and behold, they finished the day at 165.22. It was RUT 975 of bust and 980 was the low of the day so we maintained a generally bullish attitude, despite the intra-day dip. This morning we remain nimble as we played Oil (/CL) and Gasoline (/RB) Futures from both sides of the line in early morning Member Chat and had small winners in both directions.
We don't have much of an inflection point until the Dow tests 15,200 again (the bottom of Dave Fry's rising channel and our perfectly predicted -5% line) and, anything below that is a strong signal to get your bear on.
We're already using DIA puts to protect our Income Portfolio (June $148 puts, now .60) and we also have a few June TZA $39 calls but those are trashed at .32 with TZA at $31.38 but we can pick up the October $30/37 bull call spread for $1.90 and, since we have the long $39 calls, we can sell some June $36 calls for .60 to lower our cost to net $1.30 on the new spread and we can't lose more than $3 to the upside and our long spread would be $7 in the money if that happens so a good adjustment to make in our Income Portfolio.
On the DIA puts, we "invest" another $10,000 in insurance and roll the puts (100) to the Aug $147 puts ($2.25), which is net $1.65 and we then need to find some DIA puts to sell for that .65 so it's the June $149 puts at .80, which means we're spending net .85 on the roll to the new spread.
by phil - May 29th, 2013 8:34 am
Wheeeee, what fun!
As you can see from Dave Fry's SPY chart, we got our usual Tuesday pop but then a rare Tuesday drop into the close and, this morning, the Futures are taking us right back to that 165 line – as if yesterday never happened.
Note the flash-crash line at about 2:50 that tested support and found there were no actual buyers – just a bunch of TradeBots moving shares back and forth to keep up appearances. While we are trying to get ourselves in a more bullish frame of mind, the Russell is not helping us as it repeatedly fails to hold it's 1,000 line, which is the Must Hold line on our Big Chart.
Without the Russell, we remain 3 of 5 bearish at our Must Hold lines and, as I noted yesterday, we WANT to be bullish – really we do – but the indexes are simply not giving us enough reasons to believe just yet.
Not that we're bearish – that would be market suicide at the moment. Call us agnostic and proud of it. As you can see from the Big Chart below, we MAY be consolidating for a proper breakout at some of our significant lines or we may be about to fail 975 on the Russell and 15,200 on the Dow and 1,640 on the S&P and, below that, we'll be testing some levels you don't want to be testing if you are trying to stay bullish.
Keep in mind my call for this month was to get to cash at the top here. The proverbial "Sell in May" play. IF the market is still up next week – THEN we can put some of that sideline cash back to use. I'm not alone, either. A survey by US Trust polled people worth $3M or more and a whopping 88% feel financially secure and 70% feel confident about their security in the future.
HOWEVER, 56% have a "substantial" amount of cash with only 16% planning to invest that cash in the next couple of months and only 40% planning to invest over the next two years. That's something like $6Tn sitting on the sidelines!
by phil - May 28th, 2013 8:17 am
We're still waiting for Russell 1,000.
Last week, I said Russell 1,000 or bust and bust we did – having the first losing week since April in the US markets and, as you can see from Dave Fry's chart, there's no excuse this week as the top of that channel has moved well above 1,000 so there should not be any more upside resistance to a truly bullish market.
Already, in pre-market trading, the Russell is up 10 points as Europe is up over 1% this morning, following Asia's bounce back on no particular news other than Japan has stopped falling. China's Industrial Profits in April were up 9.3%, which is the opposite direction that HBC pegged their PMI BUT March had very easy comps (5.3%) and profits are actually DOWN 2.2% from April of 2011 – which is the way rational investors like to look at things but, shhhhhh – that will be our little secret.
There are few rational investors left in the market these days, least of all US Corporations, as FactSet shows us they spend $93.8Bn buying back their own stocks at near record-highs in Q4, topping off a year in which they bought back $384.3Bn in shares.
That's enough share repurchasing money to hire 11M full-time workers at $35,000 a year but don't be silly – that's not the way US Corporations make money! Our Corporate Citizens are in the business of making money, not stuff and you don't need workers to make money. In fact, they generally just get in the way and moving away from the production model entirely is allowing our markets to soar.
How are they doing it? We (US Corporations) have become very, very good at "Logistics," which is essentially where we outsource low-wage foreign labor to drive down the cost of manufacturing and shipping our products all over the World and, while we tend to focus on the things that we (in the US and Europe) buy and use every day, we are missing the bigger picture in which the bottom 80% of the Global Economy (5.6Bn people) are buying more and more things every day.
As you can see from the chart on the left from the IMF, this is the year that Emerging markets surpass us in GDP. Sure the average person in an Emerging…
by phil - May 24th, 2013 8:19 am
Durable Goods at 8:30.
Other than that, we're just waiting to see what happens next. As you can see from our Big Chart, we're testing resistance lines from both above and below and today we'll get an idea of which way things are trending but, of course, we are still not ready to go bullish as the Russell STILL is not over 1,000 for two consecutive days (or one, for that matter).
That's what's been keeping us cautious and now we have a genuine concern that the Dow may actually fail it's -5% line at 15,200 – that would be a very bearish signal!
The Nikkei, of course, fell 1,000 points in a day after having run up from 9,000 to 12,500 since October, so a 28.5% pullback, while the Dow has gone from 14,500 to 15,500 since late April and we had a 300-point pullback to 15,200 before bouncing. That's 30% of the short run but the long run in the Dow has been from 12,750 in November to 15,500 on Wednesday (thanks to GS's S&P 2,100 call) and that's 2,750 points and 30% of that is also around 1,000 and we sure hope THAT doesn't happen in a day!
The Russell is up 225 since November (see Dave Fry chart), but we had a nice consolidation move in April as they retraced the 175-point move (at the time) a textbook 35 points (20%) from 950 to 915 and now we're at 1,000 and a pullback to 955 would be very healthy before heading higher. Anything less than that and we're still firmly on our bullish track
This morning we took a poke at shorting the Russell in the Futures (/TF) at 980 and they fell to 976.50 but back to 979.50 already so nothing very exciting so far. Oil got beaten up enough ($92.50) that we flipped long on it yesterday and those contracts are currently +$1,000 at $93.50 but it's gasoline we're excited about as we liked /RB long at $2.80 (our Morning Alert to Members) and they are already at $2.81, for a quick $420 per penny per contract and we are expecting a nice run as the NYMEX traders look to screw as many drivers as possible over the holiday weekend.
by phil - May 23rd, 2013 7:48 am
Wheeeeeee – what great fun!
We finally got a move in the market that wasn't up yesterday and the thrill is back in the markets all of a sudden. Congratulations to anyone who followed our early morning tweet yesterday at 3:24 am, which was:
Those Nikkei Futures ended up dropping a cool 1,000 points for a ridiculous $5,000 per contract gain and THIS is why we love the futures as you can usually stop out with a fairly small loss but, once in a while, you can get some spectacular gains.
We're now looking to go long on a possible bounce over the 14,700 line (now 14,665) in the Futures as the 7% panic may be just a bit overdone. Europe was down about 2.5% earlier this morning but seems to be holding that line and the FTSE is "only" down 1.7% – all because the Fed Governors weren't 100% doveish (only about 80% doveish). What a silly, silly market this is.
As you can see from our Big Chart – it's much ado about nothing, so far as this long-needed correction hasn't even violated our 2.5% or 5% lines. We overshot and now we correct – it's the way of the World, my friends. In fact, last Friday, we made our final adjustments to the $25,000 Portfolio and we expected this drop, as you can see from these adjustments to our main hedges:
- QQQ – May $70s now $3.90 can roll straight across to June $70s at $4.15 for .25 credit. We're $5 in the money on the longs and happy to add a $70/75 bull call spread if we have to roll callers up further but, for now, we're locking in profits on the $67/70 spread which is $5 in the money yet priced at $1.50 so – if we end up paying the callers $4 that's -1.65 against the gain of $4 on the longs – we can live with that but, at the moment, the position shows a $1.45 loss on the short calls vs a .51 gain on the longs. This is why you need to understand how the options work over time and not be ruled by current
by phil - May 22nd, 2013 7:41 am
The woods are lovely, dark and deep.But I have promises to keep,And miles to go before I sleep – Frost
Poetry, that's what we got from the Fed's Bill Dudley and James Bullard yesterday, as they both hinted that – not only is the Fed likely to continue QE for "an extended period of time" – but they may EXPAND IT FURTHER if the economy doesn't turn around in the near future.
That's right, the economy sucks and the Fed knows it, even if "investors" don't. Of course, we're in that bad news is good news thing as the bad news keeps the free money flowing from the Fed and, as I say over and over again – a rising tide of money lifts all Financial Ships BUT, that has nothing at all to do with the underlying Fundamentals of the Global Economy, which continue to sink into the abyss.
Of course (and here's where the above chart becomes useful, the same could have been said in 1921 and 1933 and 1974 and 1987 but not in 1942, when we had that really big war to create so much demand we had to ration stuff! Despite my current caution, once inflation does kick in I have no doubt we will hit 2,100 on the S&P (see yesterday's post) – just not quite yet.
What we have at the moment is a frenzy of anticipation that things will get better but it's always "next quarter" or "after the summer" or "next year" while we ignore the NOW that doesn't look so hot.
That's putting us into a pretty extremely overbought position on the NYSE Summation Index (from Dave Fry) and, as you can see from the last 3 years of our rally – this usually doesn't last very long without a pullback. So, forgive me for being cautions just because we did, in fact, drop 10% from the Oct '12 high and 15% from the March '12 high and 13% from the Nov '11 high and 20% from the June '11 high.
by phil - May 21st, 2013 8:10 am
You heard it here first. Well, maybe 2nd as GS's Chief US Equity Strategist, David Kostin, says the U.S. economy will achieve above-trend real GDP growth in 2014, ending a six-year period of economic “stagnation.” And in developed economies, the final year of economic stagnation before GDP growth has been linked to price/earnings multiple expansions averaging 15%. They expect the S&P 500 p/e multiple will continue to rise, reaching 15 times at year-end 2013 and 16 times by the end of 2014.
“We are raising our S&P 500 dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 index will rise by 5% from the current level to 1,750 by year-end 2013, advance by 9% to 1,900 in 2,014, and climb by 10% to 2100 in 2015.”
Goldman's timing is, of course, BRILLIANT, as it is Tuesday and the market has been up 18 Tuesdays in a row, so why stop now? 2,100 at 16x earnings is $131.25 per share so, in general, to be on that trend – we need to see 10% annual earnings increases from here ($110) but, of course, we were at $111.30 in January and earnings estimates have DROPPED to $110.10 as 2 rounds of earnings reports have come in weaker than expected so far – so you need a good supply of fairy dust to get as high as David Kostin.
To be fair to GS, they did call S&P 1,675 and yesterday the S&P was at 1,666 (the mark of the Blankfein!) but, unfortunately, they made that call in Jan of 2008 and were, in fact, off by about 744 points on December 31st of that year – and not in a good way! To be fair, in May of that year, they adjusted to 1,380, so only off 439 but the S&P was at 1,380 in May and, as you can see from the May 2008 Bespoke chart on the left, NOBODY SAW IT COMING – even when "it" was already there.
Oddly enough, on Tuesday, May 20th of 2008, I had a moment that now gives me severe deja vu, saying:
I’ve been growling for quite some time now that I want to see a real breakout before we turn bullish and, unfortunately, we could be in for a textbook reversal as we do