by phil - February 27th, 2014 7:35 am
On Tuesday, the 11th, we found our thrill on Capitol Hill when Janet Yellen testified before Congress (summarized in my Wednesday post) and the markets took off like a bat out of Hell and today, after a snow delay, is the second part of her double feature testimony over at the Frankenstien place we like to call the United States Senate.
Will the markets do a time warp and repeat the rocketing performance she set off that week or have we already taken all she has to give (see yesterday's post for my market angst – today I'm staying positive!)? As you can see from Dave Fry's chart – so far, my prediction of pump and dump action at the top of the channel is paying off and we're having tons of fun trading the Futures but today it's put up or shut up for the Bulls – as finishing this week without taking new highs will not be good enough.
Already this morning, we picked up our Egg McMuffin money with an early short from Dow (/YM) 16,200 to 16,050 ($750 per contract) and Russell (/TF) 1,080 to 1,070 but now we flipped bullish again at 16,100 (7:08 am) with tight stops – hoping Janet can once again make a new man out of the markets and rose tint our World (had to get in a last Rocky Horror reference).
We were nice and bullish after Yellen's testimony on 2/12, with 9 bullish picks right in the morning post but we got killed on a WYNN short (so far) and AAPL is back to $515 but we added to our long positions yesterday – as it's only the pullback we expected. AAPL is often held back to be used as rocket fuel when a push to new highs is needed. Since it's about 15% of the Nasdaq and 4% of the S&P, just manipulating that one stock can give you total control of the markets.
by phil - February 26th, 2014 8:19 am
So close – and yet so far.
All but the Dow have fully recovered from the January drop and the Nasdaq is making up for it by going 50 points over the previous 4,250 high (1.2%). Is it a clear indication of a breakout or a silly spike higher with heavyweights like NFLX, TSLA, GOOG and PCLN acting like 1999-style dot com stocks?
TSLA is priced at 100 times FORWARD earnings, NFLX about the same, PCLN (26) and GOOG (23) are relative bargains by comparison and AAPL (our trade of the year), with a market cap of $465Bn against $40Bn of earnings would seem like a great deal, by comparison (even if you ignore their $180Bn in cash), yet they have, so far, been sitting out the market rally at $520.
This is just what it was like in 1998 and 1999, when people who owned "sensible" stocks like IBM, GE, AT&T, McDonalds, Ford, etc. were punsihed while Webvan (the old Amazon), Microstrategy (survivor), WorldCom (the old MCI), Inktomi (the old Oracle), Lycos (the old Google), Pets.com (the old nothing), Broadcast.com (the old NFLX), etc were valued at 100x earnings and more (the average p/e for the Nasdaq in 1999 was 78 times earnings).
A contrarian investor would have done very well for themselves in the 2000-2003 collapse, but only if they survived the run-up! That's why I called for CASH!!! last week, not shorting, other than a few 500% hedges that are to be pulled with small losses if the indexes do manage to get over their previous highs (3 of 5, and it has to hold for 2 full days) of Dow 16,588, S&P 1,850, Nasdaq 4,250, NYSE 1,0406 and Russell 1,182.
If they can do that, we can get more bullish but, if they can't – why should we? Sometimes, the only winning move is not to play and this is a very good time not to be playing.
by phil - February 25th, 2014 7:39 am
How many stock market newsletters make you $10,000 in 3 days?
Last Friday, we talked about hedges for a market correction and, as I do on occasion, I shared a trade idea from our Member Chat Room (and you can join right here) to short the Natural Gas Futures (/NGH4) saying:
In our Member Chat Room this morning, we shorted Natural Gas Futures (/NGH4) at $6.25 and Oil Futures (/CLJ4) at $102.50 but those are day hedges. We also shorted UNG (Natural Gas ETF) in Tuesday's Live Futures Trading Workshop, so those are great hedges for day-trading and short-term covers.
I also tweeted that one out (follow me here), just to make sure no one missed it.
Yesterday, we had the biggest single-day drop in Natural Gas in 5 YEARS and each one of those /NGH4 contracts made $10,000 at $5.25 while our UNG short position from Tuesday's Live Trading Webcast (and we have another one today at 1pm EST) was cashed out in that same dip in an Alert Message I sent out to our Members at 2:51pm with a 67% gain in less than a week.
This stuff isn't an accident. We spent a week discussing WHY we were going to go short on /NG, as well as how to time it (into the contract expiration) and yesterday afternoon, I said to our Members:
Interesting to see how high Nat gas will bounce into the close. It's like the end of trading places – where Eddie Murphy and Dan Aykroyd have to square up all their sells with buys.
This morning we flipped long on the new contract (/NGJ4). Today is still going to be choppy, but the point of this post isn't to give you a Natural Gas Trading Seminar, rather to emphasize why it's important to understand the FUNDAMENTALS of investing, so that you can take…
by phil - February 24th, 2014 7:43 am
The charts love to make "M" patterns.
They're forming them now but it won't be obvious until we're on the other side and re-testing the January lows. By then it's a little late, isn't it? That's why, on Friday, we went back to CASH!!! and took a poke at 5 Trade Ideas that can Make 500% if the Market Falls.
Maybe it won't fall, maybe THIS TIME we're going to bust out to new, all-time highs despite all the woes in the World (see today's news round-up). Who cares? As you can see from our January Trade Review, where we had option trade ideas that returned 527% and 1,520% on TSLA (long hedges, we're overall short), 210% on SCTY, 32% on SSO, 633% on DBA, 43% on CLF, 1,340% on LULU, 496% on SLW and 3,150% on BRCM on our cash outlays. Those are just one-month returns!
Overall we had 118 Winning Trade Ideas in January for our Members against 27 that have lost money (so far) – and the above examples were bullish trades in a falling market! So, it's not like we're not confident that we'll find something great to do with our cash – we would just like to PATIENTLY wait for better entries. It's only two months until April earnings, when we KNOW we'll have more bargains thrown at us by the end of that month, in the very least.
And, of course, we have our Futures trades. In last Tuesday's LIVE Webcast, we demonstrated trading the Oil (/CL) and Natural Gas (/NG) Futures. This morning, we put our skills to the test, shorting /NG at $5.20 (/NGJ4) and $6.42 (/NGHF) in our Member Chat Room. Already (7:13) /NG hit $5.17, up $300 per contract, and the Egg McMuffins are paid for – but we think we can do much better today as the weather, as we expected, warms up a bit!
That's all we look for in early morning Futures trading, just enough money to buy a nice breakfast and maybe lunch if all goes well. If you keep your expectations low, you won't be disappointed and SOMETIMES, quite…
by phil - February 23rd, 2014 7:53 am
OK, let's see if we can finish January off!
Actually, I hate to see it go as our Trade Ideas in Parts, 1, 2 & 3 have had 51 winners and just 8 losers (87.6%) so far, not bad in a choppy market! Now it's crunch time (or crash time) as we left off at the top, on Jan 10th and it's all downhill from here for the rest of the month.
Keep in mind that timing is fairly arbitrary, of course, between the review and when the trade was made so our short trade idea on the Russell Futures at 1,160 from 1/10, made $6,000 per contract by 1/28 but is down $320 per contact as of Friday's close. Whether we specifially called a stop to that trade or not – if you rode the contract from a $6,000 gain to a $320 loss, you are an idiot. That's right – I'm not going to sugar-coat it – that is idiotic and you need to seek help!
Hopefully, this is not your case and you have reasonable expectations and set reasonable stops on your trades. My rule of thumb for Futures is, if we specifically call a stop (we usually do) then I count that total but if we make a general call, like we did on 1/10 in the main post, then I will put down the total gain on the trade with a reasonable stop (the /TF Futures went to 1,180 for an $8,000 gain before turning back up) based on our normal trading rules (see Strategy Section).
We had been playing the top of the rally "Cashy and Cautious," with means we should be CONSERVATIVELY taking pofits off the table (and that's what we switched back to this week as well). Unfortunately, as the old saying goes: "You can lead a trader to profits, but you can't make him take them off the table."
Jan 13: Merger Monday – Suntory Buys Beam for 25% Premium ($16Bn)
by phil - February 21st, 2014 8:05 am
Up and up the markets go, where they stop….
Stop? Markets don't stop going up, do they? Certainly not when the Fed can toss $2.7Bn onto the bonfire to keep things warm for another day and, at $65Bn a month, that's just an "average" day's work.
The worse the economic news is, the more likely the Fed will keep giving us FREE MONEY and the more the markets can go up.
That's the standard theory but, as we discussed in our Member Chat early this morning, that theory has a gaping hole in it:
Taper/ZZ – To me, it's not about whether or not they taper. 1,850 on the S&P was the result of $85Bn a month. Now it's $65Bn a month so subtract 20 S&P points. Just keeping it going doesn't get us higher – higher we already hit and now there is LESS FREE MONEY than we needed to get to 1,850. Remember my car-lot model – you have to have constant inflows of new cash into the market or you simply run out of people who can afford the pumped-up prices at which point ANY selling pressure ends up finding no buyers.
Every day, 600,000 shares of PCLN are bought AND SOLD for $1,300. That's $780M per day – just to maintain $1,300. When there's an influx of new money (10% is a rule of thumb) the stock can rise about 1%, so it's not that hard to pop the price but, once you do – you then need 1% more money every day to sustain it.
This is twice as much as we needed last year already and, despite the fact that there are mutual funds and ETFs and even hedge funds that are forced to buy it because
by phil - February 20th, 2014 7:52 am
Not a little miss, mind you – they missed BIG. On TV, the pundits are saying it's because their product mix is stale or the competition from the Dollar Store is tough or whatever but WMT is not just SOME store, it's the biggest retailer in America, with $480 BILLION in sales last year – that is more than the GDP of all but 25 nations on the planet!
Argentina (26) has a GDP of $477Bn, Austria (27) is $394Bn (it drops off fast), Denmark (33) has $314Bn (mostly Ikea) and Singapore (35) has 276Bn. When one of those countries has a GDP crisis – do we excuse it because their competition had a better year or say they should change their product mix? NO!!! When ANYTHING that large has a problem – it's usually an indicator of much larger, systemic problems in the Global Economy.
As you can see from the above Stiglitz quote, Joe and I know exactly what the problem is. In fact, we were just discussing income inequality this morning in our Member Chat Room as Greg Manikaw penned a dspicable apologesia for the Top 1%, which was nicely cut down by Lambert Strether and, of course, I added my own 2 cents (more like 10). So, I'm not going to re-hash it all, I'll let you follow the links and then we can discuss the repurcussions of this looming disaster.
All caught up? Good, let's move on then.
Even the most inbred of Waltons must eventually realize that, if the bottom 90% run out of money, then they can't spent it at WMT. This is why the Billionaires who own retail operations, restaurants, service centers, even utilities, that supply the bottom 90% need to wise up and get their lobbyist to SUPPORT a higher minimum wage and SUPPORT more benefits. Look at the above numbers, this poor woman goes to college and comes out $26,000 in debt and, like a typical mortage, she ends up paying 300% of what she borrows over time. This is how we are making our children start their lives – buried in debt. Only the Banksters win this game!
by phil - February 19th, 2014 8:22 am
That's down 13% this week as the Ukraine bursts into flames live on TV as protestors are willing to die rather than accept Putin's puppet President. Thousands of demonstrators have packed Independence Square since November, when President Viktor Yanukovych reversed a decision to sign a trade deal with the European Union and instead turned toward Russia. The unrest intensified after an anti-protest law went into effect. Throngs of demonstrators took to the streets to protest the law.
These are the sort of Geo-Political events that don't seem to bother investors – until they suddenly do and now we're seeing a precipitous drop in the Ruble, which destabilizes Russia as well as the already destablized Ukraine and bad timing for Putin as the entire world already has thousands of bored reporters hanging out in Russia – just looking for an excuse to cover something besides curling.
The MSM keeps saying that these protest MAY lead to a civil war, but that's nonsense – this is already a civil war and, apparently, currency traders have figured that out this week.
This works out fine for us as we shorted oil as it made it's silly run up on the premise that the Dollar was going to bottom out at 80 because CLEARLY we were not THE WORST currency on the planet. It seems it's only taken one day for Russia to prove our point and the Dollar is up to 80.065 this morning and our Futures are down about 0.3% with the new oil contracts (/CLJ4) trading at $102.50.
by phil - February 18th, 2014 8:19 am
Happy $62.1 Trillion!
That was the market capitalization of Global Equities at Friday's close. That's up $3.1Tn since February 4th as $11Bn flowed back into Equity Funds last week. Sure, $3.1Tn is 281 TIMES $11Bn but NFLX trades at 235 times earnings and TSLA will be lucky to have earned 63 cents per $198 shares this year and that's 314 times earnings so what's the big deal if Global Equities move a mere 281 times faster than actual inflows? What could possibly go wrong with the implied assumption that $11Bn will continue to flow in for 281 more consecutive sessions?
Notice, in the Money Flow chart above, that we're repeating a pattern we made back in September, when the S&P ran up 100 points, back to 1,750, just before giving it all back again into early October. It's simple physics – until as much money flows back in as flowed out, you're not going to have a sustainable recovery!
How many times over the years have I warned you about chasing low-volume rallies? The average volume on SPY was 98.5M/day last week, vs 174M/day the week before and 162M the week before that – WHEN WE WERE SELLING OFF. Can that really all be reversed by 7 sessions of light buying? It certainly didn't work out in late December and early January, when light volume led us up to a cliff.
I guess we're going to see this week, with options expiring on Friday and oil contracts rolling over on Thursday (/CLJ4 will be the new front-month and we're already using it for our oil trading – currently short at $100.90 with a stop at $101.01).
We'll also get a bit of data this week with the Empire State (NY) Manufacturing Survey this morning along with Housing data that we expect to be disappointing and E-Commerce Retail Sales that will probably be excused by the weather – even though that would make no sense at all. Tomorrow we get the FOMC Minutes and Bullard (hawk) and Williams (dove) speak on each side of it. Also more housing data and the PPI.
by phil - February 17th, 2014 8:32 am
US Markets are closed today.
Asia was mixed and the UK is up 1% but the rest of Europe is flat but our Futures are up about 0.25% – all on very weak volume, rendering the whole exercise meaningless. All of last week's rally came on extremely low volumes but it accomplished the mission of taking us back to new highs – reeling in the retail suckers so the big boys can begin another round of selling into expirations this Friday.
Still, we're not going to start shorting until we see some levels breaking down. When we adjusted our Short-Term Portfolio last Wednesday, we rolled back our TZA hedge to buy more time but also balanced a bit by adding a bullish play on silver:
- Buying 10 SLW Jan $20/25 bull call spreads at $2.60 ($2,600)
- Selling 5 CI 2016 $60 puts for $4.60 ($2,300)
CI popped up nicely for us and the 2016 $60 puts already dropped to $4.40 but SLW really took off and, as of Friday's close, that spread hit $3 and that means it's now $3,000 – $2,200 which is net $800 from a net $300 start – up $500 in 2 days (166%) and "on track" towards our hopefully $5,000 total if SLW holds $25 (now $25.38) and CI stays over $60 (now $77.71).
What we are teaching our Members with these Trade Ideas is that it is NOT necessary to make short-term trades to make very nice short-term returns. You could kill this trade now and pocket a very quick 166% but we sincerely like this trade for the long-term and, even though it's net $800 now, we still like it as it pays $5,000 if all goes well – another 525% of upside remains.
Back on 1/22, we added a similar combo to our Long-Term Portfolio, which…