Which Way Wednesday – 1,333 or BUST!
by Phil - April 6th, 2011 8:29 am
Go S&P!
As you can see from David Fry’s chart, yesterday was a wild day and we sold that pop and made a nice day’s trading out of it but we got the hell out at the close because we know how this game is played and the gains they fail to take when the market is open – they are more than happy to manipulate after the market closes.
Aside from the 0.6% pop in the futures (8am), they slammed the Dollar down from 76.4 yesterday morning to 75.80 now and that’s a 0.78% drop in the Dollar just to get the market back to where it was yesterday – that’s pretty pathetic folks! Already this morning, in Member Chat, I reminded Members to play the oil futures (/QM) short off the $108.50 line and we got a nice drop back to the $108 line exactly before stopping out and now we’re back to $108.50 where we can SHORT IT AGAIN!
See, it’s fun to play with the manipulators… Also in chat this morning, I reminded our Members why today is "rollover day" for front-month options (the ones we own, not the ones we sold to suckers):
It’s not Wednesdays per se but the Wednesday before expiration day that we like to adjust. This is the day (10 days to go) when front-month premiums go into rapid decline so it’s madness to hold a long put or call – if a move goes against you, you have no time to adjust or recover. It’s a time when the next month is usually a reasonable price to roll and very often that roll can be still be paid for by selling those last 10 days of premium to some other sucker. As a rule of thumb, if you are in a front-month position on the Wednesday before expiration and you don’t like it enough to roll it to the next month – it’s time to cash it out.
To that end, I’ve already sent out a note this morning with adjustments to our $25,000 Virtual Portfolio, which has been getting battered by being too bearish on the Dow and oil as well as riding the bucking bronco that is FAS! We’ll see if the S&P breaks our heart and finally holds 1,333 today. As you can see from our Level Chart –…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggTesty Tuesday – AAPL Rebalancing in May May Keep the Nasdaq from 2,800 Today
by Phil - April 5th, 2011 8:18 am
The Nasdaq is finally rebalancing!
That is good news but not so much for Apple, Inc., whose current 20.49% weighting in the index will be cut to 12.33% on May 2nd. This explains a lot of the strange movement in the Nasdaq as apparently the cognescenti have already begun jockying their positions – trying to guess which of the 100 stocks in the Composite Index will curry some of AAPL’s lost favor.
Perhaps the the moves up in fellow 4-letter stocks like PCLN ($25Bn market cap), NFLX ($13Bn), OPEN ($2.5Bn), BIDU ($50Bn) and GMCR ($9.4Bn) don’t seem quite so crazy in light of the 40% reduction in AAPL ($314Bn) – take the money out of one bucket and you HAVE to fill up the others!
This does make me feel better as there may actually be a rational reason for NFLX having a p/e of 82 despite the fact that they have a completely indefensible service that already has competition from several on-line clones as well as big boys like AMZN, not to mention every cable and satellite company in America. Why does WFMI, a GROCERY STORE, trade at 41 times it’s projected 2011 earnings in the middle of the worst food inflation in US history? It’s not just because rich people are stupid and will overpay for anything because they hate to have people think they can’t afford stuff – it’s because their market cap is $11.4Bn and if you take 40% of AAPL’s $300Bn and distribute it around the Nasdaq – then WFMI get’s $1.2Bn of additional allocation.
That’s not exactly how it works but that’s the effect. A $1Bn Index fund who follows the Nasdaq has $205M of AAPL stock (20.49%) and, after the reweighing, they are to have $123M of AAPL stock. The other $82M does, in fact, get distributed to the other Nasdaq stocks according to the new weightings. Do you think that doesn’t distort the markets? Of course, that doesn’t "just" affect the Nasdaq – AAPL is a heavyweight in all the indexes.
The special rebalancing of the NASDAQ-100 Index will be enacted based on index securities and shares outstanding as of March 31 – now it is very clear why the MoMo stocks were jacked up like crazy into the end of Q1 – now the market manipulators have guaranteed bagholders for their stocks come May 2nd! On…
Monday Mortgage Fraud – Does It Matter?
by Phil - April 4th, 2011 8:32 am
Did you see 60 Minutes last night?
This craziness is part of the "Fraudclosure" scandal that has been well documented by Barry Ritholtz over at The Big Picture so I’m not going to spend too much time on it other than to look at the overall trend. 37,000 people went to an event in Los Angeles for people who are in foreclosure and wanted to know their rights, 12,000 people came to a similar event in Miami, law firms are beginning to take cases on contingency in exchange for liens on the homes, which can become very valuable if the law firm successfully shoos the bank away from the Mortgage.
LA and Miami are big cities so let’s say that, nationwide, only 200,000 of the 4M homeowners facing foreclosure are able to challenge their loans and let’s say only 50% are successful. That’s still 100,000 mortgages that may be written off and, at $200,000 per average mortgage, that’s $20Bn worth of bank write-offs to work through the system. But, if the 4M people who don’t think this applies to them begin to see their neighbors ripping up mortgage documents – how long will it remain something only 5% of the affected people do? Just taking the banks to court over every loan can cause nightmares.
Understand that what 60-Minutes is looking at is beyond "robo-signing," where an actual bank official’s name is signed by a computer without proper review. In those case, even if flaws are in the documents, it’s hard to argue the banks don’t have legal possession of the property. This is very different, this is fraud. Not only is the bank using fictitious names but they are blatantly using multiple people who represent themselves as the same person AND the notarizations are fraudulent. It’s very easy to imagine many outraged judges voiding the entire transaction (which the banks charged the homeowners to complete) or even entertaining lawsuits by consumers that will go far beyond just walking away from mortgages.
Keep in mind this a whole new body of case-law so each lawsuit provides additional ammunition to be used against the banks as each attorney pokes at the many, many holes that have been created in the chain of title in the past decade. Last week, LaSalle Bank lost a case in which their right to…
Foolish Friday – Futures Fuel More Folly
by Phil - April 1st, 2011 8:12 am
Oh come on!
It’s 7 am and the futures are up half a point ahead of the Non-Farm Payroll data at 8:30. Oil is at $107.25 and Dow component CVX made an all-time high, up about 50% since being added to the Dow in February of 2008 as is TRV so keep in mind that the Dow they point for technicals today is not even the same Dow (with non-performers C, MO and HON) that it was back in the last rally. Like everything else in the markets – It’s been "fixed."
It seem silly to even discuss the news because the news is not particularly good but – so what? What does news have to do with this market? I think the only news that matters is the news that is ostensibly bullish, which is our own long-term bullish premise on hyper-inflation. That is the rising tide that will lift all ships as the cost of everything, including stocks – goes up and up and up. Whether or not there is any real relative gain is besides the point – you’d better be invested in SOMETHING or the thing you are thinking about buying today will cost you a hell of a lot more tomorrow.
China is certainly getting that message loud and clear as "panic buying" has hit supermarkets, shops and even online shopping websites in Shanghai. That old bugaboo "inflationary expectations" has infected shoppers in Shanghai, who are rushing to buy up goods in anticipation that prices will be higher tomorrow than today.
"People are overreacting," said Sun Lijian, an economist at Fudan University. "But you can’t blame them when so much news about price increases springs up everywhere, warning that you may wake up the next morning and see a higher price tag on the product you want to buy." The Consumer Price Index, which measures broad price fluctuations, seems to be invading the public psyche. Even unsophisticated old peddlers on the street now know the phrase CPI.
In February, China’s CPI expanded 4.9 percent from a year earlier, the same rate as in January. That’s above the government’s 2011 target of 4 percent inflation. Worse, some economists are predicting that inflation may have accelerated to 5 percent in March. Meanwhile, Barclays declares the sky is falling in Hong Kong, noting that rising rates (due to that same inflation) are likely…
Thursday Thrust – It’s Deja Vu All Over Again!
by Phil - March 31st, 2011 8:27 am
Has it been a month already?
Yes, it has actually been 5 weeks since I warned that equities were "Rising on Rivers of Blood" and the markets were heading for a correction from essentially the same levels we are at now. That weekend, I had already put up our "Fibonacci Rules" post where I said: "I am trying to work through my inclination to put up another Disaster Hedge virtual portfolio, which this backward-looking exercise is all about… The Fed’s current POMO schedule (QE2) runs through May and we’ve gotten very clear indicators (as discussed in this week’s posts) that The Bernank is in "Damn the torpedoes and full speed ahead" mode."
The prior Friday had been options expiration day and we had been slammed up to our 100% lines on our Breakout Levels and AAPL was recovering after being slammed down on rumors that Steve Jobs was dying (remember the picture "evidence" that turned out to be doctored?). We were also worried about the pending Government shutdown at the time as well as Libya (but Egypt was still the main event a month ago). My comment in the Monday (2/21) Morning Alert to Members was:
If you think you are too long (and I REALLY hope no one who subscribes here is) this morning, then the Dow futures can be shorted at 12,350 or lower as that’s about where we got that moronic stick on Friday so we can assume the action above that level was fake, Fake, FAKE.
Japan upgraded their economic outlook that day and oil was trading at $86.55 a barrel but, as you can see from our tag cloud that week – we were expecting inflation to kick into high gear. We already had our bearish bets in place so we had no new plays other than combo on PCLN which was:
- Buy 3 Apr $540 calls for $4.50 ($1,350)
- Sell 4 March $530 calls for $3.10 ($1,240)
- Sell 2 April $350 puts for $3.50 ($700)
That spread was a net credit of $590 and now the March calls, of course, expired worthless and the Apr $540s are still fetching $2.50 ($750) and the April $350 puts are just .30 now ($60) so that’s another net $690 to cash out for a total gain of $1,280 on a play that cost nothing but margin over…
Working It Wednesday – PUMP IT UP!
by Phil - March 30th, 2011 8:25 am
Down in the pleasure center,
Hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.
Though you try to stop it,
it’s like a narcotic.
Pump it up until you can feel it.
Pump it up when you don’t really need it.
Yeah – GO MARKETS!!!
The Global markets are EXPLODING this morning (literally in Japan) and I’m not going to pretend there’s a reason for it other than to impress the suckers who can’t tell the real thing from – well, this. Asia is having a nuclear-fueled rally as the Nikkei pops 2.64% this morning, back over the 9,700 line on news like "Record Levels of Radiation," "Fujitsu Sees Billions in Losses," "PM Kan Says Tax Cuts May Be Suspended" and "Drainage of Radioactive Water Poses New Set of Problems." Well, what are you waiting for? BUYBUYBUY!!!
Let’s take a moment to accentuate the positive in Japan. Unemployment ticked down in a survey taken before the quake and Factory Output was up 0.4% in February – also before the quake. The WSJ headline is "Japan Output Rose in February" but, for those very few investors who read more than the headlines, that very same article says: "Damage to factories—along with subsequent power outages, which are expected to continue for months—means industrial output will likely be down 3% to 4% from a month earlier in March and down 1% to 2% in April, which would smother overall economic growth ahead, said Takuji Aida, senior economist at UBS Securities Japan."
Well no wonder the Nikkei is up 2.6% today, at February’s rate of growth, they can make up that drop in less than 18 months – let’s party! Perhaps the markets are celebrating the fact that there hasn’t been a major aftershock since Monday morning or perhaps the low-volume Nikkei was the perfect way for the Gang of 12 to get the manipulative ball rolling this morning as they roll the global markets into a glorious end to Q1 tomorrow.
Speaking of glorious – Congrats to Pharmboy for nailing the timing on Monday’s Cephalon (CEPH) post, where the trade idea was the Jan $50/55 bull call spread for $3.50, offset by the sale of the $50 puts for $2.70 for net .80 on the $5…
Testy Tuesday – Nasdaq and Russell in Critical Territory
by Phil - March 29th, 2011 8:25 am
Once again we test our levels.
I said in my Morning Alert to Members yesterday that 2,750 on the Nasdaq would "make or break" us for the day. While we flirted with the line in the morning, we got a definitive break at 10:55 and a failed re-test at 11:18 and, fortunately, we were right on top of it and played the day short with bearish plays on oil, the S&P (SDS), FCX (from the morning post), DIA and Treasuries (through a long on TBT). The only longs we added were STD, also from the morning post and UNG, from the Weekend Chat. I was surprised we ended up getting so bearish – we really thought there would be more of a push to dress the window for the end of the quarter but volume was anemic as the mood seems to be turning sour.
Notice on David Fry’s weekly Russell chart, we’re looking for 822 on that index to hold. My own line is not 830 on that index as it seems to be shaping up as a key point of resistance that has not been futile lately. With all due respect to Dave, whose charts I love, I did have this to say about Technical Analysis in yesterday’s Member Chat, which bears repeating:
I think it’s ridiculous to draw historical conclusions from a yield curve when the current curve is completely manipulated to give a false signal. You KNOW the Fed is forcing that curve – it’s not in the least bit an actual indicator of short and long-term demand for capital nor is it any indication of risk or inflation expectation – it’s total BS. I can’t even believe Bespoke would treat this like it merits a discussion but that is what is wrong with TA people – they completely ignore fundamentals and that’s exactly the kind of idiocy the Fed is painting these charts to cater to.
Case in point (sorry Dave) is Dave’s note on his XRT chart that "the tape is the tape." No! The tape is not the TAPE – not when the Fed is painting the roses red to turn those frownish patterns upside-down. I mean – come on TA people, I’m willing to concede that technicals do matter and need to be considered when timing your entries so is it really too much to ask…
Monday Morning: Might Moody’s, Merkel & Meltdowns Matter?
by Phil - March 28th, 2011 8:08 am
![[GERPOL]](http://si.wsj.net/public/resources/images/WO-AF006_GERPOL_NS_20110327191833.jpg)
Oh, where to begin this morning?
We already covered "Big Trouble in Little Tokyo" in our Weekend Reading post so we’ll just say things are still sucking in Japan. The Nikkei lost 0.6% in this morning’s trading but it was Angela Merkel who lost control of Germany this weekend as nuclear concerns gave a huge victory in a state election to the Green (environmental) party who, along with the Social Democrats (what it sounds like) now control 47.1% of Germany’s coalition-based Government vs just 44.3% held by Merkel’s Christian Democrats and her allies in the Free Democrat party.
As a stand-alone, Germany’s GDP is about $3.5Tn, the World’s 4th largest economy, behind Japan’s $5.4Tn (maybe less at the moment) and China’s $5.8Tn and, of course, our $15Tn juggernaut of an economy. Together with the EU, however, Germany is part of a $16Tn economic union where it is followed by France ($2.5Tn and Sarkozy also took an electoral hit this weekend!), Italy ($2Tn), Spain ($1.4Tn) and then you drop down to The Netherlands at $770Bn. We know what kind of shape Italy and Spain are in so keep in mind that it’s Germany and France who run the EU – no matter who is "in charge."
Moody’s put another nail in Spain’s coffin this morning, downgrading 30 Spanish banks by one or more notches. Interestingly, they left STD and BBVA alone and I’m liking STD with their 9% dividend as money is likely to be drawn away from the smaller banks and moved to the relative safety of STD. STD is trading at $11.94 and they can be covered with Sept $11 calls at $1.60 for a net $10.34 entry or paired with the sale of the Sept $11 puts at $1.05 to drop the basis to $9.29. That gives you a net on the buy/write at $9.29/10.14, which is a 15% discount if put to you at $10.14 or called away with an 18% profit if called away at $11 in 9 months – PLUS the 9% annualized dividend!
Not surprisingly, Germany and the rest of the EU rushed through the final approval of their now $987Bn bailout fund as that was the number one issue that was crushing Merkel’s party and it’s not entirely sure Germany will have the will, going forward, to commit any more capital. The agreement requires 80Bn euros…
Weekend Reading – Big Trouble in Little Tokyo
by Phil - March 27th, 2011 2:46 pm
10,000,000 times the "normal" level of radiation?
That’s what has been detected in the turbine housing unit of Reactor #2 at TEPCO’s Fukishima nuclear power plant. Needless to say, that reactor has been evacuated – again – but the news is not good with the seawater around the plant now registering 1,850 times the "danger level" of radioactive iodine.
“Unfortunately, it seems there is no question that water, which could have been inside the reactor, is leaking,” Yukio Edano, the chief cabinet secretary said. However, the reactor “has probably not been breached,” since the pressure inside the vessel was higher than that in the atmosphere, he added. Mr Edano said “the possibility is low” that the high level of iodine-131 in the seawater would have a negative effect on marine life, since it would be diluted by the vast amount of water in the ocean.
Radiation around the plant is hitting 1,000 millisieverts, enough to cause nausea and vomiting after one hour of exposure while 3,000 to 5,000 milliseverts is considered a fatal dose over the same period. At this point, plant workers have to be rotates out after 15 minutes of work on the site. It is likely that radiation was leaking from the pipes or the suppression chamber, and not directly from the pressure vessel, because water levels and pressure in the vessel were relatively stable. All this weekend drama is enough to put fresh fears into the markets next week as these numbers do, of course sound terrible and that leads to info graphics like this one:
What is the real picture of Japan? Is it, as the Financial times is profiling it, a brave nation pulling together in a time of national emergency or is that the Government spin to try to recapture the spirit that helped rebuild the nation after World War II? America was also a can do nation after the second World War – no one nuked us but our people came back and built a nation’s worth of infrastructure over the next 3 decades that only now is crumbling all around us.
But what is our current reaction to the problems that plague us? Certainly the US is in no mood to pull together and soldier on. Our people have changed – to compare us to the "greatest generation" that laid the foundations that most of us coasted downhill on for…
Rational Debating 101
by Phil - March 27th, 2011 1:43 pm
Thank God for Atheists!
If there is one place in society where philosophy and science are still debated with great verve it’s in the realm of Atheism blogs. However you feel about God, or the lack thereof, what we do need in this world are better rules for discourse and JT from Atheismresource.com is the originator of the chart that’s been making the rounds in the blogosphere that is both funny and extremely well done.
It is, unfortunately, a testimony to the very irrational prejudices and poor manners that still plague us all that most versions of the chart we see on-line have been altered to remove the original attribution because apparently – knowing that an Atheist may have drawn up the rules for having a rational discussion will somehow invalidate the concept.
Perhaps that’s true. Perhaps the very people who most need to read and follow these rules are the very same people who won’t read past the the title on the top left of the chart and the dreaded word "Atheism." If you are one of those people, please consider: Is it really possible that a concept is invalid just because you don’t like the source? I will say that, as soon as I can get our site hosted on IBM’s Watson, I will hardwire these rules into the system so we can kick out all those conversations that aren’t going anywhere. Well, a guy can dream, can’t he?
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(