by Phil Davis - July 25th, 2012 7:55 am
Fortunately, we were well-prepared for this eventuality as I had said way back on July 10th, in Member Chat, that AAPL was "too big to succeed" (commentary also featured in Stock World Weekly on the 15th). I also said, at the time regarding AAPL: "Where was my buy point – $555? That's a long way down to support if they fail $600." We had called for taking the bullish AAPL money and running the previous Thursday (July 5th) in my morning Alert to Members, as they topped out that morning at about $610. We were a bit early with that call (AAPL hit $619.87 the next week) but, on the whole, our bearish flip on AAPL (and the broader market) has served us well.
In yesterday's Member Chat, we had one bearish earnings spread on AAPL as well as an aggressive play on SQQQ, the Nasdaq ultra-short, because we expected the Nasdaq to fail along with AAPL (and AMZN is next!) on their earnings. Our SQQQ trade grabbed the Sept $50/60 bull call spread, offset by short puts on some stocks we are accumulating for our Income Portfolio for a net free trade but our dreams of a big pay-off on the spread will be put on hold today as a sudden burst of stimulus talk has turned the indexes back up, with the Dow now 200 points off the bottom in the Futures (7:50) at 12,660.
I already sent out an Alert to our Members this morning, pointing out what manipulated BS this was as the WSJ's Jon Hilsenrath issued what amounted to nothing more than some well-timed speculation on imminent Fed action into yesterday's close that has been picked up by the MSM as a fact and popped the Dow a full 100 points into yesterday's close – erasing 1/2 of a disastrous day in minutes (see Dave Fry's SPY chart). At the moment (7:54), the Dow Futures (/YM) make an excellent short below the 12,650 line so excuse me while I hit "publish" on this partial post so our Members can see it.
Anyway, so where was I? Oh yes, market manipulation by Uncle Rupert and the WSJ is not unexpected with NWS reorganizing and looking for good valuations on the company split. I pointed out to Members seven other articles in which Hilsenrath has…
by Phil Davis - July 24th, 2012 8:49 am
Tut, tut, it does not look like rain.
You would think the worst drought in 80 years would merit more than the occasional mention in the Financial media – I've seen CNBC do one-hour specials on the marijuana crops so you'd think actual FOOD would maybe make it a little higher on the list of concerns for the MSM – especially when we are experiencing the worst drought of the past 80 years and the last one that was this bad led to a Global Depression (along with, of course, National Debt Crises and Financial Failures but mission accomplished there already).
You would think the drought has somehow fallen into a Somebody Else's Problem Field, where individuals/populations of individuals choose to decentralize themselves from an issue that may be in critical need of recognition. Such issues may be of large concern to the population as a whole but can easily be a choice of ignorance at an individualistic level. As Douglas Adams explains in The Hitchiker's Guide to the Galaxy:
An SEP is something we can't see, or don't see, or our brain doesn't let us see, because we think that it's somebody else's problem…. The brain just edits it out, it's like a blind spot. If you look at it directly you won't see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye.The technology involved in making something properly invisible is so mind-bogglingly complex that 999,999,999 times out of a billion it's simpler just to take the thing away and do without it……. The "Somebody Else's Problem field" is much simpler, more effective, and "can be run for over a hundred years on a single torch battery.This is because it relies on people's natural predisposition not to see anything they don't want to, weren't expecting, or can't explain.
by Phil Davis - July 23rd, 2012 8:25 am
How great is this? We flipped bearish on Wednesday's poor Beige Book outlook (not to mention drought concerns and Hugh Hendry's warning that "Bad things are going to happen") and Thursday we noted it was looking a little too much like last July, where we fell off a cliff right after options expiration and my very appropriate comment at the end of Thursday morning's post was:
Clack, clack, clack – like a roller coaster going up in the dark, we don't know when we'll get that big "wheeee" but we do know it's coming!
Fortunately, we did not wait with our Long Put List going out in the Thursday Morning Alert to Members at 10:18, with all bearish trade ideas that included these gems:
- AMZN Oct $180 puts at $2.75, still $2.75 – even (all as of Friday's close)
- CMG Sept $350 puts at $5, now $35 – up 600%
- DIA Dec $117 puts at $2.50, now $2.80 – up 12%
- ISRG Jan $350 puts at $1.70, now $5 – up 194%
- MA Jan $290 puts at $2.85, now $3.40 – up 19%
- SPY Oct $120 puts at $1, now $1.15 – up 15%
- V Jan $100 puts at $2, now $2.30 – up 15%
- XRT Jan $53 puts at $2, now $2.20 – up 10%
So a couple of big winners already and, of course, we're done with those (see Stock World Weekly for more trade ideas) and the way we work our Long Put List is to take those winners off the table and utilize our "fresh horses" for the next leg down. Don't worry, we won't run out, there are 13 more picks on deck for our Members with AMZN (above) our top choice for this week (also featured with a slightly different trade in SWW).
Even our aggressive oil puts should be doing well in our small portfolios as well as our bullish VXX trade and, of course, our EDZ and TZA hedges as China dropped 600 points this morning and the Russell is testing our 775 target already. Things may be worse than we thought they were going to be as 775 may not hold on the RUT and that breakdown can lead us to test our -5% lines on the Russell (760), Nasdaq (2,850) and the…
by Phil Davis - July 20th, 2012 7:41 am
Wheee, that was fun!
Let it not be said you did not have an opportunity to fill out those short positions (or cash in the longs) – we've been warning you all week so, when they say "Who could have seen this coming?" – you can say "Phil did." QE where, I say as we are now supposed to wait for Jackson Hole, in August, for the Fed to act? Come on – how many times are we going to fall for this BS?
As noted here in David Fry's SPY chart – we're rallying on Tech, which is beating incredibly low expectations, and Energy, where the rising costs are back to hurting Global Consumers. Ag stocks are also on fire and now we have a rice shortage to add to the corn shortage as India has it's weakest monsoon season since 2009 – so now we can add mass starvation to our list of macro concerns.
This is how we built our rally in 2007 and that did not end very well. As I said yesterday – it's deja vu all over again as we had a pointless, stupid, misguided rally last July and then we fell off a cliff – and that was before we even had a fiscal cliff to fall off of!
As promised in yesterday's post, we initiated our Long Put List and it looks like we'll have our first triple already as our CMG Sept $350 puts were just $5 when we sent the Alert out to our Members at 10:18 yesterday morning and CMG disappointed on earnings last night and plunged below $350 in early trading. Our other favorites were AMZN, MA, DIA, SPY and V and AMZN gave us very cheap entries as they topped out at $228, while V & MA trended down for us all day so we'll see if SPY can hold that magical 1,375 line (the early July high) and if the Dow can hold 12,950 or if we're just double-topping here ahead of the big drop.
While the charts have made some very constructive technical progress this week, the low volumes make the moves extremely suspect. Note on the SPY chart that we had a run-up on declining volume in April (also earnings) as well – that did not lead to a pleasant May, did it? More to the point,…
by Phil Davis - July 19th, 2012 8:25 am
Just like last July, we are off to the races again.
On the right is our Big Chart from July 26th of last year, when we also made a very impressive run-up over a month despite mixed earnings, worries in Europe and a looming fiscal cliff if the Reps and Dems couldn't manage to agree on a budget plan.
Sound familiar? We didn't have a drought but oil was topping out at $100.62 and gold was $1,600 but TLT was only at $92 – indicating far less panic than we have now at $128 because, even in the 2,000-point crash that followed over the next month – TLT never went over $123.
In this morning's Member Chat, I laid out a list of things I'm still worried about and we may be jumping the gun picking up some short-term bearish positions but they do balance out our long-term, still very-bullish positions in our Income Portfolio.
The real action in the market has been and continues to be those momentum plays and Lfantheman called us back to almost all cash yesterday in the MoMo Money Portfolio, taking the money and running on the QCOM Aug $55 calls at $2.40 for a 20% gain – removing the biggest open position and leaving just some small, speculative open trades on NFLX, PCLN and AAPL:
We're just two day's shy of two months on MoMo Money this morning and that's a very impressive gain off a virtual $50,000 base (58% in 58 days!) and it's so relaxing to take those quick gains and get the hell back to cash in this crazy market – there is certainly always something else to trade the next day when we have cash on the side. Our $25,000 Portfolios are also mainly in cash (about 80%) – as is our Income Portfolio, which I'm inclined to cash out if we get it back over $15,000 gained before we give it back again on the next dip.
As planned, we took advantage of the rocket start out of the gate yesterday to do a bit of shorting as we expected some reality to set in. As Dave Fry says: "search as one might for bullish news, there was little to be found from a normal perspective" but, like last July, simply beating low expectations is a reason to rally these…
by Phil Davis - July 18th, 2012 8:28 am
“We have reached a profound point in economic history where the truth is unpalatable to the political class — and that truth is that the scale and magnitude of the problem is larger than their ability to respond — and it terrifies them.” – Hugh Hendry
Hendry also says: "Bad things are going to happen and I still think the closest analogy is the 1930s." I have said for a long time that the only thing separating us from the Great Depression is that, so far, we haven't had a massive drought.
Well – so much for that happy thought. The nation's widest drought in decades is spreading, with more than half of the continental United States now in some stage of drought and most of the rest enduring abnormally dry conditions. Only in the 1930s and the 1950s has a drought covered more land, according to federal figures released Monday. So far, there's little risk of a Dust Bowl-type catastrophe, but crop losses could mount if rain doesn't come soon.
Around a third of the nation's corn crop has been hurt, with some of it so badly damaged that farmers have already cut down their withered plants to feed to cattle. As of Sunday, the U.S. Department of Agriculture said, 38 percent of the corn crop was in poor or very poor condition, compared with 30 percent a week earlier. Climatologists have labeled this year's dry spell a "flash drought" because it developed in a matter of months, not over multiple seasons or years.
"We can't say with certainty how long this might last now. Now that we're going up against the two largest droughts in history, that's something to be wary of," Jake Crouch of the National Climate Data Center said. "The coming months are really going to be the determining factor of how big a drought it ends up being."
In northwest Kansas, Brian Baalman's cattle pastures have dried up, along with probably half of his corn crop. He desperately needs some rain to save the rest of it, and he's worried what will happen if the drought lingers into next year. "I have never seen this type of weather before like this. A lot of old timers haven't either," Baalman said. "I…
by Phil Davis - July 17th, 2012 9:00 am
This will be an easy one to call.
Other than our exciting spike up on Friday, we've been on a big downward spiral along the declining 50 dma lines and even our ill-gotten gains have only taken us to our expected resistance lines on the Big Chart. As usual, we have a pre-market pump job sending us higher but what matters is what sticks in actual trading and, as you can see – the volume is simply too lame to get us over significant resistance points.
Today is day one of Ben Bernanke's "Humphrey Hawkins" testimony on Capitol Hill where he will tell Congress the recovery is moving very slowly (but still recovering) and it's up to Congress, not the Fed, to step in and do something more.
Then the Congresspeople of each party will attempt to score political points for their respective parties and then the farce will end and we'll do it all again tomorrow – as if it matters. What really matters is tomorrow afternoon's Beige Book from the Fed along with a lot of housing data to finish the week and, of course, earnings – which have been a fairly mixed bag so far.
Goldman Sachs (GS) reported this morning with a substantial beat of .60, giving them $1.78 of earnings per $97.50 share – so a beat of low expectations buy 4x $1.78 is less than $8 and we've got a p/e of 12 for a company who's income has gyrated wildly – to say the least. STT also beat by a bit with MTB putting in a win as well. INTC is out later and that one will move the Nasdaq but expectations are a very low .52 per $25 share – about the same p/e as an investment bank.
Earnings are nice but, as you can see from the chart on the left – it's ALL about the Fed. As we discussed last week – pretty much the entirety of our "recovery" since the March, 2009 lows has been based on anticipation of Fed action – the rest is just noise. This has been going on since the Fed went activist in 2001 and, as you can see – the effect has been magnifying since then as MORE FREE MONEY cures all ills – until it doesn't, of course.
by Phil Davis - July 16th, 2012 8:29 am
To QE or not to QE – that is the question.
We had a lovely rumor-based rally on Friday as anticipation swells ahead of Bernanke's report to Congress this week. Although the Fed Chairman has said no, non, nyet, nein, etc. in every possible language for months now – as David Fry notes, the "Bad News Bulls" continue to interpret each new bit of negative information as another reason to expect MORE FREE MONEY to rain down from the Fed.
Even at PSW, our sole bulish premise of the last few months has been an expectation of additional bailouts but, so far, they haven't come – so we have gone back to being cashy and cautious in our long-term positions while remaining more bullish over the long-run, where the G20 MUST step in and pump up the economy.
As Dave Fry points out:
In the U.S. QE and ZIRP has boosted stock prices ephemerally but has done little to lift employment or the economy. So, does doing the same thing over and over again without success make sense? It does for short-term trading desk and hedge fund profits—that’s all you really need to know. You’ll recall yesterday the NY Fed issued a report stating plainly the result of their recent policies is why the S&P is at 1300 vs 600 where it would be without this help. (By the way, Jamie Dimon is a director of the NY Fed.).
Stocks (led by banks KBE & etc), commodities, and even the euro were strong as this out of the blue rally demonstrates. It’s hard to short when the Fed is hovering above and dangling more hints of QE-crack for the permabulls and HFTs. The only sector to experience some downside was bonds (IEF). Pick any other sector and it was only question of how much they rallied. Most pundits groped for details to explain the rally with comments like: “The confidence number was off some but still way off the bottom” and “…you eventually have to put some money to work” and “…some will point to China as providing more stimulus” and Warren Buffett has been trotted out to the media two days in row talking his book. And, so it goes. This day was reminiscent of the other out of the blue quarter end rally in June.
In Stock World Weekly, we summarized the situation…
by Phil Davis - July 13th, 2012 8:30 am
Mmmmmmm, these charts are looking good!
Well, good for those of us who played for those "M" patterns to form last week, anyway. As I said on Monday, when we predicted the exact patten you can clearly see forming on the Big Chart, we had flipped bearish right at the tippy-top last Tuesday, ahead of the July 4th break, because the run-up seemed fake, Fake, FAKE – just more low-volume, manipulated BS on bad news that lead to the anticipation of more QE.
As we expected, this week we got more bad news and still no QE – how could we possibly go up on that?
I also mentioned on Monday that we had taken some bearish plays for this week that were highlighted in Stock World Weekly (page one, in fact), including the SQQQ July $47s, which opened Monday at $1.85, dropped to $1.55 that day and as low as $1.10 on Tuesday but finished the day yesterday at $4.10 after topping out at $5.25 – up 126% from Monday's open.
The more conservative AMZN Oct $185 puts finished the day at $5.10 yesterday and that's up 34% in 5 days in a market that's down 5% – this is a good way to offset bullish bets, isn't it?
The third trade featured on Stock World Weekly's first page (you can subscribe by clicking here), which I also reiterated in Monday's post, was EDZ, which jumped from $14 to $16.21 this week (up 15.7%) and our more aggressive option play on that was the Aug $14/18 bull call spread at $1.20, selling the Aug $14 puts for $1 for net .,20 on the $4 spread. As of yesterday's close, the Aug $14 puts had dropped to .50 and the bull spread had jumped to $1.60 for net $1.10, up .90 on the .20 cash investment for a 450% gain in a week. That too, can offset quite a bit of a 5% drop in the market without committing very much of your portfolio's cash to a hedge.
That's why we can look at this very ugly chart and say "wheeeeee" – it's fun to have hedges!
We talked all about the "M" patterns and our expectations for the indices on Tuesday and on Wednesday I said we have to wait until the end of next week to see if those 200 dmas hold up but it's possible…
by Phil Davis - July 12th, 2012 9:22 am
The Euro fell below $1.22 for the first time in two years this morning.
Part of this was caused by the decision (or non-decision) by the Bank of Japan to hold-off on their anticipated asset-purchase program. That sent the Yen back to 79.25 to the Dollar (stronger), which itself hit 84 in early trading and took our Futures down over 100 points from yesterday's silly stick-close which, as noted by Dave Fry, was the result of more QE rumors following the release of the Fed minutes at 2 pm.
Of course, all this panic out of stocks and into the Dollar (have I mentioned Cash is King lately?) is just perfect on a day when the US has $13Bn in 30-year notes to peddle (1pm today) and yesterday we had a new record for selling $21Bn of 10-year notes for just 1.459% – that's a NEGATIVE yeild to inflation by any measure.
So now "investors" are PAYING the US to borrow money. That is just fan-friggin'-tastic and hopefully we can refinance our current $16Tn in debt and get paid to borrow the next $16Tn as well. What a way to "fix" an economy, right?
"The markets have been fairly disappointed by central banks' timid policy response," said Ian Stannard, senior currency strategist at Morgan Stanley. "With many questions still surrounding the Greek situation and the German court's decision on the constitutionality of the European Stability Mechanism, we do not see room for the euro to make gains over the next several weeks."
As I said to our Members earlier this morning, panic is certainly in the air and it's a fantastic time to be in cash. We picked up a quick .50 per contract shorting oil Futures (/CL) at $85 as they hit $84.50 and now they just (9am) bounced back to $85 so we get to do it again. We also added USO puts yesterday in Member chat after hearing the awful demand numbers in the inventory report – negative demand in the first two weeks in July, even with record heat is not a good sign at all for the oil industry – or the energy industry in general.
Our bearish stature is already "bearing" fruits as the EDZ hedges we discussed in yesterday's post were added to the $25,000 Portfolio along with the USO and that has already given us a quick, additional $400 profit despite…