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.
by phil - June 6th, 2013 8:31 am
Well, on the bright side, what worse can happen?
Both the ECB and the BOE left their rates unchanged (because Europe is fine, I guess) but we're still waiting for Draghi (8:05) to explain himself. Yesterday's Fed Beige Book indicated the US is still in a SLOW but steady recovery and we're waiting for Unemployment at 8:30 and Consumer Comfort at 9:45 but it's all about the Non-Farm Payrolls Tomorrow morning (8:30) as the key data-point for the week.
Unfortunately, according to the WSJ, at our present rate of job growth, it will take the US more than a decade to get back to "full employment," which is 4.5% Unemployment. Of course, the WSJ does need to be reminded that, at the Bush rate of job losses, no one in the country would have had a job by the end of the decade so, despite their concerns – we are a bit better off than we were 5 years ago. Slow and steady does indeed win the race, especially when the alternative is plunging headlong into the depths of Economic Hell…
Speaking of plunging – as you can see from our Big Chart, we're hitting our predicted pullback targets (the 50 dmas) already so of course we expect a little bouncing action. As I noted to our Members yesterday, we expect at least weak bounce levels to be made on our indexes and those are, according to our 5% Rule® (see original comment for details):
- 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
- Russell 975 and 981.40
Notice that Russell 975 was the breakdown line we predicted last Wednesday and now it's forming overhead resistance – so we'll be keeping a very sharp eye on that line for directional plays. Anything less than a weak bounce will keep us bearish this morning and, if we fail to retake those weak bounce lines today, nothing less than a strong bounce will get us off the bearish bandwagon we jumped on last week. Of course, we don't just talk the talk at Philstockworld, we also walk the walk and, over the weekend, I wrote "Hedging For Disaster – 3 More Option Plays that Make 300% if the Market Falls" (as we already had other bear plays from Member Chat) and, already,…
by phil - June 5th, 2013 8:24 am
No, we won't hold it.
I know, I'm supposed to keep an air of drama so you are enticed to read but the top of this article goes out as an early alert to our Members via the PSW Report and I think our subscribers would appreciate knowing as soon as possible that Europe is down over 1% and the US Futures are only down about 0.4% and very likely to fall hard and fast once trading opens.
We are already short, of course but we picked up more short plays in the Futures this morning and are catching a nice ride down already. The Dollar is, of course, being manipulated lower – down to 82.65, to mask the market weakness and this is pretty typical behavior in the manipulated market tops I've been warning about for most of the past month.
As we expected, Japan is down again as Australia's GDP disappoints and Abe is not able to print enough FREE MONEY to satisfy the ravenous bulls – who aren't satisfied with 50% gains in 6 months. "Please Sir, I want some more" sounds cute when you are a skinny little orphan boy but, when you are a fat Japanese Bankster, bloated off $75Bn a month in stimulus – it's just greedy.
Possibly holding our market up this morning, relative to the melt-down in Europe is a disappointing ADP report, showing just 135,000 jobs added in May vs. 171,000 expected. Also on the "bad news means more free money" front is a TERRIBLE MBA Mortage Applications number that dropped another 11.5% for the week, now down over 40% in 4 reports. The Refinance Index dove 15% to its lowest level since November 2011 as the average 30-year fixed-rate mortgage jumped 17 bps to 4.07%, the highest in more than a year.
As you can see from Dave Fry's chart, IYR has been in melt-down for a month and these number simply confirm the trend. As in Japan, if our Fed's $85,000,000,000 per month stimulus is failing to boost the critical housing sector – there's some very serious problems that smart investors can tell still need to be addressed and, as noted in the "Smart Money" chart we discussed yesterday, we (as our Members are certainly the smart money crowd) are pulling our cash off…
by phil - June 4th, 2013 8:29 am
What is going on with these indexes?
Last week, I said "975 is bust" on the Russell and, yesterday, we hit 975 on the nose before turning back up. Is this bullish, or shadows of breakdowns to come? Clearly the Fed is still very much in the game so buying the f'ing dip is still the logical way to play the market but any hint that the Fed may stop, or even slow, the FREE MONEY train is going to have a dramatic impact on investor confidence since, without the Fed, what do we have?
- We have a Euro-Zone in it's longest recession ever (6th consecutive quarter of contraction) with their GDP out tomorrow.
- Euro-Zone Unemployment is at an all-time high 12.2% with youth unemployment in Greece at 62.5% and Spain 56.4% (buy TASR ahead of riot season!).
- Australia is falling apart.
- India has its slowest growth in the 21st Century.
- Japan (say no more).
- China is not much better.
- Global Cash Flow is falling off a cliff, despite the stimulus.
- US Real Wages continue to decline for bottom 90%.
We also have the dreaded "Hindenberg Omen" that has predicted 20 of the last 3 market crashes but I'm more concerned with the fundamental issue of Margin Debt hitting a new all-time high at $384.3Bn – $3Bn higher than July of 2007 and THAT indicator has correctly predicted pretty much every correction pretty much ever.
What's really scary is this chart of the so-called "smart money" flying for the exits last month. We are included in that group, of course, as we also took the opportunity to "sell in May" and now, in June, we're simply waiting to see if we were right or if we pulled up our tent-poles before the show was over.
It's not like we're missing things though. Just last week, in Stock World Weekly, we have a bullish play on FDX as well as a short play on TSLA and a bullish play on TZA (which is market bearish, of course).
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 - June 1st, 2013 8:31 am
It's been a long time since we were worried about a steep drop.
We have some very successful hedges already as I've been pounding the table on all week and the DIA June $148 puts I mentioned Thursday at .60 closed at $1.04 (up 73% in 2 days!) while the DIA Aug $147 puts I suggested rolling to went from $1.72 to $2.50 – so, "only" up 45% but up .78 rather than .44 and, with 100 contracts, that's a $3,400 difference! The longer-term TZA October $30/37 bull call spread did little, going from $1.90 to $2 but now, if we take the DIA profits on 100 calls off the table with a $7,800 profit, that knocks $2.60 of each of the 30 TZA spreads and drops the basis to a net 0.70 credit with an upside of 3,000 x $7 or $21,000 (1,100% with the credit).
That's how we play the option insurance gain. We take the quick, directional profits off the table and leave the long-term hedges, that pay the big bucks, on the table, in case the market suffers a sustained downturn and, if not, it's very cheap insurance and we'll easily be able to stop out the now $2 spread before it hits $1 for a profitable exit, ready to reload for the next round of insurance plays.
Since there is so much money in this kind of insurance, we don't need to pull the DIA puts immediately off the table. We can set a stop on 1/2 $2.30 and a stop on the other half at $2 and we lock in a gain of no less than $4,300, that still leaves us with a net of .47 on the $7 TZA spreads, still with a potential gain of $19,590 if the Russell falls 5% to 934. Note that there's no margin requirements to this kind of trade – these simple hedges can be applied to any portfolio (in proportion, of course!).
You know I am a big fan of taking cash off the table in either direction, let's not be greedy and look at ways to "roll" our downside profits into new protective plays so we can set SENSIBLE stops on our in the money short plays (very similar to our Mattress Strategy). I hate to have to repeat these warnings over and over again but days like yesterday make it all worth…
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…