by phil - May 2nd, 2013 8:12 am
Now this is interesting.
We had a 1% sell-off yesterday into the ECB's expected rate cut (and they did, indeed, cut rates 0.25% this morning) and that sent the Euro flying up to $1.32 again (we discussed why in Member Chat yesterday) and the Dollar fell to 81.50 again (yesterday's low) and the Futures are up about half a point at 7:57.
So, are happy days here again or is this just more irrational exuberance?
As you can see from Dave Fry's weekly Dow chart, we're holding the bottom of the steeply rising channel so far but that Dollar has dropped from 83.32 last week to 81.50 this week and that's 2.2% and 2.2% of the Dow is 323 points so try putting 14,427 in as the bottom of that candle and you'll get a better idea of how the Dow is really doing without Central Bank shenanigans.
Unlike Mr. Fry, we are not long on the Dow – not in the short-term anyway. We are, in fact, using DIA puts as one of our hedges and TZA is another one, though I did want to cash out the more volatile TZAs yesterday in anticipation of an ECB bounce. While the Dow is holding up fairly well – that's just 30 companies. The Russell has 2,000 companies in the index and they dropped like 2,000 small rocks yesterday, falling the full 2.5% for the day – indicating they are more likely to drop another 1.25% than to bounce more than 0.5% today.
As you can see from our Big Chart – those "M" patterns we were expecting are beginning to form and, of course, AAPL is keeping the Nasdaq above it's 10% line but thing can turn ugly very very fast if our favorite stock drops again. We did, in fact, add two new AAPL trade ideas to our AAPL Money Portfolio in this morning's Member Chat and we do plan to sell a few short calls to lock in some of this run's gains on that one. As to the indexes – we have fat support lines at 3,300 on the Nasdaq (10%), 9,200 on the NYSE (15%) and 920 on the Russell (15%) and, if those 3 break – we're looking at another 2.5% drop with virtually no support so watch out for a Dollar bounce that can set the…
by phil - May 1st, 2013 8:32 am
As foretold, we flatlined into the end of the month – now what?
Today is May Day, where we celebrate the Workers of the World (as long as they don't unite, of course) and that means most Global markets are closed or slow but the bad economic data keeps pouring in.
Slovena's credit is lowered to junk by Moody's, China's PMI came in at 50.6, which is expanding slightly (50 neutral) but lower than 50.7 forecast and lower and 50.9 in March and, if you were paying attention to my chart lesson on Monday, you are thinking of how these readings affect the curve of the 50 dma that WILL be drawn in the future and how this WILL make the chart look – that's how you use TA to predict, rather than just react.
More importantly on China, new orders fell from 52.3 in March to 51.7 in April and, even worse, new export orders fell to 48.6 (CONTRACTION) from 50.9. The Shanghai Composite is already down 11% for the year and we are ignoring this the same way we ignored it in 2008 – as our markets flew and China declined. Our situation is a little healthier this time as we're not being led higher by energy, commodity and builder stocks – all things that ultimately suck money out of the pockets of consumers – so not the same situation for a total collapse but – correction? – maybe.
As noted by Bloomberg re. China: "Growth risks include weakness in export demand, property-market overheating, a surge in so-called shadow banking and the damping of consumption by President Xi Jinping’s campaign to rein in official spending."
Don't forget, China is doing this on purpose to curb their out-of-control 8.5% growth/inflation and, as is very normal in Government tinkering, they are overshooting the mark ahead of making corrections (we assume they will). By the way, China now surveys 3,000 manufacturers in their survey vs. 820 previously, so the data is now more accurate as well and, of course, I think it's bullish just to know they care enough to try!
Back to the bad news though (oops, this is getting to be the morning post!), Australia's Manufacturing DIED, dropping 7.7 points to 36.7 from an already crap 44.4. This is their worst reading since 2004:
by phil - April 30th, 2013 8:25 am
I apologize for the brief post.
My morning post was lost as I stayed in AC yesterday and had a spot of computer trouble this morning. Anyway, not much action and I'll certainly catch up in chat today. Futures pretty flat. I hope everyone enjoyed yesterday's conference - it was great getting to meet some of the Members in Person. Between here and Las Vegas, I've met about 60 of our Members so far and I hope to meet many more of you at future conferences.
As you can see from the Big Chart – we're actually doing a good job of avoiding those "M" patterns so far but we are mindful of the fact that the Dollar has dropped 1% in the past two sessions so we take the 1% move up with a huge grain of salt.
Of course, there's no reason to think the Yen will get stronger (now 97.42) and push the Dollar even lower and we get a Fed Rate decision tomorrow followed by the ECB's decision on Thursday morning so we'll have to stay tuned to see how those two balance each other out but, most likely, the ECB will lower rates, drop the Euro below $1.30 and that will be supportive of the Dollar and NOT supportive of stocks and commodities – in the short run.
In the long run – as we discussed at the conference, the free money continues to flow but, as Dave Fry notes: "The bad-news-is-good theme continues as both Personal Income and Spending came in at 0.2% and missed expectations. The Dallas Fed Index plunged to -15 vs 7.4 previously but Pending Home Sales rose to 1.5% vs prior -1%. As to housing data, one would expect spring and summer home sales to increase so this comes as no surprise. "
Data continues to be poor in Europe but stocks rallied on the hopes of more easing from the ECB, a new government in Italy, and even a relaxation of austerity measures. China is taking a more measured view of fiscal policies but stocks rallied there anyway which helped Asia in general. U.S. stocks rallied as more QE/ZIRP keeps bulls stuck on Fed life support as noted in Reuters. Recent inflation data, no matter how you view its authenticity, allows central banks more flexibility to…
by phil - April 29th, 2013 6:52 am
Nothing to read here, just re-posting the early morning commentary to move chat along: It's been a busy busy weekend in Atlantic City – hope everyone is doing well.
Yesterday we discussed the Global market outlook in depth and talked about the relationships of the US, China, Europe, Emerging Markets, the Fed, the BOJ and the ECB, the austerity myth as well as the money supply, unemployment, income disparity and the real current economic situation in the US, Europe and China.
Nothing shocking of course, just a very in-depth run-down of what we talk about here all the time. We also discussed long-term investing strategies, portfolio management, valuations, buy-write strategies, retirement strategies, income strategies and Craig gave a presentation on his own IRA Portfolio Strategy.
Today will be crazy short-term betting days and, hopefully, we'll be able to give you guys audio live during the day.
To summarize yesterday's conference session – real economy still teetering on the edge of Recession in most of the World but China is artificially deflated and Central Bank pumping by the Fed and the BOJ still override reality. Inflation monster barely contained in the box but not likely to be unleashed until/unless we seem home sales closer to 1.5M (new) and more like 300,000 jobs a month being added with pressure on rising wages.
Counter-intuitively (and we had a chart for this last week), Corporate Profits will decrease on margin pressure but that will spur the inflation rally – which will likely be the great last leg of this bull market. If we're lucky – it can last for years. On the whole, there was nothing to be bearish about until and unless the ECB disappoints us on Thursday (it is expected they will ease) or the Fed and the BOJ stop printing money (beats much watch "Waiting for Godot" every morning before trading on that hope).
All seems calm in the World over the weekend, China and Japan are closed (Hong Kong was open and flat on low volume) for some holiday or other, Italy (good auction) and Spain are very happy and up 1.25% but DAX and CAC are pulling back below their 0.5% levels and the FTSE is just going red (not sure why yet).
by phil - April 26th, 2013 8:00 am
We're off to a weak start.
Not that it matters ahead of our GDP report but Asia was off just a bit but Europe is down 1% as the BOJ offered no new candy at their meeting this morning. The Nikkei fell from 14,100 (in giddy anticipation of more free money) all the way back to 13,900 but only down net 1%. Our own indexes were up in giddy anticipation of a 2.8% GDP number but, as we discussed in Member Chat (and I tweeted the comment for the general public):
GDP – I think we got weak Durable good, less exciting jobs, lower Corporate Revenues and Sequestration should lower Government spending and even oil was cheaper so another downer. Makes it very hard to imagine that we'll hit the very high expectations of 2.8% from 0.4% last Q. This is the main reason I can't let go of our beaten-up shorts yet.
Are we really going to flip from 0.4% to 2.8%. Last Q1 was 2% and Q3 was our best at 3.1% so it's asking a lot. The big move up was nonresidential investment (apartments) which bumped 13.2% and, by itself, added 1.28% to the GDP. Personal consumption sucked and should continue to suck and I doubt exports will save us (to who?).
We'll see shortly but this is not a market that's pricing in a bad GDP number and the data we've been seeing for the past two months doesn't really build the case for it. Of course, sometimes the GDP goes up due to one big metric move – especially the counter-intuitive inventory builds and all those unsold items on store shelves due to poor retail sales could lead us to a pretty big build in inventory. Inventory builds are considered bullish as we still labor under the myth that markets are efficient but they're not efficient when companies can build inventory on sub-2% loans – that doesn't give you a real picture of selling pressure, does it? Inventory is also a factor of farmers re-filling their silos after last summer's drought. Without the EXPECTED 1% boost from farm inventories alone – growth would be under 2% at best.
by phil - April 25th, 2013 8:17 am
Wheeeee, what a ride!
The Russell is one of our key shorts (using TZA calls) and you can see on Dave Fry's chart how resistance at the 950 line has not been futile so far. If it does pop – it's a clear signal for us to run with the bulls again but so far, it's going pretty much the way we thought as we had QE from the Fed in November and QE from the BOJ in December and they were both good for 100-point runs on the RUT but now what?
On the S&P we've gone from 1,400 to 1,600 so also 100 points twice but 100 on the RUT is a much bigger percentage than 100 on the S&P – hence both the RUT's relative outperformance and relative danger of a precipitous fall should some of the bad stuff (and here's a dozen items to mull over) be realized.
So, what next? Our formula dictates that $1Bn of stimulus buys one S&P point for one month and the Fed is pumping in $85Bn a month (1,485) and the BOJ is contributing $75Bn a month (1,590) and, as long as that keeps coming, we should be able to maintain these levels but that assumes that 1,400 is justified without the support. So earnings do matter – we need to see that stocks today are not worse off than they were when the S&P was trading at 1,400 – where we were last year at this time.
There's the rub. So far, earnings have not been spectacular, with only 56.9% of the reporting companies beating earnings and an atrocious 44.1% beating on Revenues or, to put it more accurately, 55.9% of the companies MISSED or were just in-line on revenues compared to last year, when the S&P was 14% lower.
What then, are our mitigating factors? Well, there's all that FREE MONEY the CBs keep pouring in. And what have companies been doing with all this cash? Have they been hiring workers? NoNoNo – that's what small businesses do. Big Businesses buy back their own stock and pay dividends to the top 1% so they can pay what is still a 15% tax on dividends rather than capital gains on the stock appreciation. Even AAPL is playing that game now – becoming the biggest dividend-paying stock of all time…
by phil - April 24th, 2013 8:28 am
What a wild market!
As you can see from our Big Chart – we're still 3 of 5 over our 10% lines but it seems like we're always 3 of 5 over and it's getting about time for the Dow (needs 15,200) and the Nasdaq (needs 3,300) to put up or shut up. The Dow made a mighty move yesterday – up 152 points but still 500 shy of goal at 14,700 and the Nasdaq just lost AAPL as a possible catalyst as their conference call indicated there would be no new iStuff at least until Christmas.
That's going to weigh on AAPL's suppliers this morning so most likely the Nasdaq goes lower but we did get good news from FDX and BA this morning and BA is a Dow component and FDX is big in the Transports so that should help the overall picture on the Industrial side.
Even ABX chipped in with a beat and our stock of the year (AAPL) may be getting kicked in the teeth but our stock of the century, IRBT, is up 16% pre-market on way better than expected earnings and raised guidance. We just added 20 short Sept $17.50 puts at $1.50 to our Income Portfolio last week – and that's how fast we can lock down a $3,000 gain! We were actually hoping they'd go $3 the other way, so we'd get a chance to buy them but it looks like $3,000 will be our consolation prize for not being able to buy the stock below $17.50…
Speaking of machines taking over the World: Yesterday's rally was briefly interrupted by a tweet from the official AP site, which has 2M followers, stating: "Breaking: Two Explosions in the White House and Barack Obama is injured." That caused the major indexes to drop 1% in less than a minute as News-Reading Trade Bots (yes, they have those) took those key words as a sell signal and crashed the market.
Turns out, of course, that it was a false rumor from someone who hacked the AP account (will an arrest be made or is Lloyd Blankfein still at large?) and was quickly corrected by human traders but, as there are less than 12 of us left – it took 5 minutes for the markets to correct.
by phil - April 23rd, 2013 8:40 am
I have been to the mountaintop!
Actually, this is our third trip to the mountaintop since early 2000 and our last two trips did not end well and, as you can see from this chart by Paragon Capital, the DJ/CS 10-year Inflation Breakeven Index (which measures changes in inflation expectations) has completely gone off the rails and that has, in the past, been a VERY STRONG SELL SIGNAL.
This time is not different yet, just like when we have a cold day in the winter and all the Climate Deniers start saying "see, there's no Global Warming because it's cold," we can't assume that we can ignore what the bond market is telling us just because the market is spiking – again.
Of course, we do need to consider that the Fed is artificially depressing bond prices and the government is artificially manipulating inflation data to depress those bond prices so, perhaps, we are getting a drastically false signal from the Breakeven Index. NFLX popped 35% in 24 hours (so far) and this is not a penny stock, folks.
Whether you agree with the move or not (we don't, we thought $200 tops), the fact of the matter is that plenty of people seem to think a widely held, closely followed, highly liquid stock like NFLX can be 35% underpriced and that the stock can gain $3Bn in market cap on a $7M earnings beat.
That's a very nice 428:1 reward for the extra earnings scraps! AAPL might beat by $1Bn ($11Bn vs $10Bn expected) – wouldn't it be funny if their stock jumped $428Bn this evening? The funny thing is, even if it did double overnight, AAPL would be trading at $800Bn with $40Bn+ in earnings – a p/e of under 20 vs NFLX's p/e of about 160 now (assuming the rest of the year is as good as this Q, of course).
The problem with NFLX earnings is, of course, that they are tiny. NFLX made $15M this Q but revenues were not higher – they just spent less money. Of course, as Croy Johnson points out, NFLX has a MINIMUM of $5.7Bn of future contracts committed to studios for content already and, at $1Bn per quarter in total revenues – I hope those are very long-term deals! As noted by Dividend Pros:
In response to a
by phil - April 22nd, 2013 8:29 am
Our Democracy has been corrupted.
I mentioned in weekend Member Chat that, on Politically Incorrect, Bill Maher had made an excellent point about how the Senate now grossly misrepresents the will of the American people as we need 60 votes to get anything done (with juvenile GOP filibustering on every bill) and that those votes come from Senators like the ones in Wyoming that represent 100,000 people who carry as much weight as the ones in California, who represent 8M people (who voted for them).
His point was that the original 13 colonies had SLIGHT discrepancies in population and the House/Senate thing was meant to address that but surely they didn't envision one state having 100 times more people than another. Nor did the Founding Fathers intend the 3 branches of Government to be overwhelmed by the Senate – who could grind the whole process to a halt, even though both the House and the President agreed on legislation. It's a perversion of the Constitution and we do, as a nation, need to change the constitution to put an end to this abuse.
StJeanLuc pointed out this weekend that Slate had an article where they ran the numbers on the recent gun bill, which was almost a complete split between Democratic and Republican Senators and, as it turns out, the 54 Senators who backed the Manchin-Toomey bill represented 198.4 Million people while the Senators who successfully blocked the bill with 46 Senate votes represented just 114.9M people.
Even in the House of Representatives, where the will of the people is supposed to rule, Democratic Reps got 54.3M votes while Republicans got 53.8M votes yet the GOP's severe gerrymandering of districts gave them a tremendous edge in the outcome – 234 to 201 Congressmen – more than enough to thwart the will of the President and the majority of the American people for another 2 years.
I think, if we are going to do anything about this the Democrats have to first get angry about this and, to get angry about it they need to be aware about it so this is my first mission – to make sure people are talking about this into the next election cycle. Even if you are a Conservative – if you truly care about the Constitution's INTENT and not…
by phil - April 21st, 2013 4:16 pm
And we're back!
This is a continuation of yesterday's post, which laid the background for our inflation premise and discussed F as our first trade idea. That means we'll need 4 more to round this set off and the chart on the right, from Bespoke, illustrates another premise we've been touting since the Fall – BUY AMERICAN.
F is American, of course and one of the reasons we like them is that most of their revenues come from domestic auto sales and domestic financing. As you can see from the chart, there's a pretty strong correlation between NOT relying on Europe and Asia and market performance this year.
This is why we also like domestic Materials plays, like CLF, who do over 68.5% of their business in the US. Yes, International demand as well as International pricing for iron ore does leave them at the mercy of overall global demand but that's already happened and CLF is already down from $96 in 2011 to $74 last year and $40 at the beginning of this year — all the way to $17.63 at Friday's close, the lowest it's been priced since March of 2009.
We already took a stab at CLF at net $19.90 in our Income Portfolio on 2/26 and added another round (through short put sales) at net $13.50 on 3/27 and, if we can double down again at net $10 – we probably will but for now, and as a new trade idea – I'm very happy with our recent sale of the 2015 $18 puts, which are now $5.25 for a net entry of just $12.75. As with Ford, this is a margin-efficient sale with a net margin of just $3,551 to collect $5,250 for selling 10 contracts. Doing nothing else on this trade can return up to 147% on margin in 20 months (Jan 2015) and all CLF has to do is struggle back over $18 – from $17.63 today (2%).
Figuring out ways to make 147% on 2% stock moves is what options trading is all about! And what's our worst case here? We are obligated to own 1,000 shares of CLF at $18 per share ($18,000), less the $5,250 we were paid to accept that obligation so net $12,750, which is 27% below the current price. Now we can get fancy, let's say we're happy to pay $15…