by phil - February 11th, 2013 7:51 am
Monday morning you sure look fine
Friday I got travelin on my mind
First you love me, then you fade away
I can't go on believin' this way – Fleetwood Mac
What an exciting week we have in store!
First of all, it's options expiration on Friday and we have a holiday weekend in the US (and Happy Year of the Snake to our friends in China, who are closed this week) along with plenty of earnings but, most importantly this week – we have FED SPEAK!
That's right, this week we'll hear from Esther George tomorrow at 11:30, Charlie Plosser at 7:30 with Jimmy Bullard speaking Wednesday at 11:10 and, oddly enough, at 12:50 on Thursday as well and Sandy Pianalto takes us home Friday morning at 9:50.
Sandy is the "dove" of the group and even she is pretty far down the hawk ladder while the others are all reliable Fed hawks with Bullard only exceeded by Fisher in his hawkishness but they used Fisher last time they had notes to sell so this time it's up to Bullard to scare investors into bonds – strategically placed just ahead of both the 10-year and 30-year auctions.
That places a bit of a downside risk on the markets this week as the Fed will have to walk that fine line between keeping those long-term rate expectations low while keeping people believing that it's safe to go out and risk their assets in the markets, homes, cars, durable goods, equities, etc.
Keep in mind that, on this Bloomberg Chart – Ben Bernanke is considered moderately hawkish. If moderately hawkish is printing $2.7Tn in 5 years – I wonder what would happen if the Doves ever took charge?
Mo' free money has been our rally cry since 2009 and, as you can see from our Big Chart – it's certainly working well enough as we enjoy what is shaping up to be a 20% run in the markets since Thanksgiving. "First you love me, then you fade away" is how the song goes and we certainly hope…
by phil - February 8th, 2013 8:33 am
"That cold black cloud is comin' down
Feels like I'm knockin' on heaven's door"
So close and yet – so far.
As you can see from our Big Chart, we are certainly knock, knock, knockin' on our breakouts at the 10% levels. One more score and we're officially ready to raise our stops again – but it's a long process as we'll need the Nasdaq to confirm the S&P's move up and then we'll want to see a re-test of our 5 & 10% lines from the top and THEN we'll be ready to call them our new Must Hold line.
If that sounds like tough standards – keep in mind that's exactly the logic that saved our assets back in September – the last time we had a rally that ultimately failed. I know it seems like the distant past in market terms but trust me, it happened.
In September we were skeptical and bearish (and for good reasons, as it turned out) and we had our Long Put list with plenty of short positions. Now we are hopeful and bullish as we once again attempt to prove out a new range, where S&P 1,440 and Nasdaq 3,150 etc become the bottom of a range we'll expect to go 10% higher (1,600!) at some point this year. That's IF we can get to 1,520 before we lose the NYSE or Russell, both of which currently are floating about 1% over their 10% lines. As I said to our Members this morning:
AAPL is like a coiled spring that can be released and kick the market up 1-2% on a 5-10% move higher or a full 5% on a 20% move up in AAPL – like the time they went from $85 to $200 in 2009 or the time they went from $200 to $300 in 2010 or the time they went from $315 to $400 in 2011 or the time they went from $400 to $600 in 2012 or that other time in 2012, when they went from $550 to $700… Have I mentioned that AAPL is my stock of the year lately?
by phil - February 7th, 2013 8:09 am
Where does it all go? The key difference between last year's "Operation Twist" and this year's "QInfinity and Beyond" is the lack of what was called "sterilization." In Twist, the Fed bought the long Treasury notes while selling the short ones thus "sterilizing" the net effect on the money supply to keep inflation down. In December (when we were crashing – remember?) the Fed announced they would go back to making open-market purchases of long-dated treasuries AND mortgage-backed securities WITHOUT subsequent sales – ie. POMO – ie. MONEY FOR NOTHING!
Yesterday was a $3Bn day, today is $1.5Bn, tomorrow $1.25Bn, Monday $1.5Bn, Tuesday $3Bn, Wednesday $1.5Bn, Thursday $5.5Bn ('cause it's Valentine's day, I guess) and next Friday will be the first business day of the month that the Fed will rest ahead of the holiday weekend (President's day on the 18th) but then MORE FREE MONEY comes in every other day of the month.
As noted by Evil Speculator: "That is not the end of the story – there is another factor we need to consider and it’s the actions of the ECB on my side of the Atlantic. Draghi has been cooking his own stew of sterilized injections by swapping a portion of the ECB’s on-balance sheet exposure for an unlimited off-balance sheet commitment via the Outright Monetary Transactions program. He’s doing this by concurrently offering one-week deposits to the banking system. Banks bid competitively for the deposits, thus permitting the ECB to withdraw from circulation an amount of money equivalent to what it has spent via OMTs."
As I said on Tuesday, the tide is coming in and the Fed is adding water to the Ocean and THEY ARE NOT GOING TO STOP until we are all swimming in so much cash that our $20Tn debt (by that time) is only 1/2 of our GDP. Since our current GDP is $16Tn, that means the Fed is going to have to pretty much triple it through the end of the decade and that means we need China-like 10% annual growth and the way we get there is with our friend inflation.
Sound like madness? Not really. Housing, for example, is 18% of our GDP and homebuilding activity is still down about 66% from it's early 2000's level. Millions and millions of jobs were lost in that sector and millions and millions…
by phil - February 6th, 2013 8:31 am
We love it when a plan comes together. Oil just dropped a full $2,000 per contract below our $97.50 shorting target on the /CL Futures and the SCO trade we were kind enough to share for free in our morning post of January 30th (the Feb $36/37 bull call spread at .40) now has an excellent chance of finishing up the full 150% in 16 days. Actually, that same morning I discussed shorting oil as it popped up to $98 but, I was not specific about which USO puts we were using for our virtual $25,000 Portfolios in Member Chat and, unfortunately, our next free trade giveaway isn't until April as our Premium Chat goes back on wait-list shortly (what do you expect with these kinds of trade ideas?).
Speaking of good trade ideas, I am still tweeting a few to the cheap seats and we hit one out of the park yesterday when I called for closing the AAPL weekly $455 calls at $6 that we had taken (also noted on Twitter) at $1.55 the day before. That's up 287% in less than 24 hours – that's even better than the oil trade!
Our earnings plays for today (also tweeted as we wind down our free picks month) were from Monday's Member Chat, where we already had 10 of the CMG Jan $235/315 bull call spreads in our virtual Income Portfolio and we sold 10 short March $320 calls for $9 ahead of earnings, assuming high food costs and high expectations would keep us safely below the falling 200 dma ($325) on earnings (and we already have a massive, but unrealized, profit on our net $31.08 spread – which makes 157% in January if we hold $315). That one is perfect as CMG is down just slightly on earnings so we'll hopefully collect our bonus $9 (29% of the basis in 3 days) and we're still on track for the full 157% at the end of the year.
EXPE was a new spread we added to our aggressive $25,000 Portfolio (we have two flavors of virtual $25,000 set-ups, one for high-margin and one for normal margins) with the sale of 4 March $65 calls for $4 ($1,600 credit) and the purchase of 6 July $64.48/69.48 bull call spreads at $2 ($1,200 debit) for a net credit of $400 so, even if EXPE fell,…
by phil - February 5th, 2013 8:22 am
It's not the things you do that tease and hurt me bad
but it's the way you do the things you do to me.
I'm not the kinda girl who gives up just like that, oh no.
The tide is high but I'm holding on. – Blondie
We passed our first major test yesterday.
I set levels for the expected pullbacks back on the 1st and yesterday, in our morning Alert to Members, I reminded our subscribers that it would take more than a 1% drop in our indexes before even our closest (the Nasdaq) was in trouble and that index is being dragged down unrealistically by a single stock (which will remain nameless) – so we cut them a little slack. Our target levels were:
- Dow 13,600 (finished at 13,880 +2%)
- S&P 1,480 (finished at 1,495 +1%)
- Nasdaq 3,150 (finished at 3,131 –0.6%)
- NYSE 8,800 (finished at 8,852 +0.6%)
- Russell – 880 (finished at 899 +2.1%)
This is why we have our 3 of 5 rule – one index breaking a bit below is no reason to go bearish. Especially when a single stock that makes up 20% of the index drops 2.5% and causes 0.5% of the drop by itself. The Dollar also ROSE 0.6% yesterday, so half of the losses for the day were nothing more than a currency adjustment and my comment to Members at the open was:
it would take more than a 1% drop in our indexes before even the Nasdaq gets in trouble and, since we need to see 3 of 5 levels fail, it's 2.3% to S&P 1,480 that we need to watch closely. Other than that – how can we be bearish? As Josh Brown pointed out on the weekend regarding our Market Euphoria chart and as I noted this morning, we're more likely just in the Optimism/Excitement phase of the trend than already past Thrills and Euphoria. That puts us halfway through a massive rally, rather than at the very top of a medium rally.
Still, even massive rallies have pullbacks and we'd love to miss one if
by phil - February 4th, 2013 8:37 am
We're past goal on all of our major indexes with a strong finish to the week (and the Nas 3,150 box should be green on our Big Chart) – so now what? Clearly sentiment has turned more bullish but we're not at the stupid bullish levels we were at in 2008 with multiples for most stocks in the 20s or higher and oil at $140 natural gas at $14 and interest rates at 6% and housing prices 30% higher than they are now.
Do you take that into account when you are shown all those scary-looking charts along with predictions of a crash? We crashed because Europe blew up and it turned out our banks had over-leveraged too and there was a massive, cascading crisis that was, in retrospect, inevitable – but this is not that crisis.
What we certainly are, at the moment, is overbought in the short-term and we were just discussing this morning how we needed to cash out our Income Portfolio, which is 18 months ahead of schedule with a too-quick 20% virtual gain – far too much for a conservative portfolio and it's not so much that we fear a pullback, but that it costs too much to protect our ridiculous gains in what is supposed to be a very conservative portfolio.
In our aggressive, shorter-term portfolios – we're actually too short and our hedges and short calls have been burning us and all of our decisions at expiration were essentially to leave the protection in place for a long-overdue pullback.
It's not a question of IF we're going to have a pullback, but a question of when and how much. With such terrific profits in January already – why stick around in our long positions to find out when cash on the sidelines will do us quite nicely?
Last week we discussed that I thought the Dollar was bottoming around 79 and a move up in the Dollar is always bad for commodities and our indexes in the short run. That's why we went heavy on oil shorts last week and, in the conclusion of Friday's morning post, I reminded you to use the opening pop on Friday morning to stock up on those hedges we've been using.
by phil - February 1st, 2013 7:33 am
Wow, what a month!
The S&P finished January up 5.1% and, as I noted yesterday, we have simply done too well to risk blowing it now so we're getting a little more cautious as we start the new month. In yesterday's Morning Alert to Members, we raised our index stops (3 of 5 fails flips us bearish) to Dow 13,600, S&P 1,480, Nas 3,150, NYSE 8,800 and Russell 880 and I commented:
Hopefully, they won't come into play but really, these are ridiculous one-month gains so let's protect them. You could say, to be fair, we should give the Nas 1.1% but, without AAPL down over 30%, the Nas would be 6% higher at about 3,350 so we shouldn't cut them a break because – if this rally is real – then AAPL must come off the bottom and the Nas should be the BEST performer of the next round – not the laggard.
This morning, at 3am in Member Chat (and another great set of data for Members there), we went over the PMI Scorecard and looked closely at China, who had conflicting PMI reports with HSBC coming in at a 2-year high of 52.3, while the official NBS PMI Report showed an unexpected fall to 50.4. You'll hear a lot of BS from the Punditocracy about why this is but BAC's Ting Lu sums up our reasons for ignoring the "official" number in favor of HSBC's more small cap-oriented take on manufacturing:
First, most data points, especially the industrial earnings, have been pointing to an impressive recovery. Second, the private HSBC PMI, which is a better proxy for smaller enterprises, rose to 51.9 in Jan from 51.5 in Dec. Third, PMI data are heavily seasonally adjusted, especially during the year ends and beginnings. As there is big room of freedom regarding seasonal adjustment during the CNY holiday, it’s likely that the NBS statisticians intentionally reported a conservative estimate within the allowable range to save better data for rainy days. Finally, new orders rose to 51.6 in Jan from 51.2 in Dec despite new export orders falling to 48.5 in Jan from 50.0 in Dec, suggesting domestic orders jumped in Jan.
by phil - January 31st, 2013 8:29 am
Wheeeee, what a ride!
We expected to flatline this week with my Monday outlook for our Members being: "Very tight ranges – possibly setting up to flatline into month's end. Which will make for a boring few days ahead." Amazingly, even a nasty headline number on the GDP yesterday couldn't take us down (and the numbers were actually fine – see yesterday's post for commentary as well as Dave Fry's telling copper chart) nor could the Fed following it up by sitting on their hands do any real damage.
We did get a dip in the Russell below 900 and that did trigger the TZA hedges we discussed last Friday but they are backed with the so far, so great DBA longs and we'll be happy to take a quick loss if the RUT recovers – but not until after the weekend. In Friday's post, the trade idea was to sell the DBA Jan 2014 $26 puts for $1 (now .75) and buy the TZA March $10 calls for $1.40 (now $1.50) so that net .40 trade can already be cashed for net .75, which is a nice 87.5% gain on a 1% drop in the Russell and that's how our option hedges are supposed to work – you can commit a very small amount of capital to hedge protection and get a huge payback to mitigate your losses when and if the market turns.
Even better, we only need these hedges to cover our assets while we dump our positions and scramble back to cash IF our levels break down. As I mentioned at the top of last Tuesday's post, these are silly gains for a month and, when you make 1/2 of your investing gains in the first month of the year – it's more than prudent to get back to cash – because, statistically, it is far more likely that the next 6 months will disappoint you.
Fortunately, we only set stops and our stops have not been breached but we're also raising those stops and adding some hedges – happy to give up a little of the additional, future, POTENTIAL gains in exchange for locking in what we already have. We're also getting an opportunity to pick up some new entries in stocks that are taking a dip. Even in "the stock we no longer talk…
by phil - January 30th, 2013 8:15 am
The Fed announces at 2:15.
Not much else matters until then and then we have Non-Farm Payrolls on Friday and nothing matters until then either so it makes sense that we are flat-lining, more or less this week, as we gather more data to see if we can justify these amazing gains for the month.
We had a rough day shorting oil yesterday as it was a nickel and dime game as we crossed each .50 line but, while we won a few battles, oil won the day and is at $98 this morning in the Futures (/CL) where we're shorting it again into the inventory report. The run-up in oil gave us the opportunity to take some March USO shorts in Member Chat for our $25,000 Portfolio as well as a new SCO, with an aggressive new play on the Feb $36/37 bull call spread for .40, which has a .60 upside (150%) in 16 days if oil drops back to about $96.
That's a speculative play but we put it in both of our $25,000 Portfolios and risked a virtual $800 on 20 contracts and, since the $36 calls are $1.15 (covered with the $37 calls sold short at .75), we can also roll out of the position before the $36s go below .60 – but more on that if it has to happen (hopefully not, as that would likely mean $100 oil). Like a lot of things, yesterday's rally in oil has been propelled by a big dip in the Dollar, which bottomed out (we think) at 79.40 this morning.
Unfortunately, a bouncing Dollar is a danger to all stocks and commodities and, while the Dollar chart looks bearish – with a falling 50 dma acting at a tough top of the recent range – the fundamental reality of the situation is that we simply are NOT printing money faster than Japan and probably not even faster than Europe and, in fact, the demand for Dollars is increasing as housing activity goes up along with employment. So, 79, maybe 78.50 but lower than that is very unlikely and, once we pop back over 80 – shorts will begin to cover and we'll have a nice little pop, which should lead to a market pullback – hopefully not too severe.
by phil - January 29th, 2013 8:36 am
No wonder it's worth $9Bn (based on BLK's latest buy-in) – it's actually useful. Yesterday, in Member Chat at 9:39 am, I hit the button early on a trade as oil tested our favorite shorting point ($96.50 on /CL Futures). We also took advantage of the run-up at the open to pick up more USO Feb $35 puts at .65 for our $25,000 Portfolio. Using our new Twitter feature, I also tweeted (is that the verb?) out the trade idea on our account so that people who follow us with mobile accounts wouldn't miss what we thought was an easy trade.
We had no idea how easy it would be, however as oil promptly plunged $1, to $95.50, where I said to Members at 10:26:
"$95.50 is goaaaaaaaaaaaaaaaaaal on Oil Futures – Congrats to players on that one!"
Not only was the Futures Trade Idea good for a very quick $1,000 PER CONTRACT, but our USO puts in our virtual $25,000 Portfolio made a very quick .20 at .85 and that was a 30% pop in an hour, returning $850 on a $650 investment in less than 60 minutes – and still in time to buy our Egg McMuffins for the day!
USO puts are a nice no-margin way to play oil, if you can't trade the Futures but, at $10 per penny per contract – you've gotta love the action on those Futures. Actually, they have lower entry and exit costs than options and it's easier to set tight stops (usually right on the line) and get out quickly when the trade turns against you and THAT is why we like the Futures. This morning (8:20), we're toying with $96.50 on the oil futures again and we'll be looking to short them again if they cross below the line – maybe even another run at the USO shorts too (see Dave Fry chart for key line).
We've also been having great fun with earnings plays and Friday we targeted NFLX, who had such a ridiculous jump on earnings that we HAD to short them and that play was simply the weekly (this Friday) $175/170 bear put spread at $3 and we did 5 of those in the both of our virtual $25,000 Portfolios and already that spread is up to $4 as…