by phil - October 24th, 2012 8:32 am
AAPL is a total disaster.
There's no denying it now, they had their IPad Mini event yesterday and investors charged out of the stock, dropping it from a high of $633 (which is already 10% off the Sept highs) to close at $613 and that was finally weak enough to get us to capitulate and roll back our AAPL positions to longer-term trades that have less upside but, more importantly, less downside as we are no longer confident they'll be able to turn it around on Friday.
Notice how silly it seems to talk about how poorly AAPL is performing when the chart on the right pretty clearly indicates it's the greatest stock on Earth but that would be the logical conclusion for a company that's on track to earnings $43Bn this year, which is $81,811 a minute – more even than what they were tracking to make last month, when I set out bottom target at $600 (and that spread is an even better buy now) AND, only 68% of what they are projected to make next year!
We didn't really think it would hit $600 – that was our worst-case but here we are – at the worst case and, since we are no longer able to say with conviction that it can't get any worse, we had to back our short-term plays to something that buys us more time. In that same post we liked HPQ at $14.30 and at least they are holding that line and we also had a nice spread on that stock in the same post, which is still holding up as a new spread.
In that post I mentioned (as usual) our primary hedge being TZA and the straight-up April $15 calls mentioned there have gone up another .40, from $2.50 to $2.90 off our $2.10 entry (up 38%) – not bad against just a 15-point drop in the Russell (down 2%).
Yesterday, with our hedges already in place (see last Wednesday's TZA hedge and this Monday's DIA hedge) we had the luxury of doing some bottom-fishing yesterday with long trade ideas on TIVO at $9.78, USO at $31.75, AAPL at $623, CMG at $238 and our last trade idea for the day was SQQQ at $41.20 (that one, of course, is another hedge – always look for BALANCE!) – just…
by phil - October 23rd, 2012 8:42 am
The Futures have given back all of yesterday's last-minute gains and then some.
After hours last night, Moody's downgraded 5 Spanish regions "driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves … and their significant reliance on short-term credit lines."
While Asia shrugged it off and finished more or less flat, Europe is freaking out – about that and the continued terrible earnings reports that are hammering the point home that the economy is certainly worse than it was last year. Why then, are the markets up over 10% from last year – well, since there's no easy answer to that – down they go!
The Euro fell down to the $1.30 line (where we went long in early morning Member Chat) and oil futures fell to $87.28 (and make a good buy over $87.50 on /CL) and gold took a pounding to $1,710 while gasoline fell below the $2.60 line, where it's also a good long play on /RB as it's unlikely the Euro fails $1.30 for very long or the Yen goes above (weaker) 80 to the Dollar (now at $79.85) and it's also not likely the Dollar breaks 80 today (now 79.93) – so, overall, this is a nice spot to go long in the Futures.
It's over an hour to the open but let's call it Dow 13,200, S&P 1,416, Nasdaq 2,980, NYSE 8,250 and Russell 810 and, as you can see from our Big Chart – we're barely holding our Must Hold levels with the Nasdaq crashing us below and we can't even blame AAPL today, which is holding up pretty well so far at $630 – after putting up a $15 gain yesterday (2%).
As we expected yesterday morning, the Nasdaq held 3,000 like a champ and rallied 20 points off that line into the close before dropping back a few but today will be harder with the Nas gapping well below 3K – painting a terrible technical picture before most people have a chance to make their first trade.
Has anything changed since yesterday? Not really – we knew Spain was a mess, we knew Q3 earnings would suck but, apparently, seeing the actual numbers is really spooking investors. In reality, only 10 of 40 companies missed yesterday but 5 of those guided down and only two companies (HSTM…
by phil - October 22nd, 2012 8:11 am
We're crashing! Just look at this chart:
See – over there at the right, on top, at the end – do you see it? We're totally crashing. It's all over and it's OBAMA's FAULT!
That's what I learned this weekend from the Financial Media. While it's true that we did fail to break out over the top of the uptrending channel we've been in since early 2009, I'm sure you can see that all the forecasts for doom and gloom are nothing more than noise.
Yes, we may drop back to 1,200 on the S&P because that's the range we are currently in but there won't really be any reason to worry unless we fall MORE THAN 20% – the trick is to simply be prepared for the possible drop and to be ready to do a little bottom-fishing while everyone else is losing their heads.
If, on the other hand, the S&P bounces off of 1,400 or even our Must Hold line at 1,360 – then we still have the possibility of breaking UP – out of that long-term channel and back over 1,500 – maybe even to 1,600.
As you can see from the chart on the left, Corporate Profits as a percentage of GDP are taking a dip this Q but HAVE SOME PERSPECTIVE PEOPLE – they have never been stronger – EVER – the only thing that is weak is confidence and that's no surprise given this incredibly depressing election season, where we're being offered a choice between sticking with the slow progress we're making or going back to the failed policies that destroyed the economy in the first place.
People look at this chart and think the dip that occurred in 2008 can happen again but that was a fairly unique situation, mainly of massive writedowns in real estate holdings and bank earnings that is very unlikely to happen again. Companies like AIG and FRE and FNM lost hundreds of Billions and that dragged down overall Corporate Profits but that doesn't make it "normal" and we have no reason to expect it to happen again. The current market panic that is saturating the US media is, so far, confined to the US – the rest of the World is doing just fine:
by phil - October 20th, 2012 8:00 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 TZA since $13.50 and, since 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 existing downside protection into new downside plays so we can set SENSIBLE stops on our now deep in the money short plays (very similar to our Mattress Strategy).
Keep in mind that Friday was the biggest market decline we've had since May, so adding a layer of protection here doubles our returns if this is the first leg of a major sell-off, or it gives us a smaller hedge that we can roll up later while we take our bigger hedges off the table. As I have to say WAY too often to Members – It's not a profit until you cash it in!
Hedging for disaster is a concept I advocated during another "recovery," in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – "just in case." That "just in case" saved a lot of portfolios! The idea is to take disaster hedges using high-return ETFs that will give you 3-5x returns in a major downturn. That way, 10% allocated of your virtual portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a good buying opportunity. At the time, I advocated SKF Jan $100s at $19. SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting even just 5% of your virtual portfolio into that financial hedge would give you back 75% of your portfolio when you cash out.
Keep in mind these are INSURANCE plays – you expect to LOSE, not win but, if you need to ride out a lot of bullish positions through an uncertain period, this is a pretty good way to go. I have long wanted top put up a Buy List but it's still too risky as the Dow has been unable to break our 13,600 target and the S&P has failed to hold 1,440 and, as I warned just yesterday morning, ahead of a 200-point drop, the Dow has no real…
by phil - October 19th, 2012 8:30 am
25 years ago today, the market fell 22%.
You never know what's going to panic the markets – since then we've had many other sudden corrections like Black Friday just 2 years later and Black Wednesday in September 1992, we've had the dot.com collapse and 9/11 and whatever you call 2008 and recently we had Dubai and Greece leading to sudden crashes and the ubiquitous flash crash and whatever happened last August (Europe again).
So stock markets are dangerous places to keep your money, on the whole. That's why TZA (ultra-short Russell) is our primary hedge in the Income Portfolio and, as I mentioned in last Wednesday's post, should the S&P fail to hold 1,440, then the Dow has little support all the way down to 13,295 as well. Just this Tuesday, I reiterated a TZA spread Members could use for general portfolio coverage:
Ultra hedges/Bdon – You just can't beat TZA at $15. The Jan $12/15 bull call spread is $1.50 so 100% upside if TZA simply doesn't go any lower. If they do go lower, you can sell the April $11 puts, now .50 for $1 (the Apr $12 puts are .92) before your $1.50 is even out of the money and then you'd be in the Jan $12s at net .50 and worst case is you get assigned at net $11.50 in April but, of course, you can roll or simply accept the assignment and cover and then you have more long-term protection.
We like to buy our protection when the market is going up – it's cheaper that way! TZA was at $14.75 at yesterday's close and the Jan spread was still about the same $1.50 but it's $2.75 in the money – all we need is for TZA to not go down (Russsell not to go up) and we make a tidy profit. That's a good way to hedge because the only way that hedge loses money is if the market breaks higher.
We're not turning bearish yet but, as we're seeing some pretty serious misses (GOOG and CMG yesterday, for example) and some pretty strong reactions to those misses – it is a good time to make sure people do remember the value of hedging. If nothing else, it's a piece of mind that lets us ride out these dips without worry. Also, of course, it's good to…
by phil - October 18th, 2012 8:03 am
EU leaders are meeting in Brussels today and tomorrow.
For anyone who's been paying attention for the last two years – that's usually not a good thing and, as we noted yesterday, it was a strong Euro and a weak Dollar that was driving our little rally. The Dollar bottomed out at 79 and the Euro topped out at $1.314 and the Euro's strength sent the Yen back up to 79.30 to the Dollar (weaker) and that led to a 2% Nikkei rally last night. As you can see from the chart on the right, the S&P for the week is 1% behind UK and Germany and 2.5% behind France and Italy (+4%) and Spain (+7%) – so we have a lot of catching up to do if this rally is real and sustainable.
Still, I sent out an Alert to Members early this morning noting that the Global Markets were holding up well as of 6am and that was encouraging. Yesterday we discussed taking advantage of the run-up in the Russell to make a TZA hedge to lock in some of our gains (see main post) but we still haven't covered XLF (target $16.50 – see Dave Fry's chart) and we're still bullish on AAPL as well. We cashed that ISRG play, as planned for $9 on the spreads (200x = $1,800), spending .30 x 200 ($60) to buy back the callers so that, with the $200 we were paid to take the position is just short of our $2,000 goal at net $1,960 – not bad for a day's "work".
In Member Chat this morning, we discussed GOOG's outlook for earnings this evening and decided they were more likely topping than popping so we have that risk to the Nasdaq for tomorrow. IBM was an 80-point drag on the Dow yesterday but it did manage to finish flat and advancers led decliners on the NYSE by 2:1 so the conditions are still there for a rally and hopefully what we have here a a pause that refreshes and not a triple top from the mid-September highs.
The Nasdaq and the Russell are, in fact, in downtrending channels and, for the Nasdaq, their fate rests on GOOG tonight and AAPL next Thursday – but it's still a long way back to the highs at 3,200.
by phil - October 17th, 2012 7:31 am
Let's not make this more complicated than it needs to be.
A weak Dollar lifts the markets and, this morning, the Dollar fell from 79.50 at yesterday's close to 79 at 6:45 and that's why, despite earnings disappointments from both INTC and IBM, the Futures are up slightly 3 hours before the open. As you can see from the chart on the right, to say there's a strong inverse correlation between the Dollar and the S&P is quite the understatement. Over the longer run – the effect tends to wash out but, over the short run, it's an almost perfect match.
Of course, this also has a very direct effect on commodity pricing and part of the reason for the Dollar's big sell-off last night was the much-better-than-last-time performance of Barack Obama in the second Presidential Debate as the future of the Fed and all that free money hangs in the balance.
After the first debate, two weeks ago, Romney clearly won and has made it known that he will kick both Big Bird and Big Ben to the curb as soon as he gets in office – that sent the Dollar up from 79.10 to 80.21 (up 1.4%) last week and dropped the S&P from 1,460 to 1,430 (2%). After last night, Romney looks to be back off the table and that leaves the Dollar to resume it's downward slope – giving another lift to the markets.
At the same time, Moody's left Spain's credit rating above junk this morning and that's lifting the Euro to $1.31 and the Pound is moving in lock-step at $1.61 BUT the Yen dropped 0.5% to 78.63 and it's not likely the BOJ will let the Dollar slip below 79 as that makes Toyotas and Sonys more expensive just ahead of the holidays. Also, the Nikkei finally got back to 8,850 last night and you know they hate to lose that line.
So get set for some heavy-duty Global Market Manipulation by our Central Banksters as everyone but Europe tries to race for the bottom. Europe, interestingly enough, doesn't mind a strong currency as they are fuel and goods importers and most of the goods they export are "luxury" class and less susceptible to currency fluctuations. With strong intra-zone trading the backbone of the EU economy, it doesn't matter where the Euro is trading from that perspective either and, of…
by phil - October 16th, 2012 8:00 am
That's getting to be a serious line – especially on Tuesdays and Wednesdays. Last Tuesday it was a floor, as the IMF made calls for a Global Recession, the Tuesday before that, we started and finished there and it was Wednesday's post (Oct 3rd) which I titled "Will We Hold It Wednesday – S&P 1,440 Edition – Again" because that had also been the title of the previous Wednesday's post and the previous day we had done a brilliant study of the Dow components where we determined that 13,600 was not likely to be broken until we got earnings to support it. NOW it's earnings season…
As you can see from Dave Fry's intraday chart of the SPY, it was indeed time to rally yesterday but we did have a nice little dip at the open, which allowed us to buy back our AAPL short callers in Member Chat. At 10:43, we also went bullish on Oil off the $90 line, playing the Futures (/CL) as well as USO $32 calls for $1.53 and $31.50 calls for $2.02. Oil topped out at $92 for a nice $2,000 per contract gain in the Futures while we took $2.05 and ran on the USO $32s for a 35% gain and $3.05 on the $31.50s for a 50% gain on the day. Now we're more likely to wait for tomorrow's inventory report (10:30) and we'll be looking for an opportunity to go short – hopefully back around $93.
Knowing your trading ranges allows you to take full advantage of these little dips – probably one of the highest-percentage ways to make money day-trading. Another nice little intra-day trade, which I mentioned in the morning post, was our TNA $61 calls, which fell to .45 at 10:03 so we grabbed 20 of those for our $25KP for $450 and they finished the day at .75 – up 66% for the day for a quick, virtual $300 gain on the day but we got 1/2 out at .70 as part of a larger position we had been scaling into.
Other than that, we added a long-term play on FTR and discussed adjusting HPQ in our Income Portfolio but, generally, we're already bullish so there wasn't much to do but watch and wait. There was nothing about the close to make us change our mind so we…
by phil - October 15th, 2012 7:56 am
Are we ready to rally?
We certainly build enough bricks into our wall of worry over the past week as the markets gave up ALL of the QInfnity gains from 9/13 but, so far, as we expected – we're holding those 50 dmas – except on the APPLDaq, which has been shredded by the 10% decline in AAPL, which put a 2% additional drag on the index. As you can see from our Big Chart – the Nasdaq is, in fact, 1.5% below it's 50 dma so it's ALL APPL's fault.
Other than the Nasdaq, we're looking at 2.5% corrections (after a 13% run) in the S&P, NYSE and not even that much in the Dow (and that's a 20% retrace for those of you playing at home) and a 5% drop on the more volatile Russell but that hasn't stopped the TA fan-boys from declaring the World about to end – mostly because of the textbook "head and shoulders" pattern that seems to be forming on our indices.
I don't disagree with the Rorschach fans – we all see what we want to see and there's no denying that IF we fail the "neckline" – which is, effectively, the 50 dmas – THEN we do have serious problems with no real support until we drop at least another 2.5% to our Must Hold lines and, in the case of the Dow – it has yet to beat their Must Hold line at 13,600 – the line that's always kept us from getting too bullish.
I, for one, was extremely encouraged by Friday's Consumer Sentiment Index and we'll see if today's Retail Sales Report gives us an upside surprise (+0.7% expected) to confirm that consumers are putting their money where their sentiment is. Since we are living in the Appleconomy, we have to consider that the IPhone 5 went on sale in the last week of September and 5-7M IPhones at $500 each was probably $3Bn worth of ADDITIONAL spending that last week because I doubt the people lining up for IPhones were saying "I'm going to eat mac and cheese tonight so I can afford this."
So, unlike "leading economists", I'll say we hit 1% or so in this report and it will be nice to have an upside surprise, for a change, that ISN'T due to high gasoline prices. We also get the Empire Manufacturing Index…
by phil - October 12th, 2012 8:13 am
That was the day the Fed announced QInfinity and the Dow gained 200 points from 13,329 to 13,539 and the next day we topped out at 13,596 and held just under 13,600 until October 9th (Tuesday, in case you lost track) when we dropped 100 points and now, we're back at 13,326 – on the road to nowhere - exactly one month later.
Does that make sense? Now, I was the first to argue that the run-up to QE was already overdone and that NOT getting QE that Thursday would have been a complete disaster but we not only did get QE3 but the Fed threw in QE4, 5 and 6 for good measure – making it very clear they were never going to stop giving us free money – unless someone stopped them.
So what could have gone wrong? Mitt Romney. Actually it was Barack Obama – he blew the debate and that allowed people to believe Romney actually had a chance and suddenly Romney's fatwah against Bernanke became an issue people were taking seriously. Maybe QInfinity was only going to be QUntil Romney takes office. That spooked investors and, suddenly, all the gains of QEvaporated in just one week.
We all know that Republicans are generally stock market poison in the best of times but putting one in charge during a recession – well, you would think Hoover, Nixon/Ford and Bush would have taught us a lesson but Romney's chicken in every pot performance last week gave Conservatives hope that soon they would have a chance to destroy the US Economy – just 4 years after they already destroyed it!
And you can't blame the GOP – expanding Government spending (while saying they are cutting it), robbing from the poor and giving to the rich, destroying the environment, throwing the poor, seniors, students, veterans and the middle class under the bus and charging $5 a gallon to fill that bus up with fuel while avoiding all taxes is what they do – it's like inviting a bunch of tigers over for dinner and then being upset when you realize they'd rather eat you than the macaroni and cheese they said "would be fine."