by Phil Davis - August 12th, 2014 8:28 am
"Forgive us our debts, as we have also forgiven our debtors."
Hah – what a crock! How many people who have recited that prayer have forgiven any debts? How many have had debts forgiven? Certainly none of the G20, who owe each other tens of Trillions of Dollars and certainly not Argentina's bondholders, who drove the nation to default and certainly not the bondholders of THREE Atlantic City Casinos that are on the verge of shutting down and putting 10,000+ people out of work in a county of 275,000 so about 5% of the working population.
Are casinos simply a bad business or is the economy not quite as strong as we are led to believe?
In the past 14 years, we have more than tripled the debt of the first 224 years of our nation's existence and, in the next 7 years, we are on track to add 150% more (than the $5Bn we had when Clinton left office).
The $2.4Bn Revel Casino opened in March of 2012 and was $1.5Bn in debt at the beginning of 2013 but did a pre-packaged bankruptcy last year that cut the debt to $272M but it's been hemorrhaging money since and the value of the casino has been slashed to $450M yet an auction scheduled for yesterday got ZERO bidders, which may now lead to yet another bankruptcy – making it an annual event.
This is no run-down property, this is a beautiful, modern building that LOOKS like $2.4Bn was spent to build it. It's a beautiful property with nice restaurants and great rooms and a nice beach and a swim out pool on the deck so you can use it even in the winter – no expense was spared but, like many grand projects, the cash flow isn't there to support the great dreams of the creators.
Even at $450M, if you could sell the 1,400 rooms (57 floors) into condos and got $300,000 for 1 bedroom apartments, that's only $420M and wouldn't be worth the effort. So, if you can't do that and you need 3,800 people to run the casino/hotel – that's a pretty big nut to cover each month. The casino loses roughly $3M per…
by Phil Davis - August 11th, 2014 8:22 am
"Thruppence and sixpence every day
Just to drive to my baby
I don't care how much I pay (Too much, Magic Bus)
I wanna drive my bus to my baby each day (Too much, Magic Bus)
I don't want to cause no fuss (Too much, Magic Bus)
But can I buy your Magic Bus? (Too much, Magic Bus) " – The Who
This is certainly one Magic Bus of a market, flipping on a dime or, more accurately, bouncing off the Dow's 200 day moving average at 16,350 back towards our predicted strong bounce line at 16,650. The Transports are also bouncing right off the 100 dma at 142, down from 152 and. per our 5% Rule™, we expect 146 to be tested this morning. This is not "surprising", this is what we said would happen on Friday morning.
As we discussed all of last week, BALANCE is the key in a choppy market and our Long-Term Portfolio finished Friday at $590K, up exactly 18% for the year, while our Short-Term Portfolio jumped to $136,000, up 36% for the year and together they are $726,000, up over 20% for the year on our two primary virtual portfolios.
Having well-balanced portfolios allowed us to ride out the dip and, in fact, buy more longs while the market was pulling back, rather than panicking out of positions that, for the most part, only went down with the market – rather than because there was any actual weakness in the stock.
Our general strategy of Being the House – Not the Gambler is also a great help in consistently making progress in our portfolios, even when the market has such a choppy week.
For most traders, it's "thruppence and sixpence every day" just to hold on to their positions as they gyrate up and down. As sellers of premium, we own the Magic Bus and we collect those daily pennies instead of selling them and that acts as a tremendous buffer to our long-term investing, where simply hanging on to a position allows…
by Phil Davis - June 4th, 2014 8:29 am
Yesterday was a close one!
We briefly failed our first test of 1,920 (see yesterday's notes) but another low-volume rescue kept us from fulfilling the "Wave C" predicion on this Elliot Wave chart – for now.
Not that I'm an Elliot Wave person, of course – my theory is that, if you are going to draw 5 points on a graph you can imagine all sorts of random patterns and SOMETIMES you will be right. About half the time, in fact.
I believe in bigger numbers and our own EXCLUSIVE 5% Rule™ says the S&P bottomed out at 800 (in 2009) doubled to 1,600 last Spring, consolidated there for a quarter and now has made a 20% move to 1,920 – just like it was supposed to since it bottomed in 2009 (see our many, many predictions over the years). In fact, it was March of 2012, with the S&P at 1,404, when we set our new goals for the S&P to 1,600. As I said at the time:
That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800. I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.
Once we did get the dip in June that we expected at the time (down 10%, back to 1,278 and, fortunately, we had wisely cashed out our Income Portfolio before things turned ugly) we were happy to go gung-ho bullish with our Buy List – the same kind of Buy List we just finised assembling in yesterday's Live Trading Webinar. In fact, right in that 3/17/12 post, I laid out this play to profit from our prediction:
For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan (2013) $146/154 bull call spread is $3 and you can sell the $110 puts for
by Phil Davis - February 19th, 2011 9:59 am
Crazy stuff, right?
If you have never before paid attention to Fibonacci Retracement Levels, I would strongly consider paying attention to the S&P chart below. This chart shows, 2 years later, a consolidation and breakout that could have been predicted in March of 2009. That’s right, if you asked a Fibonacci technical guy where the S&P was going to consolidate on March 10th of 2009 – he would have said: "Assuming that yesterday was the bottom and coming off our high of 1,576, then I would say we will consolidate between 1,014 and 1,229."
Leonardo of Pisa (and independent republic at the time) was born in 1,175 and died at the ripe old age of 65. Pisa was a city of about 10,000 people – a mixture of Muslims, Christians and Jews. Construction on the great tower began in 1,173 and was not completed until 1,319 (so don’t complain about modern union jobs!) but they knew that it was listing in 1,178 so the point is: Leonardo was born in a small town that had a huge architectural problem.
Fibonacci’s father was a State customs worker (essentially overseeing floor trading) and encouraged his son to take up studies in mathematics which, at the time, included learning Hindu Vedic math, which was the foundation of modern algebra and which Fibonacci came to greatly respect, saying:
The knowledge of the art very much appealed to me before all others, and for it I realized that all its aspects were studied in Egypt, Syria, Greece, Sicily, and Provence, with their varying methods; and at these places thereafter, while on business. I pursued my study in depth and learned the give-and-take of disputation. But all this even, and the algorism, as well as the art of Pythagoras I considered as almost a mistake in respect to the method of the Hindus.
Thus Fibonacci became the driving force by which Hindu-Arabic numerals came to replace the Roman ones. Fortunately, at the time, the arts and sciences were still supported and he found the favor Emperor Frederick II, who funded his studies – even though they didn’t make him any money (imagine that!). Fibonacci did not invent Fibonacci numbers (it was probably India’s Pingala in 200 BC), he just realized they could be applied to natural growth and regression sequences and, as it turned out,…
by Phil Davis - September 27th, 2010 7:18 am
Hope springs eternal at Goldman Sachs.
This morning our favorite Banksters goosed the EU markets by upping targets on international mining operators Kazakhmys, Lonmin and BHP and that got the European markets off to a flying start out of the gate, despite the fact that UBS had just DOWNgraded the same sector on Friday. UBS said on Friday that the sector is facing difficult times concerning potential growth with government rulings on mineral leases and the proposed supertax on mining profits in Australia set to hinder metal-based stocks.
We also have a lot of M&A activity, also courtesy of GS, who are leading the resurgence this year with 225 deals to date worth $401.6Bn, accounting for about 20% of all activity going through Goldman’s sticky fingers. In a sign of the times, however, GS only generated $961M in revenues as an M&A advisor as they cut a lot of discounts in order to land the top spot in dealmaking. Although outdealt by GS, MS, Rothchild, JPM and DB all made more in fees than the Uncle Lloyd show.
In a sign of the end of times, GS’s London Headquarters has been taken over by lenders after the owner fell into receivership. GS’s landlord, Antedon, is an offshore real estate firm that bought the building for $500M at the top of the market in 2007 and GS has locked up the building through 2026 at what seems to be not enough money to keep Antedon liquid – it would be very interesting to trace the web of deals that led to this massive default.
Meanwhile, the consortium of Irish investors that own GS’s other London building are also bailing out, this action is coinciding with what Ireland’s Independent says is a campaign by Wall Street Hedge Funds to short sell Irish Government Bonds. US hedge funds Groveland Capital and Corrientes Advisors are thought to have taken major positions against Irish debt. Giant €60bn asset-manager Pictet also revealed that it had earlier bet against Irish government bonds. JP Morgan is also thought to have taken a bearish position on Irish debt. The International Monetary Fund estimated that up to €3bn of Ireland’s debt was being targeted by speculators through the uses of derivatives.
by Phil Davis - September 21st, 2010 8:27 am
Isn’t this exciting?
We popped all of our 5% levels yesterday, now all we have to do is hold them and we can start looking ahead to the 10% lines. Just 10 days ago, on Friday the 10th, we did our last multi-chart study and I said in the morning post: "I am not TA guy but If I were a bear, I’d be pretty darned concerned about the charts as it looks to me like the 20-day moving averages are registering a short-term mistake in a generally rising trend." Look at how those 20 dma’s have snapped up in less than 2 weeks (blue lines are mid-points, green circles are 5% levels):
So Gold and Transports are running away with SOX falling behind. We’ve been playing the SOX up with USD, which is up 10% since I picked it in that Friday’s post but that’s been a relative underperformer for us as we nailed the bottom with a buying frenzy into the late August drop which culminated with my very bullish "September’s Dozen" from the 3rd. There were actually 10 stocks and only 9 fit in the multi-chart (I dropped HMY, who already gained 15%) with way more than a dozen trade ideas for our Members to take advantage of the anticipated short-term moves. Of the 10, only IRM has been laying around but we weren’t expecting a quick move on them and played a conservative April spread and took the risk on Oct $22.50 calls, which are our only loser, down 30% at .20 but I still like them if we break up from here.
The leverage you can gain with option plays is truly stunning. On BRCM, for example, the trade idea was a straight purchase of the Sept $32 calls for $1.25, BRCM topped out at $35.49 with the calls close to $3 on the 14th and they expired on Friday at $2.16, which is up 72%, even for people who didn’t stop out between there and up 140% that Tuesday. That trade was a combo trade with the sale of the October $30 puts at .70 and those are down to .30 (up 57%) which are well on their way to expiring worthless for a full 100% gain. We also took an artificial buy/write that stretched from Jan to Jan 2012 so that was 3 trade ideas on one stock – you can see how quickly we get past a dozen!
by Phil Davis - September 7th, 2010 7:28 am
Happy Tuesday to you!
Nice market take-down by the Journal this morning, who led off with an article questioning the EU stress tests saying: "From this point of view, it is not surprising that the doubts raised about the validity of the stress tests are weighing on the Euro and also on other risk-correlated currencies." Then, to make sure no one misses the article, they run another headline for the US markets that says "Concerns Over EU Banks Hit Euro" in which they quote themselves:
New concerns about the ability of European banks to weather the financial crisis came after the WSJ story highlighted once again the weaknesses of the stress tests. The report helped to widen the bond spreads on peripheral debtors and knocked European stock markets lower as another wave of euro zone jitters hit the market.
If this seems like BS manipulation to you, you will be doubly insulted to know that the US isn’t even the target of the manipulation. Mr. Murdoch, an Aussie and long-time foe of the Euro, is simply expressing his displeasure in a Labor Party victory in the Australian elections this weekend (real Democracy’s hold elections on weekends to encourage voting) and is knocking down their dollar by simultaneously boosting both the dollar and the Yen (also in the article is news that the BOJ will not intervene in the Yen, which is total BS) to push down his native currency and make a post-election statement. Just a media giant throwing a temper tantrum this morning.
Think about the "nature" of this story. There is nothing NEW in this NEWs, is there? It’s the kind of article that could be written any time someone wants to push the markets. Even the data they are using is from back on 3/31 – they didn’t even bother to update their facts for Q2! Notice that the article is pure worst-case speculation by the WSJ, followed by comments like:
- An FSA spokeswoman declined to comment.
- CEBS didn’t disclose that the banks were calculating the figures in that way.
Wow, pretty damning evidence that they couldn’t get a comment contrary to their BS on a holiday weekend, right? This news is also conveniently drowning out Obama’s proposed 6-year Public Works Program to combat unemployment by committing $50Bn for needed reparis on roads, rails and airport runways – putting some of our nation’s unemployed construction workers back to…
by Phil Davis - August 11th, 2010 8:27 am
Wheeee - I told you this was going to be fun!
What a day we had yesterday with the down and the up and the down and the up and now, this morning – down again! We cashed our directionals on the morning dips yesterday but now our disaster hedges are putting us in a great mood this morning (I mentioned our QID play in yesterday’s post and that was a very easy fill on yesterday’s run-up). This morning’s action should push QID over goal ($17) and we’ll see what sticks as we test our first line of (hopefully) defense at Dow 10,450 and S&P 1,100.
If we lose the S&P then the Dow has a quick ride back to 10,200 so we’ll be looking at DXD again for a add-on hedge. We already have DXD plays and we were just adjusting them on Monday, as some Members were worried that the market was going too far the other way, which led me to comment in Member Chat:
When all you guys start capitulating on your short positions I usually figure that’s a great time to get aggressively short because the end is probably near. Keep in mind we are trading a range and right now we are at the top of that range so hedges like DXD are going to get stressed. If you do not need the protection, of course take it off the table but if you do need downside hedges, then a simple roll on the call side can give you a much bigger upside.
Range trading is great but you have to BELIEVE in your range. The bottom of our range, as I posted in yesterday’s Morning Alert to Members, is Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635 and until we fail 3 of those 5, we will continue to make bullish plays when we get near those levels, just as we make our bearish bets as we test our breakout levels. Even these levels are just 2.5% off our midpoints so we don’t get gung-ho bullish until we hit the full 5% bottom – which is now the rising 50 dmas (red lines) - but we’re kind of losing faith in getting back there so we’re a little more aggressive with our buys now than we were last month.
by Phil Davis - July 26th, 2010 8:08 am
Welcome to dead center!
We are finally back to the middle of our predicted trading range. It’s the range that our 5% rule predicted since October of 2008 so we’re hardly going to be shocked to be here now. Usually we are shocked when we’re NOT in our range. I detailed the movement this weekend in our 5% Rule Update, so I won’t get into it all here but let’s just focus on our short-term chart and embrace the uncertainty as we move back to the middle of our range at 1,100.
I say it all the time and I’ll say it again: I’m not bullish or bearish – I’m rangeish. That means I get more bullish at 5% under our line and I get more bearish at 5% over our line and I get extremely bullish or bearish as we get into that 10% zone because – if the market fundamentals don’t change – then my midpoint doesn’t change and the opportunity is to play us to return to "reality" at S&P 1,100 (Dow 10,200).
Just look at those nifty little resistance points we have to watch now – the 200 dma is at 1113 and the 50 dma is at 1,084 and we just ran up from 1,030 (we ignore spikes) past the 5% rule at 1,081, which just so happens to be pretty much the 50 dma so that will be our key test for the week as our bottom to top run from 1,101 to 1,102 is close enough to 10% to merit a 2% (20% of the run) pullback back to, WHOOPS!, 1,080. So 1,080, 1,080 and 1,080 is our line in the sand for the week. If the rally is real, the number will hold and, if it doesn’t hold (especially with all the earnings and economic data we have coming in) then we have to look at the drop from 1,220 to 1,020 (200 points) and consider the move back to 1,120 nothing more than a strong, 50% bounce back to our mid-range.
We are past the EU Stress tests but JPM says 54 banks should have failed for the following reasons:
- Lack of rigour in macroeconomic stresses, leading to low virtual portfolio loss rates
- Sovereign haircuts were applied only to trading books and not to accrual books
- JPM estimates show that the lack of rigor in CEBS stress scenarios resulted in a 1.7% upward bias
by Phil Davis - July 25th, 2010 11:15 am
As I said in our last 5% Rule Update, way back on May 5th, I’m not a big fan of TA. We have our 5% rule and it serves us well enough but that’s a statistical analysis, not a technical one. The only TA I put a lot of stock in is Fibonacci Retracements but that, also, is really statistical science and has nothing to do with trying to predict the movement of squiggly lines on a chart.
The 5% Rule does NOT tell you which way the market is going. It does tell you where the resistance points will be. Of course, knowing that and knowing what kind of bounces to expect and knowing where a proper breakdown or break-out occurs is kind of useful and, when it coincides with the tea leaves that are read by the "real" TA guys – you can really have something good to go by!
Unfortunately, the 5% Rule is not really a RULE because it requires a cynical background in statistics, especially regarding aberrant values or "outliers" and a general understanding of market history as well as current market events because all need to be taken into account in order to give you accurate "consolidation levels" from which we base out chart movement.
The great Harry Houdini used to enjoy amazing audiences with demonstrations of the supernatural, especially when he would pull back the curtain and reveal the frauds that others were passing off as reality. That’s how I feel about TA - we can use these very simple scientific "tricks" to project the movement of the market and others can paint their charts and dress them up in whatever language they wish to make it unique but, to me, it still all boils down to the fundamentals with the underlying movement governed by normal regression patterns influenced by capital flows and sentiment.
Whatever you want to call it, here’s our chart from May 5th, where I said: "So what lies ahead? Most likely a retrace back to 1,100 (25% of our run) but if that holds and we consolidate a bit, I will be downright bullish. I will also be impressed if we hold 1,145, which was our last breakout line but, for now, we have a 3.75% drop from 1,218 but a poor bounce yesterday indicates we are likely to get down to a 5% pullback from 1,218 to 1,157 and…