Wednesday Wheeeee – We Love it When a Plan Comes Together!
by Phil - January 11th, 2012 8:21 am
Once again, we're done with our day before you get up.
In my 5am note to Members, I said: "I see nothing in the news to justify this pre-market "recovery" and I hate to sound like a broken record but I like shorting oil (/CL) if we get below that $102 line with tight stops and the Dow (/YM) is right at 12,400, which is a great spot to short. RUT (/TF) is at 762 and below 760 (same as yesterday) will confirm a downturn but 12,400 is a great line so why wait?" By 6:26, I was able to follow it up with:
And wheeeeeeeeeeeeeeeeeeeeeeeee! There go the Futures!
It's 7:07 and we're still going down, with oil at $101.24 (up $760 per contract) and the Dow at 12,340 (up $300 per contract) and, as Dennis said: "Good enough for steak and eggs for me!" Roro got up late but still caught the Dow at 6:16 and that was right on the nose for the oil drop as well as we hit it right on the nose this morning and now we're done and waiting for the next good set-up.
Of course we scale in and scale out of positions as there's no need to get greedy in the Futures, where a single remaining contract catching a $1 move down in oil (now $101.25 again) pays $1,000. This week, we have even stationed our own Craigzooka in New Zealand, where it's tomorrow – which makes it much easier to bet on today's action as he can tell us what happened already! Not that today was all that hard to predict, right? My comment to Members LAST Wednesday was:
It’s been a pretty reliable bet that they tank the markets into the longer-term note auctions because it scares people into T-Bills and keeps the rates low. From this line-up, it seems to me they intend to jack us up on Friday and then zap us on Tuesday as Esther George releases something hawkish ahead of the 3-year and it’s no coincidence that Plosser, by far the biggest Hawk, is given the floor at 12:30 on Wednesday – just 30 minutes before the critical 10-year auction. Coincidence? Surely you cannot be that naive!
So that's how we've been playing the past 7 days and it culminated in pressing our…
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DiggEasy Money Monday – Robbing Peter to Pay Portugal
by Phil - December 12th, 2011 8:27 am
That was easy!
Who’d have thought Europe’s problems could be over just like that? Certainly not us, as I was quite skeptical Friday Morning (see yesterday’s Stock World Weekly for the Executive Summary of the Week’s Events). As I noted in Friday morning’s post, we had ended the day on Thursday very bullish – too bullish I decided on Friday morning and I called for cashing out into the weekend at the end of the morning post. In the morning Alert to Members, I repeated:
When in doubt, sell half and, in this case, I want to get back to more cash by the day’s end in the White Christmas Portfolio as the WCP is too bullish and I’m just not in the mood to risk it so we’re not going to be too brave if the "rally" stops or even slows down.
The markets were very kind to us, heading higher all day long and giving us great exits. Heading into the close, we got a bit more bearish and, aside from existing hedges like our EDZ spread (mentioned as our key hedge in last week’s Stock World Weekly), we added DXD (ultra-short Dow) Jan $15 calls at $1.25 but we offset those with short FCX Feb $33 puts at $1.25 in our virtual White Christmas Portfolio, with 10 of those contracts on each side netting a free spread with unlimited upside (with the downside being owning FCX cheaply). As I pointed out to Members, DXD was $18.50 just 3 weeks ago.
At 3:26, just before the close, we added the SQQQ (ultra-short Nasdaq) Jan $16/19 bull call spread for $1.50, which I pointed out had a nice 100% potential upside all by itself but you could also, for example, offset it with things you REALLY want to own if they get cheap – like shorting a GOOG Jan $500 put ($1.20) or an AAPL Jan $320 put ($1.25) or a MSFT 2013 $20 put ($1.10) – the idea is to just thing of what stock you REALLY want to be jumping in and buying if the market throws a 20% off sale. If there’s nothing, then you should be thrilled with the 100% potential gain on the raw spread.
But THAT wasn’t the easy money (I’m not so egotistical that I would guarantee we open lower when it’s…
Thanksgiving Thoughts
by Phil - November 24th, 2011 5:27 pm
What an ugly finish November is having!
We’ve been trying to get bullish with little success and, if we are not reversing tomorrow, I will be regretting the wasted time poking at bullish plays when we could have been going "wheeeee" on the slide.
I thought that blue line on Dave Fry’s chart was going to hold, it’s about 2.5% down from our Must Hold level for the S&P on the Big Chart (1,235) and that would have been a reasonable (and slight) overshoot of the 10% drop we were expecting so we played for the bounce but now we’ve blown our -5% line at 1,173 and our next support level is -10% at 1,112 – a very sad level to revisit if we do.
Technically, of course, we’re breaking down. Fundamentally, I’m not so sure. The fear is palpable as Europe looks terrible and clearly all these austerity measures are taking a toll on the Global economy but it’s simply NOT showing up in the data yet. PMI’s are dropping across the Globe but the Purchasing Manager’s index is a SENTIMENT indicator that reflects the OPINION of the buyers about business prospects.
As I have been pointing out (yes, there was a point) in my recent series of articles about market and media manipulation – there is a protracted campaign underway to push sentiment down – to chase retail buyers out of the markets.
Who is doing this? Perhaps it is the IBanks, who want to bottom out the market ahead of QE3, when we’ll be off to the races again. Perhaps it is the Fed and Treasury, who want to chase people into the $140Bn worth of bonds they have to sell each month. Perhaps it is the Republicans, who want to campaign against the worst possible economy next year to prove that Obama has blown his handling of the economy almost as bad as Bush did – so we may as well try one of their idiots again since it seems to make no difference. Don’t laugh – I have a button for Romney that says that…
Whatever and whoever is behind the negativity (and let’s not forget Germany, who are angling to take control of the EU and will be able to do so if things deteriorate further) – our job as investors is not to particularly care – but…
TGIF – Saved by the Bell or on a Highway to Hell?
by Phil - November 18th, 2011 8:10 am
Wheeeeeeeee, what a ride this week!
Since we went bearish on Tuesday afternoon, the Dow has dropped 450 points. That pushed our White Christmas Portfolio over the top (as we flipped bearish, of course) with a virtual balance of $26,075 including $2,565 of unrealized gains on our still-open (and still bearish) positions. That’s up $11,075 (73.7%) from our $15,000 start on October 24th and we’ll be getting back to cash and going for another $10,000 (our original goal) before Christmas.
How did we do it? We teach keeping trades short and simple in a choppy market as we stick to our trading range. Trades in the WCP were very much like the trade ideas I published Wednesday morning, from our Tuesday Member Chat at 3:21. As we had a little BS rally Wednesday afternoon, many of the trades were still makeable that day. In fact, in Seeking Allpha, where the post didn’t even go up until later that morning, Jamesbwood was able to take advantage of the XOM $77.50 puts at .14 (less than our original entry) and took a double off the table at .28 – a 100% day trade!
All of those trades ideas are great examples of the kind of trades we look for in our White Christmas Portfolio (our current, virtual, short-term portfolio) – ones we can get quickly in and out of with nice gains. We were quite satisfied with our oil shorts and cashed those out yesterday and, had President Obama followed my advice and sold those 140M barrels for $100 (could have gotten $102), he could have bought them back yesterday at $98.50 for a quick $210M profit – enough to pay for at least an hour’s worth of the deficit! Percentage-wise, he would have been better off subscribing and taking those trade ideas from our Member Chat. Those Wednesday morning trade ideas were:
- GOOG $625/620 bear put spread at $3.10 is a nice downside play – figure risking $1 to make $1.90.
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GOOG is at $600 and this spread will likely expire at $5 today – up 61.3%
- MMM $82.50 puts are $1, also a good trade for a crash tomorrow.
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MMM finished the day at $80.43 and the $82.50 puts were $2.35 – up 135%
- WYNN $130/125 bear put
…
Thursday Fix – Victory In Our Time!
by Phil - October 27th, 2011 8:24 am
You ask, What is our aim? I can answer with one word: Victory—victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory there is no survival. – Winston Churchill
I do HAVE to say "I told you so!"
When I was interviewed on Monday and they asked why I’m bullish, I replied that "stimulus trumps everything" and that’s what we’ve been playing for, especially in our new White Christmas Portfolio, which will be off to a rockin’ start with the aggressive upside trades that I not only mentioned in yesterday’s post - which made easy fills yesterday morning, as the markets shook out the last of the weak hands on yet another rumor-driven dip.
We got our daily double on the AGQ calls, as expected and SSO fell all the way to $44.20 (150% profit on that trade if they finish Friday above $45) while FAS dropped $13.35 and that spread will be good for a 2,100% gain if FAS can get back to and hold $14 – which should be a snap thanks to our friends at the EU.
In the morning Alert to Members, I put up this cute little Gif to illustrate the day’s action and it was a real roller-coaster day but we stayed generally bullish, taking quick profits off our morning bear plays on DIA and USO. We added a bullish trade ideas for AMZN (complex spread), TNA (short Nov $40 puts at $3.60) but that was it for the day because my comment to Members at 11:01 was: "Dollar rejected at 76.80 – still hope for the bulls!"
Well, those bulls were us and we already had our bets in place from last week, when things were cheaper so there was nothing to do but watch as the markets took off like a rocket from that point forward. Heck, we were so bullish we even sold NFLX puts (Nov $67.50 puts for $3) as a bullish offset to a DXD hedge (which we’ll pull the bottom of today). On Monday we had picked up bullish trades on AAPL and GLW and I mentioned EWG in Friday’s post (those should be looking good this morning!) as well as our plays to go long in the Russell Futures at…
Which Way Wednesday: Through the Roof or Smashed into a Thousand Pieces?
by Phil - October 19th, 2011 8:08 am
GRANDPA JOE: But this roof is made of glass. It’ll shatter into a thousand pieces. We’ll be cut to ribbons!
WILLY WONKA: Probably.
Is today going to be the day? After pressing against our breakout levels for a week, today do we should finally have the gas to get over the top or will our Must Hold levels keep acting like a solid barrier? Oddly enough, I was asking the same question on August 30th, when I asked if we were "Breaking Higher or Dressing Windows?" My comment from that morning works for today as well:
No way to slow down. That line from Tull’s "Locamotive Breath" keeps playing in my head as I look at these rumor-driven markets and contemplate that we MUST keep going higher – or we will fall. On the whole, that’s not generally a winning long-term investing premise BUT – it does so happen to be the entire principal on which space travel is based so let’s not discount it entirely.
Willy Wonka understood stock market physics, there had to be enough power to get through that overhead resistance or it was going to be a very painful test of the top (like the one we had in August). Since our July dip, we’ve come back for another try at our Must Hold lines 4 times but the volume has been substantially lower than it was in July, leading us to believe it is only TradeBots, and not Oompa Loompas, who are buying this market.
Can TradeBots alone give…
Thank GOOG It’s Friday!
by Phil - October 14th, 2011 8:34 am
Can we end the week with a bang for a change?
Google had tremendous earnings last night (10% beat) and that has the Futures flying (along with AAPL’s IPhone 4S release, which has, as usual, lines around the block to buy their product on the first day). We already made some quick futures money in Member Chat, shorting the Nas (/NQ), Dow (/YM) and Oil (/CL) at 6am in Member Chat. Why go short – just because we had a silly pre-market run-up and we wanted to lock in gains – now it’s 7:30 and we’re done – waiting and seeing how things go into the open.
Futures trading is very useful for locking in pre-market gains but you have to be very careful or it’s just as easy to blow them and, as we demonstrate in Las Vegas Sunday Night – the futures markets are clearly a load of manipulated BS – especially in thin after-hours and pre-market trading. Fortunately though, that’s fine with us as one of the main lessons at PSW is "We don’t care IF the market is rigged, as long as we can figure out HOW the market is rigged and place our bets accordingly."
The news we didn’t want to risk the futures on comes up at 8:30, as we get the Retail Sales Report for September and not much is expected after a very weak August, where Auto Sales really dragged us down with a 0.2% drop and there was nothing sexy about the other items either. Still, one thing people fail to grasp when looking at these charts is that the numbers are in MILLIONS, not thousands – so August 2011 was $389,502,000,000 in total sales and up $26Bn from last August. That’s a pretty healthy pace of $4.6Tn in just Retail and Food Services – what recession?
As you can see from David Fry’s chart, we probably need to work off some overbought conditions before we can have a proper rally. Also, in an early Alert to Members this morning, we looked over our updated Big Chart and determined it was very unlikely that we will hit the levels we need to go bullish into the weekend so we are already planning to short the Nasdaq into the morning pop to put us neutral into the weekend with a 15/15 allocation (short-term positions, of course). …
Just Another Manic Monday – Value Investing
by Phil - September 26th, 2011 8:27 am
Up, up and away!
As I mentioned in Friday’s morning’s post, we did a lot of bottom-fishing on Thursday as we began to develop Disaster fatigue with long plays on XLF at $11.50, shorting TLT at $123, shorting VXX at $49.50, TNA at $34.50, BRK.B at $65, AA at $10.20, VLO at $19, IMAX at $15.75, BA at $58.32, AGQ at $170, CHK at $27.50, DIS at $30.14 and ABX at $47.50. They were hedged, of course and, for the most part, you still had a nice chance to make those entries on Friday – but not so much this morning as the futures are up about 1.5% already (7:30).
Friday morning, in my Alert to Members, I reminded them that BCS looked like an excellent VALUE to me, no matter what the PRICE was ($8.75 after hitting $8.40 the day before) and this morning, that PRICE is up well over 10% in EU trading. Did the VALUE of BCS change materially over the weekend? Of course not, certainly not by the $4Bn their market cap gained – like the song, the VALUE remains the same – only the highly variable price of a share of BCS is undergoing ch-ch-changes…
I pointed out similar hedged, long-term plays could be made on GS ($94), MS ($13), BAC ($6) and C ($24). Of course we hedged them per our discussion in the morning post (TZA was our morning choice but we’re out over 650 on the RUT) but then we went long on EWG (Germany) again with the very aggressive Oct $16,18 bull call spread at $1.30, offset by the sale of the $17 puts for .90 for net .40 on the $2 spread. 10 of those in our virtual $25,000 Portfolio cost $400 and can return $2,000 in less than 30 days if EWG is over $18 and, guess what – they’re over $18 this morning!
Another bullish bet we placed was USO Nov $28/30 bull call spread at $1.30, selling the $27 puts for $1.10 for net .20 on the $2 spread with a 900% upside if USO simply doesn’t drop from where it is now. That’s what’s nice about options – you don’t need the market to go up to make money good money. On this trade idea, your worst-case scenario is owning USO at net $27.20, about 10% lower than it…
TGIF – Stop the Week, We Want to get Off!
by Phil - September 23rd, 2011 8:35 am
What a disaster!
Of course, that’s why we have Disaster Hedges, right? August 11th was the last time we did a "Hedging for Disaster" post which included a LONG trade idea on gold that’s done now (we’re short) after gaining over 300%. We’re a little mixed in our results on the other hedges but that means we can SWITCH HORSES – from the trades that have already worked to the ones that haven’t yet. That’s how we cash out our winners on a regular basis – it’s the pony express of investing. Our other Disaster Hedges from that post were:
- DXD Oct $23 calls at $2, selling Oct $27 calls for $1.15 and the Oct $19 puts for .70 for net .10. That spread is currently -.05 so down 150% so far and a nice horse to switch to, offering a .05 credit on the $4 spread.
- FAZ Oct $65 calls at $22, selling Oct $72 calls for $20 and selling JPM 2013 $20 puts for $2.05 was a net .05 credit as a backstop to our long financial plays. FAZ is now at $71.34 and the October FAZ spread is now $3.70 but the JPM puts are now $3 so net .70 is only up 1,500% so far. Should the financials stay low, we get the full $7 from the spread and we’re obligated to buy JPM for $20 (now $29.27) in 2013.
- SDS Sept $26 calls at $3.20, selling Sept $32 calls for $1.65 and selling VLO Jan $15 puts for $1.20 for net .35. SDS is only at $25.73 so far (not a disaster yet) and the spread is now net $1.25 and the short VLO puts are .17 so net $1.08 on this one is up 208% and we’re not even at goal – that’s pretty good! Note the spread is LOWER than when we started so this can also be used as a fresh horse with a different offset, like X Jan $15 puts for $1.20 for a net .05 trade.
- TBT was stopped out with a small loss at $24 (fortunately). My comment at the time, with TBT at $24.88 was: "Keep in mind though, that the Fed has said rates will stay low through 2013 so it would be wise to uses stops on the puts, at least, if TBT fails to hold $24!"
- EDZ
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Which Way Wednesday – Fed Edition
by Phil - September 21st, 2011 8:28 am
Strap in folks, it’s going to be another wild ride!
As you can see from Doug Short’s S&P chart,we are about to slam right into that collapsing 50-day moving average, now at 1,223.40 – right about where the S&P topped out on yesterday’s morning spike. Unfortunately, the Nasdaq topped out and headed down before the other indexes got a chance to complete their up cycle and the Dollar rose back over the 77.50 line and tanked the market – exactly as we predicted it would at the bottom of yesterday morning’s post.
Of course, I can’t MAKE these things happen – I can only tell you what’s going to happen and give you trade ideas to help you profit from it. I mentioned that we had picked up 10 DIA 9/30 $115.75 calls in our virtual $25,000 Portfolio at $1.05 on Monday and they topped out at $1.75 (up 66%) but we took a non-greedy exit at $1.45 in the morning spike (up 33%) and we switched to 20 QQQ 9/30 $57 calls at .45 in the afternoon sell-off. So, we made $350 off a $1,050 investment and then we spend $900 but now we have 20 contracts instead of 10 but we also have $450 in cash so now risking just $600 of our original investment on the much more volatile Fed day.
Another trade idea we like ahead of the Fed that’s still playable is 20 FAS weekly $13/14 bull call spreads at .38 ($760), selling 10 JPM Oct $28 put for .55 ($550) for net $210 invested on the 20 $1 spreads. The worst-case on this spread is owning JPM for net $28.10, which is 13% off the current price and the best case is a $1,790 profit (852%) in a week. That sounds like a lot but options let you do funny things like at 11:30 in Member Chat, we saw PCLN making new highs against news that we thought was not actually that good for them on closer examination. Our trade idea to take advantage of that was:
If you want to play PCLN bearish – it’s very risky but the weekly $565/555 bear put spread is $6 and you can sell the $565 calls for $4.70 for net $1.30 on the $10 spread. Oct $620s are $4.10 so your bet is
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(