Wednesday Worries – Yentervention, Euro Style
by Phil - February 8th, 2012 5:16 am
78.50 on the Dollar!
The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.
This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually."
Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control. Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%? Who takes that $750Bn hit? What if rates go up to 2% – what's the value of the bonds then? Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets? Do Japanese spreadsheets even have room for Quadrillions? They are going to need it!
Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff). China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year. The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.
So, how is it that WE are the bad currency here? If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?). I suppose no one can ever recognize losses and just carry more and more junk…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggFriday Follies – No Jobs but Hey, Look at Facebook!
by Phil - February 3rd, 2012 8:19 am
Distractions.
That's all we have lately. Greece's silly $171Bn loan is meant to distract us from Europe's $17Tn debt hole and the US continues to borrow $171Bn PER MONTH to cover it's deficit and we don't even talk about Japan as the debt climbs over 220% of their rapidly declining GDP and who knows what's going on in China but, generally, when you have double-digit declines in home prices on a monthly basis – there's going to be a problem down the road.
This may be my last bearish post before drinking the technical Kool-Aid this weekend and we've already selected 5 trades for our Members that will make 200-500% if the market keeps moving forward and there are still plenty of stocks we can make a lovely Buy List out of if this rally has legs – especially the way we like to bet, since our hedges allow us to make very nice returns, as long as we simply hold our current levels.
There's the rub though – are the current levels sustainable? The nice thing about consolidations like the one we've been having this year is that they firm up a floor and give us a very obvious exit point on the way down so we can move some of that sideline cash into play – as long as we hold 12,500 on the Dow and 1,300 on the S&P and 2,800 on the Nasdaq – pretty simple strategy, right?
Notice the 2nd row has our major indices priced in Euros and our third priced in Yen. My main issue has been that we've been much weaker than it seemed as the Dollar's relentless decline masked a downturn in the inflation-adjusted price of our stocks (and the weak Dollar also serves to inflate revenues reported by multinational companies) but, at the moment, we're at our breakout levels by any measure so we may as well go with the flow until we see a proper reversal.
First we need to get past our NFP report at 8:30 of course. I'm expecting a miss but will the market even care or will that just mean Uncle Ben has an excuse to pump up the QE according to their new "formula"?
Keep in mind that what Bernanke said last week regarding the Fed's system for determining policy boils down to – As long…
Free Money Thursday – Quoth Bernanke “Forever More”
by Phil - January 26th, 2012 8:25 am
But where's my Trillion Dollars?
Federal Reserve officials said they expect to keep short-term interest rates near zero for almost three more years and signaled they could restart a controversial bond-buying program in yet another campaign to rev up the disappointing economic recovery.
The Central Bank's pronouncements came after a two-day policy meeting from which officials emerged still frustrated at the slow pace of growth and a bit more confident that inflation is settling down after climbing last year. The combination of persistent slow growth and low inflation, Fed Chairman Ben Bernanke signaled in a news conference after the meeting, could give the Fed leeway to take more action to support the economy, though he didn't commit to it.
A bond-buying program—also meant to push down long-term interest rates—could be the next step. Mr. Bernanke said there would be a "very strong case" for even more action by the Fed "if the recovery continues to be modest and progress on unemployment very slow and inflation appears to be likely to be below target for a number of years out."
What amazes me is not one reporter at yesterday's news conference asked Dr. Bernanke what is COSTS to ARTIFICIALLY keep rates 3.75% below what his own board considers "normal" for another 3 – 4 years. Maybe that's because we don't know what it cost already, do we? We do know the Fed now has a $3Tn balance sheet. Since I don't recall a bake sale at which the Fed sold $3Tn worth of cookies, I have to imagine that money was borrowed from somewhere and don't things that are borrowed eventually need to be paid back?
I mean, I understand that, since Reagan, there has been a massive effort to destroy the American Education system and make the beautiful sheeple as dumb and compliant as possible (a less crazy article on the subject here) – but surely there must be some reporter who was accidentally exposed to some rudimentary economics who can come up with a better question than "when in 2014?"
Apparently, it is beyond the grasp of the MSM that, when the Government borrows money at 3% and lends money at 0.25% – SOMEONE has to pay that 2.75% difference. I don't know how to put this in the "new math" terms my kids are learning but, in old math, if I…
Tuesday – Topping Out or Just Pinning the Fed?
by Phil - January 24th, 2012 8:26 am
Tough call today.
The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.
You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).
Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders. Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.
An optimist would say – well, you can read almost any MSM site for that. It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts! The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat. The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95. Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you? For one thing – you have a very good stop line to watch!
As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross…
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…
Boeing Bears Bulk Up On Put Options Ahead Of Earnings
by Option Review - October 24th, 2011 1:33 pm
Today’s tickers: BA, AEO, BP & TOT
BA - The Boeing Co. – Weekly put options covering the commercial airline manufacturer are active ahead of Boeing’s third-quarter earnings report ahead of the opening bell on Wednesday. Shares in Boeing rallied earlier this morning, but have since turned negative to stand 0.20% lower on the session at $64.46 as of 11:25 am EDT. Put players may be picking up downside protection ahead of the earnings release should the report fail disappoint at mid-week. Traders purchased nearly 500 in-the-money puts at the Oct.’28 $65 strike for an average premium of $1.63 each, and picked up some 2,000 puts at the Oct.’28 $62.5 strike at an average premium of $0.78 apiece. Put volume at each strike is far exceeds open interest levels. Investors long the contracts may profit at expiration day if BA’s shares trade below the average breakeven prices of $63.37 and $61.72, respectively. Meanwhile, traders doubting the stock will tank on the earnings report, sold 2,196 puts at the Oct.’28 $57.5 strike to pocket premium of $0.11 per contract. Put sellers keep the premium received on the transaction as long as shares in The Boeing Company top $57.50 at expiration day this week. Traders short the puts could wind up having shares of the underlying put to them at expiration should the stock drop 10.8% from the current price of $64.46 to trade below the $57.50 strike price.
AEO - American Eagle Outfitters, Inc. – Call options on American Eagle Outfitters are on-trend with investors positioning for shares in the teen retailer to rally during the next four weeks to November expiration. American Eagle is scheduled to report third-quarter earnings ahead of the open on November 17. Shares in AEO are currently up 3.1% at $13.40 as of 11:10 am in New York. Call buying and put selling in the front month ensued within minutes of the morning bell. Investors expecting shares in the apparel and accessories retailer to increase snapped up roughly 1,800 calls at the Nov. $14 strike for an average premium of $0.46 each. Trading traffic in near-term calls was heaviest at the Nov. $15 strike, where more than 8,900 contracts changed hands against open interest of 4,829 positions. It looks like most of the Nov. $15 strike calls were purchased for an average premium of $0.22 apiece. Call buyers profit at expiration in the event that AEO’s shares surge 13.6% to…
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
…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(