Try and Try Again Tuesday – 3 More Trade Ideas That Make 300% if the Market Pops
by phil - August 21st, 2012 6:58 am
Here we go again (again)!
Yep, that's what I said last Tuesday and the Tuesday before that because Tuesday is a day they push the Futures higher and ditch the Dollar and tell you that this time it's different because of the same rumors they had the Tuesday before only this week – the data is getting worse and worse, as we know is better, right?
Last Tuesday we set levels to capitulate and go fully bullish at Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and, as of yesterday's close we had the Nasdaq and the Russell over their marks needing just one confirmation to make it 3 of 5 and begin to flip our short-term portfolios (the $25KPs) bullish. We are soooo close but, so far – no cigar.
While we waited, we looked at some upside hedges that would do well if the market continued higher. Just as we get downside protection when we're bullish – we use upside protection when we're bearish and I suggested taking 5% or 10% positions in aggressive upside plays to help balance a bearish portfolio against – well against exactly what happened in the past 7 days. Our trade ideas were:
- 2 FAS Oct $105/115 bull call spread at $2, selling 1 BBY 2014 $18 puts for $3.25 for net .75, now $1.15 – up 53%
- 2014 SHLD $32.50 puts sold for $7.50, now $6.40 – up 15%
- 6 EWJ Jan $9 calls at .53, selling 1 BBY 2014 $18 put at $3.25 for a net .07 credit, still net .07 credit – even
- TNA Oct $55/61 bull call spread at $2.50, selling Oct $42 puts for $1.90 for net .60, now $1.80 – up 200%
The BBY puts jumped over 20% yesterday, from below $3 to $3.75 and that killed two of our trades (and worse today after earnings!), that were up significantly in Friday's update (which is why we take quick gains like that off the table). The good news is the EWJ play gives us a nice, new entry at the same net price so that one is still good and, of course, we are done with TNA after making 200% in a week and we'll find a fresh horse for that money.
Speaking of fresh horses – for our offsetting short puts today – let's take…
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More Monday Morning Foolishness – Playing a Rigged Game
by phil - August 13th, 2012 8:29 am
Think Mcfly, THINK!
Forget the rhetoric, forget what Cramer says – or any of the other idiots on what used to be accurately called "the idiot box." Just look at this one, simple chart (thanks Doug Short) and tell me – why on earth would the Fed step in and take emergency action when the market is at a multi-year high?
Have they EVER done this before? EVER? Has ANY Central Bank EVER taken emergency liquidity measures when their stock market was at or near their all-time highs? And look at the interest rates (the red line) – there's nowhere to go folks – not unless the Fed is going to start PAYING US to borrow money. In which case – sign me up for $10Bn…
This is the point that was made this week on the cover of Stock World Weekly, and my comments in "The Week Ahead" section were:
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Monday Market Movement – More Mario Momentum?
by phil - July 30th, 2012 7:58 am
So, where's our stimulus?
Like good little Pavlovian dogs, we ran back into the markets last week when Mario Draghi rang the stimulus bill – increasing the $60Tn global markets by 5% – that's $3Tn of valuation added in 48 hours on the say-so of a former GS executive that has been put in charge of the European Central bank. What could possibly go wrong with this scenario?
If we can't trust the Investment Bankers who are taking over our Government, who can we trust? So we'll assume that everything WILL be fixed this week and that the ECB, Fed, PBOC, BOE, BOJ and all the little Central Banksters will be pumping enough money into the system to justify a $3,000,000,000,000 increase in Global Equity prices – even though that means, at an average p/e of 15, that all this expected stimulus somehow drops an additional $200Bn to the bottom line of Big Business to justify the bump in valuation.
How many Dollars, Yen, Euros and Yuan do we have to give to Corporations to turn into $200Bn? Well, if it's AMZN – the answer is $15Tn because it takes $50Bn in sales for AMZN to make $600M so figure 75x in sales to make 1x in earnings. Why use AMZN? Well because AMZN is almost 5% of the Nasdaq and it was their amazing run last week, on what rational people would consider poor earnings, that reversed the downtrend initiates by AAPL's (who are 15% of the Nasdaq) miss.
I guess it's obvious why we're short AMZN (see Dave Fry's chart) but let's look at AAPL now, who are quite a bit more efficient at dropping Dollars to the bottom line. Last year, AAPL took in $108Bn and made a profit of $26Bn – now THAT'S a good company! So let's pretend that all companies are as good as AAPL and nowhere near as bad as AMZN at converting sales to profits.
Now to get that additional $200Bn in Corporate Profits we only need about $800Bn in stimulus – assuming, of course, that money actually went to people who would spend it and not to Banksters who are still trying to back-fill multi-Trillion Dollar holes in their mark-to-fantasy balance sheets. $800Bn is a doable number so let's pretend it is enough to justify a 5% bump in the market and now we know…
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Technical Tuesday – Red is Dead
by phil - June 26th, 2012 8:45 am
OK, now we are pushing it.
Our danger zone is the bottom of the top of those "V" patterns that we formed in the early June dip. Those lines must hold and they are roughly Dow 12,400, S&P 1,310, Nas 2,800, NYSE 7,450 and Russell 750 – all are holding so far but we really can't afford another red day here if we want to stay bullish.
Although we reminded Members to watch our primary hedges (TZA and EDZ spreads) in the Morning Alert - both of them have bullish offsets (short BTU and USO puts) that will zero out the trade if the market recovers – so we do remain generally bullish as long as our levels hold (and we can stop out our short puts and go more bearish if our levels fail).
Our other trades for the day were still bullish pokes from our very cashy positions – still hoping for the EU to lead us to the promised land – or at least give us a fix that gets us high for another day or two. That's all we need man, just a fix, come on Angela – do us a solid!
We added more CHK longs as they tested $17 again – that is one fun stock to trade if you have good range discipline! TLT got high again so we went short on them in both of our $25,000 Portfolios and we reiterated Friday's AAPL play (see Stock World Weekly) and we went long on oil Futures at $78.50 for a lunch-time trade and got a quick .75 gain ($750 per contract) along with the Dow at 12,400, which gave us a quick 50 points but "just" $5 per penny per contract ($250) for that one.
For the Futures-challenged, we added 20 USO July $29/30 bull call spreads at .52 to both our Aggressive and Regular $25,000 Portfolios and USO promptly shot up to $29.80, which is just lovely as we seek to turn $1,040 into $2,000 in 24 days with no margin required on the straight bull call spread. FAS was also too tempting to turn down and we went with a more aggressive spread there and that's using margin to get a 500% return in 24 days if all goes well.
So still bullish with what little cash we have…
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Flip-Flopping Thursday – $267Bn from the Fed Not Enough!
by phil - June 21st, 2012 8:18 am
And we're out!
It might be a little early because we did get another $267Bn from the Fed yesterday but that plus $125Bn given to Spain and $100Bn to the IMF this month is "just" $492Bn and that, according to our calculations, should be good for 1,350 on the S&P, tops. If they want to get to 1,400 – they'll need another $500Bn from Europe and, while it is widely expected to come – the Fed came up short and if the EU comes up short as well, we could be talking flash crash so we took advantage of the pre-Fed run-up (as planned in yesterday's post) to get back to cash.
My morning Alert to Members was short and sweet:
Good morning!
I don't know if you guys usually click on my little links but this one was the most important of the day – Don't be white people – GET OUT!!!!
This one was so important that I tweeted it (you can follow me here) and Facebooked it (you can follow us here) and I even put it out on Seeking Alpha's Stock Talks (you can follow me here) so don't say I didn't warn you. Sure the market may go up as funds dress windows into the end of the Quarter/Half next week but we caught the run off the bottom this month so why push it when the upside looks limited and the downside does not?
Other than 2014 spreads in our new Income Portfolio – all of our virtual portfolios went to cash rather than risking very nice first half gains. As of yesterday morning they were:
Much thanks to StJ for keeping these tracking portfolios – all back to cash now and hopefully we can match that performance in the second half of the year although I think we're going to ditch the very boring $5,000 Portfolio in favor of a $25,000 Portfolio…
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Wild Wednesday – $500Bn or Bust!
by phil - June 20th, 2012 8:07 am
Dude, where's my bailout?
The tentative deal at the G20 summit to mobilize the EU's rescue machinery to douse the raging fire in Spain and Italy comes in the nick of time, but is fraught with fresh dangers. According to Ambrose Pritchard:
Monday's explosive rise in Spanish two-year bond yields was a warning that Spain's crisis would spiral out of control within days, taking Italy with it. Yet the deal explored over ceviche and mango at Los Cabos in Mexico remains murky. Any plan will backfire horribly unless conducted in the right way, and with overwhelming force.
From what we know, the eurozone's leaders aim to deploy the European Stability Mechanism (ESM) to cap borrowing costs for Spain and Italy by purchasing sovereign bonds on the open market. Unfortunately, the ESM fund does not yet exist. It has not been ratified by Germany and Italy. When it does come into being, it won't have much money. It has a theoretical limit of €500bn — a nice wish — but its paid up capital will start at just €22bn.
Britain's George Osborne cautioned against exuberance. "One thing we have learnt is: don't expect a single summit to solve the eurozone's problems, otherwise you are going to be disappointed. The eurozone is inching towards solutions."
David Owen from Jefferies Fixed Income said the Franco-German plan will fail unless EU leaders give the ESM a banking licence to borrow from the European Central Bank. "This is not going work unless they let the fund gear up and draw on the full firepower of the ECB," said. Such a move that has been blocked until now by Germany.
The ECB's chief Mario Draghi has in the past scoffed at the idea, saying it would be a back-door bailout of sovereign states and would violate the spirit — if not the letter — of the Lisbon Treaty. Mr Owen said the ECB is the "only institution with the credibility and balance sheet to reassure markets. It would be much simpler if the ECB carried out quantitative easing but that does not seem to be an option".
Lack of direct action by the G20 (in the G20 Communique, they essentially promise to do something, but no specifics) puts the ball back in Bernanke's court today (conference at 2:15, after Fed Statement) and then we have an EU meeting…
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Technical Tuesday – 50 DMAs Will Grade Us Pass or FAIL!
by phil - June 19th, 2012 8:28 am
BIG day today!
As you can see from the Big Chart, we are testing the 50 day moving averages on the Dow (12,746), S&P (1,347), Nasdaq (2,920), NYSE (7,756) and the Russell (781) IF all goes well and we move up from here. The Dow is already over and the S&P and Russell are close so we'll be watching them closely this morning to see if we should stay bullish or cash out our winners while we wait for some actual bullish news – because the rumors that are driving us higher so far are running out of steam.
The G20 meeting drags on in day 2 and we await their announcement. China dropped $43Bn into the IMF last night and India, Russia, Brazil and Mexico will also commit $10Bn EACH for another $40Bn and that brings the IMF's war chest up to $456Bn. Even Turkey put up $5Bn – we're talking about an all-out Global effort here so we expect A LOT more from the big guns.
Let's not dwell on what it means that Turkey has to bail out Europe and instead focus on Christine Lagarde's statement that the commitments demonstrate "the broad commitment of the membership to ensure the IMF has access to adequate resources to carry out its mandate in the interests of global financial stability." So now it's up to the G20 and that means it's up to Merkel today and Bernanke tomorrow.
Merkel faces mounting pressure to make even greater concessions, by putting Germany's financial muscle behind an integrated banking and borrowing system to keep the euro intact. The question is whether, after two years of muddling through, Europe's pre- eminent power can act quickly and decisively. "I think she will remain an incrementalist: we have not yet reached the point where it is obvious that we are hanging over the precipice," said Paul de Grauwe, a professor at the London School of Economics. "It looks again that what is going to come out is going to temporarily pacify markets until it is clear that it is not going to be sufficient."
For those of you who don't speak Economics – "not going to be sufficient" = DOOM!!!
All of our global indexes are on quite a tear in anticipation of more bailouts/QE from the G20 this week. If we don't get it – prepare for…
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Wednesday – Rumors of QE Gather Steam
by phil - June 6th, 2012 8:23 am
Wheeee – isn't this a fun ride?
I warned the bears on Friday that the drop was a bear trap and we told you Monday was "Time to Buy" as CNBC chased the last of the sheeple out of their bullish positions so all their fund buddies (and us) could scoop up shares at super-low prices. Yesterday we targeted 1,284 on the S&P and we were off by a point as it rose to 1,285 at the end of the day – can't win them all, I guess…
In Friday's post I mentioned that the ABX 2014 $30/45 bull call spread at $6.60, selling the 2014 $30 puts for $3.40 for net $3.20 that we had picked up on 5/3 was only at $3.40 and still made a nice entry – ABX has been having a lovely week and popped from $39 to $42 and the spread is now $4.70 – up a lovely 38% in three days but should be well on the way to $45 today and the max gain on that spread is cashing the spread at the full $15 and a $11.80 profit for a 368% gain on cash so being up 38% in 3 days is what we call at PSW being "on track."
The other two trade ideas I singled out as still liking from Friday's post were both CHK plays and the 3 CHK 2014 $25/35 bull call spreads, selling a single 2014 $18 put netted out at a $1.20 credit on Friday morning but did even better as an entry on Friday as CHK fell all the way back to $15.60. Yesterday they were back to $17 (on the way to $18, I imagine) and the spread is already netting another $1.95 for a very quick 262% gain on cash, which is why we love those!
I called for a short on TLT in the $130s and they topped out right at $130.36 at Friday's close, tested it again on Monday and fell back to $127.60 yesterday while our long point on XLF was $13.50 and, so far, not much excitement there. Those were just the trade ideas from the morning post, of course – our real fun came in Member Chat where our aggressive bullish trade ideas during the panic Friday and Monday were:
- TQQQ July $43/47 bull call spread at $2, selling BA
…
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Friday Fake Out – The Bear Trap is Sprung!
by phil - June 1st, 2012 8:26 am
Oh you people are such suckers!
You panic out of positions at rock bottom prices and you'll sit there like a deer in the headlights when we bounce back until we're already too high again and then you'll chase the top – only becoming fully invested after we've already exited. Don't blame me – I try to warn you, but no one listens to me.
This morning the markets are in full panic more and that's fine with us as not only are we still "Cashy and Cautious" but what did we tell you Wednesday morning? "TZA July $19/25 bull call spread at $1.50, selling $18 puts for $1.05 for net .45" along with EDZ at $17.23 and SQQQ at $51.80. SQQQ is at $53.79 (up 3.8%) and EDZ is $17.90 (up 3.9% and the TZA hedge is already at net .80, which is up 77% in just two days (so far) – now that's a hedge! When you have your hedges in place, THEN you can bottom fish with impunity and boy is the fishing good out there!
Today we get our Non-Farm Payroll numbers and there's a rumor out there that it's a big miss at 120,000 or lower. CNBC has been pretty much reporting it as a fact all morning and Europe is freaking out for that and many other reasons so I had occasion to look back at last month's NFP report, where we predicted it would be a miss with the the title: "The Blow Jobs Deal to the Market Could be Huge." That was 10% ago on our indexes are back to testing last week's lows, where we began to get bullish with our Twice in a Lifetime List of stocks that are back at their 2009 panic lows which we still like enough to sell puts in (giving us an additional 15-20% discount on initial entry).
That post capped off a week of bearish picks as we followed through with our plan to cash out into the April rally – it's those bearish profits we're now GAMBLING with as we bottom fish but, as noted above – we're hedging our bullish bets because there's no limit to how badly investors can freak out in the stock market – CASH remains KING!
A quick review of the week leading up to the last NFP report is a nice view of…
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Friday Failure – Weak Bounce Levels Turn Into Resistance
by phil - May 25th, 2012 8:30 am
Resistance is, unfortunately, not futile for our indices.
On Monday we discussed our expectations for a 2% weak bounce for the week, which would be a 20% retrace of the 10% drop I had predicted we'd have way back (and a bit early) in March. That constitutes a WEAK bounce and not a rally and they almost fooled us on Monday by taking back most of that 2% on day one but, since then – it's been pathetic and we've essentially done nothing the rest of the week.
The levels we were looking for were laid out in Monday's Member Chat and in Tuesday morning's post and were:
- Dow – 12,750 (12,540 is 20% retrace/weak bounce), now 12,529 – off by 11
- S&P – 1,343 (1,319), now 1,320 – off by 1
- Nas – 2,900 (2,840) , now 2,839 – off by 1
- NYSE – 7,720 (7,560), now 7,552 – off by 8
- RUT – 780, (765), now 766
…
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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
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