Which Way Wednesday – Probably Both Ways, Again
by phil - November 14th, 2012 8:31 am
What was that mess yesterday?
As you can see from David Fry's SPY chart, we went up and finished down but the volume was a bit lower to the upside than the sell-off into the close. MSFT and INTC led us to the downside – no surprise really as we discussed both this weekend as Dow components to avoid in the current cycle.
There was no significant economic data, just the usual nonsense about Greece and, of course, the drumbeat of fear regarding the US fiscal cliff that the MSM is banging 24/7. "What's up with that fiscal cliff" is now how 90% of my conversations begin with anyone who knows what I do for a living.
I now find that it's easier to say "Oh, we're all totally doomed" than to explain why we're not because when, for example, I say this to one of my Mother's friends – they nod wisely and agree with me while, if I try to explain why they shouldn't worry so much – they get all confused and then say to my Mom – "I thought he was supposed to understand the stock market."
I guess I should have tried this with my children. Rather than sitting up for 15 minutes or so explaining why there are not monsters under their bed – I could have just agreed with them and said "Yep, big hungry ones!" Maybe they'd never sleep again but at least I'd sound knowledgeable about monsters and the imminent dangers they posed to sleeping children.
Stocks are now at 3-month lows and it's been a month since we strung together 2 up days in a row (Oct 15-17) with the S&P falling from 1,470 on Oct 5th to yesterday's low of 1,371 fir a 99-point drop in 25 trading sessions (6.8%) – losing an average of 4 S&P points a day with 1,360 being our Must Hold line on the Big Chart. The S&P and the NYSE are both, so far, holding their lines (NYSE is 8,000) and they are our broadest indexes but we're pretty close to having to layer our disaster hedges as we cross those -7.5% lines.
The S&P was at 1,440 when we put up our latest round of disaster hedges on the 20th of October. Before that, we had just been using TZA as our primary hedge –…
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Which Way Wednesday – Hurts So Good!
by phil - May 16th, 2012 8:27 am
Finally – news so bad it's GOOD!
Commercial Real Estate is down 14% in China so far this year with Residential right behind, down 13.5% – all on 11.8% fewer sales than last year. Foreign investment in Chinese properties has dropped 42.9% year to date. China's main banks are not lending any money – due to lack of demand, not supply and 45% of Chinese companies predict a slowdown this year and next. Brazil is right behind China with their own real estate market collapsing and the IMF is racing over to Australia to assess the damage done to their banks by the bursting property bubble and EU property values are also off 20% from their 2007 peaks – even in London and Frankfurt – which were supposed to be "immune" from this nonsense.
Good – let's get it all out in the open finally!
Italian Banks are in turmoil and their Government is considering using troops to protect the Banksters after one was shot last week. There is a run on the Greek Banks with almost $900M withdrawn this month and virtually no liquidity should people want more. Meanwhile, The Institute of International Finance has estimated that the global cost of a Greek exit could hit $1,300,000,000,000. When Argentina defaulted in 2001, foreign debtors lost around 70% of their investments. Is $1.3Tn finally a number that matters?
That's right folks, the Global situation is a complete and utter disaster – which is why we went long on the Russell Futures (/TF) at 775 and Oil Futures (/CL) at $92.50 in Member Chat this morning. Where the Hell else are you going to put your money if not in US Equities? That was my conclusion at 11:54 in yesterday's Chat, when I said to Members:
Nice pop off the EU close – still seems like people are abandoning the sinking ship of state over there and money has nowhere to go but US equities (but TBills and Dollars are getting some love too). With gold, silver, oil and copper all looking weak – where the hell are people supposed to put money?
We noted that there were 16 stocks that were hitting their 2009 panic lows which we were very comfortable moving into in what we're calling our…
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Monday Market Meltdown – Global Wheeee Edition
by phil - April 23rd, 2012 8:08 am
Now THIS looks a little more realistic, doesn't it?
Last Monday we pointed out that the run-up, that was coming DESPITE a myriad of Fundamental negatives we were tracking, was essentially a load of crap aimed at bringing in more suckers before they pull the rug out from under the market. To keep ourselves from getting sucked in by the hype, we drew some very simple lines across our mult-chart which were 50% retacements of the month's dip. Not making those lines during last week's actions kept us from making poor decisions as the market hype continued all week. My warning was:
"How many times will the bulls be sucked in by the same empty promises? How many times will they reach into their pockets and BUYBUYBUY the snake oil valuations sold by the Reverend James Cramer?"
Tuesday I got a lot of sheeple angry by calling them sheeple for falling for Cramer and the rest of the Mainstream Media hype and we discussed a few of our hedges that were working already, like TZA, TLT and SQQQ as well as two that were still playable: CAT May $95 puts at $1.10 – up just 15% from our initial entry and DXD May $12 calls at $1.35, up just 12% from when our Members got the Trade Idea. Despite the market moving up, I reiterated my sell-off targets of Russell 775 and S&P 1,325.
Wednesday we tried to find reasons to be bullish, presenting both sides but judgment was once again for the bears after weighing the evidence as I pointed out that the lack of economic improvement for the bottom 90% could not be ignored – something Nick Sarkozy just discovered this weekend. In the morning post, I mentioned going back to the well and shorting oil again as it dared to reach for $104.50 again – another lovely pay-off last week and we caught it again this morning at $103.50 (/CL Futures) for a quick $500 per contract – so far.
Thursday we were having great fun and we had a bullish spread on CHK at $17.20 that may still be playable this week as the market dips again. We discussed our goal of re-shorting PCLN (back in the July $560 puts at $8.50) and we added a nice CMG spread in the morning post, selling the May $475 calls for…
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Tempting Tuesday – Baa, Baa to the Sheeple!
by phil - April 17th, 2012 8:27 am
Wheeeee, what a ride!
As you can see from David Fry's chart of the SPY, we're all over the place but, notably, there's a method to the market's madness as high-volume selling is followed by low-volume buying – allowing the funds to dump out onto the retail bagholders at top dollar while the carnival barkers in the MSM tell the sheeple to buy those f'ing dips.
Cramer said, in last night's show, that the Dow is composed of big international companies that were finally able to break free from concerns over Europe’s debt crisis. For the entire month of April, these stocks were held hostage to the Europe’s debt troubles. Cramer said most of these companies have no real ties to Europe, though, so the fears are overblown.
We ended up with what amounted to a frontsie-backsie day where all of the last month's winners, stocks that were unaffected by the weak euro and the miserable European stock markets, got pummeled, while the losers that had become risk free shorts because of an expected European decline were actually able to rally.
What a moron! Seriously – "frontsie-backsie"??? I guess he needs to treat his audience like they are 2 because bigger kids might realize that telling investors to ignore Europe would be just as idiotic as an Asian or European carnival barker telling the rubes over there to ignore America when making investment decisions. Is it really possible, in this day and age, that people still believe America is immune to what is happening in the rest of the World?
Look at the downtrend in the Global Commodities Index – do you think you are immune from that? I guess, to some extent we are, because CNBC's sponsors continue to use any excuse to pump up the PRICE of commodities, no matter how much DEMAND falls off (see yesterday's chart on gasoline volume consumption).
As Fundamental investors, we can often be a bit ahead of the curve but we find the market usually catches up to reality at some point. Cramer and his ilk know they can fool all of the people some of the time and some of the people all of the time (known as their "core audience") but even the mighty Corporate Media can't fool all of the people all of the time.
Almost a month…
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Wednesday Wheeee – No More QE For You!
by phil - April 4th, 2012 8:38 am
I hate to say I told you so but…
Oh, who are we kidding? I could not be happier saying I told you so and neither could our Members as our "Sell in March and Go Away" strategy seems to have hit the nail on the head – and it's only April 4th!
Back then (2/24), we were still bullish but the plan was to let the rally run its course and cash out ahead of earnings and our plays from that Wednesday (2/22) which I posted right in the morning post for all to see, have performed very well, of course.
We had April SQQQ and DXD hedges that failed, of course, but those were paid for by the short sale of AAPL 2014 $300 puts for $15, which are already $10.75, so up 28% already on those pays for a lot of protection.
Another offset we had looked at was the short sale of FDX April $80 puts at $1.10, which expired worthless (up 100%). We also looked at longer-term put sales on SKX, with the Oct $12 puts fetching $1.55 per contract, now $1.25 (up 19%), and the T 2014 $25 puts at $2.15, now $1.75 (up 18%).
Along the same vein, the XOM 2014 $65 puts at $5, now $4.05 (up 19%) were sold to pay for the SU 2014 $25/37 bull call spread for $6 for net $1 on the spread. The bull call spread is still $6 but that's net $1.95 now – up 95% on the combo. Our other bullish play on oil was the USO June $40/46 bull call spread at $2, selling he SCO Oct $26 puts for $3 for a net $1 credit. The USO spread has fallen to $1.40 but the short SCO puts dropped to $1.65 a net gain of .75 – up a quick 75% on a fairly neutral oil play, which was BRILLIANT as it covered many, many of our aggressive oil shorts over the month that went VERY well.
Our other trade ideas from the morning post (and the logic and strategies are detailed in the post):
- AA 2014 $10 puts sold for $2, still $2 – even
- X at $28.49, selling Jan $25 calls for $8.50 and 2014 $20 puts for $2.95 for net $17.04/18.52
…
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Free-Fall Friday – Are There Any Dips Left to Buy?
by phil - March 23rd, 2012 8:28 am
Down?
No one told us markets could go down? This is an outrage, I demand an investigation – TURN THOSE MACHINES BACK ON!!!
Has it already been a week since I said "Stop the Rally, We Want to Get Off"? As I noted in that post, we began our list of 12 Long Put Plays for Members on Thursday of last week (near the end of what I called "A Weak Week of Denial") and some have already doubled while others, like PCLN, have gotten even cheaper, which only makes us love them more…
I concluded that this rally was fake, Fake, FAKE and gave my reasons on Friday so no point in going over them again – now we're just watching and waiting to see what sticks as we haven't actually done a lot of technical damage (see Dave Fry's chart) – Yet!
Although we were TRYING to get bullish on Monday, we did so only after setting more aggressive targets in our Weekend Review of the 5% Rule (see post for details and levels) and by 10:09 on Monday, our first trade idea in chat was the very bearish TZA spread that I featured again in Tuesday's post, which was the April $17/18 bull call spread at .42, selling the April $17 puts for $1 for a .58 credit. TZA finished at $18.39 yesterday and the spread is now .54 but the short puts are down to .65 for a net gain of .47, which is 81% in 3 days and a good way to offset the 2.3% drop in the Russell – isn't leverage fun?
What was not fun is what happened to people who trusted Credit Suisse to run an honest game with their TVIX instrument. As noted by ETF Digest's David Gillie, an ETN is an unsecured, unsubordinated debt security with significant basis on the credit rating of the issuer. Although ETNs may be named to indicate tracking certain futures markets or indices, due to the fact that their holdings are credit notes rather than tangible assets, such as ETFs, their price becomes largely supply and demand based rather than based on underlying holdings. As Kid Dynamite points out – it does say right in the TVIX prospectus:
“The long term expected value of your ETNs is
…
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TGIF – Stop the Rally We Want to Get Off!
by phil - March 16th, 2012 8:26 am
I have never hated an up market more.
Even on October 1st, 2008, when I wrote "Hedging for Disaster," where we added 3 ultra short ETFs at Dow 10,650 (SKF Jan $100s at $19, DXD April $55s at $14.20 and SDS March $77s at $9.95) we still had some hope that the Congressional bailout would stabilize the markets, although my comment at the end of that post is just as relevant today as it was at that market top:
Congress many think Paulson and Bernanke and Warren Buffett are kidding when they say we are about to go over an economic cliff but I think there is certainly enough evidence to merit serious concern. In part, we have a crisis of confidence and – even if it were true that we could "muddle through" without a bailout, if just 1/3 of the investors believe that we can’t and pull out of the markets, what good will it do the remaining optimists?
You know how that story ends, of course – the stimulated "recovery" was very short-lived and we went right back off that cliff, dropping 2,000 points that week and another 2,000 by March 9th the next year. Our hedges worked out nicely, of course, with SKF topping out at $1,200 on Nov 21st (up 5,600%), DXD was at $110 on October 10th for a nice $40.80 profit in 9 days (287%) and SDS ran to $130 on the same day and returned 430%.
The other day, I published a list of 12 Long Put Plays for Members (see yesterday's Alert), which I worked at in the morning, after I put up my 10 Bullish Ideas in the morning post. Why? Because, after watching the open and reading the news, I could only conclude that this rally is still fake, Fake, FAKE! Back in October '08, we were already 25% off our 2007 highs where I used to make fun of the market going up every day, like on October 2nd of that year, when I said:
Up, up and away – it’s Super Market!
…
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Whipsaw Wednesday – Dip Buying or Just Dips Buying?
by phil - March 7th, 2012 7:52 am
Was that it?
On February 24th I wrote "TGIF – Sell in March and Go Away?" and I laid out my case for why I thought we were going to fall off the table in March and we have, indeed, fallen right off the table right on schedule since then. I said that Friday, that the post was intended as a bookend to my September 30th bottom call as I felt that we had captured all of the upside we were likely to see off the "good news" that Greece was "fixed" and the economy was "improving."
I'm not going to say anything bad about the economy here, I'll let Michael Snyder do that with his "15 Potentially MASSIVE Threats to the US Economy over the next 12 Months" – I think he pretty much covers it! 8 trading days ago (2/24), we had two short trade ideas in our Morning Alert to Members, they were:
- SQQQ April $13/17 bull call spread at .70, still .70 (even)
- DXD April $13/15 bull call spread at net .55, now .70 – up 27%
In Member Chat that day, Exec asked if I was getting bearish and my response was:
Bearish/Exec – Are you kidding, this is me painting a sunny picture! Give me a few drinks and I'll tell you how off the rails the Global Economy is right now… Do you know how much Kool Aid I have to consume not to scream short on every single stock I see. CAT $116, CMG $386, DIA $130, GMCR we already did at $70, IBM $200, KO $70, MA $415, MCD $100, MMM $88, MO $30, MON $80, MOS $59, OIH $45, PCLN $593 (did them too), QQQ $64, SPY $137, TM $85, USO $41.50 (got 'em), UTX $84, V $117, WYNN $119, XOM $87, XRT $59 (got 'em) – and that's just off my watch list of stock I like to buy when they're cheap! We are not just priced for perfection, we are priced for perfection plus a return to full employment a forgiveness of all debts without write-downs and inflation without rising interest – we are priced for Nirvana!
It's a big list but, of course, they are pretty much all winners now, with PCLN the notable exception (so far). Later that day, during Member Chat, we…
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Fake News Friday – What A Fool Believes
by phil - March 2nd, 2012 8:18 am
Oil shot up to $110.55 yesterday.
The news was that a pipeline in Saudi Arabia had been attacked and oil had been running up all day into this "news," which, funnily enough, turned out to be fake. We caught the news at 3:05 in Member Chat (thanks Kustomz) and we had been waiting for oil to stop going up so we could short it. The turn came at the $110.50 in the Futures (/CL) and we caught a nice run down to $109 and I reiterated, at 3:36, with oil still at $109.88 my love for the USO April $40 puts, which were $1.08 at the time and finished the day at $1.15.
As Malsg pointed out in Member Chat: "The pictures of the fire are taken in daylight … but Saudi sunset was several hours ago … the oil market only stared going nuts after the close." A very good observation that gave us the resolve to stay short on oil – which is working out fantastically this morning as well.
We also grabbed an aggressive short spread on BNO, as it seemed the whole day's run had been BS, with traders in the know stocking up ahead of the fake news so they could unload barrels into the retail suckers who bought into the spike. Don't worry though – no one who bought oil up from $105 on Thursday to $109 ahead of the news will be arrested or even questioned – we'll just keep pretending the total farce of oil trading is a legitimate pricing mechanism, even though it costs people around the world hundreds of Billions of Dollars each year in excess charges (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark").
Now, this is the part where I would usually point out how the economy is weaker than we think etc. but I'm not going to do that this morning because the S&P still over 1,360 and, if a stronger Dollar isn't going to stop this rally – nothing will. Even yesterday, I joked to Members that I wasn't going to highlight negative news items in red anymore as there was no such thing as bad news in this market.
As you can see from David Fry's SPY chart, we''re back testing the bottom of that channel today and, if we don't break down here, then we can…
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No Worries Wednesday – Top Ten Plays for the Bull Market
by phil - February 22nd, 2012 6:27 am
We're still waiting for a clear signal.
The S&P is finally over our 1,359 level but, so far, has not stayed over that line for a full session and we need two sessions over the line to confirm it. However, I did promise not to be bearish if we're over 1,360 and I think I got it all out of my system in the last few posts, as well as last night and this morning's Member Chat, where I outlined my case for for the oil glut and the collapse of the EU, which will lead to the collapse of Asia and the US – but not today.
Today there is a ton of money sloshing around in the system and we are clearly in a massive technical rally, which may (or may not) end at any moment. We discussed our February trade ideas from our morning posts on Monday's morning so I won't rehash them here but I do want to take a look at ways to leverage some trades to take full advantage of this non-stop rally as we have VERY CLEAR stop lines (our 10% lines) where we'll have a clear signal to get out or cover if ANY of the major indexes fail.
As with our early February trade ideas, we can add one more bullish trade each day that we're over the line and cash out the older trades that go well in the money and, of course, accumulate some Disaster Hedges (20-30% of your unrealized profits into protective hedges is a good rule of thumb as well as the cheapest form of protection – STOPS!).
My favorite disaster hedges are playing for a correction in the Dow or the Nasdaq which, if you are a Dow Theorist, would seem very likely based on the chart on the left but, so far, nothing matters to the bulls – who have their story and they are sticking to it – regardless of those pesky facts. Sorry, that's a bit bearish (bad habit). Anyway, my favorite disaster hedges are:
SQQQ April $13/17 bull call spread for .70. This trade has a 471% upside potential by itself if SQQQ (currently $13.14) gains 30% by April expiration (58 days). That's a lot but SQQQ is a 3x ultra-short to the Nasdaq so a 10% drop in the Nas, back to 2,650…
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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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