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…
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DiggThrilling Thursday – Our “One Trade” Does Good!
by Phil - January 19th, 2012 8:12 am
One trade to rule them all!
That was our goal and our one precious trade for 2012 was BAC on January 5th, buying the stock at $5.75 and selling the 2013 $5 puts and calls for $2.55 for a net $3.20/4.10 entry (see "How to Buy a Stock for a 15-20% Discount" for more on this strategy). On Tuesday afternoon, I modified the entry live on TV at about 3:45, with BAC at $6.70 and you can see the immediate reaction the stock had on my pick into the close.
BAC was $6.49 on Tuesday afternoon at the start of my interview but the 2013 $5 puts and calls were $3.10 so the net was only $3.39/4.20 – not a huge change. BAC came through on earnings this morning and is up at $7.20 pre-market and we're well on our way to our 56% profit target, now with a 30% cushion.
It's no wonder that the TV crowd jumps on my picks as my last two appearances gave them a GNW spread on 10/24 for a 127% gain and an AXP spread from 10/5 for a 140% gain. BAC was, by comparison, a fairly conservative play and that's because, as you know if you've been reading this week – I'm not entirely convinced that this rally is sustainable – but I'm feeling much better about it now that we have BAC earnings out of the way!
This is a great time to thank my friendbuddypal Jim Cramer for chasing all his sheeple out of BAC this year with his SELLSELLSELL rating – without you and your half-assed opinions Jim, we'd have to work for a living! Why just yesterday, my trade idea for Members in the morning Alert was the FAS Feb $67/70 bull call spread at $2, selling the Feb $55 puts for $1.30 for net .70 on the $3 spread but last night – Jim didn't like my bullish Financials pick:
Financials were, in fact, one of my "Secret Santa's Inflation Hedges for 2011" that were published on Christmas Day, 2010 (and you can read that post for the logic behind each trade). All 4 of those trades are done tomorrow so let's see how they performed for the year:
- 30 XHB Jan $15/18 bull call spreads at $1.40 ($4,200), selling
…
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…
Thursday Foolishness – More of the Same with One Trade
by Phil - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
White Christmas Portfolio Wrap-Up
by Phil - December 24th, 2011 8:31 am
Merry Christamas!
I know it’s tacky to give cash but, as we closed our original, virtual $25,000 Portfolio early on October 20th and we were miles ahead of our $100,000 goal, we decided to do this bonus portfolio starting with a fresh virtual $15,000 set aside out of our $130,000 – risking 1/2 of the excess profits in an attempt to make 60% more ($10,000) in two months.
We started that Monday, the 24th of October with our GNW spread (which I also discussed on TV that day) and that Friday we put up the official post where, I will remind you, our stated goal was to make a little bonus money for the holidays AND to share some of that money with a worthy cause. I want to thank everyone who chose to donate to the NYC Food Bank, we got some really spectacular donations from some of you and I really appreciate it and I hope you have all gotten into the holiday spirit and helped to support those in need this season – it’s much appreciated and I thank you.
Just as importantly, I very much hope you were able to learn something following this portfolio. We never put much capital at risk, we took quick profits off the table and we worked our way out of most of our losses through rolling and adjusting – letting the trading range do most of the hard work. Most importantly, we had BALANCE – we selected trades in both directions – enjoying the wild ride from the up and down markets.
That strategy, in fact, worked very well!
As of Friday and since our last update on the 16th, when we had $41,465 of realized gains, we closed the following positions:
- 5 SCO Dec $37 puts sold for net $1.90, expired worthless – up $1,900
- 5 FAS Dec $40 puts sold for $2.40, expired worthless – up $1,200
- 10 TNA Dec $41 calls at net $1.50, out at $1.50 – even
- 10 FAS Dec $61 calls sold at net $0 (spread), expired worthless – even
- 10 TLT 12/23 $121 calls sold for net .74 ($740), expired worthless – up $740
- 10 GNW Dec $6 puts sold for .85, expired worthless – up $850
- 10 QQQ 12/16 $56 puts at .57, out at $1.05 – up $480
- 10
…
Will We Hold It Wednesday – For 500 BILLION Euros – We’d Better!
by Phil - December 21st, 2011 7:44 am
500 Billion Euros – Muhahaha!
This is, as they say in the Euro-zone, a good start. Money was offered and 523 banks requested a total of 489Bn Euros ($641Bn) in funding from the ECB at the delicious rate of 1% for three years.
We already discussed the merits of this program in Member chat this morning and Pharmboy and I will be debating the issue on National television very soon if this keeps up as it’s a shame to waste such a good debate.
Despite my bullish take on $641Bn being handed out to people who can lever it 10:1, this morning we shorted the run in the Dow Futures (/YM) to 12,100 and got a little dip to 12,070 but the big winner was, as usual, oil – which got all full of itself and ran up to $98.50, where we caught multiple rides down with the last hitting $97.50 so, as is often the case, the Egg McMuffins are paid for.
After the announcement of the "Longer-Term Refinancing Operation" (LTRO) – it did finally occur to some people that dropping that kind of money bomb on the EU might, somehow, devalue the Euros that are currently in circulation. Some theory about "supply and demand" which you may have hear of… Well, it seems the people who took Econ 101 were of the opinion that $1.32 was a bit much for the Euro under the circumstances (5am) and by 6am it was back down to $1.305 – a pretty crazy drop for a currency in an hour in any of the other 100 years of currency trading but, in 2011, we call just another it Wednesday morning.
So we’re done with our event-driven bearish bet on the futures and now we can go back to being bullish until and unless our levels fail to hold on our Big Chart.
Unlike those voodoo moving averages, our Big Chart lines are fixed according to our 5% rule and these are the same lines we used to predict the market since early 2009 and the only reason we move the lines is to adjust for major changes in Dollar valuation, which the market is priced in.
Other than that, we are rock-solid on target to finish at our 1,250 goal for the S&P, which is (after taking into account the net 4% drop in the Dollar) almost exactly…
Monday Mourning – Good Night Dear Leader
by Phil - December 19th, 2011 7:36 am
Oh, hello Mr. Seoul,
I dropped by
to pick up a reasonStick around while the clown
who is sickdoes the trick of disaster
Asia was in turmoil last night as news of the death of Kim Jong Il hit the wires. South Korea’s Kospi Index fell 3.4%, both the Shanghai and Hang Seng fell more than 2% at their opens but, along with the Nikkei, they all finished strong and down about 1.25%. My comment on the matter to Members at 11:29 last night was:
Meanwhile, Dear Leader has died and that shot the Dollar back to 81 and knocked the futures down half a point. Asia is down more like 2% as no one is please with Jr. taking over in South Korea. I always find that amusing when leaders who are hated die and the markets react negatively – as if the next guy could be worse. Markets just hate uncertainty but China is in charge of N. Korea – I doubt Kim’s son is going to suddenly declare war or whatever it is people are worried about. He’s just 27 and probably not suicidal
If anything (but I’m going to bed), I’d take oil long off the $93 line (/CL), which is where we liked them Friday. Gold already zoomed back to $1,600 and has been rejected there and the Dollar doesn’t look that strong above 81 so far.
So far, my logic is holding up as things have already calmed down and oil topped out at $94.50 at 5:30, for a nice $1,500 per contract gain in less than 6 hours. I find it easier to trade futures off news like that than they are to play during the US Market hours as the moves internationally, still seem to make a little sense while the moves in the US market are often pure nonsense.
Speaking of nonsense, David Fry agrees with me on Treasury rates as we are now falling below what you can get in an FDIC-insured deposit, which I consider the non-panic limit for rates. Unfortunately, we do get plenty of panic at a drop of the hat these days and TLT shorts were our big loser last week but we stuck with them for January, hoping things calm down over the…
Phuket Friday – Carnival of Madness
by Phil - December 16th, 2011 8:25 am
It’s party time!
A lot of investors have been saying "Phuket" lately and they can only be referring to the annual Patong Carnival in Thailand, where the tourist bureau wants you to know the tuberculosis outbreak is "under control." Actually, it’s an amazingly beautiful place with great people – must be why so many people keep mentioning it when starting at the markets this week…
As I mentioned yesterday, we had to flip bullish because our bearish bets were no fun and we felt that A) the bottom was a little forced in order for Timmy to peddle his T-Bills and B) that Santa Clause is coming to town. Actually, we had plenty of bearish bets from when the market was high so we needed the bullish bets to get BALANCE!
Balance was the theme of our virtual White Christmas Portfolio and we added another $3,615 in gains over the past two weeks to bring us very close to a triple at $42,925 off our $15,000 start back on November 21st. This is a very aggressive virtual portfolio where we are practicing the art of hit and run trading. The positions we closed in the last 9 sessions were bullish bets with FAS, XLF, FAS, DIA, GLD, XLF, FAS and XLF and bearish bets with GLL, TZA, FAS (spread), USO, DIA, TZA, DIA, DIA, DIA, DXD. See – BALANCE!
We thought the market would go up and down (I know, such a stretch!) and the markets did, in fact go up AND down with an AVERAGE swing of 1.5% PER DAY but, in the end, we’re still consolidating around our Must Hold lines and right back where we were at the last options expiration day of November 18th – causing almost all puts and calls sold to sucker a month ago to expire worthless. Isn’t it a funny coincidence how all that seems to work out for the Banksters?
As I reminded our Members, our cynical motto at PSW is "We don’t care IF the game is fixed, as long as we can figure out HOW the game is fixed and place our bets accordingly."
I don’t know how many times I need to tell you oil is a scam before you’ll believe me but it was way back on June first, when I laid out our plan to break the…
Wednesday Weakness – Can We Survive Without QE3?
by Phil - December 14th, 2011 8:01 am
WTF?
Do Ben Bernanke and I live on different planets? "For a lot of people," he said during a speech at Fort Bliss, "I know it doesn’t feel like the recession ever ended." For what people exactly, Dr. Bernanke, does it seem like it did end? Study after study after study show that, if you are not lucky enough to be in the top 10% of our society (and certainly not a shade of Johnson’s "Great Society" anymore) then you are pretty much f*cked – and, no, there’s not a nicer way to put it.
Bernanke seems to love the Great Depression so much he is Hell-bent on replicating it here so he can study it in greater detail. I suppose he has some sort of academic detachment regarding the untold suffering he is causing the American people but, who can blame him? He just got a great rate when he refinanced his $850,000 home.
Fortunately, we had complete confidence in Bernanke’s incompetence (see yesterday’s "To QE3 or not to QE3 – That Sets Direction") and, of course, we took advantage of yet another chance to short oil futures (/CL) off the $101 and then the $100 lines on the way down. We were HOPING (not a valid investing strategy) that we’d get some QE3 but, as I warned Members in the morning: "If not – well, Hell hath no fury like a market disappointed."
Clearly, as you can see from David Fry’s SPY chart – I was not overselling the point. Bernanke and the Fed are of the opinion that 10% unemployment is within their mandate of "promoting full employment" and don’t see the need to take action? Let’s have a little review of how good the Fed Chairman has been as a prognosticator for our economy as he enters his 7th year at the Fed:
Drivin’ that train, high on cocaine
Casey Jones you better watch your speed
Trouble ahead, trouble behind
and you know that notion just crossed my mind
Trouble with you is the trouble with me…
Thursday’s Thoughts – To ECB or Not to ECB?
by Phil - December 8th, 2011 8:18 am
The ECB may dig deeper Into its crisis toolbox to stimulate bank lending and fight off a recession as Europe’s leaders gather to lay the foundations for a fiscal union.
ECB policy makers meeting in Frankfurt are expected to cut the benchmark interest rate by a quarter percentage point to a record-low 1%. They may ALSO loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations speaking to Bloomberg.
Hours later, Europe’s leaders will convene in Brussels for talks to frame the FIFTH “comprehensive solution" in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s. The ECB says that governments must address the cause of the turmoil as it focuses on getting banks lending again rather than increasing purchases of indebted nations’ bonds.
“It’s yet another date with destiny in the euro area,” said Julian Callow, chief European economist at Barclays Capital in London. “It’s clear there won’t be the ultimate resolution, but the proposals are going in the right direction. The markets seem to have finally understood that in the ECB’s eyes it’s up to governments to solve it, and it’s worth noting that it’s doing a lot on the banking side.”
Fitch says last weekend’s austerity plan put together by Italy’s new government eases near-term pressure on the country’s credit A+ rating, but the outlook still remains negative. Budget savings were made, says the agency, but the question remains on whether this paves the way for economic growth to return.
European options traders, meanwhile are pushing bullish bets on Europe to the highest level since March 2010 as governments work to forge a solution to the two-year-old sovereign debt crisis. The ratio of outstanding calls to buy the Euro Stoxx 50 Index versus puts to sell has climbed to a 20-month high of .92-to-1, according…
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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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