by Phil Davis - September 14th, 2012 8:28 am
$85Bn a month!
Oh boy was I wrong when I said Ben Bernanke wasn't crazy enough to ease into a bull market. Yesterday, he exercised the full power of the Federal Reserve to confiscate your wealth and hand it over to the bankers. That's right, by engaging in what many consider reckless money-printing practices and announcing there is no end in sight, Bernanke caused the Dollar to fall below 79, down from 84 (6%) before all this QE talk began.
That's like taking all $100Tn worth of US Assets – everything you worked for your entire life – and just devaluing them by 6%. Many of our Conservative friends decry the 1% tax on wealth imposed by the French – but at least they are honest about it. At least they debate it and vote on it. Not Bern Bernanke – the Federal Reserve Chairman simply decrees that you will contribute 6% of your dollar-denominated assets towards more bank bail-out and there's no cut-off if you are below the top 2% – this is a confiscation from every man, woman and child in America.
How far down will Dr. Bernanke take your Dollars? That's the beauty of it – there's no limit! He warned Corporate America yesterday that he will continue to give them FREE MONEY as long as they keep refusing to hire more workers. The less American workers they hire – the more money he will give them. Sure, they can hire and spend overseas (most are) because that won't affect US unemployment rates but, if they start hiring Americans – THAT's when he will begin to take away the punch bowl.
See how this scam works?
It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. With rates this low, even if QE put effective downward pressure on rates — a dubious proposition — the economy would be unlikely to benefit. If a 3.5% mortgage rate is of little consequence, there is no reason to believe that a 3.4% or even 3.3% rate would suddenly produce results.
Nor would quantitative easing result in a burst of money creation, as per traditional monetary policy, because the Fed now pays a quarter-point interest on excess bank reserves. With little growth in the demand for…
by Phil Davis - September 7th, 2012 8:30 am
This rally is never going to end!
Just look at this chart – we're breaking every level. THIS time is different – not only are we going to go on to 1,450, we're going to 1,500 and 1,550 and then 1,600 and then we're going to 1,700 and 1,800 and 1,900 and then we're going on to take on 2,000 – yeeeeeergh!
Sorry, I was channeling my inner Dean… Now that I've calmed down, I realize that this chart that got me so excited was actually the chart from March 5th and, as you can see from my end of February headlines like "Sell in March and Go Away," "This is the End – But For Who?" and "Fake-Out Thursday (March 8th) – Dollar Sacrificed on an Altar of Lies" – where I pointed out that rumors of more Fed easing (by John Hilsenrath of the WSJ, of course) had dumped the Dollar to 79 and that was accounting for the 1% gain in the S&P that day so – don't be fooled!
The ECB had just dropped $712,800,000,000 in fresh stimulus on the 29th and I asked "Will Another $712Bn Buy Us Another Day at 13,000?" Was I early? Yes. Did we miss the end of the rally? Yes. In fact, our $25,000 Portfolio at the time was so bearish, we were down almost $8,000 with huge bearish bets like 10 Short XRT March $55 calls, 10 short GLL March $17 puts, 10 April SCO 31/39 bull call spreads and 10 SCO short March $34 puts, 5 short FAS $88 calls, 5 March TZA $18 calls, 10 short SQQQ June $14 puts, 40 USO April $40 puts, 5 short FAS March $75 calls, 10 long FAS March $85 calls and 10 short FAS March $89 calls (a bearish spread), 10 TLT March $114/115 bull call spreads and 10 DIA March $129 puts.
The only bullish play we had at the time in our virtual portfolio was DMND, where we had 4 hopeless June $29 calls which we lucked out on when they spike on rumors in mid-March. Every other bullish position had been dumped and we were practically 100% bearish because the rally, at that point, seemed totally ridiculous. Just a months later, the Portfolio turned around and was up $8,000 and by May…
by Phil Davis - September 5th, 2012 7:49 am
What a day yesterday. The Dow dropped over 100 points from the open but then, at 2 pm, a miracle occurred and we recovered almost all of our losses in just 30 minutes. We had similar action on the S&P and, as TA guru Dave Fry commented:
Our crack addicted trading desks believe in the Bernanke Put and the global central bank put. It’s quite apparent reading the news from China this morning as pundits were universally calling for more PBOC stimulus—it’s QE contagion. Moody’s cut their European outlook to negative which must be viewed two ways: Moody’s gets no respect and it means more QE.
Speaking of which the ECB is rumored to be launching “unlimited” bond buying (QE) with “conditions” (whatever those might be). The bond buying is said to be 0-3 year maturities with the implication being the problems of austerity and debt would beClouseau-like “sol-ved” during that period. Given that sort of optimism you’d not be incorrect in assuming the ECB will need a bailout itself down the road.
As you can see from Dave's SPY chart, the real volume for the day came to the downside while more volume sold off into the close than took us up in the afternoon.
That's the beauty of the HFT algos – they punch the market up all afternoon and then dump it on the mutual funds that come in after the bell and buy (for you – you retail sucker) at the day's closing prices. Pump and dump – that's the game the big boys get to play every day and it's clear as a bell that yesterday was dump, pump and dump with 2-3 times more volume selling that buying.
That's why this chart of On Balance Volume has such a massive divergence, again, much like the one that led to a 20% drop in the market last year that "no one saw coming." OBV measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days – clearly SOMEONE is fleeing this market and has been since late July. Keep in mind it was Operation Twist that "saved" us last fall and we're up a solid 27% from 1,100 on the S&P but, when we get in on ridiculous moves like we had yesterday – how can we trust…
by Phil Davis - September 4th, 2012 8:26 am
If it's Tuesday, we must be at the week's highs.
Obviously, we're still bearish and the news we've been discussing this morning in Member Chat certainly hasn't changed my opinion on that. Back on August 7th (first Tuesday of last month), I said we were about $700Bn in stimulus short of what we need to support S&P 1,400 and we knew we would have to wait a month to see how much we got from Draghi and Bernanke but, so far, and with Ben already out of the way, we have zero.
At $10Bn per S&P point that puts our fair value all the way down to 1,330 but keep in mind that the $500Bn we did get only lasts for 6 months so more like 1,310 at this point without a proper commitment by the ECB or Fed this week. Even 1,310 would be up 50 from the June lows and it would represent a neat 2/3 retracement of the rally since then. Our $25,000 Portfolio has, if anything, gotten more bearish as we dragged along the top but another thing we've done each Tuesday has been to take aggressive bullish positions to cover ourselves IN CASE someone actually does put up the cash needed to goose the markets over our breakout levels (see Friday's post for current positions in the virtual Portfolio and our levels).
On Tuesday, August 14th, our trade ideas were as follows:
by Phil Davis - August 28th, 2012 8:29 am
Seriously, this is 4 Tuesday's in row – is anyone seeing a pattern?
Of course this Tuesday we are 100 Dow points lower than we were last Tuesday and the BS pre-market pump job at 6am has already faded (7:30) although we're still working short bets on the Russell futures (/TF) and the Euro (EUR/USD) from 813 and $1.256 as I put up a note in early morning Member Chat as we spiked on – get this – the news that Draghi cancelled his appearance at Jackson Hole this weekend.
Why would it be good that Draghi is NOT going to the last Central Bankster conference of the year but the buzz is that he MUST be so close to a masterful solution to all of Europe's problems that he can't be bothered to gather with his brother bankers on the eve of his triumph. The announcement was timed to coincide (10 minutes before) bond auctions by Spain ($2Bn 3-month notes at 0.95%) and Italy ($3.75Bn of 2-year notes at 3.06%) and the Euro jumped 0.7% into the auction – lowering the effective rates and both auctions were a "success".
That pulled the EU markets off the floor (still down half a point at 8am) and got the US futures out of the red zone as we finally pushed the Dollar under that pesky 81.50 line, goosing the indexes and commodities. Unfortunately, it's just a sugar rush and we've already run out of steam but I'm sure someone will start another rumor around 9:15 to get us back to green into the open.
As I said last Tuesday, with the Dollar at 81.50 we're looking for adjusted levels of: Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and we held the Nasdaq yesterday but that was all so no reason to capitulate on our bearish stance just yet. Last Tuesday we also discussed 3 more trades (there we 3 the Tuesday before) to make 300% if the market did break higher and our first batch had several 100% winners so let's see how our 3 new trades did in a downtrend:
- 2 FAS Oct $107/117 bull call spreads at $2.05, selling 1 BBY 2014 $15 puts for $3.75 for net .35 is now net $1.52 – up 334%
- AGQ Oct $38/45 bull call spread at $3.10, selling BTU 2014 $20 puts for $3.60 for
by Phil Davis - 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.
by Phil Davis - August 17th, 2012 8:28 am
That's how much money yesterday's rally cost. Spain got the green-light on $123Bn from the ECB, most of which goes to just ONE bank (Bankia Group). This news sent Bankia shares up 15% and did wonders for their creditors' stocks as well because, as we know, the best way to get money from a Central Banks is to owe a lot of money to other banks so – borrow, borrow, borrow if you want to survive the Financial Crisis. Spain led Europe higher with a 4% gain on the day and hit another 1.75% early this morning before pulling back.
Also in the Free Money train yesterday was Brazil, who initiated a $65.6Bn stimulus package aimed at much-needed infrastructure ahead of the 2016 Olympics. This is a "just in time" thing for Brazil as 32 of 58 reporting companies in the Bovespa Index missed sales projections this quarter – the worst performance since Q1 2009.
The Olympics have also greatly aided the UK's economy and July Retail Sales were the stars of Europe at +0.3% and August should be good too – it's September, October and November we're worried about. The entire Euro Zone is clearly in a Recession, but it could be argued that it's the same one that started 4 years ago, which some would call a Depression – but not if they want the MSM to listen to them or to keep their Government positions.
Even China is seeing declining exports, with August projected to come in at less than 1% according to ForexLive, who says "China's Government has underestimated the impact of the European debt crisis on trade flows." As you can see from the chart on the right for California, China's export woes are hitting us on this side of the Pacific as well as total state revenues are 10% below projections with HUGE misses in Sales Tax – indicating an extremely beaten-down West Coast consumer.
The state has avoided default by temporarily borrowing from state trust funds, but those accounts will soon need their cash back to continue operating. Today California quickly began trying to sell $10 billion in municipal bonds to fund the record $28 billion they need to keep the lights on. With tax revenue plummeting and the state already the second
by Phil Davis - 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.
by Phil Davis - June 22nd, 2012 8:42 am
Wheeeeee – that was fun!
A bit more violent than we expected but now you can see why we went to cash on Wednesday. We even took a bullish bet on the Qs at the end of the day as we were hoping for a bounce this morning and we had really cleaned up with DIA July $124 puts from the morning Alert to Members, which came in at .95 and ran all the way to $1.85 but we took the money and ran at $1.40 for a nice 47% gain on the day.
We also picked up AAPL weekly $570 puts for .50 and those made a quick 40% as well, closing at .70 at the day's end.
In the afternoon, we took our winnings and played the QQQ next weekly $63s for .75 and they dropped a dime to .65 but we're playing with house money and a stop at .50 on the hopes there will be a rumor of stimulus that spikes the market back up.
We were too scared to play the Financials bullish with the Moody's downgrade looming but we will be restarting our FAS Money Portfolio today in the hopes that this will be a bottom for the Financials (about $14 on XLF) that we can begin to makes some bets on. Fas Money was, by far, our most profitable portfolio in the first half of the year, cashing in Wednesday with a virtual $12,175 profit with almost no cash in play (but using margin to sell FAS puts and calls on a regular basis).
There are still rumors that MS will suffer heavy margin calls. I say rumors because The Street reports $6.8Bn as a fact but, since Cramer is behind it, I don't believe a word they say.
Moody's lowered its long-term senior unsecured debt rating for Morgan Stanley to Baa1 from A2, with a negative outlook, while cutting its short-term rating for the firm to P-2 from P-1 but this move was a long time coming and MS stock has already plunged from $21.13 in March to $12.26 in early June and that's very close to the $10 line they hit in 2009 – which they tripled off by June.
by Phil Davis - 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:
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…