Bye Bye Buy List!
by Phil - March 18th, 2010 6:15 pm
Oh, I have tried!
I have tried to be bullish, I have tried to get enthusiastic about this rally but I have been reviewing these picks for a few days and looking at the market, the charts, the sentiment, reading the news and studying the fundamentals and I’m OUT! Oh, I’ll be back, we’ll set up a new, aggressive $100K Portfolio next week for some fun shorter-terrm plays (still keeping the conservative one for the full year) to take full advantage of this insanity but it’s going to be mainly cash through the end of the month as I do not trust this rally one bit and it will be so nice to head into the easter holiday with lots of cash on the sidelines.
We hit a perfect entry on Feb 8th, in our last round, and the market is up almost 9% since that day and I’m not expecting another 9% in the next 6 weeks so it’s a very good time to take a break. We were able to roll and enjoy these trades since Christmas and we will be revisiting some, maybe even keeping a few but, on the whole, I want to do what I often counsel members to do, which is follow our simple two-step process to maximizing your profits in a market rally:
- Step 1) Take Money
- Step 2) Run
There - isn’t that simple? Keep in mind that we LOVE all of these stocks so we’ll be back in them if they go on sale and, perhaps, even if they don’t and the market looks stronger through April earnings. Meanwhile, keep in mind that these are 6-week profits so 20% is A LOT for generally conservative plays. Not much else to talk about - let’s just see how many of these suckers are worth keeping (noted in green):
AET (12/21 - $34.04, 1/9 - $32.70, 1/31 - $29.97, 3/18 - $33.24) They could not have done better for us, staying right in range and giving us 4 excellent sales but health care is passing this weekend and that’s too wild for us to stick with. Our last batch is right on target:
- Apr $33 calls sold for $2.40, now .40 - up 83%
- Apr $30 puts sold for $1.50, now .02 - up 99%
- 2012 $25/35 bull call spread at $5, now $5.40 - Keeper if we sell July $34 calls to cover at $2.35
- 2011 $22.50s at $9.10 - now $11.60 - up 27%
- Apr $27 puts sold for $1.75, now .01 - up…
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Free Money Thursday - 130 S&P New Highs Can’t Be Wrong!
by Phil - March 18th, 2010 7:59 am
130 S&P 500 companies hit 52-week highs yesterday.
Things must be even better than I thought in yesterday’s post and there has been a conga line of pom-pom waving analysts on GE/CNBC this morning telling us how UNDER valued everything is because we just don’t see the BIG PICTURE. As Bespoke notes in their chart of the S&P and it’s new highs, you want to see more and more stocks hitting new highs to sustain a rally but my question is - with the market now at 17-month highs and making new highs every day - what’s up with the other 370 stocks?
In an ordinary market, I wouldn’t question it but this is not an ordinary market. 52 weeks ago we were at 666 on the S&P and stocks were making DECADE lows. Here we are with the index up almost 80% off that bottom and we can’t pull a lousy 52-week high from 2/3 of the index??? We’ll be keeping an eye on this indicator to see how things pan out but notice when the market fell - there were no doubts, 80% of the stocks made 52-week lows last fall - not THAT’S a sell-off. That’s the kind of dramatic numbers you expect to see in a dramatic market move - not this wimpy 40% stuff - let’s see some conviction people!
AAPL is convicted - they are up 191% from their lows and AAPL is 15% of the Nasdaq so, all by themselves, AAPL has accounted for 28% of the Nasdaq’s move from 1,265 to 2,389 (89%). TRV is also moving with conviction, up 54% since March and adding 160 much-needed points to the Dow, a great swap for C, who would have only added about 24 had they remained in the index. CSCO replaced GM (because they are soooooo similar) and they too have been a great trade for the Dow, up 100% off the March lows and slapping 104 bonus points on the index.
Ah, now we see how our industrials can do so well despite all the unemployment and lower cap utilization and lack of demand and high commodity input costs - we just shuffle the deck until we find a set of cards that work! Even so, as I’ve pointed out this week, the Dow has been lagging the Nasdaq and the Russell by a wide margin and the NYSE and S&P have been kind of pokey too. The Nasaq can…
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Insiders: March to Exit
by Insider Zone - March 15th, 2010 6:49 pm
By Ilene
Let’s take a look at Insider Buying and Selling over the last week or so. These are screen shots from Finviz - the significant buys against a green background first and significant sells against the pink background second. All the buys fit into my screen shot but the sells did not. Click here to see all the sells.
Note that the largest buy in the group, for KITD was at a price of 9.73 (KITD is currently at 11.54). The buy was part of an Equity Offering rather than an open market purchase. Tuzman Kaleil Isaza’s (KITD’s Chairman and Chief Exec. Officer) history of buys is here.
Note selling in favorites such as CSCO, GOOG and AMZN.
Buys
Sells
Continuation of the sell list:
(What's this?)
(THE PRAGMATIC CAPITALIST, 3/1/10)
(THE PRAGMATIC CAPITALIST, 2/22/10)
(The Technical Take, 3/1/10)
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Wrong Way Weekly Wrap-Up
by Phil - March 6th, 2010 8:34 am
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This whole week did not feel right to me.
We were too bearish as I had expected a bogus commodity rally in last weekend’s wrap-up but I didn’t expect it to persist for a week, even as the dollar held it’s ground above 80, a 10% pullback off the top, when oil was $40, copper was $1.50 and gold was $850. Now oil is $80 (up 100%), copper is $3.35 (up 123%) and gold is $1,135 (up 33%). Let’s say gold is a true indicator of dollar weakness - that means that only 33% of oil and copper’s move up can be attributed to the 10% drop in the dollar (not that even that makes sense but we’ll give it to them). Can the rest be attributed to demand?
Certainly not with copper. Global copper consumption was down 1.9% in 2009 and Q1 2010 is lower than any quarter since Q1 2009 and even Barclays’ very aggressive targets for China growth only bring global demand up 2.5% this year - whch would just about bring us back to 2007 levels of consumption. That, of course, also assumes a rebound in housing construction - something we are not seeing at the moment. Also, China spent $700Bn last year stimulating their economy and one of the ways they did this was to stockpile copper. As you can see from the chart - that too appears to be winding down and even Goldman Sachs has abandoned the bullish side of copper at this point.
Oil is just as silly. According to the EIA, global oil consumption is not expected to return to 2007 levels until late 2011 - and that is with some very rosey estimates of a global econonomic recovery - exactly the type of thing that can be derailed by high oil prices! Mighty China’s consumption is projected to go from 8.66Mbd this year to 9.13Mbd in 2011, a 500,000 barrel increase. Last week, the US had a build in inventories of 4Mb - we just send those over to China and everyone is happy! I’ve already had my say on oil demand this this weekend, so let’s just move on…
Let’s just say I’m a little skeptical about any market moves that are lead by commodity pushers at this very early stage in a recovery. Prices are not going up based on demand but on expectations of demand in the future and that’s a very dangerous game to play…
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Prior Weekly Wrap-Up - February Expiration Day Special!
by Phil - February 19th, 2010 7:17 am
I didn’t get to do a wrap-up last week so we have a lot of trades to go over and, with expiration looming and the Fed tightening, I thought it would be good to just get the list out on Friday so we can adjust our rolls to March where neccessary (in bold under appropriate positions).
In our Feb 7th Wrap-Up, I was gung-ho bullish saying "It’s Only a 55-Point Drop You Wimps!" and we had been BUYBUYBUYing at the bottom all week, especially Wed-Fri as the market spiked through our projected support at Dow 10,000 but not enough to change our minds as we bottom-fished on AAPL (2 trades), ABX, ACOR, AKAM, AMED, BRK/B (2), C, CCJ (3), CSCO, DELL, FXI, GE, GOOG, IBM, LLY, LOW, NLY, TBT (5 times!), TM (3), TNA, USO (yep, we wen long oil) and UYG. To say we were weigting bullish by that Monday was an understatement as we has finished the weekend in a bullish stance and were relying on our disaster hedges to protect us.
Those disaster hedges are an interesting set to look at, especially now that we’ve recovered 400 points:
- DXD July $27/33 bull call spread at $2.50, now $2 - down 20%
- We can roll the $27 calls to the $25 calls for $5 to widen the spread and drop our b/e from $29.50 to $28.50
- EDZ July $3/8 bull call spread at $2.10, now $1.60 - down 23%
- EDZ Apr $10 calls sold for .70, now .15 - up 78% (pair trade)
- SDS 2011 $36/40 bull call spread at $1.30, now $1 - down 18%
- We can roll the $36 calls to the $33 calls for $1.10
- TBT Jan $35/45 bull call spread at $6.30, now $7.40 - up 17%
- TBT March $50s sold for .65, now $1.22 - down 87% (pair trade)
This is what is great about disaster hedges. The potential upside on these spreads, if the market headed south was up about 100% on the 4 trades so a commitment of 5% of your portfolio to each one (20%) would give you back 40% of your portfolio in cash if the markets tanked. Already, after 2 weeks, we have the markets heading in the opposite direction and what is the cost? Not even 20% of the 20% you may have allocated, a 4% insurance premium while the 80% of the portfolio that is bullish caught a huge rally up and this insurance is still good through July!
Monday (2/8) Market Movement
I pointed out how much chart people love…
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Love Letters (Weekend Reading on Valentine’s Day)
by Phil - February 14th, 2010 8:25 am
Happy Valentine’s Day!
Last Valentine’s Day was as Saturday, following a frightening Friday the 13th, where we had fallen through the 8,000 line on the Dow. I wrote a very interesting post that morning discussing how I came about my political views, which is good for new Members to check out. We also flipped short that day on SKF, too early at $130 but that ended well as we kept after them and it was our biggest bet by March 6th, which eventually returned over 1,000%. We also stopped shorting GOOG at $350 (it did keep going to $300 but the upside was nice too). I closed the morning post with:
For us, it’s all about the levels as we try to remain unbiased as investors, no matter how voraciously we defend our political views. Dow 7,800, S&P 820, Nas 1,460, NYSE 5,100, Russell 437 and SOX 203 all better continue to hold today but, even if they do, we’re nowhere near where we want to be and we’re going to take some bearish covers into the weekend - just in case. So whether you are a witch celebrating the horrors of the 13th or waiting for a rose from your true love the next day, remember to be careful out there - we are certainly still deep, deep in the woods!
That Tuesday (Monday was President’s day) we fell 300 points and another 300 points by the end of the week! That was a fitting way to mark the 80th anniversary of the St. Valentine’s Day Massacre when Al Capone’s "South Side" gang, dressed as cops, rousted a garage run by Bugs Moran’s "North Side" gang and had them stand against the wall and then executed all 7 men. They shot them 70 times with machine guns and made their escape by using the Capone men dressed as cops to "arrest" the other Capone men and drive them away from the scene in broad daylight. Now that’s what I call a good plan!
Here’s a great chart that summarizes our year to date. Someone else found this, I wish I knew how to use StockCharts this well, they have tons of good things in there:
It’s a bit worrying that XLU is doing so poorly - so much for diversification keeping you safe… It’s going to be worth rummaging through the utility companies looking for good dividend payers who are on sale. SO is one we like to play with a 5.6% dividend and, as long as they…
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Wintery Wednesday - Are We Now Corrected?
by Phil - February 10th, 2010 8:21 am
Was that it?
A 10% correction (David Fry chart on right) and we’re done? If so, this is still a fairly bullish market, and it should be, as our sell-off last year was, beyond a doubt, way overdone. Often people forget the fundamentals of investing and the biggest fundamental of them all is: "Where else are you going to put your money?" There many fine companies out there with P/E ratios that are below 15. That means if you give them a dollar, they will return 6.6% in earnings. IBM has a PE of 12, which is an 8.3% return on my money and, according to projections, that will improve to 11 next year, generating 9 cents for each dollar I give them.
Call me an optimist but I think IBM is a fairly safe place to keep my money. Perhaps as safe as 4% TBills, or 7% Greek bonds or 3% Yen Notes or, Heaven forbid, a bank! In fact, not many banks are paying 1.8% on your deposits but IBM does through dividends. IBM was my example trade in the Weeekend Wrap-Up so I won’t get into strategies here but that is what our whole Buy List is about - picking up great long-term values and hedging them to even more effective entries.
Not every stock is as rock solid as IBM but (going back to the Wrap-Up) who did we buy when the chips were down last week? C, CCJ, TBT, GOOG, XLF, AAPL, AMED, CSCO, TM, LOW, AKAM, LLY, NLY, GE, TNA, USO, ABX, DELL, FXI, UYG, BRK/B. Not exactly a radical collection of picks is it? Yesterday, with the market up 2.5% from our shopping spree - we bought NOTHING. Part of the "buy low - sell high" philosophy is waiting for the market to be either high or low. Two weeks ago, on Jan 29th, I charted 10,058 on the Dow as a critical support line and, from our Buy List Update this weekend, I put up the following chart for Members:
And where did we finish yesterday on the Dow? 10,058. See, this charting thing is easy - that’s why I don’t usually bother, it’s dullsville! Let’s now turn our attention to our other major levels of 10,165 and 10,300 which, keep in mind, is nothing more than our predicted "weak bounce" off the drop from 10,700. As I said in the above chart, we can expect to be "tight and bouncy," which is what we’re seeing this week as…
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Weekly Wrap-Up, it’s Only a 55-Point Drop You Wimps!
by Phil - February 7th, 2010 12:19 pm
That’s right, I said WIMPS!
I have never heard so much whining and crying and complaining about a market drop as I have the past few weeks. Last week, I pointed out that we had only fallen 105 points from the prior week (10,172 to 10,067) and this week we fell ALL THE WAY to 10,012 to finish the week and you would think the world was ending (again) from the way the MSM has been acting.
By Friday the panic was palpable as we gave up Monday and Tuesday’s bogus gains to test new lows for the year - testing, in fact, the lowest levels the market has hit since last November and I pointed out in Friday’s post that it reminded me of when BSC and LEH went under and everyone panicked and sold Financials off to the point where Warren Buffet was willing to give GS $5Bn AFTER they bounced 50% - THAT’s how undervalued the financials were in November of 2008.
What do we do while people are panicking? We BUY! We don’t BUYBUYBUY like Cramer’s Pavlovian Peons but we sure do BUY and take some nice entry positions with sensible hedges. I was finally motivated to finish updating our Buy List on Friday and 18 of our 38 positions were highlighted (immediately actionable) on Friday. Sure they may go lower, but we’re buying them with 20% buffers built into the positions and then we can double down if they drop 40% (back to Nov 2008 lows) and then we’ll have our entries down 10% from the lowest levels of the past decade or so that we can hold until the next decade - what’s there to panic over?
If I wanted to buy IBM in January but thought it was a little pricey at $134, why would I not be HAPPY to have the opportunity to make an enty at $122, back at where they were pre FABULOUS October earnings? I can buy IBM for $122 and take advantage of the panic-induced VIX at 26 to sell July $125 calls for $6.60 and the July $120 puts for $6.65 for a net entry of $108.75 with a call away at $125 for a $16.25 profit (15%) in 5 months. If IBM should fall below $120, we will have a second round of the stock put to us as $120 for an average entry of $114.38, another 6.2% lower than it is now. If we were more worried, we…
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Weekend Wipe-Out, the Second Wave!
by Phil - January 29th, 2010 5:57 pm
Another week another 100 points lower.
Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067 yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!
How could the market not zoom right back up? It always zooms right back up, doesn’t it? As I said a week ago Friday: "Boy, when sentiment shifts - it REALLY shifts!" My closing comment on Friday the 22nd was "Back to cash but leaving disaster hedges, which are looking great now as this is shaping up to be some disaster" and our weekend "Global Chart Review" showed us to be at some very key inflection points, letting us go well prepared into this week:
Manic Monday Market Movement
My Jets lost on Sunday so I was not in the best of moods on Monday. My outlook that morning was: "We still have our disaster hedges in case things get worse but, on the whole, we’re expecting a 1% bounce in the very least off our 5% lines (anything less will be a bad sign)." We were pretty much at the 5% rule on Friday’s close so we focused on the bounce we wanted to achieve in order to get more bullish.
I noted that the levels we were looking for were not exactly 1% retraces (see post for reasons) and our target retraces were: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625. What were the highs for the week on those indexes? Dow 10,310 (+10), S&P 1,103 (-2), Nasdaq 2,227 (+2), NYSE 7,098 (-2) and Russell 621 (-4). So that’s a net of +4 points out of 21,355 points worth of predictions on the retrace, accuracy to within .019% - not a bad showing for our patented 5% rule.
Please, under NO circumstances subscribe to our daily newsletter, where you would have this kind of information every morning and DO NOT get an Alert Membership where we send out our amazingly accurate watch levels to you every day. Having this sort of advanced information on the markets would be unfair to other traders, who thank you for your restraint…
See how I cleverly used reverse…
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Thank GDP it’s Friday!
by Phil - January 29th, 2010 8:30 am
![[AOT]](http://sg.wsj.net/public/resources/images/MI-BB087_AOT_NS_20100128184816.gif)
At 12:52 yesterday I officially went long on the markets.
This could be a big mistake (in fact, that’s what I said to Members at the time) but the logic was Bernanke would be confirmed (he was) and that we’d have a big GDP number today. Now the reason we’re going to have a big GDP number is because we will have a big build in inventories (we discussed this effect on Jan 14th) as manufacturers got all excited and produced goods that nobody bought and, because it is assumed that goods are only produced in accurate anticipation of demand - this kind of nonsense comes in a positive to our GDP.
Production collapsed during the recession as companies sold from their existing inventories but didn’t order new goods, because of uncertainty about future customer demand. These inventory declines dragged on GDP for six consecutive quarters, the longest streak on record since 1948. The turnaround in inventoris could give us a Q4 GDP in the 5% range. Rational economists prefer to look at final sales to domestic purchasers, a subset of GDP that doesn’t include inventories and trade, to better gauge U.S. economic activity. That category is likely to grow at only a 2% pace, similar to the third quarter but shhhhhhh! - we don’t want to wake the rational economist - who has clearly been asleep since the the mid 90s…
So we went bullish (speculatively), not because we are going to be excited by a 5% GDP number that makes us look like some overheating Third World economy even as another 2M people lost their jobs in Q4. No, we’re bullish because we cynically believe that the sheeple are clueless and will stampede into this number as if the US is recovering and nobody told them until this morning.
Meanwhile, I have a message for the sheeple: Please keep selling us your Google stock. I think this chart of the day is self-explanatory but you never know. This is a chart of the amount of money Google makes per employee, per quarter. Currently they are generating $1.34 MILLION dollars for each person they hire (and they’ve been hiring). For a comparison, Yahoo generates $500,000 per employee yet GOOG currently has a p/e ratio that is 1/2 of Yahoo’s.
Microsoft’s 98,000 employees generate $623,000 each, ORCL’s 86,000 employees pull in just $267,000 each. It’s not a definitve indicator but consider how well they have managed that number through the recession, which…
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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
(