F’ing Dip Thursdsay – Do We Buy It?
by Phil - January 20th, 2011 8:06 am
Just buy the f’ing dip.
That’s the great advice we had back on December 2nd, as it was pointed out by Captain Broccoli that we should just ignore all the so-called "facts" of the economy and "just borrow money at this ridiculous low interest rate and just buy the f’ing dip." "It’s not a pyramid scheme, you idiot," says the Captain – "It’s a dip buying scheme!" So far, on every little dip we have had since December 2nd – the Captain has had the winning strategy – do we dare ignore his sage advice today?
Yesterday we had the biggest pullback since November 23rd with the Russell and the SOX, two of our most over-extended indexes, falling 2.5% in a single day. The Russell essentially gave up an entire month’s worth of gains in a single day because, as I have warned you over and over and over until I myself was bored hearing it, it has been a low-volume rally and the pure physics of the situation means that, when people finally want to sell stocks, there aren’t enough buyers in the world to support the prices they have run up to.
The Shanghai, which we’ve been watching closely, dropped another 3% today to 4-month lows this morning. We did the chart of the Shanghai vs the Hang Seng on Friday, when I was droning on about how weak the real Global economy is and how dangerous inflation was looking and how the government was papering it all over, etc. Even so, I reminded Members in Chat that none of that reality mattered and we still had to buy the dips until it stopped working. Is today the day or have we finally reached the end of the gravy train?
We did some hedged buying on Friday with new long-term bullish trade ideas on AAPL, AET, BAC, GENZ and INTC (2) as well as shorter-term bullish trade ideas on CSTR (April) and ABX (quick 50% profit and done). We also had a short play on PCX (up huge already) and hedged with RKH Feb $85 puts at $1.15 (now $1.80, up 56%) and rolled our losing QID position in the $10,000 Virtual Portfolio to the Feb $10 calls at an average of $1.15 (now .90, down 22%). This is how we can be long-term bullish and short-term bearish. Buying the f’ing…
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DiggDefending Your Virtual Portfolio With Dividends – Q4 (Members Only)
by Phil - October 23rd, 2010 7:55 am
In uncertain markets, dividends can give you a critical investing edge.
As you can see from the chart on the left, just mindlessly investing in dividend-paying stocks can give you more than a 2:1 annual advantage in your investments.
Of course, here at PSW, we teach the art of selling options premiums – something that turns virtually any stock into a "dividend" payer. For example, MSFT is only a small, 2% dividend-payer but a fairly solid cash-machine of a stock that we don’t feel is likely to go bankrupt overnight so it makes for a nice safe staple in a long-term virtual portfolio. But MSFT is also a very poorly-run company that hasn’t grown in 20 years but we can make it a much more interesting stock by simply selling covered calls.
For example, in our August edition of Dividend Payers, we looked at MSFT for $24.23 and we sell the Sept $24 calls for .77. This lowered our effective basis to $23.46 and selling the call putus in no special danger – we simply agreed to sell MSFT for $24 on expiration day in September (the 17th).
The stock was called away from us, and we made a .54 profit or 2.3% of our net $23.46 cash investment in less than 30 days. That works out to a 26% annualized ROI and we had an opportunity (as we had expected) to buy the stock again and again at $24 on Oct 4th and 5th and sell the November $24 calls for .90 for a net $23.10 re-entry and ANOTHER 3.8% GAIN if we are called away at $24 or greater on Nov 19th. Doesn’t that beat waiting a whole quarter for your 1% dividend checks?
Of course, you can optimize all this with timing and we favor stocks that are on sale – this is just a very simple example of how our most basic options strategy can drastically boost your annual returns on any stock in your virtual portfolio.
Let’s say you don’t want to mess around with MSFT every month. You could have simply sold the 2012 $22.50s for $4.40 (also suggested in the August post), that dropped your net entry from $24.23 to $19.83 and getting called away at $22.50 would be a profit of 13.5% over 17 months PLUS you would be getting your…
Will We Hold It Wednesday – Back At Our Bottoms
by Phil - July 21st, 2010 8:27 am
Wow, what a ride!
As I mentioned in yesterday’s post, we expected the Russell to lead us higher and we picked up both IWM and TNA out of the gate but, of course, we like our leverage so my 9:46 Alert to Members was:
Bottoms WERE: Dow 10,200, S&P 1,075, Nas 2,200, NYSE 6,800 and Russell 620. As I said yesterday, "don’t forget there’s a 5% drop to support below these levels).
For now, we’ll be watching the 2.5% lines at Dow 9,945, S&P 1,048, S&P 1,145, NYSE 6,630 and Russell 605.
My working theory is RUT is weakest because they are getting killed by cut-off of unemployment checks. That means that an upside play on the RUT could go very well in case they extend benefits today. I like TNA $37 calls for $3.20 and IWM $63 calls at $1.25. These are risky of course because if the extension is defeated we could go further down so take quick profits off the table on half to make a buffer and make sure you do have some disaster hedges.
We bounced right off those 2.5% lines and got our $3 copper signal at 10:24 so we knew we were good to go as we took those calls plus GOOG, BAC, GS, QQQQ, IBM, TXN, AAPL, WFR and BIIB. Other than BIIB, which is a long-term spread, all of our shopping was done by noon and the rest of the day we just said "Wheeeeeeeeeeeeeee!" as the market went up and up and up – and they haven’t even extended the unemployment benefits yet!
I have been saying we need to keep an eye on copper $3 during this whole market breakdown as $3 copper is NOT the right price for a Global Depression, which is what the market has been pricing in and at 10:24 as copper hit our bull target, I said to Members: "Copper $3! That’s like the little snapping sound when the bear takes the bait in the bear trap." Now we are back testing our "bottoms" which, as I said yesterday, are really the middles of our 5% Rule range but our view of earnings season so far is that we shouldn’t be in the lower end of the range and the recent action, as I summed it up in yesterday’s post, was silly.
Now things…
Testy Tuesday – Have the Markets Become Comfortably Numb?
by Phil - January 19th, 2010 8:08 am
"There is no pain you are receding
A distant ship’s smoke on the horizon.
You are only coming through in waves.
Your lips move but I can’t hear what you’re saying.
When I was a child
I caught a fleeting glimpse
Out of the corner of my eye.
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
but I have become comfortably numb." – Pink Floyd
I have a theory that the markets (and the American people in general) aren’t irrational, they are simply shell-shocked after suffering a very traumatic group financial experience…
To be shell-shocked is to be "mentally confused, upset, or exhausted as a result of excessive stress" and the most common symptoms are: Fatigue, slower reaction times, indecision, disconnection from one’s surroundings, and inability to prioritize – That certainly sounds like our Congress doesn’t it? Combat stress disorder was first diagnosed in WWI, when 10% of the troops were killed and 56% wounded – far worse than had been experienced in previous wars. Our current financial crisis has similarly affected more people than any previous crisis with almost everyone knowing someone who is bankrupt or lost their jobs or homes and almost no one escaped the carnage of the downturn without some financial damage.
Combat fatigue may go a long way to explaining the severe drop-off in volume that has plagued the markets since March, with participation now down to 25% of where we were last January and that leaves us open to the blatant sort of market manipulation that Karl Denninger caught last week as well as the usual nonsense we get daily from HFT programs that drive the market with such precision that we are able to tell how the day is going to go by simply checking our hourly volume targets. Here’s a clip from CNBC where a floor trader discusses market manipulation as a fact of trading (2 mins in).
As Nicholas Santiago points out on In The Money Stocks, "January is usually a very high volume month, yet it has started off the New Year even lighter than the last two months of 2009. Light volume markets are very difficult to short. Hence the old saying, ‘never short a dull market’." Not only is the market volume…
Stock Market Crash – Year One Review III – March Madness!
by Phil - September 10th, 2009 5:51 pm
We left off in Part II with our Feb 23rd Big Chart Review.
Even though I said: "Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long" – we still weren’t fully prepared for the devastation that was to follow as the Dow fell from 7,500 to 6,500 in the next 10 days. My commentary on the environment the next day was:
According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times. Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF. So you have the man’s network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero - even though they could hold on and protect themselves with conta-funds, if Cramer didn’t spend 3 days a week convincing his viewers contra-funds are poison. I’ve never seen anything like this outside of a racketerring investigation. Speaking of racketeering - Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.
Our wall of worry continues to be a steep one. After yesterday’s failure we do not expect too much out of today, we’ll be happy to just see a bottom at this point but it’s looking a little more likely that we’re heading into a capitulation event that can take us down to frightening levels. The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread. Let’s take these levels very seriously, if the administration can’t turn it around this week – the downward momentum can easily pick up steam.
I’ll spare you the details other than to say we DIDN’T turn it around that week and the downward momentum DID pick up steam. I was at war with…
Weekly Wrap-Up
by Phil - April 26th, 2009 4:22 pm
What a strange week.
Overall, it was a big, ugly "W": We began the week at about 8,100, fell to 7,800 Tuesday morning, rose to 8,050 on Wednesday (hump day), fell to 7,800 again on Thursday and then back to 8,100 on Friday. In summary – NOTHING HAPPENED! We have that gap to fill on Monday around 8,000 (last Monday’s gap down open) and, unlike this past week, next week is going to be chock-full of scary data points including Consumer Confidence and Case/Shiller Home Prices on Tuesday, GDP and the Fed on Wednesday, Jobless Claims and Personal Income and Spending along with the Chicago PMI on Thursday and Friday is still busy with Michigan Sentiment, Factory Orders, ISM and Auto Sales for April.
It’s going to be fun, fun, fun next week as another 25% of the S&P 500 are set to report and early on, we’ll be keeping our eyes on the following:
- Monday: BEAV, CHKP, GLW, ENR, HUM, LO, ONB, QCOM, SII, TZOO, VZ & WHR. Evening: AXS, BIDU, FNF, FADV, HLTF, HXL, MAS, MTH, OLN, RCII, SWN, TUES, UHS, WRE, WRI and XL
- Tuesday: AG, AMFI, AMED, AM, BDX, BMS, BMY, BCO, CRDN, CCE, CVH, ELNK, FMD, BEN, FDP, HCP, HL, KELYA, LAZ, LCAV, LVLT, MHP, NWPX, ODP, OXPS, ORB, PCAR, MALL, PCZ, PFE, SMG, SBNY, SPAR, STFC, TLAB, X, UA, VLO and WAT. Evening: ACE, BLDP, BWLD, CRI, ETFC, FIS, HTZ, MEE, NAL, PNRA, PRAA, RFMD, SUNH, JAVA and VFC.
So plenty to keep us busy but earnings last week were way better than expected overall and guidance was not too depressing so we’ll have to see what kind of follow-through we can now get on that and if there is any gas left in the market to finally punch through that 8,200 mark or if we are still doomed to correct back to 7,632 in the very least.
As I mentioned in last week’s wrap-up, we called it right by entering the weekend 55% bearish despite the fabulous stick save of Friday the 16th. In fact, I should have gone with my gut at 3:43 that day when I said to members: "DIA – 1/2 cover into the close it is then. I wanted to go more bearish but the levels won’t let me!" Thank goodness we stay bearish though because, as you can see from the chart above, there was no time to…
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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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