by Phil Davis - June 4th, 2014 8:29 am
Yesterday was a close one!
We briefly failed our first test of 1,920 (see yesterday's notes) but another low-volume rescue kept us from fulfilling the "Wave C" predicion on this Elliot Wave chart – for now.
Not that I'm an Elliot Wave person, of course – my theory is that, if you are going to draw 5 points on a graph you can imagine all sorts of random patterns and SOMETIMES you will be right. About half the time, in fact.
I believe in bigger numbers and our own EXCLUSIVE 5% Rule™ says the S&P bottomed out at 800 (in 2009) doubled to 1,600 last Spring, consolidated there for a quarter and now has made a 20% move to 1,920 – just like it was supposed to since it bottomed in 2009 (see our many, many predictions over the years). In fact, it was March of 2012, with the S&P at 1,404, when we set our new goals for the S&P to 1,600. As I said at the time:
That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800. I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.
Once we did get the dip in June that we expected at the time (down 10%, back to 1,278 and, fortunately, we had wisely cashed out our Income Portfolio before things turned ugly) we were happy to go gung-ho bullish with our Buy List – the same kind of Buy List we just finised assembling in yesterday's Live Trading Webinar. In fact, right in that 3/17/12 post, I laid out this play to profit from our prediction:
For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan (2013) $146/154 bull call spread is $3 and you can sell the $110 puts for
by Phil Davis - June 3rd, 2014 8:25 am
That's 2 closes over 1,920.
It's almost enough to make us regret cashing out our Long-Term Portfolio last week. We didn't expect to call a perfect top, when you have a large portfolio it can take days to unwind your positions and, despite the very low volume – we'd like to thank all the retail bagholders who bought our shares at top dollar in the last few days.
Thanks Dave and Bill and Jack and Joe and – well, that's about it as volume is so low, there can't be more then 3 or 4 guys trading in this market!
Last June started off with low volume too – as well as record highs – and then we dropped 5% into July. We're simply taking our 119% cash and waiting for the dip – is that so bad?
Yesterday was only the 3rd lowest volume day of the year and the action was wonderfully fake around a PMI report that was released, revised and then revised again – all in the same morning!
In the end, they decided on 56.4, which was in-line with consensus but not before giving us a glimpse on how quickly this market can fail on bad news.
In our Live Member Chat Room, we took full advantage of the over-reaction on the bad news to go against the panicking sheeple and buy TNA (3x bullish ETF on the Russell) in a 9:57 Alert I sent out to our Members.
That trade was so obvious I tweeted it out as well (you can follow me here) saying:
Those calls came in cheaper (because our timing was perfect) at $1.50-$1.40 and they topped out at $1.70 and finished the day at $1.61 but should be cheap again this morning, which is why I'm mentioning them now as they make an excellent upside hedge – in case the market does better than we think.
by Phil Davis - May 16th, 2014 8:08 am
Another crazy day ahead.
What else is new in this market? As you can see from Dave Fry's SPY chart, the pattern is holding up of high-volume (relatively) sell-offs following low-volume run-ups. This is how the Institutional Investors manipulate the markets to dump unwanted shares on retail investors. I've been telling you all week how it works and now we can see it in action.
Of course, it's nice to have this knowledge ahead of time – that's the edge we strive to give to our Members at Philstockworld. Even if you are just reading us for free and don't have access to our Live Member Chat Room, you would have done very well to follow our advice on Tuesday and go with the DIA puts at $166.80 and the DXD longs at $26.20 – it was right there on top of the morning post (which you can have mailed to you every day, pre-market by SUBSCRIBING HERE)! In our Member Chat, the previous day, our trade ideas were:
A 5% pullback on DIA is 8.3 points (830 Dow points), back to $158.40 from here. The June $161 puts are .95 so, if you have $100K to protect against a 10% drop, you can buy $5K worth of the June $161 puts and a 5% drop pays you back $8,000 and a 10% drop to $150 (15,000) would net you $11 per contract so a 10x return is $55,000 back – that's overhedged actually!
On DXD, the July $25/28 spread is $1.10 and is $1.25 in the money so you get all the upside on DXD up to a 140% profit on a very small move down in the Dow. We already have July $28 calls in the STP and it's a little too soon to roll but we will.
On a new trade – you can just get out if the S&P holds 1,900 for more than a day – that's not too far from here.
by Phil Davis - May 9th, 2014 8:29 am
Look at the Russell!
Look at the Nasdaq! Are you seriously still holding onto your Dow, S&P and NYSE stocks? That's exactly what people did in 2008, when they were so used to the markets being saved whenever they dipped, that they ignored all the warning signs – until it was too late.
I know that I've been sounding like a broken record and you can call me Chicken Little but cut me a little slack as we are protecting profits here.
We have 5 virtual porfolios we track for our Members and the $100,000 Butterfly Portfolio is up 19.4% ($19,000), the $500,000 Long-Term Portfolio is up 9.6% ($48,000), the $100,000 Portfolio is down 5.8% ($5,800), the $500,000 Income Portfolio is up 6.4% ($32,000) and our $25,000 Portfolio is up 15.4% ($3,850). Overall, that's a gain of 8.8% on $1.225M deployed in 4 months.
The Short-Term Portfolio is a hedge to the Long-Term Portfolio, so we haven't cashed those in but the Income Portfolio doesn't have an external hedge, so we moved to cash on that one last month (BEFORE the Nas and Rut started crashing off decade highs) and the Butterfly Portfolio is self-hedging while the $25KP has just one position left.
Perhaps I'm wrong and the Nasdaq and the Russell will recover and the other indexes will all move up to new highs. Even if they do, our worst case is we miss a bit of a rally. If we're breaking out to new all-time highs from here – there will be plenty of money to be made. BUT – if I'm right and the market drops 5-10%, then our taking 110% off the table at the top means that when we buy stocks again at 90%, we are buying 120% of what we could have bought had we not wisely cashed out in the rally.
The REWARD for being cautious is owning 20% more shares if we're right, owning maybe 2.5% less shares if we're wrong or owning the same amount if the market stays flat. It doesn't take a degree in statistical analysis to see why I…
by Option Review - April 10th, 2014 3:33 pm
A big early print in the iShares Russell 2000 ETF (Ticker: IWM) on Thursday may be a short-term hedge to protect against further market losses during the next five weeks. The options market participant appears to have purchased the regular May $107/$113 bear put spread 40,000 times for a net premium of $1.33 per contract. The trade starts making money if shares in the small-cap ETF decline 2.7% from the current price of $114.78 to trade below the effective breakeven point at $111.67. Maximum potential profits of $4.67 per contract are available on the spread should shares in the IWM drop 6.8% to $107.00 by expiration next month.
Note: At the end of the day, IWM was at 111.96, down 3.29(2.86%). ~ Ilene
by Option Review - February 12th, 2013 2:18 pm
Today’s tickers: MAS, IWM & WU
by Phil Davis - October 18th, 2012 8:03 am
EU leaders are meeting in Brussels today and tomorrow.
For anyone who's been paying attention for the last two years – that's usually not a good thing and, as we noted yesterday, it was a strong Euro and a weak Dollar that was driving our little rally. The Dollar bottomed out at 79 and the Euro topped out at $1.314 and the Euro's strength sent the Yen back up to 79.30 to the Dollar (weaker) and that led to a 2% Nikkei rally last night. As you can see from the chart on the right, the S&P for the week is 1% behind UK and Germany and 2.5% behind France and Italy (+4%) and Spain (+7%) – so we have a lot of catching up to do if this rally is real and sustainable.
Still, I sent out an Alert to Members early this morning noting that the Global Markets were holding up well as of 6am and that was encouraging. Yesterday we discussed taking advantage of the run-up in the Russell to make a TZA hedge to lock in some of our gains (see main post) but we still haven't covered XLF (target $16.50 – see Dave Fry's chart) and we're still bullish on AAPL as well. We cashed that ISRG play, as planned for $9 on the spreads (200x = $1,800), spending .30 x 200 ($60) to buy back the callers so that, with the $200 we were paid to take the position is just short of our $2,000 goal at net $1,960 – not bad for a day's "work".
In Member Chat this morning, we discussed GOOG's outlook for earnings this evening and decided they were more likely topping than popping so we have that risk to the Nasdaq for tomorrow. IBM was an 80-point drag on the Dow yesterday but it did manage to finish flat and advancers led decliners on the NYSE by 2:1 so the conditions are still there for a rally and hopefully what we have here a a pause that refreshes and not a triple top from the mid-September highs.
The Nasdaq and the Russell are, in fact, in downtrending channels and, for the Nasdaq, their fate rests on GOOG tonight and AAPL next Thursday – but it's still a long way back to the highs at 3,200.
by Phil Davis - October 10th, 2012 8:44 am
$76,103 – That's not sales, that's profit!
Every minute of every day, AAPL is making $76,103 (at $40Bn a year) on the sale of $316,120 worth of products. No company on Earth comes close to that kind of metric and, overall, the stock's performance clearly indicates that but, if you listen to the MSM, you would think AAPL is finished.
We had a nice, in-depth discussion about AAPL in Member Chat this morning and we not only concluded it's still a buy but we came up with a lovely spread that has the potential to turn $3,000 into $45,000 between now and Jan 2015 if AAPL simply holds $600 – needless to say we're very proud of that as it's always nice to have a trade or two in your portfolio that returns 1,500% and we rarely get a chance to do them with a blue-chip stock like AAPL.
Note in the above chart, that AAPL is still a relative outperformer this year – shown priced against HPQ, DELL, INTC, IBM, CAT and ISRG – all good companies that have simply failed to keep up. We also like HPQ at this level, now $14.30 as their REDUCED guidance has them earning $3.62 per share next year after earning $4.05 this year and that's still 25% back on your money, which sure beats TBills and we're not even counting the $18Bn in cash they have on hand, which is quite a lot when you consider that their entire market cap is now just $28Bn. Small wonder HPQ spent $9Bn buying back their own stock last year, when it was priced 100% higher.
HPQ is a pretty good candidate for a buy/write, where we Buy the stock for $14.30 and Write 2014 $15 puts and calls (sell short) for $5.50 and that nets $8.80 on the trade and, if HPQ is below $15 in Jan 2014, then another round of shares will be put to you at $15 for an average entry on 2x of $11.90, which is 17% below the current price and, if HPQ is over $15 in 16 months, then you get called away at $15 for a $6.20 profit on cash (75%). Buy/writes are our favorite tools for making long-term entries – see "How to Buy a Stock for a 15-20% Discount."
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 - 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