Wild Weekly Wrap-Up
by Phil - December 19th, 2009 8:20 am
Wheee – that was fun!
Last week, I asked the question were we "Too Bearish or Just Too Early?" I said in that wrap-up: "This Friday the market topped out about 150 points higher than last Friday, closer to the top of our range so we went much more bearish on Friday, perhaps too bearish considering this was the best Friday finish since Nov 6th and we haven’t had a down Monday since October 26th." We did get the move up we feared on Monday but we stuck to our guns and had a fabulous week.
Even as the market was going against us Monday morning, my first Alert of the week to members at 9:44 said: "I’m still more inclined to look downward at: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600… I’m still bearish because oil is weak, gold is weak, the financials (XLF at 14.30) are weak and most of the good news we are hearing is nothing but fluff." That was a pretty good call as we hit our target levels yesterday and held them, so we flipped more bullish right at 11:30 on Friday, in what was some very good timing for our intra-day play.
We are still on a stock market roller coaster that’s going to have plenty of ups and down in the thin, holiday trading that will likely characterize the end of the year. The market will be closed 2 Fridays in a row and good luck finding people around this Thursday or the next one so 6 proper trading days left to 2009 at best. We got out – that drop was very satisfying and we’ve moved mainly to cash (our $100K Virtual Portfolio has $88,000 in cash at $107,249 at the end of it’s first month). Last week we were able to cash out the bull side, this week we got satisfaction from our bear plays and that leaves us footloose and fancy free to have fun the next two weeks. If our day trading goes as well as it did on Friday, we can end this year with quite a bang.
Manic Monday – Dubai, CitiGroup and GS Move Markets
This picture says it all. When you want to blow smoke up investors’ asses, the dream team of economic BS is Greenspan and Cramer, who appeared on Meet the Press last Sunday to tell us that the market…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggOption Trader Prescribes Bullish Risk Reversal on CVS
by Option Review - November 19th, 2009 5:43 pm
Today’s tickers: CVS, LIZ, ITMN, MA, V, RF, KG, HW, WSM, AEP & NTAP
CVS – CVS Caremark Corp. – Shares of the pharmacy retail chain are up 1.5% to $31.11 perhaps due, in part, to the ‘buy’ rating it received at UBS today. Optimistic options activity took place in the December contract as one investor initiated a bullish risk reversal. It appears the trader sold 4,400 puts at the December 31 strike for an average premium of 94 cents apiece in order to finance the purchase of the same number of calls at the higher December 32 strike for 63 cents each. The investor pockets a 31 cent credit on the trade, which he retains in full as long as shares remain above $31.00 through expiration. Additional profits accumulate if CVS’s shares rally above $32.00.
LIZ – Liz Claiborne, Inc. – A 15,000-lot covered call in the January 2011 contract on Liz Claiborne today suggests shares are likely to recover, albeit at a glacial pace. Shares of the apparel and accessories retailer suffered a 5% decline to $4.55 during the trading session. One investor effectively purchased shares of the underlying stock for $3.30 apiece by selling 15,000 calls at the January 2011 5.0 strike for a premium of 1.25 each. Thus, the trader stands ready to accrue gains of 51% if shares of LIZ appreciate to $5.00 by expiration. The long-term positioning of the covered call play provides several advantages to the investor. One advantage is that the call options do not expire for another 13 months, which leaves ample time for LIZ’s shares to appreciate up to the strike price of $5.00. The 15,000-lot call transaction represents nearly 50% of the total existing open interest on LIZ of 31,502 contracts. Note that shares last traded above $5.00 yesterday at approximately 10:35 am (EDT).
ITMN – InterMune, Inc. – A bull call spread on the biotechnology company today suggests shares could rally significantly by expiration in April 2010. Bullish options activity on the stock belies the more than 3% decline in ITMN’s shares during the session to $10.94. The call spread involved the purchase of 3,750 calls at the April 15 strike for an average premium of 2.25 each, marked against the sale of the same number of calls at the higher April 25 strike for 75 cents apiece. The net cost of the transaction amounts to 1.50 per…
MYTHS & REALITIES
by ilene - November 5th, 2009 3:40 pm
MYTHS & REALITIES
Courtesy of The Pragmatic Capitalist
David Rosenberg has some excellent thoughts on everything from Warren Buffett to the boom in M&A:
Myth: Warren Buffett is making a big wager on the U.S. economy.
Reality: The Oracle believes that with oil prices where they are and likely to go higher, rails will grab transport share from the truckers. This may also be a back-door bullish call on coal. Or maybe it’s a constructive sign on buying of U.S. made goods out of Canada where local domestic demand is hanging in just fine, thank you very much.
Myth: There are signs of life in the retail sector.
Reality: October auto sales in the U.S. did pick up from September’s abyss, but this was still the eighth worst month in the last 27 years. And yes, it does look like U.S. chain store sales are going to come in somewhere between +1.0-2.0% year-over-year. But beware. This actually says more about the detonation that took place a year ago — the “base” for the year-over-year calculations — than anything truly robust at the present time.
Also, don’t forget that these are YoY same store sales from surviving retailers. Thousands have gone bankrupt in the last year, for example Circuit City, which for sure has helped BestBuy’s activity, and there are countless other examples. So the data, for lack of a better term, are distorted and tell you very little about what consumers are doing in the aggregate.
Myth: The low end consumer is adjusting to the new frugality more than the high end.
Reality: If only it were only so. Unfortunately, a gap has opened between employment-dependant spending and wealth-dependant spending. After all, the investor class is giddy after a 60% rally from the March lows in equities, a rally in which 2.7 million jobs in the U.S. have been lost. Epic. So in October, luxury goods sales came in at +6.5% YoY and jewellry at +7.2%! Meanwhile, department stores who cater to the guy (and gal) on the street posted a 1.5% sales decline (as per MasterCard’s SpendingPulse survey).
Also keep an eye on where people are buying their food and what food they are buying (good article in yesterday’s Wall Street Journal on this) — Cheesecake Factory is all of
…
What the Burlington Northern and Black & Decker Deals Have in Common
by ilene - November 4th, 2009 11:18 am
What the Burlington Northern and Black & Decker Deals Have in Common
The Deal Professor, having expressed his dismay at the lack of M&A a day too early, weighs in on the similarities between Buffett’s purchase of BNI and the Stanley Works buyout of Black & Decker…
From Steven M. Davidoff (NYT):
While both deals may or may not be the sign of a new trend, and two deals certainly do not make a trend, both are notable for their similarities. Both are strategic investments in America. Burlington Northern is a railroad; its success or failure depends on the state of the American economy. Stanley Works and Black & Decker are American icons in the tool-making business that derive substantial portions of their revenue from American sales and are merging to further fight off global competition.
The deals represent the creative consolidation going on in the distressed M.&A. market.
An interesting look at what dealmaking looks like these days.
Read the rest:
Weekend Wrap-Up, Ripping Through the Top or Topping and About to Tip?
by Phil - July 25th, 2009 12:34 pm
What a week this has been!
In last week’s 600-Point Weekly Wrap-UP, I said it would take some spectacular earnings results next week to keep the rally going and it seems like we got them this week as roughly 85% of the companies reporting this week beat expectations with 42 of this week’s reporting companies guiding up and only 18 guiding down. While people like Richard Bernstein may make very good arguments for why we shouldn’t focus too much on quarterly earnings surprises, I have to say I am somewhat swayed by the preponderance of evidence we’ve gotten this week that, by and large, the vast majority of our companies are weathering the storm far better than analysts have expected.
"It’s pretty amazing what passes for good news these days," remarks Barry Ritholtz on his blog, The Big Picture (www.ritholtz.com.) "Beating dramatically lowered earnings forecasts on cost-cutting and layoffs — rather than top-line growth — seems to be the order of the day. The irony is that the Wall Street analyst community overestimated earnings at the top of the cycle — pure extrapolation of trend to infinity. They seem to be doing the same thing now, only extrapolating falling earnings to zero. What that produces is not true upside surprises, but merely jumping over a dramatically lowered bar," he says.
It’s interesting Barry says this now because it sounded familiar and I went back to my May 2nd Weekly Wrap-Up, where the sentiment was very similar and I said at the time: "With 2/3 of the S&P 500 weighing in, earnings have been 70% positive. I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless. As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time. With the added pressure of the old "sell in May, go away" adage – there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes – despite our common sense saying no."
More importantly, with…
Weekly Wrap-Up – Hitting Our Targets At Last!
by Phil - May 2nd, 2009 8:15 am
Finally we break out!
Last Friday we had our charts that indicated it was possible but we played 55% bearish into the weekend thank goodness and, as I predicted in the weekend wrap-up, our broken clock (going into each weekend 55% bearish) was right twice as we had a harsh sell-off on Monday that did not get us off to a good start. After last week’s action, which I called "a big, ugly W," where 8,130 capped our gains on the Dow, we got a very nice 2.5% rule move for the week on a breakout where we held 8,130 to the downside. While we still went into the weekend just a little bearish – it’s getting harder to believe it as the relentless rally continues but better safe than sorry over the weekends as our rallies are still coming on very low volume and, other than Friday, we sold off into every close this week.
We finished the week right at the 8,200 mark that I predicted weeks ago would be the top of this rally. In fact, the breakout levels we’ve been using since we first broke out over 7,632 in late March were DIA 8,130, S&P 870, Nas 1,700, NYSE 5,500 and RUT 480 – these were our break DOWN levels of January (and pretty much where we closed for the week) so, on the whole, we are nicely confirming that our "V" bottom of March 9th was an aberration and will NOT be revisited. We do still expect a retest of 7,900 but 7,632 may now be off the table and our 8,650 target (the mid-point of what we’ve considered "fair value" since October) is just as likely to be hit before we see another pullback.
What we’re looking for is a new range that confirms the 5% levels around 8,650, which is, as a floor, 8,200 (8,217 to be exact) and, at the top of the range, 9,100 (9,082). The closer we get to 9,100 before pulling back, the more likely 8,200 firms up as a floor. Volatility is certainly washing out of the market slowly but surely as the VIX finishes the week at 35.30, down 20% for the month against an 8% gain in the S&P - a complacency that indicates that up, as we like to say, is the new down.
We had an absolutely fantastic week as we learned to stop…
Friday – Workers of the World Unite!
by Phil - May 1st, 2009 8:29 am
Happy May Day!
I remember when Russia used to parade their nukes down Red Square and we used to do "duck and cover" drills in the schools during one of the greatest bull market runs in history. Now we have turned into such wimps that we panic out of our stock holding over fear of germs! Chrysler workers of the world united yesterday as the failed capitalist corporation filed for bankruptcy and agreed to give control (55%) to it’s workers. I am thrilled with this outcome as it’s going to be a fascinating socioeconomic experiment to see what decisions the workers make regarding Chrysler’s major long-term issues like retirement benefits and health care. I’m sure the administration is happy too to have a petri dish in which to watch the issues that plague this whole nation long-term play out in microcosm. If we’re lucky, we will even be able to blame the Italians (Fiat) for anything that goes wrong.
Many global markets are closed today for various celebrations and, ironically, many countries around the world still honor a US labor incident that this country has swept under the rug - the 1886 Haymarket Affair, which took place in our President’s hometown of Chicago when a workers strike for an 8-hour workday got out of hand and about 50 people died (4 police, the rest strikers). 8 Strike organizers were tried as anarchists and seven wer hung and if you thought the NYTimes was always a liberal paper, read 1886′s "Anarchy’s Red Hand: Rioting and Bloodshed in the Streets of Chicago" and compare that to the more balanced Wikipedia account of the incident. Anyway, that’s why we don’t celebrate May Day in America even though the American Haymarket Affair is the one that inspired this memorial holiday in the rest of the world.
Speaking of our government sweeping things under the rug, it’s incredible that people are buying this nonsense that Chrysler will have a quick and painless bankruptcy. If you think the trial of the union organizers as anarchists was a farce, imagine the joke of a court proceeding that we’ll have to have in order to steamroll billions of dollars of debtholders into submission. It was less than 2 years ago, August 2007, when Cerberus Capital took a majority stake in Chrysler and the company quickly turned around and borrowed $10Bn against questionable assets like auto patents and things like the Jeep brand name. They…
Thursday Morning
by Phil - April 16th, 2009 8:23 am
Is today the day we break the pattern?
I predicted a wild week on Monday morning and we have been having a fabulous time as it only took me until 12:51 on Monday afternoon to point out to members that we were following a virtually identical pattern to the previous week. That enabled us to anticipate the gap down on Tuesday morning, as well as yesterday’s stick save. In fact, I predicted the Dow would close at 8,050 and missed it by 7 points. Our short plays that day were MA (which we cashed in yesterday with a huge gain), BIDU and FSLR. The last two are still trading up and I really like BIDU as a proxy for a possible disappointment from GOOG this evening. Also, we got a downward revision to China’s GDP today to "just" 6.1% growth.
I often say to members "We don’t care if the markets are fixed, as long as we know HOW they are fixed" and yesterday was a great example of that as we digested the Beige Book report and, at 2:53, with the S&P spiking down to 839, I was able to post a reminder "20 minutes until stick save" and put up a trade idea for the FAS $6 calls at $2.15 (because they had almost no premium), which closed out at $2.90 an hour later (up 34%).
We did not, however, change our overall cover stance at the close of 55% bearish. I would have been more bullish if we had NOT moved past 848 on the S&P, there was a sort of frenzied overkill to the "rally" that made me think we would not get the follow-through that we got last Thursday. Also, we had to take into consideration that last Thursday closed the week so we have an extra day (and it’s options expiration day!) to play with so, as I said to members in yesterday’s chat, it pays to error on the side of caution – just in case.
Today we have the usual 650,000 people losing their jobs (yawn) along with anemic Building Permits and Housing Starts (550K each expected) and the Philly Fed at 10 am. The Philly Fed is our biggest worry as it is almost certain to be worse than the -32 expected because it says right in yesterday’s Beige Book: "Third District manufacturers reported further declines in shipments and new orders, on balance, from…
Wary Wells Fargo bull adopts cautious collar approach
by Option Review - April 1st, 2009 7:02 pm
Today’s tickers: WFC, MA, S, ESRX, CREE, RIMM & CELG
WFC Wells Fargo & Co. – Shares have rallied slightly by about 1% to $14.37. Options investors were very active on the stock today, but one trade in particular caught our attention in the May contract where one investor has established a protective collar in conjunction with a large volume-sale of call options as a vehicle to fund the strategy. To initiate the collar, this trader purchased shares of the underlying stock and simultaneously purchased 42,000 puts at the May 12 strike price for a premium of 1.70. The put options serve to protect this investor should shares experience a significant decline over the course of the next two months. The sale of 42,000 calls at the May 20 strike price for 1.00 was established for a couple of reasons. First, the 1.00 premium pocketed on the sale effectively reduces the cost of the put options to just 70 cents apiece. Second, the short position at the upper strike price has effectively given this trader an exit strategy should shares rally to $20.00 by expiration. If such a rally were to occur, the shares could be called away from him at expiration and he would have reeled in gains of 39% on the $5.63 rise in the value of the underlying. Of course, if this scenario were to take place, the puts purchased would expire worthless and the net cost of 70 cents he paid out today would be lost.
MA MasterCard, Inc. Class A – The global payment solutions company is off by more than 4.5% to $159.87. MA appeared on our ‘most active by options volume’ market scanner after one investor took a bullish stance on the company using options. At the May 180 strike price 10,000 calls were purchased for 5.40 apiece while at the May 200 strike 10,000 calls were sold for a premium of 1.40 per contract. The net cost of the trade amounts to 4.00 and yields a maximum potential profit for the investor of 16.0 if shares were to rally up to $200.00 by expiration next month. Shares would need to experience a rally of about 15% from the current price in order to reach the breakeven point at $184.00. MasterCard has not traded above $184.00 since October of 2008, but this investor appears to be optimistic that MA will rebound in the…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(