Double Toppy or Finally Poppy Tuesday?
by Phil - April 3rd, 2012 8:42 am
When will I see you again?
When will our hearts beat together?
Are we in love or just friends?
Is this my beginning or is this the end? – The Three Degrees
Will the S&P see 1,420, will the Russell see 860 again?
We need to see 13,600 on the Dow to flip our bull switch and we're happy to play that index bullish with something like the DDM (now $71.03 with the Dow at 13,264) $68/70 bull call spread at $1.15, which pays $2 (up 74%) if the Dow simply doesn't fail 13,200.
The potential loss of $1.15 on the trade can be offset with the sale of the May $127 puts at $1.10, which is a bet the Dow holds 12,700 (down 4.25%) or you can pick a stock you would REALLY like to own if it gets cheaper like AAPL, and sell the May $460 puts (down 25%) for $1 or a stock I would love to buy cheap(er) like BTU May $28 puts (down 5%) for $1.25 or CHK July $21 puts (down 14%) for .90. Assuming you offset $1 of the $1.15, then you are in for net .15 on the $2 spread with the potential for a 1,333% return on cash if the Dow simply doesn't go down from here. If you are not willing to make that bet, then you are simply not bullish.
We still favor cash in this very uncertain market but we've been more enthusiastic about adding bearish trade ideas, on the whole. Our very bearish, very aggressive, short-term $25,000 Portfolio gained a virtual $20,000 in the past two weeks DESPITE the fact that we're re-testing the tippy top of the market.
That's because we are essentially doing the opposite of "buying the dips", which is "selling the rips" – taking advantage of the excitement of the bulls, who are whipped into an almost daily frenzy by these low-volume rallies.
I'm happy to be bullish, really I am, but SHOW ME THE EARINGS! We are now up 10% since January earnings and 25% since October's report so I am looking forward to some SPECTACULAR numbers to back up these new and vastly improved valuations for all these companies. Heck PCLN (on our Long Put List and now in our $25KP) is up $250 (55%) since January alone…
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DiggGDPhursday – Don’t Get Excited, It’s Just A Revision
by Phil - March 29th, 2012 8:14 am
My, my – things are getting ugly.
Not too much technical damage on the Big Chart so far but we have critical crosses of our 2.5% lines at S&P 1,400 and Nas 3,075 to watch. I think we'll hold the Nas unless AAPL takes a dive so, despite the 1% drop in Europe this morning (7:30) – I don't think today's the day the music dies.
We have our 3rd estimate of Q4 GDP this morning at 8:30 and I'm not expecting it to be better than the last 3% estimate – probably a bit worse as the data has been downhill since then. Clearly sentiment has turned a bit sour and, as I mentioned in yesterday's post – if this is all we can get out of the markets after our Central Banksters all held a QE revival meeting on Monday with promises of Trillions more free money – then we are pretty screwed.
Speaking of people who are soon to be screwed, oil speculators are about to get their gas handed to them as there are over 570M barrels worth of open contracts at the NYMEX scheduled for delivery in the next 3 months alone and we're already way over any prior level of storage capacity (Bespoke chart).
If Iran doesn't nuke the Strait of Hormuz very soon, this is going to turn ugly for those stuck with oil contracts as October 2013 barrels are still trading under $100 and 2015 contracts are under $90 – indicating no long-term support for all these speculative barrels. Yesterday, another 7M unwanted barrels piled up in inventories as consumers continue to cut back on gasoline they can no longer afford.
When I was on BNN earlier this month, oil was at $107 and my trade idea was to pick up the SCO April $29/33 bull call spread for $2.10, selling the April $30 puts for $1.35 to pay for it on the premise that oil wouldn't go over $110, where we begin to lose more than the net .75 cash and our max gain of $3.25 (433%) came around $105. We're at the halfway mark to April expiration and, with oil at $105, SCO is at $33.63 (our goal) and the April $29 calls are $5 and the $33 calls are $2 and $30 puts are .40 for net…
Which Way Wednesday – $3.5Tn Not Enough to Prop up Markets?
by Phil - March 28th, 2012 8:19 am
Uh-oh!
Wasn't it just 2 days ago that the EU was all set to pop the ESM to $1.25Tn and the IMF was going to add another Trillion and the Fed was talking about more QE in the $1.25Tn range, which plunged the Dollar to multi-week lows? Shouldn't adding 6% of the entire planet's GDP in additional stimulus give us more than a one-day pop in the markets?
As I pointed out in Monday's Morning Alert to Members – these are all just RUMORS and my conclusion in the Alert was:
Despite the bullish turn of events (which we anticipated last week) we're more inclined to cash out our bullish trades into the excitement and press our bear bets and TOMORROW, if we're still over our levels – THEN we will scramble to add some aggressive bullish trades to our virtual portfolios. Again, I cannot stress enough that CASH is my preferred position because this market is tough to call and you need to be very flexible and very nimble to trade it.
We proceeded as planned and, so far, we haven't had any reason to capitulate and get more bullish and that is both surprising and disappointing as this is the end of the first quarter of 2012 – if not now – when? As David Fry notes:
Monday’s rally was typical as we head toward the end of the quarter. Hedge fund performance fees are on the line and any way to boost these profits is job one. Top holdings for hedge funds include the usual suspects: AAPL, IBM, INTC, BAC, DIS, HD etc.
With little volume it’s easy for algos and hedge funds to prop stocks on little hard news. Tuesday we briefly saw more of this. Just as markets were weakening a story appeared using the Fed’s favorite oracle, the WSJ, as Fed governor Rosengren stated, “more stimulus is on the table”. Immediately HFT algos jumped and markets rose if only briefly.
It's very exciting for us as PLCN (see Thursday's notes) went all the way up to $736 on Monday and sold off on some pretty heavy trading yesterday. Slowly but surely, our negative premise is beginning to take shape as Piper Jaffray is finally catching up with us and noting "a sharp decline in unique visitors to Priceline's booking.com" from growth of 61 percent during the…
Free-Fall Friday – Are There Any Dips Left to Buy?
by Phil - March 23rd, 2012 8:28 am
Down?
No one told us markets could go down? This is an outrage, I demand an investigation – TURN THOSE MACHINES BACK ON!!!
Has it already been a week since I said "Stop the Rally, We Want to Get Off"? As I noted in that post, we began our list of 12 Long Put Plays for Members on Thursday of last week (near the end of what I called "A Weak Week of Denial") and some have already doubled while others, like PCLN, have gotten even cheaper, which only makes us love them more…
I concluded that this rally was fake, Fake, FAKE and gave my reasons on Friday so no point in going over them again – now we're just watching and waiting to see what sticks as we haven't actually done a lot of technical damage (see Dave Fry's chart) – Yet!
Although we were TRYING to get bullish on Monday, we did so only after setting more aggressive targets in our Weekend Review of the 5% Rule (see post for details and levels) and by 10:09 on Monday, our first trade idea in chat was the very bearish TZA spread that I featured again in Tuesday's post, which was the April $17/18 bull call spread at .42, selling the April $17 puts for $1 for a .58 credit. TZA finished at $18.39 yesterday and the spread is now .54 but the short puts are down to .65 for a net gain of .47, which is 81% in 3 days and a good way to offset the 2.3% drop in the Russell – isn't leverage fun?
What was not fun is what happened to people who trusted Credit Suisse to run an honest game with their TVIX instrument. As noted by ETF Digest's David Gillie, an ETN is an unsecured, unsubordinated debt security with significant basis on the credit rating of the issuer. Although ETNs may be named to indicate tracking certain futures markets or indices, due to the fact that their holdings are credit notes rather than tangible assets, such as ETFs, their price becomes largely supply and demand based rather than based on underlying holdings. As Kid Dynamite points out – it does say right in the TVIX prospectus:
“The long term expected value of your ETNs is
…
Fall-Back Thursday – Time To Get Real?
by Phil - March 22nd, 2012 8:34 am
Do you REALLY think this will go on forever?
On the right is the AAPL quarterly chart but it could also be the quarterly chart of SHLD, NFLX, FOSL, STX or PCLN (Bespoke Chart), all of whom are up more than AAPL (which is up 50%) in 2012. We've discussed PCLN as one of my favorite shorts and we had a good discussion in Member chat last night comparing PCLN to EXPE, who drop the same amount of cash to the bottom line (before buybacks and dividends) but have just 1/8th of the market cap of PCLN.
Sure you can say that PCLN is twice as good as EXPE (it isn't, but you can say it) but can you say it's 4 times as good? How about 8 times? EXPE nets $500M a year – 8 times that is $4Bn – more money than the entire travel sector makes! How, exactly, will PCLN grow into that valuation? Eliminate all competition and then grow the sector by 50%? Well, that's pretty much what AAPL did but how many AAPLs can you have in one market?
THAT is the problem my friends. Aside from the macro concerns we discussed in yesterday's post, we have a sort of value mania that is driven by the very real success of one company, much the way we had a dot com boom in the late 90s driven by the very real success of just a few companies. Back then, everyone was the next QCOM, YHOO, MSFT, CSCO – whichever category you were supposed to be the best. Qualcomm, in fact, was the best performing tech stock of 1999, gaining 2,619% that year and finishing right about $100. By the end of July, 2002, they were trading at $10 but hey, what a ride!
In fact, here's the CNet story from Dec 29th, 1999 titled "Qualcomm Jumps on $1,000 Price Target" and coming on the heels of "Qualcomm to offer Net2Phone services in Eudora" it's no wonder people were super-excited! AMZN was "only" up 25% that year to $100 but Jeff Bezos was Time's Man of the Year and yes, their business has been growing at an amazing rate for the past 12 years and they have crushed their competition and dominated the sector – and gained less than 6% a year for their troubles.
Who else…
Thin-Air Thursday – A Weak Week of Denial
by Phil - March 15th, 2012 8:28 am
We HAVE to try to get more bullish.
HAVE to as in forced against our will. HAVE to as in forced against reason and rational thought. We HAVE to follow the herd or be stampeded by it despite screaming FACTS like the ECRI data on the right that CLEARLY shows that the herd is INSANE!
USUALLY, the market (and its investors) understands that where there is smoke,t here is fire. The last time ECRI was this low (on the way down) was early 2008, by which time we KNEW the economy was stalling and the Government gave us a tax rebate that goosed us for a few months but then we crashed and burned in a horrible, horrible mess that kind of made us wish they hadn't screwed around in the first place.
The ONLY OTHER TIME ECRI was this low, since the great depression, was back in 2001, but the Nasdaq had long since crossed 3,000 from the other direction and was on it's way from 5,000 to 1,500 – only a 70% drop. Don't worry though, in 2007 the Nasdaq was all the way back to 2,850 and then only fell to 1,250 and that's just 56% so this time may indeed be different despite the lower low in 2007 on the 6-year cycle that we're again in year 5 of.
Clearly, things are much better than they were in late 2008/early 2009, right? I believe, at the time, people thought the World was going to end and they were lining up at banks in Europe to withdraw money and the US had 300 bank failures and the FDIC was down to its last $50M to cover the $8Tn worth of cash on deposit (all better now, they have $850M!) and 1,000,000 people a single month were losing their jobs… Yes, things are better than the end of the World, that's for sure!
But, are they Dow 13,200 better? Are they S&P 1,400 better? Are they Nasdaq 3,050 better?
The NYSE doesn't seem to think so. Although the Dow (14,100), the S&P (1,560) and the APPLdaq (2,800) and even the Russell (850) are all within striking distance of their 2007 highs, the NYSE (10,300) is still 21% below at 8,125. Why is our broadest market index, whose capitalization ($16Tn) is larger than the Nasdaq ($5Tn),…
Whipsaw Wednesday – Dip Buying or Just Dips Buying?
by Phil - March 7th, 2012 7:52 am
Was that it?
On February 24th I wrote "TGIF – Sell in March and Go Away?" and I laid out my case for why I thought we were going to fall off the table in March and we have, indeed, fallen right off the table right on schedule since then. I said that Friday, that the post was intended as a bookend to my September 30th bottom call as I felt that we had captured all of the upside we were likely to see off the "good news" that Greece was "fixed" and the economy was "improving."
I'm not going to say anything bad about the economy here, I'll let Michael Snyder do that with his "15 Potentially MASSIVE Threats to the US Economy over the next 12 Months" – I think he pretty much covers it! 8 trading days ago (2/24), we had two short trade ideas in our Morning Alert to Members, they were:
- SQQQ April $13/17 bull call spread at .70, still .70 (even)
- DXD April $13/15 bull call spread at net .55, now .70 – up 27%
In Member Chat that day, Exec asked if I was getting bearish and my response was:
Bearish/Exec – Are you kidding, this is me painting a sunny picture! Give me a few drinks and I'll tell you how off the rails the Global Economy is right now… Do you know how much Kool Aid I have to consume not to scream short on every single stock I see. CAT $116, CMG $386, DIA $130, GMCR we already did at $70, IBM $200, KO $70, MA $415, MCD $100, MMM $88, MO $30, MON $80, MOS $59, OIH $45, PCLN $593 (did them too), QQQ $64, SPY $137, TM $85, USO $41.50 (got 'em), UTX $84, V $117, WYNN $119, XOM $87, XRT $59 (got 'em) – and that's just off my watch list of stock I like to buy when they're cheap! We are not just priced for perfection, we are priced for perfection plus a return to full employment a forgiveness of all debts without write-downs and inflation without rising interest – we are priced for Nirvana!
It's a big list but, of course, they are pretty much all winners now, with PCLN the notable exception (so far). Later that day, during Member Chat, we…
Which Way Wednesday – Fed Edition
by Phil - September 21st, 2011 8:28 am
Strap in folks, it’s going to be another wild ride!
As you can see from Doug Short’s S&P chart,we are about to slam right into that collapsing 50-day moving average, now at 1,223.40 – right about where the S&P topped out on yesterday’s morning spike. Unfortunately, the Nasdaq topped out and headed down before the other indexes got a chance to complete their up cycle and the Dollar rose back over the 77.50 line and tanked the market – exactly as we predicted it would at the bottom of yesterday morning’s post.
Of course, I can’t MAKE these things happen – I can only tell you what’s going to happen and give you trade ideas to help you profit from it. I mentioned that we had picked up 10 DIA 9/30 $115.75 calls in our virtual $25,000 Portfolio at $1.05 on Monday and they topped out at $1.75 (up 66%) but we took a non-greedy exit at $1.45 in the morning spike (up 33%) and we switched to 20 QQQ 9/30 $57 calls at .45 in the afternoon sell-off. So, we made $350 off a $1,050 investment and then we spend $900 but now we have 20 contracts instead of 10 but we also have $450 in cash so now risking just $600 of our original investment on the much more volatile Fed day.
Another trade idea we like ahead of the Fed that’s still playable is 20 FAS weekly $13/14 bull call spreads at .38 ($760), selling 10 JPM Oct $28 put for .55 ($550) for net $210 invested on the 20 $1 spreads. The worst-case on this spread is owning JPM for net $28.10, which is 13% off the current price and the best case is a $1,790 profit (852%) in a week. That sounds like a lot but options let you do funny things like at 11:30 in Member Chat, we saw PCLN making new highs against news that we thought was not actually that good for them on closer examination. Our trade idea to take advantage of that was:
If you want to play PCLN bearish – it’s very risky but the weekly $565/555 bear put spread is $6 and you can sell the $565 calls for $4.70 for net $1.30 on the $10 spread. Oct $620s are $4.10 so your bet is
…
$25,000 Virtual Portfolio – Month 7 – Profiting from Chaos!
by Phil - August 8th, 2011 6:23 am
Wheeeeeeee, this is fun!
There’s nothing like an active virtual portfolio to get you through a rough market. The last update to our very aggressive virtual porfolio was on the July 28th, when I said to Members "On the whole, we’re pretty short so we’ll be either adding longs or cashing in shorts tomorrow to get a little more even into the weekend but still bearish if there’s no debt deal." There was, of course, no debt deal that week and the next morning I said in our Member Alert:
Volume is not very high – this is a retail panic so far. If you have short positions, strongly consider put tight stops on them (this includes the $25KP and Income Virtual Portfolio) as they put plenty of cash in your pocket and we can always find another layer of shorts if the RUT can’t hold 775.
Needless to say, the RUT failed (10% ago!) and we stayed generally bearish. At the time we "only" had $57,760 of virtual cash (after starting with just $25,000!) with $960 worth of unrealized losses in our remaining, mostly bearish positions. How do you think that worked out? That’s right, possibly our biggest gains of the year! In the last two weeks, we closed the following positions as the markets collapsed around us:
- 10 USO 8/5 $36 calls at $1.35, out at $2.35 – up $1,000
…
Magical Monday – All “Fixed”!
by Phil - August 1st, 2011 8:11 am
Oh what BS!
Still, it’s BS we expected, isn’t it? What did I tell you in Friday Morning’s post? I said: "Our plan for the day (as we’ve been short all week) is to get back to cash for the weekend but I’m sure we’ll find some speculative upside plays (like USO at $37) to play (we already went long on Silver in the Morning Alert to Members)." I followed that up with my 9:40 Morning Alert to Members, where my specific trade ideas for the morning, while the market was plunging, were:
- USO Next week $36 calls are $1.45 so 10 of those in the $25KP with a stop at $1.20.
- TNA Aug $69/73 bull call spread is $2 and you can sell the $51 puts for $1.20 and that’s my favorite index play at the moment. Of course any bullish offset would work but this one is focused on the RUT and betting it won’t drop another 8% by Aug expiration (725).
How’s that for a bottom call? That was right into the panic lows and, at 9:48 I reiterated my call right at the dead bottom, saying to Members: "Volume is not very high – this is a retail panic so far. If you have short positions, strongly consider put tight stops on them (this includes the $25KP and Income Virtual Portfolio) as they put plenty of cash in your pocket and we can always find another layer of shorts if the RUT can’t hold 775."
At 9:50 my trade idea was selling PCLN weekly $545 calls at $3 which expired worthless that day for a 100% gain. At 9:52 we picked up the weekly (that day) QQQ $57 calls at .72 and we had a 100% gain on those by 11. At 9:56 we went short on the VIX with the Aug $19 puts at $1, at 10:16 we even made 5 bullish adjustments to our fairly conservative Income Virtual Portfolio, including selling 50 DIA Aug $116 puts for $110 ($5,500) and we’ll be pulling those right off the table this morning – but I’m getting ahead of myself…
At 11:25 we went for a Jan bull call spread on UNG and at 1:20 I put up my last long trade idea of the day, selling YRCW Jan $1 puts for .70 for a .30 net entry on the trucker. …
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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...
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coordinator for PSW. She manages the Favorites backup site
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