1,160 – That was the S&P close after yesterday’s wild action. A neat 160-point drop (12%) in 3 months for the World’s largest market kind of sucks, don’t you think? My commentary in June 30th’s "It’s the End of the Quarter as We Know It" post was:
We feel fine because we cashed out on the long side (shorter-term, unhedged positions) and we really don’t care what the market does today or tomorrow but we are betting this rally reverses and we will be taking some (more) short hedges today – hopefully selling into the last legs of this fairly fake-looking rally.
My top downside picks to play the sell-off were EDZ ($17.90 at the time, now $28, which is up 36% even without using options to make a spread) and TZA ($35.50 at the time, now $51.10 – up 44%). As I said in that morning post: "I didn’t think they could take the Dollar below 75 but they hit 74.54 last night and it remains to be seen if they can hold it down in real trading, especially with the Pound weakness (see this morning’s Alert) and the Yen’s unwanted strength. Something’s gotta give and we’re betting it’s this fake, Fake, FAKE rally…."
We were shorting oil futures (/CL) at $95 (now $80, up $15,000 per contract) as we thought the holiday weekend was the end of the run but we did keep heading up to $100 (down $5,000 per contract) before finally getting a drop to $75 (up $25,000 per contract) in early August.
One funny play from that June 30th Member Chat was the VIX Aug $15/17 bull call spread at $1.20, selling the $16 puts for .50 for net .70 on the $2 spread. That just seems so cute (and obvious) with the VIX at 38.84 now (it was 30 at the end of Aug for a full 185% gain on that hedge).
Other hedges we liked in that post were the TZA Oct $31/42 bull call spread at $3, selling RUT Aug $710 puts for $2.90. The RUT puts expired worthless so net .10 on the spread that is currently $20 in the money for pretty much the full 10,900% gain.…
Luxurious, avaricious, false, deceitful,
Sudden, malicious, smacking of every sin
That has a name; but there’s no bottom, none.
That’s the way the markets feel this week as we, like Henry V – head once more into the breach (or close the wall up with our EU dead!). I had said on Tuesday, that it was 1,200 or bust on the S&P (as usual) and we failed to hold 1,200 and we busted and then we failed to hold the bottom of the rising channel David Fry had drawn at the top of that post (117.5 on this chart) and so we tumble back down towards our much more reliable -5% line at 1,140, which I drew in red.
While tricky, it is not impossible to trade this kind of action. We are very fortunate to have been trading this exact range on our virtual $25,000 Portfolio and we just had our best 2 weeks of the year, despite the insanity, with a net $16,475 gain since 9/15. That’s 66% of $25,000 right there and we’re now at $97,400 and on track to hit our $100K goal for the year on Friday as long as the Russell doesn’t fail 645. If not, as with many trades this year – we’ll work it out!
That’s the whole point of this portfolio exercise – to illustrate the idea of balance, even in aggressive short-term trading. We are never all bullish or all bearish and sometimes we’re wrong but, generally, we simply do more shorting at the top of our range and more buying at the bottom of our range and then we simply sit back and wait for the winners to come in. Of course for almost every winner there’s a loser but then, a week later, the losers are winners too!
OK, so PATIENCE and BALANCE – that’s those are our two points! And taking profits off the table. Right, then our THREE points are patience and balance and taking profits off the table while not being greedy. So that’s FOUR points. Amongst our points are Patience and Balance, Taking Profits off the Table and Not Being Greedy.
As I often say to Members, if you wake up in the morning and you’re not sure if you want the markets to…
So, while we wait for those IPhone 5′s to roll off the assembly line, we’ll be keeping an eye on the Russell, which should benefit from the recent strength in the Dollar, which is is up over 5% in September – although probably topping out at 78 – which is good, as it will give the markets a nice boost on the way back down.
Don’t worry, no one will be arresting Rupert Murdoch because – well, he’s rich. Rich fixes everything, doesn’t it? Rupert’s pal, Chinese Premier Wen Jiabao (What? You didn’t think he only buys Western politicians, did you?), says no one should rely on China to bail out the world economy. "Countries must first put their own houses in order," Wen said today. Asian stocks dropped following his comments, but European markets and futures have shaken the news off after the bank downgrades in a classic example of selling the rumor and buying the news.
It’s very sad when you can get your best financial advice from cartoon characters.
I apologize for the language but this video pretty much says it all. As the man in green says: "Buy the f’ing dip, you f’ing idiot." That’s the entirety of the market strategy we are being trained like Pavlov’s dogs to follow. Also as the man says "Now, don’t forget this only works if you go out and tell all your friends and family to do the same. That way, when they are buying more expensively than you, you can sell back to them and collect your money."
Of course it’s a Ponzi scheme but it’s a gigantic, legal one and the best thing about it is that the Government FORCES everyone to play so you never run out of suckers. When there is a lack of actual new sucker/investors to put money in, the Government steps in with stimulus or buys equities (QE1) or buy Treasuries from the banks so they can have free capital to buy equities with (QE2). They debase the currency and drive inflation higher while talking it up even more so and virtually penalizing people for saving money and not shopping. In this way, the US Government places a tax on every single citizen through a systemic devaluation of their lifetime accumulation of wealth as well as unfavorable savings and inflation conditions that are aimed to force money into equities and commodities.
What is the logic to this? Well, none if you are a government that actually cares about the long-term benefit of 310M people but we haven’t had a government that was "for the people" since they put two in the back of Kennedy’s neck so why complain about it now? What we should be doing is celebrating the sheer stupidity of the situation and enjoying the ride as this stock market roller coaster clacks up the tracks – towards a drop that is certain to have investors screaming all the way down but, for now, let’s listen to what the Bernanke Bears have to say in their latest cartoon about the Bank America crisis with WikiLeaks as well as their advice on NFLX and CRM:
Now, what could be more simple than that? Just take all your money out of bank stocks and put it into NetFlix. Well, maybe not NFLX as we…
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…
Peter D has a long-running and very successful system of selling premiums on a regular basis that’s well worth learning.
Investors selling a short strangle are expecting the underlying stock to not move much in either direction. The strategy is accomplished by selling a call option at a higher price than the current stock or ETF price and by selling a put option at a lower price than the current stock or ETF price. Both of the options will have the same expiration month. The investor in a short strangle benefits from the underlying moving within the spread between the call strike and the put strike.
There are two reasons we like this strategy a lot at PSW:
1) It’s boring! Unless the market is MUCH more volatile than normal, taking sensible, NON-GREEDY, out-of-the-money short option positions is a fairly market-neutral way to place our bets. While the risk/reward ratio may seem inverted, statistically it’s a winning play over time.
2) It’s perfect for our "be the house, not the sucker" philosophy of trading. We are always looking to SELL volatility. The idea behind this trade is that front-month volatility is relatively expensive compared to historical long-term volatility and we take advantage of selling a very high cumulative volatility over the course of the year.
I keep a notebook (actually several) of all of my trading ideas including results from back testing from all of the various stocks, indexes, etf’s, futures, market statistics and yes, even planetary alignments, tides and lunar cycles. While reviewing all of my Blue Wave test results today, I stumbled upon a consistency heretofore completely unnoticed yet intriguing in it’s premise and applicability to trading, especially trend trading.
It appears from my testing that one particular trading vehicle consistently generated better results, sometimes much better results, then any other. What I found was that the Russell 2000 index (RUT) did better in my myriad of testing then any other index, including SPX, OEX, QQQQ, SPY and DIA.
Naturally, I Goggled this phenomenon and found a number of similar observations, best summed up here:
The Russell 2000, while not as popular as the S&P 500 or the Nasdaq, is actually much easier to trade. The broadness of the Russell’s index causes it to trend better than the Nasdaq and the S&P. The breadth of the 2000-stock-index tends to filter out the noise in the market, which makes it a more efficient market to trade. The brokerage houses tend to tout the S&P and Nasdaq markets because they are best know to the public. The Russell 2000, however, is utilized a great deal by institutional players because it trends so well.
And then this:
However, there is another market also catching the eye of many day traders — E-mini Russell futures. A quick glance at the top trading systems we ranked across seven different statistical measures at the end of 2004 showed something extraordinary — several E-mini Russell trading systems occupying spots at the top of the list.
So let’s take a look at the RUT, which coincidentally is the base index for four of the highest leveraged ETF’s: TNA, TZA, BGU and BGZ.
Above is our big picture Weekly chart of the Russell 2000 index. A week ago it flipped from LONG
If you need evidence that we are in the midst of a lunatic financial mania, just consider this summary from a Marketwatch commentator as to why markets are ripping higher this morning:
“The dovish comments from both Fed Chairwoman Janet Yellen and People’s Bank of China Governor Zhou Xiaochuan are giving markets a big lift, and in the absence of negative data or news, I imagine this will continue to buoy the markets throughout the session,” Erlam...
Gottscho-Schleisner Fulton Market pier, view to Manhattan over East River, NY 1934
Increasingly over the past year or so, when people ask me what I do, and that happens a lot on a trip like the one I’m currently on in the world of down under, I find myself not just stating the usual ‘I write about finance and energy’, but adding: ‘it seems to become more and more about geopolitics too’. And it’s by no means just me: a large part of the ‘alternative finance blogosphere’, or whatever you wish to call it, is shifting towards that same orientation.
Not that no-one ever wrote about geopolitics before, but it used to be far less prevalent. Much of that, I think...
Please review a collection of WWW browsing results.Date Found: Saturday, 14 February 2015, 02:19:38 AM
Click for popup. Clear your browser cache if image is not showing. Comment: Robert Shiller who got the dot-com and housing bubbles right says bonds are next and that’s your gold price spike. www.cnbc.com/...
Date Found: Saturday, 14 February 2015, 02:53:52 AM
Click for popup. Clear your browser cache if image is not showing. Comment: Bill Fleckenstein: Still Not Time to Short the Market - Wait for QE4 - Bill comments that we could easily see another 15-20% correction in the market but that the Fed will either hint at or, more likely, launch Q...
Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to eclipse. There has been an ongoing ebb-and-flow of capital between risk-on and risk-off, including high sector correlations, which is far from ideal. But at the end of it all, the S&P 500 found itself right back on top of long-standing support and poised for a bounce, and Monday’s action proved yet again that bulls are determined to defend their long-standing uptrend line.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enh...
Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud
Agents Were Part of Baltimore’s Silk Road Task Force
Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that al...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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