Weekend Wipe Out – All the Way Back to Mid-November Lows!
by Phil - January 23rd, 2010 11:36 am
Well I hate to say I told you so but…
No wait, that’s nonsense – what market prognosticator doesn’t love to say "I told you so"? Actually, it’s kind of my job to tell you so and the reason I’m so popular is because, more often than not, when I tell you so, I tend to be right. I’m not right all the time and my single biggest flaw is I am often right but sometimes way too early and timing is EVERYTHING in the markets. It’s not good enough to tell you what is going to happen (give things enough time and everything happens eventually, right Cramer?) - I need to get the period right as well so we can turn it into an actionable trading idea that makes money.
As a fundamentalist, I didn’t like the entire last 500 points of the rally. I had predicted the market would finish the year at 10,200 way back when it was down at 8,650 when the idea was we’d have a Santa Clause rally to 20% (10,380) and then a 20% pullback of that run (346) into Jan earnings that would take us back to 10,034 so the entire run from 10,200 to 10,700 REALLY annoyed me. It didn’t annoy me just because it made me wrong – I’m wrong a lot and I’m old enough to have learned how to deal with it. What annoyed me was the manipulation as, clearly, the fundamentals in no way, shape or form justified the additional 5% move up.
I’ve gone on and on about how fake the move was and how manipulated the markets were and how artificial the support was and I think I’ve pulled out the Seinfeld "fake, Fake, FAKE" clip often enough now that I don’t even have to do a link (but I love it, so I do) or explain how it’s a metaphor for recent market activity so I’m not going to waste our valuable time here. Let’s just do a review of the recent action, which is my best way of preparing for the upcoming Members only post where I’ll be charting out new levels and coming up with action plans for the week ahead.
So don’t read this if you can’t stand to hear "I told you so" because this is the review post and I did tell you so!
When did things go wrong? Clearly they were wrong for ages but when…
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Digg2010 Outlook – A Tale of Two Economies
by Phil - December 27th, 2009 6:54 am
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." – Charles Dickens, 1859
Dickens famous novel (which was originally written as a weekly series in 31 installments) depicts life in the time of the French revolution but was also a parable, meant to warn the British aristocracy that they should not ingore the parallels to the social inequities that existed at the time in England. Dickens warned the nobles that the seeds of revolution were planted through unjust acts and surely there would be a time of reaping yet to come.
It is said that the French Revolution was sparked by outrage over a statement by the Queen Mary Antoinette who, when told that the peasants had no bread to eat, supposedly replied (she never actually said this) "Qu’ils mangent de la brioche" or "Then let them eat cake." It’s hard for us to imagine the impact of this statement in modern times but "peasants" were 90% of the population at the time and bread was 90% of what they ate, consuming 50% of the average family’s income (people weren’t silly enough to pay for housing back then – they just found a bit of land, bought some wood and nails and built their own homes). Brioche was a luxury combination of bread enriched with flour and butter so the statement "Qu’ils mangent de la brioche" implies both lack of caring and cluelessness on the part of the Queen.
The United States had what passes for a revolution between 2006 and 2008 as we threw out the Republicans and went with a Democrat-controlled government. While the Bush administration, the Republican Congress and Fox News may have been as clueless as a French Queen to the plight of the people – the fact of the matter is that the base pay…
Monday Market Movement
by Phil - December 7th, 2009 7:57 am
Now what?
I wish I knew. As I said in the Weekly Wrap-Up, we’ve been stuck in a range – which has been fine for us as 60 of 80 trade ideas from the last 2 weeks were winners and will be more so if we flatline or head south from here, as that’s how we’ve been playing the market. It’s not that we WANT the market to fall, just like your doctor doesn’t WANT you to have the flu. But, when you show up at the office with a sore throat, headache, fever and congestion – he’s going to tell you you have the flu and write you a prescription to help you get better. That’s what we do! We analyze the market symptoms and determine a course of treatment. We don’t need to be bullish or bearish on any given day as it’s far, far more satisfying to be right.
In Member chat this morning, we were discussing leap strategies regarding entries on (in this example) KO and we looked at the benefits and pitfalls of trying to establish positions at the top of a big run. I mentioned that KO is not something I’d be looking at now as they are too near the highs and don’t have any particular near-term growth catalyst (and the strong dollar may hurt their earnings, which are more than 50% international).
In the Wrap-Up you’ll see that the kind of long plays we went for were more beaten-down stocks that we still like long-term like SPWRA, VLO, RMBS. WFR, PARD… Even in a great bull market like this one that may or may not be topping, there are still plenty of bargains to be had and, if we don’t see any good ones today, it’s still better to wait until earnings and bargain-hunt there rather than buy stocks just because your cash is burning a hole in your pocket (we went to mainly cash the last 2 weeks and many members are getting antsy already).
Actually, having cash in US Dollars may be an excellent investment at the moment as those dollars could gain 10% as the dollar bounces back. Commodities have certainly continued to fall over the weekend with gold at $1,141, oil at $74.71, siver back to $18 and copper $3.18 (our watch level was $3.20). Futures are pretty lame overall, down about 0.3% at 7:30 but we’re still above our levels so don’t get too excited if…
Two Week Wrap-Up – Trading Our Range
by Phil - December 6th, 2009 7:58 am
Your "crystal ball" was dead-on with the insights into the report on jobs as well as the initial rise and then correction. Truly impressive. – Champstar2
We didn’t have a weekly wrap-up last week because of the holiday.
In our Nov 21st Wrap-Up, I had said next week we’ll be watching to see if we can get more bullish above our 25% lines at: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and that became the bottom of our new range while I sent out a 9:41 Alert to our Members on Nov 23rd sticking with our upside targets of Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605. That has been a very reliable range to play for the past two weeks and we’ve been having a good time playing both ends of it.
Rather than just wrapping up this week’s moves, I thought we’d add the prior week as the pattern is very much the same (and it was the same the week before) so it certainly bears (oops, don’t say bears!) studying. Of course, when I talk about patterns, I don’t just mean the chart pattern where we have all of our gains for the week on Monday and Tuesday on low volume and then larger volume selling for the rest of the week as the funds who pump the futures up dump their ill-gotten gains on retail investors. I’m talking about the global new patterns, as reported by the MSM, that make this sort of manipulation so effective. It’s not that I’m so good at predicting things – it’s really just that I’m good at spotting the BS…
Monday - Stuffing the Futures for Thanksgiving
I was pointing out that morning that 90% of the market gains since October had been coming on a single day each week and how a lot of that was happening in the very thinly-traded Futures market, where a few thousand shares traded overnight are able to lever the entire US market up by Trillions of Dollars. It’s a very sick and broken system that has been seized by manipulators to yank investors around, making sure retail investors have little ability to participate in these wild market moves as the game is already over by the time trading starts the next day.
This week, we had 2 days like that with both Tuesday and Friday gapping up over 100 points…
Weak Weekly Wrap-Up
by Phil - November 21st, 2009 8:26 am
This chart says it all (thanks Jesse).
In last week’s wrap-up I said: "Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions." I mentioned how tempting it had been to cash out all our longs and go 100% bearish when we hit 10,300. Our downside levels told us to wait until the 16th, when Monday’s move up was finally the last straw and we are out of the bull game (our last major Buy List was July 11th and most picks are up over 100%), probably for the rest of the year.
This chart shows you that the S&P is primed for a 5% correction back to 1,050. I don’t know why Jesse didn’t extend out the lower support line, which would take us right about to my pullback target of S&P 1,000/Dow 9,650. I stuck my neck out on TV two weeks ago, calling for a 10% correction to those levels but we’ve been playing both sides of the fence until this week, when I finally had to put my foot down on Monday, after having discussed cashing out for the holidays in Member Chat over the weekend. Our general plan this week was to cash out the winners and leave only longer-term, hedged bullish plays while adding more speculative downside plays for the short-term correction.
Why the change of heart? Well, something you don’t see on this chart but is pretty clear on the Yahoo monthly view, is that virtually all of the gains (ALL of them if you include the spikes) in the Dow for the ENTIRE month of November have come on single days each week. This week it was Monday (139 points), last week Monday (206 points) and Nov 5th was Wednesday (198 points). Take those days out of the run from our Oct 30th close at 9,712 and we’re up just 63 points to 9,975 despite there being only 1 losing day in the first week (11/3, down 16 points) of the month and one losing day in the second (Nov 12th, down 92 points). That is one super-flimsy way to build a "rally" don’t you think?
Getting 90% of our gains in on 3 days in 3 weeks indicates a certain lack of follow-through to these bullish market moves. I…
Dow Chemical Option Bulls and Bears on the Prowl
by Option Review - November 17th, 2009 4:32 pm
Today’s tickers: DOW, GLD, ISIS, DTV, SINA, XOM, SPWRA, AGO & SINA
DOW – The Dow Chemical Co. – Shares of the manufacturer of chemicals and plastic materials increased 2% during the trading session to $29.45. We observed a mix of bullish and bearish option plays on the stock today. One investor appears to have unraveled an in-the-money ratio call spread in the December contract in order to finance the purchase of 7,500 calls at the December 28 strike for 1.92 apiece. Further along, in the January 2010 contract, another bullish player rolled a long call position to a higher strike price. It looks like the investor originally paid between 2.35 to 3.30 in premium to buy 5,000 calls at the now deep-in-the-money January 24 strike back on September 14, 2009. Today the trader closed out the December 24 strike calls by selling 5,000 contracts for 5.30 each. The closing sale of the calls was spread against the purchase of 5,000 fresh call options at the higher January 28 strike for about 2.45 premium per contract. Finally, protective plays dominated the March 2010 contract. Two put spreads were established this afternoon. The first transaction involved the purchased of 5,000 puts at the March 27 strike for 2.08 each, marked against the sale of the same number of puts at the lower March 20 strike for 47 cents apiece. The net cost of the trade amounts to 1.61 per contract and yields protection beneath the breakeven price of $25.39. The other put spread involved the same number of put options but was transacted at the March 26/19 strikes at a net cost of 1.38 per contract. Downside protection on this play kicks in if shares decline through the breakeven point at $24.62 by expiration day in March.
GLD – SPDR Gold Trust ETF – More than 253,800 option contracts changed hands on the GLD with about 30 minutes remaining in the trading day. Investors traded calls on the exchange-traded fund more than 1.8 times to each put option in play. Shares of the GLD, which replicates the performance of the price of gold bullion, are up 0.25% in late-day trading to stand at $111.90. A large-volume ratio call spread on the fund suggests some investors expect the price of gold to rise sharply by expiration in January 2010. Bullish traders bought approximately 15,000 calls at the January 112 strike for an…
Frothy Friday – Churn Baby Churn!
by Phil - October 23rd, 2009 8:26 am
What a wild week we are having!
We dumped our shorts as planned yesterday morning, getting a very nice dip at the open and my 9:36 Alert to Members was even titled "Take Those Short Profits!" and our upside targets were set (as they were in the morning post) at: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623. Where did we finish? Dow 1,081, S&P 1,092, Nasdaq 2,165, NYSE 7,182 and Russell 613 – so a bit short of all of our targets but not bad considering we were opening 167 points below that on the Dow so perhaps I can be forgiven for a 6-point miss…
If knowing about massive market moves in advance would be helpful to you – please consider subscribing to our service. If you are already a member and know someone who might like to try our newsletter, you can send them a free trial subscription using this link and you can earn yourselves discounts on membership renewals for each friend who opts into the free trial. We have over 19,000 people on our Newsletter list now and I want to see if we can break 30,000 by the end of the year now that our new mail server is up and running (we’ve been on hold for a month as we filled up our old server!). Your help in this matter would be greatly appreciated. PSW Report Members can extend their subscriptions at no cost simply by referring others to a free trial report – my little experiment in viral marketing…
Even our free PSW Report readers would have done great just following the trades we had in last week’s Wrap-Up (Report subscribers get to read our articles without the 48-hour delay). We had GS Nov $210s shorted at .87, now .35 (up 60%), CERN short $85 calls at $4.15, now $3.10 (up 25%), ISRG Apr puts and calls sold for $39.20, now $36 (up 8%), PARD at $6.87, now $7.35 (up 7%), NTRI at $18.60, now $19.15 (up 3%)…
We had other trades that are still in progress. ICE notably burned us so far, but we rolled them up and shorted them some more yesterday (now $106.56). We’ve had a wild mix of short and long trades this week as we TRY to get more bullish on the markets but yesterday’s run-up had us reloading Thursday’s successful short plays as that set made…
Which Way Wednesday – Fed Edition
by Phil - September 23rd, 2009 8:22 am
We’re just waiting on the Fed today, as are the rest of the markets.
Yesterday’s volume was the lowest since Sept 11th but not as low as Monday, which was our lowest volume since the end of June, just before we had a 5% correction. June 26th and 29th were our last two consecutive ultra-low volume days but June 30th was much bigger (a down 100 day), July 1st was up again on low volume and then July 2nd was another big down day and we bottomed out on July 10th. That was the time that the media was telling us we were forming a "classic" head and shoulders pattern and were doomed to revisit the March lows. It was also the last time we enthusiastically bought stocks.
At the time of that weekly review (7/11), we had CAL at $10 (now $16.82), CBS at $5.97 (now $12.58), COST at $43.45 (now $58.58), CVX – who we just shorted – at $58.20 (now $72.60), DIS at $22.41 (now $28.38), EXM at $6.05 (now $7.32), RT at $7.12 (now $8.85), SNDK at $14.47 (now $22.91), SPY at $87.96 (now $107.27), SPWRA at $22.35 (now $32.63), SUN at $22.09 (now $27.75), V at $59.86 (now $74.41), VLO at $15.57 (now $20.50), WFR at $16.61 (now 19.09), X at $30.77 (now $50.45), XLF at $11.10 (now $15.35), XOM at $65.12 (now $69.85) and ZION at $11 (now $19). Of course our members had much better entries as we had been targeting our entries on all of those but anyone reading our weekend review on July 11th could have played along at home from those prices (we even spiked down at Monday’s open) and when I say we are now bearish – it is that we are bearishly protecting these ridiculous profits – the kind of profits you usually don’t get after 3 years, not 3 months!
Overall, the broader market is up 20% over that time so it can be argued that a monkey with a dart board could have made good picks at that time but, if you read that week’s notes – you’ll notice that this monkey was screaming for people to buy and was going against what pretty much EVERY other analyst was saying and I was confident enough to lay out my picks, my strategy and my fundamental arguments for everyone to see. It would have really sucked…
Which Way Wednesday – Fed Minutes Might Help
by Phil - September 2nd, 2009 8:26 am
Wheee what a ride!
I don’t think we could have had a better day as the move up allowed us to place our bear plays (we went naked on our DIA $98 puts right at the top at 10 am) and the only fear we had was the morning data but by 10:10 I sent out an Alert to Members reviewing the bullish-looking data but then concluding: "Still this should give us a big boost with volume still light at 30M at 10am. Unless we break 9,600 with some authority, this should just be another shorting opportunity." We were still concerned about good Auto Sales numbers boosting us back up but they were actually a series of disappointments all day long.
As David Fry points out in his morning post: "Most trading systems don’t have a “feel” component and mine doesn’t either. The only logical thing which we’ve commented on repeatedly as have others is light volume and how the news hasn’t jived with reality. And, recently, investors have been selling good news versus buying bad news as before." This is why PSW always stresses the fundamentals in stock trading. The market can trade against them for quite some time but, eventually, the true value will set you free (and often can make you a very nice profit!). I’ve had a very tough month in August pointing out the the news hasn’t "jived with reality" and suddenly we have gone from feeling overly conservative to being the only well-positioned people around – in cash, with plenty of winning puts and ready for another round of bottom fishing with the VIX right back at 30, which gives us exactly what we need to run our favorite plays.
We still have tons of cash in our $100,000 Virtual Portfolio and I’ll be initiating some buy/writes this week. I already proposed one for TTWO after last night’s earnings but now it looks like I’m not the only one who thought they looked pretty good and we’re not going to chase – there are, once again, plenty of fish in the sea! The last time we ran a Buy List was the week of July 6th and if you want to see what an actual list that goes 18 for 18 with an average upside of over 25% looks like, you can check that week’s wrap-up, which has a…
Weakening Weekly Wrap-Up
by Phil - August 15th, 2009 8:27 am
What was that?
Did we just finish lower on Friday than Monday? We almost forgot such a thing can happen in Obama’s magic market-land but here we are with a week in which the stock market had not one, not two but three (3) red days out of 5. You have to go all the way back to the week of June 22, when the market was finishing a 600-pont down leg from June 15th, to see so much blood on Wall Street. I have, for a month, been drawing parrallels betwen this market top and the market top that ended on June 12th and it’s all about next week as options expire and things begin to get very interesting.
As you can see from David Fry’s chart on the right, we hit the very tippy top of our expected range on the Qs and then could not close the deal above our $40 line. It didn’t seem too much too ask – just a teeny, tiny little breakout and we would have been happy to buy some GOOG and get back into SPWRA and find some other 4-letter stocks to play with, even some semiconductors if the SOX had finally taken out our 308 mark but nooooooooooooo – the Nasdaq couldn’t hold 2,000, let alone our 2,017 target, which they teased us with two weeks ago but never came back to.
And don’t even get me started on yesterday’s close. For those of you who have ever doubted the power of the stick, David and I say HA!, as there has never been a more bogus end to a trading session than the despicable display of market manipulation that went on yesterday, just before the close. The only good thing I have to say about this very sad state of unregulated market affairs is that at least we called it practically to the penny and played it perfectly because, as I often say to members: "We don’t care IF the markets are rigged as long as we know HOW they are rigged so we can place our bets accordingly."
As shamefully despicable as these "stick saves" are at least they fall into a pattern that we have learned to recognize and profit from in Member Chat. I was, of course, very bearish in the morning post as we expected a minimum 1.25% correction (1.27 on the SPY chart) by Monday, on the way…
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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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