Which Way Wednesday – Is the Appleconomy Over?
by phil - October 24th, 2012 8:32 am
AAPL is a total disaster.
There's no denying it now, they had their IPad Mini event yesterday and investors charged out of the stock, dropping it from a high of $633 (which is already 10% off the Sept highs) to close at $613 and that was finally weak enough to get us to capitulate and roll back our AAPL positions to longer-term trades that have less upside but, more importantly, less downside as we are no longer confident they'll be able to turn it around on Friday.
Notice how silly it seems to talk about how poorly AAPL is performing when the chart on the right pretty clearly indicates it's the greatest stock on Earth but that would be the logical conclusion for a company that's on track to earnings $43Bn this year, which is $81,811 a minute – more even than what they were tracking to make last month, when I set out bottom target at $600 (and that spread is an even better buy now) AND, only 68% of what they are projected to make next year!
We didn't really think it would hit $600 – that was our worst-case but here we are – at the worst case and, since we are no longer able to say with conviction that it can't get any worse, we had to back our short-term plays to something that buys us more time. In that same post we liked HPQ at $14.30 and at least they are holding that line and we also had a nice spread on that stock in the same post, which is still holding up as a new spread.
In that post I mentioned (as usual) our primary hedge being TZA and the straight-up April $15 calls mentioned there have gone up another .40, from $2.50 to $2.90 off our $2.10 entry (up 38%) – not bad against just a 15-point drop in the Russell (down 2%).
Yesterday, with our hedges already in place (see last Wednesday's TZA hedge and this Monday's DIA hedge) we had the luxury of doing some bottom-fishing yesterday with long trade ideas on TIVO at $9.78, USO at $31.75, AAPL at $623, CMG at $238 and our last trade idea for the day was SQQQ at $41.20 (that one, of course, is another hedge – always look for BALANCE!) – just…
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Friday – QE Fever Turns To QE Forever!
by phil - September 14th, 2012 8:28 am
$85Bn a month!
Oh boy was I wrong when I said Ben Bernanke wasn't crazy enough to ease into a bull market. Yesterday, he exercised the full power of the Federal Reserve to confiscate your wealth and hand it over to the bankers. That's right, by engaging in what many consider reckless money-printing practices and announcing there is no end in sight, Bernanke caused the Dollar to fall below 79, down from 84 (6%) before all this QE talk began.
That's like taking all $100Tn worth of US Assets – everything you worked for your entire life – and just devaluing them by 6%. Many of our Conservative friends decry the 1% tax on wealth imposed by the French – but at least they are honest about it. At least they debate it and vote on it. Not Bern Bernanke – the Federal Reserve Chairman simply decrees that you will contribute 6% of your dollar-denominated assets towards more bank bail-out and there's no cut-off if you are below the top 2% – this is a confiscation from every man, woman and child in America.
How far down will Dr. Bernanke take your Dollars? That's the beauty of it – there's no limit! He warned Corporate America yesterday that he will continue to give them FREE MONEY as long as they keep refusing to hire more workers. The less American workers they hire – the more money he will give them. Sure, they can hire and spend overseas (most are) because that won't affect US unemployment rates but, if they start hiring Americans – THAT's when he will begin to take away the punch bowl.
See how this scam works?
It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. With rates this low, even if QE put effective downward pressure on rates — a dubious proposition — the economy would be unlikely to benefit. If a 3.5% mortgage rate is of little consequence, there is no reason to believe that a 3.4% or even 3.3% rate would suddenly produce results.
Nor would quantitative easing result in a burst of money creation, as per traditional monetary policy, because the Fed now pays a quarter-point interest on excess bank reserves. With little growth in the demand for…
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TGIF – Stop the Rally, We Want to get Off!
by phil - September 7th, 2012 8:30 am
This rally is never going to end!
Just look at this chart – we're breaking every level. THIS time is different – not only are we going to go on to 1,450, we're going to 1,500 and 1,550 and then 1,600 and then we're going to 1,700 and 1,800 and 1,900 and then we're going on to take on 2,000 – yeeeeeergh!
Sorry, I was channeling my inner Dean… Now that I've calmed down, I realize that this chart that got me so excited was actually the chart from March 5th and, as you can see from my end of February headlines like "Sell in March and Go Away," "This is the End – But For Who?" and "Fake-Out Thursday (March 8th) – Dollar Sacrificed on an Altar of Lies" – where I pointed out that rumors of more Fed easing (by John Hilsenrath of the WSJ, of course) had dumped the Dollar to 79 and that was accounting for the 1% gain in the S&P that day so – don't be fooled!
The ECB had just dropped $712,800,000,000 in fresh stimulus on the 29th and I asked "Will Another $712Bn Buy Us Another Day at 13,000?" Was I early? Yes. Did we miss the end of the rally? Yes. In fact, our $25,000 Portfolio at the time was so bearish, we were down almost $8,000 with huge bearish bets like 10 Short XRT March $55 calls, 10 short GLL March $17 puts, 10 April SCO 31/39 bull call spreads and 10 SCO short March $34 puts, 5 short FAS $88 calls, 5 March TZA $18 calls, 10 short SQQQ June $14 puts, 40 USO April $40 puts, 5 short FAS March $75 calls, 10 long FAS March $85 calls and 10 short FAS March $89 calls (a bearish spread), 10 TLT March $114/115 bull call spreads and 10 DIA March $129 puts.
The only bullish play we had at the time in our virtual portfolio was DMND, where we had 4 hopeless June $29 calls which we lucked out on when they spike on rumors in mid-March. Every other bullish position had been dumped and we were practically 100% bearish because the rally, at that point, seemed totally ridiculous. Just a months later, the Portfolio turned around and was up $8,000 and by May…
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Wednesday – Stimulus Rumors Trump the APPLocalypse – For Now
by phil - July 25th, 2012 7:55 am
AAPL missed!
Fortunately, we were well-prepared for this eventuality as I had said way back on July 10th, in Member Chat, that AAPL was "too big to succeed" (commentary also featured in Stock World Weekly on the 15th). I also said, at the time regarding AAPL: "Where was my buy point – $555? That's a long way down to support if they fail $600." We had called for taking the bullish AAPL money and running the previous Thursday (July 5th) in my morning Alert to Members, as they topped out that morning at about $610. We were a bit early with that call (AAPL hit $619.87 the next week) but, on the whole, our bearish flip on AAPL (and the broader market) has served us well.
In yesterday's Member Chat, we had one bearish earnings spread on AAPL as well as an aggressive play on SQQQ, the Nasdaq ultra-short, because we expected the Nasdaq to fail along with AAPL (and AMZN is next!) on their earnings. Our SQQQ trade grabbed the Sept $50/60 bull call spread, offset by short puts on some stocks we are accumulating for our Income Portfolio for a net free trade but our dreams of a big pay-off on the spread will be put on hold today as a sudden burst of stimulus talk has turned the indexes back up, with the Dow now 200 points off the bottom in the Futures (7:50) at 12,660.
I already sent out an Alert to our Members this morning, pointing out what manipulated BS this was as the WSJ's Jon Hilsenrath issued what amounted to nothing more than some well-timed speculation on imminent Fed action into yesterday's close that has been picked up by the MSM as a fact and popped the Dow a full 100 points into yesterday's close – erasing 1/2 of a disastrous day in minutes (see Dave Fry's SPY chart). At the moment (7:54), the Dow Futures (/YM) make an excellent short below the 12,650 line so excuse me while I hit "publish" on this partial post so our Members can see it.
Anyway, so where was I? Oh yes, market manipulation by Uncle Rupert and the WSJ is not unexpected with NWS reorganizing and looking for good valuations on the company split. I pointed out to Members seven other articles in which Hilsenrath has…
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Thrilling Thursday – Rumors Run the Markets
by phil - July 5th, 2012 8:16 am
Before we begin – let's catch up on the Libor scandal:
"The Global Banking Industry relies on London having virtually no regulatory oversight. The bulk of the Global financial crimes occur in London. David Cameron, of course, is keen to protect the franchise of the city of London – it's the big profit center for his country and his Government – essentially peddling in fraud."
That is the key point made by Max Keiser (7:20) in the above video. As Keiser points out, fraud and manipulation are rampant in the Global Financial Markets and have been for years. I've been saying so and we have great systems to profit from the manipulation of fraudulent markets but they wouldn't work so well if the markets were not a sham, would they?
While I'd love to go back to picking value stocks in clean market environment – I'm certainly not holding my breath. Fining BCS $450M for making Billions of Dollars in a conspiracy to defraud Trillions of Dollars of Global investors over periods of years means you shouldn't hold yours either. I'm pretty sure we can expect more of the same for a long, long time.
This morning the Euro and the Dollar have been flying up and down along with our index futures on rumors that China will or won't be easing (100-point swings in the Dow pre-market) or that the ECB will or won't ease and that other countries will or won't kick in stimulus. You know, the same old crap we've been hearing since early June – giving us roughly 10% gains across the International board – even as the Global Economic Data continues to decay:
We are still "constructively bullish" which is what led us to stay cashy and cautious short-term, while holding bullish on our long-term bets. We haven't got any strong downside bets as we have clear lines at those 50 dmas (red) with the 20 dmas (blue) curving up sharply to give us support before we feel compelled to go bearish again. Of course, this "rally" has been a lot of low-volume BS – hence the "cashy and cautious" stance. We have had no reason yet to actually go bearish and, since we added most of our long-term longs in early June – we have quite a while before we do become…
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Monday Market Momentum – Use It Or Lose It
by phil - July 2nd, 2012 7:13 am
Now we need follow-through.
I think we've already blown the opportunity. In Stock World Weekly we discussed the stealth bailouts jammed into the Transportation bill on Friday which rightly sent the markets flying higher into the close of the quarter (I know quelle suprise!). As noted by David Fry, GS was working hard behind the scenes to make sure that, in the end, Germany toe'd the line.
For the year so far, the Dow is up 3.89%, S&P is up 6.66% (so you KNOW Goldman is involved), the Nasdaq is up 10.81%, NYSE 2.33% (all of it gained on Friday) and the Russell 6.15%. See how great everything is?
We took the money and ran, again, as we hit some clear resistance lines (see SWW) on our Big Chart and there was no sense risking a 10% gain in our first week in our new $25,000 Portfolio with the July 4th holiday coming up (we have a half-day tomorrow and we're closed on Wednesday).
The only trades we left active in the $25KP was 5 OIH July $35 calls at $1.25 (still $1.25), 10 DIA July $129 calls at $1.10 (now $1.35) and 10 SQQQ July $49/53 bull call spreads at $1 (now .75) we added later in the day to protect them in case we had a big dip this week. If we make it through Friday above the lines on our Big Chart – then we will continue to be "constructively bullish" and we'll be happy to deploy more cash but, into 2 days off – NO THANKS!
In fact, as we're already up 22% on the DIA calls – if we get another pop this morning, those are likely to come off the table as well. After all, how much money should you expect to make in 48 hours? This is a very unnatural and manipulated market and it's great to play it – as long as you keep that in mind! The danger comes when you delude yourself that this is some kind of "investing" environment when it's actually just gambling ahead of Q2 earnings reports – that could send us right back into a tail-spin.
Or, maybe not – as a key amendment to the Transportation Bill will add Billions of Dollars in profits to the S&P 500 by allowing Corporate Pension Plans to use the average…
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Friday Fake Out – The Bear Trap is Sprung!
by phil - June 1st, 2012 8:26 am
Oh you people are such suckers!
You panic out of positions at rock bottom prices and you'll sit there like a deer in the headlights when we bounce back until we're already too high again and then you'll chase the top – only becoming fully invested after we've already exited. Don't blame me – I try to warn you, but no one listens to me.
This morning the markets are in full panic more and that's fine with us as not only are we still "Cashy and Cautious" but what did we tell you Wednesday morning? "TZA July $19/25 bull call spread at $1.50, selling $18 puts for $1.05 for net .45" along with EDZ at $17.23 and SQQQ at $51.80. SQQQ is at $53.79 (up 3.8%) and EDZ is $17.90 (up 3.9% and the TZA hedge is already at net .80, which is up 77% in just two days (so far) – now that's a hedge! When you have your hedges in place, THEN you can bottom fish with impunity and boy is the fishing good out there!
Today we get our Non-Farm Payroll numbers and there's a rumor out there that it's a big miss at 120,000 or lower. CNBC has been pretty much reporting it as a fact all morning and Europe is freaking out for that and many other reasons so I had occasion to look back at last month's NFP report, where we predicted it would be a miss with the the title: "The Blow Jobs Deal to the Market Could be Huge." That was 10% ago on our indexes are back to testing last week's lows, where we began to get bullish with our Twice in a Lifetime List of stocks that are back at their 2009 panic lows which we still like enough to sell puts in (giving us an additional 15-20% discount on initial entry).
That post capped off a week of bearish picks as we followed through with our plan to cash out into the April rally – it's those bearish profits we're now GAMBLING with as we bottom fish but, as noted above – we're hedging our bullish bets because there's no limit to how badly investors can freak out in the stock market – CASH remains KING!
A quick review of the week leading up to the last NFP report is a nice view of…
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Will We Hold It Wednesday – Euro $1.24 Edition
by phil - May 30th, 2012 7:57 am
If it wasn't for bad news, Europe would have no news at all.
The funniest thing about watching Europe implode in a sea of incompetence is that we're actually no different over here – it's just not our time yet. That doesn't stop the punditocracy from pontificating on all the ills of the European Union, as if America will be immune to California as their economy ($361Bn in debt) slips into the ocean.
Actually Greece is not the disaster du jour in Europe this morning – it's Spain (who were downgraded yesterday), whose junk-rated 10-year notes are now costing them 6.65% – back to pre-LTRO levels already, after just 90 days of being "cured." Italy is right behind them, only able to sell 90% of the bonds they auctioned off and even those went for 5.66% on the 5-year notes and 6.03% on the 10-years.
Meanwhile, German yields hit record lows at 1.318% so how, exactly, does it benefit Germany to "fix" this situation when the fix would be for Germany to go back to paying 3% while Spain and Italy go back to paying 4%? It's not like Spain or Italy will ever be able to pay back the money anyway so all we're really doing is costing Germany money to PRETEND things are fixed – again. When will this madness end?
Extending and pretending is exactly what is being planned as the European Commission is prepared to as European Union finance ministers to give Spain an additional year to meet the budget deficit target of 3%, according to a report in the online edition of El Pais this morning. The newspaper said it had obtained a rough draft of the copy of the economic strategy for the euro zone set to be delivered by the Commission on Wednesday. Media reports said it will issue specific recommendations for each of the 27 countries. El Pais said the EC wants to give Spain until 2014 to reach the budget deficit target of 3%, in light of its economic problems, but will also include draft recommendations on pensions, the financial system, taxes and labor reforms.
Thank goodness – that will fix everything, I'm sure!
Meanwhile, on the US side, we're getting worry fatigue and we're ready to rally – as was made clear by yesterday's bullish action which took us over our…
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Thursday Thrust – Enough to Break on Through?
by phil - May 24th, 2012 8:28 am
I've listened to preachers
I've listened to fools
I've watched all the dropouts
Who make their own rules
One person conditioned to rule and control
The media sells it and you live the role
Mental wounds still screaming
Driving me insane
I'm going off the rails on a crazy train – Ozzy
Wheeeee, that was fun!
We called for a "Whipsaw Wednesday" and it doesn't come much more whipsawed that that. Fortunately we stuck with the plan from my morning post to take the money and run on our short plays and we even pulled the hedges off our $25,000 Portfolio, leaving it 100% bullish at 11:11 in Member Chat.
That left us a little nervous for the next hour but, of course, we had a plan for that too and, at 12:27, I put up a chart of the our indexes over the last 5 days saying: "Note our lows of last Friday – Those are the lines we need to give up at if we fail them!"
That's a very important point about aggressively trading – it's OK to pick a bottom and flip bullish, but ONLY IF YOUR BOTTOM HOLDS! The biggest problem traders have is they guess a bottom (1,300 on the S&P was ours) but then, when their premise fails – they FAIL to give up on the position. This is much like saying in the morning that you don't think it's going to rain – then having breakfast and seeing it pouring with rain outside – and refusing to take an umbrella because you didn't think it was going to rain (see "The Microwave Oven Theory of Behavior" for more on this subject).
Here was the chart we looked at at 12:27 in chat:
Things were not looking good, were they? Remember, we had gone bullish on that first pause and failed to hold that line so the first thing we had to do was make a new plan — just in case. If you don't know EXACTLY what you are going to do "just in case," you are going to let yourself get shoved around by these crazy markets. We had laid out our Just in Case plays in the Morning Alert at 9:57 with three aggressive hedges to…
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Whipsaw Wednesday – You’re Lucky They Don’t Charge You to Take Your Money!
by phil - May 23rd, 2012 7:49 am
Germany sold $6Bn worth of 2-year notes at 0% this morning.
That's right, if you give Germany $6Bn for 2 years, they promise to give it back – AND THERE WAS STRONG DEMAND! How low can we go? Well, the yield in Swiss 2-year paper is actually -0.10%. That's right, you pay them 0.1% to hold your money for two years. Don't like it? Shut up – you're lucky they don't take it all!
Of course the markets are crashing this week – the G8 has bonds to sell! If the markets are flying you're not likely to be so anxious to give your government free money to hold for a couple of years, are you? So this is a great week to take the markets down and the US sold $35Bn worth of 2-year notes at Depression-level lows (1.78%) yesterday and today we sell $35Bn worth of 5-year notes and Thursday we sell $29Bn worth of 7-year notes and THEN we have most of what we need to borrow to take us through the end of May.
People have to be terrified to take the money out of a bank that pays them 2% or out of a dividend-paying stock that pays them 4% to give it to a Government that pays them 0%. While the World Governments make a big showing of hunting for terrorists, it is actually they who are terrorizing their own people – causing them to endure lives of non-stop fear and desperation as their Government plunges them further and further into debt in order to make sure that the BONDHOLDERS (hallowed be their names) take no losses.
To do that, YOU (the not rich enough to have a lot of money in bonds) must be made to suffer the slings and arrows of outrageous misfortune – to be alarmed by Global seas of troubles, to worry, perchance to panic – and in your panic, perchance to hand your money over at zero percent interest rates where you money will be or not to be returned – depending on whether the EU or the rest of the Global economy survives 24 more months.
Come on folks, wise up to the game! You are lending money at 0% so your Government can make whole the people who lent them money for 30 years at 15% back in 1982. You are…
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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