Testy Tuesday Morning - Coincidence or Confidence Game?

by Phil - February 23rd, 2010 8:21 am

What will hold up?

As you can see from our chart set, our major indices are trading very much in synch, more likely than not propelled by trade-bots that already have the next 25 trading days already mapped out to take us through the end of the quarter.  Of course you can argue that it’s perfectly natural for 8 of 9 different indexes to follow virtually identical patterns as a result of the random trading of millions of individuals trading Trillions of Dollars worldwide and that’s your perogative.  I prefer to think of it as one giant scam and then figure out ways to make a little money off it for ourselves…

Several times last week I said to members I thought "THEY" were running the market higher so they could sell calls to suckers at high prices but, in general, the move was "fake, Fake, FAKE."  What do we do in the face of flagrant market manipulation?  What do you think we do - we play along!  We don’t complain about good manipulation when we see it - we join in!  Don’t be confused by the fact that I complain about it in my morning post - once the bell rings we move right to the other side of the table and happily run with the wolf pack.  We’ve tried to fight the power - it’s not fun, nor is it profitable…

We remained fairly conservative last week and, as I discussed in our "Weekend Trend Spotting" post, we are more inclined to believe we are in a range that centers around 10,400 than about to break back over 10,700.  The bounce zones we predicted when we first began to sell off in January are finally being tested (red lines on above charts) but the 5% line (blue lines) are still exerting a pull and we NEED some healthy consolidation in between those blue and red lines if we are ever going to get serious about making a real move higher.

Speaking of healthy consolidation - Congrats to our own David Ristau of the Oxen Group and all the members who played along with yesterday’s specially featured selection of SAH.  David nailed it in his 1pm post (also sending out a 1:06 Alert to our Members) and put us into the stock right in his target range at $9.45 and it looks like we’re getting a nice 3-cent beat this morning (20%) and this should be a very nice 5% day-trade gain.  We also played the longer-term March…

Tags: EXP, FCX, Foreclosures, Housing, SAH, SRS, WOOD

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Prior Weekly Wrap-Up - February Expiration Day Special!

by Phil - February 19th, 2010 7:17 am

I didn’t get to do a wrap-up last week so we have a lot of trades to go over and, with expiration looming and the Fed tightening, I thought it would be good to just get the list out on Friday so we can adjust our rolls to March where neccessary (in bold under appropriate positions).

In our Feb 7th Wrap-Up, I was gung-ho bullish saying "It’s Only a 55-Point Drop You Wimps!" and we had  been BUYBUYBUYing at the bottom all week, especially Wed-Fri as the market spiked through our projected support at Dow 10,000 but not enough to change our minds as we bottom-fished on AAPL (2 trades), ABX, ACOR, AKAM, AMED, BRK/B (2), C, CCJ (3), CSCO, DELL, FXI, GE,  GOOG, IBM, LLY, LOW, NLY, TBT (5 times!), TM (3), TNA, USO (yep, we wen long oil) and UYG.  To say we were weigting bullish by that Monday was an understatement as we has finished the weekend in a bullish stance and were relying on our disaster hedges to protect us. 

Those disaster hedges are an interesting set to look at, especially now that we’ve recovered 400 points:

• DXD July $27/33 bull call spread at $2.50, now $2 - down 20%
  • We can roll the $27 calls to the $25 calls for $5 to widen the spread and drop our b/e from $29.50 to $28.50
• EDZ July $3/8 bull call spread at $2.10, now $1.60 - down 23%
• EDZ Apr $10 calls sold for .70, now .15 - up 78% (pair trade)
• SDS 2011 $36/40 bull call spread at $1.30, now $1 - down 18%
  • We can roll the $36 calls to the $33 calls for $1.10
• TBT Jan $35/45 bull call spread at $6.30, now $7.40 - up 17%
• TBT March $50s sold for .65, now $1.22 - down 87% (pair trade)

This is what is great about disaster hedges.  The potential upside on these spreads, if the market headed south was up about 100% on the 4 trades so a commitment of 5% of your portfolio to each one (20%) would give you back 40% of your portfolio in cash if the markets tanked.  Already, after 2 weeks, we have the markets heading in the opposite direction and what is the cost?  Not even 20% of the 20% you may have allocated, a 4% insurance premium while the 80% of the portfolio that is bullish caught a huge rally up and this insurance is still good through July! 

Monday (2/8) Market Movement

I pointed out how much chart people love…

Tags: AAPL, ABX, ACOR, AKAM, AMED, AXP, AYE, BRK.B, C, CCJ, CSCO, DELL, DIA, DXD, EDZ, FCX, FXI, GE, GLW, GOOG, GSK, IBM, ITMN, IYR, LLY, LOW, MRK, NLY, NYX, PM, SDS, SPWRA, SRS, TBT, TM, TNA, USO, UYG, WFR

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Thursday - Are We Thawing Out or Melting Down?

by Phil - February 11th, 2010 8:28 am

Greece is resolved!

Well, sort of, maybe - who knows?  The EU made some nice noises and it does seem there is an agreement which I detailed in my previous post so let’s move on and see what that’s going to do for us today.  We’ve been playing for a resolution in Greece giving us a boost back to test 10,300 but yesterday’s market movement was, as they say at Wharton, LAME and we’re going to have a tough time punching through 10,058 and 10,165 on the way to 10,300 today (see yesterday’s Dow charts), even if the Dow were so inclined. 

10,300 is 2.6% higher than yesterday’s 10,038 close but a little far away considering commerce is still shut down in about 1/3 of the US today as we sit under a massive amount of snow.  This kind of weather is bad for most retail but good for HD and LOW, who sell salt and shovels and other fun snow stuff.  Business people are stranded all over the country, moms are suddenly found unexpectedly with kids at home and people can’t park anywhere - a big problem when you have this much snow as you run out of places to push it to. 

Another problem with snow is it’s an unavoidable cost, like disaster spending, that couldn’t be hitting cities at a worse time.  Washington DC had already blown through their $6.2M snow budget for the year before yesterday’s storm, which may double the costs, adding to the city’s debt woes.  230,000 Federal employees are off for the 4th day in a row today, costing the US government $100M a day in lost productivity.  Public transportation is down and over 6,000 flights were canceled with travelers being told "maybe Sunday" for flights they missed on Wednesday - Greece’s national strike is nothing compared to the economic impact of this storm!

Speaking of coming storms.  We’ve been leery of getting back into SRS but I’m back to liking them (and the short IYR plays) as a report by the Congressional Oversight Panel shows nearly 3,000 small banks may have to dramatically cut lending as losses on commercial real-estate loans, which could reach as high as $200B-300B. Banks "are about to get hit by a tidal wave of commercial-loan failures."  This should finally push an issue we’ve been discussing since last Fall onto the front pages, where we can make some money. 

We’ve learned to be very cautious with SRS but I do like the…

Tags: Credit Default Swaps, DTCC, IYR, SRS

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Weekly Wrap-Up, it’s Only a 55-Point Drop You Wimps!

by Phil - February 7th, 2010 12:19 pm

That’s right, I said WIMPS! 

I have never heard so much whining and crying and complaining about a market drop as I have the past few weeks.  Last week, I pointed out that we had only fallen 105 points from the prior week (10,172 to 10,067) and this week we fell ALL THE WAY to 10,012 to finish the week and you would think the world was ending (again) from the way the MSM has been acting.

By Friday the panic was palpable as we gave up Monday and Tuesday’s bogus gains to test new lows for the year - testing, in fact, the lowest levels the market has hit since last November and I pointed out in Friday’s post that it reminded me of when BSC and LEH went under and everyone panicked and sold Financials off to the point where Warren Buffet was willing to give GS $5Bn AFTER they bounced 50% - THAT’s how undervalued the financials were in November of 2008. 

What do we do while people are panicking?  We BUY!  We don’t BUYBUYBUY like Cramer’s Pavlovian Peons but we sure do BUY and take some nice entry positions with sensible hedges.  I was finally motivated to finish updating our Buy List on Friday and 18 of our 38 positions were highlighted (immediately actionable) on Friday.  Sure they may go lower, but we’re buying them with 20% buffers built into the positions and then we can double down if they drop 40% (back to Nov 2008 lows) and then we’ll have our entries down 10% from the lowest levels of the past decade or so that we can hold until the next decade - what’s there to panic over?

If I wanted to buy IBM in January but thought it was a little pricey at $134, why would I not be HAPPY to have the opportunity to make an enty at $122, back at where they were pre FABULOUS October earnings?  I can buy IBM for $122 and take advantage of the panic-induced VIX at 26 to sell July $125 calls for $6.60 and the July $120 puts for $6.65 for a net entry of $108.75 with a call away at $125 for a $16.25 profit (15%) in 5 months.  If IBM should fall below $120, we will have a second round of the stock put to us as $120 for an average entry of $114.38, another 6.2% lower than it is now.  If we were more worried, we…

Tags: AAPL, ABX, ACOR, AMED, BRK.B, C, CCJ, CSCO, DELL, DIA, DXD, EDZ, FCX, FXI, GE, GLL, GOOG, IBM, IYR, LLY, LOW, NLY, QID, QQQQ, SDS, SRS, TBT, TM, TNA, USO, UWM, UYG, VIX, XLF

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Wednesday Rejection Weakness

by Phil - February 3rd, 2010 8:21 am

So close but yet so far!

We set our bounce levels way back on Jan 25th and just yesterday I posted up the WEAK BOUNCE levels we need to see before taking our bullish betting to the next level but we have only skimmed along our lines, finishing yesterday at Dow 10,296 (down by 2), S&P 1,103 (down by 2), Nasdaq 2,190 (down by 10), NYSE 7,001 (up by 1) and RUT 614 (down by 6).  This may be seem like some pretty amazing targeting 10 days in advance but, actually, we could have predicted this move last year as it’s nothing more than the same 5% Rule levels we’ve been using since the middle of last year.

That is why, we are not in the least bit impressed by close.  Close, as they say, is no cigar!  Don’t forget those are the natrural dead-cat type bounce levels off the drop from the top that we are trained to IGNORE as they are meaningless in the grand scheme of things.  What is meaningful is when they we retake those levels and that means we found a true floor at 5% (see weekend chart)  NOT taking back AND holding our retrace levels means we are very likely to see phase 2 of our leg down and hit 10% drop levels of Dow 9,630, S&P 1,035, Nasdaq 2,088, NYSE 6,660 and Russell 585 so we will now become much more concerned by failure or those lower levels (10,058 on the Dow etc) which MUST HOLD.

We’re not there yet, we MAY be consolidating along the 5% lines and that would be good, but unnerving.  We have our disaster hedges in place and we got our commodity rally so we can on some oil puts (what a joke at $77.50 already with yet another inventory build to be announced today) and perhaps even some gold puts as we test $1,130 (GLL $9 puts have very little premium at .90).  Our favorite hedge of the moment is once again EDZ, who are back to $5.50 thanks to a nice move up in Asia today.  March $5 puts can be sold for .45 and that’s a very nice way to collect premium as EDZ has to fall 20% before you even owe the putter a nickel but the July $4/6 bull call spread at .85 pays $2 (up 135%) should emerging markets falter (and you know how we love to exploit those emerging…

Tags: CHINA, debt, EDZ, GLL, Gold, Greece, IYR, PIMCO, Roubini, SRS, Stiglitz, TBT

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Global Chart Reveiw Shows Key Inflection Point

by Phil - January 25th, 2010 3:00 am

Chart Review by Michael Clark

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

    – John Maynard Keynes

SO, IS THIS FINALLY THE ‘REAL’ CORRECTION?

What a week it was.  The Bears gave the Bulls some payback.  Obama got a wake-up call.  And the banks got a well-deserved scare (and we hope they will get a well-deserved hair cut).

The markets reacted, as one might expect, with selling.  Actually, the selling began before the Massachusetts election and before Obama sent a shot across the Goldman Sach’s bow.  Last week Intel announced surprisingly strong earnings; and the stock started up and then sank.  For the past half-year investor behavior had been the reverse: a buying spree for any stock that did not lose as much as it might have — beating ‘Street expectations’ that had been dumbed down over and over again during a quarter so that the company could report ’surprising’ strength.  Suddenly, now, even good earnings are being greeted with selling.  Then came Massachusetts — wasn’t that a Bee Gees’ song?
 

All the lights went out in Massachusetts

Anyway, readers want to know where the markets stand today, after the sell-off this week.  My view of it — my ‘view’, not my gut-feeling — is that we are, so far, merely correcting from an over-extended rally.  This rally has been bizarre, to say the least.  This has been a ‘fear rally’ — usually the ‘fear’ side of the equation is when selling comes in, ‘greed’ driving the expansion.  But fear of systemic failure has driven this rally; and Ben Bernannke has been the captain sailing the ‘Boat of Fear’,   Ben’s logic — that more debt will solve the insolvency crisis — has a shadow side, the logic that a collapse in stock prices will result in systemic failure, international chaos, revolution, repression…made him believe that preservation of the status quo was requiired, at any price.  A ‘make-believe’ recovery could be jump-started, perhaps, if the Fed could just stimulate (and simulate) another asset-bubble.  After all - that is how his mentor and predecessor, Alan Greenspan, had become the darling of the coctail party crowd, leading member of Time Magazine’s ‘Committee to Save the World’; and that was how he, himself, had become Time’s ‘Peson of the Year’.

Logic was thrown out the window.  Causality no longer mattered.  More debt might cure the problem of too much debt? …

Tags: CRB, DAX, Dollar, DOW, EPI, FTSE, Gold, HSI, IDX, QID, REW, RSX, Shanghai Composite, SOX, Spain, SRS, SSMI, TBT, technical analysis of charts, Transports, VIX

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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 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 is smarter than reality and Greenspan actually had the nerve to say that we are underestimating…

Tags: AMZN, BAC, C, DIA, EWJ, FCX, FXP, IWM, IYT, LYG, MA, MAT, QID, RIMM, RTH, SRS, TOL, UUP, V, VNO, XLF, XOM, XTO

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Thrill Ride Thursday

by Phil - December 17th, 2009 8:30 am

Wheee - this is fun!

Everything went according to plan yesterday as the very fake pre-market pump I warned you about in the morning post very quickly turned into a day of carnage for the markets.  Sure we only ended up down 10 points, but it was down 100 from the open. 

Fortunately, we have learned how to ride this bull and we grabbed the DIA $105 puts at a .55 average per my 9:47 Alert to Members and we cashed those out at .90 (up 63%) in the afternoon.  We also had a quick 20% winner on Dec QID calls and we kept the Jan QIDs as our continuing bearish bet as we didn’t want to risk a possible overnight pump job taking the markets back up with open Dec calls.  Still, we weren’t worried enough to cover our longer DIA puts so we were very bearish but, as I said yesterday: "We have neglected to do is play the futures pump for the past week as we keep expecting something very bad to happen and boy would we feel silly if we were just 55% bearish when this house of cards comes tumbling down."

It has been volume, volume, volume that kep me questioning the rallies this year - the fact that all the up moves come on very thin volume (ie. manipulated) while all day long the insiders sell to the suckers who are draw in by the futures action and stick saves (it’s a team effort).  This chart from Ron Greiss illustrates what’s wrong with our rally on a more macro level:

While we are certainly not ready to do a bearish victory dance on this tiny little correction, we certainly feel a heck of a lot better about our decision to stay bearish.  In addition to adding bearish DIA and QID plays yesterday, we (of course) added more SRS at our target bottom, took the money and ran on EWJ, shorted XTO (rumors XOM may walk), got more UUP and shorted V.  Our long covers were TOL and the VIX but it was a very bearish day of picks, especially considering our already bearish stance (see Weekend Wrap-Up - Too Bearish or Just too Early?). 

Also a little too early was our positioning for an up move in the Dollar, which began in early November when I wrote a lengthy article on the Dollar, Gold, Oil, The CRB and the Fed and why I felt we were reaching the…

Tags: CHINA, DIA, Dollar, EDZ, EWJ, SRS, TOL, UUP, V, VIX, XOM, XTO

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