by Option Review - December 13th, 2012 3:38 pm
by Phil Davis - April 6th, 2012 8:45 am
NOW things are getting interesting!
Who wants a market that goes up and up and up – where's the sport? Even the Nasdaq finally blew it's 15-week winning streak and that helped us decide to stay pretty bearish going into yesterday's close. This morning we went over the news and the week's data to position ourselves for the Futures and my conclusion to Members in our special 4:03 am Alert was:
Next week we get the BBook, PPI and CPI but the focus will be on earnings and AA is not likely to get us off to a good start so I simply don't see anything in particular to be bullish about at the moment.
The point I had been making (with many charts and graphs) was that it didn't matter if we added even 250,000 jobs – it still isn't enough to begin to fill in the hole in any meaningful way and, even more important, the QUALITY of jobs we have been adding is TERRIBLE!
It doesn't matter if you give everyone a job if they are only minimum wage jobs. We need our consumers to have an income to spend and aside from inflation (real inflation, not the Fed's BS numbers) eating into their buying power, when someone loses a $50,000 job and replaces it with a $35,000 job – that's NOT an improving economy – not for the long run, anyway.
Of course the stock market will like it, at first – as lower wages paid for the same job = greater Corporate Profits but that only works as long as there are people outside your country who have money to buy your goods.
As we noted just yesterday with the Retail Reports, the high-end stores are doing very well as the top 10% is doing well but those serving the bottom 90% are struggling because, clearly, these people are running out of money. While the market has been content to "ignore and soar" during this gathering storm, now we begin to see the size of the wave that's coming in and it's starting to look scary indeed…
8:30 Update: An anemic 120,000 Jobs added in March! That's about 1/2 of what was expected by Economorons, who can't even get a handle on a major, critical number like Payrolls – how scary is that? So many of…
by Phil Davis - March 6th, 2012 7:35 am
Romney, Newt or Santorum?
In the movie "Sophie's Choice," Meryl Streep was forced to make a terrible decision over which of her children would be sent to the gas chamber and which to the labor camps. Even after choosing, she was unable to live with the decision and she and her husband killed themselves, which manages to further screw the boy who was sent off to the labor camps, now an orphan too. That pretty much sums up this Primary season for the Republicans as they have to choose between 3 TERRIBLE candidates – any one of which is a pretty clear path towards National suicide.
A recent Gallup poll indicated 55% of Republican voters say they wish someone else was running but, that leaves 45% happy with their choices (I guess if they were Sophie, they would have just flipped a coin and been done with it) and perhaps today we'll get a better indication of who the front-runner is as 410 delegates go up for grabs today, which is much less than last election, when John McCain alone scored 511 delegates on Feb 5th, 2008. Interesting Republican trivia: On that day in 2008, Mitt Romney came in 2nd with 176, Mike Huckabee had 147 and Dr. Ron Paul scored 10. So Romney was only 1/3 as popular as McCain 4 years ago and I'm pretty sure McCain got his ass kicked in the General elections, didn't he?
Something has to change in this country as 93% of all income gains in 2010 (most recent figures) went to the top 1%. 93%. How does this work? In 2010, average real income per family grew by 2.3%, but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Looking ahead to last year, National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have only grown only modestly. Unemployment and non-employment have remained high in 2011.
While it is very, VERY good to be in the top 1%, being in the bottom 99% – not so much. What I try to get the top 1% to see though, is that getting 45% of the growth, like we did under Clinton, is pretty good – especially when it means that EVERYONE is participating in economic improvements and the overall growth is…
by Phil Davis - 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. …
by Phil Davis - June 11th, 2011 6:08 am
That’s how much money our oil futures trade ideas generated over the past two weeks and I certainly hope everyone got a piece of theirs but, out of curiosity, how did our other trade ideas do in this terrible market? We track our virtual portfolios but we have many trade ideas during members chat on both sides of the fence so let’s take some time to review what worked and what didn’t work as the Dow dropped 500 points since the holiday.
Keep in mind this is just virtual performance and I’ll do my best to not miss anything and I’m going to include the Friday before the holiday weekend so we can review what our mind-set was as we set ourselves up for the long weekend as well as how we handled the moves since in both our daily posts and our Member Chat. I’m not going to narrate each day, that’s what Stock World Weekly is for – I’ll just make quick comments on the trades when appropriate. Keep in mind, with all options trading, once you make a quick 20%, you should be looking for the exits (see our Strategy Section) by setting stops (and we also stop out with a 20% loss of course) – we are just lucky when we happen to do better.
In the main post (main post trade ideas can be read daily by Report Members or higher – the rest are in our Private Member Chat), I discussed shorting oil futures off our $101.90 (at the time) target. We didn’t like waiting for $102 because sometimes it failed. Oil finished at $99 this week but was as low as $97.24 as we put pressure on the NYMEX pump crew by accepting their bogus offers to buy oil over $101 per barrel. This post was the first one where I decided to go public with what we were doing, hoping to break the back of the market manipulators at the NYMEX by letting as many people as possible in on the trade. This is also where I laid out our bearish fundamental case for oil so good for review. My comment in the morning post was:
As I mentioned yesterday, this week’s action is
by Phil Davis - February 5th, 2011 6:14 am
Here we are again!
The last time I wrote a Breakout Defense article was back on December 11th when I said: "Wow! I mean wow! Will this market ever go down? My mother called me this morning and she’s raising her GDP outlook for 2011 too – that’s how crazy things have gotten out there. I’m just waiting for the Pope to come out and tell us to buy CMG and Netflix and THEN we’ll know it’s a sign." Clearly, my Mom and the Pope nailed it as the the Dow is up another 500 points (4.3%) since then and CMG made a comeback yesterday and is a bit higher than Dec. 10th’s finish at $238.22 and NFLX is well above $194.63 so the infallibility streak continues for the pontiff!
As with last time, I would urge you to spend some time reading (and now viewing) David Fry’s market commentary over at ETF digest. Dave’s take on the IWM, which we have been playing this week, is that it is still rolling over and that investors should not be fooled by the Dow. I’m not here to debate the points – this is an article about what we can do to make sure we don’t miss the rally train if it does leave the station and, like last time, it’s very easy to set aside a small amount of capital into highly leveraged trades like this, which can make excellent returns on even small rises in the market. On the whole, I remain cautious and still believing that we may be in a blow-off top but we have plenty of bearish short-term bets and we need some balance – just in case…
We had just a 4.3% gain since our December picks and check out this performance on those already:
- FAS Apr $20/25 bull call spread paired with the sale of the April $21 puts for net .15, now $3.98, up 2,553%.
- DBC Apr $27 calls at $1, now $2.05 – up 105%
- 4 DBC Jan $22/27 bull call spread paired with the sale of the 3 USO 2013 $30 puts for net $170, now $740 – up 335%
- DBC Jan $26/30 bull call spread paired with the sale of the $22 puts for net .30, now $1.50, up 400%
- SSO Jan $30/June $42 diagonal call spread paired with the sale of and
by Phil Davis - January 1st, 2011 8:28 am
I am still trying to get more bullish.
I was thinking about writing something cute like I resolve to get more bullish but that would be wrong. I try, in my own humble way, to "get" the market right. That means I am not bullish or bearish but Truthish (to further botch Stephen Colbert’s use of the word) and, as Buddah says: "There are only two mistakes one can make along the road to truth; not going all the way, and not starting." Confucious reminds us that there are three methods by which we may learn wisdom: "First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."
In that spirit, we will spend the day in reflection so that we are better able to start on that long road to the truth so that we will be better able to imitate the things that will work in the year to come while trying to avoid making mistakes that will give us bitter experiences.
This post is not about me – We had a fantastic year and I’ve already given some outlook for 2011 back on the 19th in that weekend’s "It’s Never too Early to Predict the Future" and our current position is short-term bearish in the Jan-April time-frame, looking for a pullback to at least 1,200 on the S&P and possibly back to 1,150.
After that, we are expecting a return to steady gains but without the irrational exuberance we’re currently experiencing. So no, I am not bearish – I simply think we’ve gotten ahead of ourselves. Since we don’t know where the rally train will stop, we have our "Breakout Defense – 5,000% in 5 Trades or Less" from Dec 11th, which were a set of very bullish, highly levered plays where a little bet can pay off a lot if we simply hold our long-established breakout levels.
How much is "a lot"? Well my GE trade idea, for example, was to sell the 2013 $12.50 puts for $1.10 (net $1.15 in ordinary margin according to TOS) and to use that money to buy the 2012 $17.50/20 bull call spread for .95, which was a net .15 credit on a $2.50 spread that was on the money at the time. GE has gained about .75 since the 11th and…
by Phil Davis - December 28th, 2010 8:24 am
Looks like we picked the wrong week to short FCX!
Copper hit a new all-time high in Shanghai this morning (as the guy who owns 90% of London’s closed for the holiday exchange supplies sold it to himself for more money than he did yesterday) and gold is back at $1,400 in the futures and that should give us a better entry on FCX puts than we expected for round 2 but Paul Krugman has me worried now that maybe commodity prices are just high because the World hasn’t got enough of them to go around. Usually Paul and I agree but i think he may be discounting the effect of a 10% decline in the dollar a little too much – which is understandable as he is still arguing for more stimulus while I’m arguing that the way they are stimulating now is causing this problem and can not and should not be sustained.
Still, we have to be pragmatic. That’s why, this weekend, I posted our "Secret Santa Inflation Hedges for 2011" as a follow-on to the "Breakout Defense – 5,000% in 5 Trades or Less" ideas of the 11th and, in the week between the two, we had bullish bets on HMY, XLF, CAKE, TNA, IWM, CCJ, CHK, EXC, TNA, XLF, UNG, GLD, AAPL, GLW, TOT and AXP – which I had mentioned on the 19th in the weekend post "It’s Never too Early to Predict the Future." Just because I think there’s going to be a disaster doesn’t mean we can’t go with the flow while we wait, right?
We don’t have to like the market to buy it above our breakout lines but we do need to keep in mind that this is a very thin rally that is very likely nothing but window dressing aimed at dragging money off the sidelines so the IBanks who have been propping up the markets can, once again, stick the retail shareholders with the bag as they load up on puts (watch the VIX to confirm) and crash the markets once again. I’ve seen it happen in 1999, I saw it happen in 2008 and, both times, the rally lasted longer than seemed logical but the smart play was to hit and run – not to leave your money on the table but to participate in the upswings and then…
by Phil Davis - December 19th, 2010 7:57 am
Barron’s already has the 2011 Outlook on the Cover.
We were discussing the generally bullish in Member Chat and Barfinger said "So, Phil, what is your response to the bullish preview?" That was a great question because it made me think. Does he expect a "rebuttal"? I can understand that as I’ve been fairly bearish but let’s not confuse caution (I called for a cash out when the Dow hit 11,200 in early November, it peaked at 11,444 on the 5th and closed Friday at 11,491) with bearishness – it’s just that my now 45 days of running around saying "the sky is falling" while it stays in place does make me seem like a perma-bear.
The "October Overbought Eight" was my first bearish virtual portfolio since April 28th’s "Hedging for Disaster – 5 Plays that Make 500% if the Market Falls" (and it did, and they did). THAT was a bearish outlook! We are not that bearish here, otherwise it would have been the easiest thing in the World to re-up those plays for the new year. We expect a correction, but hopefully not the kind we had between May 4th and July 2nd, where the Dow dropped 1,600 points in just over 2 months. We are HOPING for a nice 20% pullback off the 15% gain from 9,800 to 11,270 back to the 11,000 line and holding that would make us very bullish going into next year.
That would be 1,180 on the S&P (the declining 200 dma) and just 5% down from Friday’s close – THAT’s how bearish I am! Where we are now is simply where the 5% Rule told us we’d be back on May 5th, where the chart pointed out that 1,240 is 20% off the upper, non-spike consolidation at 1,550 that marked the high for the S&P. 20% is the most powerful level in the 5% Rule and that’s why it’s been safer to wait and see how this line resolves than place long-term bets in either direction into the slow and volatile holidays.
Obviously, I am fairly convinced that Global "leaders" are making all sorts of policy mistakes handling the economy and I do believe it will all end in disaster but that does NOT mean I am market bearish.
by Phil Davis - October 15th, 2010 6:12 pm
Up and up the markets go, where they stop – only Ben knows!
We actually initiated the October 8 picks on Thurs, Sept 30th, when we had that crazy Dow spike to 10,950. As it was the last day of the month we got an instant winner on the NFLX play and some other good ones as we plunged to 10,700 that Monday. In between, when I wrote the post on Sunday, Oct 3rd, I said "I hate to go short."
We were still very bullish in our virtual portfolios (see September’s Dozen, Turning $10K to $50K, Defending with Dividends, 9 Fabulous Dow Plays and the June 26th Buy List) since the June bottom (and we were early on that call too) but we felt is was time to start covering with some bearish plays as we completed our projected 12.5% run back 11,000. These 8 trade ideas were to get the ball rolling in October. Since then we have flown up to 11,062 on the Dow, slightly over our projected top, much the way 9,650 was slightly below our projected bottom in July. The rally still has not retraced enough to cause us to give up on our long-term longs so this is a BALANCING move on an expected pullback, not an overall long-term bearish posture – always be clear about that! We’ve been bullish since the beginning of July as this point it pays to diversify.
Like July, we can take advantage of the the spike out of our range to scale into positions and to roll and adjust the trades and, like July, we looked at some bullish covers along the way – just in case we are even earlier than we thought. I’m not going to get into the whole macro thing here – I did that all week but everything old is new again, as you can see from this chart:
I don’t know how well you can see this but I copied the current rally and lined up the bottom with the Feb rally. It’s hard to see because the movement is VIRTUALLY IDENTICAL. That’s right, Lloyd is either too lazy or too cheap to even bother to change the Bots he uses to gooses the markets. As you can see in the area with the extra lines – day after day, tick…