by Option Review - July 18th, 2014 1:23 pm
by Phil Davis - August 21st, 2012 6:58 am
Here we go again (again)!
Yep, that's what I said last Tuesday and the Tuesday before that because Tuesday is a day they push the Futures higher and ditch the Dollar and tell you that this time it's different because of the same rumors they had the Tuesday before only this week – the data is getting worse and worse, as we know is better, right?
Last Tuesday we set levels to capitulate and go fully bullish at Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and, as of yesterday's close we had the Nasdaq and the Russell over their marks needing just one confirmation to make it 3 of 5 and begin to flip our short-term portfolios (the $25KPs) bullish. We are soooo close but, so far – no cigar.
While we waited, we looked at some upside hedges that would do well if the market continued higher. Just as we get downside protection when we're bullish – we use upside protection when we're bearish and I suggested taking 5% or 10% positions in aggressive upside plays to help balance a bearish portfolio against – well against exactly what happened in the past 7 days. Our trade ideas were:
- 2 FAS Oct $105/115 bull call spread at $2, selling 1 BBY 2014 $18 puts for $3.25 for net .75, now $1.15 – up 53%
- 2014 SHLD $32.50 puts sold for $7.50, now $6.40 – up 15%
- 6 EWJ Jan $9 calls at .53, selling 1 BBY 2014 $18 put at $3.25 for a net .07 credit, still net .07 credit – even
- TNA Oct $55/61 bull call spread at $2.50, selling Oct $42 puts for $1.90 for net .60, now $1.80 – up 200%
The BBY puts jumped over 20% yesterday, from below $3 to $3.75 and that killed two of our trades (and worse today after earnings!), that were up significantly in Friday's update (which is why we take quick gains like that off the table). The good news is the EWJ play gives us a nice, new entry at the same net price so that one is still good and, of course, we are done with TNA after making 200% in a week and we'll find a fresh horse for that money.
by Phil Davis - August 13th, 2012 8:29 am
Think Mcfly, THINK!
Forget the rhetoric, forget what Cramer says – or any of the other idiots on what used to be accurately called "the idiot box." Just look at this one, simple chart (thanks Doug Short) and tell me – why on earth would the Fed step in and take emergency action when the market is at a multi-year high?
Have they EVER done this before? EVER? Has ANY Central Bank EVER taken emergency liquidity measures when their stock market was at or near their all-time highs? And look at the interest rates (the red line) – there's nowhere to go folks – not unless the Fed is going to start PAYING US to borrow money. In which case – sign me up for $10Bn…
This is the point that was made this week on the cover of Stock World Weekly, and my comments in "The Week Ahead" section were:
by Phil Davis - July 3rd, 2012 8:28 am
As I said yesterday, we're still looking "constructively bullish" on our Big Chart as long as we hold those lines:
Looks can, of course, be deceiving. Keep in mind that this entire pop to form the right-hand top of a very nasty "M" pattern, that can take us right back to the June lows by the end of the month, is the result of the G20 holding hands and singing Kum Ba Yah – along with a few hundred Billion in extra stimulus and, of course, RULE CHANGES that create stealth stimulus.
So, when you have a leak in a $60Tn pool and the water level is down to $55Tn and you pour in $12Tn worth of stimulus and, 3 years later, the water level is only back to $59Tn – do you say "all we need is another Trillion and we're done" or should you be looking for the leak that continues to drain $8Tn over 3 years from the Global Economic Swimming Pool?
If we don't address the problem (unemployment, inadequate tax collections) – we're never going to find a lasting solution, are we?
On the other hand, if your pool is leaking at a rate of $8Tn over 3 years, that's "only" $222Bn a month so any month you dump more than $222Bn worth of Global Stimulus into the pool, you will see the economic levels rising and you can declare things to be "fixed" and all the bulls can jump in and play again until the next time the activity levels get dangerously close to the line at which the pumps seize up and then we have more meetings and do it all over again.
We have to accept the fact that our "leaders" are unwilling or unable to fix the actual leak and this is essentially the cycle we will have to put up with. If we assume we have an infinite amount of stimulus to keep pumping our economic pool back up – then this system is just fine but, judging from the way they had to scrape up this recent few hundred Billion – do we even have enough ($1.2Tn) fresh water to get us through the end of the year?
by Phil Davis - 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.
by Phil Davis - April 30th, 2012 7:55 am
Is this time going to be different?
Sure, why not? Don't let the fact that we had pretty nasty sell-offs the last 4 Mays dissuade you from being gung-ho bullish into this one – after all – it takes bulls and bears to make a market, doesn't it?
We've been prone to focusing on the negative lately – mostly because the positive is pretty much all you hear in the Corporate Media and we like to have balance. If they were too bearish, I'd make a bullish case but this weekend we focused on "Money, Power and Wall Street," and the deteriorating Global situation, which got no better this morning with Spain's -0.3% GDP Report, Eurozone Inflation above forecasts at 2.6%, the S&P downgrading 16 Spanish Banks, California's Tax Collections are running 26% behind schedule, gasoline is hitting record highs in Europe while Business Investment in Europe drops BELOW the 2008 lows:
Should we be concerned? Why should we be – look how high the market is! Doesn't that prove that everything is OK? It sure proved it in October of 2007, when the Dow was at 14,000 and it was still proving it on Monday, May 19th, 2008 – when the Dow was at 13,028 for the last time until March 13th of this year, when 200-point one-day pop sent us all the way to 13,177. We topped out around and fell all the way to 12,700 a month later but now we're back and THIS TIME IS DIFFERENT, right?
For one thing, the SNB spent $4.1Bn propping up the Euro in Q1 – that's a lot of money for a country whose entire GDP is just $500Bn! Fortunately for the Swiss, their insane money printing did cause their gold holdings to rise by $1.2Bn so their net loss in manipulating the Global economy was "only" $2.8Bn so I'm sure they can sustain this farce for another quarter or two if they wish.
Farce is too kind a description for the fraud being perpetrated by the Central Banksters, according to the Economic Policy Journal's Bob Wenzel, what had this to say in his speech to the NY Fed last week (the whole speech is a must read):
Under Chairman Bernanke there have been significant changes in direction
by Phil Davis - April 4th, 2012 8:38 am
I hate to say I told you so but…
Oh, who are we kidding? I could not be happier saying I told you so and neither could our Members as our "Sell in March and Go Away" strategy seems to have hit the nail on the head – and it's only April 4th!
Back then (2/24), we were still bullish but the plan was to let the rally run its course and cash out ahead of earnings and our plays from that Wednesday (2/22) which I posted right in the morning post for all to see, have performed very well, of course.
We had April SQQQ and DXD hedges that failed, of course, but those were paid for by the short sale of AAPL 2014 $300 puts for $15, which are already $10.75, so up 28% already on those pays for a lot of protection.
Another offset we had looked at was the short sale of FDX April $80 puts at $1.10, which expired worthless (up 100%). We also looked at longer-term put sales on SKX, with the Oct $12 puts fetching $1.55 per contract, now $1.25 (up 19%), and the T 2014 $25 puts at $2.15, now $1.75 (up 18%).
Along the same vein, the XOM 2014 $65 puts at $5, now $4.05 (up 19%) were sold to pay for the SU 2014 $25/37 bull call spread for $6 for net $1 on the spread. The bull call spread is still $6 but that's net $1.95 now – up 95% on the combo. Our other bullish play on oil was the USO June $40/46 bull call spread at $2, selling he SCO Oct $26 puts for $3 for a net $1 credit. The USO spread has fallen to $1.40 but the short SCO puts dropped to $1.65 a net gain of .75 – up a quick 75% on a fairly neutral oil play, which was BRILLIANT as it covered many, many of our aggressive oil shorts over the month that went VERY well.
Our other trade ideas from the morning post (and the logic and strategies are detailed in the post):
- AA 2014 $10 puts sold for $2, still $2 – even
- X at $28.49, selling Jan $25 calls for $8.50 and 2014 $20 puts for $2.95 for net $17.04/18.52
by Phil Davis - March 20th, 2012 8:13 am
Just when I thought I could get bullish, they pull back again!
While still EXTREMELY skeptical of this rally, I AM trying to get in the spirit. As I noted yesterday, we have aggressive new levels that we determined in our weekend review of our 5% Rule and still need to see some more progress before we can throw caution to the wind and BUYBUYBUY like it's 1999. Despite our best efforts, the silly move in the Russell yesterday had me putting up a TZA hedge in our morning Member Chat:
RUT made a crazy move from 823 to 830 this morning for no good reason. TZA April $17 puts can be sold for $1 and the the $17/18 bull call spread can be bought for .42 for a net .58 credit for a $16.42 net entry with TZA currently at $17.73 so it's a hedge with a bet against RUT 850 in 30 days.
At 1:23, I followed up by saying: "Look at the RUT now, stuck at the 1.25% line. Obviously, 840 is the 5% move up from the new 800 base so we take that and expect an 8-point pullback but the indexes have been routinely overshooting by 20% (848) and even 40% (856) before pulling back so now that we're past 840 without a pullback, we'll just have to wait and see but, no matter what, we should expect to see 832 re-tested eventually, which is why I liked the TZA play as they crossed that line this morning."
As it worked out, that was the dead top of the RUT and we quickly got our break back below 840 and our ride down to 832 at the close. At 2:50, the Russell Futures failed to get back over 840 and my comment to Members was: "840 on RUT, this is the spot to press those shorts if ever." As you can see from the above chart – we went very nicely off a cliff right after that. JRW, our Russell expert had called the bull run and was ahead of me at 2:29, calling "Back to cash!" and my comment, also at 2:50 was:
Cash/JRW – I agree. As I said last week, better to miss 5% of the next round of foolishness than play
by Phil Davis - March 19th, 2012 8:23 am
We are still trying to get more bullish.
Over the weekend we set a new, higher set of levels for our Big Chart on the assumption that our breakout levels hold up and our new Must Hold lines become Dow 13,600 (not there yet), S&P 1,360, Nasdaq 3,000, NYSE 8,000 and Russell 800, which means it's now up to the Dow and Nasdaq to continue to show leadership if we're going to be having a rally good enough to get us to add our next 10 bullish plays.
I already added 2 aggressive upside trade ideas on XLF and SPY in the weekend post and last week we already looked at WFR, X, BAC, GLW, BBY, CHK, AAPL, AA, and BA but we also added a new Long Put List (Members Only), which had 19 stocks that we thought were good downside horses to ride if, per chance, we fail to hold 3 of our 5 breakout levels.
It shouldn't be too much to ask – IF this is a real bull market. We've been extremely skeptical up to this point and, Fundamentally, I still have my doubts but Technically, we can't keep fighting the tape so were drawing a line in the sand for Mr. Market to cross and, if it does so, we're happy to play along. If it fails to do so, however, well – we've already made those bets!
Our aggressive take on the Dow is the result of analyzing the 5 components that were replaced since the crash with MO and HON thrown out for BAC and CVX in Feb of 2008, AIG replaced by KFT in Sept 2008 and C and GM replaced by CSCO and TRV in June 2009, causing a massive distortion in the index, meaning 16,000 is the old 15,000, possibly even lower:
The Nasdaq is similarly distorted by AAPL, who are up 500% since 2009 and when a stock that is 11.5% of an index is up 500%, that stock alone causes the index to go up 57.5%, which is why we now call it the AAPLdaq. The AAPLdaq itself is "only" up 100%, which means the ENTIRE rest of the index is lagging with a 42.5% contribution – those who tell you that tech is somehow loved again are fooling themselves…
by Phil Davis - March 16th, 2012 8:26 am
I have never hated an up market more.
Even on October 1st, 2008, when I wrote "Hedging for Disaster," where we added 3 ultra short ETFs at Dow 10,650 (SKF Jan $100s at $19, DXD April $55s at $14.20 and SDS March $77s at $9.95) we still had some hope that the Congressional bailout would stabilize the markets, although my comment at the end of that post is just as relevant today as it was at that market top:
Congress many think Paulson and Bernanke and Warren Buffett are kidding when they say we are about to go over an economic cliff but I think there is certainly enough evidence to merit serious concern. In part, we have a crisis of confidence and – even if it were true that we could "muddle through" without a bailout, if just 1/3 of the investors believe that we can’t and pull out of the markets, what good will it do the remaining optimists?
You know how that story ends, of course – the stimulated "recovery" was very short-lived and we went right back off that cliff, dropping 2,000 points that week and another 2,000 by March 9th the next year. Our hedges worked out nicely, of course, with SKF topping out at $1,200 on Nov 21st (up 5,600%), DXD was at $110 on October 10th for a nice $40.80 profit in 9 days (287%) and SDS ran to $130 on the same day and returned 430%.
The other day, I published a list of 12 Long Put Plays for Members (see yesterday's Alert), which I worked at in the morning, after I put up my 10 Bullish Ideas in the morning post. Why? Because, after watching the open and reading the news, I could only conclude that this rally is still fake, Fake, FAKE! Back in October '08, we were already 25% off our 2007 highs where I used to make fun of the market going up every day, like on October 2nd of that year, when I said:
Up, up and away – it’s Super Market!