Wednesday Worries – Yentervention, Euro Style
by Phil - February 8th, 2012 5:16 am
78.50 on the Dollar!
The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.
This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually."
Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control. Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%? Who takes that $750Bn hit? What if rates go up to 2% – what's the value of the bonds then? Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets? Do Japanese spreadsheets even have room for Quadrillions? They are going to need it!
Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff). China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year. The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.
So, how is it that WE are the bad currency here? If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?). I suppose no one can ever recognize losses and just carry more and more junk…
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DiggTuesday – Topping Out or Just Pinning the Fed?
by Phil - January 24th, 2012 8:26 am
Tough call today.
The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.
You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).
Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders. Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.
An optimist would say – well, you can read almost any MSM site for that. It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts! The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat. The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95. Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you? For one thing – you have a very good stop line to watch!
As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross…
Thanksgiving Thoughts
by Phil - November 24th, 2011 5:27 pm
What an ugly finish November is having!
We’ve been trying to get bullish with little success and, if we are not reversing tomorrow, I will be regretting the wasted time poking at bullish plays when we could have been going "wheeeee" on the slide.
I thought that blue line on Dave Fry’s chart was going to hold, it’s about 2.5% down from our Must Hold level for the S&P on the Big Chart (1,235) and that would have been a reasonable (and slight) overshoot of the 10% drop we were expecting so we played for the bounce but now we’ve blown our -5% line at 1,173 and our next support level is -10% at 1,112 – a very sad level to revisit if we do.
Technically, of course, we’re breaking down. Fundamentally, I’m not so sure. The fear is palpable as Europe looks terrible and clearly all these austerity measures are taking a toll on the Global economy but it’s simply NOT showing up in the data yet. PMI’s are dropping across the Globe but the Purchasing Manager’s index is a SENTIMENT indicator that reflects the OPINION of the buyers about business prospects.
As I have been pointing out (yes, there was a point) in my recent series of articles about market and media manipulation – there is a protracted campaign underway to push sentiment down – to chase retail buyers out of the markets.
Who is doing this? Perhaps it is the IBanks, who want to bottom out the market ahead of QE3, when we’ll be off to the races again. Perhaps it is the Fed and Treasury, who want to chase people into the $140Bn worth of bonds they have to sell each month. Perhaps it is the Republicans, who want to campaign against the worst possible economy next year to prove that Obama has blown his handling of the economy almost as bad as Bush did – so we may as well try one of their idiots again since it seems to make no difference. Don’t laugh – I have a button for Romney that says that…
Whatever and whoever is behind the negativity (and let’s not forget Germany, who are angling to take control of the EU and will be able to do so if things deteriorate further) – our job as investors is not to particularly care – but…
TGIF – Saved by the Bell or on a Highway to Hell?
by Phil - November 18th, 2011 8:10 am
Wheeeeeeeee, what a ride this week!
Since we went bearish on Tuesday afternoon, the Dow has dropped 450 points. That pushed our White Christmas Portfolio over the top (as we flipped bearish, of course) with a virtual balance of $26,075 including $2,565 of unrealized gains on our still-open (and still bearish) positions. That’s up $11,075 (73.7%) from our $15,000 start on October 24th and we’ll be getting back to cash and going for another $10,000 (our original goal) before Christmas.
How did we do it? We teach keeping trades short and simple in a choppy market as we stick to our trading range. Trades in the WCP were very much like the trade ideas I published Wednesday morning, from our Tuesday Member Chat at 3:21. As we had a little BS rally Wednesday afternoon, many of the trades were still makeable that day. In fact, in Seeking Allpha, where the post didn’t even go up until later that morning, Jamesbwood was able to take advantage of the XOM $77.50 puts at .14 (less than our original entry) and took a double off the table at .28 – a 100% day trade!
All of those trades ideas are great examples of the kind of trades we look for in our White Christmas Portfolio (our current, virtual, short-term portfolio) – ones we can get quickly in and out of with nice gains. We were quite satisfied with our oil shorts and cashed those out yesterday and, had President Obama followed my advice and sold those 140M barrels for $100 (could have gotten $102), he could have bought them back yesterday at $98.50 for a quick $210M profit – enough to pay for at least an hour’s worth of the deficit! Percentage-wise, he would have been better off subscribing and taking those trade ideas from our Member Chat. Those Wednesday morning trade ideas were:
- GOOG $625/620 bear put spread at $3.10 is a nice downside play – figure risking $1 to make $1.90.
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GOOG is at $600 and this spread will likely expire at $5 today – up 61.3%
- MMM $82.50 puts are $1, also a good trade for a crash tomorrow.
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MMM finished the day at $80.43 and the $82.50 puts were $2.35 – up 135%
- WYNN $130/125 bear put
…
Wednesday Wheeee – Our W’s Are Shaping Up Nicely!
by Phil - August 31st, 2011 8:27 am
Wheeeeeeeeeeee!
Here we go again. We made it through our "Testy Tuesday" and, as you can see from our Big Chart, we hit our goals with 4 of our 5 indexes coming right up to their resistance lines – not bad for support lines we first drew in April of 2009!
As I often say: I am neither Bullish nor Bearish – just Rangeish. Rangeish has been the winning play for us for quite a while. I was on TV August 2nd, where I laid out our plan for the month (20% drop) and we were VERY HAPPY to do our bottom fishing at those -10% lines for the last few weeks and now we are back in a zone of relative uncertainty where we must hold our Must Hold lines.
On Friday, the 19th, we were confident enough in our bottom call (I led the post off with: "We are now officially getting silly" as the futures tanked that morning) that we shorted EWG puts in the morning post and shorted the VIX at $42.50 with a VXX spread that’s already up 1,433% but well on track to double that.
Also in that morning post (and this is just the free stuff!) I put up a bullish trade idea on XOM at $70 that is obviously doing very well (XOM $74 yesterday) as well as calling for longs on the Futures at Russell (/TF) at 650, Nasdaq (/NQ) at 2,050 and Oil (/CL) at $80. If you didn’t play those bullish, don’t look now because you might cry…
Once the market opened that day, we added an aggressive play on HPQ in our $25,000 virtual portfolio, buying 20 Sept $26 calls for .60 (now .93, up 55%) and paying for them by selling 5 Sept $23 puts for $1.57 (now .20, up 87%). That trade was net $415 and is currently worth $1,760 – up 324% in two weeks.
We are able to do that when we take advantage of the very high VIX (which we expected to go down) as well as taking specific advantage of HPQ coming off disappointing earnings but it’s not the charts — it can NEVER be the charts that tell you to buy a stock that is plummeting – it’s FUNDAMENTALS!
We also picked up TIE that afternoon and an aggressive upside play on the Russell…
TGIF – Are We There Yet?
by Phil - August 19th, 2011 8:29 am
Where is the bottom?
We are now officially getting silly, with Germany falling another 3% this morning, now down close to 30% in less than a month (see David Fry’s chart) with the banking sector off 50% and more. To keep that in perspective, the S&P is down less than 20% and even our super-lame Transports (which go down with oil for some reason) are down "just" 24%. So – do we have another 10% (at least) left to fall or is it kind of ridiculous that AAA-rated Germany, with arguably the World’s strongest economy, should drop 30% in 30 days?
It looks like EWG is going to open around $19.50 this morning and you should be able to sell the Sept $19 puts for $1+ or the Jan $17 puts for $1.25+, giving Germany another 16% buffer before you have to give that $1.25 back at net $15.75, which is back at the non-spike lows of the crash.
The VIX spiked up to $42.50 yesterday, that’s higher than it was in April’s sell off and that made an excellent short at the time. You can sell VXX Sept $45 calls for $3.25 and buy the $45/40 bear put spread for $3.40 for net .15 on the $5 spread. If the VIX and VXX do move higher, a 2x roll to the Sept $55s (now $1.60) is about even or the Dec $62 calls are currently $3.10 so it would take a pretty major, sustained move up in volatility for the short puts to really hurt.
Here we are, back at our March lows for the Nikkei and 15% BELOW the March lows for the DAX and 10% below the March lows for the S&P. REALLY? Were we too optimistic in March by 15%? We just had earnings reports and the numbers were generally fine – it’s the outlook that got gloomy, due to all the economic uncertainty. That’s what happens when your Congress is a bunch of buffoons who are willing to sacrifice the Nation and it’s Citizens in order to improve their political posture…
Other than the imaginary problems of debt (it’s been worse) and austerity (a poor solution to address the debt non-issue) and the real problem of the deficit (easily fixable by collecting taxes and cutting military spending) and a slightly slowing economy (caused by the idiotic austerity measures),…
Thrill-Ride Thursday – Will Dudley Do Right Save the Day?
by Phil - August 18th, 2011 8:02 am
Wheeeeeeeeeee!
Now THIS is an exciting ride. We had a great sell-off in the Futures this morning – the same Futures that I mentioned, in yesterday’s Morning Post, that we had shorted at S&P 1,200 and Russell 710 in a post I had titled "1,200 or Bust!" Of course we also called for our usual monthly oil short with the (/CL) Futures hitting $99 on yesterday’s inventory and now down to $86 (up $3,000 per contract).
Of course, for the Futures Impaired – we still have our straight USO Sept $32 puts at .90, which we whittled down to a .75 in yesterday’s Member Chat as well as the very lovely idea of the SQQQ Sept $25/28 bull call spread at $1 (spread with short RIMM Sept $22.50 puts to make it FREE) that I mentioned right in the 2nd paragraph of Tuesday’s post. Those were just the ideas we gave away for free! In Member Chat, yesterday’s morning Alert to Members was this:
As I said earlier, we like the Futures short at RUT (/TF) 710 and S&P (/ES) 1,200 but the big play today will be shorting oil (/CL) below the $88.50 line or, hopefully, below the $90 mark if they get that high. Expect the Dollar to re-test 73.50 and, if they hold it, then it’s a great time to hit the shorts but, with oil, we’re waiting on that inventory report at 10:30.
As an overall short on oil, the Sept $32 puts are down to .65 and .60 is a good spot to DD in the $25KP (10 more). AFTER that, with an average of .75 per contract, we want to consider rolling up to the Sept $33 puts, now .90 for .30 or less.
Another fun way to play an oil sell-off is the SCO Aug $53/54 bull call spread
…
S&P Downgrades US to AA+ – Tied With Belgium!
by Phil - August 5th, 2011 10:22 pm
Uh-oh!
Officials at ratings firm, Standard & Poor’s, said U.S. Treasury debt no longer deserved to be considered among the safest investments in the World. S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn’t do enough to address the gloomy long-term picture for America’s finances. It downgraded U.S. debt to AA+, a score that ranks below Liechtenstein.
S&P said "the downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics." It also blamed the weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions at a time when challenges are mounting.
In other words, the ship is sinking and the captain and crew are doing nothing but rearranging the deck chairs. S&P was supposed to release this report this afternoon (Friday) but the Treasury Department caused a delay by arguing the math the S&P was using (a $2Tn discrepancy). At 8pm, the S&P decided the Treasury was wrong and went ahead and released the report, not only downgrading our Debt to AA+ but giving us a NEGATIVE OUTLOOK as well. Now we have to contemplate what the effect of this change may be…
Let’s first keep in mind that this was expected. In fact, it’s ridiculous how long it took for someone to downgrade us. JPM estimates that $4Tn worth of treasuries are pledged as collateral by borrowers such as banks and derivative traders. The change in status from one ratings agency is unlikely to trigger any immediate covenants (a primer on Sovereign Debt Ratings) but it may take only one more before borrowers are required to come up with many, many Billions of Dollar of cash or securities to keep their creditors at bay – essentially – it’s a margin call on America!
Well, I say this was expected but I mean by us. We cashed out today (see morning post) but Little Timmy Geithner, who blew his chance this week to resign with America’s credit rating intact under his watch, was on Fox News in April SPECIFICALLY stating that there was "NO RISK" that the US could lose it’s AAA rating. Read the article or watch the video –…
Bears Tackle Exxon Mobil Options, Bulls Climb Aboard Carnival Corp.
by Option Review - June 21st, 2011 4:04 pm
Today’s tickers: XOM, CCL, WYN & VRSN
XOM - Exxon Mobil Corp. – A large bearish options play on the world’s largest corporation indicates one strategist is positioned for shares in Exxon Mobil to fall ahead of August expiration. The investor responsible for the sizable ratio put spread on the oil and gas company may be taking an outright bearish stance on the stock, or could be hedging a long position in the underlying ahead of XOM’s July 28 second-quarter earnings report. Exxon Mobil’s shares are currently up 1.3% to stand at $80.75 just before 11:45am in New York. It looks like the options trader picked up 7,500 puts at the August $77.5 strike for a premium of $1.79 each, and sold 15,000 puts at the lower August $72.5 strike at a premium of $0.78 apiece. The net cost of the ratio spread reduces to $0.23 per contract, thus positioning the investor to profit if shares in XOM decline 4.3% in the next couple of months to breach the effective breakeven price of $77.27 at expiration. Maximum potential profits of $4.77 per contract are available to the trader should shares plunge 10.2% to settle at $72.50 at expiration in August. The ratio of twice as many short puts suggests the investor sees limited bearish movement in the price of the underlying stock. More significant share price erosion than the put player expects could result in losses on the position in the event that shares in Exxon Mobil drop 16.1% in the next nine weeks to slip beneath the lower breakeven price of $67.73 by expiration day in August. Other signs of investor pessimism on XOM cropped up in the August $85 strike call where is appears some 2,600 contracts sold for an average premium of $0.70 a-pop. Options implied volatility on the stock is off its lows of the session, but remains 8.5% lower on the day at 18.73% as of 11:55am.…
Wednesday: Wiping Out All of 2011′s Gains!
by Phil - June 8th, 2011 7:54 am
S&P 1,260. That’s the line we need to hold.
That’s where we started the Year on January 3rd and we finished that day at 1,271, beginning a fine tradition of making almost all of our gains on the first day of the month, continuing a very disturbing (and very fake) year-long trend that I am calling "sell the next day (of the month) and go away." (chart by Bespoke).
Notice that this trend became very disturbing at the same time Uncle Ben announced his fabulous QE2 plan that showered money on his fellow Banksters according to a nice, predictable schedule that allowed them to lever up their investments to inflate stocks and commodities, trapping index fund investors (especially the working poor who make monthly contributions to IRA and 401K accounts in a nice, predictable and controllable fashion). It’s a simple plan, index fund managers get your pension money at the end of the month, they are required to buy baskets of stocks to balance their funds and that action can be manipulated by clever bankers who jack up the prices and then sell into the fake demand they created – effectively stealing tens of Billions each month out of the paychecks of working Americans. Just another one of those great crimes they commit where they steal a little bit of money from everyone, every day.
Speaking of robbing from the rich to give to the poor (see "The Dooh Nibor Economy"), it’s time we said happy 10th anniversary to the Bush/Obama tax cuts that have, as Barry Ritholtz put it: "driven the balanced budget he inherited from President Clinton deep into the red." So deep in the red, in fact, that even now Congress is still debating about extending the $14.5Tn deficit that the Congressional Budget Office says will double over the next 10 years if these cuts remain in place.
That’s right, those same tax cuts that are "off the table" in negotiations in Congress are, other than war spending, the sole cause of our nation’s deficit. This country does not have a spending problem, it has a collecting problem! As Mike Konczal, a research fellow at the Roosevelt Institute, noted: "It’s not like this has unleashed a wave of productivity, or better incentives, or increased work output. It’s mostly just rich people got a lot more money."
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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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