Tempting Tuesday - Waiting on the Fed
by Phil - March 16th, 2010 8:13 am
The dollar is diving and the futures are flying this morning!
Word is that the Fed will remain doveish in their 2:15 statement today with no sign of tightening in the near future. That has (as of 7:30) rallied gold 1.5% to $1,115 and oil is back over $80 and copper is $3.35 again while the Euro jumps back to $1.375 and even the British Pound squeezes the hell out of the shorts as it flies from $1.497 at 3:30 to $1.514 (1%) in 4 hours, which is a pretty big move for FOREX!
The EU also helped themselves by laying out a groundwork for a financial lifeline to debt-stricken Greece, breaking a taboo against aid to cash-strapped governments in order to avert a crisis for the euro. Officials from the 16 countries using the currency worked out a strategy for emergency loans in case Greece’s plan for 4.8 billion euros ($6.6 billion) in tax increases and wage cuts fails to stave off fiscal disaster. “We clarified the technical arrangements that would enable us to take coordinated action which could be swiftly put into place in the event it is necessary,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after leading a meeting of Euro-area finance officials in Brussels.
The EU is also meeting to discuss ways to reign in hedge funds and credit-default swaps but the revised bill from Chris Dodd is now so watered down by compromise that it no longer requires regulators to agree that excluding a swap from being cleared “is necessary and appropriate for the reduction of systemic risk.” So what’s the point? The problem is that there are $605 TRILLION Dollars of CDS’s written against a Global GDP of $50Tn. Usually, it’s a red flag for the police when a person insures their home for 12 times what it’s worth, right?
Hexagon Securities LLC and at least 19 other financial firms are pressing regulators to force swaps clearinghouses to lower entry barriers in order to improve competition in a $605 trillion derivatives market dominated by the world’s biggest banks. They also seek tougher conflict-of-interest laws to ensure that a bank’s derivatives desk doesn’t influence clearinghouse decisions that could shut out new competitors. ROFL - move to Russia, you Commies! This is America, where big banks rule and "firms with less than $5Bn net worth" drool! See, my daughters taught me that one - wins every argument!
Speaking of people who rule our lives - Saudi Oil Minister,…
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Amazon Options in High Demand Following eBook Pricing Concession
by Phil - February 1st, 2010 4:24 pm
Today’s tickers: AMZN, DELL, FXI, AET, XOM, LPX, CSCO, VCI & ITMN
AMZN – Amazon.com, Inc. – E-tailer, Amazon.com, Inc., attracted two-way trading traffic in its options today after the firm gave in to publisher, Macmillan’s, demands to increase the price of digital books. Amazon.com’s concession to Macmillan is fueling investor concerns that the largest internet retailer is relinquishing its pricing advantage. Shares of the online shopping destination slumped more than 8.65% during the trading session to an intraday low of $114.38 – the largest decline in Amazon’s shares in more than one year. Investors inundated Amazon with options trades today, exchanging more than 226,300 contracts on the stock by 2:50 pm (EDT). Option volume generated thus far in the session represents more than 45% of the total 493,697 lots of existing open interest on AMZN. Strong demand for options on the stock as well as a rise in investor uncertainty boosted option implied volatility on Amazon roughly 8.3% higher to 41.44% in afternoon trading. Option traders expecting shares to rebound quickly purchased 2,200 call options at the February $115 strike for an average premium of $5.67 apiece. The $120.67 breakeven price on the contracts suggests call buyers expecting to amass profits in the next few weeks, anticipate a more than 5% increase off the intraday low, by expiration day in February. Call buying and selling in roughly equal proportions was observed at the February $120 strike and at the February $125 strike. Two-way trading traffic of put options is also apparent in the February contract. Contrarian players sold nearly 8,000 puts at the February $115 strike to take in an average premium of $3.58 per contract. Put sellers at this strike keep the full premium received if AMZN’s shares trade above $115.00 through expiration day. The most bearish moves were made at the March $105 strike where 1,100 puts were picked up for an average premium of $2.81 each.
DELL – Dell, Inc. – Bullish investors initiated call spreads on the just-in-time manufacturer of personal computers this afternoon with Dell’s share price up 2.5% to $13.22 on the day. Option traders purchased more than 10,000 calls at the August $14 strike for an average premium of $1.17 apiece, spread against the sale of roughly 10,000 calls at the higher August $18 strike for an average premium of $0.20 each. The average net cost of the bullish trade amounts to $0.97 per contract. Investors…
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Weekend Wipe-Out, the Second Wave!
by Phil - January 29th, 2010 5:57 pm
Another week another 100 points lower.
Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067 yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!
How could the market not zoom right back up? It always zooms right back up, doesn’t it? As I said a week ago Friday: "Boy, when sentiment shifts - it REALLY shifts!" My closing comment on Friday the 22nd was "Back to cash but leaving disaster hedges, which are looking great now as this is shaping up to be some disaster" and our weekend "Global Chart Review" showed us to be at some very key inflection points, letting us go well prepared into this week:
Manic Monday Market Movement
My Jets lost on Sunday so I was not in the best of moods on Monday. My outlook that morning was: "We still have our disaster hedges in case things get worse but, on the whole, we’re expecting a 1% bounce in the very least off our 5% lines (anything less will be a bad sign)." We were pretty much at the 5% rule on Friday’s close so we focused on the bounce we wanted to achieve in order to get more bullish.
I noted that the levels we were looking for were not exactly 1% retraces (see post for reasons) and our target retraces were: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625. What were the highs for the week on those indexes? Dow 10,310 (+10), S&P 1,103 (-2), Nasdaq 2,227 (+2), NYSE 7,098 (-2) and Russell 621 (-4). So that’s a net of +4 points out of 21,355 points worth of predictions on the retrace, accuracy to within .019% - not a bad showing for our patented 5% rule.
Please, under NO circumstances subscribe to our daily newsletter, where you would have this kind of information every morning and DO NOT get an Alert Membership where we send out our amazingly accurate watch levels to you every day. Having this sort of advanced information on the markets would be unfair to other traders, who thank you for your restraint…
See how I cleverly used reverse…
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Freaky Friday - Options Expirations Promise a Wild Ride!
by Phil - January 15th, 2010 8:40 am
As Jesse notes over at Cafe Americain, it’s shenanigans central today.
We are mostly watching the action with a detached interest. As I said to Members in yesterday’s morning Alert: "Tomorrow we have CPI, Business Inventories, Industrial Production, Empire Manufacturing (which was awful last month) and Michigan Sentiment and then the 3-day weekend so cash will be comforting until Tuesday at least!" Yesterday was an excellent day to take the money and run on our bullish positions, even though we did finally make our levels, my final word in that Alert was: "Be very careful today, I still feel like this whole thing can snap on one bad news story."
We did take earnings spreads on JPM and INTC, both of which seem right on target at 7:30 (see this morning’s Alert for adjustments) with INTC giving us the strong numbers we expected and JPM doing well, but not well enough to live up to the hype.
Earnings season is like party time for options traders, especially on expiration week where we can take advantage of low premiums on the things we buy while still selling high, earnings-inflated premiums on the things we want to sell. The INTC trade was taking the Feb $22/23 bull call spread for .27 (a cheap way to make $1) and reducing our basis by selling 1/2 that number of Jan $22.50 calls for .12 (a ridiculous price for a call that was $1.20 out of the money when we made the trade in the morning but we only sold half, just in case!) and also selling the Feb $19 puts for .17. Those we sold the full amount of as we REALLY don’t mind having Intel put to us at net $19.04 as .17 and 1/2 of .12 = .23 off our net .27 purchase of the bull spread so we’re in for a grand net total of .04 with the upside potential of making $1 if INTC makes it to $23 by Feb expirations. Even if we only cash out our Feb spread for .12 (less than half of what we bought it for), that’s still a 200% profit on the net spread! This is why we LOVE earnings season!
Our Trade Idea for JPM was in that same 10:47 Post and in that one I said to Members: "JPM - Great Expectations so I like the $44 puts for .55, selling the Feb $41 puts for .52 on the premise…
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Which Way Wednesday - Beige Book Boogie
by Phil - January 13th, 2010 8:07 am
The futures were boogying "all night long."
THIS is why we love being born-again bulls. China’s Hang Seng down 578 points on the Hangs Seng (2.5%) - It doesn’t matter! Shanghai down 3.1% - It doesn’t matter! Europe down half a point - It doesn’t matter! Germany’s economy contracted 5% in 2009, the worst decline since WWII (the big one) - It doesn’t matter! ABC Consumer Comfort Poll drops 11% with just 9% of Americans rating the economy postively - IT JUST DOESN’T MATTER - because WE are those 9% of Americans, right! OUR economy is just fine and we don’t know what that 91% contingent of babies is whining about do we?
Yes, it’s been a while since I dubbed us in a Meatball Market. The last market I labled as such was November 30th, 2006, when the Dow broke through 12,000 on the way to 14,000. Our bullish picks that day included BA, CAT, COF, DOW, GE, HD, JWN, QQQQ, TIE, TIF, XLE and XOM. Those were all, of course, fantastic picks but what I want you to do is read the October 2nd, 2007 article, where I began to turn cynical on the "Meatball Market" and I made the following statement:
Up, up and away - it’s Super Market! It’s bugdet proof, oil proof, terror (threat) proof, housing proof, inflation proof and pullback proof - 3 weeks in a row!
This is truly a Market of Steel (and the recent movement of X underscores that) and looking at the movement of the past week we really do have to believe it can fly… Is the US consumer (driver of 2/3 of the economy) really impervious to harm? What, if anything, is our stock market Kryptonite?
Unstable currency, runaway commodity prices, spiraling inflation, low savings rates, hedge fund collapses, declining home values, banks writing down their portfolios, hundreds of thousands of layoffs, millions of foreclosures — it simply does not matter as long as they are LOCAL problems for the US as we are a smaller and smaller cog in the great global economy, one day we may even be granted emerging market status by our Chinese masters!
Doesn’t sound like much has changed in 2 years does it? Unfortunately, that also happened to be the day that Alan Greenspan (now working for PimpCo) decided to call China, with the Hang Seng then at 28,199, (gasp!) a bubble. "If you ever wanted to get a definition of a bubble in the works, this is it." he said, at the…
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2010 - Time to Arrest the Oil Extortionists?
by Phil - December 30th, 2009 4:58 am
Is "extortion" too strong a word for what’s being done to us?
Extortion is a criminal offense which occurs when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Coercion is the practice of forcing another party to behave in an involuntary manner (whether through action or inaction) by use of threats, intimidation, trickery, or some other form of pressure or force. Such actions are used as leverage, to force the victim to act in the desired way. Coercion may involve the actual infliction of physical pain/injury or psychological harm in order to enhance the credibility of a threat. The threat of further harm may lead to the cooperation or obedience of the person being coerced.
Perhaps there is not much we can do to stop the criminal cartel known as OPEC from withholding the supply of oil (they have cut production by 5M barrels a day globally in the past 18 months) or the US Energy cartel that has taken 32.4% of the US rigs off-line in the past 12 months - EVEN though oil prices are UP 100% over the same time period. I’m sure, if called to testify before Congress, T Boone and company will do some song and dance to pretend the economics of $80 oil justify 32.4% less drilling than $40 oil did last December rather than the very obvious fact that, by cutting off 32% of our supply, they were able to EXTORT us, to force us to pay through trickery and the pressure of witholding a vital commodity - an extra $40 per barrel.
$40 a barrel is costing the US consumer $760M a day - and that’s without the refining mark-up. $760M a day is $277Bn a year stolen from US citizens alone and over $1Tn globally - that’s 20 Madoff scams a year! If the oil companies were witholding water or air from us and demanding more money for something they were able to readily produce more of, then we would KNOW it was torture, right? Why should oil be different? It’s not a choice - for good or ill, we need energy to survive in this modern world every bit as much as we need air and water yet we allow both the blatant cartel of OPEC as well as the private cartel of US petroleum producers to manipulate the supply of energy and FORCE us to pay far more than the market rate could possibly be if the supply were not ARTIFICIALLY constrained.
Last…
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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…
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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…
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Manic Monday - Dubai, CitiGroup and GS Move Markets
by Phil - December 14th, 2009 8:28 am
What a morning it’s been already!
Last night, at about 11:30 EST, Abu Dhabi gave a $10Bn bailout to Dubai (until the end of April, anyway) with the following statement from Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee: "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices." That was enough to send the Hang Seng from down 300 points to up 300 points in less than 30 minutes of trading (on both sides of their lunch break) while the Shanghai went from -2.2% to +1.7% and the Nikkei also reversed a 100-point drop, but only managed to get back to even at the close.
US futures trading also went wild, up over 100 points at the time but we’ve given up about half of those gains as of 7:30. Does it make sense that the Dubai crisis, which dropped us from 10,450 back to 10,250 when it came up, should be the catalyst to get us over 10,500 just because they were bailed out? Of course it doesn’t - that’s why we went to cash. This is one of the most ridiculously irrational markets I’ve ever seen. The other "good" news this morning is also the same old songs: Citigroup will repay their $20Bn TARP loan by diluting their stock by about 20% and GS says oil will go to $85 early next year.
I don’t know why they even bother to pretend anymore - they should just put 10 market-boosting statements on a chip that randomly plays one of them whenever the MSM needs a quote for the morning. People don’t seem to notice it’s the same thing over and over and over again so why even bother with the pretense? Speaking of pretense - I mentioned in the Weekend Wrap-Up that we expected this nonsense this morning but, had I realized that Greenspan AND Cramer were going to be on Meet the Press yesterday, I would have gone more bullish as those are the two biggest market hypers GE could have used for this week’s quotes.
Europe seems happy enough with Asia’s recovery and all the bull*** commentary (that’s bullISH - what were you thinking?) and they are up about a point ahead of our open DESPITE the FACT that Q3 euro area employment is down 0.5%, the fifth straight quarter of contraction. All sectors reported declines,…
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Weak Weekly Wrap-Up
by Phil - November 21st, 2009 8:26 am
This chart says it all (thanks Jesse).
In last week’s wrap-up I said: "Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions." I mentioned how tempting it had been to cash out all our longs and go 100% bearish when we hit 10,300. Our downside levels told us to wait until the 16th, when Monday’s move up was finally the last straw and we are out of the bull game (our last major Buy List was July 11th and most picks are up over 100%), probably for the rest of the year.
This chart shows you that the S&P is primed for a 5% correction back to 1,050. I don’t know why Jesse didn’t extend out the lower support line, which would take us right about to my pullback target of S&P 1,000/Dow 9,650. I stuck my neck out on TV two weeks ago, calling for a 10% correction to those levels but we’ve been playing both sides of the fence until this week, when I finally had to put my foot down on Monday, after having discussed cashing out for the holidays in Member Chat over the weekend. Our general plan this week was to cash out the winners and leave only longer-term, hedged bullish plays while adding more speculative downside plays for the short-term correction.
Why the change of heart? Well, something you don’t see on this chart but is pretty clear on the Yahoo monthly view, is that virtually all of the gains (ALL of them if you include the spikes) in the Dow for the ENTIRE month of November have come on single days each week. This week it was Monday (139 points), last week Monday (206 points) and Nov 5th was Wednesday (198 points). Take those days out of the run from our Oct 30th close at 9,712 and we’re up just 63 points to 9,975 despite there being only 1 losing day in the first week (11/3, down 16 points) of the month and one losing day in the second (Nov 12th, down 92 points). That is one super-flimsy way to build a "rally" don’t you think?
Getting 90% of our gains in on 3 days in 3 weeks indicates a certain lack of follow-through to these bullish market moves. I outlined the nature of the manipulation that takes place in yesterday’s post so…
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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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