That’s what it’s all about, or not about today. Last week we got much better than expected numbers as Job losses fell from 640,000 to 565,000 but how much of that was due to the July 4th holiday weekend we will see this morning. Analysts have quickly lowered their expectations to match last week’s figure (as they don’t have a clue of their own) and now we are expected to lose "only" 550,000 jobs this morning – still a 6.6M annual pace so keep that in mind should the markets decide to "celebrate" that number. Looking at the chart, you’ll see that July of ’08 had a sharp downturn in Job losses as well, down from 400,000 to 350,000 with July 4th celebrated on a Friday last year too. Those reports arrested a slide in the Dow from 13,000 in May to 11,000 in mid-July and the market ran back to 11,800 on Aug 11th and we held around 11,500 until things fell apart in September and we fell all the way to 8,000. I know – history is just soooooo boring, what could possibly be learned from it?
Yesterday was an amazing day as we ran right up to the target levels I predicted on Monday, which I reiterated in yesterday’s morning post, saying: "Our upper targets to break the dreaded head and shoulders pattern are: Dow 8,500, S&P 930, Nasdaq 1,825, NYSE 6,000 and Russell 510." We had what we call a "Free Money Day" as the markets went up and up and up some more with the Dow topping out way up at 8,620, a 6.4% move off the bottom, which is just about a 20% retrace of the 33% drop so, of course, we shorted it! The S&P made it right to 932 and finished there, up 7.1% since Friday. The Nasdaq made it all the way to 1,860 after gapping just over our target at the open, up 6.9% for the week. The NYSE hit 6,000 on the nose and finished just under it – up 7.1% while the Russell over-achieved to 515, up 8.4% in 3 days.
As I mentioned yesterday, just because we made our targets, we are not automatically expecting a "breakout." We are not happy with the WAY in which we got here – a short rally on fairly low volume leaves what I call an "air pocket" below…
Any excuse to take the markets higher and INTC was a good one last night. We’re thrilled because my 2:43 Trade Idea for members was "INTC Jan $17.50s for $1.28, speculative naked call with earnings tonight." We don’t do those very often but we looked primed for a pop and not much was expected from Intel, who were still expected to earn just 8 cents this quarter by the 44 analysts who are paid to follow them, despite the fact that they earned .11 last quarter (an 8-cent upside surprise) and had earned .28 last year in Q2. That made the long call an excellent play since we were also willing to stick with them and add to the position if INTC had missed. As it is, that should give us a nice 50%+ pop this morning!
Other trades ideas from yesterday’s Member chat were a GS put spread, AIG puts (and we can’t wait for "earnings" on them!), DIA puts and calls as momentum plays, a YUM ratio backspread for the $5,000 Virtual Portfolio and a JPM bear put spread. So we weren’t overly enthusiastic in the run-up, mainly because we loaded up the truck in last week’s dip with 18 bullish plays that I reviewed in the weekend wrap-up. So we are looking for short plays to defend ourselves until we are sure what we have here is more than the proverbial "dead cat bounce" off our 33% retrace (which I discussed in Monday’s post). As I mentioned in yesterday’s post, our upper targets to break the dreaded head and shoulders pattern are: Dow 8,500, S&P 930, Nasdaq 1,825, NYSE 6,000 and Russell 510. We’re making good progress but nothing would be worse than failing this breakout and confirming the downward pattern so it will still be a tough week to get through, especially with todays manufacturing data, which we are concerned about.
I think David Fry summed it up for the skeptic’s camp yesterday saying:
The AP headline today read: “Goldman Sachs’ $2.7B profit shows the firm’s prowess.” Good Grief! You have to hand it to Da Boyz, they know how to bedazzle Main Street. Anyone with a HAL 9000, their bad debts taken off their books, billions in public money to trade and most of their competitors (Bear Stearns and Lehman Bros.) eliminated should do just dandy. “Prowess”? My okole!
We had a pretty good week with our new virtual portfolio.
The goal of the $5,000 virtual portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large virtual portfolio – not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we had a very exciting first week!
Our first play was a spread on AA into earnings, initiated Monday at 1:10 with a buy of 3 $7.50 calls for $1.75 ($525), which we later covered with 3 $9 calls at $1.04 ($312). That put us in the $1.50 spread for net .71 and we needed AA to finish next week at $9 to collect our full profit. We bought back the $9 calls on Tuesday, ahead of earnings as they fell to .70 (up 33%), which lowered the basis on the remaining $7.50 calls to $1.42 and we got out of that one the next day as they spiked up to $2.50 in the morning after earnings. Net profit $324.
The second trade we entered was a DIA call play, the $84s, which we entered Tuesday at 10:30 at .70 (5 contracts) and subsequently doubled down at .50 (average basis .60) and again at .42 (average basis .51), sold 10, leaving us with 10 contracts at .51 and got out at .60 on Wednesday’s "stick save" close. Net profit $90.
The third play of the week was SGR and we initiated that one Thursday at 11:12 with a straight spread of 4 $22.50 calls for $3.30, selling the $25 calls for $1.45 for a net entry of $1.85 on the $2.50 spread. Earnings were a miss on SGR but we felt that the sell-off was an overreaction so we took out the $25 calls for .25 (82% profit), leaving us in the $22.50s for net $2.10 ($3.30 entry less the $1.10 profit on the $25 calls). We hit our goal of $2.50 yesterday (7/14) and stopped out with a .40 gain although some hung on as the $22.50s flew all the way to $3.30 in the afternoon. Even at .40 it’s a nice $160 gain.
The Nikkei gave up another 2.5% overnight and is now down 1,000 points for the month of July, retracing 1/3 of the gains since March 10th, at 7,000. The Hang Seng also fell 2.5% (this is why we have rules!) but finishing at 17,254 is down just 1,750 points (10%) since July 1st but also represents a very neat 1/3 retrace off 7,650-point run to 19,000 from the March low of 11,500. I hate to say I told you so (actually, it’s kind of fun sometimes) but the 2 full paragraphs I devoted to playing the FXP (ultra-short China) in Friday’s post are all huge winners, with the July vertical spread looking like a clean double already – how’s that for weekend protection? Don’t be greedy, if we are not heading lower today in the US, it’s a good idea to kill the short-term trade and take the profits off the table.
On a global basis, we need to be concerned with this 1/3 retrace trend as the Shanghai has not gone down much at all off it’s 54% run from March. The Shanghai Composite only fell 1% this morning and has miles to go to match the sell-off of the other indices. Over in Europe, the FTSE is down to 4,125, falling from 4.500 in June (8.3%) after rising from 3,500 in March (28%) so, PRESTO, a 1/3 retrace there too! The DAX is right on the 1/3 line at 4,600 and the CAC is right on the nose after rising from 2,550 to 3,500 (37%) and falling back to 3,100 (12.7%), just about 1/3. Are we sensing a theme here?
The Dow rose from 6,500 on March 9th to 8,800 on June 12th (up 35%) and is now back to 8,150 (down 7.4%) with about 5% more to fall before hitting the magic 33% mark. Call 700 the floor on the S&P with 950 as the top and we have a 35% gain there as well with 880 being a 7.4% drop. Wow, what a coincidence! Only there are no coincidences, just quant trading programs that decide these things long before you read the paper and decide what stocks look good and bad… The Nasdaq was our Icarus index, flying too close to the sun with a 50% move from 1,300 to 1,850 and they are down just 100 points which works out to 15.4% down, a 30% retrace. …
Just a week ago, I was apologetic for being so bearish on the markets. People were complaining that the writers at PSW were "too negative" and that we were out of step with the MSM, who saw nothing but "green shoots" under every economic rock. On June 28th, I wrote an article comparing the US consumer to the NY Yankees as a way of explaining how the analysts can be so wrong in their expectations for a recovery. I pointed out that, although they are the winningest team in baseball history, I can still remember a 10-year dry spell from 1965-1975, saying: "Like the US consumer, you come to EXPECT the Yankees to be in contention and you may make your bets that way out of habit, but that storied history of performance is NOT going to stop you from hitting a 10-year losing streak is it?"
Like the Yankees, the media EXPECTS the US consumer to win. After so many consecutive years of stuffing our faces and shopping until we drop, the global media simply refuses to believe that the US consumer can do anything more than stumble slightly before getting right back on the horse and refinancing or whatever it takes to get out there and start charging once again. As the US consumer makes up 70% of our economy, it’s no wonder all the sentiment polls think prosperity is just around the corner because everyone believes the US consumer is simply resting. The homebuilders telll us things will rebound, the manufacturers tell us things will rebound and the companies reporting earnings, who are "beating" expectations by only doing 35% worse than last year, are all giving us sunny outlooks as well because the US consumer is coming to save us all.
Isn’t it amazing how, just 7 days later, the media has suddenly gotten on a totally different bandwagon? Just as a crowd turns on a star ballplayer who strikes out in a clutch situation, the MSM has turned sour on the US economy and has changed their outlook on the US consumer from "resilient" to "dead" overnight. While extremism grabs a lot of headlines, sometimes the truth can be found in the very dull places between the labels. I have long pointed out (some may say ranted) that commodity prices were unjustifiably high and were jeopardizing the recovery by pulling…
So many shoes are dropping out there that reality is starting to look and sound like the tap-line in a Busby Berkeley production number. The meme-scape, too, is humming with viral transmissions of dire doings. Is JP Morgan unwinding like a 1911 knitted woolen Yale varsity sweater? Did it booby-trap the credit default swap universe in the process, and is that getting ready to blow? The whole world is hanging by its fingernails, refusing to be dragged into the future.
That future is all about contraction. We could navigate our way into it but we don't want to. We want to stay right where we are with all our stuff and no need to make new arrangements and we are trying every las...
Here’s the REAL DEAL NO BS Situation with Europe (Warning What Follows is EXTREMELY BAD).
The media is rife with misrepresentations and analysis of the EU. Here’s the real deal.
The ECB is tapped out. Having provided over €1 trillion in funding via LTRO 1 and LTRO 2, taking on over €700 billion in PIIGS debt putting its own solvency at risk, it simply cannot launch another LTRO scheme for th...
The S&P 500 got off to weak start and, after retracing a modest morning rally, spent most of the day in the shallow red with an intraday low of 0.63%. But in the last seven minutes of trading, the index recovered enough to a make a small gain of 0.14%. This is the fourth advance, the first was Monday's 1.60 surge, but the last three have ranged from 0.05% to 0.17% with today's close near the high of the miserly three-day series.
The index is now up 5.02% for 2012, which is 6.93% off the interim closing high.
From an intermediate perspective, the S&P 500 is 95.2% above the March 2009 closing low and 15.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
TIF - Tiffany & Co., Inc. – A surprise earnings miss and a reduced full-year profit and sales forecast from luxury jewelry retailer, Tiffany & Co., took some of the luster out of its shares today, with the stock trading down 8.5% at $56.55 as of 11:50 a.m. in New York. Options activity on Tiffany this morning suggests mixed sentiment on the st...
RealNetworks, Inc. (NASDAQ: RNWK) today announced that it has reached an agreement with the Washington State Attorney General over discontinued e-commerce practices. In accordance with the settlement agreement, RealNetworks has committed to:
Discontinuing the use of pre-checked boxes for purchases of RealNetworks subscription products; Spelling out more clearly the material terms of RealNetworks product offerings; Offering online cancellation of subscription offerings; Enhancing RealNetworks customer support guidelines regarding cancellation. Statement from Thomas Nielsen, President & CEO of RealNetworks:
"About two years ago, the Washington State Attorney General's Office contacted us regarding concerns they had with some of our e-commerce practices.
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
First we'll go to the technicals. Back in mid April I had opined a 'bear flag' formation was being created. [Apr 17, 2012: Potential Bear Flag Forming] But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs. This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market. Generally a bear flag will resolve relatively quickly but the longer...
Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that t...
Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit
Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro. Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.
So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
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NEW: Ilene is available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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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Jobs, jobs, jobs!
Yesterday was an amazing day as we ran right up to the target levels I predicted on Monday, which I reiterated in yesterday’s morning post, saying: "Our upper targets to break the dreaded head and shoulders pattern are: Dow 8,500, S&P 930, Nasdaq 1,825, NYSE 6,000 and Russell 510." We had what we call a "Free Money Day" as the markets went up and up and up some more with the Dow topping out way up at 8,620, a 6.4% move off the bottom, which is just about a 20% retrace of the 33% drop so, of course, we shorted it! The S&P made it right to 932 and finished there, up 7.1% since Friday. The Nasdaq made it all the way to 1,860 after gapping just over our target at the open, up 6.9% for the week. The NYSE hit 6,000 on the nose and finished just under it – up 7.1% while the Russell over-achieved to 515, up 8.4% in 3 days. 
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Whee, this is great!
I think David Fry summed it up for the skeptic’s camp yesterday saying:
We had a pretty good week with our new virtual portfolio.
The third play of the week was SGR and we initiated that one Thursday at 11:12 with a straight spread of 4 $22.50 calls for $3.30, selling the $25 calls for $1.45 for a net entry of $1.85 on the $2.50 spread. Earnings were a miss on SGR but we felt that the sell-off was an overreaction so we took out the $25 calls for .25 (82% profit), leaving us in the $22.50s for net $2.10 ($3.30 entry less the $1.10 profit on the $25 calls). We hit our goal of $2.50 yesterday (7/14) and stopped out with a .40 gain although some hung on as the $22.50s flew all the way to $3.30 in the afternoon. Even at .40 it’s a nice $160 gain.
There it is!
On a global basis, we need to be concerned with this 1/3 retrace trend as the Shanghai has not gone down much at all off it’s 54% run from March. The Shanghai Composite only fell 1% this morning and has miles to go to match the sell-off of the other indices. Over in Europe, the FTSE is down to 4,125, falling from 4.500 in June (8.3%) after rising from 3,500 in March (28%) so, PRESTO, a 1/3 retrace there too! The DAX is right on the 1/3 line at 4,600 and the CAC is right on the nose after rising from 2,550 to 3,500 (37%) and falling back to 3,100 (12.7%), just about 1/3. Are we sensing a theme here? 
What a difference a week makes!
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(