Archive for February, 2007

Which Way Wednesday?

You may have heard that the Chinese word for "crisis" is also the word for "opportunity"

Chinese character ji1 -- in traditional form ?

While it makes a nice catch phrase for bored business writers it is not actually correct.  The Chinese word for crisis is composed of 2 elements that signify DANGER and CHANGEYou will hear many pundits today telling you how real men buy on the dips or some such nonsense and you must ignore them!  These people are up to their eyeballs in positions and they want you to come in and save them.

Today I would like you to take a post-it and put it up in the corner of your monitor, where you can’t ignore it and write in a nice, thick marker: It is NOT my Job to Save the Market!  Opportunity, yes but DANGER!!!   Real men (and women) protect their families (and their assets), not their egos.  If we are having a real recovery than we have a 400 point gain ahead of us – you will not miss anything by sitting out the first 100!

 

A 20% retracement of yesterday’s losses will put the Dow up 83 and the Nasdaq up 24 and the S&P up 12.  If you drop a ball from 5 feet and it bounces 1 foot do you bet 10% of your virtual portfolio that the next bounce will be 2 feet?  No – you get the air pump!  If that doesn’t work, it’s time to get a new ball…

Is the air coming out of the global economy or did China just spring a small leak?

The Shanghai Composite recovered 3.9% today and that is the headline of every section of the on-line WSJ as they and CNBC put on their cutest cheerleader outfits but Europe is off 1.25% this morning and Asian markets, led by a Nikkei 500 point, 3% drop had a terrible morning!

Let’s not forget that a 4% gain off a 10% loss is really only a 3.6% retracement at best, the math trick is that you are starting from a lower point.  This is like buying IBM at $100, having it drop to $50 and, when it bounces back


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Terrible Tuesday Wrap-Up

 

 

What a great day that was!

I'm finally seeing stocks at prices I may want to enter and we used the 5% rule to take some off the table and pick up a few positive postions at the close (just in case).

Even after removing these superstar positions, our short-term virtual portfolio still finished up 28% in total (not bad after a 600 point drop in 5 days).

I was starting to feel silly sitting on all those puts and writing every other day that there were terrible things wrong with the economy and people were starting to laugh at me when I said that commodities (which includes housing, of course) are still in a bubble.

Today justified a lot of those fears…  As Option Sage said in our very first educational post: "The next rule we should be equally cognizant of is The Cardinal Sin of Investing which is to ignore risk management – Don’t every do it!!!  Simply put “Don’t ever put all your eggs in one basket” otherwise Murphy’s Law kicks in and no matter how confident you were in the position you might quickly find it moves against your initial expectations!"

 

 

 

My initial expectations of this drop began on Jan 10th when I said: " Are you prepared for a down 295 point day?  Let’s remember I am a bull with a short-term target of Dow 11,500!  I would like to say I would be pleasantly surprised to be wrong but I will not be able to really enjoy additional advances unless we get a long-overdue correction out of the wayI’m saying this today as I see several disturbing market trends while I also see a lot of irrational exuberance on our member site and like Uncle Greenspan, I may feel the need to take away the punch bowl if the party starts getting out of hand!"

While many of you may have forgotten my cautionary words, the virtual portfolio didn't as we tracked progressively more bearish over the next 45 days.  Our weekly short-term profits slipped from 100%+ to 42% as I hedged like crazy but, at the same time, we let the long-term virtual portfolio run and gained a ridiculous 100% there.  We suffered for our bullishness in the long-term
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Tuesday Virtual Portfolio Moves

Posted February 27, 2007 at 9:43 am | Permalink (Edit)
  • Out of TSO Mar $90 puts at $3.30
Posted February 27, 2007 at 9:48 am | Permalink (Edit)

Taking half off all March and April oil puts if XOM gets back over $75 (now $74.97) – no time to post it all!

Posted February 27, 2007 at 10:16 am | Permalink (Edit)
  • PTR buying 2x June $125s for $2.70
  • selling AS A STOP – 1X Apr $120s for no less than $2.60
Posted February 27, 2007 at 10:28 am | Permalink (Edit)
  • AIG – offering to buy 3 more Jan ’09 $70s at $8 but will pay $8.50 if it starts coming back.
    • Looking to fill position of about 20 at some point but in no hurry – could be a week or two as I have 2 years to sell puts once it hits a spot I like.
  • Got rid of all my SU $70 puts at .70
    • just thankful to be out of those!
Posted February 27, 2007 at 11:05 am | Permalink (Edit)
  • AXP Apr $60s are a risky DD here at .40
    •  if we can get them that cheap.
Posted February 27, 2007 at 11:26 am | Permalink (Edit)
  • FXI – settled on taking $2.45 for the $100s
    • a little risky but it’s a huge premium and I’ve got lots of time to roll him (Apr $104s are $2.60).
  • Took MUR Mar $50 puts for .35

    • only $2 out of the money.

Posted February 27, 2007 at 11:39 am | Permalink (Edit)
  • TSO – bidding $1.90 on the $90 puts I just sold
Posted February 27, 2007 at 11:55 am | Permalink (Edit)
  • PBR $95 calls for cover at $1.30!


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Testy Tuesday Morning

We're having a China Syndrome type melt-down this morning!

 

The Shanghai stock exchange dropped 9%.  Yesterday morning I said "his (Greenspan's) most interesting statement is that investor appetite for risk has led to risk premiums on financial assets being "extraordinarily low," which could pose problems in the future."  While the US traders may have generally ignored Greenspan's comments yesterday, Asian investors took it as a sign to take a little off the table and did so with a vengeance early today.

"Investors are choosing to cut their positions to avoid the fluctuations in the market, but it's still too early to say the market has reached its peak," said Chen Huiqin, an analyst at Huatai Securities.

A 9% drop is VERY bad over there as they have a 10% limit down on Individual securities so that indicates a pretty broad and nasty sell-off.  All of Asia was down 1-2% in sympathy except Taiwan, who somehow managed to gain a point.  Airlines got clobbered and we need a clobbering to save our BAB puts – I'll be taking a very non-greedy exit there if I can!

Let's keep some perspective as this is a 9% pullback off a 183% 18-month run and this drop was so widespread that it very well may have been program trading catching up after a week-long holiday.  We'll have to wait an see how our markets react (like scared rabbits so far this morning) and what kind of follow through Asia has tomorrow before we throw in the towel over here.

Europe is a nice, mature market and is taking a nice, wait-and-see attitude this morning with only a slight sell-off but our futures are looking terrible (7 am).  In a move that may finally goose our AIG leaps, French reinsurer SCO is attempting a hostile takeover for Swiss reinsurer Converium.  "The unsolicited proposal fundamentally fails to recognize the value of Converium's franchise and growth prospects, and is, therefore, not in the interest of Converium, its shareholders and its customers," it said in a statement.

Any time something like this goes on it draws analysts attention to industry fundamentals and I'm be adding to our AIG Jan '09 $70s at $8.50 or lower, hoping for a move here, still a…
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Monday Mop-Up

That was a bad way to start the week!

 

We didn't hit one level!  And after having such a nice open – not a good sign…

Combine all that with a gain in commodity prices and that was one crummy day!

Oil was up .25, not impressive enough to chase us out of our puts (in fact I added in the morning) and the new contract was saved at the last second from a very nasty plunge to $60.50 to finish at $61.14 so we'll try again tomorrow.

Gold tested $690 again but could not break it, finishing the day at $689.  The dollar broke below 84 but I said at 10 am: "Oil – I’m just not seeing real strength on a weak dollar. Things are just not what they seem here. I’m getting the feeling that big boys are taking this opportunity to dump like crazy."  We'll see how this pans out…

On the whole, nothing to celebrate.  Al Gore won an Oscar and in his film he said Antarctica was "a canary in the coal mine" - I wonder what he would think of today's market?

=================================================================

We didn't make too many moves as I said early in the morning, despite the good open: "Markets are not looking that good – still on my IWM puts – way too dangerous looking.  That was a terrible pullback off the morning open on the Dow and Nas!  I was looking for oil to buy and I ended up adding to my puts… "

It was a good day to initiate our weekend set-up of CY as we sold the Apr $20s for our $1 target and bought the Jan '09 $22.50s for just $2.70 – a better spread than we thought!  The stock was kind enough to go down for us yesterday too!

GOOG Apr $530s were
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Monday Virtual Portfolio Moves

Posted February 26, 2007 at 10:19 am | Permalink (Edit)
  • VLO - added $55 puts at .20 to lower basis to .40
    • looking to get out there if possible.
Posted February 26, 2007 at 11:02 am | Permalink (Edit)
  • AAPL $90s for $1.60 as a mo trade
    • (nickel stops for the first .25, then .10 stops next .25, then .15…)
Posted February 26, 2007 at 11:09 am | Permalink (Edit)
  • Taking out KMI $105 puts for .35 if I can
Posted February 26, 2007 at 12:57 pm | Permalink (Edit)
  • Setting stop on 1/2 Goog $480s at $18
  • PBR $95 puts at $1.40
    • to make up loss on my $90 puts – out the second I get even
Posted February 26, 2007 at 12:58 pm | Permalink (Edit)
  • Selling BA $85s for $4.70 against leaps
  • Buying BA $90 puts for $1.80
Posted February 26, 2007 at 1:58 pm | Permalink (Edit)
  • Out of IWM $81 puts for $1.22
    • not particularly bullish – was a weekend insurance play, happy to make a small profit!
  • Buying back GOOG Apr $530 calls that were sold for $5 for $2.90.
    • Taking .70 of profit to DD $520s and $530s
  • Out of GOOG $480 puts at $19
Posted February 26, 2007 at 3:08 pm | Permalink (Edit)
  • Selling Goog $470s for $8.60
    • Buying 2X that amount of $480s for $4.60 (will pay up to $5 EOD)
      •  net cost .70 per contract more at most.

Posted February 26, 2007 at 3:12 pm | Permalink (Edit)

  • Taking out SBUX $32.50 caller for .45




Merger Monday

 

Hmm, Greenspan calls for a recession and the markets fly up in the futures…

No wonder we have half puts and half calls!

I'm in a bad mood this morning because I sold my Dow $45 calls on Friday.  I'm not even going to discuss how awful that timing was!  Oil heading higher is also annoying me so keep that in mind if I come across a little grumpy.

Hong Kong was grumpy today too, down 203 points, and most of Asia was off a bit in sympathy but Japan held up and we can excuse the activity as a little bit of catch-up (down) as China was closed all of last week.  Miners continued higher as gold broke $690 as Cheney continues his war of terror (a Freudian typo that I'm leaving in!) by visiting Pakistan to make sure that at least those nukes are pointed in the right direction

Sanyo had a 4% bounce back, which should be a relief to poor GS but the big story there, like it is here, is M&A mania with deals involving Coles, PKX, BEN, MITSY and Consolidated Minerals adding to our own TXUHBG, DCX and DOW (possible)deals as well as ERIC over in Europe to push today's total to well over $100Bn.

With all that money pouring into the markets you would think we should be heading up from here but let's make sure we are really breaking up before we all go and drink the Kool Aid:

MRK is adding fire to the Dow, up 4% pre market as NVS's competing diabetes drug gets an FDA delay.  DD is up 2% on the DOW buyout talk, GM is up a point on DCX talks…

If oil stays over $61 it will be time to quickly revalue those positions but we can certainly expect a test
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Recession? Economic Data and Margin Rules – Oh My!

Alan Greenspan says we may be heading into a recession.

This is not something you want to hear to start the week but the markets are probably more comfortable hearing him get back to his usual "doom and gloom" prognosis than they have been with his recent "housing may be bottoming " BS that he’s rolled out as his last few appearances.

Greenspan getting optimistic about housing is sort of like Darth Vader asking you over for tea – you’d like to think he’s really changed but you still have trouble really getting comfortable with the situation.

We like our bad guys to be bad and our bears to act bearish – then we all know our place in the world and can act accordingly – it’s way too confusing when people start switching sides!

It’s a very busy data week so we’ll see how sharp Mr. G’s forecasting skills are as we get some biggies.  Here’s the list from Briefing.com:

Date ET Release For

My Target

Briefing Consensus Prior
Feb 27 08:30 Durable Orders Jan

-2.7%

-3.0% -2.0% 2.9%  
Feb 27 10:00 Consumer Confidence Feb

<108.0

109.5 109.0 110.3  
Feb 27 10:00 Existing Home Sales Jan

6.10M

6.30M 6.24M 6.22M  
Feb 28 08:30 GDP-Prel. Q4

2.7%

2.5% 2.3% 3.5%  
Feb 28 08:30 Chain Deflator-Prel. Q4

1.5%

1.5% 1.5% 1.5%  
Feb 28 09:45 Chicago PMI Feb

<50.0

50.0 50.0 48.8  
Feb 28 10:00 New Home Sales Jan

<1085K

1085K 1090K 1120K  
Feb 28 10:30 Crude Inventories 02/23

-2MB

NA NA 3694K  
Mar 01 08:30 Personal Income Jan

0.3%

0.3% 0.3% 0.5%  
Mar 01 08:30 Personal Spending Jan

0.5%

0.4% 0.4% 0.7%  
Mar 01 08:30 Initial Claims 02/24

335K

325K NA 332K  
Mar 01 10:00 Construction Spending Jan

-0.3%

-0.2% -0.4% -0.4%  
Mar 01 10:00 ISM


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Weekly Wrap-Up

What an interesting week that was!

Despite the drop in the market our bearish attitude about builders and oil companies netted us an average 84% gain on 23 positions closed with an average hold time of 19 days.

Our open short-term virtual portfolio actually improved a little this week, with a 35% average gain on 93 open positions (23 average days old) but the big jump in open positions is due to our new virtual portfolio tracker which now treats our 13 short-term spreads as two transactions.

The long-term virtual portfolio has an average gain of 92% on 42 positions (same spread issue) that have been held for a whopping 47 average days (seems like forever doesn't it?) but, now that we have our new system we're going to start tracking the cash gain, which is $156,091 or 104.27%.  There is a lot of noise in the average position gain since we buy and sell puts and calls against our positions constantly and, as we wear down the basis of plays like TIE (now down to .20) we have nowhere left to credit the money! 

In the short-term virtual portfolio, the balance (up 37%) is meaningless as the holdings change daily so I still prefer to look at the average gain there for a true performance picture.  In a choppy market like this our strategy is to have a diversified mix of puts and calls, keeping the bulk of the virtual portfolio fairly even as we cherry pick the winners and sell them in a nice non-greedy fashion

We only had to close 5 losers this week:

  • BAC Jan $55s were just too tedious to hold and was banished from the LTP at $2.55 (down 12%).
  • BTU Mar $40  puts stopped us out at .75 (down 21%) on Wednesday's run as they were the naked side of the calls we sold last week (too early it seems!).
  • DIA Mar $127 puts were last weekend's insurance play and came off Tuesday at $1.20 (down a nickel) and I WISH I had those back (now $1.60).  This weekend we have the IWM's…
  • GOOG Mar $470 puts (out at $5.50 for a 53% loss) are another one we could have hung on to, I guess I am too much of a Google optimist but


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Weekend Project

Well I spent the whole day messing around with ETrade trying to get it the way I like it.

I’m still using OXPS for my main account but I’m working on a project that’s using ETrade and I liked the way you could configure it.  This "should" save me a ton of time from now on but let me know if the new format bothers you too much.

The biggest downside is that I have to book spreads as two different transactions, which I don’t like from a cash management perspective but that’s about the only thing I really don’t like about it.

On the very bright side, we can now track positions sizes without killing me and I can now include symbols, current stock price, and daily price changes.  I’m not promising I will do it daily but down the road it’s a step!

The other system was burying me as I had way to much entering and formatting but if everyone can get comfortable with this way of virtual portfolio tracking, we’re on the way to a more robust tracking system.

As I want to get much more into talking about postion management, I think it will be good to start talking about the size of positions and how we move in and out of them.  Hopefully this will work well for all and believe me, I can spend a lot more time picking stocks now, rather than tallying results!

- Phil

LOL – I spoke to soon.  For some reason the spreadsheet came out to be 50Mb – not terribly useful… 

We’re going to work on it and hopefully have it up tomorrow but if anyone knows a stupid excel trick to figure out whats eating up all the space – please make a comment here.  All I did was have Etrade create an export spreadsheet which I then cut and pasted into my regular stuff…  Then I reformatted it but it looks normal to me.

[UPDATE] The newly formatted spreadsheet is available on our Virtual Portfolio page. As usual, it is viewable right in your browser but you can also download for offline viewing and sorting. -Jared





 
 
 

Zero Hedge

Explosion Hits Russia's Largest Virus Lab Which Houses Plague, Smallpox, Ebola And Other Deadly Viruses

Courtesy of ZeroHedge View original post here.

A sudden explosion at a Siberian virus research center on Monday reportedly left the facility engulfed in flames, according to several Russian news outlets. 

Firefighters and other emergency personnel were dispatched to the "Vector Institute" located several miles from Novosibirsk - an emergency which was upgraded "from an ordinary emergency to a major incident," a...



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Phil's Favorites

The future of work will still include plenty of jobs

 

The future of work will still include plenty of jobs

Even though the future is unknown, Canada’s employment rate has risen steadily from 53 per cent in 1946 to more than 61 per cent today. (Shutterstock)

Courtesy of Wayne Simpson, University of Manitoba

There is now widespread anxiety over the future of work, often accompanied by calls for a basic income to protect those displaced by automation and other technological changes.

As a labour economis...



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Lee's Free Thinking

Is The Drone Strike a Black Swan?

Courtesy of Lee Adler

Pundits are calling yesterday’s drone strke a “black swan.” Can a drone strike on a Saudi oil facility, be a “black swan.”

According to Investopedia:

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

I seriously doubt that no one expected or could have predicted a drone strike on a Saudi oil facility.

Call Me A B...

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Insider Scoop

New Relic Cuts 2020 Sales Guidance, Announces Changes In Management

Courtesy of Benzinga

New Relic (NYSE: NEWR) has reaffirmed its second-quarter guidance and cut its sales guidance for fiscal year 2020 from $600 million-$607 million to $586 million-$593 million.

The company’s chief technology officer, Jim Gochee, and chief revenue officer, Erica Schultz, have resigned. New Relic also named board member Michael Christenson as its chief operating officer. Christenson joins from his ...



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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

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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