Archive for 2007

Wild Weekly Wrap-Up

Wow did that week fly by!

This was the image I used on Friday morning, the 12th, when I said: "On the whole, it was a mild-low volume pullback but it won’t take much follow-through to send us into a major correction so we need to be vigilant and get ready to move back to cash."

In last week's Wrap-Up we had taken a very bearish stance as I said: "We are back at a pretty comfortable 67% cash position in the STP with just 16 open calls remaining which are evenly matched in number and balance by 16 puts along with 36 spreads.  Next week should also be a good week as the premiums on the calls and puts we’ve sold wind down – if nothing else, it should put a great deal more cash in our pockets as we roll to November sales."

Monday I made fun of Paulson's insane plan to throw even more money on the sub-prime fire and I pointed out that commercial lending had fallen off a cliff and that there was "AT LEAST $200Bn in unrecoverable junk on the books that hasn’t hit the fan yet."  Due to the way the pundits were praising the banks' crazy scheme to set up a $100Bn fund to bail each other out I warned: "At home, it should be party time in the financial sector as we swallow today’s dose of snake oil, so let’s be very concerned if it’s not.  Get set for a wild week, we’ll run down earnings and economic indicators in tonight’s post but, for now, we need to see how the markets digest this latest BS news as we wait to see how the sentiment is going."

Sentiment did NOT go well and we had a huge day as our bearish positions bore fruit and boy were we happy to be in cash, a call I made at 9:38 on the members' site as it only took 7 minutes for us to see that the Treasury plan way too little, far too late.  I went over the Turkey situation in member chat and I even gave the short version on the free post as I mentioned how ridiculous the recent run in the oil sector was.  My Free Picks that evening were to double down on VNO and
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[Member Demetrius Michael] Citigroup – C.

Demetrius Michael submits:

I was kind of hoping Andrew would post another one. But it looks like he’s a bit busy, so I’ll decieded to find my own pick.

Yes it’s Citigroup, but I’m going contrarian on this one. I’ll keep this short to save us both time.

 

Fundamentals (pfft like they matter anyway)

Things we know:
1. Bad Q:  Citi reported net income of $2.38 billion, or 47 cents per share, down from $1.10 in the same quarter last year. Revenue rose 6% to $22.66 billion. $3 billion in losses from leveraged loans and mortgage-backed security losses, as well as a $729 million gain on the sale of shares in Redcard SA. The company also boosted loan loss provisions by $2.24 billion. (Cramer)

2. Bad Environment: Housing Crisis, need I say more?

3. Q4s are always weaker on the housing side (for Canada atleast, but I’m sure America also applies)

4. It’s boring.

Things we don’t know:
1. CEO might leave, it doesn’t matter if he’s responsible or not. What matters is that he’ll take blame for this.

Positives:
1. It’s a bank, it won’t disappear.

2. Generating 55% of Citigroup’s 2006 revenues, Global Consumer Group comprises three sub-divisions: Cards (credit cards), Consumer Finance, and Retail Banking. (wikipedia).

Interest rate cuts help this company… Which means our very recent 50/50 cut has clearly been forgotten!

3.CMB are responsible for around 32% of Citigroup’s annual revenues, generating just under US $30 billion in 2006 financial year… "CMB" is divided into two primary businesses – Global Capital Markets and Banking and Global Transaction Services (GTS). Global Capital Markets and Banking provide investment- and commercial-banking services covering institutional brokerage, advisory services, foreign exchange, structured products, derivatives, loans, leasing, and equipment finance. Meanwhile, GTS offer cash-management, trade finance and securities services to corporations and financial institutions worldwide. (Wikipedia)

1/3 of the company is into Big Corporate! Which is also doing very well across the world (they can at-least pay their bills – most of them).

Conclusion:
I’m sure you can balance sheet me to death on the 07 projections, but in reality, we should assume billion dollar companies know exactly what they’re doing. This isn’t countrywide, why the 60 to 40 dollar drop?

What’s really interesting is that they knew about the subprime crisis back in 05, but…
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[Member Demetrius Michael] Citigroup – C.

Demetrius Michael submits:

I was kind of hoping Andrew would post another one. But it looks like he’s a bit busy, so I’ll decieded to find my own pick.

Yes it’s Citigroup, but I’m going contrarian on this one. I’ll keep this short to save us both time.

 

Things we know:
1. Bad Q:  Citi reported net income of $2.38 billion, or 47 cents per share, down from $1.10 in the same quarter last year. Revenue rose 6% to $22.66 billion. $3 billion in losses from leveraged loans and mortgage-backed security losses, as well as a $729 million gain on the sale of shares in Redcard SA. The company also boosted loan loss provisions by $2.24 billion. (Cramer)

2. Bad Environment: Housing Crisis, need I say more?

3. Q4s are always weaker on the housing side (for Canada atleast, but I’m sure America also applies)

4. It’s boring.

Things we don’t know:
1. CEO might leave, it doesn’t matter if he’s responsible or not. What matters is that he’ll take blame for this.

Positives:
1. It’s a bank, it won’t disappear.

2. Generating 55% of Citigroup’s 2006 revenues, Global Consumer Group comprises three sub-divisions: Cards (credit cards), Consumer Finance, and Retail Banking. (wikipedia).

Interest rate cuts help this company… Which means our very recent 50/50 cut has clearly been forgotten!

3.CMB are responsible for around 32% of Citigroup’s annual revenues, generating just under US $30 billion in 2006 financial year… "CMB" is divided into two primary businesses – Global Capital Markets and Banking and Global Transaction Services (GTS). Global Capital Markets and Banking provide investment- and commercial-banking services covering institutional brokerage, advisory services, foreign exchange, structured products, derivatives, loans, leasing, and equipment finance. Meanwhile, GTS offer cash-management, trade finance and securities services to corporations and financial institutions worldwide. (Wikipedia)

1/3 of the company is into Big Corporate! Which is also doing very well across the world (they can at-least pay their bills – most of them).

Conclusion:
I’m sure you can balance sheet me to death on the 07 projections, but in reality, we should assume billion dollar companies know exactly what they’re doing. This isn’t countrywide, why the 60 to 40 dollar drop?

What’s really interesting is that they knew about the subprime crisis back in 05, but they continued to invest in this sector. Dare I say…
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A Single Basket of Eggs

OptionSage submits: 
 
Telemarketer: Good afternoon Sir, I’d like to tell you about an investment product that I believe you will be very interested in.
 
Me: Ok, tell me more.
 
Telemarketer: Our investment managers have consistently outperformed the S&P500 by a 3-4% points each and every year and expect to continue to do so through premium stock selection and diversification.
 
Me: So if the S&P500 loses 15% you expect to lose 11-12%?
 
Telemarketer: Well I would have said that if the S&P 500 makes 15%, you should expect to make 18-19%. But essentially you are correct yes.
 
Me: And, after fees, how much does that diminish by?
 
Telemarketer: Well you should expect a 2% flat fee.
 
Me: Thank you so much for your time.
 
This conversation with a prominent investment firm prompted me to consider the term ‘diversification’. The application of the diversification strategy meant the firm could legitimately claim that its investors would not underperform the market and moreover, smart stock selection might enable them outperform the market. But strikingly this implicitly means that results would always be tied very closely to the market. 
 
Since fees were 2% of invested capital, this eroded much of the projected superior 3-4% returns above the market. In fact, the absolute return was predicted to be approximately the same as the market itself! This was essentially an admission to the investor that the returns will never be substantially different from the market no matter which way the market moves. What a failure!
 
Diversification in the conventional sense is an admission that investors cannot beat the market. 
 
In finance, the efficient market hypothesis asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information and therefore are unbiased in the sense that they reflect the


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A Note to Members

The virtual portfolio tracking system I use, which I thought crashed due my my gains going over 1,000% in the STP, is still broken.

This is a total disaster for me as it will (and I know this from experience) take me more than 2 days of serious work to redo all those spreadsheets so I’m going to wait for tech support tomorrow rather than start working today and killing myself for what I hope will be no reason.  If they can’t fix it Monday, I’ll have a very bad week redoing all my work.

By the end of the day, I can put up a copy of Thursday’s backup but nothing from Friday will be there so I’d rather wait to avoid confusion.  It’s literally a quesiton of them fixing it and me spending 2 hours on Monday vs. me assuming they can’t fix it and spending 20 hours this weekend.  That’s why I’ve had time for these detailed posts, I’m not distracted by the week’s review at the moment!

Hopefully we’ll be back to normal(ish) tomorrow – sorry about the delay,

- Phil

 





Hedging Your Way to Fun and Profit – Once Upon a Mattress Play

One of the most important lessons we teach at PSW is hedging.

Hedging means many things but generally, it’s betting against yourself.  Hedging is, in part, an admission that you may not know everything - that you may in fact, be wrong about a few things and are willing to pay to insure against that possibility.

The less you think you can be wrong, the harder it is to hedge.  This is where traders can get themselves into trouble, especially in a prolonged bull market or a bubble, where risk is rewarded and caution is relatively punished.  I mentioned in the previous post that I am always hedged.  For me, being 100% bullish means I have a 70/30 balance of bullish to bearish positions, perhaps 80/20 on a run but almost never overnight.

Do I miss out on big gains with that strategy?  Of course I do!  Do I miss out on big losses with that strategy?  Of course I do!

Here’s some very annoying Sunday math:

On 9/18 Mr. Unhedged Investor buys 100 DIA November $137s for $4 ($40,000).  This turns out to be a great trade as the Dow flies up and, by October 2nd, the calls are up 50% to $6 – a $20,000 profit.  If he were a PSW member, he would have cashed out at least 1/2 on the first dip to $5.50 and locked in a 37.5% gain but let’s assume he was greedy and let it ride as the contract bounced between $5 and $6 between October 1st and the 12th. 

On Monday (10/15) he wakes up and the contract is at $4.75.  This is a tough call for the guy because he has until November and he was just up 50% (on paper!) and taking less than 20% now seems pointless and Cramer says it’s just a bunch of pansies taking profits before the bulls take it higher.  Tuesday the Dow drops again and the contracts hit $4.25 and Wednesday, even though the Dow opens higher, the contracts never break $4.25 and sink down to $3.50 by the days end.  On Thursday, he should be happy to take $4 off the table when it’s offered but now he’s sure
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How to Spot a Market Correction a Mile Away

chubbyOctober 19th, 2007 at 4:11 pm | Permalink   

"At 11:18 AM Phil said…”Taking profits – cash is your best friend right now. The Fed can turn this whole thing around in a second or we could drop 380 points by the days end so if you have winners, don’t think of ways to leave them in play, just knock them out and we’ll figure out the markets next week.”

OK, Phil…towards the end of the day we are down 378 Dow points; and this is close enough to 380 for me to ask where in the world did you come up with the number, several hours ahead of time…you never cease to amaze me!!! great call on that one, no matter how you did it! And by the way…Thank You!"

I never set out to be a market prognosticator.

Phil's Stock World started off as my own trading notes.  I would take notes so that I could capture my thoughts, which would let me go back in time and see what I was thinking when I bought a certain stock, hopefully to help me review and correct my mistakes and, even more hopefully, avoid repeating them.

Did I misinterpret an article?  Did I take a bad tip?  Did I listen to CNBC or Cramer or some other pundit?  Did I jump on an analyst's pick?   Did I follow a certain newsletter?  Did I hold to long?  Did I sell too early?  Did I trust the government (anyone who grew up during Watergate knows how dumb that mistake is!)…  This article is one of those reviews, good for me and good for you to follow my thought process leading up to this dip.

I had a growing number of people who knew I was into trading and would ask for advice so I started sharing my notes by Email and that quickly became a bother and then a friend of mine suggested I start a blog.  I tried MySpace but soon moved to Blogger (the URL of which, amazingly has been hijacked since I left), but my readership grew to over 9,000 people a day and answering questions became impossible and the workload of running the blog became more than I could handle alone.  I decided I would either have to go…
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$10KP and $25KP Review

I’m going to go over positions in the two small virtual portfolios in detail.

I’ve decided to shut down the Dow Virtual Portfolio because, frankly, it’s just too dull so, as long as no one is really broken up about it, I’d rather concentrate on other things.  I will also be attempting to purget the STP as it’s gotten too big as there are simply too many good things to trade but now it’s taking me too long to scan through them in a busy market.

That leaves complex spreads, which is essentially the Great Google Virtual Portfolio now (I have an insane amount of money on Google) and that doesn’t look like it will change this decade as my callers and I will be stuck with each other for quite a while as I look for a way to pay off my Nov $620 callers!  I’m not complaining, my main position is 40 Jan 590s that have a basis of $21 from way back on 9/19 (and those were a 2x roll from an earlier position!) and a lot of the tightness to my various callers was aimed at protecting this (as of yesterday) $205,000 position.  My direct sale against them was a risky Oct $630s at $25 so I’ll be saying goodbye to this whole position today, which will give me plenty of cash to adjust the other 70 Google calls I have.

$25KP

CAKE (10/23) - I simply don’t buy the drop but I don’t want to go naked into earnings as we’ve already lost $1 on this play so my solution is to DD with 10 more Jan $22.50s at $2.05 and sell 15 Nov $22.50s for $1.50+ which gives us a nice cushion but let’s scale into selling the Novembers in case we get a run today (assuming the market is holding up).

HMY (10/31) – Earnings estimates have gone from .11 to -.04 for the quarter since the mine closing and next quarter has been marked down from .13 to -.01.  Expectations for the year (this is Q2 of FY ’08) have dropped from .92 to .32 and expectations for next year are halved at .57.  The company has dropped from $15 to $9.50 since beating revenues by 13% last quarter (earnings, or losses were in-line).  For $3.86Bn I have a call in to Icahn to chip in with me and buy this company, which pulled $1.3Bn worth of gold…
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Long Term Virtual Portfolio Review

Here’s a quick review of my intended adjustments to the LTP:

 

Description Qty Basis Current Price / Target Plan
 
Jan 2009 95 CALL [BA @ $96.94 $1.35] 40 $12.60 $14.80  Fly Naked!
Jan 2008 17.5 CALL [BSX @ $13.85 $-0.29] 20 $1.00 $0.25 That WAS the bounce – dead stock


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Thursday Wrap-Up – Bye Bye Dollar

Woopie the stock market stayed flat!

We were all distracted by Google mania today and hardly noticed it but oil rose to record levels, the dollar dropped to record levels and gold broke $760, tested $774 and settled at $768.

We are now officially partying like it’s early January, 2000 (the market collapsed on Jan 18th) or, in the very least, December 1999 when we were all riding a wave of rising PC sales and tech services based on the terror alert of the day – that the clocks would roll the date to 2000 and destroy the modern civilization!   There was a lot of business and a lot of jobs created by that nonsense (my wife was a full-time "Y2K consultant" for American Express) and, as with the current bogus oil crisis, people were paying record prices for things (new PC’s, programmers, consultants, backups, contingency planners, extra staff to handle potential "trouble") they didn’t really need based on fear and panic and, once it all amounted to nothing, the tech bubble deflated at a very rapid rate.

Back in 1999 it was a programming shortage that drove the market.  That runaway commodity drove the price of progammers (like oil producers) up 300% and the ancillary support services like consulting (OIH) also went through the roof and there was so much money being thrown around that the equipment makers (DELL, CSCO, HP) were cashing in, even though these were all the same people who caused the "crisis" in the first place by failing to realize the century was going to roll over until just before it was going to end – very much like the oil guys who haven’t built a refinery in the past decade and have put all of their money into stock buybacks rather than exploration or (heaven forbid) alternative energy research.

So, like oil, while there were some legitimate issues to be addressed, the mania that surrounded the event, the shameless profiteering by Anderson Consulting et al who would do "studies" that often led to bigger studies and often required time and effort that would suck a company dry as bosses were forced to pay up to maintain a vital resource (their network systems) that they didn’t fully understand was VERY overdone.

Today’s oil issue was the attempted assassination of Benazir Bhutto the former and possibly next Prime Minister of Pakistan, who returned to the country after 8…
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Zero Hedge

Bloomberg System Goes Down Ahead Of US Open

Courtesy of ZeroHedge. View original post here.

For the second time in a few months, the Bloomberg Terminal system appears to be down and is causing panic across Wall Street ahead of the US market open...

Traders are not happy...

When Bloomberg panels go down 8 minutes before the open...... pic.twitter.com/pqoQoyoBHj

— NOD (@NOD008) January 17, 2019 ...

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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...



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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?

 

Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?

...



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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via ValueWalk.com

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped

CCN...



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ValueWalk

D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...



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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

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

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

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.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>