Archive for May, 2008

Quick Note on Solars

Weakness in solar stocks, from Notable Calls,

Merrill Lynch cuts Solar Sector

SunPower (NASDAQ:SPWR) & Evergreen Solar (NASDAQ:ESLR) get cut to Sell from Neutral.

First Solar (NASDAQ:FSLR) tgt cut to $325 from $360. Maintains Buy.

German ruling CDU party says State support for solar power should fall by 30% in 2009 — Reuters

And from Notable Calls yesterday: 
- Kaufman is initiating a bunch of Solars today. My favourite is SunPower (NASDAQ:SPWR) as according to the firm the co is on track to double capacity in ’08 while their models show SunPower exceeding revenue of FSLR in ’09. Sets Buy & $120 tgt on.





GDPhursday

Yay, GDP day – I'm so excited!

I know, "get a life", right?  Well we haven't had much exciting data in a week so this will be fun and I'm pretty sure we'll beat the low expectations for the quarter as earnings were generally on the plus side but this is only a revision to Q1 so it's not exactly a major market mover but an upside move in GDP and a downside move in crude today would be just what the market doctor ordered to put us back on a positive track.

We also have oil and gas inventories at 10:30 with expectations of flat crude, a 300K draw in gasoline, an 800K build in distillates and an 85Bcf build in natural gas.  We noted from yesterday's late action in the oil patch that it looked like the "fix was in" for this morning as many energy names rallied into the close.  These inventories are for the week ending 5/23, LAST Friday so the fix may indeed be in with these low expectations of draws in the days leading up to what was supposed to be the big holiday driving weekend.

Ahead of a holiday weekend one would expect refiners to refine a lot of crude, drawing down oil inventories while shipping pretty much everything they have out to the retailers, drawing down gasoline, while drivers fill up their tanks locally ahead of the weekend (because no one is crazy enough to PLAN to buy gas on the highways at these prices), causing a spike in demand.  This weekend should be, and historically is, a home run for the oil industry.  So what's with these incredibly (as in not at all credible) low expectations?

There are 146M cars on the road in the US and the average gas tank has a 17 gallon capacity.  That's 2.5Bn gallons of gasoline that could be driving around at any given moment and, if we assume that people usually keep their tank half full, then that would be about 1.25Bn gallons which, at 42 gallons a barrel, equals roughly 30M barrels of gasoline.  If just 1/3 of all drivers top off their tanks ahead of the 3-day weekend (and don't forget oil was racing up and many of us filled up just to avoid the price hike), that would be a 10M barrel
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Telling Rift

Here’s another interesting article by Mish,

Telling Rift Over Fed Lending Facility

In mid-September the Fed is placing new restrictions on the Primary Dealer Credit Facility, a swap-o-rama with broker dealers as opposed to banks.

The Financial Times picks up the story in Investment banks split over Fed loan facility.

Investment banks such as Goldman Sachs (GS) that have been less affected by the credit crisis are said to be leaning against accepting any significant new limits by the Fed, while those that have been somewhat more affected, such as Lehman Brothers, are seen as more eager to maintain access to the Fed facility even if it means new limits on risk-taking.

“Then you have people like Morgan Stanley (MS) in the middle saying everyone should just wait and see what the Fed comes up with” in terms of new regulation. None of the banks would comment officially, given the sensitivities and differences of opinion on what should be done.

The Fed initiative, spurred by the collapse of Bear Stearns, allows investment banks to pledge investment-grade securities, including mortgage-backed securities, in return for low-interest cash loans. The rationale for the facility was to ensure that none of the other banks would suffer the same kind of evaporation of short-term liquidity that sank Bear Stearns.

The big commercial banks have told regulators that the investment firms should be subject to the same tight requirements on debt and leverage and that no compromise should be allowed.

Leverage Got Banks In Trouble

It was leverage that got banks and broker dealers in trouble. Now banks are complaining that broker dealers get to use higher leverage than they do. Where would Citigroup, Wachovia, etc, be with higher leverage still?

One problem is the Fed should not be lending to broker dealers at all, regardless of leverage issues, not that the swap-o-rama should have a level play field. For more on this topic, please see Big Brother Monitors Investment Activity.

For a quick recap of the alphabet soup of lending facilities please see Fed Is Not King Midas.

Previously, the ECB Expressed Concerns Over Swap-O-Rama Exit Strategy, so perhaps restrictions are a sign the Fed is looking for an exit strategy. Then again, perhaps the Fed is simply seeking ways to exert more influence over broker dealers.

Goldman is resisting.

That Lehman is more willing to go along with new


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Wednesday Wrap-Up

The markets held up well today.

We were playing for the bounce in oil and we got the bounce in oil ahead of tomorrow's inventories but it was pretty much a commodity rally and we hate those.  We did get a nice move up by the Transports, who weren't buying the "bounce" in crude and neither should you because there was nothing driving it other than the urge to paint $130 on the NYMEX.

RL had surprisingly good results and boosted the retail sector but that doesn't matter ahead of the GDP tomorrow so we kept playing it close to the vest with not too many picks,  We shorted RIMM and FSLR into the close as both seemed irrationally exuberant as the rally based on oil, materials and agriculture stocks puts us right back to where we were near the end of April, when tech (and RIMM) were struggling. 

On the whole, it looks like the Nasdaq is simply consolidating under the 200 dma at 2,500 and as long as we hold 2,400 we can remain bullish.  We MUST have Nasdaq leadership to confirm a healthy rotation pattern out of commodities but, as we were discussing in member chat yesterday, I'm still looking for a pullback ahead of Q2 earnings in July as I think those are going to be the real catalysts on which we base our summer rally.

Corn fell to it's lowest price in more than a week after the U.S. government announced plans to allow livestock grazing on protected land, reducing demand for grain in animal feed.  About 24 million acres held in the Conservation Reserve Program will be available later this year, U.S. Agriculture Secretary Ed Schafer said yesterday. The move may add as much as 18 million metric tons to feed supplies, the Department of Agriculture said. “The corn crop is already late, and that means we will need to have cool weather this summer for pollination and an extended growing season'' to boost yields, Schultz of Gottsch Enterprises said. “Anything that threatens the crop will renew the rally.''

Meanwhile the dollar hit a two-week high against the Yen, this should be good for our TM play this morning as well as our SNE and other Japanese exporters (see, I told you not to worry).  You…
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Mish on Speculation

Here’s Mish‘s take on

Commodities Speculation Symptom Of Larger Problem

Definitely worth reading….

With a tip of the hat to Michael Masters, it is possible to Quantify Commodities Speculation. Here is the key chart:

Commodity Index Investment vs. Spot Prices

Chart One shows Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008, and the prices of the 25 commodities that compose these indices have risen by an average of 183% in those five years!

What To Do About It?

If speculation is the problem, then the question is what to do about it. Masters proposes three solutions as follows:

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public purpose. Congress should modify ERISA regulations to prohibit commodity index replication strategies as unsuitable pension investments because of the damage that they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position limits must “look-through” the swaps transaction to the ultimate counterparty and hold that counterparty to the speculative position limits. This would curtail Index Speculation and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the Commercial category of the Commitments of Traders Reports to distinguish those positions that are controlled by “Bona Fide” Physical Hedgers from those controlled by Wall Street banks. The positions of Wall Street banks should be further broken down based on their OTC swaps counter-party into “Bona Fide” Physical Hedgers and Speculators.

The problem with Masters’ solution is that commodity speculation is "A" problem, not "THE" problem. A still better way of looking at it is that commodities speculation is symptom of a much larger set of problems:

  • Fractional Reserve Lending
  • Past monetary inflation
  • The Fed’s willingness to blow bubble after bubble
  • Loose lending standards by the Fed
  • Carry trades in Japan
  • Runaway spending by Congress

All of the above points pertain to other central bankers and foreign governments as well.

The Fed openly encouraged speculation in the wake of the dotcom crash. Greenspan was


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Swing trading virtual portfolio – Optrader

New post-May 28th

 





Inaction at Anheuser Busch leaves traders weighing their options

HSY– Hershey Company – Confectioner Hershey saw its share price rise 7.5% to $39.16 during the session as unconfirmed bid-mongering did the rounds. Options traders sent implied volatility up 88% – the biggest on today’s market scanners – to 42.8%. In the June, July and September contracts option traders went screaming into the 40.0 strike calls like kids running into the candy store. Premiums paid rose sharply across the gamut with the June calls rising from $0.10 to $1.50, while in the September contract some 20,000 calls at the 40.0 strike traded as high as 2.10 from Friday’s closing price of $0.45 per contract. There seems little if any news on the subject that we can find today, although the options activity at 32-times its usual pace guarantees that options traders have the bit between their teeth. Today’s options action is neck-and-neck with existing open interest on Hershey’s.

PWE – Penn West Energy Trust Units – the options activity at this royalty trust energy company from Canada is also in-line with its open interest. That’s largely thanks to one sizeable call trade at the Jun 30.0 strike. Shares in the trust are down alongside the rest of the energy sector today standing at $33.72. Call volume of 50,000 contracts at the June 30 strike compares to existing open interest of 11,110 lots. The trade went through at a premium of $4.00. Option implied volatility rose marginally from 23-25% on the deal.

BUD– Anheuser Busch– Shares in Anheuser Busch are flat after the long Memorial Day vacation without any sign of a takeover or merger announcement over the weekend. All of Friday’s euphoria is being left to ferment and it’s hard to say that the story has lost its fizz just yet. Reuters reports that talks could start this week although InBev is keeping quiet about its plans despite Friday’s FT report noting that a financing package had previously been put in place. In the options market, it would appear that traders don’t want to be caught out in the cold and seem to be rolling up the strike in June, July and September calls, where existing positions at lower strike calls (50 and 55) are being sold in exchange for the higher 60 strike calls. Notably, traders seem to believe that the current share price buoyancy surrounding BUD is likely to remain in vogue. That means that seem prepared to…
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Consumer Confidence

Here’s an article on consumer confidence, courtesy of Alan Brochstein, AB Analytical Services

Consumer Confidence Plunges:  Buy!

Falling consumer confidence tends to lead to a falling stock market, but once it is "low", it tends to signal a buy opportunity. Take a look at the 30 year history of the Consumer Confidence Index. You will see that yesterday’s print of 57.2 is the lowest level since the early 90s and represents a decline of over 42% from a year ago.


The top panel is the index itself. The middle panel is the one-year percentage change in the S&P 500.

It seems pretty clear to me that a year after a spike down in confidence, stocks have offered positive returns. Note that the last big drop occurred after the bottom of the bear market bottom in late 2002. Confidence was weak in the early 90s, but note that returns were positive shortly after the indicator first breached 60. Looking back at the early 80s, confidence plunged in 1980 but didn’t seem to hurt the market. As the indicator fell in 1982, the market was crunched. While I don’t think we are sowing the seeds again for the greatest bull market in our lifetime (1982-2000), we all know that 1982 turned out to be a great time to buy.

I put the last panel on the chart to show how useless the index is: It repeats the obvious. Note the high correlation between the 1 year change in stock prices and the 1 year change in confidence. Is it surprising that people lose confidence when stocks are declining? It’s not a perfect fit and certainly not the only factor to explain consumer sentiment, but stocks are a great leading indicator.





Swing trading virtual portfolio – Optrader

New post-May 28th

 





Giant Pool of Money

"I think you can appreciate why the housing mess will not resolve for several more years. Prime mortgages have been sliced and diced and repackaged endlessly with subprime in order to raise the ratings on the entire pool, then these packages have been sold, repackaged, sold, repackaged, etc. etc.

They can’t even figure out who owns the mortgages anymore because each mortgage has been sliced into parts and repackaged. So there is nobody you can go to in order to re-negotiate your mortgage. It is like trying to renegotiate the value of your shares of GE with the owners. There are millions of shareholders, so who do you talk to?"

For an insider view of things from the standpoint of the participants on all sides, listen to the Giant Pool of Money, when you have time, it’s about an hour (click on "full episode" on the left of the page).





 
 
 

Kimble Charting Solutions

Wilshire 5000 Creating A Triple Top? An Important Breakout Test Is In Play!

Courtesy of Chris Kimble.

The stock market has been on fire of late, rallying up to the edge of price resistance on several indexes. Today, we look at one of those stock market indexes: the Wilshire 5000.

The Wilshire 5000 tracks all of the stocks in the US market, so it is a broad-based index that carries significant importance when gauging the health of the overall US stock market.

Looking at the long-term “weekly” chart above, it is pretty clear that the index is at an important price juncture.

The Wilshire 5000 spent the last 25 years trading within a rising price channel (1)...



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Phil's Favorites

Will it hold?

 

Will it hold?

Courtesy of 

My Chart o’ the Day this weekend comes to us from Jonathan Krinsky at Baycrest Partners, who’s out with some significant insights about the week that was.

He looks at the possibility that both the dollar and bond prices have hit a high and are now about to roll over. A drop in USD below support, which appears to be imminent, would have all sorts of implications for the recent breakout in gold extending and for the potential of emerging markets stocks outperforming US stocks. A drop in bond prices (rates going up) could mean a reversion in the bond proxy rally (REITs and Utes) and a boost for the banks and brok...



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Zero Hedge

Draghi 'Out'ed By ECB Insiders As Liar And Schemer

Courtesy of ZeroHedge. View original post here.

Authored by Wolf Richter via WolfStreet.com,

Draghi’s shenanigans get hilarious, months before his term ends.

So here’s ECB President Mario Draghi, whose term ends in October, and he’s at the ECB Forum in Portugal, and in a speech on Tuesday titled innocuously, “Twenty Years of ...



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Chart School

Formula for when the Great Stock Market Rally ends

Courtesy of Read the Ticker.

When valuations for the boring water company or the boring electric company is trading like your Facebook, Apple, Amazon or Netflix or Google (ie FANG) you know something is wrong.

This is when a seriously over valued market is screaming at you.

Of course the reader must understand in a world where money printing goes super nuts (Zimbabwe style) the stock market may go hyper inflationary and picking a time frame for a top is never a good idea, but we are not there yet. There is no Ben Bernanke helicopter money to the masses yet (ie MMT). 

To see when water company's (and such like) are nearing the crazy FANG like valuations a review of the Dow Jones Utility Index channel shows us how history can repeat. The c...

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ValueWalk

The "Tesla Killer" Car Is Nowhere In Sight

 

The “Tesla Killer” Car Is Nowhere In Sight

By Jacob Wolinsky, ValueWalk

Here’s some catnip for the Tesla bulls on this email list: my analyst, Kevin DeCamp, a longtime TSLA shareholder and car owner, took a test drive of the Jaguar I-PACE and, while it “looks great and is fun to drive… it is lacking in a few areas where Tesla really shines.” He concludes that “Tesla may end up killing itself, but the “Tesla killer” car is nowhere in sight.”

The Tesla Killer Hasn’t Arrived Yet: My Test Drive of the Jaguar I-PACE

By Kevin DeCamp

As a long-time, devoted Tesla...



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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Insider Scoop

What To Expect From The S&P 500 Over The Next 20 Years

Courtesy of Benzinga.

The volatility of the SPDR S&P 500 ETF Trust (NYSE:SPY) so far in 2019 is enough to highlight just how unpredictable the S&P 500 can be.

It may seem impossible to predict what’s coming for the market over the next 20 years, but DataTrek Research co-founder Nicholas Colas recently ma...



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Biotech

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

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

 

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

If you’ve got the raw data, why not mine it for more info? Sergey Nivens/Shutterstock.com

Courtesy of Sarah Catherine Nelson, University of Washington

Back in 2016, Helen (a pseudonym) took three different direct-to-consumer (DTC) genetic tests: AncestryDNA, 23andMe and FamilyTreeDNA. She saw genetic testing as a way...



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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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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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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:

 

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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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