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Monday Market Madness


War is always a fun way to shake up the markets and oil is flying this morning as Israeli jets attack Hamas targets in Gaza for the third day in a row in retaliation for last week’s rocket and mortar attacks from Gaza into Israel which started pretty much the minute a 6-month cease-fire expired.  Israel has a lame-duck Prime Minister so the military is calling the shots and we have a lame duck President so it’s less likely there will be another brokered cease-fire and more likely Israel will move into a ground assault in order to create a buffer zone to stop mortar attacks from reaching their border cities.

The only other country who are usually able to mediate for the two sides is Egypt, an OPEC member who are seeing a 10% rise in the price in oil pre-market trading today – so Hamas has accomplished something OPEC could not, they finally put a floor in the price of oil and, at $344M a day in additional global barrel fees ($4 x 86mb), it’s hard to imagine any OPEC member rushing to secure the peace.

Of course, this is sparking a global commodity rally, led by our pals in the energy sector who welcome the re-flation of the terror premium that had been washing out of the price of oil of late as OPEC’s surplus production capacity rose to record levels as members begin to make moves to cut cartel production to 24.8Mbd, 10Mbd less than they were producing in January of 2007 (when their surplus capacity was, at the time, estimated at 2.5Mbd)!  By 2010, OPEC’s production capacity is estimated to hit 38Mbd so, at their current 25Mbd target, over 1/3 of their production capacity is off-line but the world is producing 84Mbd and OPEC is making themselves less relevent as their cutbacks have left them producing just over 1/4 of the world’s oil.  Possibly the worst thing that can happen to OPEC right now is for this war to drag on and oil DOES NOT go back to $45 a barrel. 

There is currently so much oil in the world that it would take a record supply disruption to change the fundamental picture – there is a good reason the terror premium has washed out of the energy market – OPEC’s greed has set in motion a movment away from the world’s dependence on their disruptable supply and the cartel’s recent actions to increase prices only serve to strengthen the resolve of global leaders to fund long-term energy projects, even in the face of declining prices.  At the same time, consumers are cutting back fast and things have gotten so desperate in the natural gas world that Russia, Venezuela, Egypt, Iran the UAE and 9 other natural gas producers have formed their own cartel (GECF) to attempt to control the price of natural gas although it will be quite some time before they get properly organized.

Interestingly, this could all backfire on both the GECF and OPEC as the two cartels (with similar but different member bases) compete to supply fuel to the world.  I suppose eventually nuclear producers, wind producers, coal producers, solar producers etc. can all get together and form cartels of their own at which point we will need a cartel to keep all the other cartels coordinated.

The global steel manufacturers don’t have a cartel yet steel production is down 10%, the biggest 1-year decline since the end of World War II.  OPEC has cut less than 5% so by OPEC’s logic the price of steel should be going through the roof OR MAYBE OPEC NEEDS TO CUT ANOTHER 5% TO GET SERIOUS!  While we stopped shorting oil and the energy sector at $40, there is no way we are joining the sheep as they are herded back into energy stocks this morning over the latest outbreak in a war that’s been going on pretty much since Israel was founded in 1948.

Similarly, we are not going to get excited about a commodity-based market rally as this is not the sector rotation we need to see for the markets to improve.  Speaking of rotating out of wars, what if – just what if, the Iraq war ends.  Not that war IN Iraq will ever actually end but what if the US pulls out our 150,000 troops along with our 180,000 "contractors," who not only cost the US $2Bn a week (just the contractors) but combine to consume over over 2M barrels of oil per week in fuel (a B-52, for example, burns 3,334 gallons per hour).   According to a DOD study: "Of all the cargo the military transports, more than half consists of fuel.  About 80% of all material transported on the battlefield is fuel."  No wonder HAL made out like bandits on this war

Long-term, I am bullish on oil at $40 but, short-term, don’t mistake this for the "game changer" that will send oil back to $60.  Hong Kong traded up about a point this morning but Japan finished their last full trading day of 2008 flat at 8,747 with just a half day tomorrow.  The Shanghai was also flat but slightly red, making it 6 days in a row in the red.  With 562 Chinese firms publishing earnings forecasts for 2009 so far, 14% predicted a fall in profits and 23% projected losses for the year.  "Investors in China are still pessimistic about the overall economy, especially after the [European Union] economy entered a recession," said Castor Pang, strategist at Sun Hung Kai Financial. "Most Chinese enterprises are expected to have a difficult year in 2009."  Officially, China is still forecasting 9% growth next year – if that doesn’t happen, it will be difficult to fuel a commodity rally.

EU markets are up about 2% ahead of the US open, led by their energy and commodity sectors.  Gold is up to $875 again and the dollar continues to weaken, perhaps in part due to a Russian professor’s prediction that the US will literally fall apart in 2010, "that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S."  While we may not take this seriously, I will remind you that the single biggest group of global currency traders is Japanese housewives so the man doesn’t have to be right – he just needs to get some attention…

It still looks like we are going to be drifting into the close of the year.  Volumes are very thin around the world but let’s keep an eye on the S&P, who are down just about 2.5% on the month at 875 so that will be a critical line but what we really do not want to see is this energy rally catching hold – hopefully our traders are a little bit smarter than that!


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  1. Good morning! 

    Wow, not even enought time to short that run in oil, they fell right back down below $39 already.  That’s too bad as I did want to catch XOM at $80 again.

    I hope everyone had a nice, relaxing weekend.  I sure did doing family stuff..

    This week should be uneventful too but January proper is going to be busy, busy, busy as most of the people I talk too are sitting on their hands at the moment and waiting – only they don’t know what for.

  2. Phil: good morning,
    what is going to be the busy-ness in January ?

  3.  Good article by Trader Mark regarding dangers of holding ultra shorts for medium/long term, Cap made a similar point last week.

  4. LOL – the IEA is already projecting oil back to $100 "between 2010 and 2015" – they just wait for anything to happen to roll these things out…  Of couse, I sure wouldn’t bet against it given that time-frame but it’s the "short-term" we’re concerned about and I don’t see anything immediate that’s likely to get them back to the $50s which means they probably are heading to a blow-off bottom at some point.  Just like excess home inventories, excess oil inventory, both physical and represented by the insane amount of NYMEX futures contracts, needs to be burned off before they can make a proper bottom and something like this war boost is nothing more than a short-term stimulus that does nothing to address the greater issue.

    Although oil itelf is not up much ($38.88, up $1.20), USO, XLE and OIH are all up 2.5% and trading is thin enough for "them" to take it all much higher if they want to.  I was hoping XOM would go back to $80 so let’s see if they can make it up there and then, if they can’t break it, they may make a fun short play.

    Busy/RMM – Lots of pent-up money and trades in general after 2 weeks of very low volume trading.  Since the last two weeks of the year have given us no sense of direction (already predicting this week flatlines like last) then we’ll probably see the bull and bear camps go to war in January as they test the market levels in an attempt to set a strategy for next year.  Finanial firms are just like any other companies and the CEO needs to report to the board as well as the investors so the pressure builds and they need to make some sort of commitment to a strategy some time in Q1.  Saying you are going to play it by ear may be something you can get away with in a bull market when you are posting 20% gains but when your investors are nervous and considering pulling out their cash – they generally want to see something that looks like a plan…

    Ultra-shorts/Orion – Absolutely, they are great for selling options against to other suckers or making short-term covers but holding them as an investment is madness UNLESS they are like the UYGs or the commodity one where they are so close to zero that they make sense as a vehicle to sell options against on a regular basis.

  5. Obviously, with energy accounting for +0.5% of market movement and commodities another 0.2% – today is worse than it looks.  Notice X is actually falling today and there is nothing at all different about Xs situation than any of the oil or copper producers. 

    73,000 retail store closings are projected for 1st half of next year – even if they only employ 12 people each that’s a million more jobs lost and I don’t think it’s much of a stretch as I see many stores open now that seem pointless.

    Overall, not looking too pretty but volume is so low you can’t make any real conclusions…

  6. COH – bought back Jan 20 covers (following the rules to capturing 50% gains on covers with 3 wks still to go…)

  7. Phil:
    thinking of rolling QLA jan 29 callers to max premium ???

  8. Are the markets open all day Wednesday ? I assume they are closed Thursday !

  9. Good Morning All!  WMI (Waste Management) – any reasons not to like them?  They will faced increased competition with the RSG, but they raised their 2009 dividend and have a buyback program for stock.

  10. orion- thanks for the referral to the ultrashort article

  11. Regarding the ultra short etfs… could the same be said for ultra long etfs?  And does it stop there?  Are regular short or long etfs ok for medium or long term holds?  Cramer has been behind alot of the bashing of ultra short etfs because he holds alot of bank stock and they’re working against him.  But do his arguments apply to other etfs, too?

  12. I’ve been looking at DPS as a good hedged entry at $16.60, selling Feb $15 puts and calls for $3.30 which nets $13.30/$14.05.  It’s not too sexy if called away (12.5%) but a discount entry just about at the low of Dec and this is a nice, solid beverage company trading at a way better p/e than KO or PEP.

    COH/3Way – Good call but maybe not to be 100% naked as of Weds close..

    QL?D?/RMM – I would take out the Jan $29s on this dip but I wouldn’t be so quick to sell lower based on a low-volume test of $25.

    Weds/DB – It’s a half day, like Xmas was.

    WMI/Pharm – Long-term contracts, lower fuel costs, lower truck costs, lower labor costs, 3.5% dividend and the buyback – what’s not to like?  Very doubful growth outlook but a nice vehicle to sell calls against without having to cover the downside (unless then break the 50 dma at $30 again).  I like the hedged entry on them as well with the stock at $30.65 and the Feb $30 puts and calls sold for $4 = net $26/28.

    ETFs/Matt – I’m not generally a big fan as their fees are outrageous and tend to eat into your profits long-term.  The best use of ETFs is if you are playing a sector where picking an individual stock is a crap shoot like energy or financials but for miners, for example, why would I play GDX when I know ABX is the best of the group and why would I play a retail spider when there are clear winners and losers in that space…  If however, I have C, GS, JPM, and WFC because I think the banking sector will improve, then it is a very GOOD idea to cover them with the SKFs as it’s incredibly unlikely something will take more than one of them down that won’t kill the whole sector so I can put $20K on each of those with a 25% downside stop and take just $20K on the SKFs that will double about the same time the others stop out.

    Energy failed us here, XLE and OIH dropped 1.5%, which is most of the market drop since the open as we were down 0.5% anyway.  Oil is heading back to flat at $37.95.

  13. Ultra ETFs – suitable for quick swing trading only, terrible for long term holds.  The compounding effect kills them, both long and short ultras.

  14. QLD very attractive at $25.06, selling Feb $25 puts and calls for $6.45 nets $18.61/21.80 and the spike low was $19.72.

  15.  Ultra ETF swing trade – SRS has moved to engulfing its 5 & 10 dma this morning.
    I have somewhat of a different opinion on inverse ETFs.
    Let me let you in on the way to make infinite money with Ultra ETFs — We identify the inverse ETFs whose mirror ETF will go to zero.  As the mirror ETF goes to zero — THE INVERSE ETF GOES TO INFINITY!!  No Madoff scheme is this!  INFINITE MONEY when the Inverse ETF goes to infinity is plenty of money for me and you!!  The best thing is — EVEN ONLY ONE DOLLAR in an inverse ETF can go to INFINITY!!  
    OK, SO you ask, "How can there be an infinite amount of money?"  I don’t know, but the inverse of zero is infinity.  If we can trick some of these financial masterminds into making inverse ETFs based on smaller and smaller sectors, we can take Barklays or someone like them for INFINITE MONEY!!
    Ok, so you ask, "But can I get my infinite money sooner?"  YES!  YES!  We just have to break into their computers  and change their algorithms so that when one stock goes to zero, the entire inverse ETF goes to infinity.  Who knows?  Maybe someone has made this mistake!!  Actually, I wouldn’t doubt it!!

  16. COH – I think it goes down to test the 50 dma around $18.52 and likely to the $16.5 level if it goes below it.
    I am short COH via Feb PUTs and may cover around $18.6

  17. Ultras.  The above article on Seeking Alpha very enlightening, but I did not quite figure out why they lag so badly over time.  Can anyone enlighten me further?

  18.  oh, I found this site where you just put in a favorite song or artist and it makes a personal radio station based on that song or artist.  It’s pretty cool —

  19. Europe fading out into the close.

    UMW $17s are $1.85 and $1.10 is not too bad a premium with 3 weeks left, they are very much a gamble, of course, but you can play them for a quick 20% at $2.20 and they were $3.50 last week.  I don’t think we bounce for any particular reason but this is exactly 2.5% on the Russell and t5he other indexes don’t look too keen to join them.

  20.  Ultras – my theory is that they are based on options to achieve their results.  What I have observed with ultra ETF shorts is that if the $VIX influences the amount that they move.  So, if the ETF that they are based on goes up 5%, and the $VIX moves down, the ultra ETF short will achieve less than 10%--sometimes significantly less.  May be wrong though.

  21. occam, what does this mean? "Ultra ETF swing trade – SRS has moved to engulfing its 5 & 10 dma this morning." is it bullish for real-estate or bullish for the ultra-short? thanks

  22.  PLD ending its bull run today

  23. Oh here’s a good use of the new sector chart.  Notice that Conglomerates just hit the 2.5% rule.  We want to watch them closely and see if industrial products join them or they bounce back over 2%.  Sectors between 1.25% and 2.5% are in limbo but, of course, we love to see -1.25% retaken and now that Energy and Materials are done with their BS rally, we can see if anyone else is ready to step up, even on a slow day like this.

    Infinity/Occam – Brilliant!  Unfortunately, the ETFs are reset daily so we need a single-day move to zero.  What sector can go entirely BK in one day?  Autos – Brilliant!

    COH/M2 – they should have strong support at the 50, I’d be a buyer if they come back down.

    Ultras/Eph – They are in constant churn and they burn fees.  Also, since they are forced to balance into panics, they can get nailed on the bid/ask spreads as well.

    Pandora/Occam – That’s great.  How do they have the rights to these songs?

  24.  Pandora, is arguably the best app on the iphone.  They are a music discovery service so they are intended to expose you to more music you might buy.  Also they advertise on their web app and iphone app which covers their licensing costs.

  25.  phil – i think they can get away with it b/c they choose the songs you hear based on the criteria you filter on, and since you can’t listen to the same song over and over again (you can just say ‘yes i liked this’ or ‘no, i didn’t care for it’).  they can also only send the stream to people in the united states, and you can only skip six songs per hour… etc, etc.

  26. it’s actually pretty well summarized on (tada!) the wikipedia page (= what bigs and i said)

  27.  Pandora – I have no idea how they do rights, especially with the variety of music that they play.   They have an Iphone Ap that works over the Edge network.   It’s a great toy though--XM/Sirius said it was competition that they were worried about, which says a  lot since Pandora is not that old.  It’s also a bit funny--XM/Sirius CEO:  "I’m afraid of Pandora’s box."

  28.  occam, pandora is a great app!  there model may work – when u hear a song u like you want to buy it.  if you can afford an iphone with service, you can afford to buy a few songs.

  29.  phil, any news on tasr?  slowly edging up on a crappy tape.  your stock of the decade is onthe move.  :)

  30.  phil, do you like nyx at this level?

  31. Pandora – Very kick-ass.  I punched in 4 artists and mixed them and I’m already happy with the "station."  I can’t wait until they do this with TV too…  The only issue I have with these kind of things is you don’t get esposed to too many new things and I”ve always felt that was the proper function of radio but we’ll see what I get.  I put in The Who, Disturbed, Laurie Anderson and Graham Parker to start and so far the only thing I told it to take away is Bjork, who has always annoyed me.  When I have time I’ll make it an even 10 and include Beethoven, Sondheim and the Clash and see how it reconciles my tastes…

    Siri/Occam – That’s the problem with their no-DJ format.  I think it’s a huge mistake to take the personality out of radio station as it makes switching way too easy.  When I was a kid I listened to Scott Munie doing "things from England" on NY radio religiosly as well as Westwoods Concert Series and certain DJs I was loyal to.  There were several rock stations but certain people had a style that appealed to you and would keep you listening – what they do now is very impersonal and no competition for what you put on your own shuffle and now this Pandora is like having a shuffle with an extra million songs.

    Meanwhile, VNO is back to being disturbingly low at $55, BXP even worse at $51 – those are the guys who rent space to the RUT and the predictions of 70,000 small retail vacancies opening up next year can’t be helping any.  Still if they head back to the $40s we need to consider them… 

    GOOG $295 not good either!

    TASR – I imagine several countries are probably stepping up orders for non-lethal (hopefully) riot control gear!  South Korea just put in a big order and they continue to win pretty much every lawsuit.  The turning point for TASR will come when a police department loses a lawsuit for NOT using a TASR when they could have.  Once the risk of not using one or using one balances out – then you’ll see them start to replace guns on a greater scale.  Also, they are about a generation away from a better projectile system that will give them range and accuracy comparable to a handgun.  My summary case for TASR for new readers is very simple:  Imagine watching Star Trek and they all pull out their phasers and stun people but this one guy whips out a 38 and blows someone’s head off instead – not cool!  That’s the future of TASR (or a similar device that unseats them) – you simply can’t keep using the old technology once the new thing take hold.  It may take many years but you don’t see anyone with a bow and arrow or even a crossbow patrolling the streets anymore do you?  In fact, I don’t think it even took 10 years of ass-kickings by the US cavalry before Indians started using guns themselves.

    Notice the cascading failures of our Sectors below, now many heading for 2.5% rule but Conglomerates not really falling much harder so I’d have to guess we’re going to hold that level on the majors (also still no volume behind the move to give us a big push).

    NYX/Jo – I like them but too scary to play with the markets collapsing.  If we start coming back after new years’ then it’s a sign money will come back but, for now, clearly transaction levels are going to suck for this quarter so not much reason to be in them ahead of earnings.

  32. Pandora – Seems that site is only available in the US. If you log on from the UK you get a "Licence only valid in the US" appology from Pandora, I believe that Last.FM offers the same sort of funcionality to those in the UK. (Dont know if "" works in the US – perhaps someone could try it ?)

  33. 10 min on the S&P makes me want to jump in here, am i crazy?

  34. CSCO  Would you sell the 16s as a cover?  I’ve got 1/4 coverage now, but I was hoping for a rally to sell the 17.5s.

  35.  SPX – the hourly and daily charts are in a downward trend, but could be a brief upside; kinda an iffy point here since testing support levels.  If VIX breaks 46, that is resistance.  So right now at a resistance level on the indicies (1500 – Comp).  I’d say we fail based on daily and hourly charts.  Also, if we get a afternoon oil sell-off it’s doom.   So i’d be cautious about the upside play.

  36. DXD   I’ve got April calls, but given the problems with ultras we discussed earlier, I wonder if I should cash them out at the end of the month when the callers expire and put the proceeds into good ol’ DIA Puts as a hedge.

  37. Phil:
    there is a chance for a massive rally in 2009?
    if so, when?
    if so, what stock/option positions would be good to anticipate ??

  38. Occam, you may be right, i may be crazy…. But it just may be a lunatic you’re looking for..Billy Joel

    … thanks OC


  39. Could this decline just be the last of  year-end tax selling?  I’ve got long-term spreads on several companies (NKE, MSFT, MMM…) where I was hoping for a rally before selling covers.   Absent any news, should I wait until the first full week of trading in January before I cover?

  40. Phil,
    What do you think of DOW at these levels?? I know that they have a bad merger outstanding and Kuwait govt pulled out of a deal.

  41. Phil/WFR-
    Looking at picking up more WFR at 12.75 to 12.80. My current cost basis is $14.65. I’m thinking of selling the Jan 12.5 calls for 1.25 and Jan 15.00 puts for 2.45. I don’t have a problem with getting shares put to me at 12.55 in Jan as I could sell the Feb calls when I take the shares. I would like to collect the $375 on the entry above. What are your thoughts. (BTW, I’m holding WFR in my LTP).

  42.  hp, interestingly, the doe jan 15 puts are  $1.  i would expect it to be more even with its drop today.  so you could argue that 14$ is possible bottom.  but this is also price of dow with low oil…….

  43. DB – http://WWW.Last.FM I have is accessable. I checked it for Big Bad Voodoo Daddy w/o success. I may check it in few days. Thx.  

  44. CNBC saying people are coming into the stores but not converting to sales, pretty much what we were noticing in our survey. 

    S&P/Kustomz – Well we held this level last Tuesday and then took off like a rocket right about 1:30 but this is very sad-looking action so far.

    CSCO/Eph – I would not cover down here but if they fail $16.50 again, then I’d cover.

    DXD/Eph – If you are not hedging them then they don’t serve a lot of purpose but that goes for the DIAs too.  If you get a 5% move in the Dow you get a 10% move in the DXDs but the premiums are so outrageous that it takes a better than 20% move to make any real money.  That’s why we gave up on those as a hedge..

    Rally/RMM – What is massive?  We should go up 20% at some point and that would normally be considered massive and the way to play that is the same as always.  Try to pick a dip in the RUT or the Qs or the SPY and take a long position without too much premium and sell calls while you patiently wait..  I still like the financials down here but tech is dead with the SOX back below 200.

    Tax selling/Eph – I’m not sure what profits people are looking to sell against this year..  I would take at least 1/2 covers into the holiday, just in case something blows up.

    DOW/HP – too much in the hands of arb traders right now.  Deal is on or off and it will be random but this ($15) is a pretty nice discount on a decent company and you can give yourself $3.40 selling the Feb $15 puts and calls against it so not a terrible risk/reward on an entry.

    WFR/Texas – If you already have them at $14.65, why not just sell the Feb $12.50s against them for $3.85.  That brings you down to $10.80/11.65 without having to commit to more now and, if they head up, you can always stop out the caller or DCA in on the way up on the stock.  Even if you buy 33% more at $14, $15 and $16 and have the first batch called away at a $1.70 profit and your new net would be an unencumbered $14 the same amount you hold now at $14.85 but you’ve reduced your downside risk considerably.

    Notice 2.5% is holding up pretty well (a little past but nobody heading to 5% yet).  None of the majors are past -2% so there is hope but, overall, this is some pretty pathetic action.

  45. Phil - I want to dispose some C shares that were asiggned to me. In your opinion is this the good time to do it? My indicators  are showing that C is ST way oversold.

  46. Phil: what is DCA ?

  47. C/Bro – Next run to $7 may be as good as it gets short-term.  Of course you could sell Feb $6s for $1.35, which is effectively selling them for $7.35 now and just waiting until Feb to get paid the bulk of it. 

    DCA = Dollar Cost Averaging.

    BXP broke $50 – yuck!

  48. NVDA back from the dead today !

  49. Phil,
    What are your thoughts on JRCC? Do you see them going back to single digits? I have been shorting them everytime they went over $15 the last 3 months.

  50. I think I noted awhile ago on DOW 2 things:  either they need to move up or DD needs to move down based upon their yield.  Second was that ROH was an arbitrage play, but it appears that the deal is falling apart.  Should help DOW and ROH will fall to mid-20s…if it does not go through.

  51. I like this one, MSFT puts cool graphics app on IPhone store because MSFT-based smart-phones can’t handle it.

    Meanwhile I’m trying to sign up for the App store to get Pandora and have no idea how to do it – they sure don’t make it obvious.

    NVDA/DB – They may be an upside surprise but what a terrible chart.

    JRCCEmo – I like them long-term but not as much now as I did last month when they were below $10.  $15 will be hard to break until oil breaks $45 and holds it (nat gas $6).

    ROH/Pharm – I think it will go through with a slight haircut, probably not even bad for DOW in the end, people just hate uncertainty.

    Ordinarily I’d be really concerned about finishing under 8,400 but you can’t read much into this volume although nocie that XLE and OIH are now UP 1.75% which is about 0.35% of the major indexes which means we are closer to 2.5% down than we thought so, if we finish down here, follow-through to the downside is very possible tomorrow.

  52. Phil: Financials UYG and XLF;
    my jan callers: UYG jan 6 and XLF jan 12 : is UYG and XLF at bottom to buy callers back ?

  53. APPSTORE – On my iPhone (3g) you just run the AppStore app , logon to itunes and download. !

  54. Oh – if you try Last.FM the App is free.

  55.  Apstore – haven’t loaded it yet.  I’m web only

  56.  phil, look at the search  on the apps on your phone and type pandora (through your phone).  easiest way imho.

  57. NVDA – Agree about the chart , not a good bet going forward. I just noticed today’s swing, which is about 6-7% bottom to current pos.

  58. UYG/RMM – Hard to say but if you’ve got more than 2/3 of their premium then may as well take them out.  New Year’s makes me nervous to leave anything naked but really, what can happen that will be worse than BSC and LEH already were?

    Appstore/DB – Thanks, it worked – just wasn’t the Email account I thought it would be linked to.

    So, what are we holding?  8,400, 860, 1,500, 5,500 and 460.  SOX 200 and 3,300 on DJTransports.  That’s a set we’ll have to keep an eye on as it did hold pretty firm.  Of course oil got jammed up $1.50 (4%) into the close and now OIH and XLE are back to up over 2% and accounting for about 0.5% of the market’s up moves for the day so still yuch at these levels but beats being off 2.5%!

  59. is there anyone that can answer this question from earlier?--occam, what does this mean? "Ultra ETF swing trade – SRS has moved to engulfing its 5 & 10 dma this morning." is it bullish for real-estate or bullish for the ultra-short? thanks

  60. Holy cow, suddenly buyers show up and money coming out of bonds too.  Haven’t heard any particularly good news but there was a note auction thaqt may have finished well or possibly oil failing $40 on the afternoon rally…

  61. I should’ve daytraded NVDA when I saw it bounce like that  duh

  62. Thanks Phil… even better, I got $3.90 for the 12.50s  :)  

  63. What are the other biotech ETFs?   I know BBH, but I think there are two others.

  64. SRS/Greg - I don’t think much of that time-frame or volume but a bullish engulfing for SRS is bad for real estate BUT I never pay any attention to technicals or ma’s on the ultras as their movement is only driven by the underlying ETF and means nothing on its own and I certainly wouldn’t go making predictions about a sector based on what an ultra does BUT the ultras, as they are more "sensitive" do make good early indicators that you are either breaking out or not on techincals of the regular ETFs. 

    In other words, if you look at IYR, you can see that they were recovering nicely and simply ran into trouble around the 17th at the declining 50 dma.  At the same time, SRS flatlined at their lows and has been improving ever since.  This indicates to me that IYR is consolidating for a breakout as they most likely would have been rejected before today and today’s pullback on light volume, although very exciting looking on SRS, is really a meaningless spike unless it keeps trending that way.

    It’s very similar to what I was pointing out earlier as our Sectors were heading to the 2.5% line but our leading sector to the downside, Conglomerates, didn’t seem enthusiastic about going lower.  If a flock of geese are going to fly into a glass wall (or floor in this case) the first few in the lead may hit the barrier and even go through if they are moving fast enough but they will try to "bounce" back while the others, seeing where they should stop, start slowing down or turning around at varying speeds.  If all goes well, the leaders to the downside scramble back over the line while the others manage to pull up short but – if they are all heading down too fast to stop, then slowly but surely, goose after goose hits the line and, if enough of them hit the barrier without stopping, then the weight and momentum of the flock can make it break and they all fall through to the next level.  That’s how you have to look at the sectors – they fly in formation and the leaders may change but, generally, they are all going more or less the same way.

    Nice patience Texas!

  65. Biotech/Eph – IBB but I don’t know a third.

  66.  thoughts on msft 2011 leaps 17.5?

  67. thank you

  68. MSFT/Jo – Why pay the premium?  The 2011 $17.50s are $5.33 with a $4 premium but for $5.70 you can be in the 2010 $15s with a $2 premium.  You sell the same calls against it and don’t get so burned when the stock goes higher.  Of course the downside risk is slighly more.  Of course, my top choice would be to pay the extra $1.25 for the 2011 $15s and then you have the best of both worlds but, at $18.80 you can just buy the stock and sell 2010 $15s for $7.90 which puts you in for $10.90 with a $4.10 upside (37%) but, if you look at it from a margin standpoint you should be tying up just $8.80 in net margin to make $4.10 if MSFT finishes 2010 over $15 vs tying up $5.70 and needing $20.70 at the end of the year to get even.  You simply can’t sell enough calls at .50 a month to make up the additional risk you are taking when combined with the premium you are burning.

    The problem is, at the moment, that the long VIX is higher than the short VIX and that makes most leap spreads not too attractive so we either have to go DITM to avoid premium or stay shorter for not (we can always spend money to roll back later).

  69. Dow held that floor well, the hedged entry is still good here or you can even risk it naked for a re-arb tomorrow.

  70. MSFT  I have an existing spread, but recently I’ve been selling puts with the intent to take the stock.   One nice thing about this underlying is that if you change your mind (as I did last month when my short Dec 20s were ITM) you can usually roll down a strike for a credit since they have $1 strikes in the front month.   I currently am short Jan 19s & 20s, and just sold Apr 17.5s for $1.61.   I might roll my January puts if they are ITM, but I’m definitely going to take the stock in Apr if it is ITM at that point.

  71. Oooops… just checked the execution price on those WFR 12.50… I got $4.06 for them :)
    Even better!

  72. NVDA – It seems people think AMD is going bust and NVDA will profit from their market !!! Nearly 10% swing from the lows today.

  73. BBH vs IBB   I’m thinking of setting up a spread on a pullback and I’m not sure what index to use.    BBH has much lower vol in the long months (Jan 11s are currently 18%), but less means fairly high B/A spreads.    With IBB, vol is fairly flat across the months, but trade volume is much higher so I should be able to roll more efficiently.    One other factor is that BBH is a higher priced index so I’d probably buy 2 IBB vs 1 BBH meaning more flexibility vs. lower commissions on rolling.   Anybody have a preference?

  74. Phil – Thx for MSFT analysis. BTW. If one gets in w/’11 LEAPS then there is more time to collect premium so the min premium is lower permitting selling higher strike prices and less rolls/adjustments.

  75. Whats up with RIMM?

  76. RPH/IBB – I’ve a long position in IBB (Jan10) and have always found it to be liquid enough to split the bid/ask if you’re patient enough when rolling.

  77. Another bloody hockey stick. Whats real – what isnt ?

  78. Hello all, just checking in to say Happy Holidays.
    The other Biotech ETF’s are PBE and XBI…I’m short BPE right now.

  79. error, typing too fast.  I’m looking into shorting PBE

  80.  have a nice evening all — phil thanks for the explanation on srs!  I hope the spike lasts till tomorrow morning though as I held on to some calls-- i’m counting on PLD doing some retracing. 2 to 12 in less than 12 days--phew!

  81. BBH/Eph – They are both fairly actively traded so you really need to analyze which gives you the best spread.  Since you can effectively buy 2x the IBBs and sell Feb $65 puts and calls for $8.8 reducing your net to $56.20/60.60 (X2 = $112.4/121.2) vs 1 unit of BBH at $168, selling Feb $165 puts and calls for $19 for net $146/155.50, I’d say go with the cheaper ones as the high on BBH was $201, just $45 over your high base while the IBBs topped out at $90, which is $30 higher than your upper entry and 2x $30 is more than $45…

    MSFT/Bro -But if you go for a more in the money position now, especially when it does not have particularly more premium than the longer play, then by the time you are ready to roll to 2011 the calls you want to roll to will have given up most of their premiums while you would have caputred most of the gains.  Case in point, if you had the 2010 $15s at $5.78, you can roll them to the 2010 $17.50s for net .38 but if you have the Jan $15 at $4, you can roll to the 2010 17.50s for .35 – so that’s the same but, since you have no premium on your Jans, you would capture 100% of any additional upside move – outperforming the longs.  If you are genuinely bullish, that’s the way to go.

    RIMM – I’m hearing the new BBerry not all that fantastic in general.

    None of it’s real DB, that’s why we’re so bored even with the market up and down 150 in a day…

    Thanks DDay – Happy holidays!

  82. A board game for today’s markets, from the economist (it’s actually quite amusing, and a bit too realistic)

  83. Good Morning everyone.
    UK market is up 0.83% and the US pre-market is up 67pts but there’s been a few wierd trades going through. For example FSLR @ $156 + 15% !!  Pre-market people are nuts.