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Wild Weekly Wrap-Up

Woo hoo, we fininshed the week up 33 points!

We had lots of fun getting there though with a 250-point top to bottom move EVERY SINGLE DAY.  It just doesn't get any better or worse than that, depending on what type of trader you are.  Friday was the worst as we fell all the way from Thursday's hopeful open at 12,500 all the way to the pit of despair at 12,155 at 3:10 Friday afternoon only to finish back just under 12,400 so quickly that we didn't even have time to enjoy it (but it really saved our virtual portfolios for the week!).

I mentioned in the morning that the sell-off was overdone at 12,250 and another 100-point drop in the morning did nothing to change my mind but I kept up that theme all day during member chat and, fortunately, we maintained a fairly bullish outlook and stuck to our guns during the sell-off.  As we have now delayed the launch of the basic membership site unitl March 7th and we have some comments available on the free site, I will tell you to read the Friday post and comments if you want to see how we handled the day, rather than rehash it here.

On Friday the 15th we were in absolute pain and just wanted the week to end as we dropped from a high of 12,627 on Wednesday the 13th all the way down to 12,216 in intraday action on Friday.  Let's remember that that sell-off was caused by the anticipated St. Valentine's Day Massacre of Bernanke and Co as they addressed the Senate Banking Committee and a lot of the residual selling sentiment is based on the fact that Bernanke must face Congress in what used to be called Humphrey Hawkins testimony when Greenspan used to do it but, after seeing Bernanke's inept handling of the testimony, Mr. Hawkins apparently came back from the dead to demand his name be disassociated from that circus.

It's the Congressional report that has all three rings of the circus in action with our Congresspeople really representing the full gamut of the American people, many of whom, unfortunately, aren't very knowledgable about banking.  Unfortunately, you don't have to pass a test of any sort in order to waste everyone's time – you
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The St. Petersburg Lottery (In Reverse)

‘The St. Petersburg Lottery’ is based on a theoretical lottery game that has an infinite payoff.  You pay a fixed fee to enter the game of chance in which a coin is tossed until a tail appears.  Each time a head appears, the pot is doubled and, at the end of the game, you win whatever is in the pot.

If the first bet is for $1, this means that, with 50/50 odds in the first round, you can win $1.  The next time around the probability is 25% but you can win $2.  When the probability is 1/8th you can $4 and so forth.  Knowing how the game is played, what would be a fair price to enter the game?

What we know about the game is that only unlikely events (low probabilities) yield high prizes.  When famed mathematician Bernoulli addressed this problem, he conjectured that people tend to neglect unlikely events

While mathematicians have since conducted experiments to counter Bernoulli’s claim, stock market practitioners have served only to prove his point through spectacular failure.

One famous hedge fund comprised former Vice-chairman and head of bond trading at Salomon Brothers, John Meriwether, Nobel Prize Winners in Economics, Myron Scholes and Robert Merton, as well as principals such as Eric Rosenfeld and Larry Hilbrand.

The fund began with just over $1bn of investor capital and operated strategies that were almost a reverse of the St. Petersburg Lottery.  Rather than seeking extraordinarily high returns with low probability, the fund engaged in strategies that would return very small capital amounts with very high probability.

The premise of the fund’s investing strategy was that long-dated bonds issued a short time apart would tend to become identical over time.  However, the rate at which these bonds approached this price would be different, and high-liquidity bonds such as US Treasury Bonds would approach the long-term price more quickly than illiquid bonds.

The firm reported annualized gains of over 40% initially but, as the capital grew, management decided to engage in non-directional strategies which demanded they take highly leveraged positions to make a significant profits and which were outside their area of expertise.

In 1998 the hedge fund had just under $5Bn in equity and had borrowed an astounding $124Bn.  It’s derivative positions off-balance sheet had a value of approximately $1.25 Trillion.  These comprised interest rate derivatives as well as equity options. 

The strategy employed was…
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As possible split draws credibility, May calls draw volume in bond insurers

Today’s tickers: ABK, MBI, INTC, DELL, DNA, NAK

ABK, MBI – Early morning news reports suggest that bond insurers MBIA and Ambac may be becoming more disposed to the idea of splitting their municipal bond units from their toxic, CDO-exposed structured finance divisions . A plan to this effect was first floated early this week by activist shareholder William Ackman, who has been shorting bond insurers. Initial response to the plan from MBIA and Ambac was cool, as it was believed that splitting the companies would amount to little more than a concession of defeat, rewarding Ackman’s own bearish bets. With no firm plan for a bond-insurer bailout in place, however, market pragmatists are suggesting that a split is more or less inevitable. Earlier today, CNBC reported that officials at both bond insurers are beginning to tinker with the scenario of possible downgrades of the bond insurers by Moody’s S&P and Fitch, and what the loss of a triple-A rating would mean in terms of competition with higher-rated companies, such as the initiative launched by Warren Buffett. Bearing all this in mind, we were interested to see option traders in both insurers recalibrate bullish positions in the March and May contracts. With shares in Ambac trading 7.5% lower at $8.54 today, we observed heavy buying at the March 10 call strike, which may have represented closing purchases given the 24% discount in premiums, or could be traders looking to position ahead of an imminent ratings announcement. Calls bought at the May $10 strike, meanwhile, were indeed fresh positions, bought for $1.65.

In MBIA, meanwhile, a similar dynamic emerged. With shares down 5.8% to $11.20, the 46,000-plus options trading in the bond insurer made it one of the most active tickers on our platform, with March 12.50 calls trading nearly 10,000 times for $1.18 – down 25% from yesterday’s value owing to the decline in share price. New positions were entered in the May 11 calls for $2.38.

INTC – Earlier this week it emerged that chip giant Intel has been subpoenaed by the New York State Attorney General’s office in an antitrust probe similar to one underway with the European Commission, which charges Intel with using unfair market practices to muscle its rival AMD from the European market. The European probe escalated earlier this month with a raid on Intel’s German headquarters. Shares in Intel are down…
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Friday Morning

Well another week bites the dust and, thankfully, this was a short one.

We have little good to say about this week other than we didn’t break below last week’s lows (yet) and there is nothing wrong with forming what is turning into a month-long solid base at 12,200.  There are very few prolonged consolidations that lead to a sell-off so the longer we don’t go down, the better our chances of going up.

We really, really need an easing of energy prices to get us back on track in the broader markets and we will continue to sell any commodity led rally and buy into any commodity based sell-off until somebody wins this tug of war.  We bought QID puts on Wednesday morning and QID calls yesterday morning and yesterday afternoon we were back on the puts – buy and hold isn’t even a real possibility for a market that was down 200 last Thursday, flat Friday, up 150 then down 250 on Tuesday, up 250 Wednesday and down 250 yesterday, finishing, as we noted in last night’s Big Chart Review, pretty much right back where we started from.

We got a small break in oil yesterday but much of that has been reversed in thin overnight trading.  We had another huge build yesterday and Rowan Menzies, head of research at Commodity Warrants said: "People have got to start being more concerned about demand, especially now that you got the inventories going up and up every week."  "Refineries are curtailing output for economic reasons. There’s weak product demand and they are responding by reducing output,” said Tim Evans, an energy analyst at Citigroup Global Markets. Total implied fuel demand is down 1.1% over the last four weeks from a year earlier. Gasoline inventories climbed 1 million barrels to 230.3 million, the highest since February 1994. “Gasoline supplies are near the highest level ever, and crude oil supplies are still gaining,” said Kyle Cooper, director of research at IAF Advisors in Houston.

Asia gave back most of Thursday’s gains into their weekend this morning as Japan cut its assessment of their economy in the face of slowing US demand.  Due to rising fuel costs, Japan ran it’s first trade deficit ($739M) in a year and the IMF dropped Japan’s growth forecast from 1.7% to 1.5%.  Consumer spending, the biggest chunk of the economy, is "almost flat," the report
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Thursday Thump

I'll keep calling the Thursday wrap-up "Thursday Thump" until everyone starts recognizing a pattern!

Last week it was the St. Valentine's Day Massacre that caused the drop as we fell from 12,550 at the open to 12,350 at the close while people talked about how crappy the economy was.  Today we fell from 12,500 to 12,250 as the Philly Fed Index fell to -24, the lowest reading since 1991.  It was far worse than the -10 expected but only a little worse than last month's -21.  Leading Economic indicators also declined but that was expected and Jobless Claims FELL 9,000 to 349,000, still a good 51,000 off "recession levels."

Unfortunately, since it was Thursday the market was in no mood for good news so we fixated on the bad with a very broad sell off on low volume – which is in line with my theory that we are clearing out the last of the suckers this week.  If people were looking to get out of the market you would expect a little more volume on the 250-point rallies as people take the opportunities to get out while the getting is still good…

Energy traders were gettin' today with a quick pullback to $98 and I never mind a market sell-off that is led down by the energy sector (especially when we've been shorting them).  Other commodities started falling as well but we are very unlikely to get follow-through into the weekend and we'll very likely finish this short week pretty much where we began it and pretty much exactly were were were last Tuesday, when we last ran the big chart:

 

 

Week's

25%


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Novatel, RIM offer divergent views on mobile phone demand

Today’s tickers: MRVL, MSFT, VNDA, NVTL, XLF, RIMM, GM, ZLC

MRVL – One day after ebullient share price action and call-buying activity sparked talk of an imminent takeover or a buoyant earnings surprise, chipmaker Marvell Technology tacked on another 3% gain to $11.33 as the buyout scuttle continues to stick. Once again it’s the call traders in the catbird seat, with calls outmoving puts by nearly 10 to 1 in afternoon trading. While the brunt of yesterday’s volume involved buying in March 10 calls, today we’re seeing heavy traffic one strike higher at the March 12.50 mark, where the 45-cent premium has attracted buyers as well as sellers looking to take a 12% profit from yesterday’s levels. While this second day of gains makes it tempting to give credence to the takeover talk, the level of fresh selling in April 12.50 calls combined with selling in May 15 calls and buying in 12.50 puts suggests that the party in its share price may not last much longer.

NVTL – Shares in Novatel Wireless, the maker of wireless PC cards and multimedia application products for cell phones for both Verizon and Sprint, plummeted more than 23% today to $10.63 – a fresh 52-week low. Following this week’s moves by AT&T, Verizon and T-Mobile to offer fixed-rate monthly plans to consumers, Novatel issued Q1 guidance well below street expectations. Novatel executives said the initiatives by wireless service providers, believed by many to be the opening salvos in a cataclysmic price-war for the telecom industry, might carry “modest impact” as service providers seek to consolidate vendors. The guidance all but eclipsed higher Q4 earnings from the company. The news propelled option volume in Novatel to 8 times the daily average, as the value of the March 12.50 put ballooned some 200%. It’s here that the brunt of today’s volume is occurring, with the $2.00 premium attracting mostly sellers who may feel that the reaction to Novatel’s earnings was disproportionately bearish.

RIMM – Research in Motion was singing a different tune in the premarket, however. Shares in the Blackberry maker gained 9% to $107.04 after its Q4 new subscriber numbers bested the market’s consensus expectation by 20%. The news propelled options in RIMM to a volume of more than 83,000 lots in the first 90 minutes of the market, but the positioning here is surprisingly reticent- perhaps in light of the newly…
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Thrilling Thursday Morning

I'm calling this post "Thrilling Thursday Morning" but I make no promises about the afternoon.

We had a great move yesterday, the Fed made some noises one might even interpret as rational and we are getting some great news out of RIMM and AAPL as well as upgraded tech guidance, which can hopefully keep the SOX moving forward today but I'm concerned that OII's bad report coupled with a slip in crude will drag down energy and other commodities and spook the markets again so let's be cautious today.

We get the crude inventory report at 10:30 today along with natural gas inventories and I know I had my windows open this weekend it was so warm so I think they'll be hard pressed for a big drawdown on either side of that market.   I'm liking the EOG $95 puts, now $1.95 ahead of the inventories as well as selling the DIG $104 calls for $3.10, either naked or against the $108 calls at $1.10 as another $11 rise in oil by March expiration is hopefully unlikely and, even then, I'm happy to DD and roll to Apri as there are simply no fundamentals to support this run.

[chart]Even T Boone Pickins is shorting oil at this price (I'm not joking, he was on CNBC this morning saying $100 is too much, even though he predicted it)!  We do still have some downside economic news with forecasts for corporate bond defaults jumping 500% over the past 2 years, from less than $10Bn to roughly $50Bn.  This is still far below the $95Bn in defaults we hit in 2002 as the .com bubble burst and the combined terror of 9/11 and the Bush tax cuts hit the economy at the same time, robbing the middle class of their relative spending power and sending corporate profits (big corporations that is!) to record levels.

Stagflation made the front page of the Wall Street Journal this morning as if they just discovered it as they parsed through the Fed minutes.  The Journal, unfortunately is getting to be a contrary indicator these days and, by the time a story hits their front page, it's often over.  We still have this major issue with issuers of auction-rate securities and we won't be out
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Wild Wednesday Wrap-Up

Wheee, that was fun!

The day went pretty much exactly as predicted in the morning and, other than CROX and NDAQ, both of which I still have faith in, pretty much everything we played on the day went up and that's a very good thing!  Still it's all about the follow-through tomorrow but the one thing I took out of those Fed minutes was the statement that: "When prospects for growth had improved, a reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate."

Wow, the Fed has heard of inflation, that's amazing!  They are still totally wrong in what they did but at least they get the concept, to further quote the minutes (which aren't much more than a spun summary of the meeting): "Participants agreed that the inflation data that were received since the December meeting had been disappointing. But many believed that the slow growth in economic activity anticipated for the first half of this year and the associated slack in resource utilization would contribute to an easing of price pressures. Moreover, a leveling-off of energy and commodity prices such as that embedded in futures markets would also help moderate inflation pressures."  So they were dead wrong about inflation and they have now driven it to the worst levels since Ford had to put on a "WIN" button to fight it but at least they are pretending they care.

Unfortunately, what they care about isn't you at all, I often say the Fed is there to protect the bankers, not the consumers, so listen to this gem: "Some survey measures of inflation expectations had edged up in recent months, and longer-term financial market gauges of inflation compensation had climbed. The latter probably reflected at least in part increased uncertainty--inflation risk--rather than greater inflation expectations; increases in nominal wages did not appear to be incorporating higher inflation expectations. On balance, expectations seemed to remain fairly well anchored, but participants agreed that continued stability of inflation expectations was essential."  So the banks are raising rates in anticipation of inflation but the workers are falling way behind as their wages remain the same (even as their interest paid on loans skyrockets) and the Fed can look down on this and smile and call it "fairly well balanced."

There are only two
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Which Way Wednesday? Fed Edition!

We have FOMC minutes at 2pm, that's always fun.

The CPI and Housing Starts will give us topspin in the morning and I expect us to see some inflationary data in the CPI as both food and energy are out of control, probably breaking up to 0.3% even in "the core."  Any positive movement in Building Permits will be seen as a good sign and we don't get Oil Inventories until tomorrow along wiith Leading Economic Indicators (probably not pretty) and the Philly Fed, which was awful last month.

The markets will do what they want to do ahead of the minutes, which is probably continue to test a little lower but holding last week's lows will be a good sign as they were higher than the lows of 1/22 and, as we keep saying, there is nothing going on that we didn't already know about.  If you're going to have a proper rally you need to clear all the suckers out first and we've had some good capitulation but I think we will have a little more pain before we're really ready to turn.  Yesterday I said GOOG was on it's way to retest $500, that more than any other stock will guide my daytrades on the Qs.

I'm hoping to buy QID $53 puts for $3 (now $3.70) as my bullish play of the day ahead of the Fed but, otherwise, we'll just have to hope our covers hold (we are mainly 1/2 covered) through the morning shake out.  Asia had a big shake this morning, giving up 532 points on the Hang Seng and 447 points on the Nikkei with financials leading the drop. Shanghai Pudong Development Bank's planned share sale heightened concerns that China's stock markets would be flooded with shares and the bank went "limit down" 10% in today's trading.  Also not helping is news that KFN has delayed Billions of dollars in payments to banks and is asking for the second restructuring in six months.

Of course industrials are also starting to take a hit as $100 oil is spooking inflation hawks with chemical and rubber manufacturers getting hit very hard in Asia and in Europe, where the markets are off about 1.5% in early trading.  Heineken fell 5.9% on a 33%…
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ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...



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Phil's Favorites

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...



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Digital Currencies

Transparency and privacy: Empowering people through blockchain

 

Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

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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.

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