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Tuesday, November 29, 2022


Friday Already?

It’s very strange coming off a holiday right into a Friday.

Traditionally volume on a day like today is anemic but we actually had a pretty strong volume day (comparatively) on Wednesday, the strongest in the past week, which is a good way to break those 50 dmas we discussed in our Big Chart Review but, so far – this is only EXACTLY what we expected to happen for the week so we took the money and ran (and covered) long before the close on Wednesday.  We went bottom fishing on Monday’s dip but, 5% later at 8,800, we decided not to be greedy and tightened up our shorts, effectively rebalancing to a more neutral stance by shifting the profits from the run up into more short-side bets.

The idea was to be well covered into the weekend as our worry is that this weekend’s reading of annual reviews is going to be downright depressing as well as the very distinct possibility that the entire "rally" may have been nothing more than window dressing.  Our two speculative (unhedged) downside plays from Wednesday were the SKF $120s, now $4.35 (at $7.30, we like the naked sell of the $100 puts much better) and the USO Feb $32 puts, which finished about where we picked them at $3.40 as the 14% run in oil on Wednesday after a 2M barrel inventory build was downright ridiculous.

Fortunately, the rally was not led by the energy sector despite the big run in crude.  This indicated to us that no one was buying the sudden move from $38 to $43, with most of that action coming off Russia’s dispute with the Ukraine over natural gas prices.  While the TV pundits are quick to paint worst-case scenarios involving Russia cutting off Europe’s supply of natural gas for the winter, the fact is they, like us, have Trillions of cubic feet in storage and Russia, in the end, is a motivated seller who needs money.  GM stopped making Hummers – did the price skyrocket?  BA isn’t shipping Dreamliners – will they now get a premium?  Banks aren’t lending money – are interest rates skyrocketing?  Why is it that investors believe that supply and demand works anywhere BUT in the energy market?

Not only do you have this ridiculous posturing by oil and gas producers to try to make massive production cutbacks due to low demand seem like it’s bullish for energy, but you have the media treating the conflict between Israel and Hammas as if it were the Iran/Iraq war.  Neither Israel or Hammas produce ANY oil at all, no oil is near where bombs are falling and this "crisis" has been going on for 40 years and will likely go on for 40 more.  Also, let’s not forget that the dollar is down 10% from where it was in mid-November, when oil was $55 a barrel and, should war escalate or should Russia come further unglued, the dollar will most likely assert itself in a flight to safety, knocking all commodity prices (including stocks) back down sharply.

The trick to playing a choppy market is picking the counter-trends.  You can be 50% bullish and 50% bearish and, if you pick well, you can be right on both sides!  On Tuesday at 11:38, for the first time since our bottom call in November, I suggested a long play on FXI, with the 2010 $20s at $10.65 (now $11.35).  If we are going to have an international turnaround, we can expect it to be led by China, who are in better fiscal shape than Brazil, Russia or India and have already committed to massive stimulus packages of their own.  China, if you’ll remember, was sitting on about $1.5Tn in US currency and, typically, when the markets crash – they guy with a lot of cash on the sides tends to come out quite well. 

China is indeed flying this morning as the Hang Seng came back from their break to post a 4.5% gain on the day, finishing just over the 15,000 line.  Both the Shanghai and the Nikkei were closed so, to some extent, we can assume that the lack of other options drove traders to China, which does look cheap, after having to sit on their hands while watching the US markets post two strong sessions (the Nikkei had a half day Tuesday, well ahead of the US open that day).  Also sparking the China rally was China’s State Council approving the issuance of 3G phone licenses, a long-anticipated event that sent the Telco sector almost limit up for the day.  India’s Central Bank also caught rate-cut fever and made several moves to push money into the sysetem.

Europe was off to the races this morning with 1.5% gains in early trading.  Looking at the 5-day charts of the DAX, CAC or FTSE could give one the impression that we are in some sort of rally despite mean old Russia turning off the heat in the winter.  Mining (coal instead of gas) and banking are leading the EU markets higher in the first trading day of 2009 despite some very bad manufacturing numbers that show a record low since the EU was founded.  Belarus is the next country to need a bailout and the IMF is lending that breakaway republic $2.5Bn to tide them over until a miracle happens.  To help repay the loans, Belarus announced they will devalue their currency (also Rubles) by 20%.  Russia just gave Belarus $2Bn in November so this could turn into a very expensive monthly habit (have I mentioned I like gold lately?).

After the strong week we had we would be thrilled to limp into the weekend holding our gains but, as our members are well aware, hope is not a strategy so we are well covered for a pullback – just in case.  We’re waiting for next week before placing any major bets and we are expecting an Obama rally into the inauguration.  How early it starts and if it sustains after the event are the real questions as we start the new year.



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My XOM position is a January Put Vertical  -80/+85

Guess it won’t go down into negative territory today! That would be a major disaster for investors who were optimistic today & Invested

This is a really good point (up 2.5% on most indexes) to pick up some DIA puts or roll to a better position.
I forgot the price we’re looking for to roll up our protective puts was it .60?

This is so much fun!!

 phil, what are the odds that mu goes bkrupt? i am liking the risk reward of selling jan 2.5 2010 puts for $1?  1.5 margin for 1$ return?  slow money but looks good.

Phil, so you don’t discount the low volume we have had for the last couple days that got us here?  We are up 600 points since Monday and almost at your 9,100 target.  It doesn’t matter to me which way we go-just trying to be positioned right

Phil – Are there any reports or indicators due out next week which may affect the markets?  Particularly Monday.

X perched at 39

Happy New Year!
I sold the Jan 30 puts for 1.75 (now .25).  Do I need to worry about taking out my putter (or let it expire)?  If the price drops below 30 at exp, I don’t can about having shares put to me at $28.25 (if we drop). 

Wheres Matt? He must be pulling all the hair out of his head!!! Lmao

Blimey – a hockey stick save that wasnt needed !!!!

kustomz/Matt – hey kustom you shouldnt laugh at people you are on the wrong side of a trade. I should know šŸ™

LOL DB i would never, hes just such a bear and very outspoken that i would love to hear him rant….i agree with him on many issues but i cant fight the US GOV. and their deep pockets.

Good weekend all!!

Thanks Phil.
Great way to start the year…. However, I did not throw caution to the wind.  I threw on some covers today.  The GLD spread is working out very well. 

BTW, did I mention (Phil likes gold)? 

DIA Put covers
I have Jan84P covers on my protective puts, Feb90P.
On Friday’s run up my protective puts lost 1.80 in value while the covers gained 0.69.
Perhaps it’s time to roll the covers to Jan88’sfor 1.47 which can be rolled to Feb81s evenish?
Or just roll to a Mar91P/Feb86P spread?

Could you add the "Big Charts" review to the Dashboard?

Happy and prosperous New Year to you all.

Asia Markets :    Monday, January 05, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                                       9043.12    183.56    2.07%
Hang Seng*                                           15563.31    520.50    3.46%
China: DJ Shanghai*                               205.22         7.99    4.05%
Seoul Composite*                                  1173.57      16.17    1.40%
Bombay Sensex*                                  10275.60    317.38    3.19%
Baltic Dry Index                                          773.00       -1.00    -0.13%

*at Close

Asian Stocks Hit 2-Month High as Risk Returns

Asian stocks hit a two-month high Monday, with investors betting the global economy will start to recover later this year by shedding some of their big holdings of safe-haven government bonds.

Japan’s Nikkei began 2009 on a strong note, closing 2.1 percent higher in a shortened session and hitting a two-month high on hopes this year will be better than last, the worst in the Nikkei’s history. Resource-linked firms such as trading houses surged as oil jumped more than 3 percent, after an Iranian military commander reportedly called on Islamic countries to cut oil exports to supporters of Israel over Israel’s ground offensive in the Gaza Strip to stop Hamas rocket attacks.

Seoul shares gained 1.4 percent with banks rallying on expectations of a rate cut, while auto makers advanced on strengthening views their earnings may not be as bad as feared.

Australian stocks finished down 0.7 percent as banks gave up early gains, precious metal miners fell on lower gold prices and investors sold offshore earners likely to be hurt by a stronger Australian dollar.

Hong Kong shares rose 3.5 percent. China Mobile, Lenovo Group and Aluminium Corp of China jumped higher.

Singapore’s Straits Times Index rose 5.2 percent.  Shares of plantation firms rose on higher palm oil prices. Benchmark palm oil prices in Malaysia rose 1.5 percent after crude oil climbed on worries over supplies after an Iranian military commander reportedly called for an oil boycott.

China’s Shanghai Composite Index rose 3.3 percent, with industrial metal producers leading the gains on hopes they would benefit from the government’s infrastructure building plans. Coal producers also outperformed, partly because of a surge in global oil prices due to tensions in the Middle East.

Bombay Stock Exchange’s Sensex closed at 10292.54, up 334.32 points or 3.36 per cent. The index touched an intra-day high of 10306.17 and a low of 10069.11. Sharp rally led buy fresh buying as well as short coverings in metals and oil&gas counters in the last hour of trade saw benchmarks end above crucial resistance levels. Buying was also seen in midcap and smallcap space.

Euro Shares Rise; Swiss Banks Gain

European shares gained in early trade on Monday, with Swiss banks higher and U.S. President-elect Barack Obama’s plans for tax cuts fuelling optimism. Obama, seeking to drum up support from both political parties, plans to propose up to $310 billion in tax cuts for businesses and the middle class as part of his massive economic stimulus package, senior Democratic aides said on Sunday.

The FTSEurofirst 300 index of top European shares was up 1.3 percent at 868.12 points. On Friday, the first trading day of 2009, the index rose 3 percent, but it lost more than 44 percent in 2008, hit by a credit crisis that helped tip many major economies into recession.

Most banks rose, led by those in Switzerland, where the stock exchange re-opened after the New Year Holiday. Credit Suisse and UBS rose 8.3 percent and 5.9 percent respectively, with both continuing to benefit from recent sales of businesses. However, HSBC fell 1.3 percent after Deutsche Bank cut its target to 650 pence, from 685.

Crude oil futures retained recent gains and traded above $46 a barrel, amid further tension in the Middle East. Total, BP, Royal Dutch Shell, BG and Statoil rose between 0.7 and 3.4 percent.

The auto sector was one of only a handful in the red, hit by Japan’s dismal monthly auto sales. Renault, which has a big stake in Nissan, fell 4.9 percent, also hammered after Citigroup cut its rating on the stock to "sell" from "hold." Daimler, Peugeot, Porsche, and Volkswagen were down between 0.9 and 2.3 percent.

UK retailers rose, amid expectations that updates covering the vital Christmas period, due this week, may not be quite as bad as feared. Marks & Spencer rose 5 percent; Next gained 2 percent.

On Thursday, the Bank of England is expected to cut interest rates, in an effort to mitigate the extent of the recession in the UK. The base rate, at 2 percent, is already at its lowest since the Bank was founded in 1694. The BoE will cut by 50 basis points to 1.5 percent, according to a Reuters survey.

The FTSEurofirst 300 index was rising for a fifth consecutive session, having gained 6.6 percent last week, in thin volumes. Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 rose between 0.4 and 0.7 percent.

Oil Rises Above $47 on Gaza, Russia Gas Row

Oil jumped to a three week high on Monday after an Iranian military commander called for an oil boycott over Israel’s offensive in the Gaza Strip, and as the Russian gas export row stoked fears for European energy supplies. An OPEC source told Reuters that the Iranian call would not sway other members of the Organization of the Petroleum Exporting Countries

Oil prices have risen by more than 25 percent since Israel launched its Gaza offensive on Dec. 27.

U.S. light, sweet crude [ 47.19    0.85  (+1.83%)] for February delivery rose to an early high of $48.68 a barrel on Monday — the highest since December 15 — before paring gains on profit-taking. The price remained higher on the session.

London Brent crude [ 50.58    3.67  (+7.82%)] was up.

"Saber rattling by Iran and further instability in the Middle East always produces fears for oil supplies, which is putting a platform under prices," said Bank of Ireland analyst Paul Harris.

An Iranian military commander has called on Islamic countries to cut oil exports to Israel’s supporters in Europe and the United States in response to the offensive in Gaza, the official IRNA news agency reported on Sunday. However, core OPEC oil producers in the Gulf were likely to ignore Iran’s call, an OPEC source said on Monday. "There are no plans to do this and I think it is very unlikely," the source told Reuters. OPEC’s most influential member Saudi Arabia and neighbors Kuwait, the United Arab Emirates and Qatar are regional allies to the United States.

Adding to geopolitical concerns, Russian natural gas supplies to southeast Europe have been reduced as a result of Russia’s stand-off with Ukraine over gas prices, which began on New Year’s day. The two sides blame each other for the dispute.

European energy firms, which receive about a fifth of their gas via pipelines through Ukraine, said they had enough gas stockpiled to maintain supplies for several days, but analysts said Europe could face problems if the row dragged on. The row, which recalls a similar dispute three years ago that also disrupted supplies, is likely to raise new questions in Europe about Russia’s reliability as a gas supplier.

The market will also be looking for further signs of OPEC production cuts, after Libya and Abu Dhabi’s National Oil Co both joined leading producer Saudi Arabia, vowing to cut output by January as OPEC tries to stem the $100 a barrel drop in oil prices since July 2008.

Dollar Hits 3-Week High vs Yen as Stocks Gain

The dollar climbed broadly on Monday, hitting its highest level in three weeks against the yen as rising share prices eased some risk aversion and put the Japanese currency under selling pressure. A 1.4 percent rise in European shares hit the yen, which has benefited from falling stock prices in past months, and helped to push the dollar to its strongest against a basket of currencies and the euro since mid-December.

"Stocks are firming, and there seems to be a slight bias towards risk taking," said Steve Barrow, head of G10 currency research at Standard Bank in London, adding that the yen was taking the biggest hit from the move.

The dollar [ 93.2    1.38  (+1.5%)   ] climbed against the yen to 92.97 yen according to Reuters data, its highest since early December.

Gains against the yen prompted dollar buying across the board, pushing the dollar index to 82.722, its strongest since Dec. 15.

The euro [ 1.3673    -0.0246  (-1.77%)    ] fell against the dollar to $1.3662 according to Reuters data, its lowest since mid-December, and pulled away from a session high of $1.3963 hit earlier in the day.

Some in the market said that the single European currency was also coming under selling pressure after European Central Bank Vice President Lucas Papademos said on Sunday that more interest rate cuts may be needed to shield the euro zone economy from recession.

Papademos’s comments were seen as dovish compared with statements from other ECB officials that had stoked speculation the central bank may hold back from cutting rates aggressively in the near future.

Figures on Monday showed Spain’s EU-harmonized inflation tumbled to a 10-year low of 1.5 percent in December, adding evidence that price pressure in the euro zone may be easing.

Some traders said this was also pushing the euro lower.

Gold slips as dollar hits 3-week high vs euro

Gold slipped 1 percent in Europe on Monday as a stronger dollar weighed on sentiment with traders eyeing oil market moves on mounting Middle East tensions. Gold was quoted at $865.10/867.10 an ounce at 0925 GMT, down from $873.20 an ounce late in New York on Friday, having touched a session low of $860.20. U.S. gold futures for February delivery GCG9 fell $14.20 to $865.30 an ounce.

The firmer dollar is weighing on prices, with the U.S. currency extending gains against the euro on hopes U.S. president-elect Barack Obama will unveil fresh measures to boost the economy.

Gold is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it. Gold usually moves in line with oil prices, both because firmer crude boosts interest in the precious metal as a hedge against oil-led inflation and increases the appeal of commodities as an asset class.

Demand for gold jewllery has been hit by the higher prices. Sales in Abu Dhabi fell 40 percent in December from a month before, the emirate’s industry group said. Gold buying in India, the world’s largest market for the precious metal, has been crimped by higher prices, traders said. "People would want to buy if prices fall below 12,500 rupees," said Mayank Khemka, managing director of Delhi-based Khemka International. Prices are currently around 13,500 rupees.

Among other precious metals, silver slipped in line with gold to $11.14/11.22 an ounce from $11.52 late on Friday. Platinum eased to $932/937 an ounce from $944, while palladium dipped to $186/191 an ounce from $190.

Happy New Year Phil. Yes, nice break. Good riddance 2008 (but for Obama’s victory). Hello 2009.:-)

Just curious, how much of this Russia/Ukraine ‘fight’ is real. We know Israel offensive against terrorists has been priced in already. And that really didn’t make much dent. But the Russia/Ukraine came on board. Is this the new Nigerian rebel thing:-)

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