That was a short rally!
I have long said that there are 3 things that can take the markets down 20% EACH (from our 8,650 Dow target mid-point, already looking far away). They are: A major bank failure, a medium country failure (bigger than Iceland) or a major auto failure. Well today we're getting negative outlook warnings from Moodys on 3 major banks (JPM, WFC and BAC) and GM's auditor "expressed substantial doubt about the auto maker's ability to continue as a going concern." On top of that, Russia has been forced to substantially raise the rates they pay on bonds to 9.98% in order to stabilize the Ruble, which has fallen 30% in the past 6 months despite Russia spending 1/3 of their currency reserves trying to support it at various levels.
When we say S&P 500 will we be talking about the 500 companies in the index or the index's value?
Things are indeed getting scary out there. Russia is paying people 10% to lend them money, the Ukraine is paying 28.7% on 2015 bonds (any takers?). With all these struggling economies willing to pay ANYTHING for a loan – how long will the US be able to keep borrowing cash for 30 years at 3%? Even Warren Buffett is feeling the pain as Berkshire Hathaways credit default swaps (instruments that protect lenders against Berkshire defaulting on a loan) jumped to 535 yesterday – that is near JUNK levels. This CDS level is generally consistent with Ba2 credit, 11 grades lower than Berkshire's pristine Aaa rating. So if a triple-A rated company is trading like junk, what chance do the rest have?
GE's CFO is also feeling the pain: "We have an incredibly strong liquidity position," Keith Sherin told CNBC. "We've got $45 billion of cash; we have no triggers that we could see that would have any call on our cash in the short term." He said the capital unit will post a profit in the first quarter, and the larger company's position is even stronger. "We can basically fund ourselves all the way through 2010. You look through a three-year period here, we're going to basically deal with $35 billion of losses and impairments, while being profitable in GE Capital."
Yawn right? Another financial CFO saying his company is in good shape while the share prices are relentlessy driven into the ground. Well GE was one of the few stocks we added yesterday as we took a hedged entry at 10:30 when I said to members: "GE at $6.15, selling Apr $5 puts and calls for $3 is $3.15/4.08 if you are very brave." Today Deutsche Bank backed me up saying "the market was factoring the unit of General Electric at a negative valuation of as much as $60 Billion." The firm is inclined to be much more positive, it said, since GE's industrial businesses are "clearly worth" more than the current share price." There are plenty of stocks that are priced irrationally low in this market but GE certainly tops the list.
Unfortunately, the market is dominated by technical selling programs and they don't read annual reports, look at balance sheets or sit down with CFOs. Yesterday we failed to hold the technical gains of 2.5% I said we must have in Wednesday's morning post and it looks like this morning we'll be heading back to test our lows. We went into the close slightly bearish but mainly hoping the rally would follow through but with so many of our worst-case scenarios clearly in play this morning, there's not too much surprise that we are looking at a substantially lower open (8am). “People are doing crazy things in this market right now, but if you just stop and ask about the logic of it, it doesn’t make any sense.” said Guy Spier of Aquamarine Funds.
As expected, Wen Jiabao promised to bolster China's economy and reaffirmed an economic growth forecast of 8% this year but he stopped short of promising a new stimulus package that had been widely rumored in China and that hit the Asian markets hard. "We must significantly increase investment and government expenditures to stimulate economic growth, improve people's lives and deepen reform," Mr. Wen said. The Hang Seng did hold onto most of yesterday's gains, giving back one point but holding onto 12,200. The Shanghai Composite added a point to close at 253, up 47% from their November lows and running into a very critical test of the declining 200 dma (speaking of technicals). The Nikkei gained 2% DESPITE a 17.3% decline in Q4 capital spending and a 64.6 decline in pre-tax profits among 25,000 firms surveyed. India cut their rates half a point but the Bombay Sensex still fell 3% this morning.
Europe is also adding monetary fuel to the fire with the ECB cutting half a point to 1.5% while the BOE cut rates in half, leaving just 0.5% on the table. The BOE also launched a $105Bn program aimed at pumping money into the economy. The bank can spend the cash on a wide range of securities, but policy makers' statement Thursday suggested they will focus the bulk of their firepower on government debt in the program's first three months. Ideally, much of the money will make its way into the banking system, increasing banks' ability to make new loans. "I don't think it's going to change things overnight, but together with all the other measures it could ultimately help turn things around," said Howard Archer, chief U.K. economist at consultancy Global Insight in London.
European markets are testing the 2.5% rule to the downside today, giving up 1/2 of yesterday's gains and we'll keep an eye on yesterday's goals of DAX 3,800, FTSE 3,600 and CAC 2,650, all of which are blown as of 9am. If the EU markets can't retake those levels, then it's doubtful anything Asia can do will save us from breaking through our lows over here!
There is some good news though: Jobless claims actually fell last week to "just" 639,000, below the 650,000 losses expected but productivity fell 0.4%, far worse than the up 0.8% expected and unit labor costs climbed 5.7% – both indicators showing that corporate cost cutting has already passed the easy stage where less jobs save money and moved into the trade-off zone, where companies are forced to decide what permanent production cuts will be made as they try to trim losses. Too much of this and there will be no back to bounce to…
Non-farm business output plunged 8.7% during the fourth quarter, the Labor Department said Thursday, the steepest decline since 1980. Hours worked fell almost as fast, by 8.3%, the biggest drop since 1975. Hourly compensation increased 5.3% last quarter. Real compensation, adjusted for inflation, jumped a record 15.9%, a sign that falling energy prices increased disposable incomes at the end of 2008.
So all we can do this morning is strap in and hold on for the ride, we'll see if the bottom of this loop in our roller coaster holds or if we are going to drop to new levels of pain. Yesterday I was not in a buying mood as we were very concerned that it was just a weak bounce. If we hold our levels today, I'll be a little more inclined to do a little bottom fishing and turn a little bullish at the finish. We are still speculating on the SKF puts but we are also still worried about a run up to $250 on that index – where we will short the hell out of it!
For now, my favorite SPECULATIVE recovery plays are still FAS – the dreaded triple-long financials at $3.50 as well as SKF puts like the $160 puts for $6 or less, but you have to be prepared for them to drop to $2 or less and then spend $5 more to roll them up to higher puts (maybe the $200 puts) and even then, with just over 2 weeks left, there is a possiblility of a wipe-out so not for the feint of heart by any means. Meanwhile, I'm very, very glad we agressively rolled up our DIA hedges yesterday!
Retail sales, notably Wal-Mart's were better than expected with WMT posting a 5.1% increase in sales. "We believe falling gas prices significantly boosted household disposable income in February and therefore allowed for both more trips and more spending towards discretionary categories," said Vice-Chairman Eduardo Castro-Wright said. As usual, the WSJ has an excellent chart to keep track of retail sales.
Seems to me that if we stand conventional CNBC logic on its head…. Look at the negatives as a positive… forcing a bottom TODAY! Buyers with money can pick up “names” on abnormal lows… IE: GE
Oh great, GS came out with a call that the global recession is worsening
That sound bite has been playing all day on Bloomberg radio
SKF stil at 240s yet the 120 put up to 1.90 and 150 put holding 4.80. Weird. Not complaining though
Still waiting on the big BM from this play
Phil, what about POT: buy @70 and sell the ultra cautious 60 puts and the 65 calls and you’re in at 61?
SKF should close around 233 today
SKF – Those $120s are hysterical. Doesn’t matter what level SKF is at they go from $1.40 to $2.20 depending on the last move. Too bad the spread is a very digusting .30 or we could just trade them all day…
Names/Texas – I agree and the fact that I haven’t got the heart to run through the Buy List today is a form of capitulation on my part as well. They get to a point where there are just no buyers left and THAT’s when SOME kind of action gets taken.
GS/Kustomz – Yes, they’ve never steered us wrong before… John Stewart should make a video of their calls!
POT/Anton – There was a thing about Russians lowering rates for potash drastically yesterday. Good plan to be in at $61 but scale in, just in case.
KO still falling.
By the way guys, that was a buy on HOV, not a sell! D’oh!
Doc, why? I"m thinking it will close near its high. I’ve seen it happen many times.
that’s the second resistance level measure from closing price yesterday
But then again, if the mkt implodes, support and resistance levels are meaningless…lol
Phil/Names – While your looking at the BUY LIST – most of the buy/writes must have been put to you by now. Whats the next phase of your strategy ? More BUY/Writes to cover the extra shares and look for another 20% ?
phil is this capitulation ?
WOW…and I don’t mean Opie and Anthony WOW either….
Cap, Where’s Cap….
DOW 6500… its almost here. Never thought I would say that. Told ya… People we laughing at the ideal a month ago…
RUT past 5%, not good at all. S&P right on the 4% line, NYSE below it and Dow just above it. Nas holding -2.5% at least. QID up at our April target of $67 by the way!
This is kind of fun, it’s like a time machine. We are down to 1996 levels – I wonder if we can blow it all the way to the 80s (about 2,700). I guess 13 years of global growth are gone, yeah, that makes sense…
Has anyone contemplated the massive burden this will place on the world with a whole generation of retirement wealth wiped out? There are about 80M Americans between 45 and 65 who have pretty much nothing for retirement now. That will be a fun thing to deal with. Of course there’s another 20M people over 65 who got their retirement cut in half and they don’t have time to wait for a recovery.
Amazingly, we hit the 3pm sell-off yet again. Doesn’t matter how low we go, they can still sell into the close (day traders getting out probably).
FXPs are still good covers if you need them. The March $39s are $5, about 1/2 premium.
Obviously have to go bearish again into the close, I still like a 1/2 cover with DIA $68 puts at $3.80, just in case something happens but it’s kind of doubtful looking at this point.
JPM getting killed into the close, WFC broke $8, GS below $80 and SKF hitting $250 finally!
Lookin at lots a red 5m candles on SPX, DJI, ES, YM … even the Q’s. what just happened 15 m ago. watching an options video in silence.
Phil – I have screwed up something with subscription cancellation, so please put up with me for another month.
Please parse your remark : “…HOV is now officially fun to own at .63 with a stop at .58. Plan on losing 6 cents and risk $1,000 leads to 20K shares for $12,600 with a max loss of $1,000. You can take the first dime off the table by selling half and let the rest ride for a no-lose trade (same stop). “ Thanks
Somewhere between 0 and 679 there’s got to be a floor…
Hm… I’m almost ready to take 10 years of zombie banks than 1 year more of selling off.
Buy list/DB – Well the idea is to roll them down and out if you don’t want them, DD and continue if you are scaling in – it all depends on where they fall and how much you want them. We bailed on the fincancials but everything else sucks too. Sadly, at this point, there’s almost nothing you can look at and think that 20% down should be safe.
Capitulation/Relax – No, it is not! This is a slow melt-down, not enough volume, not enough sharpness.
What happened/Chuck – It’s the typical 3pm script these days, take it all down. The opposite of the stick saves we used to get. As I said, very likely due to the fact that hedge funds are running 70% cash and day trading the markets so they liquidate eod (and if you cover with SKF you can make great money buying financials in the morning and dumping in the afternoon).
By the way, SKF $290 puts still $66 – that’s a good thing about that play, they pick up a lot of premium as the ETF moves against them but get all intrinsic value on the way down.
LOL Bro – Welcome back! It’s a risk example. If you 1st plan on what you are risking ($1,000) you then work that backwards to 20K shares at .63 ($12,600) for an entry with a stop at .58. As a goal, if we make .10 ($2,000) at .73, we take 10,000 shares off the table ($7,300), leaving us with a $5,300 basis up .20. At that point, you can keep the same stop and relax as you are in a no-lose trade and you can then ride out all the ups and downs, hoping for a big rally one day.
Does anyone know what the catch is to selling Jan 11 puts with strikes 3 for $2.05?
This is fun, bought SKF 130P when SKF was 190, just sold for a profit. Woo Hoo
What’s your feeling on AMGN?
By the way, I’ll be here only in the morning tomorrow, until 11 and then on Web TV at 1pm with Tim Sykes, who’s a penny stock guy.
FAS/Red – The catch is you’re forced to own it at .95, but you’re righ, it’s an excellent play.
So if the script plays out from your 2:55p comment the markets got another ass whoopin coming tomorrow!?!?
I have not been daytrading these but have a fully hedged position. There are 5 extra longs which were supposed to pay off if movement went down
My shorts are
-10 Mar70P basis 3.10 now 5.00 planned to roll to April 67
-15 Mar69P basis 2.35 now 4.30 planned to roll to April 66
-20 Mar68P basis 2.62 now 3.65 planned to roll to April 65
The plan was to roll down 3 strikes to Aprils even but that was blown away today.
8 Jun71P basis 6.48 now 8.5
25 May71P basis 5.55 now 7.60
17 May70P basis 6.55 now 7.10
SKF/Cafords – You’re right, those silly $120s were $2 at the close, we last got in at $1.45 about $40 lower. Of course that means that the MM thinks it’s going to drop like a rock with a rock tied to it…
AMGN/John – Same as my 11:53 comment on CELG. Totally great value down here but you are taking a chance on the government screwing up their business model so I love them for scaling in VERY slowly (over a year maybe).
2:55/Chuck – Yeah, I’m afraid so. 5% rule dictates we hit 7.5% tomorrow so maybe another 200 down at the open and THAT may give us some capitulaition (Non-Farm Payrolls can make that happen). I believe I will run a Big Chart tonight so we can make some serious levels to watch.
Phil, was volume good enough for a turnaround? What is the right comparison?
Phil, 60% off from S&P high of 1576 is 630. We spent some time in that area back in 1996. Just a thoght. Looking forward to the chart review!
Good Strategy tip for DIA:
DIA/Edro – First of all, for your own sanity it’s best to simplify. That’s a lot of things to watch. Obviously, at $66.30, there’s no issue with the March $68s with $1.50 in remaining premium. 2nd of all, you missed a VERY important point, which is you need to have position advantage over your putter of at lease $3 unless you are really bullish. That makes a huge difference in your p/l on the way down.
Now the $69 puts have $1 in premium, I don’t think I’d move them but you need to think of it like leap-frog, take the putter with the least premium, the $70 puts at $4.80 and move them to Apr $68 puts at $4.75, which have $3 in premium. There is no hurry to make this roll as long as you are adding $2.50 in premium and not taking more than .60 out of pocket.
Why? Well he already gave you $3.10 so giving him .60 back puts him at $2.50 and putting him into something that has $2.50 in premium and less than $2 in intrinsic value means he has made no progress against you. You, on the other hand, have made $2 in position progress giving up a month out of 3 you had to give.
Now you shouldn’t have any May $70 puts since they can be rolled up $1 for .50 so that consolidates that. Either the DIA goes lower and you make $1 for your .50 or the DIA goes higher and your putter’s losses pay for the roll… Your next goal is to get another .90 from your next set of putters to pay for a roll back to June (hopefully once again consolidating). That leaves you with 50 June $71 puts at about $6.70 avg covered with roughly 45 Apr $68s at $4.50.
If you do not have a clear path to a double if the Dow keeps dropping, then the postion is wrong. You started with around $4 net entry and the Apr $68 puts can roll to the May $66 puts which roll to the June $64 puts for a $7 spread so a little shy of a double (although not a full cover so maybe). The main adjustment to make is either rolling up your longer puts to a higher strike (at .50 per $1 roll up you improve your end game quickly) or keeping stops on some of your putters.
A good rule of thumb with stops is to stop out 1/4 of the covers for each .25% they go against you. So if you sell 20 $68 puts for $2.62, you should take 5 off at $3.27 and 5 more at $3.90. That leaves you with 10 covers at $3.90 and those can be rolled to 2x the $66 puts at $2.42, which gives you back most of what you lost and puts the putter back to all premium.
If you take out 1/4 at $3.27 and it reverses on you. You can just sell them again at $2.62 and it ends up costing you .15 per cover (5%) or you can cover with a higher strike and get it all back but keep a very tight stop on the higher strike.
So, if you are entering a new position from scratch – we select the June $69 puts for $7.20 because they are the first June puts that cannot be rolled up for .50. The reason for this is we have a better than .50 delta so we know what to expect and that delta improves pretty rapidly as the Dow drops. We ALWAYS offer to roll up to the next higher strike for .50 as we always want a good cover. You get the cheapest rolls when the Dow is moving up, not down so you have to pay while that position is losing to stay in position. Generally, you want to use 1/2 the money you collect from putters for rolling up.
Per today’s close, I went with 1/2 covers and I liked the $68s at $3.80 on the 3:40 alert. Those pay for me to roll up 3x .50 on the Junes, which is 300 Dow points so I’m pretty much protected from a 300 point gap up tomorrow. In practice, a 300-point gap up would only kill about half the value of the puts right away but that’s fine as I can still sell the other half to cover and, if they Dow never comes back down, I don’t pay them a penny and, if the Dow does come back down, my 3 .50 rolls up return $3 in intrinsic value. So selling 1 set of calls for $3 and another set of calls for $3 means the Dow can gain 600 points (10% now!) and I will have rolled up to the June $75 puts paid for by my putters March putters who are all way out of the money with 1/2 at $68 and 1/2 at $70 maybe.
If they finish out of the money, then I will collect $3 new dollars on my April covers and be in great shape. If we plow back down, my 25% stop rules keep my putters from burying me and I end up so in the money on the longs I don’t care.
Well, that’s the short overview. Hope it helps!
“Has anyone contemplated the massive burden this will place on the world with a whole generation of retirement wealth wiped out? There are about 80M Americans between 45 and 65 who have pretty much nothing for retirement now. That will be a fun thing to deal with. Of course there’s another 20M people over 65 who got their retirement cut in half and they don’t have time to wait for a recovery.”
Yes, I have considered it for about 5 years… Collectively, The Baby Boomer generation is by far the worst generation of humans to grace this planet. With all of the “advances” they have made since the Greatest Generation (their parents WWII), they never learned accountability or how to save. (Collectively) These highly educated idiots with degrees and MBAs have as much sense as a turd. My father once said, “Son, a turd is a turd… You can’t polish a turd”. I will admit that these highly educated idiots make great robots around the office. 4 years of high-school, training them for college. 4 years of college, training them for a “career” or more education/training, etc…. By the time these “Boomers” have spent 8-20 years getting good grades, protesting wars, scoring ass and good grass… they became highly functional slaves with degrees. Therefore, when they took their first steps in to the REAL world, they thought they knew everything… To bad all of that education does not equate to common sense and wisdom. Since, they cannot make a REAL connection with the rest of the world and reality, they pump themselves and their children full of drugs and other substances (illegal/legal).
If you need evidence of my assertion above… Look at who is running our country and economy. The “smartest” idiots in the world! They can pontificate about Marx and tell you how to run your life, but they can’t balance their checkbook or STOP SPENDING WHEN THEY HAVE NO MONEY LEFT.
Sorry, I call them like I see them. I have every right to offend them b/c myself and my children will be taking care of these lunatics who’s life expectancy will be the longest in history. Let me also state that the “Boomer’s” life expectancy is longer than their children b/c of the garbage they feed their offspring AND the sedentary lifestyle they pursue… BTW, 30 minutes in on a treadmill once a week is NOT exercise, you bums! You have set the worst example possible for your children and you should be ashamed of yourselves!!!!
Boomers… you are welcome in advance for the help my generation will provide 🙂 I guess we have no choice but to clean up your freakin’ mess…
Ps. If anyone has a problem with the statement above? Please meet me behind the gym at 3pm….
Thanks Phil –
I added 8 more long May70P in case we keep going down.
Yes, it is a lot of positions to keep track of.
Holy Balls Phil! Your 4:55 post has me head spinning. To my great disadvantage I’m a 2-5 position player
and must admit I am weak on the rolling & covering concepts you and your subscribers so aptly discuss in these
posts. But I’m learning a lot (at minimum losses) from you and co-subscribers on these concepts. Thanks to all!
Volume/Jordan – As I mentioned earlier, SKF volume on blow-off top was 30M and 40M, today was 24M. Dow volume in Thanksgiving panic was about 8Bn, Jan 20 was also about 8Bn, today was 6.9Bn so not really a big volume capitulation today. Also, the VIX is not angry like it was back then. While 50 is very historically high, back then we were getting 60s and 70s so you knew a lot of people were making big bets the other way.
ROFL Texas – I wish I could disagree with you but we have absolutely screwed things up massively, no question about it. The only thing is, I don’t just blame the hippies and drugs – all don’t tax but spend policies pursued by this government were a disaster. Unfunded programs were insane from the start – Europe practices socialism but the people pay for it, they don’t create programs and then have the next administration cut the taxes that paid for the programs while ignoring spiraling deficits. You are right, they teach leverage and deficit financing at the business schools, that’s the playbook and living in 40 pretty good years since the big war ended has not prepared people for this at all.
Glad we’re helping Bvar! Just like any new hobby/profession – it takes a while to get used to the jargon and build up a base of simple strategies you get used to but, once you do, the more advanced concepts get much easier.
Phil, very confused with your 4:55 comment.
I have 20 DIA June 74 Puts at 8.7 covered by March 72s at 6.
Also, have 20 uncovered May 69 Puts at 6.2
I gather that I can roll the May 69s higher to the 71 by paying about $1.
Any changes to be done on the others? What should be the plan for the 74s and the 72s?
DIA/Mampcs – The key to the DIA covers is: Do you have a clear path to a double? If not, you need to adjust.
Did you sell the March $72 puts for $6? That’s a pretty deep cover! If the market heads up, you shouldn’t be shy about taking the Junes off the table as they are up almost $2 already.
Since making $2 is a double on the $2 spread you have with the June/March, it’s not to be taken lightly. If we head lower, the putters are going to kill you so we want to roll those to the Apr $64 puts, which are $3. You can roll them to 1.5x (costs $1.50) or 2x (even) and then you are $9 above your putters on the Junes and $4 over on the Mays so if the Dow keep going down you’re looking at 20 at $9 and 20 at $4 = $26,000 clear vs. the current net spread cost of (using your numbers above) $17,400 so not quite a double there but you have another two months to roll).
Of course, if the set-up you have isn’t working, don’t fall in love with it. If you start from scratch with the 30 June $69 puts at $7.20 ($21,600) and sell 20 March $67 puts for $3 ($6,000) then you are in for net $15,600 and you can roll the 20 $3 $67 puts to 30 $2 Apr $61 puts and those can be rolled even to the May $58 puts, which can be rolled even to the June $55 puts, which puts you $14 in the money times 30 = $42,000 so that’s the benchmark with some margin for error.
On the other hand, if that spread pays off $42,000 then you’d better use half of it for guns and ammo as we are going to be really falling apart! We don’t WANT to win these put spreads, if we win them then the market sucks – they are designed to be relatively cheap insurance and my adjustments are generally reflective of that. Ideally, if you make 20% on the spread, let’s say it was 50% of your portfolio, then you have 10% cash to spend to add or roll your long positons (over 20% of their total value since they lost money).
Since we are looking for a bottom, if you were only buying GOOG and had 100 shares at $300 (30K) and the above cover at a $15,600 net entry and we assume GOOG moves with the Dow – then a 10% drop down to 6,100 ($61 DIA), forces your April roll and GOOG is $270. Another 5% drop down to 5,800 and you execute the roll to the May $58 putters and GOOG is $257. Another 5% drop down to 5,500 and you execute the roll to the June $55 putters (GOOG $244) and you WILL have a $42,000 advantage over the putters less the remaining premium but if you look up $14 in position from any March put that is near the money, you’ll see you could cash out now for about $11 of that money.
So you cash out $33,000 and you still have $24,400 worth of GOOG which is already more than you started with. Then you rebalance and lets say you want to be 60/40 bullish as we’ve finally found the final bottom at 5,500. So you run the GOOG position up to 60% of $57,400 or $34,440, which is 141 shares of GOOG and you cover the other 40% with (assuming it works out the same at $55 as it did at $72) about the same 30 share spread for $15,600 leaving you $7,500 to make adjustments or you could buy 50% more puts to stay well covered.
Now if GOOG recovers and goes up the 20% over $300 you thought it would in the first place, you own 141 shares at $360 or $50,760 worth of GOOG PLUS whatever value remains in your long puts. Of course, we didn’t even discuss the benefit of having covered GOOG along the way as that could have softened the downside blow considerably.
Obviously nothing ever works out perfectly but by having the general balance in place and getting used to it, you can shift the weighting of your portfolio very quickly and go with the flow. It doesn’t have to be just GOOG of course and it doesn’t have to be just DIA puts but it all flows out of that basic concept. The most important thing is to know how much your covers will bring in because that allows you to keep at your longs when they go the other way.
I picked a helluva time to have to go out of down. FUGLY !
Anton, NO QUESTION, CDS has been used to facillitate bear raids on common shares.
I am AMAZED that the gov’t hasn’t clamped down on that.
Get rid of CDS; get rid of Ultra ETFs; reinstate uptick rule; crack down on naked shorting.
Then, this would not have happened as it did.
SKF, apparently the biggest components included JPM and WFC (both crushed today).
Thank you Moody’s for that….
Guys did you hear Obama’s quotes the other day about the markets ….. how "bobbing" up and down, he doesn’t pay attention to; its just like polls to him (he never noted that there is no bobbing, only collapsing.
And the one about P/E’s ….. the "profit to earnings ratio"…. Geez. if BUSH had said that …..
Oh, never mind; I need a drink.
Texas: Come on now, some math wizard boomer invented CDO’s and CDS’s. Kind of like inventing the nuclear bomb for banks and investment firms…
Phil: Would you please explain the 5% rule that you often refer to?
Hating the rich
Get ready for SKF to come crashing down when MTM is suspended on march 12 (let’s hope!). In any case, as we get closer to the 12th, the possibility of MTM suspension should put some downward pressure on SKF and a rally in the financials. Things are getting so bad now, I’m positive they’ll do this! Just in time to save me before opex 🙂
House Financial Services Committee http://financialservices.house.gov/schedule.html
Most of the underlying stocks we bought using the buy-writes in Jan/Feb seem to be down 50%! Ridiculous. BAC, TXT, FAS, UYG, CAT. DRYS. The put/call premium received can only protect so much.
5% Rule/JW – Generally it’s that markets or stocks in general tend to move in 5% segments. The more liquid something is, the more the rule is obeyed to the point where you actually see significant trends at 2.5% and 1.25% as well in very liquid issues like the Dow, S&P, GOOG, AAPL… I came up with this theory when I was doing consulting as I noticed that brokers and the programs they thought were proprietary ended up picking similar buy and sell points. The reason for this is partly due to the influence of technical analysis and partly human nature – You have the chart levels and then you have the psychological, whole number levels and then you have all the clever men who tell their programmers that their special system is to take profits at X% but X% averaged across thousands of programs is 5% and then you have the effect of computer programmers forced to pick a number in order to do what the clever funds tell them they want and that number is then rounded off somewhere and it bumps into a bunch of other rouned off numbers and, before you know it – we’re back to 1.25%, 2.5% and 5% triggers.
So that’s why there’s a rule, the rule is pretty simple on any 5% move (including 1.25% and 2.5% if liquid) over any period there is an expectation of a 20% (of the move) retracement. This tendency gets stronger at 10%, 20%, 40%, 50%, 60% and 100% as you also run into Fibonacci sets, psychological levels as well as other TA issues. So when GOOG goes from 300 to 315, we expect a $3 retrace and holding that $312 line means the trend is unbroken. If they run to $360, holding $348 means the uptrend is unbroken. Sadly, with the markets yesterday, holding -4% means that trend was unbroken and we expect follow-through to 5%, although we did touch it yesterday so it’s possible today that we can follow through and break -4%.
We had a nice volume spike right at the close yesterday, hopefully bets were made on both sides for the pending jobs numbers.
50% Ajay – Yep, this market is incredible. If we don’t pull it out soon, what Kustomz posted from Germany is going to seem like a cakewalk here. I don’t think this country will slide slowly into chaos, I think that we could be headed into a domino-type event that collapses the financial system. The FDIC is flat-out saying they don’t have enough money to cover the closures that are already on the table – what happens if that spreads? I have mentioned before, we are not a nation of farmers, we are a nation of people who can’t eat the minute there’s no money. There are about 60M people in this country who would have no food within 3 days of the ATMs turning off.
I’m already dumbfounded that the government has let things get this far. The economy is like a car that’s rolling down your driveway – if you catch it right away, one guy can stop it, if it starts building up momentum, maybe a few guys can stop it but once it picks up speed downhill, it will just kill you if you get in it’s way.
Good Morning Phil & all
Asia Markets : Friday, March 06, 2009
(The following is from WSJ; please cross check with other sources to confirm.)
Nikkei Average* 7173.10 -260.39 -3.50%
Hang Seng* 11921.52 -289.72 -2.37%
China: DJ Shanghai* 251.45 -2.09 -0.82%
Seoul Composite* 1055.03 -3.15 -0.30%
Bombay Sensex* 8325.82 133.51 1.63%
Baltic Dry Index 2167.00 83.00 3.69%
Asian Markets Slide on Wall Street Tumble
General Motors’ warning that it faces possible bankruptcy and concerns about the banking system’s fate pulled down Asian markets. But the region’s fallout was less pronounced, compared to the impact on U.S. stocks, which dropped to 12-year-lows with the DJIA losing 4 percent on Thursday.
Japan’s Nikkei as problems in the U.S. triggered broad selling. Exporters such as Honda Motor and banks stocks slid. Japan’s Financial Services Agency planned to extend curbs on short-selling of stocks beyond the end of this month, two sources familiar with the matter said. But the move— a continuation of measures put in place last year— had no immediate impact on the stock market, analysts said.
Australia’s benchmark S&P/ASX 200 ended 1.4 percent lower as persistent worries about the global financial sector dragged on bank stocks.
In Seoul, South Korea’s Kospi index closed 0.3 percent lower after sliding as much as 2 percent in early trade. Bank and shipping stocks led the way down, but a stronger won and gains in tech issues helped the index to trim losses.
Hong Kong’s Hang Seng Index lost 2.4 percent but held above the psychological 12,000 support level.
China’s key Shanghai Composite Index declined 1.3 percent after a two-day surge powered by hopes for an early economic recovery gave way to profit taking.
Singapore’s STI shed 0.4 percent while Malaysia’s KLCI fell 1.3 percent.
Indian shares bounced more than 1 percent on Friday afternoon as investors picked bargains in the battered market that fell 1.8 percent early, a day after dropping to their lowest close in more than years. By 2:37 p.m. (0907 GMT), the 30-share BSE index was up 1.3 percent at 8,305.49 points.
Euro Shares Tick Down Ahead of US Jobs
European shares edged lower early on Friday in a choppy session ahead of key U.S. unemployment data, with commodities leading the risers.
The pan-European FTSEurofirst 300 index of top shares was down 0.6 percent at 666.81 points, having been down as much as 668 points earlier in the session. The index is down around 19 percent this year.
Energy stocks were in demand. China’s central bank chief, Zhou Xiaochuan, said that he sees signs of the economy recovering and officials would err on the side of acting sooner rather than later to revive growth in the world’s third largest economy. BP, Royal Dutch Shell and Total rose 0.2-0.9 percent.
Mining stocks were on the up as copper gained 2.3 percent and gold rose to $940 per ounce. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources and Rio Tinto were up 0.5-2.3 percent.
Automobiles were higher. French carmaker PSA Peugeot-Citroen gained 0.5 percent as Chief Executive Christian Streiff told a German newspaper the group is negotiating with Germany’s BMW over an expansion of their existing cooperation. BMW was down 0.7 percent.
The banking sector fell back from earlier gains. UniCredit, BNP Paribas, Societe Generale and Banco Santander were down 1.7-6.7 percent. UK banks Barclays and Lloyds Banking Group, however, were up 1.8 percent and 3.9 percent, respectively. Life insurers were also in the doldrums, with Aviva, Legal & General, Prudential and Swiss Life all down between 1.2 and 8.1 percent.
Among drugmakers, who were also weaker, AstraZeneca, Novo Nordisk and Sanofi-Aventis were down between 1.5 and 4 percent.
Across Europe, the FTSE 100 index was down 0.2 percent, Germany’s DAX was 0.5 percent lower and France’s CAC 40 was down 0.8 percent.
Oil Rises Above $44 Before US Jobs Data
Oil rose above $44 a barrel on Friday, after sinking 4 percent in the previous session, gaining support from a weaker dollar and a meeting of OPEC later this month.The market was also supported by China’s optimism that its domestic economy was recovering and official promises of more swift stimulus action when required.
China is the world’s second-largest oil consumer.
U.S. crude [ 44.62 1.01 (+2.32%)] was up after rising as high as $44.61, while London Brent crude [ 44.0 0.36 (+0.82%)] advanced.
Oil has traded in a band from around $33 to $50 since mid-December, pressured by slumping demand due to the economic downturn.
Expectations OPEC might cut production again when it meets on March 15 have added support. Angola, which holds the presidency of the 12-member group, will not advocate further production cuts when the group meets, sources said, but Venezuela, Algeria and Libya have raised the possibility of a further cut.
Dollar Index Tumbles 1% Ahead of US Jobs Data
The dollar dropped more than one percent against a basket of currencies on Friday, reversing recent sharp gains as investors braced for data that is expected to show the U.S. jobs market took a severe knock in February.Economists expect the U.S. economy lost a massive 648,000 jobs in February, with the unemployment rate seen rising to a 25-year high, but traders said talk that the figure could be as many as 1 million has hit the dollar hard.
"The rumor of a very bad number for U.S. payrolls data in a normal world would be good for the dollar, but the knee-jerk reaction this time round has been to sell it," State Street currency strategist Lee Ferridge said. He added that investors were squaring up positions ahead of the data after recent sharp gains that took the dollar index to a three-year high earlier this week.
The Swiss franc was a major gainer, with the euro tumbling to a four-month low against the currency, with analysts saying the Swiss unit has briefly resumed its safe-haven status amid intensifying concerns about a severe global economic downturn.
The dollar index fell 1.1 percent to 88.139 as the euro [1.2673 0.0135 (+1.08%) ] gained 1 percent against the U.S. currency.
The dollar [ 1.1544 -0.0183 (-1.56%) ] fell against the Swiss franc,
as did the euro [ 1.4633 -0.0053 (-0.36%) ] , having earlier dropped as low as 1.4580 francs.
The yen also gained against the dollar [ 96.79 -1.27 (-1.3%) ] and the euro [ 122.7 -0.25 (-0.2%) ] .
European Central Bank and the Bank of England cut interest rates to record lows on Thursday, with the UK’s central bank resorting to unconventional measures to boost the supply of money in the economy. In an accompanying press conference, ECB president Jean-Claude Trichet signaled further rate cuts and painted a bleak picture on the economy, with staff forecasting the euro zone may contract by more than 3 percent this year.
Analysts were unconvinced, however, that the latest move down in the dollar was an indication that the currency could be starting to lose its safe haven status.
Gold up on flight to safety; U.S. jobs data eyed
Gold rose in Europe on Friday, building on the previous session’s near 3 percent gains, as Wall Street’s slide to 12-year lows curbed appetite for equities and the dollar tumbled ahead of U.S. jobs data later this session. Investors spooked by volatility in other assets such as currencies and equities are buying the metal as a safe store of value, analysts said.
Gold climbed to $938.80/939.80 an ounce at 5:14 a.m. EST from $932.00 late in New York on Thursday. Earlier it touched a high of $941.90.
But analysts remain skeptical about gold’s ability to extend its gains. Commerzbank’s Weinberg said gold’s weak underlying fundamentals, with jewelry demand falling sharply and scrap supply picking up, pointed to a much lower price. Demand for gold in India, the world’s largest market for the precious metal, remained slack as prices rose for a second day on Friday, while selling of scrap stepped up as gold holders cashed in after the recent price gains. "There are no hopes of traders buying," said Haresh Acharya, head of the bullion desk at Parker Agrochem Exports in Ahmedabad. "Sellers are coming in in huge numbers."
Buying of gold-backed exchange traded funds was also stagnant, with holdings of New York’s SPDR Gold Trust, static for a fifth consecutive session.
Among other precious metals, silver tracked gold higher to $13.42/13.49 an ounce from $13.22. Earlier it touched a one-week high of $13.49. Holdings of the world’s largest silver ETF, the iShares Silver Trust, declined by 82.8 metric tons on Thursday, and are down 282.1 metric tons or 3 percent from the record level they held last Thursday.
Platinum firmed to $1,070/1,080 an ounce from $1,058.50. Palladium rose to $200/205 an ounce from $196, having earlier reached a 10-day high of $201.