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Tuesday, November 29, 2022

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5% Thursday – Is the Dow Busted?

We knew yesterday was going to be tough.

As expected, we touched the 7.5% levels I laid out in the morning post almost to the penny and, despite strong volume, we could not close the deal and I nailed it at 10:11 with my alert to members which said: "XLE and OIH cautious into oil report and now I REALLY don’t like the rejection off the 7.5% rule so 1/2 covers on rolled up long DIA puts with stops on the other 1/2 putters at 6,950 on the Dow."  Note how the Dow dipped to 6,947 on that drop, rose back to 6,983, which was 4 points shy of our Dow watch level, and then began falling in earnest.  Despite the "save" in the afternoon, we went into the close fairly neutral to the 5% line but very deflated as we lost the momentum from Tuesday entirely.

Today we'll see if those 5% lines can hold up in what's looking to be a rough morning and we are only 1/2 covered on our long puts so it will be very easy to flip back to 60% bearish if we don't.  For those of you too lazy to click on the link, we'll be watching Dow 6,825, S&P 706, Nasdaq 1,344, NYSE 4,410 and Russell 362.    From a technical standpoint, holding up there will still be bullish but it won't feel bullish if that's all we can pull off for the week will it?

I pointed out to members yesterday that with AA at $6, C at $1.50, GM at $2 and GE at $8.50 – the Dow's price weighting means that entire group could double and add just 150 points to the Dow.  With a relationship of about 8 Dow points to each $1 in component stock price, AXP would have to double to get 80 Dow points and doubles from PFE, MSFT, KFT, JPM, INTC, HD, DIS or DD would have little impact as well as all are under $20 so they could all double along with our 4 micro-Dow components and we'd still be under 9,000.  Just like UYG, XLF and XHB – is the Dow now a broken index?  I've been saying so since 2006.  When the value of a number of components in an index slips below a certain level, the index begins to lose it's value as a reliable indicator as it is no longer capable of climbing without some spectacular internal gains.  This feeds a cycle of negative sentiment as "nothing seems to help" the index get back on track. 

We're playing RIMM off this (hopefully) bottom but, as David Fry notes in his chart, perhaps it's time to switch horsemen as we are not getting much gas from the usual suspects.  To some extent, GOOG, AAPL, RIMM and AMZN are attacked by hedge funds looking to keep the Nasdaq down while they accumulate shares in the broader index without triggering larger sell programs.  That's why, on a blah-looking day like yesterday, you can still have Up Volume at 4.2Bn shares with Down Volume at 2.5Bn shares.  You would think an imbalance like that would cause a major rally right?  Not if you don't buy the big boys…  As I said above, you can double up 15% of the Dow and you would barely move the index 1%.  By not letting the index move while they accumulate, hedge funds keep out mutual funds and other index buyers that would compete for shares if the broader indexes took off.

Speaking of taking off, it's 8:30 now and we got the expected 654,000 job losses for the week but Retail Sales, ex-auto, were WAY better than expected with a 0.7% gain vs. the 0.1% drop that was expected by "experts."  Clearly they didn't ask me because we have been playing retail up throught the CC companies and just yesterday morning, we discussed today's report and I said to members: "We already got reports from individual retailers and it’s my bad for not repeating this every time (but I get so bored).  WMT was up and other stores were down but WMT is like 20 times the total volume of the other stores so their up 2% wipes out the down 10% of everybody else from a total spending standpoint.  Also, the consumer credit report showed a lot more than expected activity which is a couple of indicators that consumers are still out there."  Why are "experts" unable to read this data and draw a proper conclusion?  That I do not know…

The shoppers have certainly dropped in Asia with a sharp downturn in Chinese exports and Japan's Q4 GDP fell -12.1%, which spooked the pre-markets and sent the Nikkei down 2.5% this morning.  Of course this is silly as the preliminary GDP was -12.7% so this is old news and not even as bad as expected.  Even in Japan, consumer spending was off 0.4%, it was corporate spending that shrank 5.4% that killed the economy, a combination of fear and lack of credit – both things that can be reversed a lot faster than a major downturn in consumer spending.   Both the Hang Seng and Shanghai were flat in today's trading with the Hang Seng working very hard to hold that 12,000 line.

[spending]

Europe is off about a point, which an improvement off the open but we need them to hold their lines as well, which is FTSE 3,733, CAC 2,500 and DAX 3,900 – only the CAC is holding the line (well above at 2,670) and it's going to be hard to motivate investors while the EU debates further stimulus (not looking good) and we await the G20 meeting on April 2nd but the Treasurers are getting together this weekend though it's doubtful any policy statements will come out of that.

There's enough positives on the table to hope for another green day but we'll have our technical hat on and let our levels be our guide.  We're still not going to be making many bullish plays into the weekend but we'll be happy to flip a little more bullish as we hold the 5% levels and take another run at the 7.5% lines.

Be careful out there!

 

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Bro – Nice!!

TIE/Eph – Don’t worry, I’m sure they’ll make lower strikes next month. 
 
LOL  Oh yeah, THAT’s how I want to make sure I always have good position!

Phil:
This is a general rule, to be at least two strikes higher than your putters?
and you MUST have a 2 strike advantage over your putters!

Wow!  What ANOTHER day.  Didn’t see this one coming.  Got clubbed a couple times and sat the rest of the day out.  Too much work to trade (right) these days!
 
Cap, you were right.  I think you said yesterday that it looked like consolidation.  Boy, they did a good job!
 
Phil, you were right.  It looks like a repeat of November’s low and not the low in January that I was looking for a repeat.
 
It was another FMD.  Wish I got some  šŸ™ 

matt1966, I am in your shoes.  I tried a couple of times to get on the FAS bandwaggon with a stop and kept getting knocked out.  Then, I gave up and decided to sit it out.  About 15 minutes later it just took off and never looked back.  So typical. Maybe I should invest into a paper account and see when I give up there so that is exactly the time not to give up in thwe real one?  So frustrating!
 
Phil, I am probably 80% cash, aside from a very safely in the money AAPL covered call.  What do you recommend?  I am so frustrated for missing this rally. Then again, I am so doubtful of it, and think we may get a rough reversal next week (wouldn’t this all fit into the scheme of "pump the price the week before opex so big boys can sell OTM calls"?
 
So what is your advice to get on this bandwaggon?  Maybe a review of the buy list is in order?

Eph – SLG – a little bit (playing the swings).  However, most of the stock I have now has calls sold against.
Still can move up another 50% or so (not saying it will … but it could).

That was a FMD grind.  Of course, I just sat and watched it mostly, even though I saw it and posted it here earlier today.  (12:43 pm).  Just a slow, grinding, relentless move higher.
 
I think "they" are squeezing some shorts and trying to get folks excited about the market again.  That’s gonna be tough to do.

I’m surprised to see S&P at 750.  Would have thought 725 or so would have been about it.

I’m a noob around here, and this approach to trading is novel for me. I have specialized for years selling credit spreads on the SPX, with reasonable success. In choppy markets, I sell tight puts on stocks or ETFs , and let them come to roost if they will, then I sell calls against the new position. If you notice, both strats work really well in directionless markets. I can’t play a trend to save my life, which is why i am here.
What are the odds we see SPX800 before expiration? Will we see 768 before 700? If we SET at 750, I’m a rich man….. Can someone explain "rolls" with an example. My idea of a roll is to a more distant strike in the next month, which this isnt.

Berkshire Unsecured Rating Cut By Fitch To AA, Outlook Negative
 
Buy America, Warren?
How’s that workin out for ya kid? 

Anton, I think Warren will be just fine …. he’s made his money.
 
This is not a comment on the BRK rating cut …. just not sure you should be dissing the 2nd richest man in the world, ya know ?  What’ll happen, he’ll be 5th richest ?

barfinger, roll is selling one option you own and buying another.  It  could be a vertical roll (e.g. sell one strike buy another of the same expiration) or roll from one month to the next.
Example: If someone has AAPL Mar $90 put and that person says "I rolled up one strike", this means they sold that put and bought the AAPL Mar put at the $95 strike.

Phil, thanks for the advice in my XOM trade from last night. I’m 1x in all the positions (long Mar 75 put, w/ Mar 70 and 80 putters). Why would I roll the entire thing to April? Shouldn’t I close out the Mar 75 put w/ Mar 80 putter? These positions cancel each other out and can’t get any wider than the 5 spread. And just roll the Mar 70 putter to a naked Apr 70 putter?
 
If you remember, the whole goal of this trade was to get me to even for a trade that went bad on me (Mar 75 puts covered w/ Feb 80 putters). I bought back the Feb 80 putter and sold the Mar 70/80 puts instead, and was supposed to stop out of Mar 70 at 3, leaving me no worse off than I was. If XOM held 70, then I’d be close to getting back to even and be in good shape.
 
Since XOM is below 70, I’m not proposing closing out of the Mar 75 puts and Mar 80 putters and rolling Mar 70 to Apr 70. Does this work?

Asian markets up.  Looks like another bullish surge for today.  Any suggestions for today ahead of open?

Phil, how is the risk of the naked XOM Apr 70 putter greater than the risk of the Apr 75 put w/ Apr 70 and 80 putters? Maybe I need to think about this more (and get more sleep!). The Apr 75/Apr 80 cannot increase in value so it isn’t offering any more protection?  The naked position is a short put, not a long.

 Phil,
 
I agree with you on the Wen statement being "political", for internal consumption, you remember the issue with the US surveying ship in or near chinese waters on Monday and then yesterday the US announced that it would send a destroyer to guard the ship against the chinese. Wen is just playing to the home crowd and reminding the US but as far as doing anything with the debt they bought, I don’t think so, they would hurt themselves just as much, if not more.  doesn’t mean it won’t bounce gold, TLT and TBT around some.

Phil, what’s the best way to play oil and gold? I wanted to get into oil at $35 b/c I figured it would rebound to at least $50 by the summer. How can I play that move?

 Phil, 
 
I bought WFC  and EWZ last week and sold WFC 7.5 april Calls and puts  and EWZ 33 april calls and 31 puts. both trades are close to topped out, can you suggest what I can do to let these run some more?

Phil, I’ve got 20 short puts for C Mar $5. Trying to figure out if I should just cover (at a loss of $1) or roll to 2x Apr $3 (currently at $1.53). Any thoughts?

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