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Weekly Wrap-Up – Hitting Our Targets At Last!

Finally we break out!

Last Friday we had our charts that indicated it was possible but we played 55% bearish into the weekend thank goodness and, as I predicted in the weekend wrap-up, our broken clock (going into each weekend 55% bearish) was right twice as we had a harsh sell-off on Monday that did not get us off to a good start.  After last week's action, which I called "a big, ugly W," where 8,130 capped our gains on the Dow, we got a very nice 2.5% rule move for the week on a breakout where we held 8,130 to the downside.  While we still went into the weekend just a little bearish – it's getting harder to believe it as the relentless rally continues but better safe than sorry over the weekends as our rallies are still coming on very low volume and, other than Friday, we sold off into every close this week.

We finished the week right at the 8,200 mark that I predicted weeks ago would be the top of this rally.  In fact, the breakout levels we've been using since we first broke out over 7,632 in late March were DIA 8,130, S&P 870, Nas 1,700, NYSE 5,500 and RUT 480 – these were our break DOWN levels of January (and pretty much where we closed for the week) so, on the whole, we are nicely confirming that our "V" bottom of March 9th was an aberration and will NOT be revisited.  We do still expect a retest of 7,900 but 7,632 may now be off the table and our 8,650 target (the mid-point of what we've considered "fair value" since October) is just as likely to be hit before we see another pullback.

What we're looking for is a new range that confirms the 5% levels around 8,650, which is, as a floor, 8,200 (8,217 to be exact) and, at the top of the range, 9,100 (9,082).  The closer we get to 9,100 before pulling back, the more likely 8,200 firms up as a floor.  Volatility is certainly washing out of the market slowly but surely as the VIX finishes the week at 35.30, down 20% for the month against an 8% gain in the S&P - a complacency that indicates that up, as we like to say, is the new down.

We had an absolutely fantastic week as we learned to stop worrying and love the rally.  After being cautious last Friday, my comment in last week's wrap up was a wishy-washy "Earnings last week were way better than expected overall and guidance was not too depressing so we’ll have to see what kind of follow-through we can now get on that and if there is any gas left in the market to finally punch through that 8,200 mark."  Despite my misgiving about Monday, we still were pretty gung-ho bullish (or as bullish as we can be) in our $100,000 Hedged Virtual Portfolio and we'll be doing a full review with new trades for members but, suffice to say – EVERY SINGLE TRADE WAS A WINNER!  That's right, I went 10 for 10 in Saturday's post and it was even better than it looks because we got a nice, low open on Monday to buy into.  Members may want to use this tibit as this is the last weekend to get a double credit for our "Refer A Friend" discount and, don't forget, you must refer at least one member to our free (for now) Email report to lock in your own 20% discount by this weekend.

Chinese character ji1 -- in traditional form ?

This was one crazy week (as usual) and Monday started out with a bang as the flu scare hit the markets.  In my morning post we discussed how crisis = danger + opportunity and we took the opportunity to sell GSK June $30 puts, which opened at $1.60 and dropped to $1.10 the same day (up 31%) but finished the week back at $1.35, still up 15%.  Our buy/write entry of $27.17/27.35 is looking good too with the  stock up at $30.61 while the 2011 $25s opened way up at $7.25 but stayed there and the 1/2 sell of the June $30s went as planned with $2.60 being Monday's high and those calls have already fallen to $1.90.  So we REALLY liked GSK as they were a good deal anyway and this was just a good excuse to get in…  As we expected, HRL was a great buy on the dip and NVAX was a great short on the pop with NVAX giving up 50% of it's Monday open by Friday's close and HRL going back to $31.31 from its $29.50 open on Monday.  MMM did not disappoint either and that spread is doing very well.  It pays to review these trades while they are still fresh as you don't get that many chances to "practice" in actual panic situations but it always helps to get you ready for the next whatever.

We called gold right on the nose Monday morning and Tuesday gave us a quick $25 drop back to our $875 target zone and we are cautiously bullish at this spot.  The FXP we had followed from under $20 on Friday didn't finish topping out until Tuesday morning at $22.50 with huge gains on those calls (up 12.5% on the straight ETF!).  Those were just the plays from the morning post on Monday.  It only took until 9:42 for me to send out an alert to members listing the levels that we held and saying: "If the bears can’t take these out today, their case is going to look pretty sad."

We took advantage of the volatility (which gives us nice premiums to sell) to do a buy/write on UAUA at $3.30/3.65 (now $5.18) and we began a play on BIDU puts that were great the next day as BIDU fell from $235 to $215.  We scaled into our UNG plays and they are looking great now with UNG up $1 for the week (7.5%) but by noon on Monday I had soured on the "rally" and warned members: "All the advance/decline numbers are very red, this is a highly selective rally and we just tested the top again and failed."  That caused us to adjust to a 60% bearish posture with the Dow at 8,106, ahead of the drop that finished the next morning at 7.930.  In that same Alert I reminded members to play FAZ up and FAS down, both easy money with our standard plays

Tuesday morning was going according to our plan, with a nice follow-trough down at the open but we were getting bullish before the bell and my play of the morning was CAL which gave us a better entry than we had hoped on a hedged $6.50/8.25 with CAL now back at $10.94, better than 50% if we are called away at our $10 target!  FAZ was another morning hedge with nice premium as we got an entry of $4.70/5.85, looking to get called away at $7 (+50%) with FAZ now at $8.53.  I had said in the morning that XLF must hold $10 for us to stay bullish and they did and the Yen held 95 and the Baltic Dry index held 1,800 – all the signs we were looking for to turn Asia back up. 

SPWRA was a gift that morning and was our first pick of the day, selling the naked June $20 puts for $2, now $.88 (up 56%) as the stock jumped 20% from that buy-in.  We also went full covered (60% bullish) in our 10:00 Alert to Members, selling the DIA $81 puts at $3, now $1.46 (up 51%) and I liked the YRCW $2.50s at .65 as well and they topped out at .80 (up 23%) where we called them off – not a bad set for a single Alert!  We sold FAZ $9 puts but that was a day trade that went nowhere and some of us really lucked out as we had a DNDN play which involved first selling the 2011 $20s for $12.75 (now $9.78) and waiting to sell the 2011 $15s (now $11.75) as some caught the spectacular dip DNDN had just before the stock was halted but, even if not, the play allowed us to have a long-term $5 spread free of charge – Now THAT'S hedging!

Also in that same 11:34 comment I said to members: "Pattern holding but a much lower high at 11.  Some money is coming out of bonds and that didn’t happen yesterday so we may get a better push this afternoon off some fresh money but that’s really brave ahead of the Fed and the GDP. We’ll see if 8,000 holds on this dip but, if it does, we may get another 100-point move up from there at which point I’d probably want to uncover the puts again."  Well you could have plugged that into your trading system and gone home for the day as that's exactly what happened

 ELN was a good pick-up mid day with a hedged $4.21/4.61 entry and the stock leaped up 5% the next day and held $5.89 for the week so looking good for our $5 target.  We went back  to the well on UAUA with a $3.39/3.70 entry, also looking good with the stock at $5.15.  As I mentioned above we flipped bearish into the close, calling the top in the 2:49 Alert, just ahead of a 100 point drop into the close.  Being bearish did not stop us from taking a nice HOV vertical leap, the $5s and $7.50s for net .30, still a good long-term play at .33.

We expected a wild day on Wednesday and we were not disappointed but we were surprised as we went up and up and up following a horrific GDP report.  At 2:15 we had more quantitative easing from the Fed and, despite the afternoon sell-off, I had already said in the morning I would be impressed by ANYTHING that finally took out our breakout levels.  I did jump the gun by looking to take the profits on the DIA $81 puts at 10:06, but flipping to the half cover of the $83 puts over 8,130 worked out well.  We played for a turn and got burned on a couple: Shorting oil futures didn't work out so well and we killed that even and selling naked USO $27 calls at $2.25 stopped us out at $2.50 (down 10%).  Buying DIA puts didn't work at first but did later and selling FAZ $7.50 puts for $1 and buying them back for .65 (up 35%) was the usual win, as was selling June $6 puts for $1, now .75 (up 25%).

We got a huge win out of a DIA spread into the Fed which couldn't have gone better as we strangled at .95 on each side and collected $1.25 on the up side (up 31%) and got out even on the down as the Dow went up 50 and down 100 after the 2:15 statement was released.  Those plays are worth reviewing as we have plenty of Fed statements left to play this year and they are a good way to play any market moving event when you don't know which way the market will move.  On reviewing the actual Fed statement in our 2:25 Alert, I concluded: "In a real, logical world, there is nothing here that is worth busting 8,200" and that kept us skeptical into the short rally we were having.

FAZ $6 calls at $2.65 gave us a quick gain and we flipped short on DNDN at $22.50 and they bottomed out $1 lower the next morning.  Despite the sell-off we finally went bullish into a close and I said to members ahead of the bell: "Tomorrow is last day of the month so you would think they hold it up for one more day at leastDon’t forget 8,130 was our breakout level and where are we?  8,130.  Holding that for the day is still a breakout."  That night, in chat, I put forth my premise that it may be possible for the markets to rise much farther on thin trading as we may have moved into a market no longer dominated by speculators but by a content group of investors who bought $20Tn worth of stocks at levels as much as 30% lower than they are now who may be content to hold on for quite some time, leaving very few shares for the sideline money to compete for.

Thursday morning the pre-markets were going crazy and I was very much against it, taking time to point out why we SHOULDN'T be over 8,200 at the open.  My play of the day in the morning post was an SKF spread that took advantage of the low open and is working very well already.  It only took 19 minutes of trading for me to call a top at 8,300 adding DIA $80 puts at $1.15 to our naked long puts, which ran up to $1.50 on Thursday (up 30%) and $1.70 on Friday (up 45%).  SPWRA went so high on the spike that we flipped bearish, selling June $27 calls naked for $4 now $2.83 (up 29%) and we're now ready to enter stage 2 (the bullish side) of that trade right on target.

I guess we were really bearish because the very next trade idea, at 10:23, was selling the BXP $50s naked for $3.20, now $1.30 (up 59%) and, of course, selling the FAZ $7.50 puts for $1 yet again, back to .65 (up 35%) yet again.  FSLR was our next victim as we sold the naked $200 calls for $5.50, now $2.12 (up 61%) and this, by the way, is why virtual portfolio margins are a good thing as you can make these very effective plays without tying up too much margin (we had that discussion in member chat with Peter this week).  To be fair to the rally, we did get slammed with the fact of the Chrysler bankruptcy on Thursday and that was enough to take the steam out of any bull run.

We added QID $34s at $3 and they topped out at $3.90, now $3.50 (ip 16%) and, at 12:51, FSLR was going our way so we added the $175 puts at $5.30, which topped out Friday at $7.50 (up 41%) where we wisely took the money and ran as they are now back to $5.50 (we only do out of the money front-month contracts as quick trades, every day you hang on in a huge premium penalty otherwise).  MA $180 puts for $7.50 are now $10.45 but we took $9 and ran on Thursday.  We sold naked BMY puts and those are on track and Peter had a great MA earnings ratio spread, buying 5 June $195s at $8.50 and selling 10 $200s at $7 for a net credit of $2,750, now $875 to buy back (up $1,875 with no money laid out) – very nice! 

Friday morning we expected a quiet day and we got one.  We went for USO June $32 puts at our $29.50 target and those are still $2.70.  Also at the open we liked the FAS June $6 puts for $1, still $1 and we added USO $30 puts at $1.10 and they are down 10% at .97 but it was a scale-in so we'll see if we do get a drop on Monday.  We began an RZ buy/write by selling naked June $5s for .55 – working well so far and we once again went for selling the FAS and FAZ June $8 puts for $2 each that we've been playing for 2 weeks.  USB gave us another buy/write entry at $12.71/13.85 as they dipped down and we sure hope they are one of the banks that passes the test. 

I did call a short on the oil futures at $53.50 as it ran up to silly levels but they only closed .30 lower so a nervous weekend hold!  MS had such a good run we decided to sell the naked June $25 calls at $3.15, but that's an entry on a complex spread so I won't get into it here.  Taking the OIH May $85 puts for .95 was not complicated and those are even into the weekend.  As it was a stick save close to  the day we once again found ourselves heading into the weekend 55% bearish after a week of very bullish betting in general

With 2/3 of the S&P 500 weighing in, earnings have been 70% positive.  I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless.  As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time.  With the added pressure of the old "sell in May, go away" adage – there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes – despite our common sense saying no.

 


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  1. All/Phil
    Loooking for ideas on keeping track of positions/trades- both open / closed (P/L ; taxes).  I have my own "system" which is essentially index cards and paper clips – adequate for the limited activity prior to my exposure to PSW.
    Thanks,


  2.  Phil
     
    I need help with YRCW.
     
    I made money on it earlier in the year when you first recommended it and I got out with a good return. But I began a new position at an average price of $3.64 and its been all downhill since.
     
    I recently sold 12 Jan 11 $2.50 Calls for 1.77 and since then the position has lost $1209 because the stock is now trading at $2.98
     
    Of course I know from an earlier post that YRCW could go BK and that my position has 2 years of time within which that could happen. Somehow that knowledge has frozen me in some deadly way. I look at it and now matter that I’ve done well enough as a beginner – the sight of the red on YRCW makes all the other green look ghastly. Every day I am tempted to sell out and take the loss – except I can’t seem to do it.
    The pleasure of the day’s trading has lost its sparkle.
     
    Have you ever experienced this malaise and do you know a cure? If you do I implore you to share it with a fellow traveler.
     
     


  3. Phil,
      I think I was misunderstood a couple of weeks ago. I know banks will make money and I don’t expect to see BAC at $2.50 and C at $1 again. However, I don’t think there has been a test of the rally in the financials (and for the broader market as well). I was trying to play this with the FAZ and SKF. Recently it seems that my timing is just bad. I picked up positions in these too early and now I need help. I am overweight in the financials so the amount I’ve hedged is okay. I’ve got 2000 FAZ (avg $8.6), 200 SKF (avg $90), and 20 short FAZ Jul $10 puts. What should I do now? Long-term I’m bullish on the financials but I was just try to make some money on the short side. Thanks for your help.


  4. Phil,
    Last week I asked for advise for adjusting a postion in USG where the callers have gone deep ITM. One point you made regarding how to avoid such "traps" was to "set a 25% stop on 1/4 of the calls for each 25% gain, etc.
    My question is – how to set this up. Let’s say I have 1000 shares; sell 10 callers for $5 ; set a buy/back stop @ 6.25 on 2 or 3 ?  Is the intent with such a set up to trigger a reminder that something is going on? Or maybe this is a "rule of thumb" for typical practice? It makes sense to me since I am not able to monitor day to day changes on real time.
    Can you flesh this out? Thanks.


  5. Last monday I sold  50 percent May 22s for 3.40, which were underpinned by 2011 15 leaps. The leaps are at the same price that I paid for them in January.  I have bought back the put for.35 and there is still some premium with the call. I have made $1.75 per leap position on callers this year, but the limitations of having a leap versus the stock is evident. What is your recommended next play on this? thanks!


  6. Hopefully this pandemic threat is going to blow over as a non-event. For those interested in tracking this…
     
    Flu tracking map being kept up to date by Dr.Henry Niman. It has comments for people to submit information around the globe about new cases in thier local area. A source link is required for info to post on tracking map. Site is getting hit with huge traffic so they are trying to upgrade to a larger server.
    http://flutracker.rhizalabs.com/
     
    Here is a pandemic supercomputer simulation that was run by Los Alamos Laboratories.
    http://www.lanl.gov/news/images/bird4x3red.mov


  7. Phil
    I just referred 10 people.  Not sure how many will sign up.   Last week was a 50% gainer for me.  Although I am not doing the trades here, I have my own, I do enjoy the market advice and the support that you give everyone.   There are companies that want to sell mentoring service for thousands of dollars.  This is far better of a deal with very good advice.


  8. Any recommended plays for getting short bonds?  Puts on TLT or calls on TBT? Not sure I have enough capital to be playing treasury futures.


  9. pstas
    I would be happy with the gain.  You sell calls on stock with expectation to be called away to get that extra gain.  If they go DITM sometimes you just need to analyze the position to see if rolling up you can gain more.  But the closer you get to OE day the less likely to make addtional by rolling up because the Delta starts to go to 1.  The otehr option is to roll them out to the next month.  The idea of setting your stop when it is going up is to let your winners run.


  10. drum
    What stock you playing here?  You did not say.


  11. Phil
    Did a total of 35 referrals today.  Found a list a few years old of people who took a trading class.  Not sure what %emails are active but will wait to see what the hit rate is. 


  12. redfern
    A couple of rules that i tend to live by that I  have picked up from others. Frankly, I try to collect my money(premium) in a shorter timeframe so that i don’t tie up my capital for so long.  YRCW looks like a channel stock, just give it a few weeks and it might come back up.
     
    Your first loss is your best loss.
     
    Nothing worse than being wrong as staying wrong.


  13. singapore steve
    ms-happy for your take. another thought i having is to vacate the position the position, and work back in with selling only puts, but it did soar this week


  14. Hi, Phil/All,
    My first post at PSW.  Just joined several weeks ago.  This is a REALLY GREAT place!
    Can Phil or someone explain the strategy/logic behind the MMM play Phil recommended on Monday: "an $50 calls are $9.85 and a 1/2 sale of the June $55s for $4 or more puts you in a $5 spread at $7.85, fairly well covered (and you can always sell the other half) with plenty of time to adjust."
    How does it work?  If MMM goes up, that what do we do?  If it goes down, then what?  How do we make money?
    If there is already an article explaining this strategy, I’d appreciate it if you can point to the right direction.
    I figured out some of your strategies, such as buy & write both calls and puts.  I’ve been using these strategies in my trading.  But I still don’t understand this one.  Thanks!


  15. cwan
    Hello.   It sounds like the calls were either the Oct or Jan.  So just a calendar spread here I believe.  Although the June 55 delta is .68 where as the oct is .75, but with half covers you are protected from it going up.   Myself, I would have been more inclined to sell the May 60 calls and collect 50 cents in 14 days ratehr than jump to the jun 55 , but the Jun 55 would definetly give more downside protection than May.   Phil might have to explain this one.


  16. Cwan
    Hopefully you will have read a month or two of the post and also the k1 project material too. 


  17. drum
    MS  Nice uptrend since nov 20th but now it is at top of trend.  So either a breakout or back to the bottom of the channel. At least if you are only half covered it will not kill you if it breaks out because you will have plenty of delta on your side but be prepared to roll them out if it does.   I have been playing MS lately too becasue GS is too expensive.  You can always roll up your leap to help pay for any roll ups.  The may 22 delta wil be increasing fast so you really need to do something soon, like by this Wed.


  18. Phil: over the weekend, you wanted to tell me:
    1) when is it ok to invest 100k ?
    2) How ? in what ?


  19. Phil:
    I have much travel planned for the next few months.. would like to invest 1 mil in buy/writes that look good for this period that do not require much handholding. BTW… I followed your great pick re F and sold short the 1011 2.50 puts (200 contracts) and paid for the next 10 years of membership fees…. Thanks!


  20. OOPS… that was the 2011 2.50′s


  21. I found the commentary on the front page of this site very interesting and thought I would share

    http://www.businesscycle.com/
    I am referring to the text headed
    Professional Report Excerpt
    Enjoy! :D


  22. Phil, I’m looking at BAC and it’s flatlined for two weeks.  I realize that it could pop quite a bit either way on Thursday but it could also just sit there so I’m looking for a play that makes money on no move and doesn’t do too badly on a big move.  Here’s what I came up with:  Buy 100 BAC JUN 9 Put, sell 100 MAY 2009 9 Put, and buy 40 MAY 7.5 Put.  The third leg is the disaster protection.  Breakeven at 7.80 and 10.70 and max gain at 9.  Do you have a better suggestion to make this kind of play?  I looked at some condors centered around 9 and they had lesser risk reward profiles than my idea here. Thanks.


  23. Good morning!

    Taxes/Pstas – The best program I’ve heard of is Gainskeeper but check with your broker for what they work with.  I advocate an accountant though, better to concentrate on trading…

    YRCW/Red – So you bought the stock for $3.64 and you sold $1.77 worth of calls, putting you in for net $1.87 and the stock is at $2.98 and you are freaking out – is that about the size of it?  I take it you didn’t sell puts but you can for $1.50, putting you in for net .37 with 2x at $1.44 if it’s put to you but it will lock in your "loss" as far as your statement goes.  When you take a long play like that you have to stay focused on the end game and not get caught up in day to day fluctuations.  I take it you bought at $3.64 and panic sold the calls as it was heading down, getting a poor price from the callers and now you show a loss on both ends but keep in mind that you are in at net $1.87, no matter what loss your statement currently shows and as long as your long-term outlook on YRCW is above $1.87, you are fine.

    With $2,244 at risk (net x 1,200) you have a current value of $3,576 in stock less $2,496 in callers or $1,080 (of course it depends on your broker’s value the long call) bur you have to keep in mind that $1,920 of the caller’s "value" is premium.  With 18 months to go, that $1,089 position of yours will gain $100 per month in premium erosion alone.  This is a big mistake people make with options, worrying too much about phantom losses due to moves in the premiums of the callers or putters.  If YRCW goes up to $5 and the 2011 $2.50 caller goes to $7, then you will show $6,000 for your stock less $8,400 for the caller or -$2,400 in value.  The FACT would still be that all the caller can do is pay you $2.50 for your net $1.77 position (an $876 profit).

    On the whole, you tied up way too much money for too long to make too little but the fact that you are worried about $1,200 indicates to me that you should not sell the puts, doubling your exposure if they do, in fact, go BK.    What you can do is split the $2.08 caller by selling 6 2011 $2.50 puts for $1.50 and stopping 6 of the calls out if YRCW goes back over $3.50 (probably at about $2.50) at which point you can sell 600 shars of stock about even and that would leave you with a buy/write of (assuming a .90 net loss on the 600 shares and the 6 calls) of net $1.27/1.89 which means, at WORST, you would end up with 1,200 shares at $1.89, just .12 more per share than you net paid.  It leaves you with a profit of $738 if you are called away, almost as much as your max profit on the 1,200 and that’s AFTER taking the hit to cut back the posiiton.  Obviously, if YRCW flies up and get’s back to $5.50 without stopping you out of the extra 600 shares, you’ll be golden.  On the downside, after you split the two you stop out 600 shares at $2.50 and THEN take out 1/2 the callers back closer to $1.77 and you are in pretty much the same long-term boat.

    As to getting stuck in a rut, it’s easy to do and you need to get a handle on what kind of trader you are and identify the kinds of trades you SHOULDN’T be making.  You took a risk with a naked stock, covered with leaps that locked you into a position you were not prepared to ride out and did not have a plan B – THAT IS DEPRESSING!  Also you weren’t scaling in or you would be thrilled with the opportunity to DD at $2.90 on Tuesday (when we were buying YRCW) or at least sell some 2011 puts for $2 at the time.  So chalk this one up to a good education and keep this as a reminder of what NOT to do next time you enter a position.  You WILL take losses but you must know how much you are willing to lose and have a plan for what you will do about it at that point. 

    It is (and this should be obvious looking at just how long it takes me to explain it) HARD WORK to plan out a position and also hard to execute your plan, especially when you are in your downside scenario.  The only way to get good at it, just like anything you plan to be good at, is to practice and get experience.  Keep in mind you can get the same experience with 200 shares that you can with 1,200 and the smaller your positions are, the less likely a single one is to cause you pain.  As you can see above, your max gain on 600 shares committed is actually the same as 1,200 and, frankly, you would have probably been better off overall just buying 4 $2.50 calls and selling 4 $5 calls for net .70 ($280), which profit $720 if YRCW hits $5 by 2011 and you could stop out at net .35, risking just $140 on the trade – much less stressful.


  24. Test/Japar – This is a potential fallacy of the bear aguement that is causing a lot of trouble.  I think it was Thurs pm where I made a case for why the market may be fundamentally different now after our two major sell-offs and the assumptions people are making about retesting the lows may be seriously, even dangerously, flawed.  Let’s say a child is fairly healthy but, one day around 8 years old, they get very sick and have a 106 fever and have to  be hospitalized for a few days.  The fever breaks and they go home and go on with their lives.  Would you watch that child and bet more and more every day they are out of the hospital that they are going back in because he MUST retest a worst case or could you accept the fact that it was a one-time event and bet on a return to normalcy? 

    Just because something bad happens doesn’t mean it’s going to keep happening.  Of course there are the fundamentals – if you lose a leg you are unlikely to come back and win a marathon but, on the other hand (or foot), you are not "probably" going to lose the other leg just because you lost one so performance may never be 100% again but people who bet on you to go to zero are going to lose their own asses.  Or how about this, if I have a 60,000 gallon pool and 2 feet below the waterline we get a hold, then 20,000 gallons may pour out in less than an hour but if you insist on betteing another 20,000 gallons are bound to pour out of the pool – whether it’s in the next hour or the next year – you will lose the bet, especially if I actually do something to FIX IT!  Unless you can PROVE there is other damage, unless you are CERTAIN that the issue runs deeper than what we’ve already seen, you need to accept the possibility that we have already seen, not just a worst-case scenario, but possibly an overreaction to the worst-case scenario that has no chance of being repeated.

    XLF fell from $36 in 2007 to $6 in March.  Was 83% of the earnings of the banking sector wiped out?  Even if so, was it permanently wiped out or wiped out for a quarter or two.  If the aggregate earnings of the financials were $3 (to XLF’s $36) in 2007 and will be $1 this year and $1.50 next year, at what point MUST we retest $6, which assumes a full-year earnings of .30?  You must accept the possibility that the people who sold XLF from $10 to $6 were IDIOTS and we may just be fresh out

    Not only that but we did a post a few weeks ago pointing out that the math of the S&P earnings was wrong as AIG’s $170Bn loss for the quarter was being charged against the other companies even though it is a thinly held stock with a $3Bn market cap (about 0.05% of the S&P).  The loss at AIG turned the entire $1Tn financial sector negative, wiping out all the positive earnings in the group and reached out across the S&P to wipe out the entire energy sector’s earnings as well as GOOG, AAPL, IBM, MSFT and several other large caps.  That is no way to value an index and it is certainly no way to base a future investing premise on all financials, many of whom will survive this and come out very strong with far less competition. 

    BAC got Countrywide for almost nothing and MER for literally nothing and they had been willing to pay $50Bn for it just months before the collapse.  All mergers have a transition period and BAC is going through theirs.  You say you have $17,200 of FAZ (near even) and $18,000 worth of SKF (now $11,580) and sold $7,400 (current value) of FAZ puts so I hope you have a boatload of long financials but, most importantly – are they making more to the upside than you are losing on the your hedges?  This is why, we hedge our hedges.  If you just make a whole bunch of opposite bets, then you are only betting against yourself and only the broker will win.  SKF is a disater to hold long-term, without a huge financial sell-off, they will just erode over time, as any ultra ETF is want to do.

    So, what should you do now, I think you need to evaluate what you make and lose on your long positions and decide HOW bullish you want to be (60/40, 70/30) and decide what loss you are trying to offset with your hedges.  If you have $100K of long financials and you expect to make or lose 20% with a 20% move in the XLF then how worried are you?  If you are 70/30 bullish then you think there is a 30% chance you can lose 20% so you want to cover a $6,000 loss with your hedges.  You can do that using Thursday’s SKF spread alone or you can just sell 60 FAZ June $7 (not July $10) puts for $1.25, which puts $7,500 in your pocket and is almost certain to be yours if the financials drop 20%.  Knowing you have a $7.500 cushion means you can stop-loss your financials before they drop $7,000 and you are well hedged.  The nice thing about a hedge like this is that, even if the financials go up 20%, you still may collect your $7,500 and, if not, you acan roll them to July $6 puts and Aug $5 puts etc for continuing coverage (you still have the $7,500 in your pocket and one day they will expire). 

    I would strongly urge you to read through the $100K Portfolio adjustments week by week – I’ll get to another one this weekend but you want to keep your covers simple and easy to adjust, that’s why I favor the DIA puts to cover a large portfolio – it’s just one thing to worry about and has very liquid short covers to sell if an event hits…


  25. Phil,
    Checking on some things from last week:
    I had unfilled orders in for the following buy/writes. Are these still good if I can get the entry?
    ELN @ $3.75 (I think this entry price was an earlier post. From the wrap up are you upping the buy to $4.21?
    HOV @ .30 (this is for the Jan 11 $5/$7  spread)
    GNW @ 1.30 (From earlier in the week)
    AET @ 16.30 (Also from earlier in the week)
    RE: USO- I guess I missed the discussion on this during the week. I take it is a short/oil play for the near term? If you still like it, what is the best entry for Mon?
    Finally, what are your thoughts on TBT. I made some money on this a while back in the high $30′s; At some point these yields have to come down but when? Whats your take.
    Thx


  26. TBT- I mean prices have to come down- scrambled brains this Sunday morning.


  27. USG/Pstas – If you sell 10 callers for $5 then you stop out 2 at $6 and 2 at $7 and 2 at $8 or, at that point, possibly you will roll them back to 10 of something at a higher strike or longer month instead.  Very easy and doesn’t have to be some exact science, the idea is simply to remove some covers as you no longer need them.  With 10 sold at $5 you have $50 in your pocket (ignoring the 100x) at $6 you buy back 2 for $12 and have $38 in your pocket and $48 worth of coverage against your longs, which are gaining value too.  At $7 you buy back 2 for $14 and have $24 in your pocket (1/2) and have $42 worth of coverage and all 10 of your positions have moved up in value.  At that point, maybe you roll to 10 of a higher strike in the next month or maybe spend a little just to roll the 6 remaining callers up to 10 in the same month at a higher strike.  It depends on how you feel about the move that forced you to stop out – will it continue or was it an unrealistic spike?   Let’s say that you have your 6 remaining at $7 each, plus the $24 in your pocket and then something bad happens and it starts dropping again. 

    Even if you cover back up 4 more at $5, that still puts $44 into your pocket off the original $50 so playing it safe costs you just 12% of your max coverage.  Of course on the re-cover you are more flexible and can go deeper or longer or whatever but there is a huge value in havign the freedom to make and adjustment so you need to consider the question: "Do you want to be locked into a $50 cover you can’t change or is it worth $6 to you to have the flexibility to alter your position over time?"

    ???/Drum – Oh this is my favorite game!!  I’m going to guess MS as AXP doesn’t have $22s…  The problem is, during the first few months, your premium erosion on the leaps prevails, especially as you go deeper in the money – this is why we don’t take out of the money leaps, they are pretty useless.  However, as you note, you have made $1.75 selling calls and your total premium is $3.50 so you are making great progress.  It’s not meant to be exciting, it’s meant to be a way to buy a leap for less than you would buy a stock for and work off the premium selling callers.  Once you do pay off the long premium, then you are making profits but making $1.75 against $14 in leaps in 3 months (50% annualized) needs to be enough to make you happy or we’ll have to send you off to Monte Carlo.  As it stands no, you need to be a little cautious and the $22s can be rolled to 1.5x the June $25s and you can set a stop at $4 on 1/3 in case things really get going.  If we get a sell-off early next week though, you can first sell the 1/2 June $25s (since you are going to sell them anyway) and then put a very tight stop on the $22s, maybe back at $4 once they dip below.

    Flu/Merk – the last crazy flu scare we had was Avian in June 2005 and that went on all summer.  The markets pretty much flatlined during that time but the next summer is when we went off to the races and never looked back.  Perhaps blowing up a non-event like this was a plan as a quick scare and relief may be enough to kick-start the markets up to the next level.

    Thanks Steve – I appreciate it.

    By the way, rates did go up this week but it should have no effect on current members as all have been bonused a 20% referral discount towards renewals.  During the month of May, you must refer 1 (ONE) person (just to the free Report Membership is fine) to keep the bonus discount.

    TLT/Mgb – I always prefer selling puts as they tend to expire worthless or can be rolled.  Do we really think that the long treasuries will fall by a significant amount?  Then selling TLT shorts becomes interesting.   The problem is that the premiums, to me, do not reflect the risk so I haven’t liked the plays in TBT or TLT so far.  If you don’t have the capital, then this is not a good place to be risking it.

    Good advice Steve!


  28. Phil
    Thanks for the detail on the USG/stops.
    Question on a buy /write I started- HERO
    Bought HERO @ $2.98; Sold July $2.50 puts/calls for $1.18; so , in for $1.80.
    The July $2.50′s are now $ 1.65. I see where I can do nothing and let this play out; Roll the $2.50′s to July $5′s for $1.85 which increases my credit/reduces my entry; or- I note that I can roll these BACK to the June 5′s for a $1.65 credit which is even. That would give me another month, namely July, to sell against. I am correct? What is the best play?
    Thanks,


  29. Phil,
    Another buy/write adjustment question- GE- bought GE @ $11.74; sold June $10 p/c @ $2.89; so in for $8.95.
    I could roll to the June $11′s for +$.67 which gives me another $1- not OK?; I could roll these to the June 12" for $1.02 which gives me another $2? – Better?  Or am I just over thinking this and just let it play out?
    I hope I am not trying your patience with these questions. I am slowly walking throught the process.’
    Thanks,


  30. Phil
    From the 100K portfolio- I sold the URE June $3 puts for $.60 and closed them out @ $.30. Your oft-repeated admonitions about taking profits has made its mark and I appreciate it. It seems painfully obvious to do so, but I must admit to a "greedy mentality" in always trying to squeeze out more. I am learning to take my some gains and re-deploy. As I have seen just over the recent few weeks, there seems no shortage of good, new , opportunities- another valuable lesson.
    In any event- do you still like a play here with URE?
    Thanks,


  31.  Phil, what do you think about buying the MS 20 2011 Leaps for 11.5 and sell the june 25′s for 3.2.  kind of a different spin on your naked 25 sells?  Or would you wait for a pull back and scale in?


  32. Will banks be as profitable after the recession as they were before?  Let’s let our president answer that:
     
    "What I think will change, what I think was an aberration, was a situation where corporate profits in the financial sector were such a heavy part of our overall profitability over the last decade," he said told the New York Times Magazine.
    "Part of that has to do with the effects of regulation that will inhibit some of the massive leveraging and the massive risk-taking that had become so common."
    Obama said some of the job-seekers who may normally have gone to the financial sector would shift to other areas of the economy, such as engineering.
    "Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s. It just won’t be half of our economy," he said.
    "We don’t want every single college grad with mathematical aptitude to become a derivatives trader."
     
    So just how profitable are they now?  Just HOW DID Citi become profitable???  Let’s let Jon Mouldin answer that:
     
    Banks are not yet lending, and the past quarter’s positive performance was mostly accounting gimmicks. Citigroup, for instance, said they made $1.6 billion. They did this by booking a one-time gain of $2.7 billion, because the value of Citigroup bonds have fallen (!), giving them the theoretical possibility of buying back their debt at a discount. And with consumer and credit card loans showing more weakness, Citi decided to REDUCE its loan loss reserves, allowing it to show another $1.3 billion in profit. And then there was the profit of $400 million from the new mark-to-market rules, which allowed them to produce a profit on "impaired assets." Without all these games, there would have been a loss of $2.8 billion.
     
    Hmmmmm.  I’d be thinking long and hard whether a P/E of 29 is really justified for JPM right now…


  33. Jomama
    The Jan10 have $2 less premium and you can sell the May 26 and collect $1.40 in 12 days vs $3.00 in 47 days for the Jun 25′s.  And then in 2 weeks you can sell the Jun 25′s and collect about $2.80.  So you can collect  $4.20 on a jan 10 leap that cost you $9.60 and you have about half of it paid for in 47 days vs only 1/3 paid for. 


  34. phil: did I miss your answer to my 7:45 pm question ?
    man, this new laptop is a nightmare: HP had recommended a 64 bit system, now it cannot play adobe flashplayer which is not ready for 64 bit, spent 4 hours on phone talking to HP but no solution,
    I will ask them tomorrow to have it converted to 32 bit system.


  35. i am not getting the comments, except mine


  36. [...] Phil’s Stock World might be the bullishest. Interesting. Partial article, the rest subscriber-only until Monday a.m. [...]


  37. Welcome Cwan!  Steve is right, it’s more of an issue of just reading back a month and giving yourself an idea of how these trades play out but the general idea is that we hedge the long entry with a sale of the June $55s.  If MMM goes up, we probably roll when a good portion of the premium is gone into some calls (probably 2x at a higher strike) with more premium.  If it goes down, we sell more calls for coverage.  The main idea is to sell calls for a monthly income against the longer position.  There is a really old article I wrote from Oct 2006 detailing this strategy and I’m sure it’s covered in the K1 project as well.  The idea is just that the Jan $50s were $9.85 and had about $3 in premium.  You have 8 months to sell calls between now and then so if you just eliminate the premium, then the leap that you bought for net $7.85 will gain just as much for you as a $55 share of the stock would have.  This is a bullish way to play as we’re not doing much for protection, mostly looking to make .40 per month per long contract to pay off our premiums without over-covering.  Selling a 1/2 cover of the June $55s at $4 was selling $1 per long contract in premium and those calls can be rolled to 2x the July $60s and we’re not THAT bullish on MMM that we’re worried about getting buried by the callers.

    $100K/RMM – Hopefully I’ll get around to updating the $100K portfolio tonight but I think that’s where you should start.  You can contact Greg at admin@philstockwold.com if you want to consider putting some in my hedge fund too – it just depends on how involved you want to be managing the cash.  Right now is a tough time because we still may get a May sell-off so it’s not exactly the weekend I would pick to add a lot of positions.  That goes for the Buy List too, I was looking it over and with the low VIX and the big run-up, now is not the time to be jumping into things so we’ll have to wait for next week I think.

    $1M/Gel – You should contact Greg too!  There is no way that this particular 3 months you can even count on 20% buy/write plays to absolutely cover you from a market collapse.  I need you to put the investment into context.  Obviously if you’re looking to play with one of $50M then sure, there’s plenty of things that are a good risk (we just selected a bunch from the Buy List that I still liked in chat this week) but if you are trying to put a substantial part of your cash to work, you need to do some serious hedging if you’re not going to be around to watch it.

    ECRI Report/Steve – Hey that is a bit encouraging!   Good find.  Head is on video here.

    BAC/Mr M – How about buying the stock for $8.70 and the Aug $9 puts for for $2.54 (net $11.24) and selling the Jan $10 calls for $2.20 and the July $9 puts for $2.58 which puts you in for net $6.46, called away at $10 (up 54%) and no risk on having the other half of the stock put to you since you can put it right back at $9 (even).  If all goes well, the July puts expire worthless while the Aug puts hang on to about the $1.77 that the June $9s currently have.  Even if it’s just an extra $1 it beats just selling the calls.  If BAC drops more than 20%, you will need to do some rolling but anything from there to up is fine. 

    Another BAC play is:

    Buy 10 BAC JUN 2009 5 Call (.BYOFE) $3.95 $3,950.00
    Sell -20 BAC JUN 2009 8 Call (.BYOFH) $1.85 ($3,700.00)
    Sell -20 BAC JUN 2009 12 Put (.BYORL) $3.85 ($7,700.00)
    Buy 14 BAC JUN 2009 9 Put (.BYORI) $1.78 $2,492.00

     

    It’s a net credit of $4,958 with a net margin requirement of $11,232 as you can lose that if it goes to zero or $25 but, obviously, adjustments can be made and the profile looks like this:

    Price Profit / Loss
    $3.75 ($4,192.00)
    $5.00 ($3,442.00)
    $5.91 ($1,987.60)
    $7.15 $0.00
    $8.00 $1,358.00
    $8.18 $1,285.20
    $9.00 $958.00
    $10.45 $2,413.00
    $12.00 $3,958.00
    $12.73 $3,231.00
    $15.00 $958.00

    If you also sell 20 FAZ puts for $1 you are very well covered to the downside and, since you have the $5 calls, it will be fairly easy to adjust to a leap and roll the callers to the upside if it shoots higher (as long as it doesn’t double in a day). 


  38. B of A is raising capital, 10 Billion
    Link: http://www.reuters.com/article/newsOne/idUSTRE54305820090504


  39. List/Pstas:

     ELN - the price changes every time you look, the trick is what is acceptable now.  ELN jumped up since we first went for it but $5.89, selling June $5s for $1.45 for the June $5s is $4.44/4.72, not really worth it.  They do have $6s but it’s hard to feel all that safe to make that play so I’d rather see them pull back lower or hold a new level for a while. 

    A play I do like in ELN at the moment is buying the 2011 $2.50s for $4.05 and selling the $7.50 calls for $2.05 and the $5 puts for $1.90 for net .10/2.55.  It’s a little better than just selling the puts (net $2.10) because you make $4.90 at $7.50 but, of course, .45 worse if put to you.  I always like a 1:2 risk/reward especially when the risk (ELN going suddenly BK) seems pretty remote.  This kind of play does fall undert he header of a play you can make and then take a summer vacation.  As long as it’s a small portion of your portfolio, it’s reasonable to assume that even a general downturn in the market won’t completely wreck a 2011 spread like this.  It’s more about what happens with this individual company over time.

    HOV – Always like that one if you can get it.

    AET – The problem with a lot of these is the VIX died on us and the premiums to sell just aren’t there now. 

    USO – Either we are right an happy Monday or I’m probably not going to be liking the play.  It’s hard to say in a thinly traded market with Asia and Europe mainly closed but the dollar is getting trashed at the opens which is sending oil back to $53.50 and gold back to $895.  A weak dollar is also good for our index futures but whether they hold up or not is a different story.

    TBT – I think long-term, there is no way they can keep rates this low but short-term, the Fed still has $223Bn to buy Treasuries with and, when they run out of that, I bet the print some more!  It may sound wrong and it may be wrong but it’s the right thing for them to do (as long as people are willing to put up with this nonsense).  If your choice is to let rates go higher and bankrupt your consumers as well as the government as interest on your $13Tn National Debt jumpt from 3% to 9% OR print more money and buy your own notes, keeping rates as low as possible – what are you going to choose?  There is not choice, the government will keep printing money and keep rates down as long as they can.  Ultimately the dollar will devalue as no one outside this country will want it.  Have I mentioned I like gold lately?

    HERO – You need to remember that rolling up to the $5s is not magically great.  HERO is far away from $5 and only just in the last 2 days blasted up 30%.  By rolling to the $5s, even if you knock another .20 off your net, you are still adding $1.25 to your average if put to you (up 50%).  THAT is the increased risk you are taking on.  Since you have a very safe looking double now, I don’t see the point in adjusting to take on risk.  If you are gung-ho to back HERO to go higher, you can buy the 2011 $5s for $1.40 and sell the 2011 $7.50s for $1, that’s .40 for a $2.50 spread that will certainly go up if HERO actually gets to $5. 

    GE – You are a little overanxious.  Maybe let us get past the stress test before you go adjusting things.  What’s the worst upside thing that can happen to you?  You get called away with a great gain!  Don’t let greed take over your decisions.  You need to protect the money you made, which isn’t real until you cash it in anyway.  I do like the roll to the $11s as it’s fairly conservative and does a lot to improve your position but the only thing you need to worry about is that it’s net +$1 so whether you do it now or on June 10th it doesn’t matter as long as it’s still $1.  So you should track the position and say maybe that you want to execute it at no less than +.85 and maybe just put in for the roll at $1.20 and be thrilled if it triggers.  Anything in between and you will be in no hurry at all.

    URE – If they come down again I like the same play again.  Keep in mind that I’m basically a fundamentals trader who uses options as leverage, not an options tricks guy looking to play the imbalances (although if I see them I do).  So when I think $3 is too low for URE, barring new information that’s still my limit but, as you are learning, that’s no reason to be an idiot and piss away a 50% profit made in a week.  The best thing about re-deploying capital is that you can hit the same trade over and over sometimes if it gets stuck in a channel (like we have been doing with FAS and FAZ).  URE went from $3.30 to $4.05 and back to $3.50 last week.  If $3.30 holds and we get another crack at selling the $3 puts for .60 then yes, we still like it.

    MS/Jo – Not ahead of the stress test, just in case.  I don’t love the spread because you can get burned by the caller.  Don’t forget how crazy the run was in Jan when MS went from $13 on Jan 20th to $23 a week later (up 76%) since $25 is still 70% below the highs, you can’t rule out the possibility of a jump to $40 if something crazy happens.  That would put the caller at $15 and your leaps at about $20 (figure almost no premium) with a loss if net $3, not really terrible and, of course, it’s hard to imagine a worse case right?  They peaked at $27.50 on 4/13 and fell back to $21 on Tuesday, now $26 so a very crazy stock no matter how you try to play it.

    Banks/Matt – I think you are right.  HOPEFULLY they don’t return to the insane proftis of the last 10 years that sucked every other available dollar out of the economy and, as Obama rightly points out, sucked up all the talent from places where they may have done some actual lasting good in the world.  Still, they will make money over time and JPM’s PE of 23 actually, is trailing and the forward p/e is 12 and THAT is based on some pretty dire assumptions that may not pan out.  I am not saying JPM is going back to $50 but I am saying that, at $32, they have no particular reason to go down.

    Laptop/RMM – (2nd answer at 7:04 by the way).  I don’t think you can convert to 32 bit but can’t you just take the laptop back and get a different one?   I had no idea Adobe didn’t work on the new ones – that seems really strange.

    BAC/Chuck – Ah, the game’s afoot! 

    I’m sorely tempted to short the futures here but no way could I sleep with that bet open.  Dow 8,212 (futures are usually 50 points lower than actual on Dow), Nas 1,405, S&P 880, oil $53.50 – we’ll see what sticks in the morning….


  40. Hi, Phil,
    Thank you so much for such a detailed explanation on the MMM play.  In fact, I did read the article on the strategy.  What I didn’t know was that you were not THAT bullish on MMM, and therefore, I was puzzled by your suggestion of selling June $55 calls while the stock was $57.  Now I got it.
    Thank you again so much for sharing with us the logic behind your strategies.


  41. HSI melting up, but quite a few of its components are now running into major resistance.


  42. Good Morning everyone.
     
    Good thing you didnt short the futures Phil !.  Some big downgrades of European GDP by the EU comission this morning thats gettting no press and unfortunately slipped off my screen before I could cut and paste. Will try to find them to paste later. Anyway markets seem to be ignoring bad data yet again and us bears are in for another mauling today.


  43. Good Morning Phil & DB and all. Nice to be back. :-)


  44. Asia Markets :    Monday, May 04, 2009
    (The following is from WSJ; please cross check with other sources to confirm.)   

    Nikkei Average*                              8977.37    149.11    1.69%
    Hang Seng*                                  16381.05    860.06    5.54%
    China: DJ Shanghai*                       298.15         9.48   3.28%
    Seoul Composite*                         1397.92       28.56   2.09%
    Bombay Sensex*                         12113.29     710.04   6.23%
    Baltic Dry Index                               1786.00       14.00    0.78%

    *at Close
     


  45. Asian Markets Hit 7-Month High, Financials Rally

    (Japanese markets are closed for the Golden Week holidays. Markets there closed until Thursday. )

    Asian stocks punched to a seven-month peak Monday, fueled by confidence the global economy is recovering faster than expected and on a further jump in Taiwanese shares on hopes for an influx of Chinese investment.

    South Korea’s KOSPI finished up 2 percent to close at a seven-month high, powered by a rally in financial stocks and gains in shipbuilders and retailers. KB Financial, which runs South Korea’s biggest lender Kookmin, jumped by its daily limit of 15 percent — the first time it has risen by the daily limit since late November.

    Taiwan’s TAIEX Index soared 6 percent, taking gains to 13 percent in just two days as investors see a wide-reaching deal coming later in the year as spurring heavy Chinese investment in the island, especially in financial firms.

    Australian shares rose 3 percent, led up by miners and banks, as a delay in the government’s carbon emissions trading scheme and hopes of an economic recovery boosted sentiment.

    Hong Kong shares extended gains to rise 5.5 percent, sending the main index to its highest level since mid-October 2008, with investors cheered by signs of recovery in China and stabilization in the U.S. economy.

    Singapore’s Straits Times Index continued to climb, up over 5.5 percent. Financials were sharply higher.

    China’s Shanghai Composite Index rose more than 3 percent, boosted by rising confidence in the economic outlook after the CLSA Purchasing Managers’ Index rose to a nine-month high in April. Steel stocks rose following news that China aims to eliminate 25 million tons of steel capacity by end 2011. The move will increase competitiveness of local steel mills and accelerate consolidation in industry.

    Bombay Stock Exchange’s Sensex was at 12064.43, up 661.18 points or 5.80 per cent. Indian indices surged on Monday led by gains in metals, IT and rate sensitive frontline stocks. Major buying support was coming from FIIs and domestic institutions, said traders.


  46. European Shares Rise, Focus on Banks

    European shares were higher on Monday, with the focus on financial stocks amid thin trading, as UK markets closed for a public holiday and investors awaited key U.S. housing data later in the day.

    At 0837 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 833.44 points.

    The benchmark index rose 2.4 percent last week and posted its biggest ever monthly rise in April, rising 13 percent.

    Banks were among major gainers on the index, with BNP Paribas, UniCredit, Credit Suisse and Deutsche Bank up 0.9-2.2 percent.

    Investors were focusing on banks ahead of Thursday, the release date of results from the U.S. government’s stress test of the countries 19 largest banks, potentially giving further clues about how bad the crisis has hit the financial sector. The stress test results are expected to show that the banks may have to raise $150 billion or more in fresh capital.

    Markets were also still benefitting last Friday’s gains on Wall Street, where stocks rose as fresh economic data suggested key parts of the economy could be stabilizing.

    Friday’s data showed that the U.S. factory sector contracted further in April, but at a slower pace, while consumers reported feeling more confident about the economy last month.

    "This could support sentiment that we will experience the same over here in Europe," Marcard’s Rahn said.


  47. Oil Falls, But Holds Above $53 After 4% Jump

    Oil fell but held above $53 a barrel on Monday, after the previous session’s four percent gains, after data out of big fuel consumers China and India stoked expectation economic recovery was gaining traction.

    U.S. crude futures [ 53.09    -0.11  (-0.21%)] for June delivery fell.
    London Brent crude [  52.94    0.09  (+0.17%)] was flat.

    Strong gains on Friday had been spurred by improved U.S. consumer confidence, as well as a Reuters survey that showed OPEC oil supply had fallen for an eighth consecutive month.

    The market held firm on Monday after surveys showed the manufacturing sectors in China, the world’s second biggest fuel consumer after the United States, and India had grown for the first time in months in April.

    An OPEC survey on Friday showed OPEC had delivered around 84 percent of promised curbs of 4.2 million barrels per day since September, around its highest ever level of output discipline.


    Yen, Dollar Fall on Rising Shares, Better Data

    The yen and the dollar fell on Monday as growing confidence that the global economy is over the worst encouraged investors to seek riskier assets. Data showing signs of improvement in the euro zone, the U.S., China and India helped lift European shares 0.5 percent, pushing the euro to a 3-week high against the yen. The Australian dollar also scaled 7-month peaks versus the dollar and yen.

    Data on Monday confirmed a slowing in the pace of contraction in the euro zone manufacturing sector, with the final reading of the purchasing managers’ index hitting a six-month high of 36.8.

    Reports on Friday showed U.S. consumers felt more confident about the economy in April while a key gauge of manufacturing suggested it was gradually emerging from a deep slump. To add to the picture suggesting the global economy may finally be on the road to recovery, surveys showed manufacturing activity in China and India grew in April for the first time in months.

    The euro was flat against the dollar [  1.3261    -0.0007  (-0.05%)    ] , but rose versus the yen [ 131.78    0.26  (+0.2%)    ] , off an earlier three-week high of 132.87 yen.

    The dollar [ 99.35    0.25  (+0.25%)   ] rose against the yen.

    Among perceived higher-risk currencies, the Australian dollar gained against the U.S. dollar [0.7319    0.0015  (+0.21%)   ] to and the yen [ 72.74    0.34  (+0.47%)   ] . It had earlier hit a seven-month high of $0.7390 and 73.54 yen.

    The New Zealand dollar [ 0.5716    0.0023  (+0.4%)   ] gained versus the greenback, while the U.S. dollar hit a four-month low against the Canadian dollar [  1.1886    0.0035  (+0.3%)   ] of around C$1.1800.

    Elsewhere, sterling [ 1.4868    -0.0051  (-0.34%)    ] was slightly lower against the dollar at $1.4905 in subdued holiday trade after it earlier failed to breach the $1.50 level, while the euro [ 1.1208    -0.0033  (-0.29%)    ] rose versus the pound.

    Gains in the euro were limited, however, with investors wary ahead of a European Central Bank policy meeting on Thursday. The central bank is expected to cut rates by 25 basis points to 1 percent, though the market will be focusing on what additional unconventional steps it might take in an attempt to stimulate growth.

    Gold firms on weak U.S. dollar, Chinese buying

    Gold was quoted at $891.60 an ounce, up $5.80 from New York’s notional close. Gold has fallen 11 percent since spiking to an 11-month high above $1,000 in February on profit taking, lower oil prices and gains in stocks markets

    Gold buying has picked up in India during the wedding season, when jewellery is the most common gift during religious events and forms an essential part of the dowry basket.

    Traders see light demand from physical buyers in mainland China, but it’s such a thin market because of the absence of the Japanese.

    Platinum was at $1,087.50 an ounce, down $0.50 from New York’s notional close, having fallen 2.27 percent in April. The metal fell to an intraday low of $1,081 on Monday.

    The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said holdings stayed at 1,104.45 tonnes as of May 3, unchanged since April 23.


  48. So China has revoked the USA credit Card and the Fed has been buying up half the volume of US Treasury auctions, and banks are committing "in your face" fraud with their books.
     
    But CNN reports that stocks are rosy and poised to rise because optimism reigns !! I guess we get to retest that 8320 resistance line this morning.
     
    And I suppose everyone is going to be told they should join the partying like its 1999 when news comes out that the Fed has to buy 99% of all future Treasury auctions and has been printing money to artificially inflate the price of stocks in the stockmarket.
     
    Everything is just great in Bizzaro World !!
     
    Now if only I could find that engineering job Obama just talked about. If I have to compete against the out of work financial dweebazoids who crashed the economy, I figure I got a decent lock on the next solar panel manaufacturing job that eventually shows up.


  49. Good morning all.

    Welcome back Ramana!

    Wow in Asia – I thought more was closed but they are going nuts on China with the Nikkei closed.  The relative size of the Hang Seng, Kospi, Shanghai, Bombay and Aussie exchanges together is maybe 1/4 of the Nikkei so you have bullish money going into a region with the main pipe shut off – not as bullish as it looks and, had I stayed up all night, I would have pressed my futures shorts but I’d also be taking them off the table even as it’s way too scary to predict now.

    Oil is moving down nicely at $52.60 now, never went much over $53.50, which was a good sign that the rally wasn’t as broad as you may think.  If oil, gold and especially copper don’t move up in a rally that is supposedly based on "economic recovery" then something is wrong.  So I’m not bearish (you can’t fight the tape) but I am very wary this morning as this could just be some major shenanigans on thin trading.  Huge up market in Asia can give you a very strong EU open which automatically boosts our futures so it’s the perfect play on a holiday to goose the markets – it’s very much up to our open to set the real tone for the day.

    Bizzaro/Merk - If you are right and the Fed’s action will devalue the dollar (very possible) and cause massive inflation then that is GREAT for the maket as stocks are themselves a commodity that will rise as the dollar falls.  Not only that but inflated corporate profits are profits nonetheless and if the E of p/e rises for inflationary reasons, that’s just as good as any reason to take up stocks.  Of course your IBM shares may rise from $100 to $200 but a barrel of oil may be back at $100 as well…  That’s not the point – you can’t short the market (especially the leveraged financials) because of inflation – that’s like shorting gold because of inflation, stocks are a medium of exchange that you trade dollars for…

    Check out my articles: "Burn Dollars to Fight Gravity" and "Inflation Nation" for more on this topic.


  50. Woot Taiwan limit up again – thanks for the EWT trade Phil!
    This is interesting politics going, on prior taiwan governments had refused to allow chinese money (read influence) to be invested in their market. So a major breakthrough (assuming all continues) and maybe we can expect significant inflows of chinese company money (read government money) into taiwan as a healthy way of diversifying their investments (read buying influence in taiwan).
    Well who knows. EWT is however trading at a premium to it’s asset value at the moment which it does not normally apparently. Not sure how concerned to be.