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Just Another Manic Monday

I went away this weekend and didn't do much reading.

Traveling and speaking to actual people every so often is a good thing when you are looking for perspective.  As I'm often introduced by friends to new people as "Phil the stock guy," I tend to get into a lot of interesting conversations about people's jobs, the economy, their investments (including their homes), outlook… etc..  It's kind of like being a doctor, where everyone wants to tell your their medical status as soon as they meet you.  This is a good thing actually, as I love to get "real" information to offset the mountains of anonymous statistical data that we usually have to wade through.

I was down in DC, where most people still have jobs and retired people have insanely generous government pensions so I wouldn't call them typical but there is a lot of optimism that things are really getting better and will continue to do so this year.  On the way down there, I was reading a horrific article in the NY Times on the foreclosure rates in our region so I was in a pretty bad mood when I got to our nation's capital but I was very impressed with the "can do" attitude of my political pals, who couldn't hang out on Sunday because they had to work.  I haven't seen government employees work on a weekend since just after 9/11 but I will tell you that people in DC are busting their butts to get things done with a motivation I haven't seen since Clinton took office. 

Whether it will be "Yes they can" or "No, they are deluded" remains to be seen.  Barry Rhitholtz did a nice, negative overview of the NYTimes article so I won't go into it here and the map below is really horrific but an optimist would say that 98% of the people still have their homes and, even if the worst is not over, it's certainly not as bad as the doom and gloom crowd is painting it.  In the Great Depression, 25% of the people lost their jobs and, in 1934, nearly 1/2 of all US urban home mortgages were delinquent as US personal income dropped 44% over 5 years.  THAT'S A DEPRESSION.  The only reason the talking heads on TV can get away with using the "D" word so often is that we, as a nation of viewers, are such poor students of history that we have no idea what a Depression really is so some jackass on Fox gets to scream Depression into the camera as if he's telling a bunch of 5-year olds that the Boogie Man is going to get them and it's just as insulting to the intelligence the "adult" viewers who happen to be watching.


So, despite the plentiful supply of negative newsflow coming from the MSM, I see a lot of smart, hard-working people who are dedicated to solving this crisis who really believe they can get their arms around this situation long before it gets 200% worse and can really be classified as a Depression.  In the Great Depression, 75% of the people had jobs so we had to add 20% more jobs to get to 90%.  In the Great Media Hype of 2009, 90% of the people have jobs and we need to increase that number by 5% to get to full employment – see the difference?  Yes, some real damage was done to our economy and it will take us years to recover and the people who think we're going back to S&P 1,000 this year are off their rocker – but so are the people who think we're heading back to our lows.  Let's try and find that middle ground people

[Congress supporters]Asia had a very nice morning led by stunning gains in India as the Bombay Sensex rose 17% following an election that gave Prime Minister Singh's Congress Party a tremendous victory, with the most seats since 1991 when then finance minister Singh introduced free-market reforms the led to India's economy growing 300% over the past 18 years.  Singh, 76, may further reduce barriers to foreign investment in insurers and retailers, plans that had been frustrated by communist lawmakers.  “Markets are euphoric,” said Rahul Chadha, the Hong Kong- based head of Indian equities at Mirae Asset Global Investment, with $46 billion in global equities. “The focus by federal and state governments on development will lead to a structural re- rating of India.”  Trading was halted twice today and closed early so this rally may continue tomorrow!

Soaring Indian markets led to a huge reversal in the Hang Seng, which opened down 400 points and finished the day up 232 points (1.4%).  The Shanghai also turned around and added half a point into the close while the Nikkei had suffered too much damage with a 250-point drop in the morning session and failed to recover, closing down 2.44% as the dollar slipped below 95 Yen during their session.  Since the Nikkei closed, the dollar moved up 1% to 95.8 which should help tomorrow and will trump Panasonic's truly awful outlook as well as news of a big flu outbreak in Japan.  After today's rally, Indian stocks are now trading at 15.6 times earnings, almost double November's p/e of 7.7.  China is trading at 26.8 times earnings while the US and Europe are looking like bargains around 13.  Keep in mind India has a $1.2Tn economy so it doesn't take much to fuel a massive rally there – we'll have to roll out the Big Chart tonight and see if we can get a real international move to follow up on all this excitement.

The EU is excited too as their Budget Chief, Dalia Grybauskaite won a landslide victory to become Lithuania's first woman President.  The significance of this is the acceptance of EU policies by member nations which strengthens perceptions of the Union and shores up the faith in, and value of, the Euro itself – all good things.  That will, of course, push the dollar down again today which will give stocks and commodities an undeserved boost this morning but we'll take it.  LYG led banking shares higher as Chariman Blank announced he would step, avoiding what was going to be a messy ouster at the next shareholder meeting.  Drug stocks also did very well as flu news renewed interest in that sector. 

Our Banking sector is off to a flying start this morning as Warren Buffett revealed Berkshire had increased it's stake in WFC (up 4%), USB (up 3%) and J&J (up 10%).  Buffett had already said he regretted selling J&J to raise capital las year (which he invested in GE and GS) and has often expressed his confidence in WFC and USB but the fact of the purchases is boosting all three stocks and putting a good spin on their sectors.

We're mainly in cash and were pretty much hoping for a sell-off this week so we could hit our Buy List but that's not looking likely this morning.  It's a light data week heading into the holiday weekend and the bond market closes early on Friday, which is traditionally a very light trading day.  In our first two holiday weekends of the year, it hasn't been the week before but the Tuesday's we came back (Jan 20th – down 332 and Feb 17th, down 300 points) that have been painful.   Friday the 10th of April was a holiday and we did drop 163 by the next Tuesday as well.  So we'll have to plan being cautious into the weekend, no matter what happens during the week.   Meanwhile, we'll be keeping an eye on our levels and having fun with some shorter-term trades, like we did on Friday with the Ag sector.

No major data today.  Tomorrow we have Building Permits and Housing Starts for April, which should be up a touch but pathetic by any measure.  Oil inventories are Wednesday morning and crude is back to $59 this morning and we may short them yet again at $59.50 as that's been a fantastic trade for 2 weeks now.  Someone called Rent-A-Rebel over the weekend and NIgerians are once again threatening to disrupt oil production which somehow pops oil up 4% even though there is 3 times more oil production off-line from cutbacks this year than Nigeria produces in total so a disruption of Nigera's production would do nothing more than enrich their more stable OPEC "allies."  We do get Fed Minutes on Wednesday afternoon and those are always good for at least 150 points one way or the other and Thursday is the usual 600,000 lost jobs along with Leading Economic Indicators and the always sad Philly Fed.  Last week's NY Fed was so good though, it's hard to imagine the Philly Fed Report doesn't beat very low expectations.

Everyone reporting earnings this morning had a beat.  Congrats to ITRN, LOW, PWRD, TNP and VAL for turning in a perfect morning and mega-kudos to LOW and VAL, who also raised guidance.  We still have plenty of earnings to plow through this week including APP tonight, DKS, HD, JASO, MDT, SKS, SOLF, VOD, PVH and HPQ tomorrow.  Wednesday we hear from ANN, BJ, DE, EV, HOKU, TGT, UNFI, EEP, GYMB, HOTT, INTU, LTD, NTAP and PETM and Thurdsday is BKS, PLCE, GME, HRL, MF, ROST, SKIL, STP, BKR, TTC, ARO, ALKS, ADSK, BRCD, DBRN, FL, GPS, LDK, PSUN, RRGB, CRM and ZUMZ with CBP bringing up the rear on Friday.  So lot's of consumer stocks as earnings wind down and nothing that looks like it's likely to derail a rally so it's all about breaking our technicals this week.

We'll be watching our levels with great interest this week but, unless we get a nice sell-off to at least 8,100, I think we're going to be staying mainly in cash until after the holiday, boring but safe, as the market can still go up or down between 8,650 and 7,900 and we would still prefer to do our buying at the low end if possible.  We know oil will be pushed as hard as possible into this big summer driving weekend but I think they played their hand too early as higher gas prices in April caused a lot of people to plan to stay home for the Memorial Day weekend.  If the weekend demand numbers show weakness, it will be the energy sector that sells in May and goes away until hurricane season as it will take a major natural disaster to make oil "valuable" again.  This will probably be an area we focus our short betting on if they run up this week.


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  1. Phil, I like your perspective.  I know times are tough and outlooks are a pretty bleak for some of my family and friends, but I think all this is surmountable.
    My grandma lived with her whole family in the GD in a tiny house where they all had to move into the basement during the winter because they couldn’t afford to heat the upstairs.  They reused everything and saved for the future.  She says people that are complaining today don’t know how good they have it.  Hard work and initiative will see America pull through.  I think we still have it underneath all of our SBUX and Gucci consumerism.
    Another suggestion for an in-depth trade explanation along the lines of this weekends Ag stuff would be a detailed analysis of all the paired ETF trades.  I’ve had great luck so far with FAS/FAZ, DIG/DUG, FXI/FXP etc.  Maybe focus a bit on the weath destruction inherent in the ultra’s and how that can work in our favor over time.
    Thanks for all the help, you have been a great an patient teacher.  Waiting for our Buy List again, though not today it seems.  Futures up over Friday’s open currently.  

  2. what happened w/ the futures; I go to be late last night, DOW down 90, Naz 11, Spy 8. 
    Now way up ??

  3. Cap, I think it was the euphoria at the sensex.

  4. Ah, major bank pumpfest going on — WFC, MS, BAC, C, GS, AXP, etc.

  5. I’m on the road heading back to
    NY from Florida and mostly old couples at the rest stops and eateries.
    I ask just about everyone how they are doing and most say hey I still have my
    Health! West palm beach is a ghost town I would say out of ten retail spaces
    7 were for rent or sale. It’s pretty bad out there and they say it’s getting worse!
    Sent from my trusty iPhone

  6. Phil – Its a good job one of us is optimistic.

  7. Phil, was just reading through some of your posts from last week as I was out of the country. I’ve been thinking about how inflation will affect corporate profits. Will inflation really inflate corporate profits and stock prices? My concern is the time lag that will occur. Rising input costs won’t be passed on to consumers immediately. Once they are passed on to consumers, demand will shrink for the now more expensive items, hurting profits. Over time, salaries may inflate as well and we may reach the equlibrium state of inflated profits and stock prices, but I think it’s going to be painful getting there. Thoughts?

  8.  Hey Phil hope you had great weekend away!
    Any thoughts on that article about Bilderberg Ilene sent out?  Do you ever factor the agenda of groups like that into your picks and projections?

  9. Any decent plays on Indian stocks this morning?  A little irrational exuberance never hurt premium selling.

  10. One block in Detroit – As a contrast with your optimists in DC you should read this and watch the video. Also commentary on the video at Seeking Apha

  11.  /OS sold last 1/3 AGU.

  12. Phil, I’m crushed.  You came to DC and didn’t stop by?  :-(   I could have showed you the bear’s den (aka man’s room)!

  13. 4 horseman stumbling out of the gate.    V looking like a good entry point.

  14. Thanks Where, remind me for this weekend – I’m hanging by the pool so will probably do some writing.

    Florida/Kustomz – Yep, they are almost as bad as Cali as they had too much boom and now too much bust.  Let me know how the towns along the road home look – that’s more interesting to me.

    I do my best DB!

    Bilderberg/Jofori – They are the "THEY" we are always talking about so the fact that THEY have a meeting once in a while sure isn’t surprising - actually it’s nice or I would think I was just being paraniod when I assume people are messing with the markets.  I was a little disconcerted to see the post on the Bilderbergs as the header of our mailing this weekend as it’s a little too conspiratorial for me but the computer simply leads with the most recent post and that was it – it does not imply greater importance should be placed on the content.  Of course rich and powerful people get together and talk about the world’s problems – it would be kind of silly if they didn’t wouldn’t it?   Yes there are secret cabals that try to control the world but there are also other cabals working against them for their own ends and, in the best of all possible Adam Smith invisible hand ways – somehow that’s how progress is made in the world over time as the competing forces balance each other out.   

    Gold is falling fast.  Oil tugged back hard from $59.20.  I have got to start lowering my short targets!

    Let’s keep in mind our dollar adjusted levels that will be resistance:  Dow 8,370, S&P 918, Nas 1,695, NYSE 5,587, RUT 476, SOX 256 and TRANQ 1,717 and we’re over most of thise already.

    The real breakouts are our 40% lines and they have been impassable so far:  Dow 8,412, S&P 945, Nas 1,716, NYSE 6,232 and Russell 513.  Those are going to be our key poitns and it will be the Nas that has to break up and hold it first, right now they are having trouble breaking 1,700 even though every other index is up aroujnd the 1.25% line at least.

  15. DIA   I’ve got Sep 87 1/2 covered with Jun 84.  About right?

  16. Looks like I spoke a few minutes too soon.  Now they are going.

  17. Phil,
    Shouldn’t the 40% lines be dollar adjusted too, similar to the resistance lines?

  18. India/Where  – I wouldn’t jump on that train.  I think there will be some fun shorts on the other side of this jump though.

    Detroit/DB – Detroit is a total disaster but it has been for 25 years (see Robocop).  One of the big debates I had this weekend was "is the government doing enough" and  generally I get the impression the Dems don’t want to be seen as "overdoing" things but I told them I thought that was BS of course and they need to whip out the checkbooks and start doing some drastic stuff to turn this and other neighborhoods around.  Of course, you know how political this all gets the second someone says "and we’re giving Detroit $10Bn to clean up abandoned homes, add police and social workers and take back broken down communities."  There’s a will, but there is currently no way to do what needs to be done.

    DC/Matt – No time but I’d love to next time.  I didn’t even see Oltac, my partner in the Hedge Fund so very busy…

    8,370 still a big problem for the Dow but they must make 8,412 to stay bullish and holding 8,370 is key for today.

    DIA/Eph – I’m taking the .50 profit off the table by buying back the June puts (setting stop there).  If we break higher, I’ll go full cover but very possibly this is a top already.

  19. For all of you bears out there…

  20. 40%/Pyern – Nope, 40% off the top is always going to be 40% off the top and the people who trade technicals and program systems to buy and sell at levels are unlikely to be making dollar adjustments for the most part. 

    Wow, so now SUN has a fire at a refinery and oil heads back up and XOM is flying and pushing the Dow over 8,400 – THIS is Bilderberg in action!  8-)

    Commodities flying even though gold fell to $921, that’s strange… 

    XLF testing $12 is a big deal, Qs over 32.50 but Nas still can’t pop 1,700 and there’s no real rally unless they do that.  OIH and XLE up 3% and keep in mind the Dow is still 100 points below Wednesday’s high so we are a long way from being impressed.

    It’s tempting to short the Ags but I’d rather see them go way up first and, of course, if it’s a real rally, GOOG would get off their ass.

    Aside from the holiday weekend we have an OPEC meeting on the 28th so not much fun shorting oil this week which means probably not much fun shorting the market either but no way I go longer without taking out those 40% levels.

    DIA/We raise stops .20 every .25 they make.

  21. Phil
    just a little clarification-you are buying back your June DIA putters, but if DIA goes further up, you would be selling a higher putter. Mine are 83 putters, so I would be selling 84s or 86s?

  22. DIA   I guess I misunderstood as I thought you should have been stopped out of the Jun putters (I was).  In any event, I am not naked with the Sep 87s.  

  23. now naked with Sep 87s

  24. Looking for some financial shorts for day trades … AXP   MS    WFC   BAC

  25. I95 dead…. troopers pulling over speeders seems like ever mile marker
    The road home looked like a never ending garage sale
    LOL but seriously looks like 50% of the population just up and
    Left. Plenty of rooms.. Just past another pulled over motorist

  26. Just in case you havent used it yet,  the thinkorswim iphone app is really good.  It blows etrades stupid app way out of the water.  A little battery hungry though.  But if you have your phone plugged into the car charger it is almost as good as having a laptop.  If apple could make a fullsize touchscreen the possibilities of this application would be amazing.

  27. GS upgrades BAC, JMP upgrades GS so I supose BAC will upgrade JMP to complete the cycle and con yet more suckers into their shares.

  28. IBN – Good Buy-Write candidate. Buy stock and sell Jun/Sep calls. e.g. Buy stock in low $30s and sell the Jun $25 call around 6.50 or Sep $25 fro about $8

  29. VLO getting into Ethanol biz.

    DIA/Drum – Yes, taking out the $83 putters and selling something else on the next pullback (or maybe the same).  IF they break over 8,420 and hold it, THEN we would have to sell 1/2 the $84s and see what happens next.

    DIA/Eph – the higher your Sept puts are the more you want to be covered.  I’m in Sept $86 so not as worried about a little hit as the Dow moves up but the more intrinsic value you have, the harder you get hit as it goes against you.  In my case, I made .50 on the $83 puts I sold on Friday so I want to protect that at all costs.   If I make .50 off a $3 call and I sell the $84 calls for $3, I’m still up .50 with $3 of coverage so no real difference to me at all. 

    My main goal, all the time with this spread, is to collect .50 per long share which is enough to pay for a roll up to the next srike (100 Dow points).  As long as I collect at least .25 per 100 point move up (as I did on the 1/2 cover), then my putters are paying for 1/2 the cost of my rolls which means I’m keeping my long calls well insured while losing 1/2 as much as I would have with naked put coverage.  That’s all I’m trying to accomplish, nothing fancy.  If your longs aren’t doing well enough to make that worthwhile, then you are overcovered or underinvested on the long side.

    Financials/Cap – I don’t know, looks like a FMD to me so far…

    I95/Kustomz – That’s an indication those local towns are scraping for money.  I’ll bet those speeding fines are stunning too….

    TOS/Craig – I have to get around to trying that.

    Upgrade circle/DB – LOL, I can think of several good cartoons to illustrate that one!

    IBN/M2 – NOW I would like to short them.  Crazy 30% gain on the day but I’m not sure they’re done in India so staying away for now.  I do like the July $25/June $25 puts spread for net .70.

    Now we have 2.5% being challenged on NYSE, RUT and SOX with everyone else at 2% except the Nas, who are still dragging at 1%.  If we start getting breaks higher than this then the QQQQ $34s could be a nice play at $1.04 so I’m willing to go in here and stop out at $1 (about $33.70 on the Qs, now $33.74), hoping to catch a breakout.  If not, maybe next time they challenge higher but no trade if they Dow can’t hold 8,420.

  30. craigzooka,
    TWS Iphone app.  I can’t figure out how to do spreads on it.  Can you do spreads on it?

  31. Hi – Stopped out on Q’s wanted to confirm I set it up correctly pls?

  32. I havent tried to do spreads yet,  just buying/selling stocks,puts,calls and monitoring my position.  I’m still a PSW newbie so I am not comfortable doing any spreads yet. 

  33. Coal is flying….ACI, MEE, BTU

  34. Phil – Here is the counter argument to your $1 trillion (or so) on the sidelines waiting to enter the stock market.

  35.  Phil,
    What are your thoughts on this play?
    (long) FAZ Oct 09 $2 Call – Now $3.55   (in at $3)
    (short) FAZ Jul 09 $6 Call – Now $1.12  (in at $1)
    Cost basis= $2,   currently up $0.53 on the trade
    Do you think it is worth HOLDING?  If so how long do you typically hold this style play with premium on the $6 selling off quickly a theta of 1.10 vs my $2 of .23

  36. bigs, you can trade spreads with the iPhone on ToS. Pick the option you want, then push the “trade” button (upper right), and you’ll be taken to a choice of spreads.

  37. thanks EricL

  38. Stop orders on options – open question – I followed the Q play from before, and set a closing order at Stop/Limit 1.0/1.0
    I suppose a stop limit is more likely to fail to close the position than a straight stop (?) , but I am also wary of spreads adjusting on these things.
    Did I do the right thing? What do other people do? Do you use stop/limit on options?

  39. Holy cow, now we have Larry and the new idiot both screaming from the right shouting down all dissenting opinions.  CNBC is truly unwatchable during Kudlow’s hour…

    Qs didn’t work but RIMM stopped falling so I do like giving them a chance at .95 if we can get in there, otherwise, sill looking for a momentum play on the way up.

    Stops/Steve – I have to make a reference post for this.  You can’t stop out the second you get crossed, you need to see a trend going against you for 5 mins at least.  Profit stops are different because it’s never a bad idea to take a profit but taking a quick loss on a spike is not as good an idea.  To go into the Qs properly you could buy 5 at $1.04, 5 at .96 ($1 avg) and 10 at .90 (.95 avg) which would put you .05 down with 20 at .90.  THEN you want to keep a tight stop or consider rolling or covering depending on what else is happening.  In this case, RIMM stopped going down, AMZN is positiive, GOOG is perking up as is BIDU and EBAY so I still like the play.

  40. PGF   You still like them for a hedged entry?  I have no position at the moment.

  41. Phil: what is your market prognosis ? are there events/news which will justify a bullish notion ? or are we going down ?

  42. Sidelines/DB – That could take some off the top but it’s out of $11Tn on the sides, not just $1Tn.

    FAZ/Gas – Well you have to weigh what better you can do with the $2.53 than ride this trade.  The $1.12 you "owe" is 100% premium so you WILL collect that on July 17th, that’s 40% of what you could cash out for now.  Your Oct $2 has pretty much no premium so it’s a non-issue unles FAZ drops lower than $4.53, which is the value of your cash out plus the strike.  Unless you have a pressingly better idea, all FAZ has to do is hold $5 and you make another .50 (at least) in 60 days, that’s 20% on your $2.50. 

    Stop limits/Steve – I don’t use hard stops but the limit is better.  I think we need to have more in-depth discussions on day trading here because there’s no need to run out of a contract that doesn’t expire until June 19th on May 18th unless things really change so when I say I’ll stop at $1 am going to give it a damn good look, not just immediately get out,  I may be so dreadfully wrong that the index tanks before I even have a chance to get .90 but, at that point, I’d probably start getting interested in a roll or DD unless THAT move was clearly justified.  A month is a VERY long time and, if you practice scaling in, it shouldn’t bother you when something moves against you (see Strategy Section – something else I need to expand on).

    PGF/Eph – I’m not in them myself but I think we picked them for something.  I do like them a lot.

    Prognosis/RMM – I’m still in cash so my prognosis is still who know…  With a pre-holiday week, I’m really just hunting and pecking until we see something firm up.

  43. Speaking of sideline money – 30-year going up fast so sideline money coming out of Notes – not looking good for DB’s premise!

    LOL, RIMM up 1.25% now.

    Just waiting for SPY to break 900 and then things can get interesting….

    Need to cover DIA puts with $85 puts at $3 (full), stop on 1/2 at $3.25.

  44. Phil:
    re IBN: I do like the July $25/June $25 puts spread for net .70.
    Which is the short leg in this kind of spread?

  45. Understood on stops, I have a lot to learn. Keeping it small meantime.
    Just for clarity please are you still long the Q calls?
    Thanks a lot

  46. …. Speaking of sideline money – 30-year going up fast so sideline money coming out of Notes – not looking good for DB’s premise! -
    I feel like the enemy :-(
    Come on the bears !

  47. India – personally the election results were disappointing for me. Another five years of bore, corruption and dishonesty, not to mention dynastic politics (any oxymoron in a democracy). All this euphoria in the Indian markets is misplaced in my view. The govt will not embark on any new reforms immediately. There is a looming real estate crisis which is soon to hit the fan. National security is going to be a big issue. With the Taliban being forced in the corner, the ISI of Pakistan and the Pakistani army would love nothing but to create trouble in India and divert attention and personnel to the Indian border from the Afghanistan border. The Islamists in Bangladesh are being pushed to the wall by the new govt there. It is only time ISI of Pakistan utilises the services of these disgruntled elements in Bangladesh to forment trouble in India.
    Sadly, I anticipate a terrorist attack soon in India. It will be a business center. Probably in south. Bangalore or Hyderbad. I wouldn’t be surprised if suburbs of Delhi are targeted. There is booming new businesses in this area.
    With the govt distracted in dealing with this looming security crisis, I am not sure there will be any serious attempts at economic reforms.
    Just few of my biased thoughts. :-)

  48. Phil, so you like FAZ to hold $5?  I’m thinkin of selling naked 5putters….

  49. IBN/Chaps – Buying the July $30 puts and selling the June $25 puts, never the other way around as it’s too dangerous.

    Qs/Steve – Yes still long as the Nas hasn’t broken 1,700 and the Dow hasn’t significantly broken 8,420 and my other indicators (GOOG, AMZN, BIDU, EBAY, RIMM) are holding up but I’m losing my enthusiasm as we are losing momentum here and I’m not sure how patient I’m going to be.  Overall, I’m considering that its natural for the S&P to have trouble at 900 and that is very possibly holding back the rest of the indexes but the Nas must do better soon if this rally is going to have legs.

    I think if we don’t break up by about 12:45 I may turn bearish for the afternoon

    LOL DB – every great hero needs a great villain!

    India/Ramana – That doesn’t sound good.  I agree this massive run is a bit silly but I’m really thrilled as we can get a nice, foolish run to short into, which I wasn’t expecting this week.

    FAZ/Onc – Well XLF is up 4% today and FAZ is down 10% to $5.25.  Another 10% down is $4.75 and another 10% down is $4.25.  So about 15% of upward XLF moves to get you to $4.25 and I think many financials are overpriced now so a few 3% dips in between and we’re still over $5 and just one bad day away from $6 at any time. If you want to sell puts, I like that idea but make sure you’re willing to DD at $4 as it’s very, very possible we hit that at some point. 

    Doesn’t look like enough gas to push us through sadly.  We need a catalyst.

  50. What an incredibly orchestrated move in the financials.  They are just bound and determined to make us believe they’re winners.  The hand holding that goes on for the buyers is amazing.  They’re trying hard to create a serene environment for the new bagholders!

  51. FTSE finishing at HOD about 4,550 (up 2.3%)

    DAX finishing at HOD about 4,850 (up 2.45%)

    CAC finishing at HOD about 3,330 (up 2.4%)

    So massive gains in Asia, 2.5% rule in Europe and only the Nas not up 2% means I still think we break through.

  52. That was our catalyst, by the way, EU closing at highs!

    This is, of course, not a fundamental reason to rally but we must keep our brains switched off for the duration and stick to watching our levels. 

  53. Ramana – I agree with the Taliban/Bangla threats & terrorists ‘being pushed’ into India bit. However, short of a bad terrorist attack actually succeeding, having a govt. that will no longer have to make too many concessions will help keep growth high. Given that Indian economy is much more non-export dependent than China, once you get stories saying it is the next big ‘growth engine’, stocks will continue higher…
    Also, don’t forget the FII $s flowing into India again after going the other way between most of May 2008 to Feb 2009.

  54. At 12.20 some new buying spiked AAPL by $ 2. That seems to have spiked QQQQs and DIAs.

  55. Phil,
    would you roll up to $87 DIA puts?

  56. Phil, I agree.  I think we are are all going along for a ride today.
    BTW, I’ve sent you an email.  Thanks-

  57. Phil: FAZ/FAS trades now with such extremes again .

  58. Stopped on Qs at $1.12.

  59. phil
    great call on the QQQQ’s!

  60. RDY – Added to stock owned for long-term. Safe (or more safe) Indian Generic Drug maker. Announced earnings after Indian Markets closed. Also expect it to benefit from general Indian stock euphoria…

  61. Something bought 2 million shares of AAPL in under 10 minutes causing the spike.

  62. DIA/Maxt – I would always roll  up $1 for .50 if it’s there. 

    QQQQs – I stopped out at $1.12 by the way because it hit $34 on a rush but then gave it up quickly with the $34s topping out at $1.15 (10%) so my 20% (of the profits) trailing stop kicked in with no reason to over-ride it.  As I said before, you can be flexible about not taking losses when you have time but taking profits is an absolute.

    Also, as it was full cover and I made a very quick .15 on the DIA puts, I’m taking them out too as that’s now .50 gained today (.50 on 1/2 and .15 on full) so I’m willing to wait and see if new highs can be made but now I have enough to roll up and half cover and relax.  It is NOT necessary to make all these adjustments, I’m just trying to communicate what I do to squeeze every penny out of these covers.  Overall, the same half cover we started the day with is good until you get the roll up, then it’s time to adjust most likely.

    Homebuilder sentiment is up to 16 (50 being the bearish line).  This is being spun as good.

    AAPL – There’s a good reason not to trust the rally. 

  63. Phil
    re: IBN/Chaps – Buying the July $30 puts and selling the June $25 puts
    You said originally $25 on Julys. Still true?

  64. Buying out my FAZ $6 calls for .60 and FAS $7 puts for .45, both up 50% (part of put/call sales against the stocks).  The undelyings really didn’t move enough to change but rules are we take 50% gainers off the table, look to reload later.

    MOS $50 puts at $2.10 – seem cheap to me.

  65. IBN/Chaps – Sorry the $25s on both!

  66. Are the FAZ $6 calls for .60 and FAS $7 puts part of the $100k hedged portfolio…

  67. Phil

    re: MOS $50 puts at $2.10 – seem cheap to me
    Stops on naked puts only if so specified? Otherwise, do we assume you’re willing to take the assignment?

  68. If the VIX keeps dropping I’ll have to really change my standards about what I want to receive for a 1 strike up cover.

  69. OK – here’s the thought process on the Qs:  Great I made money but I don’t know why I made money so I’d better take it off the table while it’s still there.  This is a very important attitude to develop.   Sitting around as a day trader and being all pleased with yourself when you make a gain will lead to your losses reversing half the time.  Day trading is all about quick strikes.  Especially with a play like the Qs, which did go the wrong way at first so we were lucky to pull out a win then we have no business trying for 20% when 10% was just handed to us on a silver platter. 

    Now Geithner making nice noises at a conference but that was probably pre-planned so nothing to get excited about.  We’ll see if it ends up being a "sell on the news" thing or if we get another pop.  Very hard to call this market which is why cash is so attractive here.

    FAZ/FAS//Margret – No they are not part of the $100K. 

    Speaking of FAS.  They topped out below $10 and that’s a $1 gain at $9.85 on the underlying.  The $7 callers are only up .50 and I already made .60 on the puts that I bought back so the logical thing to do here is sell the underlying at $9.85 and leave the naked $7 callers, now $3.10 with a stop at $3.25.  These are margin-intensive adjustments and certainly not for all but, while we’re slow, it’s good to discuss the nuances of these trades. Of couse I’m doing this because I think the move in financials is overdone, not just because I made a little money as generally I’m happy to ride these out to expiration but once you make 50% on any leg, you need to reassess the rest and I’m ujp 10% on the underlying as well so silly to let that get away. 

    Stops/Chaps – Just like any other front-month trade, I’m looking to make 20% and get out in general.  This is buying puts, not selling them so I’d be very upset to be assigned although if someone wants to put them to me at net $47.90 while the stock is at $54.10 I’ll just grin and bear it.

  70. Phil; SNDK: is it too early to sell jun 15 calls against my stock ?

  71. This mornings activity leaves me unconvered long Sep 86 DIA Puts.
    I am in wait and see mode at the moment, do you think this should be covered or adjusted pls?
    Thanks a lot

  72. Just spent 20 minutes reading the latest set of Phil’s Favourites. It just make me want to increase my shorts. The disconnect between the way the market behaves and the way these guys describe the happenings/about to happen in the economy is boggling.

  73. Phil:
    This is buying puts, not selling them
    Yes. of course. Sorry!

  74. SNDK/RMM – When in doubt, sell 1/2.  This was a nice bump and we’re not trusting the move 100% so selling 1/2 the $14s, which can be rolled to 2x the July $17s is a very reasonable start.

    I’m very tempted to buy DIA $80 puts for $1.15.  As I said, I’d get bearish if we didn’t break out and this isn’t much of a breakout so far.  I think if the S&P can’t hold 900 I’ll like them for a mo play and I don’t mind being "stuck" with them as a roll up to the $81 puts, then $82 puts at .20 each (now .27) and then a DD on the $82 puts, which would put me in for avg $1.40 with the $82 puts at about $1.15 (down 20%).  Since the Dow would have to be up 200 for that to happen, I’ll need (since I doubled) a 50-point pullback to get even.  That’s the trading plan for entering the $80 puts at $1.15.  Sadly, in the time it took me to write that, they went to $1.17 and I’m not going to chase but hopfully they bounce back one more time before failing

  75. Phil – In regard to the latest Tyler Durden article in Phils favourites – where would you invest if you thought Moodys would downgrade USA currency credit rating ?

  76. Phil:
    Stops/Chaps – Just like any other front-month trade, I’m looking to make 20% and get out in general.
    So then, stops on losses too I imagine: say 10%.

  77. phil
    what are you thinkin about mos 50 puts here?

  78. I’d be a little cautious about shorting ags/commodities until we see more Euro weakness and dollar strength. It seems like the Euro is still overbought, but it’s showing continued strength today.
    That said, I am bidding on some cautious (low delta) POT put diagonals: long Sept 120, short June 105.

  79. Thanks Eric

  80. DIA/Steve – As I mentioned above, I’m now uncovered on the same puts with an offer to roll up to the Sept $88 puts for $1.  IF my roll triggers, THEN I will absolutely cover (1/2 of whatever gives me $3) to make sure I collect what I spent.

    Disconnect/DB – As I keep saying, what you have to disconnect is your brain to trade these markets.  People are optimistic.  Stupidly so but optimistic.  Only 60% of the people in this country believe their homes have gone down in value in the last 12 months and 60% of the people feel things are getting better and 60% of the CEOs surveyed now say they think we will turn around this year.  We know for a fact that 60% of the homeowners are wrong as there’s not a place in this country that held value for 12 months so the question is how clueless are the 60% optimists of general economics (more than half for sure) and CEOs (I’d still go for half).  Now, clueless or not, if 60% of the people are all determined to move things one way, then you and your 40% wil have a tough time fighting it no matter how "right" you are. 

    US Downgrade/DB – I still like Australia best.  I wrote about it last month, they have lots of ways to win but, of course, gold is going to do well if people can’t trust dollars.  If you have $1M tucked away somewhere and need to get rid of it, nothing is better than gold to convert it to.  $1M is just 68 pounds of gold (just over 2, 27-pound standard bars), very easy to stick in a safe. 

    Stops/Chaps – You never want to lose more than 20% but you have to look at the total trade.  If I’m scaling into a position that costs $5 and I intend to invest $5K, I may buy 200 at $5 as a first round.  When that drops 20% to $4 my "stop" is really a decision point at which I either take my loss, which is $200 out of my $5K intended commitment (4%) or I may DD, which would give me 400 at $4.50 average and I would be down the same $200 only now it’s 11% of my new net.  If I decide I want to ride it out, my next DD would come at $3.50 most likely, a 20% drop from where I was when I entered my 2nd round and now, at $3.50 (30% down from where I started), I would have an average entry of $4.50 on 400 shares so I’m now down $400 or 8% of my intended full position of $5K.  This is the point at which you strongly should consider cutting and running and is also where IBD suggests all losses should be cut.  Unless you have a SPECTACULAR reason to stick with the trade, getting out 30% wrong with an 8% loss is always prudent.

    Still if you decide to stick it out then you can certainly DD again at $3.50 to bring your avg down to $4 on 800 units, still down .50 per but a recover to $4 will make you even.  The other good news is you only spent $3,200 to get 800 units wheras, had you bought 800 units at $5, you would have spent $4,000.  Now, doing this with a contract that’s going to expire that is literally getting worth less every day is not a good idea but with stocks or longer options that you really believe will come back – ESPECIALLY IF YOU CAN TURN AROUND AND OFFSET YOUR LOSSES WITH THE SALE OF SHORT OPTIONS – this can be a great way to save many plays that go against you.

    The big trick is learning to be satisfied with quick gains.  In that same play, if you buy 200 units at $5 for your initial entry and they go to $6 and pull back to $5.50 – you need to walk away with your $100 gain.  Not very sexy when you have $4,000 in cash sitting at the side but do that 10 times a year and you’re still making 20% on your money and look how much more flexible you are in both directions.

    MOS/Bj – still $2.05 and I still like them but the market keeps on running.  If the indexes break the 1pm highs, we have to give up on being bearish but it feels like an afternoons sell-off to me.  Of course, this is me using my brain and not just watching the levels as we’re over 2.5% on the NYSE, SOX and RUT and over 2% on all the others so generally a bullish sign not to be trifled with.  I just don’t buy it as I see NO substantial reason for it and I feel more comfortable taking some bearsh gambles than bullish after a 178-point run.

    POT/Eric – They scare me more than some of the others but I’m really not liking the whole sector at these prices.  We’re rallying based on India but if their GDP grew 10% this year it would be $120Bn of new demand in the world – AIG lost more than that last quarter – this is no reason at all for the US markets to gain 2.5% ($600Bn).

  81. volume very light today.  Do we break up or down into the close?

  82. I know Phil doesn’t like calendars very much, but in case anyone is interested, July AZO options are currently trading at a nice discount relative to June. Implied volatility on July options is down to 34.5% which historically would be laughably low for this stock (although it has recently traded in a tight range of 155-169). The June/July 160 call and 150 put calendars are only  about 1.90 each. The premise in this trade is that either the stock starts moving, in which case the IV on the Julys will perk up, or the stock flatlines in this range, in which case these are a nice double or triple.
    Phil or others may know better ways to trade this, but this is cheap and requires no margin.

  83. Phil  what do think abou  ms  selling the 27 june 27 calls and selling the june 27 puts  thanks

  84. Up or Down/Rookie – Yes.

    Calendars/Eric – I like calendars but not ones with one month between strikes.

    Art Cashin saying the same thing I am.  "THEY are doing something different today so I’m going to sit on the sidelines and see if the resistance holds."

    Here’s Cramer:  Still pushing ADP, who are finally finding a floor. 

    RIMM is crankin’ now, up 3%!  Qs testing 34 again.

    UAUA still good at $5.04.  Selling July $5 puts and calls for $1.80 nets $3.24/4.12.

    CAL also nice at $11.04, selling July $11 calls for $1.75 and July $10 puts for $1.25 nets $8.04/9.02.

  85. This is the bit I feel difficult too
    As I keep saying, what you have to disconnect is your brain to trade these markets. 
    I guess what we have to remember is, it is not so relevant whether the economy is getting better or worse or if we are right or wrong. The only thing that matters (if we want to make money as opposed to be right about the economy), is calling the direction of the stock market. It is pretty clear that the economy and the stock market do not move in the same direction all the time, a fact which I find consistently overlooked in most of the bear cases I am reading…
    Thanks for the clarity on the 86 put roll up, that’s what I was missing :)

  86. Phil, just picked up DIA Sep 88 puts today (at 7.25). Should i sell covers now and if so which ones?

  87. Well theres certainly no one thinking today – what on earth is driving things up now ?

  88. Phil, I generally agree, but in this case the July IV is well below the other issues, for some reason.
    And just to be clear for anyone interested in trying it, the trade would only double or triple on an AZO flatline in the 150s, not the 160s. I picked the 150s because the stock has been showing relative weakness.
    I’ve lowered my bid on that POT spread to 14.50, and I’m now not sure I want it even at that price.

  89. Businessweek just featured US Air (LLC) as well for a recovery FWIW.

  90. DIA  I’m not a day-trader, but even I know not to look a gift horse in the mouth.   The Jun 85s I sold for 3.05 are now 2.72 so I put in a closing order with .05 trailing stop.  We’ll see what happens.
    When rolling up your longs, I usually put in .50 for $1 in strikes, but I’ve filled a few times at .98 for $2.  

  91. Phil – What happens if VIX putters end up in the money? VIX has no underlying stocks which can be assigned. Thanks

  92.  I know why the market is going up — if the country to which we are exporting our high tech jobs is happy, then we must be happy!!  Sheesh--how many Indians took the election to be meaningful change--i mean, are they going to wipe the caste system away?

  93. Phil, can you explain in detail the trades you do with DIA especially when you refer to covers, roll ups, etc? Are you selling, buying, naked etc? Apologies for not understanding. Thank you.

  94. Oil back at $59.65 after NYMEX close (they tapped $60 but failed).  I have to start scaling into a short here as it’s too tempting. 

    MS/Bill – I wouldn’t be greedy and just sell the $26 puts and calls for $4.20 for net $23.51/24.76 vs $23.71/25.36 the other way as the goal should be to have a very GOOD possiblity of being called away with a profit.  Once you get ahead, you can mess around trying to maximize premium but, if this trade goes bad on you, you’re spending 3% more to own it.  Do that 10 times and you blew 30%.

    Bad brain – See how thinking got me in trouble when I should have just gone with my levels!

    FSLR getting back to where we like to short them…

    DIA/Mampcs – With that high of a delta you should have some cover.  This time of the month with 3 months between you and the putter, a half sale of whatever gives you $3 is best.  That allows of you to be 300 points wrong on the Dow (at .50 per $1 to roll up) without getting hurt to badly and you have a nice delta advantage to the downside and plenty of time to roll them down otherwise.

    LCC/Pharm – They don’t have $3 strikes so not a good candidate but the premiums are pretty good if you are patient like the Sept $2.50s are $1.87 which is net $1.26/1.88, a nice trade if they don’t BK.

    Rolls/Eph – I often put in for $1 for $2 as it’s less commissions anyway…

    VIX/Ranj – I believe they are cash settled (you owe the net) but I just roll ‘em out to July anyway.

    Uh oh bears – NOW GOOG starts to move….

  95. Stopped out on the DIAs and naked.  What I need is a nice 300 point drop so I can sell full covers and forget about it since I’m not going to be able to trade that often when I start my job with AXA.

  96. Back from a long lunch … another damn FMD ??!
    Shorting what are hopefully 3 pm tops … AXP DIA POT — why not ?

  97. Ooh, Jan ’10 SKF options are available (in very limited strikes).
    Phil, what do you make of these? ToS shows IV at 47% (all other issues are 100%). This makes no sense to me and I wonder if it’s a mistake. If it isn’t, these could make a very nice platform for selling premium.

  98. DIA/Savannah – See this article on mattress plays for the basics.

    DIA – Going naked with Sept $86 puts into the close (now).  Market overbought on not enough fundies

    FXP $15 puts can be sold naked for $1.40.  A bit risky as China could follow us up but a good start to a scale-in.

    I still like the MOS June $50 puts, now $2 but that is one crazy sector.

  99. Wow, this is one of the most bogus days in the financials that I’ve seen in some time.  By the looks of the UYG chart you’d think there wouldn’t be a worry in the world.

  100. Phil: it wants too finish high,
    are we going naked overnight with dia putt ?

  101. Phil - Market overbought on not enough fundies. Careful – thats thinking and could easily backfire , but I sure hope it doesn’t :-)

  102. Sold my PG…Bought some T 24.50 I drew a line in the sand.

  103. Thanks Phil; but link went to home page.

  104. RIMM  My adjusted position is + 1 Jan 11 50, + 3 Sep 55 / – 4 Jun 60.   What do you think about my rolling Sep 55 -> Sep 70 and Jun 60 --> Jun 70.  Normally I wouldn’t have 3/4 of the calendar on the same strike, but the Jan 50s should keep my delta in line and I can basically do the trade for flat.  The other option is to roll the callers to Jul 65s for $3.00.

  105. Just to be clear- you are talking BUY MOS 50 puts?

  106. UAUA  That buy write looks like aprox 33% discount if assigned….   I like this play,….  is there another we can play that is more aggressive?

  107. That is another on UAUA

  108. VNO and BXP up 7.5% and 8.3% on the day…crazy!  I don’t understand it…isn’t the commercial market about to fall apart?

  109. Looks like we will be long Jun 80 DIA puts overnight as well…

  110. SKF/Eric – Well it’s normal for longer contracts to have a lower IV, it’s just the scale that’s in quesiton.  Of course, if you can get it for that price ($28 for the June $43 puts and calls), you can use that to your advantage selling the July 43 puts and calls for $14.45 for net $13.55 on the spread.  Whichever way SKF goes, you can adjust and, as long as you can sell another $14 in premium along the way, you should do well with that spread.

    Once again, DBA is just not as excited as our ag components but better to wait for it to give us a proper sign before going heavily short.

    This very low volume rally can be quickly undone so be careful if you were long. 

    Serious push right at 3:30.  Too much thinking but I just have to short into this sort of nonsense. 

    NYMEX nonsense also continues.  342Mbarrels "on order" for July but, just ahead of settlement, only 58M barrels on order for June.  They already shoved 90M barrels worth of contracts into Aug and both July and Aug were last traded cheaper than June is right now $58.70.  On the futures I used the blended CL contract to trade, that’s at $59.78 and I’m still hoping they test $60 but a strong close here and I’d rather wait to see what Asia does this evening before shorting oil.

    Very possibly we open tomorrow at last Wednesday’s highs but then it will be hard not to fill the gap back to Friday’s close or at least last Wednesday’s open, which was also Friday’s open.

    Link/Savannah – Try this:

    RIMM/Eph – Why leave the Jan out of the mix, it’s dead money for you like this.  The Jan $50 is $28.90 and the Sept $55s are $22.27 but the Sept $70s are $12 so you can roll the Jan $50 to 3 of those for $14 and roll the 4 June $60 callers at $15.90 to 6 July $70 calls at $9.50 for a little extra.  That leaves you with a good net delta, $15 in the money to 3 of the callers and even to the rest.  Essentially you are taking $15 out of pocket to pick up $30 of intrinsic value (against the 3 $55s) while rolling your 1 Jan $5 that had $10 of intrnsic to it’s caller to 3 Sept $70s that are 75% covered by the July $70s.

    MOS/Pstas – Yes but not looking good right now as we are getting a push up to Weds highs already.

    UAUA/Becker  – remind me later and I’ll look.

  111. DIA/Steve – Yep, don’t forget to roll up!

  112. Well, Phil I picked more or less that position. IV on longer-dated options is usually higher, not lower, all other things being equal since the expectation is that the stock will make a larger move over the larger period. Of course there are lots of things that can skew it the other way, but this is really unusual.
    Incidentally, this kind of thing did happen with LEH options near the end. IV on long dated options basically collapsed relative to the front months, as the expectation grew that the stock was either going to bounce big quickly or disappear forever.  You could buy a Jan/Sept. 4 strike calendar for .11 (ask me how I know….). Maybe the pricing signals a similar expectation for SKF, but even if it did the puts would still work.

  113. Phil: did not know what to do with this market all day,
    the Dia put longs are becoming very costly as its difficult to make gains of the shorts.
    Even the MOS put did not work, shorting today backfired with market continuing going up.

  114. RMM, I feel your pain. I was so well covered today that I made nothing at all on that run…

  115. Got my DIA roll for .22 so in the June $81 puts for $1.37, now $1.19 (down 13%).  I offer .22 to roll up to the $82 puts and I’ll be in for $1.59 and if they are $1.19 at the time I get it I’ll be able to DD at $1.19 for an average of $1.39 with the $82 puts at $1.19 (down 14.4%) and, despite being 200 points wrong in my entry I’ll have 2x the contacts of a $2 higher strike than I had intened to enter at for just .10 more per $1.  If the Dow goes up and up, you are still screwed but, since we started on a 150-point gain and we fully enter 200 points later, that’s 350 points 4% without a pullback at the point where we make a stand.

    Man they jammed it up to get 8,500 didn’t they?  Nas up 52 points on the day (3%) ended up being the leader after all, jumping ahead of the Dow and the S&P after all that lagging thanks to major pump action from the horesemen.  RIMM ended up 4.4% after dropping like a rock this morning on big volume.

    Shorting/RMM – Yep definitely not a good day for shorting.  Still it’s a nice base to cover the bullish plays we still have along with new buy/writes we can lay on now as we do have downside protection. 

    Will be interesting to see how tomorrow shapes up.

  116. So was it just the housing numbers or India or what ?

  117. RIMM  It cost me $309 to roll my Jan 11 50 --> 3 Sep 70s, but the market close before I could roll the callers.   TOS’s mid for rolling 4 Jun 60s --> 6 Jul 70s was 3.30, so I put a GTC at 3.00.   Do you think I can do better than that?

  118. click margaritaville funny south park episode must see

  119. MrM   I’ve been overcovered for much of the last 6 weeks, but I killed a lot of callers on Friday.  Today was the first day that I really participated on a good move.

  120. 12 million shares of UYG were traded in the last 5 minutes of the day.  The last time that happened we had a huge gap down the next day.  Not saying it’s going to happen tomorrow.  Just making the observation.  I’d be more inclined to say it would happen if we hadn’t broken the high from Tuesday today.

  121. UYG/matt   I didn’t even realize that my order to sell a 1/2 cover at .50 had executed until you mentioned it.

  122. Oil up , Gas up – same old mistakes, Same result when people come to their senses.

  123. "As investors have turned more upbeat, the smartest money in the stock market has been leaving the party," TrimTabs wrote in a note to clients.
    TrimTabs, run by Charles Biderman, tracks share buybacks and acquisitions, along with new equity issuance by companies and stock buying and selling by chief executives and other corporate insiders.
    This allows the firm to gauge the level of outstanding shares, or "float," in the market — potentially useful information when trying to work out which way prices are heading next. It’s particularly helpful because companies and their executives know more than outsiders such as investors, TrimTabs argues.
    Judging by the behavior of these insiders in recent weeks, the signs aren’t good for the stock market, the firm said Monday.
    Last week there were $31.3 billion of new equity offerings, as many of the nation’s largest banks sold stock to raise new capital, TrimTabs reported, noting that’s the highest level of issuance this decade.
    "Companies took advantage of the rally to flood the market with new shares," TrimTabs wrote.
    Meanwhile, announced corporate buying was "almost non-existent," no new cash takeovers were unveiled and insiders sold $500 million worth of stock, the firm added.
    The overall float of shares in the market soared by $34.6 billion during the first 10 days of May. That puts this month’s float increase on course to be the largest this decade, TrimTabs said.
    "The message the ‘house’ is sending is clear — investors should get out of the stock market," the firm concluded.

  124. matt, I think the UYG trade may have been people gaming the ultra-rebalancing at the end-of-day. I was reading that some prop desks send out alerts to their clients when they think there will be an end of day rebalance.
    Hypothesis re: the SKF IV skew. IF the index makes another large move, it’s likely to be over by Oct. For instance, if SKF keeps getting hammered, it will probably be in single digits by then. So on this assumption, there is no point to paying more for Jan puts vs. Oct. I can’t think of any other reason the Jans should be this cheap.

  125. Sorry – more thinking…
    The National Association of Home Builders said Monday that its index gauging builder confidence rose to 16 in May from 14 in April, after moving up five points in April from March. The increase in the NAHB/Wells Fargo Housing Market Index was led by the component of the index that asks about the outlook for future sales. See Economic Report.
    Well, 16 is pretty darn good compared with 9, that’s for sure. Unfortunately for the builders — and the economy, for that matter — this is on a scale of 1 to 100.
    Let’s see, that leaves us 34 points short of 50, which is the point where there would actually be more builders saying things were good instead of bad. And even if the up moves of the last two months extend beyond this little happy-as-a-lark spring fling, it will take about a year before we reach that breakeven mark.
    It’s hard to translate those numbers into "the best home-buying conditions of a lifetime," as the NAHB chairman, Joe Robson, a builder from Tulsa, Okla., tried to do in a release announcing the data.
    Yes, affordability conditions have improved as mortgage rates remain near historic lows and home prices have fallen at a record pace for most of the last year — and those falling values, by the way, are no help to the builders, who have slashed asking prices and loaded up the freebies to entice the few buyers they can locate. And an $8,000 tax credit for first-time buyers who act this year certainly doesn’t hurt.
    "We think the season’s modest uptick is fueled by spring euphoria," said John Burns, CEO of Irvine, Calif.-based John Burns Real Estate Consulting, who conducts his own survey of builder attitudes. He acknowledged the positive influence of mortgage rates, tax credits and improved affordability, but he said the future isn’t as bright as some think.
    "Further improvement is tempered by the ongoing competition from foreclosures, limited credit for both buyers and builders, and rising unemployment. Concerns over escalating REOs [bank-owned real estate] and further price erosion still weigh heavily," Burns wrote in a Monday note.

  126. IVMODA – link to article on commercial real estate - and yes its going to go down !

  127. Or what/DB – Mostly India I think but that market is so easy to manipulate.  The Sensex is, like the Dow, 30 companies but at least they are weighted by market cap so not the same level of BS that the Dow is. 

    RIMM/Eph – You have to be very leary of any price TOS gives you on a roll.  The June $60s are now $16.27 and the July $70s are $9.80, it is not to your advantage to roll while RIMM is going up as your callers are mainly intrinsic and have higher deltas than the calls you want to roll them to.  You should be rolling $6,580 to $5,880 so cost of $700 over 4 is $175 per current contract.  Maybe pay $200 but $300 is BS.  Better to roll the 4 straight so you can see you’re getting the right price and sell the other two later (if it goes up, you can sell the $75s instead and if it goes down, you can sell the $65s if you have to).

    UYG/Matt – Good catch.  I don’t put much in a rally on 1/2 normal volume but we said that from 7,000 to 8,500 already so we can’t be too choosey…

    GM went up 7% so there was nothing selective about the buying and OIH went up 5% with XLF up 6.66% – very cute…  FXI jumped 6% and China only went up 2.5% this morning so anything less than a 3.5% move up (600 ponts) will be a disappointment this evening.

    Notice we’re back to non-stop bulls on CNBC. 

    Gold dropped below $917 so everything must be FANTASTIC (even though oil is still almost $60).  Bears are really screwed if GOOG starts one of those up and up and up moves they do sometimes where they gain 10% in 3 days. 

    Dollar dropped 2% against the pound since London opened this morning and is at the lows, down just over 1% against the Euro but Japan jacked us back over 96 Yen ahead of their open and the Nikkei futures are up 2% on that news.  So follow-through in China, Japan and India and Europe finished at their highs so anything less than a strong open for us tomorrow would be disappointing. 

    Our highs were Friday the 8th, 6 sessions ago and they were DIA 8,585, Nas 1,770, S&P 930, NYSE 6,000 and RUT 510.   Despite the low VIX, betting on those gains is premium prohibative.  It does occur to me that hitting those highs and driving the VIX below $30 allows fund managers to buy cheap protective puts so they can sell in May and go away so I’m going to stay very suspicious of anything that doesn’t take out and hold these highs.

  128. I know everything I post is bearish but you lot are far too optimistic. (And yes I do trade with the markets and not my brain ! But even so I am taking small positions ready to build up to the big fall thats coming) So here is another insight into how China is due a fall and the US may follow.

  129. How an improved outlook by homebuilders (hmmm….are the insiders buying their stock yet?) translates into a bullish run in commercial REIT’s simply doesn’t make any sense.  The rally off the lows in these REIT’s in the midst of declining fundamentals begs for a significant correction.   Granted, I live in Las Vegas…but I see retail strip malls dying right and left with no visibility as to who will come in to lease these pads in the next few years.  I saw this in Phoenix in the 80′s….once these strip malls are crippled by the anchors leaving, they get relegated to yogurt, nails, smokes and die a slow drawn-out death.  New development, whenever it comes back, will seek new areas long before considering redevelopment – the demographics once spoiled take multi-generational timeframes to recover (if ever…to wit:  Detroit).  I’m looking to make a short play in KIM…I think the next couple of years are going to be rough for them.  Maybe they can sell properties to avoid the capital markets for a while, but their bullish acquisition spree in the last five years along with probably the worst industry sector performance (retail RE) in a generation tells me they’re going down.

  130. SOLF interesting at $5.07, selling $5 puts and calls for $1.58 nets $3.49/4.26 but it is technically smarter to sell the naked $5 puts for .80 as an initial entry.  It’s a wild ride of a stock so scale in no matter what

    Optimistic/DB – It’s all a function of what you read and who you follow.  Here’s an article that’s very bullish on the market.  There are good points made on both sides and the truth is probably somewhere in between.  

    Lovin FAZ at $4.84, selling $5 calls for .72 and $4 puts for .32 for net $3.80/3.90.  I also like the Oct $2.50 calls for $2.80, selling the Oct $4s for $2.10 so net .70 means you’re in for $3.20 effectively.  A fun way to hedge the financials mid-term is buying the FAZ Oct $2.50s for $2.80 and selling the Oct $5 calls for $1.85 and the Oct $3 puts for .70, which creates an artificial buy write where you are in for $3 (the net .50 plus the cost of your call) / $3.50 but you don’t get put 2x if it heads down.  Your max gain is $2 of course but your break even is almost 40% down from here.

    There is also a complicated FAS play where you buy the Oct $15 puts for $6.85 and sell the Oct $10 puts for $3.30 and the Oct $10 calls for $3.30 so you are in the $5 put spread for .25.  If FAS goes up, you need to buy it at $10.75, which puts you in FAS for net $11 and you can lose $1 if you get called away at $15 or higher (but, of course, you can roll the caller).  Below $10.75 you get back out of the underlying ETF and the pennies you lose going in and out are your cost.  The idea of this trade is to play for the erosion of the ultra ETF over time, regardless of how the underlying performs but keep in mind the main idea is a cheap downside hedge on the financials since it costs you .25 for the $5 downside spread.

    AXP, who jumped 7% today on nothing in particular, announced they are cutting 6% of their workforce (4,000 people) and restructuring. 

  131. man, this ToS iPhone app really is sweet. tons better than their old thinkpod software that was web based.

  132. FAS complicated play – is brilliant, thanks Phil.  Let’s add it to our arsenal.  Applying it to the QLD, TNA, ERX gives even better results.  I like the buying the underlying stock to cover the upside, then sell it to gain on the downside.  Very fitting play for the ultras that erodes with time.

  133. DB lol is it all optimistic?
    We are actively managing our DIA puts, and there is yet another financials hedge posted right above.
    I see at least as much risk in having no longs as having unprotected ones.
    How much of a sell off are you waiting for?

  134. Peter, I’ve been playing TNA different ways lately so I like your idea, did you compute using the +30 puts and -25 puts and calls?  If so, what is the buy point where you would buy the shares to cover, I’m not certain how to calc that? Thx.

  135. Good Morning everyone.
    StevenP – As a counter to Phils inflation/sidelined money/drop wrong in the first place Tyler Durden has a good chart showing that Earnings were mainly as a consequence of cost cutting rather than revenue. I personally can see no justification for most of the gains other than relief ! This article shows/discusses a P+F chart of the S&P and concludes the rally is running out of steam. I suspect the drop to 770 as discussed there is on the cards.

  136. Morning DB. I am on your side (and Merk, and Matt, etc) and strongly believe we get at least a retest of S&P lows based on a classic ‘W’ in the economy that should show up in ISM and unemployment. However, these indicators could still take weeks or months to reveal the headfake. Big picture, I guess you could argue that the 2003-2007 bull market was part of a massive ‘W’ in a secular decline.  So I am trying to become less idealistic in my trading (which has mostly been futures) and transitioning more towards options trading where I can worry less about the directional aspect of the market.
    Phil / Maybe a weekend question for you, but I know you have made comments in the past about "going 55% bearish" into the weekend. With those kinds of comments, do you mean that you have a slight negative delta for your portfolio? Any tips on how to best monitor your overall portfolio delta / directional exposure? Do you tweak your DIA mattress plays based on your portfolio delta? Thanks.

  137. Good Morning Phil & all

  138.  morning – fue-chas up almost 1%; I’d be more excited if India and Pakistan just gave up nukes.  Imagine if all their children could hold hands accross the disputed border.

  139. Good morning!

    Sorry bears, not looking like we’ll be making that "W" this morning! 

    The dollar is down another point EXCEPT against the Yen where they jacked it back to 96.5 long enough to give the Nikkei a huge rally and, while this is the most blatant possible manipulation – it doesn’t seem to stop the markets from rallying on it does it?  We’re pretty much getting the pre-market pump we expected as Asia follows through on the rally and Europe continues the trend.   If the cycle is going to break, it’s going to break here. 

    Oil had a crazy night, testing $61 at 3 am, now $60.28.  Only Building Permits and Housing Starts for data this morning and HD already beat low expectations on 10% less revenues than last you (cost cutting rules DB!) but APP had a big miss and we have DKS, SKS, MDT and VOD for consumer stocks this morning along with DHT, JASO and SOLF,  HPQ is the Big Kahuna after the bell but IBM had a nice beat and DELL was a beat last earnings so don’t count on them to be bad.

    Very hard to BUYBUYBUY up here but we’re not going to have a choice if we start taking out those highs…

  140. Asia Markets :    Tuesday, May 19, 2009
    (The following is from Yahoo; please cross check with other sources to confirm.)   

    Australia All Ordinaries*                                3800.60      79.00    2.12%
    Nikkei Average*                                               9290.29    251.60    2.78%
    Shanghai Composite*                                   2676.68       23.90    0.90%
    Hang Seng*                                                   17544.03     521.12    3.06%
    Seoul Composite*                                          1428.21       41.53    2.99%
    Singapore Straits Times Index*                   2260.36       83.38    3.83%
    Bombay Sensex*                                          14302.03       17.82    0.12%
    Baltic Dry Index                                                2605.00       61.00    2.29%

    *at Close

  141. India & Pakistan – occam, this a trading website, I will not get into political discourse. Sorry :-)

  142.   Goooooooooood morning Vietnaaaaaam,

    wow…. I go away for a day and the market gremlins go out and play bizarro games on the indexes. C’mon… up over 200 points for no reason yesterday?!? and financials went totally nutz…. what’s with BofA huge gap up?
    Do I have to get the chicken bonz and peacock feathers out again?… chuckle. Good thing I had a weekend cover on my DIA puts.
    Charts is not looking good to me for my bearish play. It looks like 8320 might be set as the bottom support of a new trade channel that I expect to form over the next few weeks. I’m looking at 9030 as the top resistance of the channel. 8670 is the middle channel where I look for a lot of crossover and sideways action. Maybe we gap up to there to that 8670 level this morning?!? Futures are relentless this morning… up…up….up… sheeesh
    Last Friday, I was considering giving up on my put position and going long on calls for DIA to push to 90. Now I wish had done that before the close into the weekend. I should learn to follow my initial intuitions better !!
    I may have to do that today and go bullish with DIA SEP calls and use front months for cover. These put plays have been annoying me the last two weeks just wasting time treading water against the current.

  143. Asian Stocks Hit a 7-Month High, Tokyo Gains 2.7%

    Asian shares climbed to their highest level in seven months Tuesday on fresh hopes the global recession is easing, and oil hovered at six-month peaks as supply concerns helped buoy up prices.

    Japan’s Nikkei  gained 2.8 percent to erase losses made the previous day, lifted by exporters on a sharply weaker yen and easing worries about the U.S. economy and consumer spending.

    South Korea’s KOSPI gained almost 3 percent, hitting a 7-1/2-month closing high as techs advanced on renewed economic hopes, while a stronger won boosted steelmakers and banks

    Australian shares finished 2.2 percent higher, boosted by renewed optimism over the health of the global economy, with miners helping the market recoup the previous day’s losses.

    Hong Kong stocks rose 3 percent in a liquidity bounce, heading for a third straight day of gains, spurred by a rally on Wall Street and a surge in resources stocks on signs of a recovery in demand. Shares in HSBC rose 4.9 percent, partly helped by news that China’s cabinet had given approval to the Britain-based lender and Bank of East Asia to issue yuan bonds in Hong Kong.

    Singapore’s Straits Times Index climbed 3.5 percent.

    China’s Shanghai Composite Index was higher, hitting a a nine-and-half-month intraday high at one point in active turnover, lifted by rising overseas markets while banks and property shares were strong as ample liquidity continued to buoy the market.

    Bombay Stock Exchange’s Sensex ended at 14213.73, down 70.48 points or 0.49 per cent. Benchmarks ended volatility marred session on a negative note on Tuesday as traders booked profits at every rise after a spectacular previous session.

  144. Europe Stocks Rise as Banks Gain

    European stocks rose by mid morning on Tuesday, gaining ground for the fourth straight session, propelled by surging banking stocks such as Deutsche Bank, while investors braced for U.S. housing data.

    Better-than-expected data from Germany’s ZEW survey also helped boost sentiment. The ZEW economic sentiment index rose to 31.1 in May from 13.0 in April. The FTSEurofirst 300 index of top European shares was up 1.6 percent at 873.67 points. The index has surged 35 percent since reaching a lifetime low in early March, as fears over a global economic depression receded, but is still down 47 percent from a multi-year high touched in mid-2007.

    Banks gained ground again, with HSBC up 3.8 percent, BNP Paribas up 5.3 percent and Deutsche Bank up 6.6 percent. Shares in Bank of Ireland leapt 27 percent after the lender said it would buy back debt in a boost for its capital position. The DJ STOXX banking index, which was up 3.7 percent on Tuesday, has shot up 114 percent since early March. UK lenders were particularly in focus after a source said UK Financial Investments (UKFI), which manages Britain’s stakes in Royal Bank of Scotland and Lloyds Banking Group, had been sounding out investors who may be interested in buying some of its holdings. Royal Bank of Scotland rose 5.6 percent and Lloyds added 4.5 percent.

    European credit spreads, reflected in indexes such as the investment-grade Markit iTraxx Europe index as well as the Markit iTraxx Crossover index, have sharply tightened since March. Analysts are pointing out that an improvement in the credit market over the past few weeks has been helping the recovery in equity prices.

    Heavyweight mining shares were also on the rise, enjoying sharp gains in metal prices. Anglo American gained 6.2 percent and Xstrata rose 6.6 percent.

    Around Europe,
    FTSE      4,506.67     60.22     1.35%
    DAX        4,966.65     114.69     2.36%
    CAC         3,285.82     40.43     1.25%

  145.  THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted.

  146. [...] the first Member Alert of the morning yesterday I said: "The real breakouts are our 40% lines and they have been impassable so far: [...]