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Sunday, February 5, 2023

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Wild Weekly Wrap-Up

What a wild week that was!

We got such a good sell-off last Friday that we went 1/2 covered into the weekend on our DIA puts (a little bearish) but we had already cleaned up on quick short plays on the Dow and USO and we were very much in cash but still making bullish plays at the time.  I did a 3-part series on dividend-paying stocks over the weekend, elaborating on the 21 dividend payers we picked that Tuesday along with our $104,340 Virtual Portfolio (used to be $100,000) so we had no shortage of bullish ideas but it didn't take us long this week to turn pretty bearish.

Last Friday morning (22nd), ahead of the holiday weekend, with the Dow at 8,323, I sent out an early alert to members saying: "I’d go long on the Dow here but frankly I’m just not in the mood today.  Still full covered on long DIA puts  and still in the DDMs but just hanging out and watching today since you can’t take the action seriously anyway."  Our plays that day ran the gamut:  We sold BAC July $10 puts for $1 (now .66), took a TBT spread that has been a wild ride but right back where we started and an ICE bull call spread ($90/$100, selling $90 puts $2.33, now .57) that is right on track.  All that came before 11:33 on Friday, where I rightly called a top at 8,342.  We made nice profits on DIA puts and took an EXM and T hedges that are doing well.  One of our best plays on Friday was the USO $32 puts at .80 we took into the weekend, those cashed out Monday morning at $1.05 (up 44%) – those USO trades were followed through in detail in our Members Only post: "Stupid Options Tricks – The Salvage Play."

As I mentioned, we have been mainly in cash for over 2 weeks now so mainly we're just taking small opportunities and having fun while we wait for the market to break one way or the other.  One article I wrote over the holiday weekend was a timely update to "How To Vacation-Proof Your Virtual Portfolio," something anyone not in cash needs to take under strong advisement and DO NOT miss the very generous free video lesson from Sage's Market Tamers that is on that post.  Our of 21 dividend plays we had discussed on Tuesday, the 19th, I went with LYG, who flatlined for the week, TNK, who gained 10%, PGH, who also gained 10%, KMP, who also gained 10% and CAT, who only gained 3% so LYG And CAT are still good for entries and, since we only need those stocks NOT to go down to make our targets – all are doing very well so far. 

I'm still hoping we get our sell-off next week so we can make some more plays off our dividend list but we don't force the plays.  The reason they worked is because we patiently waited from the 19th to the 26th before we executed 5 of our 21-stocks watch list.  That's the benefit of cash on the side, we can patiently wait for the right deals to come along…    Last Friday ended in a 100-point sell-off but and I called Tuesday's post "Atomic Testing Tuesday" as our pal, Kim Jong Il was up to his old tricks again and playing with nukes.  Home pricing news was bad too along with lot's of other data.  Nonetheless, we were skeptical of the pre-market sell-off and I said in the morning post: "So there you have it:  A crazy guy has nukes, the terrorists are still out there, Europe and Asia’s economies are in shambles and no one is buying either durable goods or homes.  Is it finally time to start buying stocks?"    Then, at 10 am, a miracle occured and we got a HUGE 22% jump in Consumer Confidence causing me to send out an Alert to members at 10:01 saying: "Holy Cow – Consumer confidence 54.9 – MASSIVE beat!  Run away bears!!!!!"

We sold some POT calls for a quick 28% profit, picked up some FAS $6 puts for .15 that are now .10 (down 33%).  The move was so violent, though, that we flipped bearish around 11 and went back into the USO $32 puts for .70 avg and now .25 (down 64%) is the quick story without going into the other half dozen adjustments we've made since in what was, by far, our worst trade of the month of May.  POT went up even further and we sold the $125 calls naked for $3.10, now $1.85 (up 40%) and at 12:18 we went naked on our long DIA puts with the Dow at 8,450, about 40 points early but it only took us 24 more hours to be extremely right about that one as we got a 200-point winner on the Wednesday drop.  At 1:34, in fact, with the Dow at 8,475, we added the DIA $81 puts for just $1 which gained 60% by Thursday morning.  We also picked up more FAZ at $5 and they were a quick 10% gainer the next day, where we covered up.  That was our last trade of the day as we were pretty much 100% bearish and waiting for what seemed like an inevitable drop.

I explained our bearish rationale in Wednesday morning's post as confident consumers is nothing you should be basing a rally on.  Against a strong looking pre-market I summed up my feelings, closing my morning commentary with: "So forgive us for sitting out yesterday’s rally but, with GM about to go bankrupt (the bondholders did not settle) and the global situation iffy at best, we felt it’s a little more fun to start establishing some short positions into this rally.  If we do continue higher, then those shorts become our hedges as we begin to deploy more cash but, for now, cash remains king and we’ll take quick profits on the dips as we wait to see where things settle out."  We patiently waited for the market to smarten up and I even said to members at 10:09 I even said to members: "On naked Sept DIA puts, patience is a virtue."  Also, setting up for one of our best and most obvious trades of the week, in that same comment I said: "Wow, people are STILL buying GM.  It’s up at $1.35 again.  We should round all those people up and just take their money away…"  We PATIENTLY waited for the right moment to strike on that one as well!

At 10:56 I posted 3 winning trade ideas in our new Channel Checkers section.  That's 5 for 5 in 2 weeks there so that experiment is going very well and Ilene is tracking progress if you want to follow along.  We had a simple UYG cover play and we added DIA $81 puts at .89 (still ahead of the run to $1.60) at 12:16, pretty much nailing the low of that drop to the penny.  We looked at a C vertical, buying the 2011 $5s and selling the 2011 $7.50s for .31 (still just .34 for the $2.50 spread), looking to make $2.19 (706%) if C can get over $7.50 18 months from now and I still love that play.  I also must have loved those DIA $81 puts because I picked them yet again at 1:37, even though they had already gained 17% to $1.04 – that's a good example of scaling in on the way up as our average was .89 + $1.17/2 or $1.03 with the stock at $1.17 at that point so still up 12.5% after adding another round!  I do love it when a plan comes together and the Dow literally fell off a cliff from there:

As we were pretty bearish and things were going well, we took a bullish hedge with a 1/2 cover on our long DIA puts with the June $84 puts at $2.30 (now $1.46) and we took our POT money and ran as well because, as I said in the post, we were just looking to make some quick profits and get back to cash.  It just doesn't pay to ride out positions in this market so we are very much turning into hit and run aritists for our non-hedged positions.  We sold off so hard into the close that I called for adding another 1/2 sale DIA $84 puts at $2.65 (now $1.46) saying at 3:34: "I’m satisfied with this sell-off.  As with yesterday – volume was low so it doesn’t mean much…"

I predicted a "Thrill-Ride Thursday" and that is certainly what we got with the Dow going down 130, up 100, down 75 and then finishing up 160 points from there – a crazy way to put in a 100-point gain on the day.  I laid out my short oil premise in the morning post but it seems logic makes no impression on the energy market.  As it was our only real losing trade of the week, we pressed our oil bets but it kept going up and up and up, which led to me having to write "Stupid Options Tricks – The Salvage Play" this weekend for members stuck in bad trades.  There are still 3 weeks to expiration and I still think we're heading into a commodity retracement but I also thought oil would turn down "any minute" from $90 to $147 last year and, even though I was ultimately vindicated, we're not going to fall on that sword twice.

Durable goods was a much better than expected number Thursday Morning but there was a huge downward revision to March that, for some reason, everyone chose to ignore.  GM hit $1.30 DESPITE the announcement they would be heading into bankruptcy on Monday so, in the most obvious play of the month, we shorted them at $1.30.  They finished Friday at .75 (up 42%) and we got half out but hopefully we'll get a lot closer to zero on the other half.  In another bad energy play we sold OIH $100 calls for and average of $6.90, now $8.45 (down 22%) and that will be another one we'll need to adjust if things don't turn next week.  Other than adjusting USO and DIA, that's all we did on Thursday as we just watched the wild market swings ahead of the GDP.   After hours we took a short play on the Qs that went nowhere on Friday but a GOOG spread is doing fine so far.

Friday morning I had been researching my oil premise and, as usual, found that most roads led back to Goldman Sachs and I did a mini-expose on the shenanigans.  As I said in the post: "We remain mainly in cash but I will be scaling into yesterday’s oil shorts, painful though it may be.  We expect a top at $70 (100% up from $35) and a 20% pullback to $63 so scaling in at $63 (yesterday), $66 (today) and $70 is the plan we are following."  Sadly, it does look like they are determined to test $70 next week as we blew right through $66 oil on Friday! 

Things were not really looking all that bullish for the market or for oil until about 2:50, when the market began a 140-point romp into the close doubling the day's volume in the last hour of trading.   We didn't trade much during the session other than adjustments.  POT $100 puts were taken as weekend speculation at 11:43 and we went into the weekend short on USO, OIH and the Dow, adding June $81 puts at $1, which dropped a quick 20% into the crazy close, prompting Karl Denninger to write "What Was That?" where he points out:

Someone" who didn’t give a damn if they lost a sizable amount of money intentionally wanted to shove the cash market up through the 200DMA, a critical technical level.  They were 1 minute late; they succeeded in doing so in the futures, but not the cash!

Steve Lendman was also moved by this insane market action to write "Manipulation, How Markets Really Work" over the weekend so I'm not going to waste any time here adding my own complaints as I got mine out of the way BEFORE all the very obvious BS started in the Friday morning post so, while I'm not surprised it happened, I'm still very annoyed as it does take a lot of the fun out of trading when blatant nonsense like this is allowed to go on.  We get a lot of hard data Monday morning with Personal Income and Spending ahead of the bell, then Construction Spending and ISM at 10 am so we'll hold off on our complaints until and unless we REALLY have something to complain about.

Overall, we have lots of cash and lots of (now) protective puts so we're ready to rock and roll on long positions if the madness is going to continue next week.  It's a big data week and we also have earnings of note from BOBE, HOV, LULU and SNDA on Tuesday evening; JOYG, TOL and WSM (all possible misses) Wednesday morning along with JOSB during the session and Thursday CIEN, TK and MTN in the morning followed by GES, FMCN and CINA after the bell.  I think the builders earnings and outlook will be very telling as well as the LULU, WSM and GES, who all give us a clue as to what the upper middle class is spending (or not).

I'd love to put on a rally cap and BUYBUYBUY but not only haven't we made our 40% levels yet, but we aren't even at the May highs yet you would think that we had entered a grand era of global prosperity from what you read in the MSM this weekend – more about that tomorrow.  Overall, it was an excellent week as long as you aren't worried about the fact that your stock gains were completely wiped out by currency losses or that the price of base commodities outpaced the gains in securities by 3:1 for the week making the average American far, far worse off than they were when the week (or the Month for that matter).  How far can the madness go?  Well the Dow went to 14,200, oil went to $147 a gallon and a 1 bedroom, 900 square foot condo in Manhattan was fetching $1M if you could race to the realtor fast enough to outbid 10 other people the first day it went on the market while they were still telling us things were a bargain on CNBC so DO NOT underestimate how irrational the markets can get

Keep in mind I am generally bullish – just not this bullish, this soon!

 

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Although it’s academic, this is possibly the best single summary I’ve ever read of what’s going on in the current credit crisis:
 
http://www.frbatlanta.org/news/CONFEREN/09fmc/gorton.pdf
 
The central thesis is that we are in the middle of a bank panic. Like all bank panics, the current crisis was triggered when debt that people thought was informationally insensitive turned out to be informationally sensitive. In past bank panics, this debt was demand-deposits. In the current bank panic, it’s asset-backed securities, particularly as these are used in the repo market (shadow banking system).
 
No trade ideas here, but highly recommended if you want a good macro-level picture, or more weekend reading.

OIL rallies on Sentiment not Fundamentals
Link: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=arvFor7RMoVM

 I just woke up, rubbed my eyes and checked the index futures. I’m expecting a big day in the markets today. With GM going bankrupt at 8AM I was exepcting to see big red negative numbers…. you know, a bear’s wet dream kind of day. When the biggest automaker in the world goes tits up, you would think that would be a market crashing event. 
 
But NOoooooooooooooooooooo….
 
To my HORROR I find the the futures are not only green, but indicating a huge morning gap up opening !!  What the hell is wrong with this picture ?!? 
 
If we open up at those levels with a gap up open over 8650, that would technically signal a double top breakout and instantly squeeze the bear side of the trade.  That could add even more upside pressure and imbalance to the market because of bear capitulations to get out and back into cash. And if that waiting bullish sideline cash decides to jump in to buy and chase that technical breakout, this could turn into an ugly and insane day for bears like me !!
 
 I am in a bit of a shocked dazed right now. It looks like my bear trade I have been building all last week is going to get capitulated instantly at the open. Ouch. It’s gonna be a "nail-biter" waiting 7 more hours for the US markets to open.

Yes, this jam-up is nuts. There is rampant talk of the 200d MA on the S&P and supposedly China’s PMI is "better than expected" despite being lower than April. Volumes, as has been the trend for weeks, are low, but that just makes it easier for the jam-up. The good news, if you can take a medium term view, is that "the pain trade" is getting close to a reversal. Once all those bears capitulate, the pain trade is down.

 What really concerns me now is the possibility that 8650 is not only technically broken, but we head up to the 9030 resistance line within the next two trading days due to panic buying. That is the spot I would look to redeploy bearish cash after getting capitulated today.
 
I don’t believe this rally, so I won’t switch to calls. If I get stopped out of my trade this morning, I’m going to stay in cash. If the train leaves the station with me standing on the side watching in utter disbelief, then so be it. I’ll get back on the bear ride and start shorting again at 9000.
 
I don’t believe this is a new major bull market. This is still a bear market rally that is getting way over extended.

So what is the reason for the unbelievable counter-trend levitating stock markets while the real economy continues to fall apart like a house of cards? Maybe this has something to do with it…..?
 
 "There is too much hot money around as governments are printing money, and one option is to put that into stocks and the other is gold."
 
http://money.cnn.com/2009/06/01/markets/world_markets.reut/index.htm
 
I wonder if the government printing presses and rising stockmarkets will just continue on and on until they have made every single "hot money" market trader broke and living under a bridge?

I am convinced that the overwhelming determinent right now is the USD and US Treasuries. In May, US markets were up 4%, and the USD was down 8%. So in dollar adjusted terms, the US markets were acutally down in May. If the USD continues to sell-off, then there is no reason why a low quality but viscous run of US equity markets, above the 200 DMA, can persist. The same goes for oil and gold.

Good Morning everyone
Futures are now showing what looks like a 4% rise from S+P value at 3.30pm Friday. Everybody is so happy GM is bankrupt. Market Manipulation or whatever it doesnt seem to reflect the state of the economy, or even the economy in 6 months. Certainly has me beat.

Good Morning merkhava, neverworkagin, DB, Phil & all

Asia Markets :    Monday, June 01, 2009
(The following is from Yahoo; please cross check with other sources to confirm.)   

Australia All Ordinaries*                            3887.90      74.60    1.96%
Nikkei Average*                                          9677.75    155.25    1.63%
Shanghai Composite*                              2721.28      88.35    3.36%
Hang Seng*                                              18888.59    717.59    3.95%
Seoul Composite*                                     1415.10      19.21    1.38%
Singapore Straits Times*                         2380.07      50.99    2.19%
Bombay Sensex*                                     14840.63    215.38    1.47%
Baltic Dry Index                                           3494.00    196.00    5.31%

*at Close

Asian Markets Rise on Chinese Hopes, GM Relief

Asian markets shot to eight-month highs Monday after a gauge of China’s manufacturing activity offered fresh evidence of a recovery in the world’s third-largest economy. Growing optimism that the worst of the global downturn is over, offset long-expected news that General Motors will file for bankruptcy later in the day in a government-managed process that will pump another $30 billion in U.S. taxpayers’ money into the ailing automaker.

China’s official purchasing managers’ index for May fell to 53.1 from 53.5, staying above high water mark of 50, which separates expansion and contraction, for the third month in a row and fueling hopes that China will lead a global recovery. Optimism about the region as well as continued weakness in the U.S. dollar because of lingering concerns about U.S. fiscal health pushed up emerging Asian currencies across the board.

Japan’s Nikkei gained 1.6 percent to reach a nearly eight-month closing high, as shippers and resource-related shares climbed on the prospect of a recovery in demand from China. The GM news also removed some short-term uncertainty from the market, helping the Nikkei extend gains.

Seoul shares closed 1.3 percent higher, with auto issues rallying on the GM news and solid May sales data, while energy issues also advanced.

Australian stocks rose 2 percent to a three-week closing high, supported by heavyweight resources stocks amid upbeat global economic data that brightened the outlook for demand for commodities. Chinese PMI data added to the lift in confidence, while a gain in U.S. futures and Japanese shares following confirmation of General Motors’ bankruptcy protection also offered a filip.

China and Hong Kong stocks rose in tandem as investors cheered better-than-expected data from the mainland, which bolstered widespread expectations for rapid recovery in the world’s third-largest economy. The strong data also helped investors overcome their jitters ahead of the GM bankruptcy. The Hang Seng Index was up 4 percent, its highest level since September 2008. The gauge rose 17 percent in May, its biggest single-month advance in a decade. Local property and bank stocks rose on reports of strong weekend property sales at improved prices amid the low interest rate environment and ample liquidity in the money system.

China’s Shanghai Composite Index climbed 3.4 percent. Analysts cited several factors lifting sentiment, including an increase in fuel prices that boosted oil shares, two manufacturing surveys that showed continued expansion, eased requirements on housing projects that aided property companies, and strength in stock and commodity markets overseas that spurred
resources stocks.

Singapore’s Straits Times Index was up 2.2 percent.

Bombay Stock Exchange’s Sensex ended at 9- month high of 14850.62, up 225.37 points or 1.54 per cent. Indian markets extended gains Monday led by gains in realty, metals and IT stocks. The trend is set on the hopes of reforms back home and revival in global economy, said dealers. Second rung stocks meanwhile continue to outperform the benchmarks.

China PMI Gives Euro Shares a Boost

European shares rose almost across the board on Monday as data showing China’s manufacturing sector continued to expand in May boosted Asian stocks, adding to the positive sentiment seen in Wall Street’s higher close on Friday.The FTSEurofirst 300 index of top European shares was up 2.1 percent at 879.81 points, having hit 880.55 points — its highest level since Jan. 9.

"The trigger for the rally is the Chinese PMI. There are close (economic) ties between China and Europe, and Europe benefits from better economic data there," said Heino Ruland, analyst at Ruland Research.

Basic resources, which includes mining and steel companies seen by analysts as among beneficiaries of economic growth in China, was the main gainer, with the DJ Stoxx sector index up 6.2 percent at its highest level since mid-October.

Steelmaker ArcelorMittal rose 6.8 percent and among miners Rio Tinto was up 5.8 percent, Anglo American up 6.1 percent and BHP Billiton put on 4.3 percent.

London copper futures rose to a seven-month high.

A 2-percent rise in the price of crude oil, also to a seven-month high, underpinned energy shares, with Total up 2.2 percent, Royal Dutch Shell 1.7 percent higher and StatoilHydro gaining 2.4 percent.

In euro zone data, manufacturing PMI rose to a seventh-month high of 40.7, up from 36.8 in April and just above the flash reading and economists’ expectations for it to hit 40.5.

European auto shares also rose, with the DJ Stoxx European sector index up 4.3 percent, after U.S. government officials said carmaker General Motors would file for bankruptcy later on Monday.

Peugeot rose 6.9 percent, Renault added 5.4 percent, Daimler was up 5.8 percent and BMW gained 3.8 percent — all outperforming Fiat, up 0.8 percent, after the Italian carmaker failed to find favor for its bid for GM’s European units.

Banks added the most points to the European top-300 index, with Societe Generale up 3.5 percent, Commerzbank 3.0 percent higher, Banco Santander rising 2.7 percent and Royal Bank of Scotland adding 4.5 percent.

Europe’s benchmark index rose 0.7 percent last week. In May, it rose 4 percent, a third straight monthly gain and its best winning streak in two years.

Later in the day investors will focus on the U.S. Institute for Supply Management’s (ISM) national factory report for May. The ISM is forecast to rise to 42.2 from 40.1 in April, according to 68 economists polled by Reuters. ING said ISM was probably the best lead indicator for U.S. GDP. "There is a real chance that today’s ISM report will produce a figure consistent with positive growth. However, there are doubts as to how durable this story will be," ING said.

Around Europe:
FTSE     4,488.01     70.07     1.59%
DAX        5,094.94     154.12     3.12%
CAC         3,346.01     68.36     2.09%

Oil Hits New 7-Month High Above $68

Oil rose more than 2 percent to a seven-month high on Monday, extending its biggest monthly gain in a decade due to rallying stock markets and sustained expectations for a global economic recovery. European stocks were firmer following gains in Asia after data showed China’s manufacturing continued to expand moderately in May. The dollar weakened, boosting investor demand for oil and commodities.

U.S. light sweet crude [ 68.11    1.80  (+2.71%)] was higher.
London Brent crude [  67.17    1.65  (+2.52%)] rose.

Oil rallied 30 percent in May, hitting the highest since early last November and giving OPEC enough hope about the outlook that it agreed to maintain production at last week’s meeting. At the same time, OPEC is unlikely to move quickly to curtail the rally. At the weekend Saudi Oil Minister Ali al-Naimi said OPEC would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.

Despite oil’s rally, many analysts have said the underlying fundamentals remain bearish. Reflecting increased expectations that prices will rise, speculators have expanded their net length in NYMEX crude contracts to over 40,000 lots, the highest since February.

Beijing from Monday raised retail diesel and gasoline prices by 6-7 percent, the second and biggest rise this year.


Dollar Index Hits 2009 Low on Economic Optimism

The dollar fell sharply on Monday, tumbling to its lowest so far this year against a basket of currencies and the euro as optimism that the global economy is on the road to recovery continued to boost riskier assets. The commodity-related and higher risk Australian and New Zealand dollars performed particularly well, hitting 8-month highs against their U.S counterpart as oil prices jumped to a 7-month peak and European shares soared 2 percent. News that China’s manufacturing sector continued to expand modestly lent further credence to the notion that the global economy is on the mend and dented the U.S. currency.

The dollar index fell 0.8 percent to 78.634, having hit its lowest since mid-December at 78.586.

The euro [ 1.423    0.0072  (+0.51%)   ] gained versus the dollar, just shy of an earlier year high of around $1.4245. The dollar also fell against the Japanese yen [ 94.7    -0.61  (-0.64%)   ].

Among perceived higher risk currencies, sterling [ 1.6381    0.0194  (+1.2%)   ] rose to its highest in seven months against the dollar of $1.6432, while the Australian [ 0.8107    0.0099  (+1.24%)   ] and New Zealand dollars [ 0.649    0.0087  (+1.36%)   ] hit eight-month highs of $0.8136 and $0.6511 respectively.

Adding to optimism that the global economy may be over the worst of the recession, data showed China’s manufacturing sector continued to expand moderately. Though the official purchasing managers’ index dipped to 53.1 in May from 53.5 in April, this was the third month in a row that the reading has been above the 50 level that separates expansion from contraction..

"Optimism is certainly gaining ground, but the question is whether this is just a bear market rally or whether it is something more sustained than that," SEB currency strategist Johan Javeus said. "The PMIs have been improving but at some point the market will need to start seeing this improvement reflected in the hard economic data," he added.

Gold rises above $985/oz as dollar tumbles

Gold was at $987.40 an ounce at 0924 GMT, against $978.20 an late in New York on Friday. Analysts say a return to February’s high of $1,005.40 an ounce is in sight.

Rising crude prices typically boost buying of gold as a hedge against oil-led inflation, and raise interest in commodities as an asset class. While inflation fears and currencies are boosting interest in gold, buying of jewelery and bullion-backed exchange traded funds remains relatively lackluster. Data released Friday showed a hefty rise in speculative net long positions on New York’s COMEX futures exchange. However, this may leave gold vulnerable to a correction, as such positions are easily liquidated, analysts said.

Silver tracked gold higher, rising to a near ten-month high of $15.94 an ounce. Later the metal was at $15.92 an ounce against $15.74.

Among other precious metals, platinum was quoted at $1,218.50 an ounce against $1,187 late in New York on Friday, while palladium was at $236 an ounce against $234.

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