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TARP Top Testing Tuesday – Will We Get Fooled Again?

There's nothing in the street
Looks any different to me
And the slogans are replaced, by-the-bye
And the parting on the left
Is now the parting on the right
And the beards have all grown longer overnight

I'll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around me
Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray

We don't get fooled again

On May  25th, at a speech in Hong Kong, Paul Krugman said: "I will not be surprised to see world trade stabilize, world industrial production stabilize and start to grow two months from now.  I would not be surprised to see flat to positive GDP growth in the United States, and MAYBE even in Europe, in the second half of the year."  Although Krugman also questioned: "In some sense we may be past the worst but there is a big difference between stabilizing and actually making up the lost ground.  We have averted utter catastrophe, but how do we get real recovery?"  The markets ignored the BUT (economists do tend to say BUT a lot) and the Dow rallied 200 points the next day

In fact, the Dow rallied 200 points on Monday May, 18th as well as Tuesday, May 26th (Monday was a holiday) and Monday June 1st, with those 3 "Monday's" accounting for 600 of the 500 points the Dow has gained since Krugman's first speech.  Oil is up over 10% on that "rosy" outlook as well, starting at $60 on the 26th and flying up (with the help of GS) since, all on hopes that the economy will be "back to normal" next quarter.  Of course that's not what Krugman said at all but so what?

Yesterday, with the Dow down 150 points from Friday afternoon's 8,800 level, Krugman made a speech in London, where he said: "I would not be surprised if the official end of the US recession is dated, in retrospect, some time this summer."  He said in retrospect because the context was that he expects the kind of recovery you won’t know you are having until 6 months or so later, when you can look back and say - "Oh, that’s where we bottomed," as opposed to a V recovery where the bottom is ovbious

He also said: "Almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period."  I think the LA Times summed it up well saying:

Evidently, though, all the bulls have to hear is "recession over" to shovel more money into stocks.

That’s a good thing for every investor who’s still riding the spring rally. But it’s vexing the folks who are waiting for some kind of significant setback to get aboard.  Since the surge began on March 10, the Standard & Poor’s 500 index hasn’t had a pullback deeper than 5.4% before buyers have jumped back in. "It’s tough to keep this market down," said Todd Leone, head of block trading at Cowen & Co. in New York.

This is, by the way, the same Paul Krugman who is the "evil liberal writer" for the NYTimes who conservatives disagree with on every word that comes out of his mouth except, perhaps, when he says the recession may end – in which case he becomes a "Nobel Prize-Winning Economist" and that gives them the green light to BUYBUYBUY!  It would be funny if not so ridiculously tragic….

Here’s what Krugman won the 2008 Nobel Prize In Economics for:

What kills me about Krugman is he won a Nobel Prize for saying the exact same thing I was ranting about in my own posts at the time but, what can you do?  I am happy to toil here in obscurity while Krugman goes to all the boring lectures (while I like the sound of my own voice just fine, sitting on a panel of "noted economists" would force me to keep the suicide hotline on speed-dial). 

My own obscure economic observation of this morning was to short oil at 3:07 am, when I said to members (mostly the European ones, who were awake): "They jammed oil up from $68.50 to $69.25 ahead of the EU open based on Krugman’s call so I’m shorting oil futures here.  DD at $69.50 and DD at $70, maybe a repeat of last week where they spike it up or maybe Europeans aren’t so dumb and we sell off from here."

Here’s what I had picked up from the Dow Jones Wire:

At 0632 GMT, front-month July light, sweet crude oil futures on the New York Mercantile Exchange rose 95 cents to $69.04 a barrel on Globex. July Brent crude oil futures on London’s ICE futures exchange were 90 cents higher at $68.78 a barrel.

Crude oil market participants focused on dollar and share price movements much of Tuesday’s trading in the absence of oil-related cues, said Shuji Sugata, an analyst with Mitsubishi Corporation Futures & Securities in Tokyo. "Technically, the market is still on an uptrend and traders are following that. But Many traders are keeping a wary eye out for any signs of sudden collapse," he added, citing still weak crude fundamentals.  Koichi Murakami, a broker and senior analyst with Tokyo-based Daiichi Shohin, agreed there was the possibility of a drop given there are no signs of demand recovery. "Recent gains in crude were mostly baseless."

Still, "there’s steam in the market to test $70 again later this week, if indicators like U.S. oil inventories and IEA global oil data show some signs of recovery in demand," Murakami added.  U.S. crude oil inventories will likely display a fall of 500,000 barrels in data due Wednesday from the Department of Energy, according to a Dow Jones Newswires survey of analysts.  Stockpiles of gasoline and distillates, which include diesel and heating oil, will likely increase.

These guys are just too funny: "There’s no reason at all for the rally but we’re buying and we plan on getting out at the top."  Yeah, good plan!  Anyway, we're done with that trade already as we bottomed out at 5:30 at $68.60 and now we're hoping for another silly run-up so we can resload our shorts.  At $10 per penny per contract – those oil futures are fun, fun, fun!

Europe was having fun, fun, fun until to DAX took the 5,000 support level away.  After getting off to a great start on the Krugman "news," the EU markets did a fast fade into lunch, dropping 1% from their opens.   The early EU rally was led by – you guessed it – Energy stocks, as Barclays Wealth said the outlook looked bright for those investors putting their confidence in oil as it continues to hit new highs.  "In the short-term, we are moving into the crucial 'driving' holiday season in the U.S. which is likely to increase demand," said Henk Potts, equity strategist at Barclays Wealth, "plus the constant threat of weather disruption in hurricane season will also affect the short-term price. Most importantly though, the most crucial factor for the price of oil will be the speed and strength of the recovery of the global economy."

This is, of course, the same Henk Potts who has been cheerleading crude as it went from $100 to $140 and then crushed all who heeded his call.  This is just the British version of the Goldman call on oil and we'll see if US investors can be fooled again but it sure is working in Europe as oil is already (7:30) back to $68.40 and we'll begin shorting it again at $68.50 or if it crosses back under $68.25.  Mr. Potts, of course, fails to take into account the record inventories, record amount of oil in storage at sea and record OPEC surplus capacity – all factors the smooth out any short-term price fluctuations he's fantasizing about.  We've already been told this is going to be one of the lightest hurricane seasons in many years, with 30% less storm activity than any of the past 5 summers.

7:50 Update:  We're touching $69.50 in the futures on oil but the dollar is down and gold is up so the conditions aren't as good at they were earlier for a short play so no official move yet.  Maybe we luck out and get another crack at $70 to short, that was a 5% gainer in one day on Friday with huge money to be made in options and futures.  Perhaps I'll regret not pulling the trigger here at $69.50, which is ridiculous enough to short at on its own but the coordinated global hype machine makes it hard to be brave on the short side.

Asia was less brave than Europe this morning with 1% pullbacks in China and Japan on the heels of a stunning 8% pullback on the Baltic Dry Index, now down 11% since last Wednesday.  "Asian markets were lower reflecting the growing concern that the rally is becoming inconsistent with the pace of the recovery," said Sanjay Mathur, non-Japan Asia chief economist at the Royal Bank of Scotland. "Rising U.S. bond yields and commodity prices are progressively becoming additional headwinds to the valuation and earnings cycle."  In fact, just yesterday, the International Air Transport Association DOUBLED their 2009 loss estimates for the industry to $9Bn, citing rising fuel prices and a 15% drop in revenue since their Q1 outlook was taken.

There is no modern precedent for today’s economic meltdown. The ground has shifted,” Giovanni Bisignani, the association’s director general, said Monday in a speech at the association’s annual meeting in Kuala Lumpur, Malaysia. “Our industry has been shaken. Our future depends on a drastic reshaping by partners, governments and industry.  Whether this crisis is long or short, the world is changing,” Mr. Bisignani said. “It will not be business as usual in the post-crisis world.”  

The transport association expects cargo demand to fall 17 percent this year and passenger demand to drop 8 percent, to 2.06 billion travelers. The global industry’s projected $9 billion loss is a slight improvement over the $10.4 billion loss in 2008, when fuel bills climbed to $165 billion as oil prices soared. This year, the association expects airline fuel bills to fall back to $106 billion, but Mr. Bisignani warned that oil prices could be pushed up again as the global economy began to recover.

So you can understand if we still have some concerns about the "recovery" that the US markets are so intent on celebrating but we have our cash ready to BUYBUYBUY with the sheeple if they can make it over our critical 40% lines of NYSE 6,232 and S&P 946.  Heck, we're even looking at VLO as a buy if they can get oil over $70!  We're already in UYG as a big holding in our $100K Virtual Portfolio and certainly it's time to consider gold now that we can take another stab at $960 but all that is contingent on making and holding our two lagging levels – which have been keeping us on the sidelines for quite a while now. 

Today we have the super-boost of the TARP money being repaid by 9 banks, even as the US is so worried about the global economy that we are asking the EU to put more rigorous stress tests on their own banks as we don't feel that their economic outlook is pessimistic enough.  No, don't ask me to explain the logic – there is none…  Our man Timmy will be in Italy this week in a G8 Finance Minister meeting and, according to the Journal

The U.S. has an ally in the International Monetary Fund, which on Monday warned that economic recovery in the euro zone could be retarded by banks burdened with bad assets.  "To secure recovery and a return to self-sustaining growth, policy makers need to take further decisive action, especially in the financial sector," the IMF said in a report.  Mr. Geithner could encounter resistance, however, from his European counterparts, many of whom argue that publicizing the weaknesses of individual banks increases the risk that they will fail.

Sounds great doesn't it?  I wonder where we can invest in these banks?  Oh that's right, we already have!  Trillions of our dollars have been given to them already and today we will act like the return of $50Bn of it means everything is all better.  The IMF estimated in April that European banks would need another $600 billion to cover losses and rebuild capital by the end of next year, NONE of which has been provided by the EU so far.

So we are determined to go with the flow, even though we do seem to be flowing up a pretty steep wall of worry at this point.  We did take a short play on DIA into the close as well as July puts on XTO, which triggered a spread so we're not worried about them.  QID was also a spread and we went long on COF by selling July puts.  Aside from our on and off oil futures, we did go short on USO again at $37.50, so we'll see how that goes but we have our cover play ready there. 

There was a real absence of volume yesterday, even into the super-stick save close, which let us pick up round 2 of our DIA $85 puts into the "rally" for just .55 as I called it almost on the button at 3:23 saying: "On the whole, no reason to get out of DIA puts, same play as this morning.  DIA $85 puts topped out at $1.05 and just came in at our DD point at .72 and should be cheaper than that soon,  but keep in mind that that makes .96 a 20% gain and we should be thrilled to get it."  I don't know whether we'll get our 20% or if we'll be forced to get out this morning – without real volume I can't see how we break over the top but anything can happen as it took just 10% of a normal day's volume to goose the Dow 150 points into the close.  If people are willing to throw that kind of cash in to save the market almost every day, who are we to argue?

Can we really talk ourselves into a good economy?  My 7-year old daughter engages in thinking like, if it's too late to go to a movie she wants to see, she says:  "Maybe there will be no traffic and no line because everybody already went in and sometimes they start the move late because of all the commercials and I don't mind if we miss the beginning and I really NEED to see it and I don't want to miss it and what if it's not there anymore next weekend?"  Sound familiar?  It's generally the bull premise for the economy – "If this and that and that and that happen and this and that doesn't happen (even though it is) then everything will be perfect so we should BUYBUYBUY now or we're going to miss it."

I'm no fool, I know better than to argue with a 7-year old or a runaway bull market so we'll just be getting in the car and heading to the theater, even though we're fairly certain it will all end in tears…


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  1.  Goooooood morning Phil and e’rebody !!

     "Voodoo Levels" I’m watching on the chart…  chuckle
    Naz … at 1791 was major resistance which has been broken. Naz has been leading the rally. A retest and hold of 1791 as support will confirm the upside breakout. Next resistance up is an air pocket all the way to 1929. (bear squeeze and bull buyer’s panic???)
    RUT resistance is located at 560. 520 resistance was broken and has now become support. That 520 support level was retested yesterday and it held, giving us technical confirmation of more upside to come.
    QQQQ major resistance at 37.25. Still not there yet
    DIA major resistance at 9030. Still not there yet. Next level above that is an air pocket to 9900.
    S&P500 resistance at 943. Line is showing gravity right now… We have been flat line trading at this level for 5 days. Next resistance is 988.
    Trader Sentiment is still overall bearish. Most people still think this is a bear market rally and that fundamentals suggest safety is found in cash and short positions. The "Recovery" is not real and anyone pushing the idea as a serious idea is laughed at for talking ridiculously.
    As far as the rally goes, sentiment is still in the "I’m afraid of buying stocks – I don’t believe this rally" phase.
    At what level will sentiment change? When will the bear market rally be considered as a new bull market rally? Hmmmmmm….

  2. Looks like last nights pump continues into the morning once more. Its a wonderful thing – a cant loose stock market.

  3.  Ha… CNBC giving us a sample for the theme song for today… LOL
    "Can you take me hiiiiiiiiggghhhhher ???"
    Creed  "Higher"

  4.   I wonder how much of a correlation there is between the major players in the oil trade who have profitted from that commodity rally and the ability of those big "banks" to payback the TARP money and get themselves from under the thumb of the government?

    al-Erian saying the government has an interest in maintaining short term conditions to foster positive consumer sentiment and that policies will be maintained to enable that scenario?
    I think "The Agenda" seeks to create an economic regauging to a "new normal". I think that translates into reduced resource consumption by the USA. There will be a transfer and diversification of those consumption factors to the BRIC nations. The USA is being de-industrialized and it’s economy will be transformed into a more agriculturally based economy. The USA will feed the world and develop new cutting edge technologies. China will make stuff for the world. Russia and Brazil will supply energy to the world. And India will provide logistical services to the world. 

  5.  LMAO… Sharron says "fundamental factors are not in play today" for oil… chuckle

  6. Morning all, am long DIA June 85 puts with a cost basis of .68 – just wondering any specific recommendations pls?

  7. Good Morning,
    I apologize in advance for an off-topic question:
    On TOS platform (or any broker’s platform), can you bid a price like $0.67?  Yesterday, I saw the "LAST" trade price on an option as 0.67.  I tried to bid at that price, my broker’s platform wouldn’t let me.  (It’s Schwab.)  I contacted the rep.  He said it’s the rule from the exchange.  I must bid on 0.05 increments.
    Is that true?  If so, how come the last trade was done at 0.67?

  8. mornin Phil – I have a KMP Jan 10 $57.5 put that has lost abt 30% of its value. Would you rec DD and looking for a pull back or what?

  9. Phil – I ususally hang out on the Optrader formum, as I traded with him in the early 2000′s along with a guy that went buy Tom02c who you probably know and had a forum on yahoo.  With respect to TOS, I am getting better rates at Schwab.  The guys on Optrader forum gave me the following rates at TOS:  $1 > 2500 contracts, $1.25 > 1500 contracts/mo. and $1.50 for < 1500/contracts per month.  At Schwab I pay 8.95 plus 0.75/contract.  So on a 100 contract trade i save $16.05 – and thats with the lowest TOS rate.  Scott Sheridan said he would match the Schwab rate, but I do not want to move all my accounts – just not worth the hassel.  I probably trade between 1500 and 2500 contracts a month, sometimes less.  I travel a lot so not much time to trade.  As far account size, combined all my accounts are xxx,xxx.  I was also a Schwab Private Client for about a year and cancelled out of that.  The Street Smart Pro software is very good and I have no complaints.  Just my two cents. 

  10. Good morning!

    Same playbook as Friday, we are being rammed up into the open, oils probably going over $70 again and the whole thing was essentially the same pattern with an insane run higher in the pre-markets that quickly reversed.  If we do not quickly revers, then this could be a whole different ballgame. 

    We have 3-year notes today, 10s tomorrow and 30s on Thursay and we’re selling about $100Bn this week and a lot of dollar trading is expecting a failure, or at least a poor showing and that’s boosting commodities and the markets. 

    The only levels we need to watch today are S&P 946 and NYSE 8,232 – the rest are over already by a good margin so it’s just a failure we’ll be looking for.  Oil $70 is critical to get the OIH and XLE higher, gold is already over $960 and needs to hold that to stay bullish.  The dollar is down 6% Canadian in just 2 days and back to 97 Yen (not going to make Japan happy) and $1.40 on the Euro and $1.62 on the pound (4% in 2 days)

    This is ALL the same as Friday morning so I guess "THEY" are going with the same set-up as last week (right down to SocGen and Barclays both upping their oil calls this morning) and I guess this time they’re going to try not to get pantsed by the bears like they did on Friday.

    DIA/Steve – On the $85 puts, I think we have enough time to do a roll up but, it’s going to depend on momentum.  Certainly we can DD at .45 or so but we need to make sure the Dow is ever going back down.

  11.  There ya go… CNBC guest talking agriculture commodities… message being driven home
    thats the future of the USA  :)

  12. cwan – if it is under a buck, usually the platform lets you (TOS does).  Verizon options under $2 and DIA options under $3 will let me bid in pennies.  Otherwise, it could be a roll/spread, covered call, etc., where the price differential came in pennies.

  13. cwan
    Maybe Schwab is taking a few pennies as their cut.

  14. FYI: An audio newsletter I subscribe to quoted a chinese report that came out last night, stating that China’s oil demand was near its all time high in the past month, which this writer believed had lead to the rally in Oil overnight.
    I searched for the report myself this morning but could not find a reference to it.

  15.  oil… inflation… oil…. inflation… oil…. inflation

  16. LOL!  Phil, loved the analogy of your 7 yo and bulls!

  17. I have found Krugman’s outlook on the economy to have become positive ever since his dinner meeting with President Obama:

  18. Bear/Bull/Merk – I think we just have to go with the flow as long as they keep our 40% levels.  As long as we start our buys there, we will have little to lose as long as we get out when/if they fall below.  The "agenda" is simply, they are trying to kick-start that cash off the sidelines because GS don’t make no commissions from cash so it has to go into the market before they can steal it but I think they are playing it wrong.  The sideline players, like us, are NOT looking for an endless rally – we’re looking for a real pullback that ends at a place where we feel comfortable.  "THEY" are still playing this market like we are the same suckers they burned last time but most of those guys are out of the market and the survivors have, through some Darwinian miracle, learned something this time and we’re not going to buy things just because they are up.  Remember Cramer’s logic in the rally that if a stock was at $80 it was going to $100???  That’s who they think they are still dealing with…

    Gold was $990 last week, not $960 so either oil or gold are way off base today.

    TOS/Cwan – It depends what stock.  IB does a strange thing where they penny trade stocks that don’t even trade in pennies but TOS doesn’t do that but does seem to let you trade many stocks in pennies.

    KMP/Morx – Part of a spread I hope!  I would rather roll up than DD but it’s not worth it on KMP.  You can just sell the Jul $50 puts for $1.35 and that is 1/3 of your losses gone with a $7.50 spread and those can be rolled down to Sept $45s where you would be back on top so no reason not to sell those while you wait and see which way it goes.

    Thanks Fly, I’ll call Schwab and check their rates too.

    Not too impressive so far.

    I think I may have been right about shorting oil futures at $69.50 so pulling the trigger here on a short entry (1x) at $69.60.  I’ll try to do updates…

  19. ROFL – Once again Transports lead us higher despite Baltic off 10% and awful airline outlook but the rails are counting on shipping those commodity contracts that are pumping up the NYMEX.  It’s such a laugh, the transport execs actually use the uptick in commoditiy longs to project better-than-expected shipping in the 2nd half and then the commodity bulls use the shipping outlook to boost interest in the contracts….

    XLF broke $12.50!  Oh and now positive news – it’s 10 banks that can repay TARP and they’ve got $68Bn, not $50Bn.  Damn that commodity bull position has been very, very good to them.

    7 years/Matt – I just had that conversation with my daughter this weekend and listening to CNBC’s bull guest this morning reminded me of it.

    Oil $69.44 now so stop set at $69.51.

  20. Hi all, since the TOS discussion is continuing here, I thought I’d point out a comment I made int he TOS thread.  I’m with TradeKing where the commissions are $4.95 (per leg I think) + 0.65 per contract.  I asked them to match this and they got back to me within 5-10 minutes saying they could do that no problem.  I compared 1-100 contracts (1 leg) of TradeKing vs TOS published Standard, Ex1, and Ex2 rates and the only time TOS beats TK is for 1-2 contracts on their standard rate.  The only real way TOS can beat TK is if you do multiple legs with low contract numbers.  At 2 legs, TK is already better than TOS again 6+ contracts.  At 4 legs TK is better again at 12+ contracts

  21. USO $38 puts – grabbed some

  22. SOX up 3.5% on TXN outlook.  They are the ones that did need to catch up (329 is 40%). 

    Oil $69.24!  Now stop moves down to $69.41 and a .17 trail is good from here.

  23. TOS/Smashe and others – So are we looking for no-fee .75 or are you saying we’d rather pay a fee?  I like the no fee as it really helps the small traders – I do not expect we’ll be able to go a la carte…

    So much for XLF $12.50 – maybe it’s a sell on the news thing but no one seems to care about the TARP and the bulls seem to have nothing else up their sleeves.

    $69 is tricky for oil as we expect a bounce here and, falling from $69.80 that’s a .17 bounce, which is $170 per contract so I’m more inclined to get out at $69 on 1/2 and get back in if they weak bounce below my stop on the other half (at $69.17).

  24. Wholesale inventories down 1.4% in April, more than expected down 1%.  March adjusted from down 1.6% to down 1.8% and generally down inventories are good for future outlook but, as I’ve said earlier – what if they are simply "right-sizing" inventories to accurately reflect demand in the new economy?

  25. OIH up 2%, XLE up 1%, oil up 1.5% at $69.  XOM flat, CVX up half a point and oil just plowed through $69 so fast I couldn’t sell it so now I’m setting my stop at $69.05 on the whole thing with a .20 trail.

  26.  I hear ya Phil… I’m still very bearish… but technicals on the charts forced me to trade into a bullish position since last week
    I think I’m just lucky to be in a very profitable trade so far before the rest of the crowd, but I’m with you about watching things closely and cashing out. I’ll flip to the short side in a heartbeat if things break down. I got no emotional investment at all in my positions… I’m all about being a ruthless mercenary of market moves and I could care less which direction we’re going or why.
    I just wanna be on the correct side of the move so I’m enjoying the ride rather than sweating how I have to play position salvage.

  27. And done with that round of oil shorts!

  28.  goooo get’em bulldog Santelli… hammer those crooks on regulatory circumvention !!!  LMAO

  29. anyone know when the office TARP repayment announcement will happen today?

  30. I meant "official"

  31. Schwab … some time ago, I negotiated my rates w/ all of the brokers I use (schwab, etrade, fidelity).
    Schwab I pay 8.95 per trade + 0.25 per contract.

  32. In that Channel Checkers trade on PALM, we’re offering to buy back the June $12 puts for .55.

    Oil back at $69.25, back to looking to sell 1x again at $69.40+

    DIA Sept $88 puts back to $5.20, made a quick 15% yesterday off that price.

  33. TARP/Rookie – I think that was official.  10 Banks eligible to repay $68Bn.

    Wow, Transports heard me complain and fell back to flat!  I’m thinking if the Dow fails 8,750 I should short those oil futures anyway!

  34. ROFL – Guy on CNBC recommending USO as a great way to "speculate" in oil! 

    Short futures at $69.22 triggered because Dow failed 8,750.  That (Dow mark) is now my stop and otherwise will DD at $69.60 as planned (from original $69.40 target)

  35. TOS   They are very willing to tailor commissions to your trading pattern.   If you trade small lots, like I do, $1 flat is a much better deal than .75 with a fee.   If you are trading 20+ contracts at a time, then paying a fee is worthwhile to get a rock bottom per contract fee.   Phil, if you are going try for a PSW group rate, ask them for both a flat rate for small traders and a fee + smaller commission for large traders.  

  36. Thanks Phil!  If you’re following the Channel Checker trades, PALM (short) options are all we’re holding at this time.  Updates are under the "Channel Checkers" tab or in the "Insider Zone/Channel Checkers" section.  Phil did not devise strategies for the CC reports on Apple (positive) and Zumz (negative), as we’re only trading CC info when the benefit/risk ratio is particularly favorable.  Place to find updates, check periodically:

  37. LOL – this is why I usually don’t bother with these trades, way too much communication required but fun on a slow day.  So the Dow crossed back over 8,750 and I had a chance to kill the trade at $69.20 so I did.  Now back to scratch (no trade) looking for $69.40+ again.

  38. YAWN – everything on flatline …. all tied to same program.

  39. skf starting to move a little bit; will others follow ?

  40. Turns out $69.40 oil is right at USO $38 so that is a good re-entry! 

  41. Dow back below 8,750 will turn that back into a stop.  Oil back to $69.23 so .15 trail set in.

  42.  Here’s an idea Phil… BIDU… whatchya think
    buy 1x JUL call at 330 strike (for hedge) and another 1x SEP put at 300 strike as initial put position build.
    BIDU at resistance level here around 305 area, but technically could head up to 350, so scale into more 300 puts as BIDU makes 10pt increments up
    cash out calls at 350 and enjoy the ride down during the inevitable "overbought" profit taking selloff 

  43. Phil any thoughts on IBM being toppy here…lookin to get some callers for S/T trade…105′s sound good?

  44. Krugman – Lol, Phil. :-) The thing, we must understand is, most people, take a Nobel Laureate seriously over political hack (Oreilly). I would not be surprised, if we closely examine yesterday’s market upswing towards the end of the day, it would include significant retail customers.
    All his liberal ranting is healthy, it shed light on some aspects which we tend to ignore since we can’t see. The diversity of opinion is good. Looking back on this crisis in another 10 years we will recognise Prof.Krugman’s contribution. (His contribution during Asian crisis is well documented).

  45. Weird day so far; AAPL dropping, GOOG down.  Oil starting to drop off a little bit. 
    Will AAPL lead market lower ?

  46. ok; here we go maybe …. DIA breaking lower; OIH, AMZN, SPG….   SKF breaking over 40

  47. BIDU may be softening here. The last time I thought that it then went up $20, but I’m nonetheless buying a few calendars at the $290 strike.

  48. On the tape:  House Dems want to tax health care benefits.

  49. I’m not 100% sure, but I think Krugman’s Nobel Prize was more for a techical economic advancement rather than the public policy writing that he is popularly known for.

  50. Nas made a run for 1% and was rejected (1,860).  SOX can’t close the deal at 280.  XLF still under $12.50, Qs need $37. 

    Pound is kicking the dollar’s ass!  $1.63 again…  97 Yen sux too.  Still $1.40 for a Euro for the moment. 

    BIDU/Merk – We shorted them yesterday and I can’t believe they are up with China down.  That is an excellent plan!

    IBM/Onc – They are too good to bet against.  I do think they are toppy but so is FSLR and they suck.

    SPG/Cap – They are always a tempting short but then they burn you.  Maybe this time…

  51. Cap, maybe you can put a little blurb on your blog on obama’s healthcare…i got plenty to say.

  52. Is it just me or are volumes quite a bit healtheir today than the recent averages?

  53. Jomama; I will as the details emerge …
    Had a little bit in the other day concerning the 2-step shuffle his advisors were giving on TV talk shows … "its not OUR plan, that’s what Congress is proposing, we’re just hear to listen …. just nonsense".
    My wife who is a healthcare industry expert was very critical of a report aired last night that illustrated problems in England France and Canada with healthcare rationing as people wait months to get needed MRI’s or surgeries, and beauracrats ration care which can have life or death implications (like no need to operate on that old guy, he’s gonna die soon anyway).

  54. Also, some one suggested to another Obama advisor on TV … why not FIX medicare first and PROVE that gov’t can fix it and rein in costs …. and the guy was hummmanan hummana hummmananan

  55. Kudlow’s on, time to go the radio.

  56. Cap – i will save my comments for your forum because they are not very politically correct.  I’m more interested in trading and investing until the market closes.

  57. Oil – let’s see if it can break $69 decisively..

  58. looks like a good day to buy DIA calls at 2:30 for the stick save.  If the market is down by 100 at 2:30 – then game on.

  59. Merk 
    Like your BIDU play.  What’s your plan if it falls rapidly?  Think support is around 287.

  60. jomama … that’s cool; i look forward to hearing them…
    Phil / SPG …. that’s b/c GS and Cohen and Steers gun the stock; but like oil; we can figure out how to take advantage of that….  but the chart looks promising for some more downside; just need some help from the market.

  61. Krugman/Ramana – Oh I love the guy!  One of the only people who tells it like it is and I love the fact that Obama listens to him and I love the fact that he vocally disagrees with Obaman and I love the fact that Obama invites him to the White House after Krugman trashes his policy to talk it over.  It’s like some kind of real exchange of ideas is going on betwen government and acedemia - AMAZING!

    Nobel/Eph – What Krugman actually won the Prize for was a 30-year body of work on trade theory that interestingly built on another set of Princeton Nobel Prize-winners from the ’70s.  Very important stuff in understanding the global economy but I don’t have the patience for that and want to be recognized for just my articles…  (and Robert, you know you can nominate me!).  8-)

    Volume today on Dow is 56M, better than yesterday but nothing to write home about. 

    LOL, now Pisani is spinning that "a loss of 36 points is not statistically significant in the Dow."  How can you doubt that CNBC is not part of THEY and THEY had a pan and that plan again failed today or why would they care that we’re down 36 points mid-day.  Why even note the fact unless it was some kind of failure you needed to spin out???

    Health care – You know I’m not going to get drawn into this on a trading day!

    Damn, stopped out again at $69.17.  Didn’t want to that time but already fine as we shot up over $69.20 again…

  62. Sill naked on the mattress?

  63. Wow, that sounded a bit creepy….Are the Sep DIA puts still uncovered?

  64. Stick/Jo – Yeah, I think any day we’re down 50 or more.

    DIA/Eph – Yep, still naked Sept $88 puts, now $5.35.

    Oil – Back in the short at $69.20.  It may seem silly but those two in-outs give a .08 cushion and effectively raise the in to $69.28.

  65. Been trading GM stock and options with the new GMGMQ.  Options Express won’t allow me to sell puts either naked or with stock position.  Any explanation from you guys?

  66. Retail getting hammered. Luxury and specialty too so something bad about the consumer is likely to be the news soon!

  67. For a stick save DIA call play, which calls would you buy?

  68. Is there any way to take advantage of the fact that a bid/ask spread is too wide (or too short) , depending if you are buying or selling?
    Example: Call: .50/.65      Put: 1.45/1.65    so the buy spread is $1.15 and the sell spread is $0.80, this is on the July 10 PLD , which is trading at $8.93 and therefore the technical net value is  $1.07. Therefore the buy premium is .08 and the sell premium is .27.
    Anything here to take advantage of?

  69. I have the same question celest.  Do we have low enough volume to expect a stick save today?

  70. Phil, what are your entry levels in the Oil shorts, I mean why $69.20 and not say $ 69.25. Does the 5% rule apply to oil futures? Thanks.

  71. This is hilarious !

    And no, its not Phil …. or me …..

  72. GM/Hinners – TOS lets us do it.  I don’t think I’d touch them but you can…  The fact that the $1 calls are .46 with the stock at $1.50 but the $1 puts are .22 pretty much says it all!

    Stick/Celest – It depends where we are but generally, whatever around $1. Right now it’s the $89 calls at .69 because the $88s are $1.09 (+.40) and the  $90s are .40 (-.29)  so a positive risk/reward.  Compare that to other strikes around there and you’ll see what I mean.  That only applies to this exact moment and we want to see a 50-point drop at least.

    Nice oil spike but just missed $69.40.  OIl now at $69.25, no action.

  73. Oil contracts – Jul dropped to 262,530 from 300,939 the day before.  Amazing how well it’s holding up amidst all this rolling.

  74. Cap:  To Hell with CNBC.  Can we get this guy to run for President.

  75. Cap
    That was a good one.  He had his facts right.

  76. USO volume ridiculously low..

  77. Beginning to look like 87.5 may hold on DIA. Would you take a small loss here on the puts?

  78. Oil at $69.15, no action.  I regret not going 2x at $69.40.

    Bid/ask/Arganx – You can only take advantage if you can buy/sell at those prices but it’s always good to offer bid or lower and sell at the ask or higher rather than the nonsense most brokers quote you.  People don’t tend to realize just how much it is to save .05 on 10 contracts ($50), and people thow nickels out over and over again and cost themselves a fortune by not working those spreads.

    Volume/Craig – Just 70M, no better than yesterday so far and that was a hell of a stick set-up.  This is the last data-free day so very different from yesterday.  Tomorrow we have the Beige Book at 2pm and oil inventories at 10:30 – both market movers.  Thursday is huge with May Retail Sales, Jobs & Business Inventories.  Friday is Import/Export Pricing and Michigan Sentiment, which is expected to be over 70 now!

    IEA raised crude price target to $58 for 2009, that’s gotta be a disappointment for oil bulls (assuming logic is something they are willing to use).  Since oil traders will jump on the fact that this is a 13% raise in forecast from $52.50, I will be going 2x short at $69.40 now.

  79. This feels just like yesterday. I somehow managed to put in an order for DIA 88 calls just as it jumped up a little.  Really looking like we’ll get a slow melt up through the first half of the afternoon and then the big buy volume is going to come in late day.
    Gah, had the order in at 1.05 for these guys and clicked sumbit a split second before it decides to jump from -30 to -20.

  80.  hmm..CNBC is kind of in bed with MS  (MSNBC)

  81. Yawn, since I straddled USO last Thursday at 38 it’s gone to a flatline. I will close one or both positions tomorrow after inventory because premium decay is starting to hurt;  so that should get oil moving again for you guys by Thursday.

  82.  Question about hedging an option position. Take the example of Bidu recently posted where the stock is at say 306, and the trader wants to put 1/10th initial leg on with a hedge. The put strike is at 300 (slightly OTM) in Sept and the hedge call strike is further OTM at 330 in July. Currently both have comparable deltas (p=.43/c=.36). My question is what is the point of putting on the hedge when you would expect both to move similarly? If price moves against you  (goes up) the put will lose money faster than the call makes it though time decay may be a factor with the call. I must be missing a critical fact but why not just reduce your initial size  (to say 20% of first leg) instead of spending the extra to put a hedge on? What do you gain by putting a hedge on vs reducing size? Thx, B.

  83. Phil,
    From Zero Hedge "Citi’s $58B swap of preferred shares into common stock will go forth this week". Shouldn’t the share price drop after this significant dilution causing FAS to drop and SKF and FAZ to rise?

  84. Entry levels/Magret – Well they vary depending on where I see resistance and also where the last entries and exits were.  If $69.25 acted as resistance I would use it but it doesn’t.  $69.40 on the other hand, has been holding oil down sicne 10:30.   This is extreme short-term chart reading and it’s based on volume and movement I observe, not the standard moving averages.  There is an application of the 5% rule but using the movements themselves (ie., we topped out at $69.75 pre-market and we fell to $68.85 so a .90 spread and 20% is .20 and I’ll consider the drop below $69 a spike down and throw it out so I’ll call a  move .20 off $69 significant and that’s how we end up using $69.20 and $69.40 – where we are right now!), not 5% off some specific $ amount.

    CNBC/Cap – I love that guy!  Makes me want to get a web-cam…. and a shotgun!  What a well-made monitor that is…

    USO/Steve – Big oil selling came at 1:30 yesterday after they ran it up $1 ahea dof the sell-off – I think that’s what’s happening now.  They blew through .40 so no double down there, now waiting to see how high they go, probably $69.60

    DIA/Steve – Not at this volume, rather look for the win through 1pm at least.

  85.  Naz up 1/2% despite the big four horsemen are down…. very interesting
    Google down because of Bing??… I have to laugh… Bing comes from the same company that created Vista and that awful XBox red eye of death disaster…
    Everybody knows Microsoft is totally uncool and only used by old baldhead guys stuck in the 1980′s…. chuckle

  86.  whatz dat smell??  Hmmmmm… sweet smell of a rally grilling some BBQ bear steaks??
    C’mon Mr. Stick !!  Make and early show of yourself… rah rah Mr. Stick, rah rah Mr. Stick !!!… chuckle

  87. Phil,
    Is it late to get in BIDU? if not what would you pick before expiry week?

  88. Treasury auction coming up, market rallying on "good" news that 3-years will sell.  It’s not the short end that’s a problem…

    Hedge/Bri – Well I’m not sure what you’re trying to accomplish with that play.  You are buying a Sept $300 put with a .43 delta and also a $330 call with a .36 delta so what is it you are looking for BIDU to do?  What you want to do is buy the Sept $250 puts for $14.55 and sell the July $370 put for $8.75 so you are in a -$20 spread for about $6 and you have the expectation of being able to roll the putter to the Sept $230 puts, now $9.75, if BIDU heads lower, giving you a nice bearish vertical.  If BIDU heads higher, your putter gets wiped out and you will retain some value and you can wait for a pullback or sell and roll.  That way, you are hedged and NOT betting against yourself.  As to sizing, if your putter goes deeply into the money, you can add puts on your side and roll him down to 2x whatever and if the putter is wiped out at BIDU $400, you can roll up and DD at much lower prices….  Buy when things are cheap, sell when they are high…

    FAZ/Wes – Just C by themselves isn’t going to send FAZ and FAS flying.  C has gone nowhere lately so I think the dillution is baked in anyway.

    BIDU/Emo – Not too late to short them.  July $250 puts at $4.65 are good bang for the buck. 

  89. TOS & Penny quotes:  I think I got the "definitive" answer!  Here is the slightly longer story:
    I have 2 accounts, one at Schwab & one at TOS.  TOS’s standard commissions were much more expensive.  So, I took advantage of their offer of "matching any major online broker’s commissions" and negotiated a deal that matches Schwab’s commissions ($8.95 + $0.75/contract).
    But, then, I noticed that I could not bid at penny increments on an option on SRS.  I began to worry that TOS gave me a deal on commissions but won’t let me bid by penny increments.  I called them up just minutes ago.  The answer is "some options allow penny increments.  Buy many options only allow $0.05 increments.  It’s up to the options exchange."
    To verify that statement, I did some experiments.  To keep the story short, the conclusion: On SRS, neither TOS nor Schwab accept a bid like $0.23.  The increments must be $0.05.  However, on VZ, both TOS and Schwab accept a bid like $0.23.  So, the above statement is correct.  Each option is different.  It has to do with the exchanges, and not with the brokers (at least, not with TOS vs. Schwab).
    BTW, my experiments were to enter a limit order on an option with a bid way out of the market price.  If the order was accepted, it would sit in the "Working Orders" queue.  If it was rejected, it would go into the "Cancelled Orders" queue.  You can give it a try.  (Make sure you put in a price that won’t be executed, and cancel the order after the experiment!)
    Wow!  I learned something!  And I’m happy that TOS didn’t shortchange on me!

  90. Hit the 2x on the oil shorts on the way down through $69.40, now avg is $60.30 on 2 (ignoring previous profit on failed trades).  Very tight stop on a cross of $60.30 as that would leave 1x at very nice, high strike and that, by itself, is mission accomplished for a round 2

  91. Forgot to mention one more detail: According to the TOS rep, you can bid by penny increments on all spreads.

  92. TOS just approved takeover by TD Ameritrade – things may change with the platform there.

  93.  whoa… did CNBC just say people shorting oil are "dumbest guys in the room"?… daaaaaayyyaaaaaamn

  94.  so technology is leading the market higher and the next octane boost will come from the financials moving up higher?

  95. FWIW -  Arb play still good  -  Presume you’re interested in gaining a position in Merck (MRK) ahead of its acquisition of Schering-Plough (SGP), but have been put off by the 35% move in the stock since the deal was struck earlier this year.
    According to Credit Suisse the solution is buy the target. CS said Schering has a more-favorable risk/reward profile than the buyer, and said it believed that Merck would offer limited returns ahead of the deal’s close, because of few catalysts.
    Meanwhile, Schering represented a much more-favorable return. At current prices, Merck would throw off about 3%, versus about 18% for Schering.
    Both Merck and Schering traded down fractionally in Monday’s trading.

  96. "buy 1x JUL call at 330 strike (for hedge) and another 1x SEP put at 300 strike as initial put position build.
    BIDU at resistance level here around 305 area, but technically could head up to 350, so scale into more 300 puts as BIDU makes 10pt increments up"
    I appreciate your feedback!  To answer your question, somone posted this (above) and you said this was an "excellent plan"  I understood why scaling in was perhaps a good plan  but I didn’t understand the initial hedged leg vs reducing size on the initial leg and skipping the hedge altogether.  Perhaps I didn’t present it right or I left out a critical piece in my example.  There’s probably something I’m not seeing in the example above.  I need to review what you wrote, understand it, and then get back to you with questions which I’m sure I’ll have.  Thanks again.  B  

  97. TOS/Ameritrade  DB, I was on the online chat on TOS the day the announced the Ameritrade deal.  People were ready to riot.   Scott Sullivan assured everybody that the platform would not change and that all existing customers would have their commission rates grandfathered.   TOS did the deal in order to get more banking ability and back office stuff, not because their platform was weak.   I think both companies recognized the superiority of TOS’s trading platform.  I think it’s more likely that Ameritrades’ active trader platform will eventually switch over to TOS than the other way around.

  98. Pennies/Cwan – It’s my understanding that only IB is different as they internally match trades on some things to the penny before sending them out to exchanges.  I don’t know of any other brokers who do this and I don’t even know if it works well at IB.

    CNBC/Merk – Oh it is definately on now!   8-)

    XLF challenging $12.50 again, pressing right up against it ahead of the note sale.  I can’t believe we’re going to get a pop out of selling something that would be shocking if it didn’t sell….

    Ok, it was a strong auction – Yay!

  99. Treasury Auction good  for a base hit
    Obama on deck next… hope for another base hit
    then Mr. Stick comes in during final hour to hit a home run and drive everyone in for score
    Gotta luv market baseball…. chuckle

  100. Long bond selling off, again, on the strength show by the 2-year auction. At least that would be my guess, given what’s happened recently (once more worries of foreign buyers moving to the short term notes). So I agree Phil, nothing to rally on from the two-year auction. To the contrary, it’s just keeping the pressure on longer-term interest rates.

  101.  CNBC oil trade….  LOL Phil… you go get ‘em !!!… chuckle

  102. BIDU/Bri – Oh, that was because Merk proposed it as such, his plan was to be neutral, allowing the upswing to give him cash (using the call) that he could then put into the puts, which was his real play.  I didn’t recognize it when you said it but it doen’t make sense as a static play but with a plan of using the covered upswings as buying opportunities, offset by gains on the call, it’s a good plan but tricky to execute compared to the put spread I noted.  Merk is rightly recognizing the BIDU is very volatile and can blow out his expensive put so it’s a safety first play.

    Nas just touched 1,500.  QID $30s at $1.88, stop at $1.60, looking for 20%+

  103.  uh oh… Obama swing and a miss… strike 1

  104. Oh no PAYGO!!!  That’s going to stick it to commodities…

    Imagine actually having to have the money for the programs you come up with?  Madness…

  105. Phil – since someone is mentioning C, let me pick your brain:
    I have CIW Sept $4 call paid .46 now at .21 and CIP 45 Sept call sold for .29 now .11
    i am thinking i should roll them to Sept $2 and $3 or to Dec $3 and $4. What would you do?
    There doesn’t seem to be much indication that Citi is going to rise much in the near future.

  106. Can I pay Pelosi to go ?

  107. Here’s a cool thing I’ve observed: options on many stocks, especially momentum stocks, have a short-term price memory that can be used to a seller’s advantage.
    For example, the BIDU June 230 call, which I’m looking to sell as part of a spread, is currently .30 more than it was a few minutes ago when the stock was at the same level. I’m guessing this is just due to changed expectations after the spurt higher in the last half hour. I find this fact good to remember, because it means that you don’t have to try to pin the top for the call sale. Even if the stock heads back down, you’ll still likely get a better price after the run up than during it.

  108. Obama – All I know is he’s beein on time 50 times in 100 days and if that had been Bush, who averaged a 100-point drop per speech, we’d be at Dow 3,500 right now….

    1.9% is big money for the 3-year.  Was less than 1% in March.

    C/Morx – You bought at net .17, now .10 – that’s the bottom line.  The play was on a recovery over the summer and it’s only June and C is at $3.40 so you MAY be jumping the gun.  The problem is it’s bound to cost you .04 to make a roll so you are costing yourself 40% just to do that.  If the position you move to isn’t dynamite, then you are better off staying put since it’s far from hopeless.  You can spend .17 (net) to roll  down to the $3/$4s and then your break even goes to $3.34 plus commissions so say $3.45, which is where they are with a max win of .55 – that would be the "best" adjustment as you are getting .42 intrinsic for .17 but, of course, sucks more if they go lower.

    OK, 1:30 was sell time for oil yesterday.  Time to kill puts plays on crude if we don’t get something soon….

  109. Phil:
    Am holding 100 contracts of GMSV – July 1 puts. Stock keeps going up over $1.00 and puts are going down. Am worried that upon expiration my put position will be worth nothing on a stock that has realistically zero value. It appears the seller of the puts will get off the hook just because of time decay on a stock that is worthless but is still trading. Do you have a salvage strategy for these puts?

  110.  Bwah-hahahaha   unions and evolution on CNBC
    "when you are a parasite, don’t kill the host"  funniest thing I heard all day… LMAO

  111. Good catch Eric!   That’s why I prefer to wait for a turn, you don’t miss too much by not catching the exact top or bottom of a move – better to be sure that’s what’s happening.  Of course, that goes for slow moves.  For fast moves, you can get some stupid money from people who are panicking if you sell into the excitement. 

    Dow volume 93M, about 120M was stick time yesterday. 

    Nas does not want to pay our QID money!

    Salvage/Gel – Well, first of all, try to never pay premiums that are 50% out of the money, no matter what you think is going to happen.  You can sell your puts to some other sucker and use that money to roll back a month.

  112. Rock On !

  113. short OIH at 110 +   small position

  114. anyone
    short Squeeze in PALM?

  115. I’m expecting a 20-30 point burst in the DOW any time, feels liek a coil winding up ready to snap.

  116.  Now I can get down with that Led Zeplin for rally music…. yaaayuhhhhhh… CNBC tryin to be ol school grooooovy… LOL

  117. Interesting – everyone up a point BUT the Dow….

    Oil update – Just 1x at $69.30 avg, watching $69.70 get hit and passing on huge pump.  Did not go the way we wanted. Decision to DD is a given, loads of time on Futures and no change of outlook but now looking for $70+ to have avg of 69.65 and very much looking to sell half back there to have smaller loss.   Since we are at $69.80, it’s a trailing .20 sell on the next 1x so will sell at $69.60 on the way down if we don’t hit $70 and then back out half even at $60.45.

    QID $30s at $1.75, will hold for Nas 1,505 but out above there

    NYSE still way off the mark but S&P may make a run at 946.

  118. Phil,
    NAS 1505???

  119.   Naz going strong leading the pack, S&P peeking its nose over 943, NYSE levitating away from 6083, DJIA green now

    I’m likin it a lot… like a box of chocolates… run Mr. Stick ruuuuuuuunnnnnnn

  120. ARRY has finally lifted off the 3.10 floor moved above the 5d MA and is now at 3.26.  If it moves above 3.30, might start running.

  121.  Phil, AAPL June 150s for a stick-save play/hedge? They are pretty beaten-up and IV is pretty low (35%).

  122. PALM – Well that hit our buyback target on putter (.45), now Naked caller to deal with

    Nas/Emo – Sorry, I was looking at the futures, different scale..  That would be 1,870.

  123. IWM holding 53, QQQQ holding 37, DIA now holding 88….

    Kill these DIA puts yet?

  124. NYMEX close in 20 mins and they are going to Jam $70 somehow…  It’s good for the Transports I guess, they are up 1.25% again.  SOX are wild, almost at the 5% rule (4.6%), althought that does make the Nas a little less impressive. 

    AAPL/Eric – Sure but keep a good stop.

    Oh there goes $70 and that 2x now – very scary!!!

  125.  today and yesterday’s trading  formed a "cup and handle" formation on DJIA chart… time for a BREAKOUT 
    uh oh bears… watch out

  126. Oh Mr. Stick . . . go . . . go harder  . . .!!!!!

  127. DIA/Steve – which ones?

    Oil futures – Don’t forget that’s 2x at avg $69.65 and the main goal now is to get rid of one at that price.  Once you are behind, the goal is always to get even.

    Stick save – Don’t forget there is nothing to save here (other than getting S&P up to 946) so we may not see Mr. Stick.

  128. DIA June 85′s. Can’t decide whether to DD or quit.

  129. This is the second day in a row where the volume in SKF is higher then the volume for UYG.  I don’t know what to make of it other then just more of the same.  Manipulation.

  130. "so we may not see Mr. Stick."
    You might be right. The stick save trade may be getting a little crowded in any case….

  131. "so we may not see Mr. Stick."
    You might be right. The stick save trade may be getting a little crowded in any case….
    We keep saying that. It still keeps happening.

  132. I know steven. When it (finally) fails it could be impressive though. I think Phil was right yesterday — high fliers will be the first to crack.

  133. Man, they are doing everything now, the dollar is spiking down, gold is spiking up….  Major push to drive oil to $70 for the close and a lot of selling there – maybe USO taking a nice rollover but I imagine they must be done because there hasn’t been any real selling pressure since this morning. 

    QID $30s barely hanging on, a small stick will kill them at this point.

    5 mins to NYMEX close.  There is no way they are going to miss printing $70 – that would be crazy…

    DIA/Steve – I would do the roll the $85 puts to the $87 puts at .91 and sell the $85 puts for .40 if the Dow breaks 8,800.  That should hold overnight and cut half the additional upside damage.  Of course, this is based on my theory that we won’t get a stick with a positive move into 3pm.

    Volume ony 107M so far on Dow – I think everyone is waiting for a free ride on the stick these days.

  134. OK I’m done – my last lot of shorts got squeezed in that jump. I’m out no longer a bear the constant stick saves and lack of lip service to fundamentals have done me in. Give me a bear trade Phil ?

  135.  LOL… I hear ya Phil…  I suppose as a fundamentalist you don’t put much faith in technical voodoo chart formations…
    But I’m gonna get my chicken bonz out and use it to stir some magic hot chocolate in that cup and handle formation on the 2 day chart… chuckle

  136. Of course I mean Bull trade Phil !!

  137. Mattress   My position is + 8 Sep 89 / – 3 Jun 86, -3 Jun 87.   I have a lot of covers on my individual positions, so I haven’t felt the need to be naked on my mattress.   I’m thinking of rolling up part of my covers again.   Which do you think is better:  – 3 Jun 86 --> -2 Jun 88 for .83 credit  ($78) or  – 3 Jun 86 -> – 3 Jul 88 for 2.14 credit ($614)?

  138. If I do the roll to July I’d use the proceeds to roll up my longs.

  139. BLK – My position blew up today (1x Oct 145/2x June 170), with BLK up $14 today. Anyway to salvage it?

  140. Looks like someone had enough of this silliness….

  141. I just realized I’m both long and short Oil. My money that GS and MS have is long and my money that I manage is Short. That makes me feel better. :)

  142. This is kind of funny, we are now up 30 points on the Dow and Cramer says it’s the most exciting market he’s ever seen when earlier on CNBC, they told us a 36-point down move was meaningless.

    LOL DB – that is the sign we’ve been waiting for to short everything!!!  Nothing on you personally but when the perma-bears crack, that’s the top more often than not.  If you want to do one bear trade, try the DIA Sept $88 puts, now $5 – they won’t hurt you too much on a 100-point rally but they can give you a quick 40% on a 200-point drop and plenty of time to be right.  If they fail you, then they make a great backstop to 3 months of bullish bets.

    Voodoo/Merk – Well, like I said above, you can’t fight the tape.  Knowing everyone is going the wrong way doesn’t stop you from being trampled but where is your S&P 946?  Show me the breakout!!!  The problem with this chart society is that you look at charts that are created under such low volume that GS can paint a clown face on the chart if they want to but everyone takes it seriously.  The daily market isn’t the only thing that’s manipuilatied – that’s why Mr. Stick MUST make his moves – chart patterns must be painted.  What’s my theory?  If we make an advance that doesn’t threaten the chart – no Mr. Stick, they save him for when they need it.

    Oh yes!  Sharon is glowing as she announces oil closing over $70 although it spend a total of 15 seconds above $70 but I be you hear the number $70 at least 10 times an hour from now through tomorrow morning on CNBC….

    Oh a bull trade DB – LOL, you are losing it.  How about selling XLF July $11 puts for .25, it’s a nice intro to being a bull trade….

    Roll/Eph – I’d go 3 to 2 in June as you can always sell another and we haven’t confirmed the break yet….

    BLK/Pyern – No big deal, you can just roll them to the July $175s better than even.  If you make $5 progress per month you’ll be $40 in the money to them by Jan.

    Dollar $1.63.5 to the Pound!  What the hell???

  143.  TD Ameritrade taking over ToS… I guess I don’t need to change brokers… chuckle

  144. DB how about QLD for a simple bull play?  Up 15% in a week and my calls are up 115% during that time.  Tech is on a run and QLD is easy to cover on a bad day as it has dollar strikes.  The only pain is the wide bid-ask spreads.

  145.  yeah… I hear ya Phil…. that cup and handle is so far just a big Homer Simpson D’oh
    Naz and RUT are doin well today… both up 1+% and still goin…  DJIA needs to go up about 100 to catch up with them… S&P is a fizzle so far
    I’d be happy with just a lil EOD stick of maybe 50 to 100 pts… I’d like to see a close over 8820 on DJIA today

  146. June IV fell noticably between 2:55 and 3:10 (on AAPL and AMZN options, anyway). I guess now there’s a ‘stick premium’.

  147. Pot is getting close to where we like to short them currently above 116. I think now would be a good time to start scaling into some puts. However, wathout as it ran all the way up to 121 last time.

  148. EIA raised their forecast for world oil demand for 2009. 

    Now, guess how much?   If you just heard it on CNBC, I’ll bet you thought it was more than enough to justify popping over $70.  Late traders sure think so, they just puched oil over $70 agains.

    Get ready for the shocking forecast that moved oil up 2.8% today:

    "The EIA data showing it has raised its world and U.S. oil demand forecast for the first time since September is a sign that things are stabilizing on the demand side," said Phil Flynn, analyst, Alaron Trading in Chicago.

    OK, here it comes – brace yourself:

    The EIA raised its forecast for 2009 world demand by 10,000 barrels per day from its May estimate of 83.67 million bpd, marking the first time since September it has increased its 2009 demand estimate.

    10,000 Barrels a day!!!! Oh my gosh – RUN!!!! Everybody start digging holes in the yard so we can store oil before it’s all gone!!! 

    What a friggin’ joke this is. 

    World demand will likely decline 1.8 million bpd this year from the 2008 level. The EIA expected global demand in 2010 would rise to 84.41 million bpd, 20,000 more than it forecast last month.

    I am sorely tempted to double up my shorts here but, obviously, there is no end to this farce….

  149. "buy the Sept $250 puts for $14.55 and sell the July $370 put for $8.75 so you are in a -$20 spread for about $6"
    Phil, did you mean -$120 spread (250-370)?

  150. C’mon SKFie!
    Did Cramer REALLY say it’s the most exciting market EVER??  Where is the FCC when  you need them?  Oh yeah, they’re trying to figure out how GE can buy a newspaper and another TV channel.

  151.  Ha… the market spirits are listening to ya Phil… DJIA is back to "unch"…. LOL

  152.  Phil if you had a small retirement account in the 5K range and you wanted to do conservative premium writing strategies, what sort of strategies would you employ.  We can do this after hours, just considering some stuff for my ira.

  153. POT/Craig – I agree but it’s just no fun being short in this market.  Unfortunately, I can’t switch my brain off and go long until at least the S&P can hold 946.  It’s not too much to ask, they’ve been over it 3 different days now.  All they have to do is hold it once and I’ll cheer up but if the main market index can’t break a technical – what does it really say about the rest?  

    XLF STILL not over $12.50, just as pathetic as S&Ps performance. 

    BIDU/Bri – Sorry that was the July $270 puts, the July $370 puts are a bit more than $8.75.

  154. Phil, here’s a real gas killer.  TM is about to release the newest Prius.  It’s bigger, stronger, gets better mileage and cheaper then the previous one.  They’re going after the mainstream market with it.  50MPG for $22K.  I think it could be huge.  They say electric only isn’t technically feasible yet due to battery technology.  Only a small car is possible now and they don’t think most of America would want to drive one with the family to the mall.  Smart folks.  I think TM is going to close GM down for good.  Say goodbye to your tax dollars.

  155. stick, stick, go away. Don’t come back until we say….

  156. Retirement/Bigs – I’d stick with the buy/writes and mainly on indexes that seem safe like UYG, FAZ (offsetting), UNG, DBC….   I would be happy to list a few for you on the next dip as we need to hit our Buy List and update it anyway (I assume you’ve been reading the Buy List series so you know the trading style).

  157.  Chrysler Fiat news just now is being a drag… like cops showing up to a rockin party

  158. ISRG
    Just got this fill – copying Phil’s ICE play from a couple of weeks ago
    Long ISRG Jul140C @20.45
    Short ISRG Jul150C @ 13.65
    Short ISRG Jul140P @ 4.10
    That’s a $10 spread for $2.70 if ISRG closes above 150 in July

  159.  Thanks phil,  I’m totally comfortable with the strategies.  I’ve been here almost 2 years now.  I trade more complex stuff with my bigger accounts, but I’m trying to figure out what I want to do with small 5Kish account so I can properly diversify it also.  I was thinking about writing out of the money front month spreads also on etf’s.  Just write credit spreads.  In addition to buy writes.

  160. Matt, let’s  just hope that "those ridiculous" GM pension and health care funds fare stuffed full of Toyota shares.
    Talk about a nicely correlated hedge….

  161. Phil/Mr Mocha – Bull trades – thnx – this is gonna be hard. At least I’ve got the stick save to look forward too :-)

  162. When does IEA release inventory estimates???

  163. Dreaded MR Stick is back

  164.  Hmmmm… DJIA is starting to get a lil perky…. maybe the viagra is starting to work on Mr. Stick?

  165. yep, Looks like I’ll own some DIA sep 88′s overnight

  166. Matt, the all-electric Tesla is an impressive little rig, but not affordable to the masses.  A look into the near future is here.

  167. Prius/Matt – If GM were smart, they would make a deal with TM to do nothing but crank out 5M of those things.  Obama could slap a $5,000 tax credit on them for turning in a gas guzzler with purchase and we’d save (75% x (5M x 15,000/15mpg = 5Bn gallons)) = 3.75Bn gallons = 89Mb of oil = 1.5Mb of oil per week afterr the first year of this program (1% of US consumption).  At $3 per gallon, the consumers would save $11.25Bn a year on $25Bn of government expenditure and all 300,000 GM workers would be working overtime putting these things out.

    Volume still terrible at 130M on Dow.  How can so few trades be made?

    ISRG/Edro – Very nice.  You know Cramer has been bashing them I’m sure…

    IEA/Mirachael – They are out June 11.  In May they predicted a 2.56Mb decline for this year, much more bearish than the EIA (-1.8M) and I’m sure more accurate as the US all by itself is down more than 1Mbd and we’re not even trying.  Very big deal inventory report tonight because the fact of a build (or draw) will put a big spin on the IEA report on Thursday.  I’m expecting another build,. maybe 3Mb.  I think that’s in-line with overall expectations but if they brought in a tanker or two to take advantage of the Goldman push, then we could build well over 5mb and that would be great!

  168. U know they want to lure you in for the stick, but the carpet will soon be yanked today.

  169. Oh no, it’s the dreaded anti-stick!

    I hope it wasn’t something I said…  8-)

  170.  yawwwwwwn… 3rd "unch" day in a row… I’m gonna passout from sheer boredom
    Phil looks like you nailed it about Mr. Stick being AWOL today

  171. Volume 139.3M

  172. Looking for some LUV today, and looks like 6.45 is the support, OH resistance is 7.4.  Might be a nice little buy write for small accounts….I have started traveling on them, and LUVing the prices they offer and the direct flights….

  173. Phil,
    I posted this late yesterday for your consideration after the close. Perhaps you missed it so I am trying again. The numbers have changed now but I am still interested in your analysis:
    HOV- earlier I asked about rolling to the July P&C ($2.50’s) and you replied:
    HOV/Pstas – Well you have .42 in premium left to work off that expires in 10 days (.04 per day) and you’d just be rolling to .83 that expires in 40 days (.02 per day) so a little early to do the roll, especially as you are right on target.
    This "pea brain" of mine may be sprouting too many green shoots and screwing up my synapses- so help me out here.
    I need to know if there is fault in my logic- remember I am still learning the ins/outs of the buy/writes:
    I have HOV @ $ 2.34; sold June $2.50 P&C for $1.05 ; so in for 100 @ $1.29; 200 @ $1.89.
    With HOV pulling back today on the downgrade;  I noted that I could buy back the June P&C’s for $.50 and sell the July $2.50’s for $.75.
    That would reduce my net on the first 100 to $1.04; 200 @ $1.77.
    So, my logic is that at June expiration; I will either own 200 @ $ 1.89 or get called away for a profit of 93%.
    If  I roll to July, at July expiration, I will either own 200 @ $1.77 (lower cost) or get called away for a profit of 140%.
    So, short of HOV tanking below $1.77 by July expiration, it seems to be a "wise" move. If not, help me understand why not?

  174. Cramer was bearish on LUV, so now liking them even more.

  175. I think "THEY" are now using SKF as a way to keep the financials up.  There has been a big block of shares for sale all day long that appears to snuff out any kind of rally in SKF.  That would also explain the higher volume.  Of course, it could be someone just trying to off load their SKF.. but it looks like how UYG is often traded to the upside.  With a big block just sitting there to absorb any kind of selling interest in UYG.  Now they’re doing it with SKF only now they’re absorbing any kind of buying interest. 

  176. LUV – buy now, sell 7.5 Sept09 C for 0.45 and 6 Sept09 P for 0.4.  That is a 5.98 if called away  – 6.18 if put to you (check my math….)

  177. Tesla on Top Gear – Great Show on BBC America.

    SKF/Matt – Intersting concept, forcing SKF to cover?

    Pstas – Sorry I missed it, will get to shortly.

    Same as yesterday – SOMEONE is taking advantage of attmpt to save to offload a LOT of posiitions. 

  178. Bank of America Corp (BAC.N) on Friday said Chief Executive Kenneth Lewis will testify in Congress on June 11 about the largest U.S. bank’s purchase of Merrill Lynch & Co, which prompted a federal bailout.

  179. Got into a trade from Shadowtrader.  Bought SQNM jun 4 calls today.  Up 86%.

  180. Depending on how this closes we’re looking at a lot of NR7s across sectors and indexes.  INDU put in an inside day and nr7.  Ought to be interesting tomorrow or the next day.

  181. Tesla 0-60mph in 3.9 seconds – that works!
    Good call on the stick – hope we can see a little follow through tomorrow
    Good trading everyone!

  182. Wow, gone all day oil over $70… the march to $75 has begun.  We may be early, me thinks July for $75. 
    Can’t fight oil bulls in the summer.

  183. Well that was sure entertaining!  Volume ended at 187M so 1/3 of the day in the last 10 mins, which just so happens to be Big Daddy Goldman’s share of trading….

  184.  Tomorrow tomorrow I luv you tomorrow… yer only just a daaaay awaaaaaaaay
    I was hoping TARP news would light a fire under financials to join technology for the next push upwards
    maybe tomorrow we get something better than "unch"

  185. For those of you who, like me, haven’t heard of NR7, here’s what I found:
    "NR7 is a chart pattern based on traditional candlesticks.  NR7 means that the last candlestick has the narrowest price range of the last 7 candlesticks.  Our NR7 alerts look at a 15 minute stock chart.
    A description of “NR7-2” means that the stock chart shows an NR7 pattern for the last candlestick, and for the previous candlestick.  “NR7-3”, “NR7-4”, etc., are all defined in the same way.  This information is also available as a filter.
    The NR7 pattern shows when a stock’s price shows a short-term pattern of decreasing volatility.  In this way NR7 is like a triangle chart pattern, but with more emphasis on the volatility, and less emphasis on the specific shape or direction.  In either case the common assumption is that volatility is like a spring.  When you push in on it, it has to pop back out.  The longer and harder you push, the more explosive the final reaction will be.
    The NR7 pattern does not, by itself, predict which direction a stock will move.  People use it to predict which stocks are likely to make a large price move."
    So I think Brian is saying "a big move is coming"?

  186. phil any thoughts on opening up a JPM position and trading around it using cov calls and short puts?…I feel ok about it as I have a good deal of putters on the FAZ on which I will be assigned…
    Also, I like the stock as a hold and premiums are pretty good…in fact, the callers are even a good trade all by themselves (sell/cover/repeat)..seems like reliable trade, assuming we are in the holding pattern of th past few weeks.
    Just wanted to ask as I do not hear much about JPM on this board
    >>>Also, on a completely different note, have you commented at all on the Bernanke versus Sommers matter (who ends up as Treas Sec) and where you come out on it?

  187. Bing hurting Google, seriously ?
    Check this out from Slashdot : Microsoft’s Bing Refuses Search Term "Sex" In India
    Surely, now you dont think Bing is hurting Google, CNBC, do you?

  188. LOL, the founder of the Vanguard Group says buying stocks in this market is like gambling.  I think it’s worse then gambling.  At least with gambling, you know the odds against you are pretty consistant.  In this market, the odds against you change on a daily basis.  You never really know WHAT you’re up against.

  189. Phil
    Re previous post (GMSV puts) I was the sucker trying to recoup something from losses on stock, bonds and now options. I dumped the put options as I did with the autos, stock and bonds some time ago. Good ridance to all of it.

  190. Thanks Mr Mocha for that info.  I get the same ‘feeling’ about about a compressive reaction when I look at the SMN chart.  Something is goig to happen there very soon.

  191. HOV/Pstas – Your first thought confuses me.  If you buy back the puts and calls for .50, there will be no obligation put to you in June.  You will only have your 100 at net $1.79 (the $1.29 net you first paid, plust the .50 you paid to buy out your putter and caller). 

    The bottom line on this trade is you are considering buying out the June $2.50 puts and calls for .50.  The only possible way that is good for you is if HOV finishes higher than $3 or lower than $2 on June 19th, otherwise you would have saved money by waiting.  By money, I am also including about .01 x 4 moves it will take you to roll but you are going to sell July’s anyway so call it .02, still 4% of your profits so nothing to throw away for no reason.

    Now, you intend to sell Julys and you can sell July $2.50s for .80.  That is not likely to change unless HOV makes an extreme move.  Since you orginially bought HOV at $2.34 and sold the June $2.50s for $1.05, you should know that getting paid .80 when you are the same .16 off the money is crap.  So you are rolling your excellent premium that you got paid top dollar for to crap premium.

    The June $2.50s are .44 and have .19 of intrinsic value so .25 of premium that expires in 8 sessions (.03 per session decay).  The July combo has .61 in premium over 30 sessions, or .02 per session of decay.   So one thing we know for sure is that buying out the June $2.50s will lose you .08 over the next 8 sessions – and that’s 5% of your entire position in just 8 days that you are flushing down the toilet.

    The only sure thing in options is that the .25 of premium on the June $2.50s WILL EXPIRE next Friday.  There is nothing "bad" that can possibly happen to you  (assuming you don’t mind buying more) – you will either get called away with a huge profit or you will have twice as much to sell next month.  Given the current rate of decay of .02 per session, you can expect to sell the Jul $2.50s for .65 and, frankly, at that point, maybe it’s better to take $1.15 for the Augs. 

    Now IF you hit $2.50 on the head, you will not pay .50 to cancel your contracts and you’ll get .65 for July, that’s +$1.15 vs + .46 so it’s a possible 250% win if you wait vs taking .46 now.  Since you have nothing to lose – what’s the best course of action?  You win if you hit $2.50, you are not much worse off if it goes to $3 or $2, you collect more money and, if the VIX goes up between now and then, you collect more on the Julys.  The rest is up to your targeting.  If you think HOV is flying back to $3+ then why even roll to the Julys?   Better off taking them out or 1/2 out.  Since they barely budged during a huge "rally" the past week, I’m not thinking they’re going anywhere too soon.

    If you still have a question, do ask – I know it’s very tough to get used to the logic…

  192. What a circus this is going to be!  As I said before, I will judge the success of this administration by how well they implement their financial regulatory strategy.  And boy do they have their work cut out for them!

  193. From WSJ:

    Crude’s insistent rise – up more than 50% since mid-April – has defied the bleak state of oil demand. The U.S. Energy Information Administration on Tuesday reiterated its view that the world will consume less oil this year, with demand falling 2% to 83.7 million barrels a day.

    The EIA, the Energy Department’s analytical and statistics wing, also raised its oil-price forecast and now sees crude averaging $67 a barrel in the last six months of the year. Oil’s surprising strength over the past three months was largely due to the weaker dollar, more active financial markets and the belief that an economic recovery could end the demand nosedive, the EIA said. Other high-profile oil analysts have also raised their price forecasts in recent weeks.

    Some observers, however, are baffled by crude oil’s persistent rise despite the notable lack of increase to global demand now. It was the falloff in demand, which was sparked by the intensification of the economic crisis last year, that took oil down from the record highs above $145 a barrel hit last summer.

    "We are ignoring fundamentals," said Tim Evans, energy analyst at Citi Futures Perspective. "The unemployment rate continues to rise, which is not good for gasoline consumption. To pretend that there is nothing but blue skies going forward, it’s a naive economic assumption."

    All eyes are set now on weekly U.S. oil inventories data due Wednesday from the EIA. Analysts surveyed by Dow Jones Newswires say that, in the week ended June 5, crude-oil inventories likely fell by 700,000 barrels, while gasoline inventories rose by 800,000 barrels and distillates rose by 1.5 million barrels. Analysts see U.S. refineries operating at 86.8% of capacity, up 0.5 percentage point.

    Meanwhile crude spiked up to $70.60 after hours even though Gold and the indexes all headed lower.  USO at $38.40 and they are expecting a net build of 1.6Mb but now the API report says that imports fell to 8.5Mbd – the opposite of what we expected – and that caused a 6Mb draw of crude (not shipping 3Mbd will do that!).  At the same time, refiners boosted their run rates 203Kbd (which sucks up a lot of oil into the process so out of crude inventory but not yet outputted to refined product) and the, according to API, who are paid by the energy companies, caused inventories of gasoline and distilates to be pretty much flat.

    In at $69.65 the proper move is to DD at $70.60 for net $70.125 and just hope to get the hell out of 3x at that price.  This is where this gets ugly as it’s hard to do in thin trading and it’s a matter of conviction to stay in the trade at this point.  Going to 4x here triggers several events.  Since we are rallying off consolidation at $60, we expect a pullback from $72 (20%).  With 4x at $70.125, adding 4x at $72 would be 8x at $71(ish) and a 20% retrace of that $12 run would be $2.40 so we’re looking for a very mild pullback off $72 to get even. 

    Taking a bullish oil position for the interim is a good idea, like offsetting more upside by selling USO $38 puts for $1 to offset the expected losses between $70 and $72 (4 contracts at $10 per penny is $4K so selling 20 puts for $2K does a nice job of mitigating the damage)

    All this just in time for fast money to pump oil right at the open, pointing to the $70.60 price as evidence that oil is on a record bull run.

  194. All this talk about money on the sidelines!  A bull waiting for money to come off the sidelines at this level in the market with the economy where it is is simply hoping for a ponzi scheme play.  How is this a bullish premise?  It’s stealing!  Morons!  Everyone!! 

  195. When will people realize the copper is being replaced as a material for plumbing in residential plumbing?  PEX, which is plastic, can be installed ALOT faster then copper at a cheaper material cost.  You have savings in materials and especially labor.  CU is dying in residential applications.  I would NOT be an investor in copper. 

  196. When does Obama address the rising price of oil?  If he cares about the effects on the  consumer, why does he not make a statement about oil and threaten to open up the SPR?

  197. matt
    How many amps can you put thru PEX or PVC or any other plastic. 

  198. Sidelines – I think that’s the problem.  They are pumping and pumping and pumping trying to get people to jump in but most of this sideline money is what’s left from people who got out at much lower prices than this and it’s really hard to fork over $140 for AAPL when you dumped it at $85 or $12 for BAC when you thought you were lucky to cash out at $6.  

    That’s the problem with a thin-volume rally, there is not enough participation to build a real base.  It’s like having 500 homes prices at $250,000 in a development and you sell 10 for $250K and 10 for $275K and 10 for $300K and 10 for $350K and 10 for $400K in what you think are 5 good weeks selling 50 homes.  The problem is, now you have 450 homes prices at $400K and suddenly no one wants them.  If the 10 people who bought homes for $400K, they’ll find themselves competing against 40 people who bought cheaper and 450 empty homes with no buyers at all.  That’s why developers try to sell before they build but people buying stocks don’t realize they are buying in such razor-thin markets until it’s too late.

    Copper – Not in China.  They use it in all kinds of contruction and they’ve been stockpiling it as they intend to grow their way out of this crisis and they don’t want to be caught short.  They are also filling up their SPR and buying all kinds of other stuff.  Part of it is to try to get rid of their dollars.  The problem is, FCX, for example, sells about 10% of the world’s copper and their whole Income last year, with prices double, was $17Bn so there’s only so many dollars China can change into copper without getting silly.  Oil was a smart move for China, they bought it from $35 to $70 so probably under $50 average but even if they have an 800Mb SPR like ours (doubt it), that’s "only" $40Bn!  Dollars are a real pain in the ass to get rid of when you have 1,600,000,000,000 of them! 

  199. Merk – having you as the uber bull is good fun; you will give the bear case some mojo !
    This market goes down; its only a matter of time, probably days.

  200. Some light economic reading (got it from John Mauldin):


    History lesson for economists in thrall to Keynes

    By Niall Ferguson

    On Wednesday last week, yields on 10-year US Treasuries — generally seen as the benchmark for long-term interest rates — rose above 3.73 per cent. Once upon a time that would have been considered rather low. But the financial crisis has changed all that: at the end of last year, the yield on the 10-year fell to 2.06 per cent. In other words, long-term rates have risen by 167 basis points in the space of five months. In relative terms, that represents an 81 per cent jump.

    Most commentators were unnerved by this development, coinciding as it did with warnings about the fiscal health of the US. For me, however, it was good news. For it settled a rather public argument between me and the Princeton economist Paul Krugman.

    It is a brave or foolhardy man who picks a fight with Mr Krugman, the most recent recipient of the Nobel Prize for Economics. Yet a cat may look at a king, and sometimes a historian can challenge an economist.

    A month ago Mr Krugman and I sat on a panel convened in New York to discuss the financial crisis. I made the point that "the running of massive fiscal deficits in excess of 12 per cent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds" was likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down. I predicted a "painful tug-of-war between our monetary policy and our fiscal policy, as the markets realise just what a vast quantity of bonds are going to have to be absorbed by the financial system this year".

    De haut en bas came the patronising response: I belonged to a "Dark Age" of economics. It was "really sad" that my knowledge of the dismal science had not even got up to 1937 (the year after Keynes’s General Theory was published), much less its zenith in 2005 (the year Mr Krugman’s macro-economics textbook appeared). Did I not grasp that the key to the crisis was "a vast excess of desired savings over willing investment"? "We have a global savings glut," explained Mr Krugman, "which is why there is, in fact, no upward pressure on interest rates."

    Now, I do not need lessons about the General Theory. But I think perhaps Mr Krugman would benefit from a refresher course about that work’s historical context. Having reissued his book The Return of Depression Economics, he clearly has an interest in representing the current crisis as a repeat of the 1930s. But it is not. US real GDP is forecast by the International Monetary Fund to fall by 2.8 per cent this year and to stagnate next year. This is a far cry from the early 1930s, when real output collapsed by 30 per cent. So far this is a big recession, comparable in scale with 1973-1975. Nor has globalisation collapsed the way it did in the 1930s.

    Credit for averting a second Great Depression should principally go to Fed chairman Ben Bernanke, whose knowledge of the early 1930s banking crisis is second to none, and whose double dose of near-zero short-term rates and quantitative easing — a doubling of the Fed’s balance sheet since September — has averted a pandemic of bank failures. No doubt, too, the $787bn stimulus package is also boosting US GDP this quarter.

    But the stimulus package only accounts for a part of the massive deficit the US federal government is projected to run this year. Borrowing is forecast to be $1,840bn — equivalent to around half of all federal outlays and 13 per cent of GDP. A deficit this size has not been seen in the US since the second world war. A further $10,000bn will need to be borrowed in the decade ahead, according to the Congressional Budget Office. Even if the White House’s over-optimistic growth forecasts are correct, that will still take the gross federal debt above 100 per cent of GDP by 2017. And this ignores the vast off-balance-sheet liabilities of the Medicare and Social Security systems.

    It is hardly surprising, then, that the bond market is quailing. For only on Planet Econ-101 (the standard macroeconomics course drummed into every US undergraduate) could such a tidal wave of debt issuance exert "no upward pressure on interest rates".

    Of course, Mr Krugman knew what I meant. "The only thing that might drive up interest rates," he acknowledged during our debate, "is that people may grow dubious about the financial solvency of governments." Might? May? The fact is that people — not least the Chinese government — are already distinctly dubious. They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall.

    No doubt there are powerful deflationary headwinds blowing in the other direction today. There is surplus capacity in world manufacturing. But the price of key commodities has surged since February. Monetary expansion in the US, where M2 is growing at an annual rate of 9 per cent, well above its post-1960 average, seems likely to lead to inflation if not this year, then next. In the words of the Chinese central bank’s latest quarterly report: "A policy mistake … may bring inflation risks to the whole world."

    The policy mistake has already been made — to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that "even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist". Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas.

    The writer is Laurence A. Tisch professor of history at Harvard University and author of The Ascent of Money (Penguin)

  201. S. Steve, 0!  Not my point.  If we think fuel efficient cars are going to ding demand for fuel, it’s the same analogy for PEX to CU.
    Cap, I don’t think you can count on Merk being a bull for long.  But you can count alot longer on him being loud about whatever he is.

  202. Cramer calling WSJ "The Negative Street Journal" – Theme seems to be "How dare anyone say anything bad about this economy?"

  203. CBL:  Offering 50 Million shares !   With 71 million outstanding.  That’s 40% dilution.
    Who on earth is buying these shares other than Marty Cohen ?  It is crazy, I tell ya ….

  204. Even the Kuwaiti Oil Minister agrees with me: "$100 Oil Will Fuel Recession"

    Oil reopened futures at $70.60.  The way it was heading up, I was worried they’d hit $72 tonight!  I don’t know how reliable API is vs EIA report tomorrow but it’s hard to imagine them being so far of as to be a build vs a 6Mb draw. 

    Cramer says, whether you are a bull or a bear you have to get on board this market train as it’s heading up the tracks…..   I’m all in favor of that but I’m simply asking for it to pass S&P 946 before I get on board.  Why is it so important for me to get on board before I am positive the train is going my way.  If it’s such a great opportunity to get in on a mega rally, what will I miss by not getting in today?  100 points, 200?  300?  500?  Really, if the whole thing is going to be over in 500 points then this is a lot of fuss about nothing. 

    So either it’s a real rally, and we’ll catch it when the S&P gains 4 more points (and holds it) and the NYSE gains 131 points and holds that or it’s not a rally at all.  Seems simple enough and I’m sure that’s keeping a lot of money on the sides…

  205.  S.Steve,
    Nice play on SQNM!  Was that recommendation from TOS (RedOption) ShadowTrader?  Asking because I subscribe to that and did not catch that suggestion today.

  206. Supremes rule in favor of Chrysler … to Fiat …

  207. Well, they didn’t rule; but they won’t block the sale….

  208. Well there’s a lesson for me. Some of my 87 Jun DIA Puts got closed out (I am fine with that) at 16:09
    Now call me silly but I thought options stopped trading at 4pm. Amazing.
    I expect everyone else already knew this hehe, but good to know!

  209. In case anyone else didn’t know, DIA options (under 9 months out) close at 16:15 EST
    Trading Hours:
    8:30 a.m. – 3:15 p.m. Central Time (Chicago time).

  210. re Jun 87 DIA puts closed..
    Well, that’s certainly interesting.  I knew puts might be called out earlier because of arbitrage, but my TOS trade page shows them at 1.13/1.16 (b/a), with DIA closing at 87.74, which means there’s an intrinsic value of $0.00, and an extrinsic value of $1.145 (TOS shows an average between the b/a).
    I bought some diagonals Sep 88s and sold some Jun 85, and waited for a while before rolling  to Jun 87 per a post from Phil to DIA/STEVE at 2:33, but waited for a while to sell at a better price.
    I certainly wasn’t expecting to be vulnerable to having them put with so much premium…..and I sure don’t want to sacrifice Sep 88s at their premium.
    So can someone explain to me why someone would put the stock and lose $1.145 in premium?  Was it just a goof?

  211. When will people realize the copper is being replaced as a material for plumbing in residential plumbing?  PEX, which is plastic, can be installed ALOT faster then copper at a cheaper material cost.  You have savings in materials and especially labor.  CU is dying in residential applications.  I would NOT be an investor in copper.
    Yes, but 10 times as much copper is used in electrical applications as in plumbing (2007 US figures 476 million pounds in plumbing, 3288 million pounds in wire mill products). Unlike plumbing, there is no alternative for the use of copper in electrical applications. Demand for electrical copper is increasing, for example hybrid cars contain 2-3 times as much copper as regular cars.
    While plumbing is a significant use of copper, in context it was about 7% of overall consumption of 6424 million pounds of the stuff in the US in 2007. I doubt that reduced demand from plumbing will have notable impact on overall demand for copper….

  212. javaben, sorry for being confusing.
    I meant that I had a limit order to sell to close some of my DIA 87 puts, which  filled for $1.15 at 16:09. My surprise was that I did not know they were still trading at that time. I was also happy to get that price!
    I did not mean they were put to me.

  213. Marketplace Kai R. interviews revered economist and monetary policy expert Dr. Anna Schwartz.  Fantastic interview with someone not tied to either administration. Kudos to Kai…..and Marketplace.

  214. Bigs/$5K IRA   I have one like that where I’m basically just doing SPY calendar spreads.  $1 strikes and very liquid makes it an easy position to manage.

  215. Bigs/$5K IRA   I have one like that where I’m basically just doing SPY calendar spreads.  $1 strikes and very liquid makes it an easy position to manage.

  216. Good morning everyone.
    US futures way up S+P + 1.2% Dow +1%. No idea why. Cant see any good news. Oil is up again. Bizzare

  217. Ok maybe its Chinese May Industrial Production +8.9% on year.

  218. Yep, if you don’t have all the ‘easy’ trend trades on right now, this market is a real ball-buster. Just keep selling premium…

  219. Good morning!

    Europe just opened and oil is at $71.10, topped out at $71.18 so far. 

    The best reason I can see is a rumor that Friday’s Industrial Production Report out of China will be a much better-than-expected 8.9% increase for May, the fastest growth since last September if true.

    S&P Jammed up to 950, up 14 poiints from 7:30 at they had sold off after hours.

    Nothing to do but switch off our brains and buy stuff, IF this keeps up into our open. 

    I’m liking SUN and VLO in the energy space.  SPWRA is still pretty cheap.  At some point you would think UNG will catch on again.  HMY is a good mining play. 

    I will note that the S&P futures were jammed up to 957.50 last Friday morning, with the high at about 8:35 and we opened over 950 and that was a gap up from 941.50, just about where we closed yesterday and we dropped like a rock at the open on what was supposed to have been a fabulous Non-Farm Payroll report so, effectively, there wasn’t enough good news in the world to support 950 on the S&P on Friday.

    Oil was $70.37 Friday at 8:30, fell all day and hit the 5% rule at $66.75 on Monday but hasn’t looked back since then.  If we use $67 as a firm support line, $70.35 is the 5% rule so that’s the big breakout line for oil today.

    Looking at other indexes, Friday’s topouts were (apx): Dow 8.750, S&P 950, Nas 1,865 (beat in yesterday’s high of 1,870), NYSE 6,160, Russell 536, SOX 285 (June 1st, Friday was 275), Transports 1,880 (also June 1, Fri 1,850).

    Overall, it’s a whole lot of buying on thin volume into the Beige Book at 2pm today and Tomorrow morning is Retail Sales and Weekly Jobless claims so I’m going to have to be very strict about needing to see our levels taken out (S&P 946, NYSE 6,232), which shouldn’t be too much to ask in this massive commodity rally.

    What killed the rally on Friday was a big dollar rally.  This morning we’re looking at the dollar near Friday’s lows but still better than June 1, when we bottomed out at 78 (closed at 79.82 yesterday).  That "rally" may have been into the uncertainty of the EU elections and was, perhaps, a brief interruption of the dollar downtrend, so let’s not dismiss the commodity hedge idea as we have 2 big Treasury auctions today ($19Bn of 10-year) and tomorrow ($11Bn of 30-year) and if our dollars don’t sell, we could drop another 10%, down to 70, which is where we were last Summer when oil was $147.

    I just updated the $106,191 Portfolio and DBC was the only postion I was looking to add to right away, looking to add 10 2011 $20 calls at $6, but it seems we’ll have to pay more if there is no pullback in oil, which is about 1/3 of this index.

    Oil now $71.45 so figure $71.50 and a 5% rule pullback of 20% of the $4.50 run from $67 takes them back to about $69.50 but if they hold that line – watch out!

  220.  Futures up very nicely…
    now  there is the upside breakout I was hoping to see coming out of  that cup and handle formation on the 2 day chart 
    Hopefully we get up to 9030 resistance on the DJIA this time around. Just a 230-270 point rally (2.5% up day) is all I want… Nothing extraordinary or unusual.

  221. Nice call Merk – Don’t get too carried away until we see something stick in volume otherwise it’s still painting…

    What we need is a 5% up day on big volume to confirm a real rally, a day of relentless buying so people on the sides start thinking they really are missing something…

  222. Good Morning Phil, DB, merkhava and all

  223.  Cap…LOL… I enjoy having fun. It can get very exciting when an uber bullish trade is going right. "Fun with profits" is what Phil made this site all about right?
    Matt… sorry if I’m too loud for you. I’ll tone it down for you. Hopefully if I’m full of crap, someone will point it out to me so I can become aware of a way to save my arse before my buttcheeks get gnawed away. I very much appreciate Phil’s doing that for me. He’s been good to keep me on my toes and I like the way he needles and jabs with a good nature. I don’t want people congratulating me if I’m right. I want people to tell me what, why and how I’m all wrong. I suppose most folks don’t like being told they are wrong, but I actually love to hear from someone pointing out if I’m going all wrong, and even more if they can explain why my opinion or outlook is askew. My detractors make me better.
    My loudness is not about me being self-serving or egotistical. It is all about participating in a community and sharing what I got the way I’m built. Some like, some don’t and it is what it is. But I do wish good successful trading to you.

  224. Asia Markets :    Wednesday, June 10, 2009
    (The following is from Yahoo; please cross check with other sources to confirm.)   

    Australia All Ordinaries*                               4016.30       82.70    2.10%
    Nikkei Average*                                              9991.49    204.67    2.09%
    Shanghai Composite*                                  2816.25      28.36    1.02%
    Hang Seng*                                                  18785.66    727.17    4.03%
    Seoul Composite*                                         1414.88      43.04    3.14%
    Singapore Straits Times*                             2391.22      41.35    1.76%
    Bombay Sensex*                                         15472.86    345.86    2.29%
    Baltic Dry Index                                               3518.00   -128.00    -3.78%

    *at Close

  225.  I hear ya Phil… my position is already built… I’m just watching and waiting now to cash out and make the profit become realized.

  226. Pre Market Feeding frenzy continues. Mind boggling

  227. Having read the "sideline money" argument for what seems like 100th time I have a question:  Are big money managers really dumber than the rest of us?  Or are we the suckers?
    What I think here is that in order to start managing 100mil+ you have to be reasonably intelligent. These folks get paid to watch the markets and invest accordingly. Are they dumb enough to ignore all the fundamentals and go all in? Now I know some say they are risking their jobs if they don’t “meet benchmarks” and instead show large cash positions, but if they missed most of the rally so far AND got burned last fall why with all the real data currently screaming caution would they want to risk getting burned again for what is maybe another 10% upside?

  228. Merk, thanks, no problem.
    Cramer makes a call pretty much out of the blue that this is an incredible market and bull or bear you just HAVE to get on board.  Today we’re up huge PM on nothing.  I swear he and CNBC are part of this concerted effort to get retail investors money back in the market.  So they can take it.  It’s quite sickening.  I really hate taking part in it.  And yet, I’m sure as hell not going to fight it going short.  It’s a conundrum.  At least Asia is leading us today and it’s not starting with us.  I guess I can take solace in that.

  229. Strong Commodities Support Asian Resource Stocks

    Commodity-related shares led Asian stocks higher Wednesday, snapping a two-day decline, after metals and oil prices rallied on a decline in the U.S. dollar and as hopes grew for stronger Chinese industrial demand. Investors are scouring fresh Chinese data this week for signs that the economy remains on the road to recovery. Expectations that the economy is picking up have helped buoy prices of key metals like copper, which hit its highest level since Oct 15 on Tuesday.

    Japan’s Nikkei gained 2.1 percent to hit an eight-month closing high, with resource shares leading the market higher on strong oil and metals prices. Shippers were  powered higher on a brokerage upgrade, with expectations of good Chinese indicators due out later this week helping to overcome a fall in Japanese machinery orders.

    South Korea’s KOSPI closed 3 percent higher, led by key blue chips and banks as market sentiment turned favorable following recent losses, while retailers jumped on strengthening earnings hopes.

    Australian shares finished 2.3 percent higher to a seven-month closing high, as energy and mining stocks got a boost from firmer oil and base metal prices.

    Hong Kong shares rose over 4 percent, recovering from two days of losses.

    Singapore’s Straits Times Index rose nearly 2 percent.

    China’s Shanghai Composite Index rose 1 percent after price data came in mostly in line with forecasts.  China’s annual pace of consumer price deflation eased in May to 1.4 percent, from 1.5 percent in April, although the rate of decline in producer prices intensified. Construction-related shares were strong.

    The Sensex, which gained significantly for the second straight day, shot up by 2.3%. Aggressive buying by funds on expectations that the government would jack-up spending in the Budget to boost economic growth pushed the index up.

  230. European Stocks Open Higher, Energy Leads

    European shares opened higher on Wednesday, with energy companies leading after crude oil jumped to more than $70 a barrel, and banks rising as U.S. banks were given the go-ahead to repay state aid.

    FTSEurofirst 300 index of top European shares was up 1.6 percent at 883.58 points, The European benchmark index is up 36.8 percent from the lifetime low it hit on March 9, as investors have become more confident on the prospects for economic recovery.

    Total, ENI, BP and StatoilHydro rose between 1.3 and 1.7 percent.

    Banks rose. BNP Paribas, Banco Santander, Deutsche Bank, HSBC, Lloyds and UBS were up between 1.3 and 2.2 percent.

    So far this year, the DJ STOXX European banking index .SX7P has risen 1.9 percent, the energy index  has gained 1.9 percent and the basic resources index home of Europe’s mining and steel stocks, is up 3.8 percent.

    Mining shares tracked commodity prices higher. Eurasian  was up 8 percent, Rio Tinto gained 3.5 percent and Antofagasta (ANTO.L) put on 4.3 percent.

    U.S. international trade figures are also due later in the day, but the main U.S. focus will be the latest Fed Beige book, set to be published after European market close.

    Around Europe:

    FTSE     4,502.56     97.77     2.22%
    DAX        5,118.98     121.12     2.42%
    CAC         3,363.79     67.06     2.03%
    SMI        5,465.01     76.34     1.42%

  231. Hey where,
    I wonder how rational an intelligent, highly educated fund manager can remain when he gets left behind by the herd and his most basic animal intincts for self-preservation get triggerred?

  232. Oil Tops $71 After Large Drop in US Crude Stocks

    Oil topped $71 a barrel on Wednesday for the first time in 7-months on signs demand for crude could be recovering, with U.S. crude stocks falling last week and the Department of Energy raising its forecast for global demand.

    U.S. light crude [ 71.19    1.18  (+1.69%)] for July delivery rose, after ending Tuesday at $70.01, the first settlement above $70 since early November.

    London Brent crude [ 70.58    0.96  (+1.38%)] also gained.

    The crude stock drawdown (API survey) in the world’s largest energy consumer added to a sense weak demand is bottoming, with the U.S. Energy Information Administration (EIA) — the statistical arm of the DOE — raising its 2009 demand forecast for the first time since September.

    Kuwait’s oil minister said on Wednesday the producer group — responsible for more than a third of the world’s crude output — could raise production if oil prices rose towards $100 a barrel.

    Economists have voiced concerns the rapid run-up in crude prices could derail any fragile economic recovery.

    Prices could gain further on Wednesday if the EIA confirms the API’s fall in crude inventories, in its own data on Wednesday to be released at 3:30 pm London time.A Reuters expanded inventory poll from 13 analysts called for a 400,000 barrel drawdown in crude stocks, a 1.4 million barrel build in distillate stocks and an 800,000 barrel increase in gasoline stocks.

    Dollar eases as risk sentiment improves

    The dollar eased on Wednesday as investors shifted from the U.S. unit toward perceived riskier and higher-yielding assets on views the global economy and financial system are improving. The U.S. currency also lost support as investors pared back speculation of higher U.S. interest rates by year-end.

    Growing optimism over the global economy was reflected in a surge in Asian equities  and U.S. stock futures were also up, indicating a higher open on Wall Street later in the day. Risk sentiment was also buoyed after the U.S. Treasury said on Tuesday 10 of the country’s biggest banks could repay $68 billion in taxpayer money received during the height of the credit crisis.

    The dollar index, a gauge of the greenback’s performance against six other major currencies, fell 0.4 percent to 79.457 .DXY on the day after sliding more than 1 percent on Tuesday.

    The euro rose 0.5 percent on the day to $1.4141. Meanwhile, the pound surged 0.7 percent to $1.6431 after jumping about 1.7 percent on Tuesday as stronger-than-expected UK housing data and fading chances of a government collapse lifted sterling. The yen  was a big under performer among major currencies. The dollar rose 0.2 percent to 97.59 yen It fell to as low as 97.08 yen on trading platform EBS earlier due to selling by Japanese exporters to repatriate overseas earnings. Data showed core Japanese machinery orders unexpectedly slid 5.4 percent in April compared with March.

    The Australian dollar jumped 1.3 percent to $0.8109 after a surge in a key measure of Australian consumer confidence fuelled hopes the economy could pick up at the end of the year, reducing the need for more interest rate cuts.

    With a dearth of economic data, traders will keep an eye on equity markets and U.S. bond yields, which surged after a smaller-than-expected drop in U.S. payrolls last Friday raised expectations the U.S. Federal Reserve would tighten credit by the end of the year.

  233. Having worked in the industry for 8 years as a sell-side analyst constantly meeting PMs, I can personally say that a lot of portfolio managers are lazy idiots. Herd mentality suits them just fine. Price action is much more important than fundamentals. I think a lot have been whipsawed, finally going bearish in Feb or March this year. Although I still think some will be chasing this market, the good news is that redemptions have blunted their firepower… :)

  234. Gold rises above $960/oz as dollar wilts

    Gold was bid at $961.40 an ounce at 0854 GMT, against $953.75 an ounce late in New York on Tuesday. Gold rose back above $960 in Europe on Wednesday as fresh dollar weakness prompted buying of the precious metal as a currency hedge and as oil prices rose to a new seven-month high.

    Silver, platinum and palladium all tracked gold up, with dollar-priced commodities benefiting from the U.S. unit’s slip, which makes them cheaper for holders of other currencies.

    Inflows into gold exchange-traded funds have largely bottomed out, with the largest, SPDR Gold Trust, reporting no change in its holdings. Holdings at the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, were unchanged at 1,132.15 tonnes as of June 9.

    Among other precious metals, silver firmed to $15.36 an ounce against $15.21. Platinum was at $1,266.50 an ounce against $1,247, while palladium was at $256 against $252.50.

  235. [...] Well, Tuesday will certainly be the last time I ask if we can get fooled again. [...]