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Monday Meltdown – Seismic Sentiment Shift?

Casey Struck OutWhat a difference a week makes!

Just a week ago, I was apologetic for being so bearish on the markets.  People were complaining that the writers at PSW were "too negative" and that we were out of step with the MSM, who saw nothing but "green shoots" under every economic rock.  On June 28th, I wrote an article comparing the US consumer to the NY Yankees as a way of explaining how the analysts can be so wrong in their expectations for a recovery.  I pointed out that, although they are the winningest team in baseball history, I can still remember a 10-year dry spell from 1965-1975, saying: "Like the US consumer, you come to EXPECT the Yankees to be in contention and you may make your bets that way out of habit, but that storied history of performance is NOT going to stop you from hitting a 10-year losing streak is it?

Like the Yankees, the media EXPECTS the US consumer to win.  After so many consecutive years of stuffing our faces and shopping until we drop, the global media simply refuses to believe that the US consumer can do anything more than stumble slightly before getting right back on the horse and refinancing or whatever it takes to get out there and start charging once again.  As the US consumer makes up 70% of our economy, it’s no wonder all the sentiment polls think prosperity is just around the corner because everyone believes the US consumer is simply resting.  The homebuilders telll us things will rebound, the manufacturers tell us things will rebound and the companies reporting earnings, who are "beating" expectations by only doing 35% worse than last year, are all giving us sunny outlooks as well because the US consumer is coming to save us all.  

Isn't it amazing how, just 7 days later, the media has suddenly gotten on a totally different bandwagon?  Just as a crowd turns on a star ballplayer who strikes out in a clutch situation, the MSM has turned sour on the US economy and has changed their outlook on the US consumer from "resilient" to "dead" overnight.  While extremism grabs a lot of headlines, sometimes the truth can be found in the very dull places between the labels.  I have long pointed out (some may say ranted) that commodity prices were unjustifiably high and were jeopardizing the recovery by pulling money out of the pockets of already-nervous consumers and pulling disposable income away from job-creating industries in favor of imported necessities like food and fuel. 

Goldman Sachs bubbleThis is no way to grow an economy and hopefully this little stumble will gain a few converts who will join us in cracking down on the thievery practiced by Goldman Sachs and their ICE partners as well as other commodity pushers who are willing to squeeze the industrialized addicts to death in order to extract the last dimes from a dying global economy.  Thanks to Matt Taibbi's article in Rolling Stone, some very uncomfortable light is being shined on Goldman Sachs and the rest of what Matt calls "The Wall Street Bubble Mafia" that has been systematically dismantling the American middle class ever since they accidentally made wealth gains during the Kennedy/Johnson era

Way back in September of 2006, I noted the way Goldman was stirring the commodity pot, saying: "This is the kind of out-of-control commodity spending that took down Amaranth, only it’s happening in slow motion at the investment houses."  That bubble took an additional 12 months to pop, but the rapid rise in commodities in the first half of the year is now leading to an accelerated deflation on the other side.  Oil plunged all the way to $63.50 in pre-market trading, down $10 in 7 days and erasing 25% of the year's run-up.  Don't blame the dollar – it's barely moved and will cause the commodity bulls a world of hurt if it does begin to recover but there was a tremendous amount of posturing this weekend from the BRIC countries aimed at holding the dollar in check along with a Bloomberg featured article calling the dollar "the world’s biggest Ponzi scheme."

According to Bloomberg: "The dollar isn’t crashing because those invested in it are propping it up and adding to their holdings. After all, the magnitude of Asia’s foreign-exchange holdings means it can’t dump the dollar without shooting its economies in the foot."  Again, it's nice to see the MSM catch up with me over 2 years later as, in my Dec 2006 article "Burn Dollars to Fight Gravity," I said: 

roach motelThat’s where the old Roach Motel Theory kicks in – not as it applies to oil, but as it applies to dollars. The Chinese have a Trillion US dollars! While they may threaten to diversify them into something more stable Mr. Paulson is going to point out to them that they are not the only roach in the motel.

Japan also has a Trillion of our dollars, we send them more every time we buy a Toyota but the biggest joke of them all is that we’ve been shipping these ever devaluing dollars to OPEC and every other oil producing country at the rate of $165Bn a month (what, did you think Jihads just fund themselves?). Oil is traded in dollars, people who want to sell oil must accept dollars, people who want to buy oil need dollars to buy it…

Ha ha! So the devaluing US dollar will hurt China, Europe (the least), OPEC AND every one of that top 10% of the world’s richest people who have 85% of the dollars that are floating around. I challenge you to find a government, no matter how communist, that can afford to ignore them!  So, we will keep printing dollars and China will keep buying them, as will everyone else.

So kudos to Bloomberg for catching up and let's keep in mind that the dollar has been pronounced dead over and over again in the 30 months since I wrote that article but, here we are, holding the line at 80 once again - with oil at the same $62 it was then and gold clearly the 2-year outperformer, up 45% from $650 at the time.  Is oil too low or is gold too high?  That's going to be a key indicator for us to watch this summer and the movement of oil, gold and the dollar will be a lot more important over the next 30 days than all the earnings reports we are likely to hear. 

As I said in the Weekend Wrap-Up, there is nothing "new" happening here, this is all the same old stuff we've been observing for two years now.  It's only "news" to the sheeple who get their market information from the talking heads on corporate news and are whipped from one frenzy to another as the focus studies tell the media whether to focus on a bull or bear market this week.  While investor sentiment is important and something we keep a close eye on, we also follow these obscure things called fundamentals and make intelligent (hopefully) investing decisions that are often going against the grain of the crowd. While we remain mainly in cash, this downturn is a buying opportuntiy and we expect at least an interim bottom to be put in this morning as we test the lows I predicted in Thursday morning's post, which were: Dow 8,250, S&P 888, Nasdaq 1,750, NYSE 5,700 and Russell 488.

To the extent that commodity stocks lead the downturn I will be less concerned as we WANT to see money coming out of that sector and moving towards deserving earnings winners.  Let's start playing the great game of corporate survivor and see who comes out on top with real earnings data, rather than speculation. 

Speaking of speculation – the Shanghai Composite was STILL up today, gaining another 1.2% but was well against the grain in Asia as the Nikkei fell 1.4%, the Hang Seng dropped 1.2% and the Bombay Sensex dropped 6.2% as the Indian government projected the largest budget deficit in 18 years, consuming 6.8% of the GDP – still far better off than the US but — shhhhhh!  "Those of the view that the budget would encompass all sorts of exciting structural economic reforms have just had their hopes firmly dashed," said Robert Prior-Wandesforde, an economist at HSBC. "Instead this was largely a populist budget focussed mainly on the poor with plenty of promises of additional infrastructure spending."  Meanwhile China is suffering floods and riots this weekend and those two are supposed to be the "hopeful" countries that will drive global growth! 

European UnionEurope is down about 1.5% ahead of the US open (8:30) but led down by commodity pushers is not a bad thing if the broader markets can hold the line.  Indexes are generally back to April highs and not holding this level will look pretty ugly.  From a technical standpoint, if Europe can't bounce back over the 200 dmas by Wednesday, we'll be looking at a very ugly pattern that can quickly drop us back 10% to the April lows.  For the FTSE, we need to hold 4,182 with 4,231 as the 200 dma.  The DAX needs to hold the line at 4,591 with the 200 dma at 4,674 and the CAC is in the worst shape, right on the breakdown line of 3,126 and well below the 200 dma at 3,174.  If we lose the European indexes, the US is sure to follow so we'll be doing a lot of level-watching for the first few days of the week.

We'll be watching our sectors this morning and keeping an eye on the 10 am ISM Service Report for June as we need to make an improvement over May's reading of 44 (with anything under 50 showing contraction).  There is NO data at all tomorrow and Wednesday we get Consumer Credit in the afternoon with Wholesale Inventories on Thursday and Trade Data with the Michigan Consumer Sentiment Survey on Friday.  All in all, a light data week and earnings officially kick off with AA on Wednesday but the real action doesn't begin until next Tuesday, when our friends at GS report in the morning along with JNJ and MTB, followed by INTC and YUM Tuesday night

We're going to be playing earnings with a $5,000 stake and we'll be running through a variety of option trading strategies to see if we can profit from the volatility.  Our first play will be made on AA, ahead of their Wednesday evening report so make sure you are signed up for a trial report membership as not everything will be published in the morning posts.  Hopefully we'll put in a bottom this morning and recover well enought that the EU markets hold their levels, then everyone can take a breath and we'll have a proper test on Tuesday as everyone gets back to work after the long weekend.

 


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  1. Good morning; happy post-4th of July.
     
    This rates a WOW !   http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html


  2. After reading Tiabbi’s article on GS in RolllingStone, I would like to spread the blame for our economic problems alot further then I have in the past.  It’s very evident now, that the Clinton administration is perhaps where the blame should start.  It was during this administration that many of the structural moves were made to create the environment within which GS could operate.  Paul Rubin in particular, stands out as the main culprit.  It was as a result of his pressure on Congress that the abandonment of the Glass-Stiegel Act took place that banks were able to partake in the crazy derivative trade that GS was gearing up for.  Add to that the weakening of underwriting standards and a stool pigeon like AIG that appears to have been willing to insure ANYTHING and you have one hell of a recipe for disaster.
     
    I voted for Clinton both times.  And yes, they did balance the budget and create a surplus.  But now I"m wondering how much of that was as a result of the fuel they were throwing on the fire? 
     
    I think politicians are all too willing to exploit to further their agendas.  Clinton, exploited Wall Street.  Bush exploited 911.  And Obama is exploiting the financial crises.  What?  That first $680 billion for wifi, special ed teachers and weatherstripping didn’t create enough jobs?  Shoot.  Guess we’ll just have to spend some more… Because daggonit, this economy has got to get it’s workers back on their feet!


  3. Gooooood morning Phil & everyone… hope all had a great holiday.
     
    I enjoyed mine doing absolutely nothing but having fun. Went to 100% cash selling all my puts Thursday and relaxed stress free not worrying at all about how the news wires went during the weekend or how the market would open today.
     
    Ready to start looking for good trades and deploying cash to get ready for earnings season !!  
    Bring it on… yeeehawwwwww


  4. Good morning – I hope everyone is tanned, rested and ready for what’s likely to be an exciting month!

    Goldman/Cap – One can only wish this brings them down…

    Blame/Matt – Plenty to go around everywhere but why do we concentrate on blame and not solving the very obvious problem?

    Good attitude Merk!


  5. Hello, good morning all.
     
    Phil, i see you always look or comment on gold. I searched in the site but i cant find a general opinion on this matter. Whats your perspective of gold in medium and long term? TY – spider.


  6. Good morning – what to do abt the DIA call we got into on Friday? Hold for future?


  7. In last week’s Dow Bargain Hunting Plays, I had said selling GE Aug $12s for an entry at $1 and that was the puts, not the calls (which were far less than $1).  Now we’ll have to see how it goes and what holds up today.

    The VIX should kick up a bit today so hopefully some interesting plays but we need to see if we can hold -1.25% to give us an indication things aren’t getting much worse.  Being led down by energy and miners is a good thing but only if we see some signs of strength in other sectors. 

    Our downside levels are: Dow 8,250, S&P 888, Nasdaq 1,750, NYSE 5,700 and Russell 488

    We’re pretty much right there with the Dow a bit over the mark and the Nas and RUT giving us support so we’ll see if they hold but I think this is the bottom here.  Also, we need to keep an eye on the EU levels:  FTSE, we need to hold 4,182 with 4,231 as the 200 dma.  The DAX needs to hold the line at 4,591 with the 200 dma at 4,674 and the CAC is in the worst shape, right on the breakdown line of 3,126 and well below the 200 dma at 3,174.


  8. Gold/Spider – I’m long-term bullish on gold but not right now as I think the dollar may come back and knock it down.

    DIA/Morx – Oh that was a DD on the morning dip, coming back a bit already at .50 for the $85s.  Better off waiting if you didn’t catch a good price – could go either way and the roll down is just .30 and that’s the way to go with 2 weeks left (as we can then sell the $85s for .50+ anyway. 

    Volume is crap again at 25M for first half hour, not capitulation at all.  Solars are getting killed, FSLR down at $149, SPWRA at $25.11…

    GOOG testing $400 would be a big deal, XLF below $11.50 so no recovery until they beat that. 

    No one putting much stock in bad GS rumors, they are holding up with a week to earnings…

    SOX are green, VIX is good and angry off a small drop, OIH down 2%, XLE down 2.5% – good sign when they are worse than the broader indexes…..

    Just staying flat today would be a good sign.


  9. June ISM Report is 47, one point BTE so we’re saved for now!


  10. Good morning!  Here’s an update on the HOG and HOTT report from Channel Checkers:  http://tr.im/r4xr - I’ve added Phil’s strategy for trades in these two names.  – Ilene


  11.  SPY 20MA is 919 and the 50MA is 909
    SPY nearest support was 898 and has been broken by today’s open and now 898 is resistance. That is where I’m targeting an initial scale in with a 1x  August SPY position buy on the S&P500 index.
     
    I’m still mulling whether to buy SPY calls or puts. I’m leaning towards buying 1x puts at 898 then a 2x at 909 and 3x at 919. 
    Which way are you leaning Phil… bull or bear? 


  12. Phil / blame:  That’s ez!  It’s alot easier to lay blame then to fix the problems.  To fix the problems, you have to rise above the special interests, their lobbyist’s and now former Wall Streeters who are entranched throughout our gov’t.  It would take a REAL leader to cut through all that. 
     
    Wow!  A real battle going on today in the Naz!


  13. Phil,
    The $5000 trades, do they need another subscription? Thanks


  14. Indian markets down over 5% with the budget. Perhaps in opportunity to buy some stocks for the long term. Considering writing PUTs on EPI, IBN and INFY with view to acquire them on the cheap.
     http://www.bloomberg.com/apps/news?pid=20601091&sid=aB_KETTp1mIg
    Perhaps more 5-7% downside in the next few days, so consider buying Sep/Dec PUTs now and then sell Jul/Aug PUTs against them if/when they go down more. e.g. INFY is now $35.25. Buy Oct $30 PUTs now for around $1.45, and then sell Aug $32.5 PUTs when over $2 (now $1.25). If Indian indexes and INFY stabilize and INFY continues around $35, can change and sell the $35 PUTs or if INFY goes down to more than 7%, sell $30 PUTs etc.


  15. Phil, I still have QID 35C from June 25th….got in at .85 for your "dangerous play"….any updates – are you out?


  16.  Market didn’t like that ISM did they?   was almost "unch" then smacked down quick
     
    Hey Phil… I just bought my 1x SPY put position here and have set my 2x trigger at 898 and 3x is set for 909.
     
    I think I gonna trade that the head and shoulder chart formation plays out and takes SPY down to 800 area


  17. Leaning/Merk – I think it all depends on Europe.  If they start pulling money out then there’s no way we stay up on this pathetic volume so we’re still in dangerous territory but we’re not here with any sort of conviction at all.  Mostly this is just a correction of an irrational run above 8,000 based on what people WISHED the market would be like in the 2nd half but that doesn’t mean we can’t hold 8,000, about 825 on S&P and if we don’t fall that far and hold 867 (40 week ma) or 886 (200 dma) then this is a sign of strength, not weakness.

    $5K trades/B1 – No, I’ll just be posting small trades as often as I can.  The goal is to build it into something by reinvesting our winners into new trades, each with short time horizons.

    INFY/M2 – They have earnings on the 10th with pretty low expectations, what makes you think they will miss?

    QID/Oncmed – With just 2 weeks left it’s best to take advantage of this boost to at least get 1/2 off the table and stop the rest out back at .85.  We’re getting a good drop right now so we’ll have to see what holds.

    Someone pulled the rug out from the SOX and they are suddenly down 2% and dragging the Nas.  OIH and XLE now down 3% and we’re right back at our test levels.  IF we hold up here, then it’s worth taking some DIA calls like the $84s at .70 with a stop out if we fail 8,200.


  18. regarding the reverse 10-1 split on FAZ tomorrow- I own five 2.5 Oct calls and sold 10 Oct 7.5 callers. Will I be forced to sell the 2.5s, or will I own .5  25strike calls and one 75 call. Or should I get out until this is settled? 


  19. David (Oxen) nailed WFR today!

    This is good, another 25M shares on the Dow and not pushing below 8,200.  Everyone but the Nas are below their lines (June lows) and now the question is can the bears control the ball here or is this a real support area?  As this is our first test in a while, it would be surprising if we can’t pull a 20% bounce off the drop from 8,500 at least and that’s 60 points to 8,260 on the Dow and 898 on the S&P, 1790 on the Nas, 5,900 on the NYSE and 493 on the RUT – those are the weak bounce points that we need to get over, hopefully by tomorrow (the longer it takes, the less impressive it is).

    FAZ/Drum – I don’t know how they work the split, you should call your broker.  Personally, I’m out on this nice pop so I don’t have to deal with it.


  20. INFY – I forgot about earnings on 10th. I do not think they will miss. I think they will exceed but not give the usual optimistic guidance. I was thinking it will go down with the rest of the Indian markets and INFY is less risky than others such as IBN. Another promising one is RDY, a generic drug maker which was making new 52-week highs last 2 weeks.
    Given INFY’s earnings on the 10th, the cautious should wait to buy it…


  21. SPY was just holding onto a minor support level at 888, but looking weak so I added a 2x set to my August puts
     
    If SPY breaksdown the 200MA at 886, then I’m going to add more to ride the market meltdown


  22. whats the stop on zion bank.. i got in last week in it.


  23. FAZ – Good time to take the money and run at $5.38.  That goes for the $100KP as well on the Jan $4 calls at $2.30 and the 20 Oct $2.50 calls at $2.90 and buying back the 10 July $4 callers for $1.40.  Not worth riding out the split so all cash and this creates less downside protection of course but we think the levels will hold for today at least.


  24. INFY/M2 – thanks!

    ZION/Jays – We got in at $11.20 and now they are $10.70 (and were $11.30 at the open).  They seem to only be falling with the sector so I don’t see bailing here but it was meant to be a long-term play.  When you enter a stock like this you should always be looking for what your next move is.  $10.73 is not wroth a DD of course but let’s say $10.20.  That would give us a $10.70 avg entry and we can sell Aug $10 puts and calls for $2.30 which is net $8.40/9.20, which is still 15% lower than here to break even at 4x.  If you don’t WANT to own 4x ZION at $9.20 then get out now as all your future decisions will be driven by a fear of ownership (and taking the proper steps to establish it).  Since, other than a spike to $5.89, $9 has been a reliable floor and since we like ZION and since they were $21 in early May – I’m following the long-term ownership path

    25M in first half hour and 2nd, just 10M in last half hour.  Still an indication that the market can’t stay up on volume, which is overall worrying but there doesn’t seem to be much that can trigger volume selling and that’s good. 


  25.   Ahhhhh… I wonder if that’s it for today for price action?!?…. SPY 888.88… how cute

    quick step down to minor support levels and move narrowly sideways for the rest of the day… that has been the way the market trades lately hasn’t it…
     
    think I may have to go outside to cut the front yard grass… chuckle


  26. Phil…  Sept DIA $88 PUTS…
     
    I have DIA puts with a good gain.  Thinking now is a good time to pull out some of the gains…  Should I roll down/out the position or sell a July put???


  27. PHIL…. THANKS!!!!
     
    Appreicate all your guidance and advice over the past few months.  Feels good to cash in on the market correction (QID play, DIA Puts) and the rationalization of oil prices (USO Puts).  Took most off the table on Friday’s move with rest coming out when trailing stops triggered on today’s gap down and bounce…. 


  28. Phil,
    I have some July USO $35 puts, what’s your call at this point assuming market holds?


  29. question on our $100k portfolio please, I believe we are short DBC July 23 Calls currently 5cents, is it worth buying them back or setting a stop?


  30. DIA/Mira – You can get $1.85 for the $83 puts and you are $5 in the money to them and it’s a 25% return in 2 weeks on those contracts with Aug still to sell so it depends on your goal.  If you have a nice gain of course, nothing wrong with cashing it in, especially if you have nothing to protect.  You are welcome byt the way, good job getting to cash and being a spectator today!

    USO/Maxt – I’d take the money and run here.  $63 is where we started and it should hold unless inventories are a disaster on Wednesday.  All the reports that downgraded demand are already out and will be forgotten as the next wave of speculators/suckers steps into the commodity pits.

    DBC/Steve – Yes, I’d take them out for a nickel as a surprise dollar drop could send them back up.  I’ll be writing up changes tonight as I think we can play this as a bottom and make some adjustments while the VIX is up.


  31. Phil, I’ve made about 35% on some HTE calls I sold last week for the 100k account.  Is it worth locking that and re-selling in a few days on a market rebound?  Similar story with PGH as well.


  32. Phil any comments on LVS vs WIN for bottom fishing?


  33. duh that’s WYNN


  34. Question for the board, does anyone use the Interactive Broker API for building their own trading platform?  I’m in the process of understanding what exactly they provide to developers…  if they can give me level II tick data and I can make automated trades based on actionable data I could be well on my way to replacing GS’s stolen code!  Kidding of course.   But I’m totally stoked at the possibility of building something that can digest the trade data and trade on it faster then I can click a mouse button…
     
    So far, I’m very impressed with what IB offers.  I thought TOS was the programmer friendly platform?  Seems like IB maybe even more friendly..


  35. Phil – Opinion on where we are with Shippers (DRYS, TNK) and UNG.  Thx


  36.  Phil,
     
    Nice little sell off on HTE (Harvest Energy Trust)
    Buying 100 Shares @ $4.99
    Selling Feb 2010 $5 put for $1.05
    Adjusted cost basis $3.94
    Looking for a POP to sell the Feb 2010 $5 or $7.50 call for $1


  37.  stevenparker,
    TOS (ThinkorSwim) allows commission FREE buy backs of any short position that is $0.05 or less. I always buy back short positions at this level. Not worth the risk if it runs the other way.


  38. HTE/Smasher – I think you can take out callers here and keep an eye on our levels for a re-sell.  My gut says we hold for today at least but let’s also see if we make our bounce numbers on the way up otherwise probably prudent to cover again.

    LVS/B1 – Both LVS and WYNN are financing dependent and I don’t think that much progress has been made on that front.  I’d want to see some good travel and liesure numbers (doubtful) before investing at this level, which is more than double off the bottoms.  LVS is very extended globally and WYNN just opened Encore in the fall, terrible timing and I think, judging by the changing vacation habits of my friends, that they are not going to have a good report this Q.  Long-term, if they crash and the debt looks servicable, I do like them both.

    Volume 82M at noon, 32M since 10:30 so last 90 mins have been dead volume, not enough to break out of anything really..

    Stuff/Partha – Shippers are falling with the BDI and commodities, which we expected.   No reason to bail on them unless we really do see signs of a depression setting in.  UNG is is a great buy down here, anything under $13 is good for a long-term hold.

    HTE/XLF – Nice play.

    TOS/XLF – Yes, a free buyback makes it a no-brainer, risk/reward with 2 weeks left is crazy otherwise…


  39. Holy Cow EK at 2.90; don’t follow it; used to be a market bellweather … another one bites the dust !
     
    Michael Jackson – no wonder Obama sent the family a condolence note … IRS stands to reap hundreds of millions of dollars in death taxes !


  40. Phil, how would you play selling puts on UNG?


  41. UNG – DDed at $12.4 this morning (first buy at $13 last Fri)


  42. Phil,
    I used the weekend to read some education pages, and after reading the "Leaps of Faith" im wondering if this is a good time to buy some leaps to start selling calls when market improves. What do you think about? And witch you would pick for that play, those channel players? . (You mention SHLD in the article)  I was looking into DOW (chemical) as one candidate.


  43. It’s getting pretty ez to trade these flatline periods.  Clearly range bound.  Until it’s not.  The bias for a breakout should be the same direction as the initial direction for the day…


  44. Mid-Day Update:

    We held our low tests and now we test the weak bounces of 20% bounce off the drops: Dow 8,260, S&P 898, Nas 1790, NYSE 5,900 and RUT 493.

    What we DON’T want to see is is those levels tested and rejected.  Dow is there now, and if they don’t punch through then not much hope for the rest although everyone consolidating just under for the rest of the day and then gapping over tomorrow would not be bad. 

    FTSE closed just over at 4,194, DAX held 4,591 but missed the 200 dma at 4,674 by 23 and CAC held their line and beat their 200 dma (3,174) at 3,216 so Europe did what it was supposed to do so we can remain cautiously optimistic.


  45. UNG/Roam – Aug $12 puts sold for $1 makes for a nice entry.  Don’t forget this is the kind of long-term hold that you can count on selling at least .25 a month in calls on so a $11 entry returning $3 per year is very nice at worst.

    Leaps/Spider – I think I’d rather see if we break back over the weak bounce levels and build a base back up.  Under the portfolio tab we have a buy list of about 40 stocks I really liked at the March lows – that’s a good place to start.


  46. Thinking about selling some 15 strike puts on PALM for a discounted entry.  Thoughts anyone?


  47. AA – Well I wanted to play this in the $5,000 KP so it’s going to be our first one.  Buying 3 $7.50 calls for $1.75


  48.  DIA
    Missed the call to DD this morning on the 85 calls from last week.  Would you still DD here (almost .60) and use Dow 8260 as a stop?


  49. Phil, when you say 20% weak bounce, that’s in 20% of the drop right?  So the calc, to arrive at your 8260 number for the Dow, would be:
    (index high – index low) x .2 + index low = 8260
     
    Is this correct?  If not, please correct.  thnks.


  50. Phil, just when ever you get time as its not too important…. buy why would you go for the 7.50 strike price?


  51. PALM/Smasher – I think they are overpriced up here.  If rumors of a buyout go away, so will $15…

    DIA/Jofor – Off a .76 base?  I’m not sure it’s worth a DD here as it only gains you .08 and you are doubling your risk.  The DIAs have just as good a chance of making it back to .76 as .68, the trick was to do it earlier when it was .40 and the DD knocked the basis down to .58 

    20%/Matt – Well it’s off the drop to target so, with the Nas, for example, even though we didn’t hit the target of 1,750, we still calculate the drop from 1,850 (non-spike top) to 1,750 and then add 20 to 1,750 and look for 1,770 as our break-up point.  The fact that they held that was a good clue but, since they were holding 1,770 anyway, I added 20 to 1,770 to look for 1,790 on our bounciest index….  In short, there are math rules but then there is a lot of interpretation that goes into what we consider a pivot point. 

    AA/Roam – Because they have no premium and my go-forward plan is to sell the Aug $9s into earnings.  Originally, it was going to be a naked sell but now we have an opportunity to possibly just make a quick profit if they head back to $10 ahead of earnings. 


  52.  Phil/Timing Entry
    In my RRSP (Canada’s version of IRA) trading account I cannot sell naked calls, or sell puts, so that limits my ability to lower my net entry on your stock recommendations (ex. GE, UNG).  At this point does it make sense to wait until Q2 earnings hoping for a further dip?  Or just buy now?
     
    Thanks.


  53.  Phil, pls confirm that the AA play are July 7.50 calls.  
     
    Thanks.


  54. sgrundahl,
              I think so. AA July 7.5 calls are 1.72 right now


  55. Phil:
    I bought out my July callers on UNG and DBC for pennies. Would you sell new calls here or wait for some sort of price recovery? It looks like "wait for recovery" to me.


  56. NYSE bounce number earlier should have been, 5,750 as the drop zone on them was 5,950 to 5,700 so + 20% is 50 + 5,700.  So far, only the Dow is getting over the line.  SOX are holding things down as they lay dead at -2.25%. 

    SOX are "only" down 5% exactly off 270 at 256 and about 259 is bounce there so we look for 260 to be recovery.  Overall, if we look at SOX as having been a laggard and just snapping down today to catch up, it’s not a big issue.  Between that dragging down the Nas and the energy and mining sectors killing everything else, this is a pretty good day in the markets (as long as you haven’t been chasing those sectors).

    The problem is the bandwagon crowd acts like they were murdered today and put a negative spin on the markets but I’m very pleased with today’s action

    RRSP/Jofori – Well you can sell covered calls right?  So that means if you get a dip in GE like from $11.90 to $11.30, you can sell 1x Aug $11s for .99, which lowers your basis to $10.90 and then buy more (say 1/2 x) if you cross $11.50 and another 1/2x at $11.90 for 2x at avg $11.30 with the 1/2 cover of the Aug $11s and the stock at $11.90 so you can set a stop on 1/2 at $11.60 at which point you’d be full covered at net $11.   Happy to go into details after hours, it’s a good thing to get the hang of!

    Dow taking another shot at 8,300 – it needs a friend to join it, hopefully the S&P but we’ll take the RUT if we have to.… 

    If we don’t make it over the line here, consider cashing out the DIA $84s, now .93 which is up .23 on .70 so goal for sure, stop at .90 is  a good idea.

    AA/Sgrundahl – Yes those were the 3 July $7.50 calls for $1.75.


  57. Phil, did you post the AA trade on ToS / MyTrade?


  58.  RRSP – Thanks, Phil!  I tend to forget that scaling-in really helps with the timing as well.  Great, any more details after hours would be welcome.


  59. Waiting/Chaps – Waiting is fulfillment.  I look at those as you lowered your basis nicely on the longs and that was goal for the month so anything else is a bonus AND, if the market drops further, the VIX goes higher so we can always get a good price for Aug calls.

    Volume 120M, too high for the stick but we like a good volume day (relatively) that looks like we put in a bottom. 

    Oil looking pathetic at $64.13 with just 15 minutes left on the NYMEX.  OIH and XLE, along with XOM and CVX on the Dow, could fall more if the NYMEX can’t close at $65.

    AA/Fast – I thought I did but I don’t see it.


  60. RE: Waiting is fulfillment.
    Thank you, Zen Master Phil :)


  61. Phil,
    Is there any way to know if the institutional traders are selling options at a specified strike? Thanks.


  62. Volume 133M at 3pm – Mr Stick stuck in the Hamptons I think… 

    None of the other indexes seem motivated to improve themselves but this is very light volume so hopefully buyers were waiting for the last hour to see how we held up for the day.


  63. Institutions/B1 – Only by observing block trade sizes and total open contracts.  It’s the kind of activity Option Monster looks for (see chart below) but it all boils down to guess-work based on observation.

    Yay, over 8.300!

    GOOG making a move, AAPL needs $140 to be positive. 

    Wow – World Trade Center rebuilding project may be dead!  That’s messed up for NYC, psychologically…


  64. WTC … sounds more like ongoing dispute between Larry and PANYNJ


  65. Hola Phil;
     
    is it time to DD on 2011 C call ? got some at 1.17 , aome at 1.07 now .90 ???


  66. Whats with DXO at $3.83?


  67. Dispute/Cap – Yeah but it gets to a certain point where Larry has to move on…

    C/Micro – I don’t like the $1.17, $1.07 add, what are you gaining, a nickel?  Generally you want to DD when you are down 20% and you want to be down 10% and THEN, you want to quickly reduce when you can get some back out even – effectively reloading your firepower.  The C play is speculative at best so unless you have a great reason to be buying more, with a $1.12 avg on the $2.50s, now .90, there’s not enough to be gained to keep plowing money in. 

    DXO/Red – That’s another bad ETF.  Until you have time to study them and see how they respond to moves in oil, it’s just like playing roulette to place bets on these things.  There are no options yet so not hedgeable either.


  68. Phil,
    Just curious, would you have recommended buying puts vs shorting WFR today? Basically would the spread negate a day trade? Of course by now we know it would have been fine, but in the am what would you have recommended…..thanks.


  69. "Volume 120M, too high for the stick but we like a good volume day (relatively) that looks like we put in a bottom. "
    …the risk is that we get an A.S.S. close, the volume is high, and possibly get the head and shoulders break-down that has been discussed recently.


  70. damn, I hate thinking like a bear!


  71. WFR/Ocelli – Well I always look for a put rather than shorting as you get both leverage and protection against being blown out by something.  I get busy in the morning but always feel free to ask if you want to look at options on David’s plays.  I wish I had remembered to play that one today!

    This is interesting because it would be very easy to jam the markets green in the last 15 mins and if ever there was a call for the PPT, this would be a good spot as we could reverse the dip in Asia and help Europe get some upside momentum in the morning – if they don’t save it here I’ll be very concerned that Mr. Stick is retired and we’re on our own (scary!).

    Volume with 20 mins to go is 153M, would take about 25M Dow shares (about 200M total market trades) to be sure to pop the market to all green.


  72. DXO  / DTO  (dbl long / dbl short OIL) has no options.
    But you have options at UCO / SCO ( ultra / ultrashort OIL)  This ones have options.


  73. More proof that ultra ETFs are scary. I bought FAS and FAZ in April as a sort of straddle to sell calls against both ways.  In getting out of FAZ before the split today I noticed that my FAS went up 30% but my FAZ went down 70%, so not aligned the way you would expect…


  74.  frakking amazing.


  75. Sold LVS 2011 $5 puts and calls for $5.60 net. Stock currently at $7. Assuming an average cover price of $7.20 (cover by buying stock to cover your caller), there’s a theoretical upside potential of approx. 210% over 18 months. Covered all the way to BK on the downside.


  76. Looks like a pretty solid up day tomorrow.  Maybe a big pop premarket?


  77. Hey Kwan, r u a programmer?  If so, have you ever looked at Interactive Broker’s API?  It seems pretty awesome for building trading platforms off their data feed and order entry system..


  78. FAZ/FAS/Mr. M – They do tend to do that.  Best way to play is to sell calls against both or short both when they are at the same price.

    Amazing/Kwan – You said it.  Nice to know our boyz are still hard at work.  Couldn’t get the Nas green but very impressive with the Dow and S&P.

    LVS/Chaps – Good way to play.  Your real danger in those while naked is the buyout so just be sensitive to rumors.

    Premarket pop/Matt - Very possible, I left some DIA calls to ride just in case.

    Well happy Monday all, that could have certainly gone much worse so let’s be happy….


  79. Hey Matt, I am but I’ve never looked at IB’s API. Your idea sounds neat though…maybe writing something for an automated stick play would be a good initial test..


  80. Lets be happy = Only if you’re long !  Another corupt stick save in the most corrupt stock market. I thought they’d have to keep it from retesting 888 on SPY because thats a significant level.Didnt think they’d get it green. So bad day no reason to be happy !!!!!!!!


  81.  Phil/CDN Markets
    You mentioned a couple of times that you have been on BNN, do you sometimes cover TSX listed stocks/options?  If not, can you recommend any sources for trading ideas?


  82. Kwan, yeah, I invision something with various rules that can be added activated or deactivated depending upon what kind of day it is.. a stick save rule might be a good one.  Although, today, imo, wasn’t a stick save.  The save came at 10?20am where we inexplicably stopped going down.  It wasn’t any particular level as far as I know.. ‘they’ just decided enough was enough and ‘they’ were going to turn it around.  My first focus will be on volume changes.  That’s what I use to trade mostly, along with previous levels for the day.  It might take a little while to get something working.. but the resources available to programmers (Java & C++), even Excel geeks, is really impressive. 


  83. Well hey, how about that low volume drift up today?!?… I even got my SPY 898 put buy triggerred while I was out doing errands…
    so I’m in with a 4x SPY August put position at a pretty good scale in average…. see what tomorrow brings


  84. Goldman …. Taibbi  and blah blah blah …
    Link: http://www.newdeal20.org/?p=2905
    This storie has still got legs….


  85. Denninger on the US Atty’s reason for acting on the Goldman Trading code theft!
    Link: http://market-ticker.denninger.net/archives/1183-US-Attorney-Kicks-Own-Goal-On-Goldman.html


  86. Good Morning Everyone
     
    Another game of pump the overnight futures. The UK market opened up and the FTSE is now up about 0.8%. S&P Futures were down about 0.8% but have been pumped up to about even currently. Yesterdays "save" appears significant in that a lot of the technical trading peops had yesterdays lows as a significant breaking point for a bearish head and shoulders pattern. That PPT appear to know their onions.


  87. Good Morning Phil, DB and all.


  88. Asia/Pacific Markets    Tuesday, July 07, 2009
    (The following is from Yahoo, please confirm with other sources)   

    Australia All Ordinaries*                 3767.80        -16.40        -0.43%
    Nikkei Average*                                9647.79        -33.08        -0.34%
    Shanghai Composite*                    3089.45        -35.22        -1.13%
    Hang Seng*                                    17862.27      -117.14        -0.65%
    Seoul Composite*                           1434.20            5.26          0.37%
    Singapore Straits Times*               2272.26            6.17          0.27%
    Bombay Sensex                             14168.98       125.58          0.89%
    Baltic Dry Index                                 3375.00      -145.00          -4.12%

    * at Close


  89. Asian Markets Struggle to Hold Ground

    Asian markets were mixed Tuesday as stocks struggled after a slide the previous day, while the yen held gains against higher-yielding currencies as investors doubt the speed of the global economy’s recovery.

    Japan’s Nikkei closed down 0.3 percent, with exporters hurt by a stronger yen.

    South Korea’s KOSPI ended 0.3 percent higher as upward momentum on positive earnings expectations continued, with robust gains by key tech and auto blue chips

    Australian shares fell 0.4 percent to a fresh five-week closing low as weaker base metal prices pressured miners, but defensive rose as investors chased steady income earners.

    Hong Kong shares fell 0.7 percent as investors bought selectively, even as the lack of conviction in a global economic recovery kept turnover thin.

    Singapore’s Straits Times Index gained 0.3 percent, while China’s Shanghai Composite Index fell 1.1 percent, stalling after the SCI set a new 13-month closing high for a fourth consecutive session in hectic trade on Monday.

    Bombay Stock Exchange’s Sensex closed at 14156.02, up 112.62 points or 0.80 per cent. Gains in auto, FMCG and capital goods space. Traders were cautious after a steep fall in previous session reacting to the union budget. Positive European markets provided some support to the market towards close of the session.


  90. Banks, Miners Lift Euro Shares

    European shares drifted higher in morning trade on Tuesday, boosted by banks and miners but defensive drugmakers and telecoms came under pressure. The FTSEurofirst 300 index of top European shares was up 0.3 percent at 835.32 points in a choppy session, after falling 1.1 percent on Monday for its third straight losing session.

    European banks gained on Tuesday with German lenders leading the way after media reported the government plans to loosen capital rules. Commerzbank rose 4.4 percent, while Postbank advanced 2.7 percent and Deutsche Bank added 1.9 percent.

    "Commerzbank, as the bank with the weakest asset quality, should benefit most from a loosening of the capital rules. Postbank, which has the lowest capital ratios of the listed German Banks, should also benefit from such a change," Equient said in a note.

    Elsewhere in the banking sector, Credit Suisse, UniCredit and Raiffeisen rose 1.3-4.3 percent.

    Miners were also higher, with Lonmin, Kazakhmys, Vedanta Resources, BHP Billiton and Anglo American up between 2.7 percent and 5 percent.

    CRH, one of the world’s biggest building suppliers, reversed earlier losses and traded up 4.9 percent after the Irish company said it expected its U.S. highway business would be very busy in the second half of the year as a government stimulus program kicks in. CRH reported a first-half pretax profit of 100 million euros, down from last year’s 600 million.

    Defensive drugmakers and telecoms were weaker, with Novartis, GlaxoSmithKline and Roche down 0.2-0.9 percent. Shire advanced 1.3 percent after it filed a treatment protocol for its Velaglucerase Alfa for Gaucher disease.

    In the telecoms sector, Vodafone, BT Group and Cable & Wireless lost 0.7-1.7 percent.

    Around Europe:

    FTSE     4,239.36     44.45         1.06%
    DAX       4,699.17     47.35         1.02%
    CAC      3,110.29     28.13         0.91%
    SMI        5,392.05     37.90         0.72%

     


  91. Oil Rises Above $64 After Four-Day Fall

    Oil rose above $64 a barrel on Tuesday, after falling for four consecutive sessions on doubts over global economic recovery and potential improvement in demand for fuel.

    U.S. light, sweet crude [ 64.34    0.29  (+0.45%)] for August delivery rose, having settled down 4 percent on Monday at $64.05, its lowest settlement in more than a month. London Brent crude [ 64.39    0.34  (+0.53%)] was up.

    Growing unrest in Nigeria, where militants have launched at least four attacks against oil installations in the past 10 days, helped to limit losses on Tuesday. (the reliable rebels are working hard – ramana)

    Analysts polled by Reuters predicted data will show U.S. crude oil inventories fell last week for the fifth week in a row by 2.2 million barrels on average, while they expected gasoline stocks to have gained 800,000 barrels and distillate inventories 1.7 million barrels. The Energy Information Administration (EIA) will release its monthly report later on Tuesday.

    Dollar, Yen Pare Gains as Stocks Eke Higher

    The dollar pared gains on Tuesday as stocks eked higher after fading optimism about the global economic recovery has turned investors cool to risk. The yen had also benefited from risk aversion, sticking close to a five-week high hit against the dollar on Monday, while sterling, seen by many in the market as high-risk, slid near to a one-month low against the U.S. currency.

    "The risk is clearly that the ‘green shoots’ are turning dry," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.

    The euro [1.3978    -0.0003  (-0.02%)    ] traded lower versus the dollar, near the day’s low of $1.3904 touched in early European trade, according to Reuters data .

    Against a basket of currencies, the dollar rose 0.3 percent to 80.657, while sterling [1.6184    -0.0102  (-0.63%)   ] fell against the greenback, staying near a one-month low of $1.6095 hit on Monday.

    Despite the dollar’s broad gains, it fell against the yen [95.32  ---  UNCH  (0)   ] as traders continued to flock to the yen, a popular safe-haven choice.

    The pair was stuck near a five-week low of 94.66 yen hit the previous day, while higher-risk currencies including the euro, sterling and the Australian and New Zealand dollar each fell more than half a percent against the Japanese currency.

    The Australian dollar [0.7975    -0.0001  (-0.01%)    ] fell versus the U.S. currency.

    A draft of the communique obtained by Reuters made no reference to the issue. Statements suggesting that countries may be considering trimming their reserve holdings of U.S. assets has limited the dollar’s upside in past weeks, and analysts said that more such comments may cap future gains.

    Gold hovers below $930 as dollar eyed

    Gold prices were little changed on Tuesday, hovering below $930 per ounce as growing doubts about prospects for a quick sustainable recovery in the global economy helped halt the dollar’s fall against major currencies.

    Gold inched down to $923.80 per ounce as of 0542 GMT (1:42 a.m. EDT), compared with New York’s notional close of $924.00.

    Bargain hunters resurfaced in India, the world’s biggest bullion consumer, as gold slipped this week, but jewellers in other parts of Asia are hoping for more of a price correction after bullion failed to sustain recent gains, dealers said.

    Holdings by the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, fell 0.03 percent on Monday, another factor suggesting receding investor appetite. The holdings stood at 1,120.19 tonnes as of July 6, down 13.84 tonnes or 1.2 percent from a record 1,134.03 tonnes marked on June 1.


  92. Good morning!

    PPT/DB – That’s why we watch the levels and bet up when they hold.  You have to forget your opinion and go with the technical flow while it’s working.  It would be great if we go back to establishing this channel with a bottom at 8,200 – makes it very easy to play.

    Oil was rescued from $63.50 at 4am, now $64.65 and MS just predicted $85 next year.  Gold still stuck at $926.

    Futures not looking all that exciting so far, EU holding it together quite nicely. 

    There is NO data today so the 3-year note auction will get a lot of attention probably.


  93. Oh no, they have released the T Boone on CNBC!!!  Any time they need to really pump oil, the call goes out to Pickens and they are giving him an hour today.


  94. Phil, given your comments and those of Oxen, what are your views on ERX this am?


  95.  Gooood morning Phil & all,
     
    No news day and 3-yr notes is all we get for a catalyst?!?….  With BRIC nations mumbling about USD the last few days I wonder if we get a shot across the bow today.
     
    hey speaking of US notes, here is an interesting Asianews article about the arrest of the Japanese Finance ministry employees physically hand carrying $134B secutities through Italy trying to get to Switzerland. Apparently Japan was trying to anonymously liquidate some of its US bonds/notes using Swiss secrecy laws, but they got foiled.
     
    http://www.asianews.it/index.php?l=en&art=15648