Wheee, what a day yesterday!
Of course we hit it out of the ballpark with our ICE puts as that stock melted so fast it turned to vapors (or at least the calls did!). Fortunately, we had the puts and the Aug $95 puts I mentioned in the morning post, that we had taken at $6.20 on Tuesday, opened at $8.50 and ran up to $14.35 (up 131%) at the day's end – all without a significant pullback to stop us out. Since we LOVE to go back to a well that's paying off, we jumped on the Aug $90 puts for $3 as our first trade of the day at 9:39 and those finished the day at $7.35 (up 145%), not bad for our 3rd play on the same stock in 48 hours!
The best thing about having 100%+ put side winners in a downturn is it gives us free reign to speculate on the upside. Since we had a bottomish view of the downturn yesterday, we were able to use the cushion provided by the gains on ICE (as well as our longer-term DIA and USO short positions) to establish a bunch of speculative upside positions on stocks we thought were bottoming. The key to this strategy is position sizing and virtual portfolio management. If you invest, for example, $2,000 per position and are willing to take 20% losses as a stop-out, then having a 100% winner on ICE (and we had 3!) allows you to take 5 bullish position as the total risk on $10,000 is the $2,000 you gained on the bear side. We don't just mindlessly flip-flop of course. In fact, it's been more than a month since we picked up bullish positions for more than a quick trade and we're not SURE these are going to work but, since we had the winning put plays, it's a good place to make a stand – dipping our toes in the bullish waters once again.
I mentioned our brand-new $5,000 Virtual Portfolio yesterday and our first play was a net .71 spread on AA where we bought the $7.50 calls for $1.75 and sold the $9 calls for $1.04. On yesterday's dip, we had the opportunity to take out the $9 calls for .70, which was a .35 profit and left us with the naked $7.50 calls at net $1.40, with a break-even at $8.90. We tried to sell them for $2.10 at the close but didn't get our price so we are happily "stuck" with those calls as AA had a nice beat and should open the day close to $10, giving us an exit at $2.50 or better. Our other $5KP play we had to work hard for but we went in and out of the DIA $84 calls and worked our basis on 10 down to .46 and decided to risk those overnight, on the same premise that AA would beat and lift the Dow. So far (7am), the futures are looking good but not great so we'll see how that goes but that trade ends today regardless.
In addition to our remaining DIA calls, we had bullish trade ideas for Members yesterday on RT, YRCW, ERX, VZ, X, COST, EXM, HOV, DIS, CBS and CME – not a bad day of bottom fishing. Of course, most of them were hedged and we did cover our downside exposure with the usual DIA "mattress play" protection but we're hoping we don't need our stock market parachutes today, although we are still fighting a very tough chart. As you can see from Trader Mike's notes on the right, we do look oversold on a bit better volume but we face some very tough overhead resistance that we have to fight through just to get back to our 50 dma. That's why all the longs we took are stocks we don't mind scaling into over time, rather than short-term trades – just in case…
We're still obeying the technicals in our trading but we went right to my 8,100 target on the Dow twice in yesterday's action and we got a nice 100-point "stick save" right on schedule at 2:30 which we took full advantage of as I sent out an Alert to Members at 2:32 to pick up the DIA $84 calls at .40 and they jumped all the way back to .55 into the close, allowing us to lower our basis on the remaining DIA's to .46 so it won't take too much to turn a nice profit on that play this morning. The S&P finished just under our "must hold" line of 880 and that was disappointing but I don't get too upset when we finish within .46 of a target I set before the session opened. The Nasdaq was 3 points under my 1,750 target while the NYSE was 24 points above 5,600 and the Russell was .32 under my 480 mark so 3 of 5 misses but a total of 3.78 points under my mark on the S&P, RUT and Nas just didn't seem like a reason to panic. I know that there are many, many financial analysts who call the market moves this accurately so please DO NOT refer any friends to our FREE trial newsletter because that might cause them to win $500 and you would win $1,000 as the referrer if your referral is selected in the July contest and the only thing worse than amazingly accurate stock forecasting is free money, right?
Speaking of free money (and accurate forecasting), Japan is dragging Asia down for the exact reason I told members it would at 11:32 yesterday, when I said: "The Yen has risen to 93 to the dollar now, that is just devastating for Japan stocks tomorrow." The Nikkei was today's worst performer in Asia with a 1.4% decline to 9,291, the lowest level in 7 weeks as exporters led the declines on concerns of a strong Yen. The Shanghai Composite, on the other hand, rose 1.4% with a strong auto sales report (up 36% in June) that is helpful for GM (one of the biggest sellers in China) as well as oil prices (more cars, more gas sales). Another good report out of China showed lending doubled from May to June as banks lent out $223.9Bn. "Since the data showed stronger loan growth, economic growth in China should be stronger. But on the other hand, investors in China as well as Hong Kong are concerned that the People's Bank of China may take measures to avoid bubbles in asset classes such as property and stock markets," said Castor Pang, strategist at SHK Financial.
The dollar is still below 93 Yen but has weakened considerably against the Euro ($1.40) and the Pound ($1.625) as the BOE held rates steady at 0.5%, double what the US is charging for money and they also left their bond-buying program unchanged so no increase in quantitative easing in the UK. EU markets are trading up about a point (8:30), boosted by commodity pushers who are rebounding off lows on the dollar weakness and theoretical Chinese demand. AA's conference call was also bullish on China's outlook and, after a week of declines, traders are looking for even the smallest of green shoots as an excuse to buy in.
That brings us back to the US, where our green shoot de jour is Jobless Claims falling to "just" 565,000, better than the 600,000 job losses expected. This is our lowest number since January but continuing claims set yet another record at 6,883,000, up 159,000 for the week. Unemployment hit 9.5%, the highest mark since 1983 although I will point out that in 1983 the Dow was up 50% from the prior, depressed year and that by 1986 was up another 50% and peaked out another 50% higher in 1987 so let's take these improvements in job losses at face value, a POSSIBLE bottom to our recession. Obviously, only time will tell but I am encouraged that Florida was the best performing state with a DECREASE in unemployment of 12,493 due to fewer layoffs in the construction, trade, service and manufacturing sectors.
We're going to be enjoying the ride up this morning but we need to take back our June lows of Dow 8,250, S&P 888, Nasdaq 1,750, NYSE 5,700 and Russell 488 before we can even call it a bounce. We are still miles under our "safe" zone, above the weekly head and shoulders formation which would be Dow 8,400, S&P 913, Nasdaq 1,826, NYSE 5,865 and Russell 507. As I said yesterday, the NYSE will be the key as it decides whether to break below 5,600 or above 5,800 and we can pretty much ignore the rest. Oil still needs to get back to $62 to cheer up the OIH and XLE and gold needs to take back $920, especially with the dollar weakening today or we have to get REALLY concerned about the fundamentals in the metals market. Hopefully Japan will take some action today to shore up the dollar before they get whacked again.
I wish I had the time to get into this GS story and I can't wait for the book to come out but the quote of the day came out of the NY prosecutor's office who demanded that program thief Sergey Aleynikov be held without bail because: "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." ROFL!!! Talk about a statement that will come back to haunt Goldman Sachs! So they claim that their trading program CAN manipulate the markets BUT, apparently, only in the hands of other, less holy institutions. Of course it's hard to be less holy than GS, especially if the new allegations are true that Goldman was involved in a massive front-running scam, allegedly using security access codes to build a system to acquire trading information PRIOR to transaction_commit time points at NYSE. The profitability of this split-second information advantage would have been and could have been extraordinary. Observed yielding profits at $100,000,000 a day according to DailyKOS. There is a less technical summary of these shenanigans here – don't forget to write your Congressperson – we ARE getting results!
June Retail Sales were NOT very good but it was a rainy, miserable month in the Northeast so we have to take that into account. Also, the comps to last year are ridiculous because last June was stimulus check month so we're going to be looking for the retailers that get beat up on June sales reports and doing a little bottom fishing where appropriate. ANF is a good one, with a 32% drop but the stock is down more than 60% since last June. David (Oxen Group) selected HOTT as this morning's trade and they are off 5.8% from last year, which is a small disappointment. We also followed them with a Channel Checkers Trade earlier in the week where took a speculative upside play but now that we have this data, the safer play is picking up the stock at $6.86 and selling the August $7.50 puts and calls for $1.50 for a net entry of $5.36. That would put you up 39% if called away at $7.50 on August 21st or you will have a 2nd round put to you at $7.50 for an average entry of $6.43, which is a spot we feel comfortable with as a long-term entry (especially if we can sell .50 a month in $7.50 calls!).
Watch oil today, that sector can still drag us down if they fall below $60. We'll see if Europe can keep up the currency pump of this morning as that's the only thing keeping oil over that line. We're going to be quick to take our upside profits if we can't hold out levels and we'll certainly have some puts lined up – just in case. Do be careful out there, it's going to be a bumpy ride!