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Digging in the Mud for Green Shoots – How Did We Get Here?

I'm digging for green shoots but you have to sift through a lot of manure to find them this week!

A few weeks ago I complained that the MSM was irrationally exuberant and I couldn't find any negative articles (outside of PSW, of course, where people thought we were too negative calling for a correction) and now, less than a month later, you can hardly find anyone who doesn't think we're going back to the March lows.  I stand by my statement to Members in yesterday morning's Alert where I said:  "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800.  While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks.  Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say – Show me the misses."

So I said Cramer was an idiot to be herding his sheeple into stocks when the Dow was at 9,000 and now I am saying Cramer is an idiot for stampeding the herd out of stocks at 8,000?  Am I that fickle?  Not really, I just believe we are in a fairly tight trading range.  On June 17th   I warned on June 24th, as the market "rallied" back to 8,500 I warned we were simply in the midst of a "dead cat bounce" – using the following, very descriptive graphic:

We played oil to top out at $70 for a whole month before it finally fell and I had warned people to stay out of the USO oil fund on June 6th (20% higher than here), but perhaps the last straw was when I pointed out that China was buying oil in bulk for $16 a barrel and even that was a ridiculously expensive price that more sensible buyers would not pay.  Not long after that, Iraq had trouble with their own oil auction, again, no one in the industry had any real faith that $70 would hold and now, not even $60 is holding.  They talk a very good game but don't put their money where their mouths are!  On Wednesday, June 17th, with oil already back to $70 from $73, I said in that morning post: "We’re looking for proper capitulation in the energy markets and follow-through from our indices to the 5% rule at least (we are hoping for 8% total pullback on this leg)."  That leg bottomed out at $67 the next week, down 8.2% from $73 before doing it's own dead cat bounce back to $72.50, where we shorted it again! 

Keep in mind that our chief fundamental indicator, that allowed me to hit the June 15th market collapse right on the head, was copper prices falling back – an event I compared to George Foreman knocking out Joe Frazier in 1973.  In that morning's post (Dow 8,800) I said: "This morning copper has been knocked down and is leading commodities lower after coming off an earlier knockdown at $200 and another at $150 -  having started its run way down at $125 back in December.  Of course, after a 100% run to almost $250 we can certainly forgive them a 20% pullback to $225 per our 5% rule and we’re not going to call the fight just yet but Oil is also pulling back off a 100% run while gold has only moved 17.5% over the same time period, already double-topping at $1,007 and $989 in February and May respectively."

Copper is HOLDING that $225 line, finishing Friday at $221.15 despite a dollar that is holding up well (about the same as June 15th at the moment) so we are still not ready to call this fight as either copper or the dollar may come off the canvas and put in a couple of good rounds in July.  Just a few days before our market view proved to be right on the money, I had to ask myself in the weekend wrap-up "Is Cramer Still Wrong?" as the relentless last-minute market saves were giving us all headaches as we sat on our bearish DIA and USO short positions and mainly sat out the June rally as it all seemed like one giant pump job to me.   It turned out that, yes, Cramer was still a buffoon and I was only one day early with my top call of June 12th, which I termed: "Fall Down Friday."

So here we are, back at the bottom of the trading range I predicted back in March and even as far back as November, when I said that, based on the fundamentals the crash should settle out at Dow 8,650.  5% above 8,650 is 9,100 and 5% below 8,650 is 8,200 and that's all within the bounds of what I see as the "right" level for the markets to consolidate. Can we still go 10% up or down from there?  Of course we can – the question is where is the market going to get pulled back to.  Other mid-points are S&P 900 (855-945), Nasdaq 1,750 (1,650 -1,850), NYSE 6,000 (5,700-6,300) and Russell 515 (490-540).  We certainly obeyed the top of our range recently and now we'll simply see if we can hold the bottom through earnings.  At the moment, this "horrific" sell-off is nothing more than a long-expected trip back to the lower end of our range.

Is the current panic justified?  What's really changed in the last 30 days?  Obviously, there were great attempts being made to push us up and over the top during the early part of June - the media pandering, the constant "stick saves," Cramer's idiocy, Goldman Sach's $85 oil call – all attempts to pull investor dollars off the sidelines and break out of our range.   Failure to do so seems to have led to a sell-off, perhaps funds are giving up on the year or perhaps the sheeple who were herded in at the top have no appetite for a market that doesn't go up and up and up.

We've been testing the lower end of our range, mostly doing buy/write plays that give us 15% discounts off the current entry price.  Hopefully that's enough cushion to ride out a panic dip but we are also scaling in with plenty of cash on the side, as we're happy to buy more if the market does drop 20%, all the way back to 700 on the S&P, where we would happily load up the truck.  Meanwhile, we're picking up good stocks at what we HOPE are cheap prices, given the current market conditions.  While we are not yet in what I like to call "monkey with a dart-board" territory, where almost any stock is a bargain, we certainly have some clearly good deals out there already.

Earnings will tell the tale in the upcoming weeks.  Don't forget we don't buy stocks to bet on the economy, we buy stocks to bet on companies – some will do well and some will do poorly but the fundamental question is: will they provide a good return on your investment?  After hanging onto our cash for more than a month, since Wednesday, as stocks started falling back near the bottom end of our range, we finally took the opportunity to give ourselves an additional discount, selling puts and calls (and sometimes just naked put selling) against entry positions on stocks that are already trading near their March lows.  Our hedged entries provided us with the following net pricing

  • CAL at $7.36/8.18 (price if called away/price if put to us) - now $10, March (all non-spike) low $8
  • CBS at $4.31/4.65 – now $5.97, March low $4
  • COST at $43.35 - now $44.97, March low $40
  • CVX at $58.20 – now $61.40, March low $58
  • DIS at $20/20.50 – now $22.41, March low $16
  • EXM at $4.02/4.51 – now $6.05, March low $4
  • RT at $6.50 – now $7.12, March low $1
  • SNDK at $11.54/12.77 – now $14.47, March low $9
  • SPY at $85.95 – now $87.96, March low $70
  • SPWRA at $19.90 – now $22.35, March low $22
  • SUN at $19.06/19.53 – now $22.09, March low $27
  • V at $55.30 – now $59.86, March low $50
  • VLO at $13.49/14.24 and again at $13.30/14.15 – now $15.57, March low $16
  • WFR at $12.83/13.91 – now $16.61, March low $13
  • X at $25.30/$26.65 – now $30.77, March low $20
  • XLF at $8.98/9.99 – now $11.10, March low $7
  • XOM at $58.98 – now $65.12, March low $64
  • ZION at $9.07/9.54 – now $11, March low $8

As you can see, most of our buy/write selections were for targets very near the March lows.  If you wanted to smack yourself for not being brave enough to buy stocks when they crashed in March – what is your excuse now for not taking a hedged entry that effectively gives you the same price now?  Of course, hedging our entries somewhat limits our upside, but that limit is 10-20% PER MONTH, not exactly a deal-breaker in the average virtual portfolio.  Combine this hedged entry strategy with virtual portfolio management techniques (see Strategy section on "Scaling Into Positions," something I expanded on in this weekend's Member comments) and you can get very comfortable with your bottom fishing. 

We also do not make these selections in a 100% bullish virtual portfolio.  We have our long DIA covers, following our "Mattress Play" strategy and on Friday morning I also discussed setting up some long disaster hedges using the FXP on the assumption that, if our markets are going to fall back to the March lows, then China has a LOT of catching up to do and we can likely do better betting against the Shanghai composite, which is up over 100% since November, than we can betting the Dow or S&P down, which are up "just" 20% since November and 35% over the March lows.  

We'll see how earnings come out over the next few weeks.  All the "green shoots" talk in May and June had the effect of raising expectations for Q2 and we are not going to get the easy victory we were handed in April as Q1s earnings were and upside surprise over something I had complained was a very low bar at the time.  Now I think expectations are fair and I think we are also being given fair entries on certain stocks as investors engage in a little pre-earnings panic.  Keep in mind this is round one of our scaling back into stocks, the same cycle we started during the March crash before we cashed out into the end of May, waiting for EXACTLY this to happen! 

Hopefully all goes according to plan and we don't head too much lower, the green shoots may have died on the vine in the summer sun but that doesn't mean we'll never have another good season.  It comes down to the question – where are you going to put your money?  Commodites have lost their luster and the emerging markets are looking iffy.  Treasuries are still paying near all-time lows, TIPS don't really keep you up with inflation and Europe and Japan are certainly not in better shape than we are and I don't think we're going to be racing back into housing anytime soon.  Money has to go somewhere and there is less money now in US equities (especailly non-commodity equities) than there has been in the last decade – the situation is ripe for a rally, we just need a catalyst to move things forward and hopefully earnings will provide it. 

If not, we'll step back and reassess.  We are not guaranteeing this is a bottom but we are willing to establish some well-hedged positions here, rather than miss a very good opportunity to make some new entries


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  1. Hi, Phil,
    What do you think of this article about Richard Russell (Dow Theory Newsletters) and his bearish view?
    This seems to contradict your bullishness.

  2. Clarification:  Isn’t the last sentence meant to read, "I was only one day early with my top call of June 12th, which I termed: "Fall Down Friday." ?

  3. what the hell was the point of this post?   
    Talk is cheap.  Lead us with some profitable trades!

  4.  Hey Phil, the bottom line I got from your post is that you expect the market to be in a trading channel… and we are at the bottom of the range now…. I’m assumming ranges something like DJIA 8150 to 8900 or S&P 870 to 950? At what level do you give up and go bearish?
    So it seems you think we’re at an inflection point. What fundamentally compells you to expect the market will start trading back to the top of the channel during earnings when many traders are already dismissing these earnings? 
    Since the bar has been set so low for earnings estimates, virtually everyone should be "better than expected". Forward guidance and outlook seems the important factor. Based on the sentiment being described about the CEOs at Sun Valley this week, you really have confidence that outlooks are going to be positive enough to move the markets up and negate that "head n shoulders" chart?
    It seems to me that an earnings beat of low estimates this season may move a stock up some, and most stocks may just trade sideways. But if a big name misses, that will have a more negative effect than usual, right?
    Of the big names that will report this week (which just happens to be July expiration week), who makes you nervous for an earnings miss that could tank the market?

  5. cwan – very interesting Q&A w/ R. R.  With all the Tech. Analysis, the studies say using them works 70% of the time, but once they break down (the other 30%), then watch out.  The short positions tell us something (from the Bespoke group), and I am inclined to believe we are going to break the trend and go down…

  6. Also, many of the lower than expected earnings, but earning  beats from last Q were due to downsizing (layoffs).  Now we get to see the real effects of the earnings.  I do think many will meet expectations this Q, but Q3/4 will be the real eye openers.

  7. Russell/Cwan – It’s perfectly valid if you assume the government cannot or will not do anything to stop that from happening.  I think we’ve already had a very good demonstration of the fact that our government (and others) CAN boost the markets so putting out theories that assume that the global markets will be allowed to dip another 50% is making a huge amount of negative assumptions just to begin the theory.  I do think the global economy has lots of troubles and I do think the markets can go lower but I don’t think the world is ending and I don’t think people will stop getting in airplanes (CAL) or watching TV (CBS) or buying discount goods (COST) or going to Disneyland or buying semi-conductors and memory chips SNDK) or gasoline (VLO) or steel (X) or banking (XLF) so I’m willing to buy certain stocks for the long-term as I bet that the planet will survive.  If you are a 1-3 month investor, you may not want to make any bullish bets at all but, while the market may go lower, the question is where will you put your money as the world spins out of control and the global markets crash and we sink into a global depression that makes the 1930s look like good times? 

    You can’t let the economy scare you out of being an investor – some things do have value and it’s very rare you are given the opportunity to buy a company like VLO, which made $5Bn in 2006 and 2007 for $8Bn.  Can they do poorly for a few years?  Sure – but I only need them to make $2Bn once to more than justify my purchase and if they go back to making $2.5Bn a year for a couple of years in a row – then I have a $25 stock at least.  Meanwhile, we can sell calls and make a nice income while we wait for the value to catch up.  If your long-term perspective is the World is going to end and VLO can’t make money selling gas and X can’t make money selling steel and no one will go to Disneyland again, then be a bear and bet the markets down but I think picking up those stocks at 5, 6 and 6-year lows respectively is a reasonable entry.  You can’t buy low and sell high if you "sell" (go short) at the lows and refuse to buy (go long) until things go up.  Perhaps you can call a perfect bottom but I prefer to get close and take reasonable stabs at hopeful resistance points.

    There will be no shortage of people telling you how horrible things are and how terrible they are going to be.  Those people were there in November and they came out again in March and now they are banging the drums in July – pretty much every 4 months it seems.  We could go either way at this inflection point but hopefully the worst that can happen is we get another test down near the November lows.  The big boys hate to take the markets up before they get a chance to flush out the suckers and we still haven’t had a volume capitulation day – perhaps that’s still to come but the very low volume lately is just downright strange. 

    Thanks Cobrain!

    Trades/Strat – We had tons of those this week.  Now we have to see if our longs or shorts pay off on Monday, then we can make some more. 

    Bearish/Merk – It’s not so much getting bearish as looking down to the next channel.  From mid-November to mid-Feb we traded in an S&P channel between 800 and 900 and we are just on the edge of slipping back there if we head lower and validate the "head and shoulders" pattern.  If we do that, we then have the danger of another great spike down so we need to tread lightly and stay well covered until one of the ranges proves out but I don’t yet see the volume that indicates we are seriously failing our target range.  You can have all the technical BS in the world pointing down but this month is all up to earings and data and that can move the needle 5% either way very easily.

    Based on Sun Valley I’d say guidance will suck but I think the execs at Sun Valley are posturing for more stimulus and less taxes etc but, when push comes to shove, I think they will stand up at the podium and tell investors that their company is handling the downturn well and expects things to improve down the road.  Sideways is what we want really.  A nice, long consolidation would suit us just fine on our buy-writes. 

    As to who may miss next week:  GS (wildcard), JNJ (currency issues), AIR (BA delays), INTC (slow inventory restocks), AMR (fuel costs), GCI (advertising), KMP (volume), STLY (furniture), BIIB (delays), CY (slow sales), GAP (margins), HOG (why change now), JPM (wildcard), MAR (almost certain miss), NOK (likely phone war loser), USAK (all truckers), ESLR (no financing), GOOG (ad revenues), IBM (currency), BAC (wildcard), C (wildcard), GE (wildcard), MAT (very iffy). 

    Those are the significant possible misses but only 4 of 20 reporting companies missed last week with 2 raised guidance and 3 lower.  June Retail Sales are a very big deal on Wednesday and we have Business Inventories the same day.  Wednesday is Industrial Production and Fed minutes (chance for stimulus language) so a lot of market-moving data well before the week is done (we also get CPI and PPI). 

    I think it’s best to go into next week WITHOUT prejudice on direction.  Let’s keep an open mind and gather FACTS, which have been in pretty short supply the last couple of weeks as the rumor crowd has taken control of the markets once again. 



    Nasty article on commercial real estate by the way.

  8. Oh, just wanted to update my very US-centric comments about next week’s data:

    Japan has Industrial Production tomorrow morning and Consumer Confidence and the UK will have housing prices but I think late in the day (night for them) as well as retail sales.  Canada, New Zealand and the UK also have various confidence reports.  That’s a lot of data with the potential to move the market ahead of our open.

    Tuesday the UK has CPI and we have EU Industrial Production, which is a big thing, probably in our afternoon.  German sentiment comes out around the same time.

    Wednesday the BOJ announces rates but where are they going to go from zero?  UK unemployment and the EU’s CPI will be ahead of our open and later in the day we get Japanese Service Sector Index (Teritiary). 

    Thursday is the BOJ Policy Report and Friday we get EU trade numbers so it’s a big data week all around the world, not just for the US. 

    A friend sent me a chart from a private service (so I can’t post here) that made a very good point that the VIX looks very much like it’s failing too, looking a lot like it did in early 1999, just before the market flew up 50%.  The market had made a V bottom in October of 1998 and clawed back to gain about 40% by early July but then fell back 15% through October, then the VIX fell off a cliff and the market climbed another 25%, 50% up from the bottom (but then the whole bubble burst and we all crashed and burned).  Very unlikely we would have the market go down and the VIX go down so we need to watch both very carefully over the next few weeks.

  9. Phil-
    Great article.  I took over my husband’s retirement accounts after they were decimated by "professional" money managers.  By April I had doubled them by sticking with stocks I believed in and tuning out the warnings that the S&P was going to 500 or less.  I think the most money I have lost was going short so I have decided against doing that on a regular basis.  For me personally, I just can’t in my heart of hearts bet against the world economy and prosperity in general.   
    I have a question that you have probably answered in past posts.  If you buy a call, is there a limit to when you cash out on profit?  Is it 10%, 20%?  Also, I am thinking about putting money in BA since they have a dividend paying soon and you have mentioned it was a stock that might come back.  What do you think?

  10. MAR — Are we confident enough to buy July or August $20 puts?  Zacks is calling for a meet or one cent beat on earnings.

  11. Hey Phil…..your russell/cwan rant would make obama proud….you frame opposing views as extreme examples..nobody ever does anything……no but the market may be fearing less earnings than previosly expected and for a longer period……..cut to your point ….what valuation metric gives you conviction?   price to what earnings…price to sales at what level ..price to book?

  12. MAR – How about vertical bull spread Sell Aug 20 put for 1.55, Buy Aug 17.5 put for .65, credit premium of .90. Pretty nice cushion below today’s price. and don’t start losing until stock price drops below $19.10. Loss increases as stock drops but is capped at 1.60 at $17.50 or lower stock price at AUG EXP.

  13. Phil – This article has echoes of those you were writing 18months-2 years ago. Back then you were saying that companies "values" couldn’t go any lower and that their earning/capitalisation didnt justify the hamering they were getting in the market. But lower they went and I suspect this will be the same. The only diference was that back then we were doubling down on covered calls and rolling lower (which didnt work) this time we are more in cash. Back then we couldnt see the full extent of the woes of the bank sector and housing markets and the worlds indebtedness. this time we can. Basically there is room (and justification) for valuations to fall much lower.

  14. Good Morning Phil & all

  15. G’Morning DB

  16. Good Morning Ramana

  17. Asia/Pacific Markets    Monday, July 13, 2009
    (The following is from Yahoo, please confirm with other sources)   

    Australia All Ordinaries*         3738.00            -52.60    -1.39%
    Nikkei Average*                        9050.33         -236.95    -2.55%
    Shanghai Composite*            3080.56           -33.38    -1.07%
    Hang Seng*                            17254.63         -453.79    -2.56%
    Seoul Composite*                   1378.12           -50.50    -3.53%
    Singapore Straits Times*      2266.64            -41.34    -1.79%
    Bombay Sensex                    13400.32          -103.90    -0.77%
    Baltic Dry Index                        2985.00            -33.00    -1.09%

    * at Close

  18. Asian Markets Fall, Tokyo Stocks Down for the 9th Session

    Japan’s Nikkei fell for a ninth straight session Monday as concerns about company earnings outlooks weighed on Asian stocks, while oil languished near a six-week low as faith in a rapid economic recovery faded. The yen was steady against other major currencies, showing little reaction to the resounding weekend defeat of the Japanese ruling bloc of Prime Minister Taro Aso in a key local election.

    Japan’s Nikkei closed 2.6 percent, hitting its lowest close in eight weeks, hurt by growing political uncertainty after news that embattled Prime Minister Taro Aso is set to call a general election for Aug. 30.

    South Korea’s KOSPI closed 3.5 percent lower, posting the biggest daily percentage loss in more than four months amid renewed U.S. financial and earnings worries, while North Korean news added to further pressure.

    Australian shares fell 1.5 percent on Monday, led down by banks on worries that next month’s results season will be a gloomy one.

    Hong Kong shares dropped 2.6 percent, as investors continue to take profit ahead of interim corporate earnings announcements.

    Singapore’s Straits Times Index was down 1.8 percent.

    China’s Shanghai Composite Index slipped 1.1 percent on news of China State Construction Engineering’s upcoming 40.5 billion yuan IPO.

    Bombay Stock Exchange’s Sensex closed at 13410.37, down 93.85 points or 0.69 per cent. Buying activity in frontline stocks helped the benchmarks to erase most of intra-day losses but still end in the red. Flat-to-positive European markets helped the benchmarks to arrest the fall. Traders, however, continued to hammer stocks from midcap and smallcap space.

  19. Euro Shares Steady; Miners, Oils Slip

    European share prices extended the previous session’s losses to hit an 11-week low early on Monday, led down by oils and miners, with corporate earnings worries forcing investors to scale back their trading positions. The FTSEurofirst 300 index of top European shares was down 0.2 percent at 812.94 points after hitting an 11-week low of 805.93.

    Miners were among top losers on the index, also tracking weaker metal prices. Antofagasta, Rio Tinto and Lonmin fell 0.3-0.6 percent. Xstrata was down 4.6 percent.

    Banks were mixed. HSBC, Barclays, Lloyds, Societe Generale and Swedbank were down 0.1-1.8 percent. But Standard Chartered, Royal Bank of Scotland and BNP Paribas gained 0.3-0.4 percent. UBS was up 1.2 percent.

    Some energy stocks came under pressure after crude oil prices fell more than 1 percent before paring losses. Repsol, StatoilHydro and Royal Dutch Shell shed 0.1-0.8 percent.

    "It feels like the excitement we all felt a month ago at the sustained rally has drained away, leaving a bitter taste in the mouth," said Owen Ireland, an analyst at ODL Securities.

    However, automakers were generally higher. Porsche rose 6.6 percent after a report said the ruler of the Gulf state of Qatar is willing to offer 7 billion euros for both a stake of just over 25 percent in the listed holding and Porsche’s cash-settled options in Volkswagen stock. BMW, Daimler and Fiat were up 0.1-3 percent.

    Dutch conglomerate Philips Electronics was up 4.6 percent.

    Around Europe:

    FTSE     4,136.31      9.14          0.22%
    DAX    4,586.75     10.44          0.23%
    CAC     2,982.28    – 0.82        -0.03%
    SMI    5,232.58    – 5.23         -0.10%

  20. Oil Falls Below $60 as Economic Worries Linger

    Oil prices fell below $60 a barrel on Monday, slipping to a seven-week low on concerns about the state of the global economy as equities markets tumbled. Oil prices dropped 11 percent last week in their biggest weekly decline since late January as investors talked of the possibility of another dip in economic activity before the onset of recovery, which could delay a rebound in demand for fuel.

    U.S. light, sweet crude oil [59.84 -0.05 (-0.08%)] for August delivery was down,after earlier falling $1.01 to a low of $58.88.
    London Brent crude [60.68    0.16  (+0.26%)] fell.

    Oil fell on Monday despite data showing Japanese consumer confidence improved in June and a measure of companies’ capacity utilization rose for May, indicating the world’s third-largest energy consumer may be past the worst of its deepest recession since World War two. Analysts said oil would continue to track equities markets in the short term. Key economic data from China, including gross domestic production in the second quarter, industrial output and retail sales, due to be released on Thursday, will also be keenly watched by investors.

    "Focus will shift back to oil fundamentals which remain weak — oil demand will contract with the world economy, and OPEC has a large inventory hurdle to overcome," BNP Paribas analyst, Harry Tchilinguirian said in a report.

    Yen Gains Broadly as Stocks, Oil Prices Fall

    The yen rose broadly, while the dollar gained against perceived higher-risk currencies on Monday on concerns about upcoming U.S. corporate earnings and receding optimism about the chances of a quick global economic recovery. A 0.4 percent drop in European equities and further sharp falls in oil prices stung appetite for risk, denting riskier, commodity-based currencies such as the Australian dollar which hit a seven-week low versus the U.S. dollar. The continued unwinding of risk trades benefited the yen and the dollar, with the Japanese currency showing little reaction to news that embattled Prime Minister Taro Aso plans to call a general election on Aug. 30.

    The euro [128.69    -0.27  (-0.21%)    ] fell against the yen, while the dollar [92.16    -0.37  (-0.4%)    ] was down versus the Japanese currency.

    The euro [1.3966    0.0032  (+0.23%)   ] was steady against the dollar.

    Among higher-risk currencies, the Australian dollar [0.7733    -0.0052  (-0.67%)   ] fell versus the U.S. dollar, having earlier touched a seven-week low of $0.7711. Against the yen, it [ 71.28    -0.77  (-1.07%)   ] fell as well.

    The New Zealand dollar also fell against the dollar [ 0.6214    -0.006  (-0.96%)   ] and more than 1 percent versus the yen [  57.28    -0.78  (-1.34%)   ] .

    Gold steadies as dollar eyed for cues, ETF unchanged

    Gold prices steadied on Monday after last week’s 2 percent fall, with investors watching the dollar as the currency’s rise and weak oil prices have heightened concerns about an economic recovery and eroded bullion’s appeal as an inflation hedge. Gold was steady at $913.00 per ounce as of 11:22 p.m. EDT, compared to New York’s notional close of $912.15 on Friday.

    The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,109.81 tonnes as of July 10, unchanged from the previous business day.

  21. Another stonking recovery in the Futures this morning – nearly 1% better than overnight lows.

  22. Good morning!

    Nice job taking control Celeste!  As to calls (or puts, or anything), from a cash management perspective 20% should always be a decision point.  If you lose 20%, you need to take a  realistic assessment of your chances of getting it back.  If you gain 20%, you are now risking 120% of what you started with and what is you anticipated forward gain vs. that risk?  Let’s say you put down $1,000 and the trade is to DD at $800 (avg $900), stop at $1,450 (2x $725) and you are targeting $1,400.  That’s a risk of $550 and a reward of $400.  Once you get to 20% ($1,200), you are now risking $475, even without the DD against a potential reward of $200.  Even if you say to yourself you are willing to stop back out even at $1,000, you are still risking $200 to make another $200 and that goes back to the old "bird in the hand" concept.  If there are not "2 in the bush," why risk the bird?  Good decisions are made by always evaluating your risk/reward status and keeping it in the context of your overall portfolio goals.

    MAR/Swell – They already had a nasty pullback to the 200 dma at $18.76 so I think a miss may be priced in.  Makes it much less fun to play.  Concreata, the bull vertical is not what we’re aiming for with a negative outlook but you can take advantage of the nice premium on the Aug $20 call (now $1.15) by selling that against the Oct $22.50 at .90.  If MAR goes down, the Aug call is wiped out and the credit of .25 plus whatever value the Oct call retains is profit.  If MAR surprises us and goes up, we can DD on the long and roll the Aug $20 callers to 2x the Sept $22.50s when they are published, hopefully without too much damage

    Valuation/Spuhr – My conviction comes from an old theory I pushed forward in March, when everyone was freaking out when I pointed out that we have a $55Tn global economy that is down 5%, not 35%.  Even if it goes down 10%, it may be disruptive but not fatal.  The reason we (in the developed world) think it’s so awful is that we account for about $40Tn of that total and ALL $5-10Tn of the dip is coming out of our end of the economy.  The other 3.5Bn people in the world still get up every day and milk the cows and plant the crops and carry water to create their $15Tn of GDP.   Even if the OECD’s GDP drops in half, you still have a $35Tn global econmy and that’s 63% of where we were, not 50%.  Anything more than a 35% sell-off in the global markets is beyond what is logical, even in a worst-case scenario.  Of course the question is 35% off of what?  Cleary we never should have been at 1,500 on the S&P in the fiirst place but 1,200 was probably fair and 65% of that is 780 so that’s roughly my worst-case and that is being very generous to the bear side.