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Thursday, December 1, 2022

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Thoughtful Thursday Morning

Maybe I am being too bearish on the economy.

Maybe there is a shining city on the hill with 1,000 points of light and if I simply close my eyes and believe in it, I will be transported there and everything will be wonderful and China will expand and Europe will expand and the US markets will rise and rise as the 18M unemployed people line up in the streets to cheer us as we all drive past them in our new cars as we head over to the gas station to pay $4 for gas, honking joyfully as we pass by each empty storefront and each abandoned home

It was good to take quick bearish profits, as I warned in yesterday's post because quick profits are all the bears get these days as it was indeed a "Whipsaw Wednesday," and Buffett's warning went in one ear and out the other of investors so quickly that clearly there was no gray matter slowing it down along the way!  I was very proud of our short plays on COF, HPQ, RTP, SRS, RTH and our DUG long but all had a half-life on their success so short you could have run an atomic clock with it.  Fortunately, we had our bounce levels to guide us and our 3 of 5 rule to get out of bearish positions so the damage was more to our pride than our virtual portfolios.

Although I could see the turn in my 9:45 Alert to Members, I didn't have the heart to make any bullish calls as it just seemed like such nonsense.  By 10:12 we were even more concerned that something was up and I said: "Don’t get too excited bears.  As I said in the post, profits need to come quickly off the table – this is not a market for riding 20% profits too far."  Sadly, I then proceeded to make a short play on OIH at 10:26 that stopped out at 10:34 and an incredibly poorly timed idea to get the DIA $93 puts at 11:22, just minutes before the market went flying and stopped that one out too as we flew through our bounce zone of Dow 9,200, S&P 986, Nas 1,946, NYSE 6,400 and RUT 555.   Now that they've held up so well, those levels now become our watch levels to the downside and it makes the previous support levels of Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550 even less likely to be broken. 

Amazingly, right about 11:30, the markets began a 100-point "parabolic" run for no particular reason (see David Fry's chart) on not even any significant volume and that accounted for 100% of the day's gains.  Of course, the energy sector led the charge with oil up 5% on the day but oil was already up 2.5% ahead of the energy report and that was at 10:30, not 11:30.  While we have real issues with the energy numbers, there wasn't much we could do about it so we looked at bullish plays on UNG and UYG, looking to cash in on the insanity.   The most bullish items I saw yesterday were:

I’d have to say that last one, which hit the wires at 11:57 but was certainly known earlier by the big boys (who sit at the table with the Fed govs) so effectively this was a money dump coupled with the 5% jump in crude for the day – all nonsense that doesn’t change the overall fundamentals but we also have to know when we're beat and go with the flow, even as we look for the exits at all times.  We went into the close still a little bearish overall, with 1/2 covers on our long DIA puts as we now fear the pre-market action but we essentially stuck to our game plan for the week, where we expected a flat Wednesday and a drop on Thursday as we got retail earnings reports and jobless claims.  If we don't get a turndown today, it may be time to throw in the bearish towel…

[Continuing claims for unemployment benefits]8:30 Update:  We have the jobs numbers and 576,000 jobs were lost, right in line with the 4-week moving average (so 2.3M people a month losing their jobs) and up 15,000 from last week and much higher than the estimates of 550,000 jobs lost.  This by iteself shouldn't be enough to tank the markets because, if we didn't care about the 9.3M people that were already on unemployment last week (and we are totally ignoring the other 9M people whose benefits have run out and are considered "out of the workforce"), we sure aren't going to get too worked up about an extra 26,000 people getting pink slips.  After all, look how good it's been for corporate profits to fire all these people!  Heck, we should have done this years ago – what a great economy we would have if we could get rid of all the blood-sucking workers and just sell stuff!

Retail earnings, on the other hand, may actually matter as GYMB, HOTT, PETM and FLWS all lowered guidance since yesterday.  SHLD also had a big miss and none of the reporting companies raised guidance and even companies that beat low estimates, did so on poor revenues overall.  Congress is stepping in to save SHLD and appliance manufacturers with a new "cash for clunkers" program aimed at consumer durables.  $300M has been authorized for the fall for rebates on high-efficiency household appliances, furnaces and air-conditioning systems.  WHR and GE are going to be the big US winners.  We already like GE since they control the media anyway but SHLD is going to be the bargain baby of the group after that terrible earnings report and we'll be looking to dip our toes in on that one as they sell off, looking like $64.44 pre-market (9am).  If the economy is really bottoming, Sears is a bargain.  If the rebate program works, Sears is a bargain.  If commercial real estate comes back, Sears, with 3,900 of the best retail locations in America, is a bargain with a market cap of $8Bn or about $2M per store.  Most likely we'll initiate a play by selling naked puts, perhaps the Sept $65 puts for about $6. 

Asia hadn't seen our jobs numbers or retail sales (after all, those are their manufactured goods we're not buying) as they keyed off our happy, happy markets yesterday and the Shanghai Composite shot up 4.5% this morning, erasing all of Wednesday's loss PLUS 1 point (just for emphasis).  That was such happy news that the Nikkei rose 1.8% but still just under the 10,400 line it needs to prove a rebound and the Hang Seng gained 1.8% (374 points) but not one penny more than the opening gap up that also, almost to the penny, erased all of Wednesday's losses.  This is a market condition the Chinese refer to as: ??????, which means "Manipulated pile of dung," or an "MPD Day" for short

EU markets are up about a point ahead of the US open but off their highs after hearing our jobs numbers.  They too are shaking off news that would worry more rational markets as the UK and German budget gaps widened by huge margins with the UK needing to borrow net $13.2Bn vs $320M projected by "economists," who we've already learned not to listen to but WOW, that's off by a lot!  The recession has left even deeper scars in Germany, where the government forecasts gross domestic product contracting by 6% in 2009.  "Even though economic data as a whole are pointing to a stabilization of the economy, the situation however is still fragile," Deputy Finance Minister Joerg Asmussen wrote in the ministry's August fiscal update. "The crisis and its consequences are far from overcome."

Tax intake has shriveled. During the first seven months of the year, German tax receipts were 5.2% lower than the year-earlier period, while federal government tax receipts were 2% lower during the same period. One of the hardest-hit categories has been the intake from corporate taxes, tumbling 57.9% during the first seven months from a year earlier, while income-tax revenue was down 4.4% in the January-July period on a yearly basis.

We'll see if all this negative news actually matters today.  RTP is a good short at the bell as their earnings were awful and they will only improve if you believe in the commodity fairy and the Sept $160 calls can still be sold naked for $9, which makes an interesting play.  We're not going to do much today, other than watch our levels and see what sticks.  We had really hoped for a bigger sell-off into expiration day as it will be tough to make buys for next period at these elevated prices. 

 

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Good Morning everyone.
 
At the risk of making a bearish comment 🙂 those job numbers looked pretty bad to me. Market seems abit indifferent. (But the all at GS have jobs)
 
Initial claims for state unemployment benefits rose by 15,000 to 576,000 in the week ending Aug. 15, the Labor Department reported Thursday. It was the highest level since July 25. The four-week average of initial claims also rose, by 4,250 to 570,000, and continuing claims climbed as well. For the week ending Aug. 8, continuing claims rose by 2,000 to 6.24 million. It was also the highest since July 25.

DB – I don’t think this will have that much effect today.  Maybe it’ll keep a lid on the upward pressure, but I see the news from yesterday about margins for banks as a much bigger mover even though it will never get much airtime.  All I want is a little sanity…please!

Where – I think you are right about little effect. Interesting to see what the 10.am data brings.

Average Detroit house falls to $11,596 – thats amazing – Anyone know what you get for the money ? Couldn’t even buy a shed to put in my garden for that money.

DB- If you do a real estate search, you can buy 6 bedroom 3 bath Victorian mansionsbin certain Detroit neighborhood for under $1.000

uh oh…. S&P 1050 is coming, is coming… (cue the Darth Vader music for the benefit of Da Bearz)
 
The tricky dicky about it is:  
will that level arrive in a crazy jiffy by Friday’s OE day? (bullish gamblers will be partying like it’s 1999 if that happens)
or will it be a slow grueling climb during most of  September to get there?
 
I’ve got S&P minor resistance at 1050, but the MAJOR resistance is located at 1095.

They’re really running the tech leaders up hard in pre-market. GOOG up almost $9 on no news I can find. Actual buying interest? Or pumpers trying to avert a breakdown?

I would have thought the jobs report was fairly neutral and we got a fair reaction.
It was out by 26K on 550K consensus, at average salary it represents $1.3 billion error which is 0.5% of a $14 trillion economy.
On my screen S&P futures fell 0.4% on the news or "about right".

oops 0.1% of the economy so the futures "overreacted" 4x.

DB – we luv UR teddy bear posts!!!  😛

Heh, just got notification from TOS of a single call options sold for Jan ’10 on TNK was exercised.  Dunno why someone would do that, but I’ll go ahead and book that premium no problem.

EricL, GS upgraded Goog to buy. 
 
Don’t let the smoke and mirrors fool you.  The jobs data is enough for them to run her down.  Although, they may not want to do that because it sets a bad precedent.  And if we go down everytime we get a miss on jobs data we’d be at zero in no time.
 
A Victorian mansion for under $2000?  Wow.  What’s even crazier is I can’t even see spending that on a place in Detroit!  Icky!!  Though they do have a thing for making great music..

skasiah   On your detroit victorian, do you have to pay extra for Doors and Windows?

Thanks Matt, Briefing.com wasn’t showing it yet.

Those bastards had a serious squeeze going up until jobs came out.  Of course absolutely no volume behind it.

DB – we luv UR teddy bear posts!!!  😛

GOOG added to GS "convicted" buy list to goose the Qs.

SHLD with big gap down.

GOOG up huge this morning!…
Aug 450 calls from yesterday are amost a 10 bagger !!!

Oh for crying out loud.  Just prepsosterous.  So are we to believe two down days is supposed to constitute a pullback in the market these days?  So now we’re back to the races?  No way, they are just squeezing again before the 10 oclock data comes out.

Phil – What are the levels to watch today? Looks like we are gettin a nice jammin

Matt – There cant be any shorts left to squeeze.
 
Pharm – glad to be of use. How can the markets keep ignoring the jobs carnage ? Its not as though the rate is really slowing down.

Phil: What is the 3 of 5 rule?
dflam

Detroit- The crazy thing is that a lot of the mansions for sale under 5k (and there are a lot of them) look like they’re in great shape, the problem is that every single other house on the block is vacant so, as you said, who would want to live there? I wrote a paper on the situation last semester… the interesting part is that, not only has such rapid price erosion for real estate often happened other time in history, but that there’s nothing saying it couldn’t happen almost anywhere. Housing prices cab ALWAYS fall more is what I gleam from Detroit’s story.

Assignments- I got called away on GE yesterday. That is the 4th assignment I have had in about 6 weeks. I received no assignments over the prior 3-4 months. Called my broker and they said "it is a completely random process". Yeah, right.

AIG up 10% to to 29.25?   Seems crazy to me or have they somehow come with a way to make all the insurance on toxic assets look profitable.   Of course, there are zero shares available to short.   I was killed by shorting calls that got assigned and then liquidated so I think the only thing to do is to buy puts, much as I hate to in a rising VIX environment.  

If each one of us here bought a house on the same block in Detroit, we could make it a gated community, put high speed internet (FIOS?) in them, a call tower on the corner (generate $$) and form a trading union to counteract the evil empire!  B-)

GS goosing GOOG on options expiration week Thursday to keep market goosed up …. beautiful and no scrutiny.  Its just one of those random occurences.

TRIN = 0.28

DIA- when to look at taking out the Sept 93 covers?

Playing the CHSI 30s today for some quick nickles.

I’m taking a stand here.  DD on FAZ and SRS.  If it doesn’t work will cover completely and go away until this afternoon.  I fully expect a reversal sometime today.

Looks like SIRI has been on a tear in the last few days. Broken over .6 after a really long time. Does anyone know why?

Pharmboy
CERS down to 2.25. is this nibbling time?

Market – so far – rising on rising weekly jobless claims, so what’s new,
well, it probably will reverse, after all its OPEX.

Phil – wont be long before you have to walk on them rather than step over, there wont be any room to leave spaces between them and you’ll have to pay a "walkers tax" so they let go your ankles.

CPF looks like it wants to lift off its ground.  Gonna try to get them at 3.03 and out at 2.95 or 3.15-20.  Very risky.

And of course playing BAC 17s today at the open, like every day this week.

Drum – offering more stock at 2.2.  Nibble is good!

GS computers on maintenance for the last 30 minutes, most stocks I’m watching are pinned at their 9:42 price right now…

Foreclosures on prime mortgages spiking now.  Subprimes are flickering out.  They’re done.  Multi unit buildings are over 9%!!  So yay!  Let’s buy up all the banks and REITs!!
 
The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, the MBA said in its National Delinquency Survey.

Hi folks I have the DBC Leap longs from the $100KP covered with Aug 22’s that I took in $.85 for (now $1).
Really can’t decide where to roll these to, I feel pretty neutral on this fund and the premiums are extremely low.
Also don’t know what the recent CFTC ruling, reapplying futurues position limits, willl do to this fund.
Am wondering if I should scrap DBC and look for a decent buy/write candidate on a commods stock, what do you think please?

Matt — don’t trade angry … we are not big enough to influence direction … even though you are right they are showing they can keep this held up on low volume.  We need real sellers.

Assignments
TNK dividend date is 8/20 and GE was 8/18 so if you’ve got less than the dividend left in premium there’s a pretty good chance of getting assigned on the dividend date.  That way the caller gets to be owner of record for the dividend payment.  I got several assignments last week and they all worked out for the better as all of the assigned stocks dropped during the course of the day.  Unfortunately its a 401k so I can’t simply hold short stock positions beyond the day of assignment.  Other than the hassle of having to deal with the assignment, I’ve come to the conclusion they’re just a sharp and brief ramp up in the position’s negative delta which these days isn’t always a bad thing.  Buy it out and reload it with another caller that best fits the need.

Phil/DDM – To update I wa able to get out of that DDM spread yesterday at a 10% loss, which would be much much much higher if I’d have held on to til today. I thank your strategy section for that. Also, thanks for helping me get out!

Cap: there are no real sellers, there are lots of buyers with plenty of money waiting to buy at every dip despite not really any good news about the economy.
They all do not want to miss an upturn.
This is going on for months .

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