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Monday Market Mark-Up – 50 Ways to Dump the Dollar

"The problem is all inside your head", G20 said to me
The economy's an easy fix if you don't want to wait
All we need to do is globally inflate
There must be fifty ways to dump the dollar

G20 said it's really not our habit to deflate
Furthermore, we have elections and the voters hate to wait
So we'll indebt ourselves, buy lowering the rates
There must be fifty ways to dump the dollar
Fifty ways to dump the dollar

You just buy a few Yen, Wen
Push up the Pound, Brown
You buy up the troy, boys
Give Goldman the fees
Take the IMF bling, Singh
Let it drop like a rock, Barack 
Act like you're bored Jean-Claude
Let the dollar fall free

I heard they were dancing to this one at the G20 Meeting so I thought I'd share it with you.  Never have so many gathered so often to accomplish so little as our G20 in the past 18 months.  This weekend's meeting of the World's "top" Finance Ministers resulted in a split on whether to tax financial trading as part of a broader strategy to ensure the global economy’s expansion is less crisis-prone.  The idea of the levy was to prevent excessive risk-taking and fund future bank rescues but US Treasury Secretary, Tim Geithner said trying to get the banks to behave is "not something we’re prepared to support."

That was all the Gang of 12 needed to hear and the commodity markets went wild with the guarantee of no additional regulation on the horizon and the dollar was taken down to new lows in overnight trading, plunging to $1.50 to the Euro and $1.685 to the Pound, over 2% off Friday's lows.  They Yen Rose back to under 90 to the Dollar and the Nikkei, of course, did not like that one bit and an early rally turned into a flatline for the day.  The rest of the global markets, however, were off to the races with Europe up 1.5% at 8 am and the US futures up over a point as well as gold flies to $1,110 an ounce and oil heads back to $78.50, up $2 from Friday's low

Of course, doing nothing to prevent excessive speculation by the "too big to fail" crowd isn't all the G20 didn't accomplish this weekend (which is it for the year now).  They also failed to do anything to get China's Yuan off the dollar peg so the falling dollar is still great for China, who export far more than they import.  Not wanting to stop there by accidentally accomplishing something, the G20 also failed to make any progress on climate change, which is rocketing all the major polluters in global trading. 

Kudos to Gordon Brown, who TRIED to talk some sense at the meeting saying: "it cannot be acceptable that banks enjoy the rewards of their successful trades yet leave taxpayers to pick up the cost of their failures."  That gave everyone a good laugh but Geithner's opposition potentially kills off the proposal even before the IMF reports on its feasibility in April.  “A credible medium-term plan to cut deficits is needed to tackle shortfalls in public finances,” Brown said. For now, “a self-sustaining global recovery hangs in the balance.”  Man what comedy timing that guy has!  If Brown loses his election next year, I'm sure the Daily Show will be calling…

Instead the IMF did what they could to boost the price of the 200 tons of gold they are still looking to sell.  They issued a statement saying traders are probably using the dollar to fund “carry trades” across the world and the currency may still be overvalued after its slide this year.  “There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published on Nov. 7. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”    

U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”  The dollar has dropped about 13 percent against a basket of currencies from its major trading partners in the past seven months. Meanwhile, the MSCI All-Countries World Index of global equities has gained about two-thirds since March and sugar has soared 90 percent this year with oil doubling and gold up 50%. The euro has risen 15 percent against the dollar in the past nine months as well. 

We'll see how far they can push things today, certainly we can expect a retest of our highs and then we'll see.  As I said in my Dec, 2006 article, "Burn Dollars to Fight Gravity," where I first predicted that hyperinflation was the most likely US solution to our debt problem: "let’s throw those dollars onto the fire and light up those market engines – we’re taking this baby to the moon!"  Yes, I did say last week that the dollar looks to be bottoming here and, hopefully, this is the blow-off before the turn.  Much like the oil predictions went from $100 to $150 to $200 as oil went from $80 to $140, the more outrageous the predictions get the more likely it is that the bagholders are feeling trapped and about to panic themselves. 

However, like any good swimmers, we know not to fight the tide and I pointed out in the Weekly Wrap-Up that we are partying like it's 1999.  By the April of 1999, the Nasdaq seemed ridiculous at 2,500, having run up from 1,500 in October.  Despite all logic to the contrary, the Nasdaq bounced between 2,500 and 3,000 until October 1999 when, rather than going down, as every rational person believed it would, the Nasdaq instead went UP – to 3,500 around Thanksgiving, 4,000 at Christmas, 4,500 by Valentines Day and 5,000 by Easter.  Sure, by Memorial Day 2000, we were back at 3,500 but WHAT A RIDE

So, IF we can break on through to the other side of our upside levels, then it's time to switch off our brains and just strap in for the ride.  We already have our seat-belt plays so now it will be time to make some aggressive upside targets where we can make amazing returns off big index moves.  That is IF and ONLY IF we can break out here.  Otherwise, let's see this for what it probably is, a desperate act of market manipulation by funds that are under the gun to unload their stocks by December 31st or before the dollar bounces back on them and sends the market plunging back faster than it went up – just like the Nasdaq in 2000.

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  10,023  1,069  2,112  6,958  580  1,810   21,829  9,808 5,212  5,575
2.5% Up 10,273 1,095  2,164  7,131  594  1,855  22,374 10,053 5,342 5,714
Sept High 10,119 1,101 2,190 7,241 624 2,045 22,600 10,397 5,299 5,888
2.5% Down  9,772  1,042  2,059  6,784  565  1,764  21,283 9,562 4,917  5,435
July Base 8,200   880  1,750  5,600  480  1,650  17,500  9,200  4,200  4,600 
25% Up  10,250  1,100 2,187 7,000 600 2,062 21,875 11,500 5,250 5,750
Retrace 9,840 1,056 2,100 6,720 576 1,980 21,000 11,040  5,040 5,520

So no one is actually at their September highs but the Dow is in striking distance this morning but ALL of the other indexes are more than 2.5% away from getting back to where we were last month.  The DAX was our outperformer in September and is leading Europe now but notice how closely those 25% Up numbers (off our July base) are lined up with the September highs (except the Nikkei, which peaked at 10,767 in August).  As we've often mentioned, the country most damaged by the falling dollar is Japan, and their market has been unable to gain traction as the dollar slides into the pits

Aside from the Nikkei, Transports are our biggest concern as they are still not over their retrace mark off the 25% line, which they also hit earlier than the other indexes.  What's going to be critical for the US, is whether we can take back those highs and hold those retrace lines.  Once again, we find ourselves looking at 1,056 on the S&P as the single most important technical point for the week, this time signaling a breakdown if it's crossed.  576 on the Russell remains our canary in the coal mine and we really need to see the FTSE get through their 25% mark otherwise, we may have nothing more than another failed breakout attempt. 

So still very skeptical but ready to move on the upside (we actually made a half dozen bullish plays on Thursday to cover this run) but nothing to panic us out of our bearish positions (55%) until those levels begin to roll green on us.

Trade carefully out there. 

 

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JRW, ouch! 

Zuko –
You could write both the Jan 220 call and the 180 put for about 8 bucks – so it would get you out with a small potential profit and give you a 10% cussion in either directions –
I also like writing the Jan 11 – 160 puts – it was a better play when you were getting $20 bucks for it only 15 now- Phil and others probably would not like this one because it ties you up in margin –

I’m selling the AAPL and SPY bull put verticals from last week and adding to my SPG and SLG put calendars (buying April and May on the long end). I’m probably way too early, but I may get a better price, especially on SPY, tomorrow.
 
Those AAPL and SPY positions made a huge return, but REIT short position losses are even huger, lol.

Zuko775…AAPL Short Nov 190 call.  I’m not sure what Phil will say , and you aren’t here for advice from me, but my rule for exiting a short call or put gone bad is …..if it doubles and the stock is moving totally in the wrong direction….get out.    If you’re in at 6.80 I’d say buy it back NOW. 

Completely abnormal market …. SPG avg volume = 4 million.  Today, 1.9 million at 3:28 pm.
These rallies are complete BS.  Rolling short squeeze.

Jim Rogers is a bozo.
His benchmark for determining whether oil is cheap or expensive is basing it off of last years ridiculous 147 speculative high.  So in his view, 80 is "cheap" a big discount to last year.
 
B O Z O

Eric,
Ya, I guess I misread Phil at 55% Bearish; I should have read the part about expecting DOW 10,200 on Monday!!!!!!!!

MYGN –  Selling 22.5 puts here for 1.1.  Nice entry for a good stock to own semi-long term.
 
WHOA!  Inverse stick in action…come to papa!

Eric,  Can I get your thoughts on my Appl issue here? Samz’ solution sounds good. 
 
(You could write both the Jan 220 call and the 180 put for about 8 bucks – so it would get you out with a small potential profit and give you a 10% cussion in either directions -) 
 
What do you think?

Zuko I like Samz solution aswell even go to Jan 230 c and 180 p gives you more or less a break even and a 30 $ break on the up side

Eric, Matt Cap Anybody
Follow through or retrace tomorrow ?

PARD / Pharm – What do you think about the recent runup to 8.5?

Zuko,
 
samz solution seems good to me too.
 
Honestly though, I’d be hesitant to adjust the trade on a day when the stock is up 6.85. A short term thing you could  do if you’re really worried would be to roll it to the Dec. 195s for about even and then wait for a little pull-back and buy a cheap Jan call at some higher strike (maybe the Jan 220) and turn it into a bear call vertical. This would likely significantly reduce your margin, so without adding more to the net cost of the trade, you could sell another such vertical for a credit, looking to collect enough with the second vertical sale to cover your cost of buying the Jan call. In other words, if buying the Jan call cost you 4.00, you’d look to sell another vertical for at least a 4.00 credit.

Then keep rolling both legs up if necessary, but eventually it will stop going up. Turning it into a bear call vertical will control your losses if the stock keeps running. I personally feel more comfortable in this market with ‘defined risk’ trades like that one.

No idea JRW, I’m afraid. Charts are super-bullish looking but market is fragile. For myself, I’m holding almost all my short positions but keeping some longs.

Boy they paint pretty pictures!  What a bunch of friggin artists!

Thanks Guys. Very Helpful.  I think I will exit the Amazon Trade all together and lick my wounds.  Eric | Samz I will probably move in that direction with APPL.  Since I missed the Bell, maybe Phil can weigh in before I pull he trigger.  Thanks again.

SNDK – Covered Nov 21 Put at 250% Profits. SNDK likely to keep going up – say till 22-23 (with the rest of market without any SNDK specific news), but did not wat to risk it…

My prediction……Expect follow-through tomorrow.  Too much news re govermental agencies stepping in to rescue big companies in distress for a down day to occur. 

JRW, if this is like last ‘recoveries’ after sell offs then the rise will be rapid.  And by looking at the last couple of days it’s been just that.  So, assuming the other indices are going to follow the Dow into unchartered territory, there will be few if any pullbacks.  It’s cheaper for them to jam it up then take a long time to do it.  And when there is no selling pressure, it’s cheaper yet so they should make fast work out of it.  Unless this time is different.

Is there a precedent for a nation successfully reflating its economy and stock market through the trashing of it’s currency?  All I’ve ever read seems to suggest that allowing the dollar to be the carry trade currency was not a good thing.  Not a good thing for who?  Every time the dollar goes down, the market goes up.  It’s an almost perfect correlation, and there seems to be no penalty for the decline in the dollar, unless you’re traveling abroad.  Can someone smarter than I enlighten me?

Here is a chart on the SPX.  Broke out above the head and shoulders pattern today, but if there is a pull back tomorrow, then it could still be intact.  Too hard to tell.  GLD looks very toppy to me, and will start to short in a very small position (107 Jan10s).

DIAs are showing the same divergence FWIW.

Phil,
Bought my subscription for your service last week. Need some advice, I bought SSD 38 dec calls at 3.75$ last week, DXD Dec 33 calls @ 2.15 same time. They got away from me quick with the two big days over the last week. Any suggestions at these levels on how to handle these and also maybe an alternative strategy. Thanks

kustomz
November 5th, 2009 at 3:43 pm | Permalink  
"Phil yesterdays action could have been a move to shake out the weak hands for the next leg up"….

Today’s move was a hell of a leg up!  I would expect a normal pullback 10140 area. Nothing but air down there always in the back of my mind.

Phil did very well guys, he was on around 5:13PM with his picks. BNN Interviewer recommended people come to this site, as it is "always entertaining". Clip will be up online in a hour or so.

Hey Phil, you are pretty good on TV, what do you think about SRS? long stock (9.25) and short Jan$10 puts and calls?

 They recommended your blog, shortly after you were finished, and said that "you will definitely be entertained".

Jcmcn5,
The problem is that gas, food, and most other stuff gets more expensive – if you are in the markets and commodities it’s good though

 Phil – You came across great on TV:  http://watch.bnn.ca/#clip233319

Phil – Great clip. The reporter got really confused with SRS. đŸ˜€ 

Phil,
  Nice interview. Don’t think the anchors were too finance savvy as it was a bit odd when she was trying to make some comment about Amazon’s chart.
  The clip did remind me of a question I’ve been wanting to ask: how do you go long on the dollar? UUP?

Yes good job, I saw the clip too, you were great!
I have a question on long the dollar too please. Is my EDZ long position effectively  long dollar would you say?

 Can someone remind me where I go to look at the 100K portfolio?

Good stuff, Phil. They are definitely not used to people calling oil a scam. They probably thought you would give the normal double-speak about contango or some other such party-line BS that it is cheap on a relative long-term basis. Too bad you didn’t have time to get into dropping demand, the amount of money it takes out of the economy,  and the cancelled contracts every month. Nobody else seems to be talking about it.

 Phil and Zuko and AAPL…..Great explanation of how to play AAPL if you have sold the calls naked.  But your statement "If you believe AAPL will hit $270 by Jan 2011, then you have a problem." is exactly why I would not sell naked calls on this company.  I just believe it’s too much of a risk.  AAPL could hit $270 by Jan 2011, so I’d rather play it in some other way.  I also agree with the observation that some people don’t have the stomach for naked calls.  You can make a lot of money on them by trading them as you describe.  But you have to have the nerves for it, and you have to know what stocks make a poor choice for this type of trading.  I sell a lot of calls naked, on a lot of companies, but AAPL ain’t one of them.  And ditto.  You did great on the interview.  The interviewers?  Well….

That was one stupid stupid day.
 
Typical of a FMD, and you must, must, must remember this, is that they tend to close at the highs (or lows if down). !!

Nice job Phil!

 Thanks Phil and Crew.  This was a bit of learning experience, but it was mostly the reluctance of "giving it back".   New Day tomorrow.  I’ve definitely have to be more disciplined with my stops.  Thanks again.  

Phil
I caught the interview…. terrific!.  Your host recommended that the viewers should " go to your site, as you will be entertained ". That is for sure if you consider entertainment is laughing while you read, learn and make unbelievable leveraged profits that you never thought were possible. That is my kind of entertainment !

Paterson: NYS Will Be Broke Before Christmas
http://wcbstv.com/cbs2crew/david.paterson.special.2.1300362.html

cwan, the SPX Nov 1080/1070 PUT vertical is $2.45.  So if the market doesn’t drop in the next day or two, you are better off selling it, as the total profit from the short 980 PUT minus the loss from the vertical is more than the profit we originally intended to get.  If you are not sure, then sell 1/2, and let the other half ride for a few more days to see if you’d get the full $10 payout.

Phil,
I have POT – the boring variety – 4x March 95s at $9.30 (now $12.75) covered with 3x Nov 95s at $3.30 (now $6.00).
Intend to roll the 3x callers to the 3x Dec 100s (now $5.40) and 3x Dec 90 puts (now $1.90), for a net $1.30 credit. I am assuming that $90 will hold. Is this a good roll? Any other considerations that I should take into account?

Phil,
You looked good on your interview, too bad it coulden’t have been longer.
Also thanks for your patience in your explanations during the day.

I am interested in SRS call option….

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