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MasterCard’s Monday Madness – Retail Up 3.6%?

[RETAIL]Well, I was wrong.

According to MasterCard's SpendingPulse, a combination of last minute shoppers and an extra shopping day between Thanksgiving and Christmas boosted retail sales 3.6% over last year's horrific total.  I had thought we'd be lucky to hit 1% and I'm not going to hide behind the extra shopping day (which added 3%) as an excuse – I simply underestimated the determination of the US consumer to spend money.  We knew E-Commerce was doing well and the other results are very much in line with my more bullish 2010 Economic Outlook, with Electronics and Jewelry doing well while Department and Clothing stores taking a hit.   

I've been playing for a big, sharp sell-off that just doesn't look like it's going to happen now as it was going to be retail that I expected to take us down, with imminent store closings finally deflating the REIT sector.  Now what?  I have some serious rethinking to do and it looks like we are going to track more in-line with the bullish side of the economy (the success of the top 10%) and ignoring the suffering of the masses for as long as we can get away with it (the French managed for an entire decade before the people finally began taxing the rich on a per head basis).  The seeds of the French revolution were sown in their support for the American revolution (because it hurt England) and other "necessary" wars which put the country deeply into debt and drove up commodity prices causing the poor bulk of the population to downgrade their lifestyle even as the rich prospered and flaunted their wealth – a TOTALLY different situation, so why worry?

Speaking of massive government debt, our Treasury Department has removed the $200Bn (each) caps on aid to FRE and FNM for THE NEXT THREE YEARS, effectively paying whatever it takes to push off the problem of having to foreclose on non-payers and selling off the growing inventory of defaulted homes until AFTER the next Presidential election, when the bill will come in.  Foreclosure filings exceeded 300,000 in November for a ninth consecutive month, RealtyTrac Inc. reported Dec. 10. The firm said filings will reach a record 3.9 million for the year. 

The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their virtual portfolios of mortgage assets. Previously, the companies were instructed to reduce their virtual portfolios at a rate of 10 percent a year. Now, they will be required to keep the value of their virtual portfolios below a maximum limit, currently $900 billion, that will go down by 10 percent a year.  This means they won’t need to take immediate action to trim their holdings and could allow them to rise. Fannie Mae’s virtual portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.

The Treasury and Federal Housing Finance Agency seized control of the mortgage-finance companies almost 16 months ago amid fears the two were at risk of failing. The government- sponsored enterprises, or GSEs, own or guarantee about $5.5 trillion of the $11.7 trillion in U.S. residential mortgage debt.  Officials set up the Treasury lifelines, which were expanded in May, to keep the companies solvent. If the two firms exhaust that backstop, regulators will be required to place them into receivership.  Washington-based Fannie Mae has lost $120.5 billion over the past nine quarters and McLean, Virginia-based Freddie Mac has recorded $67.9 billion in cumulative losses over the past nine quarters amid a three-year housing slump

So yay, I guess.  Both FRE and FNM should do well on that news, spurring a move up in housing on the news that the government is going to go far more in debt so we can keep pretending everything is going well and that may allow the S&P to stay over 1,116, which is our 50% retrace mark of the 900-point drop from 1,566 way back in October of 2007.  It took us 18 months to drop 900 points and Jan 9th will be month 10 of our recovery – truly in incredible stock market rally if you assume that the drop to 666 wasn't an aberration.  If, on the other hand, we were to say that 866 was the proper drop (700 points) and the rest was a silly panic that quickly reversed itself, then we have only retraced 37% of the real drop and the number to watch would be 1,216, which would be the true 50% retrace on the S&P.

I'll be looking to rework our Big Chart with that in mind this week as I believe we can all now admit that the March panic was a mistake and not an event that should be taken seriously by chartists.  If we throw out that sharp "V" pattern and flatten out those lines on our various indexes, I think we'll get a truer picture of what's in store for our indexes in 2010 from a technical standpoint.  

We're seeing a nice breakout from the Nikkei, who were our bullish choice for Jan gains with the $10 calls for just .10, which should do very nicely today.  The Nikkei flew over the 10,500 mark today and finished up 1.3% at 10,634 on news of rising Industrial Production, a strong dollar and a statement from China that they will not be letting the Yuan rise, which is also supportive of the dollar.  This allowed Asian investors to ignore a 25% tanker glut that is getting more serious as concerns are being raised that as much as 1/3 of the 168 tankers that are being used to store crude products will cause an even greater glut if the energy market dips and sends those tankers running to port

Europe is in a fine mood this morning an up about 1/2 a point as they return from their holidays with the DAX finally topping 6,000 so we'll see if they can hold that as a very bullish global indicator for the day.

We still have our concerns and we'll wait for a bit more data but we're not going to fight the tape and we will remain mainly in cash until next week, where we can see how much of this year-end rally we can hang onto but this morning we have upgrades on AAPL and AMZN, which should help the Nasdaq to keep leading us higher and oil is up to $79 thanks to some weekend terrorism (also helping gold stay over $1,100) so it's business as usual this week and business is usually good in thinly traded markets!


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  1. Jumped out of QID this morning at $18.83. After the news on retail sales figures that you referenced above, I saw getting out at that level as a gift this morning especially after I saw pre-market trading in the $18.77 range already. Might get back in to play a bounce if it absolutely screams towards $17-something after regular trading opens. I’ll check on your posts to see what bounce-levels to keep an eye on. I suppose the only thing that might make this momentum pause would be a poor 2-Yr Treasury sale later today.

  2. TBT – anyone have another way to go short the long bond – not crazy about the 2x and 3x etfs as longer term holdings -
    Phil – any other TBT plays besides the June bull spread which is looking very good right now.

  3. Samz – without looking back through old posts, can you tell me what is the current TBT June bull spread? Thanks.

  4. Does this mean that we are selling our QID Jan 19 calls and RTH Jan 90 puts that we dd’d last week?  How about the March DIA puts?  I’m sure you’ll get to these but I’m hoping you have the time to address them early.

  5. samz,
    Puts on TLT gets you short the long end. Options are now reasonably liquid on it too, so it’s not a bad alternative.

  6. Phil
    what is your recomendation about SRS? do you still expecting some kind of rebound?

  7. Not buying the Spending Pulse numbers; sorry.

  8.  Is it too early to abandon those jan 44 qqqq puts?

  9. ssdirk – tbt
    It was the June 42 / 46 bull call spread on – orig. purchased for $1.80 – I got in later so my cost was $2.30 – it’s now $3 for the $4 spread

  10. Any thoughts on DRN, it has been on a tear lately? It is almost at its high for the year.

  11. QID/LLorens – Good move as that retail headline rules all for now. 

    TBT/Samz – As Eric says, you can short TLT but I have been confident enough in the floor on rates to go with TBT.  That will end soon but I still think it’s playable for now.

    Wrong-way puts/JCM – All we can do this morning is grin and bear it but there’s not much hope at the moment so I’ll be looking for roll-outs or possibly just giving up if we are going up more than half a percent on the indexes today.  The Nas will likely break over first at around 2,297 – you would think 2,300 would be a tough break but who know?

    SRS/Tcha – I have a loss of confidence in SRS if retail is really coming in that much better but so far we only have the MA survey and it’s possible that it’s simply more people using credit cards than last year.

    QQQQ/Jpohl – The volume in 15 mins on the Dow is 11M.   In the past week we have barely done a single day’s regular volume so nothing that has happened since the 18th has been meaningful and that’s about 300 Dow points of gains (and about 3 QQQQ points) that could be erased on a single large volume move but we are losing all our likely catalysts for that to happen so it’s a very tough stance to stick with.

    We’re still watching the old highs but generally through other than Dow and NYSE:   Dow 10,549, S&P 1,127, Nas 2,242, NYSE 7,380 and Russell 615 so not much to be bearish about other than the VIX is up 4% for some reason

  12. emc,
    Major volume non-confirmation on DRN’s run-up, but if you’re willing to keep stops tight, it may have more in it this week.

  13. Phil – do you like V or MA to play the seemingly stronger retail numbers? Which do you like better as a long-term hold if either happens to drop in the near term? Would seem that increased card activity might mean some strong earnings for either of those two. Not sure if one is better positioned to also take advantage of strong emerging market growth (V in Brazil?)

  14. Neither seems to be participating in this morning’s push so I wonder if there’s some profit taking going one after their big run up. Do you like an entry point for either, say sub $86 for V and sub $250 for MA as pullback points on their way higher?

  15. MA is actually looking a bit weak itself this morning. V also with a failed attempt to move higher so far.

  16. You sound optomistic on AAPL – any earnings trades look enticing to you?

  17. Attempting roll from 12/31 DIA $103 puts to $104 puts for .07, which brings delta from .12 to .23 so good if it works, worse if it doesn’t.  Other positions I’m waiting to see if we take out our levels.

    DRN/EMC – Well I may be about to give up on SRS but I’m sure not ready to flip to an ultra bull in real estate!   I still think we’re getting a blow-off top to the market but very hard to stick with that play isn’t it?

    Why is V still falling??? MA too - something is fishy with those retail reports

  18. Peter D, If you are checking in, I was wondering if you were adjusting your strangle points on the RUT or SPX as you scale in.  For example, I’m now looking at 540/700 on the RUT. Or would you wait until next week to assess?

  19. something is fishy with those retail reports

    Speaking as an amateur with limited experience to a deeply experienced professional (hehe) – watch out for confirmation bias!
    Possible alternative explanation, V has been ON FIRE recently, and is now consolidating – given the desire of many to sell the news this is really quite bullish.

  20. Fishy retail — I don’t know.  My wife and kids were at the Ug (sp?) outlet store yesterday in south Jersey.  There was an hour long wait to get IN to the store.

  21. From Hussman’s Weekly Comment "Stocks remain overvalued, overbought, overbullish and face rising yield pressures"  

  22. jcmcn – I agree I find the lack of post xmas discounts (to be fair I look mostly at electronics) to be a bullish indication – at the very least it shows lack of desperation in that sector
    Not long retail (except CROX from our prior portfolio).

  23. V,MA/Llorens – See above, something is not adding up here.  I like V a bit better than MA long-term but AXP is probably the real bargain in that space (relatively).   I would not enter anything this week on the up side unless it was an amazing-looking bargain or protection.  We could be down 300 next Monday – had that bomb gone off on that plane this weekend, we’d have been down 500 today.

    AAPL/Sarah – Also want to wait until next week but AAPL to me, from shopping there, seems to have the most amazing sales growth of any retail store I’ve ever seen.  It’s not just that they have a hot product, there were 100 people jammed into the store PLUS 30 reps and no one seemed to be waiting for anything.  Every rep was able to complete a sale standing in the middle of the store, the girl who was handling the line at the "Genius Bar" (tech support) was herself a genius and answered almost every question without having to put anyone on the short waiting list.  There were no discounts, no sales items and nobody even attempted to haggle – that’s Apple’s rep, you just pay what they say and say thank you.  According to my kids "everyone" got an IPod Touch for Xmas – if we figure everyone is just 5% of the kids between 8 and 14 (36M) that’s about 2M kids who will download about $25 worth of apps and tunes each for yet another lovely revenue stream and all these kids come to the store and play on the cool computers and those go on the list for next year….  It’s really beautiful!

    Bias/Steve – I know, the best advice I can offer today is to ignore it.  Good news may be sold on and we’ve got loads of happy global news that should be doing a lot more for the markets than this limp upwards.

    Ug/Jcm – Wow, that’s crazy.  Was there a big sale?

    The rally of 2009 was led by stocks rising from the abyss, while value stocks were largely left behind. 2010 could be a stellar year for value investors, asset managers say.

    James Grant, possibly Wall Street’s most respected pessimist, thinks the strength of the recovery will surprise many a bear.

    The much-discussed decline in U.S. savings over the previous three decades may not be the result of widespread fiscal irresponsibility, but rather a rational response to changing demographics – the rapid ascent of dual-income households. The impending "deleveraging" may not be as severe as many assume.

    Amazon (AMZN +0.7%) reports 51% growth in orders on its peak selling day (Dec. 14), and a 25% increase in shipments, and notes Kindle book sales on Christmas Day were greater than physical book sales for the first time ever. "AMZN likely had another very strong holiday season, partly fueled by the Kindle, and we believe the stock could outperform in the very near-term in likely thin overall holiday trading," Barclays says.

    LG Display (LPL), the world’s No. 2 flat-screen maker, to enter the soon-to-be overcrowded e-book reader market.

    Short U.S. Treasurys, Morgan Stanley says, predicting 10-year note yields will climb 40% to 5.5% next year, pushing 30-year mortgage rates to 7.5-8%! "When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself." But rival firm Goldman Sachs (GS) sees yields falling to 3.25%, which means someone’s prop desk is going to get spanked.

    John Hussman comments (sort of) on the Treasury’s expansion of its Fannie/Freddie backstop to infinity: "After a long deliberation, I’ve decided to defer my remarks about this until after the holidays… My impression is that none of us really want to contemplate their full impact just now. Beyond noting my deep concern, I don’t intend to dampen anyone’s holiday."

    A new lease on 188K square feet in San Jose demonstrates the effects of a 16.5% office vacancy rate on lease prices.

    In an interview with Xinhua, Chinese Premier Wen Jiabao says Beijing will take steps to stop the sharp rise in real-estate prices, and that Beijing will resist pressure from other countries to revalue the yuan, fueling a 1.5% gain in Shanghai.

    Kind of a mixed bag overall. 

  24. MRK P spread 37.5/36 for 66c.  Chart is exhausted and should MRK move through lower support here, there’s a long way to go here…..

  25. Ug — No sale.  No discounts.  Just a lot of women and girls cleaning the place out.  My wife and girls gave up after a half our and went elsewhere.  We should never underestimate the pent up buying demand of the US consumer after a year of lying low.

  26. Phil,
    Maybe not wrong, but as often is the case, just early.

  27. Speaking of futures.  I still like shorting oil on the cross of the $78.50 line to the downside.  Get right out if they move back up and figure it may take 4 tries to get it right.  If you win right away, you can play the line as a loss and look for $78.  If you blow .05 then you want to get your .05 back and .10 etc.   Gold at $1,105 is probably a good secondary level to watch (just fell below it) and copper failing $3.30 (now $3.31) would really confirm a sell-off in this idiotic commodity rally.

    As I said in the outlook, commodies ultimately require the participation of the other 295M people in the country.  We can all go out and by $1,000 laptops and $200 phones and tell the gas station to fill it up and not even look at the reciept he hands us but that’s just not true for most people in this country and every dollar they push oil up forces $1Bn a month to be cut from other spending so when you see oil and copper and gold all racing higher you have to wonder who is actually going to pay for all this stuff and what will they have to give up to get it.  They didn’t seem to give up retail purchases but Jewelry sales were "only" up 5.6% with gold up 35% since last year. 

  28. GENZ – Good call on bottom fishing in this last week Pharmboy.
    Are you (or anyone else) adding heer or waiting more movement?

  29. The Coach store in the Silicon Valley had a 50-deep line to get in, on 3 different days that I went to the local mall in the last 2 weeks!

  30.  Phil, Ive got TBT march 48 and 49 calls. The 49′s are up 36%. I want to continue to play TBT. What do you advise?

  31. Phil
    r u still bullish on EDZ?

  32. This Treasury move is truly astonishing when you think about it.   After having effectively nationalized FRE and FNM, they are now stating essentially that they will provide unlimited resources to prop them up.   If I understand this correctly, this means that 50% of the housing market has been nationalized.  If that’s right, isn’t there a play here somewhere?

  33. Genz/mSquare – volume is stalling, so I would be cautious.  Adding a few more here and selling 3/4 covers are easy to manage.  The 50 Jan are 95c, and can be rolled up to the 52.5 for a small credit.  They have some OH resistance at 49ish (here).

  34. El-Erian/Pstas – Thanks, great article!

    TBT/OldG – Is that a spread or you have both positions?  If you have both, then you can sell 1/2 the Feb $51s with impunity for $2 so why not? 

    EDZ/Tcha – As overall portfolio protection I still think they are great.  Emerging markets are running so hot they can easily come crashing down but nothing comes down these days so it makes it a tough call.  Just from a math perspective I like the Apr $3/5 bull call spread for $1.10, selling the $4 puts for .40 for a net .70 on the $2 spread and EDZ put to you at $4.70 if they fail.  You can be safer on this play by taking the straight vertical and waiting to sell the $3 puts IF they hit .40 (now .10).  You make less on a move up but it lowers your basis 25% to $3.70 if put to you.

    FRE, FNM/Jcm – I think it’s just sort of replacing the Fed propping up the housing market with the GSE’s propping up the housing market so no improvement from where we were but also no little or no damage when the Fed finally stops buying MBS at face value because now FRE and FNM can expand their debt by about $350Bn fully insured (and then Congress can increase that).

    A one-page proposal to bring back the 1933 Glass-Steagall Act that separated commercial and investment banking is picking up steam in Congress. The impact of its revival on Wall Street would be severe.

    Dec. Dallas Fed Manufacturing Outlook: Business Activity Index -0.5 vs. 0.3 in Nov. Mfg. Production Index 3.8 vs. 5.9 prior. Other broad indicators of current factory activity—including capacity utilization, shipments, new orders and growth rate of orders—remained positive and pointed to continued growth.

    Sector ETF strength after one hour: Heating Oil– UHN +2.2%. Oil– USO +1.8%. Gasoline– UGA +1.7%. Commodities– GSG +1.5%. Commodities– DBC +1.5%.
    Weakness: Gold Miners– GDX -0.9%. Homebuilders– XHB -0.7%. Transports– IYT -0.6%.

    Dow leaders after one hour: IBM +1%. MMM +0.6%. KFT +0.6%.
    Laggards: GE -0.8%. AA -0.7%. DIS -0.6%.

    MA and V bouncing.   Watch COF and AXP to confirm rally back up but volume still pathetic.

  35. Phil
    I hold the JAN 95 PUTS. Whats your take on that now? Thanks

  36. Just a random comment about UG, those boots were popular in Europe like 4-5 years ago. When I lived in Moscow in the winter of 2004, all the girls were walking around with them and the style finally crossed over the pond last year. Im actually looking to short DECK b/c everyone and their mom has those stupid boots now! It’s winter now but I think it’s only a matter of time before people realize how ridiculous they look wearing furry boots in non winter months…..

  37. Oh, and for the record Im not gay (not that there’s anything wrong with that! lol)…Just a little bitter that I used to see beautiful russian girls walking around Red Square in Ugs now I see 300lb women in stained sweat pants walking in Ugs around Walmart!

  38. Ug,
    It’s just amazing to me that with no sale and no discounts people were waiting an hour to get in the store. I wouldn’t read too much into that one case; it may be some trend thing that suddenly became hot — who knows.

  39. The most important issue to watch for regarding AAPL is their pending accounting treatment ruling which if granted they can report far better earnings. Because of this ruling (which also applies to MSFT and ORCL) and the likely reversal of it, AAPL’s p/e would drop immediately to 19 vs 30 today because of better reported earnings. Far more investors would be encouraged to invest with this revised p/e. AAPL has been holding back much of its real earnings in order to accomodate the accounting ruling. I believe the ruling relates to their overseas sales and profits. Regardless of the outcome, I see a lot of upside over the next year on this stock.

  40.  VLO     Is there an opportunity for a buy /write here?   (minor pump fire at one refinery on Christmas Eve. Not back on line yet IMO.)

  41. UG- it’s a fad, I think. I was in LA in Sept – 90 degrees- saw teens in shorts and Ug boots. I recall about 8-10 yrs ago seeing high school kids walking around in the dead of winter wearing shorts. This too shall pass.

  42. Phil,  please suggest adjustments for the following positions:
    1.   EDZ:  I have EDZ bought for $7.60 (now $5.06) and Jan $7 Calls sold for $1.90 (now $0.10) + Jan $6 Puts sold for $0.80 (now $1.05)
    2.  SRS: I asked you about the Jan $8 short puts sold for $0.80 the other day and you suggested to wait.  Has your position changed today given the MA  news
    3.  I have an unprotected long position in FCX.   Do you recommend buying puts or selling calls.  Hate to pay a premium but I am not sure if it makes sense to write calls given the relatively low volatility premiums.

  43. The tech sector will be the leader in bringing the recession to a close. Anticipating continued strength in this sector, I have invested in a company that is stealth but very much a large piece of the sector growth potential. The name is ARMH ( Arm Holdings PLC), a UK based company that is responsible for the design and architecture of 90% of the microchips found in  cell phones, central processors and Wi-Fi. These chips are licensed to companies like QCOM, TXN, INTC et al. I predict they will be acquired by one of the majors, probably INTC. Either way, they have a great future. I bought the stock and will structure a short strangle in the next few days.

  44. UGG and CROX should merge and introduce a new line called the "Ultimate Ugly"

  45. gel – arm is a fantastic company, do they have an ADR or did you invest in London?

  46. Our favorite GILD (bottom??) is on the upswing along with its brethren GENZ, CEPH, BIIB…..Time to leg into some calls or sell P.

  47.  Apple’s App Store Sees Record Breaking Christmas, 50% Growth from November to December. Includes pretty chart.

  48. AT&T (T +0.6%) spawns a raft of headlines after it halts online iPhone sales, reviving talk about whether AT&T’s network can handle the traffic generated by iPhone users, especially in dense urban markets.  This I belive – it is entirely possible they sold so many IPhones they are killing the network now.

    RTH/Chakra -  They pulled back pretty fast today but if we get confirming positive retail data this week we may have to cut our losses.

    UG/Jrom – I hear they are super-comfortable though.  LOL on Sienfeld reference! 

    AAPL/Gel – Yet another good reason to won them…

    VLO/Silent – $16.50 is our target entry for VLO and you can make that happen with the stock at $16.83, selling March $16 puts and calls for $2.25 for a nice $14.58/15.29 net entry.

    EDZ/Leon – You are in for net $4.65 now net $3.91 so not so awful.  I think if you flip the $6 putter to the Feb $5 puts and calls at $1.30 you’ll feel better as it drops your net to $4.50/4.75 with a 10% gain if called away, not a bad turn from a 15% current deficit.  SRS is just getting sad here but at least interest rates are creeping up and that can really sting CRE so the Jan $8 puts at $1.15 can be rolled along to the Apr $7 puts at $1 (you can offer an even roll and wait) or to 2x the Apr $6 puts (now .50) and you can use URE at the $7.50 line for upside momentum trades to offset additional pain.  As to FCX – I don’t see copper and gold going up from here so I would take money and run or go for very conservative covers (not selling puts) but mostly I’d get out.

    Still waiting for oil futures to cross $78.50 but I think this time we get it.  Gold bumping between $1,102 and $1,104 so a breakdown there would be nice.  Copper holding up at $3.32 so no help at all there so far.

    DAX finished the day at 6,002 but on a 20-point stick into the close so I’m not too impressed there.  FTSE wasn’t actually open, that was just Thursday’s data. 

    ARMH/Gel – Great pick.  Fear of Atom was holding them down but it doesn’t look like INTC is going to pose a real challenge to them in the device space because of the huge power differential.  I woldn’t be surprised to see them double in 2010.  Good idea on the shoes, CROX with fur coming out of the holes could be a cure for shoe fetishes…

    GILD/Pharm – Caught up in the overall buying frenzy but the volume says don’t get too excited.

    AAPL/Kwan – Well score one for anecdotal evidence.  That amazing touch volume is what I expected from what my kids are telling me:

    iPod v iPhone

  49. Phil
    we squize vertually all premium from our CROX buy/write play ( long @5.46 and short Jan calls and puts $5s @1.6)
    do you recommend to roll them to june $5s now?

  50. PhiL : Hope you had a nice xmas. never thought about the boots in the coal dust.great to have small kids .
    On SRS, I’m long April $7 calls at $1.74 (now $.98 ), and short April $7 puts  at $.81 (now 1.00)  and $9 calls at $1.04 (now $.49). close position.hold,or ? thank you

  51. Phil,
    Are you looking at /CL or /QM? Almost same price, CL requires 2x margin but each contract is 2x…..vol much higher on CL but seems that both are very liquid………which one do you prefer?

  52. Stevenparker/ARMH
    I bought the stock through Fidelity, as I plan to hold until they are acquired. Also… options are available, but not much volume. I does amaze me that they control 90% of the microchip architecture.

  53. Phil/CROX…. you truly are a multi-tasker – now including innovation mixed with humor. LOL

  54. CROX/Tcha – Most but not all and we’re in for net $3.86 with $1.14 upside if called away (30%), now $4.77 (23%).  We’re well protected so I’d rather see how Jan goes but more likely to roll to March $6 puts and calls (now $1.60) if we hold $5.50 than June anything.  If we end up looking weak then maybe just let it get called and wait for a new opportunity.

    Damn that oil is annoying.  S&P short at 1,125 was a winner all the way to 1,122 though, now bouncing along that line.

    ZION $12.70 – not a good sign.

    WHR pretty weak. 

    AXP and COF getting worse but V and MA still heading up – somebody’s wrong..

    Nov. Chicago Fed Midwest Manufacturing Index: +1.2% M/M vs. +0.5% prior. -10% Y/Y vs. -13.6% prior.

    X selling off today too.  Coal stocks trending down with them – very strange market action overall…

    Thanks Dflam – endless fun on holidays for me!  Am I seeing that you were in SRS for a .11 net credit, now .48 so you are down .37?  If you are inclined you can roll $7 putter to 2011 $7.50 putter at $2.25 (+$1.15) and roll yourself down to the Apr $5s for + $1.10 and roll the caller to Feb $7s for + .10 so you lower your net basis by .15 and drop your breakeven to $4.96/6.23 but with a much longer wait on the puts.  The reason I like this is the 2011 $5 puts are .65 so you collect plenty to make you happy on a $2.50 move up.

    Oil/Ocelli – I use CL as QM is trickier due to expirations (CL is continuous contract).

  55. Phil — I’m looking to take a different approach to "recovering" from bad positions.  Right now, I’m taking a beating in SRS, QID Jan calls, RTH Jan puts and DIA March puts.  I have some offsetting positions, but I’ve still seen a 7% drop in my holdings over this latest rally.  In the past, my instinct would have been to sell everything, lick my wounds and then come back and invariably make the same mistakes again.  I never bought the EOG, or whatever the offsetting ETF to SRS anf that’s my fault.  On the other had, I have written calls against it, somewhat drawing down my base.  I’m eager to see what new approach you take from the latest data and whether it involves walking away from these positions, or somehow trading around them.

  56. Anyone have an individual 401 K with a Roth option?
    I wanted to open one for my wife at TOS but they seem to comingle the Roth and non-Roth portions – E Trade opens them as two seperate accounts – cannot figure out why TOS would have them as one account – seems like it would make accounting for withdrawls a real hassle.

  57. Phil,
      Couple of questions for this week:
    1) Still have both MAR DIA 106 and DIA 108 puts for 6.4 and 5.35, respectively. Thinking about staying put (no pun intended) on these for now. Agree?
    2) I had SRS put to me at $9. Also have 30 of APR SRS 10 calls. Not sure if I should roll to APR 8 or JUN 8. Also would like to sell calls against my SRS shares. Please help.
    3) In RTH Jan 90 puts for $1. DD or roll?
    Thanks for your insights.

  58. Hi Phil, please provide me with your logic path for the following. I have LVS shares fully covered with JAN 16 calls that I sold for $1.20 and are now .50.  So there is still .50 premium in them.  I’m tempted to roll down to the JAN 15 calls, which are $1 and have .60 in premium.  LVS is at 15.40.  The argument against rolling is that I’m covered up to $17.20 and will still make .50 if LVS closes below 16.  The argument for rolling is that I can enjoy booking a 60% gain and still have coverage up to $16 and have the potential to make $1 if LVS drops to 15 versus making .50 if I stand pat.  So what would you do and why?  Thanks!

  59. MMM  I have a + 1 Jan 11 65 / -1 Jan 80 Spread.   I’m planning on rolling my caller to 2 Feb 85s, but I’m wondering how to roll my calls.  I have a choice of 2 Jul 75s, or 2 Jan 11 80s without putting in any more money.    What’s a better position, the deeper call or the longer expiration, or is it pick ‘em?

  60. Phil, what do you think of SQM? THinking of buying some in the money July call options….

  61.  Phil, is BIG a short here??

  62. The U.S. economy in 2010 will post its best performance since 2004 (+3.5% GDP) as spending rises and companies boost investment and hiring, according to former Fed economist Dean Maki. "We don’t believe this time is different from all other business cycles," Maki, Bloomberg’s top rated forecaster, says. "The consensus view that growth will stay subdued all through next year – there’s no parallel to that in modern U.S. history."

    Experts say a recent uptick in RV sales bodes well for the economy. Airstream is boosting production of its iconic caravans, and expanding its work force by 50%. "Airstream is back on the road to recovery," CEO Bob Wheeler declared.

    Treasury auction did nothing with $44Bn of 2-year notes at 1.089% with normal 2.91 bid to cover.  2-year is fairly meaningless but you wouldn’t get me to tie up cash at 1.1% for 2 years..  Indirect bidding was weak but people are on vaction so hard to judge.

    Walking away/JCM – I am very close to walking away, it’s going to be a very tough call into the weekend but that’s the same call we had to make last year when we fell off a cliff right after Jan 2 (which was a 200-point up day), erasing the whole of December’s 800-point gains by Jan 15th.  500 of those points came on Dec 30-Jan 2 and the retail news was worse then so we could go up more and not making a big move on this ridiculous volume (we are below 1/2 of last year) just seems to mean they are really out of gas, making it very hard to capitulate.

    DIA/Japar – Yes on the DIAs but, as above, it’s a tough call.  With SRS if you have the stock AND you own those calls (not covered with) then you are WAY behind and the road to recovery is selling those Feb $7 calls for .60, preferably against  the 2011 $7.50s for $1.85.  Figure you can cash the stock and roll to 2x the $7.50s for $3.70 and, if SRS does well, the roll from the $7.50s to the $5s is just $1.30 so figure you’ll get that roll for $1.50 max which puts you in the 2011 $5s at $3.35 less the .60 sale in Feb is $2.65 on the $2 spread and many months to sell and roll.  On the downside, the 2011 $10s are $1.30 so you are well covered with your Feb sale.  On RTH the bottom line is you want to make .75 back and where are you more likely to do that?   If you DD at .25 you are in 2x at .63 avg and need more than a double with a delta of .11 so a $6 move down in RTH to catch you up (although the delta will improve as it heads lower).  If you spend $1.10 to roll up to the $95 puts, you need a $1.50 drop in RTH to get your .75 back as the delta is .46.  I’d offer $1.10 for the roll.

    LVS/Mr M – LVS is scating along under the 50 dma ans is pretty likely to break up rather than down so I’d take out the caller and sell the Feb $15 puts for $1.20 and put a stop at $15.25 on the stock so you either break up and you are very happy with the bonus $1.20 gain or they head down and you cash out at $15.25 before it’s put back to you at net $13.80 and you save yourself some pain.  Of course you don’t have to take out the caller until/unless you stop out of the stock and even then you can just keep a stop line on them too. 

    MMM/Eph – They have had a big run so I’d rather go conservative and roll up the $20 $65 calls to 2x the 2011 $90s at $4.60, taking 1/2 off the table.  If it breaks over $85, you can DD on the longs or you can spend $5 to roll down to the $80s but if they pull back, you’ll have plenty of cash and some very cheap calls to roll to in addition to 2 dead callers.

    SQM/Jrom – I am not a fan of this space.  They seem solid enough but make sure they are really going to hold the line at $38 or they may pull back to about $36 and test the 200 dma (not a big deal).  You can be pretty bullish with the July $40/45 bull call spread at $1.50 (up 233% payoff at $45) or you can do the July $30/35 bull call spread for $3.50 and sell the July $35 puts for $2.50 so you are put to at $36 with a net $1 entry on the $30 puts and 400% proift at $35.

    BIG/Big – I think that’s where a lot of retail money is going so I wouldn’t short the discounters (note the above comments on lines at outlet stores).

  63. Any favorites for a long play this week only? Considering riding the AAPL or FNM/FRE waves this week only, clearing out completely by Friday. V or MA good candidates as well? They’re all up a bunch already but looking to get out on or before Friday.

  64. Ok – just bought back spy jan 113 calls so you can thank me for the drop

  65. Print advertising is more than twice as effective as TV for large retailers, a new study by Microsoft finds. The data seem to contradict an earlier study.

    Meanwhile, Credit Suisse notes that the government’s expanded backstops for Fannie (FNM) and Freddie (FRE) may be the precursor to large-scale purchases of delinquent mortgages out of the securities they guarantee – giving them enough headroom to absorb the $220B of delinquent loans in their securities. The late Tanta called this one two years ago.

    Treasury sells $44B in 2-year notes after receiving $128B in bids, for a 2.91 bid-to-cover ratio. 59.7% of bidders were at the high yield of 1.089%. Median yield was 1.04%. Low was 0.963%. Bid-to-cover at the last auction, on Nov. 23, was 3.16.

    Longs/Llorens – I’m just not feeling it.  Market seems way beyond forced up here so at most a day trade to the upside but there’s too much odd, negative movement to start betting on a major pop here, especially as both the Dow and the NYSE are below breakout levels.

  66. Thanks Phil. I’ll wait for the end of the day to see if there’s a substantial move in either direction to pick up a long or short bargain. Couldn’t possibly go overnight with 100% cash and enjoy a good night’s sleep.

  67. Phil, my kids have a nintendo DSI and would rather play with the touch/iphone.  i have a first gen iphone that i load up with free apps and let them play with on road trips and restaurants.

  68. S&P / Case-Shiller is due out tomorrow for October

  69. Brother just bought a macbook, last one in Boynton’s Best Buy

  70. Phil…what do you think of Ford Jan 10 puts…I got in at .33 and am thinking it’s due for a retracement…just wanted your thoughts.  Also, any consideration for Apple puts??? Trading at an all time high today any chance of a short pull back before it makes a further move higher?

  71. Copied from "Realmoney"

    The MasterCard SpendingPulse numbers reveal a decent holiday shopping season, with sales up 3.6% year over year on an easy comp. The results are encouraging, given investor jitters due to the economy and last weekend’s blizzards.
    One of my good sources, The Baron, warns that we should beware of how retailers are reporting sales numbers now. He points out that many are moving discounts out of the top line and into marketing expense, thus artificially inflating sales.
    Here is how it works:
    In the old days, a retailer might buy an item for $50 and price it at $100. A customer buys it with a 25% off coupon, so the retailer reports a $75 sale (with a 33% gross margin).
    A "modern" retailer makes the same sale with a coupon code, or a payment to an affiliate that has a coupon code. Although the retailer nets the same $75 of cash, they now report a $100 sale at 50% gross margin, but with $25 of marketing expense. Voila, better sales through creative accounting.
    The Baron, who is the COO of a consumer product company, reports that a number of his firm’s private peers/competitors are accounting this way. He calls it "Zappos math," referring to that division of Amazon (AMZN) that reports $1 billion of sales but classifies the $350 million of returns somewhere outside the sales line!
    I have no evidence and would not posit that this creative accounting resulted in the strong retail sales number reported by MasterCard, but investors need to dig deeper when reviewing individual company reports.

  72. Thanks Samz – we needed that!

    Sleep/Llorens – Highly overrated…

    IPhone/Jo – My kids too.  They like the music and youtube and there’s an App called Doodle Buddies that lets them work together on drawings and then a bunch of cool virtual games that uses the motion sensor and those are just the free things..  Even paying for Apps the IPod beats the DSI because the average Apple game is about $2.99 and you don’t need cartridges for trips.  It’s not at all surprising to see them take over and the new IPad (seems to be called ISlate now) is going to take that all to another level for us bigger kids as now we can all feel like we’re on Star Trek and walk around with our multi-function computing devices – I can’t wait for the phaser add-on!

    IMF’s Marek Belka says European countries will recover from the global economic crisis at varying speeds during 2010, with the jobs market picking up gradually. His biggest concern? "I worry that some lessons may not be learned. Policymakers were so effective in preventing a real catastrophe that some people may now simply forget what really happened."

    Barron’s says the central problem with the economy is the Central Bank. "How many more crises must we endure until we realize the common denominator is the creation of money and credit by the Fed?"

    On CrossTalk, energy experts Dr. Richard Pike and Dr. Robert Hirsch debate when we begin to run out of oil. (video, 27min)

    Perhaps not surprisingly, First Trust Advisors’ chief economist Brian Wesbury – a.k.a. Mr. Sunshine – predicts a raging-bull 2010, including "significant job growth" by early spring. He blames the financial meltdown not on lack of government oversight, but on mark-to-market accounting.

    As long as the Fed continues to pay interest on reserves (see previous MC!), the massive expansion in the U.S. monetary base is no reason to worry about inflation, Harvard’s Greg Mankiw says. His real concern is a Fed misstep: "Will it decide that a little bit of inflation is not so bad compared with the alternative of risking an anemic recovery, a double dip recession, or (gasp!) congressional action to reduce Fed independence? Maybe."

    Case-Shiller/Samz – They are so far behind they’re hardly useful.  I think October was improving so maybe a booster.  Then Dec Consumer Confidence at 10, which was a huge miss last time (below 50) and since then polls have soured on Obama, which often corresponds with confidence.

    F/Jeff – They are kind of the only car company left so I wouldn’t go long against them but yes, they are toppy here for a quick trade.  Apple puts no way in hell.   They have the Pad coming out, they have the accounting thing Gel mentioned earlier, they have what is likely to be record IPod, IPhone and Mac sales and they have retail store numbers that are going to knock people’s socks off.  I think AAPL could do for retail what AMZN did for distribution if they decide to get into design and consulting – they have reinvented the idea of a retail store and its driving amazing $/foot.

    How is IMAX having a bad day – those Avatar numbers were amazing.

    Retail/Stockbern – That’s great info, very worth looking into, thanks!

    Oh man, they are going to make flying all annoying again…

  73.  Hey Phil, read Krugman today? Good but not as powerful as your essay yesterday.  You should be writing for the NYTimes. 

  74. Annoying flights/ I was afraid this would escalate. Too bad you don’t actually have to be successful with explosives on your leg or your shoe to still make an impact……..I want to be safe but don’t make this miserable to board a plane.

  75. Phil, I bought a TBT 42/46 March spread for $2, now $3.55. Should I close out the spread and move on? Or is there something else I can do with this position. My tendency is to just let it ride till it becomes $4, but I know you will beat me for that!

  76. Yes on X…those P from last week are now starting to look very nice.  Piercing pattern in the chart, so careful here, follow through tomorrow will make them OOOHHH so Merry.

  77. SMN – looked at it too long- Have Jan 11 call at .90. Doesn’t look good. Double  or roll or take the change that is left?

  78. Times/Soul – Thanks, it seems I need an agent to pimp my stuff around.  I barely have patience for the Seeking Alpha people and they treat me great – I can’t even imagine dealing with newspaper and magazing publishers…

    Flights/Ocelli – It’s getting stupid.  The guy had platics sewn into his underwear and all you need to do is spark it and boom.  For them to tighten up safety like that is idiotic.  I’d rather fly an airline that forces you to strip and put on a toga for the flight and they fly the luggage in another plane – then we don’t have to worry about anything else (except the togas falling off). 

    TBT/Ajay – Sure, you only have .45 left to gain in 3 months and you are tying up $3.55 a month to get it.  Not only that but it is possible to lose what you gained.  If you want the .45 you can sell naked $44 puts and you’d still have at least $3.50 at $43.55 or better.  You can flip to the March $48/52 spread at $2.10 if you want to stick with it but you can also just keep your eye on it and wait for a nice pullback (if the bomb had worked rates would have fallen hard today as people ran for dollars).

    SMN/Drum – I’m encouraged by X pulling back and miners were weak today but Jan $11 calls at $90 are shot (I have Apr $10s, also sucking).  That trade can be attemped longer term with the July $6/8 bull call spread at $1.10 with a plan to sell $6 puts (now .40) for .70 or better if they pull back for a net $6.40 entry if they get that low

    E.S. Browning wonders why, unlike most other metrics, stock market gains are rarely adjusted for inflation – leaving investors with an exaggerated view of their portfolios’ performance over time. Simple Stock Investing crunches the numbers for the S&P 500.

  79. A few runners for us to watch – GLNG (liquified nat. gas carrier has moved violently up, could fall hard as well).  Since they are not making new highs, could be worth a small short here….scaling in of course.  SGI on the other hand is rocketing…..don’t know enough about the field, but it is in servers and storage…..

  80.  AAPL……I’ve cashed out my Jan 210 calls which I bought last month for $2.00, for $6.50 today.  Could have gotten more but I was on the road travelling until 2 p.m.   I cant’ safely do trades while driving.   I sold Jan 210 puts a month ago for $17.00;  they are $5.00 today.   Normally I would buy them back now, but AAPL is not ‘normal’.  It is hot , hot , hot.  I feel the risk is low in keeping these puts till expiration, as I think they’ll expire worthless.  My plan now is to sell covered calls on AAPL LEAPS and stock, probably the 220′s.  I think these will be had for $4 or more before the week is out.  Continuing happy holidays to all you AAPL lovers.

  81. U.K’s Guardian pans its rival’s 2009 Person of the Year choice. "In the parallel universe inhabited by the FT, Blankfein is a hero – a ‘master of risk.’" Noted bank analyst Christopher Whalen agrees, and, on cancelling his subscription, writes: "Mr. Blankfein and his colleagues at Goldman Sachs, in my view, have done more to damage the reputations of global financial professionals than any other organization in 2009, yet you applaud them."

    Yet another last minute wonder by Mr. Stick!

    GLNG/Pharm – It’s kind of like ethanol was a couple of years ago, huge speculative money chasing stories as if it’s the next gold rush.  Remember PEIX?  Bill Gates and many other famous people backed them and they went through the roof and then crashed and burned.  LNG is the same thing – it all sounds great but it’s just another way to deliver fuel that will compete with al the other ways. 

    AAPL/Iflan – Very nice job but I do think that 2.4 birds in the hand is worth one in the bush.  Just make sure Jobs has had his flu shot and doesn’t show up on stage next week looking less than buff…

  82. Thanks, Phil!

  83.  Yes Phil….I often think of the "Jobs tanks, AAPL tanks" phenomenon.  Perhaps I’ll buy those puts back tomorrow and get those covered calls sold sooner rather than later, for some insurance.   As always…..

  84. Stick – even though you know it’s coming it really sucks when it happens.

  85. What ever happened to Singapore Steve? He was really in tune with the movements in AAPL.

  86. That last minute tap dance just shed 1.5% off my account.  Jesus.  Talk about being made the Market’s bitch.

  87.  gel1…..He’s been replace by Liverpool Larry….:)

  88.  gel1….But I don’t take all the credit.  I get my advice on AAPL from my brother Daryl, and my other brother Daryl.  :)

  89. Phil,
    I was reading an article on the site about the worst is yet to come in the housing market. What would be a good way to play that idea?

  90. Yay, Do w up 26 – What a strong day for US equites this must have been…

    Stick/SS – I was looking for a call play on DIA but the premiums were too silly, should have sold the $105 puts.

    Steve/Gel – He’s still around but busy (or maybe vaca) this month. 

    1.5%/Jcm – At least you have a pretty good idea of what a 25-point Dow move does to you now!  8-)

    Housing/TBB – We’ve been playing SRS at an overall real estate short but it’s mainly commercial.   XHB is residential builders but I don’t think they’ve come back enough to short while IYR (commercial) seems way over-stretched and SRS is an ultra-short on them but it has caused us nothing but pain and suffering so be warned!

  91. yeah.  A bit too much delta i’d say.

  92. Iflant… LOL … I’m impressed – Larry has been one of my heros!

  93. Phil
    I like idea to protect long portfolio with EDZ play, but my EDZ major position is short Jan 5s puts and it is not much left there ( sold @0.65 and now only 0.275), how you recommend to improve this protection? (margin is tight)

  94. Stockbern:  Great post
    The Baron, who is the COO of a consumer product company, reports that a number of his firm’s private peers/competitors are accounting this way. He calls it "Zappos math," referring to that division of Amazon (AMZN) that reports $1 billion of sales but classifies the $350 million of returns somewhere outside the sales line!
    I have no evidence and would not posit that this creative accounting resulted in the strong retail sales number reported by MasterCard, but investors need to dig deeper when reviewing individual company reports.

    AMZN (aka SCAMAZON) is rife w/ creative accounting; somehow they get away w/ it !

  95. Obama w/ more bold leadership opining on the "alleged" terrorist who was allegedly on fire after allegedly setting off a bomb in his underwear and allegedly admitting to have been sent by Al Qaeda who allegedly claimed credit for the aborted attack on an alleged Al Qaeda website.
    Anyway, it was awfully rude of this Al Qaeda gent to intrude on Obama’s golf tennis and surfing vacation.
    Me, I am just thankful that it only took Obama 3 days to make a mush mouthed statement, and only after his stellar Homeland Security chief went on all 3 networks to claim that the system worked.

  96. Toga !  Toga !
    I want to fly w/ you, Phil !  
    Although you in a Toga is kind of a scary thought !

  97. Referring to that division of Amazon (AMZN) that reports $1 billion of sales but classifies the $350 million of returns somewhere outside the sales line!

    So if I understand they are booking a sale as a sale and a return as a cost of sales? And, forgive me, but what exactly is wrong with that?
    The alternative would have them not booking the sale so I couldn’t see it, and if they didn’t book the sale neither booking the return as a cost, so I couldn’t see that either. How exactly is this supposed to be better?
    I am beginning to think that all these conspiracy theories are actually a conspiracy.

  98. Good morning!

    AMZN/Steve – That’s the problem with that allegataion, its very hard to quantify.  The issue is WHEN did they change.  If last year they counted $1Bn of sales with $250M of discounts as $750M of net sales with no marketing expense but this year are counting it as $1Bn of net sales (no discount) with $250M of marketing expense then there is a huge issue in the reporting of year over year sales.  From a profit standpoint, we don’t care but if this is widespread, then you can’t rely on any of the rosey sales data we’ve been hearing because it’s being inflated by the shift in accounting. 

    It only takes a few retailers to do something like this to shift the data for the entire sector but I don’t think it’s too widespread as the MasterCard data is based on dollars spent, not reported sales.  

    We get ISCI and Redbook Sales through Saturday early this morning and whatever the results are there we will have to live with anyway.  We have Case-Shiller at 9, Consumer Confidence and Investor Confidence at 10, a $42Bn 5-year note sale at 1 (more telling than today’s 2-year) and ABC Consumer Confidence at 5pm. 

    Brick-and-mortar retailers did just fine in online holiday sales, according to comScore. Wal-Mart (WMT) led online department stores with 81M uniques in November, up 62%. Target (TGT) pulled in 39M visitors (+43%), and 19M shoppers visited (+36%). Aggregate online spending rose 10% to $12.3B.

    The dollar got killed this morning, flying down to $1.60 to the Pound again and $1.444 to the Euro but still at 91.5 Yen.  It didn’t get oil back over $79 and didn’t get gold back to $1,110 so it’s probably BS but, with Japan closed, anything can happen in the overnight Forex markets.

    For the first time since May speculators went long the dollar, according to CFTC data released today. Net long dollar positions in the week ending Dec. 22 were +$700M, up from -$1.98B in the prior week, and a peak short position of $20.7B. The shift comes in a month that has seen the dollar rally sharply after spending most of 2009 under pressure.