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Monday, February 6, 2023

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Which Way Wednesday – Beige Book Boogie

The futures were boogying "all night long."

THIS is why we love being born-again bulls. China’s Hang Seng down 578 points on the Hangs Seng (2.5%) – It doesn’t matter! Shanghai down 3.1% – It doesn’t matter! Europe down half a point – It doesn’t matter!  Germany’s economy contracted 5% in 2009, the worst decline since WWII (the big one) – It doesn’t matter! ABC Consumer Comfort Poll drops 11% with just 9% of Americans rating the economy postively – IT JUST DOESN’T MATTER – because WE are those 9% of Americans, right! OUR economy is just fine and we don’t know what that 91% contingent of babies is whining about do we? 

Yes, it’s been a while since I dubbed us in a Meatball Market.  The last market I labled as such was November 30th, 2006, when the Dow broke through 12,000 on the way to 14,000.  Our bullish picks that day included BA, CAT, COF, DOW, GE, HD, JWN, QQQQ, TIE, TIF, XLE and XOM.  Those were all, of course, fantastic picks but what I want you to do is read the October 2nd, 2007 article, where I began to turn cynical on the "Meatball Market" and I made the following statement:

Superman ReturnsUp, up and away – it’s Super Market!  It’s bugdet proof, oil proof, terror (threat) proof, housing proof, inflation proof and pullback proof – 3 weeks in a row!

This is truly a Market of Steel (and the recent movement of X underscores that) and looking at the movement of the past week we really do have to believe it can fly…  Is the US consumer (driver of 2/3 of the economy) really impervious to harm?  What, if anything, is our stock market Kryptonite?

Unstable currency, runaway commodity prices, spiraling inflation, low savings rates, hedge fund collapses, declining home values, banks writing down their virtual portfolios, hundreds of thousands of layoffs, millions of foreclosures — it simply does not matter as long as they are LOCAL problems for the US as we are a smaller and smaller cog in the great global economy, one day we may even be granted emerging market status by our Chinese masters!

Doesn’t sound like much has changed in 2 years does it?  Unfortunately, that also happened to be the day that Alan Greenspan (now working for PimpCo) decided to call China, with the Hang Seng then at 28,199, (gasp!) a bubble.  "If you ever wanted to get a definition of a bubble in the works, this is it." he said, at the end of a third quarter in which the HSI gained 45%.  We don’t have to worry as the Hang Seng is only up 15% since early September, now sitting just under support at 21,748 and down 23% from that October morning, just over 2 years ago

Our own market is up over 30% since July of last year and Northern Dancer, over at Seeking Alpha, points out that: "Since March 9th, 2009 closing low at 6,547.05, the Dow Industrials have had 30 up Mondays (or Tuesdays after a Monday holiday) out of a possible 43, in other words, have been up 70% of the time. Further, 16 of the past 18 Mondays were up days, (89% up days). 80 percent of all the dollar gains from March 9th, 2009 came on those 30 Monday up days. I don’t know about you, but I find that bizarre. Why? Because only 58 percent of all trading days since March 2009 were up days. We should not have seen this many up Mondays, and further, we should not have seen 80% of all dollar gains for the rally from March 2009 on just 30 up Mondays..We’ve seen 80% of all gains since March on only 14% of the available trading days, and all of them were Mondays. (30 up Mondays out of 213 available trading days = 14%). And to top it off, of those 30 up Mondays, 16 of them occurred in the past 18. That’s darned near 18 in a row. C’mon… that just ain’t normal."

Not normal at all, niether is the action you see in the futures, or the regular market for that matter where yesterday’s trading opened (in the futures pictured here) at 10,540 and then rocketed up to 10,600.  Note the 2 black lines I drew through the volume to illustrate how little of the day’s total went into the up move.  The rest of the day was selling until the volume died down at 1:30 (which is how we knew to flip back to bullish ahead of the stick save in Member Chat) but another sudden move took us up from 10,540 (again!) to just under 10,600 (again) on a similar slice of volume.

If one didn’t know any better, one might assume some computer program was executing these moves in order to paint a pretty picture for the human guinea pigs so they will keep pushing the BUY lever every time the little line on the chart turns green at which point the bots begin their relentless "sell to the bagholders" program.  Our job as bulls is easy, buying into the afternoon dips but we’re not brave enough to ride out the overnights yet as we sadly, still have some nagging doubts

Our biggest nagging doubt is "Why can’t Super Market break our levles?"  It seems a simple enough goal, just finish the day above the targets we’ve been listing for over a month:  Dow 10,549, S&P 1,135, Nasdaq 2,314, NYSE 7,389 and Russell 638.   They’ve all been individually broken but we are still waiting for the day when all 5 of our indexes finish above their marks on the same day.  Until then, we proceed with caution. 

As I mentioned above, Asia sold off sharply, as we expected yesterday, due to the change in Chinese banking policy.  The big news out of China today is Google announcing they may be exiting the Chinese market.  This has sent shares of BIDU up 16% after hours to over $450 as GOOG has about 1/3 of the Chinese search market and BIDU effectively has the rest. 

In theory, this is about censorship and hacking but perhaps it’s simply about Google wanting to cut costs in an unprofitable market and coming up with a good reason to stop indexing 1/4 of the World’s web pages (not to mention the translation and storage) and walk away from that expense.  Google has been very bottom-line oriented lately and we will be looking to buy into them if they have a nice sell-off

Over in Europe, nothing really matters there as German GDP contracts 5% for the year and Moody’s adds Portugal to Greece and warns that the economies of the two EU nations "may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors demand a premium to hold their bonds."  Portugal, with a negative outlook on its Aa2 rating, has more time “to reverse this trend” while Greece “has significantly less time.” Moody’s cut Greece’s rating to A2 from A1 on Dec. 22.  The premium that investors demand to hold Greek debt instead of German equivalents is six times more than it was two years ago, and the spread has doubled since 2008 in the case of Portugal.

In a damning report issued yesterday, the European Commission condemned Greece for falsifying data about its public finances. The EC says figures coming from Greece are so unreliable that its budget deficit may be even higher than the 12.5% of GDP previously estimated.

Despsite all that and despite a profit warning from Societe General and despite increased speculation that the BOE will be forced to tighten rates (driving the dollar down against the Pound), the EU markets are trading flat ahead of the US open, up considerably from their own sharply lower opens, no doubt cheered up by the US Futures spectacular recovery just as the EU markets opened at 3am.    

We’ll see what happens in our own markets today as the Financial Crisis Inquiry Commission grills Top executives from Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp. and J.P. Morgan Chase & Co.   The 10-member board was created by Congress in the wake of the financial crisis and is tasked with getting to the bottom of what caused the near collapse of global financial markets. We’ll see if the 2-days of testimony inspire confidence or a new round of panic – the XLF barely recovered $15 yesterday, which is a key watch level for us.  MBA Mortgage Applications were up 14.3% this week as rates ticked down from 5.18% to 5.13% so that will be our green shoot for the day.

10:30 we get oil inventories (I expect builds that won’t sustain $80) and at 2pm we get the Beige Book so stay tuned for that fun.  As usual, we’ll be day-trading the Dow around the Book, which is one of our favorite trades to make.  If the dollar does stage a comeback (it’s down 2% this week) that could be very bad for commodities and the commodity sector, which will likely be bad for the markets. It’s unclear how far, on the other hand, we’re going to be able to push things on a weak-dollar rally.

So the wild ride continues!

 

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HOG reversed course today.

Peter, any particular reason why you chose SPG? A range bound stock would be ideal for short strangles….any suggestions anyone.

Hi, Peter,
Thanks for the suggestions.  I gotta learn patience in a hurry! 8)
How is your January strangling coming along?  As I am still learning, I don’t even have a monthly profit target yet.  I’m glad that I’m making some good money!
Thanks!

Gotta love AMZN. When you go to donate to the Red  Cross now you are offered the option of donating through "Amazon Payments" which allows you to make your donation using AMZN’s payment information for you so you don’t have to enter it again.
 
Maybe AMZN really will rule us all.

magret, I also like trading options on SPG since options are liquid and premiums are decent given the moves in the stock (i.e., it’s not like BIDU). Premiums have come way down on it but then they have on everything.
 
It’s one of many like this but not a bad one to trade. I short SPG straddles in conjunction with longer-term puts that I own for a net bear position that still makes a decent monthly income.

magret/SPG, I didn’t really pick this one.  It got talked about a lot here so I started with a long PUT vertical, Jan 70/65, betting that it would go down, then sold the strangle to cover the cost, the Jan 90/60 strangle.  Then the Jan 90 callers was toasted, and was rolled to Jan 85 CALLs.  The Jan 60 PUT also got killed, so I close it out, then I also closed out the Jan 70 long PUT, leaving me with the Jan 65 short PUT, which was rolled to Feb 65 short PUT.  To make the long story short, I like the premium from the putters and callers, just like Eric said, to play another month with it.  Nothing in particular in picking this SPG.

cwan,
 
January plays have been awesome of course, with the market going nowhere and VIX dropped.  I already made my 5% profit (of the entire portfolio) in the first 7 trading days of the year (today is about even).  I even slept in for most days last week.  The gain was due to the play that I sold off the Jan 1040 long PUTs and left the 1030 putters alone, ending up with hundreds of 1030 short PUTs that is very close to zero now.  With PM, the 1030 strike is just outside the -8% range, so the margin is minimal.  I don’t expect to be that lucky going forward, but it was a perfect ending for January expiration.  Most of the spreads are now in Feb with 20 contracts or so in March’s.

Hi, Peter, you already started in March!  I’ve thinking about March but haven’t looked yet.  I’ll take a look tonight or tomorrow.  What buffer zones are you using?  The usual +10% / -15% for SPX?  And wider for RUT?
 
As far as the Jan 1030 putters, do you think it’s safe to leave them alone and let them expire?

The good thing about a stock like SPG is that there really is an upper limit on price, unlike, say an AAPL.
 
Cap rates can only go so low; plus the whole mall retail business will be challenged by overcapicity, weak retailers and a weak consumer, for some time to come.  You have flat to declining rents; and add in declining values, ongoing shareholder dilution  and lack of financing, in my view the upside moves should be contained from here.
 
Let’s call 90 about as crazy as it can get; barring a miraculous industry turnaround.  Even with a completely healthy real estate and financing market and economy, 90 would be hard to justify.

cwan, for March, I’d start with the widest possible spread with reasonable return, which is around 925/1250 for SPX.  You can pick the PUT vertical that you like.  Yup, RUT should be wider as that index is an untamed beast up or down.  There are just too many weeks to March expiration to commit to 975 or 1000 strikes for the short PUT.  For the Jan 1030 putters, I’m leaving them to expire because we are in such a buying frenzy, with many folks aggressively buy on any dip (thanks to Gel for helping us squeezing the putters to zero).  A 10% dip in the S&P 500 in 1 trading day and 3 nights are unimaginable as of tonight.  I also feel that I have enough February long PUT verticals that those would gain big time if we do have the 10% dip.

Peter, Glad to hear you are already going to March.  I was thinking about it today but was concerned it might be too early.  Figured I’d turn to it next week.  Nice job on the January strangles.  My Feb strangles all look very good.

 CAP – re your 4:51 –
 
Earthquakes – terrible news in Haiti of course. 
Still, one wonders if the global warming alarmists might have a new cause to latch on to man caused earthquakes or some such nonsense.  Blame the oil companies for drilling and destabilizing the earth’s core.  Its also surprising that Obama hasn’t blamed this on Bush yet.
 
LOL – Seriously man, you are a wealthy, apparently educated man. I can’t believe you keep writing stuff like this here. Everyone knows you are right wing. I am too, although I don’t think I would be in your country. Your words are a pathetic, funny invention and I hope you are just joking. I’m just guessing (sarcasm) but I think that the folks here just roll their eyes when they read stuff like this. Go ahead, flame away – LOLOLOL.

Hundreds of 1030 short puts?
 
whew.

Bord – futures –
sorry missed your question today – too much of a frenzy and probably posting too much –
Futures trade almost 24hrs a day – if you bring up the contract – it should show you the trading hours somewhere – I don’t have my system open – they get halted pre-market at some point – if you listen to cnbc – they sometimes say the futures have stopped trading –
You need to have futures trading permission on your account – like with options –
Futures start trading on Sunday night at 6pm and go all week until Friday evening – I think –
 Someone like Peter would be better able to answer your question – check out ticker ES – it’s the E-mini (S & P) – x 50 rather than the big contract spx =  250 x index?

hihihihi, yes, barf, 248 SPX Jan short PUTs and 116 short RUT Jan short PUTs left naked that are 10% or more OTM.  This is the largest in my trading history, because of the crazy plays.

Peter D/SPX spreads. Peter, could you add a little more detail to the SPX spreads you are considering for March. This would greatly help my learning process.

bord/sam/futures, I’m not the future expert, Optrader is.  Futures let you leverage 10 times, a 1% move in S&P500 net you 10% profit/loss.  For example, a 10 points move gives $500 per contract (when SPX is exactly at 1,000), and the collateral is around $5,000.  This is 2 times more leverage than the normal Reg-T account at 20% margin.  This is high risk as the futures can drop or spike after trading hours and if we don’t have enough margin, we can get into trouble while sleeping so to speak.

Peter, at TOS the intraday margin on the e-minis (spx futures) is only 500$ per contract.

As I said last night, GOOG giving up on China should have greater negative implications for China as a place that companies should be doing business in.
Surely the story on google/china is just made up to pin the stock for expiration….
Sheesh you guys take things so serious

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