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Thursday, March 30, 2023


Which Way Wednesday – World of Worries Weighs on Wall Street

7 W’s in the title – that has to be some kind of alliterative record! 

What could we possibly be worried about with the market making new highs?  Well, I’m a little concerned that Shanghai housing prices fell 10% in a week.  That’s the kind of behavior that may make you think they may have a bit of a bubble that’s popping.  Of course they held up well compared to Shenzhen, where prices dropped 14% in the first week of March.  That was matched by a 14% decline in iron ore shipments from Australia as China’s demand fell from 11M tons in January to 8.7M tons in February.  So, if you were wondering how much China’s $600Bn stimulus spending was affecting their economy – 14% is the effect of them simply slowing it down a little

Japanese Machinery Orders fell 3.7% in January and Producer Prices fell a deflationary 1.5% in the World’s second-largest economy (for now).  “The gap between supply and demand in the domestic economy has yet to shrink,” said Morita at Barclays Capital. “It’ll be very difficult for companies to pass on those costs. That’s not good for their profits.”  The Baltic Dry Index is topping out just over our 3,200 target, signaling a possible end to the great commodity run of 2010.  Devan Kaloo, head of Aberdeen’s Global Emerging Markets is predicting that emerging markets (we are long EDZ, now $47) may fall as much as 15% this year.  “The markets will see a correction this year,” Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said in an interview in New York. “People get over-optimistic and expect too much out of earnings and global growth.”      

Sure, I know I’ve been saying this for a while but it sounds so much more official when a guy in charge of $22Bn says it!  China’s 4 trillion yuan ($586 billion) stimulus package, coupled with record bank lending in 2009, helped the benchmark Shanghai Composite Index rally 80 percent last year. The gauge has dropped 6.4 percent in 2010.  “From a stock-picking perspective, we can find better opportunities” than China, Kaloo said. “The government pumped money into the financial system, but soon they’ll run out of money,” which will hurt the earnings of Chinese companies.

Amazingly, much of the tech growth we’re seeing in Asia is resulting from a mad rush to produce 3-D TVs in time for the holidays – something I believe may be one of the biggest marketing catastrophes of our time.  At the moment, I’m hoping SNE gets to $40 so we can short them, not just over 3-D TV but on the general lack of health of the consumer as well as the fact that they are fighting losing battles with AAPL on music players, smart phones, laptops and book readers (the IPad will make the BookMan pointless).  As it stands now, a SNE Jan $50/40 bear put spread is $7.60 and the Jan $40 calls can be sold for $2.75 for a net $4.85 entry on the $10 spread, which is already completely in the money with SNE at $37.15.  The upside on this play is 106% if SNE fails to hold $40 by January expiration day (21st). 

We made a similarly hedged play exacly a month ago on ITMN when my trade idea for Members was to buy the stock for $15.40 and sell the Jan $10 puts and calls for $12 (ITMN was priced for very high volatility with an FDA decision pending) dropping the net entry to $3.40 or $6.70 if the stock fell below $10 and we had another round put to us at that price.  The good news is the stock is now almost at $40 as they got their approval and the bad news is we "only" made 194% on the trade since our gain is capped at $10 but, of course, with a $6.70 worst-case net entry when the stock was at $15.40, we were able to buy twice as much with half the worry!  All in all, it’s a very nice return for a month and our favorite way to play volatile biotechs. That’s what hedging with options is all about – reducing risks, not increasing them! 

Thanks, of course, to the great and powerful Pharmboy, our resident Biotech specialist, who pointed out this opportunity earlier that week (we had been in various ITMN plays for some time, thanks to him) and gave our team so many good entries that our higher-risk trades popped up on Andrew Wilkinson’s hot sheet that Monday!  Congrats to all who played along on that one.  We’re working on a Wiki but, if you ever want to know how we feel about a play, you can always Google it – like "Philstockworld: ITMN."  We don’t do a lot of these speculative plays but we latched onto this one in the fall and have been playing it since – very much like the way we doggedly kept after DNDN last year, until it finally popped.  Speaking of DNDN, word is there will now be an investigation into the manipulation of that stock by certain hedge funds and their media lackeys who told their sheeple to SELLSELLSELL based on false information with very suspicious timing!  This is something I was talking about back on Aug 9th of last year.

We have tons of bullish postions – I don’t want people to think we are perma-bears but when you are loaded up with bullish plays (and our last major buying spree was a well-timed Feb 6th Buy List) that are well-hedged and so far in the money that there’s nothing to do but wait – then it pays to be a little more bearish with your short-term trading.  I don’t like being bearish, I’m an optimistic person by nature but, as I said yesterday – what really worries me is how NOT worried other traders and the MSM are, so I am thrust into the role of a stock market Cassandra but, like the famous Oracle – I just calls ’em as I sees ’em

Speaking of Greek tragedies: The Bloomberg Professional Global Confidence Index fell to 53.8 from 54.9 in February.  The confidence gauge for Western Europe fell to 41 from 49.8 as Greek Prime Minister George Papandreou struggled to convince investors his government was serious about taming Europe’s biggest budget deficit, which has stoked financial market turmoil since January.  Euro-area growth almost ground to a halt in the fourth quarter, while unemployment held at the highest level in more than 11 years in January. The European Commission last month said the economy may fail to gather strength for most of 2010.    

As usual, it was Asia carrying the ball in this global survey of 1,612 Global Bloomberg Terminal Users (clearly people in the top 1%), with that index rising to 75.9 in March from 70.8 in February.  Latin America was also spicy with a 74.5 reading.  The US rose to 48.5 from 41.3, perhaps boosted by the $1Bn in fees skimmed in just 6 months by Wall Street terminal users who overcharged municipalities for the government’s "Build America" bond program.  On average, the underwriting fees for Build America Bonds are $8.20 per $1,000, according to Thomson Reuters. By comparison, the standard fee for tax-exempt issues is $5 to $6 per $1,000, according to Wall Street banks.  Goldman Sachs Group Inc. is the top seller of Build America Bonds, with $9.79 billion in sales, according to research firm Thomson Reuters, followed closely by J.P. Morgan Chase & Co., Citigroup Inc., Barclays PLC, Bank of America’s Bank of America Merrill Lynch and Morgan Stanley – otherwise known, in part, as the infamous "Gang of 12" that seems to be at the center of every single scam. 

Jesse's Cafe Europe finally wised up and has stopped doing business with Wall Street Banks in Government bond sales and I challenge you to find this story reported in the US MSM.  "Governments do not have the confidence that the excessive risk-taking culture of the big Wall Street banks has changed and they still cannot be trusted to put the stability of the financial system before profit," said Arlene McCarthy, vice chair of the European parliament’s economic and monetary affairs committee. "It is no surprise therefore that governments are reluctant to do business with banks that have failed to learn the lesson of the crisis. The banks need to acknowledge the mistakes that were made and behave in an ethical way to regain the trust and confidence of governments."  

Next on the EU’s agenda is a move to set new limits on credit-default swaps and European leaders are pushing for a ban on speculative bets against government debt.  Greece only has until the end of April before they must formally seek EU assistance if their borrowing costs don’t come down sharply.  The high premium now charged by investors for Greek bonds is "simply unsustainable" and must be brought down in the coming six to eight weeks, one official said Wednesday.  The officials said Greece needs the spread to tighten to around two percentage points before crunch time: Athens must redeem some €22 billion ($29.92 billion) of bonds in April and May.  "In all his meetings the prime minister reiterated that Greece needs EU support," the official said. "The next move must come from Brussels and there is not much time left."        

Asia was amazingly flat for the second day in a row with the Hang Seng rising 0.74 points (21,208), the Nikkei dropping 3.73 points (to 10,563) with the BSE making a relatively big 45-point move to 17,098 and the Shanghai Composite dropping 20 points to 3,048.  Europe is up slightly ahead of our open and Jesse’s Cafe American says we may be showing signs of an "Exhaustion Top Amidst Rumors, Hype and Shenanigans" which saves me the trouble of saying it so we will just continue to watch and wait.  They almost had us yesterday but we ended up shorting into the top for some nice, quick wins – perhaps more of the same today but we do have some breakout plays ready as well – just in case! 



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Phil, I am in the TZA April 7.5 call play.  What do you think about selling April 7.5 puts for 0.67?  I am just thinking something to balance the time decay on the calls.  I really don’t mind owning TZA at around $6.60.

Finger on the trigger for a TNA buy if 3:30 brings Mr Stick !!

I have this in my portfolio and it stinks – Is this a good time to toss it ?

phil- thoughts on YRCW?

Wow, struggling to keep those financials up.  Someone is selling alot of them.  No worries though.  The tradebots can handle it.

 Oxen Alert – Position Update 

HRBN – We were able to exit at 24.90 for a solid gain of 2.80% on our Short Sale of the Day.

We went 1/1 on the day, which is great. I think HRBN is due for more pullbacks through the next couple days, so if you want to increase your risk…hold onto it.

If you are like me and are happy with 2-3%, then it was time to sell and still is time to sell. 

We will try to get a winning Buy Pick tomorrow. ERY would have worked if I had not had such stringent entry ranges.

XRT is at the same place it was in the summer of 2007. Are you guys out shopping like the summer of 2007?  I’m certainly not.

Did anyone get on the AIG train?
I tried Eric’s April 40/36 bear put spread.  No fills so far.  I think I’ll pass.

There goes ISIS.

Also was short some AEO into earns….do u see any reason not to hold short at this point?  TIA.

Pharm & Phil,
Do you guys watch this type of videos on YouTube all day?  No wonder PSW is such a depressing place.

Played the Stick for another $ 0.46; so $ 1.49 or 3% for the day and 8% for the week so far. I’m REALLY looking forward to making something on the SHORT side !!

Pharm, Do you aggregate your positions/thoughts where I can use them to review and think about?

JRW – I know you give me your lines, but I just can’t seem to get in sync with your plays. Good job.  I’ll be trying again tomorrow.  As for the short side, isn’t it about damn time!!!  The daily chart for the RUT since 2/8 is unreal.

Phil, what are your thoughts on the Trust banks (STT/ NTRS) in the face of their weakness when the rest of the Financials are moving up?

PSW depressing? I chuckle all day.  I thought the stick beating was hilarious. 

Hey, Eric,
Did you get your AIG Apr 40/36 put vert filled at 2.75?  I just got my order filled at 3:54!  That was 2 minutes after I submitted my comment above at 3:52.

That was why I put a smiley in my comment.
"Depressing" I meant in the sense of we almost always wanting the market down.

Phil, a long time ago we bought HOV Jan 5/7.5 bull call spreads for 0.4 and C 5/7.5 spreads for about .35…. all of a sudden Jan 11 is looking a lot closer now than it did a year ago 🙂 Should we try to close these out at a small profit, especially HOV?

BA/Phil – A while ago, I established (on one of your recommendations) the following position, long BA 2012 – 55 Call and short BA 2011 – 65 Call,  at a cost of 5$ per. Now I have almost double my money (thanks) and I would like to know your recommendation:
1 – Cash in?
2 – Wait to collect an extra $4 in premium on my 2011 and then cover and let the 2012 ride?
3 – Roll up and if so, to what?
Tell me what you think. I appreciate all your hard work.
Thanks, Pierre

That last plat was not off Support, it was off the trend , and line from the opening low and the midday low, and it was a pure Stick play. I posted that I was preping for it.

JRW – I did see your post about the stick.  I had to get up for a bit, came back and it was too late.  Hopefully, we get to make money off of TZA soon enough.  Cheers and have a good evening.

Let’s try that again; I did say I was under the weather today !!

That last play was not off Support, it was off the trend line from the opening low and the midday low, and it was a pure Stick play. I posted that I was preping for it.

Good luck to all as tomorrow may be the Battle Royale for the SPY gap at 1148-50.  See you all here !!

JRW – I see it.  That same trend line has been support since the opening on Friday.

Aclend, thanks for the IB’s portfolio margin update.  That’s a good news.  Although I don’t like their trading user interface, it’s worth putting money there given the favorable PM calculation.

You’re welcome, Peter.

Trad – no I don’t have an aggregate place.  I tried to use WSS for a while, and it was very cumbersome to me, so most of my info is here.  I have thought about something like Opt’s spreadsheet but having a day job makes it a bit of a challenge.

Pharm, No worries, I will just go back through all the posts.  Thanks!

Phil…I’m holding AAPL July 200 calls, half covered with March 220s and half covered with  April 210s .   I will probably have to roll these out.  How would you manage the roll, and when would you roll?

Hi, Peter,
So far, do you find other brokers besides TOS and IB offering good portfolio margin policies?
I recall last time you worried about IB’s policy of automatically liquidating positions without warning if your margin is below threshold.  Did you talk to them about it?  Is it still something to worry about?
BTW, have you tried IB’s web-based platform?  It’s probably much simplified.  But who cares as long as it’s reliable and allows you to enter multi-leg trades.  You can always use TOS to get quotes and do analysis.

Hi Cwan,
Just TOS and IB so far.  TDAmeritrade will be offering it once they are up with TOS, but they are in the same holding company.  I was excited about Fidelity, but found that they don’t have PM after emailing and calling them.  OptionXpress PM wasn’t good.  I heard OptionsHouse has PM for over $1M, but no GTC orders (as you said).  For Schwab, a quick search on their Web site doesn’t show they have PM.
For IB, I do have the Web-based platform in my computer.  I need to try it some more.  As for liquidating the position, we just need to be more conservative as I don’t think they can change it.

SP futures dropped like a rock after market closed, hope will continue tomorrow 🙂

Hi, Peter,
Forget Schwab.  They don’t have PM.  I asked already.
Trade Station does not have PM, either.  I asked already, although they said that they might offer PM in the future.  Trade Station is attractive in their commissions, $1 per contract, no ticket fees, no minimums.  I don’t know if they have a web-based platform (important to me).  I haven’t tried them yet.
Right now, I have 2 brokers, TOS and Schwab.  TOS is great, and Schwab sucks.  I am looking for a broker to replace Schwab.  Maybe IB will fit the bill.

 To all….news.yahoo.com/s/ap/20100311/ap_on_he_me/us_med_heart_test
This is some light reading to give you some further insight into what’s wrong with the health care industry.  A study of several million patients who underwent cardiac catheterizations showing that  a large portion of the studies were unnecessary , revealing the patients to have no heart disease.  Very very costly.  And dangerous for the patient, as many had complications just from the angiogram.  Why all the unnecessary studies?  Want the short answer?  Two reasons:   1. Fear of being sued.  2.  More importantly, $money.  There’s an old joke told amongst doctors in the hospital….’What’s the indication for a coronary angiogram?’   answer:  ‘ The angiographic suite is available’      

 On SPX margin, do we have a quick comparison summary on SPX strangle from TOS and IB PM accounts? 
This week’s McMillan Option newsletter I subscribe to came out after Wed close and some key points:
" $VIX has now risen three days in a row. The first two days were just fractional gains — pennies, really. But today, as SPX staged its usual last-half-hour rally, VIX actually started rising sharply, and closed at the highs of the day (see chart below). There are plenty of other instances in the past where a three-day VIX rise after the market had been rising for quite some time, was actually a strong sell signal. This is a warning sign flashing brightly."
"The VIX futures had been trading with large premiums to VIX, although that premium has shrunk over the last three days (as VIX has risen). Meanwhile, the term structure continues to slope sharply upward. The premium and the upward-sloping term structure are positive, but too much of a good thing (i.e., too sharp of an upward slope) is yet another overbought condition.
In summary, this market is due for a correction, and the longer the bulls manage to stave it off, the worse it will be. You know that when the market finally breaks, there will be a rush of sellers all trying to squeeze out the "exit" at the same time – at least for a day or two…"


I was thinking that in Phil’s weekly wrap ups, I could post my entries in the comments section, this way people can go back and look at what I said about a particular company and the picks he/or I recommend.  Don’t forget though, I also have a post every few weeks on a few companies that could be independent of what is done on the daily board, and we do our best to make sure everyone is aware of it.  If that works, I will do my best to remember to do it in those.

Wilson, I’m Sorry,   Wilson !

Whatever Happened to Beeks ?
Sen. Franken in a more suitable role then ….

Now you have me seriously wondering what an economic implosion might look like on my new 3D TV? I wonder if it will reach out of the TV and holographically try to take my money? Scary thought, like that 3D Jaws III movie where the shark comes after the audience? BTW – All very good points, it makes you think doesn’t it?

Iflan- Medical cost- good article. This made me think about a comparison to my business. I am a contractor in the construction trade operating in a specialty, niche market. Most work we do is based on quotes & bids. The "best" jobs, however are what we call T&M – time and materials – where the scope in not easily defined up front and the difficulty factor is elevated. I am virtually guaranteed to make a profit and in most cases a substantial one as the time clock/billing runs on the customer’s dime. While this presents opportunity for larceny, there is an ethical responsibility and self-preservation incentive to avoid such nonsense. Although my customers are hardly experts, they are savvy enough business professionals to know if they are getting ripped off.
Well, it appears that most medical "jobs" are T&M and as you point out, if one has larceny in one’s heart, look out as the customer/patients are almost completely at the mercy of the medical professionals.(And the medical pros are at the mercy of the legal pros).  Since there is a virtual cost/price  disconnect between the vendor (service provider) and the customer (patient) the result is inevitable. And, although I am sure to get some flack on this, it is my experience observing and interacting with a variety of social and professional "classes"; larceny on a minor/petty scale is quite pervasive and the longer left unchallenged the more it evolves to be the norm. Your angioplasty "joke" bears that out.
As such, it is apparent to any informed observer that the current "reform" effort is misguided as it does little or nothing to address the disconnect. As a related aside, I listened to one of those PBS panel interviews last evening where one participant was an insurance industry spokesman/flack. He pointed out that the total insurance industry profit/admin cost margin is about 4% of the total medical expenditure tab. While I have no way of verifying this number, even if understated by one or two hundred percent, it is not where the real money is.
So, the bottom line is that the insurance industry bashing is a smoke screen because the real culprits are the service providers who function on a cost-plus mode in a non-market oriented environment. The present runaway cost condition will continue until either market forces are allowed to work or bureaucratic controls are imposed.

Pharm, That would be really helpfu.  These are not always easy companies to understand and having the weekend to review and study would be great.  Thanks

Timmay goes to town for Wall Street.  The EU’s efforts to curb their member nations’ dealings with risky Wall Street has gotten his shackles up.  Nothing pisses Timmay off more then someone coming after his Wall Street!
We don’t stand a chance of enacting meaningful reform with this administration and session of Congress.

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