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Wheeeeeeekly Wrap-Up

Wheeee!  That was fun – let’s do it again!

There is nothing more fun than a nice, big dip in the roller coaster that you are prepared for and nothing more terrifying than a sudden, unexpected drop you were not prepared for (think air pockets on planes).  I know my incessant harping on fundamentals gets annoying and makes me somewhat of a party pooper at market tops but think of my commentary as that "clack, clack, clack" sound you hear when a roller coaster is climbing to the top of the tracks – the sound lets you know there’s a big drop coming and the more clacks you hear – the bigger the dip is likely to be

In fact, much like a roller-coaster, most of our well-prepared members were disappointed that we didn’t get a BIGGER dip on Friday but we’ve learned not to be greedy on the bear side and to quickly take those profits on our short-term plays while we let our long-term disaster hedges run wild, waiting patiently for the big score.  By the way, it’s not that we’re perma-bears – far from it, when Cramer, Adami, Finerman, John AND Peter Najarian were telling you to crawl into a bunker and hide your head in the sand a year ago – I was the one yelling BUYBUYBUY while our hugely successful Buy List, which is the bulk of our virtual portfolios, has been all bullish since Feb 8th.   Just because we think a rally is BS, doesn’t mean we don’t participate in it!

As a fundamentalist, I believe there is a market "truth" a real value that can be placed on stocks and indexes based on reality, not hype and, when the MSM hype stampedes the herd and takes the market (or an individual stock) too far one way or the other – we simply step in and take advantage of it.  It’s not complicated but it takes a little bit more work than the average "Lightning Round" participant is used to so PSW is not for everybody – this is our JOB, not our hobby, but boy is it fun when we get it right!

Despite the sell-off this week, we still finished up over 11,000 on the Dow but poor 1,200 on the S&P couldn’t hold and Nas 2,500 was merely a brief flirtation.  The NYSE fell all the way to 7,550, down 200 from Thursday’s high and the Russell touched 710 (where we started Wednesday) and decided to split the difference at 715 by the day’s end, still our strongest index

My biggest problem with market timing is being too early.  We started buying in February of last year and had to painfully average into positions on some scary dips but our Buy/Write Strategy led us through the wilderness and all the way through our Thanksgiving feast, where I was again a bit premature with a cash-out call.  Of course we day traded the market and made short-term opportunity bets while we waited but it wasn’t until Feb 8th that I felt confident enough that we had bottomed to put up a new Buy List and we cashed most of that out on March 18th, also, it seems, a bit too early.  On the whole though, it is better to be too early than too late because too late is broke and too early just means you could have made a little bit more!

And what have we missed since March 18th?  Not too much until April 5th, when we had that crazy Monday spike (when the US was the only market open and we flew up on no volume) and everyone had IPad fever.  I warned against the dangers of extrapolating on limited data while that day was a banner day for BS as Geithner "fixed" the China problem by delaying his report to Congress that would brand them a currency manipulator by 3 months and Alan Greenspan said U.S. is “on the edge of a significant build-up” in inventories “and that is a self- reinforcing cycle.”  While that great news was celebrated the market ignored the record bankruptcy filings, an EU investigation in Chinese subsidies that portends a spreading trade war and, best of all, we not only ignored a US office vacancy rate of 17.2% in Q1 (2% worse than last year) along with a continuing decline in net rents, but IYR actually went UP over the next week – so high, in fact, that we finally had to short it again!

As usual, most of the big gains come during overnight trading sessions, leaving retail investors little opportunity to participate in the rally.  As the Dow got near 11,000 on March 18th, we decided not to press our luck and went to mainly cash but the 20 open positions we couldn’t bear (oops, don’t say bear!) to part with on our remaining Buy List ALL made money.  ALL of your positions are not supposed to make money – the markets aren’t supposed to be that easy so, rather than be greedy, it occurs to us that something is wrong and we get more cautious, not less. 

In the week of April 5th my clacking got a little louder as you can tell by the article titles:

We had a fun dip on that Wednesday, which I led off saying "I don’t know what Fed minutes the market red yesterday but the ones I read scared me!"  Thursday’s shot of market sobriety was brought to us by Fed Governor Tom Hoenig, who said: "Holding rates down at artificially low levels over extended periods encourages bubbles, because it encourages debt over equity and consumption over savings" which, by that afternoon was interpreted once again as "PARTYPARTYPARTY."

Monday – Now 11,000?

That brings us right up to speed for this crazy week when Friday’s "fuhgeddaboudit" attitude carried through the weekend as Greece was, once again, "solved" and a much larger than expected BUILD in inventories was taken as a good sign that sales were anticipated, rather than the "remote" possibility that sales expectations had gotten ahead of themselves.  If inventories are built up then the manufacturers get to book strong sales, regardless of whether or not anyone ultimatley consumes them.  This is leading to very high expectations for earnings as analysts are forecasting 27% gains in S&P earnings over last year, when the S&P was priced 80% lower:

 "Earnings expectations are high enough to make it just too hard for a lot of companies to live up to them," worries Justin Walters of Bespoke.  "We believe the market is more likely to struggle early on in earnings season than make a big move higher," Mr. Walters wrote to clients last week.

We’ve already seen this week that earnings beats by TLB, ADTN, CSX, INTC, LLC, JPM, PGR, YUM, PPG, AMD, GOOG, ISRG, BAC, FHN, GCI, GE, GPC and MAT were not enough to keep the rally going and even raised guidance from TLB, INTC, LSTR, ATR and FCS were not enough to keep all but Intel from falling on Friday and many of those who didn’t actively raise guidance actually finished the week lower despite their beats.  How many of the 38 companies reporting this week actually did increase their revenues by 27% over last year?  5 (see list).  How many reported LOWER revenues than last year? 8.  How many had less than 10% improvements in revenue? 16.   How many companies are up less than 50% since last year’s Q1?  Not many (if you feel like counting, go ahead but I’m comfortable with that guess!). 

Let’s take just a couple of well-known companies for example

Well you get the idea…  We are priced, not just for the increased earnings over last year, but based on the assumption that this trend will continue into next year.  Either that or we are paying p/e’s in the mid 20s for most of our stocks and that, one would have to think, is a little excessive – even in the most robust markets.  Then - if you want to REALLY put on the old thinking cap – you might want to consider that last year’s Q1 was a TERRIBLE Q1 when we thought the world was ending and the companies were generally way overstaffed for the very weak demand so if we were NOT up AT LEAST 10-15% off of the worst quarter since the Great Depression, then we should be REALLY concerned! 

  • DIA $110 puts at .67, out at .65 – down 3%
  • FCX May $85 calls sold for $4.20, now $2.35 – up 44%
  • C complex 2012 spread - on target
  • SDS June $29/34 bull call spread at $1.27, now $1.30 – up 2%
  • SDS Sept $26 puts sold for $1.05, still $1.05 – even (pair trade – Disaster Hedge)
  • BGZ Oct $12/17 bull call spread at $1.10, now $1.20 – up 9%
  • BGZ Oct $11 puts sold for $1, still $1 – even (pair trade – Disaster Hedge)
  • BGU Oct $28.72 puts sold for $1, still $1 – even (alternate pair trade)

Since I went into detail in chat (and in an Alert that was sent to Members on Tuesday morning) on the last two disaster hedges and since it may be very relevant next week, I’ll reprint the logic of those two trades here:

I like the SDS disaster hedge.  The June $29/34 spread is $1.27 and you can drop it to .27 by selling the Sept $26 puts ($360 margin) and that has a $5 upside and is already .54 in the money with a max win of 1,750% if SDS gets back to where it was in early March.  For SDS to get to $26 (down 12%) the S&P would have to go up 6% to 1,272 so there’s your risk (rollable puts, of course) and let’s say you want to go for 20 and set aside $7,200 in margin and $540 in cash to make up to $10,000 on a market slide – that’s pretty good protection.

Before we even consider going bullish, I want to see that 1,200 on the S&P and, of course, 11,000 on the Dow needs to hold for more than a day along with NYSE 7,500, Russell 700 and Nas 2,500.

BGU is looking amazingly overbought so I like selling the BGZ Oct $11 puts for $1, which, according to TOS has a net (after collecting $100) margin requirement of $1,125.  On the upside, the Oct $12/17 bull call spread is $1.10 so this combination play will cost $10 of cash with a $500 upside (4,900%) and you must set aside about $225 in margin per contract to cover the possibility of being assigned BGZ at net $11.10 (now $12.97). 

If you are more bullish, here’s an interesting thought.  Rather than use the BGZ Oct $11 puts to pay for the spread, you can sell the BGU (3x bullish large caps) Oct $28.72 (I know, strange) puts for $1.  BGU is currently at $64.04 so the ETF would have to fall 60% by October for that put to go in the money (and then it’s rollable) and don’t forget that in order for that put to be in the money you would absolutely have $5 on the BGZ bull call spread.  In general, it would take a 20% drop in the S&P, back below 1,000 to trigger the BGU $28.72 puts.

So if you finance the BGZ with the BGU puts, if the BGZ call spread doesn’t pay off, it will only cost you .10, which means you can cover $24,500 worth of downside risk for $500.  The margin is much higher on the BGU puts (around net $3,200) so keep that in mind as well but, if you are bullish on the market and just want a little bit of protection – please humor me and consider this one!

Prospectus for the United States – Would You Invest?

This was a fun article looking at the work put in by Jim Grant, of the Interest Rate Observer, who presented the financials for the USA in the form of a Prospectus offering to sell $16Bn in Treasury Notes.  A very good read if you are used to looking at these things!

Top of the World Tuesday – The 566% Play

We finally had our bullish signal (holding 11K all day) and we had already laid our our last two disaster hedges so it was finally time to consider pulling a little cash off the sidelines to join in the upside fun – switching off our brains and running with the bulls, as I like to say

Whenever we want to switch off our brains it’s always good to resort to pictures so I put up a couple of TA charts on the S&P – the first by David Fry who I said was "the only person more fed up than I am with this nonsense" but Cap corrected me and he is right, he is also more fed up than I am!  As David said that morning: "There’s no need to make this stuff up anymore since end-of-day stick saves are right there and in your face."  My morning commentary was:

None of that matters though, as David says, it’s right in your face and the people manipulating the market can’t even be bothered to pretend not to be doing it anymore.  I’ve already sent out an Alert to Members this morning with our last major disaster hedge of this cycle in preparation of HAVING to go bullish if we make S&P 1,200.  I say having to to go bullish because I’m still convinced it’s a different kind of bull that’s driving us higher and we’ll be making few long-term commitments for the first few weeks but if we have another 10% more to gain on our indexes – there’s no point on sitting it out, is there?

I added a 566% upside play for the DIA right in the morning post for what was, effectively, upside disaster protection for our still-bearish short-term virtual portfolio.  And, as I said in my outlook:

I’m not going to talk about fundamentals this morning because fundamentals don’t matter.  If we make our levels, then we can go higher and if we don’t make our levels – we’re probably doomed (but we’re already playing for that!).  Oil failed $85 yesterday and hopefully will save our OIH shorts as it continues to slide into next week’s contract rollover.  Gold is still insane at $1,156 and copper is unaffordable at $3.59 but that doesn’t matter because no one is actually building anything or driving anywhere (see yesterday’s chart) so they can charge whatever they want for things no one is buying.

By Friday I was looking pretty damn clever wasn’t I?

  • DIA May $108/110 bull call spread at $1.35, now $1.40 – up 4%
  • DIA May $107 puts sold for $1.05, now $1 – up 5% (pair trade, Disaster Hedge)
  • HSIC May $60 calls sold for $2.15 average, still $2.15, even
  • DENT short at $20.90, now $20.88 – even
  • GOOG Jan $440 puts sold for $11, now $13.80 – down 25% (used as another way to fund disaster hedges)
  • Oil futures bullish play at $82.50, out at $84 – up $10 per penny per contract!
  • MEE May $45 puts sold for $4.10 average, now $4.40, down 7%
  • DIA $110 calls sold for .62, finished at .18 – up 70%
  • DIA $111/110 bear put spread at .62, finished at .72, up 16%
  • TZA $6 calls at .40, out at .35 – down 13%
  • IYR May $52 puts at $1.20, now $2.65 – up 120%
  • GOOG complex spread, off target – see Member Chat for adjustments
  • TBT May $48 puts sold for $1.35, now $1.25 – up 8%
  • SDS June $27/32 bull call spread at $2.05, still $2.05 – even
  • SDS June $29 puts sold at $1.30, still $1.30 – even (pair trade, Disaster Hedge)

In our lunchtime Members Chat session, I put up this great chart from Barry, making my point that there is LITERALLY not enough money in the entire world (green) to pay off the debt (yellow and red) – why is this such a complicated idea for people to get their heads around and have I mentioned I like TBT lately?

Wednesday Rally – 80% Gain for the S&P!

Note my sincere attempt to be positive about the silly rally but that doesn’t stop me from posting pictures like the one on the left because we were still taking the market move with a Lot’s wife-sized pillar of salt!  I rightly predicted we’d make our 1,200 target on the S&P on strong earnings from INTC and JPM and I put up ANOTHER 566% upside play for FREE in the morning post, saying to non-members:

After all, like the crazy guy on TV says, if the government is giving free money away – shouldn’t we be getting ours too.  Only I’m not telling you you need to buy a book or do anything special – just join my Membership site AFTER you make your 566% – that’s a pretty good deal!  Of course, keep in mind these are the bull plays and we are generally hedging for a possible correction so obey the sign on the left and play wisely!  Consider that you can make 5% a month by risking just 1% of your virtual portfolio on successful plays like this one – that’s 60% a year if all 12 months are positive, and the last 12 months have been so why not 12 more?

I laid out my technical take on the index numbers, pointing out that the Dow was not at all acting like it was joining the rally as they needed to make 11,592 to catch up to the gains we were seeing in the other indexes.  This is why we played the Dow up (in case they do catch up) in the previous day’s post but it was also our primary point of concern as 11,000 was nothing more than a psychological block – there was no technical reason for the Dow to be having trouble there and that SHOULD make investors nervous. 

Also, I concluded in the analysis: "It’s worth noting that the Russell was the first index to top out in 2007 - LONG before the others so we’ll be watching out for that action going forward.  Finally, the NYSE is our canary in the coal mine as they just barely got over 80% (7,525) and they haven’t made it to 30% from the top yet (7,990) so we’ll be watching this zone with a great deal of interest."  The NYSE fell all the way back to 7,550 on Friday before bouncing back 34 points….  Also in Wednesday’s morning’s post, I noted several things that were seriously bothering me and I warned: "Remember, if the S&P does NOT make 1,200 - especially on these positive reports from CSX, INTC and JPM – then it is a FAILURE and we should not be making these (or any) upside bets."

  • SSO May $42/44 bull call spread at $1.25, still $1.25 – even
  • SSO May $42 puts sold for .95, now $1.10 – down 11% (pair trade)
  • Oil futures short at $85, out at $84.50 – up $10 per penny per contract
  • FXP May $7 calls at .60, now .90 – up 50%
  • DIA April $110 puts at .26 – out at .21 – down 19%
  • BMRN complex Jan/July spread – on target
  • UNG Oct $8/10 bull call spread at .50, now .40 – down 20%
  • UNG Oct $8 puts sold for $1.23, now 1.42 – down 15% (pair trade)
  • Oil futures short at $86, out at $85.80 - up $10 per penny per contract
  • USO April $42 puts at .48, finished at $1.40 – up 191%
  • MON Jan $65/75 bull call spread at $3.60, still $3.60 – even
  • MON Jan $65 puts sold for $6.10, now $6.55 – down 7% (pair trade)

We had a ridiculous run-up into the close and in Member Chat we analyzed the Fed’s Beige Book, which was actually better than any book we’ve seen in a long time, leading me to conclude:

If we do reverse now, then I will be certain that this market is the biggest scam since Ponzi invented the thing 100 years ago.  We are past anything that can be fundamentally justified and maybe this is the blow-off top or maybe it is just like 1999 when the Nas went from 2K to 5K and the big push came in October when we were just over 2,500 and then it was 3,000, 3,500, 4,000 in December, 4,500 in Jan and 5,000 in March and every step of the way past 3,000 we all knew it was ridiculous but that didn’t stop the market from going 60% higher than any logical stretch of the imagination could take it.  When we first went over 3,000, we all waited for the world to explode every day but by 3,500, we were in for the next 500 and then when 4,000 popped (after Y2K didn’t happen) we were in for the next 1,000.  I think right now we’re at that 3,000 stage, it’s now getting silly but if people want to keep buying, then who are we to argue?  Just be first in line to buy the sock puppet and early in line to sell the sock puppet….

The banks that were too big to fail are now bigger, the unemployment is greater, the debt is much greater, the budget is more out of balance, commodities are higher than in any year except the year the global economy collapsed and Cramer says there has never beeen a better time to invest so BUYBUYBUY until they start arresting people I guess

And, wouldn’t you know it – that’s exactly what happened on Friday! 

Freaky Thursday – Foreclosures and China GDP Hit Records

Nothing pisses me off more than families losing their homes – it’s a real failure of society that we allow this to happen and you can lay blame wherever you want – from the math teacher that failed to explain to the homebuyer-to-be how interest works to the realtor who pushed the family into the home or the appraiser who should know better than to just sign-off on ever increasing valuations, or the mortgage broker who enabled the bank to write an ill-advised loan or the Fed for yo-yoing rates up and down to create and pop bubbles to Greenspan who said adjustable mortgages made sense for the average homebuyer or the government for overseeing an entire decade where no net jobs were created while our national debt tripled and 30M jobs were shipped overseas by companies who effectively get tax breaks for doing so.  Plenty of blame to go around but explain that to a 6 year-old boy who loses his home

3% of the homes in America will be taken away from their owners THIS year and, with 20% of the homes in America currently underwater, we may have several years to go at this foreclosure rate or higher until we at least get all 10% of those unemployed people out of the homes they can no longer afford – homes that were, up until they went underwater, their only real asset most of these people had.  Small wonder consumer confidence is once again plummeting!

We discussed the evils of the property cycle and I pointed out that Asia was looking very shakey (and we had just bought FXP so fine with us!) with China nursing their own property bubble while Europe seemed to be off again on the Greece issue but we did get a good Empire Manufacturing Index number (which made no sense) and I said: "So ho-ho-ho we’re going to party like it’s 1999 for another day at least, the Nasdaq will punch through 2,500 today and the NYSE is over 7,700 and we’ll get our Russell 720 too.  All that’s left now is SOX 400 and it’s the perfect top – oops, I mean mid-point… silly brain, must have had too much coffee this morning…  "

In the morning Alert to Members I clarified that statement, saying:

The last domino to fall (or rise) is SOX 400 and then we are in technical heaven where we will brook no blaspheme against our rally.  Meanwhile, I’m still skeptical and here’s why:

Obviously (to me, anyway) "THEY" have pulled out all the stops, ignored every warning sign, done whatever it took to jam us up to these technical levels.  Why?  To pull money off the sidelines.  What if we get to these technicals and the money doesn’t come off the sidelines?  That means "THEY" have made a critical error and overestimated their ability to influence investors who, in poll after poll, are (for some reason) starting to think the market is a gigantic scam and are not too gung-ho to give Goldman-Madoff their money again.

  • MBI Aug buy/write at $5.75/6.38 – on target
  • TZA May $6 calls at .42, now .49 – up 16%
  • MRK 2012 buy/write at $23.12/29.06 – on target
  • GOOG - series of complex spreads on earnings, see Member post for adjustments
  • ISRG Jan $38/410 bull call spread at $13.50, now $11.50 – down 15%
  • ISRG Apr $400s call sold for $7.50, expired worthless – up 100% (pair trade)
  • TZA Oct $5/9 bull call spread at .85, now .95 – up 12%
  • TZA Oct $5 puts sold at .70, now .66 – up 6% (pair trade – Disaster Hedge)
  • NLY Jan buy/write at $15.20/15.10 – on target

     

Financial Regulations Explained For Your Children

And, as it turns out, explained for the SEC – who finally sprang into action on Friday! 

High Frequency Friday – The WSJ Finally Catches On!

Interestingly, in a week where I had already been calling GS "Goldman-Madoff" and I had predicted on Wednesday that the rally would last "until they start arresting people" and we featured the above video on Thursday afternoon to illustrate what a crooked scam the financial marketplace had become that it finally hit the fan on Friday morning when even the WSJ could no longer ignore the evidence that myself and a few others have been ranting and raving about for months AND the SEC finally wakes up and does SOMETHING – not much but it’s a start.  Going after GS is a statement that too big to fail does not mean too big to prosecute (or at least charge). 

We didn’t know about GS until later in the day but my pre-market commentary, based on the WSJ actually giving credibility to our complaints about HFT was: "Has the World Gone Sane?"  I capped off a week of amazingly prophetic statements by commenting: "The article is buried but the fact that the Journal is reporting on it means they don’t want to be caught with their pants down when it all hits the fan so now they can point to this article and say: "See, we warned you about this way back on April 15th, before the market crashed – if only you had read the Journal!"  I had really, after just 3 days of trying to disconnect my brain and be good little bull, already reached my boiling point of fundamental frustration, closing with:

The fundamentals don’t mean anything and (if they did) they do not indicate, at this point, anything that can sustain these pumped up fake rally valuations.  I’m particularly pissed this morning because the futures were a massive joke.  Check out the movement in this chart.

How can you say valuations aren’t a joke when they can shift that violently from hour to hour?  Note how low the volume is yet 50 Dow points represent $150Bn of market value up and down – your virtual portfolios fate decided by just a handful of small transactions performed by shadow traders while the market is closed.  And they wonder why investors are shunning the markets?  You can run a shell game for a while and rake in some suckers but every good con man knows when it’s time to move on and head to another town once they’ve played all the suckers and word gets out about their scam.  The problem Wall Street has is they scammed the entire planet – which is why there is probably renewed interest in a mission to Mars – Goldman needs some fresh suckers!

I said to Members yesterday we have to consider the possibility that this ridiculous, pointless, baseless rally was nothing more than a desperate attempt by the Gang of 12 to bang out the technicals and finally draw some fresh money off the sidelines so they could get out of their positions now that the Fed is turning off the spigots and the carrying costs (rates) are starting to creeep up.  As we can see from the WSJ FACTS above, so far, it hasn’t been working and if that sideline money doesn’t start coming in soon – what will our next catalyst be?

We did try to stay bullish but by 9:59 I sent out an Alert to Members saying: "Consumer sentiment was a train wreck at 69!   Sorry bulls but I’m cashing out again!"  We had already taken DIA $111 puts for .19 as our first play of the day and I felt so strongly about my call and was so worried about people getting burned (still not knowing about GS yet) that I also sent out a Stock Talk Alert on Seeking Alpha and Twitter saying: "That Consumer Sentiment (69.5) was the last straw – back to cash over weekend. Still some bear plays but bullish exposure off the table!"  I feel very good about doing my best to stop my people from getting burned!

If your broker of financial guru didn’t contact you directly to warn you the market was going to crash while the Dow was still well over 11,100 please consider subscribing to our PSW member site, where you get these Member Alerts as well as the above trade ideas live, every day, while the market is in session.  May will be the last month to lock in current pricing and Premium Membership will close soon when we fill up - so don’t say I didn’t tell you so well in advance…

  • DIA $111 puts at .19, out at $1, up 426%
  • GOOG $570 puts sold for $4.70, out at $5 – down 6%

That’s it!  Cashing out our short-term, unhedged longs was a job in the morning and riding out the DIA $111 puts kept us busy until the afternoon so there wasn’t much else to do.  The drop was really too fast to chase down and we had, of course, been making our directional bearish bets for 2 days and we took non-greedy exits on those too as we have no idea what next week will bring and, after a great week like this with 46 trade ideas and only 12 misses – not too shabby in a choppy market so we deserve a day to just sit back, relax and watch the carnage unfold. 

My 4pm closing Alert to Members said it quite nicely:  Today’s market summary

We’ll have to see what next week brings but our cash remains sidelined until we see better evidence than was presented last week that we should be making more bullish plays.  Meanwhile, we can continue to amuse ourselves with our hit and run plays – especially during earnings season where every single day is another opportunity to play the volatility! 

 


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  1. Here’s an alternate reason why Apple is delaying the IPad.  If Europe does the same thing, that could delay sales even further.
    http://www.ft.com/cms/s/2/aee3fe24-48e9-11df-8af4-00144feab49a.html


  2. Yes its all a big con game. I hope they put GS through h-ll.However the trend is up that is all that counts for making money.


  3. Phil – what’s your gut telling you re stock market direction - could this be the start of primary wave 3 down or just another 5-10% correction before we head higher?  I think we get another leg higher and/or some sideways action until earnings start to show some weakness in 2H10 and then higher taxes kick in in 1Q11 and higher interest rates as well.  Maudlin talkes about how increase in taxes representing 1% of GDP actually has 3x multiplier effect.  So U.S. economy could be facing -3% GDP headwinds in 2011 as it tries to sustain a recovery.  To what extent do u think low interest rates are fueling the carry trade and the rise in stocks?  could a relatively small increase in fed funds rate this year be enought to knock the big players off balance and keep them from propping up the market?   Thx. 


  4. wayne – that’s not likely. israel didn’t officially get the iphone until last year (there were only unofficial unlocked versions before this) and clearly that wasn’t the case with the rest of europe…
    israel is just a special case. actually, just yesterday Jobs himself responded with the statement "are you nuts? we are doing the best we can."


  5. My plethora of picks for the week:
     
    Monday:  KERX – 5/2.5 Jan11 for 95c is a good bet for a small lot, all or nothing. Now 75c.
                    GENZ – 50 Jan11 for $7 covered with the 52.5 Apr for 70c.  1/2 cover for now. Jans are 7.70, Rolled to 52.5                                 May now 2.65 (down 75c on the 1/2 cover). 
    Tuesday:  DCTH data looks like it will come out AFTER OPEX….I am rolling to the May 9 C for 2.2. Now 2.25.
    Wednesday:  1/2 sell of 36 May P for $1 9  (now 1.20)
    Thursday: ARRY getting some biotech love – 3.07 (now 3.02, but if you sold at the high, could have made a 8%)
    Friday:  None.
     
    Good weekend all. 


  6.  I  read an article in my local paper this a.m. which was generally titled:  Usual Investment Methods Not Working Anymore".  Of course we who trade here already know this.  Buy and hold died years ago.  Mutual Funds are used by the masses but few can make money there, and even fewer consistently.  The investment methods that are successful are very complex, and hard to learn and apply properly.   After reading this, my mind went back to GS, and I looked at their chart from Friday.  It occurred to me that if I had owned some GS puts purchased  when GS went from 185  to 180, that I would have made a LOT of money.  Why didn’t I own GS puts?  Yeah, right, because I didn’t buy them.  And why not?  I have a computer program which allows me to set triggers for option purchases.  Why didn’t I have a trigger set to buy X number of put options on GS if and when it dropped to 175?   Hmmmm!   Eureka?  We all know that stocks generally go up slowly but may at times drop precipitously, with little warning.  Now I’m thinking about PALM.  Phil and others discussed here awhile back that PALM could be bought by some other company.  They still could be.  Why not a trigger set to buy X number of calls should PALM rise suddenly?   So I’m going to take some time and try to develop this idea into a reality for selected stocks and ETFs.  I would encourage you to join me in this.  Perhaps we could compile a list of stock or ETF candidates which are possible candidates for a sudden unexpected move up or down.   We can set triggers on some of these, using paper trade to begin with if  you like, and wait for the unexpected.  This could be interesting, fun, and perhaps even profitable.  Phil, you may tell me this has already been done by big trading houses with access to many computers and many personnel.  If so, I’d like to read more about it.  In the meantime I’m setting my first option trigger for call purchases on PALM should a sudden rise in the stock price occur.    Thanks all. 


  7. lflan – mine is a bit different that what you are after, but similar in what you are looking for.  In TOS, one can set triggers on stocks that start to move.  I have one that I use for lower priced stocks (less than 10) that move on volume and/or price.  It changes from day to day, so it will cover any stock in that range and volume.  I have come across some good buys in the past that way, and can catch momentum trades on those stocks. 


  8. Iflan – Taking about making money, someone could/would have tons of money on Friday OPEX with ISRG or GOOG puts. ISRG Apr 380 puts were 55c in the morning, which then went up to almost 20, 3500% profit. Similarly, GOOG Apr 560 puts were 35c, which then went up to over 10, 3000% profit.


  9. Pharmboy…I’ve got TOS as well, although only recently, and I’m not familiar with all features.  I’ll certainly look at it carefully with my idea in mind.   As you can glean, I’m thinking about a scenario where one could catch not only an unexpected, but a huge move in a stock, playing it immediately and with great leverage, using options.    Taking GS as an example, it opened Friday at about 185, down to 160 before end of day.  But it did not drop suddenly but rather, in a curving manner, allowing time for computer-generated option trades.  Puts ATM went from 1.50 or so to 19.00 before the day was done.  To figure out a way to allow your computer to get you in without your even knowing what was occurring would be a beautiful thing.  


  10. Screeners – E*Trade Pro has a great screener, allowing to look via several different variables, custom searches etc. Have found ToS to be severly lacking in this area.


  11. The installer of my stove top says cash for appliances was a big hit and Florida spent 15m of the 18m allotted to the state.


  12. Iflan-
    The problem you face is determining what is a huge move – you need to define it.
    For example, is a move of 2xATR a huge move, 3x or maybe 4x, over what time period?
    Perhaps ATR is not the best indicator, what could be better?
    Then you need to backtest it.
    If you can define a huge move it can be programmed to trade automatically.


  13. Iflan-
    I know, and have used, conditional trades on Interactive Broker.  You can set a trade for virtually any condition  (eg  sell IBM when price of gold is less than $1000 or whatever) which is very handy.  I haven’t been able to discover how to make conditional sales on TOS yet, although as robust that it is, there likely is a way.   In a market panic, I would expect VIX to jump up and that can then trigger a trade.
    Just a thought


  14.  Trading AAPL……In seeking a trade for Monday using my large block option momentum method, I keep coming back to AAPL.  We made a bundle on them Friday as the May 250 calls cranked up in the morning, only to fall back later, but that was after we had already taken profits.  AAPL reports on the 20th, so I think there is another play here before earnings.  First, we’ll have to see what the markets in general do on Monday morning, what with the GS news.  If the market tanks it’s likely that AAPL will trend down with market, but not much.  If the markets hold, I expect AAPL to take another slight run up on Monday.  I may try to catch this move for a large option block trade.  AAPL isn’t the only one I’m considering for this Monday trade, but it’s the best one right now.  It fits the bill, with large blocks traded daily, and near earnings reporting, which increases the chance for large moves.  As for trading (holding) AAPL through earnings….well, that’s a crap shoot and I’m sure I’ll sit that one out.  


  15. Iflan- I have been following your comments on the trades and you obviously are on to something as it is working. One thing which makes gives me pause is the automatic aspect of the trades. If I understand you , you place the trade and set a stop to minimize the downside. I don’t set a lot of hard stops but have had occasion in the past where a sudden/large move blows past my stop and gets filled but at a much lower price. Have you had that happen and if so, how do you plan for this?


  16. http://www.bloomberg.com/apps/news?pid=20601087&sid=aX1CAxJtU6X4&pos=2
    Clinton- you just have to love this guy. "What, Who, me?"


  17.  pstas….There are two requirements which must be fulfilled to avoid this.  One, the options you choose have to be heavily traded.  Second, you must set the trailing stop at market, not at a defined stop.  Heavily traded options set to trigger a  sale at market will sell within a nickel of that price the vast majority of the time.  


  18. iflan,
    Care to go through a full trade strategy for us?



  19. Iflan….. Your strategy looks like fun, and is not too time consuming. Question…. You speak of "large block" option method – how many contracts are you typically speaking of? Thanks!


  20.  aclend.  I’ll come on this evening and do this for you.  Have to take my daughter somewhere right now.  


  21.  ditto gel, be back later.  She’s waiting in the truck! :)  


  22. IPad/Wayne – It’s not like AAPL doesn’t know that, they sell IPhones in Israel, the problem is people jumping the gun and getting US versions shippped over before AAPL is ready with with the local device. 

    Trend/Cocor – Trend is your friend until it breaks – as long as you don’t insist on sticking with it past it’s time you will be fine. 

    Guts/Terra – I expect us to get back to 10,200.  If we consolidate there and head back up, I’ll be much happier with this 2nd leg of the bull rally but now we have yet another wild-card in the pack as this market can get tossed around by rumors of GS and Greece every hour or so.  That’s not even counting the rumor damage that can be done by simply indicating another company is in the crosshairs.   Do you want to make 1,000% in an hour?  Just buy puts in JPM or MS or the CME and then start a rumor that the SEC is bringing them up on charges (don’t actually do this as it’s very, very illegal even though Jim Cramer admits to doing things like this "all the time" yet is still given a TV show to "educate" investors). 

    We still have all the problems we were ignoring before and now we have a possible change in sentiment.  What we need to do is go through a negative phase where everyone does start worrying about the undelying issues and THEN we can see what is priced in and what is not.  We will get higher taxes and probably higher interest rates for sure.  Add to that either continued unemployment, commodity-based inflation (very bad compared to growth inflation) ro declining real estate prices and you may have an actual problem even holding 10,000.   As I keep saying, we are living right now by extrapolating a recovery based on the fact that we didn’t actually die.

    Why not own GS puts/Iflan – Well because they were getting away with such murder it was like betting that this would be the week they finally get Capone (and, like Capone, they got GS on a BS technichality, rather than for the overall racket).  The only problem with your program idea is most of these big moves are fast gappers and you may not get filled so you need to set strict parameters to prevent chasing and also have very disciplined stops.

    Appliances/Kustomz – Good for WHR and SHLD.

    Clinton/Pstas – The change in regs was shoved through Congress just as Clinton was leaving office.  He’s actually being gracious to take any responsibility for this nightmare. 

    Earnings/Pstas- Well you can see from the chart already that earnings are way underperforming the S&P, which does tend to hug that 16 line.  When you consider that over 1/3 of all earnings are BS financial earnings based on Free Money, Stimulus and cooked books – we are about as far ahead of a logical valuation as we’ve been at any point on that graph. 

    image926.png

    The author says: "If that yellow line continues its sharp upward trend, then the market is still very cheap and we have nothing to worry about. We ought to assume that the black and yellow lines will converge over time."  It’s the convergence we need to worry about – you cannot assume that the black line will magically continue to float above the yellow, even though that didn’t happen AT ALL except during the time when earnings collapsed so fast (the same BS financial earnings the recovery is based on now) that the S&P couldn’t fall fast enough to keep up. 

    Don’t forget, in 2005 – 2007 there was no "fear factor" in the market.   Most people did think we were going up and up forever and unemployment was 3.8% and our national debt was a relatively relaxing $8Tn.  Oh and oil had never been $60 before and gold was $400 and copper was $1.75 and food was about 25% cheaper and a home mortgage was 6% but you could get 3.5% for leaving money in the bank….  All that and 16 was the p/e ratio the S&P was willing to cling to.


  23. New Pharma post.


  24. Clinton- I agree, very gracious – noble even. Another in a string of noble Clinton gestures like ah…………er, and there was……..uh,oh let me get back to you on that.
    In any event, I do love the guy. He truly is Americas favorite scoundrel. Just a thought, perhaps this is just a chance to get something on the record for future reference. Say, in an upcoming Presidential campaign – maybe involving a certain State Dept. official. Just sayin’, you know.


  25. Clinton & gracious — 2 words that just do not go together.


  26. My internist talked his son out of following in his footsteps.and instead of going to med school, he was accepted at Yale Law School. Clinton (Billy Boy) addressed the freshman class, a couple of years ago, and my internist asked his son if Clinton told any lies. His son’s answer was "no, not that I can recall", and my internist friend asked his son if he opened his mouth. (true story).


  27. I was contemplating an investment in GS when the news broke on Friday relating to the SEC complaint against GS. Having read the transcript, I find the entire motivation behind this action as strictly political. The timing is suspect, and the complaint itself will never hold water in any court of law that has legitimacy. The complant is for fraud, which can never be proven in this case, as all of the details of the transaction were totally transparent, and none of the counterparties are making claims of damages resulting from a lack of veracity. The SEC is bringing the case, and is not a party to any of the transactions, and furthermore they are not citing a breach of any regulations. Obama hired these folks, bringing the case, back in January, as a new effort to intimidate the investment banks. This case they have brought is an embarasement to say the least, and really is nothing more than a political smoke screen in order to push his regulation bill in the Senate. For Obama to endorse such a riduculous cause of action, with almost no legal basis, and with the government not even able to show legal standing, I now understand why he chose to not practice law, and instead do community organizing as a career. An impartial judge would throw this out on the first motion.


  28. Yeah Gel, nothing but hardball politics; just part of the push to get the financial regulation through.  It would be nice if legislation or policy changes would stand or fall on its own merit but that’s never been the case.  I guess we’ve all forgotten about the new era of politics that was to come to DC.   Meet the new boss…..same as the old boss.


  29.  Gel, your internist is right on the money – I would actively dissuade both of my kids from going into medicine.  Medicine will be like a utility in 10 years populated with nurse practioners, PA’s & other "health professional"   There will be absolutely zero incentive to pursue fellowships or extra years of specialty training.   I personally will actively start pursuing/developing other interests in the next 10 years.  I’ve seen the future of america it is pretty scary:  pierced, inked, obese with a huge sense of entitlement.   It is truly disheartening.  


  30. Gel:  what’s you opinion of this differing view of GS  (from Ilene’s page):

    http://whitecollarfraud.blogspot.com/2010/04/did-clever-sec-bait-goldman-sachs-into.html


  31. http://news.bbc.co.uk/2/hi/8626041.stm
    Something to feel good about, I suppose. They "like us" now, I guess. All we have to do is emulate- tax, spend and apologize- a winning formula.


  32. Futures, oil taking a dump this AM .


  33. Phil, looking at key support levels- DIA- 10,200; SPX- 1100; RUT – 600.
    Your take?


  34. Good morning!

    I love to see the conservatives come in all riled up after digesting the weekend’s news – clearly we read different publications…  I had Ilene contact Sam and get permission for that article because it was, by far, the best analysis of GS I read this weekend.

    Gel, I would HIGHLY advise staying away from a bullish investment on GS.  It’s not like $160 a share is so cheap anyway and banks are ALL about confidence so don’t think about whether you want to invest in GS but whether you will be giving GS a couple of million to invest for you and whether you will be jumping on their conviction buys and sells in the near futures.  Will your company, who needs to raise $10Bn, be selecting GS to do the deal so that their name can be associated with yours on the prospectus?  Will their traders be able to move under the radar and stay ahead of the markets?  Go back to Oct/Nov of 2008 and you will read lots of "well-informed" people who said BSC and LEH were opportunities of a lifetime as they fell in every stage including the great and powerful Cramer who spent half a show extolling the virtues of BSC, their buisness model, their team and their uniquely strong position as a market maker.

    I’m not saying GS won’t survive, they probably will but I prefer to put cash into people who will definitely survive because even they fail once in a while…

    Levels/Pstas – That’s about where I’d like to see testing but if we don’t get it, then strong market indeed and I’ll have to go back to being reluctantly bullish.  Oil is way down to $81 this morning and gold at $1,135 with copper at $3.48 so I think the futures are understating the potential damage at the moment.


  35. Conservatives-news- glad to be of service. Just trying to keep things fair and balanced. :)