Poor CNBC! They are never going to get those chocolates…
I joked with Members during yesterday's rally, after Fast Money's bullish "Half-Time Report": "Uh oh – All the Fast Money people said buy – make sure you have your disaster hedges in place!" Indeed the market fell off a cliff almost the second they said it but we got out of our TZA calls (a little early) and did a little bottom fishing yesterday with our own buys on LYG ($3.13), Short EUO ($25.30), VZ ($27), FRO ($30.50), RIG ($58.50) and PFE ($15.10). Maybe I'm just a paranoid conspiracy theorist but I said to Members at the close:
That was a sad little show at the end wasn’t it? Nas was beaten with a stick into the close. AAPL $243, BIDU $67.46, AMZN $123… Ugly stuff. Not at all sure what they were trying to accomplish if not a flush…
Gap/RMM – Yes (we will gap) up. I just didn’t see why we would sell off like that. It seems that someone wanted to paint un ugly picture, maybe they didn’t get a good fill on Tuesday morning? Maybe not gap up tomorrow, maybe another drop and THEN we take off but I’m thinking a fund that wants to make numbers on Friday would want to flush us today and buy the SPX overnight and pump us up for a big finish so they can get back to cash on Friday and book it.
Isn't it funny how that's pretty much exactly what's happening this morning? A huge gap up into the open that's erasing the previous day's losses when no one is trading – just like yesterday (when I get on my knees and pray – we won't get fooled again). Fast Money got fooled out of their bullish 1:50 positions by 5pm as suddenly they relized the market is controlled by evil computer programs – not exactly news to us and no reason to shake us out of our well-hedged positions. We ignored rumors on China (and we always ignore Steve Ballmer) in chat and those seemed to be the major rumors moving the market lower yesterday.
Cramer kept the rumor mill grinding, saying: "The Chinese reportedly are debating whether or not to sell their European bonds, and that’s what killed our upward momentum." CNBC seems to have pulled the video so it's hard to tell the tone but Cramer put up a list of a dozen stocks to buy but said to wait for a 5% correction and concluded: "The next time you’re looking for stocks to buy after we get hammered off the euro, after the banking crisis in Spain or potential country defaults,” Cramer said, “take a look” at these stocks."
It's too bad Cramer doesn't understand how to use options or people could buy those stocks for a 20% discount right now. For example, with FDO ($40.87) we could simply sell the dreaded NAKED PUT, like the July $38 put for $1.25 and that puts us in the stock at net $36.75, a 10% discount right there but, of course, that's just a simple way to play, you can do much better by buying FDO as Cramer suggests AND selling the 2012 $40 calls for $7.50 and the 2012 $32.50 puts for $4 and that puts you in the stock for net $29.37 and you will either get called away at $40, with a 36% gain or you will have another round put to you at $32.50 for an average entry of $30.94, a nice 24% discount off today's price. If you are a long-term investor, wouldn't it be nice to take all your initial entries at a 20% discount?
Speaking of discounts – Kudos to David Ristau from the Oxen Group for putting Members into PAY in yesterday's "Overnight Trade of the Day." David's analysis of PAY was like getting the earnings report in advance! Keep in mind we ALWAYS sell into the initial excitement on these but what a great one-day ride! "Long-Term Investment of the Week", BIG also had good earnings this morning and hopefully we get a nice pop there as well – who says we don't trade straight stocks at PSW???
After taking a day off the fundamentals yesterday (since they weren't going to matter in a panic-driven market), we now get a BIG one with the Q1 GDP, which is expected to be revised up from 3.2% to 3.4%. Another 450,000 people probably lost their jobs last week (yawn) and we have the KC (11 am) and Chicago (Noon) Manufacturing Reports just ahead of the 1pm attempt by our government to find $31Bn worth of suckers to buy 7-year notes in exchange for just 2.8%, about 1/3 of what it was 10 years ago.
A good portion of this money is still going to bailing out banks, who apparently return the favor by lying to investors. According to the WSJ: "Bank of America Corp. and Citigroup Inc. incorrectly hid from investors billions of dollars of their debt, similar to what Lehman Brothers Holdings Inc. did to obscure its level of risk… In recent filings with regulators, the two big banks disclosed that over the past three years, they at times erroneously classified some short-term repurchase agreements, or "repos," as sales when they should have been classified as borrowings."
While the amounts concerned are "only" Billions (the two banks have over $4Tn on deposit), what I find disturbing is that, almost 2 full years into the banking crisis, STILL NO ONE IS AUDITING THEIR BOOKS?!? Come on Government, we are spending $1,500,000,000,000 more money than we take in – surely we can afford $100,000 for a guy to give the books a once-over! A bankruptcy-court examiner said Lehman had been doing the same thing to make its balance sheet look better before it filed for bankruptcy in September 2008, using a strategy dubbed "Repo 105" that helped the Wall Street firm move $50 billion in assets off its balance sheet.
Bank of America and Citigroup were among the banks cited in a page-one Wall Street Journal article on Wednesday detailing how financial firms temporarily shed repo debt at the ends of quarters, when they report their finances to investors. Since the financial crisis began, both banks often have reduced their quarter-end repo debt from their average borrowings for the same quarter. Repos are short-term loans that allow banks to take bigger risks on securities trades; classifying the transactions as sales instead of borrowings allows a firm to take assets off its balance sheet and thus reduces its reported leverage, or assets as a multiple of equity capital.
8:30 Update: It turns out BAC and C are not the only ones inflating their figures. Q1 GDP was, in fact, revised DOWN 0.2% to 3%, not the up 0.2% expected. As we had originally expected (before the GDP "proved" us wrong), consumer spending was the weak spot and our high-commodity trade deficit was another big drag on the economy. 3% GDP is not going to be putting anyone to work – After the last severe recession in the early 1980s, GDP grew at rates of 7 to 9 percent for five straight quarters and the unemployment rate dropped from 10.8 to 7.2 percent in 18 months. Housing and commercial real-estate are major weak spots for the economy. Builders cut spending in each by double digits in the first quarter. One bright spot – Corporate profits were revised UP, from 8.2% to 9.7%.
Of course we all know what this means…. MORE FREE MONEY!!! That's right, bad news is good news as slow news like this sends Benny and Timmy running right for the printing presses and I'm sure that Blanfein is on the phone to Obama now telling him he can "fix" this if Obama just gives him another $50Bn. Speaking of Blankfein – The tens of Millions of dollars the Banksters are spending to lobby Senators to ensure serious financial reform never sees the light of day are chump change considering what's at stake, Simon Johnson of the IMF says.
Not unexpectedly, China denies a report that it's reviewing its foreign exchange holdings of euro assets, calling the speculation groundless. "Europe has been, and will be one of the major markets for investing China's exchange reserves," said the State Administration of Foreign Exchange. The euro is not in danger, and a breakup of the eurozone is out of the question, former Bundesbank president Helmut Schlesinger says. The euro's (ETFs: FXE, EUO) 6-month, 20% plunge against the dollar is cause for concern, but its level "is by no means catastrophically low," he added.
Europe is trading up around 2% just ahead of the US open and Asia was right around our 1.25% rule so technical bounces all around so far, which is pretty good considering the rotten signal sent out by that very fake US close. Maybe all of our international PSW readers are helping their fellow countrymen wise up to the shenanigans being pulled in the US markets – that would be nice!
They are lining up in Japan to get their hands on IPads, due to be released today while AAPL (among others) investigates a rash of suicides at one of their Chinese manufacturing plants. Japanese exports continue to hum along at a pace that's 40% over last year's indicating that fears of a global slowdown are probably a tad overdone. At home, oil is back at $73 (go USO!) as Obama suspends Arctic drilling until 2011.
We already have our buys in so today is more about whether we re-hedge to the downside or not. We've gotten so many great entries below Dow 10,000 now, it's going to be hard to buy more over 10,200 but let's not get ahead of ourselves – we aren't there yet!
One of my favorite guys, Hugh Hendry, says we’re not panicking enough!
Of course remember that Hendry is shorting the crap out of Greece and the European banking crisis. He’s a big proponent of speculation and shorting, so he hates bailouts and would love massive failure.
Three lunchtime reads:
1) Eleven top hedge fund managers give investment ideas
2) U.S. money supply plunges at 1930s pace
3) Arends: Why I don’t trust gold
Actually, I have backed off currency trading recently and concentrated on my equity trades, given the market dynamics and volatility. My profits in currency trades have been far superior to my equity trades so far this year. At the moment I am short the USD vs the Mexican peso. The Brazillian Real is about to jump upwards, as the Central Bank there will no doubt raise rates in June. As soon as oil reverses direction and tracks upward, I will jump on the CAD loonie vs the USD. I did well earlier on shorting the GBP and EUR, but the game is always in a state of change….. that’s good for us!
chaps – best to show by example. On a Dow 15 min chart draw a line from the open on 5/18, touching the close on 5/19 and extroplate till today. Look how on 5/24 the tops of all of the candles from 12:00 on all touched, but did not break the line.
On a Dow 15 min chart draw a line starting at the highest candle on 5/11, touching several candle bottoms on 5/14, 5/20, 5/21 and the low on 5/25. In both instances, these lines held like a fortress. BTW, These 2 lines are nearly parallel.
A break over 66.30, but you are right it was weak. I would much rather play TZA if it would just give me a signal; the Russell is too high IMO.
Unfortunately ( for a day-trader ) sometimes the market direction is East !!
MON was Jan 42.50/50 bull call spread. I also own IPXL and sold Dec 17.50 calls and puts, now at 21.45. Roll up callers? Putters?
I had been watching that one for weeks, and mentioned it only this morning. The big jump today must have come from PSW members, and hedge funds that track our stuff.
JRW – FWIW, on a DOW 3min chart I have a hard line at 10196 that may be limiting IWM from advancing further. The Dow can’t get over it. It has tried with 13 candles today.
JRW – I am in TZA at 6.93. Seems like least resistance.
gel1 I still have FXC on my watch list. Do you still think their currency is that closely tied to oil. It has had a big run the past 2 days. How would you play it?
Phil, I’m trying to establish the TZA hedge . I got filled on the Jan 3 calls at 4.10 as they were down from yesterdays levels. . should I cover now on the short side of the spread? or hold for a bounce in tza before selling the higher call? optimal strike?
ss & JRW It just seems IWM could go either way . ss Do you think the TBT indicator works?
I hope I can join you; BTW yesterday was a DeMark 9 day !
JRW – it’s good to know you are not a machine.
UGHHH! Out with 6 cent loss. Candle 14 was the charm.
JRW III: which deMark book is worth getting and reading ?
Wow! I’m getting this, you taught me your rules and your didn’t follow them! You sound like me… haha. thx again for all the confirmation.
SS, Out all day. Thought I’d check in for the end of day play. Looks like you are giving a line drawing class. Sign me up. I tend to look at DIA and SPY instead of the Dow and SPX — 102 DIA and 110 SPY, which coincides with JRW’s 66.30 line. Let’s chat sometime whether the ETFs or the underlying indexes are better indicators.
Phil is very inactive today ?????
SS/Gulf My heart goes out to you, your family and the others that live at or near the coast.
Last night I watched the waters and the sunset on the Pacific, an awe inspiring site that I enjoy every day.
I CANNOT IMAGINE what goes thru your mind when watching this tragedy unfold before your eyes. Hang in there.
With fingers crossed…… Randy
SS? Why long there?
All indicators pointing to buy TNA (short) not TZA(long)?
Phil – thoughts on JNJ while they are down? July 57.50 puts for $1.30.
Long Live the Euro…now bow down to our new emperor in China…=)…data.cnbc.com/quotes/EUR%3dX
Unfortunately not !!
I meant TNA(long) not TZA(short)?
Another words it looked like IWM was turning to upside and indicators were point long(TNA)
LINES -this is crazy, on a IWM 3 min chart draw a line from the highest candle yesterday at 10:45 and connect all of the tops of today. They line up perfectly don’t they.
What is the GOOD news that the market continues to go UP ? the leak-fixing must go well.
yipcarl You’re right, the masters have me confused last few…..
SS, Have we forgotten so soon? Screen play.
You mean held retrospectively, like on 5/24 for your first line. I don’t really get it. When you see something like the tops on 5/24 following a slope, there are potentially a large number of previous points that can be used to draw the corresponding line.
You’re interested in how the market will move in the near future. And we can probably find a number or past points that seem to confirm what’s happened today up to now. If today’s movement changes dramatically in the next half hour, there are probably other past points that will probably confirm today’s movements better, etc.
I don’t mean any disrespect; I’m trying to understand. But it seems to me kind of like "data mining", which mathematically is substituting correlation with causation – and using such correlation to predict the near future.
I would imagine in this case we’re trying to read the minds of "them" who are controlling the market. Is the premise that they’re taking a couple of previous points, extrapolating, and then driving the market towards the extrapolated line?
yip – you are correct. However, the Dow had tried many times to break the line and never could. I just played it one too many times on the counter move.
ss: yes, lineup good but where did we end yesterday ?
TBT line just crossed the IWM
ss: after 2:30, market went down yesterday.
ok, phil, i’m still not in TBT and I know you’ll tell me too late,
but i used to own it at 48 also.
PLEASEEEEE suggest a new trade for TBT for me nnow, thanks
On the spill, if not part of the solution, you are part of the pproblem. I listened and the Pres did not give a single pos, in fact he confirmed BP knows best. Same old story, extremely sorry SS!
Stock – glad I’m not alone!!! learning fast though
SS thanks for the confirmation! Now I’m pretty sure I understand the entry and exit on TNA/TZA… OF course I’ll need JRW’s lines… Once I learn to draw them I’m golden. It’s mostly support and resistance lines from past sessions so I think I can figure that…
Phil: thanks so much for FRO’s info. Very useful.
It’s a DeMark 1 day, so UP; it’s an oversold market, so UP; it’s EOM, so UP. But the Russell is too high and I’m set up for a short at IWM 66.63
As the gals in Alaska say – "you betcha"…. I am in The FXC (Canadian currency shares) as well as EWC (Canadian equity shares) and both are doing well. The bottom line is the economy in Canada is really cranking, and their debt is nominal ( comparitively), and the future looks really good. The price of oil is an issue in Canada as it is their largest commodity sale, however the overall long term lookout for oil pricing is UP, and the Loonie will jump, jump, jump when this plays out.
chaps; great comment.
Dir Movement Ind looks very similar to 2:30 on tues prior to the stick
JRW, Right there with you.
JRW III: this is hard the last few hours.
which deMark book should I read ?
Phil…. Your recent GOOG spread is doing VERY well…. as always – Thanks!
chaps – you are correct that this is rearview mirror charting. But, it provides predictions (reliable or not?) as to where the next support and resistance levels will exist. Just trying to share what I see.
Feel like I’m super anti trend trading but I would agree this is over bought and indicators all show overbought.
Long TZA at 6.80
JRW, 66.63. Stopped on a dime. Beautiful.
SS keep sharing rear view mirrors work fine for me, always have…
BIDU $72/77 bull call spread at $2.20 is an interesting play. You can sell July $60 puts for $1.60 to drop net basis down to .60 on the $5 spread. This is a sideways play on GOOG going up as BIDU usually follows them.
SU/Gel – Good idea! Jan $25/32 bull call spread at $4, selling 2012 $25 puts for $3.60 is net .40 on the $7 spread that’s already $5.60 in the money and your worst case is you own SU in 2012 for net $25.40 (15% off).
OIH/Gel – I was tempted to short at $105 this morning but there will be a lot of work for servicers bringing rigs up to new specs and, with oil heading back up, it’s a tough call here. Back at $120, I’ll be more motivated to short them.
10,200! Lining up with S&P 1,095, Nas 2.263, NYSE 6,845 and RUT 662. Also SOX 359 and DJT 4,343. Good to keep tabs on these things.
Just dumped my XLFs at $14.86 – good enough run for me.
Welcome back GMarts! Lots of new smart guys have joined us since… I agree with your TZA premise but need to cover if S&P pops 1,100, maybe use 2,275 on Nas and 666 on RUT as 2nd and 3rd checks. SOX up 4.74% right now so this train is leaving the station if they keep going. Just waiting on Dow to pop 2.5% today (10,225) and we could have indexes hitting 4% for the day…
Come on everybody, say it with me: Dear Lloyd, lead us not into temptation. We are weak and we fall for these low-volume pops every time. Keep us on the path of the well-hedged and light our way with solid floors we can use as stops when thy will be done – Amen….
Good point SS, we should all pray (and not to Lloyd) that they do shut the spill because real lives are affected here.
Bull/Bear DIA plays/Phlit:
Those two spreads may both decau slightly but a big move up in the Dow gives you net even and a big move down gives you a nice profit and a flatline can pay you a double too so I like this combo!
Oh damn, now you are putting conditions on it? Using the DIA is too dull and I wouldn’t make a bear play on the DIA as I much prefer to use ultras but a bullish play could be the Jan $95/100 bull call spread for $3, selling the $65 puts for $1 is net $2 with a 150% upside in 7 months. All the Dow has to do is hold 10,000 and you are up $3.
Disaster/Jomp – I like the TZA best at the moment. There’s a huge advantage to playing the already beaten-down ETFs as they tend to grind lower very slowly, which gives you lots of wriggle room. The DXD leg above is also very good with no margin required and the 2 SSO plays work too – actually, a very small gamble on the $45 calls to cover you beyond your TZA coverage is a cheap additional hedge but a total throw-away if we don’t fall, of course.