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!
In TZA at $6.79.5, still scaling in
I’ve got a line at 66.45, be careful !
Wow you beat me by a half cent! At what price will you double down you position? What is that based on?
If it fails, the more it’s failing, the more I short !!
Chaps, That’s a great observation and question. To my way of thinking, the premise is similar to the underlying premise of Phil’s 5% rule, that is, finding support and resistance points that are widely enough used so that they become self-fulfilling. Of course, as Phil will say, his lines don’t move, but they are not used for daytrading either. I’ve been following JRW’s lines, when SS first started asking JRW questions, for 6-8 months now. All I can say is that I have observed again and again, as IWM will go right up or down to a resistance/support point or trend line (identified ahead of time by JRW) often to the penny and then reverse. It has been uncanny. Look at his 2:40 post today. Doesn’t happen every time, of course, but it has sure made a believer out of me.
Phil: Its 3pm and what will market do ? or what has the big money programmed ?
Juda… It certainly is uncanny. I’ve seen this many times before, I just got away from it glad I’m back on S&R Lines they are amazing. I’ve had discussions for days about why or what or how….. I gave up, I don’t care, they ‘mostly’ work.
Phil…. Today is busy – when you get a chance to respond – I concur with the projections for hurricanes this year in the Gulf ( Louisiana sure does not deserve this) but UNG will rise like the tide, should this materialize, I thought I would sell some puts – your thoughts?
JRW if it breaks 66.63… how much room do you give before blowing?
if it breaks: breaks means going up or down ?
blowing: you mean what?
need ss for clearer terms.
Looking still at the DIA mattress I guess I should not sell any Jul puts if market stays as is Dow now 10200
your thoughts thks
Depends on the strength of the move; perhaps 66.74
Anyone notice the two sixteen year olds posing as adults on the latest Lind- Waldock commercial? I must be getting old…… 😉
Phil: I want to own cree. if i get your strategy right. i buy 500 cree @ 68.61. I sell 10 jan 2012 70 call for 19.00 and 10 jan 55 put for 11.20. Is this a correct strategy to own cree, Are these the options you would recommend or are others better? Thanks
I’m a mathematician by training, so I knew of Fibinacci before getting involved with markets. Of course, there’s an endless debate, unresolvable, about TA. And I know TA can be, and is, self-fulfilling, etc – until it gets too out of line with fundamentals, which ultimately rule, IMO. I know enough about systems analysis to understand why people apply wave theory/Fibinocci sequences to markets. So I accept the plausibility of support/resistance levels.
sorry a mistake 500 shares and 5 calls and 5 puts instead of 10.
JRW, judah -Can you believe 666 again on the RUT. Man it feels like we have come across that number so many times.
JRW…. I drew your S&R as horizontal lines on an IWM 60 minute chart…. now I’m smelling ya.
Interesting you picked 66.63 for the high when the last time IWM was this high was 5/19/10 and the candle wick low was 66.58. however you picked 66.63…unless your software has 66.63 for the low I find that interesting you chose just a few cents higher than the last low(resistance) because besides that low point there is nothing else to go by..
R2 is really resistance at 66.72. Yes ??
JRW III and ss: was there indication that they would run it up all the way to R2 ?
SSO/Yip – Yes, it is terribly rudimentary but you are correct. You sell the put for $2 and keep it no matter what so, if put to you at $37, your net cost is $35 on the SSO but, of course, keep in mind that a 10% move back up in the S&P (and they are up 2.5% today) will drop SSO 20% to about $30 and you will still be assigned at $37 so your net loss is $5. I am not a big fan of short-term put selling unless it is TRULY a stock/ETF I REALLY want to own for the long haul. I don’t mind being assinged TZA at net $6 in July because I know it can only get $6 lower if the Russell goes up 33% or more and I know that, even while it’s doing that, I’ll still find some sucker to pay me .50 a month for calls, probably all the way down to $3. I’m not as confident getting stuck with SSO. Since you can sell 4 TZA July $6 puts of TZA for .55 instead of one June SSO $37 put for $2 and since 80% of $6.80 is $5.44, I am covered to a 20% drop in TZA, which is a 7% rise in the RUT by mid-July (710). Those can likely be rolled to 2x the Oct $4 puts (now .22) and that requires the RUT to go up 11% more to 788. Seems a little more comfortable, right?
Not holding 10,200 is not good!!!
MON/Shadow – Well those are right on track! There’s a reason we went conservative on that round. If you haven’t sold puts, you may want to sell the $40 puts if they get to $3+ (now $2.55) adnd you can use that money to Roll down to the $37.50 calls (+3.40).
HUN/Gel – Yeah, that’s a big move for no particular news. Naughty boy, moving the markets like that! 😎
TZA/GMarts – I’d go for it into tomorrow but I’m kind of aggressive that way. Worst case (hopefully) is you pay $2.30 for the spread instead of $2 and best case is we drop 100 or so points and the VIX spikes up and you get the spread for $1 so it’s a .30/$1 risk/reward to gutting it out.
Inactive/RMM – So is the market…
JNJ/Morx – They did something bad with Tylenol Children’s. I wasn’t paying much attention but I’d let the smoke clear first. Tylenol (again) and Children is a very bad PR combo.
TBT/DMan – 10% too late! I would just play $40 to hold with the Jan $35/40 bull call spread at $3, selling the $35 puts for $2.20 is net .80 on the $5 spread and net margin of about $5K but you really don’t need to sell the puts UNLESS TBT goes below $38 (your b/e on the spread) and then you would get a much better price so if you are patient and can accept the possibility of "only" making 66% by Jan if TBT never goes below $40, then it’s a nice trade to leg into.
Volume a little warm to be stickable and Dow can’t crack 10,225 so far and S&P not 1,100 and RUT doesn’t like 666 but we’re past yesterday’s sell time so the close could go either way (or no way at all).
Phil / double dip Todays continued new claims disaster, poor GNP, housing signals, Euro fiscal belt tightening/liquidity squeeze signal double dip. Summers knows, hence new stimulus overtures. I thought the mkt was fwd looking!!! My EDZ mattress is looking sick, should I bail on that now expecting further mkt upside?
Phil – june $103’s for mattress covers?
Phil….makes perfect sense… Thanks…
I changed my mind – we’re up 5% from the lows in the futures (Dow 9,828, S&P 1,055, Nas 1,783 (now 1,853) and RUT 634 so I am thinking it’s more likely we get pullback of 1% here, either into the close or tomorrow morning. Good test of the 5% rule.
Phil: deMark indicator book: do you know whether one of his books are worth reading ? had asked JRW but no comment.
RMM – remember that IWM line I asked you to draw from yesterday’s high, it is now acting as rock solid support for the last 32 minutes. (of course until it doesn’t). We are stuck in a wedge between this line and JRW’s line which is near R2. Which way will she go?
AH ha! 60 minutes was to short I needed 120 min chart to see back that far!!!
Nice JRW I’m totally with you on these lines, so glad I …errrr you helped me RE – find them. Thanks!
Market doesn’t want to make a decision! Were stuck here at 6.80
judah – TBT says down.
ss: it will dive some.
Sorry, thought I posted, Google it for starters,get the concept, try it ; then buy a book based on popularity. I can’t remember the one I read 2 decades ago !!
ss: what di the LINES give which the R2 did give? the R2 served as resistance, your lines showed that it might move up to resistance.
Is that good logic ?
Chaps, A long time ago, I was training to be a mathematician, but the math got too hard. 🙂
I’m not much of a believer in TA, per se, and JRW is successful more because of how he trades than just the lines he uses. He posts his lines for everybody, but not everybody can make it work.
Phil: Moving average: which time interval is important for daytrading ? 5 or more ?
ARRY/ace – not sure why the spreads are so high. They have data at the ASCO conference with all the other cancer companies…..
RMM – not sure I understand the question. The line I referenced acted as resistance until is was broken and went above it. Now it is acting as support. Since it is an upward diagonal it just happens to be approaching R2. Currently it is at 66.54.
The math gets too hard for all of us at some point. 🙂
I totally agree about JRW and trading skills. I just read "The Big Short." One take away was the observation that Warren Buffett is Warren Buffett because he focused on something that he has an uncanny knack for doing. Most who try to copy WB don’t have his success.
3/4 cover here on the HK anchors, got .92 for the 19s, not quite my $1 target but close enough.
ss: well. it followed pretty much your diagonal line until it got to R2.
TIme to bounce out of TZA? Looks like the market is going to do the opposite of yesterday….
Dear BIDU, will you PLEASE DIE!
Phil / SSO vs. SDS: Phil, I think I saw one of your spread suggestions above that was meant to be bearish, using SSO rather than SDS (which is the 2x bearish S&P ETF). Just bringing it up in case someone was going to make the trade without checking themselves.
RMM – still between R2(66.69) and my diagnol (now 66.55). The wedge is narrowing.
Narrowing and pushing up…
Phil, how much tracking error have you noticed on the long term disaster trades when using the levered etfs? There is a lot of talk out there that they perform poorly if used as a long term hedge (ie. Jan TZA 4.00-12.00 Call spread).
SS/666. There we go.
Mr: M: why do you want BIDU to die?
Phil, Don’t understand your comment about SSO at 3:20
"… keep in mind that a 10% move back up in the S&P (and they are up 2.5% today) will drop SSO 20% to about $30 and you will still be assigned at $37 so your net loss is $5."
Why would SSO drop 20% when S&P goes up 10%? Are you thinking of SDS, maybe?
out with 6c loss