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Thursday, October 6, 2022


Testy Tuesday – Bottom Busting or Big Bounce?

Wheeee, what a ride!

Finally all our very boring sitting around at 75% cash makes us feel smart as the market makes what we hope is that final blow-off bottom to re-test our lows.  I already sent out an Alert to Members this morning so a lot of this is old news to them but nothing has changed since 4:30 so here's a quick reprise – What we are mainly seeing in the futures this morning is 2 major factors that are driving the markets lower:

1) Japan, where too strong Yen (88.6), -0.1% industrial output, -1.7% exports, rising unemployment (just 5.2%) AND lower houshold spending (-0.7%) numbers sent the Nikkei down 1.25% today to 9,570.  If you think about it though, pretty much all of that is a strong Yen issue because it lowers demand for the exports (making them more expensive) and then factories slow down and people get laid off and household spending drops from that PLUS the fact that it’s now cheaper for them to buy imports so they can buy the same stuff at lower prices. 

So, overall, nothing people shouldn’t have expected but ugly to read about.

2) China, where the Shanghai fell 4.27% today to 2,427, which is a lot because they are a 10% limit down market on individual stocks so you can bet the selling isn’t done if the AVERAGE was down 4.27%.  The Hang Seng was ugly too, falling 2.3% to 20,248.  What sent China off a cliff was kind of silly.  The Conference Board, which is a NY-based research firm had reported that Chinese economic indicators rose 1.7% in April – something at the time (June 15th) we thought sounded a bit high.  Well, funny thing is it turns out the people at the Conference Board must have been high on something because it turns out they made a "calculation error" and the correct number was just 0.3%.

There is a third factor in play and, earlier this morning I thought it was too silly to be considered but, apparently, you can panic retail investors over pretty much anything.  On Thursday, there are $547.5Bn worth of bank-loans from last year's special liquidity program that are due to roll over and there are rumors circulating that the ECB won't renew the facility at all.  The ECB has, in fact, already promised to replace it with rolling 3-month loans at the same rate, hoping to make it annoying enough for banks to seek long-term funding elsewhere.  The ECB is also pissed off at the banks who have taken their money for a year, yet haven't increased their own lending – which was the whole point of providing liquidity.  The same nonsense goes on here but, as I may have mentioned last week, our Fed works FOR the banks and just keeps funneling free taxpayer money to the banks while the banks keep reducing the amount of money they lend to those taxpayers. 

So Asia was awful and, in Europe, it’s another day of protest in Greece and Europe is dropping 2.25% and taking our futures down about 1.25% so far (8am).  Let’s watch those international 2.5% lines (red ones are the downside of course) around our key levels (circled).  None of these charts reflect today’s action, unfortunately but we will be looking for the DAX to show a little strength on that 6,000 line and we hope the FTSE can hold 5,000 and CAC 3,500:

We needed a blow-off bottom and hopefully this is it and not a sign that we’re in another deep downtrend (as many are betting on).  We have our TZA disaster hedge from Friday and Thursday’s SPX and other SDS hedges (like the one on the Buy List) short-term but we are generally too bullish for this drop, especially on our Mattress Play where the June 30th $102 puts we sold for $1.60 are going to be well in the money today (so they have to be rolled to July).   

Since we can expect the VIX to shoot back up to 40, the best way to add protection is going to be selling puts on ultra-shorts against bull call spreads, like TZA July $6/7 bull call at .60, selling Aug $6 put for .48 is net .12 on $1 spread for a 733% upside.  Our risk is owning TZA at $6 but a drop like this should show you that owning a little TZA can be quite comforting in the event of an emergency so if you are protecting $25K invested in a $100K virtual portfolio, then selling just 20 TZA Aug $6 puts (which can be rolled) for $960 and spending $240 more out of pocket buys you $2,000 of downside protection and your risk is owning 2,000 TZA at net $6.12.

Keep in mind that, if you are looking at a $2,000 loss on your $25,000 at this level then if TZA stops your bleeding here, even if the market rallies back and you end up losing $1 on 2,000 shares – it’s going to be the $2,000 you get back on your $25,000 bullish positions.  It is worth sacrificing some upside to protect your principal when we don’t know how bad things are going to get.  Also keep in mind, though, that if have sensibly hedged positions, like our buy/writes, that this drop is NOTHING and doesn't need to be protected yet and that means we can afford to take longer plays with better pay-offs to protect against further downside AFTER we have a real breakdown.  Right now, all we are doing is testing "flash-crash" lows again.

We absolutely don’t want to buy puts as the VIX will send the premiums way up and we’ll be paying top dollar on a momentum play.  That’s why we’ll be looking for some reverse-index puts to sell, like the TZAs because, even if the market turns back up, the VIX will shrink and our buyback won’t be so bad if we decide to take it off the table. 

So let’s not panic – this is why we are 75% in cash and this is why we always have a disaster hedge in place, to take advantage of just such a drop!  Take a good look over the Buy List as we’ll get some excellent entries and also, in the comments on the buy list, we had some 10 margin plays to make and those should also give us great prices into the drop as well as our list of 500%+ plays, which we should also get great entries on BUT – let’s make sure our red levels (-2.5%) hold up first:

Globally money is FLYING out of stocks and into US Treasuries and we are now at record lows (very bad for TBT) so we’ll watch that as well as $77.50 oil (now $76.30) and $3 copper (we’re right on the line) as both are generally bullish levels despite all this panic.  Meanwhile, our friend who initiated the XLB trade we followed last Tuesday was a genius!  The July $32/30 bear call spread was already 100% in the money yesterday at $1.40 (up 75% from .80 entry) and today is likely to be a good day to take that money and run as copper tests our mark and FCX looks for a bottom around $62.50, which is a tempting buy down there.   

If this selling keeps up, it’s going to be a rotten way to end the first half of the year but, as I mentioned last week, we were relentlessly driven down last year from June 12th (8,800) through July 10th (8,150), a 7.5% drop that was reversed in one week and led to the insane rally that took us up to 10.500 in November so it seems a little premature to panic as we fall from 10,500 on June 18th to perhaps 9,800 today (6.66%).

So here we are again, right before the Holiday weekend and, wouldn't you know it – we're heading down!  It's very comforting to see our 5% rule obeyed so well as we fail at the 10,500 mark this week (20% up from 8,750), which makes our EXPECTED retrace (20% of the run) 10,150 so we'll be watching that line closely on the way back up but, for now, we'll be watching that 5% pullback off 10,500, which is 9,975 – which is what we need to hold to call this just a bullish pullback.

I’m expecting Case-Shiller Home Prices to be a relief (9am) and Consumer Confidence at 10am may be an upside surprise as well so maybe our open won’t be all that bad but, right now – the futures are awful!  Ideally, we would at least like to hold those June 8th spike lows and the June 7th close, which were: Dow 9,725 (low close 9,815), S&P 1,042 (1,050)  Nasdaq 2,145 (2,158), NYSE 6,480 (6,512), Russell 608 (617), SOX 326 (332) and Transports 1,921 (1,955).  So scary low numbers to shoot for but much more important to see us hold those closes.

9am Update:  We did get Case-Shiller and we had great numbers – +0.8% vs -0.5% in March and up 3.8% for the year, better than the 3.5% expected and the 2.3% in last month's measure BUT, the S&P took ALL the fun out of the report by titling it: "While Most Markets Improved in April 2010, Home Prices Do Not Yet Show Signs of Sustained Recovery."  Not very catchy is it?  So that has done NOTHING to improve the futures, nor did ICSC Retail Store Sales, which were off 0.5% this week but that isn't stopping them from forecasting +3-4% for June as the calendar shifted Memorial Day sales into the June count so May was better than it seemed and June will look great – next month!

We're going to watch FCX at $62.50, AAPL at $260, CAT at $62.50, PFE at $14, OIH at $95, XOM at $57.50 and XLF at $14 as all are stocks we'd like to sell puts against and all are stocks that should hold their lines in various sectors IF WE ARE NOT BREAKING DOWN.  If they can't keep it together, then we'll be hitting those disaster plays hot and heavy

Let's be careful out there!   



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Remember, its not our job to save the market !  Don’t be a hero.
That said, there are some good buys out there if you are looking beyond the day trade ..

Phil/TBT… My 2012 strikes are 32-35, and as we get closer I will DD and roll lower if necessary. I might have 350,000 shares at .05 by the time this crazyness ends, but if that plays out, then the world has gone back to the stone age and who cares anyway!


try etrade. The rep spent an hour with me last week cleaning up my machine! reloading JAVA, etc. I was impresssed

 but this is no time to be a value investor as key support has been violated

New version of the TOS iPhone app sucks. It keeps asking for password to execute a trade. Also there is N annoying popup everytime you click on the ‘remember me’ button.

Closed out all my covered calls that have 25% profit…. will go uncovered into tomorrow’s market.

 That C fat finger really wasn’t a fat finger at all

2 good TZA trades of IWM 61.90, 8 cents and now 15; out for the day at 8+%

Took out 83 cents today on TNA on the long side !  Hilarious.
Some bot is trying to stick it now !

Sold half at 17.14

IF this is a bottom, how fast of a move up would you all expect? Back to what levels?

Even with a bad jobs report, the sell-off may have occured…..

The fibonacci of June 7th close and the open on the 8th is 17.18.  Why get greedy-

etrade spent 1.5 hours this morning with me, very nice but pro was designed by an idiot and they don’t know how to run it. 1 step forward 1 step back! Don’t like theTOS talk either.

AAPL approaching its lower uptrend line at 253.

Wow, look at AMZN down $9 !

Looks like the PPT’s turn.

 Wow someone must be covering shorts…

…glad you’re finally having a good day!

MorxIntway – I use EtradePro and learned that it is a good idea every Friday (once a week) to go into Java Control Panel, Temporary Internet Files Settings, and Delete Files…  This clears out any accumulated clutter in the Temp file.  The file is recreated when you start next time.

Keep in mind this stock is held by many that are seeking dividends. In January, the administration hopes to rtevise the dividend tax from 15% to the top marginal rates. This will hurt the stock as many will sell prior to the tax change. The only hope is that the coming elections will negate the power of the tax and spend croud, and the dividend tax proposal will die.

What an impressive come back to just 1040 in the SP500.. Unbelievable, no doubts this is heavily manipulated..

Matt    I havn’t seen you this happy in months.   Congrats on your great day.

Well, I got stuck with half of my position.  Will unload after hours.  It’s clear they were positioning themselves for a relief bounce tomorrow.  Cramer should be taken off the air.  Think of the fools he burned again-
Despite the disgusting taste he puts in my mouth…. what a day!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Phil, what do you think of Jan ’11 PBR 33/40 bull call spread at net -$2.83 against sale of Aug 33 put for +1.75 for a grand net  of -1.08, with PBR now at 34.18?

thanks Grant

gel1           I everybody sells their high dividend stocks, where will the money go?

I find need to clear internet temp files twice a week and clean disc every day. I am still dumbfounded by noone knows how to really use etraepro, they were patient from 8 to 9:30 when I said have to go.

Gains in my daytrading;  overall my account balances pretty much flat for the day … nice !

Thanks Gel.

shadowfax –
what do you mean by clean disk every day? Do you defrag it or something else?

Thanks guys-
New intraday low on the S&P and NAZ, new closing low on the NAZ.  Nothing new on the RUT or DOW.  Phil, what about the NYSE?

 One thing I did wrong today was sold those QIDs to offset the losses on my SSO.  Ugh!  Got rid of other Puts too early–NFLX & AAPL.  Bought some Aug puts on the XLF earlier today when there wasn’t a good reaction after FinReg would pass w/o bank tax.  Sold half of those into the close and will hold the rest overnight as I have some C and BAC long positions.
So I have put spreads for the near term (July and Aug) on the ff:
-BRK.B (still relatively strong)
-RIMM (bought it before earnings which is now deep in the money and will look to sell downside puts if there is any stabilization in the 50 or 47.5 area)
-XLB (followed big money with the 40/38 put spread–took 1/2 off today)
I have no short term longs as I took a loss on my SSO position.
PFE/MO/INTC/PBCT/C/BAC/QCOM/BUCY/RIG all taking a big hit.I was looking to sell a Put on MO but it couldn’t hold 20 so I’ll watch to see if goes down to test lower half of 19 before selling those puts.  Otherwise, I will be happy with Sept 19 covered call with a net entry of 18.28
Remaining hedges: 
DIA- July 103/100 Put spread (did not play this one well)
TZA- too many positions to list but all in the green (Thanks Phil!)
VIX-Aug 25/30 call spread (bought when VIX was below 25
SPY-103/100 Aug P spread

One of windows system tools is Disc Cleanup and right next to it is defragmenter, once per week it really speeds things up, ignore their you don’t need it yet, by that time you will want a new computer.

Lori/VZ- perhaps you are already aware of this, but VZ is putting  their wireline business  into a subsidiery which will be spunoff to VZ investors. This will then be merged into Frontier Communications. I received in the information packet to shareholders recently, and from what I could calculate based on the provided numbers, VZ shareholders will receive approximately 1 FTR share for every 4.25 VZ shares. The information packet is available from Sec.gov. Hope this helps.

Is there ANYTHING we can do to protect America from Cramerica.. or is he too valuable to us as a contrarian indicator?  He is a weasel of the nth degree.  How can he live with himself?

Stockbern…. If there is a rotation out of the high dividend stocks, it will go directly into high growth stocks. A lot of these high dividend paying stocks are held by folks that are in the upper tax brackets, and have held the dividend payers for income that is sometimes half of what they are paying on their ordinary income. If the incentive is no longer in these stocks, I believe the target is in growth stocks that will offer capital gains, and these taxes are projected to go from 15% to 20%. This is a lot less than the "smash and grab" policy the government is hoping to pass relating to the dividend payers. In January of 2011, the big energy trusts in Canada are,  for the most part,  an investment of the past, as the government of Canada is terminating their "pass through" dividend benefit. Say  "good bye" to those dividend payers. Most of the trusts are converting to corporate status, and some will pay dividends, but the payouts will be sparse in comparison. I am in a lot of these trusts, and will dump my units soon, before they depreciate for the same reason I believe the high dividend stocks in the US will depreciate…. they are not as attractive if the government is taking too much of the income. 

 Hey Phil,
You prob noticed these too:

BP: This is probably what’s keeping it afloat for now:
Interesting that $NYA, $RUT, $DJT and $SOX did not breach June 8th lows at any point today.

When do you think its time to bail on dividend stocks as I have too many mostly down now?

 gel1: or they could take their money out and put them into high yield bonds vs. growth stocks.  Problem with growth stocks is that government could start to look into any sector which they can tax or regulate which add costs to companies to comply with hence hurting their bottom line.  First it was healthcare, then financials.  Cap and trade would be next I suppose and maybe card check?  
I want to make this disclosure right now–this isn’t a political explanation.  Just my thoughts which I think has some type of merit.  Then again, Phil may dispute this line of thinking…yikes! 

Phil- during the day when you give out suggestions and those trades go the other way, at what point do I get out? For example the UNG trade today or the July QQQQ 44/46 bull call down close to 50%. I have a 15k IRA account and small losses like these are hurting me.

Also, I have Jan 12 60 calls. Is there a way I can cover them?

Look at TSLA.  In a huge sell-off event like today, an IPO managed to get 40% bump.    And here we were wondering if it could hold $18.

hi Phil : Couldn’t get the DXD $32/36 bc spread for additional  protection that you recommended even close to the $.50  you suggested so  I bought Oct.TZA $4 C at $4.10 about 10 minutes before close since I got concerned when S& P broke 1040 support & wanted  more protection overnight. Plan to get other leg executed to sell Oct. $12 C for $1.20 tomorrow. do u agree with the $12 C sale? Should I also sell puts? TZA closed at $7.97 so $3.97 ITM on $8 spread. thank you for your help. 

Dividend Stocks:  While it will no doubt come to pass that tax on dividend income will increase next year, a 3% dividend may be a higher return than a 30 year T Bond by then.  So that begs the question asked above:  when you sell your dividend producing stocks where do you put the money?

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