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Saturday, September 24, 2022

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Friday Fizzle – Skimming the Top of the 2.5% Range

 

SPY 5 MIN CHART

Was this a "good" week for the markets?

 

 

Yesterday morning I put out an Alert to Members regarging our level watch:  "Keep in mind that our 2.5% levels represent a 5% run from the bottom since last week so it’s natural that we get a 1% pullback from there so the key is to hold the 1.5% line – THAT will be our bullish indicator:" 

  • Up 2.5% (we hope): Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650
  • Must hold at 1.5%: Dow 10,353, S&P 1,086, Nas 2,233, NYSE 6,902 and Russell 644
  • Middle Range (MUST hold): Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.

As you can see from David Fry’s SPY chart, it was an interesting day and we did pull an aborted stick into the close which kept us over 1,100 on the S&P and 7,000 on the NYSE and , as you can see, our 1.5% lines did pretty much hold up as a bottom test, other than the Russell, which we had already given a pass to in the morning post as they’ve been so pathetic we’re just proud of them if they try.

SPY WEEKLY CHARTWe had shorted PCLN in the same Alert (congrats to all who took that one!) and the inventory report chased us out of our upside oil plays (but not nat gas) at 11 and that initiated the market slide along with, as Dave notes, a poor Treasury Auction that finally got TBT back over $33 (I had also mentioned shorting TLT several times in the past few weeks).  Is this the beginning of the end of the free money express – stay tuned for more action next week!  

This week’s action isn’t done yet and we still need to hold our levels.  As I said yesterday, the best time to take disaster hedges is when we’re testing our 2.5% tops, as we were in the morning.  The Dow topped out just over 10,455, tested it until about 12:45, then failed BEFORE the auction, the S&P topped out at 1,110 and held its 2.5% floor, the Nasdaq hit 2,255 on the button at the open, the NYSE also held their 2.5% line as a bottom, and the Russell fell hard but then played around the 635 line in the afternoon so we continue to watch and wait on that one.    

I am not TA guy but If I were a bear, I’d be pretty darned concerned about the charts as it looks to me like the 20-day moving averages are registering a short-term mistake in a generally rising trend.  If you hold these charts upside down, it does look like a head and shoulders pattern is forming so we’ll be looking for oil to pop up (but not too high – $77.50), gold to come down (but not too far – $1,150) and the SOX to hold 320 and get over that 340 mark (we picked up some Semis this week and I like USD, now $24.71, as a general SOX play). 

Europe and Asia are also looking much improved, with rising 50 dmas everywhere but Japan so EWJ makes a fun upside bet as that index is off about 10% since April.  EWJ is just $9.73 with the Nikkei laying around 9,200 and the March $10 calls are just .40 with a delta of .40 so they will double if the Nikkei gets back to their April high in the near future and, as long as they do it by March, we can hope EWJ follows back to their April high of .60.  Since the reasonable goal on a trade like this is to make 50% and the best expected case is a double – we should be quick to take a 50% gain off the table if it happens unless things look super-bullish

Copper is a very important indicator for us.  If they can’t hold their lines – then we get worried again.  Also we need to watch the Baltic Dry Index as they test that 3,000 mark, which provided good support in the spring.  Asia was up across the board this morning and China had a huge 35.2 increase in imports, which poped the Nikkei 1.5%, the BSE gained 0.7% and the Hang Seng added 0.4% (again) and the Shanghai bounced 0.26%.   China still has a $20Bn trade surplus but this is very good news with China spending $119Bn on other people’s stuff in August – a new record – and that makes all their trading partners a little bit happier. 

Housing prices in Hong-Kong are back to their 1997 highs and even Japan’s economy is slowing less than anticipated, with Q2 GDP revised up 225% to 1.5% from 0.4% although prices still dropped 2.5% in the quarter.  Prime Minister Kan rolled out a 920Bn Yen stimulus package today and everyone was very excited until they realized that was just $11Bn so back to the drawing board on that one… 

Europe had a rough open but recovered to flat as of 9am – there were merely reacting to our disappointing fizzle yesterday.  Greece’s budget deficit fell 32.2%, year-to-date and that’s well ahead of their 26.5% goal and on their way to a 39.5% cut for the year.  "The progress of deficit reduction has been temporarily hampered over the last two months because of a buildup in interest payments which amount to 40% of the year’s debt-reduction target," the ministry said in a statement.   Also improving in Europe, UK house prices hit a 6-month high.  This is good news for us as they began failing about 6 months before we did so hopefully we can follow them out of the hole we followed them into.  

We’re not expecting much from the markets today – lots of reading to do this weekend ahead of next week’s heavy data and there will be lots to talk about but, for today, we’ll just sit back and see how the indexes perform around our levels, which we’ll be happy just to hold into the weekend.

Have a great weekend,

– Phil

 

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For a low volume day.. that was pretty heavy selling of FAS into the close.  Net short over weekend.  Go figger!  😎

Thanks Phil.
Interesting points you make on how perilous playing (bearish)  "popular" momentum plays could be as there are too many reasons it  could move against you on a dime.

Just pulled up the /ES 5 minutes chart today and I haven’t seen anything like that for a while.  Very indecisive.  The back and forth did help to get my orders executed today.  Now, I’m hedged and ready for the weekend.  Have a good one!

flip/BRK.B: You made a good trade. Assuming you’re willing to own it for what it would cost put to you (I certainly would be willing), I’d hold on. If you rolled to the $75, you’d only be netting about $1.35 in premium to give up $5 of position ($70 to $75). Not worth it, IMO.

Pharmboy:
When do you plan to sell your shares? After the report is released or Friday before FDA panel?
Thanks.
dclark41

Can someone share with me the philosophy of how you handle a Buy/Write once you are in (ie Buy current price stock, sell Jan12c, sell March 11p or a link to the strategy within the site?

Can’t wait for those daily options !   And hourlies !  LOL.
 
No pinning on the weeklies that I can see; not even on indexes.

Interesting article on Barry’s site:
http://www.ritholtz.com/blog/2010/09/smackdown-paul-kasriel-vs-michael-boskin/
The employment graphic at the end seems to confirm that as with the last 2 recessions (1991, 2001), we face a jobless recovery! 

 Quick question on evaluating trades.. Would appreciate feedback on how to best think of the risk/reward ratio
 
I have sold Sept Puts on Pacific Gas & Electric (PCG)  in light of the recent drop of 8% to 44.30 due to the pipeline explosion.
 
50 Sept 40 Puts for .20            Margin 23K            Premium 20c        Intrinsic 0
50 Sept 45 Puts for 1.30          Margin 50K            Premium 60c        Intrinsic 70c
 
I am assuming that PGE does not get held responsible and that the stock makes a recovery back over 45 even though it may drop short term.
Which trade constitutes a better risk/reward profile? Comments would be appreciated. 
 
TIA

 Hi OncMed and everyone,
I too sold Sept puts.  Sold 40 P for .30.  But I think Phil and most people here would agree, you sell puts on stocks you want to own.  I don’t mind owning PCG at 39.70 but I also know that things could be uncovered between now and OpEx which could just slam this and so I didn’t sell as many contracts as you did.  Those 45 seem dangerous.
I sold 20 contracts at .30, took 1/2 off at .15 and hedged those 10 contracts by buying 3 Oct 45 contracts.  The IV is purely in the front month.  So actually selling Sept puts and hedging with back month contracts ain’t a bad idea.  
I am somewhat worried about your Sept 45 P.  But again, if you feel comfortable being owning PCG between here and 40, then no problem.
Another thing I want to clarify–your basis for selling puts is that PGE will eventually head back up sometime in the future.  Then why not sell back month puts?  Unless you’re okay with the stock being put to you especially since they will be paying a div later this month.   And if you’re playing it for an up move, why not buy some calls? 
Just my opinion.  
Good luck to you.  

ARNA/dclark – Wednesday next week.  Data released on Sept 14.


Thx, for the reply.  That was one of the first trades I made on Phil’s recommendation, and caveat,  two months ago.

Pharmboy:
So I assume you expect the price to go up after the release of the report on Tuesday. May I ask what the range of prices you expect after the report. Do you have a best case/worst case scenario. I was in on Dendreon and now Arna.  Looks like deja vu!
Thanks
dclark41

ARNA/dc – I expect on Mon or Tues for them to at least get back to $7.5, but I am looking at more like $8-9.  Watch over the weekend or on Mon morning, someone will say BUY…..short interest is way up, and I want to know what/when it was, but refuse to pay for the service.  I think the squeeze is on. 

 

As for DNDN, look at where they are now, compared to where they were.  ARNA is a roll of the dice, but now that Adam F. from the street dot com has info out on them, he is the BEST contrary indicator!!!!  he said VVUS was a slam dunk, DNDN was not going to get it…etc….

oncmed
PCG. Phil explained it very mildly. I would rather have taken a trip to LAS Vegas enjoy a nice show and play the rolet table just on black and red.
We just had a very clear example what can happen with BP. a solid company, where millions of people now waiting for there pension money, never mind what you lost on stk and option value. Just look what happened to the place after the explosion. The nearby hotels are already full with lawyers, like shake feeding frenzy. Selling an ATM put to hope that the stock will go up within a WEEK,. I saw DB yesterday taking a dip to 59$ thinking I take the gamble selling 5 Oct 55p for 1.61,  they back to 60$ today no fire no dead people, no burned down houses. I can sleep with that.
Possible PCG get saved by a white knight, but in the end tell me who owns the pipeline??? Good luck we see in a week.

Now why didn’t I think of that – just give myself my own personal tax cut—

http://latimesblogs.latimes.com/washington/2010/09/congress-taxes-irs.html

Sorry Phil,
 
The calls and puts I sold on RICK(bought at $8.91)was for Nov. $10, so my net will be 6.27/8.14.   I will wait it for a while.
 
Thanks and have a great weekend.

Pharmboy:
Thank you for your insight. Just curious why you don’t sell the Sept. $7 calls covering your shares. I believe if you are called it will be effectively $8.85 a share. Unless you think there is a reasonable chance for it to eclipse your $9 ceiling?
dclark41


RE: Alternative minimum tax:
 The vast majority of those making $250k or higher are already stuck in the AMT trap. Therefore the bulk of this increased tax burden (if AMT is not allowed to expire) would fall on those making between $100k and $250k.
 
Estimates range from $4,000 to $6,000 increase in taxes per year for a $100,000 a yr. earner.
For or against?

Outrage/hypocrisy/taxes
Your point about wheather the unpaid taxes are out of line with the general population is a fair one. That would be interesting to know. Perhaps your contacts at the Washington Post could provide that info as they (according to the LA Times article) were the source for their story. I just found the point of the piece to be mildly ironic and entertaining in light of the current tax issue debate. If you have a beef with the article, take it up with the LA Times and the Post, not me.

"yet another right-wing rag"

Really?  – The Tribune endorsed Durbin, Emanuel and Obama in 2008

http://www.chicagotribune.com/news/opinion/chi-08endorsements-htmlstory,0,5602186.htmlstory

As to Rangall, I think he cooked his own goose. He did not need any help from Zell.

Outrage? Yes – at a tax system so convoluted, complicated and corrupted that citizens (both rich and not so rich) are compelled to hire attorneys, CPA’s, estate planners, work out specialists, preparers, software developers, storage facilities just to navigate the maze.

 

Thanks Phil,
 
I took that RICK trade from your post on 6/21/2010 when I was a new member… now I know better.
 
"Speaking of strip clubs – RICK is pretty cheap again at $8.85 and the Nov $10 puts and calls can be sold for $3 for a $5.85/8.93 entry, which is obviously bullish but I think this stock is very undervalued and you make a whopping 70% at Nov expiration if they are over $10."

ARNA
Good description of the FDA process http://www.gekkowire.com/

 Good morning everyone.  I just put up a new article for this week about trading with an edge for monthly covered calls.  Click on my user id and let me know what you think.  It is easier for me to track comments on my website.

Oh Boy, its Sam Zell’s fault that Charlie Rangel is a crook !
 
Now I’ve heard everything !


So you are in favor of the AMT and the additional  of $4,000 to $6,000 on top of the tax rate ( already in force confiscating the earner’s money), that would affect a $100,000 earner,  right? Just forget about the political shenanigans and who did what,  that one party plays on another, for once, and deal with the question WADR.

As for Obama & his super majority Dem Congress not getting anything done do to those pesky minority Republicans, consider this:
 

http://www.nypost.com/p/news/opinion/opedcolumnists/damned_by_success_AOcrx67rshnYt9aTtBcaCP#ixzz0zFCnK4g8
The electoral crisis faced by Obama and the Democrats isn’t solvable between now and Nov. 2, and will be difficult even to mitigate.
The problem is that Obama and the Democratic leadership in Congress have done what they wanted to do. They wanted a gigantic fiscal stimulus and they got it. They wanted health-care reform and they got it. As their supporters among the chattering classes argue incessantly, Obama has had a historic first 18 months with an astonishing record of achievement.

They should be proud, no? Usually, successful people don’t want to hide from their successes.
Except when they are catastrophic successes. And these were.
In arguing for the enactment of these very dramatic policies, Obama and his people made claims they clearly now regret, as when his chief economic adviser said the unemployment rate would fall to 8 percent as a result of the stimulus. …….
 

http://www.nypost.com/p/news/opinion/opedcolumnists/why_we_miss_bush_9o63exgvXPSRHG0LYe9bSK
 
http://www.nypost.com/p/news/opinion/opedcolumnists/bam_in_the_bunker_wq02ywZxJFUza5mICzBQVK
"still pitching ideas voters hate"
 
And also:
 
http://www.nypost.com/p/news/opinion/opedcolumnists/their_feast_our_famine_l4AlbMStL0ZEfdONzdUVdJ
 
http://www.nypost.com/p/news/opinion/opedcolumnists/mta_free_pass_for_labor_3k0cEmL5vdi7AWbYeKWgUN
 
 
As Deval Patrick recently said (paraphrasing)," the problem is we live in a free country; I wish it weren’t but that’s what we got.".   That’s the regret of the whole party in power, it seems, super majority’s aren’t enought, they know what’s good for us even when we say Hell No !

ARNA/d – b’c if they are denied, they will be less than $3 if not less IMHO….Not worth the risk for me at this time.

I`m a chart guy.
There are a lot of healthy signs in the charts.
The railroads are all reaching new highs, the market leaders threatened a collapse then took off again (NFLX, GMCR, AMZN, CTSH, CMR etc)
LULU, a stock I love to hate, went ballistic on earning.
Some of the stocks Phil recommends for buy/writes look ready to move.
MRK, CCJ, PFE, SPWRA, S (I own them)
Others look like value plays very near significant support and worth a try though the charts are`nt bullish. ( I own them).
UNG, GLW, JEC
Some are so oversold and ignored, I think they need to be watched, they are just to good a value to be ignored.
INTC, AMD, WDR, STX ( I don`t own them)
The explosion of the ags makes me wonder why MON is being ignored, the chart certainly looks promising.
A stock I am buying is ANF. Back in April, Credit Suisse realeased an upgrade that highlighted the companies international exposure which intrigued me. 8/31, it got an upgrade with a target price of $43. It was heavily sold last week, but held $35. Support at $32 and $30. Solid at $30 and below that I would think to sell.
Options are liquid and spreads are small. I daytrade it a lot.
Pays 2% dividend.
12 JAN  35`s can be sold for $14.85 , stock is at $34.85. So you can get in for $20/ $27.50. 
Retail may get a boost from LULU.

Ha Ha Phil … .all those columns in the NY Post are syndicated columnists and in many other publications as well.  But you know that.
So ignore the message; shoot the messenger.  As the articles I linked to provide clear, concise and hard to refute arguments and analysis, it is no surprise that your comments were limited to "well, NY Post, there ya go".
😉
 
As for tax policy, of course people (rich or not) will look for ways to minimize their taxes, most even do it legally.  And even the rich Democrats do that, imagine that !   Surely Buffett, Gates, Schmidt, Bloomberg, Gore, Burkle, etc. are quite expert in not paying more tax either, don’t ya think ?   And Obama’s raising the tax rates on the +250k rich, probably isn’t going to capture more $$ from these folks (on both sides) who will exploit every nuance of the tax code and create foundations to make sure the gov’t doesn’t get any of their dough.
 
Its a big difference of course when our holier than thou elected and appointed officials in government, those responsible for writing and enforcing the tax laws, are tax cheats themselves, which is something you also seem to ignore.   "Do what we say, not what we do".   Geithner and Rangel are simply unfit to be in the positions they are in due to their own unethical behavior.  Surely you don’t disagree with that ?
 
Anyway, off to fall Little League game; have a nice day !   Options expiration week is upon us ….

Ben1be …. correct about the charts and stock movement.  However, the question remains, was this all a low volume headfake ?


I’ve noticed your frequent referrals to the top 1@.  That if the Zells of this world paid 35% we would have a surplus.
You may have put forth on this site, in the past,  some support for that statement.
I’m a bit sceiptica…sceps…..scepit…..find it a bit dubious that this is the case. It just doesn’t seem possible that the top 1% are pulling down 2-3 trillion dollars every year.
Is there a prior post I can view on this site?

Phil, what you think about use credit spreads then sell puts to lower margins?

Sry, my bad english.  Yes, I mean selling verticals not naked put if time frame  is shorter. For example if I sell HOV nov 4 P for 0,6, then if I can buy nov 2,5 P for 0.05 its 250 dollar less margin?

Hey, at least I’m right about something !  …
😉

Tax Cuts:   That’s 81% in favor of them being extended (split between everyone and excluding top bracket – no surprise that would be split.  And 15% in favor of letting them expire.

But whatever, this coming election is not going to be about tax cuts or tax increases, although it will play a part.
Its gonna be about the economy; dissatisfaction with Obama and his agenda; dissatisfaction with Congress / incumbents.
I am not going to prognosticate the election, but it looks like there will be significant turnover, the only question being can the Dems hold on to 1 or both houses of Congress, or will this be an historic drubbing ?  My votes in NY won’t matter too much to any particular outcome.

Interesting chart on volume going back 5 yrs noting downward trend and so far, lack of Sept spike.
http://stockcharts.com/h-sc/ui?s=$NYTV&p=W&b=3&g=0&id=p42264863483&listNum=33&a=208287207
And, this one showing high volume sell-offs and low volume runs.
http://stockcharts.com/h-sc/ui?s=$NYTV&p=D&b=9&g=0&id=p98647558538&listNum=33&a=208350806
Nothing new here – just another look at what we already know. Could this be the new normal?

And everybody loves cash:
http://www.businessweek.com/investing/insights/blog/archives/2010/09/cash_stats_getting_extreme_it_cash_24x_income_18_of_mkt_val.html
Especially IT/Cisco–
Cisco Systems had the largest holdings of cash and equivalents, with $39.9 billion, which represents 33.8% of its market value, four times its 2011 street operating estimate (July,’11), five times it’s last four quarters of buybacks and infinity over its Nil dividend rate
Historically, many companies have done some very dumb things when they have a lot of cash burning holes in pockets instead of returning the "excess’ to shareholders. Sure will be fun to see how this plays out over the next few years.

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