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Testy Tuesday – Breaking Higher or Dressing Windows?

SPY 5 MINUTENo way to slow down.  

That line from Tull’s "Locamotive Breath" keeps playing in my head as I look at these rumor-driven markets and contemplate that we MUST keep going higher – or we will fall.  On the whole, that’s not generally a winning long-term investing premise BUT – it does so happen to be the entire principal on which space travel is based so let’s not discount it entirely.  

As you can see from David Fry’s SPY chart, yesterday was not impressive at all from a volume perspective and we are not big fans of gap-up days in the first place, where pre-market shenanigans set the tone for the day.  As David said:  

A much overlooked but important factor driving stocks higher is short interest is as high as March 2009 lows and near the highs of June 2010. This can alone stimulate HFT algos to launch short squeeze trades much in evidence Monday. Those HFT haters in the financial media will be silent about them when markets rise.
With risk plays back on gold was sold again while the dollar was flat. Bonds lost some ground as investors switched back to stocks while crude oil was higher but most other commodities were mixed.  Volume was much lighter occasioned by Irene which made HFT trading easier. Breadth per the WSJ was quite positive and we might even be short-term overbought now.
We are short-term overbought.  Any time we have a 2.5% move in a single day with no pullback, that’s overbought but it’s the kind of overbought we expect using our 5% Rule and the real trick is "How do we handle the pullback," not "do we pull back." 

Until the markets move MUCH higher, higher than our 10% lines, they will continue to be subject to gravity.  In the absence of news, that gravity tends to center or our Must Hold lines and, as I said yesterday, we have been playing since last week’s lows for a move in our indexes over the center of that W pattern that is now clearly forming on our Big Chart.  

We are, so far, simply following the exact pattern we  predicted as well as the timing we predicted – way back on August 9th ("Turnaround Tuesday – Waiting for the Fed"), when it looked nothing like a W at all.  That has allowed us to make many, many excellent calls this month but now we are getting into a zone of greater uncertainty as we move into the middle of our range again.

EWG WEEKLYWe EXPECT a pullback this morning – but less than 1% and, if we don’t hold that, it’s back to Cashy and Cautious after our very brief flirtation with bullishness because anything less than constant progress back to AT LEAST our 5% lines (the blue ones!) is going to leave our indexes inside the the gravity well where it won’t take much bad news to send them crashing back to Earth.  Hence the title of yesterday’s post "1,300 or Bust" (on the S&P).  

As I pointed out on the 19th, we need to see Europe turn it back around if we are going to head back up.  The trade idea that morning was the short sale of the EWG Sept $19 puts at $1 (now .30, up 70%) and the Jan $17 puts at $1.25 (now .90, up 28%).  Germany is not behaving well this morning (down 1%) nor is France (down 0.4%) or England (up 1.8% but they were closed yesterday so catching up) and that is NOT what we need to see from our European cousins.  

Not helping over in Europe today were our friends at the S&P, this time taking a knife to the EU and slashing their 2011 growth forecast by 10% to 1.7% and cutting 2012 almost 20%, to 1.5%.  Trichet, at the same time, said inflation seems under control (with 1.5% growth, you would think it would be!) and that sent the Euro lower, testing $1.44 and sent the Dollar back to 74.25, which damaged our futures.  

It also sent EU traders running back into gold, silver and TBills overnight as the "low inflation" seen by Trichet coupled by a weak economy seen by the ECB can only lead one to conclude that the ECB will engage in its own brand of Quantitative Easing this fall.  Also damaging Europe this morning was a note from the  International Accounting Standards Board criticizing the inconsistent way in which EU banks and insurers have been writing down the value of their Greek sovereign debt. “This is a matter of great concern to us,” Hans Hoogervorst, IASB chairman, said in the letter, which was seen by the Financial Times.

On the one hand, this is exactly the "wall of worry" we were hoping to climb today but the drag of the EU is going to make it very difficult for us to make any real progress and any sort of slip at this stage, could be fatal!   

Chicago Fed’s Charles Evans says "strong accommodation" is needed for a "substantial period of time" due to a U.S. economy that seems to be moving "sideways." Evans tells CNBC that more aggressive policy is needed; he is "somewhat nervous" about the recovery, and believes the labor market is in a state "consistent with recession."  So the good news is – MORE FREE MONEY as a cure but the bad news is Dr. Evans thinks the disease is a lot worse than his fellow Fed physicians…

Let’s be careful out there!


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  1. Different format as Shadowtrader is not putting one up (or at least this week he has not).

  2. Oil Lines
    R3 – 90.72
    R2 – 89.22
    R1 – 88.36
    PP – 86.86
    S1 – 86
    S2 – 84.5
    S3 – 83.64
    Yesterday’s high and low – 87.72 / 85.36
    Breakout lines – 91.53 / 79.18 

  3. Phil,
    An opinion that promotes caution.

  4. Pharmboy-  Can you please let me know your thoughts on the following biotech stocks?  Do you have positions in any of them?  Thanks in advance.
    CLSP/SGYP – I have large positions in both (CLSP owns 48% of SGYP)….based on advice from Morgan Joseph, the same analyst who recommended AMRN when it was a couple of dollars.
    CYCC- Have lost a bundle on CYCC….bought them at $1.20 and didn’t think they’d go down considering they had a private placement at $1.37 but alas…here we are.
    AIS- waiting for the December FDA news.

  5. More on stock correlation:

    Correlations in stocks are important to understand if only because of how much money is spent and marketing is done based on the concept of stock-picking and individual company research.  Investors are well-served to be reminded of the fact that sometimes they are simply overemphasizing a discipline that is beginning to matter less and less in a world of cheaper and better sector exposure. 

  6. GS – will do.  Few thought on 2: AIS is in bed with BPAX on the LibiGel, so I like them for that, but I like BPAX better, but either will do.  CCYC will take a while to recover.  The Phase 3 compound is a gamble, but they have some early on drugs that are interesting, but….early on.  Looks like the chart wants to turn back up, so I would add to them and then get out at $1 (if 1.2 is your basis) – and those private placements are a bitch, huh?  I have seen the same for many we play here in PSW (cough cough, DCTH, IMGN, PLX, etc).

  7. FAS Money Recap
    Long Strangle –Jan 12 Puts (3.01 average now 2.18) and 15 Calls (2.75 average cost now 3.40). 
    Weekly – 1/2 September 14 Puts (1.24 now 0.91 – 26%) and 1/2 September 13 Puts (1.61 now 0.65 – 60%)
    Monthly –1/2 September 14 Puts (1.24 now 0.91 – 26%) and 1/2 September 13 Puts (1.61 now 0.65 – 60%)
    We currently have a stop at $1.00 for the 13 Puts. 

  8. Good morning!

    Evans sent TBills flying again – back to $108-109 so TBT will be back to $25 at the open.  He also said, right on CNBC – as if it were a commercial – that he did not feel accommodative Fed policies had any effect on commodities so oil is back at $87.50, gold is way up at $1,828 as we get a deadly combo of weak Euro and more doveish projected Fed policy on the same day.  We will also get the minutes of the last Fed meeting at 2pm and Fed Gov Kocherlakota has a speech on Economic Outlook at 11:15 so more spin – oh boy!  

    Tuesday’s economic calendar:
    7:45 ICSC Retail Store Sales
    8:55 Redbook Chain Store Sales
    9:00 S&P Case-Shiller Home Price Index
    10:00 Consumer Confidence
    10:00 State Street Investor Confidence Index
    11:15 Fed’s Kocherlakota: Economic Outlook
    2:00 PM FOMC minutes 

    Today was going to be bad data day anyhow so we may as well stick our chins out and let them bash away.  If this doesn’t knock us out, then we switch to jobs and expectations for job growth in August is so low that it will be hard to disappoint.  

    Let’s keep our eyes on the technical prize today, we need to hold the tops of the middle of our Ws on the pullback and that’s Dow 11,500, S&P 1,200, Nas 2.550, NYSE 7,450 and RUT 715 – if those hold up for the day – we’re still bullish and, of course, our secondary goal is to make a little progress getting over the next 5% levels on the big chart.  

    Keep in mind we EXPECTED a dip this morning and we already decided yesterday not to take the money and run because we didn’t think it would be worth the hassle.  That’s the plan and, unless our premise is blown by more than 1% drops in our indices – we can stick to it. 

    Gold is giving people another chance to get short as CNBC pumps it in a special today.  The $25KP is currently in the Sept $173 puts at net $2.75 and that’s right about where they are now and I still like them as a new entry but shame on us for not taking 1/2 off the table at $3.50 yesterday (as it was a DD and roll) so let’s not make that mistake again and keep tight stops on 10. 

    Again, I assume everyone is bullish enough at the moment so I lean towards looking for short-term bearish opportunities…

    At the open: Dow -0.49% to 11483. S&P -0.59% to 1203. Nasdaq -0.45% to 2214.
    Treasurys: 30-year +0.83%. 10-yr +0.43%. 5-yr +0.2%.
    Commodities: Crude +0.13% to $87.39. Gold +1.95% to $1824.25.
    Currencies: Euro -0.59% vs. dollar. Yen -0.1%. Pound +0.68%.

    Market preview: Stocks look to take a breather after a 7% surge in the past five sessions, with S&P futures -0.6% and gold+1.9% as investors await FOMC minutes. Case-Shiller data shows home prices rose for a third straight month. Dollar General +2.8% and DSW +4.2% after beating earnings and giving strong guidance. Later: consumer confidence.

    June S&P Case-Shiller Home Price Index: 10-city+1.1% M/M vs. +1.1% in May. -3.9% Y/Y vs. -3.6% prior.

    ICSC Retail Store Sales: +0.1% W/W, vs. -1% last week.+3% Y/Y, vs. +3% last week. "Preparation for Hurricane Irene helped to end four straight weeks of same-store sales decline"

    Redbook Chain Store Sales: +4% Y/Y vs. +3.6% last week. Retailers selling basic staples like food, water and batteries did well during the week as consumers on the East coast braced for Hurricane Irene.

    Canada’s trade deficit jumps more than 50% to $15.33B in Q2, ahead of expectations of $13.75B. The loonie loses a bit of ground to $1.0211.

    Ignazio Visco of Italy’s central bank warns that a weak economy threatens efforts to lower the country’s debt mountain, and forecasts 2011 growth of under 1% and even less for 2012. That’s below the bank’s outlook in July of 1% and 1.1% respectively. The remarks come the same day as lukewarm bond auction.

    Italy’s sale of €7.74B in 3 and 10 year notes isn’t easing concerns about the country’s debt situation. The country moved the paper at yields lower than July’s auction (thank you ECB), but demand  – bid/cover of 1.27 – was weaker than expected. Italy still has to sell another €90B in debt before year’s end

    Finland PM Katainen "can’t back down on the collateral demand as his government would likely collapse," bringing to power those absolutely hostile to any bailouts, says the chief economist at Helsinki’s Akita Oyj. Meanwhile, Germany’s Merkel remains in absolute opposition to any collateral arrangements. At stake is Greece’s 2nd rescue package.

    Switzerland sells CHF 634M of 90 day paper priced to yield -0.75%. Demand to pay the Swiss government for the privilege of lending it money was enormous, with bids totaling CHF 7.82B.

    Traders say the PBOC looks to be allowing another leg of yuan appreciation, as the currency rises to an all time high of 6.3795 to the dollar. The PBOC has been following a "2 steps up, 1 step down" pattern to try and avoid speculation on one-way moves. The yuan +3.27% vs. the greenback YTD. 

    Lenders are making more subprime auto loans again, reversing the cautious approach adopted after the credit crisis. "We are continuing to see growth in subprime, both new and used, and loans are becoming looser," Experian says, noting that conservative lending in 2009-10 has brought down delinquency rates to "extremely low" levels. 

    Electricity producers in Germany struggle to meet the nation’s energy needs after the government shut off 8 of its 17 nuclear reactors after the Fukushima disaster. The government says it will meet energy demand with new coal and gas plants utilizing the latest clean tech, a plan skeptics say will lead to higher energy prices or fail to protect the climate. 

  9. from Neil Cavuto:
    As we get closer to the latest jobs speech more stuff is being leaked. It looks like the centerpiece of the program is renovating thousands of public schools and tax breaks for new hires. Who can say no to spending on public schools? The heartstrings and finger pointing are all wrapped in a neat bow. Of course, it would be something involving unions and government. I’d much prefer we renovate the insides of public schools beginning with curriculum, bogus tenure, and low expectations. As a sustained job creator this idea gets an F+. Sure, there will be a lot of money floating around and a big chunk will make it back into the Obama Victory Fund, but it’s not going to trigger real economic growth.
    What a joke!

  10. Hi Phil – would you recommend a dbl down on BNO Sept $71 puts? now over 50% in the hole. thank you

  11. dflam – i think you are right. All over the world kids sit on make-shift benches, share materials, etc but are glad to be learning. And if they don’t behave they are sent home. We have a big problem and it isn’t the building and equipment.

  12. Hi Phil-- GLL Oct 22 call bot 20 at 0.93 and DD at 0.65, now 0.40, should I wait or roll to next mos lower strike or wait. thx

  13. Phil Dflam / Jobs  Agreed, the problem with schools is not the buildings, it’s what’s (not) inside – that and parents that are dumb as sht.  Phil, don’t you have some contacts that you let you pitch your solar panel idea to Gene Sperling – who seems to be the man with the power?

  14. 44.5…need to print more food stamps… quickly

  15. A jobs program to rennovate schools when schools just started for the new year?  BRILLIANT!!!!!
    No one on here or in the media seems to be talking about the Euro anymore and Germany’s increasing resistance to being involved.  Merkel’s support for Euro measures has collapsed.  She is a goner if she continues down the path she is on-  There is a big vote in early September that she cancelled a trip to Russia for-  I think we’ve peaked.
    exec, yep.  All it takes is 10 mins of setup in the am using the previous day’s 8 and 20 ema data.  That’s it.
     jmm12, I wrote it myself in java.

  16. Well, another shadow?  The computers are getting sloppy.

  17. Caution/Exec – Well I’m not saying go all in, 100% bullish either but – YOU CAN’T FIGHT THE FED.  If you haven’t learned that by now, you are going to have a really tough time navigating this market.   

    FAS Money/StJ – As long as we hold $15, my confidence holds ($13 on XLF).  We need to get rid of the profit takers so we can get a proper move up going with people who want to hold things for more than a couple of hours.  When we get a move like this, it’s always good to check our ranges and the Sept $13 puts bottomed out at .62 yesterday and are .75 now on a .15 drop in XLF so .90 is more likely our stop out on a break below XLF $13, which is probably $14.35 on FAS.   The weekly $15 calls, on the other hand, topped out at .92 and are now back to .58 so those would have made a fun day trade and next time they are near $1 we may want to take a chance on a half sale.  

    At this point, we can expect weakness through the EU close at 11:30 although the EU has turned back up and the DAX and CAC are around flat with the FTSE up 2.2% as our open was better than they expected and our Retail Sales and Case-Shiller Data was BTE as well.  

    Well Dflam, I’m glad you thought what Cavuto had to spew was so vital that we all had to be forced to read it rather than just putting a link to whatever that idiot had to say but I will ask you – since you have chosen to represent Mr. Cavuto – to provide me with any evidence whatsoever that this is an actual renovation plan of any kind – let alone the "centerpiece of the program."  All that Cavuto is going on (and I’m sure he mentioned this because he’s SO honest) was something Jared Bernstein said was "UNDER CONSIDERATION" as PART of the program (and Bernstein has no official position of any kind).  I don’t give a crap how misinformed you want to be in your daily life but try to have a fact before you spread that kind of BS here.  

    BNO/$25KP, Morx – Yes, NOW I’m interested.  It’s still the last weekend of summer but the 10 Sept $71 puts are now $1.10 and they can be rolled up to the $75 puts, now $2.40 for $1.30 and that’s the way we want to go at the moment.  

    GLL/Gucci – Hopefully it’s a double top and not a breakout.  GLL is, of course, a fast mover but those Oct $22s are miles out of the money so I’d roll them down to the Oct $18 calls at .70 (+.40) and DD there for net $1.02 on 2x.  You can then offset with a half sale of the Sept $18s, now .30 but hopefully .40 or .50 as that would be more helpful. 

    In the $25KP, we have 20 Oct $20 calls, now .40 and we do want to spend .60 to roll them down to the Oct $17 calls ($1) and DD at $1 for 40 at net $1.76.  

    Sperling/Tusca – Yes, we have several solar enthusiasts who keep ringing doorbells in DC.   Hopefully we’ll get a little traction with the new team.  

    Peaked/Matt – Well, if we have it’s going to be a depressing fall.  

  18. Any thoughts on Obama’s job speech next week? It really needs to have some ‘shock and awe’ factor and I think he will go for it as he really has nothing to lose this at this point . . .
    Obama’s jobs speech will likely include a renewed push for several familiar pieces of pending legislation, such as a payroll tax cut extension, additional unemployment benefits, three international trade deals and an infrastructure project bank, officials said.
    The president is also expected to unveil new ideas to spur growth, including possible tax incentives for businesses that hire new workers and short-term direct government spending on construction projects.

  19. If anyone got in on IMGN last week, I am selling the SEpt $11/10 strangle, othewise, I would move out to the Jan12s for $3 or better.  This is a ~30% return for 5 months.  Otherwise it is >20% off.

  20. That was a nasty spike down on XLF, SPX, etc.  Consumer Confidence was what gave us that move but, as I said, it was supposed to be terrible and there were plenty of buyers jumping in on the pullback – we’ll have to see how it plays out now: 

    Aug. Consumer Confidence: 44.5 vs. 52 expected, 59.5 in June – its lowest level since April 2009. Expectations 51.9 vs. 74.9. Present situation 33.3 vs. 35.7. "A contributing factor may have been the debt ceiling discussions, since the decline in confidence was well underway before the S&P downgrade," the Conference Board says. - On the other hand, going by this on April 2009 to go bearish would have been a HUGE MISTAKE! 

    August State Street Investor Confidence Index: 89.6,down a full 12.9 from last month’s 102.5 (which was just off a 12-month high) and matching a similar deep dive in consumer confidence. North America led the charge down, -13.9 to 88.6; Europe -4.6 to 90.5, and Asia-Pacific -0.6 to 95.2.

    Brazil’s securities regulator chief announces steps to weaken the influence of the ratings agencies. In themselves minor, the reforms are part of broader government efforts to cut foreign investors’ mandatory reliance on ratings when buying Brazilian assets.

    Now this guy makes sense!  After seeing inflation-adjusted Treasury yields turn negative, Washington Post‘s Ezra Klein sees an investment opportunity of a lifetime. Why pass up better-than-free money, he asks? The government should "borrow now and put in place a firm plan to cut deficits later," and make driving the unemployment rate lower the nation’s highest priority.

    Barnes & Noble (BKS) is up 17.5% after reporting FQ1 revenue of $1.42B (+2% Y/Y) and EPS of -$0.94; the former beat consensus by $20M, while the latter was in-line. NOOK-related sales rose 140% Y/Y to $277M. The company expects FY12 revenue of $7.4B and EPS of -$0.10 to -$0.50, compared with a consensus of $7.38B and -$0.17.

    Boeing (BA +0.9%approves the launch of the new engine variant of the 737, based on order commitments for 496 airplanes from five airlines. Nomura raises its rating to Neutral from Reduce, citing the stock’s relative valuation, the startup of 787 Dreamliner deliveries, and demand for the re-engined 737

    For Matt:  

  21. Phil -

    Think there could be a quick trade on GMCR today on the news that Starbucks will be offered in k-cups in November.

    Its a great revenue stream. Taking out their ridiculous valuations and just looking at will they move up by Friday or down…

    What you think?

  22. any failure of the eurozoners will ultimately shine a more generous light on the us   being the least dirty shirt in the laundry..and funds will flow here…that and the fed fatteners will make us very bullish…and.thanks to larry page and brin china is being seen in a more realistic light..and the germans are awakening to the idiotoc nature of the original premise that there is in reality a riskless asset..they are done with the rest of this euro bs..the germans are NOT natural risk takers..period and the us banks have played them for idiots for the last time

  23. FAS Money – OK, stops on the 13 Puts at $0.90 now and I have an alert setup on the weekly 15 calls. With the momentum yesterday, we thought that selling calls might not be worth the risk. But these latest numbers are not helping now.
    Tomorrow is also data heavy – retail sales, PPI, ADP, Monthly GDP, Chicago PMI, etc…  More on Thursday and then the big kahuna on Friday with jobs. Going to be tricky!

  24. Ezra Klein / Phil – We have been saying that for a while now. If you can borrow for 10 years at 2%, why not go big and fix what you can. And you get double the rewards -better infrastructure and more jobs. And more tax revenues as more people are employed! What’s not to like! If I could borrow at that fixed rate for 10 years, there are a lot of things I could fix in my house! 

  25. Phil/AAPL/delta
    No rush to answer this question, but it pertains to an important general point.
    If you need to roll over a short call (or put) that is about to or has already become ITM, what is the optimum point at which to make the roll. For example  if I have an AAPL  November 2011 $100 strike call and have sold the October $400 strike call against it, as the stock price approaches or passes $400, at what price is it optimum to roll?
    It seems to me that if we leave out extraneous considerations such as earnings dates, new i-phones, etc. then the decision will depend on the delta of the short call. Clearly the September $400 call has a much, much lower delta than the October or November $400 calls, so you would be able to cut it much finer. Any ideas at what delta the roll should occur for optimum results?

  26. Well I picked up 1/2 position in GMCR…can add on drop.

  27. Phil/AAPL/delta
    I should have added that I am working on entering conditional orders on all my spreads, for example:
    BUY BACK/ROLL  (short puts)  IF (stock ticker) is less than than (current price minus X)

  28. matt,
    How do you get the data? Are you manually input it? Is it standlalone app or you are running it on some platform?

  29. Phil / Obama speech     I’m thinking that the only thing that get this moribund economy moving is major stimulus.  QE3 and stimulus would be incredibly bullish.  We know the GOP want Obama out, but, isn’t it going to be very hard to face down their constituents and justify not voting for a major job creating program.  I listened in to a constituent teleconference with a GOP Congresswoman from Charlotte and boy did she get an earful from every caller.  There was only one message, jobs.  Deficit was hardly mentioned.  It was quite hostile and I think she was quite suprised.
    We may (as investors) be underestimating the possibility that bi-partisan support is possible for a massive new stimulus, especially if Obama throws the GOP a few bones?  Don’t forget, local contractors are huge contributors, so blocking a massive infrastructure plan might be tricky for the GOP?

  30. Hi Phil  — RIMM — need your help how  to adjust my short call Sept 25 sold at 3.65 on 8/19 against my multiple roll on short put RIMM, currently have 20 Sept 25 short put (1.22), 15 Jan 26 short put (3.78), and 46 March 30 short put ( 6.97).  Rimm seem now trade above 50MA should I convert the short call position into a bull call spread or just roll to next month at higher strike . Thx

  31. File this under are you friggin kidding me????
    "Just because you don’t like a market, that doesn’t mean it’s the right move to sell it," Cramer said Monday. "Selling into a sell-off has almost always been the wrong move."
    He was telling people to sell with pom poms going a couple weeks ago.  Truly is the Mad World of Jim Cramer because you have to be insane to listen to him.

  32.  look at rgr…always a great sign when gun stocks are going parabolic…hahaha

  33. Obama/Kramer – I don’t think it matters what he said – he hasn’t got the ability to get anything passed that involves spending money.  You’re not dealing with rational people who are going to compromise in Congress, you are dealing with demagogues who would rather burn this country to the ground than allow Obama to make any actual progress fixing the economy.  Sure, maybe that’s a little cynical, maybe some of the Reps really do believe you can cut your way to prosperity.  After all, it’s working so well in Europe, isn’t it?  

    "The president has just got to become much more aggressive about what his vision is, where he wants to get the economy and why other approaches are not as good as his. Period," said Simon Rosenberg, a former adviser to President Clinton and founder of the New Democrat Network.

    "Unemployment is unconscionable," said an exasperated Rep. Maxine Waters at a Congressional Black Caucus town hall meeting earlier this month. "We don’t know what his strategy is."

    "There’s an austerity-led approach that Republicans are offering, and there’s a more investment-led approach the president laid out," said Rosenberg. "That distinction has to be made clearer for the American people to understand there’s a choice. Moreover, the ultimate concern of his has to be to do the right thing for the country, not to appease the Republican Party."

    That’s the crux of the situation.  I don’t know WTF Obama is doing but it’s looking more and more like a mistake every day.  At this point, his call for jobs stimulus sounds desperate after he broke down on everything else already.  He’s given up the high ground, he’s given up the middle ground and he’s barely hanging on to the low ground and the sharks are circling below him.  

    "He’s out of mulligans and he’s out of time," communications strategist Michael W. Robinson, a former member of the George H.W. Bush administration, said of Obama. "One thing he’s not out of is support. But he’s going to be if he doesn’t make a decision to be bold. He’s got to look around and decide how he can get the most people back to work the fastest with the election quickly approaching."

    GMCR/David – Well there was a quick trade but they’re up 4% already.  It’s old news of course and not particularly great for GMCR because it pushes profits out of their own coffee and into SBUX.  There are only X amount of machines and this represents lost sales to GMCR once the bonus machines themselves are sold to SBUX fans.  I’d be more inclined to short them again on a run-up near $110.   See SODA for another view of what happens to their business model once the fad buyers wears out.  

    Least dirty/Angel – That’s what I said yesterday – where else are you going to put your money?  

    FAS Money/StJ – I still think we’re in a strong uptrend.  Keep in mind we’re up from $12 7 days ago so $14.40 is a good line to watch for a pullback (20%) after a trip to $15 (25%).  That should not shock or concern us. 

    Fixed rates/StJ – Screw that, we are sometimes getting PAID to borrow money.  That’s a business to me.  On days when the global markets are panicking, the US should hold emergency note sales and sell 5-years for 0% to -0.25%.  Figure if dump $20Bn on each panic and we have about one panic every other week, that’s about $500Bn a year of FREE MONEY!  

    Rolling/JMM – Around the point where just 1/4 of the price of the short put/call is premium.  AAPL is at $387, and the Oct $400 calls are $13.20 so AAPL would have to gain $26 (6.7%) before you really even owe that caller $13.20.  What is the point of selling premium if you’re not going to wait for it to wear out?  You are like a blackjack dealer at a casino who sees the player draw a king so you pay him 100% without seeing the next card because you are scared he’ll get a blackjack and make 200%.  Why does the casino not do that?  Because, over time, it’s a statistical FACT that the odds are against the player.  Therefore, the best strategy is for them to play out each hand, pay the winners and keep the losers money and, at the end of each quarter – the house usually has a lot more money than it started with!  You are taking plays where you are being the house BUT, as soon as you make the sale, you are turning yourself into the gambler again.  That’s not good….   

    Conditional/JMM – You have to have targets and play the odds going forward.  If you buy back your callers whenever they get ahead – when will you have a winner?  

    TLT looking like fun with the WEEKLY $107 puts at .72 for a fun play.  

  34. @ Phil, at what price will you think it would be good to DD on the USO Sept $33 Puts? Currently at .60    Thanks!

  35. Good morning,


    IWM   69.41,  69.70,  70.28,  70.66,  70.98,  71.33,  71.53,  71.87,  72.59,   73.14  and  74.49

    Not that fundies matter any more !!

  36. Apple and it’s competitors:
    A long way since 1997 when Microsoft actually had to save Apple with $150 millions! Forgotten now! 

  37. /DX testing 74

  38. Phil/rolling
    LOL!  Thanks, your post may save me millions over the next 20 years.

  39.  look what is up huge today….oil tankers/homebuilders….two worst groups last 12 months

  40. the ironic thing is that the more fed officials talk about qe3…the more unlikely it is as market pushes up oil/food…in my opinion.

  41. Jobs/Tusca – I hope that’s the case but the reason your Congressperson is surprised is because that is not the party line and it’s not what the Heritage Foundation or 100 lobbyists are telling her every day in Washington and I’ll bet you as soon as she got off that CC, she was told that the Democrats somehow infiltrated her teleconference and she should ignore that nonsense and focus on "fixing" the economy the Republican way.  I’m sure you’ve heard them talk about "the bubble" politicians live in – there are a lot of people who are paid a lot of money to make sure they don’t change their minds or develop a conscience – people don’t pay millions of Dollars to put people in power that they can’t control.  Would you?  

    That’s the problem with Kennedy, Carter and Obama – popular candidates that get elected by the people are hard to control so the machine goes right into gear to make sure they are one-termers and then things get back to "normal" for the true powers that be.  Carter had the hostage crisis thrown at him, Obama has the economic crisis with the debt ceiling BS and Kennedy, of course, had the Cuban Missile Crisis but he beat that one and was a shoe-in for a second term and didn’t need anyone else’s money to do it.  Of course, as Rick Perry likes to say – they can treat you pretty ugly in Texas…

    RIMM/Gucci – So, you were not a believer?  At least your short puts are in good shape.  I think RIMM should at least fill the gap at $35 but then what?  Since you have such long puts and you may as well ride them to zero, you may as well roll the callers along.  You waited past a 50% loss but you can just roll the loss ($3.50) for now and sell how that goes, perhaps to the Nov $32 calls at $3.80.  Just keep an eye on your next roll target, probably the Jan $35s, now $3.60 – you just want to make that $2.50 or so progress every couple of months and by March you’ll be in the short $40s.  

    Dollar back to 74 but bouncing off that line.  Watch it closely!  

    Cramer/Rustle – He’s gotten completely surreal at this point.  I can’t even keep track of his actual stance anymore because he’s on in the morning, noon, 3pm and 6pm and can have a completely different outlook at every appearance.  I just gave up even paying attention because you can’t even tell what he’s pushing to look for shorts at this point. 

    RGR/Angel – Funny AND disturbing! 

    USO/Asaenz – We gave up on shorting oil on yesterday’s dip but, if you still have them, then it’s the same plan, we have to wait for the inventory run-up.  $89 is pretty good but $90 is better, there are 3 weeks to Sept expiration so I’d go for the .30 roll-up to the $34 puts for now (net $1.23) and see how that goes tomorrow morning.   I will point out that back on 8/17 (Weds), we had almost the same situation and rolled our $32 puts to the $33 puts for .30 when they were at .90 and they shot up to $1.70 the next day – that’s why I like this play…

    You’re welcome JMM but keep in mind that the House sells premium on both sides – they don’t play favorites.  That’s also important. 

    BAC still has doubters.  RIMM does not.  IMAX waking up nicely – congrats to the faithful on that one too!  

    NYSE having trouble at their 7,450 line, they need to get over that hump and on to 7,473.  

    Transports still rockin’, up 1.15% – still moving up with oil, which is CRAZY but the new normal, it seems.  

    Now that we got rid of those depressing Europeans, things are moving very nicely.  DAX finished down 0.6%, CAC flat, FTSE up 2.5%.  

  42.  JRW – for the sake of the new guys, could you put a little color behind the IWM prices you post?  Are they buy/sell, support/resistance points?  Are you actually trading IWM or its options?

  43.   byd largest automaker in china cutting sales staff 70%…but really china is booming..really

  44.  Bolt dude, JRW trades TNA and TZA because of the leverage and liquidity. You can also trade the options IWM, but they seem to be filled best using 100 or less. 

  45. Byd / Angel – Buffett put some money into that business in 2008… Of course this guy is in for the long term but the long term in China might not be so rosy! 

  46. QE3/Angel – Did you think that last year as well?  We were up 10% into the Fed meeting in Sept on Bernanke’s Jackson Hole speech and another 5% after the Fed and into the actual start in December when we popped another 15% into February.  I’m not saying we get a 30% move again but I think calling it over after a 3% pop this year is probably just a LITTLE premature…

    BYD/Angel – That’s Buffett’s.  They were heavily relying on government subsidies for electric cars.  

    There goes gold!  Don’t forget to take half off the table even or better if you DD’d or rolled up!  

  47. Boltdude, he’s got a whole article and comments on what he’s doing, but it’s not always an easy read – my understanding is that he’s trading TNA & TZA stock and using IWM to decide when to move. Not the way I can afford to go, but his TA stuff and alerts are very useful.

  48. 14real, thanks.  So, the prices JRW posts are expected inflection points?  Is he trading actual TNA and TZA or their options?
    JRW – could you clarify how you use your posted prices?  For example; if IWM (currently at 72.61) hits 72.59 or 73.14, what will your response be?

  49. Thanks, Snow.  Where can I find the article?

  50. Pharm/Shadow
    I remember seeing your references here and there about the shadow bars but can’t remember what exactly you said they were.  Can you please post a link back to your explanation or repeat yourself when you have a moment?  Thanks!

  51. boltdude / JRW — Start here.

  52.  Bolt dude, It’s located in Phil’s Educational Archives. Here’s the link.
    Educational Archive

  53. 11:00 AM On the hour: Dow -0.24%. 10-yr +0.58%. Euro -0.44% vs. dollar. Crude +1.77% to $88.81. Gold +2.22% to $1829.05. 

    European shares close mixed in possibly the most rangebound trade seen this month. Stoxx 50 -0.2%, Germany -0.5%, France +0.2%, Spain +0.4%, Italy -0.5%. U.K., making up for being on holiday while Europe sprinted higher yesterday, +2.4%

    12:00 PM On the hour: Dow +0.04%. 10-yr +0.5%. Euro -0.55% vs. dollar. Crude +1.62% to $88.69. Gold +1.82% to $1821.95.

    Rally killer #1:  Deutsche Bank expects the S&P 500 and the yield on 10-year Treasurys to tumble further before equilibrium is established – meaning an S&P that tests 1,000 and 10-year yields that trade to 1.75% or even below. 

    Rally killer #2: Robert Shiller says the current volatility in stocks is not healthy and could be setting up a “substantial” decline with the potential for a "major downside" in the current fragile environment. He says housing likely will remain under pressure, the general economy probably will suffer a continuing malaise, and TIPS are his favorite investment.

    Shiller: Yes, We Can Do Stimulus Without Adding Debt. Here’s How. (New Republic)

    I called this one ages ago:  Multigenerational Homes Surge in U.S. (Bloomberg)

    Rally killer #3: Global recession in 2012 is "65-75% certain" and could deteriorate into a depression, strategist Roger Nightingale tells CNBC. Europe is in "absolutely desperate trouble," he says, with China and India headed the same way; the U.S. actually boasts "some big pluses," but "whether they are going to be big enough… to bail out the rest of the world, is another issue." 

    The Bernanke Rally? Not Exactly (Telegraph)

    The Biggest Lie About U.S. Companies (Yahoo Finance)


    Bill Gross may be "crying in his beer" over his bet on Treasurys that cratered, but he stays on script in his latest edition of Investment Outlook, titled New-Fangled Love Songs. He writes 10-year Treasurys are "discounting a heap of trouble," adding he prefers the "cleaner" dirty shirts of Canada, Mexico and Brazil due to their higher yields and stronger balance sheets.

    Gold is getting a boost from Chicago Fed chief Charles Evans’ dovish commentary, which includes a call for more stimulus until unemployment falls below 7% or inflation rises above 3%. Gold futures are up 2.2% on the day to $1,831/oz.

    Dissecting the Mind of the Fed (NYT)

    "The quest for alpha cuts both ways," writes Tadas Viskanta. "Investors and the media sit up and pay attention," often at the worst moment. Bill Miller outperformed the market forever, until he didn’t, losing most of his investors’ money. His fund now ranks dead last in its category for the last 5 years.

    Jan Brzeski sees a divergence occurring in the commercial real estate market: prices for the broader market remain depressed, but those of "REIT-quality" properties have taken off. Brzeski attributes this divergence to a "flight to safety," and thinks investors are best-served by avoiding REIT shares and focusing on "less prestigious properties."

    Quick reversal:  National Bank of Greece (NBG -13%) reports a H1 loss of €1.3B after taking a write-down of €1.65B on its holdings of Greek paper. Street Insider reports the CEO as saying the bank is examining strategic moves. Shares jumped more than 30% yesterday on the merger of Greece’s 2nd and 3rd largest lenders.

    I love this guy!  Tesla (TSLA) CEO Elon Musk, compared by a Merrill analyst to Steve Jobs, is putting his money where his company’s roadmap is, betting a journalist $1M that production models of Tesla’sModel S sedan will be delivered to paying customers before the end of 2012 (the journalist only pays $1K if he loses). The Model S, originally due in 2011, has been hit by delays.

    Solar May Produce Most of World’s Power by 2060, IEA Says (Bloomberg)

    Wells Fargo reiterates an Outperform on Sprint (S +3.5%) after channel checks show the carrier to be faring well against Verizon Wireless (VZVOD) and AT&T (T), against whom it’sstruggled in recent years. The firm speculates Sprint, which soared recently on a report it will carry the next iPhone, may be getting a boost from its cheap data pricing.

    Good long-term news for BA:  Shares of Southwest Airlines (LUV -2.1%) suffer on a day many airline stocks (FAA +0.7%) are posting modest gains. Anaviation blogger reports the firm’s 88 717s picked up in the AirTran buyout are increasingly "unviable" in a high fuel cost environment, a statement reinforced by the carrier’s decision to drop routes serviced exclusively by 717s.

    A bit sensitive to the issue of tax rates given its CEO’s stance, Berkshire Hathaway (BRK.A) disputes a WSJ editorialclaiming the firm will enjoy a 10.5% tax rate on the dividends it will collect from Bank of America. As a property-casualty insurer, the firm will be subject instead to a rate of 14.175%. (PR)


  54. Phil, that cartoon is hilarious!  Very apprapos given my efforts as of late. Thanks.  When I say I thought we’d topped I didn’t frame it completely.  I think we’ve topped w/out QE3.  But, looks like I’m wrong anyway..
    vic, it’s a standalone java app.  Data comes from Interactive Brokers.

  55. Phil, 
    Not to be redundant with Gucci’s question on RIMM but mine is a little different. I am short 12 Jan 40 Puts (net 1.10 now 9.90) and 15 January 32.50 calls (net 2.80 now 4.80)… would you start looking at rolling the short calls or wait till they go in the money? 

  56. 14real,
      " You can also trade the options on IWM, but they seem to be filled best using 100 or less."
    What does 100 or less mean?

  57. ROFL Rustle!  

    WASHINGTON—With a massive wildfire currently raging out of control in his district, Tea Party Caucus member Rep. Trent Franks (R-AZ) pressed Congress to pass immediate tax breaks Tuesday to combat the rapidly spreading blaze. "This fire has already burned hundreds of square miles and left thousands of helpless families with only one hope: across-the-board income tax cuts and a sharply lower corporate tax rate," said Franks, stating that broad-based tax relief would spur investment and extinguish the towering flames that grow larger by the minute. "We must act now. The longer the oppressive tax burden on honest, hardworking individuals remains unaddressed, the larger and more deadly this fire will become." According to staffers, Franks plans to honor the nine individuals who have perished in the blaze by introducing additional legislation this week that would eliminate Medicaid.

    Dollar too bouncy at 74 – Matt may get his wish…

    CNBC driving home this consumer confidence thing but it’s a survey taken a few weeks ago with Congress shutting down the Government, the markets crashing and the media holding a 24/7 gloom-fest.  These numbers are useless without putting them into perspective.  

    RIMM/Amatta – LOL, you are losing on both ends?  Well it is Jan and the idea is to burn off premium and those 2 trades have about $7 worth of premium (43%) so what did we just say about rolling?  Surely you don’t want to PAY 100% premium to roll the $32.50 caller, do you?  Especially considering that the first 7.5 intrinsic dollars they gain would be fully offset by the short puts.  Your goal in that trade was to stop the bleeding when RIMM went lower and you lost faith so you sold more premium against hopeless puts, right?  Now you have a $7.50 spread so if RIMM comes in between your strikes, you owe $7.50, not $14.70 so you stand to gain 50% in 5 months by doing nothing. What is it you feel you must do instead?  

    Dow volume 78M at 12:45, not very exciting (again).  

    NFLX having a nice day.  BIDU too and RIMM – that makes me nervous the Nas rally may be overdone.  



  59. i know youre not serious comparing the qe2/3 catalysts…food prices have as a result of qe2  jumped double digits y/y in the  emerging mkt..the uselessness of i banks has never been more apparent so you tell me how he does make a meaningful difference with an aimless liquidity bump that does nothing but improve luxury good retailers and i bank profits/…..(.so as a trader i hope they do it as a citizen of th eworld ..its a shit idea..( HEY BTW! .you thought it would happen last week….so theres premature and there is shoedrippin)

  60. Did I miss something? Are the minutes out?

  61.  food prices at NEW ALL-TIME HIGHS…qe3…qe3…qe3!

  62. Shiller Solution (New Republic) / Phil – That makes way too much sense for the current congress! Once again, you have rational people trying to inject ideas that will be debated by irrational people. Can’t work! 

  63. SQQQ hedges – NAS rally might be overdone. taking this low in SQQQ to modify my hedges.. consolidating them and rolling my short calls to higher strikes, rolling long calls to lower strikes… still keeping to september through at least this week.

  64. Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it."
    - Mark Twain

  65. Angel, its the latter!

  66. its just hard to believe they are this dumb tho isn’t it!

  67. Anyone having any luck filling that BNO roll?

  68. angel / believe — Not hard to believe. "Fool me once…"

  69. Matt/Java
    Are you distributing the program?  I’d like to check it out if you are.

  70.  anyone think its a  coincidence that gs/jpm have bet their future on brics and fed keeps trying to keep that bubble alive

  71. Phil,
    I have a question for you on RIMM put strategy. I sold RIMM Sept 26 P for $1.47 less than a week ago based on a call you made.  I made a nice profit but there is still some left.  Also I would not mind owning RIMM @ net $24.53.  Would you cash this or just let it go to expiration? Thanks for the original idea!

  72. Another thing I noticed RIMM Earnings are on 9/15 after the bell the day before Sept.expiration.

  73. QE3/Angel – I did not think it would happen last week, that would be mechanically impossible.  We thought they would announce it last week, at the Jackson Hole conference, like they did last year.  What I hoped would happen was a firmer announcement that we could have rallied more sharply on but this rally will do so far.  As to whether it’s a good idea – no, it’s a terrible idea but it is good for the market and we were looking at it from an investment standpoint, not a saving the World standpoint.  Depending of the size and scope of the actual announcement we’ll get a market pop followed by catastrophic inflation but, if wages go up this time (and emerging market wages are rising rapidly) and jobs are created – we may actually make a little economic progress.  

    Shiller/StJ – At least people that other people listen to have some reasonable ideas.  It has to start somewhere.  

    Hedges/Scott – EDZ is still my favorite overall hedge.  Even if QE3 works here, we might still collapse other markets through inflation.

    BNO/Doro – It’s thinly traded, you may have to break it up. 

    RIMM/Button – As a rule of thumb, if you are up more than 50% with more than 2 weeks to go, in the very least you want to set a stop at 40% (trailing 20% of the profit).  At .56, you are up 61% so a stop at .73 is appropriate but it also depends on how you feel about the trade.  If you REALLY want to own RIMM at net $24.53 then you have a huge advantage because they have to pay you NOT to buy it.  If you don’t need the margin and you’d love to buy the stock if you got a crazy pullback (not likely anyway) then you have no reason to pay the putter $560 or $730 NOT to sell you RIMM for $26, right?  That’s how you have to look at it.  That’s why, if you only sell puts in stocks you REALLY want to own, you have a huge advantage over people who are just gambling with short puts.

    Gold, gold, gold, OIL!, gold and gold on CNBC today…

    01:00 PM On the hour: Dow -0.25%. 10-yr +0.55%. Euro -0.61% vs. dollar. Crude +1.58% to $88.64. Gold +2.11% to $1827.05.

    Hawkish Minneapolis Fed president Kocherlakota conditionally throws his support behind QE3. Expecting the "disinflationary pressures of 2010" to reappear, he says, "In that eventuality, increasing policy accommodation might well be appropriate." 

    By a count of 319 to 17, Spain’s lower house votes to have a vote on amending the constitution to cap the budget deficit. The law would require a 3/5 majority from both houses of parliament, but this procedural tally virtually guarantees passage.

    Poland’s GDP grew 4.3% in Q2, beating forecasts. However, much of the growth came from building of inventories, calling into question how sustainable it is. Another concern is the zloty, down sharply against the swiss franc – a hit to about 700K families with franc-denominated mortgages. PLND -12.8% YTD.

    The last private mining company in Venezuela says itagreed to transfer its gold assets to a joint venture with a state-owned company, following up on Hugo Chavez’s sweeping nationalization of the gold industry. Rusuro Mining fell 11% in Toronto trading on the news.

    Shipping stocks recover as the sector looks a little downtrodden to investors after a harsh 71% cut on the price target for Frontline (FRO +15.2%) by FBR Capital rocked  firms yesterday. Gainers in the sector include: OSG +4.8%DRYS +3%PRGN+4.8%.

    CEO Barry James of James Investment Research says he likes deeply undervalued stocks, especially favoring non-cyclicals, REITS, energy and utilities in the current investment climate. Picks: Seaboard (SEB -2.7%), Eli Lilly (LLY -0.1%), Brookfield Office Properties (BPO +0.8%), Home Properties (HME -0.1%), Portland General Electric (POR +1.1%) and HollyFrontier (HFC -0.1%).

    Susquehanna issues a somewhat back-handed upgrade to three homebuilders today, upping them on valuation only after cutting its new home sales forecast to 339K from 355K. The firm raises Toll Brothers (TOL +1.5%) and NVR (NVR +1.1%) to positive, and KB Home (KBH +10%) to neutral (IIIIII), but asserts the ratings changes simply reflect current valuations relative to its revised forecast.

    Financial stocks, a primary driver of yesterday’s bounce, are laggards today as investors take profits from insurers (KIE -1.1%) after their big rally: ALL -1.2%HIG -1.5%. Among banks (XLF -1%), Bank of America (BAC -3%) weighs on the sector after reports ofFDIC opposition to the mortgage settlement deal. Also: JPM -1.5%,C -1.4%GS -1.2%MS -1%.

    Sanford Bernstein’s Mark Newman thinks the recent rebound in DRAM chip prices is “highly likely to be short-lived,” reiterating a Market Perform rating on Micron (MU -3.2%). Contract prices will continue to drop, narrowing the gap with spot prices, pushed down by a cleaning of inventory by PC makers. He also sees more NAND flash memory and less DRAM in future PCs.

    Three lunchtime reads:
    1) Ten reasons for investors to look on bright side
    2) Some predictions for the rest of the decade
    3) Bank Of America buys time via Buffett effect

  74. exec, now if you think about what you asked you know I can’t do that!  JRW has his proprietary 1 minute trade signal software.. and now so do I.  If I gave it away I’d get crowded out of the trade.  However, what I’ve done can be reproduced by a programmer.  Everything I’ve done is either freely available (java) or comes with an account at IB (data and api for trading).  The logic is my own.  I wouldn’t be opposed to doing it for someone if they supplied the logic for making a trade.  But it would cost them something.  In fact, IB has a list of programmers you can hire to do just that.

  75. Phil – If we close down around 0.1 – 0.5% … would you be thinking that is very bullish for the rally to continue?

  76.  Pharm, Any idea why DCTH is climbing today?

  77. Matt/Proprietary
    Ya Ya……you just wait until I notify my Bot friends about your system. 

  78.  JRW,
    Whats your take on /GC. Will it move up or down tomorrow. I am looking for min 1 day trade or max 3 day trade in GLD.

  79.  Based on Kocherlakota’s remarks, such a decision would be a hard sell for him, unless inflation dropped sharply.

    Both inflation and inflation expectations are higher, and unemployment is lower and expected to drop further, than last November when the Fed embarked on its most recent round of monetary stimulus, Kocherlakota said.

    He expects the Fed’s preferred gauge of inflation, core PCE (personal consumption expenditure), to rise to 2.1 percent next year versus an expectation of about 1.3 percent last November.

    Meanwhile, the U.S. unemployment rate, which was then at 9.8 percent, has dropped to 9.1 percent, and he expects it to fall to below 8.5 percent by the end of next year.

    While it was still "disturbingly high," he said, the Fed would have been unable to push it lower without boosting inflation above its 2 percent target, which in turn could unmoor inflation expectations and undercut the Fed’s ability to keep inflation in check. reuters

  80. Matt, JRW
    How much do your programming services cost ? In reality, if I have to ask, I probably can’t afford you guys to build an ATM machine for me!

  81. doro/BNO
    Did you ever fill?

  82. September’s Dozen Addition:

    BRK.B ($72.39) is kind of like what we were discussing – a best of the S&P investment.  Why be jealous of Buffett getting a great deal on BAC when you can play along with him?  

    • Owning the stock long-term has not been a bad idea for investors since the 60s and you can buy it for $72.39 and sell the 2013 $70 puts and calls for $20.50 for net $51.89/60.95.  Think how smart you’ll sound at parties saying you bought Berkshire at $51.89!  They bottomed out at $44.82 in the 2009 panic but were back at $55 in a few weeks.  
    • To raise cash, the 2013 $60 puts can be sold for $5.20.  TOS says that’s net $6 in margin, not bad to make $5.20 (86%) in 15 months if Bershshire manages to hold $60.   Buffett turned 81 today so, like Steve Jobs, he will die one day – keep that in mind..
    • March $65/75 bull call spread is $6.10 and you can sell the $67.50 puts for $4.60 for net $1.50 on the $10 spread that’s $7.39 (492%) in the money – not a bad start.  
    • Oct $70/72.50 bull call spread is $1.60 and you can sell the $62.50 puts for $1 so net .60 on that $2.50 spread or, if you sell 1 of the 2013 $60 puts for $520 and buy 9 of the bull call spreads for $560, it’s net $40 cash out of pocket and, at $72.50, you get $2,250 back if Berkshire holds $72.50 through Oct expirations.  If not, you can cash out at net .30 (down 50%) and you still have a worst-case net $57.80 entry in 2013.  

  83. DCTH / Arg.
    All I can say is that its about time for a little relief on that stock.  Its been beat to death for the past 4 months!

  84. DC, no not yet

  85. rehat / GC

    No idea, I just surf the market; I am expecting an up day tomorrow though.

  86. Fed Minutes are out – not too exciting but they certainly seemed almost ready to pull the QE trigger right then.  

    In the discussion of monetary policy for the period ahead, most members agreed that the economic outlook had deteriorated by enough to warrant a Committee response at this meeting. While all felt that monetary policy could not completely address the various strains on the economy, most members thought that it could contribute importantly to better outcomes in terms of the Committee’s dual mandate of maximum employment and price stability. In particular, some members expressed the view that additional accommodation was warranted because they expected the unemployment rate to remain well above, and inflation to be at or below, levels consistent with the Committee’s mandate. Those viewing a shift toward more accommodative policy as appropriate generally agreed that a strengthening of the Committee’s forward guidance regarding the federal funds rate, by being more explicit about the period over which the Committee expected the federal funds rate to remain exceptionally low, would be a measured response to the deterioration in the outlook over the intermeeting period. A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation. Three members dissented because they preferred to retain the forward guidance language employed in the June statement.

    Dollar heading back to test 74 – if it fails, we could get a nice pop into the close. 

    Close/David – Earlier today I put up levels we need to hold to stay bullish.  

    FOMC minutes from the Aug. 9 meeting show a split concerning the best tools for easing monetary policy. A few members felt that economic developments justified a more substantial move, but they were willing to accept the stronger forward guidance on the federal funds rate as a step in the direction of additional accommodation.

  87. Dollar/Phil – there seems to be something magical about dollar 74.

  88. TLT weekly 107s? do you have a stop on them? (no snickering PB)

  89. Phil, would TLT and GLD both pop if market moves up? thanks,

  90. Well, the minutes should remove any doubt about QE3. The question now is what tool will be employed. Perhaps Obama’s jobs plan will give us a hint. $ breaks 74 on increased volume but 74 seems to be fair value. Seemed like a pretty short lived reaction.

  91. Phil, this is a day early, but should we sell the September winners from your September Dozen tomorrow in anticipation of the (presumably awful) ISM/NFP?  We could then pick them up again Friday after the drop.  Thanks!

  92. hi phil — what is the ticker ob bershire on TOS. BRK.B not reconized. thx

  93. Shadow Bars/dshear – if you look in AH trades, or sometimes during the day, the bots sell/buy at a preprogrammed amount. Today was 119.2X.


    DCTH – thank the holy heavens above, a positive day for them. 

  94. gucci – BRK/B.  Just type the name as well, and both pop up.

  95. we will get a nice pop into close because magical sloppy buyer is everywhere and they need to boost paulson into month-end so he doesnt collapse…hahaha

  96. Gucci:  Brk/b

  97. Phil, I have TBT stock at $30 that I would like to start selling some calls against to make up some cost. I am a long term believer in TBT.  Thanks.

  98.  What do you think about selling the JAN12 $44/$45 Call Spread on BBBB for $0.70?
    There core business is probably worse than they let on.

  99.  Stocks-Gold correlation / Phil,
    I was under the impression that as stocks fell, gold appreciated and that the converse would also be true, i.e. as stocks went up, gold would drop. Just curious about your thoughts on why GLD is advancing even as stocks are advancing today.

  100. 74/Snow – Well Forex trading is much more liquid than equities so when you get to a significant resistance line, it tends to hold up for a very long time.  

    TLT/Morx – Well they jumped to .82 (up 14%) and then went back and are now .52 (down 27%) so I don’t know what to say if you don’t by now know where to set stops.  At the same time I said to take the money and run on gold (11:57), the same logic held for TLT.  When you have a weekly call or put where YOU are the sucker paying the premium, you ALWAYS need to have very tight stops.  If you are still in them, then I would roll them up to the $108 puts (.90) for .35 and DD for 2x at .985 but then you’d better know to get 1/2 out even on any tick back down and, of course, it’s very dangerous as they expire in 3 days so if you wake up tomorrow and it’s going against you – you really don’t have time to recover.  If $24.50 fails on TBT – that would be a sign to give up.  

    TLT & GLD/Ethan – It depends how Asia and Europe interpret what the Fed said.  Gold in particular is up on panic – if QE3 is "in the bag" then panic should subside and gold will eventually drop.  Oil is going to follow inventories but probably not until after the holiday weekend (this one). 

    Winners/Wassell – I wasn’t looking at them as day trades but if you made good money, why not?  I don’t think the ISM or NFP data will hurt us at this point, today was out big test and we seem to have passed.  

    Force out/JBur – Well you know I agree with that. 

    Berkshire/Gucci – On TOS it’s BRK/B.  

    TBT/Rpme – I’d kill the stock at $24.56, and buy the 2013 $20/30 bull call spread at $4.15 and sell the $20 puts for $2.30 for net $1.85 on the $10 spread and your worst case is you are back in at net $21.85, which is 27% below your original entry.  That way, instead of needing to get to $35 to get even, you are in at net $26.74 and make $3.26 (12%) if they just get back to $30.  Also, note conversations of the last few days where I prefer shorting TLT to running longs on TBT at this point (when TLT is over $108). 

    BBBB/Jerome – It’s not a bad risk/reward way to go short but I’m not sure they won’t get a positive effect from QE3 so be careful.  

    Gold/Sank – Well you have the nonsense in Venezuela and the EU crisis and China messing around with their economy and the Fed printing more money so I really don’t think you can apply ancient market truisms to what’s going on today.  Look at TLT – that is FEAR – people are terrified and don’t like the look of the market (still low volume) and don’t like the look of banks to keep their cash in so they are buying gold, silver and TBills in record amounts.  Overall, it’s a fear bubble and it will pop eventually or, maybe they are right and the World will end – either way I’d rather be short bullion and long bullets.  

  101. With TLT up, sumpin’ is brewing.  VIX is not moving.

  102.  Well this is just too boring.  I know it’s not  supposed to be a form of entertainment, but Cramer seems to have run out of retail clients, and lord knows why "foreigners" are not busy buying up the S&P.  But Phil warned us not to play it short this week, and, as usual, he is right  on.
     If I were a foreign central bank with a tanker-full of dollar bills, I’d hardwire myself  to the NYSE and have Phil scale me into every large cap energy and materials producer on the big board.  But more on that after hours.

  103.  Pharm/ Phil: Stop  out of TBT long?

  104. Phil / built in    OK so you’re saying you feel the forthcoming crappy ADP, PMI, Factory orders and ISM and unemployment #’s are already built in, so no collapse on this bad data?  Cos it guarantees QE3?

  105. Phil, 
    Gold… is your premise still goes down before weekend (so as not to hold puts like a sucker losing premium over weekend) Entered a 1/2 entry on the GLD puts for 2.40, keep it… or kill it even now?

  106. Zero – if ‘they’ can get through the high of the day in the SPY (122.08), then I would stay in.  Just me though.  If we break down, I would consider covering.  I still don’t like TBT! 

  107. TBT/ZZ – I think we have another low/TBT, high/TLT day on the Fed Minutes, which are no surprise to those paying attention but, as we know – A LOT of people do not pay attention.   TBT is in a range from around $24.50 to $26 at the moment – not much fun to play, even if you hit it perfectly.  TLT is ranging from $110 to $105, so a bit more fun but the same proportion on the whole.  As to boring – calm before the storm perhaps.  

    Built-in/Tusca – Well no guarantees but yes, bad news should be good news as long as it’s not too bad.  

    GLD/Amatta – If you are not planning on rolling and sticking with it for a few months (if you have to) then I’d get out even now!  

  108. I need to run a correlation analysis between volume in the market and number of comments on PSW! This week has been light on both ends! Hurricane and Labor day I guess… 

  109. Sept Dozen bonus stock:  

    INTC ($20.33) is Intel – say no more!  They are in a good spot just crossing $20 and lagging the Nas. 

    • Short 2013 $20 puts at $3.20 puts you in for net $16.80.  Please don’t tell me I have to explain why that’s good!  
    • Jan $17.50/20 bull call spread is $1.70 and can be offset with the above short puts or the Jan $19 puts sold for $1.10 for net .60 on the $2.50 spread that’s 100% in the money (up 316% if they hold it).  
    • Nov $21 calls at .78 (earnings play) can be offset by short sale of Oct $20 puts at .83.  

  110. sneaky FAS weekly calls approaching the half sale number 

  111. FAS / Deano – They did run up to close $0.90 around 11:30 and fell back to $0.50 again! Would have been another possible day trade! And they are going down again… XLF seems to have trouble above $13.30 for the last 4 sessions.

  112. Hey Phil, with the DOW up more than 75 points, is it going to keep on roaring for the week or what?

  113. Correllation/StJ – We do tend to mirror the Big Board participation rates but that’s to be expected as the caliber of our crew is more like that of professional traders so no surprise they pick the same times to take a week off etc…  

    03:00 PM On the hour: Dow +0.4%. 10-yr +0.54%. Euro -0.4% vs. dollar. Crude +1.83% to $88.86. Gold +2.48% to $1833.65.

    ProPublica’s State of the Bailout report reveals interesting tidbits: $580B was spent, invested or loaned to banks and other FIs, of which, $340B has been returned along with interest and dividends. But peel back the onion: Banks and FI’s paid back 76% of its obligations under TARP, compared to the mere 17% earned back for investments in Fannie and Freddie.

    Goldman thinks QE3′s arrival is a mere matter of time, given its belief that the FOMC’s current GDP forecasts are too optimistic. It believes the Fed’s QE3 asset purchases will be comparable in scope to its QE2 purchases, and expects them to be focused on long-term Treasurys (perhaps representing a form of "Operation Twist"). 

    "We have often described stock market volatility as an opportunity for Pershing Square," writes Bill Ackman. He took advantage of August’s "sale" of Fortune Brands (FO), Kraft (KFT), Family Dollar (FDO), and Citi (C) to add to his stakes, while opening 2 new (undisclosed) positions. Pershing also has received permission to up its JCPenney (JCP) stake.

    Handelsblatt reports on the latest scheme to give collateral for Greek rescue loans to countries (like Finland) that request it: partially nationalize the Greek banks and take the shares then owned by the government and pledge them as security. We don’t make this stuff up.

    "The fundamental advantages of Ireland are intact," says Wilbur Ross, who believes the country – having taken its medicine – will be first to emerge from the PIIGS debt crisis. Ross has been heavily investing in cheap assets there, most recently joining with others to buy 35% of Bank of Ireland (IRE). 

    Labor shortages continue driving Chinese wages higher, and the effects of China’s one-child policy could make things worse: China’s pool of 15 to 24-year old workers is expected to decline by 62M from 2010 to 2025. American retailers such as WMTTGTHD, and DG, who depend heavily on inexpensive Chinese goods, will no doubt be watching closely.

    Fitch Ratings says China looks at a "better than even" chance its debt rating will be lowered due to high inflation and bad debt loads emanating from the nation’s massive stimulus program. The rating currently stands at AA-, four levels below its top rating.

    Maybe foreshadows better jobs reports ahead:  Shares of Monster Worldwide (MWW +15.2%) soar afterSEC filings reveal insider buying from multiple executives after the stock reached its 52-week low earlier this week.

    Citigroup cuts its August same-store sales estimates for four department stores – JCPenney (JCP -1.3%), Kohl’s (KSS -2.1%), Macy’s (M +1%) and Saks (SKS +0.3%) – because of effects from Hurricane Irene. Some retailers may rethink their September promotions as they look to make up for back-to-school sales missed this past weekend, Citi says.

    As Warren Buffett celebrates his 81st birthday, Francine McKenna asks whether Berkshire Hathaway’s (BRK.ABRK.B) leadership has gotten too old. In addition to Buffett and 87-year-old Charlie Munger, Berkshire’s board has 4 other members who are 80 or older. 2 of the 3 members of Berkshire’s audit committee are also in their 80s. 

    Less Government would solve this problem, right?  The fatal explosion last year of a PG&E (PCG) natural gas pipeline in California was inevitable because of pipeline flaws, the company’s failure to ensure the pipe’s safety and a lack of government oversight, the NTSB says. "It was not a question of if the pipeline would burst, it was a question of when," NTSB’s Chair Deborah Hersman says. 

  114. Phil / ZSL    Shorting silver is not working for me.  Should I give up now on firmer expectation of QE3?

  115. FAS/Deano – Tough one but I’m still inclined towards staying naked, can’t really count a closing pump job….

    Roaring/Lol – Well that’s what we need to get to 1,300.  As I said this morning, there’s "no way to slow down" as we’re not strong enough to pause so we need to keep pushing higher until the bears cry "uncle" and let us go.  

    73.97 – that Dollar needs to stay down.  Oil looking confident at $89.  Gold beyond confident at $1,842.  Even silver is looking fiesty at $41.57.  How do you lift the markets without lifting commodities – that is the question….

    ZSL/Tusca – Eventually they will crack but the market can remain irrational longer than you can remain solvent – that’s the key take-away there…

  116. gas pipeline – i have heard that isn’t true of just that one pipeline.

  117. Well, that day went as well as we thought it would – down 1%, held it, came back, closed green.  

    Dow volume 181M at the close – about the same as yesterday so light still.  

    Pipeline/Morx – I’m sure it’s true of many, many pipelines.  They contract work out to low-bid construction companies who cut corners on pipes that get buried and you only find out there’s a problem when they break.  After all, you don’t want Government inspectors breathing down a company’s neck and interfering with their "job creation" do you?  

    Wow, Dow futures just dropped 100 points on the close!  

  118. Phil, you were saying – "Pump job at the close"… Looks like we sprung a leak! Unreal…

  119. they were closing in on the 20day ema..they couldnt stand it

  120. We just erased the last 2 hours of trading in 5 minutes! Wheeeeeee 

  121.  Ouch – FAS just lost 15.

  122. news???

  123. Today’s levels

  124.  Forgive the length of this rather attenuated scenario, feel free to "ignore."

    An excerpt:   "…[Six] billion people have been awakened to opportunity and are striving to earn a small slice of the lifestyle that 600 million of us enjoy…If the six billion are even marginally successful and attain a paltry 10% purchasing power parity,  global demand for everything must double." [John Petersen, SA columnist]  
    The "600 million wiith the lifestyle" refers to the subset comprised of  "All  Americans & Europeans,"  both now the debt-ridden victims of "better now, worse later" politics.
    I am firmly of the opinion that the U.S. and Europe have no real alternative to printing money and destroying the value of their outstanding debt in real purchasing power terms.  Austerity of the scale required to repay outstanding U.S. and European governmental debts will prove impossible in democratically-elected countries.  The citizens will vote to inflate their way out of both public and private debt burdens whose repayment at the dollar exchange rates prevailing in the past would be socially unsustainable.
    While I am quite sure this will be done — inflation is the only mechanism available for reducing the entire populations standard of living [minus those with capital, surely] on an even-handed, democratic basis  – I am equally certain that it will not work very well — that is, as a sleight of hand to bilk foreign lenders out of the real value of their loans.  Perhaps they are not that dumb.  I suspect there is a more complex minuet going on.
    I would call it "The Selling of America and Europe".  The lenders holding all those dollar bonds know exactly what Bernanke’s role is, and they will be cooperative and coordinated actors in the process of "monetizing" their U.S. [and European] bond proceeds into U.S. and European equity and real estate markets.  I notice, by way of example, the transfer of advanced aircraft to China by GE, and China’s purported purchase of a large stake in America’s largest bank in assets held, Bank of America, and hypothesize that this is just the beginning.  
    Over the next few years, we can expect to see foreign bondholders exchange their dollars and Euros for ownership in energy and basic materials producers and to see dollar & Euro interest rates rise substantially as bond holdings are shifted into equities.  Industrial metals and materials appear to be the pointed end of the inflation lance thrust through the ribs of American consumers, as their production appears to be several orders of magnitude less, by per capita usage, than that of energy resources.  It happens that these metals are also critical to future energy-saving technologies. Citizens of the U.S. and Europe can expect the price of those commodities to rise to quite extraordinary heights. 
    I emphasize that the foregoing is purely speculation on the potential endgame of America’s civilization-saving money printing program.  

  125. These guys should stop playing in a field where the games are rigged:
    The problem is that most of them don’t even understand the derivatives that they are buying.  And the IBanks are only to happy to sell to suckers!

  126. We don’t have much of a shot against these guys:

    At any rate, in the 1990s, Deutsche Bank, then one of the two or three largest banks in the world, installed Sugihara on the 20th floor of Emerald Plaza, the downtown San Diego skyscraper that looks like a casino, with the heliport on top, made him a managing director, gave him a team of 20 bright assistants, the best computers in the world, and carte-blanche to “basically, model the fear and greed of mobs that trade.”

    Well, except Matt who is taking matter in his own hands! 

  127. Stjeanluc, that is a scary article, Sugihara, used to surf right below his house.

  128.  Phil,
    I posted yesterdays and todays September Dozen posts in the blog section of the September Dozen article.  I hope that is ok.

  129. danosu77 -  Can you please tell me where the blog section is located?  It’d be awesome to see all the plays in one article/post.
    Kwan -  Been meaning to thank you for pointing out the wiki to me last week.  Big help. 

  130. Sugihara / Rpme – The guy sounds like a real nice guy but a bit naive though! At the end of the article, there is a bit of a cliffhanger that doesn’t lead to good things in this market it seems! 

  131. M. Bachmann – recent crises are a message from god.
    Or maybe it’s a 2012 warning…Phil, I’ll give you a call this week to discuss.

  132. Phil – Two quick questions:
    -What are your thoughts on buying IMAX Jan’13 $15 (or $20) calls and then selling OTM calls against them for the next 16 months?   Based on the premium being offered for the upcoming monthly calls, it seems like I’d be able to pay off the Jan’13 calls easily and might even be able to pocket some money on top of that.
    -When rolling calls to a lower strike price, I should look for a 1:1 or higher ratio in terms of the additional price vs. additional delta right?  For example, I own TZA Sept $47 calls (.434 delta) and am considering rolling them down to $43 calls (.518 delta).  Since the difference in delta is about 20%,   I should not pay more than 120% of the value of the $47 calls FOR the $43 calls, should I?

  133.  stjeanluc, to your point, my algo returned 5.92% today.  It made one round trip trade in TNA.  3 of the 4 enhancements I made to my underlying strategy of ema crossover were exercised today.  So, a really good test.
    Phil / Gold:
    Excellent points:
    "Well you have the nonsense in Venezuela and the EU crisis and China messing around with their economy and the Fed printing more money "
    Blinding bias:
    Overall, it’s a fear bubble and it will pop eventually or, maybe they are right and the World will end – either way I’d rather be short bullion and long bullets.

  134. It is perfectly clear that the only solution to our current problems is tax and spend.
    At least, the only solution you will read about here.
    You might be advised to pay no attention.

  135. Vegas — any update?  
    Is dinner on for Saturday at 7?
    Any consensus hotel?

  136. esco – many are staying at Vdara.  I think dinner is on, just don’t know where…..

  137. Phil/Others……..I’ve one or two family members and a few friends and acquaintances inquiring about me managing some of their accounts for them.   Advisable?   Fraught with legal and other dangers?   I’m not new to investing but I am new to others actively seeking my help with same, and I’m not sure how to respond or proceed.  Thanks ahead.  

  138.  Iflan:  You didn’t ask me, but I think basic human psychology will quickly create a heads-they-win, tails-you-lose situation if you start charging family or friends for advice.  Or even if you advised them without charge, for that matter.  I steer family and friends to large, impeccably establishment firms, telling them that I have neither been trained nor paid for managing money.  I don’t want anybody thinking I’m Karnak — bad for the friendship, probably bad for their wallets.

  139.  And just for the record, Phil actually is Karnak, as we all know!!!

  140. This is bit of ‘duh’ idea followed by a WTF:
    U.S. Is Urged to Bar Wasteful War Contractors by Congressional Commission
    More than $30 billion has been wasted from U.S.-funded Iraq and Afghanistan contracts, about one in every six dollars of the $192.5 billion spent on contracts and grants from 2002 to 2011, the panel said. Those findings were disclosed in a Washington Post column written by the commission’s leaders and published in the newspaper this week.
    “Fostering a culture of accountability is especially difficult in war zones where the contractor community is made up of U.S., local and third-party nationals, where gathering a stable of responsible, competitive companies is a challenge,” the report’s summary said.
    The call for a crackdown could reinforce legislative proposals in the pending fiscal 2012 defense policy bill. They would require any defense contractor to quickly lose funding if a subcontractor is found to have connections to the Taliban, al- Qaeda or insurgent groups.

  141. Oil down 1.10!? How much anyone want to bet these pr!cks have it up 1$ before the inventory report at 1030?

  142. Good morning!

    What strange market action after hours.  Huge moves down, huge moves up and we’re back where we started – or where we finished yesterday, more or less. 

    The Dollar is still 74, oil is back to $87.50, gold is still $1,835, silver is totally flatlining at $41.50, gasoline is $2.84 on the normal pre-holiday pump job, nat gas is $3.92 and copper is $4.18.  

    The Shanghai and the Nikkei were flat but the Hang Seng jumped about 250 points in the last hour to finish up 1.6% for the day and the BSE also gained 1.6%.  Europe is up about 1.5% coming into lunch.  

    Since we had a pump job into the close, then a sell-off and now we’re pumped back up into the open – we have to suspect window-dressing for the last day of the month so it’s going to be hard to take these levels seriously until we start taking some real support lines back but we are still technically bullish and not looking to fight the Fed. 

    Here’s a good chart showing how MS got their FREE MONEY (click for others):

    Click for interactive graphic:

    Source: The Fed’s Secret Liquidity Lifelines,


  144. Civilization/ZZ – Weren’t 600M people awakened to the opportunity of freedom and land ownership when the Magna Carta was signed in 1215?  There was not so much an elevation of the bottom 99% but a limiting of the powers of the top 1% (specifically the Royals, so the top 0.01%) that led to long-term expectations of rights for the serfs and the eventual ownership of land by common people – that was a much more significant change for them than it will be for our society to upgrade 3Bn wooden shacks to about the level of college dorm rooms and to upgrade 3Bn college dorm rooms to off-campus housing.  That’s all the bottom 99% want – a stove, a refrigerator (AC would be nice but we’ve all lived without it), heat, hot-water (clean water or even running water would be a huge step up for Billions). 

    The real problem is that this country as well as most of the First World has gone from being a nation of problem-solvers and providers – who saw the poverty of others as an opportunity to help through both volunteerism and, eventually, trade, to being a bunch of whiny, spoiled brats who think they are entitled to everything without working for it and who only see a "shrinking pie" because we no longer have the skills to just bake another friggin’ pie!  

    I read articles like this, ZZ and I think LOSERS – we have many, many losers in this country with losing attitudes and losing outlooks and it’s not the poor people – it’s the rich ones!  It’s very sad because this used to be such a great nation but so many people have gotten fat, lazy and spoiled and only look to blame others for their lack of success.  We don’t HAVE to reduce our standard of living – have you ever seen a Medieval castle?  They are dumps!  By LIFTING the people below us we build a base on which we can elevate ourselves – too bad there are so many people in this country who don’t believe that anymore and think the only way to get more for themselves is by screwing other people over.  

    Trade has not, historically been a zero sum game – it used to be beneficial to both parties.  Only in the last couple of centuries has this sickness taken over human society where someone has to "win" in a business transaction.  It’s ANTI-social, against society, against sharing and, rather than growing the pie or baking whole new pies for everyone to share, we have turned Capitalism into a winner-take-all game.  Most companies don’t even engage in R&D anymore, there was more money ($277Bn) in patent litigation cases last year than was spent on R&D – that’s messed up! 

    Rigged games/StJ – Why would they stop?  If you pay to have a politician elected he’d damned well better be funneling money back into your bank where you gamble with it and charge them ridiculous fees.  Most municipal accountants don’t wake up and decide to play the swaps – those Banksters work the administrations and steer that money right off a cliff every chance they get.  

    Thanks Dan, that’s helpful.  I will update the post when I have time but it’s good to keep new trades under it for now. 

    Oops, 7:30 already – feel free to roll open questions to the next post!