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Tuesday, February 7, 2023

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Thrill-Ride Thursday – Finding Bottom

SPY 5 MINUTEMacDuff once said:  

I grant him bloody,

Luxurious, avaricious, false, deceitful,
Sudden, malicious, smacking of every sin
That has a name; but there’s no bottom, none.

That’s the way the markets feel this week as we, like Henry V – head once more into the breach (or close the wall up with our EU dead!).  I had said on Tuesday, that it was 1,200 or bust on the S&P (as usual) and we failed to hold 1,200 and we busted and then we failed to hold the bottom of the rising channel David Fry had drawn at the top of that post (117.5 on this chart) and so we tumble back down towards our much more reliable -5% line at 1,140, which I drew in red

While tricky, it is not impossible to trade this kind of action.  We are very fortunate to have been trading this exact range on our virtual $25,000 Portfolio and we just had our best 2 weeks of the year, despite the insanity, with a net $16,475 gain since 9/15.  That’s 66% of $25,000 right there and we’re now at $97,400 and on track to hit our $100K goal for the year on Friday as long as the Russell doesn’t fail 645.  If not, as with many trades this year – we’ll work it out!  

That’s the whole point of this portfolio exercise – to illustrate the idea of balance, even in aggressive short-term trading.  We are never all bullish or all bearish and sometimes we’re wrong but, generally, we simply do more shorting at the top of our range and more buying at the bottom of our range and then we simply sit back and wait for the winners to come in.  Of course for almost every winner there’s a loser but then, a week later, the losers are winners too!  

OK, so PATIENCE and BALANCE – that’s those are our two points!  And taking profits off the table.  Right, then our THREE points are patience and balance and taking profits off the table while not being greedy.  So that’s FOUR points.   Amongst our points are Patience and Balance, Taking Profits off the Table and Not Being Greedy.  

As I often say to Members, if you wake up in the morning and you’re not sure if you want the markets to go up or go down – you are well balanced!  Other than our long-standing gold short, which we’ll be taking at least half off the table up 70% around $1,600 – we have practically no net cash in play as we’ve sold as much premium as we’ve purchased so we’re not only playing both sides of the fence but we are following the main PSW strategy of BEING THE HOUSE – NOT THE GAMBLER.  By constantly selling premium, we have a huge advantage – especially in a range-bound market (see also, Range-Trading 101).  

The hardest thing about range trading is following Warren Buffett’s advice to "Be greedy when others are fearful and be fearful when others are greedy."  Yesterday we discussed the importance of ignoring the noise of the rumor mill and focusing on the FACTS as we make our investing decisions.   With shorter-term TRADING – we have to pay a bit more attention to the technicals but it’s all about taking small profits over and over again.  In the $25KP, there were 35 positions closed out in 10 days of trading with 9 of them losers and only 7 trades went over $500 (20% of an allocation) in either direction.  Like the Who song – we go in and out and in and out and in and out and like the Tom Petty song goes – "Even the losers, get lucky sometimes."  

It’s the losers that we’re left with when we’re range trading.  At the moment, the RUT Friday $645 puts are killing us with a $4,250 loss – so we haven’t close it!  If it continues to be a loser on expiration day, we’ll roll it out to the October $550 puts and, if the Russell drops 10% between now and October 21st, that will be fantastic for our loser hedges on EDZ and DXD.  See – BALANCE!  

That’s how we make our adjustments every day.  We began the day cautiously optimistic but the Dow failed our 10,300 line and gave us a re-entry on the DIA puts I mentioned in the morning post.  In the morning Alert we took a stab at a bullish TNA spread, which got cheaper as the day wore on (ie. another temporary loser), but it’s the kind of trade where we risk $400 to make $5,000 and we can try those 10 times with 2 successes and end up doing quite well.  For BALANCE I pointed out, in the same Alert, that the USO Oct $32 puts should be a good play at $1.10 – they jumped to $2 at the day’s end (up 80%).  

As the markets became uncertain in the afternoon, we revisited our Long Put List and came up with 8 stocks to short in case of a collapse but, when push came to shove at the end of the day – we remained 60-66% bullish (15/10 or 20/15 allocations), going long on AGQ into the close off the $105 line as well as grabbing an aggressive 20 IWM Friday $65/66 bull call spread for .65 ($1,300) in our $25KP, offsetting the purchase with the sale of 10 VLO Oct $18 puts at .86 ($860) for a net $440 on the $2,000 spread.  

BTU looked oversold, as well and my comment to our Members at 3:10 was:  

Funny how people are freaking out on this pullback as the Dow was at 10,600 last Thursday and ran up almost 800 points (7.5% on the button) and is now 11,100, still up 500 points (4.7%) so, on the whole, a nice normal, 38% Fibonacci retrace of the 5-day run and all the talking heads are trying to pin reasons on it and everyone is trying to read the tea leaves and extrapolate the next week or month off what happened in the last 5 hours – MADNESS!!!  

We had a terrible close but we kept the faith as we could see that the sell-off was based on more BS commentary led by the every-hawkish and finally leaving Bill Hoenig (don’t let the door hit you in the ass, Bill!) as well as the other relentless negative newsflow, which I have been warning all week was aimed at flushing TRADERS (not investors, who should know better) out of their positions ahead of the normal end-of quarter window dressing.    If we don’t get it – THEN we’ll get more negative but we’re going to give it the old college try through Friday – as long as the Dow can hold 11,000  and the RUT 650 anyway

I spent last week laying the foundation for why we should not be freaking out about Greece but one thing I have learned is you can’t preach Fundamentals to TA people (or use logic on Conservatives) – the words just wash over them like  the dog in this Farside cartoon:  

Bernanke did not say anything in particular to deny Hoenig’s allegations that the Fed is running a gigantic Ponzi scheme (they are) but, as I said yesterday (the same 3:10 comment to Members):  "I’d rather play the Bull side until the bears prove their case because the absence of constant, relentless bad news is likely to cause a rally."

We went over the latest news at 1:20 this morning in Member Chat and, as expected, we were running out of bad news already after such a relentless attack at the beginning of the week.  GS spiked the futures down at 6pm by releasing a well-timed comment lowering earnings expectations on US banks.  Taking the opposite side of GS calls like that is a very profitable business – a tactic they have been accused of taking against their own clients!  

As we expected, GS was joined by the Bond Bears, who were desperate to get TLT back off the floor in a trade that is going horribly wrong for the Treasury bulls (not us, we were bearish).  Will Greece default?  Will China implode?  What will be the next thing we worry about?  

Germany approved the expansion of the ESFS 523 to 85 – not even a little bit close!  

This is the exact opposite of what 99.9% of the "news" was saying and I even challenged Members yesterday to find articles that said something positive about the EU and it was slim pickings for sure!  Now the 140% expansion of the still-unused rescue fund to $600Bn will be questioned as "too small" even though Greece needs just $11Bn to pay for this year’s needs and, of course, since there is still an EU Parliamentary process to go through – we will still see the Punditocracy banging the fear drums as they chase the beautiful sheeple in and out of positions at will.  

Our own Q2 GDP (in case anyone still cares about FACTS) came in up 1.3%, 30% HIGHER than the last estimate.  Prices were up 3.3%, which is down from 4% in Q1, Personal Consumption was up 0.7% and exports were up 3.6% – ahead of imports up just 1.4% as oil calmed down.  "Only" 391,000 people lost jobs last week, down about 10% from last week and continuing claims trended down as well.  Our Corporate Masters made 3.1% more profits in Q2 this year than last year and that’s up 210% from Q1’s pace.  Financial profits were a drag, down 11.5% but non-financial profits were up 8.4%.  

While the obvious conclusion here is simply:  DON’T INVEST IN FINANCIALS – XLF is actually down 20% from last year’s Q3 but after Q3 the earnings were good enough to pop the Financials to $17 through Q2 this year so I suppose, if you think the financials will never make money again rather than that maybe, just maybe, it’s a cyclical business and always has been – then you can not invest.  

If, on the other hand, you think that people will still put money in banks and that not everyone will pay cash to buy homes and cars in the future with money they pull from their mattress and if you then believe (and this is the big stretch) that bankers will be able to make a profit from facillitating these transactions – then LOGICALLY, the XLF is a very good deal at $12.    

The XLF 2013 $10/11 bull call spread is .45 and you can buy 50 of those for $2,250 and you can sell 20 2013 $9 puts for $1.10 ($2,200) and that puts you into $5,000 worth of of spreads for net $50 with a 100:1 return (10,000%) if XLF manages to hold $11 or higher through Jan 18th, 2013.  Your worst case on this trade is the risk of being assigned 2,000 shares of XLF at net $9.05 – 25% below the current price.  Obviously, if you don’t REALLY want to be long on the financials at $9.05, then don’t spend $50 on this trade – we’re just being a little bit greedy while others are fearful…

Again, we are not gung-ho bullish but we’re not giving up yet and taking on trades that pay off UNLESS XLF falls another 10% and don’t lose more than $50 of our allocation UNLESS XLF falls another 25% is not exactly throwing caution to the wind, is it?  

Not only that but, as demonstrated in our short-term trading – we KNOW we can make money on a move down so, as long as we stay "Cashy and Cautious" – it doesn’t make sense to stay entirely on the sidelines.   

We only fear missing a rally as we may never get another chance at these lows.  While it’s possible that we get that 25% decline, we don’t fear that either as we will simply scale an and take net entries that are 40% lower than we are now and, if the markets fall that far and never recover – we’ll be a lot more concerned about stocking the shelter up with ammo than we will be about whether or not our XLF trade is performing well!   

 

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 lflan/Phil,
Re: APPL 390/440 BCS @20
Why not go for the APPL 370/410 BCS @21
This is 20 ITM? I though the idea was always not to BUY premium. 
TIA for your thoughts.

Straight from The Onion:

http://www.theonion.com/articles/congress-takes-group-of-schoolchildren-hostage,26207/

How do they come up with that stuff…

 

JR or Anyone…..Check out the daily candlestick pattern on the DOW. 
 
Long tails…..Bearish or Bullish?

 Phil: GMCR
Covered my short 92.50’s and waited to resell the Oct 95’s almost even so satisfied to improve my position $2.50 and keep watching that microwave timer šŸ™‚

you called im MAM

 Wow, 66.33 on the dot šŸ™‚

 Amazing lines JRW.

This market????

At least the Feds making money
NY Fed: ECB Borrowed $500 Mln For One Week At 1.07

 JRW,
 
Can you tell me where the market will close a week from Tuesday?  Also, what grade will my son get on his Spanish test?

Someone said this was trading like a Taiwan Farmers market was not far off today!

RPME:  Yep lots of thumbs on scales here.

peedlew99 / Spanish test

Give me a minute on that one  šŸ˜Ž

 ES / Phil,
Thoughts on where they may take this with the quarter close tomorrow?

Phil,
could lflantheman get his own color for AAPL trades?
 
Thanks

BRK/B- added more today on the late dip. $71.50 seems to be the floor.

Dollar Games/exec – comical.. but i’m not laughing. šŸ™

Via FXlive
In about three hours, a deluge of data hits starting with the first revisions to MNI’s China purchasing managers index. Afterwards Japan takes over with its manufacturing PMI followed shortly by employment, CPI and industrial production reports. Other releases to watch include New Zealand NBNZ business confidence, Japanese housing starts, Australian private sector credit and UK GfK consumer confidence.

Wow, that was a complete and utter joke of a move.  I still have calendars at 117, and those performed quite well on that bogus move.  Gotta love a very high VIX to sell premium into.  They really need to window dress this pig…..

Max K..I found it amusing
http://www.youtube.com/watch?v=YtjbZl6ZwkQ&feature=player_embedded#!

Japan CPI

july was -0.2% y/y
Ex-food and energy -0.5% vs -0.6% y/y exp and -0.5% prior
Tokyo core CPI -0.1% vs -0.1% exp and -0.2% prior
household spending -4.1% y/y vs -2.8% exp and -2.1% prior

PMI

First reading below 50 in 5 months
new export orders to 44.9 from 48.0
new orders to 48.0 from 53.5
output index to 49.0 from 52.5

UE 4.3 VS. 4.7 expected

UK GfK consumer confidence -30 vs -33 exp

From ESPN’s TMQ 

Another Way the High and Mighty Steal from Average People: Obviously, 9/11 meant a need to improve security, but "security" has become a hustle used to justify luxury and self-importance for government and corporate officials. TMQ often documents midlevel and even minor public officials surrounding themselves with taxpayer-paid bodyguards supposedly for security, but actually so they can seem more important while cutting to the heads of lines. Shareholder-paid "security" for CEOs is as much a hustle, and increasingly focuses on the private jet.

[+] Enlarge
Antoine Decaux/Getty ImagesA Falcon 900, important for reaching the CEO’s vacation home — we meant, for security.

Many CEOs now justify their shareholder-paid personal jets based on "security" — though no one traveling on U.S. commercial airlines has been harmed by terrorism in a decade. Recently the Wall Street Journal reported "Yum Brands Inc., which owns Kentucky Fried Chicken and Taco Bell, said in regulatory filings that CEO David Novak and his wife are required to use company aircraft for personal and business travel" for security reasons. The company "requires" the CEO and his wife to take private jets on personal travel. Forces them to!
The Journal continued, "Comcast Corp. says that for security, certain senior executives must use company planes for business and personal travel. In 2010, the cable giant bought a third jet for its fleet, a Dassault Falcon 900 that can cost upwards of $40 million. The new jet’s most frequent destination in its first six months, from its home base of Philadelphia, was the island of Martha’s Vineyard, Mass., where [Comcast] CEO Brian Roberts has a house. The plane made 24 trips there in that period, mostly in the summer, FAA records show. Starting in October, the jet also began flying to Palm Beach, Fla., where Mr. Roberts has another home."
Corporate leaders are using average people’s money, extracted from labor via wage cuts and from shareholders via lower dividends, to lavish private-jet luxury upon themselves. The only complication is that average people may find out. How did the Journal determine that corporate jets are spending so much time commuting to vacation homes? Because in most cases, jets must file flight plans that are public documents.
So CEOs are lobbying to have their flight plan information withheld from the public. There is a privacy issue. While airspace must be regulated, generally, government should need a court order to monitor a specific person’s location. And on rare occasion, traveling executives may have reason to fear what the law calls a "valid security threat."
But 99 percent of the time, people on corporate jets want their movements secret so shareholders and labor don’t know they are using company planes for personal luxury — and so the IRS doesn’t know they are receiving corporate-paid personal travel they may not declare as income. Privacy could be protected, yet the public interest maintained, if private aircraft flight plans were not disclosed in real time — but at year’s end, all trips taken by an aircraft were made public, by tail number. That way shareholders, labor and the IRS could figure out if executives were using the company plane for personal travel. But on any given day, the CEO’s movements would receive privacy protection.

S&P rating lowered one notch, outlook is stable. This comes after the downgrade by Fitch earlier, while Moody’s affirmed its Aaa rating.

doro165/Security
 
If I had anything to do with Taco Bell, I would fear for my life too.

(Long Post)
 
Dow Theory Dead? Greece Trumps Reliable Stock Signal
 
CNBC.com | September 29, 2011
 
In a normal market, the wide disparity between the Dow Jones Industrial Average and technicals would be screaming an ugly message, but these are not normal times.
 
That’s because the massive amount of headline risk—market moves driven by the constant churn of big news events — is at an apex and rendering the aforementioned cornerstone of Dow Theory extremely unreliable…if not useless.
 
Blame it on Greece, if you will, as the seemingly daily twists and turns to the European debt saga are essentially the only market movers nowadays.
 
"In the short term, we know the market is run by headlines and emotions. Dow Theory says that’s not the case, but in reality we know that is the case," says Andre Julian, senior market strategist at OpVest Wealth Management. "Whatever happens in Europe is what drives the market. In the very short term, it’s tough to look at technicals."
 
Dow Theory has six basic tenets at its core — entailing market cycles and trends, volume, the discounting of news, and trend confirmation — but perhaps the most widely followed is that any market rally has to be confirmed by the transportation sector. By that measure, the third quarter was an abysmal sign for those hoping the market moves higher.
 
While the Dow 30 stayed in correction mode — a 10 percent drop from recent highs — transportation stocks were near a full-out bear market, defined as a 20 percent pullback. Transportation stocks are seen as key, because they represent active economic activity on America’s air and ground freight systems.
 
"Insofar as transports are an important part of the market and an important part of the economy, the poor relative action in the sector…is a bearish indicator," Phil Roth, chief technical analyst at Miller Tabak, said in an email. "I wouldn’t go so far as to say the market can’t do better in the face of the transport action, but it is clearly a big drag and one indication traders are downgrading their economic expectations."
 
Yet there is reason to believe while the transport activity is an important economic bellwether, it may not matter to the markets.
 
Investors, according to the popular adage, run on fear and greed, and fear that debt default in Greece would lead to global contagion is the market’s driving force. Even amid a plethora of bad news from the U.S. economy last week, stocks rallied on belief that Europe was moving closer to solving the Greek dilemma and removing the risk of another crisis.
 
Of course, the opposite has been just as true — whenever holes pop through in the latest bailout plans, the market quickly retreats.
 
"In the absence of concrete and credible action (in Europe), we expect investors’ confidence to continue to be eroded by a vicious circle of declining markets, falling liquidity and declining credit availability, a deteriorating economic outlook, and policy disappointment," Citigroup credit analyst Matt King wrote in a note for clients. "Unfortunately without confidence and with 2008 so fresh in investors’ minds, the value offered by markets counts for little."
 
Maybe even more to the point is that the market has found a Greece-bound range unlikely to be influenced by anything else, much less time-honored investment tools such as the Dow Theory.
 
"In the end, this story isn’t one that you can throw away. It rears its head every three to four weeks," says J.J. Kinahan, chief derivatives strategist at TD Ameritrade. "As long as you have that continuing story, the whole premise with Dow Theory is thrown off."
 
Another critical tenet is that the Dow already has priced in the news by the time it hits.
 
Again, the current market swings of 200, 300, and even 500 points a session indicate that there is plenty left to surprise investors in the current drama being played out in southern Europe.
 
"The major part of the theory was the charts already have the news in them," Kinahan says. "We don’t see that as much anymore."
 
For investors, that sets up a sturdy challenge.
 
"We’re going to be in a tremendous type of volatility over the next few years," Julian says. "The new normal is having these 2, 3, 4 percent days. That’s going to continue. The overall trend eventually will work itself out. But we’re really in for a choppy market."
 
Indeed, the long-term trend may be the bright spot for Dow theorists.
 
Once the Greek crisis goes away — though that could take years — traditional technical indicators can be useful again.
 
Until that day arrives, however, investors will have to adjust their perspectives accordingly.
 
"What it does is it presents some opportunity for the average investor to be a little more selective in the stocks you pick," Kinahan says. "It allows you to accumulate them over time. What they have to be careful of here is not get panicked when things go to the downside."
 

 Ah, Euro taking a dive this evening.  So Friday holds another day of dollar-fibrillating range trading?  Or, for a litte more excitement, just a mass dumping of positions from the open, because who would be crazy enough to trust European [or any] politicians not to say or do something weird over the weekend?

 Great post doro165!

The good old days—————-
http://online.wsj.com/article/SB10001424052970204138204576601111826855644.html?mod=WSJ_Heard_MIDDLETopNews
"After enjoying an effective annual return of 15.2% for three decades, those lucky enough to have timed the top on 30-year bonds may find themselves feeling wistful come Oct. 27, when the bond matures. "

 Nice summary of fed policy options compared with Japan by Gillian Tett:
 
http://www.ft.com/intl/cms/s/0/87d94848-eaaf-11e0-aeca-00144feab49a.html#axzz1ZR75ZEkh

TOS servers unreachable due to network outage.

Phil/Selling puts
 
Excellent advice on selling puts with 30% stop. Wish I had though about that a couple months ago when I sold a couple of FCX put spreads. I have been working a bit on adapting the technique for IRA usage. A couple of ideas (don’t laugh) seem like they might make life easier and safer.
 
1. In an IRA if the stock price is not single figures like NOK, then you probably need to sell a put spread to preserve margin (i.e. cash to secure the puts). In this respect if you are selling puts with a longer expiry date it may be beneficial to buy an extra put at the lower end of the spread, in a ratio of 6 long puts to 5 short puts as this acts as a kind of disaster hedge if the stock tanks badly early on in the process.
2. If you are selling the bull put spread, you might just as well sell the bear call spread as well, making it into a condor, because in an IRA this will not cost any additional margin and if you are dealing with large cap stocks, you can certainly roll the call spread upwards almost indefinitely if needed, though they are not likely to double overnight like small cap biotechs with PDFA dates.
3. The same 30% stop loss can be applied to the credit received for the entire transaction.

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