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Sunday, December 4, 2022

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Whipsaw Wednesday – Don’t Get Excited

SPY 5 MINUTE

Baby listen without thinking you better be without demands
Now don’t get edgy and don’t start blinking and don’t start making any plans
You try to reach a vital part of me My interest level’s dropping rapidly
It’s all excuses baby all a stall We just don’t get excited
Don’t get excited No don’t get excited Don’t get excited 

Wheeeeeeee – this is fun!  

It was "1,072 or Bounce" yesterday and the S&P fell all the way to 1,074.77 at 10am before heading higher but, as you can see from David Fry’s chart, we got a second chance to jump on the bull train as we lost almost all of the day’s gains into the afternoon stick.  

In our morning Alert to Members (as noted in the morning post), we played the Russell Futures bullish off the 600 line and, as of 7:30 this morning, they are at 646 – up $4,600 per contract but that’s chicken feed compared to our trade idea from the morning post on TNA, where the Oct $28/33 bull call spread offset with the sale of the $23 puts came out to net .15 and this morning, after a $6 move (5% on the RUT) in yesterday’s action, that spread is already net $1.90 – up 1,167% in a day!

The best possible outcome on that trade is netting $4.85 profit, which is a whopping 3,233% gain on cash but, when you make over 1/3 of your projected 3-week gains in the first day – it’s a good idea to take a little profit off the table!  So, UNLESS we get a better than 1.5% gain today, we’re going to go back to Cashy and Cautious after a whole 24 hours on the bull side.  Don’t blame the player – it’s just that kind of market….

As you can see from the Big Chart – there is NOTHING to get excited about as we bounce off our EXPECTED channel bottoms.  We’re now firmly in downtrending channels on all of our indexes and we’re dangerously close to having to drop our ranges – which is a decision we take VERY seriously before acting.  If we are forced to do that, the odds of a near-term recovery drop significantly.  

So of course we’re thrilled with yesterday’s gains but it’s a move we’ve been anticipating for days and yesterday we finally got an excuse to take the markets higher.  That doesn’t mean it’s a new trend.  We still need to break over those circled levels at Dow 11,000, S&P 1,150, Nas 2,475, NYSE 7,000 and Russell 675 before we even begin to commit our sideline cash to more bullish positions.  

As it stands now, we ended up 15/10 to 20/15 bullish (out of a 100 allocation) – just sticking with the plan of cashing out our bearish bets at the bottom of the range and adding more bullish plays but, when we can add bullish plays that make 1,167% in a day – we don’t need to go too crazy, do we?  Also in the morning post, I mentioned our very aggressive VXX spread where the weekly $55 were shortable at $5 in the morning and the weekly $56 puts opened at just $1.20 – much better than we anticipated for a net $3.80 credit on the spread.  

All we are doing is following PSW Rule #1, which is: "ALWAYS sell into the initial excitement."  By selling as much premium as possible at our predicted top of the range, we give ourselves a nice buffer and those weekly calls can pull back fast.  Already the $55 calls are down to $1.20 and should expire worthless on Friday while the $56 puts are $4.05, which is net $2.85 plus the initial $3.80 credit that’s already in our pocket is a $665 per contract gain in a day.  

Another trade idea from the morning post was our usual TLT short play at $123.  We had a little scare at the open as TLT topped out at $125  but we’re back to $121.75 this morning, a nice 2.5% drop on the day (notice how those 5% rule lines come up a lot!) and thank goodness as our play on TLT was from Monday, where we sold 5 weekly $122 calls for $1.65 in our $25,000 Portfolio and used that cash to fund the purchase of 5 weekly $124/121 bear put spreads at $1.70 for net .05.  At the moment, that trade is flat so still playable this morning but if we don’t make our 1.5% gains today (and TLT should get below $120) then it’s too risky into the end of the week.  

Trading is like fishing – we cast our nets and see what we catch.  Yesterday we fished for TLT, TNA, VXX and USO and we had huge wins on 3 of 4 and that makes TLT the little one we throw back – there’s no need to stick with trades that aren’t performing as well as we like, is there?   

Europe is still completely up in the air and China has been closed all week – so who knows what they’re going to do when they come back from vacation.  Moody’s cut Italy’s rating yesterday, as did the S&P.  Greece is on strike but Dexia was, in fact "rescued" yesterday (is that good or bad?) and the "Occupy Wall Street" movement is spreading to Main Streets around the country with demonstrators planning to storm the Goldman Sachs building in Jersey City on Thursday.   

Participants range from college students worried about job prospects to middle-age workers who have been recently laid off. The protests have been loosely organized around the concept, as Eric Sundman says, that "money shouldn’t influence politics, people should influence politics."

"I’m glad that everyone is getting active, and the fact that this is not partisan," said Sundman, who graduated recently with a culinary arts degree and has been unable to find steady work. "It’s not left, it’s not right; we’re all in this together. That’s what democracy is, and that’s what we’re trying to spread."

 

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 Very interesting chart and strategy Pharm!  

SellP – I think they can take us to the 115 tomorrow, or maybe 116 on the SPY.  That is the 20d MA. There is lots’o’resistance at 1150 SPX, so I can see 115 SPY.  But, I still think they are setting up for a big fall, and I did a lot of uncovering today.  I am down quite a bit on my puts, but they are in Dec.  One blink of an eye and the EU goes boom.  Misses are coming into the mix on the earnings (AKPT, COST), and the steroids are removed.  I just don’t see it holding. 

 

I think Wall Street refers to the next shoe as ‘this is going to be a real shit-show‘, so I tread lightly and will hold my puts naked now until the low the other day is taken out.  The EU has promised nothing, and WS is grasping at straws.  I don’t think anyone wants to hold the shortest.

Rookie question – "SPX up 1%+ but TICK closed below zero".
What does TICK below zero mean and how can I see it?

Apparently a lot of Bullish call activity in TBT today:
 
$TBT traded 211,816 calls today, 4X average and most in at least 2 years.

nicha – TICK is in TOS and is a rate of change on the price of a security (spread). 

Talk about whipsaw…

http://www.bespokeinvest.com/thinkbig/2011/10/5/insane-volatility.html

Just a bunch of wheeeeeeee days! 

Phil, 
Re SQQQ, well yes that is what HAS happened already… I left on my extended overseas trip with a 500K account on Sept 14th and bought the SQQQ hedge (80 26/31 for net $1.45 to protect a 7% move down and not have to worry, however due to precisely what you mention, the choppy nature of the market, these option hedges on illiquid ultras are obviously the worst possible hedge as both the decay on the underlying and the huge spreads make the spreads unworkable and so I have been having a terrible vacation and looking at the portfolio every day at whichever moment I can…
The market fell more than 9% yet because it had swung wildly for a week and a half, the hedge was, at it’s best  worth only perhaps .25 more than what I paid for it, while my porftolio had lost $90,000 (It had been moving $8K on 1% moves but I was hammered on a couple of positions such as SPWRA and that caused an extra $18K loss)!!!… so then I HAD to start looking for ways to adjust the hedge to make sure I wasn’t going to end up losing there too. These hedges look great on paper but I have yet to have made money on them, UNLESS you take additional risks like leaving uncovered the shorts risking potential catastrophe were the market crash, and even it it "only" gaps down a few hundred points as its the norm these last 2 months, you’d be looking at massive losses.
In any case what would you it you suggest doing with it now?  what bear call spread do you suggest if appropriate (as like you say tomorrow we can gap down 300 points no problem AND then I would be even more bullish than I am now… 
Now my net cost is $1.80 for the 60 calls and I have the 20 short 31 calls and 80 short 34’s… 
Thanks. 

Pharm,
Follow up ques to SPX chart:
1.What is 8.3.8a/cSPX?
2. Is Cobra a source for trading pattern insights (such as SPX up 1% and neg TICK portends selloff) and if so how does one contact them or are they primarily a charting svc?
Thanks in advance

nicha – Go to stockcharts.com; click on "Free Charts" at top of page; in the box that says "Create a SharpChart:" type: $TICK; below the chart (under "Chart Attributes"), change "TYPE" to: HLC Bars or a line chart or any other chart type you want.

Phil 
BTW when you say "deadly wrong for the market direction" I am also not sure I follow as there is really no direction to speak of but down so far with intermittent runups to lower highs (which is what kills these damned "disaster hedges"… In fact your Post title says it clearly!… 

8800 – 8.3.8a/c are the title names of Cobra’s charts, so you can ignore the name.

FAS reverse stock split 1 for 5 on Nov. 9th  

Amatta – I feel for you, I have also not had much luck with the hedges. The only way they work out for me is to hold them till expiration, but then they are subject to crazy gyrations, and I can’t count on them to pay out. SQQQ is the worst, I had a 3 pt spread that was fully in the money by 2 pts, but if we keep rallying it might not be in 16 days. I ended up closing it out for about 1.70 because I legged out and had to chase the higher call. That was about $.50 profit when I was counting on 1.75. I don’t recall the offset, but with these wild swings it got stopped out for a loss a while back. Is anyone else having better luck with these? What are you doing differently?

nicha/TICK
 
This may be of interest:
 
http://www.daytradingit.com/tick.html

News Flash–Champagne sector stocks spiked in after hours trading after Sarah Palin announced that she will not be running for President in 2012. 

ETF Sponsor Direxion Shares Announces Reverse Share Split Of Six ETFs 
 
Direxion Daily Real Estate Bear 3x Shares (DRV)
 
Direxion Daily Emerging Markets Bull 3x Shares (EDC)
 
Direxion Daily Financial Bull 3x Shares (FAS)
 
Direxion Daily Latin America Bull 3x Shares (LBJ)
 
Direxion Daily Russia Bull 3x Shares (RUSL)
 
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV)
 
——–
 
IMHO: It may be best to close options in these ETF’s prior to the split. After the split they will still be tradable through your broker, but new (post split) options will also be listed and those options then become the most favorably traded. The old pre-split options become somewhat orphaned and very lightly traded or become "closing" trades only. The CUSIP is also changed AFTER the split which ALWAYS becomes fun at tax time! 🙂
 
 

Amatta,
what is the expiry month of your hedge?

 Diamond – Reverse ETF splits – I had a very bad experience with just that. I had a good profit and could not close out the position. I suggest anyone who has such an occurancy immediately convert to the new or risk loss on closing position.

Pharm, jmm, diamond/TICK – thank you.

ETF / Stockbern-Diamond-Txchili – That was something I mentioned to Phil with FAS. At these levels I would think that they would reset it. We’ll need to adjust our FAS Money position pronto because these "old" options will be untradable very quickly!

RIP and Godspeed Steve Jobs!

AP just tweeted that Apple announced that Steve Jobs has died – if this is true, a sad day! 

BBC has the story on breaking news ticker. Sad day indeed.

Interesting site about HFT and Algo’s gone wild
http://nanex.net/FlashCrash/FlashCrashAnalysis.html

Phil, I like Todd Harrison’s commentary, seems a lot like you. He keeps talking about these mysterious Hedge Fund blow ups and how they might affect the market. I would appreciate your thoughts.

You CHANGED the world and will be greatly missed … RIP Steve Jobs!
 
On a very personal note, he definitely changed my life …

Detailed, but not always flattering, obituary here.
 
http://www.guardian.co.uk/technology/2011/oct/06/steve-jobs-obituary

Steve Jobs
A visionary….and what a gift of a brain as far as creativity goes!
His soul, though has to move on…

 RIP Steve Jobs….Heaven just got a little more sleek, well-designed and profitable.

I have a feeling Jobs envisioned the ipad decades ago when the technology just wasn’t there. I’m glad he lived long enough to see that the world pretty much agreed it was a great idea and that personal computing was indeed ready for it’s next fork in the road. 
 
Farewell, Steve. We’ll miss you!

There are two people I will always wonder what amazing things would’ve been created if they lived longer and what influence they would have as the times changed.  john Lennon and now Steve Jobs.

I saw some TV special on Apple where John Scully (while still with Pepsi) talked about being recruited by Steve in the 80’s. Scully said  something to this effect: 
    "Steve was seated in front of me, pausing with his face in his hands. Then he simply looked up and said  "So do you       want to sell sugar water for the rest of your life, or do you want to change the world…"
I love that line. Even if taken out of context, I think it captures a lot of what I like to think Steve was about. 
He was brash, to the point, defiantly self-confident, and a visionary, be it right or wrong. 
It just so happens that since the late 90’s, he almost always got it incredibly right. 

Pharm,
Thanks for the insight

Pharmboy
October 5th, 2011 at 6:01 pm | PermalinkIgnore this user
8800 – 8.3.8a/c are the title names of Cobra’s charts, so you can ignore the name.

Game on for Poker.  We can play this way, that way and upside down if we want.  Many thanks to lvmoda and his buddy for setting this up.

For poker, no limit, $5, $100, whatever we want.  Also, for those who would like to partake in an adult beverage b’f dinner, let me know.  I think BDC and several are staying at the Vdara, so that is where we (I) will be.  Will post more on Friday on our Vegas board.

Rest In Peace Steve Jobs. Inspirational visionary genius who lit a fire under the asses of the mundane masses
http://www.youtube.com/watch?v=UF8uR6Z6KLc&feature=player_embedded#!

Its strange but, I feel differently towards Apple …. lost a bit of enthusiasm.

Phil, just remember the hot blond at the end of the bar checkin you out is most likely a hooker, Have fun. 🙂

Canuk, 
Sorry I am not on the site continusly as I am traveling… If you still see this they are Octobers…
Thanks

Phil, Infl, Pharm, etc/AAPL,
I sold Oct 345 puts and Nov 350 puts and am up around 40% on each, looking for the last 2 week premium crush in Oct. What would you do with these now – roll to lower, keep, or bail? Thanks

Odd…..futures bucking the dollar again.

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