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Tuesday, February 7, 2023


Will We Hold It Wednesday – Nasdaq 2,603 Edition

Watch the Nasdaq.

That's the index we need to catch up to the Dow now that the S&P is halfway to goal at 1,297 (from our Must Hold line at 1,235).  The Dow is in La La Land, led by MCD (up 31%), IBM (up 26%), PFE (up 24%), HD (up 20%) and KFT (up 20%) while this year's Dogs of the Dow are BAC (down 59%), AA (down 43%), HPQ (down 39%)  and JPM (down 22%).  

While the losers may seem to outweigh the winners, that's not how it works as the Dow is price-weighted so BAC dropping from $14 to $5.50 "only" costs the Dow about 68 points (roughly 8 points for each Dollar), IBMs rise from $145 to $185 added a whopping 320 points.

So a 26% rise in one component and a 59% drop in another nets out to a gain of 252 points!  At the beginning of the year, they had roughly the same market cap ($150Bn) but IBM has gained $70Bn and BAC has lost $100Bn which, of course, translates into a net gain of 2% on the entire Dow – BECAUSE IT IS THE STUPIDEST INDEX ON EARTH!  

Our Members, of course, know this.  I wrote "DJIA: The Most Useless, Overused Tool on the Planet" back in 2006, when GM was still part of the Dow so no need to rehash it all here other than to mention the fact that a 30-component index has made 5 substitutions in the 5 years since I wrote that article only serve to highlight how ridiculous it is to use the Dow to draw long-term conclusions.  The Dow is manipulated because it's easy to and Uncle Rupert sits with the other Masters of the Universe to decide how to use this headline tool to make things look as good as possible in the US markets.  


That's why CSCO and TRV replaced C and GM in June of 2009.  C was at $28.80 and is down a bit, GM went BK from $45 (which would have been a 360-point loss in the Dow) while CSCO was disappointing but essentially flat and TRV is up $20, adding another 160 points so a 520-point swing (5%) on those substitutions alone.  In September of 2008, AIG ($135 at the time) was swapped for KFT ($32).  KFT is just $37.70 but AIG was another BK avoided by "coincidental" substitution in the Dow – AND THEY ARE NOT EVEN IN SIMILAR SECTORS!  

Before that we had the Feb 2008 substitutions of MO and HON for BAC and CVX.  CVX worked out but not BAC and again – actual things Americans produce (cancer and electronics) are substituted for things that we consume and leave no lasting value (bank fees and oil).  So the Dow's "success" is a measure of America's failure.  Anyway, this isn't a post about the Dow – in fact, it's starting to sound a little "Alice's Restaurant" so let's get back to the topic of Charts while we still can:  


SPY DAILY Above we have the S&P weekly chart, annotated with our 5% Rule Lines that we've been using since March of 2009 to target our expected market range – up and down 10% from our Must Hold line, which is actually 1,236, just off the Fibonacci line (see "Fibonacci Rules – Sometimes, the Old Ways Are the Best!" for more on the Prognosticator of Pisa) but we're nailing 1,359 at the top 1,035 seems to be a sturdy bottom, with only a brief spike below (Greece) last year so not at all bad for 3 year-old predictions, right?  

At the moment (see David Fry's chart), we're matching volume and movement pretty closely with the 2009 holidays and that's keeping us Cashy and Cautious into January earnings.  We also have the Holiday Weekend and I hate to say it, but on Christmas Day, 2009 passengers jumped a guy on a Delta flight who was trying to detonate a bomb in Detroit and there have been two New Year's Eve plots foiled in the last 5 years so it's simply not a good weekend to be complacent in our positions.  

Our primary hedges remain EDZ but now that the Russell is testing the old Must Hold line at 774, we can also go domestic with TZA as well as our old pal SCO and I'll add a couple of hedging ideas for Members in this morning's chat as there are still some really nice bullish offsets we can take advantage of like RIG ($39) and BTU ($33.70).  We already have oil an Dow shorts and we nailed the oil Futures in Member chat for the night crew at 2:07 am, where I said:

Oil (/CL) at $101.43 – If I wasn’t going to bed, I’d short it with a stop at $101.53.  Hopefully we get a drop back to $101.20. 

See that top between 2:30 and 3?  $101.51 – nailed it!  We dumped out at $100.60 at 5:38 (not too much sleep) with a call to re-short at $101 and we hit $101.10 at 7:15 and now back to $100.70.  The drop from $101.43 to $100.60 alone was 83 cents at $10 per penny per contract so $830 there and another $300 so far on round 2 is enough money to upgrade to croissants for breakfast this morning!

With that, I'll bow out as I'm off to the slopes.  Hopefully the markets don't go downhill as fast we will but I'm still very concerned about Europe, Terrorism, Retail Sales, Oil Prices, China Collapsing, Home Sales, Home Prices, Unemployment, Iran and whether or not Congress can agree on anything in 2012.  So forgive me for being a bit bearish as we wait to see which end of our trading range breaks first and it did seem prudent to speculate on the downside into the weekend as we, like the Mayans of old, are just patiently waiting:  




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Up early Phil…

Oil Lines

R3 – 104.62
R2 – 103.19
R1 – 102.22
PP – 100.80
S1 – 99.82
S2 – 98.39
S3 – 97.42

Yesterday’s high and low – 101.77 / 99.37

Breakout – 105.65 / 93.08 

China blames 54 officials for bullet train crash
 A long-awaited government report said design flaws and sloppy management caused a bullet train crash in July that killed 40 people and triggered a public outcry over the dangers of China’s showcase transportation system.

Dow is the only major world index up so far this year. The Dow will be up in 2012 too, even if they have to replace all 30 stocks.

 AAPL 50k Portfolio:    Morning analysis…….Yesterday the portfolio increased significantly in value so I sold 1/2 of our Jan 390 calls at close, intending to repurchase them this morning if futures and AAPL are looking upward.   And they are.   I’ll probably be buying the Jan 400s this am rather than the 390s, as there is more profit to be squeezed from the 400s with a move above 425 by mid January, which is where I think we’re headed.  We have to be cautious this last week of December.  There may be some profit-taking on AAPL before the New Year.   I may even decide to go to cash before the week’s out.  We’ll see how it goes.   But my overall premise is that AAPL is going to ramp up as we move closer to earnings in January.  

lflan, thanks for the information yesterday. I didn’t get back to you last night because of the time difference. I updated the portfolio now. From my calculations, you are left with 10 Jan 390 calls and 10 of the July spread.

Regarding posting the last couple of trades, it’s difficult since I list the trades as they are entered, but they might be closed in a different order so the last trades might not be in the last rows. I could sort the trades by the date that we closed them just to post the status and see if this works!

I also started the calculations for the margin used, but the problem is that you have so many different possibilities that it’s a bit tough to track – long contracts, short ones against the long, BCS, BPS, etc… I could track the margin for the long contracts quite easily though.

 Good morning stj……Thanks.   One of the reasons I’m interested in posting the margins used for trades is that this reflects the true cost of trading.   Whenever you have money tied up in margin then you have money tied up in the trade.   I think some of the new members don’t get this clearly enough.  Not to mention that the trading techniques used for making money using no margin and for those using  margin are very very different.   Anyway, just an idea for enhancing the learning experience for the members.  

How to you plan to manage the trades going forwards with the AAPL Jan 400s? I have a couple of AAPL Jan 390s that I did hold overnight, my thinking being that if the stock opens higher, I will miss out on the gap. My intention is to spike fish today and try to sell the $395s for a decent profit over what I paid for the $390s and then have a free shot at collecting another $500 per contract on January 21st if it holds $395. AAPL announces earnings on Jan 18th, I believe, so presumably call premiums will remain very high until that date.

Margin / lflan – I agree totally which is why I added a margin column in the spreadsheet. Sometimes we forget as we post results based on the option prices but not margin. It’s true for example that if I sell a FAS option for $0.50 and buy it back for $0.25, it’s a 50% win (Phil also calculates that way all the time). But each option ties up $2200 of PM margin so it’s only 1% on margin… With our other trades, it’s easier to track in the spreadsheet as they involve mostly short options and the Reg-T rules can be approximated. But with your trades, it will be harder due to the various setup. I’ll try to think of something over the next couple of weeks to make it simpler.

Also, I forgot to mention about the trade summary – I mentioned to Phil that I’ll post an article on the weekend with all the trade summaries (as they are getting long) so that everybody can ask questions and post comments over the weekend. 

Agree on this. As I trade in an IRA, I need to recalculate every trade to see how much cash it ties up, or whether I can use a spread to reduce the cash necessary. Hence something like the MSFT 24/20 bull put spread is much more profitable than it looks on the surface because the $20 put is extremely cheap and the trade can be done for $4 cash instead of $24.

Dogs of the Dow was a pretty good success in 2011:


And the list for 2012:

 lflan / Starting out on AAPL
I don’t have any positions on AAPL right now.  Would you suggest starting out with the 400’s that you are looking at this morn?  Or should I also look to get into the other open positions right now, as they are offering some type of hedge/offset?  

 AAPL/jmm…..It’s fine that you held the 390s.  Keep them. I would advise against selling any calls for extra profit right now.
Burrben…..The Jan 400s are good.   That’s where I’m going for my next trade.   

Looks like India might be slowing down:


Once you get past mid-year export growth, there’s not a lot of good news coming out of India. Inflation is near 10 percent, which is even worse news than it sounds, since Indian families spend as much as 30 percent of their income on inflation-sensitive food. GDP growth is down, industrial production is slowing, and investors are shirking away from Indian assets. All that means the India is inauspiciously reliant on a global economy that is feeling even more vulnerable. Twenty percent of its exports go to the EU, which is on the precipice of … well, who even knows right now. Another 20 percent go to Asian economies, many of which are experiencing their own slowdowns. 

 Burrben and others/  AAPL:   Don’ t buy those calls at open.  I’m sensing a pullback.   !!!

Iflan – you don’t think it wud be wise to wait a few days to see how the mkt performs after the New Year?

 Give the markets an hour to expose the pattern.

 nicha/   I’m more interested in how AAPL performs.  I think it would go against a down market in January, were this the case.



Phil, a quick question for you.  Your disaster TZA spread April 26/38 with the Jan 23 puts.  The April 26 have 5.25 of premium and the the 38s have 3.10 of premium.  Most of the time the spreads you recommend always have us selling more premium than we buy.  Why is this case different?  Is this because you are "leveraging" the money more?  I am just curious about the techinique.  Your spread calls are always top drawer.  I hope you had a good time on the slopes!  TIA.


PP for today:

lflan, here is the new status with yesterday’s trades and the current position. Let me know if that works for you.


USD on  nasty tear , 80.57 from 80.10 in 35 minutes

 AAPL port:    I’ve placed an order for …..   Buy 5 january 400 calls for 15.00

FAS Strangle Experiment – No trade right now, I want to wait a bit before doing anything, but my thinking now is to buy back the 72 calls and tighten the strangle by selling the 68 calls. I’ll check again around 10:30…

Should have got a good drop in crude, but they keep hammering this stupid threat from Iran. What a bunch of BS. Crude was around $98 the last time the dollar was this high. But I just that is just not enough to keep pace with the BS meter.

gmarts/USD – on a normal day we would be down at least a 100 points… Not normal today I guess.

 The Jan 400    5 contracts for 15.00 filled.   I’ve placed a second order to buy 5 more at 14.00.    

 SLV taking a nosedive – 

Since most of the blue chip stocks I want to eventually form the bedrock of a portfolio are at the high end of their ranges, as you noted this morning, I feel frustrated, but not enough to chase. i.e  KFT makes the same amount of money as two years ago and is priced 30% higher.

TLT over $119.

Patience/Lincoln – frustrating is right, especially on the blue chip valuations. I think is reflecting a ‘move to safety’ which is bolstering the few through this end of the year.

I love EDZ and SCO.  So easy to make money with these two.

Rustle – are you in PHil’s EDZ spread, or something else?

 Dollar at 80.85

 AAPL port:    AAPL resisting being pulled below 404, but it might get there if the market continues to retrace today, so I’ll leave the buy order on for 5 Jan 400s at 14.00.     Going skiing!    I’ll check in at EOD.   Good trading!

I just bought EDZ stock over the last couple days.

 Since Phil’s not around:
10:46 AM The euro continues its near freefall, hitting $1.2944, the lowest level since the first days of 2011 when it briefly fell below $1.29. Other risk currencies are down alongside, the British pound -1.3%; the aussie dollar, solidly higher minutes ago, -0.5% at $1.0107. European shares are at session lows, the Stoxx 50 -1.2%.

FAS Strangle Experiment – Bought back the 72 calls and sold the 67 calls. This is a tight strangle but only 3 days to go in the week so we can be more daring now! And we’ll have new weeklies tomorrow to roll to if needed.

Can’t believe the dollar is up so much yet the mkt is being held back.

Rustle/SCO & EDZ
two of my favorites!

I wonder why none of us ever talk about BGZ/BGU which are Direxion Large Cap Bull/Bear 3x.  These actually mirror the Dow pretty well.

An other lesson learned TOS if you close a position under .05 value it is commission free however if you do it in a roll like I closed the FAS 71 and opened the 67 they charge you on each trade!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

TOS – anybody know if it is possible to chart your account balance?

TOS / Yodi – You can usually get a better price by doing both trades separately – I have had trouble getting good rolls… And also apparently save on the commission! 

Thanks I agree as the roll is an other rip off

Lesson learned
If you want to transfer cash from your brokerage account by ACH transfer to your bank account, make sure that you do not transfer the same amount of money the other way by mistake, because by the time they have waited 3 days to clear the money and taken a 3 day holiday, you will wish you had been more careful, especially if your broker puts the cash in the wrong account and accidentally freezes other cash that you had available to withdraw. Do not ask me about how the research for this was done. I have not yet found the link to Jon Corzine.

 TLT at 120 – per Phil that would  be panic

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