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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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Holiday spending in Florida
In states where there are large numbers of migrant workers in agriculture, holidays may have a slight reverse effect on the economy. When Thanksgiving means you lose 2 days pay, and Christmas and New Year costs you another 2 days, that is almost a week’s pay lost, which leads to belt tightening rather than more spending. I had tenants in this position and it was always a nail biter as to whether the rent got paid at this time of year.

This is breakeven time for the DIA Dec 30 121 puts vs the 120’s…but if this is panic maybe hold on to the 121’s…

Are you trading today?

 Since the markets dropping with the Euro falling off a cliff [today], I thought y’all wouldn’t mind if I posted this long but quite cogent exegesis from FT:

"Were you puzzled by the immediate reaction of the euro following Wednesday’sLTRO?
Icap’s Don Smith, has a rather compelling interpretation.
And it’s all to do with currency basis swaps and the ECB’s dollar funding operation:
‘It might appear odd to some, that in the wake of yesterday’s massive US $33bn allocation at the ECB’s extended 14-day US$ tender to cover the holiday period (against $5.1bn maturing from the previous week), eur/usd basis has moved lower, signaling at face value that this massive US$ tender has had little effect in satiating US$ demand from Eurozone banks, so what’s going on?…
The key reason relates to the relative nature of these basis markets. The eur/usd basis represents a barometer of demand for US$ relative to euros. And big as it was, yesterday’s US$ tender occurred at the same time as the ECB has completed flooded the Eurozone money market with euro cash through its 1-week, 3-month, but especially its 3-year euro tenders. We think that around €210bn of this was new funding, the remainder being sourced from the maturing 3-month LTRO (€111bn), the 7-day OMO (€123bn) and October’s 1-year LTRO (€46bn).’
‘The effect of this deluge of euro cash has been to all-but obliterate strength on the bid-side of the eur/usd basis market (ie those willing to accept euro in exchange for US$). As a result, reduced demand to receive US$ through the basis (or forward FX markets) in the aftermath of yesterday’s US$ supply, which would typically drive the basis higher and offer a signal that US$ demand has been partly satiated has had little effect because on the other side of this trade, demand to receive euros (in exchange for US$) has dropped even further due to the ECB’s euro liquidity splurge.’
"In short, so much euro liquidity hit the market that it didn’t matter that the ECB had just had a successful dollar funding operation. No one was willing to price currency basis swaps in any other way but one which reflected a dollar drought situation during a euro flood."


FAS / Yodi – If we continue down today, I’ll probably close the 67 by end of day and take the profit as I worry we could bounce back tomorrow. It’s not a prediction, just a concern! 

Speaking of ECB, ZZ – Updated Balance Sheet


 Stj:  Thanks.  It looks the Euro crisis "is back, and it’s bad."  My 1X to 15X Euro short position has been boosted every day, and was up to 7X this morning, and it’s finally working and keeping me even.  We’re below 1.30 and I think all the rabbits might have already been pulled out the ECB’s hat.  I hope not, but I don’t know else the ECB can do to convince the market we shouldn’t be in dollars, or Yen, or oil, or .223 rounds.   I have all of the foregoing, a product of living in Barely Emerging Market countries half of my life.

Good morning,


IWM  71.87,  72.15,  72.56,  72.98,  73.24,  73.51,  73.92,  74.66,  75.06  and  75.57

Also, trend line resistance at IWM 74.34

I am short, of course; good hunting !!

Italy’s next hurdle

Italy’s 10-year note yield rose, lately at 6.973%, close to the 7% level deemed as unsustainable. The euro fell to 1.2955 against the U.S. dollar.

Italy’s short-term debt costs fell at auction, boosted by the government’s recent austerity plan and inexpensive liquidity from the European Central Bank.

The ECB said in a statement that its lending to euro-area banks leapt last week as the Frankfurt-based ECB strived to keep credit moving amidst the region’s debt crisis.

But Italy could be looking at a harder sale on Thursday when it sells long-term debt.

“A good test of the appetite for Italian debt will be tomorrow’s bond sales that have maturities past three years,” said Peter Boockvar, equity strategist at Miller Tabak. Read more on the session for Italian stocks and investors’ reactions to Italian debt auction.

thanks for the advice FAS

 Anybody playing the yen?  Or any deep thoughts on the yen?

I am just a bit concerned over the FAS DEC5 63P 1.23 a bit to close for comfort

Are you still short?  I jump in long just below S-2.
Another leg down?

Out of TZA on the double bottom at IWM 73.51 (there’s that level again) !!


European Bank-to-Bank Lending Mistrust Hits Second Consecutive High; ECB’s LTRO Won’t Stop Collateral Contagion

JRW, sorry to ask, do you have that link that outlines your strategy?  TIA.

That boring AA realy takes a dive

roberthjrfl / Strategy

Here !!

I just checked and unfortunately, I am not part of the top .01 percent, I did not hit the 200 million mega millions last night.

Healthcare – article in NYT discussing the challenges Greece’s public health system is facing.  Wouldn’t it be ironic if the US found itself broke like Greece right after implementing a new public health system.. I’m sure it could never happner here, though.

JRW –  I didn’t know you hailed from royalty — "Robert the Jerfyll" — impressive!!

"It’s a Mistake To Pursue a United States of Europe" says German Supreme Court Justice in Spiegel Interview ; Interpretation of Interview from Saxo Bank Chief Economist

Those looking for a reason for a sinking Euro and falling stock markets today just may find the answer in a Spiegel Interview with German Constitutional Court Judge Udo Di Fabio who says "It’s a Mistake To Pursue a United States of Europe".


  • Di Fabio does not see Constitutional Court and Basic Law as Euro unfriendly, actually states the opposite
  • Euro-bonds are “illegal” in his view (p.5 top)
  • Wrong to pursue United States of Europe – you need intra- government coordination but also strong individual states – not one without the other
  • No state can save the world on its own!
  • Europe…a “security construction” – (the good old excuse for slow non-working EU)
  • EY SENTENCE (p.2 top) : “….. Anyone who voluntarily agrees to something has to accept they will be checked to ensure that this contractual obligation is fulfilled. Such a veto could come from Karlsruhe, however, were a violation of the new debt brake (an amendment to Germany’s constitution that requires the government to balance its budget each year by 2016!)

The last sentence – extremely critical – I must admit I did not know this. However, knowing this, Germany’s position makes sense! – They need “order” before anything and it also makes their compromise with France less “solid” as this exercise of buying time will end by 2012/13 – where they need to “structurally” get their budget down.

FAS / Yodi – We can’t worry about that 63 put yet… and there is nothing we can do for now. Tomorrow there will be new weeklies and we can roll if needed. They are still all premium and there are 2 more trading days to recover!

The 63 put actually can be rolled all the way to the Jan 49 even so no need to panic… But there will be something next week. That’s really the thing with FAS, there are very good escape path. For now! 

Apparently there are some worries about collateral in Europe:


For subscribers only but:

Now some regulators and bankers are becoming nervous that some lenders’ supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low. 

Trying to break North of the 200SMA on the one minute !!

Trend line resistance at IWM 74.40 ish !!

2/3 TNA !!

 My dilemma is A/, the Euro shows every sign of tanking big time, now that the giant liquidity injection hasn’t stopped the Euro from diving below 1.30, but B/ if the Iranians don’t back down on the "closure of Hormuz" rhetoric — and won’t, now that the U.S. has quite specifically threatened them today — oil/ energy could panic spike it’s way into the stratosphere if somebody pulls a trigger.  H’m — it’s definitely one of Phil’s "Which Way Wednesday"s on energy.

Out of TNA with a quarter; breaking down through 73.92 !!

Pension funds took a lickin…
Cash and Security Holdings for the Quarter Ending Sept 30, 2011 and Prior Quarters

Loosing the 200SMA now; 1/3 in TZA !!

Can’t believe the BOT’s won’t stick this with the low volume.
What’s your view?

In 2/3 TZA now; looking to go all in on a break of IWM 73.51 !!

exec / Last hour

No idea; I think "they" will try, but it’s not as easy as it used to be !! (fundamentals do matter, eventually)

We took on a new position in our Earnings Alpha portfolio today. We are selling the 17.50/18.75 spread on PLCM for Jan21 expiration. The company should drop to about 16 into earnings. The 16 put is not a bad supplement. The spread was sold for 0.25…worth 25% if it expires worthless. Has not touched there since mid-November and looks quite broken.

Shall we out of WCP positions @ EOD or tomorrow/?

hope the slopes are treating you well. Do you have any feel for oil with invetories tomorrow…very short right now!

 im a bit concerned that global pm performance-chasing…out of world and into US stocks and magical sloppy buyers are propping us up more than realized….which could lead to early year swoon…unless significant positive catalyst materializes soon.

U.S. State, Local Pensions Drop 8.5 Percent


Clearly NOT paying attention to THIS SITE !!

U.S. public pension-fund assets fell in the third quarter by the most since 2008 as stocks sank amid concern that Europe’s debt crisis would curb economic growth, Census Bureau data showed.

Assets of the 100 largest public-worker plans decreased $237 billion, or 8.5 percent, from the prior quarter to $2.53 trillion by Sept. 30, the bureau said today in a report. It marks the first decline since the second quarter of 2010 and the biggest since the last three months of 2008, when holdings slid 13 percent during Wall Street’s credit crisis.

The setback may strain state and local governments that have set aside more money to cover retirement benefits. That’s pressured governments already coping with diminished tax collections and has propelled efforts to reduce benefit costs.

The asset decline was driven by losses in stock holdings, which slipped $134.7 billion to $769.6 billion, the Census Bureau said. The value of holdings of corporate bonds, U.S. treasuries, and international securities also fell.

The third-quarter (SPC) rout pushed the pensions’ assets back to where they were during the last three months of 2010, wiping out gains this year.

 FAS Strangle/STJ – Are you still planning on taking the profits on the call side before the EOD?

Amazing……He he doesn’t know then who would?

FAS / Palotay – Looks that way. This seems like the prudent thing to do now…  

 AA is working hard on making it into the ‘dogs of the Dow’ list…


You are here !! Note the date below ( Jan 1212)

New 25K Portfolio / Phil – Do you want to track the next 25K portfolio in the spreadsheet as well? It could be useful for everybody to be able to follow the trades along. 

Where are the portfolios tracked currently? You mentioned a spreadsheet?

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