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:
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:
These jerks are just playing the system. And that is what they will continue to due unless the Justice Dept. hits them with RICO charges, confiscates and freezes all their assets, and lets them sit on their asses in jail until they decide to squeal.
JMM love to see that perp walk, but I think these guys have too many friends in high places for DOJ to ever get the go ahead.
JRW// its going to be interesting to see how this plays out sentiment is v bad right now…cycles are poor into q 1..if th epublic quit selling it could push th erally out into q2 2012..IF..i wish i oculd get a cleaner copy of that chart of yours
Swoon/Angel – Yep, these low-volume rallies are the worst – so much air underneath means almost no support and sets us up for "black swan" sell-off on any sort of news shock.
Pensions/JRW – I need to annex my list of concerns from this morning already. Although that data may be somewhat misleading as it’s from Q3, when the S&P fell 200 points (almost 20%) and now almost all back so we may see a full reversal in the next report.
Tracking/StJ – Give me a call next week and we can give it a shot but if it takes more time and doesn’t save it – then I can’t do it. I think the review format is nice and educational, which is the main purpose..
Think the Nas can take back 2,603 at the close? Would be funny if we hit it on the nose…
Gingbaum – PSW Portfolios
JRW, lucky number 13..well at least in my case if that charts prediction is proven correct. With pension funds taking a beating it wont be easy with all the managing done by the "invisible hand". Its going to take an event that they just cannot manage.
FAS Strangle – Closing the 67 calls for the day with a 58% win. Not taking any chance overnight this time. We’ll see about the puts tomorrow…
Tracking / Phil – I would not want to do it real time like I do with the other portfolios, but just a nightly update of the positions in the spreadsheet and a weekend posting. That should take no time. We’ll talk next week in any case.
Quietly gold briefly hit $1550 today… Losing some momentum!
All out of TZA with a few more pennies !!
6% on the day !!
Beware the gap up open tomorrow !!
Good plan StJ.
Well, looks like no stick save. Very pathetic performance. This is why I couldn’t bring myself to put up any new Secret Santa Hedges – there’s nothing I like at the moment.
On the other hand, it was no problem at all finding 3 bearish hedges I really liked this morning.
Off to happy hour, will catch up later.
"Mind the Gap Tomorrow!" Sounds like a futurist London tube warning. With the Euro showing every sign of gapping down overnight, I would think U.S. equities will be doing a "Thresher" in the morning rather than spreading cheer throughout the land. Proving that the Mysteries of the Charts will always befuddle me, although JRW proves again and again that they harbor manna for the adept.
FT : Cailloux, Chief European economist a Rabobank, today:
Phil – please tell me if I did the correct thing: I wanted to hedge, but I didn’t get into your hedges early, so by the time I looked at the EDZ $19/24 hedge it was 1.80 instead of $1.25, and EDZ was already in the money. So, I went to the EDZ $21/26 Feb hedge, for $1.30, selling the BTU $29 puts for $1.71 to offset – was this a smart move?
Spreadsheet is all up to date.
Days like today make me appreciate more market neutral strategies like the Money portfolios especially FAS and IWM Money where we sell strangles all the time. Even on a bad day like today, we don’t see wild swings in the total P&L. Just keep on selling premium… and roll when needed.
Where is the best place to buy physical gold? I see some on-line sellers, but would like to know more. Of course, we know how to sell puts on GLD, GDX, but it’s time to consider owing these shiny ("useless" per Phil) metal, in case the brokerages decide to give my money to JPM or BAC.
can anyone tell me the best way to print this page with all the commentary. I tried to send it to the kindle reader but it sends only the main post and not the commentary.
Peter, I had used Apmex in the past. The quality of the metal was good. I am not sure about how competitive they are with the commission thought. They ship the metal to you in a brown box which I found a bit scetchy for orders of any value. If I was doing any real investing I would find a place I could go and personally make the transaction and drive away with the metal. Also, I would try to do it such that you do not leave a big trail. Never know what the kinds of rules the government will impose in regards to owning metals.
Pat – copy and paste to Word?
Pat, i looked at the print functionality on chrome and the pages (all 35 for today) look fine.
SDS seems to be the best hedge for what I hold. I would like to add further protection for March. I am looking at the March 18/25 ($1.68) BCS perhaps with an offset. Does this make sense as a hedge for 10-15% drop in the S&P? Your advice would be very welcomed. How was the skiing?
Visa Shares Have Big Legal Risk
Peter Hi buying of gold bars.
I just had a look at the web page of Apmex. Here in Mexico I deal with gold every day. The gold bars they show they claim to have a .99 % gold contend. This is good. Buying gold is just the same as /GC. Apmex charges between 35 and 50$ more then the daily spot price. I have been buying and selling gold from 200$ per oz. But holding gold is something you have to carry around with you and is more or less a long time investment. If you buy the 1oz bar now for 1600 you find it might go up to 2000.00. To sell it is the same like buying it you need to put it in a box and ship it to the buyer. Need to fix the price before you ship. With a stock you can sell it by the flip of the mouse.
Gold bars or in my case lots of jewelery, bars, coins etc, is some collection you hold for a rainy day or for your children and you surely do not use money you do need tomorrow. Considerate it more like an art collection.
I hope this helps and do not let Phil see my comments
I forgot to mention one thing and that is the buying of gold coins. It is like buying a car all have 4 wheels but one cost 100,000 and the other 25,000. It is a buyers opinion but has very little to do with the gold price.
thanks jerconn and dmoroz. I can use both methods to print. has anyone send the page to kindle using the send to kindle app. It is really helpful as you can read it at leisure.
Congress ends corn ethanol subsidy
The United States has ended a 30-year tax subsidy for corn-based ethanol that cost taxpayers $6 billion annually, and ended a tariff on imported Brazilian ethanol.
stj – Thanks for all the tracking. My unsolicited opinion re tracking PD’s stuff in a live spreadsheet is that it tends to focus, for the lesser among us, on trying to quickly copy his trades as they happen – rather than learning. No doubt I love running with Phil’s picks, but I don’t always get them at first glance – and need time to process. It’s his call, of course, but if tracking at all, I wouldn’t mind having the emphasis being: here’s what I’d do and heres why. Profit results are more fluid and subjective – – often depending on how often someone follows chat, entry timing, etc. In any case, thanks is for all.
Thanks, dmoroz and yodi. Good information, especially about gold confiscation from our own government. Yes, this is a buy and hold. Yodi, for your second post, should gold coins be considered or you are saying that those coins are expensive to buy?
With the MF Global saga (I don’t have an account with them), Fed money printing and who knows what comes next, the thought of diversifying into physical and other assets had intensified. It’s no use having tons of money in brokerage accounts and nothing to show for it if the brokerage and banking system collapse. I’m sure folks in Argentina, Brazil, Mexico and other countries who experienced high inflation have said buying precious metals is a must. At least my kids would have some protection with gold.
Tracking / NF – I think that the plan would be to track the transactions in the spreadsheet to be able to use that in a weekend recap by Phil and comments on the trades which is the educational part. It’s almost impossible to track these trades in real-time anyway so that could not fit the model of the other portfolios. In all the spreadsheets, there is a comment field so that we could always fill with Phil’s comments at the moment of the trade.
That is huge! Some how the news slipped past me over the busy holiday weekend. Imagine, one of the few good things Congress does, they have to hide and do it in secret. I read a few stories and a couple noted VLO (a PSW favorite) could be hurt since they blend the fuels. I have not noticed anything discernible in the share price since the vote however.
Looks like the Italian bond auction didn’t go that great – 10 year at 6.979% and bid to cover at 1.357. Clearly these rates cannot be sustained!
Protection / Peter – Your kids might be better protected with guns and ammo and food supplies! Try exchanging your gold for food when this place falls apart!
Things seem to be calming down this morning – a flatline here wouldn’t wreck the bullish case as yesterday was a healthy correction.
I agree that the 10-year auction in Italy is a big negative – the math on paying 7%, or Ben 6% long-term is simply unsustainable unless you have the growth/inflation to back it up.
Very funny on CNBC right now, some guy with actual facts is making fun of Joe and his denial of global warming.
Gold took a nice tumble ($1,532) and oil can’t get back over $99.50 so far.
I like this guy John in the blue shirt on CNBC, he seems to have a clue.
i blew a trade yesterday that would have put me up close to 40% since dec 8……….closed it out too early.
very reasonable position sizing too. in other words definitely not over leveraging. lots of drawdown capacity if needed to ride out swings
too many of the ‘out to early and not executing’ mistakes. at least i am not picking losers……..the selection of being on the right side of price discovery has improved quite a lot since being here.
Euro is breaking all kinds of lows for 2011… Dollar is as highest since last January!
Good morning Peter,
Gold coins, In my opinion Gold coins just have the value of gold however they are priced much higher and the value is in the eyes of the beholder. As you see this morning gold is down an other 30$ why, I guess people need cash to balance their books, as well the dollar is higher gold goes down. I buy a gold coin for what it weighs on the scale, but many people will dissagree with me. If you looking for a gold reserve I would only buy bars even that the coins are like an old car some go up more in value then when you bought it when it was new. As I said I am to realistic in this.
A broker will look at a it in this way asking the question in respect of value "for what can you sell it by next Friday"
Just to add to the "corn" theme (agreed, revtodd, they really buried the huge subsidy story for some odd reason):
Insects Rapidly Becoming Resistant To GM Corn
"When it was introduced in 2003, so-called Bt corn seemed like the answer to farmers’ dreams: It would allow growers to bring in bountiful harvests using fewer chemicals because the corn naturally produces a toxin that poisons western corn rootworms. The hybrid was such a swift success that it and similar varieties now account for 65 percent of all U.S. corn acres grain that ends up in thousands of everyday foods such as cereal, sweeteners and cooking oil.
But over the last few summers, rootworms have feasted on the roots of Bt corn in parts of four Midwestern states, suggesting that some of the insects are becoming resistant to the crop’s pest-fighting powers.
Scientists say the problem could be partly the result of farmers who’ve planted Bt corn year after year in the same fields.
Most farmers rotate corn with other crops in a practice long used to curb the spread of pests, but some have abandoned rotation because they need extra grain for livestock or because they have grain contracts with ethanol producers. Other farmers have eschewed the practice to cash in on high corn prices, which hit a record in June."
This has always been the greatest fear of biologists about GMO corn, that it was creating genetic homogeneity and all it would take would be one "immunity" to wipe out the entire stock. I am assuming MON will be greatly affected if this immune bug turns out to be like some sort of modern-day locust infestation.
Thursday’s economic calendar:
8:30 Initial Jobless Claims
9:45 Chicago PMI
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
11:00 EIA Petroleum Inventories
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
1:46 AM Asian stocks are mostly lower amid resurgent eurozone jitters. Japan -0.3% to 8399. Hong Kong -0.6% to 18402. China+0.2% to 2174. India -0.2% to 15701.
6:15 AM Overseas: Japan -0.3%. Hong Kong -0.7%. China +0.2%. India -1.2%. London +0.2%. Paris +0.2%. Frankfurt +0.4%.
Phil, happy skiing! Can I ask you a question reg yesterday’s hedges? By the time I got around to hedging it was late in the day and I missed your entries. I tried my own and I just want to know if it was reasonable; I went for the EDZ Feb $21/26 BCS at 1.30, offset with BTU puts at 1.70 – how is that?
stj……..port update. Hold 10. Aapl 400 calls Jan purchased yesterday at 15.00 and 10 purchased at 14.00, plus the July spread unchanged. Thx
Stj……..that should read……..5 of each, plus the July spread, plus the 10 390s. Only 2 trades were made yesterday
That’s a fine adjustment Jerconn as it’s in the same spirit but the $19/24 spread only went up to $1.80 and that same BTU sale would put you in the $5 spread at .10 that’s already $1.50 in the money – so is it worth saving .50 to be $2 higher or would it have been worth spending .25 to roll down twice to pick up $1 in position if things had gone the other way?
Yeah, thought of that afterwards, thanks Phil. At that moment, all I could see was everything going down so I wanted to be in a position to catch the down-draft, but in retro would have been better to be in the in the money spread…still learning, as they say…
leaders lagging, laggards leading today…year-end short-covering
deck trades like it has seriousl problem
Apple looking good all of a sudden — I wouldn’t think that represents short covering.