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Tuesday, February 7, 2023

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Tempting Tuesday – Again

SPY DAILYWell here we go again.  

Once again it's Tuesday and once again it's a primary and once again we are meant to believe everything is right in America as the Futures take the markets back to levels not seen since last August.  As we discussed last week and as noted by David Fry this morning

 Throughout the week Fed governors will be making speeches: Dennis Lockhart (2 speeches), Charles Evans (2 speeches), Esther George, John Williams, Charles Plosser and Jeffrey Lacker. This is part of their transparency mission and/or a campaign to pump-up investor confidence. You choose.

Yesterday we made our breakfast money shorting the Dow off the 12,350 line and today we already had a double dip at the Dow off the 12,450 line but, on the whole, it would have been easier to drink the Kool-Aid and go long.  

Unfortunately, I'm a Fundamental Investor and not a TA guy so, impressive as this run may seem, it doesn't match up with the data and, so far, it's neither matching up with Q4 earnings or Q1 outlooks.  We HOPE the Fed will go for QE3 (Friday's Fed speak indicated that and more today) and we HOPE Europe is fixed and we HOPE China doesn't implode – is this a sound investing premise?  Let's see how things have been going in the last Quarter:  

Up 15% in all of our indexes and led by the Transports, which are up 21% – even with oil up 25% over the same period which once again proves our theory that trucks and airplanes must poop oil when they run – which explains the non-inverse correlation between Transports and Fuel Costs that those of us who took Econ 101 may be familiar with.  

VIXThe most interesting thing about the above chart set is the uniformity of the moves up in the majors but I think it's the NYSE and the Russell which PROVE beyond a shadow of a doubt, that this market is traded by robots.  Look at those two charts – they are practically tick by tick matching – even to the point where the Russell is almost exactly 1/10th of the NYSE.  Sure, you could assume some similarities in two broad indexes but this is 6 full months of daily moves that are in lockstep.  That's just not natural on the order of maybe a Billion to one vs. two independently traded indexes.  

So the theory is that the broad indexes are difficult to manipulate and so they have underperformed by about 5% over the past 6 months but they were both part of the BuyBot express that has jammed this market higher since early October and lulled investors back into a state of complacency that usually comes right before the rug is pulled out from under them.

First of all, let's keep in mind that we bottomed out on the 28th at 12,150 on the Dow and the next morning we gapped up to 12,200 in a futures move that Retail Investors were unable to follow.  We went up to 12,300 on Thursday and closed back at 12,200 on the last day of 2011 and then the poor Retail Traders woke up last Tuesday with the Dow at 12,450 and we flopped to 12,300 again on Friday and yesterday we closed at 12,400 and today we should open around 12,500 (keep in mind Futures don't match the Dow, about 50 points lower).  So, of the 350 points added to the Dow since December 28th, 400 of those points were added pre-market and all the Retail Traders got to do was buy into a 50-point loss.  

This is, of course, a gold mine for the Banksters, who KNOW they are going to jack up the Futures so they just wait for a nice dip, buy from the Retailers (using the money we lend them for free through the Fed) and then they jack up the Futures and dump it on the suckers who chase the rally in the morning.  It's nothing more than a 3-Card Monty game where EVERYONE is in on the scam except the mark – and that mark is the retail investor!  

See, it's not just about having a card game you can't win – if that's all it was then eventually even Retail Traders would wise up – it's about creating the impression that you CAN win and getting you to commit your money and THEN making the loss seem like a fluke so that you are encouraged to go back to work, save up your money and gamble it again because "it could never happen twice," right?  As the great George Bush used to say: "Fool me once, shame on you, fool me you can't get fooled again." 

Speaking of getting fooled again, NFLX is back to $100 up about 60% since Thanksgiving and it's already tempting but I want to see if they can fill that gap to $120 from the last time they had earnings and fell from $120 to $75 overnight as reality is a very ugly experience for NFLX bulls.  Earnings are on Jan 25th so we have a couple of weeks to see how this little run plays out but, with a market cap back over $5Bn on less than $250M in profits, NFLX is priced for healthy growth and they'd better deliver or they will de-lever VERY quickly.  

Click to View1,297 was our +5% line on the S&P and we're not there yet, nor have we hit our 2,733 target on the Nasdaq and we're still miles below 774 on the Russell and 7,866 on the NYSE – all levels we discussed last Tuesday and even the Dow needs another 250 points to hit it's 10% line at 12,749 and it's a wide swing in the range between there and the +5% line at 12,170 so, essentially, meaningless moves in the Dow should not be the basis for bullish investing (see last Wednesday's post).  

AA certainly didn't report numbers that justify it being higher than last year (when it opened at $16) and we're long on them at $9 but that doesn't mean we feel the rest of the Dow components should be off to the races.  We'll stay Cashy and Cautious while we wait for either the other indexes to get over their Big Chart lines or for the Dow earnings to come in and somehow justify a 10% move up from last year and a 20% move up from last quarter.  

Just trying not to get fooled, AGAIN…  

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Fun/Pharm – well, here is some fun with gorilla glass..

pharm, do you follow EXEL?  i hold shares.  it's been edging up lately, any thoughts?

FAS Strangle – Unless we have a late stick, I'll leave the current position open. The calls are close but I am more worried on the downside with the run we have had. But we have a 7% cushion now so no need to worry yet on the put side even we correct tomorrow.

EXEL – U and  me both.  Holding the shares (I DD a few weeks ago) and sold the Feb 7 puts from a while ago. I will roll those most likely and DD on my shares, selling the Aug 6 or 7 Cs…..

Phil, when the market opens tomorrow I'll be in the plane on my way back so you won't have the portfolio recaps. I should be home by market close (if everything runs on schedule). I'll update all the positions tonight though. Do you want me to post them for reference?

ronresnick….1:31 pm       I think those  April 405/430 bull call spreads are fine.  They will pay 75% from today if AAPL > 430 in April, which is a decent return, and a high probability trade.  I would keep them. 

Just close lower than IWM 76.16, please !!   (Black bar)

75.80 should hold, imho !!

Phil,
What would you counsel for Sold JAN 12 $20 Puts on CSCO, for which I got $2.72, so net $17.28 if assigned: buy them back in expectation of the up to 20% drop that you have been foreseeing and make a better play later, or accept the assignment on a perennially good stock and sell the JAN 13 $20 puts and calls for $4.74 for net 12.54/16.27 (59% if called), or some other variation?

Comment: I am disgusted by almost every headline I see on CNBC. Forget Europe: Wall street pros are saying buy US stocks? What changed since last year when 'Europe' gave us mini crash in August and pushed everyone out of stocks? NO COMMENT.

stjeanluc
Have a good flight , decided to cloth both legs no harm in taking profit tomorrow will be an other day

Thanks Yodi… I am with you on the profits!

Euro selling off, market creeping down.

Yodi: FAS
how many contracts do you sell when you do those FAS strangles trades initially?  are you then willing to DD or just roll out and DD to the next week if need be?  TIA

We could see a retest of IWM 76.66 before the fall as VIX could go lower yet !!

Phil/EDZ:
As a hedge,I bought 5 EDZ Feb. $18 C at $3.50 ,now $1.55 and sold Feb. $25 C at $1.40,now $.45 .To pay for it,I sold 5 PM March $75 P at $1.57 ,now $1.53 I recognize the PM puts won't decline as quickly as the EDZ  BCS,but do u recommend any change to the BCS? thnaks

Thanks Phil, yes it is the FAS $72 Jan shrt call.

I've bought 10 Jan monthly QQQ 60 puts  @ 2.06   for the AAPL 50k portfolio.   Why?   Just a small bit of insurance for the next few days, and we've got the money for it.  No other reason. 

VXX is just betting on a horse race — you don't end up owning any horses, right?

Bonuses – what you have to do when you don't get a 27.5% increase YOY: Five people, one guitar.

Phil….I think that's good advice.  There will be people trying to move them down over the next couple of weeks.  Our July and April spreads in the portfolios would be fine, but the Januarys would suffer.  Let me consider it this evening and I'll post again either tonight or early a.m.   Thx.  

They love to mess with the technical traders don't they. 

JR,

 
Do you have a forecast or any of those interesting stats for tomorrow?
 

 

http://www.zerohedge.com/news/obama-ask-debt-ceiling-increase-matter-days

The Obama administration will be asking Congress to raise the debt limit in the coming days, White House press secretary Jay Carney said on Tuesday.

Sorry posting is difficult after the upgrades, but Greg and mathhew are working on it !!

Lincoln
FAS when I start any new play like the stangle here I start with 2 contracts just enaugh to buy TACOS for the next day especially at CMG I might DD if I have to but take in to consideration that this play is not light on PM margin about 5,000 plus for two contracts. Can I lose 5,000 well you need a lot of plays to make it up. So as you can see 4 contract knocks you back more than 10K Not that is a problem for one day, But look at JRW he is out of the end of the day and sleeps well at night.

Hi,
Initiated a small position in VOD, selling July 25/20 put credit spread for $0.75.  Like buying VOD for 24.25 (or roll)  for dividend and VOD position (investments) in emerging markets as well as VZ.  Comments? (Weakness in their core market could easily result in price drop to 25, but that may not happen due to QE3.  Hence starting with a small position.)
Thanks, 

exec / Tomorrow

Well, today was Holiday volume, so I think may have just been distribution.

We may just drift for the next few days (10 max) until something goes wrong in the world; I mean hey, France has a GDP growth rate of 0% (zero), so no recession there !!  šŸ˜Ž

Phil, here is the current recap for all the portfolios including the 25 KP. If anyone sees any mistakes, please notify Phil. In the 25KP, I use Phil's prices since I cannot guess what everybody is getting.

Back in the USA tomorrow….

If I can get to an actual computer I will update the IRAPortfolio. On another note, I am a little upset that I get better cell reception in rural newzealand than i did with AT&T in Washington DC. However, I just got the Verizon iPhone 4S and it makes my AT&T iPhone 3G look like a commodore 64. It was an absolute breeze to switch to a prepaid sim when I landed in the Zealand. If only Siri could look things up for me here.

Craigzooka, do you have a portfolio link that I could take a look at to follow along?  Is it a google doc thing?  Thanks.

I just tried to edit the IRAPortfolio with my iPhone but it sucks ass. I will have definately have to wait till I get to a real computer.

@beauflors, the portfolio hasn’t changed in the last two weeks. If you can go back and find the old comment where we listed the contents, it hasn’t changed. Other than that I am on my iPhone in the middle new Zealand and I can’t figure out how to properly edit or link the spreadsheet.

Lflan, I know Phil has discussed the importance of scaling into a postion….On the April bcs, I plan to scale in a few contracts at a time, to my limit of 10 contracts.  I'm assuming scaling in is ok on any of the longer  term positions you suggest such as the April bcs?  Thanks for assisting me with my learning!
  

Phil, would appreciate your advice on the below:
I am stuck with BCS on EDZ 22/26 exp Jan 12 (i booked it mid Dec as part of new year hedge). Paid $1.50 and now it is worth aroun $0.05
I am thinking about leaving the short calls expire worthless and if we get the dip the next couple of days roll over the long call to Feb.
Any thoughts? (I know i shouldn't have waited so long to roll.. i'm learning i'm learning)

Hi all,
what's your opinion on OptionsXpress vs ThinkOrSwim?

Jophil
I vote neither.  I vote Interactive Brokers.  But lots of people use TOS here.
They are getting sued for their TD fiasco….
http://www.investmentnews.com/article/20120110/FREE/120119994/-1/INDaily01&dailycount=1&issuedate=20120110

Since I won’t be around at the beginning of the day, here is what I would do with the FAS strangle in the morning:
If we gap up like this morning, cover the short put and wait until after 10:00 to sell another set of puts. It should be sold for around $0.40 if possible.
If we gap down or open flat, do nothing as we have a 7% cushion on the downside.
I should be on again around 3:00 pm. Good luck….

Beaufleurs…..Certainly, scaling into a position is always a good idea.  It forces you to think about the trade more than once before you totally commit.  It minimizes your losses if you find you've made an error.  And, if it's the correct trade, and the stock goes the opposite direction temporarily, it allows you to get into the position at a lower price.   Scaling is good.  

Is that a star I see in the evening sky for the $COMPQ index?

kallen,
maybe, butif it's not a shooting star it may have trouble reaching escape velocity 

StJ / FAS Strange
I decided to just hold onto the original position.  If it gaps up, would you think to roll to a higher strike NEXT week, correct?  

The German, Spanish and Italian bond auctions are going to be a clenched-teeth event this week.  Looks like Euro owners are starting to dump 'em and get out of Dodge ahead of the fact this evening.  As for Phil's note posted today:
 
"The ECB's refusal to take any loss on its holdings of Greek paper makes little sense, given the loss could easily be fudged away, writes Neil Unmack. The policy also drives real-money investors to require greater yields on sovereign debt, as they now believe they'll have to stand behind the ECB in line for repayment.", I think Mr. Unmack is dead right — the ECB's determination to maintain payment priority over private bondholders might be their dumbest mistake yet, with some slight potential of attaining epic [Euro dive to 1.20] proportions over a surprisingly short time frame.   
 
To wit: this, from Bloomberg, this evening: Jan 10, 2012 8:58 PM ET:  "…The euro also weakened after Reuters reported hedge funds may resist a 100 billion-euro plan to restructure Greece’s debt. Greek Prime Minister Lucas Papademos expects to have an outline for the plan next week, when talks on the terms for a second financing deal with European Union and International Monetary Fund officials start in Athens."

CBOE PutWrite Index
I think this is pretty interesting.  You sell a ATM put on the SPX each and every month, and for 2011 it returned over 11% with a sharpe ratio of 0.92.  My old HF only did 5-6% last year, and they must have invested 1 to 2 mill in new technology.  
 
Can it really be so simple?
http://seekingalpha.com/article/318720-2-option-writing-strategies-historically-outperforming-the-s-p-500
 
http://www.cboe.com/micro/put/pricecharts.aspx

So simple/Burrben – yes, with buy/writes on dividend paying stocks. EASY to get well over 5-6% per year. 15% plus is general expectation in the last year. The killer is that you have to wait the whole year or so to get just a measly 15%. šŸ˜‰

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