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Tuesday – Topping Out or Just Pinning the Fed?

Tough call today

The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.  

You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).  

Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders.  Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.  

SPY DAILY An optimist would say – well, you can read almost any MSM site for that.  It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts!  The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat.  The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95.  Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you?  For one thing – you have a very good stop line to watch!

As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross and have spent a hell of a lot of money and time doing it – now they are counting on machines and retailers to respond like Pavlov's dogs to the sign of the cross and take all those expensive shares off their hands.  

Or maybe CAT should be at $106.  The p/e is a reasonable-looking 16 and they are projected to grow next year despite the Global outlook for a mild recession in the first half.  Looking at other major Dow components:  CVX at $107 is only 10% higher than it was in 2008, when oil was $140 a barrel (with projections of $200) and Natural Gas was $8 – makes sense to you, doesn't it?  BA I do think is worth $75 for many reasons and IBM at $189 is more than I'd pay but I wouldn't kick them out of bed either.

JNJ is $5 off it's 2008 highs, KO is 5% over, MCD is 50% higher than it was in 2008, MMM is back to $90, PG is $10 shy of their $75 high, UTX is back to $80 (but down from $90 in July), XOM is a bit shy of their $95 high (also with oil 40% lower and nat gas 70% lower) and TRV wasn't in the Dow in 2008 but is over their highs by 10%.  Those are the Dow components over $50 – the ones that count in this price-weighted index.   

MCD Just reported nice revenues of $6.8Bn in Q4 along with $1.33 in earnings and that was indeed quite a bit better than 2008, where we had 0.87 EPS on $5.6Bn in earnings so nice – but is it up 50% nice?  Maybe the problem is that there are so few good stocks these days, that the really good ones are now fetching a hefty premium, which helps explain the Dow's relative outperformance since November.

Without risk (see above diagram), you can make a case for pricing MCD at $100 but are we accounting for the current risk in these prices?  Are we accounting for the risk that sent MCD from $66 in Aug 2008 to $46 in October?  

Of course they were a screaming buy at $46 but the fact that they CAN fall that far needs to be taken into account when determining the VALUE (not PRICE) of a stock as a part of your portfolio.  We could go over the components one by one (maybe on a weekend) but the bottom line is we are priced to perfection at the moment and that perfection includes ONE TRILLION additional dollars being poured into our $15Tn economy (6.66%) by the Fed pretty much TOMORROW.  

Anything less than that may lead to a bit of disappointment.  

Not to be nitpicky – but the Dollar was at 88 in Q4 2008 so the Dollars MCD was collecting then were 10% more valuable than they are now.  While the growth of MCD is still impressive – they are a bit of a "Recession Stock" that benefits from the decaying buying power of the Global Middle Class, who have traded down to Happy Meals and the Dollar Menu to the benefit of MCD – other Dow components and other companies in general are far less impressive when viewed in the light of the earnings power provided them by the worth(10%)less Dollars they are now reporting earnings in.  

Of course, if you are an American, you have to buy your MCD in Dollars too so it's right that they should charge you an additional 10% for their very valuable stock, isn't it?  Priced in Euros, in fact, MCD dropped 2% this week but it's not about the day to day picture – it's about the Global Macros.  In 2008, we didn't think the entire system would collapse in a single quarter, we didn't know the housing market would collapse or that over 100M people World-wide would lose their jobs in the next two years or that entire nations would face bankruptcy.  So maybe, just maybe, we can be excused for ignoring the risks. 

VIXBut now?  REALLY???  Are we back to completely ignoring risk as if everything is all better in Europe and Japan and China and the good old USA despite the fact that pretty much NONE of those 100M people got their jobs back and another 100M people were born and they don't have jobs either!

STAGnant Global economy, rampant inFLATION and we are pricing things BETTER than they were in 2008 – before we were made aware of how many problems lay just below that bullish surface?  

I suppose it's the lack of a sense of risk that is really bothering me.  As you can see from the chart – we've been this complacent before (and paid the price) but, as I said to Members yesterday – if we break our levels we'll just have to switch off our brains and stop reading the news so we can invest properly along with the crowd.  

But we're not there yet.  Where's my Trillion Dollars Dr. Bernanke?  Where's the deal on Greece?  Where are the jobs?  Where are my breakout levels?  It's hard to be patient but I believe the risk is real and I'd rather be relieved to find out I'm wrong and my biggest problem is how to deploy my pile of cash than to be fully invested and falling off a cliff – at least I learned that in 2008. 

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  1. R3 – 103.42
    R2 – 101.83
    R1 – 100.78
    PP – 99.19
    S1 – 98.14
    S2 – 96.55
    S3 – 95.50

    Yesterday's high and low – 100.24 / 97.6

    Breakout lines – 104.51 / 90.68

  2. stjeamn/FAS portfolio
    When it says Jan4 12 call, does this mean the call for the 4th week of January?

  3. PHil – the bear put spread that you suggested to Maya for AAPL 360/320 is a debit spread, correct?  Buying the 360's, selling the $320's…just want to make sure…

  4. Oil refinery goes broke, don't panic say politicians, as panic breaks out. Apparently this refinery was previously owned by BP and this losing asset was palmed off onto other owners.

    Don't know why more vehicles are not converting to natural gas or propane. Here in the Dominican Republic most if not all the taxis run on propane which is cheaper than gas from Mr. Chavez and  gets better mileage, and it only costs about $100 to do the conversion and installation of the tank in the trunk. Whatever happened to entrepreneurship in the US?

  5. FAS / Jmm – Yes. I use the expiration terminology used in TOS. I am guessing it's the same for everybody so Jan4 is the 4th weekly expiration date in January.

  6. DIA Puts / Phil – I still have the DIA 123 Puts.  I guess it's one of those sell at the initial excitement days huh?  Hopefully we can reload them later this evening for tomorrow's big showdown.  Looking forward to your recommendations for tomorrow

  7. Interesting i zega….

  8. Phil – you mentioned that you will not be pressing the 4 FAS $78 short calls in the FAS Money port ahead of the FOMC. Should we get out on this morning dip?

  9. PP for today:

  10. Pharmboy,
    BLRX is a good buy @ $4?

  11. i zega / Chomsky — If you have netflix, do a search on him. There is quite a bit of his material on there.

  12. AAPL looks very undiceiding this morning

  13. Did we close all the DIA 123 puts in the 25KP? I know we exited the DD portion yesterday but didn't realize the plan was to close all of them. Thanks

  14. Marketwatch headline: Meryl Streep's 'Iron Lady' Oscar nomination is her 17th.  Is it priced in? 

  15. DEPO – someone asked last night about them.  I am not a lawyer, but it seems to me that someone (can't even Google the 'pharma' company Activase Group) wants to challenge the make up of Gralise.  I think they will lose (Activase Group), but this is a common practice when new formulations come out on drugs that make a lot of money.  Lipitor will probably have a ton of 'use' patents come out and everyone will sue everyone else.  Just the nature of the business.

  16. The market is poised for a pullback.  Dollar sitting at 80.25, it will be interesting to see if they employ there favorite anti-crash tactic and start throttling the dollar down at the open.

  17. BLRX/neet – well, another HepC company.  I find it fishy that

    BL-8020 has been developed for anti-viral therapy by Professor Philippe Halfon, Co-Founder and President of Genoscience. Prof. Halfon is a founder of several biotechnology companies and is world renowned for his work on HIV (AIDS virus), HPV (human papilloma virus causing cervical cancer) and Hepatitis.

    So he licenses it out to BLRX, and then licenses his own drug to his company?  Not interested right now, the eurphoria will wear off, but I will look into the mechanism, b'c if it is true, the there are ways arounnd patents (see above for DEPO)!

  18. Any ideas of how to play apple today?

  19. Good morning for the FAS Money portfolio….

  20. phil,
    is there a bullish hedge play u would recommend ahead of the fomc tomorrow.

  21. this is a bullshit market, but as the saying goes about being able to slide a lot further on bullshit than gravel……..
    i can't believe the Greek debt deal is back front and center…….how long has that been hanging around?
    Mervyn King is up today at 3 and Adam Posen has already expressed the possibility of more QE form the BOE so i am looking to King for a tip off possibly into tomorrow. he has done it before ECB meetings in the past, and is always worth the listen.
    then there is the very large LTRO 2 already on schedule and confirmed for Feb 29.

  22. Out of FAS 78c for 1.95

  23. Not so good for AA Money

    But OK for IWM Money…

  24. Updated SPX 15min chart:

    We've gapped under the little H&S with target at 1296 so we may be able to reach target without a gapfill attempt. 

  25. speaking of twisted bullshit, there was that ZH story yesterday about GS suddenly reversing and playing down a QE announcement by the FED because the FED likes to keep the element surprise……….so, downplay it and then bring it.
    i need to take a break.

  26. finally getting  selling pressure in SP opened right near support at 1307….  failing to hold  1307 indicates a move 1295 is probable…I think we should have several days of correction that takes 40 points or so off the SP

  27. angelcur. 

    1277 SPX is the obvious target for a good retracement here. Anything under 1267 SPX would look like a bearish break. 

  28. Good morning!  

    Doesn't look like we'll be taking out the Dow and NYSE lines today so I guess we should turn our attention to holding S&P 1,297, Nas 2,733 and RUT 774.  

    This morning not going well so Cramer's new tactic is to say we should ignore the sell-off because "THEY" will begin marking up stocks for the end of the month next week.  Amazing, isn't it – they'll tell you whatever works and, when that blows up in their fact, they'll make something else up and it works for them because there literally is a sucker born every minute – and that expression is from a time when there were less than a Billion people on the planet so more like one every 6 seconds – even if we don't take into account how much dumber the average American is than the ones Barnum was fleecing 100 years ago.

    The big bad news of the morning (other than a lot of earnings disappointments here and in Europe) is the rejection of the Greek debt offer by the bondholders – that's popping the Dollar back over 80 so we'll watch that and watch Euro $1.30 (now $1.2968) for bullish signs if they cross back under/over their lines.  If things are really falling apart in Europe, the Pound won't hold $1.55 (now $1.557) so that would be the sign of a major unraveling.  

    Greece will likely be downgraded to "selective default" in the first half of the year, says S&P Managing Director John Chambers at a conference, but the default does not necessarily destroy the credibility of the EU. He credits the ECB's LTRO with saving the day, saying the recent EU downgrades would have been worse had the central bank not acted.

    We also have Yentervention to worry about:  

    The yen is making a sizable move lower – usually the sort of decline that only comes when Japan intervenes overnight to weaken it. A catalyst could be the realization that the continually strong currency has ended an era of trade surpluses. Dollar/yen +1% to ¥77.70.

    Not really much to do but wait on the Fed.  ONLY the Fed stops us from being MORE bearish.  There is nothing in the data so far to make us change our minds.  $98.50 is a good BULLISH bounce line for oil (/CL) but I don't expect them to hold $100 – it's just early in the monthly contract cycle and they can play it up a bit.  

    At the open: Dow -0.54% to 12641. S&P -0.66% to 1307. Nasdaq -0.52% to 2425.

    Treasurys: 30-year +0.06%. 10-yr +0.03%. 5-yr +0.02%.

    Commodities: Crude -1.08% to $98.5. Gold -0.79% to $1665.05.

    Currencies: Euro -0.33% vs. dollar. Yen +0.93%. Pound -0.07%.

    Redbook Chain Store Sales: +2.5% Y/Y vs. 2.8% last week

    ICSC Retail Store Sales: -1.4% W/W, vs. +0.1% last week.+2.8% Y/Y, vs. +3% last week. The sharp slowness in sales is attributed to 'heavy weather on the East Coast which kept shoppers in doors'. - ROFL!!!  Last week, the excuse was the good weather stopped people from going to the malls and buying winter clothes!  These people are ridiculous…

    Gotta love those low expectations:  Eurozone November industrial orders fell 1.3% following a 1.5% rise in October. Orders fell 2.7% on a Y/Y basis. Expectations were for a 2.3% monthly decline and a 2.8% Y/Y drop. (PR

    "At times like these, survival is the most important thing," a gloomy George Soros tells Newsweek, part of a dire warning about financial collapse and class warfare. “We are facing an extremely difficult time, comparable in many ways to the 1930s… The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system."

    S&P cuts its rating for several large French banks, including SocGen (SCGLY.PK) and Credit Agricole (CRARY.PK) to A from A+ in the wake of stripping the country of its AAA. The agency also lowers the AAA rating of the country's sovereign wealth fund to AA+ with negative outlook

    Hope springs eternal: Once the EU has adopted tougher fiscal rules, Italian PM Monti expects an "evolution" in the ECB's role in solving the crisis. Monti is referring to ideas the central bank must become more Fed-like, and stand by as a buyer-of-last-resort for government paper. The recent LTRO, says Monti, shows the ECB is beginning to come around.

    Meanwhile, in Reality Land:  Eurozone finmins take the next step towards financial sanctions on Hungary, endorsing the EC view that the country only achieved a deficit/GDP ratio below 3% with a series of one-off measures. The EC can now withhold up to 100% of EU "cohesion funds" from Hungary, but will give Budapest until year's end to alter its course.

    Irish housing prices continue to slide, off 1.7% in December to bring the Y/Y decline to 16.7%. Peak (September 2007) to trough (December and counting), prices have fallen 47.2%. Prices in Dublin fare worse, off 2.4% in December, 19.3% Y/Y, and 55% peak to trough

    Spain sells €2.51B of 3 and 6-month bills, hitting the high point of a targeted range for the auction. Demand was strong, with €13.5B in bids for the paper. Yields came in below 2%, continuing to fall from a peak of more than 5% at November's auction.

    Even as American firms retrench, European banks have it worse, and the comparison is on display at Davos, where Citigroup's (C) Vikram Pandit heads a delegation of bank executives. Still, some observers, such as Mike Mayo, are skeptical: "Asking Vikram Pandit about the crisis in capitalism is like asking Alec Baldwin about airplane etiquette."

    Of 308 ETFs launched in 2011, 90% failed to draw at least $30M in assets, an industry benchmark for profitability. Ron Rowland, who maintains a "death watch" list of funds at high risk of shutting down because they lack assets or trading volume, says the number has jumped to 268 – 20% of the entire market. In the meantime, the big ones get bigger

    More on Dupont (DDearnings: While revenue grew smartly in the U.S. and Canada, and not surprisingly fell in Europe, the company reported sales volume sliding 23% Y/Y in the Asia-Pacific region. "Chinese soft landing?" asks Mike Bergen.

  29. angel……….can no longer resist……short the DAX at 6370

  30. Pharm – what about CLSN? They have been beaten up pretty badly…

  31. FAS Strangle – I am selling the 75 Puts now.

  32. DMND just popped for some reason – up almost 8%

  33. AAPL/Jerconn – Yes, in a bear put spread, you buy the higher put and sell the lower so you are "bearish" on the stock. 

    Petroplus/JMM – It's possible they are just a bad refiner.  TSO is a much worse refiner than VLO or SUN, that doesn't make VLO or SUN bad investments – it just means you need to be selective in the sector.  Making money in refining depends on playing the futures and not many people do that well so it's all about picking a good management team and the guys at Petroplus were just the ones that couldn't find better jobs when BP dumped them for underperforming in the first place.  As to entrepreneurship, laws and regulations are there to stop US consumers from choosing better alternatives.  You can't get insurance on a conversion and it voids dealer warranties and the way we drive, you need a large network of fuel stations supporting you, not just the one in your town.  Las Vegas' entire bus and taxi fleet run on nat gas and California is finally restarting it's program now that Arnold is out (energy companies were major backers to put him in as California threatened to – gasp! – charge them a fee for extracting oil).  

    DIA/Dpast – Yes, it's ALWAYS one of those days!  

    Chomsky/Izega – Yes, good stuff. 

    FAS/$25KP, Nicha – Yes, that was the plan.  

    DIA/$25KP, Jrod – The plan was to get 1/2 back out and leave us with a basis of .875 on 10 – hopefully people did that and, if not, $1 is not a bad exit anyway so let's call that the official stop on the full position.  

  34. Thanks. I went ahead and took the $1.07 exit at the open.

  35. Go DMND GO!!! Come on we need a break!

  36. AH SOROS.// The undertaker there anyone more committed to Us classwarfare than this ghoul?..he must be long formaldehyde..

  37. CLSN – well, the med device area for cancer has taken a beating (DCTH anyone?).  I am ok for scaling in and just holding for a LONG time, but I think using the funds for VRTX or SGEN right now is the way to go.

  38. johnson redbook up +2.9% this week…first time below 3% in long time

  39. SLM – The calls are 83c, and the puts are 28c.  From the initial entry…that is enough for me on those JIC there is a pullback.  I know there is plenty of time, but…

  40. Hi Phil  — all about the trend article is unable to read for the last several weeks, is it listed under a different web site? thx

  41. Streep/Dpast – Best current actress.  My youngest daughter was in "It's Complicated" with her (bit part).  

    By the way – on the DIA's in the $25KP, when you have a mix that's not working (too bearish) and you get one winner – it's smart to take them off the table and, if you want to be more bearish, put some of that cash to work improving the positions that HAVEN'T come back yet.  If we keep going down, you get more bang for your buck pressing other positions than riding the winner a bit further usually.  

    AAPL/ITrade – Could go 10% up or down or maybe flatline.   Hope that was helpful…

    Bull hedge/Srinirap – Sure, XLF $14 calls at .37, selling 1/2 FAZ March $25 puts for .73 for a free crack at the upside.  FAZ is $30 so $5 drop about 15% is 5% up on XLF ($15ish) so up 2x .63 before you even have to roll the FAZ puts and, of course, if the Fed disappoints, you can pull the calls and that's your profit if FAZ expires worthless.  If you are more patient, XLF 2013 $13/15 bull call spread is $1.05 and you can buy 3 of those for every JPM 2013 $32 put you are willing to sell for $3.  

    FAS Money/StJ – Let's kill those $78 calls, lucky exit on those.  

    AA Money/StJ – The year is young. 

    IWM Money/StJ – Still waiting to see what sticks.  

  42. Any knows why IDCC dropped 19% this morning

  43. Morning Phil, what would you recommend as disaster hedges now if someone doesn't have any ?

  44. FAS Money – We bought back the 78 calls (now 2.58). Some hopefully got out earlier when they were below $2.

    The position is more neutral now!

  45. Here you go rainman… thanks for pointing out that chart!

  46. Thanks Jack! 


    • MON – $79.18, a bit less scary now. 
    • DMND – $35.36, very cool.  
    • BKS – $12.04 seems safe. 
    • SQQQ – $16.08 is danger but .53 less dangerous than reflected.  I still like them. 
    • MA – $339, we're going to be so screwed if we get QE3 but they are weak even in anticipation of it so I hate to let these go.  Let's say if we get $3 or more, we can't turn that down but, otherwise, let's go for it.  
    • XRT – $54.75, down a whole 8 cents on bad retail numbers (again).  I'm losing faith but no change in fundies  so far so we wait for more earnings (or no Fed move). 
    • GLL – $1,664 gold $17.29 stock, also riding on the Fed.  No QE should send the Dollar back up at least 2% and 2% down in gold is $1,630, $18ish on GLL and we'll probably take it and be happy.   Meanwhile, those $18 short calls fell to .20 yesterday and shame on all of us for not taking it and running so – let's not miss another opportunity if gold runs up.  
    • SLM – $14.52 is what we call "on track".  

  47. Good morning, nothing new……again:


    IWM    75.54,  75.80,  76.02,  76.36,  76.66,  76.82,  77.04,  77.20,  77.48,  77.96,  78.34  and  78.78


    I also have ascending trend lines at 78.14 and 78.68;  I am long but watching closely 78.14

    Good hunting !!

  48. You know it's going to be a long LONG recovery when the Fed is "educating" with comics!

  49. FAS Strangle – We are up against a line in my charts. If we can't punch through (and we are losing steam now) I'll sell some calls.

  50. They must really be counting on QE…although we are already in QE twist…so I guess there is more in store?

  51. Same ol game with the dollar.  They've mastered damage control.

  52. this market is strong like bull..
    FU EDZ!!!

  53. From Rosie…on a not so rosie picture:

    • Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.
    • Short interest has dried up to three year lows.
    • The VIX closed the week below 20 for the first time since last July.
    • As Mike Santoli points out in Barron’s, volume in leveraged ETF’s versus bearish ones has risen to levels that in the past touched off interim market pullbacks.
    • Credit market indicators have lagged well behind the improvement in equity performance.
    • The S&P 500 is three standard deviation points above its 20-day moving average.
    • Again, as Barron’s points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week – this happened in the February 2007, February 2011 and April 2011.”

  54. Bearish/Phil – you set out an excellent bearish case this morning..

  55. Pharmboy / QE — I'm still thinking mass refinancing.

  56. cannot figure why they would engage QE3 at this point I tend to agree with SH Jack that unless the goal is to massively devalue the dollar…it makes no sense to pull this arrow out of the quiver at this juncture…or am I breathing my own very short (at the moment) exhaust??

  57. CLSN/Jrom – Never liked them as much without Neil Young

    Trends/Gucci – I see the 1/23 PDF just fine. maybe you need to load a reader?  Yep, I see every day.  

    IDCC/Yodi – Earnings yesterday disappointed.  

    Disaster hedges/Micro – Interesting as I just had to do a Fed hedge.  I still like EDZ, now at $14.58, so you can sell the March $13 puts for .80 and buy the $15/20 bull call spread for .95 for net .10 on the $5 spread.  As long as you have the attitude that owning $10,000 worth of EDZ as a hedge is a generally good idea long-term, you can assume the short $13 puts are rollable and go for 10 of them and that buys you $5,000 worth of insurance for $100 cash.  

    With the Dow this high, you also have to look at a very simple DIA June $120/110 bear put spread for $2 and you can just offset that with any Dow component you REALLY want to buy if the Dow drops about 12% and you have $10,000 in your pocket from this spread like those JPM short puts above or BA Aug $60 puts at $1.80 or TRV July $50 puts at $1.40 or AXP July $45 puts at $2.10 or MCD 2014 $70 puts at $4.30.

    Speaking of MCD – Maybe it can't fill but the 2013 $75 puts are showing $1.57/1.64 and the 2013 $75 puts are $4.20/4.40 and it seems to me that if you buy the 2013s and sell the 2014s, you have a net $2.70 credit and if, come next Jan, the $2014s drop to the same $1.60, you make .90 for doing not much at all.  Essentially, it's a bullish play on MCD but really, you should do OK on a drop too. 

  58. Not selling enough drugs? Change redefine the illness (like they did with blood pressure a few years back): Psychiatric Group Push to Redefine Mental Illness Sparks Revolt.

  59. Thanks Phil could not pull it up on Yahoo today IDCC

  60. FAS Strangle – Just sold the 82 calls. That was close to the high yesterday. It's a bit risky though and I don't think that I'll keep that overnight. But we'll see.

  61. SLM/Pharm – if you are thinking pullback, flip the feb 14 short puts to feb 14 short calls and you get a nice ratio call spread…

  62. Rain – the problem is…..which drugs are going to work?  Brain chemistry is VERY hard to manage, and pharma is scaling back in the area.  TRGT/AZN just had a failure, and there are many others that will follow suit.  Cancer and Alzheimer's is where the action is right now, although I think Alzheimer's is a ticket to nowhere as well, much like stroke and psoriasis.

  63. So does anyone have a clue/theory of what uncle Ben is going to announce tomorrow? 

  64. Phil,
    With the weakness in equities and some uncertainty in the air, any thoughts from a fundamental perspective as to why bonds (TLT) are also showing weakness?
    In the TA world, there is a neckline break of a H&S top @ 117.92.

  65. FAS Strangle – If you have not sold the calls, don't…. we just punched through the line. I am holding the calls but I would advise against it for now.

  66. diamond
    Thanks IDCC

  67. scott, thx.  I am going to just exit.  the extra $300 is not worth the risk….up over 50% already, it is time for me to move on. 

    No volume = up.

  68. Declining channel on SPX:

    Resistance in the 1316 area. 

  69. Here is your chart Jack…

  70. Phil – RE: Streep and your youngest daughter in "It's Complicated" --
    What scene was your daughter in? What is the backstory?

  71. JR,

    What are you using for support on the dollar?

  72. stjeanluc

    Great. I didn't realize I could post charts directly. 

    If we don't see today's low broken there are going to be some seriously uncomfortable shorts going into the Fed meeting tomorrow. 

  73. Charts / Jack – It depends on your editing permissions actually. Check with Phil!

  74. Phil – I thought Springheel Jack was going to get his own box color.

  75. Pharm / drugs — I have no idea what will work but I'll let you know what the doc prescribes :)  
    I usually try the chiropractor first though. :)

  76. Pharm: TLT
    I know in the past you had some well thought out position on TLT.  Where do you expect it to be jan '13 or Jan '14?  I've been buying Jan spreads with the breakeven about where we are now, selling calls when over 120.  I know you were bullish short term and would be interested in your thoughts.  TIA

  77. TLT/Lincoln – I still think the 10 yr goes to 1.5% this year.  As for TLT, it currently sits on the lower BB, so I see it moving sharply up tomorrow, as I still think the Fed will wait.  The euphoria will wear off, and if we are not pumping money into the IMF (at least they 'say' we are not), then I don't see them doing any more right now domestically.  If it does break down, it will quickly move to 107, then I would be all over it.

  78. Phil: QE 3 and TLT
    If no QE3 indicated tomorrow how should I expect TLT to react?  I think free money, (whenever it comes) to keep rates low should cause TLT to go up, but at this level the upside would seem rather limited, no?     TIA

  79. FAS Strangle – Cashing in my 75 puts for 31% win… Gotta to go to lunch and I want to preserve the $0.20!

  80. Anyone know anything about KGC?  It is one of thew stock i was considering for the IRA Portfolio but i cant figure out why it is hitting 52 wk lows.

  81. Lincoln/TLT, If QE3 comes TLT should move down

  82. exec / $

    DXY 79.90 short term

  83. dpastramas – no clue, but my theory is markets go up either way…
    1. will say things are looking better so no need right  now, and so sideline money comes in tentatively on mild dip after the QE fanboys think it's the end. then up up up. it's an big election year with the fate of the world in balance, etc etc.
    2. will announce QE and woo hoo Pump it up!   it's an big election year with the fate of the world in balance, etc etc.

  84. KGC/Craig – these are 3 year lows and seemed like an inordiante drop on slightly lowered guideance and one mine project taking longer to get online than previously planned. Wondering if was just one big hedge fund position getting out? Not a bad place to sell puts/put on bull call spreads (6 month or longer ones), imho. Only a bit lower was the 2008 crash.

  85. Nice Chart Springheel.

  86. Thanks JR,

    Are you still long?

  87. Gold for Oil – anyone seen this? China and India to use Gold when Purchasing Oil from Iran.  Will sanctions against Iran have a negative affect on the dollar and a postive one on gold? Unintended consequences…  Guess this means war against Iran for sure.

  88. KGC/Craig – btw, i wouldn't go with KGC for an IRA. has proven to be way too unstable.

  89. Beats/StJ – 58.5%?  I have to challenge that number.  Today alone would have tipped it back closer to 50%, even if that was the starting point.  

    Dollar taken down from 80.35 to 80.1- over last 2 hours and did not help very much.  

    Educating/Rain – I believe you mean "RE-educating" – who says we have nothing to learn from China?

    Bearish/Scott – I keep trying to be as balanced as possible but as my articles go on I read more and dig more and it just ends up that way. 

    QE3/Sage – I think the idea is that this is all part of some massively coordinated global action into the end of Jan.  BOJ said nothing new today except they weren't happy with the Dollar so maybe interpreted as easing.  India eased, UK iffy this morning, China eased last week, so hopes hang on the Fed and the ECB (or whatever they have in the EU now) to tip the Q balance back to E.  

    Drugs/Rain – I see that with the prescription drugs, they keep lowering the bar for who should take it.  I'm shocked at all the crap my own brothers take to start their day now and forget my Mom and her bag 'o pills.  I accidentally burped at dinner and 3 old people tried to force a Nexium down my throat!  

    Tomorrow/Dpast – It's not so much the announcement of the decision but this new "clear" language thing we're supposed to get from the Fed tomorrow – God knows what's that going to say but it better at least have a very clear road-map to QE3 in it.  

    Fed Begins an Effort to Remove All Doubt on What It’s Doing (NYT)

    TLT/8800 – Because that's the real price, not the propped up BS price we get as we head into auction weeks.  Even this is not real – who the hell wants to lend us money for 10 years at 3%?  The only difference between us and Italy (6%) is that we can print money, so that guarantees you will get SOMETHING back for your bonds – it may not be something that's worth much, but it's better than nothing, but not 3% better.  

    Revolving Door/Rain – Good headline by Gawker:

    "Citigroup Replaces JPMorgan as White House Chief of Staff."


    Remember — it was Bush and Cheney with their cronies in big business who helped walk us right into the blast furnace of financial meltdown, then rushed to save the banks with taxpayer money. That little fact seems to have been overlooked in the current primaries.

    All this brings back memories of Hank Paulson, doesn’t it? Hank Paulson, the $700-million man who became secretary of the treasury for President Bush. Paulson had been head of Goldman Sachs, the rich investment bank. As his successor at Goldman Sachs, Paulson chose Lloyd Blankfein. Several times, according to Bloomberg News, Rolling Stone, and Paulson’s own memoir, the treasury secretary made sure Blankfein and Goldman got privileged inside information.

    But Bush and Cheney aren’t the only ones to have a soft spot for financiers. President Obama may call bankers “fat cats” and stir the rabble against them with populist rhetoric when it serves his interest, but after the fiscal fiasco, he allowed the culprits to escape virtually scot-free. When he’s in New York he dines with them frequently and eagerly accepts their big contributions. Like his predecessors, his administration also has provided them with billions of taxpayer dollars – low-cost money that they used for high-yielding investments to make big profits. The largest banks are bigger than they were when he took office and earned more in the first two-and-a-half years of his term than they did during the entire eight years of the Bush administration. 

    Complicated/Diamond – I don't know which, I never saw it.  The kids went through a phase of being extras in a whole bunch of movies a few years ago as it was fun for them and who cares if they miss a little grade school but we stopped last year as Maddie got into 5th grade – I thought it was good for them to understand what goes on behind the curtains in the media first hand (my Mom was an actress in England, been in many black and white movies, also bit parts like running from a train screaming in Day of the Triffids but also very cool – was in the theater audience in Hard Day's Night) and Tina had fun for a while.  Jackie was in Doubt (church scene) and Parenthood (playground scene) and a few other things as well as a classroom scene in Nurse Jackie (classroom scene) and It's Complicated and Maddie was in something with Steve Martin, which I thought was great and Gossip Girls (wedding scene) and a couple of other things I can't recall.  The one I regret is CSI wanted them to play two sisters who get murdered but Tina nixed it as the opening scene was them lying on a floor in a pool of blood – I was all for it but she said no way….

    Jack – You should absolutely have editing permission to post charts – please let Ilene know if you can't and also, you should have a color box anyway.  

    IMF/StJ – I can't believe we're holding up this well on that forecast.  -1% on a $60Tn Global Economy means the first $600Bn in stimulus merely fills the hole so we don't go deeper!

    TLT/Lincoln – See above, I think it's insane above 120 and if it were 110 I wouldn't be motivated to be long other than the expectation that the Fed will do something – certainly not for any real fundamentals.  

    Europe finished down half a point with a stick into the close.  


    EU Scrambles to Salvage Greek Talks

    Finance ministers pressured Greece and its private-sector creditors to do more to ensure a proposed debt restructure will be enough to put the country back on a firm fiscal footing.

  90. @scottmi, Unstable is what we are looking for!  That way we can sell the High Volatility and scale into a really nice position.

  91. Help with 200k portfolio / Phil,
    I'd like your direction with managing a 200k portfolio. How would I invest this sum across such things as the "Core holdings", "Long Term", "Aggressive/25KP" etc? This 200k is my brokerage portfolio.
    As for your question, "what stocks would you like to hold for the long term….?", unfortunately, I don't know the answer. Don't even know how I would go about answering that question.
    When you mention "a balanced mix is 60/40 bullish/bearish or vice versa, and extreme is 70/30 bullish/bearish or vice versa", how much of a 200k portfolio would I keep as cash versus invested?
    For example, should I look at a distribution like this…?
    Invest 100k in about 6 stocks using your buy-write strategies.
    Use 50k to trade twice the 25KP recommendations.
    Keep 50k cash.
    On my 401(k), I'm totally in cash as of now as there may be an option for me to move the whole thing into an IRA in a few months at which point I can exercise far more control over it.
    Appreciate your guidance.

  92. exec / Long

    Yes !!  Support at 78.26, if that fails we'll see !!

    "They" drew their line in the sand and stopped the decline. Absent some solid economic news there is a very strong external bias to this market and it is to the long side. There is not enough volume in the market to stop them and no one to prosecute them for doing God's work !!


  93. jomptien: thanks re tlt

  94. scottmi / craig / KGC — Is there some catalyst for an entry at this point? Why not wait until the bleeding stops. $10 tends to be a critical level if violated. I know nothing about KGC, just a technical observation.

  95. @rainman, The only catalyst is that it has some decent VOL to sell and I can't find anything fundamentally wrong with the stock.  I haven't decided to pull the trigger yet, this is just one of the few things I am keeping an eye on.

  96. JR/God's Work

    I hear you. 
    It really is incredible how they can control the dollar with such precision.  I'm starting to see a reoccurring pattern on these down days.  They run up the dollar in pre-market to pin the futures at a resistance level, then steadily melt it down throughout the morning.  What is fascinating is how they will run IWM right up to a resistance line then spike the dollar to push it through.
    I really would like to know how they control the dollar.  These moves happen to frequently for it to be a coincidence.  It's as if they've adopted a crash control strategy that is controlled by the BOTs through the use of dollar manipulation. 

  97. Phil: Greek CDS
    Anyone know who the counter party would be in the event of defaults?  Is there someone in the position AIG was in 4 years ago?  I assume such a default would be on a smaller scale than our MBS mess.  TIA

  98. Phil/Pill for every ill.
    It is hard to distinguish between what is part of the commercial culture and what is part of the general culture. In the US doctors are taught that they may be held legally liable for negligence if they do not provide patients with "state-of-the-art" medical care. In other words, they have to keep up with what the medical journals says is best practice. However the system is very manipulated by drug manufacturers who finance a great deal of the research and even write some of  the research articles that are published by physicians. Hence if you go into the doctor's office and say "I feel like crap", he may well start you on an antidepressant just in case you kill yourself before your next appointment, and if that pill gives you heart burn or headache, well there are more pills for that too,  and maybe he can add an antiseizure drugs as a mood stabilizer. Of course you will now need monthly lab work in case this destroys your liver or kidneys. Give a man an aspirin and he feels better, but make him an addict and he is a revenue source for life.  Add into this that many patients have their drugs paid by third party payers, and you have a perfect storm.  Many in the medical professions will think I am too cynical, but then again it can hardly be denied that a global improvement in  diet and exercise, plus reduced smoking and alcohol  would be an epochal disaster for drug stocks.

  99. KGC/Craig – well then, scaling in at this price you might even go half to open. what kind of play are you considering, if you chose to go with KGC?  I'm not seeing much premium for short calls right now unti you go out quite a bit. 

  100. Iflantheman
    You are very quiet today How are your bones hurting on AAPL down 3.50 at the moment looks like the silence before the storm

  101. @scottmi, I am looking at buying the stock and selling the March 11 Calls for $0.50.  That provides a nice 10% profit if called away.  

  102. What time tomorrow is the Fedspeak tomorrow?

  103. $99.28, not a bad day for oil longs.  

    Gold/Scott – That's just crap.  I don't believe that for a second.  Iran should be happy to get Rupees although it will be funny to get Iran to take all that $1,600 gold off peoples hands and then crash oil back to $800.  Let's see, 2.5M barrels a day from Iran is about $85Bn so that's 53M ounces of gold or 1,600Tons of it.  I guess it's not a big deal to transfer it physically but I'll bet the Somali pirates will be looking for that ship!    Unfortunately, India only has 557 tons of gold in reserve so they will run out of gold in just a few months.  China, on the other hand, has 1,054 tons of gold so of course their plan is to exchange all the gold they've ever accumulated for 1 year's worth of oil.  What's really amazing is how much play this story is getting by supposedly reputable media sources when it may as well say "India to pay Iran in Invisible Jets" or anything else they don't have and can't get.  

    Rentals/Rain – Oh that's right, Obama's State of the Union is tonight and people expect stimulus there as well.  Wow, this could be a huge weak of major policy announcements to boost our flagging economy in a sudden wave of bi-partisan glory or a massive disappointment.  I wonder which it will be?  

    $200KP/Sank – At the moment I'd be super cautious.  Easier to answer that question next week but, in general (and we have a series of articles called "Smart Portfolio Management" in our Education Section that deals with this) about $100K invested in Income Portfolio-type plays and $25K invested in $25KP-type plays and $75,000 of cash is pretty good.  About what you said without counting the $25K twice.  The most important thing in setting up a portfolio is patience.  Even in the crash of Oct 2008, you didn't miss anything by waiting until March the next year to see if the World was really ending or not.  Every week, some company screws up and gets thrown under the bus and every month, one of those companies didn't deserve it and makes a good entry.  Today, TRV is down 4%, if they catch a downgrade and re-test the 200 dma at $56, they get pretty interesting and that's a Dow component.  So let's say you take advantage and sell 5 2013 $55 puts for $4.60 for a potential net $50.40 entry on 500 ($25,200) – that's $2,300 in your pocket on day one of your $200K portfolio and all you have to do is find about 5 trades like that and you have $10,000 (5%) against conservatively invested (against your $400K of buying power) entries on stocks you REALLY want to own if they get cheap.  If you can find a way to make another $10,000 or so with the rest of your money, you're over 10% already and making 10% on $200,000 compounded over 10 years is – $518,748.49 – so there is no need to get greedy or be stupidly aggressive, is there?  

    BELIEVING the long-term view is the hardest thing to do in investing.  Use the above linked compound rate calculator and set REALISTIC goals for investing and you will have a much better time!  

    Greek CDS/Lincoln – I can't imagine any rational person is the counter=party to the extent it would harm their business.  Just lots of little bets spread around.  

    I'm with you on that JMM – it's crazy what we do to ourselves these days.  

    Fed/lflan – Seems like Rate Decision is 12:30 and I would assume other new stuff comes out with it.  

  104. Phil/AAPL
    7.41 am post: thanks. That clarifies it

  105. /DX making a run at 80

  106. Here's what I'm thinking:   AAPL probably pops with good earnings.  What if this occurs then the Fedspeak throws a wrench in the works and pulls the market and AAPL down with it?  

  107. It's an argument for either staying in cash during AAPL earnings report, or at least getting out of all trades in a.m.   What think you Phil?

  108. Phil, All -

    Would you rather be in a Priceline (PCLN) bull put spread or bear call spread?

  109. Worked out how to upload images after some trial and error. :-)

    Updated SPX channel:

  110. Peabody Energy (BTU -4.8%) takes a hit after its Q4 missed estimates across the board, largely due to costs from its $5B acquisition of Macarthur Coal. Additionally, the miner says it expects lower coal output and earnings in 2012 as it plans to spend much of the year bringing the newly acquired Australian coal mines up to industry standards.
    I think some of us have the BTU Jan 30-45 BSC, short the Jan14 30put.  Just FYI.

  111. exec
    I believe you answered your own question! The dollar manipulation via HFT's is deliberately done to goose the markets!
    What other value did we expect to receive from $Trillions in FED liquidity used to manipulate the markets?
    We certainly can't expect the money to be used for improving infrastructure, education, paying down the deficit, creating structural reforms to insure transparency in the financial markets, lending to small businesses, providing incentives for manufacturing job creation in the U.S., reforming our political system?

  112. KGC/Craig – do you like to enter on the strike (i..e buy stock at 11 and sell march 11 call or buy stock at 10 and sell 10 call) or does here in the middle work for you?

  113. Cash/Iflan – Yes, the argument for cash is very, very strong. 

    PCLN/David – Are those my only choices?  I can't say it's a crazy-assed momo stock that I wouldn't touch with a 10-foot pole?  At $521.75, they have a p/e of 27 and their forward p/e has gone up to 17 on expectations of spectacular growth.  The chance of them replicating last year's growth in 2012 is very low so I'd be short, not long.  They don't report until 2/22 so I'd go for the March $505/465 bear put spread at $10 and sell the Feb $495 puts for $5.60 for net $4.40 on the bearish position into earnings.  

  114. Vol for IRA/Craig – have you looked at WFR? very high implied and historic vol.

  115. I agree with Springheel Jack, All "they" have to do is avoid any news (done) and get over SPX 1325ish, for all the swing traders to hop on board and invalidate my theory !!

  116. Health / jmm1951:  "… it can hardly be denied that a global improvement in  diet and exercise, plus reduced smoking and alcohol  would be an epochal disaster for drug stocks."  This is certainly the prevailing "wisdom", but I am dubious.  The only sure road to good health is to have good genes.

  117. Congrats Jack!  Now try right-clicking on them and sizing to 650.  

    BTU/Burr – I still like them, Nat gas will get more expensive and coal will correct up with them and BTU is best of best anyway.  

    Dollar testing that 80 line but not failing – not a nice close if we bounce.  TLT failing $116 – where's the Fed?  XLF held $14 nicely but that's the bright spot for the day as oil fails to hold $99.  

  118. Phil
    Your suggestion to Sank1 is interesting! Would you recommend the same or similar for a larger retirement portfolio?

  119. Kongen
    50% of gene expression is from your habits, both physical and mental. 

  120. Analysts at Goldman Sachs forecast the headline [CPI] consumer price inflation will fall from 3.3% year-over-year in the fourth quarter of 2011 to a 1.9% rate in the fourth quarter this year. Core inflation will pass fall from a 2.2% year-over-year rate to 1.4%, the Goldman team said.

    So more free money !!

  121. @scottmi,  I havent looked at WFR because I am only considering stocks which pay at least a 1.5% dividend.  The dividend isn't much, but I feel that paying a dividend keeps a company more honest.  Also, it kind of puts a floor in the price.

  122. IF the feds ease, commodity prices will soar, and that will be the end game.  Oil will skyrocket, gold straight up, and hi ho Silver.

  123. kongen/The only sure road to good health is to have good genes.
    There is an element of truth to this, but to some extent we all have good genes, because we are the end product of millions of years of evolution that has eliminated most of the genes that shorten life or kill people before they are old enough to reproduce, so behavior certainly comes into the picture, especially since, given the laws of physics, people cannot become obese unless they are ingesting more food than they need to maintain body weight.

  124. Phil
    Could you provide a play on BTU today? Thank you.

  125. And if you were wondering where Ben might spend his new found $$$$………………………………..


  126. Iflan
    What did you do? That is what inquiring minds want to know. :)
    Did you go all cash? I only hold April 425/450 bcs small position. Thank you for your contributions!

  127. Phil – if QE3 does come, wouldn’t it be bad for our short MON calls?

  128. AONE/Craig – and for high vol, how about AONE March $2.5 covered stock @ $2.00? five of them will give you 20% or better depending on your commissions. if you want to scale, sell march $2 puts as well.  quite likely to get them.. :-(

  129. Sold some gold, seems to be selling off [(:}, any opinions on it's proper level? Seems pretty expensive, Iran's "pay in gold" dictate notwithstanding.

  130. Dividend/Craig. – gotcha. never mind on AONE! ;-)

  131. dclark/BTU
    I have a 2013 BTU $35/$40 bcs and am short the $35 puts and tried to close the position last night before the close, but my price was not met. As you know Phil is feeling pretty bearish right now, and it would not surprise me if you could get into the stock cheaper than it is now, which will certainly be the case if the whole market tanks. I would wait for the VIX to climb and then sell puts. Of course I am a rank amateur/tyro/newbie, so I too will also be interested to see what Phil says.

  132. Italy's ITA40 closed at yesterday's high after a nice sell off early this morning so has taken back ALL of its losses.
    Don't know if that is a forerunner to the FED into tomorrow but if Italy can run up then so can every other index, for what that is worth. Spain's IBEX close close to the day high too.
    My latest guess is the a surprise in cracker jack box….maybe not the TRILLION, but maybe some other twist to keep the float higher.
    I'll be interested to hear what Mervyn King has to say at 3

  133. AAPL 50k:   Here are my positions    10 July 390/415 bull call spreads.   I will keep these. They have 6 months to play out.    20  April 425/450   bull call spreads.  I will keep these as well.  They have 3 months and another earnings event to play out.  And finally, 20  January 425/430 bull call spreads.    This latter is really my only 'earnings play', and I'm keeping it.   The risk is loss of $5,000 with a possible gain of $5,000.   I think there is an 80% chance of success with this trade and with the account up more than 30k I'm willing to put 5k forward on a trade which I think will double within the week.  That's it!   My final post on AAPL 50k before earnings.  Good luck!  I'll post after earnings are out.  

  134. 200KP / Phil,
    First of all, thank you for the direction. Couldn't agree more with you on the point about " The most important thing in setting up a portfolio is patience". When I have some nice wins and what I'd call almost outlandish wins in terms of percentage, immediate mindset is "why wouldn't I put 80% of my portfolio into such trades when they seem so easy??" And then, along comes a market like the one we've had over the past six to eight weeks and I blow most of the wins over the past six months because I've been bearish and more bearish even as the market trudges higher.
    So, I said to myself "Enough's enough. I need to pay attention to the stuff Phil talks about regarding money management, and not just be selective about the 500+% option play recommendations that he doles out."
    Now, could you please advise me on which stocks I should look to invest the $100K in from the Income Portfolio type plays? Also, you mention $400K buying power on the $200K portfolio. I understand margin of course. Should I thus look at investing in income portfolio type plays to the tune of $200K of buying power?
    If I looked at a distribution of $25K per stock, should I look at eight different companies?

  135. 4real

    So you think the HFT algo's are are synchronized to complement one another?

  136. Craig – FTR…

  137. CNBC/nonsense
    Just now they were running an ad for an imaginary medical condtion called "low testosterone or Low T" which is said to occur in many men over 65 who have lost their virility. I guess they know their viewer demographics.

  138. Hey Jmm 1951. Thank you for your input. I like energy going forward but am somewhat perplexed by all the risk-on risk-off talk with the FED and EURO stuff. I saw that BTU took a hit this AM and have my eye on them. Just looking to start a position. Not sure I will do anything yet. Just trying to stay balanced and cashy through the Tuesday FED chatter.

  139. Iflan
    Just what the doctor ordered. Thanks.

  140. Forty-eight percent of the 1,258 CEOs polled by PwC said they expect the global economy will decline further in the next 12 months, while 34% expect it to stay the same. Only 15% say that the economy will improve……………………………..

    Nothing to see here, move along.

  141. "Green shoots?"  -Jobless Rates Fall in 37 States, Led by Alabama and Michigan
    Updated 2 minutes ago Bloomberg

  142. @scottmi, I took a look at FTR, but theres a problem.  With the options only having about 0.10 in premium, and the spread being in 0.05 increments, all the profit is eaten up in commisions and spread.  FTR was a good play when it was up around 8-9ish.  But once the stock drops below that level it has to have very tight bid ask spreads on the options or all the profit dissappears in transaction costs.  That is why I also restrict to looking at only stocks with penny increment options.  That way we can work the bid/ask for good fills.  For the nickel spreads it needs to be a pretty compelling buy.  For anything above a nickel it needs to be screaming BUY MEEEEE!

  143. dclark/BTU
    Yes, coal is very volatile. I was talking to a guy the other day who is a retired Merrill Lynch analyst and trader, and he said he used to trade in coal stocks a lot, and that they usually go the same way as oil, only more volatile. To what extent gas may replace coal in the future for the generation of electricity, I don't know, but I suspect coal will be around for a long time. You can also make gasoline from coal, which is what the Germans did in World War II,and in South Africa coal is converted into gasoline on a fairly large scale, so I suspect that coal will have some kind of future come what may,  even  in  it uses technologies as yet undiscovered to make it cleaner burning.

  144. Cragz – how about RIG in the IRA.  It's in mine, and yes there are caveats, but pays a nice dividend and one can scale in easily with calls an put sales.

  145. Exec
    It appears to be that way! If a handful of HFT's make up 70% of the volume most trading days it's not very difficult to coordinate the trades.
    Look at the low volume run-up from 12 days ago and correlate the dollar pricing from that point to the present.
    Not many retail or insitutional investors participated in the run-up,with the exception of those already in the market! 
    The HFT's now also have advanced algorithms to single out orders allowing the market makers to exploit them with greater precision than they ever could in the past!
    A longer investing horizon or time frame with trades that are hedged seems to be a possible defense.
    Phil is corrrect when he says "Be careful out there"

  146. Looking a closing the gap down on XLF and FAS now!

  147. l4real / exec — "A longer investing horizon or time frame with trades that are hedged seems to be a possible defense." This is a interesting concept I was pondering the other day -- Do HFT systems have memory of counter parties they provide liquidity for? If so, I wonder how accurately that can track a trade over time?

  148. @pharmboy,  I do like RIG, my only worry is that they cut their dividend until all the lawsuit stuff is wrapped up.  If anyone has any insight into that I would love to hear.

  149. Hey Phil,
    I was thinking of selling a Jan 2013 $25 put for $4.10 for DMND.

  150. Retirement/L4 – Yes, see articles on "Smart Portfolio Management" and, of course, check with a financial planner as your overall situation needs to be taken into account as well.  

    Forecast/JRW – My that was timely of them!  

    BTU/DC – It's not good to jump on earnings disappointments the first day as they may get downgrades and drop more and, if not, then you know they are strong and can invest with more confidence.  BTU is at a pretty good entry but was 15% lower in December  and October and they certainly haven't proven they are breaking out of the downtrend so at least make sure they can hold the falling 50 dma at $36 before deciding they are a bargain.  

    And what JMM said! 

    That chart really puts Greece into perspective, JRW.  

    CNBC says 58% above estimates, 30% misses, 12% in-line.   But they are pointing out that numbers were downgraded ahead of earnings so low-bar beats.  Also, important to note just 100 companies so far so not much of a sample out of 9,000.  

    QE3/Nicha – Yes, bad for any shorts.  

    Gold/ZZ – Wait, this just in – KO demands to be paid in gold too!  8)  

    Margin/Sank – Again, I am not a financial adviser but, if you have $200K to invest you should have $400K in buying power so when you sell a CHK 2013 $20 put for $2.65 you have a net $17.35 per share commitment and, conservatively, you could say your max allocation is $20K so you can only buy $5K in round one or about 3 short puts.  But this is not a buy, write and you only get assigned 1x so it's OK to go 5 or 6 on this because it's a 22% discounted entry, which is what we want for round 2 on a buy/write and also, the 2013 $20 puts can be rolled to the 2014 $15 puts, now $2.05, probably even so your real net entry on 6 (assuming you don't roll them again) is net $12.50ish or $7,500, which is a very comfortable amount as a percentage of the portfolio.  Also, of course, 6 short 2013 $20 puts have a net margin (in TOS) of $1,376 so you're really not using ANY buying power.

     Once this trade looks safely on track, you can go from 5 open allocations to 6 etc (using hedges and stops) and the only stocks you actually end up buying are the ones you get cheaply.  So selling put allocations is different from buy/write allocations but you have to do the math on each one and determine a good balance of your short puts with the assumption they ALL get assigned to you in some catastrophic event.  Let's say the market drops 60% in a day (nuke) and you own 600 CHK at $17.35 ($10,410) with the stock at $10 – if you are not HAPPY to spend another $6,000 to DD on them at $10 and then sell the 2014 $12.50 puts and calls for $2 for a net $11.68/12.088 entry on 24 ($29,010) and hopefully ride that out for a few years as the market recovers – then don't sell the first 6 puts!

    Look at any stock you are thinking of buying and what happened in 2008 to 2009 and make sure you know EXACTLY what you would do and how it would fit with your portfolio if it happened today.  If you do that, you will be fine.   As to stocks, the same ones we pick any time I have a buy/write idea or a short put idea.  Right now, the VIX is very low and it's not that attractive so you can WAIT PATIENTLY for a good opportunity.  I like CHK, I liked DMND, BAC, SLM etc, in the past month and I'll like more stocks over the next 30 days WHEN THEY HAVE GOOD ENTRIES.  If you have $200,000 burning a hole in your pocket and can't stand to wait – I can throw out random names I like but there won't be any specific opportunity that gives you an advantage on entry – is that what you want?  

    You should be doing a lot of due dilligence right now, you should be identifying 15 stocks, 3 in each of 5 sectors that you think are very good deals, you should establish the channel for each of your 15 stocks and you should wait for one to get to the bottom of the channel and hold it and then you have your first entry.  Wash rinse and repeat until you have a portfolio.  

    Synchronized/Exec – They don't have to be synchronized as many of them are the same exact program and the vast majority of them trade on a TA basis so it only takes a few smart guys to manipulate the rest like an conductor with an orchestra.  

    Low T/JMM – Yep, soon there will be a pill for "The Olds".  Snake oil salesmen have been peddling their wares for thousands of years – I just think this is the first time they've gotten Government approval to lend a credence to their BS claims.  

    FTR/Craig – You can just sell the Jan $5 puts for $1.20 and be done with it.  Either you get a $3.80 entry (20% off) or you make 20% (over 100% on margin) for doing nothing.  Why waste time (and fees) otherwise?  The dividend is nice at 15% but the short put makes more.   

    RIG/Craig – They dropped $1Bn to the bottom line last year so I don't think the legal fees are going to force them to cut dividends.   A massive fine, on the other hand, might.  

  151. Real/Rain,

    It's pretty clear that they can control the movement on low volume.  They question is, who is doing it.  You have to believe that all of the big IBanks are not colluding? So who exactly is calling the shots and determining when they will put the Bots on an advance algo verses a decline algo.
    Maybe I'm naive, perhaps the Ibanks do communicate behind the scenes and plan the movements amongst themselves.


  152. Rainman
    That is a good question that requires some additional research for the answer.
    My first inclination is to believe that with the current processing power and algorithims being used that it is quite possible to accurately track a trade over time!

  153. The declining channel on SPX has broken. Bears may be in serious trouble here. 

  154. Good point Phil.

  155. The Oxen Group is playing Apple (AAPL) earnings with an Iron Condor. We are selling the 385/380 bull put spread along with the 455/460 bear call spread. Given a lot of implied volatility, we believe this premium is strong. Apple has not moved more than 6% post-earnings from one close to the next in the past ten reports.   

  156. Spring,

    Yes, but isn't that what the Bots love to do…..pop through a key level to suck in the technical guys….then slam them with a quick reversal?


  157. Great question Exec!
    I am not sure who calls the shots, but I think we can agree that the market distortions we witness daily definitely correlates with some of their decisions.

  158. Phil
    Great advice as usual on BTU. Thanks!

  159. Margin, Stock Portfolio / Phil, All,
    Thanks a bunch for the detail. I believe I understand what you're saying. What I'll do is to put together a plan and run it by you.
    I hope it's okay when you come up with recommendations for GOOD ENTRIES over the next 30 to 90 days that I ask if this is something I can put on my long-term portfolio.
    Meanwhile, to your point about "You should be doing a lot of due dilligence right now, you should be identifying 15 stocks, 3 in each of 5 sectors that you think are very good deals", I need help here and some of the work that I see craigzooka with the IRA portfolio, and the stocks you have on the Income Portfolio may be great starting positions. Could others also please suggest stocks that you may consider worthwhile candidates for the long-term hold?
    Appreciate the help.

  160. exec 

    Could be, but the trendline break still looks bad. It opens up possibilities like a double-top or even that this wave 4 down has already bottomed out. 

    I'm leaning long again after this reversal so this is a worrying sign that that may already have happened after only a small retracement. 

    I don't think the bears are out of the game here, but the obvious reasons to be short are being pruned & the Fed announcement is tomorrow of course. 

  161. GLW rec / Phil,
    Should I be looking at the GLW rec you had earlier this month "Sell GLW 2014 $12 Puts and Buy GLW 2013 $10-$15 BCS" as a long-term (more than 6 months) hold as there is no reason to actively trade that recommendation and this could very well become one of the cornerstones of the portfolio I'd like to build, or should I say this trade has reached about 25% of the theoretical profit potential and so I take it off the table, or at least take 50% off?
    Normally, would I look at your recommendations on selling 2013 or 2014 puts as hold for the long term and only those recommendations which are a month or two out as quick hits where I should take a 25% of potential profit as a quick win target?

  162. AAPL / David – The straddle seems to currently prices a 5% move either way so these strikes would also be my choices. But as we posted with lflan last week about the condor, watch out if you have to adjust… Good luck!

  163. VRTX – selling July $27 puts.  Just a few for the hedges.

  164. Bot plot — I have observed over time that a large percentage of events attributed to conspiracy turn out to be mere products of confusion and incompetence.  Of course, just because you're paranoid doesn't mean they're not after you!

  165. Phil, I am net short (and hurting badly)… What would you recommend as an upside hedge for today?

  166. DMND/Ging – I like that trade, we caught a better deal but things look good for them long-term.  

    Propaganda Alert – CNBC telling you how many people earn more than Mitt.  Isn't this one of Chomsky's top 10 ways to manipulate your opinion?  

    11:50 AM European shares close down modestly, but well off of session lows. Negotiations over the Greek debt restructuring continue to make headlines as hedge funds, the IMF, the ECB, the EU, and Greece all angle for the best deal for their interests. Stoxx 50 -0.4%, Germany -0.3%, France -0.5%, Italy +0.4%, Spain -0.3%, U.K. -0.6%.

    1:00 PM On the hour: Dow -0.29%. 10-yr -0.03%. Euro +0.07% vs. dollar. Crude -0.68% to $98.91. Gold -0.63% to $1667.75

    1:04 PM The Treasury sells $35B in two-year notes at 0.25% (.pdf). Bid-to-cover ratio of 3.75, vs. a recent average of 3.73; indirect bidders take 32.9%, vs. a recent 34.9%. Direct bidders take 8.3%, vs. a recent 11.6%.

    2:00 PM On the hour: Dow -0.36%. 10-yr +0.05%. Euro +0.06% vs. dollar. Crude -0.6% to $98.98. Gold -0.75% to $1665.65.

    3:00 PM On the hour: Dow -0.35%. 10-yr +0.05%. Euro +0.07% vs. dollar. Crude -0.51% to $99.07. Gold -0.75% to $1665.65.

    Jan. Richmond Fed Mfg. Survey: +9, to 12 (above 0 = growth). Shipments +14 to 17, new orders +7 to 14, jobs +8 to 4.

    The jobless rate fell in 37 U.S. states and D.C. in December as the labor market strengthened, the Labor Department reports. States hit hardest by the housing crisis continue to suffer the most, as Nevada again posted the highest unemployment rate at 12.6%, followed by California at 11.1%. Top performer was North Dakota at 3.3%; Alabama and Michigan showed the most improvement. 

    PwC survey of 1,258 CEOs finds 48% expecting the global economy to decline over the next 12 months, and another 34% expecting it to merely tread water. Moreover, only 51% and 41% feel confident, respectively about China and the U.S., down from 72% and 45% last year. However, over half of all respondents say they expect to hire more workers this year. (NABE survey)

    This month’s 4.6% S&P rise has failed to offset the big decline in volume. Some 6.85B shares worth $209.6B have changed hands each day this year, down 16% and 12% Y/Y respectively, according to Bloomberg data. Trading is declining faster on the biggest venues, as NYSE trading slumped to its lowest since 1999, with the 50-day average reaching 847.5M shares last week.

    The stock market’s fundamental position is in "the most favorable alignment in 20 years," Norman Fosback says, projecting a 19% rise over the next 12 months and 89% during the next five years. Corporate profitability is at an all-time high, but the P/E on the S&P 500 is back to where it stood in 1990, he says; it doesn't hurt that "monetary policy [is] still in an aggressive easing mode."

    As the FOMC kicks off a 2-day meeting, hopes are up that the committee will commit to keeping interest rates at rock-bottom levels until 2014. It's also expected that an inflation target in the 1.7%-2% range will be set. However, with Operation Twist having been launched only 4 months ago, few expect the meeting to result in new stimulus measures being announced.

    With his eyes on a second term, President Obama is due to give his State of the Union address tonight, when he will reportedly push for tax breaks for insourcing manufacturing, help for the troubled mortgage market, and incentives for alternative-energy development. He is also likely to again call for tax hikes for the rich.

    The latest proposed housing settlement in the robo-signing cases "stinks all around," Barry Ritholtz writes. For starters, management of public companies would be using shareholder money to buy their way out of criminal prosecution, and the deal solves nothing for the 25% of homeowners with underwater mortgages. The deal would be as "reckless as the mortgages underlying the crisis in the first place." 

    Despite the U.K. government's much-heralded austerity drive, public debt passes a £1T ($1.56T) for the first time ever in December, reaching 64% of GDP. The small silver lining is that the deficit narrowed to £13.7B from £15.9B a year earlier. Sterling is+0.2% vs. the dollar.

    While the euro's slide vs. the dollar has tailed off of late, Nomura's Jens Nordvig reckons that the single currency will soon resume its fall. This is because as investors continue to cut their exposure to the eurozone, they'll take their money out of the region and put much of it in the U.S. 

    "The probability of (a Greek default) is 100%," writes Andrew Lilico, and eurocrats and journalists do no one any service by torturing the language to suggest otherwise. Ongoing negotiations are over "how" not "whether" a default will occur. The only question now is if the ISDA determines CDS payouts are triggered – they should be, but whether they will be is another matter. 

    Hedge funds lawyer up ahead of a Greek restructuring deal -combing the fine print of bond issues to try and get an edge. Bonds issued under English law (as opposed to Greek) are popular as they may be harder to impose a collective action clause in which all bondholders are forced to the same terms acceptable to a smaller group. 

    Action in Portuguese debt gives lie to EU officials' insistence that Greece is a "one-off" situation. CDS prices are up 33 bps to a record 1,290 – the same level as Greece 8 months ago. While bond yields appear lower today, trading in the paper has pretty much come to a halt, with bid/ask spreads of several hundred basis points

    "A lot of energy and time wasted for nothing," says Luxembourg foreign minister Jean Asselborn of the latest EU fiscal pact. He decries this governance by summit, saying in order to get all ministers to agree, the result is "solutions of the lowest common denominator."

    A look at the change in the Italian yield curve over the last 7 weeks shows just how dramatic the ECB bazooka has been, writes Mike Riddell. Just because the bank's liquidity gusher doesn't solve any structural issues, doesn't mean it can be ignored (buy stocks, dummy). Bonds yields in the EU core, however, have a lot of room to go higher if economic/financial conditions settle down.

    And don't look here:  Could the beginning of chronic trade deficits in Japan finally break the back of the JGB market? The savings rate has nearly disappeared and the massive postal savings fund has become a net seller of JGBs. "Japan has relied on its trade surplus … to preserve calm even as public debt (has) ballooned to reach 238% of GDP," writes Ambrose Evans-Pritchard. "Confidence in Japan's debt trajectory could evaporate fast." - Nooooo, I told you not to look!  Now I bet you can't be bullish…

    While Iran blusters about closing the Strait of Hormuz to protect its security, the fact is it has far more to lose in a confrontation with the U.S. Fifth Fleet – and it knows it. In fact, blocking the Strait would be the more immediate threat to their security than any embargo. Over 70% of its budget revenues come from oil exports through the very region they are threatening to close off.


    If not for this, where would we be today?  Strong Q4 reports (IIIIII) from VMware (VMW +7.3%), EMC (EMC +5.7%), and Polycom (PLCM +18.2%) are providing a lift to some high-beta enterprise IT and telecom names. FFIV +1.8%.RVBD +1.7%APKT +3.1%FIO +3.1%OCZ +6.4%STEC +3.2%. (VMW transcript) (PLCM transcript)

    Goldman Sachs analyst Noah Poponak calls the recent action in shares of Boeing (BA -0.3%) profit taking ahead of the firm's 2012 guidance. He says weaker guidance from the firm is already priced in by the market – indicating that anything short of a "shockingly" number should push the stock higher.

    Better than TBills - Berkshire Hathaway (BRK.A -0.9%) says it will float new corporate bonds in order to refinance some of the debt it took on to acquire Burlington Northern Sante Fe for $26.5B in 2010. The firm plans to issue 5-year and 10-year notes up to a total of $1.7B, according to sources. 

    Air Products (APD -3.2%) dips after its FQ1 revenues fell short of the mark. Profits dropped 7.6% Y/Y on continued weakness in its equipment and energy segments and slower growth in merchant and tonnage gas sales. The company also says FQ2 earnings will be below estimates due to a slowing economy, but Asia and North American growthshould accelerate in H2.

    Kansas City Southern (KSU -7.1%) trades lower this morning after its Q4 beat EPS estimates but came up far short on revenue. Margins grew as carload volume increased on growth in coal, intermodal and automotive shipping, but were offset by declines in itschemical and petroleum, industrial and consumer, and agricultural and minerals units. - It's all cars.  

    Barrick Gold (ABX -2.5%) trades down after RBC cut the shares to Sector Perform earlier this morning, saying the miner is exposed to the risk of delays and cost escalations at three major new mines under construction in the Dominican Republic, Chile and Saudi Arabia.

    Safety inspections on Airbus' (EADSF.PK) fleet of A380s reveal even more wing cracks, according to industry sources. Official updates on any problems with the aircraft are expected to be announced by the company or safety regulators sometime after Friday's deadline to complete the checks.

    File under online marketing gone awry: McDonald's (MCD-1.6%) receives a dose of unwanted negative publicity when a Twitter campaign asking customers to relate anecdotal tweets under the hashtag #McDStories backfires and returns a bevy of fast food horror stories.

    Dougherty responds to the failure of InterDigital's (IDCC-18.5%) "strategic review" to produce a sale by downgrading shares to Neutral. With no suitor on the way, InterDigital now has to contend with an unresolved patent dispute with Nokia, and market share losses (III) for licensees Research In Motion and HTC. However,Barclays sees InterDigital's Q4 results as a reason for hope.

    The E.U. is raising concerns about the privacy protections offered by cloud services provided by U.S. companies such as AMZN,MSFT, and GOOG. In the E.U.'s view, the Patriot Act could grant the U.S. government access to such data, even if it belongs to European citizens and is hosted overseas. However, the U.S. clams its privacy protections are solid, and InfoWorld's David Linthicum thinks protectionism is at work.

    Shares of Research in Motion (RIMM -4.3%) lose more ground as analysts continue to cast a skeptical eye on the company’s naming of a new CEO yesterday. Jefferies is the latest to weigh in, concluding RIM will continue to be at a “cost disadvantage” to other smartphone makers until there’s a restructuring and it realizes it "will not be able to compete head-on with Apple and Android."

    Apple (AAPL -0.8%) investors are unlikely to complain about Verizon's (VZ -2.2%) Q4 report (III),. Big Red says 4.3M, or 56%, of the 7.7M smartphones it sold in Q4 were iPhones. By contrast, only 36% of Verizon's Q3 smartphone sales (2M out of 5.6M) involved iPhones, as buyers waited for a new model to arrive. 44% of Verizon's retail postpaid subscribers are now smartphone users, up from 39% in Q3. (previously


    Heading into Apple's (AAPL -1.4%) FQ1 report, the "whisper number" for iPhone shipments may be as high as 34M units, claims Piper. Positive supplier reports (IIIIII), encouraging market share data (III), and reports of strong carrier sales (III) have served to lift iPhone expectations. Meanwhile, JPMorgan thinks new carrier launches could lead FQ2 iPhone shipments to surpass expectations. (previously)

    Apple (AAPL -0.8%) is expected to report a robust FQ1 when it releases its earnings later, with EPS seen +57% to $10.08 and revs +45.3% to $38.85B. Strong sales of the iPhone 4S are predicted to have driven Apple's performance, although a concern for some is the company's ability to sustain its growth given its size. - Remember GOOG's law of large numbers report?  

    Three lunchtime reads:

    1) The new new gold rush

    2) A deal on foreclosures inches closer

    3) How to lower your tax bill on REITs

  169. Pharm, that would validate your 1.5% rate on treasuries!

    However, we also need to factor in the likely impact of a break-up of EMU on bonds. We expect this to prompt further substantial inflows into US Treasuries, but outflows from German Bunds. We think UK Gilts will be caught up somewhere in the middle. The implication is that we forecast 10-year government bond yields to fall this year to 1.5% in the US, to rise to 3% in Germany and to remain around 2% in the UK.

  170. FOMC / So i detect a bullish sentiment for tomorrow. Should we start covering our bearish positions? 

  171. From Daneric (EW) USD 50 and 200d MA are sloping up…, if they continue, what does that say for equities?  I know it is early….

  172. FAS Strangle – Bad timing on my side to sell the 82 calls this morning… Oh well, I am now thinking that I'll keep that open overnight and let her rip tomorrow morning. I will not open any other position until after the Fed event. And I'll close the calls in the morning if we get a move on the downside. 

    If none of this pans out, there is next week to roll to. For now, these calls roll to the Feb 90 so no need to panic!

  173. dpastramas / bull — I'd wait to see if Greece offsets any bullish sentiment.

  174. David Ristau
    AAPL are you betting your condor on weely or FEB thanks

  175. QE3 –
    the cupboard is bare,
    but it would be political suicide not to pull a copperfield and fill it back up (print$),
    BUT  that will be done if and when the mkts desperately need support… we are not desperate yet for the market as a whole (maybe the bears are)… my two cents worth.

  176. Ok, now we need to get short.  Even Dan Sheridan "Mr. Condor" himself is scaling in short…..
    What I do know is that your portfolio is probably leaning long, the market is in the upper end of the range, and I’d personally like to start having a few puts around.
    I’m going to focus on the SPY. Currently trading at 131.54. The 1,2 and 3 year high is around 135. You still have to respect the trend, which is up, but I’m starting to get some bearish soldiers ready to help out all my bullish soldiers who are getting a bit excited about the upside.
    SETUP: Because the trend is up I would scale into some puts. What does that mean?  If my size is 9 contracts, I might buy 3 to start , then buy 3 more maybe at 133 in the SPY, and work up to 9.
    STRATEGYWith SPY at 131.54, I might start nibbling and buy the March 127 puts at $2.00. Why March expiration? I want to give myself time and the option premiums are cheaper than they usually are. March is over 50 days from expiration.

  177. Behind the scenes/Exec – Man, what do you think private golf clubs and racquetball clubs and exclusive restaurants and yachts are for?  Ever try to get into Pine Valley?  Most people have never heard of it but when I was there, I saw more movers and shakers in that clubhouse than I've ever seen in NYC – far away from Government oversight as the security there is air tight and you can't be there without a Member vouching for you.  While it's a nice course – do you really think these guys are helicoptering in to whack a ball around?  

    Asking/Sank – You can always ask.  Whether or not you like the answer is another matter.  And seriously, asking for help without a clue in the world of what sectors you think will do well and what industries you are comfortable investing in is a terrible start.  You must have a background in something – start from there, learn that industry and all the players in it and from there you'll find that leads to other ideas you decide to follow up on – otherwise we may as well give you lottery numbers we like as you have no conviction of your own.  

    Waves/Jack – I don't think you can read into what's happening today as we're just flatlining pre-Fed, pre Obama, pre Q4 GDP on Thursday too.  Essentially the bulls and bears have staked out their lines in the sand and now we see who breaks first.

    GLW/Sank – You have that one?  Well that's good but we have no reason to think they are failing do we?  The stock is at $14.48 on your $10/15 spread and well above the $12 puts so on track to a full $5 return.  The only reason you want to kill a trade like this is if it's WAY ahead of schedule (making .40 per month essentially) AND you have something better to do with the money than make another 75%.

    Upside/Izega – The same ones I picked earlier today.  

    Bullish/Dpast – I detect it too, it's why I feel better staying a bit short.  

  178. It's so strange that AAPL is trading at the exact same price it was on Oct 18th, the day they reported last quarter.  Hope the outcome is different this time – last time AAPL gapped down 20 points and didn't recover until Jan 6th this year.   The way I look at it is there must have been some market value creation in the last three months to imply a higher price.   My trade is short Feb 390P and long Feb 360C.   

  179. Charles is a very eloquent writer….What have we learned in 13 years?

  180. SPY P/C ratio is 2.11 FWIW.  Have not seen that for a while……VIX is up, barely.

  181. yodi -


  182. David Ristau

  183. lvmoda — AAPL — you are right.  This is strange trading.

  184. Maintain target at IWM 78.78 !!

  185. Volume again coming in heavy.  Record goes round and round…

  186. Yep Pharm!
    That seems to be the recipe for a bullish move to the upside IMO FWIW!

  187. Phil – You're right of course but the easy bear scenario this morning looked so nice. 

    As you say the lines are drawn & we'll see what the reaction is to the fed announcement tomorrow.

  188. Keynes vs. Hayek Round II: 80 years after the two economists famously debated the merits of keeping interest rates artificially low and putting the unemployed to work on infrastructure programs to revive economic activity – the same question crops up again in Europe. While the Hayek school is winning the policy battle to a degree, author Nicholas Wapshott warns – as did Keynes in 1918 – that too much European austerity could sow the seeds of discontent and contribute to extreme political movements.

    Standing in the way of a debt deal in Athens is the ECB's refusal to take a hit on its stash of Greek paper. Should the ECB not take a loss, it could set a precedent that private bondholders have to stand in line behind the central bank for repayment on sovereign bonds. Such subordination could be a bigger threat to government bond markets than the default.

    Just one out of five winners among Dow companies reporting earnings today – McDonald's (MCD -2.3%) posting another strong quarterDDJNJVZ and TRV not so much – but it's consistent with results so far this earnings season. Of the 20% of S&P firms reporting earnings so far, only 58% have exceeded analyst estimates, well below the typical 70% quarterly beat rate. - LOL, how is 1 of 5 "consistent" with 58%?

    Not yet done with QEII, Bank of England Governor Mervyn King says the recent slowdown in inflation (to 4.2%) allows room to keep rates low for longer and, if necessary, another round of asset purchases. The U.K.'s Q4 GDP prints tomorrow, with expectations it will show contraction.

    Market as undervalued today as in 1990 (Market Watch)

    Twenty Common Sense Investing Rules (The Reformed Broker)

     A GOP/Bloomberg Primary two-fer:

    ….-Romney Paid 13.9% Tax Rate on $21.6 Million in 2010 (Bloomberg)

    ….-Gingrich Firm Releases One of Its Contracts With Freddie Mac (Bloomberg)

    What’s behind Republican attacks on the Fed (Market Watch)


    From Barry


    Here’s another fun quiz, this one from Reuters Breakingviews:

    Wanna know how much Capital that needs to be raised by Eurozone banks? How much of a haircut Greek bondholders are going to take?

    Play with the sliders on this to find out:


    Click for interactive chart:


    Click to enlarge:

  189. Phil -
    What do you make of the big divergence today between RUT and SPX

  190. AAPL play – weekly $420/425 bull call spread at $2.45 and $430/425 bear put spread at $2.50 as one or the other will be $5 and maybe on  a nice move, on can cash $4.50 and one cashes maybe $1.50 for a quick 20% gain.  

  191. BDI down another 2.5%……wtf….

  192. Phil / Taking longs off the table?
    This is just a general question that I'm probably not framing properly, but here goes.  The majority of my portfolio is bullish positions established through this board.  So put sales combined with a BCS.  Many of these positions are over 50% profitable (thank you).  Most of these are Jan 2013 positions, so I still have another year to possibly get the rest out.   I don't have anything "better" to do with the money at this point.  
    Would you take half or all of this profit off the table, goto 80-90% cashy and cautious, and wait for a buying opportunity?  I do have downside hedges (that are taking a beating, but that's the purpose).  There doesn't seem to be very good entry points for further bullish positions a-la income port at this time.  
    I know I've probably asked this before.  I just kinda feel like we are all waiting for the bottom to drop out, which will hurt winners, and make me wait longer for the potential payoff.  (then I could go surfing more too….)

  193. Typo on my aapl play, I'm long Feb 460C, not 360!  Looking for a scalp.

  194. Ok, let's see what AAPL can do now.

  195. Well, 4.5% , not bad; we never made 78.78 (78.75) but this system is still one of the better gifts that come with this site !!   (if I do say so myself)   8-)


  196. Phil / LOL, how is 1 of 5 "consistent" with 58%? — That's advanced economic math you don't need to concern yourself with. Just "believe". :)

  197. Phil
    I bought BA at $75, but with all the put sales I got it down to
    about $65. I still have short 2013 $60 puts the old at about $10 , now I think they are about $3.50.
    I am away from computer so quoting it from memory.
    I noticed that even though stock goes up May calls have been going down (is it decay, low VIX or something else?). I put sell order on May $80 calls for $2.5 that hasn’t filled out yet.
    My question is: is it a good next step?
    By the way, I want to say big thank you as I am about 15% up even though the stock is at the same price as what I bought it for. It’s even more impressive if you consider that I barely knew what an option was a couple years ago. I wouldn’t have done it without you. Thanks.

  198. Phil/ WAG:
    I think WAG is attractive  as initial entry at this level. Your opinion?

  199. Barack// has made a bundle too…it would be perfect symmetry if we just drop all the pretense and have Buffett drop a money bomb of a billion in cash after the speech like confetti and balloons from skynetting ..let's see how much decorum is maintained in the house of the rising sun…need a piano player!

  200. JRW
    Can we hire you as a trade coach? I understand the "Gist" of your system! But there are nuances that go beyond what you have posted in the "Wiki" that only you seem to know and act on based on practice and instinct!

  201. 14real / Trading

    All you had to do was buy on the break North of IWM 77.48 (and it was strong) and we never lost the EMA; so no-brainer !!

  202. Divergence/Samz – Today?  Just the randomness of who had earnings in which direction.  

    Longs/Burr – If you are 50% profitable with a whole year to get the other 50% coming into an uncertain event – that's a no brainer to take it off the table.  You guys are all spoiled – like average people make 50% on positions every year or something.  That's a different position if you are heavily invested and not neutral.  Let's say you have $150,000 from a $100,000 start and you hope to make another $50,000 over the next 12 months.  A) We get QE and you sit on your hands and make $50K B) we get no QE and you go back down to $125,000 or maybe less C) You go to cash and have $150,000 to play with where you just need to make $4,000 a month to make $50,000 more this year from a cash position.  

    Option D is, of course, taking $10,000 of the $50,000 gains and selling 20 TZA April $19 puts for $1.68 ($3,360) and buying 30 of the Apr TZA $20/29 bull call spread for $2.05 ($6,150) so net $2,790 on $27,000 worth of downside protection and figure if 2,000 TZA are put to you at net $20.40 ($40,800) that even if they are down 50% (very unlikely) that's $20K and that's $10K you put aside plus $10K of the $50K you'll gain by leaving the $150K on the table.  

    The purpose of a spread like this is you give up a percentage of your upside gains (if there's a big pop) in exchange for protecting 1/2 your winnings.  But those are the extremes.  In the middle, a small sell-off would pay you quite well without any actual damage to your stocks while a small rally would mean you are still on track and you can take a small loss off the table until the next time you feel you need protection on the way to your next 50%.  

    BA/Msf – You are very welcome.  It's probably the low VIX plus less worry that BA will fall.  Yes, it's a good, conservative next step.  You own BA for net $65, $80 is a nice profit and getting $2.50 for 4 months is giving yourself a 3.8% dividend while you wait.  If you want to be more bullish on BA, you can establish a bull call spread like the 2014 $75/90 bull call spread at $5.65 and roll your 2013 $60 putter ($3.20) to the 2014 $60 puts $6.40 for + $3.20 and between that and the short calls, you have a free $15 spread on top of your stock so, if you do get called away at $80, you have nothing to cry about as you'd be left with the free $15 spread and worst case is you get back in at $60. 

    WAG/Dlfam – I know I said I'd look but now AAPL earnings so shortly…

    AAPL really spiking out on both sides already.  

  203.  jobs' widow going to sit with O tonight….maybe he will promise a free ipad for every American!!  its our right!!

  204. l4real / JRW
    I couldn't agree more.  I've tried to paper trade the system, but I just don't understand or know all of the nitty gritty details.  There is also some information in the "system" post that is very difficult to understand.
    How about it JRW, or someone who follow's the JRW system?  I'm sure you could even do a spinoff site with the number of people who want to try and earn 2-4% in a day!

  205. Good article about the relationship between the Yield curve and Gold

  206. JRW
    You are correct on the "break North of IWM 77.48" and not losing the EMA. I now see this clearly in hindsight, however, at the time it occured I didn't recognize it!

  207. sank1/Stocks for long term
    What you want are stocks that best of breed  in their industry, with excellent management, and  placed to grow or do well in the future. However, you don't want anyone else to know this, so that the stocks are cheap. You might want to Google Jeremy Grantham's quarterly newsletters for some ideas as to what the future holds and then follow up from there. Most companies have their annual reports posted online.
    Here are the names of some stocks that may be of interest, but I am not making any recommendation at all as to what price to buy at or anything of that kind, which is absolutely essential. In general you want to sell puts when  the VIX is high and sell calls when  a stock is overvalued to get the best value for money, but if you really want to know a good way to lose a lot of money fast, nothing beats buying the right stock at the wrong time.
    I have positions in most of these stocks, or am watching them with interest. As you can see, they are mostly industrial or natural resource stocks with global reach. One of the most interesting phenomena of our time is that AAPL came out with an iPhone that is effectively a handheld minicomputer and now other players in the computer and phone industries are playing catchup and trying to figure out where the future lies. The arrival of the iPhone threw phone manufacturers like NOK for a loop. One of the big questions now is can NOK come back with the help of its stablemate Microsoft and help to make Windows 8 a major player in the smart phone market. Success or failure may have a significant effect on these stocks, on their partners, and their competitors. In the world of energy we need to think about how electrical power will be generated in the future (coal, gas, solar, wind, hamsters on treadmills) and how transportation will be fueled (gasoline, dieel, electric cars, Liquified natural gas powered vehicles, high speed trains) . We may also need to think about what health care systems of the future will look like, and who  the hell is going to pay for all those incredibly expensive drugs and what is the future of Medicare. The US spends 16% of its GNP on health care, so these questions are no small matter. These things will influence our choice of companies for long term holds.

  208. Someone sold 1500 CA May 22 puts today for 1.05….hummm……..

  209. Guess AAPL reported. Trading halted in AAPL.

  210. Someone sitting at their computer at AAPL with their finger on the send button.   I've always wondered why they release at some arbitrary time.  It's not like they are still pulling things together!

  211. aapl halted i am sure you know

  212. and that is with increasing the dividend to $1/share….

  213. Looks like good numbers. SPY/QQQ just spiked up.

  214. How can anyone care what YHOO does anymore?  

    WAG/Dflam – No growth is the main issue.  They are just a dividend stock but subject to seasonal variations (flu, etc) as well as changing regulations and wrangling with drug cos over payments and, of course WMT.  So not low-risk at all and not low in their range and no particular reason to think they shouldn't be in the middle, where they are at $34.27.  The best thing I can say for them is CVS is making new highs with a p/e of 17 (but projecting more growth) so it does seem investors are likely to turn to WAG as they bargain hunt.   When I'm not in love with something I try to find a place where I would be interested and that's about $30 as their crash lows were $23 and you can sell the 2014 $35 puts for $6.20 which gives you a net $28.80 entry without all that messy owning the stock.  If you want to be more aggressive, you can pair it with the 2014 $35 puts at $4 and sell the July $34 calls for $2.50 because, if the July $34 calls are $6 in the money ($40) then you should be in great shape on the short puts and you have a net $4.70 credit on the long position with 18 months to roll.  Of course, if you have margin, I prefer the 2014 $30/40 bull call spreads at $4.45 as it's about the same net credit and you have a $4 advantage on your caller to start and don't lose out until about $44.  

    AAPL with blowout numbers it sounds like – waiting for official print. 

    Halted at the moment. 

  215. Guess i should say good reaction to AAPL on the indices (good numbers were never in doubt).

  216. Wow, 13.87/share…..

  217. Nas futures not waiting, they are up 20 points already! 

  218. I knew 460 was a little low for the scalp!

  219. Burrben, 14real / Positions

    You can always ask me if I'm long or short and what I'm watching !!     8-)

  220. BOOM  =  AAPL

  221. AAPL Q2 earnings estimate moved from 8.04 to 8.50 (5%).   I think they deserve more than a 12 forward PE!   Watch for the upgrades targeting 600 or more.

  222. NASDAQ at a 10 year high now (Levels last seen Dec 2000). Who says we need QE3.

  223. Nas flipped up 1% so implies 10% move in AAPL at 4:50 when trading restarts.  This is very good for the bulls as our futures will now have positive prints, not negative – unless Obama screws up the SOTU speech. 

    While this is great for AAPL, aren't we seeing these revenues gouged out of their competitors?  Why would the whole market go up because more people drink Coke than Pepsi?  We already know laptop sales were destroyed and SNE/ERIC was hurting and NOK is crying uncle (down 7% today but not on the Nas).  STM says 10% drop in sales (partner with NOK) so $1Bn lost there and $6Bn lost by Nok – find the other companies who are suffering and there's AAPL's gains!  How does that net positive for, not only the Nasdaq but the rest of the indexes, all up sharply now?  

    Apple (AAPL): FQ1 EPS of $13.87 beats by $3.79. Revenue of $46.33B (+74% Y/Y) beats by $7.5B. Shares +0.4% AH. 

    More on Apple's (AAPLFQ1: 37.04M iPhones shipped vs. 30.2M consensus and 34M whisper number. 13.2M iPads in-line with consensus. 5.2M Macs vs. 5M consensus. 15.4M iPods vs. 15.5M consensus. Company guides for FQ2 revenue of $32.5B ($32B consensus) and EPS of $8.50 ($8.03 consensus), Apple to resume trading at 4:50 P.M. ET. (PR

    Still – that's freakin' impressive!  

    $600/LV – Seems fair with this Q.  There was a lag from last Q as people waited for new phones and you have to wonder how many refreshes they have up their sleeves as Siri wasn't that exciting but definitely 18 is fair against probably $38-40 earnings so $700 reasonable over time if they just manage to keep this up.  

  224. Holy $hit! Looks like my crapshoot 435-440 bcs will work out..

  225. all the aapl peripheral plays are up 3-8% after-hours

  226.   AAPL…….And KABOOM!   Out of the park.  Steak and expensive Cabernet Sauvignon tonight. 

  227. well i am going to feel some heat in th eam ladies and gentlemen

  228. Congratulations lflan!!…and all the AAPL longs.  Drinks all around…

  229. Well done Lflan! Looks like a double in three months.

  230. Too bad I was low balling the 460calls and did not get hit at 1.99…instead I'll just enjoy my Sh*t sandwich of SQQQ's:(

  231. dejected…seems at this point I make the absolute wrong decisions fight for a couple of cents and of course it goes against me. I know all of you have been there but I am looking at these markets and just cannot see the forest through the trees….tomorrow brings another day, thank goodness!
    Head has to get right.

  232. Congrats Iflan – well played!  

    More on Apple (AAPL): FQ1 gross margin was 44.7%, up 780 bps Q/Q and 620 bps Y/Y. Not counting Apple stores, Americas revenue +92% Y/Y, Europe +55%, Japan +148%, Asia-Pac +54% (delayed China iPhone launch). Retail revenue +58%. Ended quarter with $97.7B in cash and investmentsAAPL has resumed trading, up 8.8%. (PR) - $452 is a bargain – don't forget to subract $100Bn for the cash!

    Uh-oh!  Google's (GOOG) Larry Page is defiant in the face ofwidespread criticism - some of it from ex-employees - over his company's integration of Google+ content into its search results. "This is the path we’re headed down – a single unified, ‘beautiful’ product across everything. If you don’t get that, then you should probably work somewhere else," Page reportedly told Googlers.

    Rails all sucking: Norfolk Southern (NSC): EPS of $1.42 beats by $0.02. Revenue of $2.8B (+17% Y/Y) misses by $40M. Shares -1.4% AH. 

    More on Norfolk Southern (NSC): Q4 beat on a per share basis, but the shares are trading lower in the post session after missing on revenue. In spite of the earnings miss, profit jumped 19% Y/Y, driven by an 11% improvement in revenue per unit, a 24% jump in coal hauling revenue and an 18% rise in intermodal revenue. Shares-2.8% AH.

  233. Maybe AAPL will buy euro bonds? $100b in cash. They are good enough to save the world. :-)

  234. lflan-
    Outstanding work with the AAPL portfolio!

  235. Iflan
    Congratulations! Great calls and navigation through earnings. Cheers and thanks! :)

  236. Yes, Iflan nice job…seems you may have been feeling the rpessure…but you know what you know, good job.

  237. I think we hit these on the button!  

    (06-Jan-2012 04:21:38 PM) – AAPL/Etrad – I think they are too high in a dangerous market to sell puts.  I love AAPL.  I think AAPL will go to $500, but I also think the market will drop 20% and take AAPL with it and THAT's when I will want to sell AAPL puts.  Why not just take your massive profits and relax?  When AAPL goes on sale, you know you are a fan and you can buy it.  Otherwise is your strategy to just keep spinning the chamber on the gun and pulling the trigger until it finally goes off?  If it makes you feel better to gamble on AAPL, why not buy 5 March $425/450 bull call spreads for $10 ($5,000) and sell one July $350 put for $12.50 ($1,250) and 2 Feb $450 calls for $6.25 ($1,350) for net $2,400 on the $12,500 spread.  If  AAPL does go over $450 on earnings, you will be ahead $10,100 on the bull call spread before you owe your 2 callers a penny so anything under $400 is profit and even if they disappoint, there's a lot of ways to salvage the spread.  

    (Fri 09:33:23 AM) – AAPL/Jercon – Why not just take the money now and be done with it?  You could do better but you could also do worse and + 180% in the hand is worth + 360% in the bush.  You paid $22, you have $45 and, if you think you are going to miss something, why not buy the Apri $420/450 bull call spread for $14.50 and you are unliely to lose more than $7 against a $15 more upside.  That way, you have $30 off the table, which is a 30% profit locked in and maybe another 70% if all goes well.

  238. Long Term Portfolio / Phil, jmm,
    Thank you both.
    This is useful for me. As for my potentially not liking some of the answers and perhaps the tone in which they are delivered, Phil, I understand that there are many times when you are making a point that you hope will stick with the folks here and I have no problems at all with your drumming something into me as opposed to putting something across very nicely. You make great sense with your rationale and that's what matters to me.
    jmm, thanks for the list of stocks that I need to exercise my due diligence into, and your thoughts on the kinds of factors to look into.

  239. Best steakhouse in vegas, imho, may go there tonight!
    Steakhouse chain Del Frisco's is filing for a $100M IPO. For the 36 weeks ending Sep. 6, 2011, Del Frisco's generated revenue of $128.8M (+19% Y/Y) and net income of $1.65M. (S-1 filing)

  240. BTW Lflan,
    Just before you head off to your well deseerved porterhouse and Cabernet, what's the plan for the am on the weekly spreads? Ditch the short caller early if possible and try to squeeze the long leg? Fade it into natural decay on Friday? Close out? Any other plays?

  241. PHARM – where do you think IMGN goes from here?  Are bullish long term, and what about short term?  And BTW, kudos to all AAPL players, including myself!

  242. Appl
    thnks lflan, Phil and lvmoda.
    been sitting on my ars since Christmas waiting for this friggen pullback and couldn't take the wait any longer.
    when lflan  said he was staying pat today, then Phil threw in a last minute  trade and lvmoda's 3:33 trade suggestion, I pulled the trigger on
    2 long Feb. 385 C @   $39.3
    and 3 short Feb. 390 P @ $4.4
    and also have a s/l of TQNT Feb 4 C @.93 now trading @ $6.15
    3# lobsters at the Capital Grill this w/e!
    thanks guys

  243. Apple typically fizzles the day after earnings. The best time to sell near term calls is right at the open. My only concern is where will it be on Friday, and if the answer is 440 or better, I may as well leave my friday 435/440 spread alone. 

  244. Gotta hand it to you Phil, time after time you know how to call those plays!  Sure your last name's not Brady?  Oh, forgot, you're probably a Manning…

  245. Way to go Phil!  Have I said how much I appreciate your site lately! Your ability to teach and your willingless to give others a forum to demonstrate their own skill sets makes your site remarkable. I got great help from you, jmm1951, and Iflantheman (special thanks!) today. Hell, if I have many more days like this I may even be able to sign up for a full year rather than doing it just quarterly. Tomorrow is another day but, fabulous job today!

  246. zipla, et al…..Give me overnight to contemplate where to go with AAPL next and I'll post my thoughts in the morning.  I'm sure my plan will be some form of 'selling into the excitement',  but I will certainly look to squeeze as much as possible out of these trades we have in the AAPL portfolio.  And, yes, more plays are coming.  If I can get more of you guys to just trade AAPL you will lose interest in most everything else.        :)      Well, I don't mean your girlfriend';  I'm just talking about stocks here.  

  247. Congrats Iflan well done!

  248. Phil, Peter D and all.  Has anyone studied the difference in SPY verses SPX in relation to cost / profitability of trading?  SPX is 10 x SPY.  Spreads on ATM SPX is $2 – $2.50 ish.  Spreads on ATM SPY are .03 – .10 so equivalent to .30 – $1.00.  SPY commissions are 10x SPX.  So given you have a portfolio large enough to handle SPX trading, which is better to trade.  I don't care if i pay more commissions with SPY as long as the math works out in my favor.    I guess the big factor for me, is you get guaranteed execution on the SPY at bid and asks but on SPX you are trying to get through a Mark price.  So if the market is moving i would guess it would be harder to get SPX traded.  Any thoughts are appreciated.

  249. Iflan, I agree with drcraig above, AAPL typically sells off after the opening tomorrow morning, tho with such a strong pop tonite maybe they'll hold til Friday this week.  In fact it typically sells off for the next several weeks, so perhaps after this week some kind of short-term bearish play is appropriate? 

  250. Value ideas – While waiting for the Fed, breakouts, breakdowns, etc. I have been researching value ideas.  In reading “What Works on Wall Street” O’Shaughnessy identifies the top strategy as “trending value.”  The basic idea is to come up with a composite value indicator based on PE, P/S, EV/Ebitda and other value indicators and then by stocks that are from the top decile of all stocks. Next he also adds the criteria that the stocks must be in the top half of all stocks in relative price strength.  He backtests the top 50 stocks that fit the criteria for a one year hold back to 1929 and shows over a 20% per year growth rate.  I’m greatly condensing his work, but you get the idea – pick value stocks that have some relative price strength.
    Since we all have access to the gold level at Sabrient, I decided to test their Stockfinder since they have a composite Value criteria and a composite Momentum criteria.  I tried to pick stocks with an over 90 Value rating and over 50 momentum rating (midcap and above) and came up with the following list:
    All but WDC and BPI also have a dividend greater than 1 percent.  Any thoughts on the shopping list?

  251. And congrats to Iflan and all the APPL players.  I enjoyed a few gains a couple weeks ago but have backed off from short-term trading.  Well played!  

  252. jerconn…yes, that's correct.   AAPL tends to slide in the weeks after earnings.   I'm looking to set up plays that might work for that pattern.  And, if the overall market trends downward, it will tend to pull AAPL with it.  Yes, one of the things I hope the younger traders can glean from watching us trade AAPL is that we don't really care which way it goes…..up, down or sideways.   All we want to know is when it's going to do what so we can set up the trades to catch the movement (or lack of movement).   And this trading principle applies to all stocks.   Who cares which way CMG or NFLX or any other stock goes.  All I'm interested in is figuring out direction, so it can be traded for profit.   

  253. Iflan – absolutely, it's just that AAPL tends to have a more clearcut pattern and cycle – for example, you can expect it to sell off for five to eight weeks or so – this is not my research but from some other pundits who have done very good research, perhaps like yourself.  Anyway, relying on you for some more great trades…looking forward!

  254. Congrats lflan… I am looking forward to the portfolio update tomorrow morning! Should be good…

  255. One caveat to consider on the post-aapl earnings fade is that this time there will be dramatic price target upgrades coming from the analysts, likely in the 600-700 range.   I would expect the fade this week for the earnings traders to close out and then a strong trend upwards through feb expiration as institutional players skew for growth by reallocating more of their portfolios to aapl.  The first few upgrades may well push the stock over 500 by feb expiration.  The Q2 revision up 5% by aapl is a strong tell, and there may not be a chance to buy a dip after this week (ignoring the fed, iran, europe and obama, of

  256. Interesting that great AAPL earnings seemed to be bad for the Dollar – now 79.93.

  257. Phil-
    I would like to echo the sentiments of dclark41.  Joining this site was the best thing I have ever done to aid my growth as a trader/investor.  There are so many smart and experienced people here sharing their ideas that regardless what your investing style is you will learn something daily.  Thank you and all the regular contributors for your generosity.

  258. Congrats, lflan and the AAPL longs!  I don't have any AAPL accept an iphone, so fairly neutral reaction from me.  In one of the links that you guys posted, AAPL counts $600-$650 per iphone as revenue.  That's good business as my two years old iphone is dying and I will be happy to get a new one.  At a cost of nearly $1/day, Steve Jobs and crew did a good job in selling expensive products to the general public.  Competition may bring down the $600 revenue per iphone soon and to me it's one of the reason why AAPL is not at $700.  Not a negative thought, just thinking of the possibilities.

  259. lvmoda  /  AAPL…..I believe that's right.  This time, with such strong earnings and guidance, the pullback could be delayed.  We have to take all possibilities into consideration as we look for the highest probability trades over the next few weeks.

  260. Joining the chorus, thanks IFlan!!!  On completely sidebar note check out "Chimes of Freedom: The songs of Dylan" 75 songs covered by an array of stars for an  Amnesty International benefit. Only 20 songs in but so far very impressed by the depth of the talent.

  261. robert/SPX versus SPY,
    You know I'm a SPX guy, so I may be a little bias.  You should try both and see what you like.
    Here's my tidbits.  SPX usually fill close to the mid price.  The market maker will grab it very fast if you offer 50c over the mid price.  If you trade iron condors, 50 SPX spreads is easier to manage than 500 SPY spreads.  The larger SPX option value allows you to go further OTM, e.g. you can sell SPX Feb 1150 puts for $1.4 (Mark price), while the 14c on SPY means you have less profit after commission (percentage wise).  I do like the liquidity of SPY though.  When VIX spikes, I would sell long dated puts on SPY as they have much higher premium.  If you do covered calls for income, then SPY is a must as it pays dividend.
    Then there is tax.  SPX is automatically qualified under Section 1256, with 60% as long term gain and 40% as short term gain.  Since option sells are usually counted as short term gain, this is a big advantage.  SPY may not qualified automatically as it is not cash settled.  Of course, you can argue to have SPY under Section 1256, but I'm not a tax lawyer to tell the answer for sure.

  262. Lflan-TheMan! / AAPL
    We need to organize a dinner or something for you from all the PSW'ers who are massively profiting from your ideas!  I'm dying to know what the Apr 425/450 will be priced at tomorrow!
    I'm guessing that we are all going to be getting out of the weekly 425/430 spread for around $5 as soon as we can, right? 

  263. AAPL & Max Pain Theory
    I trade AAPL options full time and I use Max Pain (see note) to help me select my strike prices.  It does not work quite as well for an opex that is near a big event or earnings (like today), but on normal expirations, it is quite accurate and time tested.  I don't feel so comfortable with the Jan4 cycle (because of earning), but the Feb cycle I will use.  I just wanted to pass on that the max OI on the Feb calls is Feb 430 and for the puts it is 400.  I usually give myself some cushion by using the next strike for safety.  There are allot of great things you can do with options if you set up trades outside this range.  The generally high IV makes for great option writing.
    Nobody knows where a stock is going to go, but it is very useful to have a tool that help you know where it will not be.
    note:  for those who do not know, in quick terms, it is the theory that the close will be at a price that inflicts the most pain on the long option contracts.  The BOTS will push the price below the highest Call open interest, and above the highest Put open interest – at opex.

  264. lflan – Thanks here as well.  I stayed without covers on my 415 calls based on your bullishness, also short puts and covered calls played out as well.  enthusiasm.  Thanks to Phil for putting me in a position with his recent calls to permit me to play this a bit more agressively than normal.    

  265. I would speculate [and have] that, given the well-known effects of advertising, the SOTU speech should boost the dollar overnight no matte what is actually said.  One of those nice predictions that has a definite sell-by date.  Whether that is bullish or bearish for stocks is a trickier call, on which I am positioned neutrally.  Could be an up day for the VIX, however.

  266. ccsincsd thanks for info, that's interesting. In your experience, do the max OI strikes usually remain fairly intact, say from 3 to 4 weeks out?

  267. Help, I'm looking for the chart someone posted in the last couple of days comparing 2008 to 2011.
     Seemed like we were better off.

  268. ccsincsd – I have been looking at that on and off, it seems to work when I look, though I haven't actively used it yet. Do you use a free maxpain calculator or do you pay for something like the current pain data at How long do you wait? is showing $400 for February now, which seems unlikely at this point. I'd love to hear more details. 

  269. Just read the Phil's post. After all of that all I can say is, hey CMG is worth 360? and all the pink ponies fall out of the air and splat like blood.
    Please god kill off that PIG. Can I cash in my "one time" or what?

  270. kurt, 2nifty / MaxPain
    No, the max OI strikes do move at 3-4 weeks out, but then settle in pretty solid the last 2 or so.  Can see an easy 1-2 strike move as it firms up.  I use TA to time my option writing, and it is usually with 3 weeks remaining in the cycle.  Want to capture as much premium as possible, but with the best feel for where it will not close.  Again, I usually give myself at least 1 strike of margin for error.
    No, no calculator needed.  TOS goes a great job of displaying all the strikes with OI and all the greeks in an easy to see format.
    You can get the pretty color display at
    My Pal Travis has put his entire focus on just AAPL option pain at  You can learn allot at his site.
    (note, as the weeklies volume and OI is growing, I am seeing that the MaxPain is starting to work with them as well as the monthly opex.  Sad, its a big manipulated game by the big fellas.  I'm just trying to figure out how to play on their field.)

  271. Madame Botox// is NPelosi thought of seriously by serious thinkers? she's  a third rate mind in a with a 'death becomes her visage'..and the President made a vast error giving her the reins..he must feel like the fellow who sold Elphaba that bicycle..i thought the sotu address was quite good..luckily he is running against a juggarnaut of arrogant mediocrites

  272. Roro:
    I dunno, that dollar's looking better and better.  Timing unknown, as pointed out.

  273. Mr. Davis,
    Let's say you had a $100,000 virtual portfolio and you wanted to invest 50% in stocks and leave the rest in cash, margin, hedges and aggressive short term (25KP like). So therefore you bought $62,500 in equities and sold both calls and puts for $12,500…net $50,000. The puts you sold had strikes on average 15% bellow the current price so if put to you, you would have to come up with $50,000 or 100% of porfolio.
    If I wanted to hedge away 100% of the risk in case of a 20% drop in equities for 3 months. By buying 2x inverse (like SSO) bear put call spreads and funding the spreads with short put sales on things I want to own 3 months out..could it be done? Could it be rolled reasonably need be?
    You mentioned you like your portfolio to to be about 60/40 maybe 70/30 if you are feeling really good about your investments. Could you please explain how you can be 60/40 if you are only 50% invested like you suggest when building a Long Term Portfolio. Is there somewhere on your site I can view an example of a portfolio like that?
    If you was beginning to build a new portfolio today, would you start buy selling 2013 puts on companies you really want to own now or would you wait for a pull back when the VIX is higher?
    Also, what do you think about selling 2013 puts on sectors you would like to own in the future…seems less risky to me.

  274. Refreshing academe – seems appropriate what with SOTU speaches and all..
    The Moral Illusion of Governmental Authority

  275. Wednesday's economic calendar:

    7:00 MBA Mortgage Applications

    10:00 FHFA Housing Price Index

    10:00 Pending Home Sales

    10:30 EIA Petroleum Inventories

    12:30 PM FOMC Announcement

    1:00 PM Results of $35B, 5-Year Note Auction

    2:15 PM Bernanke Press Conference 

    Notable earnings before Wednesday's open: ABTADP,ATIBABPOPCOPDALDOVERICEXCGDGLW



    Notable earnings after Wednesday's close: AMLNCCI,CTXSDREETFCJECLRCXLSIMURNENFLXOI


    At the close: Dow -0.27% to 12675. S&P -0.1% to 1315. Nasdaq +0.09% to 2787.
    Treasurys: 30-year -0.03%. 10-yr +0.07%. 5-yr +0.04%.
    Commodities: Crude -0.43% to $99.15. Gold -0.74% to $1665.95.
    Currencies: Euro +0.09% vs. dollar. Yen +0.91%. Pound -0.3%.

  276. Market recap: Stocks closed mixed in lackluster trading within a tight range, weighed by Greece's failed debt restructuring talks and a mixed bag of earnings reports. The market continued its rotation out of defensive sectors like utilities and into tech and financials. The euro pared losses, hovering near $1.30; oil posted its fourth loss in five sessions. NYSE gainers led losers three to two.

    Japan posts its first annual trade deficit since 1980, reporting a ¥205B ($2.6B) trade gap for December, wider than forecasts. Exports for December fell 8% Y/Y, while imports rose 8.1% over the same period. The yen slipped following the data. 

    Japan Exports Fall for Third Month as Global Demand SlowsJapan’s exports fell for the third consecutive month in December, capping the first annual trade deficit in 31 years,figures underscoring the toll slower global growth and March’s earthquake have taken on the economy

    Japanese shares are higher in early trading, as concerns about Europe's economic growth eased. The Nikkei Average is up 0.7% to 8,843 with exporters leading: Mazda (MZDAF.PK +3%), Honda HMC +2%), TDK (TTDKF.PK +2.4%) and Toshiba (TOSYY.PK+1.2%)

    By using his State of the Union speech to draw sharp contrasts with Republicans on such high-profile issues as taxes and the housing market, President Obama opened an election-year debate on the role of government that could be more intense than any in decades.  Warning Congress that "I intend to fight obstruction with action," he painted a confrontational picture that stands in sharp contrast with the conciliatory approach taken by the last Democrat to seek a second term, Bill Clinton.  In fact, Obama's strategy more closely resembles that of George W. Bush in 2004, who used polarizing issues to increase turnout of his supporters and made few concessions to the center. The approach increases the chance that if he wins a second term, Obama could claim a mandate for his program. It also carries more risk of failure in a nation still deeply skeptical of government activism.

    Energy emerges as one key from the State of the Union address, with President Obama launching clean energy projects on public lands, calling for efficiency initiatives, and directing the Defense Department to buy plenty of clean energy. On the 99%-vs.-1% front, he put a number to a tax-reform "Buffett rule": If you make more than $1 million a year, you should not pay less than 30% in taxes. S&P 500 e-mini futures slightly lower, +0.25%. (policy proposals summarized)

    Here Is the Full Text Of Mitch Daniels' Republican Response To The State Of The Union.

    Debt Ceiling to Rise by Week's EndBy week's end, the nation's debt ceiling will be increased by $1.2 trillion to $16.4 trillion, as the Senate is expected to vote down a symbolic resolution objecting to the hike. Senate Majority Leader Harry Reid, D-Nev., with little fanfare, set up a Thursday NOON vote on the House-passed measure, which expresses opposition to raising the U.S. government's borrowing limit.

    December was another strong month for trucking, as the ATA's Truck Tonnage index jumped 6.8% Y/Y after rising 6% Y/Y last month. "Not only did truck tonnage increase due to solid manufacturing output in December, but also from some likely inventory restocking," ATA&… For all of 2011, tonnage rose 5.9% Y/Y, the largest annual increase since 1998. 

    Another Gingrich win next week might be enough of a catalyst to unsettle the markets. For the past two days, Romney’s vulnerability to the former House Speaker has been the talk of trading rooms. He is by far the preferred candidate on Wall Street, and many believe if he loses the Florida primary next Tuesday, he going have a hard time stopping Gingrich’s momentum. 

    Even as the U.S. and Europe head deeper into a liquidity trap, that doesn't mean stocks can't do well, writes Gavyn Davies. While this has not been the case in Japan, it's likely because stocks never got cheap enough. Not so in the U.S. and Europe, where the earnings yield on the major indices is 3-6% above the 10-year bond rate. - But the 10-year bond rate is totally FAKE!  Is every projection in this market based on accepting a false premise to begin with? 

    Keynes vs. Hayek Round II: 80 years after the two economists famously debated the merits of keeping interest rates artificially low and putting the unemployed to work on infrastructure programs to revive economic activity – the same question crops up again in Europe. While the Hayek school is winning the policy battle to a degree, author Nicholas Wapshott warns – as did Keynes in 1918 – that too much European austerity could sow the seeds of discontent and contribute to extreme political movements.

    Merkel Becomes Master of Markets With Euro Austerity Mollifying InvestorsGerman Chancellor Angela Merkel has declared a truce in her campaign to master financial markets. Merkel, who began the euro crisis seeing politicians and investors locked in a battle for supremacy, is now using markets’ judgments to support her calls for austerity to rescue the single currency. At the same time,she backed off from her demand that bondholders contribute to bailouts- Yeah, who didn't see that coming?

    ECB Under Pressure Over Greek Bond HitThe International Monetary Fund has turned up pressure on European officials to take on more of the burden of filling a widening gap in Greece’s budget by pressing the European Central Bank to take a hit on its €40bn in Greek bond holdings, eurozone officials said. - See how this works?  LaGarde put in by Banksters to fill a role "suddenly" vacated by DSK and her policies are 100% in favor of bondholders – what a coincidence!  

    German Economy Minister Philipp Roesler opposes combining Europe's two rescue funds, saying the existing instruments are sufficient, citing an interview. "Rescue packages that get bigger and bigger aren't the correct means of stemming the crisis," Roesler said.

    Spanish Cleanup Plan May Backfire on Banking System: Euro Credit. Spanish Prime Minister Mariano Rajoy's proposal to force banks to recognize further losses from real estate holdings may backfire by saddling healthy lenders with the bill. "The plan is for a massive effort in provisioning of real estate and consolidation, and that has to be paid for," said Daragh Quinn, a Madrid-based analyst at Nomura International. By refusing to use public funds to help purge a system burdened with $228 billion of what the Bank of Spain calls "troubled" assets linked to real estate, Rajoy may not do the job properly or he may hurt solvent banks by leaving them with the costs, said David Moss, director of European equities at F&C Investments in London.

    Greek Economy on Track to Implode, Hanke of Johns Hopkins SaysWhether or not Greece is able to reach an agreement on the restructuring of its debt, the country is set to "implode" as the economy contracts, according to Johns Hopkins University's Steve Hanke. "The game is completely over," 

    "Triggering CDS (on Greek bonds) may have to be considered," says the EC's Mario Buti, ratcheting up pressure on parties to seal a debt restructuring deal (since when does the EU decide if CDS are triggered; isn't that the ISDA's job?). "We are wiping off the face of the earth €100B in existing claims," responds the lead negotiator for the banks, asking everyone to stick to just the 50% haircut agreed to in October. 

    Legendary Credit Guru Edward Altman Unveils His 2012 Outlook For Corporate And Sovereign Defaults.

    Sorry Folks, Europe Is Not Fine… Not Even Close.

    Davos 2012: Confidence Among Europe's Business Leaders CrumblesConfidence among European chief executives has crumbled, with just one in four now expecting to see revenue growth in 2012.

    The impact of the Concordia disaster on cruise line operators such as Carnival (CCL) and Royal Caribbean (RCL) may not be as bad as originally feared: UBS claims that a week after the accident, ticket prices were still up 40 bps on a week-over-week basis. Carnival shares are up 9% from their Jan. 17 lows, but still down 7% from the level they closed at before the disaster unfolded.

    Bye-bye Airbus:  Boeing (BA) receives a firm order from Oslo-based carried Norwegian for 100 fuel-efficient 737 MAX airplanes and 22 Next-Generation 737-800s, valued at $11.4B at list prices. It's the largest-ever Boeing order from a European airline. (PR)

    More AAPL victims:  Nvidia (NVDAdrops 3.3% AH after warning it expects FQ4 (ends Jan. 29) revenue of $950M, plus or minus 1%, below a Street consensus of $1.06B. Nvidia blames the hard drive shortages and price hikes caused by Thai flooding, and a decline in sales for theTegra 2 (used in many high-end Android tablets). Archrival AMD justreported weak sales for its PC graphics chip business.

    Mentioned during Apple's FQ1 earnings call: iTunes generated $1.7B in FQ1 revenue, up from FQ4's $1.5B; iPod still has over 70% of MP3 player market; Apple Stores had average revenue of $17.1M/store, up 43% Y/Y. Chinese iPhone demand is "off the charts." Company is "actively discussing uses" for its cash balance.AAPL +7.6% AH. (live blog) (webcast)

    iPads Are Outselling Desktop PCs, And Are Now Equal To 17% Of The PC Market.

    Key Takeaways From Apple's(AAPL) Monster Earnings.

    Apple's blowout earnings push a bevy of supply chain shares higher AH: TQNT +7.9%NUAN +6.8%CRUS +6.1%ZAGG +5.5%,BRCM +3.7%SNDK +2.9%SWKS +2.9%.

  277. Sorry but still bearish on balance of news. 

    Very nice Ban!  

    Thanks Jerconn, I always liked Tarkenton – that guy knew how to scramble!  Of course, I aspire to be Lombardi…

    Thanks DC – We're a few years into this project and I'm very proud of the way things are going.  Essentially we're just following our mission statement of building a top-notch trading COMMUNITY – we have a diverse group of trading and business talent here that is superior to all but the largest of hedge funds or IBanks, with hundreds of people collaborating on trade ideas – without all the ego and competition and layers of management BS that Funds have to deal with.  If you read the bios people have put into the Build A Berkshire Workshop post – you'll see how much sense it makes to take this to another level – what start-up VC firm ever had this much brainpower and experience?  

    SPX/Robert – There are arb funds that do nothing but exploit little variations between the two, dull but profitable.  Bottom line is it varies from time to time which is better.  SPX will give you a better correlation over time but sometimes you don't want perfect correlation – you can buy one and sell the other if you get your ratios right but the spreads on SPX, which is more thinly traded, can kill you if you are not a very patient bidder.  The April $1,350s are the most popular contract, with 10,429 open and a $24.50/26.80 spread, SPY April $135s are $2.57/2.65 with 24,014 open so SPY being more liquid means you get better spreads and faster executions.  Of course, if you can buy one $1,350 call for $2,450 and sell 10 $135s for $2,600 – you have a pretty good chance of making $150.  

    I think, if I were going to play this, I'd try to buy SPX on the dip and sell SPYs on the bounce but it's tedious and you have to be good at momentum trading – maybe following JRW and doing it on the RUT/IWM would be a good experiment.  Keep in mind you don't have to do all or nothing fills so you buy 1 SPX at 1,310 (good support) and if it bounces, you sell and sell and sell until you fill 10, if it drops, you sell to cover but buy another SPX at the next inflection point to hopefully lower the basis and then try to cover at a higher point so you effectively work on lowering the basis of your long SPX and raise the basis of the short SPYs until you have a comfortable spread.  This does, of course, take a huge amount of margin.  

    Value plays/Rev – A good list, let's discuss on weekend, when there's time to look them over. 

    Competion/Peter – I agree that these price points are not likely to be sustained.  A guy sitting next to me on the plane had a Galaxy phone and I got a feeling of inadequacy due to the size of his screen.  Fortunately, I was able to whip out my IPad to compensate.  Anyway, the phone looked very good to me and I'm sure there will be plenty of competition and prices will fall but that's what happened with IPods until everyone else just gave up because you can't beat AAPL on price – they simply don't play that game as a first move – and why should they?  They sold 37M IPhones this quarter and there are about 2Bn people in the World who could buy one so another 27 quarters like that before they give half the possible consumers an IPhone – drop the price to $200 and I bet they sell 50M per Q and drop it to $100 and 100M per Q and, if they maintain their margins – what do they care if they sell 100M for $100 vs 25M for $400 – especially when the real goal is to sell ITunes and Apps and indoctrinate people into the AAPL culture.  

    Speaking of AAPL – ERIC down 14% as AAPL kicks their asses.  There's $4Bn worth of market cap trashed.  

    Futures pretty flat on EU open (well, flat to boost they got off AAPL earnings).  Dollar 79.99, oil $99, gold $1,668.  Nikkei finished up 1% (too bad we never filled EWJ) and China still closed.  India up half a point.  Looks like our $450 target on AAPL is holding at EU open.  

  278. Interesting West Wing look at preparations for Obama's speech:

  279. Oh dear, can't they teach this guy to hold his head straight up?  

  280. What a crap response – is this the best the Reps have?  That's very sad for them.  

    "Since EPA regulations… unemployment is up 33%" – actually I think it was since HBO took the Sopranos off the air – something must be done to fix this!  Thank goodness we found EPA regulations to be the cause of unemployment – otherwise we might have concluded it had to do with who was in power at the time.

    Thank goodness we have the Tea Party to give us a proper rebuttal:

  281. What is this, do you have to talk like Sarah Palin to be in the Tea Party?  "Political elites, media elites" – Really Mr. Cain?  Weren't you just running to be one of the Political Elites?  

    Cain says we have 18% unemployment and that our less than 2% growth should be 5% but that's still half of China and that gas prices are double what they were when Obama took office.   

    Was gas $1.75 in the crash?  I don't know if it got that low.  Anyway, the market is up 100% despite all these "attacks on business" – imagine where we'd be if Obama LIKED Business!  

    Markets turning a little sour now.  Haven't seen UK GDP yet but maybe whispers are negative.  

  282. Max Pain/CCS – I think it would be more useful if it measured the PRICE people paid for those options as people tend to move towards the strike as we get closer to expiration so of course it "ends up" in the right place.  In this case, AAPL was at $420 pre-earnings and the strikes were around $420 but that doesn't mean much with earnings ahead other than explaining why AAPL was drifting around that level.  Now we have new facts and I'd be more interested in seeing where the June and January bets go tomorrow.  

    Pelosi/ZZ – I very much doubt she's the only person who knows for a fact that Newt's unelectable.  The guy left the party in disgrace 15 years ago and whored himself out to the private sector.  The man was the first Speaker to actually be fined for an ethics violation in American History.  In fact, it was Boehner who led the attack on Gingrich by his own party in Congress – that would be awkward if he becomes President…

    Commenting on his departure, Gingrich said, "I'm willing to lead but I'm not willing to preside over people who are cannibals." 

    You're welcome Stu – Congrats! 

    $100K/BBates – Fortunately, we have articles for that.  I guess you couldn't find the Education Archives so here's "Setting Up a Hedged Portfolio" and there are many others under the Education tab.  Fortunately, the model we used in April 2009 applies today if we're getting QE3, it's a big ramp-up, led by Financials, based on stimulus.  Nat gas was low at the time, FAS was low, C was beaten down, JPM was cheap, IYF was cheap…  Also we have "mart Portfolio Management in $10,000, $100,000 and $1,000,000 flavors and, of course, our $25,000 portfolio, which was actually traded from originally $10,000 to $135,000 so reading all those reviews and comments can give you an excellent idea of how we set it up and manage it over time.  All those are under the very useful Portfolio Review section.  As to today – as I believe I said earlier, things are expensive now, I don't like to buy things when they are expensive.  If something goes on sale, then I might want to buy it.  

    Moral Illusion/Scott – Good thought.  

  283. FOMC meeting – Obviously it wil depend on the outcome and the way the statement is worded, but hypothetically speaking if there is no intention of QE3 in the short term, do you think the probability of drop in commodities/ metals (oil and gold) may be higher than stocks?
    Also the inventories today could be another factor to watch out on oil?

  284. Good morning!

    Oil/Checho – QE3 can save it but, otherwise, oil is pretty much consolidating for the next leg down – from $98.50 to $92.50.  Last week, we had such massive builds in gasoline and distillates that it's very likely they cut back production (also smartly waiting for lower input prices) so this week we can expect a good build in crude but less so on refined products.  Also, Obama's speech hinted at more alt energy spending and, even worse for oil a move towards more nat gas.  As I have said over and over again – who cares if China is going to add 25% more consumption by 2015 (2mb) if the US is going to cut 10% of it's consumption (2mb) over the same period?  Oil trading is 100% based on expectations of a supply constraint driving up the price of an otherwise plentiful liquid.  Without some constant input of fear to drive fresh speculative money into it, even the $90s are unrealistic.  Unfortunately, QE3 is the ultimate fix for oil as it weakens the dollar (fear of inflation) and drives up expectations of a demand boost down the line.  

    Oh no – Euro back below $1.30 and Dollar back at 80.40!  Pound at $1.556 and don't forget – failure at $1.55 is very, very bad.  Yen got themselves up (weaker) to 78 so a little Yentervention driving the Buck, I think and EUR/CHF fell from 1.2107 to 1.208 – the Swiss are really losing it since the lost their boy.  I love the logic there – Oh, so both you and your wife are expert currency traders?  You're fired!

    AAPL's market cap of $425Bn puts them right behind Argentina, with a GDP of 435Bn and tied with Austria at #29 in the World.  Norway ($479Bn) at 26 should be in reach but Taiwan is 25 at $505Bn and that's going to be a tough hump to cross at $500Bn (ask Norway).  




  285. shouldn't it be AAPL's revenues that we compare with various countries' GDP, rather than AAPL's market cap?

  286. Phil
    I agree and it certainly is a wonderful group. You should be very proud.