I am trying!
I watched Fox news for hours last night and I did learn that Warren Buffett is an evil, criminal mastermind who must be stopped and that Obama is soft on the Taliban so following through on his pledge to end the war is nothing more than an insidious plot to garner votes by…. uh…. doing what he was elected to do – THE FIEND!!!
Damn, see – it's not working. I'm hardly any dumber (but I am much less tolerant of poor people and minorities) and I still can't get behind this market rally. Oh wait, before we get off the Fox topic, I want to point out another "big" news story they featured. It seems that we're finally cracking down on welfare recipients who spend their money at strip clubs. The House passed a bill yesterday as bill sponsor Charlie Boustany (R-LA) pointed out that, with all these welfare people spending the Government's money at the strip clubs, he had to wait over a half hour to get a VIP table so he could spend the Government's money at the strip club. Outraged Congressmen passed the bill 395 to 26 (women) as this was an issue that really hit home for them!
If we finally hold our chart levels, my mission this weekend is to kill as many brain cells as possible so I can stop understanding the news and just buy the f'ing dips, which will be our game plan until the levels are blown again and it's safe to switch our brains back on. On the right, we have a Rorschach Test for the day to see if you can be oblivious enough to go bullish at the top of our range.
If this chart doesn't bother you – you may be ready to rally! You are also ready to brush off the OWS movement as "squatters" – something else I learned on Fox last night. That's right, they are not protesting – thousands of people are actually gathering in parks to get "free rent" as they can't possibly have a legitimate complaint against the rampant abuses of Capitalism that are tearing this country apart.
Well maybe not this country but Japan is sure about to break as Finance Minister Azumi calls out the Fed's "pledge" to keep rates microscopic through 2014 as giving an invitation to traders to sell greenbacks.
“Speculative moves are increasing in the market and we can’t overlook them,” Azumi told reporters in Tokyo today as the yen heads for its biggest six-day jump since mid-August against the dollar. Against the “backdrop” of the Fed’s plan to keep interest rates exceptionally low until 2014, “short- term speculative buying” has increased, contributing to the yen’s gain, he said in parliament today.
Azumi’s comments may indicate Japan is closer to resuming foreign-exchange intervention after a record round of yen sales late last year. The admonition comes a day after Sharp Corp, Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen.
“Yen-selling is still in the cards, but it’s becoming harder for Japan to do it because of external pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. At the same time, “speculative trading could get out of control” and accelerate yen gains if investors think Japan won’t intervene," he said.
So our remaining bearish premise is that the BOJ will finally put their foot down at 76 Yen to the Dollar and that should put a floor under the Dollar at 78.85 and a top on the Euro at $1.32 (TRADDR chart above). If we're going to pop the top of our range, we can expect those levels to break first. Once we get over 12.750 on the Dow (assuming the other indexes hold up) – we're officially in orbit and no longer bound by the gravity of fundamental reality. This is a perfect set-up for a technical rally that can take us up and up and up as sideline money (including ours) rushes to get back into the markets.
What can we do to profit from a move higher? Well, that's pretty easy. Here's a few examples of bullish plays you can take that will do very well IF this rally continues:
- FAS Feb $77/80 bull call spread at $2, selling $75 puts for $1.50 is net .50 on the $3 spread. Note that you can simply take the bull call spread which makes 50% in 15 days if FAS simply holds $80 (now $83), which is roughly XLF $14.
- FAS March $75/80 bull call spread at $3.05, selling $70 puts for $3 is .05 on the $5 spread. That's about 18% down in FAS before this trade costs you more than a nickel. That's a 6% drop in XLF to about $13. If you don't think XLF can hold $13 for 6 weeks – you're not bullish! Also, don't forget these are trades we pull if our levels don't hold.
Alternate offsets (bullish) to selling aggressive short FAS puts are:
- CHK Jan $17.50 puts can be sold for $2.05
- GE 2014 $17.50 puts can be sold for $2.50
- GOOG June $450 puts can be sold for $4
- ISRG Jan $310 puts can be sold for $10
- KO Jan $62.50 puts can be sold for $3
- MO 2014 $23 puts can be sold for $2.15
- PFE 2014 $20 puts can be sold for $2.65
- XOM Jan $65 puts can be sold for $2.50
A good short put is a stock you REALLY want to own if the market drops 20%. These are all solid companies that won't be immune from a major market sell-off but should do fine in a long-term portfolio beginning with these initial entries. Also keep in mind these things do not have to be all or nothing – The second FAS trade, for example, makes 66% on the bull call spread. If you sell one $4 GOOG put for each four of the FAS calls, assuming the GOOG puts expire worthless, you lower the basis on the $5 FAS spread to $2 and, rather than netting 66% cash, you net 150% on cash – that's how easy it is to goose your cash returns.
Outside of the Financials, we can look at a few other plays that can do well in a bullish economy:
- CHK ($20.97) is a play on natural gas coming back. The 2014 $15/20 bull call spread is $2.65 with almost 100% upside if they hold $20 for 2 years. Again, it is GREED when you think making 100% in two years is not enough but you can knock that net $2.65 down to .30 by selling the 2014 $15 puts for $2.35. So if, for example, I am willing to own $15,000 worth of CHK, I sell 10 of the puts and buy 10 of the spreads and if CHK holds $20, I'm up $4,700 and between $20 and $15, I'm down $300 and below $15, I end up owning 1,000 shares of CHK at net $15,300 ($15.30 a share). That's 27% below the current price and TOS says you only need $1,600 of ordinary net margin on the put side.
- AA ($10.20) is down from $17 last spring and it's hard to have a Global recovery without tin. If you're willing to own them for $9.30, you can sell the 2014 $10 puts for $2.10 and buy the July $8/10 bull call spread for $1.40 for a free crack at a $2 spread that's 100% in the money and your worst case is getting a 10% discount on an entry.
- AMZN ($179.30) has good puts to sell because of yesterday's sell-off. You can sell the 2013 $110 puts for $4.15 and if you don't want to own AMZN for $110 – you are more bearish than I am! AMZN is a pretty reliable rallyer in the Fall and the Jan $170/180 bull call spread is just $5.20 so net $1.20 on the $10 spread that's $9 in the money to start.
Well, out of time for now but, as I keep saying, it's very easy to get bullish and set up for very nice profits – SO WHAT'S THE HURRY? Let's just make sure these levels are real and, once we feel good about them holding, we can find trades like this every day because – if the Government is going to insist on making everyone rich by jacking up the markets – who are we to object?