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5% Rules – Finally Time for a New Chart?

It's been 3 years since the big crash.  

In all that time, we have not had to adjust our Big Chart, which is based on our 5% Rule and has steered us well through the recovery.  Now that we are all the way back to our pre-crash highs, it's time, finally, to make a more bullish adjustment.  We will be changing our long-standing +10% line at 1,359 to the new Must Hold line at 1,360 – one point off from our original estimate after gathering 36 months of additional years of evidence.    

That's right, it turns out our +10% line is still pretty much right on the money, only now we switch our focus to our goal of 1,600 and begin running our numbers off there, rather than from 800.  I know I have been (and still am) Fundamentally bearish on the market at the moment – I just think we are making this move too soon – but that is not to say I think the move is unmakeable.    

SPY WEEJKYAs noted in the Chart, other than overshooting the 50% line in early 2010, we had very predictable moves all the way through last week but, in retrospect, we may just be looking at phase 3 of the move back to 1,500.  As long as we are over 1,280 now (20% off the top) we will remain in the bullish range and that means we have higher expectations for our indices so our next goal is 1,440, 10% off the top.

After all, if we're going to be bullish, then our goals should reflect it, right?  That makes our new series for the S&P on our Big Chart -20% at 1,280, our must hold line at 1,360, -10% at 1,440 and -5% at 1,520.  If we fail to hold the Must Hold line and especially if we fail 1,280, we revert back to the prior Big Chart numbers, where the calculations were made off the bottom.  It's like Gravity, as we get closer to 1,600 – it begins to exert more influence.  We can also expect the 2.5% lines to become more prominent, as those were 5% lines off 800 and still will probably provide good resistance.  This is why you see slowdowns and consolidations as you get near major moves like 100% off the bottom – various Bot programs using different base-lines begin to cause a squeeze as their programs overlap.  

NYSIMy bad, by the way, for not realizing last fall that the bottom put in at 1,120 (40% up from 800), was also 30% below 1,600 – it was at that point that we could have been brave enough to flip the chart, or at least done so when we crossed -20% at 1,280.  We were even bullish at the time with our August 27th "September's Dozen" and our extremely bullish "White Christmas Portfolio" along with our always bullish "Income Portfolio" – so it would have been a good idea to shift our charts to reflect that.  Well, lesson learned (as long as you remind me next time).

As we had almost a 2 year's consolidation around 1,120, I think we should look at the run to 1,400 (25%) in that context and no longer look for the big pullback from the 600-point run from 800 (75%), where we'd expect a 20% (of the run) retrace back to 1,200.  If we want to be bullish, then we should say a firm floor was put in at 1,120 and that means we should not pull back more than 56 points of our 280-point move (1,344).  That's perfect then as our Must Hold line just so happens to be 1,360 so things are all lining up very nicely!  

The S&P has, on the whole, literally gone nowhere for 5 years.  We are right back to where we were in March of 2007.  The Dow, on the other hand, is up almost 10% BUT, the Dow is not at all the same Dow as it as back then with MO and HON thrown out for BAC and CVX in Feb of 2008, AIG replaced by KFT in Sept 2008 and C and GM replaced by CSCO and TRV in June 2009.  Wow, talk about market manipulation!   

Other than HON, the Dow substitutions had a clear and profound impact on the average and that's going to make it very tricky to recalculate.  Obviously, our old goal of of 14,000 is out the window (and GM and C were the anchors that were holding the Dow down when we first calculated our levels) so we'll have to AT LEAST add CSCO ($20) and TRV ($60) and multiply them by $8 in the price-weighted Dow for 640 more points but we have to respect CVX ($110) and KFT ($38) as well.  

BAC WEEKLYAIG was reverse-split and is actually $1.40 (1/20th) and GM did something (I don't remember what) and C did a reverse so you have to compare the entire 1,900 points contributed by the 5 subs to the 800 points that can be accounted for from MO ($30) HON ($60) and AIG in the old Dow which brings us up to at least 15,000 but we've also removed the drag of the losers and we have a weaker Dollar so let's call it 16,000 to match up with the S&P (sorry, it's not an exact science!).  

That, then, means the Dow is LAGGING the S&P in getting to goal, which makes sense because of something the S&P has that the Dow doesn't – AAPL!  AAPL alone has boosted the earnings of the entire S&P 500 by 5%.  Add that to the phony loan loss reserve reversals that have added tens of Billions to bank earnings and we can see why the S&P is off to the races.  BAC (our One Stock to Buy for 2012) is also off to the races for the Dow, but going up 100% from $5 only adds 40 points to the Dow.  

That, then, makes our Dow chart the same as the S&P chart x 10.  It does place the Dow, at 13,232 just below the new Must Hold line at 13,600 but again, if we're going to be bullish – we need to challenge ourselves, don't we?  On to the Nasdaq:  The Nasdaq is pointless.  AAPL has ruined it as has their recent re-weighting, which means we can't even compare the old Nasdaq to the new anymore.  Still, 1,500 was clearly a 15-year base and it's not so much that 3,000 held up – as we only just popped it, but 2,700 (10% off) was a very good breakout/consolidation point since we failed it in early 2010.  

Nothing too complicated here except it's quite possible that the Must Hold should be 2,850, not 3,000 but I'm assuming AAPL stays up and we have to weight the index up based on that.  

The NYSE, on the other hand and as I mentioned last week, is a serious lagger.  They were over 10,000 in late 2007 and fell all the way to 4,000 in 2009 but we can certainly make a good case for 5,000 being consolidation and therefore 7,500 is the very significant 50% line up and check, that was huge consolidation and then, once we're over that, we flip the chart to negatives off 10,000 and we'll call our new Must Hold 8,000 (-20% from top) and then each 500 points is a 5% line on our bullish climb.  

That leaves us with the Russell and our small cap index has made a nice double off 400 and 600 was good support along the way so 800 it is and that will be our Must Hold now so we've got 40s in each direction for progress and now it makes a lot more sense why we have this resistance at 840 and why 760 was a tough nut to crack.  It will be very telling whether the current consolidation between 800 and 840 ends up breaking up or down from here:

So these are our new 5% Rule Charts and levels.  If we're going to stay bullish, we expect a very nice move up from here and that means we can begin looking at aggressively bullish plays that we can simply stop out if we fail to hold our Must Hold lines (3 or 5 usually is good to confirm).  

For example, we expect the S&P to work it's way up to 1,600 and that's SPY $160 and the Jan $146/154 bull call spread is $3 and you can sell the $110 puts for $3.15 so a .15 credit on the $8 spread and all we need is that 1,550 that everyone is predicting to make 5,433% on cash.  TOS says the margin on the short $110 puts is net $11 so a very nice return on cash too – if it works.  As we can stop out the spread at $2, it's worth our while as long as we don't believe the S&P will fail 1,100 this year.

XLF WEEKLYXLF should also fly if we make it through this quarter without slipping into another financial crisis.  The Jan $13/16 bull call spread is $2 and you make 50% in 10 months on that just by getting it right.  You can also sell JPM Jan $30 puts for $1 to knock the net down to $1 and making it a 200% potential upside or sell the JPM 2014 $28 puts for $2.10 and get a net .10 credit and a 3,100% upside potential gain on cash.  TOS says the short JPMs are $2.60 in margin so 10 of those short for net $2,600 in margin drops $2,100 in cash in your pocket and then you buy the Jan bull call spread for $2K and your upside potential is $3,100 at XLF $16 and worst case is you own 1,000 JPM for net $27.90 (37% off).  These are the kind of plays where – if you don't like them – you're just not bullish!

I'm still not really in the bullish spirit of things but I'm also not going to fight the Global Feds – too much money being thrown at the markets and already we're seeing signs of massive inflation kicking in.  Once we hit the inflationary cycle, then game over and it's Dow 20,000 time and we'd BETTER be invested then or we're going to watch our buying power rapidly fall away.  

We'll see how the week goes but we do need 10 more bullish plays as we used up the last batch already – more on that tomorrow. 


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  1. All:  The biotech portfolio is here.  I also like MrMs play if you can get it on Monday with ARIA, buying the Apr $17/18 BCS for 18c or better, selling the $11 puts for a free trade (or 5c credit possibly).  Have a great weekend all.


  2. Virtual Portfolios sheets are up to date except for the AAPL portfolio for which I need numbers.


  3. Stj: Thanks for your great job in keeping all those portfolios updated. I tried to understand the 25k portfolio and 25k target spreadsheet, but I failed to understand why the two files show different current (or open) P/L numbers. In the 25k, it says that Current P/L is near 5k, whereas in 25k target, the current P/L is near 17k.  


  4. Portfolio / Ganyant – The 25K Target is the up to date portfolio after we changed the format to something easier to understand. Ignore the old one. In the new one I map the movement of the position against the potential value to help up place stops and limits.


  5. Stj: In the 25k Update in the Friday morning, Phil said: "So, short story – nothing in that unrealized $19,708 loss that can't be fixed". Based on this, I assume for those who did not have any of those positions in 25K, now may be the time to get in all those positions, for potentially make at least 19k when the current 25K account get back to zero!!   


  6. Ganyant – Some of these positions were opened a while back and might not be relevant now. You might want to start with what we did on Friday to begin with. Also, I am sure that by now you can see that this is a very aggressive portfolio with high risk!


  7. stjeanluc, where can I find the 25k and 5k spreadsheets?
    Thanks


  8. Phil, I am running a small IRA for a family member, and I have inched it forward from 6k to 8k using bull put spreads, mostly. I want to buy some long-dated puts (CMG? PCLN?) to offset a series of weekly bull put spreads, and sometimes BCS. I don't think SPX (or even SPY) puts are affordable in such a small account. Would you try for an index put or a MoMo?


  9. You know, when I joined here 3 years ago after reading a number of the free posts, I realized that here was a group of people, led by an expert, who knew a whole variety of ways to make money selling premium, which I had done very successfully for a bunch of years, but without a great deal of assurance. I mean, everybody I talked to about what I did thought I was crazy. "you could lose everything", "that stuff is way too complicated". And a range of views that suggested that selling premium for a living was somehow underhanded.
     
    I did run several accounts strangling SPX from 2003-2006 until I started getting those phone calls…. questioning what I was doing and why. I fired them all, and went out of the management business. I made everybody quite a lot of money, but in the end, I guess I just didn't know enough of the back doors, the way out, a plan B or plan C in order to command confidence.
     
    I passed my 10,000 hours last year, and the learning continues almost daily. I enjoy reading what people post about how they could extricate themselves from the deepest sh*t, and how Phil says, "well, you could…. a b c d e f…"  As a basic member, I dont see the questions sometimes, so the Phil's answer makes no sense.
     
    I'm  getting punished a bit by this extreme rally, but I feel really comfortable with my investments, and for that, I thank all of you.


  10. Portfolio / Oburlacu – Here is the link:

    https://docs.google.com/spreadsheet/ccc?key=0Anwf9je9MizqdGQzN2NZUjNfdjhrbjFwWlc1eDYtWnc

    Might need to paste it in your browser as sometimes just clicking doesn't work.


  11. Some crazy numbers…

    http://ftalphaville.ft.com/blog/2012/03/14/923981/a-us-corporate-cash-update/

     

    Apple alone represents $64 billion or 36% of the total $179 billion increase in corporate cash since 2009. And in 2011, overall corporate cash would have actually declined by $6 billion had it not been for Apple’s $46 billion increase. Unless Apple changes its philosophy towards liquidity by instituting a one-time or ongoing common dividend, or if Apple starts to buy back stock, we estimate Apple’s cash balances could increase by more than $50 billion in 2012 and approximate $150 billion.

    Supported by our expectations that consumers worldwide will continue to feast on Apple products, we expect overall corporate cash and its concentration will increase in 2012. Apple alone could represent 12% of total corporate cash, about three times more than the next cash king. …

    That's $400 billions in the top 10… Seems pretty concentrated!


  12. Since we are now officially bullish: I’m lousy at TA, but LNKD appears to be forming a nice C&H (best seen in weekly chart).  It needs a breakout over 95 and has a measured move to about 128.


  13. Oil and water don't mix, but how about oil and gas?
     
    Today, natural gas makes up more than half of BP's energy production, making us the largest producer and supplier in the U.S.
     
     

    When you need to secure the most reliable energy supply, BP is the answer. You'll find our reserves of natural gas, LNG resources, storage and transportation capabilities up to the task. You'll get purchasing strategies that let you meet the demands flexibly. You'll get additional ideas, information, and advice on industry and risk management tools that will make planning easier.
     

    We are committing significant capital to bring new gas sources to North American markets from the deepwater Gulf of Mexico and Alaska. BP is also taking a leading role in the worldwide growth of Liquefied Natural Gas (LNG), and bringing it to North American markets. We're turning LNG into a flexible and competitive opportunity for our customers.
     
    http://www.bp.com/sectiongenericarticle.do?categoryId=3050046&contentId=3050873
     


  14. Question for anyone that may be in the business….we are purchasing a short sale, should we use a broker or go to our bank?  Not sure if the broker is more expensive, and don't know what all the customary fees are in addition to all the 'good faith' estimates b'c I have always worked with a bank b'c companies have paid us to move.  Thanks…..


  15. can anyone explain me the relation between delta and the probability of expiration? This is for selecting a option price. I assume that mostly delta between 0.3 and 0.4 are preferred. Is there a reason for this? Also while selecting a bull call spread do you also look for a preferred total delta of the position?
    Thanks


  16. Pharm- short sale- I dabbled in this a while back and my answer is "it depends". The fewer people involved, the less the transaction costs. It turns on the knowledge/competence of the broker and where their interests lie. On a one shot deal, whatever is customary in your market is probably the most expedient. If more deals are contemplated, then developing your own contacts is worth the effort. Regardless, this is an area where it can pay to be a "dick". Everything is negotiable only limited by your creativity and stiffness of your spine.


  17. Pat Swap
     
    On the bull call spread,  I think you look at the net price of the bcs versus the value of the spread if it expires 100% ITM. For example buy for $3 for $5 at maturity for a 66% gain. Typically the deltas of  the two legs will be rather close together and the spread may not achieve its full value until closer to expiration when the short leg loses all or most of its time value.
     
    Your other question is a bit more complex and depends on stuff like implied volatility and standard deviations, but most likely your broker has an online calculator, as does Tradeking. I ran a sample test, which showed me that the probability of SPX touching 1360 before April expiration is 40%.
     
     
    You can use this calculator without a TradeKing account. It is very simple, you just enter a stock ticker, a top price, and a bottom price and the calculator does all the work.
     
    https://www.tradeking.com/education/tools/options-probability-calculator


  18. Probability calculator
     
    Sorry, that link doesn't work, but this one does the same thing.
     
    http://www.volatilitytrading.net/monte_carlo_option_calculator.htm


  19. Congrats Pharm!  That. Was. Fast.
     
    Bank accept your offer yet?


  20. 1020 – yes.  It was very fast.  We are in your old neighborhood I believe.  41% discount!


  21. pstas – thx.


  22. Pharm – I wonder if it's my "new" neighbor who had homes in both neighborhoods. I believe they had a two story.
     
    I hope you're okay on my being a neighbor – I still own the note on my "old" home….. :)


  23. I have updated my volatility charts:

    https://docs.google.com/spreadsheet/ccc?key=0Asgfso25VaEPdHdfTDV3VzE2ZVItSWNiZ2xXM0FFM0E

    I have added the predicted volatility bands for next week and since Friday was a monthly expiration date I have also posted a monthly volatility sheet based on Friday's prices which could be helpful selling premium for the April expiration.

    Let me know if you don't see you stock ticker there.


  24. Something to keep in mind is that next month's expiration will overlap with the beginning of earning reports. The volatility study obviously covers many earning months so it does enter in the calculations, but movements can be outside the average following earnings especially for highly volatile stocks. This is for reference only!


  25. Phil, I have been playing with these 5 and 10% lines on a couple of stocks and I have to say that it seems to be a pretty good indicator. For example, I have charted XLE and placed a Must Hold line at a point of support in the last 12 months (around 72) and drawn the 5 and 10% (up and down) lines around it. It seems that the prices hold in between except when we had the big "crisis" last fall but then, failing the down 10% line would be a big signal… Worth exploring on other instruments I think. I charted others like that and got some pretty similar results.


  26. short sale (note) – very often bank on sellers side drags for very long and then when it suddenly agrees they want money within very short period of time (like two weeks). So if you need mortgage – it should be almost ready. Otherwise closing it within 2 weeks may be very challenging.
     
    (also on what stage are you? did you get initial counter response from sellers bank? )


  27. Pharm, first congrats on the new digs! pstas is correct the less involved the better. I dont understand your ?. Did you use a broker to find the home? If you've dealt with the REO agent directly then there is no reason to use your own broker and the only time I contact my bank is when I need the check for the closing.

    I had a short sale closing last week, the owners were present, 2 lawyers for the banks, 2 people from REO, myself and my broker. I've had deals and dealt directly with the REO agent and did not use a broker, this is what I prefer.


  28. Kust – we already have the agreement from the bank, so we are moving towards closing by end of April.  We are pre-approved with one mortgage broker, but I have never dealt with them b'f.  I usually use a bank for my loans, but the RE agent had a friend who was a mortgage broker.  Just don't know if it is worth it or not.  I can get a no points closing, with minimal closing costs.  I just don't know if it is worth it b'c the rate seem to be similar to those we can get with Wells Fargo (for instance).


  29. Here is another example of the lines I have been trying to draw – XRT. Once again, using confluence lines last year to draw a Must Hold line and going 5 and 10% up and down. It does seem to chart areas of support and resistance.


  30. And a last one with XLF…


  31. Pharm..fair warning I've had banks tap on a few k for "cleaning" of the property after a signed agreement. If you have good credit/income I would go to a few diff banks and get the best rate and compare. Most RE agents have friends that are MBs :-) . Usually takes 2 weeks to 30 days for approval. The only time you would pay points would be to get a lower rate. Closing costs are closing costs, taxes, settlement charges, HOA if applicable, lawyer fees (some states do not require you have a lawyer)/realtor fees, title service/ lenders title insurance.

    It should all be in the settlement statement.


  32. Kust…thx.  And yes, our RE has a friend who is a MB.  I decided to go with our accountant who is one, and thus knows our 'stuff'.  Looks like May to move into our McPharmansion…..although the boyz don't want to move.


  33. Thanks jmm1951
    I have a optionsfirst account and I could find a probability calculator there which I will use.


  34. The Economist is cautiously optimistic:

    http://www.economist.com/node/21550278

    And there are still big risks out there. Too often since the 2008 financial crisis investors’ hopes for strong and lasting growth have been dashed—whether by bad luck (soaring oil prices), bad policy (too much budget austerity too fast) or the painful realisation that recoveries after asset busts are generally weak and fragile. If tensions with Iran over its nuclear programme spike, for instance, an oil-supply shock could once more cause havoc. Much could yet go wrong. [...]

     

     

    European countries need to stop focusing so intently on austerity and instead do more to generate growth. The ECB’s liquidity injections have successfully bought time for indebted governments, but for permanent relief the euro zone needs to build institutions that allow joint liability for government debts balanced with fiscal discipline.

    America’s priority should be to craft a medium-term plan which puts the budget deficit on a downward path without snuffing out the recovery. There is, unfortunately, not a chance that it will do that before November’s presidential election. China’s economy remains too reliant on investment rather than domestic consumption. Rather than encourage the building of roads and railways, any stimulus this year should push cheap housing and higher wages, as well as pensions and health spending.

    The reasons for optimism are real. But if policymakers get it wrong again, the recovery could yet turn to dust.


  35. Are we victims if Stockholm Syndrome…

    http://motherjones.com/kevin-drum/2012/03/our-financial-stockholm-syndrome

     

    [The story of the finance lobby is] about the way that lobby—with the eager support of a resurgent conservative movement and a handful of powerful backers—was able to fundamentally change the way we think about the world. Call it a virus. Call it a meme. Call it the power of a big idea. Whatever you call it, for three decades they had us convinced that the success of the financial sector should be measured not by how well it provides financial services to actual consumers and corporations, but by how effectively financial firms make money for themselves. It sounds crazy when you put it that way, but stripped to its bones, that's what they pulled off.

    ….Their real power lies in the fact that they've so thoroughly changed our collective attitude toward financial regulation that sometimes they barely need to lobby in the traditional sense at all….Unlike most industries, which everyone recognizes are merely lobbying in their own self-interest, the finance industry successfully convinced everyone that deregulating finance was not only safe, but self-evidently good for the entire economy, Wall Street and Main Street alike. It's what Simon Johnson, an MIT economics professor and former chief economist for the IMF, calls "intellectual capture."Considering what's happened over the past couple of years, we might better call it Stockholm syndrome.


  36. Want an explanation for the price of oil…

    http://www.businessinsider.com/brent-crude-vs-intrade-odds-of-an-airstrike-on-iran-by-the-end-of-the-year-2012-3

    intrade iran oil

    So clowns like Gingrich who keep on pushing us to bomb Iran and complaining about oil prices have a nice little game going!


  37. Aapl
    Tim Cook to announce at 6am PDT at a conference call what the company may do with it’s 100b cash. Wonder what the stock reaction will e before and after?

    6:21 PM Apple (AAPL) says it will hold a conference call tomorrow to discuss its plans for its massive cash balance, which is likely above $100B at this point. Remarks from Tim Cook about how Apple is discussing uses for its cash, as well as other hints, has led to fervent speculation that a dividend and/or buyback will soon be announced.


  38. lflan,  do you consider the conf call an "event".  what would constitute a negative outcome of this conf call?  both possibilities seem positive (buyback, dividend) to me.


  39. Good evening!

    Anything exciting going on?  I ended up being away for a couple of days so I'm getting to bed and will catch up in the morning.  Doesn't look like anything very exciting happened so far.   Asia's open not too inspiring but since when does that bother us? 

    Here's a bad magazine cover indicator this weekend:

    This is not your father’s Nasdaq 3,000 (MSN Money)

    Fear gauge at 5-year low ‘an optical illusion’ (CNN Money)

    As Barry points out:  

     

    Almost 4 years ago, the magazine published pretty much the same article saying mostly the same things.

    In the July 14, 2008 edition, Jonathan R. Laing wrote “Bottom’s Up: This Real-Estate Rout May Be Short-Lived.”  That article was terribly wrong, and many years too early.

    The latest RRE bottom calling article is dated March 17, 2012, titled Home Prices Ready to Rebound and is also penned by Jonathan R. Laing. We don’t yet know if its terribly wrong and many years too early. However, I would hazard to make the guess that its probably modestly wrong and a few years too early.

    As the current rate of Barron’s Housing bottom cover stories, we should expect to see a third bottom call 43 months from now — around October 2015. I expect that bottom call will be mostly right and perhaps even a touch late.


  40. Phil
    Hope you got a good night’s sleep.
    Sometimes, I wish I could do with 4 hours or less of sleep, and I suspect you likely don’t sleep tht much.
    I am curious to hear your thoughts on AAPL upcoming ‘discussion’ of their uses of cash in the morning.
    How would you trade it BEFORE the announcement and AFTER, depending on the different scenarios you can see?
    Why did they announce it on Sunday evening? Did they WANT to surprise the markets? Or did they not realize it would be a surprise?
    In the first scenario, why would they want to surprise? Something they believe is REAL good? But that is not like AAPL either!
    If they goofed the timing and should have announced any ‘bad news’ after the market close on a Friday, that also seems unlike AAPL, but certainly possible.


  41. From Barry's Site, I wonder if that is the same Jon Laing that build all kinds of homes in So. Cal, went bankrupt, and those homes are built like…..well….er…shabby.  Oh, they were part of WL Homes, but they financed their own insurance company and that one also went out of business.   Wonderful world of business…..


  42. 3am play – seeing any dollar/yen play setting up?


  43. Good morning!

    3am play not what it used to be, timing-wise, as DST has played havoc with the usual cross-currents.  The Yen has been in a hard drop (getting stronger) since Friday morning and just touched 83, which is down from a high (low) of 84 on Friday.   The Nikkei did not like that and ended the day flat but the Futures took a turn down after the close and they are back to 10,070.  

    Dollar still 80.10, Euro $1.316, Pound $1.584, EUR/CHF back to $1.206.  

    Oil $107.81 (May contracts, April $107), gold $1,663, silver $32.48, copper $3.86, nat gas $2.33 and gasoline back to $3.352 but help $3.36 long enough to jack up pump prices for the weekend.  

    On the whole, we're still looking weak but it's all about the Dollar and which way it goes off the 80 line.  S&P right at 1,400 so I wouldn't be too quick to redraw our Big Chart until we confirm we're over that line and Dow, of course, still has about 3% to go to get to its 13,600 new goal.  

    No Monday gap up at the open – something is already not right…


  44. Domestic Trends/ZZ – Very interesting chart sets.  So many things are trending down, though, that I have to believe there is something wrong with their measurement.  Either that or the markets are beyond insanely priced and the recession is much worse than we ever imagined…

    Interesting as CC Use is moving in the opposite direction, which makes me think that the real reason MA Spending Pulse is seeing an increase in consumption is only because no one has cash to pay with anymore.  Like I used to go to the gas station and, if I was in a hurry, I'd just give the guy a $20 for an almost fill-up and be done.  Now, as we mentioned, there's no line at gas stations anymore and the last fill-up I had was $65 – a $20 doesn't get you anywhere so I haven't used cash in ages.  What does MA see?  More CC activity at the pump, which they interpret as bullish consumption but that's because it's been many, many years since the ratio of cash use changed.  

    Perhaps the real "new paridigm" in this economy is new levels of middle-class debt and struggle that is blowing out the normal economic models as we haven't had a recession last more than 2 years since the Great Depression.


  45. Thanks StJ!  

    $25IKP/Ganyant – If we DD or roll a trade, that certainly means we still like it and you are getting a better price than we did when we entered it.  However, you have to be aware of the balance as we were too bearish and our adjustments are still bearish and we'll be taking some aggressively bullish trades to offset it – things you may not want to do.  So, if anything, I'd go with much smaller amounts than we're using.  That way, you'll have plenty of room to roll or scale in. 

    Puts/Barf – I really like PCLN or any of our Long Put List as they are not, in theory, market-proof stocks.  What you need to think hard about is which ones would be the best offset to the bullish plays you are taking.  To some extent, PCLN shorts will do well if the airlines fail and that's kind of a Dow (Transports) thing.  Very glad to hear your 10,000 hours is going well

    For raising cash in IRA's, where you have 100% margin, above I mentioned the JPM 2014 $28 puts at $2.10, that's net $25.90 in margin if you're being charged 100% but it does return 8% over the period, so better than a money market but not very sexy.  If you want to sell puts to raise cash but you have margin issues, you want to get bang for your buck like SVU 2014 $5 puts, that can be sold for $1.35 (36% of $3.65 net cash), FTR 2014 $5 puts for $1.75 (53% on net cash) or WFR 2014 $3 puts for .65 (27%) – just find something you REALLY want to own, even if it does collapse.  

    Indexes have been dropping since 3am and now at lows, down about 0.25%.  May oil down to $107.28 and gold down to $1,655 and Europe down about half a point and falling.  Looks like I picked the wrong week to try to get bullish… 


  46. Officially bullish/Kongen – I'm still a long way from being bullish on LNKD at $91! 

    Short Sale/Pharm – I'd go with a lawyer to make sure all was done correctly.  None of those other people really have your best interest at heart.  Fees and such vary from state to state but they tend not to vary too much within the state – there are some places where you can negotiate and some you can't but, again, that's where a good lawyer can pay for himself if he knows his stuff on property transfers. 

    Delta/Pat – The Delta doesn't really tell you the probability other than, you can assume, that the higher the Delta the more likely a strike is to be hit.  On the whole though, it's like odds at a race-track, the delta will change based on how many bets are made around a strike as well as the Delta measures the rate of change of option values against the changes in the underlying asset so it's going to react to the betting that surrounds a move.  On spreads, sometimes you want a low net delta and sometimes you don't – it depends how much faith you have in the position for one thing…

    Lines/StJ – It's all about finding the right consolidation zones and then testing the levels. While there are short-term consistencies that you can look at, I prefer 5 and 10-year charts to eliminate the noise.  XLE, for example, if you go 5 years out, you'll see that $60 is the real support, not $65 and $70 is clearly significant, as is $80 and $90 held up too so, if we're moving in chunks of 10 then $100 must be the top.  So here we have a strange index that's acting like it's got a goal of $100 but it's never been there.  More realistically, looking further back, it's been from $20 to $40 and $40 to $80 in neat moves and recently held $60 well so I'd stick with $40 to $80 and that means we have to test $64, which is your 10% down line and $72 and 5% from there to $76.  So it very much depends on your time-frame but we ended up in the same place – me from going back to 2000 and you from the short view and that's an excellent reason to use those lines.  

    On XLF – I don't know why you wouldn't want to use the .50 lines.  Keep in mind there is a psychological draw to significant chart lines so, when they are close, I'll tend to drift towards them.   So, I'd say we came off 13.50 but look how 15 held up and that does make sense if we call 15 the Must Hold and then $13.50 becomes meaningful as does $14.25 and $15.75 but XLF is a tough call as many banks don't exist anymore so hard to do long-range comparisons.  XRT has a similar problem with some chains no longer in business.  

    Sleep/Maya – 4-6 hours is usually good for me.  Usually one day a week I'll sleep 8 to catch up but once I get 4 hours and something wakes me up, it's very hard to go back to sleep.  On AAPL, I hope they are smart and say they are saving their cash.  Not sure what that will do to their stock price but probably lower a bit.  There is no trading before the announcement (other than EU) as it's at 9am but I wouldn't touch it anyway as AAPL is too crazy.  I think if they thought it was "bad" news, they would have done it Friday and given people the weekend to digest.  This is probably what AAPL thinks is a positive announcement but I really hope they don't squander money away on dividends.  

    AAPL investors (real ones) should be FURIOUS if AAPL pays a dividend.  Who gives you a better return on capital than AAPL?  Why would you want them to give you money – you'll only blow it on some stock that's not AAPL!   That $100Bn cash everyone is salivating about was $5Bn 5 years ago, when AAPL stock was $85.  Now the stock is $600 and they have $100Bn in cash – THAT'S GOOD!  Why would you want to take money away from them?  Did you turn $5Bn into $100Bn in the last 5 years?  Did you turn a $85 stock into a $600 stock in the last 5 years?  So who has a better chance of taking $24Bn (a 4% dividend) and doubling it in the next two years – you or AAPL?  


  47. Isn't paying a dividend also kind of like an admission that they have nothing better to do with their money, so they are just going to give it back to you — in other words, their growth has reached a peak.   
     
    At least if they do a share buy back like BRK and IBM they are signaling they think their stock is cheap,  or if they make an acquisition they are looking for new opportunities to expand.   Getting paid a div is kind of a downer if you were expecting the kind of future growth AAPL has been achieving.


  48.  just a reminder that tomorrow March 20, Iran allegedly will start trading oil in non-U.S. dollar currencies:
    http://www.telegraph.co.uk/finance/commodities/9077600/Iran-presses-ahead-with-dollar-attack.html


  49. PHil – but on the other hand a lot of institutions and funds will buy AAPL if they pay a dividend…price likely to go even higher.  But at the moment very oversold and a higher price will make them even more oversold…so sell on the initial excitement and wait for them to go down…


  50. stjeanluc:    Here are my last week's trade updates.  Sorry for the delay in getting them to you.  I'm putting them here (and I'll refer you here) so as not to clutter the Monday board:    On Friday:   BTC 30 Mar 585 calls for 2:00    STO  40 Mar  575calls for 6.55 and BTC the 40 Mar 575 calls for 10.00   BTO  10 Mar 595 calls for 1.25 (these expired worthless).   STO 50 April 600 calls for 21.50   and finally,  STO  30 Mar 560 puts for 4.10 and BTO 30 Mar 535 puts for 1.00  .   Thanks.


  51. anyone ib wont let me short oil this close to expiry can i just short may instead.or is there too much of a disconnect.
    thanks


  52. go to the may contract in cl


  53. they are restricting trades in april thats all they send bulletins frequently so plaease stay on top of them or risk phyiscal delivery