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Sunday, October 2, 2022

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Free-Fall Friday – Are There Any Dips Left to Buy?

SPY DAILYDown?

No one told us markets could go down?  This is an outrage, I demand an investigation – TURN THOSE MACHINES BACK ON!!!   

Has it already been a week since I said "Stop the Rally, We Want to Get Off"?  As I noted in that post, we began our list of 12 Long Put Plays for Members on Thursday of last week (near the end of what I called "A Weak Week of Denial") and some have already doubled while others, like PCLN, have gotten even cheaper, which only makes us love them more…

I concluded that this rally was fake, Fake, FAKE and gave my reasons on Friday so no point in going over them again – now we're just watching and waiting to see what sticks as we haven't actually done a lot of technical damage (see Dave Fry's chart) – Yet! 

Although we were TRYING to get bullish on Monday, we did so only after setting more aggressive targets in our Weekend Review of the 5% Rule (see post for details and levels) and by 10:09 on Monday, our first trade idea in chat was the very bearish TZA spread that I featured again in Tuesday's post, which was the April $17/18 bull call spread at .42, selling the April $17 puts for $1 for a .58 credit.  TZA finished at $18.39 yesterday and the spread is now .54 but the short puts are down to .65 for a net gain of .47, which is 81% in 3 days and a good way to offset the 2.3% drop in the Russell – isn't leverage fun?

What was not fun is what happened to people who trusted Credit Suisse to run an honest game with their TVIX instrument.  As noted by ETF Digest's David Gillie, an ETN is an unsecured, unsubordinated debt security with significant basis on the credit rating of the issuer. Although ETNs may be named to indicate tracking certain futures markets or indices, due to the fact that their holdings are credit notes rather than tangible assets, such as ETFs, their price becomes largely supply and demand based rather than based on underlying holdings.  As Kid Dynamite points out – it does say right in the TVIX prospectus:

The long term expected value of your ETNs is zero. If you hold your ETNs as a long term investment, it is likely that you will lose all or a substantial portion of your investment.

Oh Please!  Like we're going to read the prospectus before we buy a financial instrument?  We don't have time for that – we're savvy investors – now where are those Credit Default Swaps that will protect me from bond defaults?  

We did have a bullish play in Member Chat on Tuesday but it was TLT, as that ETF (not ETN!) touched $110 again and my 1:35 comment to Members was:  

TLT coming back to a defendable $110 line.  April $108/110 bull call spread is $1.15 and you can sell the $108 puts for $1.30 for net .15 credit on $2 spread with 900% potential profit in 31 days.

CAT WEEKLYTLT got back to $112 yesterday and the $108/110 bull call spread is already $1.50 and the $108 puts fell to .70 (thanks, in part to that collapsing VIX) and that's net .80 already, up from a .15 credit in 2 days and that's up 533% already – LEVERAGE!  We also had a longer-term EDZ hedge and I reiterated 9 of our Long Put Trade Ideas just ahead of the close as the market ship did seem to be taking on water – even if it wasn't sinking yet.  Ironically, on Tuesday, we were discussing VXX and how dangerous that was to play (we do) because of the way that ETN imperfectly tracks the VIX.  Frankly, it didn't even occur to me that people were long on TVIX – we were shorting it in October because it sucked

CAT was one of our Long Puts and it didn't take very long for the May $95 puts to jump from .95 to $1.90 – a nice double with LEVERAGE!  The point of "LEVERAGE" is to use it to your advantage because, if you are going to be able to make a 100% gain on a relatively small drop in the Dow (2% this week), then you have 50:1 LEVERAGE on the short side.  That means, if you have, for example $100,000 invested and you fear losing $10,000 on a 10% drop in the market, you only need to put about $2,000 into leveraged protection and you're going to be well covered.  Of course, if your $100,000 isn't going to MAKE at least $2,000 if the market doesn't fall – then you're just wasting money and should probably go to cash – hedging is tricky that way – you have to have an actual plan!  

Our plan on Wednesday was to watch and wait but, since our bullish hedges were on their way to big gains, it was prudent to hedge the hedges and we discussed an aggressive long on DDM, using the May $70/75 bull call spread at $2.10 IF (and only IF for you programmers) the Dow got back over 13,200.  Sadly it didn't but the DDM spread is still $1.75 – down just 12% – even if we had triggered it, it would be a small price to pay against the 81% gain on TZA, the 533% gain in TLT or the double on CAT.  It's very simple, when we make a good gain, we either take the money and run or we lock in the gain by taking a trade in the other direction – that helps set us up for the next turn (very good when we're trading in a channel – which we have not been lately).  

Wednesday was oil inventory day and we got the gift of $107.50 oil to short and we hit our $105 goal yesterday for another fun week of poking the speculators.  At 12:12, I thought the "rally" was looking a bit forced and I added 2 more disaster hedges for a slightly longer time-frame than our TZA play:  

 

  • SQQQ June $10 puts can be sold for .60 and the June $10/14 bull cal spread is $1.05 for net .45 on the $4 spread.  
  • DXD May $12 calls are $1.20 and those can be offset with one of this morning's bullish short puts.  

The SQQQ June $10 puts are still .55 and the $10/14 spread is $1.11 so up "just" .24 so far but what we like to call "on track" for the potential 788% gain with SQQQ at $11.  The DXD May $12s are only $1.25 and also still playable if the Dow remains below 13,100.  That's another key to hedging – you have to keep tightening those stops to protect the wins – once we have cash, we can always find more trade ideas to hedge with!

Yesterday, as we like to do when we're winning on the bear side, we looked at a speculative upside play on DIA, using LEVERAGE to potentially turn $8,700 into $400,000 if the Dow makes it to 20,000 (up 50%) by Jan 2014.  We're up 8% in 3 months and up over 25% since October so, if you think this rally will never end – it's a perfect trade!  Of course you can turn $870 into $40,000 or $87 into $4,000 – going for the big bucks was just an example and again, if you have $100,000 CONSERVATIVELY invested and you're worried you might miss something – then $870 tossed at that can goose your returns 40% – even if you do miss an epic rally. 

During the day, as I'm sure you can guess, we added bullish trade ideas to the mix.  Long-term, of course, as we are long-term bullish – we're just looking for a short-term correction as the market has certainly gotten ahead of itself.  Most likely we'll flatline into the weekend and next week marks the end of the Quarter so anything other than a move up will make us VERY bearish.  Cashy and cautious is still our overall stance – when we're flexible, we can make plays like the ones above on Monday, Tuesday and Wednesday and be back to cash on Friday and sleep very well over the weekend – looking forward to the next opportunity in either direction next week.  

We already made our Egg McMuffin money in the Futures this morning as my 4:49 am comment to Members in Chat related to taking advantage of a sharp Dollar drop that popped the Futures:

Meanwhile, Dollar all the way down to 79.57 with Euro at $1.327 and Pound at $1.587 so not likely they'll go up more than 0.024 and 0.013 respectively and that means 79.50 should hold and that means we can poke at Futures shorts again at Dow (YM) 13,030, S&P (/ES) 1,395, Nas (/NQ) 2,750 and RUT (/TF) 825.  

By 8am, the Dow had fallen to 12,962, 1,385 on the S&P, 2,730 on the Nasdaq and 816 on the Russell.  The RUT pays $100 per point per contract so $900 on that move alone so don't expect us do do much today other than sit back with our Egg McMuffins and watch the fun – there will be plenty of opportunities to jump back in next week for another round of fun!  

Have a great weekend, 

– Phil

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Shadow / JRW – What kind of car are you two talking about?  Cars happen to be one of my passions (very jealous every time JRW posts that he earned a vette in a day, took me over 40 years, doh :D).  I am still trying to figure out how I can use my software development career to somehow exploit my interest in cars and make some money while having fun with something i am passionate about.
 
Anyway, I would be interested in hearing about either of your rides over the weekend (or anyone else that has a cool car or is simply interested in them for that matter).
 
scot.

sorry for the odd formatting, used word for my spell checker and it put all that junk around the word i cut after correcting the spelling.

JRW 82.94 AH. They couldnt leave for the weekend without hitting the target.

kustomz
That was nice, I have a max 98 db exhaust to tone it down when I drive it lower than that takes too much power away. I wouldn't like that BMW anymore than subwoofered overload. Stelth is cool. The only video I have is the wideband guage at WOT for tuning. BTW I ran it with Icebear snow tires that are worn too much for ice next winter.

shadowfax / db's — Been a long time since I tinkered with cars and maybe this is obvious but I once had a '68 cougar XR7 that I put mufflers on that were 3 baffles when not under load but went to a straight pipe/single baffle when getting on it. I don't remember the db rating but it turned the car into a sleeper with a built 302 in it. That was 25+ years ago. I'm sure the technology has come a long way since. Sure was fun though. Fond memories.

Klingon Kool-Aid
It's money Jim, but not as we know it.
Not so long ago, Phil posted a trade idea on PCLN; Jan 14 BCS 700/800, partially financed by the sale of the Jan 14 410 Put for a net debit of roughly $12 on the $100 spread. PCLN was in the mid $690s at the time. The opportunity to buy 50 cent dollars which is often Phil's wont. Well, 10 contracts would see you sitting on a $10k profit already. Whether PCLN goes up or down, one can sell the April 770 calls for a credit of $5.30. I can imagine that anyone in that spread that finds PCLN at $770 at April op/ex could both laugh and cry at the same time. I would be happy to roll it all the way to hell and back. And the drinks are on me (Klingons welcome).

scotbraze
My car is a low dollar ride, 2004 Subaru WRX STI, Blanch turbo, big injectors, fuel pump and the rest is mostly ECU. You can do something check out cobbtuning.com. For $2,500 you can get started plus an access port. I have the port and the free race tuning download, one car and unlocked secrets for all to copy. These guys get 2 to $300 for a download tune that doesn't take long and block acess to the map. Once you get a combo dialed in its $$$$ for minutes. Even a stock Hemi truck has 50 HP and 75 Lb torque in that ECU. At 23PSI my car shoud produce 550 hp crank and 475 rear wheel out of 4 cylenders. Torque is much higher. 2nd gear is total smoke full throtle at 18 PSI, that is why I said sloppy. Check cobb out.

Thanks Shadow, Im ok with a loud exhaust as long as its a quality sound and not just obnoxious. You should install an electronic dump for the exhaust. Just keep your eye on the boost as it will creep higher due to the free flowing exhaust. Only in a 4 wheel drive Suby can you run under 4 sec 0 to 60 on snow tires!! I have larger injectors/ supercharger pulley and an ice tank going in next week. My goal is to run high 10's. The correct tune makes or breaks ya.

 

kustomz
My exhaust is 3 inch no baffels, resonator, and like a big glass pack in back. Also a huge intercooler. Turbo creep was an issue until I got a manual boost controller now it leans out in the 4,000 to 5,500 rpm, perfect to 7,200. That front drive kicks in too much at the lowest setting, would like to break your arms. If you have any interest, knowledge, or ideas I could send a spreadsheet from yesterday's run to 100 mph. Thanks

Phil,
On this planet the alternative energy lobby still wants US gas prices to be the same as in Europe, which are no longer $4 per gallon. The goal is still to get WTI and Brent to the same price, and one way of aiding that aim is to empty Cushing. You are absolutely right that then the oil can be put on empty tankers, exported, and sold at higher global prices. Democrats only came up with the anti export amendment as a poision pill to stop the Republican pipeline bill, but they are not stopping the part of it that will empty Cushing.   If you can point me to where the Democrats are opposing this I would like to see it, because bottom line I personally think they want WTI to trade at global prices, too. This is based on fairly extensive reading, and observation of actions, or lack of them on the part of the Democratic party. The existing Seaway pipline to the gulf  is currently in the process of being reversed. You and I both know that oil is going out of the country, so where are the Democrats opposing that? There is not a Democratic "no export" policy, it's just a ruse to stop a Republican bill.
 PS Phil I haven't watched TV in years. "Stick to the facts, Mam, just the facts." 

Phil, if you look at a comparison chart of VLO vs USO, you see they more or less move in the same direction, with the exception of late last fall, when USO fell and VLO held steady. I see nothing in that chart that suggests that high oil prices are bad for refiners. Doesn't it have more to do with the crack spread?
 
Can I change my question? What are the good adjustments to make with ANY BCS that has a few weeks remaining, and has fallen below the long call?

Shadow on your data logger can you see if its pulling timing when it goes lean and do AFR's drop as you run through the RPM to redline? What gear(s) are you seeing the lean condition? The Suby is probably making peak torque right around 4000/5000, right where your seeing it. Remember, lean makes HP and Im sure your knock sensor would pull timing if it was way out….Spreadsheeet, send it over kustom2k1@aol.com..

Wow, nice cars, guys!!  Since I dislike being in jail, although the company's not bad, I took a Suzuki 1300 Hayabusa [motorcycle], threw a ti muffler on it, some light wheels, revalved and rebuilt forks, and found a smooth stretch past El Cajon in San Diego where it could hit 190+ mph, and accelerate 0-60 in 2.3 seconds [from a slightly rolling start, no way I would pin in standing still without lowering it and hanking on a wheelie bar].  Cheap thrills.  But you do have to worry a bit about centerpunching a coyote.

The part of not wanting to go to jail is the fact that you can make 190 mph Zero? I guess them Chevy Caprice can't keep up…

I rarely "speed" on my 'Busa – It's just nice to know you can with just a "twist"….. 🙂
 
http://www.youtube.com/watch?v=jwieel03c-w ….sweet…

McClellan looks at the money supply and the markets and sees….inflation! Good article:
http://www.mcoscillator.com/learning_center/weekly_chart/sp500_undervalued_versus_m2/

1020 – note the bug who greets the windshield about :39. Nice video – how did you take it?

deano – Sadly, I can no longer summon enough testosterone to ride 200 mph….
 
In other words, my wife keeps the family jewels in a safe place until the twins turn 18. 🙂

1020 – in the same circumstances with the 18 thing, but our agreement is an annual bike trip with the boys is OK – tame it is though – we rent BMWs and do a three-four day tour in the US or Canada.

Re: Taxes  –    I am evaluating  tax software. Has anyone had good experience with Trade Log?

silent/tax sw – just got done with trade log. This is my second year with them. Has worked well so far. Their turnaround time when I needed email help was very short. I got an answer on a Sunday!

silentstorm44 – TradeLog is probably one of the best at what it does and has saved me a lot of money with my accountant!

Tradelog/Diamond , Nicha – Are you using the MTM or standard version?

standard version

aussie – standard version

everyone,
what is trade log and where can i find it….TOS?
Thanks

Some more information on the VIX ETF:

http://www.ritholtz.com/blog/2012/03/what-the-happened-to-the-vix-etfs-tvix/

There are just so many of them now.

And here is a list of the ETF and ETN:

http://img.en25.com/Web/StandardandPoors/SP_ChannelAndTheme_Batch2_v1%202%204.pdf

jasu1TradeLog Software

Maybe there are some lessons to be learned…

http://blogs.reuters.com/felix-salmon/2012/03/24/chart-of-the-day-flash-crash-edition/

 

What you’re seeing here is the price of shares in BATS, at 11:14 this morning. The white spots are trades: there are 176 of them altogether. They start just below the IPO price of $16, and then just fall lower and lower and lower until the stock is trading for mere pennies. But the key number you want to look at here is not on the y-axis. Instead, it’s the chart report at the very top:

Elapsed Time: 900 Milliseconds

This is what happens when stocks are traded by algorithms rather than humans. The parabolic trajectory of the share price is downright elegant; indeed, if you’re going to crash from $16 to 4 cents within 900 milliseconds, you could hardly do so in a lower-volatility manner. The scary thing here is the sheer speed involved, and the fact that no human intelligence was stopping to think whether these prices made any sense at all.

Phantom Bars/Anyone
 
I would like to hear anyone's take on p-bars. What do they mean? Do they really only become "phantom" bars when they only live in our memories? Are they stinker bids meeting at-market orders? If these trades can be undone, why can't I undo trades I've made that I don't like 🙂 ? Why is this legal? Thanks much…really enjoy the community here.

diamond
thanks

HEB/mrm – I am sorry, but the company just does not excite me.  Their lead drug is on the market, doesn't make any thing, and they are trying to get it in orally.  I just don't see it.  I could be completely wrong, but I am not a buyer…..

 

SGMO/alik – well, their lead candidate is a Zinc fingered protein modifier that is trying to alter the CCR5 protein.  Basically, what the inhibitor is trying to do is not allow the protein (CCR5) to fold right when it is made by the cell.  Now, CCR5 is involved in HIV entrance into T-cells, so if there is no CCR5, HIV infections will 'slow.'  There are drugs that are in clinical development that inhibit CCR5 (PFE, MRK, Ono, etc), and there are also a few individuals carry a mutation known as CCR5 delta 32 in the CCR5 gene, protecting them against some strains of HIV.   I have not seen any drugs make it to market (I don't know of any past Phase 2…and this target has been around for over 13 years.  Again, my opinion, but I am not interested at this time.

zeroxzero
I have a fast bike also and I would never try to run it, first I fear just holding it up because my right leg is worthless and I tried a hole shot once, scaced the crap out of me, and I have offer it to 2 others to run it for me. They want wheely bars also! I did't like launch control from 0 in my car, then did 20 start in 2nd gear.

kustomz
Just got your post and will send the sheet. I can't find it right now but will later or tomorrow. Spent today trying to log wideband with the rest, never got out of the garage, stupid me or stupid software. I had to give it up before I lost it!

Phil–
just wanted to remind you about your PCLN idea.
I really can't stand that stock 😉

Link to annual report: 
http://biz.yahoo.com/e/120227/pcln10-k.h

…We experienced exceptionally strong year-over-year growth during 2011. However, given the sheer size of our hotel reservation business, we believe it is highly likely that our year-over-year growth rates will generally decelerate on a quarterly sequential basis in the future. Thus far during the first quarter of 2012, we experienced deceleration in year-over-year hotel room night reservation growth as compared to the year-over-year growth rate in the fourth quarter of 2011. We expect to experience further deceleration in growth rates throughout 2012 and beyond.

Here is what the company said in the annual report of 2/27/12: (link included)

in the fourth quarter of 2011. We expect to experience further deceleration in growth rates throughout 2012 and beyond.

Large, established Internet search engines with substantial resources and expertise in developing online commerce and facilitating Internet traffic are creating – and intend to further create – inroads into online travel, both in the U.S. and internationally. For example, following its acquisition of ITA Software, Inc., a major flight information software company, Google recently launched a new flight search tool that enables users to find fares, schedules and availability directly on Google and excludes online travel agent ("OTA") participation within the search results. Google has also invested in HomeAway, a publicly traded vacation home rental service, and launched "Hotel Finder," a utility that allows users to search and compare hotel accommodations based on parameters set by the user. In addition, Microsoft has launched Bing Travel, which searches for airfare and hotel reservations online and predicts the best time to purchase them. "Meta-search" sites leverage their search technology to aggregate travel search results for the searcher's specific itinerary across supplier, travel agent and other websites and, in many instances, compete directly with us for customers. Furthermore, certain suppliers limit OTA participation within the meta-search results. Some meta-search sites, such as Kayak.com, which offers its users the ability to make hotel reservations directly on its website, may evolve into more traditional online travel sites. These initiatives, among others, illustrate a clear intention to more directly appeal to travel consumers by showing consumers more detailed travel search results, including specific information for travelers' own itineraries, which could lead to suppliers or others gaining a larger share of search traffic or may ultimately lead to search engines maintaining transactions within their own websites. If Google, as the single largest search engine in the world, or Bing, or other leading search engines refer significant traffic to these or other travel services that they develop in the future, it could result in, among other things, more competition from supplier websites and higher customer acquisition costs for third-party sites such as ours and could have a material adverse effect on our business, results of operations and financial condition.

Several major hotel companies, including Choice Hotels International, Hilton Worldwide, Hyatt, InterContinental Hotels Group, Wyndham Hotel Group and Marriott, have launched Room Key, a hotel search engine that competes directly with our hotel room night reservations services around the world. The hotel companies that own Room Key have a stated goal of driving demand directly to their brand web sites, thus reducing the share received by online travel agencies. They may also attempt to improve their competitive position by offering lower room rates, better room availability or additional features or amenities through Room Key than are available through services like ours. If Room Key is successful, our share of the online hotel room night reservation market could be negatively affected in the United States and around the world and our business could suffer.

http://biz.yahoo.com/e/120227/pcln10-k.h

Global Hotel Exchange (GHX) is a new worldwide trading platform has massive signups and demand    1 minute ago    

http://www.prweb.com/releases/2012/1/prw
Global Hotel Exchange CEO Thomas Magnuson has already noted that “The massive number of hotels we are signing daily from dozens of countries clearly indicates a desire to combat a global triple threat of falling demand, lower room rates, and increased OTA fees.”
 

Phantom Bars/Laddoo:

Heres an analysis of what happened to AAPL during that big phantom bar/flash crash on Friday, along with the crash that occurred to BATS itself which caused it to pull its IPO.  It looks like a "stub quote" at 544 executed on the BATS exchange. :
 
Nanex ~ The BATS IPO and halt in AAPL

 
Here's an article explaining how stub quotes contributed to the May 2010 "Flash Crash".  Note that the practice of way OTM stub quotes was BANNED by the SEC. : http://www.marketwatch.com/story/stub-quoting-helps-explain-last-thursdays-penny-prices-2010-05-12
 
'But market participants say stub quotes play an important role in preserving liquidity and keeping markets running smoothly. If a market maker doesn't have enough liquidity available to trade a stock near its recent price range, then a stub quote is entered so that the market maker complies with its requirements without extending its quotes beyond its available liquidity. Such bids would typically be priced at or near a penny, while such offers would be priced well above a stock's recent trading range, usually at least doubling it. They are essentially place-holders, never intended to be the prices of actual trades.


"They never expect them to be executed there," said Mark Enriquez, managing partner at Pulse Trading, a brokerage firm. "Nobody expects to buy a $40 stock at a penny. But that's why you saw these crazy prices."
The stub quotes were traded because liquidity was quickly sapped up across the equities market to the extent that the only bids left in some stocks were the stub quotes priced at a penny. Market sell orders work in such a way that they will keep going down the line of orders until they find bids to be filled at, and when the stub orders were the only ones left to be found, they got executed.'
 
So it seems like what happens is liquidity dries up and a sell order will move down the line of orders until it hits a bid order and executes it.  Since BATS was having a helluva time trying to keep its own stock from dying, there might have been some sort of network or system latency issue that was jamming up order flow an a sell order ran down the line and hit at the next available bid — the stub quote at 544.
 
I assume something similar to this happens whenever these "phantom bars" shows up.   HFT's will often "quote stuff: or send out blasts of orders and cancel them immediately in order to manipulate the price.  No doubt when you have hundreds of HFT's quote stuffing at the same time on the same stocks, there is going to be some latency issues on the exchange.

Interestingly enough, on a 5 year chart, crack spread is still very elevated! Looks like the consumers is getting hit from both sides – high oil prices and high gas margins!

ETF Performance:

http://www.bespokeinvest.com/thinkbig/2012/3/24/key-etf-performance-matrix.html

Look at financials and technology…. No wonder FAS is hurting us, financials were up 6.5% this month!

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