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Sunday, November 27, 2022

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Thank GDP it’s Friday – Reality Check?

SPY WEEKLYWill the GDP be bad enough to be good?

As I said yesterday, bad news is now good news as Bernanke promised to crank up the presses if the economy stumbles and yesterday we had terrible jobs numbers and an absolutely awful Kansas City Fed Manufacturing Survey and Eurozone Economic Confidence continued to decline and that was capped off with an S&P downgrade of Spain.  

RALLY TIME – of course!  The markets broke right over our 50% lines, forcing us to add a few bullish positions for purely technical reasons while we wait and see when or if the madness will end.  

We've already had a few hours of extensive conversation about the economic situation in Member Chat so let's just focus on how we can play the next half of the retrace back to our highs at Dow 13,300, S&P 1,420, Nas 3,200, NYSE 8,300 and Russell 850.  We'll still be watching those 50% lines (see yesterday's post for levels and chart) but it was easy money this morning grabbing Nikkei Futures (/NKD) off the 9,500 line in Member Chat and already (8:23) the index is back to 9,550 and, at $5 per point per contract – the Egg McMuffins are paid for. 

EWJ WEEKLYThe BOJ dropped 10,000,000,000,000 Yen on the economy this morning, expanding their asset purchase program to 40Tn Yen and it DISAPPOINTED the market and the Nikkei fell from 9,700 to 9,500 but we were up nice and early and, since the other Global Indexes seemed happy enough to ignore Spain's double downgrade (in fact, Spain is up 1% this morning on the bad news), we figured it would only be a matter of time before the Nikkei futures came off the floor to join them.   

As you can see from David Fry's charts, the Nikkei has been tracking the S&P very closely and the divergence was a bit silly.  What's actually silly is the way the S&P is going but we'll take the quick 50 points and run ahead of the GDP, where we HOPE the markets get a cold slap in the face from a GDP report that I predicted would be a miss from 2.9% expectations.  

8:30 Update:  2.2%!  That is TERRIBLE!!!  Not just a little terrible but TERRIBLE!!!  Business investment is crashing, structures are down 12%, Government spending down another 3%…  Damn, there is NOTHING good in this report.  What a delusional market we have rallying against this data.  Still, now the question is – is this news so bad it will be GOOD?  Will 2.2% GDP be anemic enough to spur Ben into action just 2 days after he told us the economy is improving and inflation is under control and unemployment is going down and gas prices are only temporarily high?   

ROFL!  Did people really believe that crap?  Oh yeah, that's right, I put up this image as a warning on Wednesday but what do we know with our silly Fundamental view of the market?  Of course, part of the reality we have to embrace is that there are, in fact, many, many suckers in this World and it's one thing to be ahead of the curve but quite another to fight the tide.  Our general strategy this week has been to make quick money off our bullish momentum plays and use that money to press our bearish bets

This is a good system as we end up with some huge bearish bets right at the top of a market but only IF it ever normalizes.  

Otherwise we're treading water like idiots and missing the rally.  The strategy is based on the belief that EVENTUALLY the fundamentals will catch up with the market and price discovery will occur and the huge drop we catch will more than make up for the rally we missed.

As you can see from our Big Chart, the Dow is back near the top of our expected trading range and that's why it became our focus short while the Russell has been lagging (along with the Financials) and those became or focus longs.  

Due to the crazy move in the Nasdaq yesterday, we also added a nice SQQQ (ultra-bearish Nasadaq) spread that will pay back 333% in our small portfolios if the ETF simply holds $11 through options expiration.  If you're not going to take advantage of cheap leverage like that when the market is running to the top of the range – when will you make your plays?  You can't buy low and sell high unless you are actually willing to buy when things are low and sell when they are high – our Big Chart is a very useful guide for tracking those trading ranges and – if the range breaks – we stop out and wait for the next one.   This is not a complicated strategy, folks….

Still we must fear the Fed so we went long on BAC ($8.27) as well as TNA ($59), also in our two small, virtual portfolios as we wanted to make sure all of our bases were covered.  While we expected a miss in GDP (not a 24% miss, though), we also expected exactly the reaction we're getting from the markets which is – EVEN MORE BULLISH! – as the Dollar dives to 78.75, down almost 1% off it's morning highs as everyone is rushing in to bet on MORE FREE MONEY from the Fed.

So we'll ride this wave while it lasts but we KNOW there are plenty of rocks ahead so look for us to bail early and get back on the bear track.  Our Big Chart lines are slightly higher than our 50% levels so we'll now be using 3 of 5 of those to determine when to flip the switch back to bear.  

The Euro shot up to $1.325 and the Pound is at $1.625 and the Yen is all the way down to 80.60 so they should be buying Dollars but the Swiss Franc is down to 1.201 to the Euro and that means they'll be cranking up the presses to buy Euros which my 10-year old daughter yesterday commented was stupid, because they gave away their strategy.  Maybe the SNB needs a take your daughter to work day to straighten them out!

My daughter also said yesterday that, based on her first lesson in identifying MACD and RSI patterns, that the indexes looked a couple of days from a big sell-off, which means what we have now is likely to be the blow-off top.  In Carny speak, the Blow Off is the rush of customers out of an exhibition after the big finish – last Friday we jammed to ELP as we took our bearish profits off the table and prepared for the big show this week:  "Come inside, the show's about to start, guaranteed to blow your head apart…"  I mentioned some of our bullish trade ideas in that morning's post – here's a detailed look at one of our bullish trade ideas from Thursday's Member Chat (when we were getting towards the bottom of our range):

Bullish/Samz – See above CHK but, shorter-term, I like selling FAS May $80 puts for $1.45 as that's down 21% which is down 7% on XLF ($15.30) to $14.23 and that's a reasonable place to go long on XLF since we love them at $13.50 anyway.  Using that base, you can grab the TNA May $50/55 bull call spread at $3.20 for net $1.75 on the $5 spread that's 110% in the money (TNA now $55.85) so you can't lose unless TNA drops 10%, which is 3.3% back on the RUT, which is 772.8 and 775 was our target anyway.   If you only want a HEDGE, just in case the RUT breaks 3.3% up, then it only costs $2.40 for the TNA $55/60 bull call spread and then your insurance cost is net .95 but you can see why I'd rather spend the extra .80 to have $5 better position, I'm sure… 

As of yesterday's close, the FAS May $80 puts were .45 (up 68%) and the TNA May $50/55 bull call spread is already at $4 for net $3.55 off the net $1.75 entry so up 102% in a week is not a bad way to hedge a bull run.  We just added a similar trade in yesterday's chat and that let's us put very tight stops on this layer so we can get right out with no regrets.  Even playing the straight $2.40 (and option we also used yesterday), the straight bull call spread is up 66.6% in a week – and that's a number that makes Lloyd Blankfein very happy!  

As I said, our longer-term strategy is to take SOME of the profits from these aggressive upside momentum plays and put them into longer-term bearish positions – like PCLN July $600 puts at $8.  It's not that we think PCLN will drop $150 but the July $650 puts are $16 so it's reasonable to assume that a $50 pullback in PCLN, back to $700, will give us a 100% gain on the July $600s.  If it only ends up being 50% – we'll take it!  

We'll be taking some of the money and running this morning on the bull side because this market is simply ridiculous.  If we're wrong on Monday morning and the market isn't down 200 points – then we'll rethink our bearish positions and add more bullish ones but, at some point, you do need to put your foot down and stop the madness!  

Have a great weekend, 

– Phil

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flip
If you could do a little economic history you would see what causes real economic growth and why now we have only wealth accumulation. That way you don't understand creates jobs that produce and expand the ecomony. Spending money on the military only creats wealth in the industrial military complex. And wealth transfer has failed for a very long time, if you study up you will see that it causes recessions, poverty, and depressions. History is only repeating itself and those that refuse to except the past are condemed to repeat it!

Hang in there Phil. There just isn't any volume to trust the direction. We could turn either way with significant volume don't you think?

one week till the Oaks and 8 days till the Kentucky Derby….anyone else going?

where will that Bucky go next?

scott:
It ought to up for a while!

scott I would be surprised if we dont get some short covering into the weekend on the $..over 80 next week, remember Europe.

Profits/Jromeha – i'd love to be taking some out.. except all my longs are comatose and my shorts are pending doubledowns…and i don't know if anyone else has any profits to take, either.

Flip:  The military does in fact act as a "job stimulus"  program.  I know a number of healthy, well-qualified young men in high unemployment states [NV] who tried to join the Army reserve program over the last six months just to feed their families — and were turned down, having been told "We are laying off people left and right now."  Phil is of course correct about the futility of U.S. military spending, which is a giant sinkhole fiscally.
 
 Even worse, the existence of this oversized military has given new meaning to the old saw "when all you have is a hammer, every problem looks like a nail," and has inspired adventures like Afghanistan, which has been defeating foreign armies since Alexander's time.  I'll be polite enough not to comment on Iraq, which a gazillion dollars of military might ended up finding no WMD and shoving the country into the Iranian sphere of influence. But the Army has been providing jobs over the last number of years to people who would not otherwise have one — expensively, and there's probably a better way [send them to school all expenses paid instead] but it's water over the dam now that the cutbacks are here.

Phil – yes, Im aware we spend WAY too much on military. However, we also get paid better than the Chinese, Russians, etc. Our retirements (while they last) are sick. An average career officer will retire as a Lt Col. They get 40-50K a year for life after 20 years and free health care. Often they step right into a GS-12 or higher job where they can work another 20 or so there and get another good retirement. Plus, they are collecting on their military retirement the whole time.. Personnel costs are much higher with our military than other countries. For instance, Greece officers get paid decently but they have to work 35 years before they can retire…

I feel very guilty today. I sent Dollars to Isreal to purcase extremey rare Tamura SUT 83S moving coil step up transformers. Only sold in Japan for $13,470 in todays conversion. They will never be built again because retail would be at least $50,000 today, can only be wound by hand because of a circular core with tiny wire. 99% effecient probably a month to build. Had to have them, the best to extremes! And super deal.

Scott right with you my longs are losing and my shorts…well they are lacking to say the least

Yes, the Army will have major drawdowns coming and next year will be my 3rd year of (of the 7 Ive been in the AF) going through boards to determine if my records are good enough to allow me to stay in. 
On a stock note, can we PLEASE get a little sell off into close!
Scott – Im right there with you, all my positions have been destroyed. I was way too heavily into ARNA and had all the profits in them wiped out. Im only getting 25% of them back today….

jro – whilst I cannot argue the specifics on retirement for the military, when they put their life (regardless of whether I agree or not) before mine, I am happy to pay them – for life.  Living in San Diego, and knowing many marines who are in or come back from Afghan and Iraq, their families are torn apart.   I think that the CEOs, CFOs, CIOs, ect, from the defense industry can all afford to pay a bit more in taxes to offset these…I am sure it would be more than enough!

Oh, and jro – I know you are one of them…..

WHy the hell is the RUT hanging so tough!!! Dow gave back half its gains.

$25KP / Phil – CHK reports on Tuesday… that could be interesting!

stjeanluc….After close I'll confess to trade I made today on one of the MoMos, but not wanting to bias everyone……..:)

jromeha
Hang in there RUT had heavy selling after the close. Gravity higher plus Axceration = Hard Landing!!!!

lflan / confess — Stop messing with Jabo's girlfriend! 🙂

Wow, only 108M for the day.

Yes Pharm – I agree with you and thank you for your excellent picks contributing to my retirement :), I just compare us to other industries and it doesnt seem fair

Trades / lflan – Actually I was really busy today with other work so could not keep on top of trades just answered quick questions, but PCLN gave some nice entry signals today that could have been acted on… 

Now this will not be a welcome notion to the commies among us, but my circumstances bring me into contact with a very wide range of income levels, and I can you assure it's true.  That doesn't imply causality per se, but working harder doesn't hurt, either.  http://blogs.wsj.com/wealth/2012/04/27/do-the-wealthy-work-harder-than-the-rest/

PCLN up 87+ in 3 days..
ruined my 2012.
FU PCLN!!!

The plan all along / Phil – The GOP plan from the actual day one was to wreck the economy for Obama:

http://www.huffingtonpost.com/2012/04/25/robert-draper-anti-obama-campaign_n_1452899.html

 

As President Barack Obama was celebrating his inauguration at various balls, top Republican lawmakers and strategists were conjuring up ways to submarine his presidency at a private dinner in Washington.

The event — which provides a telling revelation for how quickly the post-election climate soured — serves as the prologue of Robert Draper's much-discussed and heavily-reported new book, "Do Not Ask What Good We Do: Inside the U.S. House of Representatives."

There was never any compromise possible… After 9/11 most of us stood together even though we didn't care that much for Bush. After the worst recession in the last 90 years where millions are suffering because of their policies, they plot to make it worse! There is a word for that but I just can't remember it!

As a footnote, I believe it was Sir Mick Jagger who wrote "Hanging onto you money is a full time job [I don't need the aggravation I'm a lazy slob"], Hang  Fire, Tattoo You album, 1981

For the Games of Throne fans out there (another great series from HBO) a nice mental break for the day:

http://www.escapistmagazine.com/news/view/116975-Game-of-Thrones-Characters-Compared-to-U-S-Political-Figures

Hello,
ABX was supposed to report today?  Etrade has them reporting today before market open, but I did not see any report.  
Thanks for update and all.

drmtv10 / ABX —  earningswhispers.com has them reporting 5/2 (confirmed).

Quite the little run we have now..

It's tough to ignore that latest run because OBV seems to support it.

We have broken out of the down channel and made a new higher high. Confirmation would be a higher low next time we have a down day.

STJ/Phil: HBO has done a great job of adapting Game of Thrones – which is no easy job if you've read the books! Love it! 

drmtv – I have 5/2 in TOS.

Not only is he wrong, but he is also a liar…

http://thinkprogress.org/politics/2012/04/26/471730/paul-ryan-ayn-rand/

In 2005, Rep. Paul Ryan (R-WI) heaped praise on Ayn Rand, a 20th-century libertarian novelist best known for her philosophy that centered on the idea that selfishness is “virtue”. The New Republicwrote:

 

The reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand,” Ryan said at a D.C. gathering four years ago honoring the author of “Atlas Shrugged” and “The Fountainhead.”

Ryan also noted in a 2003 interview with the Weekly Standard, “I give out ‘Atlas Shrugged’ as Christmas presents, and I make all my interns read it. Well… I try to make my interns read it.”

But today, Ryan is singing a far different tune.

From an interview with National Review’s Bob Costa this week:

I reject her philosophy,” Ryan says firmly. “It’s an atheist philosophy. It reduces human interactions down to mere contracts and it is antithetical to my worldview. If somebody is going to try to paste a person’s view on epistemology to me, then give me Thomas Aquinas,” who believed that man needs divine help in the pursuit of knowledge. “Don’t give me Ayn Rand,” he says.

It’s understandable why Ryan would back off his former political muse. She described altruism as “evil,” condemned Christianity for advocating compassion for the poor, viewed the feminist movement as “phony,” and called Arabs “almost totally primitive savages.”

Thanks every one for update on ABX.

Phil / work ethic:   Sorry, I had a dull day, so I couldn't resist a little amiable provocation.  Actually, I have thought about who works and why, having observed a remarkable spread in working habits among cultures and their strata.  I've concluded that — given the ready availability of work —  people will work to the level of their marginal materialism, more or less, circumscribed by the societal norms of their peers.  I'll call that "cost-push", in which they are pushed to work the number of hours required to pay the cost of their particular consumption curve.  
 
Greater wealth, however, changes this preference curve in requiring the owner of capital to work to the level required to maintain this wealth in existence.  Since, in a capitalist economy, what is considered to has "value" is rather amorphous when compared to hunter/gatherer or agricultural societies, this turns out to be quite a labor intensive process. 
 
I have seen very little evidence that wealth and happiness are correlated in any absolute sense.  It's obvious to everyone that perceptions of wealth are inextricably bound to a particular cultural context.   A Masai with a few hundred head of cattle, an apartment in Arusha, $250k in the bank and a few beautiful wives is at least as cheerful as any half-dozen of the self-satisfied stuffed shirts who fly their G5s into Davos every year.  All but the poorest Americans are probably richer, in income earned and resources expended, than 80% of the denizens of our planet.  
 
I won't rummage around in the pop psychology bin to explain why that might be.  I will say that having wealth creates a kind of "demand-pull" in which the wealthier are forced, at the risk of having their capital disappear, and quickly, to spend a very substantial number of hours navigating the shoals of business and markets.  They feel compelled to preserve its "value" and must devote the hours required quite apart from their personal work/consumption preference, to a greater extent than is the case with people who offer only labor, in a normally-functioning economy.  And, despite its occasional charms, this does impose its own kind of slavery.   PSW works, because it comes close to turning it into a form of recreation, for which we thank you.

I read this guy every day and I love his style. I am sure Phil will appreciate the references to the Classics:

http://pmcarpenter.blogs.com/p_m_carpenters_commentary/2012/04/of-brooks-socrates-and-keynes.html

 

I loved this summarizing tease for David Brooks's column this morning: "Government doesn’t profit from experience…. It should try learning the way businesses do."

You know, such as the way U.S. business learned from the Depression of 1807, the 1815-1821 Depression, the 1830s Depression, the 1870s Depression, the 1890s Depression, the Depression of 1920-21, the Great Depression of the 1930s, the 1970s recession, the 1980s recession, and now the Great Recession of 2008-?, which was propelled–as were preceding recessions/depressions and other assorted financial panics–almost entirely by business's limitless greed.

Yet Brooks's Great Befuddlement hardly stopped there. In the column's conclusion, Brooks advances the Socratic observation that "The first step to wisdom is admitting how little we know and constructing a trial-and-error process on the basis of our own ignorance." That's good advice. And it's a damn shame that Brooks doesn't follow it, as evidenced earlier in his column: "Nearly 80 years later, it’s hard to know if the New Deal did much to end the Great Depression."

No it is not. Heaps of empirical economic data demonstrate unequivocally that the Roosevelt administration's rather tepid Keynesian interventions at least alleviated the depression to the measurable extent of those interventions; later, it was the forced, massive Keynesianism of the Second World War that decisively ended the wretched thing.

This academic consensus is as solid among economic historians as global warming is among climatologists. Yet "nearly 80 years later," soft ideologues continue to advance the political agnosticism that "it’s hard to know if the New Deal did much to end the Great Depression." The hard ideologues deny Keynesianism's benefits altogether.

Again, it's instructive to note Brooks' Socratic underpinning: "The first step to wisdom is admitting how little we know …" Why instructive? Because one might further note that in Plato's 'Dialogues,' most of Socrates's deliberations ended in an inconclusive fog, while the rest finished in a wholly predetermined fanfare. In Brooks's dialectical case, he feigns the former–"admitting how little we know"–but ends with the wholly predetermined latter–"it's hard to know."

Well, it is if one refuses to know.

The problem when you have been raised in a top 1% family and live in another top 1% family is that you are completely detached from reality….

 

Mitt Romney, at Ohio's Otterbein University:

We've always encouraged young people: Take a shot, go for it. Take a risk. Get the education. Borrow money if you have to from your parents.

And indulging my love of understatements is CBS News:

The average cost of attending a four-year public university is about $20,000 a year, an amount exceeding the cash-on-hand of many American family budgets.

Iflan / Profit taking – Your suggestion on using GTC profit target oders and ‘fugedaboudit’ Wednesday, you also mentioned the use of stop-loss orders. If you get a chance this weekend can you elaborate? TIF

Pharm – something for your new home…..
 
http://www.newegg.com/Product/Product.aspx?Item=N82E16882981007&nm_mc=EMC-EXPRESS042812&cm_mmc=EMC-EXPRESS042812-_-EMC-042812-Index-_-HomeAudioSpeakers-_-82981007-L03A
 
With the new models out, this is an Awesome price for these and on the 12's as well (I have both)
 
Martin Logan is headquartered in Lawrence, Kansas.  🙂

….and the $80 dollar promo is off the discounted price of $199….

Phil Good morning, Left you a comment on the recent Inc PORT Blog. Any thoughts?

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