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Technical Tuesday – 1,360 or Bust on the S&P – Again!

Here we go again!

It was only last Tuesday we were watching that 1,360 line on the S&P but, at the time, we were looking for it to hold as we finished last Monday at 1,370 – in a totally fake pump into the close.  Even early Tuesday morning, the Futures were being pumped up to reel in the suckers but I warned in the morning post

There is no particular reason for the move, other than this being Tuesday in a manipulated market.  Neither oil ($97.38) or gold ($1,628) or copper ($3.71) or silver ($29.73) or even gasoline ($2.97) give any indication of consumer demand for commodities.  "Fixing" the charts does not mean you have fixed the economy!

We all know what happened next – we failed to hold that 1,360 line on the S&P as the Euro failed to hold $1.30 and Greece was unable to form a coalition government (we also had disappointing Retail Sales numbers) and this morning (6:45)  oil is $94.74, gold is $1,558, copper is $3.53, silver $28.23 and gasoline is STILL $2.97.  

The last thing we should do is complain about gasoline prices – we still pay 1/2 of what Europe does and even China is paying $5.31 a gallon – 25% more than the US average $4.19.  At this point, gas prices are the only commodity not falling down and that's because they are the easiest to manipulate – the last bastion of the speculator – if you will.

With that mythical summer driving season on the way, even we stopped shorting oil at $94 and gasoline is now a joke at $2.97 as that's $124.74 per barrel – a 33% per barrel mark-up at retail.  At the pump, $4.19 a gallon means you are paying $175.98 at the pump – that's an 87% mark-up!  Actually, we shouldn't look at it as 87%, that's misleading – when oil was $60 per barrel, gasoline was $1.85 at the pump and that was $77.70 and the refiners were making very good money.  Why would it cost $81.98 to refine and retail a $94 barrel of oil when it only costs $17.70 to refine and retail a $60 barrel of oil?  See – it's a rip-off!  Somebody, somewhere is massively screwing you over – that much should be obvious to even a Republican Senator.  

DBC WEEKLYThis 400% increase in retail mark-up is literally destroying the US economy.  It's not about the price of oil but what consumers pay at the pump that matters and, with the average consumer driving 15,000 miles a year in cars that average 20 mpg, that's 750 gallons a year with the extra $2 per gallon sucking $1,500 out of the wallet of every driver in America.  With 200M cars on the road, we're talking $300Bn a year of consumer spending power deleted – one fill-up at a time.  

THAT plus the extra 12M people who are out of work are the reasons why this economy – indeed the entire Global Economy – will NOT be recovering until we get gas prices under control and begin creating jobs again.  To pretend that the markets should be back to their 2007 highs when the underlying conditions are so much worse is a complete fantasy so let's not expect any big bounce back to levels we shouldn't have been at in the first place.  

Sure the Fed or the ECB or the BOE or the BOJ or the PBOC can pump another Trillion here or a Trillion there to jam us back up again but it's nothing more than a sugar rush that quickly fades.  Until our World Leadership gets serious about addressing the real problems that are plaguing us (and I mean 100% of us, not the 1% of us who benefit from QE) – all rallies will end in disappointment and already people are getting the message that long-term investing is a dead end and now we have sugar-rush markets as well – where traders run from sector to sector, stock to stock – looking for the next hot thing.  

Again, this is great for the top 1%, who fleece the sheeple daily, but not so good for the sheeple themselves and then we act all surprised when the beautiful sheeple no longer have any money to buy the stuff we make.  

We've been doing a little bit of bottom fishing but not because we think the economy will recover – just because our Central Banksters don't seem to know how to leave the economy alone for 5 minutes without "fixing" something.  Unfortunately, the more I read this week, the more bearish I get and we're certainly not going to get sucked into too many bullish bets until we see those "Must Hold" levels retaken on our Big Chart.  It shouldn't be too much to ask if there's a real recovery in progress.  

NYMOAs you can see from Dave Fry's McClellan Oscillator, we're short-term oversold.  We're going to bounce – the only question is how high and for how long?  We were oversold in mid-June of last year and we bounced back from 1,258 on the S&P to 1,356 into the holiday weekend and we bounced up and down between 1,350 and 1,300 for the month of July and then fell to 1,100 in the first 10 days of August.  If you look at the long-term chart of the S&P – this pattern is shaping up very similar to last year's.  

So, rather than looking up and wondering where we will bounce to, let's assume for a moment that we do NOT retake 3 of our 5 Must Hold levels and – even worse – let's assume that our Central Banksters are not willing to put in additional stimulus measures while all these elections are going on – as we've seen what a mess Greece and France have become as people are finally getting fed up with the Fed and their cohorts driving down the savings rates while doing nothing to improve things for the average person who, sadly, still have the right to vote (don't worry, the Supreme Court will be hearing this case next year in "Romney vs. People Who Don't Deserve a Vote").  

Notice it has not been a great 12 months for most of the World.  Are US equities superior or delusional – that is the question?  If the DAX fails to hold that 6,250 line, there's no way you're going to convince me to be bullish again until Europe and Asia get back over those red lines or the US corrects down enough to join them and at least give us credible entry points.  As it stands now, we're still over-achieving globally by a solid 5%, at least and that leaves us open for one Mofo of a correction in the near future.  

Gosh, this hasn't happened in so long I can hardly remember when the US last ignored first a collapse in the emerging markets, then Europe and then a sell-off in commodities – it must have been way back in – 2008!  That's right, if you want to match what's going on now to something historical, this is JUST like 2008 – even including the "isolated" incident at JPM which is nothing at all like what's happening in Europe (where Moody's downgraded 26 Italian banks yesterday).  

We continue to party like it's 1999 when it's more like September 10th, 2001, where our President gets ready to pretend he can read for a photo op despite the gathering storm he was clearly warned about (assuming someone read it to him) just a month earlier.

We have a gathering storm in the markets – cash is going to be king and you can see that from the rising demand for Dollars.  This is not a stable economy, we are being attacked from all sides by bad data and this is NOT a good time to be jumping into long-term trades until we get some better signals.  Yes, we are finding some stocks to buy that are simply, fundamentally cheap and we don't mind picking up entries on those but let's not lose our heads and remember to keep one hand on the exit door at all times – just in case.

Germany had a 0.5% increase in GDP but that's so 2 months ago now – who cares?  Italy was down 0.8% in Q1 so Recession/Depression – whatever you want to call it – it's on!  France's GDP flatlined (and this is with MASSIVE EU stimulus, don't forget) and the overall Eurozone was at 0% growth - DESPITE the MASSIVE bailout package.  In CURRENT NEWS – the German ZEW Economic Sentiment Indicator for MAY dropped 54%, from 23.4 in April to 10.8 this month and far, far below the 19 that was predicted by economorons, many of whom obviously were consulted by JPM recently.

Eurogroup chief Juncker dismisses as "propoganda" and "nonsense" the idea of Greece exiting the Eurozone, which probably means they'll be out this weekend as I would rather trust Lloyd or Jamie to tell me what's real in this World than Juncker.  

What's painfully real in our World is ICSC Retail Store Sales were down 0.8% last week after being down 0.8% from the week before that.  Overall April Retail Sales were up just 0.1% vs 0.2% expected and 0.8% in March and that's WITH gasoline sales giving us an 6.9% "boost" over last year.  This month is not included on the chart on the right but 0.1% will look like that tiny little bar in December – no wonder we were shorting XRT!

Our last two plays in Member Chat yesterday were aggressively bearish plays using SQQQ (ultra-short Nasdaq) and TZA (ultra-short Russell) as we did not like the action into the close one bit.  At 3:06 my comment to Members was: "Getting ugly signs again across the board.  No Greek government leads to weeks of additional uncertainty"  and, in the morning Alert my warning about getting bullish yesterday is exactly what is going wrong this morning:

Retail Sales, CPI and Empire Manufacturing will have to turn us around tomorrow.  After that we have lots of housing news and our own Industrial Production, which is not likely to be thrilling so no knight in shining armor on the horizon if we fail to hold the above levels and a long way to the bottom.

Looks like we'll have to wait a bit longer to find that elusive bottom….


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  1. Oil Lines

    R3 – 97.69
    R2 – 96.74
    R1 – 95.55
    PP – 94.60
    S1 – 93.41
    S2 – 92.46
    S3 – 91.27


  2. gasoline price today in Minneapolis  $3.71


  3. Economic numbers for the day:

    Japan Consumer Confidence / 40.0 (40.8 expected)
    France CPI (MoM) / 0.1% (0.2% expected)
    France CPI (YoY) / 2.1% (2.2% expected)
    France GDP (YoY) / 0.3% (0.5% expected)
    Germany GDP (YoY) / 1.7% (0.9% expected)
    Italy GDP (YoY) / -1.3% (-1.2% expected)
    Great Britain Trade Balance / -£8564 (-£8400 expected)
    Euro-Zone GDP (YoY) / 0.0% (-0.2% expected)
    Germany ZEW Economic Sentiment / 10.8 (19.0 expected)
    Portugal GDP (YoY) / -2.2% (-3.1% expected)
    Euro-Zone ZEW  Economic Sentiment / -2.4
    German Zew Current Situation / 44.1 (39.0 expected)
    US Advance Retail Sales / 0.1% (0.1% expected)
    US CPI (ex Food and Energy) (YoY) / 2.3% (2.3% expected)
    US CPI (YoY) / 2.3% (2.3% expected) 
    US CPI (ex Food and Energy) (MoM) / 0.1% (0.3% expected)
    US CPI (YoY) / 0.0% (0.0% expected)
    US Retail Sales Ex Auto & Gas / 0.1% (0.3% expected)

    Germany GDP saves the Euro-Zone from recession! Overall mixed numbers…


  4. PP for today:


  5. Phil – You should ask to be a test subject:

    http://www.engadget.com/2012/05/15/mits-brainput-reads-your-mind-to-make-multi-tasking-easier

    With so much information readily available at our fingertips, a multitude of devices to access it from and an increasing outside demand for our divided attention, it's easy to short-circuit on the productivity front. But there's a bright spot on the horizon as emerging research out of MIT is poised to help offload the burden shouldered by our overtaxed grey matter with a much needed and intuitive assist fromhuman-robot systems. The Brainput project — as the collaborative effort is known — combines near-infrared spectroscopy (fNIRS) with an input system designed to read changes in a user's brain state and translate those signals into an adaptive multi-tasking interface. Sounds like heady stuff, but if successfully implemented into high-stress environments like air traffic control, the low-cost, experimental tech could go a long way to boosting individual performance and reducing overall stress levels. For now, the team still has a ways to go before the system, presently capable of interpreting three distinct mental states, could make its way into end user applications. Curious for a more in-depth, jargony journey through the project's ins and outs? Then click on the source below for your daily dose of scientific head candy.


  6. CHK – Goldman Sachs and Jefferies are boosting the size of their unsecured term loan for Chesapeake Energy to $4 billion from $3 billion, and tightened the OID by a point amid strong demand for the deal, sources said.The issue price is now 97.


  7. Futures just took a poop.


  8. …thanks to the greeks….


  9. Greece helping put in a new recent low today.  Thanks party leaders.  Could be temporary blow off bottom before slight bounce.


  10. Good Morning!


  11. Oil down .22 cents and USO up 22 cents!?!?



  12. Morning everyone
    fresh from Zacks this am
    ————-

    ZACKS.COM

    Tactics that Work in Good Markets and Bad
     

    Freight Train

    The equation for what is happening now is fairly straight forward.

    Big market rally + no fresh economic data + new European debt concerns = Correction

    We saw this freight training coming for a while. That's why we prodded you to get more defensive in your portfolios. Hopefully your shorts and inverse ETF positions are showing some nice profits at this time.

    The key question now is this: Where is the stock freight train headed?

    I believe we are going to hit 1300 for sure. Probably see a little support there. But time and time again the market finds its way back to the 200 day moving average. That is a notch lower at 1277. From there it is a bit more of a mystery to me.

    If European problems keep escalating + US economic data softens = stocks head even lower.

    If European situation improves + US economic data stays solid = rebound.

    At this time I am not giving up the long term stance that we will hit 1500 this year. However, I am open to the possibility that the European situation may be worse this time around and that US stocks will suffer as a consequence. For now, the above lays out the game plan.


  13. PLX testing recent lows


  14. Lflan, are you around? We miss you.


  15. USO- I have a Jun BCS 40/46— suggestions on how far out to roll?



  16. Phil – Should we sell some Mar 13 IWM calls.


  17. Phil/CHK 5kp
     
    Would you make any adjustments here? or wait until the downgrade police are done?



  18. FU CHK!!!



  19. As we wait for the 10 AM numbers ride last weeks lines are still good but if we fall off the cliff below 77.60, 77.05, 76.53, 75.90, 75.70, 74.94. Desending trendline ristance is 78.60 and support 77.00. If Phil is correct we won't need lower lines.


  20. msf65….Yes, I'm around.   Lurking in the shadows, but not doing much trading on AAPL or anything else.  Just waiting for opportunities.  All of my accounts are > 95% cash. 


  21. So much for a proper sell-offl… FU Stick!


  22. Iflantheman
    There is no safety behind my cat, he will lead you to the food bunker! Don't trust his friends either, their world is perrrrfecto!



  23. Shadow/purrrfecto  Same with our cat – the dogs, not so much….
     
    I think they're reading PSW while I'm away….. ;)


  24.  
    Phil/GRPN – Any play on GRPN. It' s already pulling back from this mornings high so not sure how much more downside in the near term.


  25. Very weird CHK action. I looked at Jan 13  $10-$15 bull call spread just two minutes ago and it was $2.15 but it went up to around $2.90 and is still there even though the stock is going down a little.


  26. Good morning! 

    Dollar punched up to 81.14 this morning, now 81.04.  Needless to say, over 81 is not bullish. 

    Euro touched $1.277 on news that the Greeks can't form a coalition and will need to re-vote in Mid June.  Pound fell to $1.6032 in sympathy and the Yen managed to claw back to 80 despite the Euro as the rise in the Dollar helped them out.   Nothing is helping the Swiss, who are barely holding the line at 1.2009 in a range it must be costing them a fortune to maintain.  Keep in mind that without the Swiss – it's very possible the Euro would be dropping over a point a day.  

    CNBC is attempting to spin the fact that Greece is going to use $500M of the $140Bn they borrowed to make their monthly bond payment as a reason to be bullish – they are truly sinking to new levels of idiocy!  

    News doesn't much matter at the moment unless it's more QE.  We do have Fed minutes tomorrow and Bullard (hawkish) speaks both tomorrow and Thursday at 12:30 so he must have some talking point they are trying to drive home.  

    Chart-wise, anything down is bad and so far, we had a drop since the 1st, consolidation on a weak bounce from the 8th to the 11th and then we resumed the downtrend yesterday.  If we don't turn it around today, then we can't say yesterday was a blow-off spike down but, assuming we do claw towards Friday's close, then our bounce levels would be (and they go lower as we go lower):  

    • S&P topped at 1,410 (rounding and ignoring spikes), low 1,340 is 70 points (5%!) so 20% retrace is 1,354 and 40% retrace is 1,368 – anything less than that and we're still in a downtrend.  
    • Dow topped at 13,320, low 12,680 is 640 points (5%!) so 20% retrace is 12,800 and 40% retrace is 1,930
    • Nas topped at 3,080, low 2,905 is 175 points (5.6%) so 20% retrace is 2,940 and 40% retrace is 3,015
    • NYSE topped at 8,200, low 7,700 is 500 points (6%) so 20% retrace is 7,800 and 40% retrace is 7,900
    • RUT topped at 830, low 780 is 50 points (6%) so 20% retrace is 790 and 40% retrace is 800

    That means 12,800 is going to be a big deal to watch as it's a weak bounce for the Dow and the -5% line.  We don't want to see the Dow have trouble at that line.  Then we'll be looking to see if the RUT has issues at 800 or the Nas at 3,000 so those are going to be our 3 bullish signals if we're heading back up, after which we can assume the S&P, Dow and NYSE will play some catch-up but we're a long way off from celebrating those crosses and anything less than that is nothing but a bounce – whether strong or weak.  

    Over in Europe, we need to see the FTSE hold 5,500.  Like the US, the UK likes to pretend it doesn't need the EU to have a strong economy and, like the US – they are wrong.  The Hang Seng needs to hold 20,000 and the Nikkei needs to hold 9,000 and DAX, of course, has to hold 6,250 and they are 2% above it at the moment and probably in a good mood today as their GDP was BTE.  

    I know it's tempting to BUYBUYBUY the dips but it was also tempting in October of 2007, when the S&P pulled back from 1,565 to 1,500 and ran back to 1,550 but then it was tempting again at 1,500 on Nov 5th and even more tempting at 1,450 on Nov 12th and SO tempting on Nov 26th at 1,405 that it started a rally back to 1,515 on Dec 10th but by Jan 22nd, 2008 we were down to 1,300.  We rallied back to 1,420 in May but down to 1,200 in June and back to 1,300 in Aug and 1,150 in Sept, up 100 a week later and back to 1,100 by the end of September and then October really sucked and we fall to 850 and then 666 a month later.  

    At many, many points along the way in a collapse, things can look irresistibly good.  As I said yesterday (and as we adjusted our Portfolios) – I have nothing against playing for the bounces but be realistic as that's all they may be – don't get attached to a bullish premise until Mr. Market proves he can hold those technical lines.  So far – he's only proven how easily they can fail so let's be careful out there!  


  27. Lflan, do you have a hunch  about AAPL


  28. Sorry pressed Enter too soon.
    AAPL in July ??


  29. So the numbers say nothing and we are stuck on the 200 SMA with no money coming in. Time to go back to bed.


  30. Thank you Greece to do everything in your power to help Merkel get reelected.
    Hopefully Greeks will soon realize that Greece can perfectly stay in the Eurozone while defaulting on its loan. It cant be expelled. Unfortunately that will seal an end to their mates rate at 4.5% on their Euro borrowings.
    Money market creditors are keen to lend to them at 250% for 2 years in Euro. In Drachmas?
    Let s hope they take the coming month to think it through before voting or they will understand the true meaning of Spamassnahmen!


  31. IRA Portfolio Update

    Time to add some RIG!

    BUY 100 RIG @ $44.13

    SELL 1 JUN 45 CALL @ $1.76 


  32. Test subject/StJ – Not if I have to wear that silly get-up!  I am waiting for a Ram upgrade for the brain – that I would find very useful.  

    USO/Jrom – More of a sentiment indicator during trading hours.  

    Good explanation of the problem – thanks Sage:

     

    What he does not explain is that J.P. Morgan's "earnings" are actually not earnings but are a form of theft from savers, retirees, and others pursuant to the Federal Reserve's zero interest rate policy.

    The Fed has engineered a massive wealth transfer from everyday Americans to large banks. They do this by holding interest rates near zero. Savers get nothing for their hard earned savings. However, banks get free money because they pay almost no interest. Banks then invest the money in Treasury notes and earn the difference. The Fed permits this to rebuild the capital of the banks. The Fed doesn't mind hurting everyday Americans if they can prop up bank capital.

    USO/Newt – Not sure oil will bounce back given the global economy.  That spread is worthless so the question is really should you make a new, bullish bet on oil and I'd say that's probably not a good idea.  If you are lucky (and the rest of the World is unlucky) oil will shoot up into the holiday weekend and give you something to salvage but you might want to take out the caller or you may be trapped in the spread.  

    CHK/Sage – Need to let them find bottom first, then we can evaluate.  

    AAPL/Lflan – Just tagged my $555 buy point again.  

    Sonders/Jabob – I like her work.  I think she's too focused on the US and not properly weighting the risk of a Europe/Asia collapse but, other than that, she's a sharp cookie.  

    GRPN/Ksone – Not one I would touch.  They had a low of $9.63 and a high of $25.84 in Feb and now $13.80 is right in the middle so they could go either way.  Earnings were strong so no reason to short them other than silly valuation but, on that basis – I should be selling the house to short Facebook on Friday and you KNOW that would be suicide (or domocide, in the very least).  

    CHK/Msf – Friday, people bought the crap out of them at $14.85 – very key to see if there is still interest today at that price. 


  33. Craig  / IRA — I think CLF may meet your criteria


  34. SVU – good time for another buy/write. stock at $5.21 and prefering the jan 14 5/7 strangle at $2.52  – gives a 2.79 net entry after commissions, which makes the dividend a pleasing 12.5%


  35. USO/ Phil: Thanks.


  36. FCX in another sell-off. Chart looks a lot like CLF, BHP (and probably other miners) with them sitting on Sept support modulo the spike low.


  37. JPM's annual meeting is due to start soon … I hope someone asks Jamie Dimon about traveling to Colombia in the 1970's, "blowing a J" after dinner and then watching the UFO's. ;-)


  38. Lionel do I sense a a streak of humor in your Greece comment ? Obviously they do not understand the word savings as so many!


  39. notice how quickly that vix drops on just a little pop…no worries here, right??


  40. I agree with you rainman, time to initiate a tiny position in CLF as well.

    BUY 100 CLF @ $53.30

    SELL 1 JUN 55 CALL @ $2.32


  41. Phil your yesterday's FAS play still looking good hope the hold up until the weekend.


  42. Craig / CLF — I meant to add that I'd wait for a bounce though.


  43. AAPL hunch…….down or sideways for a few weeks. 


  44. CHK-S&P downgraded on limited headroom under the debt/EBITDA covenant in its credit facility and potentially higher than anticipated funding needs over the next couple of years.  The negative outlook is from the credit metrics being near the edge of the rating category. 
    Banks almost always modify covenants instead of forcing a default.  Many credit investors invest almost primarily in companies that have hard assets because you don't lose your job when you invest incompanies that have strong asset coverage as it limits your ultimate losses (even discounting to PV).  There is a sea of money out there looking for a home and CHK  is paying a very attractive rate even for a B+ credit.   This will cost them interest expense and possibly other restrictive covenants, but they will have liquidity.  Moody's has them at Ba2 Negative.  The double rating is the sweet spot in terms of risk and return for credit investors.
    The $3 billion term loan credit agreement freed up borrowing capacity on the revolver to fund capital expenditures in excess of operating cash flows as the company markets the sale of a joint venture interest in its Mississippi Lime acreage and all of its 1.5 million acres in the Permian Basin. The increased liquidity because of the term loan has enabled Chesapeake to defer the sale of a volumetric production payment (VPP) of certain producing wells in the Eagle Ford that was expected to raise $1 billion. This allows the company to retain the production, reserves, collateral value and EBITDA in its future operating results from that predominantly oil and natural gas liquids play.
    The $4 billion credit facility has financial covenants that include a Debt/Capitalization limit of 70% and a Debt/EBITDA limit of 4x. Chesapeake is in compliance with these covenants at March 31, 2012 but its compliance headroom for the Debt/EBITDA covenant is declining as its EBITDA falls from lower natural gas prices and debt increases. Based on current EBITDA levels the company could exceed the 4x limitation at the end of the third or fourth quarter of 2012 if it does not complete its asset sales and reduce debt.
    The term loan matures in December 2017 and can be repaid without premium or penalty prior to January 1, 2013. Any repayments after December 31, 2012 will incur redemption premiums and any borrowings outstanding in 2013 and beyond will be subject to higher interest rates. On or after May 11, 2013 the lenders will have the option to exchange the term loans for notes with an interest rate of 11.5% and the same maturity date. The escalating cost of the term loan incentivizes Chesapeake to repay and/or refinance the term loan prior to the end of 2012.
    All this dancing around is to try to get a better price for the company's assets, not because they can't get liquidity. 
    I'm in the 2014 15, 10 and 8 puts for an all in price of a little over 8. 


  45. AAPL can be daytraded or maybe shorted, but doubt it's up significantly over next few weeks.


  46. Seer / CHK — Thanks for the analysis.


  47. Yodi/ Greece
    They unfortunately dont understand the words "tax the hell out of your wealthy citizens" and "Dont forget to tax your cash economy".
    Greek polls over the weekend showed a majority of Greeks were in favor of staying in the Euro and wanted a coalition government. At the same time they have elected a bunch of clowns with an antagonistic agenda. I just dont get their democratic thinking…
    They are not the only one to blame, a French poll today showed that a majority of French people thought that the best way to solve the economic crisis in their country was to diminish government spending. And they have just elected a socialist candidate who has made very clearly opposite election pledges. WTF?
    Europeans are a complicated bunch.


  48. YPF/phil  interesting to see 250 contracts traded so far today in the Oct $25 puts. Do assignment's show up as a traded contract or is this closing on shorts?


  49. Was just on the phone with my brother who just got back from the SALT conference and he said every hedge fund manager out there were all positioned bearish and will not think about going long on equities right now.


  50. Lionel
    Your last sentence says it all. To me it was the most stupidest  thing to try to unit them all under the Euro. Under 26 different languages the same than culture, worse than in South Africa they even unit under two of the same languages.


  51. Phil--do you have an opinion about CLF?


  52. VIX drop/ Low volume = HFT Algorithims dominating the market!.


  53. Don't believe everything that comes out of China:

    http://www.project-syndicate.org/commentary/the-myth-of-chinese-meritocracy

     

    Because of their relatively short tenure in one position before promotion (less than three years, on average, for local mayors), Chinese officials are under enormous pressure to demonstrate their ability to produce economic results quickly. One sure way of doing so is to use financial leverage, typically by selling land or using land as collateral to borrow large sums of money from often-obliging state-owned banks, to finance massive infrastructure projects, as Bo did in Chongqing.

    The result is promotion for such officials, because they have delivered quick GDP growth. But the economic and social costs are very high. Local governments are saddled with a mountain of debt and wasted investments, banks accumulate risky loans, and farmers lose their land.

    Worse, as competition for promotion within the Chinese bureaucracy has escalated, even fake academic credentials and GDP growth records have become insufficient to advance one’s career. What increasingly determines an official’s prospects for promotion is his guanxi, or connections.

    Given such systemic debasement of merit, few Chinese citizens believe that they are governed by the best and the brightest. But astonishingly, the myth of a Chinese meritocracy remains very much alive among Westerners who have encountered impressively credentialed officials like Bo. The time has come to bury it.


  54. rustle
    It often seems that when everyone is absolutely positive that something will happen, the opposite has a tendancy to occur.


  55. They dont have the spunk to move the markets higher with the $, all EUR related. If you think the EUR makes a move higher then bet long on the markets.

    From forexlive..

    According to US cables revealed via Wikileaks, Li Keqiang, who is to become Premier said he used three core statistics to track the performance of the Chinese economy, rather than the bald growth figure: electricity consumption, rail-cargo volume and bank lending.
    Aggregating these three from the performance in the year so far, it is hard to see how China can reach anywhere near the 8.5 per cent overall growth the federal government’s budget anticipates.


  56. rustle / sparky — Could make for one hell of a short squeeze if QE3 comes about. The Fed works for the banksters, not the hedgies.


  57. TLT over $121 and NO sense of panic in the markets… hmmm.


  58. rainman, canuck,
    Maybe no one is panicked, because they're all SHORT.


  59. I4real…yes and we all watch, again how they will continue to make money is beyond my realm. If I start a poker game with myself and include a bnaker to take a share of the purse…I will always lose!


  60. *TSIPRAS SAYS SYRIZA WILL PUT A DEFINITIVE END TO BAILOUT”
      credit agricole-7.2%
      imf says ecb can cut rates…hahaha…that will really help a lot
      good for a 5 minute msb xlf rally though


  61. SVU/Scott – That's a good entry but very important to have overall hedges in this market in case things do get worse from here. 

    VIX/Sage – All head-fakes so far. 

    Dollar back near 81.20. 

    Assignments/Scott – I imagine it would diminish the open interest at a strike and nothing more.  

    All bearish/Rustle – What a gloomy bunch, might be a good time for a squeeze then.  

    CLF/Jabob – Not a good time for an economy play with everything slowing down.  With any kind of stock like this – look at the 2009 low.  In the case of CLF, it's $19 – so why would you want to buy the stock for $53 when we could end up in the same place as we were then?   SVU was $11.40, JPM was $30, WFR was $15, HOV was $1.79, CHK was $16, FTR was $4.76, HPQ was $32….  See my point?  Plenty of stocks are currently available at prices we thought we would NEVER see again so why waste time and resources playing with ones that aren't?  

    China/StJ – Did people not know this?  

    Better Chinese indicators Kustomz.  

    European shares close with solid losses, giving up decent gains in a flash when Greece was unable to form a coalition government, edging ever closer to a messy EMU exit. Stoxx 50 -1%, Germany -0.8%, France -0.5%, Italy -2.4%, Spain -1.6%, U.K. -0.5%. The euro continues its steep May slide, -0.4% to $1.2767.


  62. Phil,
    An argument could possibly be made that SONC put in a recent btm in the high 6's. Would you be inclined to take a partial position by selling puts (lack of divid precludes buy write) ?
    Thanks


  63. sagemm / make money — You left the retail trader out of the picture.


  64. Personally I am enjoying the pop right now as between yesterday and this morning, I'm out of all bearish positions.  Do want to go back in but will be patient and wait for McClellan to come back a little.   Also curious how FB IPO will affect market if at all.


  65. China / Angel – The April numbers seem to confirm that and that's probably the reason behind the Australia bearishness now. But that's going to spread….


  66. More on my "twice in a lifetime list":

    MT was $23 in 2009, BTU $26.62, ABX $30, HMY $8.15, BAC was $10.45, CCJ was $22, AA was $8, OIH ws $29 (adusted), X was $25… Feel free to suggest more…

    SONC/8800 – I like them as a long-term play.  You can sell Dec $7.50 puts for $1 and that's a nice entry right there.  

    Nice pop off the EU close – still seems like people are abandoning the sinking ship of state over there and money has nowhere to go but US equities (but TBills and Dollars are getting some love too).  With gold, silver, oil and copper all looking weak – where the hell are people supposed to put money?  


  67. cnbc is talking about what PHIL and I have been saying…that high freq traders "creating" volatility by jamming trades(msb) during quiet periods…then profiting with knock-on trades as market freaks out.


  68. TEF, FTE long term, BCS interesting below $12.


  69. Very good point on CLF.. thank you Phil!


  70. Long AAPL and AMZN……for now……


  71. ABX – $19.89 in 2008


  72. When did the "twice in a lifetime list" start anyway? I must have missed it.


  73. At the open: Dow -0.03% to 12692. S&P +0.01% to 1338. Nasdaq +0.24% to 2910.

    Treasurys: 30-year -0.04%. 10-yr -0.03%. 5-yr -0.01%.

    Commodities: Crude +0.04% to $94.81. Gold -0.18% to $1558.15.

    Currencies: Euro -0.23% vs. dollar. Yen +0.21%. Pound +0.38%.

    10:00 AM On the hour: Dow +0.12%. 10-yr -0.03%. Euro -0.22% vs. dollar. Crude +0.07% to $94.84. Gold -0.45% to $1554.05

    11:00 AM On the hour: Dow +0.18%. 10-yr -0.06%. Euro -0.35% vs. dollar. Crude +0.02% to $94.8. Gold -0.43% to $1554.25.

    12:00 PM On the hour: Dow +0.37%. 10-yr -0.06%. Euro -0.42% vs. dollar. Crude -0.24% to $94.56. Gold -0.25% to $1557.15.

    "Treasurys are still cheap," says BMO's Scott Graham, but suggests we're near the point where central banks may begin to take action to stem jitters in financial markets. Such a move could send yields higher at the long end, but leave the short end untouched. He's buying 2-year paper and selling 10's – the steepener trade (STPP), which has had a rough 2012. 

    While it’s shaping up to be another summer from hell on Wall Street this year, Schwab’s Liz Ann Sonders says this year’s summer correction may not be as bad: "A lot has changed in the past two years, much for the better… There's at least a little bit of decoupling underway, certainly between the U.S. and Europe, and that's likely to assist in keeping the correction from mirroring the ones in 2010 and 2011."

    A major change from last year, corporations are focusing on spending rather hoarding their massive cash reserves, according to an AMEX survey. Boosting operating capacity, R&D, M&A, and even increasing headcount are the favored areas being talked about.

    It just doesn't matter – does it?  Global consulting firm Milliman Inc. releases the results of its 2012 Milliman Medical Index - which measures the average healthcare costs for a typical American family of four receiving healthcare through an employer-sponsored PPO plan – and found the average cost of care in 2012 is $20,728. While the rate of increase declined Y/Y, dollar-for-dollar it's the highest the firm has ever seen, and will likely have a serious impact on family budgets.

    This will be fun!  As a peak in the cycle of solar flares approaches in 2013, U.S. electricity regulators are considering options for protecting the power grid, including new equipment standards and retrofits, while controlling costs. An extreme storm could cause blackouts lasting weeks or months, John Kappenman says, leaving some cities temporarily uninhabitable and taking a huge economic toll. 

    Now God is intervening? A meeting between new French President Hollande and Germany's Merkel is delayed as his plane is forced to return to Paris after being struck by lightening. Hollande has now boarded another plane. Events in Athens may have overtaken Hollande's hope to refocus the fiscal policy agenda from austerity to growth.

    Athens plunges as the country edges closer to a EMU exit, the main index -4.7% to the lowest level since 1990. The country's banks: National Bank of Greece -9%, Eurobank -15%, Piraeus -10%, Alpha Bank -14%.

    The news coming out of Greece was certainly expected, so what's tanking markets? "New Greek election will lead to victory of Syriza and collision course with Troika that will lead to default and exit," tweets Nouriel, summing things up in 140 characters or less. Stoxx 50 -1.2%, S&P futures give up about 1%, now -0.1%.

    Zero Hedge speculates that Greece may be on the verge of the final collapse because of a bank run following its election 9 days ago, with the President saying that Greeks have withdrawn up to €700M ($893M) since then. A banking system that has almost no access to external funding, except for the ELA, will be unable to cope if the run continues.

    "We have to be technically prepared for anything," says the IMF's Lagarde, who still maintains hope Greece will not leave the euro. It's another shift in language among the policy elites from "exit is not an option" or "worse than Lehman" to grudging acceptance.

    A Greek exit and 50% devaluation of the new drachma would cost Germany and France a combined €155B at most, calculates Eric Dor, a very large rounding error to Western central banks these days. The real danger, of course, is contagion and the link to €15T in private and public debt in the periphery (and France), and €27T in EU banking assets. 

    The campaign begins: Greeks must choose between Merkel and a free Greece, says Independent Greeks Party leader Kammenos. The party was formed this winter after Kammenos was expelled from New Democracy for rejecting the bailout agreement. (earlier)

    Fitch weighs in on Friday's Spanish banking reforms, saying it's a net negative for the government as some banks will likely require state assistance. But wasn't enshrining bailouts as policy one of the reforms? On a clearer note, the ratings agency says the geographic diversity of Santander (STD) and BBVA will keep them from needing assistance.

    Brazil continues aggressive fiscal and monetary ease, as President Rouseff plans to cut taxes for electricity producers and distributors. It's the latest in a series of tax cuts for industry, and officials say these will be the most aggressive yet. Thus far, the Bovespa is fighting the sell off, +0.2%

    Uneventful!  This is boosting the markets (and good for our FAS plays):  There is no reason for the dividend to be impacted by the $2B trading loss, Jamie Dimon tells shareholders at JPMorgan's (JPM) annual meeting. The after-tax hit from the loss is expected to be about $1B. The bank will likely earn $20B or more in 2012. The meeting – which lasted about 50 minutes – has been adjourned.

    The DOJ has opened a criminal investigation into the $2B Chief Investment Office loss at JPMorgan (JPM), reports Bloomberg.

    "If you want to understand" JPMorgan's (JPM) $2B mistake, writes Fortune's Stephen Gandel, "all you really need to understand are three words: Negative carry trade." And these words are "dirty – really, really dirty." To make its hedges profitable, JPM seems to have done "whatever possible to avoid negative carry trades," but this opened it up to massive losses.

    Citigroup notes HSBC's (HBCmassive exposure to emerging markets, which accounted for $13.8B, or 80%, of group net profit in 2011, and wonders why the bank isn't valued accordingly. Instead, HSBC's valauation is more in line with that of banks that focus on developing markets, such as JPMorgan.



  74. Also helping:
      Homebuilding stocks get a lift from a positive NAHB number this morning, as the sentiment reading for this month climbed to its highest level in five years. It's important to note however, that despite the improvement in starts, home building still remains well off normal levels. Anything above 50 suggests a positive view of home building conditions, and this index hasn't had a positive reading since April 2006. Toll Brothers (TOL +2.9%), KB Home (KBH +3.7%), Lennar (LEN +3.7%), Hovnanian (HOV +5%), D R Horton (DHI _3.5%), PulteGroup (PHM +1.8%) S&P Homebuilders ETF (XHB+1.5%).  NAHB Housing Market Index: 29, up from 25 in May, vs. 26 expected. The buyer traffic and sales have picked back up after a pause this April.

    S&P downgrades Chesapeake Energy (CHK) to BB- from BB with a negative outlook. "Given revised production expectations, external funding needs are likely to be higher over the next two years than we previously assumed," S&P says. CHK -3% premarket.

    Chesapeake (CHK -3.9%) reportedly increased the size of the $3B bridge loan it’s seeking to refinance debt to $4B; the debt will now be sold at $0.97 on the dollar, up from $0.96, increasing proceeds for the company and reducing the yield to investors. Earlier today, S&P cut CHK's credit rating to BB- from BB.

    A proposed 790-mile wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle yesterday when the Interior Department opened the way for the project’s sponsors – Google (GOOG) is a major backer – to start work on an environmental impact statement.

    Kazuo Okada plans to take on Wynn Resorts (WYNN+0.1%) outside the courtroom as well as inside with an aggressive plan to build casinos in South Korea and the Philippines. The Steve Wynn-gadfy states emphatically that Universal Entertainment's goal is to become the #1 casino company in the world, and the odds seem good the two companies will butt heads in local Asian casino markets.

    Chipotle (CMG +0.8%stands to benefit if the FDA begins to intensify regulations over the use of antibiotics in animal feed, according to some analysis on CMG that doesn't involve momentum trading. The company claims natural ingredients in its products, which could put in a position to market itself against other casual dining names at risk of getting mixed into an expanded FDA inquiry.

    A123 Systems (AONE +12%), crushed over the last 12 months due to a litany of problems (IIIIII), is rallying post-earnings. Though A123's numbers badly missed estimates and the company reported cash burn of $73M, it also said it has fixed the battery defect that led to a massive recall, and that a federal grant with $120M in remaining proceeds has been extended by 2 years. A123 slashed its 2012 guidance last Friday.

    Needham makes a bearish call on chip equipment stocks, and is downgrading Applied Materials (AMAT +0.1%), Ultra Clean Holdings (UCTT -4.3%), and Nova Measuring (NVMI -2.9%) in the process. The firm thinks order rates from major chip manufacturers are decelerating, and is less confident memory capex (ed: no doubt affected by Elpida's bankruptcy and falling flash prices) will rebound in the near-term. Thus, it thinks the Street's growth forecasts are too high.

    In spite of reportedly being given priority by TSMC (TSM) for output, Qualcomm's (QCOM) 28nm chip supply issues are continuing, says Digitimes, with the company failing to secure adequate quantities of its cutting-edge Snapdragon S4 processors. As a result, Samsung, HTC, and other customers are said to be weighing other chip suppliers, such as Nvidia (NVDA), ST-Ericsson (STMERIC), and Intel (INTC). (yesterday)

    GSV Capital (GSVC +6.5%) and the Firsthand Technology Value Fund (SVVC +3.9%), each of which have taken out sizable Facebook (FB) positions, are adding to yesterday's gains after the social networking giant raised its IPO price range to $34-$38. Zynga (ZNGA +5.9%), which derives most of its revenue from Facebook, is also rallying. Also higher: QPSA +5.4%RENN +8.8%



  75. Groupon (
    GRPN +18%) skyrockets following its Q1 beat and strong Q2 guidance, fueled by surging North American sales that suggest the company is gaining share against old and new domestic rivals. Citi and Sterne Agee are upgrading Groupon, with each praising its operating leverage (long a concern for the Street).Deutsche, however, is worried the lower marketing expenses reported by Groupon won't last, and Stifel thinks shares could fade ahead of the June 1 IPO lockup expiration.

    A new CBS sitcom titled puzzingly enough - Friend Me - will feature Groupon (GRPN) as a big part of its story line with major characters trying to find the best way to market items on the site. It's unclear if the show will provide promotion for the company or if it will be fodder for comedic schtick. GRPN +14.6% post-earnings.

    Amazon (AMZN) is upgraded to Outperform at Credit Suisse, which also raises its price target to $270 from $190. CS takes note of the recent buyback announcement, saying the stock has historically outperformed the S&P by 132% in the 12 months following such moves. Shares +1.4% premarket. 

    Apple (AAPL) has slashed its iPhone orders by 20%-25% from March quarter levels, claims Sterne Agee's Shaw Wu after conducting supplier checks. Such a cutback implies FQ3 iPhone sales of just 26M-28M, below Street estimates of 30M-31M. Wu's takeaway: Apple is being conservative in order to handle a demand pause ahead of the next iPhone launch, and to cope with high channel inventory. On the other hand, Wu believes Apple has increased iPad order plans. (also)

    More on Apple: While While supply chain data points to a soft June quarter for iPhone sales, other signs point to a major 2H order pickup. Digitimes reports Apple has secured half the mobile DRAM capacity at an Elpida plant to prepare for upcoming launches. The report comes a day after one claiming suppliers are building new plants specifically for Apple, and a month after Cirrus Logic (CRUS) said it was taking out a $100M credit line to support product launches widely believed to be Apple's.

    Three lunchtime reads:

    1) Gross: A whale in the waters of negative yields

    2) What five hours from last Thursday can tell us about Dodd-Frank and JPMorgan

    3) Build your own diversified bond ladder with maturity-date ETFs


  76. GE/Phil – doesn't look like a buy right now, but would  any15 strike puts be a good entry?


  77. Phil Money
    Everyone is supposed to spend it all! That completes the transfer first money goes to the megacorps, then when people have no more money to spend the mega corps fail, and then money goes to the banks. Ben gets paid back full circle.


  78. CNK -bit of a rally today back to last week's high. time to short the double top or lots of mojo left?


  79. 52 week low on CHK ;-(


  80. AAPL
    I'd like to sell more Jan14 AAPL 390 puts for $36.50…  but I'm already short 6 puts at a avg of $32.  I'm concerned that I'm too bullish right now, but just looking for another opinion.  Good trade?  Wait?
     
    It seems like if I was assigned AAPL at a avg cost of $358 it would be okay, but who knows?  


  81. Twice in a lifetime:  HCBK had a 2009 low of 7.50.  Must be all that CDS hedging they do.  Tsk tsk.


  82. Well that was a good example of what a weak bounce looks like…

    ABX/Canuck – You're right.  Stockcharts doesn't go far enough back anymore in it's normal view.

    GE/Scott – They do get interesting but they can get really slammed in a liquidity crunch so always have spare firepower to DD at half price in a crisis.  

    Full circle/Shadow – True, it's the same cycle for thousands of years in similar forms.  

    CNK/Scott – Jackie thought we could give it another week as the theater we were in was packed this weekend (AMC, not CNK) but she is on board with my take the money and run theory at this level.  She never wants to sell DIS though as there was "foreshadowing" at the end of the Avengers movie for a possible sequel (her words) plus another Spider Man on the way this summer.  The Avengers was a great movie and, in the AMC 16 at my mall, I counted 6 theaters showing it at the same time and the one we were in for a 7:20 show was totally full.  I think this is just what Marvel needed, the DIS people are good with the big effects and also a lot of humor found it's way into the script (like Pirates), which was a huge improvement over their usual crash, boom, bang stuff.  Also a Disney thing – minimal time wasted on back-story.  That could have destroyed a movie with 6 heroes but they blew it off and assumed you knew who everyone was and got right to the mayhem.  

    CHK limbo – How low can it go?  

    AAPL/Burr – If you have doubts, it's a terrible time to DD.  First of all, what's the point at $36.50?  What does that do, average you out at $34.25?  What's the point?   There is no 2015 so your flexibility is limited and let's say AAPL drops 20% to $450 – you'll still be "fine" but the puts will be about $78 (price of the $500 puts) and THEN you will be freaking out, right?  That's the time you want to either DD and average in at $55 (net $335 entry) or maybe roll down to 2x the $280 puts, which should be about the same $36 that the $390 puts are now and then you'd be in 2x the $280 puts at net $16 each for a 2x entry on AAPL at net $264.  So, if you don't REALLY want to own 2x AAPL at $264 then take the $4.50 loss now and be glad to get out but, otherwise, save your firepower and relax.   Worst comes to worst, AAPL goes flying up and you'll have to find something else to sell puts on as you make $19,200 on the 6 you did sell.  

    Dollar back over 81.20.  Euro collapsing is a very real possibility at this point.  Don't forget, this is where we are WITH artificial support ($1.2766).  Pound barely holding $1.60 – I guess it does matter to the UK if the EU falls apart…  

    Oil still testing $94, could push the markets lower if they fail it and tumble to $92.50. 


  83. Hey Phil,
    I put a trade on you suggested back in january this year as such:
    bought SVU stock at 6.98
    Sell Jan2013 5 Call at 2.25
    Sell Jan2013 7.50 Put at 4.30
    Since this trade is quite out of the money, do you suggest amending it or leaving it on as is for now.  I'm not panicking, I just would like your advice if I should be rolling to more attractive pricing .
     
    Thanks


  84. Phil – I have some (not enough) EDZ spreads, long June 13s, short May 16s. Suggestions on a roll of the May 16s? I can roll to the June 19s about even. Is that the best option?


  85. SVU/Ging – Since your net is 0.43/3.97 it's certainly not a catastrophe.  I remember this one was just too good to turn down as it had fantastic upside plus great downside protection.  The $5 calls are still .85 so you don't want to buy those back as that's a lot of premium and you could roll the $7.50 puts ($3) to the 2014 $5 puts ($1.75) and change your net to $1.68/3.34 but if SVU does pop back to $7.50, you'll be very sad you did.  Keep in perspective that you have .65 premium on the puts and .70 on the calls and that's $1.35 in premium on a $5 stock so if you just wait PATIENTLY for the premium to expire – you make 27% in 248 days.  A lot of people consider that a return worth waiting for….

    EDZ/Kurt – At the moment, they are protecting your gains.  EDZ is at $16.63 and the May $16 caller is $1 so why are you so anxious to give him a .37 premium just to not have him expire on Friday?  Do you always spend 37% a week like this?  It must get VERY expensive….  Just keep an eye on the June $19s, which are $1 and that's your roll if you want to stay bearish or you can just roll the caller to the June $16s for +$1 and drop the cost of your spread by $1 and you still get $3 more in June if they hold $16.  Or you could simply be thrilled to cash the June $13s at $3.75 and hopefully cash the May $16s for less than .75 and then you have your full $3 cash in your pocket – always nice.  

    1:00 PM On the hour: Dow +0.25%. 10-yr -0.07%. Euro -0.42% vs. dollar. Crude -0.37% to $94.42. Gold -0.15% to $1558.65.

    2:00 PM On the hour: Dow -0.05%. 10-yr -0.02%. Euro -0.64% vs. dollar. Crude -0.75% to $94.06. Gold -0.45% to $1553.95

    "Canada's business cycle bounce appears to have run its course," says BAML's Neil Dutta, expecting recent strong macro data to become less so. He takes note of the country's curious terms of trade hit - its eastern half importing expensive Brent crude, while the west exports cheaper WTI. Bottom line: Reduce exposure to Canadian risk assets and increase holdings of fixed income.

    How surprising. Greece's plan to get citizens to pay property taxes by bundling them with electricity bills has failed, with the Public Power Corporation – itself bailed out last month – no longer trying to collect (even getting an ok from the finmin). Government (Troika) pencil-pushers had hoped the scheme would raise €1.7-2B in Q4 last year.

    How a Radical Greek Rescue Plan Fell Short (WSJ)

    Don't buy sell-side types trumpeting Chinese reserve ratio cuts as bullish, writes Mark Dow. They are NOT the equivalent of Western rate cuts and not a predictor of future credit growth. Instead, they are necessary to offset declining liquidity brought on by China's shrinking trade surpluses. If the RRR were not cut, it would amount to policy tightening.

    Stagflation rears its head in India, where inflation is refusing to respond to a slowing economy. One reason is the rupee, which has sunk to a multi-year low against the greenback. Don't expect the RBI to stop cutting rates, writes Sober Look, as the bank will likely point to the far tamer core rate of inflation.

    It seems like you're a nobody in government circles at the moment if you're not investigating JPMorgan's (JPM) $2B trading loss, with Reuters reporting that the FBI is now getting in on the act. That adds to inquiries by the DOJ, the Fed, the SEC, and the U.K.'s FSA, not to mention hearings in the Senate. No matter, shares are+3.7%.

    Share buybacks: the other way company managers rob you (Money Week)

    Paying by app: Coca-Cola (KO -0.4%), Foot Locker (FL+0.9%), and Macy's (M +1.9%) are a few of the big names in the group of companies testing the Isis mobile payment system in U.S. cities in front of a planned full launch later this. The mobile payment solution – a joint venture between AT&T, Verizon Wireless, and T-Mobile – could lead to cost efficiencies for retailers and merchants.

    In spite of low-end competition from the Kindle Fire (AMZN), Nook Tablet (BKS), and many other Android-based rivals, iSuppli sees the iPad (AAPLincreasing its tablet share to 61% in 2012 from 55% in 2011. The firm, which adds its "supply-side sources" indicate a smaller iPad will be arriving, predicts overall tablet shipments will grow 85% to 126.6M, and reach 206M in 2013. IDC believes the iPad gained share in Q1, and previously forecast 106.1M 2012 tablet sales.


  86. FAS Money – Not very happy at $88 but only Tuesday. 

    IWM Money – TNA threading the needle at $52, still not feeling the urge to take the money on the $54 calls but let's call them a stop at $1.  StJ asks if we should sell March calls to cover but I'm 1-year bullish on the RUT still.  

    $5KP – All fine at the moment. 

    $25KP – $24,270 in realized gains!  Now all we have to do is work out of our unrealized losses and there's $50K!  

    • DMND – Fine
    • BBY – Are they a division of CHK?  
    • FAS – Still holding $14.50 on XLF.
    • AMZN – Was doing good until they got an upgrade.  

    Wow, nothing to do there at all.  This is getting dull but we need to save firepower in case we do break down and we have to slap on bearish plays.  At the moment, still playing for the bounce until we blow 775 on the RUT.  


  87. Phil, a couple days ago I asked for and you recommended a couple of disaster plays – I wanted out thru Sept and you suggested the EDZ Oct 12/18 bull call spread with offsets.  I didn't quite get into that one, and now EDZ is up to 16.50 – would you recommend the same play or perhaps something a little less in the money such as the Oct 16/22 spread at 1.15, with offsets…same with TZA,  value your advice…thanks in advance! 


  88. Choosing strike price / Phil, All,
    I was wondering if you have some guidelines around how to choose the strike price for options that one wants to sell and collect premium.
    As an example with LNKD, I sold one May $105 Call on 5/3 at $9.00. On 5/4 when it popped after earnings, I sold another May $105 Call at $15.00 for an average of $12.00. I closed these out today by rolling to the June $100 Call for a credit of $7.30. In my thoughts, I was looking at four different strikes for the roll to June – $100, $105, $110 and $115. The premium difference between the $100 and $115 calls is about $9.25, for an inherent value difference of $15.00.
    Looked at from a slightly different perspective, extrinsic premium on the $100 Call is $3.00 while it is about $8.00 on the $115 Call. On the other hand, when I look at the fact that LNKD has traded in the $107 range a few times even in the last few days, and that the overall market may have some challenges in the near term, selling the $100 Call seems to be the better play from a potential reward perspective.
    I have had a similar play on VXX where I sold some May $20 Puts and some May $17 Puts. While the $17 Puts seem to be far more of a lock in terms of expiring worthless, it looks like I have left some money on the table here since selling the $18 Puts or even the $19 Puts may have fetched a higher premium and even if they didn't expire worthless, I could have bought them back at a much smaller price and made a higher profit..
    While it's not possible to predict stock prices on expiration day a few weeks to a month in advance, what thoughts do you use to choose the strike price to sell calls and puts at? Thanks.


  89. Phil on SVU I sold some jan 13 7.50 puts@2.10, obviously going against me but not too upset if I had to pay 5.40/shr any suggestions to take advantage this move down? Perhaps a dd or adding a BCS here?


  90. Good article about the share buybacks Phil…. Thanks.

    Next is the fact that companies are supposed to spend on productive activity: raising profits for future shareholders; raising the present value of the shares for current shareholders; and raising general economic activity along the way. Pour all the money into buybacks, and that doesn’t happen. [...]

    They destroy shareholder funds; they offer a disproportionate benefit to employees via share options (unless options are adjusted to take account of them); they represent “the gradual expropriation of shareholder assets” and the regular misallocation of capital; and finally, like almost everything else, they enrich the investment banks (dividends bring advisers nothing, buybacks bring them oodles of fees). [...]

    This is symptomatic of the mess we have made of modern capitalism. We’ve created a system where we allow, encourage even, chief executives to waste their time manipulating share prices rather than creating and paying out a tangible income to shareholders. So while I am thrilled by the idea that investors are finally finding a voice with which to protest against the institutionalised theft of their returns via high executive pay, I hope that they remember that buybacks are often part of the mechanism of that theft – and vote against them too.


  91. Phil,
     
    Is AGNC worth doing as a buy/write collar? The 15% dividend appears to be good until Uncle Ben stops his printing press and rates rise.


  92. FXE….Oh, my….thank you very much ……


  93. Phil,
    Re: CHK – For those members who believe that CHK is not destined to go bankrupt, they can earn 50% on margin during the next year and a half by selling the 2014  $3.00 strike Puts at $0.60.  TDAmeritrade holds back $120.00 margin per contract and the worst is owning the stock at net $2.40.


  94. Phil/EDZ – Hi Phil.  I was assigned 2k shares at $15.29 some time ago.  Would you rec covering with some calls at this point?  TIA


  95. Strikes/Sank1 – aside from where you think a stock might be at whatever expiration you are cosidering… a look i also take, especially for OTM puts, is to divide the premium received for sale of the put, into how many days to expiration.. for example, i am considering selling some CHK $5 puts.. July is going for .13, Oct  at .45 and Jan13 at .55. dividing these by number of days left shows that the July gives me a return per day (RPD) of 20 cents per contract ($13 premium/66 days). Oct gives me a RPD of 29 cents.  January gives a RPD of 22 cents.  I'll choose the October for a maximum return in shorter period. Assuming expires, i am free to choose another highest return, sooner, increasing annual net return. so the theory goes.. !


  96. sank1/choosing strikes – my thoughts on a slow day:
    At The Money call is the cheapest to buy (someone here did an analysis a while ago), and thus most expensive to sell.  Unless we have the underlying stocks, we would sell as much OTM as possible and still give a reasonable profit.  LNKD Jun 130 call is $1.925 and is $17.5 OTM, i.e. we won't loose unless LNKD goes beyond the high of $120 to $130.  Given the momentum in the stock that could be next week!  So from a risk perspective, I'd look at the Jun $135 call at $1.175.  If the stock stays still, the OTM calls would lose their value quickly, otherwise we have a cushion to play with. 
     
    If you think that you can make $1.175 by selling the June 100 or 115 calls and get out on a dip, then you are a trader and you'll need some luck to get the dip.  If you are unlucky, and LNKD keeps going up, it would take a few months of rolling to unwind the trade. This can become a problem if you have margin issue.  So you either have lower profit and higher chance to make that profit by selling OTM calls, or higher profit and less chance to make it by selling ITM or ATM.  It's all part of your decision making process.


  97. Trendling risistance now 78.20, running out og wiggle room and time.


  98. For the Bulls' camp, someone better drop the USD (/DX) soon.  It keeps going up and up today.  Whenever it spiked, the bots (yes, machines) kicked in and dropped the market, then some manual overrides occurred and market goes back up.  /DX spiked again and the market drop, then override.  Too easy, huh?

    /DX is up 0.62 now (huge), so unless it goes down, the market would be down today.  The bulls will claim victory if the market stays flat today.


  99. Pharm where do you think the SGEN shorts cover back around 21.13, filling the gap?


  100. CNBC just reported that GM is pulling all advertising from FB because they basically think it's a waste of money.  That's good for a company about to come public.  They are one of the biggest advertisers in the US.


  101. Books on Financial Crisis
    Good afternoon….
    I'm planning to pick up 3 or 4 books to study the 2008-2009 time period.
    Andrew Lo wrote a 41 page in depth review of 21 books on the subject, with two or three pages on each book.
    http://www.argentumlux.org/documents/JEL_6.pdf 
     
    My top 3 or 4 choices based on my previous perceptions, my reading of the authors previous books (i.e. Bethany McClean), etc  are:
     
    Andrew Ross Sorkin —Too Big to Fail
    Michael Lewis —- The Big Short
    Hank Paulson — On the Brink
    Roger Lowenstein — The End of Wall Street
    Bethany McClean — All the Devils are Here
     
    Does anybody have any recommendations or opinions about any of these books you might have read? Which ones are good, which to avoid?  (The hardcovers are very expensive)
    Thanks


  102. EDZ/Jerconn – Now you're chasing a bit.  Keep in mind we're playing for a bounce – that goes for EEM as well.  Still, the Oct $15s are just $4 and you can sell the $25s for $2 and that's a good deal on a $10 spread but you have to expect you'll put another $2 in if EDZ drops back $3 and you roll down to the $11s (now $6.70) but I'd just go for that spread with a stop at $1 (or maybe a roll) and THEN you can sell some EDZ puts to cover, like the Oct $11s, which are now .80 and should be over $2 if EDZ drops $3.

    RIMM making new lows, GRPN pulling back.  

    Oil failed $94!  Dollar 81.34.  

    Guidlines/Sank – Well guidline #1 is don't attempt to play that strategy with stupid Momo stocks that move 10% up or down for no reason at all.  The reason you are salivating over what "great" premiums they have to sell is because they are the most volatile and you'd better get paid a lot to assume the huge risk of selling options against it.  LNKD is, however, at a high spot where I don't hate the idea of taking a stab at selling calls on the assumption they don't pop $120 but, keep in mind – this is a very dangerous bet ahead of Friday's Facebook IPO, which may send all of these stocks flying higher.   So I wouldn't touch this trade with a 10-foot pole but, if I had to, I'd just sell the most premium possible, which would be June $115s at $9.50 and I'd keep an eye on the roll to the Aug $120s (now $9.80) and try to not let that get away and I'd sure have a plan for what I intend to do if LNKD jumps to $125 on a rumor FB is buying them for 1/10th of their market cap.  

    VXX is another insane stock and the only time we generally sell puts on VXX is when it's crazy low, like VIX 15.  Since there is no upper limit to how high VXX can go in a panic – I couldn't possibly sleep at night selling naked calls.  As to selling the puts – same deal – just sell as much premium as possible and hope you don't lose but selling puts with the VIX at 21 is the top of the channel – one shot of QE and you'll be eating a few bucks.  

    There's nothing wrong with selling premium like this if you balance out your positions so you don't get too burned by a big market move one way or the other.  Keep doing it month after month and you will collect a lot of money but you will also likely get burned once or twice and learning to manage those situations is the key – there's no magical formula for what to sell other than try to sell as much premium as you can each month but without being uncomfortable as to the target strike.  I try to avoid the treadmill of selling premium and getting burned and trying to stay net ahead by only selling premium WHEN I think something has a very firm floor or ceiling.  That way I only get burned about 25% of the time! 

    SVU/Sage – I'd roll the Jan $7.50 puts ($3) to 2x the 2014 $5 puts ($1.80) and pocket .60 more so it's net $1.35 per long put and you're in 2x at net $3.65 vs 1x at $5.40.  If they can't hold $5, I'd sell 1x the $5 calls (now $1.25) to offset some of the drop. 

    Buybacks/StJ – I used to complain about them in 2006-7-8 but I got tired of it.  Such a waste of company money – unless the stock is stupidly priced – like I would have been all for AAPL buying back 20% of the company at $85 but that's a rare situation – mostly it's just squandering hard-earned capital on something you can print for free.  

    AGNC/L4 – A little nose-bleedy for me at $32.16 but the party doesn't seem like it's going to stop, does it?  The problem is you don't get paid enough for the calls to make for a good collar (and I hate collars anyway) so I'd just sell the Jan $30 puts for $2.40 and there's your dividend for the next 6 months and worst case is you have an entry at net $27.75.

    CHK/CSL – I like that idea!  

    EDZ/Ink – Sure, you can sell June $15 calls for $2.50 and that's $5K in your pocket – what's not to like.  If you are called away, you are up about that $5K and if they go down, you're in good shape.  Had you sold the May $15s, they are now $1.85 and you could roll them to the June $16s, now $1.95 and if you can stay in the stock protected and roll the callers up $1 per month for free – isn't that a nice plan?  

    And back down goes AMZN!  That makes me feel good about those puts.  

    FB/Rustle – Ads are a total waste of money on them.  Surely people know this?  

    SNE making new lows.  ERIC too – nice partnership they have…

    Oil $93.55! 

    Book/Newbie – Try Barry's Bailout Nation – very good read.  


  103. Newbie,
    Here's one you might consider.
    Phil Trupp-Ruthless- How enraged investors reclaimed their investments and beat Wall Street.


  104. I love this market, go out at highs, plenty of time to buy back lower and now we sell off at EOD almost every day.  What a difference from the first 4 months.


  105. Damn Phil, how do you know what's going to happen?  I just re-read the morning post and you laid out the day before the market opened.  Is it really that fixed that you know the playbook?  


  106. newbie / books — The Big Short was good. Haven't read the others.
     
    Wheeee….


  107. Deposits leaving Greece, this could get very ugly very quickly!


  108. Strike Price / Sank – That's the reason why I publish my volatility spreadsheet. It gives you the average volatility over the last year or more for many stocks and the predicted range based on that. It's not foolproof, but gives decent guidelines.


  109. LLY 40 Jun Ps….now coming in nicely…..see how easy that is.  Patience and premise.


  110. Phil, why do you prefer the VXX over the VIX.  VIX options look to be fairly liquid.  TIA for your thoughts.


  111. FU FCX!!!


  112. More Greece nonsense coming to light.  This seems to be about the run on the Greek banks – that we know all about and have for weeks but now it's on TV and the sheeple are freaking out.  

    81.44 on the Dollar.  Oil $93.24.  Wheeeee!  

    Lovin' it/Rustle – Nothing better for those of us who know not to follow the crowd.  

    Knowing/Dennis – I just read the same news I post and draw my conclusions but I guess I do so from the perspective that there IS a conspiracy and the game IS fixed – that colors my perspective somewhat and it seems to work in my favor.  Also, putting in those 10,000 hours twice over is a good thing too – after a while, you do get the feel for things but again – it's a matter of playing it like a fixed game and not wasting time fooling myself that I should be looking for more complex causality.  

    RUT holding 775 – very key.  Not much other good news to report but it only takes one index to hold the line sometimes.  

    Dow volume 91M at 3:20.  

    VXX/Robert – In my experience, VXX has given better entries and exits.  VIX tends to screw you with wider spreads.  


  113. Phil
    RUT 775 holding we also bounced off the trendline support, its too late now I'm out for today. Hope it holds!


  114. Phil/FB – if the facebook ipo is set for Friday, then Friday must be an up day – should we be picking up some QQQ this week on weakness for a Friday am pop?


  115. VIX / Roberthjrfl – Look at this article:

    http://www.smartinvestingdaily.com/articles/smart-investing-042611.html

    The problem with VIX options is that they are not priced like other options. Check future months for example and you will see that sometimes the same strike is cheaper 12 months from now which makes rolling a problem… 

    VXX is more traditional but the decay is brutal… It's usually good for selling calls, except in few months when panic sets in!


  116. merkel/hollande giving united front right now..not helping so far

     reports of greek bank run worries by greek officials
     
    merkel says "no concerns over differences about spurring growth"…hahahaha


  117. FU ABX!!!


  118. AAPL….ouch


  119. Friday/Canuck – Or Friday could be the day that Facebook's IPO fails and the Nasdaq plunges into a death spiral and takes the global markets crashing down with it.   Why does it not occur to anyone that $100Bn may possibly be an over-reach?  

    HOV still up 8%. 

    Nat gas holding $2.50 – other commodities crashing.  


  120. Phil, almost everything I read had 1340 holding up as strong support, does not appear to be the case. I started playing the bounce last week and have taken a bit of a smack.


  121. The BOTS have taken over and they are holding the line.



  122. Phil, When on Friday is the facebook IPO?


  123. Phil, does it make sense to pick up some DIA calls here?  For a tomorrow rebound?


  124. Phil, any trades you like here at the end of the day?


  125. Here goes $3.50 on copper…And $1550 on gold. No wonder FCX is getting pounded!


  126. And gold miners down close to 4% in general. I guess the Greeks are running on their banks but not buying gold…


  127. AGQ (silver 2x) down near 52 week low.


  128. But…but… I thought gold was a "safe haven"….. ;)


  129. And TLT making new 2012 highs… No panic whatsoever, move along folks! 

    Like you said Phil, Europe can thank the Swiss for holding their currency. Without these billions of Swiss Francs, we would be a parity now!


  130. Phil and STJ, thanks for the comments.  I noticed that strange thing about the vix further dated options and have been really only studying the front month.  I am looking at it from a hedge standpoint verses SPX.  SPX goes down it should go up all things being equal.  If you sell front month put credit spreads, it looks like you can get 10x leverage, or maybe you sell an APPL 490 put (11% away) and buy a call vix june 23 call — probably a better trade as upside is not limited and you can roll the AAPL put if necessary.  But you have to take your vix profits quickly as vix is transient and a vix pop might not stay long.   Any comments are appreciated.  I havent looked at VXX yet.


  131.  
    Pharmboy
    What do you think of selling OCT puts on HGSI?
    Thanks


  132. Up after close and a shrinking ASK side. Big ticks at bid some well below current bid.


  133. Smack/Rpme – I thought we'd hold too.  We're going to have to scramble to get more bearish tomorrow if we can't hold it here.  We've closed at lows since Thursday but, on the whole, we're not accelerating so there's still hope and tomorrow is the Fed minutes so – it's then or never for this week – other than possible FB celebration on Friday. 

    FB/Shadow – I have no idea, I assume at the open.

    DIA/Jerconn – I think it makes sense to be in cash but sure, at any 00 line it's worth taking a stab for a bounce if you are into the overnight gambling thing.  

    EOD/Jrom – Nope, we got our covers yesterday and now they are working well and we're not ready to flip more bearish yet.  Cash would be King.  

    Gold/1020 – Isn't it amazing that no matter how many times I tell people it isn't, they never believe me?  

    Swiss/StJ – And EUR/CHF is still friggin' 1.2009! 

    VIX/Robert – Just keep in mind that the VIX is a bet on volatility on expiration day (which is not the same as options expiration day) so it doesn't always do what you would think.  It's very tricky to play and, like I said, I only like to sell puts when it's low as I do feel confident $15 is a floor.  Occasionally I've taken calls but, due to the ridiculous premiums, they often don't work out so I pretty much lost interest.  Betting VIX 23 is betting a 5% drop in the Dow or the Nas so why not just bet that?  

    There were buyers at that close – very interesting.   

    Gotta run to a meeting – later all! 


  134. Wow, Petrobras at 52 week low, from $35 to $19.3.


  135. Phil
    The smart money will be all cash at close Thursday!


  136. jcp crushed after hours


  137. Swiss / Phil – But look at the USD/CHF. Up about 5% in 2 weeks…


  138. PHIL FB of course..its just govt/i-banks baiting muppets.


  139. NYSE bounced off the 200DMA and both 50 and 200 DMA point down. Not a bullish sign.


  140. FU ARNA!!!? SERIOUSLY!!!? Selling more stock!?


  141. I have a 4x position in CHK which, of course, is in some trouble. What I am looking for is some assessment of the ultimate floor for this stock. Obviously, natgas will not become free and stay that way for any length of time, and I suppose the low natgas price was at least partially responsible for the drop in CHK from 25 to 17, and so, is baked in. The silly governance issues (well, it's silly as a factor in the company's ability to earn money) has created a firestorm that is burning the stock.
    I can wait this out and adjust my positions, but when I review my clever use of option techniques as applied to WFR, I realize that I confidently and comfortably dug a giant hole from which I no longer expect to escape. Yes, Phil, I was "happy to own" WFR at $10 (which was my initial net position). I am definitely not happy to own the company WFR has become. A big player, completely dependent on a mid-term dead industry, that routinely manages to lose more than the estimates every quarter. Two more freaking quarters like this last one, and it will literally be a penny stock.
     
    I have equally cleverly built oversized positions in such "value plays" as FTR, CCJ, GLW, SVU and HCBK. I am not worried about them, except for in the middle of the night, when I wonder if the market might possibly be right about them.
     
    I can be patient, but in current market value (which drives my margin capacity), I'm looking pretty sick.
     
    If I can ever climb out of this hole, I'm never entering another "underpriced" value stock.


  142. RUT
     
    I guess 777.74 can be pretty much "rounded"  to 775
     
    I think we're going to see 760 within a week
     
    2 cents


  143. Positions / Barf – There is one rule from Josh Brown's trading list that I would adhere to:

     

    7. Don't buy stocks trading over 30 times earnings or under 7 times earnings – something is wrong in both cases.  Stay away from anything not trading on a US exchange.  Avoid the 52-week low list – a loser is a loser.
     
    You can make a ton of money being early and bottom fishing, but it's going to keep you up at night! I have enough worries already… 

  144. ARNA/jro – I would sell more stock too @ $6 JIC.

     

    HGSI – risky if the deal falls apart, as they have not agreed yet.  Unlike others, where things are in the books (except the 30d wait rule), it is a risky proposition.  Same goes for AMLN.

     

    Ah, SGEN….nice.


  145. PLX – I would now put a stop limit order in and sell some puts to make up for any potential downward drift.  The downside and upside are limited (unless a buyout of course), but I would start with some Aug $6 Puts.  I am lightening up some more, just because one of my accounts was well north of 20% of the stock.  For the amount I sell, I will sell the same amount of those puts.


  146. Best ZH comment: "JPM 's getting beaten so badly they should hire Sarah Mclachlan to sing background vocals for their next PR commercial"
    LOL :-)


  147. Jean-Luc: I don't believe any of these stocks were trading at a P/E below 7, but it is possible. My question/point relates to the fact that if you buy a stock (or have it put to you) which falls out of favor, eventually you must confront the question, "what if the market is right?"
     
    Our take the money and run, and then, be happy to own a stock at a nice discount to the initial price strategy builds a portfolio free of winners and full of losers. I have to say it isn't working.


  148. Barfinger – It's just not the P/E, but also making 52-week lows… It's usually not a great sign.


  149. dpastramas/sad animal adoption spokesperson - Or Christopher Cross…. ;)


  150. lol, yeah, the 52-wk low only happens AFTER I enter the position :)


  151. Hey Pharm!  On faaast money,  Wilbur sez: Hot Dam! XCO is a Buy !!! 
     
    :)


  152. Phil,
     
    Does FCX start to look tempting down here?  Seems like it may be getting overly beat up here.


  153. Looks like not enough intervention in the last /DX spike, so down we went.  I kinda like this slow melt down as there are plenty of time to get into new positions and to make adjustments.  SPX is catching up on the downside with RUT finally.  SPX 1252 was the close in 2010, so the bulls won't give up easily, nor they want to give up this year's gain.  However, how low the market could go is much dependent on the panic of the crowd (and margin calls).  GS could bring out grandma Abby anytime soon.


  154. Correction – SPX 1257.64 was 2010's close and 1257.6 was 2011's close.


  155. ERF
    For members who have been thinking about ERF I recommend instead ARC Resources (AETUF).   AETUF yields a bit over 6%, is much less leveraged than ERF and has a lower payout ratio.  I used to own both, but now I sleep a bit better owning only AETUF. 


  156. Wondering what everyone thinks about the possibility that Facebook buys LNKD? I thought they would just crush them. I’ve got some LNKD puts b/c I think their valuation is ridiculous and I don’t like their service compared to FB. Thoughts?


  157. Pharm,

    Any ASCO plays you working on?


  158. Barfinger,
    CHK   Dont' look for a "sell number".  It doesn't matter how low CHK goes as long as it doesn't go bankrupt. "Value stock" is somewhat of a misnomer in the sense you seem to expect. This stock will be a great value in about three to five years for people who have deep enough pockets, or strong enough stomachs to not care where it goes in the mean time, and who can afford to loose what they have put in it if it does go belly up. (I think CHK will make it.) Wait until we bounce, which we will at some point, and then get Phil to help you unwind some of the stuff that's keeping you up at night. Hope this helps.


  159. japar – we are in a few…..CRIS, AVEO, YMI, EXEL and…..hold it, hold it, CLDX….who did not make it into ASCO, so they are my top choice…..


  160. Merkel and Hollande profile pick on FT – they look like an old unhappy married couple.


  161. Doesn't look like history will repeat itself…

    http://www.bespokeinvest.com/thinkbig/2012/5/15/technology-sector-down-9-days-in-a-row.html

    The S&P 500 Technology sector is now down 9 days in a row.  Since our daily sector data begins in 1989, the Technology sector has only had one other 9-day losing streak.  That streak came in October 1998, which was another period when markets here were being roiled by bad news overseas.  September/October 1998 was the Russian debt/Long-Term Capital Management crisis.  The 9-day losing streak for the Technology sector occurred from 9/25/98 through 10/8/98.  On October 9th, the Technology sector ended its 9-day losing streak by rallying 6.13%.  Over the next 9 days, the Tech sector gained a total of 18.59%.  October 8th, 1998 ended up being the bottom of the Russian debt/LTCM crisis.  If we could only be so lucky this time around as well.


  162. They have to decide how to deal with their errant teen. Merkel wants the allowance to be contingent on having the tatoos removed. Hollande thinks that a great tan will make the tatoos look so much better.



  163. St J,
    Not if you are lucky or smart enough to buy local produce and protein.


  164. Phil, were your kids one of the 4000 in NJ, that were asked to tell a secret and why it was hard to keep to pass a test to get into advanced classes? I'm sorry, but whaat? Do they not have enough money in the NJ school system to filter out this kind of nonsense, or is it that they have too much money and not enough sense? In all seriousness, what would your grandfather have thought about that type of question on a state sponsored test?


  165. Barfinger:  I would be the last person to offer you advice.  I do thank you for your honesty. I have struggled with this issue as well.  On one side, I would like to be in cash by the end of every day, winning or losing according to my wits or lack thereof.  On the other side, I would like to buy and hold cheap or oversold stocks that will turn into big winners.  But when I fill up my portfolio/margin capacity with "future winners" that have tapped out my cash, so that I have to turn off my screen and take up tennis until some future year when they will ostensibly go up — or turn my screen back on, and liquidate, "bargains" to meet margin calls — I realize that I am suffering a lack of conceptual clarity regarding exactly what my "strategy" was supposed to accomplish.
     
    I am left with the sense that, unless my cash register rings three days out of five on the plus side, I must be, in truth, just a poor trader rather than a diabolically clever long term investor.  Sun Tzu pointed out 2,600 years ago that if you "Know your enemy and know yourself…you can fight a hundred battles without disaster."  It's fair to say that I'm only halfway there.


  166. Zero,
    There are no diabolically clever long term investors, only diabolically patient ones.


  167. Barfinger/Clunkers: I know how you are feeling. The beguiling phrase 'never sell a put on a stock you would not like to own at the strike price' carries risks for those who fail to heed its warning. I guess that's why the golden rule is never take more than a 20% loss (something I conveniently forget on many occasions, to my great regret). Then there is being properly hedged – which is still an afterthought in my strategy, until the horse has bolted. Of course, no position should represent more than 5% of a portfolio, but how can you turn your nose up at such a no brainer investment decision? I know you know all this. Most of us here should know these things to be true. But as the wise man said, lessons are repeated until learnt.
     
    With respect to Phil, I would consider his insights and recommendations as just that. When you hit that trade button, you should act as though the downside is all your responsibility, like being in a South American jail and you have one phone call left.
     
    Apologies if this comes across as a lecture.


  168. Amen to all the above.. but think of the lessons we are learning. Not the same as thinking we learn from phil when the bull market is on and we are all geniuses. THIS is when the tests really come in, and a freaky "market" to boot. I'm sure repeating some lessons.


  169. Asia closing is geting ugly
    Euro 1.268
    Oil just about $92
    It smells like a bottom to me.
    Greece new elections most likely 10 June
    France parliament elections 10 and 17 June
    Mid June looks like a big hurdle until comes November the 6th!


  170. I guess a lot of Greeks will have soon some explaining to do when they will ask to convert their euros into drachmas :)


  171. stjeanluc-phil
    I remember Phil doing some rounding and tweeking to come up with the new daily chart levels, but if the must hold levels are where we want them, the up and down 5 and 10% levels in the chart may be in error for the Dow and S&P.
      S&P           Corrected           Currently
    +10%            1496                    1520
    +5%              1428                    1440
    Must hold      1360                    1360
    -5%               1292                    1280
    -10%             1224                    1200
    The same numbers times 10 for the Dow.  I may be missing something, and if so I am sorry for any confusion. Thank you both for all you do to make us better traders!


  172. China Real Estate Unravels
     
    Sales slowing down big-time while the "good" construction numbers coming out only serves to increase inventory.   Foreign investment down 90% in March and 80% in April. 
    The chart at the end of the post is most definitely worth a look: http://chovanec.files.wordpress.com/2012/05/re-chart-png.png


  173. Good morning!

    The madness continues.  Asia had a TERRIBLE morning with the Hang Seng dropping 3% and finishing at lows.  Shanghai down 1.2%, also at lows, Nikkei down 1.1% and BSE down 1.7%.   

    Japan's economic growth probably peaked in Q1, according to a survey of economists, with the country's pace of expansion likely to halve by the end of the year as the lift from earthquake reconstruction fades.

    Japan's core machinery orders for March fell 2.8% Y/Y, matching expectations after swinging from a 2.8% gain in February. Core machinery orders, which exclude those from power utlities and for ship builders, are often seen as a leading indicator of capital spending in Japan.

    Europe is down about a point in UK and Germany but France is flat, coming back 1% off a down open with a 50-point bounce off 3,000.  

    The Bank of England's Mervyn King confirms that contingency plans are being drawn up to shelter the U.K. from the impact of a possible eurozone break-up, according to BBC business editor Robert Peston. (via)

    The ECB is increasingly refusing liquidity requests from Greek banks, according to "sources in Brussels," leaving Greek banks dependent on support from Greece's central bank. According to the report in Dutch financial daily Financieele Dagblad, Greek banks are now receiving less than half the €73B in ECB liquidity support they had at the end of January.

    Greek 2023 bond yield rises past 30% for the first time. (via)

    Oil hit goal at $92.50 but didn't stop there – now $92.25 and gold dropped another $20 to $1,535 with silver at $27.35, copper $3.46, nat gas holding $2.50 and gasoline down to $2.91.  

    Our Futures are only down slightly so far with the Dollar at 81.61.  The Euro is $1.27047, the Pound crashed to $1.59, 80.37 Yen to the strong Dollar and EUR/CHF makes a mockery of the free markets – still at $1.2009.  Think about that on – holding .0009 on the button, day after day.  Imagine the effort that must take – the relentless, mindless buying of Euros the Swiss have to do to maintain their peg…

    Not expecting the data to save us today but if something is done to restore confidence in the Euro and the Dollar drops down (not too likely), we could have a very sharp correction.  Meanwhile, let's watch that $1.27 line on the Euro – if that fails (and it's only holding with Swiss support), we're looking at Dollar 82 and commodities will not like that one bit.  

    Wednesday's economic calendar:

    7:00 MBA Mortgage Applications

    8:30 Housing Starts

    9:15 Industrial Production

    10:30 EIA Petroleum Inventories

    2:00 PM FOMC minutes

    6:00 AM Overseas: Japan -1.1%. Hong Kong -3.2%. China -1.2%. India -1.8%. London -1.2%. Paris -0.2%. Frankfurt -1.1%

    High frequency trading has made markets even more susceptible to sudden failure than they were two years ago during the “flash crash,” says trading analyst Eric Scott Hunsader. A new breed of trader has emerged that is trading so large and so fast that they're causing huge spikes in price and volume. This kind of trading is creating market instability, Hunsader warns — to the extent that it could set off a cascade much worse than the flash crash of 2010.

    Citing "political hostility" and a desire to keep some dry powder for the so-called "fiscal cliff" in 2013, Capital Economics expects the Fed to sit on its hands through November's election. The group notes the lowered frequency with which Fed officials have suggested QE3 as an option. Interesting talk, but DJIA < 12K probably means Fed action.

    More Real-Estate Loans Default in Europe. European commercial-real-estate markets are struggling with a sharp increase in problem mortgages just as more European countries slip back into recession. A growing number of landlords, hit with falling rents and occupancies, are defaulting on loans, and it is happening not just in the most-troubled parts of Europe but in big centers like London and FrankfurtValues already are down nearly 20% since their 2007 peak across Europe, according to CBRE Group Inc. Meantime, billions of euros of commercial mortgages are coming due, but little capital is available for refinancing.

    Italy's Banks Shaken as Economic Slump DeepensAs Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis. With the world's third largest debt after the US and Japan at €1.9 trillion (£1.18 trillion), it is big enough to bring the global financial system to its knees. It is also in the front line of contagion as the Greek crisis metastasizes. Yields on 10-year Italian debt jumped 16 points to 5.86pc on Tuesday after Italy's data agency said the country is sliding even into deeper recession, with GDP shrinking 0.8pc in the first quarter. Output is now 6pc below its peak in 2008. Italy has been trapped in perma-slump for a decade, the only major state to suffer a fall in real per capita income since 2000. Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic 'years of lead' in the late 1970sThe government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.

    Global Lenders Face 'Killer Losses' on Greek DebtForeign holders of €422bn of Greek debt were warned to brace themselves for "killer losses" as coalition talks in Athens collapsed, threatening Greece's future in the eurozone.

    Greek President Told Banks Anxious as Deposits PulledGreek President Karolos Papoulias was told by the central bank chief this week that financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections. Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday. “Provopoulos told me that of course there’s no panic but there’s great fear which can evolve into panic,” he said.

    Majority of Neo-Normal Greek Cops Vote Neo-Nazi. In a somewhat stunning revelation, especially after our earlier note on the Golden Dawn leader's 'position' on the issues of the day, GreekReporter notes via the news paper To Vima, that more than half of all police officers in Greece voted for pro-Nazi party Golden Dawn in the elections of May 6th. It's not really for us to judge (well maybe it is) but when some polling stations report Golden Dawn receiving 19-24% of the votes, things are going from the dismal to the horrific (and potentially chaotic) very fast.

    The next Greece?  Brazil Builders Plunge as PDG Profit Tumble Deepens SlumpMRV Engenharia (MRVE3) & Participacoes and PDG Realty (PDGR3) SA Empreendimentos & Participacoes led a plunge among Brazilian real-estate companies after reporting first-quarter profit that fell more than forecast. MRV lost 15 percent to 9.43 reais at the close in Sao Paulo, the biggest decline on the BM&FBovespa Real Estate Index, which retreated 4 percent.

    China Big Four Banks Barely Issue New Yuan Loans In 1H May – ReportChina's biggest four banks barely issued any new yuan loans in the first two weeks of May, extending the country's weak credit growth last month, the state-run Shanghai Securities News reported Wednesday, citing an unnamed source. The four banks--Industrial & Commercial Bank of China Ltd. 1398.HK -2.08% (601398.SH), China Construction Bank Corp. 0939.HK -2.20% (601939.SH), Bank of China Ltd. 3988.HK -2.35% (601988.SH) and Agricultural Bank of China Ltd. 1288.HK -0.60% (601288.SH)--usually account for 30% of new yuan loans issued by China's whole banking system. The rare and unusually dismal performance by the banks is expected to fuel concerns that despite Beijing's efforts to step up credit easing, corporate demand for loans remains too weak to reverse the trend.

    Filings Show 45% of China Companies See Slowdown.

    China Power Output Shows Deeper Economic Slump: Chart of the Day. China's economic slowdown may be worse than forecast as growth in electricity generation, a leading indicator of gdp, was almost non-existent last month. Power generation rose .7% in April from a year earlier, down from 7.2% in March, the National Bureau of Statistics said on its website. Industrial production in the world's second-largest economy, which accounts for more than 70% of electricity use, rose at the slowest pace in about three years last month. "Power production is one of the coincident indicators of the economy," said Michael Parker, an analyst in Hong Kong at Sanford C. Bernstein & Co. "To see the number so sharply down, I think the problem of macro issues comes into question."

    Needy States Use Housing Aid Cash to Plug BudgetsHundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.

    Chicago braces for violence at NATO summitChicago police, who have a reputation for dealing toughly with protesters, will be prepared for the worst with new riot gear, including "sound cannon", if demonstrators at the NATO summit get out of line this weekend. America's third-largest city and President Barack Obama's hometown has never hosted anything like the meeting starting on Sunday, which will draw representatives from some 50 countries, including leaders of the 28 members of the military alliance.

    US Bank CDS Hit Fresh 2012 HighsCredit default swaps on major US banks, including JPMorgan Chase, hit fresh highs for the year on Tuesday as problems in Greece intensifiedThe cost of default protection on JPMorgan debt rose 8 basis points to 147, the highest level this year.

    Goldman(GS), Merrill E-Mails Show Naked Shorting, Filing SaysGoldman Sachs Group Inc. (GS) and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. (OSTK) said in a court filing. The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry.

    Chesapeake’s (CHK -5.6%) 1.5M acres in the Permian Basin may be worth $6.82B, $1.8B more than expected, based on the price Concho Resources agreed to pay this week for oil fields in the same area. Anadarko (APC) CEO Al Walker says he'll take a look at CHK’s Permian assets; Occidental Petroleum (OXY) had a bid for CHK assets rejectedForbes reported.


  174. Gotta play oil (/CL) bullish over $92.50!

    RUT (/TF) over the 775 line is fun too.  

    News is so bad – it's starting to look good….


  175. Greek and French elections both on the 17th of June.
    What an excellent pick from our Greek friends!
    Tragedy, Comedy and Satyr…


  176. CHF/StJ – That's because they are effectively pegging to the Euro.  

    FB/Angel – I hear they are now going to sell a larger amount of shares now that the suckers are nibbling.  

    Big Chart – I just want everyone to go back and read the comments from the end of April/early May when people were freaking out that the markets would never stop going higher and capitulating.  You have to learn to play the ranges but RESPONSIBLY – there is a ton of money to be made on the turn – you don't ever have to be all in.  Tops are easier to call than bottoms because tops run into mathematical certainties as more money is required to support the markets – as we learned in 2009 – there is no real limit to how much people can panic – but a low price doesn't mean a stock is worthless – just costless.  

    Value/Barf – I think we're below the floor on CHK.   They have a $9Bn market cap and $60Bn in proven reserves.  XOM has a $400Bn market cap and $2Tn in proven reserves so 1/5th is a good benchmark and CHK is well below that which means that if XOM were to buy them for $9Bn, they would quickly gain a $12Bn benefit so CHK is roughly 33% underpriced at the moment.  That won't stop them from going 50% under but GS et al just gave them $4Bn – do you really think they do that for companies that are going under?  As to the others, the key is always to not go under 20% down because that is usually recoverable on a decent rally and then you can lighten up.  HCBK, for example, was down at $5 in the fall and was just $7.50 in March and now $6 again – I don't see how you wouldn't have lightened up at $7.50 after filling out that low.  Even so, at $6.23, you can sell Jan $6 calls for .75 and that's 12% in 8 months – some would say that's good money, especially added to their 5% dividend.  Same for SVU at $5.12, where you can sell Jan $5s for .85, which is 16.6% back in 8 months added to their 6.7% dividend – aren't these the kind of stocks you WANT to own a lot of?  

    FCX/Peedle – They were below $20 in 2009.  Rule of thumb right now is don't buy anything that isn't at 2009 panic lows as that, at least, has a chance of keeping you out of trouble (assuming the company is making more than in 2009, of course).  

    LNKD/Japar – I would not spend $11.4Bn to buy them when I'm sure Zuckerberg would think he could mount a very credible challenge off his platform (FB Pro) for $500M or less.  

    10 Brands/StJ – I love that chart.  

    Telling a secret/Sparky – Madeline had it but Jackie didn't.  Maddie was offended by the question and made up a fake secret about finding a bunny in the woods and secretly feeding it every morning because her parents wouldn't want her playing with wild animals because she said there was no way she would share secrets with strangers.  This is why I teach my kids not to trust "the man" – I was raised in the 60s and my healthy distrust of Government and Big Business has served me well in life – why should I not pass this knowledge down to my Children?

    Good point ZZ!  Half cash is always the best strategy.  You can be fairly aggressive and make 20% on 50% of your money and always have 50% on the side in case you are wrong.  Cash let's you cover and take advantage of opportunities and, most importantly, average down no matter how silly something gets.  If you prioritize having half cash, you won't have margin calls as you force yourself to liquidate positions that aren't working.  

    The other big mistake is scaling too soon.  SVU, for example – even if you entered at $10 and had, say $20,000 to invest, then you buy 500 for $5,000 and sold Jan 2012 $10 puts and calls for $2 (because if we aren't knocking off 20%, what's the point?) and then you net $9 on 1,000 (assuming no roll) and in Jan SVU was $7 so figure you sell the Jan $7.50 puts and calls for another $2 and now SVU is $5 and you end up in 2,000 at net $8.25, which is $16,500 of a $20,000 allocation but you can roll the Jan $7.50 puts ($3) to the 2014 $5 puts ($1.80) and roll the Jan $7.50 calls (.25) to the 2014 $5 calls ($1.25) and for net .20 spent you now don't have that 2x assignment at $7.50 and you still have 1,000 shares at net $8 with the short 2014 $5 puts and calls that you now sold for $1.80 so your net is $6.20/5.60, which is not bad for a stock that's dropped 50% on you since you bought it.  

    That's just a very simple scale-in on a total disaster with a worst entry and exit.  It's the discipline and the patience that's hard to master – you have to think AND ACT long-term.  That's the hardest thing to teach as it takes actual years of experience and, unfortunately, people who don't have faith and panic out will "prove" it doesn't work simply by paying the inflated premiums and, essentially, buying high and selling low.  It's not what value investors do. 

    Good point Sparky!  

    South American Jail/Winston – LOL!  

    Levels/Rv – It's a little more convoluted than simple math.  The key level for the S&P on this BULLISH adjustment to the Big Chart was based on 1,600 being the breakout level and we make our calculations off the significant breakout which led to a series of 80-point resistance zones.  Notice that logic is confirmed by the 50 dma, which is right about 1,280 now.  I think when we first went to this new chart I did a post about the logic of calculating from the top when you get near it while we calculated from the bottom back in 2009 and from the middle (1,200) in 2010 and 2011.  Unfortunately, the 5% Rule is a mixture of art and science – it's not like there's some simple thing you can write down as you have to observe the behavior first and then set levels and ranges and THEN the math comes into play – it's not just a straight calculation. 

    Elections/Lionel – Tragedy tomorrow – COMEDY TONIGHT!  


  177. Phil your movies are always so a propos. You have undeniably lots of talents… The first one going long oil above 92.50
    Thank you!