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Sunday, November 27, 2022

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Testy Tuesday – All Better or Just Bouncing?

Wow, what a Monday!

The Nasdaq and the Russell already hit our 2% bounce goals and the Dow needs another point with just half a point making the mark for the NYSE and the S&P – not bad for a day's work…  

EVERYONE is TALKING about bailouts and easing but, so far, no concrete action has been taken and we don't believe we can get more than a strong bounce (40% retrace of the drop) without ACTUAL stimulus coming through.  Those lines would be:

  • Dow – 12,750 (12,540 is 20% retrace/weak bounce)
  • S&P – 1,343 (1,319)
  • Nas – 2,900 (2,840
  • NYSE – 7,720 (7,560)
  • RUT – 780, (765)

As you can see from the Big Chart, the Nasdaq stopped dead at their -5% line at 2,850 so we'll be watching that one very closely and the S&P is just under its -2.5% line at 1,320 so those are our major goals for the day along with turning the Russell and the other weak bounce lines green.  Those are the 2% bounces we expected in yesterday's post but we certainly didn't expect them in one day!  

SPY DAILYWe had gone into the session expecting to flip more bearish after betting on the bounce Friday afternoon but it was a very strong day overall and none of our warnings (see Morning Alert) were tripped so we ended the day a little more bullish as we tweaked our FAS Money Portfolio even more bullish by uncovering our primary January bull call spread.  On the other hand, we left our bear hedges in place on the $25,000 Portfolio, so we're not ready to go all the way on our first bullish date.  

All three of my stock picks from this week's Stock World Weekly gave us the entries we were looking for and some nice gains yesterday as CHK opened at $14.25 and finished at $14.91 (up 4.6%), HPQ opened at $21.42 and jumped to $21.89 (up 2.1%) and XLF gave us our $13.77 entry but is still playable at $13.90 (up 1%) and, of course, our aggressive FAS Money move was to take advantage of the lagging XLF index.  

Of course the more fun way to play XLF would be our trade idea from yesterday's Member Chat, which was to sell the Jan $12 puts for .75 and buy the Jan $13/14 bull call spread for .59, which nets a .16 credit on the $1 spread so no cash committed (but about $1.20 in margin) and a potential $1.16 upside (725%) if XLF maintains $14 through Jan expirations and the worst case is you have XLF assigned to you at net $11.84, which is a 15% discount to the current price (see "How to buy Stocks for a 15-20% Discount" for more on this strategy). 

XLF WEEKLYXLF was, of course, one of our "Secret Santa's Inflation Hedges for 2011" and that one was the Jan 2012 $12/13 bull call spread for .80, selling the Jan 2012 $11 puts for .40 for a not too ambitious net .40, which yielded our expected 150% gain on cash in January – but not without giving us a good scare in the fall!

Notice on Dave Fry's XLF chart, we're HOPING (not a valid investing strategy) that the center channel of the last 3 years holds up and gives us a bullish signal – that's iffy at the moment and it's not going to happen without some proper intervention (see yesterday's discussion on the G8, etc.).  If we fail to hold that $13.50 line on XLF – we will be backing off that bullish position pretty quickly and then waiting PATIENTLY for the retest of $11.  

None of this stuff matters if we can't even complete our weak bounce levels and that won't matter if we can't move on and recapture our strong bounce levels and that won't even matter if we can't take back those "Must Hold" lines on the Big Chart but we already have plenty of bearish hedges – we're protecting those by playing for a bullish bounce but, if that bounce never comes – then game back on for the bears!  

We had hoped BBY's earnings would provide a turning point for the stock and the sector and they did report a 25% drop in Q1 earnings to .46 per $18 share but, stripping out costs tied to their restructuring, it's more like 72 cents per share (up 10.7%) on a 2% increase in revenues BUT, there was an extra week this year so let's call that in-line.  While BBY may be nothing to get too excited about – it's hardly the disaster that's baked into the price after dropping almost 50% since those Q1 2011 earnings last year.  

 “Best Buy is in a turnaround, and the strategic priorities we laid out at the beginning of the year are just the first phase of the changes to come,” said Mike Mikan, CEO (interim) of Best Buy. “We know we have to better adapt to the new realities of the marketplace, and we are creating a long-term plan designed to make Best Buy more relevant with customers and position the company for sustained, profitable returns in the years ahead. First quarter results were in-line with our expectations, and we are reaffirming our previously provided annual guidance for fiscal 2013.”

Those expectations are for $3.60 per $18 share (p/e ratio of 5) in earnings in addition to paying out a .64 annual dividend (now 3.5%).  We're already in BBY with short put positions in our $25KP but I have to say I'm really liking them this morning as the CC merely confirms what we expected but, surprisingly, the stock is not moving higher – yet, and makes a nice pre-market opportunity at $18.  There is a persistent myth that AMZN (we're short) will take over all retail and BBY and others are suffering but the same was said about catalog sales over 100 years ago – why hitch up the wagon and drive to the store when Sears or Wells Fargo will deliver it right to your door?  Silly humans – they never learn…

FXE WEEKLYIn other silly human activity – Europe.

Do I really need to elaborate on that?  Yes, they are still a disaster.  So much so that the OECD has cut their 2012 Eurozone GDP forecast to -0.1% – that's a recession folks!  Our forecast was RAISED from 2% to 2.4% and China (our manufacturing floor) was raised from 8.2% this year and 9.3% next year DESPITE China's attempts to keep a lid on growth.  Japan is +2% this year (after the weak quake year) but drops to 1.5% next year and the OECD warns that the global "recovery" is both "fragile and uneven."

Nothing to change my premise that US Equities remain the best place to put your money.  We're short on TBills (TLT) and we won't touch commodities due to weak global demand (oh and Iran is "fixed" and oil may dip below $90 very shortly) and we're very much "Cashy and Cautious" at the moment but, if we can hold our Futures lines (12,400, 1,300, 2,500 and 750) and get back to those strong bounce levels – we're going to want to dip deeper into our "Twice in a Lifetime" list and pick up some of these bullish laggards – like BBY and XLF because – come on – where the Hell else are you going to put your money if not US Equities?  

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Phil
I have TNA June $48 call, paid $4.90, closed today about $3.30. Would you recommend holding as is or converting to a bull call spread? Thanks

http://www.dowjones.com/products/djfxtrader/articles/FormerGreekPMPapademosRiskOfGreeceLeavingEuroIsReal.asp
Full Interview Greece's former prime minister Lucas Papademos
I was hoping for a bit more of a bounce to 1330-1340 myself before possibly a new low but doesn't the use of these comments out of context seem like an attempt to shake people out of Euro/Stocks maybe something positive on the way for a short squeeze?
Just a thought.

jerconn – how do i subscribe?  still says not accepting subscribers.

lol – maybe he didn't get around to actually doing what he needs to do on the site to open it up, I'll post a question there…

Lol, just posted a question but also if you hit the subscribe button on his site, even tho it says it's closed, a sign up form comes up, I would just fill it out.  If they ask you for a reference, I'm "jerconn" over there like over here, please if they ask how you got to bullishcross, tell them thru me, who knows what kind of brownie points I'll get…

jerconn…..Yes, Andy Zaky is extremely bullish on AAPL right now, and he has been correct in the past.  I don't read him (rarely anyway) but I certainly agree with him.   I believe now is the time to buy.  My timing today on those June 570 calls sucked, but they represent only a small amount of my overall AAPL wager.  Our AAPL portfolio that we recently abandoned in favor of a more interesting MoMo portfolio increased from 50k to 287k in less than 6 months.   We could have done that with no other stock that I follow.  Now let's do it again!   And we will do it mostly with AAPL, king of the MoMos, along with some others just to make it fun.  Go long AAPL !!!  

jerconn – yah i tried that but doesn't work wihtout a "promo code."

Phil:
Forgive me for the length of this question and hopefully if I post it AH you will get a chance to respond when things are less frenetic.
After two years of following , making mistakes and and learning I have now set up a portfolio on a scale I am comfortable with to generate the income I need.  My general position is still not bullish enough to be making big commitments to long positions I plan to make the bedrock of my investments.  I do have small tentative sold put positions on those but for the most part am putting my portfolio margin to work as follows; roughly 75% of margin is utilized in a ratio of 2x being essentially bearish sold calls against 1x bullish short puts on the stocks I really want to own.  The short calls are mainly on stocks I don’t like ie LULU, HOG,PCLN but also on some I just felt were too high in their range like LOW and M and won’t mind owning at some price.  While ABX, BTU, CHK IBM, INTC, CSCO, T are examples of the short puts as well  as some puts sold for balance  against the bigger short call positions.  I also like strangling  blue chips like MSFT and others since the range is easier to manage than a momo.  I further hedge against the short calls on momo’s with sold calls on TLT, since it seems unlikely those stocks can shoot higher while TLT stays over 120, no?
So I now get the surfing analogy regarding balance and understand some positions I can ride to profits even while others will be going against me.  I feel like what I now have is one big strangle made up of stocks I don’t like, (sold calls) offset with stocks I do like, (short puts), and am feeling confident in dealing with the constant re-balancing  needed.  Many of the short call positions which went against me  from Jan to May and forced rolls out to Aug , Sept and Oct  have turned back in my favor and I am trying to decide what, if any,  adjustments to consider.  I hear you when you say to cut back on risk when the position moves in your favor faster than planned, but in my case I need to have at least half my margin at work with some mix of short and long positions.  I also hear you say when a position is on track and if you don’t have a better use for the margin than stay with it. My goal is 15-20% on margin annually and feel much more comfortable selling premium than making too many short term bets. . It’s funny that I’ve done a 180 from 2 years ago, I almost gag now when buying options and paying premium.
Here is one example; (4)PCLN calls are Oct C760’s (also short a Jun 635 put). as of Tues morning $10,680 all premium, (but not all profit), with a margin requirement of $50,000,(5% of total margin used), so I look at that as 20% return on margin, over 5 months, with PCLN 15% out of the money on a strike that was very near the spikey top.  However if it does go back near 760 the margin required will be around $104,000 so 5 month return is more like 10%, assuming I didn’t adjust by perhaps selling another put or two, still better than a sharp stick in the eye.  It feels on track to me but am curious if you would adjust a position like this?
As always TIA

Lolo – okay I'll try to get some sort of response from them!  
Iflan – Long live AAPL!  You play AAPL very differently than Zaky does but I'm trying to learn that also…you have to be very nimble for your plays, I don't know how you sell calls and then go off to do a surgery and then just come back…but it works!

Zero / Germany – The frustrating part of the German policy is that they don't seem to understand that right now they are losing their export markets in Europe as countries are going to hell one after the other and after imposing austerity on themselves for more than 10 years, they don't have enough internal consumption to make up the slack. By stretching a lot, you could say that they are facing similar issues with China (being a big export economy) and sharing some demographic issues as well (aging population). The difference being that they have better political system and a much stronger middle class. But something is going to have to give…

The RUT is technically below the 5% line being rounded up to 760…

Iflan:  Boy have you cheered me up.  My aforementioned massive FXE short hedge is offset against an equally massive AAPL long position, done with options on both sides.  I have no burning insight, just trying to set up the best against the worst in uncertain times.  Since I don't know what I'm doing, the AAPLs are Oct & Jan 13, the FXEs are June, on the assumption that, given the Euro's recent trajectory, Merkel either writes the check or dumps the dreck.

Phil- I just watched your interview-it was hilarious to me. You might as well be from another planet relative to the people they normally interview- they do NOT know what to do with you or what to say. Much like I imagine your Mother at times during your childhood. 🙂 Good job! The show of our lifetime would be if they gave you a 1/2 hour segment on Cramer- the over under on how long it would take you to hit him would be 3 minutes and 22 seconds-LOL!

Stj:  Germany will lose export volume in a Euro meltdown, but they will sacrifice fiscal integrity if they throw themselves on the sword of a bottomless Peripheral bailout.  Scylla & Charybdis: given German predilections, I'm betting stonewall.

stjeanluc- your mention of China- the scariest thing I saw today was that China is the largest importer of cotton in the world- easy to imagine as many t-shirts needed to clothe everyone. Their importation of cotton is expected to be down 35% this year. I don't know if the cheap t-shirts here in the US will outweigh having to watch many shirtless Chinese people on television but it certainly gives one pause if this is a preliminary to the slow down of other imports for them- Europe will certainly not take up the slack and I do not see the American consumer being able to do so either. Could we actually see deflation on the horizon if something does not give?

jthoma,
Don't know for sure, but I would think that may be an effect of higher wages in China, and those T-shirt making jobs have gone elsewhere.

Nice BNN appearance Phil. I like how they have the positions written out in graphics and nice colorful charts as visual aids now.  Very 20th century! 😉
Also seems more relaxed and lighthearted than usual.  Maybe its because they are finally starting to understand what you are talking about now — or maybe its because they have you dangling midair over Columbus Square 🙂

Nice interview Phil!  By the way, she got the website name wrong in the intro….

Jthoma, It's more complicated than that. Total world stocks are at an all time high, but China has just concluded a buying program to build up their stocks of cotton. So you do have jobs going to Bangladesh, Vietnam, Cambodia, Myanmar, etc., but you also have Chinese stockpiling of cotton ending. The price will go down as the stockpiling is eliminated, and farmers who have risen to the occasion and planted extra cotton to sell at last years record prices have created somewhat of a global glut, but I'm not sure that is a sign of global deflation, rather an effect of the fear of inflation that led the Chinese to stockpile in the first place.

Sparky- I agree on some fronts- China has consistanly stockpiled many commodities in an attempt to maintain control of their own destiny and to meet their own perceived growth. If in fact, they realize that controlling ones own economy is not as easy as in theory- and they slow more than anticipated while Europe fights it’s battles and slows- it could surely slow demand for commodities considerably. I also am one in the minority who believes our domestic economy is much weaker than we wish to admit. Having observed how things seem to spiral out of control when a black swan rears it’s head and finally causes people to take their head out of the sand- we generally go to the other extreme and panic causes us to overreact. Due to the fact it is an election year- it is a given there will be zero chance of anything other than can kicking for the rest of the calendar year. I fear that time frame may cause a deeper hole from which we may not be able to emerge without blood. If- big if- this were to occur- we could I believe see deflation for the 1st time in my lifetime. The table was set in 2008 with the housing collapse- and to this point- all the kings men and all their efforts at best have produced a very tepid recovery with consumers not having the where with all to create strong Confucius demand. Much rambling I know but I believe our position is VERY precarious!

Jthoma and Sparky – With all this money swirling around, inflation seems like a risk, but at the same time with pressure on wages from unemployment everywhere, it's hard to imagine that companies would have that much pricing power lest they run out of customers – the top 1% are just that, 1% of the population so they can't replace the other 99%. I might be wrong, but one of the reason behind inflation seems to be commodities and that was driven by a) China stockpiling everything from copper to cotton apparently and b) a weak dollar. These 2 factors are slowly disappearing so that should be bearish for commodities and help kill inflation as well. 

In any case, there are many, many factors at play and I have said before I am worried that CBs are now in a "bunker" mode because we are facing situations that they never modeled before. I agree with Jthoma, we are in a precarious situation.

Sorry- consistent demand

And to think as a child I used to laugh when my Grandmother would shake her head and exclaim , ” these are perilous times” truth of the adage- what goes around comes around! 🙂

After looking at DELL earnings today, my "hope" that the market is at bottom is shaky.  I have a small Jan 15/17.5 debit spread which I will need to roll once the dust settles but I am worried about HPQ, where I have almost a full position and need stock to stage a recovery to low 30s.  "Hope / Dreams" aside, Phil, your thoughts and price targets on dell / hpq appreciated.  
Do you recommend closing all positions in both, follow the excitement on this board and simply invest in aapl!!

jthoma,
I agree that the strong demand has not materialized, nor will it. This is a balance sheet recession caused by a credit bubble bursting, and a very different animal from the ones that most of us have lived through. That being said, there are areas of the US that are growing higher than the 2 to 2 1/2% trend for specific reasons and areas that are lagging for other specific ones. When I look at what is generating jobs locally, I'm not sure how much Europe can damage our actual economy. It can destroy the global capital markets, but if you look at what is actually driving the 2% here, I'm not convinced that we in the US are living on the edge of anything. The housing market has been a huge drag on the US economy, and if it will just stabalize, which it appears to be doing that will be a huge plus. We may have a gut wrenching plunge in the stock market at some point over Europe, which is why I am 50% cash, but it could go either way, and the fact that the US retail investor has not come back to the market in droves may actually be good for our actual economy if Europe does crash the markets. The other side of the wishbone is that Germany when forced to choose, doesn't want to be branded with global economic armageddon. It looks to me like it's Germany and Austria on one side and the rest of the Keynesian planet on the other. I guess we'll find out tomorrow, or not.

Sparky- you and I must be bored- lol- but unfortunately I cast my vote for tomorrow with much confidence- ” or not” !

jthoma,
It's a crapshoot, that's for sure.

ccsincsd / LLC – Would also be interested.  jerry@fawcettfam.com  TIA!

Phil / BNN – I am sure they are all out selling the $5 CHK puts!  Good interview!

Book recommendations by Phil have been added to the Wiki.

Phil/heart   Yeah, it was a stupid question….. 🙂

….and nice job on BNN today…

Great chart.  This has got to be the best reason as to why QE3 will start soon (by the summer?):  S&P 500 vs. Intrade Odds for Obama win.  Obama needs the market higher!!  http://yfrog.com/nznqrmp

ccsincsd / LLC
I’m guessing there is, and will continue to be, a lot of interest in this topic.
So while I’d be really grateful if you could add me to the list of those who want info about the way you went about setting up the company and related trading account, it would be a great gift to the group here if you also put it in the wiki. Then we might have Scottmi, and the others who’ve done this, add to it — and the rest of us too as we followed in your footsteps.
It’s something that’s been mentioned by Phil and others for a few months now but it’s never happened. Maybe now’s the time. It would be a great resource.
omahony.mail at gmail.

Good morning.
Does someone know the link of Phil's TV show on BNN last night?

Phil – are we looking to go long /RB futures today after Oil inventories or THursday after NG inventories into the weekend?

Got to run out and I might miss the open. But I'll post the portfolio updates as soon as I get in.

Thanks Phil/ Great performance. Hopefully Jim Cramer watched it too 🙂

books: Adrift
It's not investing but definitely explains to a great extent how our economy/deficit, has been shaped. Of course Rachel Maddow has a political viewpoint but this is really not political, (Clinton and Gore play their role in the move to privatization debacle),  but this book is really a great history of how we got where we are with our military, both from a tactical and an economic standpoint. She starts with Madison and there are many points in our history where decisions sent us "Adrift" from what the founders had envisioned for the country. 

jerconn – any answer on the Andy Zaky forum? 

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