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Sunday, February 5, 2023

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Flip-Flopping Thursday – $267Bn from the Fed Not Enough!

SPY DAILYAnd we're out!

It might be a little early because we did get another $267Bn from the Fed yesterday but that plus $125Bn given to Spain and $100Bn to the IMF this month is "just" $492Bn and that, according to our calculations, should be good for 1,350 on the S&P, tops.  If they want to get to 1,400 – they'll need another $500Bn from Europe and, while it is widely expected to come – the Fed came up short and if the EU comes up short as well, we could be talking flash crash so we took advantage of the pre-Fed run-up (as planned in yesterday's post) to get back to cash.    

My morning Alert to Members was short and sweet:

Good morning!

I don't know if you guys usually click on my little links but this one was the most important of the day – Don't be white people – GET OUT!!!!

This one was so important that I tweeted it (you can follow me here) and Facebooked it (you can follow us here) and I even put it out on Seeking Alpha's Stock Talks (you can follow me here) so don't say I didn't warn you.  Sure the market may go up as funds dress windows into the end of the Quarter/Half next week but we caught the run off the bottom this month so why push it when the upside looks limited and the downside does not?  

Other than 2014 spreads in our new Income Portfolio – all of our virtual portfolios went to cash rather than risking very nice first half gains.  As of yesterday morning they were:  

Much thanks to StJ for keeping these tracking portfolios – all back to cash now and hopefully we can match that performance in the second half of the year although I think we're going to ditch the very boring $5,000 Portfolio in favor of a $25,000 Portfolio with only ordinary margin (not a part of a larger portfolio like our Income Portfolio with that margin to draw on).  So it will be more a bit more conservative than the aggressive $25KP but able to day-trade – unlike the $5KP and able to use ordinary margin – so better for learning basic option strategies.  

Hopefully JP Morgan will sign up some of their traders as it seems the trading losses from the London Whale could hit $6Bn, according to the Post (not that you can believe them) and their unnamed sources.  It is expected, however, that accounting tricks (depreciation of credit values, for example) will allow them to paper over the loss with Billions of adjusted "gains" so I wouldn't go betting against JPM but we WERE long and now we cashed out and we'll wait on earnings to decide what to do with the Financials.  

Our own market thesis was for massive QE from the EU and the Fed and, since the Fed has hemmed and hawed once again and, so far, we really have nothing concrete from the EU to hang our hats on so why then should we hang out money out to dry on the HOPES (not a valid investing strategy) that we get more stimulus – which we know is not a real fix anyway?  

NYMODo you want to know what the scariest thing is?  The chart on the left.   That's the NYSE McClellan Oscillator (thanks David Fry), which is a breadth indicator derived from Net Advances, the number of advancing issues less the number of declining issues.  The McClellan Oscillator is a momentum indicator that works similar to MACD.  

Note how fast we went from oversold to overbought.  Do you feel like we just had an epic rally to rival the 1,500-point run in the Dow last Summer?  No?  That's because we didn't.  What we had was a 500-point run in the Dow that has pushed us to as overbought a condition as we had last October, when the Dow was at 12,284 and dropped 1,050 points over the next month. 

The main takeaway from this chart is how QUICKLY we hit oversold.  That indicates the "rally" has a very poor base and can just as quickly collapse with volume selling.  In other words – it's pure window dressing.  As David Fry notes:  "Markets want to go higher because, cynically, it’s bonus time for portfolio managers and report card time for clients. After all Europe is not fixed and neither is the U.S.  All we really have now globally is money printing and talk to buy time." 

SPY WEEKLYBy the way, for those keeping score, note the spectacular run-up we had last June into the end of quarter – followed by a whole lot of nothing and then a 3-week, 24-point (18%) drop that caught everyone by surprise.  Well, not everyone – we cashed in our Income Portfolio last year into the July 4th weekend for a lot of the same reasons that we're doing it now (we were way ahead and worried about a big dip).  

On the 2nd we had cashed in our $25,000 Portfolio as well as we hit our goal of a 6-month double and we TOOK THE MONEY AND RAN – something a lot of very successful traders forget to do – leading them to become less successful traders when the cycle inevitably turns back on them.  

July 1st's post was titled "Stop the Rally, We Want to Get Off!" and I laid out my case for cashing out, despite the very impressive rally that took us back almost 5% off the June lows.  We were confident in June to ride it out through the end of the month last year but, this year – due to the Fed and the EU/ECB dithering – we just don't think it's worth risking the weekend.  

Giving Greece $229Bn provided us with a brief lift in July but it was all downhill from there and where were we shorting the Futures on the Greek news?  It was S&P (/ES) 1,346 (now 1,351), Nas (/NQ) 2,415 (now 2,615), Dow (/YM) 12,720 (now 12,773) and RUT (/TF) 842.6 (now 779) so a big divergence of the Nas and the Rut since last Summer, which is why we like the RUT as an upside bull hedge – in case you really hate being in cash.  Of course – for our non-futures players "Hedging for Disaster – 5 Plays that Make 500% if the Market Falls" was an across the board winner as well – something we'll be looking at AFTER we're sure we're breaking down (we waited until Aug 11th last year to get aggressively short and it worked out just fine). 

That's right, we're in cash and we're expecting the market to sell off, which will make our cash more valuable as the Dollar rises and the market falls so we hedge our cash with BULLISH trades like UCO (ultra-long oil) at just $25.40 with oil at $81 this morning. UCO was at $45 at the beginning of May so lots of room to run and you can pick up the Aug $29 calls for $1.10 as a straight play on oil getting higher or you can bet oil won't drop below $75 and sell the USO (now $30.40) Oct $28 puts for $1.45 and buy the UCO Aug $22/25 bull call spread for $1.90 for net .45 on the $3 spread that's 100% in the money to start so we just need oil to hold $80 and the return on cash is 566% while the worst case is you end up long on USO at net $28.45, which is 6% below the current price or oil at $75.90.  

So very easy to lever bullish if you are worried that a rally will make you feel left out.  We'll also add bullish trade ideas for the Financials and the Russell but they won't be going in our virtual portfolios because what I really like – in case you have not gotten the message yet – is CASH!  Cash is King and we can take some of that lovely, lovely cash and take a nice day off or even a long weekend off with the holiday coming up and, when we've had some time to relax – THEN we can see what kind of mess the markets are in and place some bets accordingly.  

For the moment though – we can just relax, sit back and enjoy the show!  

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Phil,
I am holding 500 TNA 35Oct12 puts, sold at $2.60 and 500 UPRO 55Sep12 puts sold at $2.20. What would you recommend as a course of action for tomorrow? Hold, buy back to get out or make an adjustment? I am asking because of your warnings of a possible crash and cash is king.

15 downgrades total
1 firm (Credit Suisse) lowered by 3 notches to A2 from Aa2, outlook stable
10 firms lowered by 2
4 firms lowered 1 notch
Morgan Stanley 2 notches to Baa1 (there was talk of 3 notches)
Citigroup lowered to Baa2, outlook negative
UBS lowered 2 notches, there was talk of 3
RBS lowered 1 notch to Baa1, outlook negative
Goldman to 2 notches to A3 from A1
HSBC 1 notch to AA2
Barclays 2 notches to A3
BNP Paribas 2 notches to AA3
Credit Agricole 2 notches to AA3
RBC to two notches to Aa3
Soc Gen 1 notch to A2
Deutsche Bank 2 notches to A2
Fortis, Lloyds and Bank of America the others.
No bank was lowered more than Moody’s outlined in Feb, when it foreshadowed the moves

^^forexlive^^

Pharm / CELG – no worries.  It just got a bit frustrating not getting what a want when I wanted it //pounds desk and stamps feet!
 
Regarding CELG, they do seem to have a LOT riding on that one drug.  Do you know anything about their pipeline?

MS downgraded, on que, up 5% AH.  Nice.  Gonna short some more.

Belly/Phil:  NEVER! I would kiss it if I could 😉

CELG write up is here Bolt.  I think they have a few things that will keep up the revenue stream in the coming years.

Now the name fits…kinki!  Thx for laugh!

Good day all!  Account value flat since the DIA puts hedged some Jan14's longs.  Thanks to Phil's Gut and all the peeps!

Which tab is the Strangle portfolio under…anyone?

Pharm / CELG – when I click the link for the write up, it takes me to a page that says "membership required". 

Phil—I do not want to add to the belly swelling etc but thank you very much—-I am very glad I found PSW

Vegas Update—-weekend Nov 10,11 and 12—- LVModa is in the process of verifying wifi capabilities food costs etc  and then I can give you the amount of deposit etc—-We are capping the participants  to a maximum of 50  –atm we have 35 interested

Savi/Las Vegas
Please add me to the list.  Thanks!

There sure is plenty of blame to go around in Europe, but not enough is directed toward Germany it seems:

http://ftalphaville.ft.com/blog/2012/06/21/1053921/koo-on-german-bubbles/

 

Germany’s actual fiscal deficits modestly exceeded that threshold on several occasions, but the resulting fiscal stimulus was far from sufficient to prop up the economy. The ECB therefore took its policy rate down from 4.75% in 2001 to a postwar low of 2% in 2003 in a bid to rescue the eurozone’s largest economy.

But those ultra-low rates still had little impact on Germany, where balance sheet problems were forcing businesses and households to minimize debt. The money supply grew very slowly, and house prices continued to fall. Naturally there was only minimal inflation in wages or prices.

The countries of southern Europe, which had not participated in the IT bubble, enjoyed strong economies and robust private sector demand for funds at the time. The ECB’s 2% policy rate therefore led to sharp growth in the money supply, which in turn fueled economic expansions and housing bubbles.

In short, the ECB’s ultra-low policy rate had little impact in Germany, which was suffering from a balance sheet recession, but it was too low for other countries in the eurozone, resulting in widely divergent rates of inflation.

In other words, there would have been no need for such dramatic easing by the ECB—and hence no reason for the competitiveness gap with the rest of the eurozone to widen to current levels—if Germany had used fiscal stimulus to address its balance sheet recession.

The creators of the Maastricht Treaty made no provision for balance sheet recessions when drawing up the document, and today’s “competitiveness problem” is solely attributable to the Treaty’s 3% cap on fiscal deficits, which placed unreasonable demands on ECB monetary policy during this type of recessions. The countries of southern Europe are not to blame.

That is of course one point of view!

RUT, rebalance tomorrow???

iTrade – I am at $1.25 with TOS too. How did you get a buck? Did you have to trade a specific number of contracts? Who did you talk to?

Weak hiring: layoffs continue, jobs posted, but few new hired because  "All of us…learned some good lessons from the 2007, 2008, 2009 downturn." [James Verrier, BorgWarner's president and chief operating officer] http://online.wsj.com/article/SB10001424052702304441404577480771351072052.html?mod=WSJ_hp_LEFTWhatsNewsCollection
 
 So major companies are staying lean — query, does this necessarily translate into higher profits?  Under what circumstance does an excess of caution [the U.S. is, or at least was, slowly recovering] lead to lower profits?  I was in situations where being understaffed would have undoubtedly led to a loss of business and profitability, but I cannot generalize from that.

Phil, Pharm and PSW members- as attention turns soon to Q2 earnings, any thoughts on who will report better and worse than expected numbers?

It looks like Italy is "fixing" itself, and, yes, that's a double-entendre:  "Italy urgently needs to sell assets to reduce its debts. Yet rather than privatize the assets directly, drawing in much-needed private capital and ceding control to new owners who might operate them along purely commercial lines, Rome is resorting to accounting ruses."
 
"The government is planning to sell three state-owned firms together worth €10 billion ($12.7 billion) to Cassa Depositi e Prestiti, the 70% government-owned postal savings bank. This is a convenient way to keep the asset in state hands without it appearing on the government's balance sheet. More such deals are likely to follow, notably in real estate."
http://online.wsj.com/article/SB10001424052702304441404577480660567711018.html?mod=djemheard_t

itrade/TOS – Do you have a contact you are talking to for the 1.00 contracts?

Any opinions on Tradestation? $1/c, and they seem to have a very impressive platform, especially for day trading.

bolt – sorry.  Here is the gist….

CELG has four other compounds in Phase 3 clinical trials which could improved forward looking revenues.  They are noted below:

  • pomalidomide – under license from EntreMed, is developing pomalidomide, an orally available small-molecule analog of thalidomide that inhibits TNF-alpha overproduction, for the potential treatment of solid tumors including prostate cancer, multiple myeloma (MM), small-cell lung cancer (SCLC), and pancreas cancer. It is also being investigated for the potential treatment of graft versus host disease (GVHD), sickle cell anemia, myelofibrosis, polycythemia, and scleroderma.  In several Phase 2 trials, the first in December 2008, pomalidomide combined with low dose dexamethasone in patients with relapsed or refractory MM, were presented at the 50th ASH meeting in San Francisco, CA. The combination of pomalidomide + dexamethasone well tolerated and working well, with an objective response rate of 62%, including a 29% response rate amongst patients with Revlmid-refractory MM. Similar data were reported at the 51st ASH meeting in New Orleans, LA in December 2009.  The Phase 2 portion was ongoing and anticipated to complete in the fourth quarter of 2010.  Further randomized and novel combination studies were also expected and in June 2010, data from the phase II trial were presented at the 46th ASCO meeting in Chicago, IL. The overall response rate was 54%, with 17% of patients achieving a very good partial response, 17% a partial response and 23%a minor response. At the 6-month follow-up, the progression-free survival rate, the overall survival rate and the median progression-free survival period were 58%, 86% and 8 months, respectively.  Like, Revlmid and Thalomid, this drug should garner approval.
  • apremilast – is an oral, small-molecule PDE4 inhibitor that modulates the production of proinflammatory mediators (including PDE 4, TNF alpha, IL-2, IL-6, IL-12, IL-17, IL-23, IFN gamma, and leukotrienes).  CELG is investigating apremilast in three Phase 3 trials for psoriasis (includingpsorisis, psoriatic arthritis and recalcitrant psoriasis), Behcet’s disease, and other chronic inflammatory conditions (e.g., lupus erythematosus, erosive osteoarthritis, uveitis, ankylosing spondylitis, prurigo nodularis, atopic dermatitis, allergic contact dermatitis and sarcoidosis (YES, that is a lot of diseases this could work for)).  There is a ton of competition in this area, including GSK and MRK.  It remains to be seen IF this compound class will work.
  • amrubicin – Sumitomo Pharmaceuticals (now Dainippon Sumitomo) developed and launched (in Japan) amrubicin (doxorubicin prodrug named Calsed), which is an iv anthracycline topoisomerase II inhibitor for the treatment of small- and non-small-cell lung cancers (SCLC and NSCLC). CELG is developing the drug for the treatment of SCLC in the US and EU.  It works, but how well compared to/with the standard of care?
  • sotatercept – with Acceleron, CELG is developing this compound, which is a fusion protein containing a soluble form of the activin IIa receptor that inhibits signalling of the receptor and an Fc fragment of IgG1, for the subcutaneous treatment of chemotherapy-induced anemia, renal anemia and bone loss.  In December 2009, Phase 2 trial data were presented at the 51st ASH meeting in New Orleans, LA. Patients received 0.1, 0.3 and 0.5 mg/kg sotatercept subcutaneous or placebo. After the first dose of sotatercept, there was a dose-dependent increases in hemoglobin. Sotatercept-treated patients demonstrated a greater trend to improvement in osteolytic lesions. Of 22 evaluable patients, complete remission or very good partial remission was seen in 7 patients.

Seven others to note that are in Phase 2, but are too early to count on. Many started trials over the last year or two, so data should be slowly trickling in, but larger, Phase 3 trials will be needed to move them forward.  The drugs under development are:

  • CC-223 – an mTOR inhibitor (think ARIA)
  • Docetaxel – a nab-docetaxel, an iv nanoparticle albumin-bound (nab) formulation of the microtubule stabilizer docetaxel, for the potential treatment of solid tumors (think IMGN or Abraxane from above)
  • CC-11006, a small molecule TNF-alpha synthesis inhibitor, an orally available immunomodulatory drug (related to thalidomide) for the treatment of hematological malignancies including myelodysplastic syndrome (nothing new)
  • CC-930 (small molecule, oral delivery) is a lead from a series of inhibitors of cJun N-terminal kinase (JNK), for the treatment of serious inflammatory and fibrotic diseases (WAY to early, and competition galore).
  • Cenplacel-L is one of many human placenta-derived stem cell (HPDSC) or human placental-derived adherant cell (HPDAC) therapies, for the potential iv treatment of malignant hematological diseases and other non-malignant disorders, including Crohn’s disease, ulcerative colitis (UC), rheumatoid arthritis (RA), multiple slerosis (MS) and stroke.
  • CC-11050 is an oral, small-molecule, tumor necrosis factor (TNF)-alpha and PDE4 inhibitor for the treatment of inflammatory disease including cutaneous lupus erythematosus.
  • azacitidine is an oral, small molecule whose mechanism of action is as a hypomethylating agent and DNA methyltransferase inhibitor for the treatment of cancer.

Celgene has a very robust pipeline, and Revlmid is going to be the main player for them.  IF any one of these other compounds show robust activity across several cancers, then CELG is going to be in a position of handsome returns.  Much like our CEPH play, and knowing the range bound price of the stock, I like playing conservatively, buying the January 2012 $50/55 BCS for $3.35 or better, selling the January 2012 $5 Ps for $3.  That is a $5 spread for $0.35.  Earnings should keep the stock range bound, and any upside beat will make this one a nice winner in time.

 

And how did it do?  CELG finished at $73….so 35c to make $5.  Not too shabby!

Savi / Las Vegas

Please add me plus 1.

Thank you.

Ron Resnick

Phil / Las Vegas

Please let’s program into the Las Vegas schedule some time for you to discuss BBBW and for me to give an update on fund structure and progress.

BBBW update

Please see my BBBW post regarding the search for an executing trader.

lucky1/TradeStation,
They are great for stocks and futures, but still pretty bad for options.  Even though their new 'OptionStation Pro' in 9.1 is a huge improvement over previous releases, it really don't mean anything at all, because what they had before was just lacking.  Even in the new release, they simply miss some basic operational capabilities, such as:

a) Ability to change an order for an option position (other than a simple call or put).  Say your vertical spread has hit  your target and you place an order to get out at a price somewhere near the mid.  Nothing happens and it is 5 min before the close and you want to get out – in TOS you would simply right-click on the order and click again on 'cancel/change order' and adjust your asking price.  Not so in TradeStation:  You need to cancel the order and reenter it from scratch!  Same goes for rolling during expiration, lots of fun canceling and reentering orders when you have a dozen positions open and an excellent use of your time!  What's worse, what you gain with $1/contract in commissions, you lose in slippage three times over because of that, because eventually you'll start entering your exit price in 5 or 110 cent increments!
b)   They don't show how much margin you are consuming when you place an order – only way to do this is to use your own calculator (or simply put the order in and find out after the fact!).
c)  This should really be part of b) but it is important if you do strangles or iron condor:  They don't properly calculate the  margin you've used up in real time, they show the margin consumed for both the call and the put side.  Only the next day it shows the proper margin, 50% of what it shows right after execution.
d)  They can't properly calculate margin on 3x ETFs in real-time – you'll only find out the next morning what changes occurred to your margin balance.  Very exiting, as a trader I just love uncertainty!

I could go on and on, but suffice it to say that I  switched most of my options trading to TOS this year.  Love TradeStation's automated platform and programmable indicators though (but just not for options)! Hope this helps.

Long Oil off $78
Euro banks downgraded by Grumpy's are all green.
Some bottom fishing is happening whereas global indices are down to catch up with the US.
Goldman and Sachs have done their best to scare the weak hands!!

Savi
add me to the Vegas list plus 1

I'm with you lionel.  Dangerous time to be short anything in the market.  We saw this same set up last year.  The S&P fell from 1365 to 1270 from May up to the last week of June.  Then a big pump job from 1270 to 1340 in the final week of June to close out the quarter.  Of course we then fell off the cliff in July/August.  The set up this year is eerily similar.  Hopefully we have a flush lower today and I'll use it as an opportunity to load up on some cheap aggressive upset plays for next week.

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