As I said yesterday, we're still looking "constructively bullish" on our Big Chart as long as we hold those lines:
Looks can, of course, be deceiving. Keep in mind that this entire pop to form the right-hand top of a very nasty "M" pattern, that can take us right back to the June lows by the end of the month, is the result of the G20 holding hands and singing Kum Ba Yah – along with a few hundred Billion in extra stimulus and, of course, RULE CHANGES that create stealth stimulus.
So, when you have a leak in a $60Tn pool and the water level is down to $55Tn and you pour in $12Tn worth of stimulus and, 3 years later, the water level is only back to $59Tn – do you say "all we need is another Trillion and we're done" or should you be looking for the leak that continues to drain $8Tn over 3 years from the Global Economic Swimming Pool?
If we don't address the problem (unemployment, inadequate tax collections) – we're never going to find a lasting solution, are we?
On the other hand, if your pool is leaking at a rate of $8Tn over 3 years, that's "only" $222Bn a month so any month you dump more than $222Bn worth of Global Stimulus into the pool, you will see the economic levels rising and you can declare things to be "fixed" and all the bulls can jump in and play again until the next time the activity levels get dangerously close to the line at which the pumps seize up and then we have more meetings and do it all over again.
We have to accept the fact that our "leaders" are unwilling or unable to fix the actual leak and this is essentially the cycle we will have to put up with. If we assume we have an infinite amount of stimulus to keep pumping our economic pool back up – then this system is just fine but, judging from the way they had to scrape up this recent few hundred Billion – do we even have enough ($1.2Tn) fresh water to get us through the end of the year?
As planned in yesterday's pre-market post, we cashed in our DIA $129 calls in the morning and that left us a bit bearish in our small portfolios. Our main portfolio, the Income Portfolio, still remains bullish as it's long-term. In fact, it's very long-term as we already took the money and ran on our July and January positions, leaving us with all 2014 short puts and spreads but up a stunning $17,180 in our first month of virtual trading with our new portfolio:
Note that $11,420 of our gains are unrealized (NLY needs to come off as it's too far ahead to risk) so the question is – do we need to protect them? As our goal was to make $4,000 a month and we're already 3 months ahead of schedule with very little of our cash deployed. To some extent our gains become a hedge but that does not mean we should be cavalier about giving them back, does it? On the other hand, if we hedge we are essentially spending part of our gains on insurance and, although we did very well with last year's Income Portfolio – our biggest mistake was over-hedging – playing it a little TOO cautious.
So, we will pay very close attention to the 5% lines on our Big Chart especially our 1,360 line on the S&P (see Blain's charts in Chart School) and we'll have no tolerance for a failure of our indices to hold that "constructively bullish" posture because we certainly did not get enough stimulus to give us much more than the quick little boost we've gotten so far and only rumors of more to come are really keeping things going at the moment. As with our $25,000 Portfolio – after getting so much ahead of our goals, it would be a relief to get back to cash and wait patiently for the next real buying opportunity.
We have no technical reason to be bearish and there WAS a lot of stimulus pumped in over the last couple of weeks so we SHOULD be good at least until earnings kick off in a week – at which point 9,000 reporting companies will have a chance to poke fresh holes in the economic dyke.
To some extent, we are probably having a bit of a short squeeze on G20 action but it's done nothing to shift the EXTREME bearishness we're seeing on the Sell Side Consensus Indicator, for example.
Conventional wisdom dictates that, when bearishness gets this extreme – it's a good idea to bet against it and we have been but in Jan of 2009, people were right to be bearish as the Dow dropped 25% into March. I think it's a bit silly to look back another 10 years and try to compare the situation at that time. What this chart tells you is that analysts are idiots and sheep and you follow them at your peril – THAT is an important lesson to learn!
As to the logic that "if everyone is bearish, we should be bullish" – that's nonsense. If my daughter's 10-year old football team is given the opportunity to square off against the NY Giants in a game the Giants need to win – I'm pretty sure even the proud parents of her football squad would have a hard time placing bets on the Panthers winning the game. Would the fact that we are all bearish on my daughter's chances mean you should bet on her team to win or might it be the accurate assessment of the situation? Don't get sucked into being a Contrarian "just because."
As you can see from the picture on the right, we have a global economy that is about $60 TRILLION in debt and that is the entirety of our GDP but we can't use the entirety of our GDP to pay off the debt as we use it to live. Not only do we use it to live but we are, as I noted above, running another $3Tn a year (5%) more into debt and this does not, of course, include hundreds of Trillions of Dollars of unfunded liabilities like health care and pension benefits for aging populations and don't even think about $350 TRILLION worth of derivatives that are floating about or it might ruin your holiday.
We've got BIG PROBLEMS and, so far – only small solutions.
Let's be careful out there…
Have a great Holiday,
– Phil
MoMo : But 10 more of the AAPL July 600s at 11.60
Mornin, gents. Thanks for the USO mention, Phil, 140% on my USO lottery ticket in 12 hours, and no hesitation in taking the money and running — you have trained us well. Sometimes it's teaching, but with this kind of stuff, where you get whipped like a dog if you let 250% profit melt away, it's definitely training. Happy FFourth!!!
If you question my math, I consider getting back the price of a lottery ticket no less a profit than the gain.
FLAN- Thanks for the help yesterday and with AAPL today
oburlacu/sqqq… no luck yet…as it creeps higher
McClellan/Rustle – Not surprised.
Fed/Samz – Aug 1st.
Romney/StJ – The more people know, the worse he looks. No on minds an elitist Governor but an elitist President is a tough sell – even to the Republican base. They can't make them love Romney so they have doubled down on trying to get people to hate Obama instead.
PCLN/Jabob – I thought you were going to go with the bullish flow?
DNKN/Rev – That's a good one. Don't they pretty much just sell balls of sugar held together with dough? Or, as Rain notes, KKD seems to use twice as much sugar as Dunkin' – so much so that it drips off the damned things when you hold them.
KO/Rain – Those guys haven't used sugar since the 80s. Not in the US, anyway. Here we're all part of a science experiment to see if making sweeteners out of cattle feed makes us as fat as cattle. So far, so good!
Good list Stock but you never do know with sugar prices – they do spike up and down a lot.
FAS Money/Rkyro – Well, at the moment, it's the hedge to our longs and we'll buy 10 more longs first and then we'll roll the calls to 2x the Aug whatevers if we have to and sell more calls but we still have 17 days to expiration so hard to get worked up about it this early.
SQQQ/DC – See adjustments above. That should be it although, if the Nas keeps going up from here (2,975) I may want to get more aggressive on a rejection at 3,000.
Gold up, VIX low/Scott – That's a stimulus play. Not worried about the market going down but worried about Dollar devaluing.
M&A/Scott – Activity has been pretty low this year.
Orders/Pharm – Yeah, those were May and, in reality, the trend is not our friend – they merely had even lower expectation (0.1%) than they got (0.7%) but it's not like 0.7% doesn't suck:
So YAY, we didn't actually go negative – yet…
Hey Phil on that SQQQ roll the 1$ for the 49 calls was the ask price and the $1.40 on 47 calls was the bid price, I cannot sell at ask and buy at bid to roll for .40c. Am I missing something here?
thanks
Gold – reentering the monetary system? Interesting development here: "The proposal is only at the stage where comments are invited, but it is unlikely that the banks will turn this proposal down, since it represents a secure lending opportunity and the opportunity to diversify a bank’s own assets without facing a risk-weighting penalty. The proposal when implemented is certain to encourage banks to buy gold, and the bullion banks in London will hedge uncovered unallocated customer liabilities.."
Phil/AMZN – any suggested play. Looks like it is at some resistance.
I always like DBA for an inflation/ food hedge. This hot weather may not be good for crop yields. I should also remember the bullish tendencies for the first few trading days of the month sometime.
Phil/AGQ,
I had AGQ July 40/45 BCS and I covered the caller when AGQ went down. Now the AGQ 40 C are about even. Do you suggest to move the calls out to August to something like AGQ 45 C (@1.60) so that I can take some money off the table and also take part if silver just pushes up? What is the best way to play this? Or should I just hold my 40C for a few days more?
Thanks.
Phil / FAS Money – It was the weekly short call ( July 1 $87 ) that I was mainly referring to. I assume we wait until Thurs or Fri, especially with the Dow starting to fade now.
Thanks, Randers, I had forgotten about DBA, use to trade it with some success. Weird weather this year, although sailors say the weather is never normal where you are, which pretty much illustrates the meaning of "normal" although we always seem to be surprised.
V/Den – Rule #4 – Don't be the schmuck who pays premium on 250 puts! We SELL premium to suckers, we try not to be the suckers who buy it! Since you own about 10% of all the outstanding V puts – it's very possible that you are being targeted by trade-bots who are trying to shake you out of your position. It's not paranoia when they really are programmed to get you! Wow that's a stunning amount of money to spend on premium – I certainly hope you have millions to chew through. I'd spend the Dollar to roll up to the $125 puts as you gain $5 in position for $1 (ignoring the fact that it's $25,000 you need, of course) and that way you only need a .70 pop in the $125 puts, which is possible on a 2% pullback in V, vs. needing a $5 drop to make your missing .70 back on the $120 puts. If you don't get lucky Monday with a dip, then the move would be spending $2.20 to roll to the Aug $125 puts and selling the Aug $120 puts for $2.10 so net +.10 and you're in the Aug $125/120 bear put spread (assuming you intend to stick with it through earnings. On straight option bets, you need to either DD, roll or pull the plug when you drop 20% so you should NEVER be in this position – let's call that Rule #5…
Good man Jerconn! If you do that consistently, you'll find the good nights of sleep far outweigh the woulda, coulda money you might have made by being a daredevil.
SQQQ/Ober – The $49s dropped down to .75 and, if your broker doesn't give you a good price on the roll, then you can just play it as a momentum trade. Had you taken $1 earlier for the $49s, the $47s are now $1.30 so net .30 there or even if you had taken .90 – it still would have worked. Waiting for a spread to fill is very tedious and the MMs will always try to screw you. Plus, you need to realize you are competing with many other, possibly more anxious, traders on the same play.
USO/ZZ – Very nice. Always good to wake up to those. Yes, it is a bit like boot camp but, then again, we do have to train people to perform under pressure. I actually feel like I've done my job when people say they followed a rule because they could hear my voice in their head…
SQQQ/Ober – The low of the day at 11:30 was $1.22 and, at the same time, the $49s were .75 so .47 should certainly have filled in the very least and, don't forget, if you think you can do better than .50 and don't want to pay that much to roll – when in doubt, roll half. If you do end up filling the other half at .40 or better – then your average is down to .45 anyway.
Gold/Scott – There simply is not enough gold in the World for it to be used as a currency. It's a fact. Unless gold goes up to $50,000 an ounce – it's not a viable exchange alternative and, if it did – then it would go into guarded vaults where no one would see it (or be able to count it) and we're right back to another form of fiat currency where banks will once again (as they did when on the gold standard) inflate their gold reserves to allow them to print more paper. That kind of BS in the press makes me think maybe we should be shorting this silly spike in gold.
Phil/TZA,
Instead of SQQQ how does the Aug TZA 16/20 BCS @ 1.10 looks? or july 16/19 BCS @ 0.97.
what's your premise of going with SQQQ instead of TZA? is it the earning of SP500 companies first?
Thanks.
Lflan,
seems like you are planning to hold AAPL calls over the holidays?
comic strip of the day
http://www.dilbert.com/strips/comic/2012-07-03/
TRIN remains elevated….they continue to sell into this hot dog market.
WASHINGTON (MNI) – IMF chief Christine Lagarde warned Tuesday that
the U.S. fiscal cliff will have severe effects not just on the domestic
economy but beyond U.S. borders, and the administration must take care
to support growth in the short term.
The U.S. central bank also may need to ease monetary policy further
if the global financial situation deteriorates, Lagarde told reporters
at a briefing on the annual review of the U.S. economy, known as the
Article IV consultation.
Happy Independence day to all!! Be safe out there..
Police have carried out searches of the home and offices of former French President Nicolas Sarkozy as part of a campaign financing probe.
http://www.bbc.co.uk/news/world-europe-18693321
AAPL/weekly – just to illustrate the vicious decay of weeklies. Yest I meant to buy weekly 10 600 C yest but missed. So today I switched to 605c and bought at $1.38 at open. I was looking for a close to a double if AAPL got to 600. When AAPL did get to 600 I only had +50%. Time decay of the weekly had eaten the other 50%. So I got out at $1.95. Now the weekly 605c are down to $1.50 (+$0.15 on open), even though APPL has gone +$4 since open. Still, took enough to buy a bag of M80s.
AGQ/Pat – We didn't get the big stimulus we were looking for so our premise is blown. If you have a chance to get out even – I'd take it. Without more stimulus, $45 will be a very tough goal to make and I think it's just games doing a roll to a net $1.10 position and waiting for the caller to expire as you'll be down .80 by then as well (1/2 your premium gone in 3 weeks) – so what do you gain? If you don't have the conviction to stay long on silver (I don't) then get out – don't chew off your leg and move on to the next trap.
FAS Money/Rkyro – Oh, I thought that was the July call. I'm thrilled its the weekly as we get more rolls but it's the same plan. Add more longs, do a 2x roll to a higher strike if we have to but, for now, it protects us over the holiday.
TZA/Pat – Those work too. AAPL often gets jammed down ahead of earnings on some silly rumor or another – that's why I like shorting the Qs up here and 3,000 on the Nas should not be easy to cross. Also, look at all the silly MoMo stocks in the Nas – a couple of bad earnings reports and down they go.
LOL Rustle – I think I know that guy!
Ease further/Kustomz – Wait until you see the house I'm going to buy with my -1% loan!
Sarkozy = Le Distraction.
AAPL/Rexx – Good point.
Kinki/Randers/zeroxzero
DBA/ tax complication headsup – last year they sent me a K1 (Partnership Schedule) for my taxes. I have no idea why they (DBA ETF, I guess) do that. But my accountant told me he'd kill me if I did that again for $200.
Thanks Phil, nailed it on those Futures exits. I know I'm going to have a happy holiday, hope you do too.
Wow, look at the 3 year chart on NAK, now there's a pattern you can really call the "Eiffel".
Have a great holiday everyone! See ya Thursday.
PAYX/Phil – trolling through the porfolios… have some long-held PAYX in kid's accts (cost basis $27 and with DRIP). Thoughts on these guys..?
CMCSA and TWC/Phil – both up at highs.. breakout time for cable market or mayhaps something for the long put list?
Barry's brilliant series continues (please someone save these in the Wiki when he's done!):
DBA- It was flat lining for a few months. I like having something like that
on to counter price increase fro the family grocery bill. Thanks,
ZZ Are you a sailor? My son raced on a carbon fiber scow last week. He said it
Was light & faaast!
http://www.victorybydesign.org/
Quite a deal on a 9 day cruise from NYC, especially if you got kids – $549 and 2 kids free with 2 adults:
http://www.travelzoo.com/cruises/caribbean/-549-9-Night-Caribbean-Cruise-from-NYC-Kids-Sail-Free-1266797/?utm_source=top20_us&utm_medium=email
Today – the market is a pleasant Dr. Jekyll today..
Thanks Phil and everyone else. It's been a good week and last week was too. Happy fourth!
DBA/Rexx – Now that's a hidden cost!
You're welcome Chaser!
NAK/MrM – They are back to a good spot ($2.50) for a LONG-term flyer. We're talking end of decade though, not next year.
PAYX/Scott – Does not seem like a good business with no jobs but could benefit from job stimulus. I think that's baked into their move up from $29 though so not too exciting at $31. You were up 20% and you didn't get out – end of story. If you are LONG-term on them, I think that's fine as they also should do well under wage inflation but shame on you if you don't sell calls against a long position to pick up a dividend.
CMSCSA/Scott – I loved them when they were $15. At $32 I have no interest. What kind of screener gives you these things?
F/Phil: I like the thought process and the likelihood that the stock will move up b/c of the new Transportation Act clause on pension calculations. I also like the idea of essentially getting long synthetic stock, for 18 months, and doing so for a credit! I also did the August long call trade.
Thanks and have a nice Fourth. Tomorrow's my B-Day and I'm sure going to enjoy the day off!
That certainly should have filled those SQQQ rolls!
Sarkozy / Phil – Not just a distraction. There are plenty of legitimate scandals waiting to unwind and his presidential immunity has now run out. Unlike the US president, the French president is totally immune to prosecution (even criminal) except in treason cases I believe.
Thanks, Rexx, my accountants won't threaten me, just overcharge me as usual. It would be cheaper to buy a grain silo than pay those guys. Why not switch to Joe Local Accountant? Because the name brand scared off the IRS a few years ago, who sent me a "no action" letter on a very complicated tax filing. I practiced tax law briefly in another life, and audits are not technical inquiries, they are game theory applied to extortion. Napoleon was pretty clear on the point: most battles go in favor of the heavier divisions.
Happy 4th all! Have a good one!
The Greece ministry of finance now predicts a contraction of 6.7% of GDP this year compared to 4.5% predicted 2 months ago. Austerity at work…
Screener/Phil – ha! CMCSA is another LT hold in a low touch acct from long before i discovered PSW… bot at $18, and i see it and TWC are both at highs. Yeah, time to cover it by selling calls i think.. if that VIX would just pop up a bit..
Happy 4th, indeed, y'all. It remains to be seen whether the bigger fireworks displays will be in the U.S., Europe or the Middle East while we're chowing down in the great American tradition.
Hi All of you sitting here in good old Germany and watching the days go by. Following as well the market with some plays.
But for tomorrow wishing all of you a very happy and pleasant 4th of July!
Yodi
Commodity Snapshot:
http://www.bespokeinvest.com/thinkbig/2012/7/3/bespokes-commodity-snapshot.html
Ags are really running wild….
Maybe waiting for a correction now:
http://www.bespokeinvest.com/thinkbig/2012/7/3/sp-500-back-to-overbought.html
More at the link!
Happy Fourth to all concerned!
phil,
you get major props for the " dont chew off you leg and move on to the next trap"
that needs to be carved in stone for the future…….
to all happy fourth and tks for your help over the last six weeks.
mc
Happy Independence Day to all.. !