You made me promises promises
You knew you'd never keep
Why do I believe
All of your promises
You knew you'd never keep – Naked Eyes
Wow – what a party!
The former Vice-Chairman of Goldman Sachs (Draghi) says everything is fixed and the global markets go flying – what's not to trust? Would anyone form GS ever lie to us? Would GS be involved in manipulating the Global Markets – of course not!
Now that I've fulfilled my obligation to get my mother back unharmed – let's get real. Draghi said the violent spike in bond yields in recent days was hampering "the functioning of the monetary policy transmission channels" – the EXACT expression used to justify each of the ECB's previous market interventions.
Yields on Spanish two-year debt plunged 72 basis points to 5.47% in barely an hour, with comparable moves on Italian debt – easing the pressure before a string of debt auctions in Rome over coming days. The MIB index of stocks in Milan surged by 5.6%. Madrid's IBEX rose 6%, the biggest jump in two years, led by an explosive rise in bank shares. Mr Draghi's comments came as Spain claimed backing from France and Germany for activation of the eurozone's rescue fund (EFSF) to buy Spanish bonds, though this would require calling the Bundestag's finance committee back from holiday for a vote. Action by the EFSF would provide "political cover" for the ECB to join the fray in a two-pronged attack. "We're firing on all cylinders: that is what has ignited the markets," said Hans Redeker, currency chief at Morgan Stanley.
Joint statements from Madrid, Paris and Berlin said market turbulence "does not reflect the fundamentals of the Spanish economy, or the sustainability of its public debt". According to Ambrose Pritchard, "the wording seems scripted to clear the way for intervention." Of course, now it's time to put up or shut up as the Fed meets next week and the ECB has their pre-holiday meeting next week as well so it's going to be action by next Friday or none until September. Marc Ostwald from Monument Securities said Mr Draghi's words were "cheerleading bluster", while Gary Jenkins from Swordfish called them "a bluff to get through the summer".
As far as bluffs go, it's a good one. And why not, if this were a poker table, Draghi has the second biggest stack of chips at the table, next to Bernanke and then there's the BOJ, the BOE and the PBOC – and you – and Draghi just put the bears all in on the ante – he doesn't even need to bet yet!
Needless to say, the bears quickly folded yesterday and the Global Markets took off, bringing us right back to the highs we had when we had that ridiculous rally at the end of June – that was also based on promises of more QE from our Central Banksters. The fact that we then fell right back to the lows of July in the first 10 days of the month doesn't seem to worry traders (not "investors" at all!), who went into such a buying frenzy that EVEN JIM CRAMER thought it was overdone.
"Mario Draghi may have given us the perfect opportunity to cash in on some gains," said Cramer. "Every asset that investors had just given up on was suddenly roaring. But move fast, Cramer warns, because this kind of optimism never lasts. Germany’s “iron chancellor,” Angela Merkel, will always be there to “pull the rug from underneath.”" While I find it very disturbing to have to agree with Cramer – he's making perfect sense here.
To that end, we added a bullish spread on the Russell to take advantage of possible ACTUAL stimulus over the weekend or next week. We're using a very aggressive bull call spread on TNA and tempering it with the sale of short puts in stocks we would like to buy anyway – my trade idea from Member Chat was:
With the S&P over 1,360, it's time to go bullish on the RUT (playing it to catch up). I think the Futures can be played over the 775 line (now 773.30 on /TF) but the fun play on stimulus is the TNA Aug $49/54 bull call spread at $2.20, selling something you want to own in a downturn like CHK Sept $17 puts for $1.28 for net .92 on the $5 spread.
- SBUX might make some good put sales today – we'll have to see.
- DMND is back down where we like to sell puts, the Sept $15 puts can be sold for $1.35.
- MCD came down nicely, Jan $85 puts can be sold for $3.05 or 2014 $80 puts can be sold for $6. Also odd on MCD, who were around $100 until March – is the March 2013 $92.50 calls at $2.75 – that's not a bad risk for a call position, especially if you pair it with the long put sale.
Setting ourselves up for a potential 400% winner if the markets do move higher (and we simply stop out of the spread if the S&P fails it's Must Hold line at 1,360), which then provides an upside hedge for the bearish bets we intend to make and press into any rally that isn't backed by at least $500Bn in actual cash from the Central Banksters.
8:30 Update: GDP came in at 1.5% vs. 1.2% expected and down from 2% last Q. We expected more of a slowdown but prices up 2% gave us a nice APPARENT boost (same goods and services produced but at 2% higher prices is a $320Bn pop to GDP, which is the entire GDP of all but the top 30 Nations on Earth!). Q4 2011 has been revised UP to 4.1% from 3% so we are slowing drastically but it doesn't seem as bad because, instead of being down 2.6% from 3% to 0.4% – the magic of the revision has us starting from a 1.1% higher base so we "soft land" at 1.5% – isn't math fun?
Of course, with an established 1.1% margin of error between revisions, it's very possible that our actual GDP is 0.4%. Residential fixed investments (durables) were weak and Federal, State and Local Government spending were once again negatives as even our Government begins to run out of money. As we expected, inventories increased substantially and added 0.32% to the GDP as the calculation is based on the assumption that everything in a warehouse eventually gets sold at the full price. This is the kind of thinking that leads to nasty downward revisions in GDP later on!
Today, however, the futures are loving it, as well as more positive noises about potential stimulus from the G20 so hopefully another nice rally this morning to add some shorts into but, as I said to our Members yesterday – you have to have a good mix of upside plays as well since this market can move 5% in either direction very quickly.
So be careful out there and have a great weekend.
When did you see it? We passed 78.73 and the next line I have is 79.29 with trend and fibs at 79.00 waiting for direction 100% cash.
Phil / I'm holding a 60% gain on TLT Aug 128 puts. I don't want to be greedy, but I also don't want to be foolish either. If the Banksters come up with a real deal stimulus this weekend, the upside on the 128's is guaranteed. If we get a disappointment from them, what do you see happening to TLT on Monday morning? I know the rule about selling half if in doubt. I just don't see the downside clearly.
what's the advice on the Amzn Oct. 185 Ps?
Phil: A bit confused by your Hilsenrath / Headline disconnect comment. The headline suggests that the Fed has key price indices below 2%, and states that business investment is at adequate levels [8%+], with contracting defense spending that takes pressue off the indices. The conclusion is that the Fed can stimulate/print money/whatever else without blowing it's inflation targets by much. You yourself wrote about inflation hypersensitivity being a new phenomenon, that was not viewed as being invidious per se in the past. Please explain where you're going with this.
Nobody told VIX this is a rally day. I'm just watching most of this craziness from the sidelines. Trying really hard not to pull the trigger on an AMZN put diagonal.
I shorted UNG the other day. If the uptrend truly is broken for now, contango should start to play against UNG, shouldn't it?
Do you think this is a good time to get in aapl Jan 600/650 call spread
/ES headed for 1376…we were there 7 days ago and 1321 just 3 days ago. If the big banks aren't making money trading these wild swings… then who is?
I cannot remember a time in my trading career when bullish market moves seemed so disconnected from reality, at least since the tech bubble. AMZN is the final straw for me. How can this stock go up on a bad earnings report and a bad forecast? For that matter, how can the market be rising so easily, on rumors, in the face of such an overwhelmingly high wall of worry? I'm going to hunker down in cash and enjoy the beach, until some semblance of an appreciation of reality appears, somewhere. Y'all enjoy, and I am definitely watching and learning in the meantime.
The Big Chart trend would suggest maybe another up day on Monday with Asia and Europe boosted by today's rally but down days after that as we reached the upper limit of the channel. But who knows what happens over the weekend!
Strip clubs/Micro – Reps very big on that stuff. Dems more likely to be in hotels with women.
AMZN up and up.
Very good market action considering Dollar did bounce off 82.50 (now 82.58)
AAPL/Angel – Interesting as usually they bombard it negative BEFORE earnings, not after.
2nd candle/Star – Very true! I usually look for 2 10s.
When/Rebel – I was just listening to Bloomberg Radio and word is massive CB action next week. If not – HUGE disappointment.
TLT/2Can – Aug I would take and run – timing's too tight with next week too random.
AMZN/Rms – Rolled up to Aug $205 puts (see above)
Hilsenrath/ZZ – I guess you can count the first sentence as him making his point. Gee, if that's all it takes, I'll start having my morning posts done by 6:35! The Fed actually has no specific inflation target, though 2% is assumed and I'd be more concerned about the fed not wanting to "overheat" the economy than inflation numbers. The hawks argument on the Fed has always been that they are simply not giving adequate time for existing stimulus to work through economy and the danger of putting more in now is that you can drastically overload the system as QE1 and 2 kick in late.
VIX/Rkyro – Yes, very flat considering another big up day.
UNG/Rkyro – You would think but going against logic this month. Surplus has trimmed a lot though due to drastic production cuts (still building but not as much in a typical summer).
Beach/Mike2 – Very wise move!
Monday/StJ – We have good momentum now and expectations of action are for Tues/Weds so no reason to slow down on Monday:
My viewpoint is almost exactly yours. The one difference is I see Monday as going nowhere, flat open, up or down .5% and close about at the start or close today. Again as stated and more likly now a stick close doesn't count. Anti stick close will really throw everything off.
From ZH – Draghi said to hold talks with Weidmann on new ECB measures. Draghi's proposal said to include bond buys, rate cute, new LTRO
Draghi in favor for ESM banking license
WTF is right, rainman!
good thing AMZN blew out their numbers…oh wait
Hard drop on the TLT…..!
ALso from ZH – "An ECB spokeswoman said in an emailed statement that it is usual practice and nothing special".
what a spike!
WTF? I F$CKING HATE THIS MARKET!
Wow – who let the dogs out that time? There goes 13,000 and 790 in the Futures – crazy!
Dow volume at 1:30 just 64M – never have so few bought so little and done so much….
KO with a p/e of 21 at $80. So what's this "growth" stock going to do? MCD quite the bargain at $89 with a p/e of $16.66 – as we know, 666 on a stock is a sign that Lloyd has blessed them!
TLT $128 now – incredible drop for 2 days in the multi-Trillion bond market – that's going to chase money into equities.
How about PCLN – over 675 after all and going for 680. Up almost 8% today. Just unreal….
Pretty painful to miss this. But at least flat is better than short – account will be ready to go on Monday. Have a good weekend everyone.
TLT / Phil – we have 60% on hand now with the 126 puts…. What's rule #1 again!
Gold woke up quick!
Wow, Draghi MAY be talking to the Germans – that's been confirmed!
PCLN with a $50 pop and not even earnings day for them. At this rate, they could be at $1,500 by earnings…
13,100 and climbing. And to think we thought 13,000 would be resistance.
Steve Leasman says Budesbank won't confirm or deny meeting – see it's official!
F goes green!! oh and FU F
I think we need those TLT to offset what is happening to the DIA puts!
OUT OF BONDS INTO STOCKS
From the WSJ today…
"However, Germany's Bundesbank reiterated its opposition both to any further government bond purchases by the ECB and to allowing the bloc's rescue funds access to ECB financing.
"The Bundesbank hasn't changed its opinion" on such purchases, a spokesman for the central bank told Dow Jones Newswires Friday."
BOA MODELING IS PEGGING 110% OF QE3 PRICED IN
ANFD YOU KNOW HOW CLAIRVOYANT THEIR QUANTS ARE
TLT/ Phil: Thank you!
Son of a bitch with AAPL. I like to say you shouldn't regret taking a profit but SON OF A BITCH!
wow Phil—thx for TLT and AAPL—I missed it the other day but got in today
so they fool markets again with more smoke and mirrors…if real economies keep sliding then it wont matter
they are talking bond buys, more ltro and a rate cut….hahahahah….YEEFUCKINGHAW!
http://www.reuters.com/article/2012/07/27/us-eurozone-spain-idUSBRE86Q0JS20120727 Unnamed EU official states that, until the ESM is set up in September, there will be no Spanish bailout by Germany. Six long weeks for Spain, which is mostly on vacation [well, over 25% of the working population are on "unpaid" vacations]. A long time for Euro currency owners to sustain "hope" as their strategy. Draghi's blowing smoke, sez I.
Might need a breather:
HPQ, CSCO and AA still lagging though….
Maybe Frau Merkie should go on vacation more often! glad i'm just an observer…madness.
Reminiscent of 2000 and 2001 with the tech stocks except this time it is the whole market- maybe the most irrational market I have ever seen in my 35 years of watching closely!
Offset/DC – This is how you work a balanced portfolio – now we take the TLT and AAPL profits and plow them into improving our DIA puts and then we buy something else bullish that is covered by the DIA puts and, if we go up again, we buy more DIA puts with those profits until we have $25,000 worth of DIA puts and then the market crashes and we make a fortune (ideally).
110%/Angel – Yep, that seems about right.
You're welcome Newt, Savi – congrats!
Overbought/StJ – Not critical yet. UTX interesting. HPQ funny. CSCO still looks good.
I knew I should have gone gung-ho bullish when Cramer said to sell!
Bubble/Jthom – Oh this is nothing yet. Call me when YHOO is back at $300 and then we'll talk.
Deficit only $1.2Tn! Isn't that fantastic?
This is rediculous !
Short DIA, SQQQ, TZA for Aug…
TLT : Phil is that a sell ?? or sarcasm 🙂 i coudn't tell
Dang It – the stupid EDZ hedge went awry. Any suggestions?
It was the 14/18 BCS financed with the 15 Putters (all Aug).
WSJ – "Many ECB members surprised by Draghi's comments suggesting new bond buys" also "Draghi wants to discuss buying govt bonds simutaneously with eu-sone rescue fund"
Guess in my portfolio I am currently a little short of bullish positions without TLT and AAPL.
I did scalp AAPL $585 calls for a nice 50% gain and 75% on TLT. Not a bad days work. But now what to buy?
I want to be balanced.
Wow, that Euro rally is sure showing some staying stamina – [irony, Phil 🙂 ]