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.
DC – EDZ looks cheap
Ah, Peter- almost all the RUT premium has been crushed. Selling some SPX Sept calls here-1450's
I agree, but too much headline risk at the moment for me to get back in to EDZ.
Buying CCJ January bull spread. BoA upgrades CCJ today, falls 3%.
LIKE A RATE CUT HELPS AT CURRENT LEVELS….JUST WEAKENS THE EURO WHICH MARKET HATES..FIRST LTRO WAS A DISASTER AS SPAIN /ITALY LOADED UP WITH TOXIC DEBT…AND BOND BUYS ONLY VERY SHORT TERM BAND AID!! BUYBUYBUY
I REALLY BELIEVE THE ECB WANTS A WEAKER EURO THE MARKET JUST HASN'T FIGURED IT OUT YET
Phil: I have the Aug 18/20 Bull Call for $1.06, Aug 18 puts sold for 0.41. I am thinking of rolling my 18 calls to the 16's for an additional $1.10. TIA.
You mean restickulous, right ITrade?
TLT/Micro – Up almost 100% is a sell! No sarcasm when we're cashing in our winnings.
EDZ/Haschade – I take it the bull call spread was free (assuming the $15s expire worthless). I'd roll the $14s (.92) to the Sept $15s ($1.25) and let the $18s burn over the weekend. We assume EDZ will go lower and you can roll down cheaper and then pull the short calls and wait for a bounce to sell. As to the short $15 puts ($1.60) the Sept $14 puts are $1.50 so no worries yet and they still have .50 in premium to burn so why pay it when it's still possible it all unravels again next week?
What to buy/DC – SVU still under $2, WFR $1.80, DMND $16.50, CSCO $15.65, BAC $7.31…
Irony/ZZ – Hmmm, is it?
CCJ/ZZ – A constant favorite.
If the EURO falls, then the USD should increase and that should send us down relatively..
Do I get this correct, "We are going up on confirmation of a rumor!" Yes?
Shadow- not exactly, we are going up because we are going up.
Looking at the Dow chart, they’re going to have to come up with more ammo to push it up further:
Then we have to be bullish when it is going up because we have to be right when looking back. That goes along with never look ahead becaus you may not like what you see and we have been warned!
I just sold my single (that's one) PCLN 670 weekly call bought at 1.00 for 6.60! I should have bought a hundred of them. Now I'm telling you, PCLN is not going to stop here. It's going up more next week! I've still got 90 minutes to nail down the right trade. And EXPE….we took profits on that one at the peak…. And AMZN continues to ramp up. Glad I closed the puts. And AAPL? Gee willikers. What a day!
Irony / Phil: Well, you were really wearing the clever trousers with that one! Very funny.
we did not cross trendline support on either dip
stjean: That is one bullish looking chart
Rate cut/Angel – When they start paying 0.25% for me to borrow money – it will help. I don't think the weak Euro is the goal because the Euro is weak over break-up possibility – let's say .20 is that and .05 is QE. So they can easily jam QE up to .10 if it cuts the fear in half and still make progress on the Euro/Dollar trade and I imagine $1.30 is the most they are hoping for anyway at this stage.
Mystery stock/JBur – I'm going to go with VIX and say yes to rolling to the $16s but why not take out 1/4 to 1/3 of the $20s too – just in case you get lucky?
Rumors/Shadow – Well it was the best-selling album of all time. Powerful stuff…
More ammo/StJ – No problem. Draghi's driver will tell Der Spiegel this weekend that he heard him on the phone discussing "the big one" coming next week and then Bernnake's barber will tell the WSJ that he's having his hair cut on Tuesday because he wants to look nice for some big announcement and Merkel will remain on her month-long vacation so she can't be reached for comment which means everyone can assume she'll say yes right up to the moment she comes back and says no.
TNA almost as goal on day one. $49s at $5.55 – tempting to cash them out here but too scary to leave naked short $54s.
I love that bit, ZZ.
"(Reuters) – European policymakers are working on "last chance" options to bring Greece's debts down and keep it in the euro zone, with the ECB and national central banks looking at taking significant losses on the value of their bond holdings." Ah, that bodes well for a Spanish bailout [Warning; irony] http://www.reuters.com/article/2012/07/27/us-eurozone-greece-debt-ecb-idUSBRE86Q0LC20120727
The market always has a familiar smell at the end of the month.
stjeanluc…would you have dreamed earlier this week that the PCLN put sale would have come in 100% profitable, had we held it until this moment? I find it amazing that another company's earnings has such a shoving effect on this company. BTW, PCLN is listed as 99% held by institutions. Can this possibly be correct?
I love it when a trade really comes together. After 4 DD's and a roll, I cashed out 16 times my initial position in TLT today for a 140% gain. Thank you Phil for the lessons in scaling in, and paying for position.
La Vanguardia headline, Economía | 27/07/2012 – 17:35h [2:35 EDT] (Barcelona's leading newspaper) "El FMI empeora su previsión de caída del PIB español para este año y 2013. El Fondo dice que la economía española se contraerá un 1,7% en 2012 y un 1,2% en 2013. ["The IMF worsens its projections for Spanish GDP for 2012/2013, expecting a 1.7% contraction in 2012 and 1/2% in 2013."] Not too cool.
qcmike…AAPL….It's not the best thing to play right now. I look for more pullback in near term. I'm looking at other more interesting plays.
PCLN / lflan – If you had told me on Wednesday that we'd make our target I would have asked you for the stuff you were smoking! I would not be surprised that they are 99% owned by institutions. At that price, few retail investors can own 100's of share!
Spain / Zero – Here you go with your negative waves… Just drink the Kool-Aid and be happy for now! Good news is good news and bad news is even better news.
stjeanluc…..et al….a good trading point….when you are selling puts I think you should always plan to make your roll on Friday afternoons, if you have to. It's only then that you really know what you need to do. But even then, this is a highly unusual move. Have said that stj, tell me PCLN won't be over 700 by next friday.
Apparently it's a family tradition with animals!
PCLN / lflan – 690 has been a tough nut to crack these last 3 months… It's actually a strong S/R line going back to March. I dunno!
considering the bazooka of money the market seems to think central banks are going to throw at them…gold trades TERRIBLY
CONSIDERING THE BAZOOKA OF MONEY THE MARKET SEEMS TO THINK THE CENTRAL BANKS ARE GOING TO THROW AT THEM…GOLD TRADES TERRIBLE
Phil: LOL and sorry about that… It was the TZA Aug 18/20 Bull Call, rolling to the 16's Still a good roll? Thanks
Phil AAPL did hit 585 crazy high came in at $662! I still see $520ish first.
For that matter oil didn't really play along testerday or today either I expected oil to be up at least $5.00 and its having a hard time staying above 90.00
MoMo trade: Buy 3 LNKD Sept 100 calls at 11.00
$585 on AAPL!
99%/Lflan – Doubtful but maybe that explains how it can get yanked around like this – just a trading toy for the big boys. While very impressive looking at (what?) $682, the whole company is only worth $33Bn – about what AAPL trades in two hours.
TLT/2Can – Congrats and you are very welcome! That's the whole key, make little profits here and there, take little losses when you have to and, once in a while, you catch a big one.
Spain/ZZ – It doesn't count if it's in Spanish. Seems like it was a good excuse to spike the market even higher…
TZA/Jbur – Well that's very different. Aug $18s are $1 and you don't want to buy position without getting time. I'd go Sept $17s ($2.10) and split the difference. Figure very easy to get the Dollar back when you are ready for another sale and TZA is at $17.88 so you are dropping .88 into the money for $1.10 – a very good deal.
BTW, I'll update the Income and Peter portfolio after the close today!
Different Scot here 🙂 but just a reminder:
"PCLN/Scott – Remind me next time they hit $670, that's a good spot to short them again. "
They are nearly $683 now, unbelievable…
Almost bang on R1 Fib PP: http://stockcharts.com/h-sc/ui?s=PCLN&p=D&b=5&g=0&id=p51615702414
Good presentation on behavioral investing:
Britholtz Final Agora 2012
Barry's succinct summation of week’s events:
EURO METALS OIL ALL LOOKING PEEKED
Savi – you should have received an email from me on Monday, resent today. Hope to hear from you regarding Vegas…
PCLN – hilarious!!!!! After AMZN earnings were a disaster and the stock went up like crazy people are like "hey, we don't need good earnings anymore!" PUMP PUMP PUMP.
Sold a weekly PCLN 650 call today for 24.50 and it's at 34.50 near the close. ARG! That's a 1000 bucks!
Hey Phil – I ignored your call to sell those AAPL $580s for $1 so not sure whether to thank you or not (just kidding) for my $5 winner. Actually I want to thank you from the bottom of my heart, that was an uncanny call.
bolt—-for some reason it went into my junk mail—I will send a reply this week end
Who in their right mind would think AMZN could be up 8+% today…deeply troubled by how out of touch I am with this market. Its like watching a low budget horror flick where the monster just wont die!
Good weekend to all.
Thanks Scott but now we'll have to wait for next week as stimulus can pop them much higher (and make a better short).
Very odd lack of commodity participation in this rally.
PCLN/BDC – I still have more confidence in AMZN falling – eventually.
AAPL/Chaser – Wow, congrats on that and you're welcome (I guess). 😉
Here's my MoMo trade on PCLN: Bought to open 10 August 3 (next week) bull call spreads 685/690 for 13.35/10.85 or 2.50.
PCLN/Phil (&Scot) – over $670. Hey, i blinked! Thanks Scot!
Crazy Plays – I need to publish my meeting schedule for you guys, every time I have a day full of meetings the momos go ballistic, wow did I miss some fun. Finished the day with one Crazy Play – next week PCLN bear put spreads 680/670 for $3, it's touching its downtrend line.