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Wednesday, November 30, 2022

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Tuesday: Through the Roof or Smashed into a Thousand Pieces?

 

GRANDPA JOE: But this roof is made of glass. It’ll shatter into a thousand pieces. We’ll be cut to ribbons!

WILLY WONKA: Probably

Is today going to be the day?  After pressing against our breakout levels on and off since failing them in May, today do we should finally have the gas to get over the top or will our Must Hold levels keep acting like a solid barrier?  Our goals on the Big Chart have been Dow 13,200, S&P 1,400, Nas 3,000, NYSE 8,000 and Russell 800 and we came right up against them yesterday but failed to punch through.  

It is certainly no surprise, in this BS manipulated market, that the levels they failed to take out yesterday in regular trading are all being crossed in ultra-light pre-market trading because, as we know, investors are complete idiots who use squiggly lines on a chart to make all of their major financial decisions.  Essentially, when you follow TA – you are saying to hedge fund managers – "If you can get your stock to cross this line, I will buy it."  That's very much like me saying to my youngest daughter that if she can get her older sister to say "quit it," I will give her $20.  Once she decides I'm serious – I'd be hearing "quit it" all day long.  

We were, at the time, at the top of a very bogus-looking, low-volume rally (again) that had taken us up 7.5% from 12,100 in early June to 13,187 at yesterday's high.  The S&P has been our leader but the Russell keeps flashing warning signs as it failed to hold it's -2.5% line (780) at the beginning of the month and looking very similar to the pre-disaster pattern we had in April, ahead of the May collapse – which we also tried to warn you about while it was on the way up on QE rumors (see "Federally Fueled Thursday – QE Maybe?" or "Thank GDP it's Friday – Reality Check?".  Despite being dead right to call a top at the time – it took the market another week to drop but we fell off a cliff on Friday, May 4th and we were down 1,000 points by the 18th so better a week early than a week late with these calls.

Willy Wonka understood stock market physics, there had to be enough power to get through that overhead resistance or it was going to be a very painful test of the top (like the one we had in April).  Since our last dip, we’ve come back for another try but the volume has been substantially lower than it was in April, leading us to believe it is only TradeBots, and not Oompa Loompas, who are buying this market.  Can TradeBots alone give us enough "thrust" to break through this time?  It shouldn't be THAT hard, in April we had highs of Dow 13,338, S&P 1,415, Nas 3,085, NYSE 8,211 and Russell 830 so it's not like we're asking for a lot with our little breakouts, are we?

SOX were 418, now 390, Transports were 2,452, now 2,111 (down 14%!) so there goes Dow Theory out the window, right?   Internationally, the Hang Seng is off 5% (from 21,400), 12% on the Shanghai (was 306, now 269), 10% on the Nikkei (9,691) but the BSE is UP 1% – leading all global markets (except Mexico) at 17,412!  Not far behind India is Germany's DAX, which made it back to flat yesterday at 6,918 vs April's high of 6,875.  The FTSE is also flat at 5,808, just 10 points under the April high and the CAC is now up 3%, after putting on a 5% move in the past two days. 

This is not bad considering the Dollar is up 5% since April (78 at the time) but Copper is down 15% at $3.44 – which is very weak.  Gold was $1,675 in April's and oil was $106 and now back to $92.50.  Mixed signals to say the least!.

Today we have Consumer Credit, which is way up and should be seen as a positive catalyst.  Tomorrow we get Q2 Productivity and Labor Costs and, of course, Crude Inventories.  The rest of the week is dull for data, with Wholesale Inventories and Trade Data on Thursday and Import-Export Prices on Friday along with our joke of a Treasury Budget.  If we are breaking the bounds of market gravity the Nikkei is a nice lagging index and we can play them bullish with EWJ Sept $9 calls at .27 with that ETF at $9.11.  Even if we only get a pop back to $9.50, where we opened July, it's a nice double!     

We still have our very bullish Income Portfolio, which we just updated in this morning's Member Chat, taking advantage of still-low prices on SBUX and ABX to press our long-term positions.  We added BBY yesterday as well as we seem to be the only ones taking the $25 buy-out offer seriously (the stock is still at $19.65!) – talk about people looking a gift-horse in the mouth!  Those positions are all for 2014, though.  In our shorter-term $25,000 Portfolios (see Stock World Weekly for recent update), we followed our morning plan to cash out our bullish winners into yesterday's rally and positioned ourselves for a drop.  Since we are so close to breaking over our levels – they make very easy stops and we can re-position bullish if the market insists on going up.  

Even if the market does jump higher on some actual stimulus news (and Boston Fed's Rsengren made a case for aggressive QE this morning, jacking up the Futures at 7:30 and again at 8:50 by coming on CNBC and saying it again), we are still liking our mid-term Long Put List (see Friday's update) because it's very doubtful they will put in enough stimulus to sustain 1,400 on the S&P.  We're up 7.5% from the June lows already and that's 120 S&P points and not even $500Bn of actual G20 stimulus has been committed so we're still about $700Bn short (at $10Bn per point – which is the current price for false hopes with a 6-month duration).  

That money better come fast as we're still getting plenty of negative signals (and a few positive ones – like expanding credit – which is a double-edged sword, of course) like German Factory Orders falling 1.7% in June vs. -1% expected with domestic orders down 2.1% and Eurozone orders down a whopping 4.9%.  Imagine how far they'd fall if they went back to the Deutsche Mark and the rest had to exchange their worthless currency for BMWs…  

Our crops are getting worse and worse with 39% of our soybeans now rated "poor to very poor" (up from 37% last week) with 50% of our corn getting the lowest rating (up from 48% last week) in the 9th consecutive weekly decline in crop quality.  The Wells Fargo Small Business Index fell 25% – from 23 to 17 as of July 9th, erasing the whole year's gains with a whopping 43% of the business owners surveyed expecting declining revenues over the next 12 months.  In another survey of CEO's, sentiment fell from 65.1 in Q1 to 60 in Q2, so even Big Business is getting a little nervous about the economy.  

The ICSC Retail Store Sales Index (small business) was flat this week and now up just 1.4% for the year vs up 1.8% for the year last week but Redbook Chain Store Sales (big business) ticked up 2%, albeit after taking a nasty tumble since Easter.  

So we've positioned ourselves and now all we can do is watch and wait to see if we do indeed go through that roof or if, as we expect, this low volume rally shatters on impact and brings us back to reality.  

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FU PCLN!!!!
 
I love you 😉

anyone,
im looking at a 6-7.80 bid ask on tos.
it shows the 540 with a delta of .23
with pcln down close to 100 $ does that equate to a chipolte style move….ie. the bid go to somewhere in the 25 $ range in the morning …………
any thoughts………tks

Millcreek — PCLN — hard to predict, of course, but current October puts 30 points OTM are about $25, as you suggest….

Sure were not many of us in the PCLN Oct 540p's, I show an open interest of 71.

If comparing to CMG, then it might pay to wait a week or so and watch PCLN go even further down…perhaps Phil wold say "sell half" tomorrow…

rpme – count me in…

Great AAPL story that I have been preaching for 2 years here!

the OI was 71 when the day started but the volume today was 193.

stjeanluc/short strangles portfolios,
Yeah, looks like we need to sell some September call spreads.  I was hoping for a big up day to sell, but it didn't happen.  Anyway, I won't be available when the market is open tomorrow, so let's see if we can get the current price for the following spread:
– Sell 15 RUT Sep 875 calls ($1.225), buy 15 RUT Sep 890 calls ($0.55)
 
The put side is more dangerous to sell and hopefully, we'll get our chances in the next 6.5 weeks (Sep expiration has 5 weeks).

PCLN/Lflan,
I don't know how you do it, but your instincts are awesome!  Great switch to a bearish position right before the close, congrats!

PCLN / Wappler – Still in meetings but just looked at the last price – $575…. Wow, just wow. Down 15%. Can't say I didn't warn you! So much for the DMA holding there though!

Strangles / Peter – My thoughts were to go for the call side first with this big runup… Makes sense to stay away from the puts.

PCLN / lflan – Good job going bearish at the end, but it looks like the premium on the weekly straddle were not that inflated after all!

So if PCLN follows the route of AAPL and AMZN, it should be back at 710 by Monday. 

Phil,
I bought the PCLN Oct $510 P @ 4.70. What's a reasonable price to sell when the market open tomorrow since now it dropped to $580 after hour? thanks

rustle / bounce – not necessarily, I tried playing CMG for the momo bounce and it didn't work, even momos apparently can lose their shine…

Went to my paper money account and put a sell order in for my 540 puts at 25.00 and it said the expected price as of right now was 589 so I'm going to try and get  25 for half and hold on to the other half. When I was short PCLN in my real account back around 370 they missed on earning and dropped by the time the market opened the next day I was down 2,000 on 2 contracts made for a very sick feeling in the bottom of my stomach

PCLN- THANKS!

PCLN last quote as of 7.59 eastern $ 579  wheeeeeeee!!!!!!!!

Phil / Income Port Question – ABX BC Spread.  Then sell monthly calls.  Do you know if a IRA account can sell monthly calls once the BC spread is established?

TS Ernesto in the Gulf of Mexico declared a hurricane.

Phil / Income Port – Please bare with me.  The TZA hedge, I placed an OCT 18/21 BCS.  Short caller is up 79%, long call down 40%.  Long call currently 1.85, short call currently 1.16.  So, caller has a way to go.  What adjustment do you recommend if any?  Total hedge is down $330.
 
I have the SQQQ and will follow posting.
 
VXX also.  BTW, the best part is following along.  I do not have all the Income Port plays but am comfortable with the plays I have.

ST j /Oil  Oil actually bounced off R3 today Around 2 and ended at R2 at closing

Phil – And by the way…  Thanks for the Income Portfolio.  The education is priceless.  Only 9995 hours of training to go!

"And now for something really different…."    I would be very curious to hear the PSW reaction to the latest Peripheral European Country gambit for shoring up their dire fiscal condition — to coin a few phrases, "Sovereign Asset Debt" [SADs], a kind of National Treasure obligation.
 
From FT: August 7, 6:34 PM  "…Far more radical is a proposal by the centre-right party of former prime minister Silvio Berlusconi that is shaping up into a major campaign platform ahead of elections due early next year. It will be presented to Mr Monti on Wednesday.   Renato Brunetta, an aspiring finance minister who is working on the initiative, says it would aim to slash Italy’s €2tn of debt by some €400bn over the next five years.
 
Speaking to the FT, he declined to reveal details but confirmed it centred on setting up a Triple A-rated private fund that would use non-strategic public assets allocated by the government as backing to issue bonds.  “We can do it on our own; Italy is a rich country, with a high savings propensity,” Mr Brunetta said."
 
Uh oh.  Admittedly, there's lots of collateral value [the Roman Colosseum? The port of Naples? The Autostrada del Sol?], although revenue estimation might be problematic, and foreclosure potential rather limited.
 
 
But you never know.  Maybe CHINA!! would be interested in Yellowstone National Park, or the Status of Liberty as collateral.  Or Goldman Sachs might underwrite Great Wall bonds, depending on your view of things.  
 
 
Or maybe we're just looking at the end of civilization [always a relative term] as we know it. It started with Reagan's call to "bring down that wall," and seems to be reaching its endpoint with "the death of collectivization."  Why, come to think of it, should governments "own" anything at all?  Doesn't "ownership" imply that you paid for the damned thing?"  Why should merely being born in China give you a 1/150 Billionth share in the Great Wall? 
 
 
And isn't there a cash flow stream associated with income taxation itself?  Why can't we buy shares in it?  Or — if that's just a little too "Road to Serfdom"-like —  just pay the government a lump sum today [with borrowed money at now prevailing low rates] to buy back the U.S. government's right to tax your family for a few generations?  This really could get quite interesting. 

Who is John Galt????

Touche.      According to WikiP,   "He serves as a principled counterpoint to the collectivist social and economic structure depicted in the novel. The depiction portrays a society based on oppressive bureaucratic functionaries and a culture that embraces stifling mediocrity and egalitarianism, which the novel associates with socialistic idealism."  Johnny did have a point, of course.  But so did the movie "Soylent Green."  The Golden Mean might be the preferred approach; easier said that done, as we've seen.

Lines being tested now!

On PCLN, my comments at the open:

http://www.philstockworld.com/2012/08/07/tuesday-through-the-roof-or-smashed-into-a-thousand-pieces/#comment-2271331

PCLN ramping up ahead of earnings… Pushing sheeps to slaughter maybe!

Bull slaughter I meant….

Oil / Bertl – The lines worked well today!

Congrats to the short PCLN players.

Hell yes on PCLN!

Stjeanluc/PCLN,
Indeed, you did warn me!  Let's see how the open goes – I may stlii be able to exit the calendar with a scratch.  Can't imagine that there isn't some kind of dead cat bounce, but I'll exit the position either way.  Great discussion around PCLN, this really helps moving things forward!

.….Dr. Doom returns…and there was no big sell off!  I am so disappointed….Holy shmoly…I did not get a chance to get 'in' on the PCLN plays…congrats to all on those.   Should be a good set in the a.m.

Iflan….hats off to you.  I have 30K, wanna manage it for me?

SGEN reports tomorrow….need a nice little upside, and I think we get it.  Adding to the Dec 25/30 BCS. Sell puts at the $20 level as well, Dec.

Congrats to all on PCLN and count me as a holder of 1 Oct 540 put, rpme.
 
Jabo — congrats for all the FU's 🙂

Phil, I have been following your comments for a year before I decided to take the plunge and see what was on the other side of  Psw. I am impressed with your honesty and willingness to teach us new to options and your common sense  in analyzing trades. Also a great group of people with knowledge to share. My thanks and hats off to you and the rest of the veterans on this site. thanks, Mac

FU very much Bio 😉

I wish I had 2 PCLN 540 puts so I could sell 1 at th open and wait on  the other one – only have 1 and undecided.

Jomptien – Two words: "trailing stop."

Jomptien – Rule #1 – sell on initial excitement.  It is better to regret profits you have made that to regret those you haven't, especially if you watch them disappear in front of you (as options have a habit of doing.)

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