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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!


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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  1. In the last post I was dancing with myself…oh, oh…

  2. StJ – that animated chart yesterday evening (below) is unreal.  Look at the start and finish to the day, which goes with either the sticks or anti-sticks. 

  3. Phil,
    If we close over our levels do we get out of some of our short positions: I have SDS, TZA (both BCS's) VXX (sold puts), AMZN put trade, and PCLN put trade and QQQ puts (all Oct.) all down except PCLN trade but looks like it will be down also. I'm actually making more when mkt sells off than when it goes up lately as I have been rolling the SDS and TZA's

  4. Phil, I forgot to mention I have been doing very well this year thanks to your guidance – before joining I would not know what to do and probably been the sheep and not the casino.

  5. Rosenberg, Sit!
    Good dog :) Good dog…

  6. Oil on its way to $93 for a good short!

  7. ABX, Inc.Portfolio/Phil:  Just wanted to ask a question about this change you called out on yesterday's post:
    "ABX – Why are they so cheap?  Fantastic long-term inflation hedge.  Let's add 30 2014 $25/40 bull call spreads at $7 and, once we're closer to $40 (now $33.36), we'll sell monthly calls for income."
    We only have 10 $30 Puts sold at $4.60 at the moment.  Did you mean to only buy 10 of those BCS or do you intend to leave 20 of those spreads uncovered?

  8. Totally manipulated Pharm…. 

  9. What really happened when Charlie presses the "button"…… :)

  10. This chart reiterates my sayings that bonds are not following this 'rally'.  Normally, rotation out of bonds into stocks is the norm….well, why are treasuries moving in the opposite direction? The current divergence between stock prices and bond yields is at it widest level this century.

  11. Oil Lines

    R3 – 94.40
    R2 – 93.36
    R1 – 92.70
    PP – 91.66
    S1 – 91
    S2 – 89.96
    S3 – 89.30

  12. Looks like it's everybody for themselves now:—-avoid-cuts-even-if-it-means-more-taxes.php

    The very real possibility that defense programs will suffer deep, across the board spending cuts early next year has major defense contractors and their allies making an unusual plea to members of Congress: Put everything on the table to avoid the so-called sequester — including higher taxes.

  13. Where can I find what is in the income portfolio?

  14. davidkordack/income portfolio, it's in 10:10pm comment by stj at yeaterday's(8/6) post.

  15. The PCLN puts never made close to $6.00 yesterday in the 25KP so there are still in there.

  16. Good morning!  

    Dollar at 82.09 but the Yen is at 78.52 so they must be buying Euros.  Nikkei flew up to 8,890 in the Futures and if they pop 8,900 those EWJ Sept $9 calls (now .35) are going to be exciting but I wouldn't chase them until/unless we confirm by popping our own levels by more than a few points and for more than a few minutes.  

    Oil just touched $93 and it's not inventory day so that's a good shorting spot (/CL) with tight stops above.  Forget 800 on the RUT, it's the 800 Futures (/TF) that has to be crossed (now 797.9) and 1,400 on the S&P (/ES), now 1,397 with the index at 1,401.25 so figure we need 1,405 on the index to really have something going to the upside.  

    Don't forget we have a 3-year auction today, a 10-year tomorrow and a 30-year on Thursday and TLT is down to 128, which is pretty low for auction days.  And how do we drive those yeilds down?  By panicking people out of stocks.  So interesting dynamic today with Rosengren going all out to boost the market this morning.  

    Long-term Treasury yields climb to their highest level in a month, the 10-year up 5 bps to 1.62%, the long bond up 6 bps to 2.72%. A bit has been made about the divergence between stocks and Treasury yields – perhaps it will be resolved through falling Treasury prices, rather than lower stock values. 

    Boston Fed chief Rosengren pops onto CNBC to repeat his call for a new large-scale, open-ended QE program (he earlier told theWSJ the same). Again, Rosengren isn't a FOMC voter and his dovish views are to be expected, but he sits in camp with powerful members like Yellen and Dudley.

    XLF just nosed over $15 – that's a bullish sign too!  

    Hopefully we will get a watching and waiting day and not some crazy pump job but be ready for anything.  Here's the Income Portfolio and our moves from the morning Chat (thanks StJ!):  


    Income Portfolio:

    • RIG – Very strong-looking.  Shame we didn't sell puts.  
    • SVU – Will be very nice if they ultimately pay off.  
    • CSCO – $13?  ROFL!!!  What sucker paid us to sell $13 puts?  Needless to say, I feel good about this position.  
    • GT – Rubber prices picking back up but still a good company long-term.  
    • X – One of the weaker ones in a downturn so let's put a stop on these at $4.50 – roughly $22.50 on X (now $23). 
    • HPQ – With a stop on X, we can afford to sell 10 more of these at $6.45.  
    • F – Long way away and a good target (very nice for a new entry). 
    • JRCC – I'll feel better when they pop $2.50 and hold it for a week. 
    • ABX – Why are they so cheap?  Fantastic long-term inflation hedge.  Let's add 30 2014 $25/40 bull call spreads at $7 and, once we're closer to $40 (now $33.36), we'll sell monthly calls for income.
    • TZA – The $21 caller is dead and, as mentioned above, Russell has the most to gain if we pop.  Still, in case we don't, let's just buy back the $21 caller (.13) and spend $1.25 to roll to the Sept $18 calls ($2.45) and we'll see about selling calls to cover later.  
    • ALU – Vindication yesterday.  I like their product mix for the long-term and, holy cow – our target is only $1 for a $7,300 profit (off net $2,700 cash)!  
    • SQQQ – Why did we not make the same adjustments as $25KPs?    Oh well, roll to Sept $44s ($2.30) is $1.15 so let's do that and buy out the $60s (.38) and we'll cover if our Must Holds get popped (3 of 5 through the close) with the $49s (now $1.30).  So our original net is $2.13 and we spend .38 to buy back the caller and $1.15 on the roll is now net $3.66 and, if we knock $1.30 back off that on a sale of the $49s, we're still in a $5 spread for net $2.36 and right on the money despite the position moving massively against us (which is good for our actual main positions) – that's the way to insure a portfolio!  
    • BTU – Me love them long time.   Like X, they could dip in a big crash but I think China (electrical use) puts a bottom on coal more so than steel.  
    • SBUX – I'm comfortable with $42.50 holding so we could just stick with these but it's only 10 so let's take advantage of the drop and roll to the 2014 $40 puts ($5.50) for $1.05 credit, which raises our base to $4.10 and then we'll sell 10 more for $5.50 to average into 20 2014 $40 puts at $4.80 for a net $35.20 entry.   This is the great thing about scaling in, we're HAPPY they dropped 20%.  We allocated for 1,000 at net $42 and now we are up to 2,000 at net $35.20.  We could have never bought 2,000 anywhere near that price when we entered in the $50s.  Now we would take a drop a lot more seriously since we can't DD again but we can roll to 2015 (maybe $35 puts) so no panic unless the fail $40, without it being a general market sell-off.   As with ABX, if we get a run back near $50, we can go into the call-selling business. 
    • VXX – No point in taking these positions if you're not going to roll.  Let's spend .30 to roll down to the $15s (.52).  
    • BBY – Holding $20 this morning.  I think it's funny how no one seems to be taking the offer seriously from the former CEO and CS.  I can think of several thousand times when an offer like that immediately pinned a stock to the offer price.  There are some very powerful media forces working against BBY.  He submitted a FORMAL offer – this isn't just spouting off in the press.  Notice the pundits try to bamboozle you with discussions of the forward value (there will be debt financing as well) but what do you care?  He's buying your shares for $25 – it's not your problem HOW he does it! 

    All in all, not bad.  No positions we're unhappy with and, if we do break higher – we'll be in great shape.  If we fail to hold Dow 13,000, I think we'll add 100 DIA Oct $126 puts ($2) – because we can sell Aug $129 puts (now .60) as a cover if the Dow breaks back up and that would leave us with a cheap Oct hedge.  

  17. Phil made some adjustments to the Income portfolio in this morning chat but the online spreadsheet is not up to date yet. I don't update this one every day like the other as it's a slow mover…

  18. Burrben/GLW, I with you on GLW, it's sounds like the world demands their gorilla glass and yet their stock in way under perform.  :-( 

  19. Oh sorry, point I wanted to make was I have less respect for a breakout on a day when they push to get it.  Seems like they are just trying to draw the TA people in so they can dump.  Dow volume 12M at 9:51 indicates not too much excitement.  

  20. davidkordack – Income Portfolio: link.

  21. TZA/Phil – i have some Oct 20/28 bull call spreads for TZA at net .94. currently .73  being these are october, and intended as hedges.. would you roll out? down? double? calendarize? 

  22. FAS Money – Maybe it's prudent to close the calls?  The Aug2 94's are $1.83 and they were sold for $1.90.  Up to you guys, but FAS ran me over more than once, so I got out of the way of a moving train and closed them.  Just my 2c.
    Also, the 90 Call is now $4.40.

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

    Wappler – You could construct a 620/720 double calendar that covers you between 575 and 770 (crazy I know) but I am not touching this one… Too risky for me!

  24. Off to more meetings today. I swear, yesterday we had a meeting to schedule meetings for the day! Like Phil, when I ran my business, we almost never had meetings. Hire people that you trust and know their jobs and a little guidance goes a long way! Oh well…

  25. out of the AAPL puts at even

  26. Levels/Jomp – Depends how we feel about it.  First thing we can do is cover with aggressive long and then see what sticks tomorrow unless the breakout is very strong and there's a good reason for it. 

    Damn, AAPL $105 puts just jammed up to $1.58 but if you blinked, you missed it – now back to .95!  Nas 3,009 but super-toppy looking.  SQQQ making year lows at $41.20.  

    TLT fails to 125.50 – very interesting.  

    PCLN with a big move back up too.  WYNN back over $100, up 4% – 2nd good day after bad Macau news.  LVS up 3%.  

    Still not closing the deal on RUT and S&P futures but Nas just goes up and up on rotating MoMos.  

    Congrats Jomp – That's great to hear.  

    Oil bounced off $92.50 and back to $92.75 already – always be careful with reloads as 2nd time not always a charm.  

    ABX/Income Portfolio, Kinki – My bad!  I mixed up the strike with the number of contracts.  We only want to have 15 of those long bull call spreads then against the 10 existing short puts.  The extra 5 is a buffer for us to sell front-month calls against.  

  27. Meetings –  I removed all the seats from our conf room so all our meetings were held standing.  It's amazing how quick you get stuff done when no one can just relax and blab…

  28. phil
    NQ and TF lines seem to have been broken now with ES right on 1400. Are we waiting for significant moves beyond these levels to turn bullish? Thanks!

  29. PCLN Short Straddle: How come we did a naked call? How does this work to our advantage?

  30. Burrben – Why not just hold meetings in the parking lot when temps are a hundred or so?…… ;)

  31. FU PCLN!!!

  32. What's brewing at SBUX today?

  33. stjeanluc,
    I'll go for it, albeit with a minimum number of contracts – just for kicks and giggles – let's see how it goes!

  34. Hi Phil,
    If you were to put a short on AMZN now, what play would you make?

  35. LOL 1020! 

    Bonds/Pharm – This is like the disconnect we had in 2006-2008 – we'll see how long this one lasts.  As a rule of thumbs, bond buyers are much smarter than stock buyers.  

    Higher taxes/StJ – That's going to be interesting to watch.  Will they violate their oath to keep their biggest campaign contributors happy?

    GLW/Burr – I'd just buy more down here.  In fact, with the IPhone 5 coming soon and the new IPad, I like GLW short-term but let's make sure we're not failing our levels and pulling back first.  

    TZA/Scott – Hmm, how to explain this?   So you put .94 into the 20/28 spread and the $20s are now $1.22 with TZA at $17.30.  Is that a bad thing?  If you don't believe they'll hit 28, you can cash out now with a nice win on the bottom and leave the naked callers (.43), maybe re-covering if TZA pops $18 or even if RUT just fails to hold 800 now that it's over.  If it's a hedge, then your longs are doing well and you can just set a stop at .50 and be happy with the loss as the RUT flies higher or you can roll the calls ($1.22) to the Jan $21s ($2.20) for a long-term disaster hedge and then you're not buying out the caller until they expire and you still have something of value with Oct, Nov and Dec left to sell to get your net $1 back.  Or, if you don't have faith in this rally, you can take advantage and roll down to the $17 calls for .80 and THEN roll to the Jans if the RUT breaks over 820, which would be a new high.  So, on the whole, it depends but lots of options BECAUSE (and this is important for all to note) you didn't wait like an idiot for your calls to become worthless before looking to improve your position.  

    FAS Money/Burr – Yep, we'll have to adjust if things keep going up.  S&P still stuck at 1,400 in the Futures but the RUT made it over so around the EU close, we're going to have to defend against a bigger move up for sure.  

    Enjoy the meetings StJ! 

    AAPL/Savi – Good call, too risky in this insanity but I still think we may close lower – as I said, this rally is based on more promises and no action and we wouldn't be up half a point now if we hadn't fallen half a point into the close yesterday.  

    No seats/Burr – I like that.   I would just have office days once a week or so when I was in my office all day with the door open and anyone who wanted to talk to me could come in and just start talking – was a great environment for getting things done and touching base with everyone and, once people got used to it, we got a lot of good suggestions.  

    Waiting/Gandhjo – Well, for one thing we're waiting for two consecutive days closing above our lines – once we accomplish that, then we'll have a little more faith.  I'm not expecting this to be one of them by the end of day.  

    SBUX/Bob – I mentioned them in the morning post.  

    AMZN/Ging – We are short on them in the $25KP and the Long Put List.   Plan is to roll and DD to about $245 if we have to. Oct $205 puts are $3.15 and not worth adjusting yet but if the roll to the $215 puts drops to $1 (now $1.85), then of course I'll like that.  

  36. PHil – with PCLN back over 680, is a re-entry to the Sept. 510 puts good or would you suggest something else…TIA

  37. Point to make about rolling and doubling down:  You allocate an amount to a position – about 5% or 10% of your Portfolio max (in a major emergency, 20% but that would be after 10% fails but you are POSITIVE it's coming back – very rare).  Of that allocation, say $2,000, you want to buy AMZN Oct $205 puts for $4.40 so you allocation TELLS YOU how many you are going to buy in round 1, which is $500 worth (25% of allocation) or 1 for $440.   Now, the Oct $205s fall to $3 and we can DD or roll.  If we DD, then we have 2 for about $750 and we've used up about half of our allocation already but if we spend $1 rolling up to the $215 puts – we have only used $550 for a better put and we still have 75% of our allocation to DD or roll.  At $1 per $10 on the rolls, we can roll up to the $365 puts if AMZN keeps going up so we're pretty comfortable with that but, the moment we DD, we suddenly can only roll up $75 more, instead of $150 and now we're screwed if AMZN goes over $280 and stays there.  So rolls are almost always preferable to doubling down, especially early in the scale.  

    By the way, in the $25KP, we took 5 at $4.40, which is $2,200 of a $2,500 10% allocation so rolling up is our only play there so the plan is, without a doubt, roll up to the $215 puts when the $205 puts fall to about $2 (the current price of the $195 puts) and then we'll be in 5 $3 $215 puts at net $5.40 and THEN at $2.70, we would either take our $1,350 loss or we'd DD and have 10 for net $4.05 that are already down 33% so it would take a lot to want to pull the trigger there.  

    Keep in mind that, at this moment, we're down $580 so the act of rolling is saying we're now on a path to lose another $700 – if you're not prepared to do that – cut the losses at $580.   You should think through all your trades and adjustments that way – what path are you putting yourself on and ARE YOU PREPARED TO FOLLOW THROUGH?   

    And now, the $25KP adjustments.  Note we are doing what we did last time we were way ahead, we are spending our profits to position ourselves for a big drop.  Last time we got burned and blew our gains but we fought our way back to another shot at the title.  Logically, we could have made $10,000 and then another $10,000 and we'd have a near double now by not playing it so risky but we do have a nice chance – should we get a big crash – of putting up some massive downside gains and these are aggressive portfolios so we're going for it.  But, consider this your warning – I gave a similar warning to cash out the $10,000 gain the first time we had it and those who heeded it did a lot better than those who did not!  

    • EDZ – Holding up surprisingly well.  
    • SVU – Happy with target
    • JRCC – Long-term and boring.  
    • AMZN – As noted above – we'll roll if it gets cheap.  
    • SQQQ – Going for it.  
    • BTU – .55 cheap enough, why wait 2 more months for the other half.  
    • ABX – Same thing, let's cash out.  
    • VXX – Let's DD on the Sept $16 calls at .38 (no change to the puts) 
    • PCLN – Well worth $2.30 to roll up to the Oct $540 puts ($6, was $7.80 yesterday).  
    • BBY – We just did those. 
    • AAPL – Weak-looking today but maybe they are saving it for a push.  We want to take $1.50 and run but I smell weakness in the markets and a serious lack of buyer conviction, so let's wait.   


  38. Phil rolling and a good price. I am sure it is per the individual underlying but I have read you saying .30 for $1 is a good rule of thumb any of those rules of thumbs for rolling out a month for time? TIA

  39. TZA - typo correction, i have the Oct 20/26 BCS.. my eyes must have been too blurry before my coffee when i listed the 28s. but yes the idea was to see if there is a good way to take advantage of this very low vix to improve/maintain my hedge when down 23%. i htink just rolling out the longs is what i'll look at.

  40. TZA – but not sure as these are still october and this week or next may give us a drop.. so.. is this low VIX giving me any particular advantage TODAY?  maybe just uncover the longs with a buy back of the covers? low vix is good time to buy…

  41. VIX vs SPX/Anyone
    What's up with their relationship this morning?

  42. Phil/WYNN –  Took a shot on those Sep95 puts yesterday @ $3 but just a couple…still like your thesis on this? They popped of course today but thought about a couple more possibly or bail? Thanks!

  43. NLY/Phil – Any view on NLY for income portfolio or otherwise? Down another 2.5% today…

  44. seems like they are lining em up for the starting gun at 11:30 or Europe closing

  45. CSCO is Stormtroopin…..ya baby!!!
    Even DMND has signs of life.

  46. Phil,
    This is a bit long but worth watching for long term planning.  When you have time check it out.  I'd love to hear your opinion on this.

  47. Anybody have an opinion on PAY? It's really bounced back after the drop to $30.

  48. PCLN/Jerconn – See $25KP adjustment.  

    Rules/Sage – Not really, you just have to look at various strikes and get a feel for what a good deal is.  It's different for different stocks, strikes and time-frames.  

    TZA/Scott – Yep, same concept, different strikes.  Low VIX is a good time to buy premium (if you must) and a poor time to sell it.  

    Investor appetite for risk is growing suggests BlackRock data showing July flows into ETPs were dominated by moves into equity funds. Of $22.6B in net inflows, $21 billion went into stock ETPs. Seeing outflows were government bond ETPs (-$3.7B).

    A graphic look at the roation into neglected sectors – Energy (XLE), Discretionary (XLY), Cyclical (FCL), and Retail (XRT) are all moving higher the past few sessions, while the popular mREITs (represented by NLY), Utilities (XLU), Pharmaceuticals (IHE), and Staples (XLP) all sell off.

    With stock investors beginning to get comfortable with riskier sectors, Doug Kass says the S&P has about reached his "fair market" value of 1415, and he's cut his long exposure to the lowest level this year.

    SQQQ $40.95!  QQQ $66.66.  AMZN cranking, up 1.5% at $237, AAPL flat at $621, GOOG down at $639, GMCR up 5% at $22.40, NFLX up 4% at $58.85 (rejected at $60), WYNN up 5% at $102 – it's a good day for 4-letter stocks.   MSFT chipping in with a strong day too.  

    MON making new highs, just under $90.  

    WYNN/Rebel – Sorry about that, they popped the 50 dma so our premise is blown and good numbers out of Macau are lifting them today.  Long-term, nothing has changed but they could hit $115 before running out of gas if they close over $102 today.  

    Solid Q2 revenue from MGM Resorts in Macau and a narrower-than-expected overall loss helps lift sector peers. Despite industrywide casino revenue that is falling in Las Vegas, Macau continues to dominate trading sentiment. Gainers: LVS +1.3%MPEL+5.1%WYNN +2.6%BYD +2.4%

    NLY/Aussie – I'm not liking the REITs.  Big problem with people refinancing at 3.5% – leaves them with only the poor credit risks to deal with.  Office space still low demand and last BBook showed weakness in CRE for first time.  I think you have to be very, very selective with real estate and these REITs are, by nature, generalized bets.  

    Good call Sage, the moment Europe closed they put the pedal to the metal.  

    Resource wars/Exec – Oh sure, read An Essay on the Principle of Population for more ground-breaking information on the subject.  

    Pay/Davidor – Good growth but a hard company to get a handle on – as you can tell by the frequent 20-30% price swings.  The problem with going long is they can hit hard by someone like Square but, on the other hand, they are deeply embedded and certainly worth $30, which has been a firm floor since 2010.  

    11:54 AM European shares close with solid gains, the Stoxx 50's1.7% move today making it a 3-day 7.9% move higher since the ECB press conference was reevaluated. Germany +0.7%, France +0.6%, Italy +2.3%, Spain +2.2%, U.K. +0.6%. The euro +0.2% to $1.2424.

  49. Gaps/ Phil
    What's your opinion on open chart gaps and closing those gaps before trend change etc.  I ask because there is an open gap at 2780 on Nas 100.  I keep reading about explanations given to explain movements to close open gaps when the movement is against fundamentals or news.
    Also do you have any views on small caps being the last to rally prior to a trend change?
    Thanks in advance

  50. Alrighty, Im shorting /ym here, this is f#cking ridiculous.

  51. jromeha / short — Way ahead, shorted DIA and SPY.  I want to see us take out the 52wk highs and see them acting like support before taking those off.

  52. I know I've seen it discussed on here before but which reliable broker has the best commissions? Thanks

  53. MoMo trade:   Add 1 PCLN October 540 put to the portfolio for $6.00

  54. Putting a price on the rivers and rain diminishes us all
    Payments for 'ecosystem services' look like the prelude to the greatest privatisation since enclosure
    Rarely will the money to be made by protecting nature match the money to be made by destroying it. Nature offers low rates of return by comparison to other investments. If we allow the discussion to shift from values to value – from love to greed – we cede the natural world to the forces wrecking it. Pull up the stakes, fill in the ditch, we're being conned again.

  55. CSCO – nice run up last few days, but no volume confirmation…

  56. If the market holds here today, McClellan should top 100 getting towards overbought territory.

  57. AMZN – can pick up Oct $200 puts for 2.25…

  58. Phil
    Are we holding the F sept calls  ?
    or did we move on

  59. X – closed my Jan 2014 $20 short puts. 57% of an 18 month gain achieved in 2 weeks.. i have to take that.  leaving some in IRA account though. 

  60. CVX making new all time high.. but still with low volume..

  61. Gaps/Checho – I know gaps tend to fill but when the gaps are artificial, it's hard to say.  As to the small caps, I think the RUT should catch up to 820 so TNA is a good play here (assuming we keep going) as it's good to around $60 ($55 now) and that means you can grab the Sept $50/55 bull call spread at $3.15 and sell the $48 puts for $2.10 for net $1.05 on the $5 spread but you'd have to take the loss if the RUT fails to hold 800 and I'm not impatient enough to panic into longs just because the indexes poked up for one day.  

    Nature/Rain – Good point but, historically, we don't tend to pay attention.  

    F/QC – Moved on after earnings. 

    X/Scott – Good call.  

    Now we need to be aware of our April highs (some are March highs):  Dow 13,338, S&P 1,422, Nas 3,134, NYSE 8,327 and RUT 847.  If it's a proper rally, we don't have much resistance (other than our 2.5% lines) between here and there.  

    SOX were 444, Transports were 2,452 so both should be leading us every day.   Transports have no excuse since oil was $106 so why oh why are transports languishing at 2,120 (Nas Transports)?  The answer is because we are rallying on the EXPECTATION of business (from QE) without any ACTUAL business taking place so we're not measuring anything positive in the economy – it's all wishful thinking.  

    This will be a tragedy if the QE doesn't match the expectations.  

    If you are going to be bearish – days like this are when you dig in your heels and shore up your positions – not the day you capitulate!  

  62. lFlan- Hi, How come we did an ITM naked call on PCLN (weekly 665)? How does this work to our advantage? What about getting called away?

  63. FTR – hitting resistance at 4.55.. which is where it was last stopped on Feb 17, 2012 at 4.56 with high volume. if it can take this, next stop $5.

  64. Gold doesn't like the big rally for some reason. 

  65. Oil 8% gain in 3 days!
    A war must be brewing somewhere.
    And it must be a major oil exporter involved.
    A clue. Its name starts with an I and it is not India, not Ireland, not Indonesia, not Ivory Coast, not Israel and not Italy?

  66. TLT calls. I've flipped 180. I'm bullish on bonds on dips like these.

  67. Really interesting that CVX trading so high in the wake of last night's refinery explosion in Richmond, CA.  Large hydro cracker at the biggest west coast oil refinery blows up Andre stock doesn't even notice…..
    That cracker will be out of commission for months, if not longer.  Especially given CA environmental standards(good luck getting that rebuilt).  Hydro cracker is what beaks the unrefined oil into component derivatives….ie gasoline, jet fuel, etc. it's a key component to the whole refinery.
    But again, never short a dull market right?

  68. Here's a fun play just in case things go vertical — XLF Jan 19 calls for 0.01 or 0.02. I have 28 contracts. It only needs to go up 27% in five months. No sweat!

  69. Biodiesel – completely agree. We have big sales this week right? Im selling 1/2 my TLT puts, not quite confident enough to go bullish though…

  70. Very bad note auction (of course – who wants bonds when stocks are popping?).  

    1:06 PM The Treasury sells $32B in three-year notes at 0.37%. Bid-to-cover ratio of 3.51, vs. a recent average of 3.49; indirect bidders take 29.7%. Direct bidders take 8.4%.

    At the open: Dow +0.48% to 13181. S&P +0.53% to 1402. Nasdaq +0.53% to 3006.

    Treasurys: 30-year -0.63%. 10-yr -0.29%. 5-yr -0.14%.

    Commodities: Crude +0.7% to $92.85. Gold -0.02% to $1613.85.

    Currencies: Euro +0.26% vs. dollar. Yen +0.39%. Pound -0.4%.

    10:00 AM On the hour: Dow +0.5%. 10-yr -0.35%. Euro +0.23% vs. dollar. Crude +0.49% to $92.65. Gold -0.17% to $1611.35.

    11:00 AM On the hour: Dow +0.58%. 10-yr -0.38%. Euro +0.15%vs. dollar. Crude +1.18% to $93.29. Gold -0.1% to $1612.55.

    11:54 AM European shares close with solid gains, the Stoxx 50's1.7% move today making it a 3-day 7.9% jump higher since the ECB press conference was reevaluated. Germany +0.7%, France +0.6%, Italy +2.3%, Spain +2.2%, U.K. +0.6%. The euro +0.2% to $1.2424.

    12:00 PM On the hour: Dow +0.64%. 10-yr -0.4%. Euro +0.16% vs. dollar. Crude +1.39% to $93.48. Gold -0.07% to $1613.05.

    1:00 PM On the hour: Dow +0.72%. 10-yr -0.37%. Euro +0.15% vs. dollar. Crude +1.72% to $93.79. Gold -0.13% to $1611.95. 

    Fiscal cliff: What's really in it. If lawmakers cannot agree on how to address the pending "fiscal cliff," $7 trillion worth of tax increases and spending cuts will begin to go into effect in January. The smart money says Congress won't come close to an agreement before the November election, and that lawmakers may not even be able to reach one until early next year. At that point, of course, they'd need to undo at least some of the tax increases and spending cuts that went into effect.

    Until small stocks move to the front of the pack on a sustainable basis, many investors will remain skeptical of the current rally. The Russell 2000 fell 1.5% in July while the S&P 500 rose 1.3%, but it jumped 3.4% in the last two trading days, outpacing the Dow and S&P 500. Analysts say continuing that momentum will be an important trend if the market is going to power through its 2012 highs.

    An interesting data point from yesterday's action (via): The 50 heaviest-shorted stocks in the S&P 500 outperformed the 50 least-shorted by 189 basis points (+1.74% vs. -0.15%). Reporting tonight is Zillow (Z), a big performer this year that has seen short interest risefrom negligible to 16 days to cover. (h/t Conor Sen)

    Good news! Earnings growth is slowing (Market Watch)

    UH-OH: Orders Of Heavy Duty Truck Have Collapsed. (graphs)

    Nationwide home prices rose 2.5% Y/Y in June, reports CoreLogic, down from the rate of gain seen during the Spring. H1 home price increases for the last 3 years have given way to declines in H2, notes CEO Anand Nallathambi, adding he sees signs this trend will end in 2012. 

    Signs of an improving housing market, Freddie Mac reports Q2 income of $3B, led by a $1.7B quarterly decline in credlit loss provisions. The profit allowed the agency to make its $1.8B preferred dividend payment to Treasury without needing to take a draw from the Treasury. Wonderful. (PR)

    Ben Bernanke is smiling. Google (among others) gets into the auto and consumer lending business, grasping for yield by parking some of its cash into ABS backed by these loans. The result of this demand is soaring issuance – auto ABS +50% Y/Y, credit card ABS +257% Y/Y – and falling rates … one recent note was priced to yield just 0.5%.

    Who knew when Mario Draghi was professing his admiration for the Bundesbank, he may not have been talking about its inflation credentials, but instead its history of bond purchases. With yields soaring and the economy weakening in 1975, the Buba purchased not just long-term government bonds, but corporate paper as well.

    Germany and Italy near blows over euro (Telegraph)

    Merkel’s Bavarian Allies Turn Critics on Anti-Crisis Measures (Bloomberg)

    Sell your gold and buy a house, hire workers, buy grains, or send a kid to college, writes Peter Tasker, noting the price of the metal is at multi-generational highs against these items. Recent financial instability has failed to budge the price, he says, meaning the bull market may be over and gold is back to being just another risk asset.

    Chinese Banks Jointly Sue 20 Shanghai Steel TradersBanks in Shanghai are pressing steel traders, who have barely been able to keep above water, to repay their enormous and ever mounting loans.

    China's corporate debt ratio has reached a "dangerous" level, citing Li Yang, vice president of the Chinese Academy of Social Sciences, as saying at a forum. China had the highest debt-to-GDP ratio in the world in 2011 at 107%, exceeding the 90% watershed set by the OECD, Li said. Further stimulus could add to an already heavy debt burden at companies, Li said.

    Japan already sells more adult than infant diapers, and government estimates show more than 25% of citizens will be over 65within 2 years, nearly one-in-three within 10 years. The investment implications – from what will drive GDP growth to who will buy the massive amount of government debt – are troubling.

    The clearest sign yet Beijing is ready to let the yuan go, a front-page article in the influential China Securities Journal says the country needs a weaker currency to deal with the global slowdown. "The opinion that the renminbi has entered a period of depreciation has now gradually been accepted." How long ago was it that the yuan was a one-way bet higher?

    California spot gasoline prices soar more than 10% to $3.23/gal. in the wake of the fire (now reportedly out) at Chevron's (CVX) Richmond refinery. California spot prices help determine retail prices, currently at $3.86/gal. for the statewide average and higher than this time last year; prices could climb at least another $0.40, OPIS analyst Tom Kloza says.

    Chesapeake (CHK +9%) surges after its Q2 earningsconference call, as CHK raises 2012 and 2013 production guidance, expects 2013 capex to fall 45% vs. 2012, and sees an additional $4B-$5B in asset sales in 2013. The U.S. is at a start of a multiyear up cycle in gas market fundamentals, CEO McClendon says, with $1.84/MMBtu representing a bottom.

    Most recent earthquakes in North Texas happened close to injection wells used to dispose of wastewater from oil and gas drilling in the region, and they're happening more frequently, according to new research. "You can't prove that any one earthquake was caused by an injection well," the top researcher says, "but it's obvious that wells are enhancing the probability that earthquakes will occur."

    In search of liquid water (investment vehicles) (

    First Solar (FSLR +6%) jumps after the White Houseannounces it will expedite 7 solar and wind projects, including First Solar's Silver State South Nevada project. Wind turbine component maker American Superconductor (AMSC +7.6%) is also among the day's big winners. First Solar is now up 36% since it delivered a hugeQ2 beat, but remains down sharply on the year.

    Shares of Tesla Motors (TSLA +5.1%) spike higher to close in on $30. Dreamy rhetoric has run its course on Tesla and productions numbers are now in focus. The latest word from the company is that it hit a milestone of 50 Model S vehicles produced and is still on course to ramp up production to hit 5K for the year.

    Weather Extremes Leave Parts of U.S. Grid Buckling (NYT)

    Aeropostale (ARO +6.5%) leads the charge of specialty retailers higher after Redbook Chain Store Sales numbers came in above the forecasts of analysts. Companies specializing in selling to women and teens have taken some of the sharpest blows this summer in the sector. Advancers: RUE +2.3%ZUMZ +2.4%WTSLA +2.2%,BODY +4.2%CATO +3.3%.

    The DOJ probe of Las Vegas Sands (LVS) over allegationsthat it violated money laundering reporting laws appears set to rattle an industry used to looking blindly at the whales in its casinos betting millions of dollars a hand. In the past, federal and state agencies were more likely to launch fines for missing warning signs about the background of customers with criminal charges relatively rare.

     American Capital Agency (AGNC -3.3%) experiences a flash crash, plummeting 11% in the opening seconds of trade on volume of 5.7M shares (normally trades about 100K in the first 2 minutes). One wonders if any stops got triggered. 

    Shares of microcap Crumbs Bake Shops (CRMB +55.5%) skyrocket off of news that the company will start selling Starbucks coffee in stores. Traders appear to be betting on Starbucks getting even cozier with the bakery chain and striking a deal to use its food items to expand its own menu.

    So the stock is dropping because the takeover offer undervalues the company???   Best Buy (BBY -1.1%) falls off as enthusiasm over apotential buyout fades a bit. While the first analyst take on the deal was that founder Richard Schulze faced an uphill battle landing financing, Jefferies' Daniel Blinder goes a step further and says the deal price is far too low. In a nutshell, the analyst says the ultimate takeout bid would have to be in the upper $20s to lower $30s to give investors a large enough risk premium to allow for BBY's complicated 2-3 year turnaround.

  71. More on Sirius XM Radio (
    SIRI): Adds 622,042 subscribers as strong auto sales helps lift totals. Churn rate of 1.9% unchanged from a year ago. Records free cash flow of $230M at the end of the period. For full-year 2012, sees net subscriber growth of 1.6M and revenue close to $3.4B. Shares +3.0% premarket. (PR)

    Is this one of Nokia's (NOK +4.6%) first Windows Phone 8 devices? A Chinese site has posted pictures of what appears to be a yellow Lumia phone with an oversized display. Expectations have grown that Nokia will unveil WP8 hardware, possibly including aPureView phone, at a Sep. 5 Nokia World event.

    Three lunchtime reads:

    1) Gensler: Libor, naked and exposed

    2) Are you placing too much faith in the 'risk-on' ETF trade?

    3) Raging bulls: How Wall Street got addicted to light-speed trading

  72. Phil/ Roll & DD: I have two positions off the Long put list- V- $100 and MA- $290 Jan13 exp. When you have a long time line and the position has moved against you is it best to wait it out or roll? I see there are times when we have rolled within days of exp and other times when we have girded our positions earlier….

  73. CVX/hoss – the bots don't read the news i guess. they just see others in the sector going up.. up they work the rest. XOM as good as dead flat. go figure?

  74. Oil/Lionel – What does Iceland have to do with it?  Of course you also left out Iraq, who make more oil than Iran now…

    CVX/Hoss – They will be well-compensated by the 10% drop in production by the 10% increase in prices they can pass on.  In fact, I think they passed it on this morning already!  

    XLF/BDC – We had some bullish FAS plays from last week.  If XLF goes to $16.50 (up 10%) then FAS pops 30% to about $125 and the Sept $110 calls are $1.25 and you can sell the JPM Jan $31 puts for $1.05 to net into them for .20 or you can be more aggressive and sell the FAS Aug $73 puts for $1.15 for net .10. 

    Also, BAC should get dragged along with the rest if the Financials take off and, at $7.82, there's a lot of ways to play it.  The Oct $7/8 bull call spread is .62 and you can sell the $8 puts for .58 for net .04 per $1 spread.  The 2014 $7/10 bull call spread is $1.22 and you can sell the $7 puts against them for $1.20 for net .02 on the $3 spread that's .83 in the money.  Takes a while but the upside is 15,000%!  

  75. Phil, good words!
    If you are going to be bearish – days like this are when you dig in your heels and shore up your positions – not the day you capitulate! 

  76. Hoss 18
    I read that the fire was in the Crude unit.  That's where they process crude and remove sulfur and other impurities prior to sending to other parts of the Refinery to be processed. I'm pretty familiar with the Richmond Refinery as I worked there for over 30.5 years

  77. Phil, this is from the article on HFT. "One of the rules of analytics, disconcertingly enough, is that other things being equal, companies that don’t get written about in the media tend to outperform those that are widely covered."
    Is this because the BOTS dont track them?

  78. V&MA/Newt – MA hasn't gone up much so and the time-frame hasn't changed much so most of your problem is the VIX falling.  Keep in mind these are essentially the same trade so you may want to consolidate to one but the MA $290 puts are now $3.05 and they can be rolled up $35, to the $325 puts for $2 and that doubles your delta.  Don't forget of course, once you are behind, you play to get even, not to win!   On V, the Jan $100 puts are $1.35 and they are not really worth rolling up as the $105 puts are $1.90 so why spend .60 to roll when you'll get more bang for your buck on a DD there?  

    Corporate taxes/1020 – Isn't that sickening.  What's really awful is how the MSM manipulates the entire conversation away from the Corporations, who are paying 9% – and always keeping the focus on individuals, who don't make half as much money.  Not only that but that 9% is net of losses taken by some companies so the companies who actually do pay taxes are paying far less than 9% of their profits. This represents the entirety of our countries tax imbalance but no politician ever dares to discuss it and no newspaper or TV show will raise the issue because they don't want to piss off their sponsors (or owners).  Meanwhile, we, the people, get screwed over year after year.  

    Since 1982 they have been paying in just 10% of Federal Revenues ($2.2Tn) vs 30% in the 40s and 50s (when this nation was fairly prosperous).  Not paying $440Bn a year for 30 years = SURPRISE! – $13.2Tn.  In other words, our ENTIRE deficit is simply a lack of collecting Corporate Taxes. 

    Refinery/L4 – So how long do you think to fix it?

  79. Phil – do you have a link to those charts? Id like to post them on FB for my repub friends!

  80. rpme / HFT — I think part of it is that the bots don't track them but also they don't experience the news related swings that highly visble companies do (amplified by bots).  The companies that don't get written are BORING so what is there to write about?  They almost trade as if fundamentals matter. 8)

  81. Corporate Taxes:  So where does the other 45% come from??

  82. Awesome, I was hoping someone with a bit of insight might be on here…..what impact on production would losing that unit be?  and for how long?  

  83. Phil- Thanks.

  84. Links/Jrom – Here, take your pick, dozens of charts all tell the same story (and if you click on charts they usually take you to article chart is from).  This is one of those things that is so grossly inequitable that it can't possibly be hidden or spun – that's why it's ignored.  Here's a good quote from one activist blog:  

    For those who missed it, Congress voted down a bill that would keep taxes low for poor and middle class folks while ending the Bush Tax Cuts for the richest 2% this past Wednesday. They then voted to extend tax cuts for millionaires for another year. These Congressmen talk about how "fiscally responsible" they are while they vote to cut millions of public sector jobs, all while adding $700 billion more to the debt in order to prevent their rich friends from having to pay an extra 3.5% in federal income tax starting in 2013. You can find a complete list here. If your member of Congress voted YES, whether they be Republican or Democrat, they're fair game for a block party on Saturday, August 28th.

    Compare the exposure the Tea Party gets in the media to what groups like this get (did you even know there were groups like this?) and you can quickly see who controls America.  

    HFT/Rpme, Rain   – I think it's the same as above, the companies they WANT to manipulate get the press because they want to herd the sheeple in and out of the stocks.  Bots trading with each other is a zero-sum game but bots skimming their nickles off of every trade you make is PROFIT!  

  85. mjj / 45% — Payroll taxes.

  86. Phil / HFT — Agreed. The bots can only get the sheeple emotions involved if there is a story behind it otherwise you would just buy when the stock is cheap (value) and sell when it is not, right?  They (bots) prey on emotional traders and TA traders. Remove the emotions and the bots lose part of their edge. Same with TA, you need to jam the price around to change the TA signals.  

  87. VIX and /DX climbing since 11:30 without the markets reactin. Setting up for the same finish as yesterday?

  88. Other 45%/MJJ – Why that's your SS and Medicare payments that you'll never actually see the benefits of (not if you're under 50, anyway).  And, shhhhhh – don't tell anyone but that tax is disproportionately paid by the poor as well!  What a country!   

    You're welcome Newt.  

    Dollar creeping up to 82.28 as Euro falls back to $1.24 but holding it so far.  Pound at $1.5632 and 78.67 Yen to the Dollar and EUR/CHF more or less under control at $1.2013.  

    Oil rejected at $94, gasoline rejected at $3 and now $2.988 but prices up 12% in California already.  Nat gas shot up to $3 as well because it's linked to gasoline I guess (both up 2.25%) and also rejected now at $2.976.  

    Dow volume at 2:30 is 53M.

    What a coincidence:  Freescale (FSL +10.9%), LSI (LSI +5.8%), and Applied Materials (AMAT +4.9%) lead a major rally in chip stocks (SOXX+2.6%) after Goldman upgrades the companies. Discussing Freescale, Goldman argues downside to estimates is limited given soft guidance and a lean supply chain, and (more importantly for peers) the firm expects EPS to be "up significantly" in 2013 and 2014 thanks to a new chip industry up cycle. MU +5.4%NXPI +5.8%.MRVL +4.8%ATML +5.9%.

  89. FU SQQQ!!!

  90. Phil
    It depends on the extent of the damage. The initial cause from what I read was a faulty bleeder valve. Once Plant Protection and Operations deem the area safe to re-enter, repairing the bleeder requires hot work and that requires a lot of isolation of the supply lines to the affected bleeder, in addition to any branches up or downstream from that point.
    The isolation may need to be done using a Self Contained Breathing Apparatus or SCOTT Air by the pipefitters because of possible H2s or other dangerous compounds unable to be fully removed from the lines.There's also a good chance insulation may need to be removed to provide access for the isolation and repair.
    Material composition of the piping and bleeder are necessary in addition to a proper weld procedure, which may involve Post Weld Heat Treating.
    A Hot Work permit must be filled out and signed and approved by the Fire Marshall, Operations and Maintenance.
    Staging with tarps to enclose the welding area may also be required, in addition to a test pump, hoses and fittings which are required for the hydrotest after the bleeder is replaced, in addition to an X-ray to insure the repair is sound.
    Once the repair has been approved by Weld inspection, Operations and Engineering, insulation must be reinstalled, isolation blinds removed, the area cleaned up and staging removed. This process for just one bleeder repair can take up to 2- 3 days depending on how fast each part of the process is executed with just a few minor setbacks. With no setbacks, material in hand, the repair can be done in one day.
    Because of the fire, it will take time to determine the extent of peripheral damage to other key components and the repairs of those items could take a lot longer.

  91. Phil / coincidence — Always love it when an upgrade/downgrade contains the word "argues" rather than "analysis".

  92. l4real – thanks….great insight.

  93. hoss 18,
    You're welcome

  94. Hello All – On the disgusting/idiotic front, the Poway School District(near San Diego, CA) took out a "Capital Appreciation" loan in 2011 and recieved $105M.  In about 35 years, it will have to pay back over $1B.  The Oceanside School District(also near San Diego), borrowed about $30M and has to repay about $300M. 

  95. I have to actually credit CNBC, they are making fun of the market going up in the midst of nothing positive.  They also just had a good story exposing how the banks are trying to start another bubble by convincing schools that need money to take out 40 year loans that have no immediate payments due.  One school in CA took out 105 million that will be 1 billion to pay back.  Subprime all over again and the reason for this is no one wants to increase taxes to pay for these repairs so they kick the can down the road for the next generation.  Michigan made this practice illegal already.

  96. Loans/Ink – c'mon, what's so idiotic about it?  the current board members will be long gone and no one really believes there will be a dollar.. or a state of california by then anyway!

  97. MoMo trade:  Bought to close 1 PCLN put for $18.00.   This now converts these positions to a bearish play. 

  98. Scott/State of CA – oldie but goodie…

  99. Phil, it seems that everybody and their mothers are shorting S&P 1400 as an obvious top…. Thinking contrarian, what would the odds be for another short cover rally today / tomorrow?

  100. Iflan what strike bot to close 1 PCLN puts for 18$ thx

  101. never mind got it thx

  102. What might we conclude from declining demand for consumer credit in the U.S.?  Consumers still deleveraging, obviously, but is it for subjective reasons [fear/uncertainty] or objective reasons [unemployment]?  One might think that high unemployment would tend to increase consumer borrowing to cover expenses.  But there's probably a well-known answer to this of which I'm unaware.

  103. And now CNBC returns to normal programming as they attack Obama for attacking Romney's cuts to the rich and tax the poor plan.

  104. And now CNBC is saying the country has never been more divided than it is today, guess they forgot about the 60's during Vietnam and that thing called the Civil War.  This is worse.

  105. Thanks L4, no quick fixes then.  

    STX flying all day.  I remember when we were arguing about whether or not they were worth $10 last year.  In fact, from July 22nd last year:  

    STX/Asaenz – Doesn’t matter what I think, THEY think their business sucks.  I’d stay away unless they get to some crazy low like $10.  

    They bottomed out at $9.05 around Thanksgiving, now $33 – patience and fundamentals!  

    Good point Rain.  Also, good Apple article.  

    Loans/Ink – This is why you do need a strong Federal Government, there should be agencies that deal with this stuff or central loan banks that are approved to deal with schools.  The way it's done now is inefficient and corrupt.  For one thing, everyone on the school system, including the management, have to have educational degrees, which kind of precludes people with Finance degrees being in place to deal with the sharks that come in.  Then they don't vote to even borrow money until they are so broke they can't afford a consultant.  

    Loans/Rustle – I'd like to borrow a Billion with no payments for 20 years.  I'll either start paying it back when I'm 70 or I won't – sounds good to me! 

    Odds/Izega – If they can keep this up, there may be a squeeze as the last of the bears capitulate but I'm not even sure they can close at RUT/NYSE 800 or S&P 1,400 at the moment.  13,200 already failed on the Dow but at least the Naspump looks safe at 3,018 although, if AAPL fails $620 – who knows? 

    U.S. June Consumer Credit rises $6.46B vs. $10B expected. It's the slowest pace of expansion in 8 months.

    More on Consumer Credit: May's increase is revised down $400M to $16.7B. The annualized growth falls to 3% in June, bringing Q2's pace down to 5% from 5.9% in Q1. June's gains came from an increase in nonrevolving debt (student, auto, personal loans) as revolving debt declined $3.7B.

    That was very unexpected as we had indications yesterday it would be way up.  Certainly takes the wind out of the bull sales.  

    Conclusions/ZZ – I think (and I said this last month too) people are simply running out of money and credit.  People have maxed out their cards and emptied their accounts and now they are leaning to live on whatever they have, making due with less.  That's why we're seeing these restaurant trends and shopping trends and lower commodity demand, no new TV sets, no durable goods – people just don't have the money.  This is such an alien concept to Americans that it's not even being considered by the analysts but the US Consumer may, in fact, be dead – at least the one with the unlimited appetite.  

    Never more divided/Rustle – The funny thing about that is that, slowly but surely, the bottom 90% is uniting as they begin to wake up and see where the line is really being drawn.  To the top 10% – it seems like we've never been more divided because they've never been on the other side of a line like that before.  

    FB back to normal but AMZN having a good day because they are entering the Social Media Space, which is the new CHINA!!!  

  106. MoMo – so does that leave us with:
    1 of each long Sep put and call
    1 short this week Aug call
    1 Oct 540 put


    What is Driving Investors? Hint: Many Things

    By Barry Ritholtz – August 7th, 2012, 7:49AM

    Lots of folks are wondering where the retail investor has gone. There is some instructive “thinking out loud” as to what is going on: Why there is such light volume, why has financial television ratings plummeted, why has America fallen out of love with equities.

    The short answer is that there is no single answer. It is complex, and not subject to single variable analysis. This annoys pundits who like to reduce complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence these silly single factor bull bear debates.

    We can easily put together a listicle of the top 10 reasons why investors are unenthused about the stock market. These are what I suspect has been driving the average investor away:

    Secular Cycle: There are long term cycles of alternating bull and bear markets. The current bear market that began in March 2000 has provided lots of ups and downs but no lasting gains. Markets are effectively unchanged since 1999. The way secular bear markets end is with investors ignoring stocks, enormous P/E multiple compression, and bargains galore. Bill Gross and hisDeath of the Cult of Equities is a good sign we are  getting closer to the final denouement; we are not there yet, but getting closer.

    Psychology: Speaking of which, investors are both scarred and scared. They have been scarred by the 57% crash, and scared to get back into equities. While this is a necessary part of working towards the end of a secular bear, its no fun for them – or anyone who trades or invests for a living.

    Risk On/Risk Off: Let’s be honest – the fundamentals have been utterly trumped by unprecedented Central Bank intervention. While this may be helping the wounded bank sector, its not doing much for longer-term investors in either fixed income or equities. When investors can longer fashion a thesis other than “Buy when the Fed rolls out the latest bailout,” it takes a toll on psychology, and scares investors away.

    Poor Returns Across All Asset Classes: Investors have been burned by a series of booms & busts: Dotcom stocks (2000), real estate (2006- ?), equities (2008-09) Gold (2011-12). Perhaps after these experiences, too many Investors have decided that investing isn’t such a great deal after all.

    Deleveraging: The marginal buyer is out of the market as they de-leverage their excess credit consumption. An entire cohort of investors is no longer playing with equities. Indeed, they are priced out of all investment options as they rebuild their personal balance sheets.

    Wall Street Scandals, part I: First the market gets blown up by bankers, then Wall Street gets rescued. Meantime, Main Street gets nothing. If you don’t think the credit crisis and Great Recession has moved people to stay away from the casino, you are kidding yourself. The people who believe the game is rigged aren’t conspiracy nuts, they are merely observing appearances. At the very least it appears that bankers have corrupted the political process for their own gains.

    Trendless Economy & Markets: The soft economy does not get investors fired up about putting risk capital to work. And a range-bound market simply makes trading too challenging for most participants. Paying fees for zero returns as we saw in 2011 isn’t encouraging either.

     Wall Street Scandals, part II: MF Global, Peregrine Financial, Knight Trading, Standard Charter and JPMorgan – another set of factors that are convincing investors to stay away. Theft and incompetency appear rampant, ethical transgressions seem to be part of ordinary business. This has led some people to ask why on Earth they should trust their hard earned money to those guys? No prosecution looks like that much more corruption.

    High Frequency Trading (HFT): Investing is a zero sum game. Its not that complex for some people to figure out they are being ripped off by the Exchanges and the HFTs. Front running was once a crime, and know its part of the capital markets basic structure.

    ETFs: Some people seem to have wised up to the Stock picking game. Its certainly fun while its working during rampaging bull markets, when correlations go to 1 then it is no longer doable or fun. Add to that the advantages of lower costs, fees, taxes and turnovers, and the traditional stock-picking approach looks like a fool’s errand (yes, I’m talking my book here).

    I post this list not because I believe they are all factually correct — although there is much truth in them — but because these are the reasons why many investors have voted with their feet.

    What will bring this long bear cycle to its  end? Nothing other than the passage of time . . .

  108. Dow volume 65M coming up on 3:45. 

    CNBC guy funny – "Maybe the market is telling us that growth in the forth quarter will be better than we expect."    I did not know about the market's amazing psychic powers before.  It's amazing what you can extrapolate off a two-day data-point!  

  109. PCLN – this quarter typically has always been good for PCLN.  Phil, why the downer?

  110. Oops, back to Italy, notice their declining GDP wasn't considered important in Q2 of 2008 either.  Do we ever learn? 

  111. According to a ZH article, $5,8B of the increase in consumer credit in July was attributable to the Fed Govt.

  112. MoMo PCLN trade final clarification:   I bought to close the 1 this weekly 665 put for $18.00.   Now hold 1 October 540 put long, 1 Sept 685 long call,  1    Sept  635 put, and short 1 this weekly 665 call.  This is a bearish position and will lose money if PCLN pops.  If you don't think PCLN will drop or hold steady, you should exit all positions.  

  113. Capital Appreciation Loans/Rustle: I'll bet the banks selling them aren't going to wait 40 years to get their commissions and fees!  :)

  114.   I'm not sure which way PCLN will go.  I am trading it bearish because I think that's most likely.

  115. Italy/Phil
    Phil, I've been listening to CNBC and they clearly explained that debt, recession, fiscal cliff, foreign bond yields, high oil prices, unemployment, slowing down in China, corruption in banks, and a myriad of other factors don't matter because stimulus will fix everything.  Don't you worry your that big brain of yours, give it a rest, CNBC told me everything will be okay and I have to believe them because they are a legitimate news channel.  And it's a damn shame how are job creators aka rich, masters, lords are being victimized by Obama and the liberal media.  When will it stop.  Because right now CNBC said they are saving at record rates and not spending because they don't like the reputation they're getting and unless we sacrifice a virgin (Tim Tebow is my choice) than they will destroy our economy.

  116. Jbur / fees — And I bet  they don't hold the loans for 40 years either.  Add a dash of insurance, slice into pieces and dole out accordingly.

  117. PCLN ChartPCLN/Lolo – Because the exchange rate sucks for one thing (PCLN is very big in Europe), because a great Q is priced in as PCLN has zoomed up with EXPE from last Q but are now outpacing EXPE (who are a much better company) by 20% over the past year.  Also, PCLN has been diversifying into regular travel and cannibalizing their own business and, of course, because PCLN has a p/e of 30, which is a good 50% above the rest of the sector.  

    Cap loans/JBur – No, they'll be sliced up and resold as AAA paper long before that!  

    ROFL Rustle.  

  118. Rain/slice – Like a Loan-o-matic.

  119. Too funny – Japanese report on Tebow's virginity:  

  120. Capital Appreciation bonds….reminds me of the good old Revenue Anticipation Bonds. 

  121. A bit of selling into the close but they held our levels other than the Dow.  Funny how close to the mark we are. 

    Gotta run to a meeting – good luck with PCLN! 

  122. FXE goes flat for the day, I guess everyone takes cover when no rabbit is pulled from the ECB's hat.

  123. Phil was this ever a play on words : That was very unexpected as we had indications yesterday it would be way up.  Certainly takes the wind out of the bull sales (sails)???

  124. PCLN – hmm.. aftermarket going DOWN..

  125. PCLN – thank ya thank ya Phil and lflan.. 

  126. PCLN –  Down the Rabbit Hole she goes….

  127. And weeeeeeeeh on PCLN – hopefully it stops 50 points from here!

  128. pcln down almost 10%

  129. PCLN – I just hope the down movement holds into the open tomorrow but that is a pretty big collapse – down to $618!!!  Thanks Phil!

  130. VXX: I find it interesting that VXX popped 3% today with almost half the gain coming in the last 12 minutes of trading. Some of the big boys may be hedging at days end.

  131. What he said!!  :)  thank ya thank ya Phil and lflan..


  133. PCLN — lflan — Nice one!  Thanks to you and Phi.

  134. Stjeanluc,
    hopefully this PCLN monster stops soon – next time we'll do a200 point wide calendar, LOL!

  135. I've heard no mention of oil today.  It looks a little pricey, but I guess it largely amounts to a Euro forex bet.  Where's Phil on USO right now, guys?

  136. PCLN – just paid for my PSW membership.  You guys are incredibly amazing.

  137. Down 110!

  138. PCLN Mucho Gracias  ILFAN and Phil!!!!  

  139. I can't take CNBC anymore today.  This is a 2012 Personal Best in watching the station (37 min).  They really need to pair up a stylist with their on-air personalities.  Between the pablum droaning sound track and the truly awful visuals, I think I will choose Olympic Water Polo…..

  140. FU PCLN!!!!
    I love you ;-)

  141. 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

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

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

  144. 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…

  145. rpme – count me in…

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

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

  148. 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).

  149. 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!

  150. 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!

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

  152. 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!

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

  154. 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

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

  156. 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

  157. PCLN- THANKS!

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

  159. 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?

  160. TS Ernesto in the Gulf of Mexico declared a hurricane.

  161. 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.

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

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

  164. "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. 

  165. Who is John Galt????

  166. 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.

  167. Lines being tested now!

  168. On PCLN, my comments at the open:

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

    Bull slaughter I meant….

  169. Oil / Bertl – The lines worked well today!

  170. Congrats to the short PCLN players.

  171. Hell yes on PCLN!

  172. 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!

  173. .….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.

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

  175. 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

  176. FU very much Bio ;-)

  177. Good morning! 

    Totally overslept so way behind – CONGRATS to all the PCLN faithful and Wheeeeeeeee!  on the open as well!  

  178. 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.

  179. Jomptien – Two words: "trailing stop."

  180. 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.)