Seriously, this is 4 Tuesday's in row – is anyone seeing a pattern?
Of course this Tuesday we are 100 Dow points lower than we were last Tuesday and the BS pre-market pump job at 6am has already faded (7:30) although we're still working short bets on the Russell futures (/TF) and the Euro (EUR/USD) from 813 and $1.256 as I put up a note in early morning Member Chat as we spiked on – get this – the news that Draghi cancelled his appearance at Jackson Hole this weekend.
Why would it be good that Draghi is NOT going to the last Central Bankster conference of the year but the buzz is that he MUST be so close to a masterful solution to all of Europe's problems that he can't be bothered to gather with his brother bankers on the eve of his triumph. The announcement was timed to coincide (10 minutes before) bond auctions by Spain ($2Bn 3-month notes at 0.95%) and Italy ($3.75Bn of 2-year notes at 3.06%) and the Euro jumped 0.7% into the auction – lowering the effective rates and both auctions were a "success".
That pulled the EU markets off the floor (still down half a point at 8am) and got the US futures out of the red zone as we finally pushed the Dollar under that pesky 81.50 line, goosing the indexes and commodities. Unfortunately, it's just a sugar rush and we've already run out of steam but I'm sure someone will start another rumor around 9:15 to get us back to green into the open.
As I said last Tuesday, with the Dollar at 81.50 we're looking for adjusted levels of: Dow 13,464, S&P 1,428, Nasdaq 3,060, NYSE 8,160 and Russell 816 and we held the Nasdaq yesterday but that was all so no reason to capitulate on our bearish stance just yet. Last Tuesday we also discussed 3 more trades (there we 3 the Tuesday before) to make 300% if the market did break higher and our first batch had several 100% winners so let's see how our 3 new trades did in a downtrend:
- 2 FAS Oct $107/117 bull call spreads at $2.05, selling 1 BBY 2014 $15 puts for $3.75 for net .35 is now net $1.52 – up 334%
- AGQ Oct $38/45 bull call spread at $3.10, selling BTU 2014 $20 puts for $3.60 for net .50 credit, now $1.18 – up 236%
- 3 DIA Oct $135 calls at $4.05, selling 1 HPQ 2014 $20 put for $3.80 for net .25, now -$2.56 – down 924%
HPQ had a rough week, dropping 20% and that killed that trade, which was the most leveraged of the 3 but not a bad consolation on the first two considering the market moved against us. Of course, setting a stop somewhere before you have a 100% loss can save you a fortune in these situations as well! We never did made our levels and, as we discussed yesterday, our bearish positions had a fabulous week so the hedges certainly did their job.
Obviously, we take the money and run on the first two hedges and there's no need for 3 new hedges when the DIA spread can now be played with 2 DIA Oct $135 calls at $1.23 selling the HPQ $15 puts for $2.30 for net .16 and, if you don't mind owning HPQ for net $15.16 (12% off the current $17.21 price), then there's not much to worry about on this trade but, as I said last week – we are NOT bullish and these are just small hedges against our generally bearish bets.
Realistically, if we played all 3 spreads with even distributions, we laid out .10 in cash and the two winners made $2.70 while the loser dropped $2.56 so, even without stopping out the loser, we're no worse for the wear on the drop. A great example of why all your eggs should never go in one basket.
Speaking of broken egg baskets – check out this Bespoke chart of the Shanghai Composite – what a mess! Our stock indexes are currently back where China was in late 2007-early 2008 and a lot of the reason we're back there is the way we're so enthusiastic about potential expansion into China and the growing Chinese demand for our goods and services and swelling Chinese Middle Class and the endless Chinese demand for commodities and…. hey, what's that smell? Smells like BS to me…
You can read 100 articles and the Punditocracy on the MSM can hit those talking points until they are blue in the face but this chart is A FACT! The Shanghai is down 66.6% from the top and anyone on TV using CHINA as a reason to be bullish should be given a few hundred volts through is chair! What if the US market looked like this and people tried to tell you how great things were? Would you say "well, that certainly not what I see here but, if you say so – it must be true"? Just because the MSM assumes you're an idiot, doesn't mean you have to invest like one.
Despite the "great" bond auction this morning, the rats are leaving the sinking ship of state in Spain at an ever-accelerating pace. The chart on the left shows the outflows from Spanish banks, where deposits fell 4.7% in July alone. A few more months like this and there won't be any banking system left to save!
Spain's once-wealthy Catalonia region has officially requested an emergency liquidity injection of $6.5B this morning from Madrid's sadly insufficient bailout fund. Don't worry Spain, Germany says CHINA will buy up all your debts (not a joke, sadly). Spain officially admitted they are in a recession today as Q2 GDP fell 1.3% after falling 0.6% year/year in Q1 and is projected to fall further in Q3.
At this point, even the Swiss are running out of money, and patience, as the SNBs policy of supporting the Euro at all costs. The SNB is currently holding 230 Billion Euros, which is 1/2 of their entire GDP, adding 34Bn in July alone. If not for Swiss support, the Euro would surely be at $1.20 or less – even against the weak Dollar. "The minimum price is not for eternity," said SNB's Jordan, "this is an extreme measure for an extreme situation." Any sudden removal of this support can have a sudden and devastating effect on the Euro.
Just ahead of the open we're getting our predicted pre-market re-pump and that's fine with us because – we don't care IF the game is rigged as long as we can figure out HOW the game is rigged and place our bets accordingly. The Russell bottomed out at 808 – up $500 per Futures contract and the Euro hit $1.24, which doesn't seem like a big move (.016) but it's $10 per .001 so up $160 per contract on that one and that is how we pay for our Egg McMuffins.
Now we get to sit back and watch the fun!
R3 – 100.25
R2 – 98.87
R1 – 97.17
PP – 95.79
S1 – 94.09
S2 – 92.71
S3 – 91.01
JET// I feel exposed! i am so impressed that someone so new to our august gathering has brought my knuckle dragging tendencies to the board's attention..i had hoped to continue my passage quietly hauling my calloused knuckles along without note…SIGH
NOW BACK TO THE PLANET EARTH
I HOPE THAT MANY OF YOU HAVE HAD A CHANCE TO PURCHASE NTE. I BROUGHT IT TO THE BOARD WHEN IT WAS TRADING IN THE MID FOURS AND PRIOR TO THE GROWING AWARENESS THAT IT IS AN APPLE SUB CONTRACTOR..ITS SEPTEMBER Q SHOULD BE A MASSIVE ONE AND THE NEXT 12-18 MONTHS SHOULD BE EXTREMELY REWARDING..I VE DONE EXTENSIVE RESERACH ON THIS NAME AND HAD OUR CFO VISIT THE COS PLANTS IN CHINA AND HAVE TAKEN NUMEROUS MEETINGS WITH THE CEO..I BELIEVE THAT TOSHIBA OR SHARP HAVE AN AGREEMENT IN PLACE TO BUY THE COMPANY ONCE CERTAIN PRODUCTION GOALS ARE REALIZED.. MY YEAR END TARGET IS 12-15..MY LONGER RANGE PRICE GOAL IS 22-30
NTE- Angel- I,for one followed your trade on this one albeit a small position. I liked the story on MIL better so I took a larger position. That one seems to be working also. Got any more you can share?
If your projections are to play out then March-13 buy / write looks attractive ($7.50 p/c) pays 17% plus the div.
Phil, any thoughts?
NTE / pstas – Why not sell the Mar 13 7.5 puts to pay for a Mar 13 10/12.5 BCS. Right now it's around a $0.25 credit and return on margin is close to 200% if they are over 12.5 in March. On the down side you are covered all the way to $7.2.
You could also sell the Mar 10 puts for less downside protection but a larger credit!
Privatization of food and water….here we go!
RUT has been holding very strong last few weeks, would love to see it break below 800 or even get close to it. Just seems more likely that it's getting ready to pop.
TOS/ Anyone else having issues with their account? Won't give me access to my account and tech support asked me to email them my client .log files? They said many customers are having the same issue.
Art Cashin had a very good take on Mario (the Dragon) Draghi not going to the conference. He said he didn't think he would be able to upstage Bernanke and at the same time couldn't be bland, either would hurt the Euro so the best result is cause speculation and just not come using the excuse he has a heavy workload. And so far it's working for today.
TOS/aaronc – I was able to log in this morning at approx 9am, running [build 1824.6], no issues so far.
Flip- Why do you see WOR popping ? Also were you talking about Jan13 or LEAPS in 14. Thanks, just looking into ur suggestion.
Gosh I wish something different would happen! As predicted, 9:15 and the Dollar was jammed down to 81.30, popping the Futures – but rather ineffectively. Things will get ugly fast if we have selling pressure like we had yesterday at the open because yesterday we opened high so the day didn't look so bad, even though the Dow fell about 100 points from 8:20 to the close.
They are already spinning the Draghi news to seem positive with CNBC having the nerve (Art Cashin too, who I thought had more integrity) to say that Draghi didn't want to upstage Bernanke at Jackson Hole. Can you believe the level of BS that is flying??? The statement from his office is:
So just the normal silliness, it seems and, as is often the case on Tuesdays, we'll just have to watch and see what shakes out in the morning. We're nowhere near breakout levels so probably not an issue today but the Nas has to hold 3,060 and the S&P absolutely needs to hold 1,400 and the RUT 800 and the NYSE 8,000 and the Dow 13,200 – oops….
At the open: Dow -0.15% to 13106. S&P -0.14% to 1408. Nasdaq -0.08% to 3071.
Treasurys: 30-year +0.19%. 10-yr +0.1%. 5-yr +0.03%.
Commodities: Crude +0.63% to $96.07. Gold -0.43% to $1666.05.
Currencies: Euro +0.53% vs. dollar. Yen -0.25%. Pound -0.07%.
Market preview: Futures are flat-to-lower as the summer continues to meander on, devoid of much of the drama of this time last year. Markets are killing time until Ben Bernanke speaks at Jackson Hole, hoping that he'll print more money, but they've been disappointed before. S&P Benchmark -0.1%. Later: Consumer Confidence, State Street Investor Confidence Index, Richmond Fed Mfg.
Phil- Too Late to play TZA today?
Consumer confidence (or lack thereof) down from 65.4 to 60.6 – we're dropping as fast as Spanish bank deposits!
bdybdy2/TOS – Thanks, I called again and they said many clients are having the same issue, they "hope" to have it resolved within a few minutes. I was on hold about 10 minutes before I could speak with someone so it does seem widespread. I would be pissed if I wasn't so comfortable with my positions- stacked short with a few upside hedges.
sjl / FAS: Per your accounting of FAS, should not the short $11 strikes be reported as a closed position? This, I think would adjust the Current Postions P&L to -$15. I certainly cannot maintain a short and a long position of the same option concurrently in my accounts. Still, your format does clearly show the BCS situation, but not my account reality.
FAS / mjj – I corrected the portfolio. Thanks!
Is the VIX or VXX more representative of volatility? I did a bull call spread on the VXX and it won't move – while the VIX has gone up about 3 dollars?
Phil/Cashin Don't be so harsh on 'ol Art – He's had some moments of delusion in the past…..
VXX / Ginbaum – VXX suffers from decay so it's not an accurate representation of the VIX. If you look at the performance of the VIX and VXX since the beginning of the year you will see that the VIX is down 27% while VXX is down over 65%. You can play VXX for short term spikes in the VIX, but longer term you can get burned.
I read Cashin differently, thought he was pointing out that it was a strategic move to cancel and the workload excuse was bs, it was just to keep the illusion that something would be happening.
IWM has a major trouble spot 81.40 to 81.50
In the past year 20 over in Feb and March 5 in April 2 in JUL 3 in August. More recent stay over my 81.30 line all day only 1. This is the RUT with breakdown support about 80.40. It appears we are where we are because of the dollar as Phil said and I fail to understand why the exit if forex markets believe in QE. Would this not indicate that QE is baked in and disappointment will cause an ugly responce? On the 20 day chart 38.2 fib is 80.26 and the show stop for the last week is 81.43. Range bound 73 to 83 since December 20 2011, above times over 82. FWIW how I see it.
NTE/Pstas – I stay far away from Chinese small-caps. They may be good or they may all be in jail next week and I don't have time to check. So I like MIL better already as they are Canadians – so only a little weird and untrustable but again, it's a small cap with most of their company "news" coming off the PR Newswire so nothing I would put money into either.
Good water report Pharm, thanks.
Wow, consumer confidence was so bad, it's good (Fed back on table, though how giving another Trillion to banks will make consumers more confident – I have no idea)!
Good timing for Obama to have a hurricane and show how not Bush he is.
Richmond Fed came out too:
TOS/Arron – I'm in and now there's no way I'll log out to check!
Cashin/Rustle – Oh please, what nonsense. It worked for exactly the 15 mins it was worth. Turns out the horrible CC number and continued weak Richmond Fed is a better market booster with Bernanke on deck on Friday (10 am):
TZA/Vill – That one could have been played on the morning pump and now we'll have to wait but hopefully we get another shot on this little rally. Yesterday was an easy call as we looked out of gas, now it's up and down 5 points on the RUT 3 times in less than an hour so a rougher bull to ride.
Comfort/Aaron – Another side benefit to the wonders of hedging.
VIX or VXX/Ging – VXX is just an ETF that tracks the actual VIX, which is a true measure of volatility. I like VXX because it's more liquid but it does tend to decay.
Cashin/1020 – I agreed with him on the street violence.
Looks like some drought areas will be helped by Isaac:
But in some cases it might be too much of a good thing with flooding and destruction. It seems that we can't win!
TOS/I can log in fine to one account but my second account shows a zero balance and no positions.
That stop should be about RUT 815.20.
rperi/TOS – Same here. Two accounts one is just fine the other not so much.
Phil/Cashin Oh, I'm sure that day will come, but Art's reasons and timing (Jan.'10) were unfortunate…..
$25KPs – Holding up well near the top. Notice how annoying it is waiting for JRCC callers to give up that last .25. Nothing to do otherwise.
WFR at $2.87!
VIX down to 16.10 because up and down 5 points on the S&P 3 times in one hour isn't volatile, I guess…
Drought/StJ – Hopefully not too little, too late.
NTE anyone who would like my analysis of second q earnings please ask and send your e mail address to email@example.com..I ve had a 20 year relationship with the CEO of this company and all that i can tell you is i have 20% of my liquid net worth invested here and all most all of that has been made invested with mr koo..just my take..Phil is correct about Chinese companies and many of you know who along with Phile sounded the alarm on china two years ago..i am still short..but all chinese companies are not alike this is one of those deals that seldom comes along..i am sharing it because i am not an options jockey and have little else to contribute
NTE / Angel – These guy have really gone parabolic the last week or so….
Angel – you give good color commentary!
1020- THe "predictioneer" is just an author who wrote an interesting book (The Predictioneer's Game) using game theory to predict future outcomes/behaviors by world powers.
Well worth reading….
Good stuff all around.
Yen, which is tied to the Dollar this week, testing 78.50 and I'd say that's the end of this Dollar dump at 81.30 with the Euro at $1.2566 and the Pound at $1.5826. Euro went up so fast that EUR/CHF is $1.2007 – this would be a smart time for the Swiss to dump a few Euros too.
Oh no – WHEEEEEE again! With a move like this, we're not automatically taking the $1.75 on half of TZA in the $25KPs until we see that floor hold.
Funny you mention Phil Gramm. I DESPISE that guy's politics but I didnt know he is a Colonel in the Reserve (so I guess I cannot criticize him now). He came to Kabul a while back as a Senator and got DV treatment everywhere – then he put on his Colonel uniform to serve his week or two and probably served under the very Generals who were kissing his ass earlier in the day.
Pharm — Thanks for the water privatization link.
Stjeanluc – Christopher Lasch
Thanks for the quote and link. I have always found Lasch intriguing since reading "The Culture of Narcissim" in the 1980s and "The True and Only Heaven" in the 1990s. I have not read "The Revolt of the Elites" but that would be consistent with where he was going in his earlier works. More to go on my reading list. From a theological perspective, it seems that conservatives have all become apocalyptic, even the secular conservatives. There is a sense that there is no hope at achieving a better world, that it is all going up in smoke soon, so let's all get ours in the mean time and let God sort it all out later. EJ Dionne has also made the connection that conservatives have lost a robust sense of community, and narrowed down to their own families and friends. So our public space is all occupied by making money, with little value on something more than GDP or quarterly profits. This was not what conservatism was about historically.
I would also add in the title of the book written by the author, a long term Republican staffer, that you quoted, The Party Is Over: How Republicans Went Crazy, Democrats Became Useless, and the Middle Class Got Shafted.
NTE is fine. Being a Chinese firm adds an element of risk but what investment does not have some wild card?
I will just wait for a pull back . It has had a good run.
Lasch / Rev – Sullivan makes the case that Obama is truer to the historical conservatism than the current GOP. There might be some truth to it….
Prehensile greed/StJ – I love it!
10:00 AM On the hour: Dow -0.28%. 10-yr +0.11%. Euro +0.44%vs. dollar. Crude +0.06% to $95.53. Gold -0.33% to $1667.85.
11:00 AM On the hour: Dow flat. 10-yr +0.13%. Euro +0.54% vs. dollar. Crude +0.83% to $96.26. Gold -0.09% to $1671.75.