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!
Shadowfax. Why create a blog? With so many reporters in Jackson Hole covering the Economic Policy Symposium, why dont you go into town and get one to listen to your story. Better yet, perhaps you could interest one of the reporters in buying the secrets you hold from the past. You know, the things they keep breaking into your house to find. You would'n have to type a thing, just look or sound credible. From everything you have said the past few days, you don't have much to lose, but possibly a great story to tell.
I know back in the Channey days you could not even get close, the war made things worse. It may work and I am going to give it a shot. I do have a few pills to make me a safer driver and I don't need to carry anything, I can cover distances on cruches until armpit burn out. I have lots of experience with real politicians etc. Nothing like Phil, I have been on TV a bunch of times even an ad. That is a great idea. I doubt a sales opertunity but medical problems or just a chance to expose lies. Talk politics or hopefully economics that would be total fun!I am sure I will return laughing to myself as I am one of the best at detecting a lie.
Any info on where to find where things are happening and when will help. I will report here first, bring my laptop, maybe find a place to get on line. I know the locations and times are covered for "security reasons" excusses. Anything may help me. Only issue is I will need gas that could not be higher I hope.
And China is still hiding its bad debt:
StJ – Plz stop putting bad news up here. It only makes me want more QE! My band is tightened, my needle is ready….more more more
YHOO/Scott – Just a dead company I lost interest in. They are crumbling like the Roman Empire – still electing emperors hundreds of years after they've effectively died. They'll stagger along like this for years but I wouldn't count on them for growth. We liked them at $12 and we'll like them again if they go on a drastic sales but $15 only looks good because they were recently at $16 – otherwise, it's no major bargain.
Big Chart – Keep in mind you have to shift all those lines up 2.5% so we have the Dow stopping at it's 200 dma but below the 5% down line, the S&P is holding the Must Hold for now but failed their 50 dma, the Nas is right on the Must Hold line (3,075), the NYSE is resting on the -2.5% line and the Russell failed the Must Hold line and is stuck between the 50 and 200 dmas so very telling which way the RUT breaks and that explains the desperate after hours pump job on them (up about 2 points while other indexes are flat) as they must get back over that 50 dma to keep the TA people bullish.
Of course volume is very low again. On NYSE we're hitting lower lows and this does not bode well for Friday if Bernanke disappoints at the same time we have end of month volume.
Mileage/StJ – Now we just have to hope the Reps don't reverse it between now and 2025!
China/StJ – If that country bursts into flames tomorrow I would not be shocked.
Now You Know:
Woops – The real Romney – reported earlier, sorry….
YHOO/Shadow, Phil – thanks
Music/Phil – love that neil young. here is something different just heard tonight.. Hanggai – Wuji
Sorry not to respond sooner – I live in the UK and so went to bed (as it was late here :-))
Your health situation doesn't sound good – what exactly 'hit' you to get you to this position – I mean medically?
On the market front, I fear (no matter how galling) that we may still be going up (and yes I am short) and the best we're going to get is small corrections to the short side.
I've been following Phil for a while and when the market is descending and on a bear phase he's just incredible, these trading conditions however are very hard and each time we've entered a bullish phase, I've noticed that we don't make as much/any money! I'm thinking of just watching until we see the market direction flip and then buying up everything Phil has in the shop!!
Hanggai/Scott – Mongolian? This is my favorite song from Asia:
Phil since we have had such a long period of Bad News being Good News, when will the tides turn and Good News turns into Bad?
Not as much money/Markilus – We're in a wealth preservation mode here. My biggest regret in 2008 was not hammering the bear case and, despite essentially the same warnings I'm making now, people still got caught in the drop so, despite it making me sound like a curmudgeon, I will make damned sure no one here gets caught with their pants down. I am a bullish guy by nature but there is a very real possibility that you wake up on morning with your entire portfolio down 10% and not a buyer in sight as some country or other (or major US state) declares bankruptcy.
Hopefully it never happens and $1Tn+ of QE will allow me to flip bullish for 6 more months and then we'll be doing this again but now, after we had a 32% run from the last time I was very bullish (at the bottom where there were guys just like you who thought I was too bullish and we weren't making enough money on the bear side) last fall. I'm sorry you missed that bottom but that doesn't mean you should bet a top as if it's a bottom (or a middle) because you think you are missing something.
If Bernanke comes through, it will be a game-changer and, as evidenced by our last two Tuesday's aggressive long picks – it's very, very easy to make spectacular returns in a bull rally so I don't really consider being prepared to be "missing" anything – and neither do most hedge funds and corporations – who are sitting on record cash positions at the moment.
The Shanghai gave back the 1% it gained yesterday, the Hang Seng was off a bit, India fell 1% and Japan was up 0.3% with the Yen at 78.6.
This MSM interpretation of what Draghi is doing doesn't sound right to me. To me it seems more like he has failed to make his case with his German counterparts and is now desperately trying to sway public opinion (as well as lay the entire blame for a possible failure on the Germans). This is a typical GS strong-arm tactic that Draghi is well-trained in but the Germans are the wrong people to pull it on – especially Merkel, who can't afford to have people think Draghi's pulling her chain.
Monti is also trying to sway the Germans, saying "Blocking ECB could be an "own goal" for Germany." That too is no way to get the Germans on your side – intimating they are bad at soccer… Would Monti be making a statement like that if the reason Draghi stayed home this weekend was because they are about to announce a major, unified EU bailout?
Dollar is creeping back up to 81.50 with the Euro down to $1.255 but the Pound is holding yesterday's high at $1.583 and EUR/CHF is 1.2009 on the dot.
Wednesday's economic calendar:
7:00 MBA Mortgage Applications
8:30 GDP Q2
8:30 Corporate Profits
10:00 Pending Home Sales
10:30 EIA Petroleum Inventories
1:00 PM Results of $35B, 5-Year Note Auction
2:00 PM Fed's Beige Book
2:24 AM Asian shares are mixed as some in the market lower their expectations about what Ben Bernanke might say at Jackson Hole. "Bernanke may use the opportunity to highlight the limitations of what central banks can do. Thus, there is a risk that markets will react with disappointment," SocGen says. Japan +0.4%, Hong Kong flat, China-0.8%, India -0.3%.
3:34 AM European stocks open mostly flat to lower as investors await not just Jackson Hole, but also an ECB meeting a week tomorrow, when the bank might announce some bond buying. Or not. Euro Stoxx 50 -0.1%, London -0.3%, Paris -0.2%, Frankfurt flat, Milan +0.1%, Madrid flat.
6:00 AM Overseas: Japan +0.40%;. Hong Kong -0.12%. China-0.96%. India -0.77%. London -0.43%. Paris -0.45%. Frankfurt-0.54%.
When/Jacalyn – Very suddenly.
I'm the last guy to be recommending option trades, much less commenting on their pricing. But the [lightly traded] FXA [Australia ETF] October $103s at @ $1.5, FXA now $103.9, seems a good way to play a China tank, a commodities tank, and a "Australia isn't looking too hot in general" tank at a reasonable price. Just saying. Post hoc criticism always welcome.
OK, full confession, I confused it with EWA. Like I said, "the last guy…"
ZZ — FXA — I think I've tried that. Thinly-traded options. I believe the consensus on this board was that if you're going to speculate on currencies, you might as well have a FX account. Or, if you're going with FXA puts, carefully offset with something else.