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Wednesday, March 29, 2023


Will We Hold It Wednesday – S&P 1,440 Edition

I love this part of a market

This is the part where the MSM begins to realize that Manufacturing is slowing down, stimulus won't create jobs, earnings are not going to be as good as expected, Europe is not fixed, housing is not as strong as expected and the stock market is being manipulated.  Yep, all the stuff I've been telling you for months

Last week I told you there will be a dip and we will be buying it and this morning, in Member Chat, Denlundy asked:

Phil:   Immediately after Q3 was announced you discussed the possibility of a 3 to 4 percent drop before the Q3 injection would make its impact felt via rising indexes.  Could this be what we are experiencing at present?

My answer to that was, of course, yes – this is it.  So far, we're only down about 1.5% from the QE fever of less than two weeks ago but people are already freaking out like it's the end of the World as we know it.  This is just what we expected to happen and also why we decided to hang on to the short positions in our $25,000 Portfolios after QE3 was announced – it doesn't really fix anything and the exuberance was irrational.  

How far down is 4% – right to those rising 50 dma lines you can see in our Big Chart.  That's what we're thinking the worst case should be as the Euro normalizes back below $1.30 and the Dollar normalizes back above 80 and THEN it's time for earnings and we'll be salivating over companies that have big sell-offs like FDX, CAT and JOY because it gives us a chance to get back into them 20-30% off the tops just in time for Global QE to begin to kick in (and it better happen soon – before China melts down – again).

We did a little bargain-hunting last week, in case there was no sell-off, but our main Income Portfolio is still less than 20% invested as we wait for those earnings "disappointments" to give us some good prices.  Already we see analysts' expectations for earnings coming down sharply or, as we say at PSW – finally getting realistic…    

I published a major portfolio update for our Members on Monday and, so far, it's looking like our TZA hedge (ultra-short Russell) is right on the money with the Russell diving from 865 to 840 (2.9%) since last week and still another 25 points away from the 50 dma at 815.  Hopefully we won't end up testing those lines, but we do need to be prepared for it.  

Meanwhile, in pre-market (8:30) the Dollar is testing 80 and oil (/CL) is testing $90 so we hit that long on oil futures.  This is the exact target we talked about last Thursday in the morning post, so no change in strategy – just a 2nd chance to execute it.  The last one was good for a run back to $93 and that was a nice $3,000 per contract gain!  

Also according to plan is the usual market sell-off into the 5 and 7-year note auctions.  As I said to Members on Monday in reviewing the week ahead: "At least the Fed shuts up this week but 5 & 7-year notes Weds and Thurs often come with dips to encourage buyers."  So we're right on schedule with TLT heading back to $125 as Treasury looks to peddle about $70Bn worth of paper today and tomorrow.  The last round of auctions were a bit disappointing as we were rallying so we didn't expect "THEM" to let things slide twice in a row or soon it will be Americans taking to the streets and rioting as our country finally is no longer able to borrow $100Bn a month to pay its bills.  

That's what was going on in Spain last night and what is going on in Greece this morning – kind of makes our own Occupy Wall Street movement look a little wimpy, doesn't it?  Spain is looking more like Greece, as austerity protests and planned budget cuts shoot yields on Spanish 10-year bonds back near 6%.  The Catalonia region announced snap elections for November 25th, which could lead to independence for Spain’s most economically important region and the IBEX is down 3.5% this morning on that news.  

Don't forget they're even protesting in China now and the Shanghai Composite tested 2,000 this morning on a 25-point drop and barely held it at 2,004.  Note that a significant deterioration in Chinese data is #3 on Zero Hedge's list of potential Global downside risks (great article) and is, I think, the most likely thing to tank the global economy.  Unfortunately, I'd say it's not deterioration that worries me but the realization of the deterioration that is currently being covered up

In some ways, that's good because I don't think China's economy has a lot further to fall – I just think it fell already and hopefully will begin to recover.  What worries me is that, other than the CEO's of CAT and FDX – no one in the West seems to realize what a mess China is.  The US fiscal cliff will be extended, Europe will muddle through, we discussed the inflation issue and how to hedge it on Friday, the sale of core bonds doesn't seem that likely as there's nowhere for the money to go but into stocks and that's why we like them long-term and protectionism is not too likely as our Global economy is now so entwined that those games should quickly end in ties. 

We're still far from being gung-ho bullish – we're simply amused at how quickly others are turning bearish on the market's first dip in a month.  


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Pbars they are significant if accumpanied by volume, today I saw one that was 70,000 shares and down we went. What is a problem is clearing stop/limit orders with 100 shares and then the market moves.

Pbars / Pharm – I see one of them at 11:30 and another one at 1:40 (5 minute SPY chart). The strange thing is that both of them had the same high – $144.084. Has to be a bot! However, no abnormal volume on that these candles. Big sell volume at the close though.

Yes, I see the 11:27, 11:30 and 1:40 on the 3 min chart.  The volume was some of the largest bars there.  Yes to the same highs as well.  Oh well, tomorrow is a new day…

TLT – we have a TLT calendar, 125 Dec/125 October.  As Oct erodes, I will be buying put spreads on TLT.  Looking at the 119/115 Nov BPS.  I have some, but it is a much better deal now.

AAPL – i asked investor relations today regarding earnings date. Here is the reply:
Thank you for your email.  The date for the release of Apple’s fourth quarter financial results has not been determined.  Earnings announcement dates are typically finalized and posted on http://www.apple.com/investor around the end of each quarter.

Apple Investor Relations
T 408 974-3123
F 408 974-2113

take care about getting too bearish US bonds..the market could skid through a good part of October..bonds won't be headed south..for those interested the French bond looks very vulnerable..

US bonds/angel – I think they are going to move this market b'f the elections to highs….just like Oct 2007…no?  Bonds will suffer.  Then, and only then, will sheeite hit the fan…..Most likely after the new year.

Bullshit Mountain – I find it amazing that people actually believe the crap that comes out of that outfit. I mean liberal outfits have their own blowhards (Ed Schultz on MSNBC comes to mind) but they don't even come close to that level of bullshit… They just had a survey showing that out of all the comments made about global warming on Fox, 93% were scientifically inaccurate. Not 5%, 10% or 15%, 93 frakin' percent! It's just insane and unwatchable. It's good to watch or read opposing views as not to suffer from epistemic closure – but I am afraid I'll lose intellectual capacity when I watch Fox.

VXX / Phil – I am guessing that around the time they reverse-split VXX we'll start seeing Jan 15 options. The experiment would be to then buy 1 Jan 2015 $20 put and be ready to add to that position each month that VXX is higher than the previous month (in effect dollar cost averaging the puts). The reverse split target is $10 so that needs to be taken into account in the price of the puts. It's quite certain that over the next 24 months we will have VIX spikes and with it VXX spikes, but I very much doubt that we'll have an elevated VIX over the entire period so we should have some "selling" windows to collect some profits or adjust the position. Based on the figures I posted above, the VIX futures are in contango 82% of the time and that's deadly for VXX. The last reverse split was in October 2010 less than 2 years after he was started so it looks like 2 years is the charm because here we are again (that sucker was at $480 split adjusted 3.5 years ago)… Might be worth testing. 

Good Hussman article re low interest rates: Eating the Future.

Just finished reading yesterdays posts- (many meetings and presentations @ work).
I stayed up late this summer & watched the mars landing with my 13 year old son. He is more
interested in science now. Here is a game he plays to manage his own space program:

Karma is a bitch…



So Romney desperately needs to prove he’s not an arrogant rich jerk who barely knows and couldn’t care less about the struggles of Americans who aren’t blessed with great wealth. And it turns out there’s an argument at hand: RomneyCare, the first successful effort by an American Governor to provide universal health insurance coverage at the state level.

Too bad he’s spent the last two years shapeshifting into the butt-kickinist enemy of Obamacare and mandates and universal coverage this side of the Cayman Islands. His best, really his only argument is radioactive within his own party. Evan McMorris-Santoro has the story.

I find that fact unfathomable:



They said, if you assume a grain of sand has an average size and you calculate how many grains are in a teaspoon and then multiply by all the beaches and deserts in the world, the Earth has roughly (and we're speaking very roughly here) 7.5 x 1018 grains of sand, or seven quintillion, five hundred quadrillion grains. That's a lot of grains.

But is you got a Hubble telescope and counted all the "distant galaxies, faint stars, red dwarfs, everything we've ever recorded in the sky" you'd end up with  "70 thousand million, million, million stars in the observable universe (a 2003 estimate), so that we've got multiple stars for every grain of sand — which means, sorry, grains, you are nowhere near as numerous as the stars."

And all that was in the size of pinhead at one point! It sounds so incredible and so mysterious at once! Still so much to learn.

Phil false fakes
A new line I have been hearing is don't beat the messenger follow by a trial story, they say it until someone buys it and then the backer story all without taking responcibility for  making something up. It is just a story. Next thing it has substance without anything or anyone verifing.

nicha – what Phil said.  Yes, moving down increases my BE, and reduces the leverage of the spread(ie increases my cost).  But it allows me to sell more premium and raises my chances of going ITM, plus if I get my long strike low enough, I can afford to run uncovered on a pop up and go for a home run.  Moving the spread is like hitting singles in baseball, string enough successful ones together and you can score a run(sometimes a lot of runs).  Toss a homer on top and you can do really well….word of warning though, it's not for the faint of heart.  You have to be disciplined and have a plan.
I screwed up in initiating at 700 in the face of quarter end, bond auctions and after a nice rally.  Pretty stupid, but I have learned enough to work my way out of a total jam, and can at least now make a little on this play, and with a few more good choices could be right back in it.
Phil, Thanks for the explanations on the AAPL trades.  I am not very eloquent at explaining it, I just know from doing it that many times the right call is to recognize the roll early and make it.  Do it before the loss gets too big.  I see it does two things, one it improves the long strike(ie lowering it when I'm bullish on the underlying), and when done early doesn't cost a ton.  By moving to a lower strike, it allows me to sell lower strike covers which generate a lot more premium and carry a higher probability of ending up ITM. 
I like the idea of rolling the longs to Nov on weakness. I prefer to be out of my front month long calls two weeks prior to expiration, unless the spread is ITM and Im done with the play.  Also had not thought about using weeklies as insurance, great idea.  I'll try that….thanks!  Very insightful.  T

StJ if you like that check out Brian Greene's Fabric of the Universe on PBS.  The first episode defining space is mind boggling…..really incredible stuff….like all the physical parts of the Empire State Building, if you could take away the space, would fit in a teaspoon……Who needs drugs, just study cutting edge physics, it will bend your mind into a pretzel.

Phil – I am thinking about a pairs trade: Long AAPL & Short GOOG …
IF you were so inclined to put this on, which options would you use?

Interesting analysis of AAPL …
Apple By The Numbers – No Smoke, No Hype – Seeking Alpha

scottmi/ 4:13 post……AAPL dropped 40+ points in less than a week?  Could it get back to 685 or 690 this week?  Sure, though not likely.  Could it get back to 700?  Totally not lilkely.  So I sold the 700 naked calls. 
nicha/ 4:31….why go to Jan or later  for AAPL longs?  Christmas!  And what goes in the stockings?  iStuff!  This quarter plus/minus; next quarter….blowout!  

From FT:
 The financial pressures on Mr Rajoy’s government have been intensified by a constitutional crisis brewing over the Catalonia region, which called snap elections this week that could hasten a move toward independence.
   “Spain is increasingly slipping from his hands,” said Alfredo Pérez Rubalcaba, the leader of the country’s opposition socialist party. “There are very clear fractures in Spain, and the one I am most worried about is social fracture.”
   Catalonia, Spain’s largest region by output but also its most indebted, has already been forced to request a €5bn bailout from the central government. Artur Mas, the regional president of Catalonia, who this week discarded his Convergència i Unió party’s longstanding moderate nationalism in favour of separation from Spain, said he could call a referendum on a split.
   While a referendum must be approved by Madrid to be legally binding, Mr Mas said: “Firstly there is the intention to do it in accordance with the law, and if that can’t be done we will do it all the same.”

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