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

SPY WEEKLY 1,440 – Again.

That's right, we have made not one inch of progress since we had the same exact title in last Wednesday's post, when I said: "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 andthe stock market is being manipulated.  Yep, all the stuff I've been telling you for months."  Our plan was to buy into the dip and that's what we've been doing the past week as our short-term virtual portfolios are now much more bullish than they were a week ago.  

As you can see from Dave Fry's weekly SPY chart, we're still in an uptrending channel and still over the major support line at 1,420 and we tested 1,430 at the end of last week but have, so far, held 1,440 this week.  

Last week we were all worried about Spain because they were rioting in the streets and this week we are all worried about Spain because they haven't requested a bail-out yet.  "Plus ca change, plus c'est la meme chose," as they say in the country next to Spain…

USO WEEKLY In Member Chat last Wednesday, we took advantage of Oil Futures (/CL) testing $90 to go long and by the end of the week it was back to where we liked to short it at $93 and this morning, ahead of inventories, oil is at $91.22 but we're not long today as we don't expect the bulls to have much to get excited about but, if we get a dip to $88.50 that holds – we'd like to go long there.  As you can see from this USO chart – we're pretty well stuck in the channel but the bottom is about $89 so I'm thinking a build this morning takes us just below the $33 line on USO

AAPL was at $666 last Wednesday and they closed at $665 yesterday but we've worked ourselves into a more bullish position there (we had several long-term bullish trade ideas on AAPL in Member Chat that day).  XLF was holding $15.50 and we went longer there – now $15.69.  We added QQQ Oct $70s at .30 and yesterday we had the chance to add them again after having cashed out that batch at .50 (up 66% in a week).  We took $9 and ran on the PCLN Oct $595 puts in our $25KP and that nailed the high for the week, TLT was at $125 (now $124.19), the VIX was at at 15.70 (now 15.71) and my comment on HPQ hitting $16.50 to Members was "WTF?" and I reiterated our reasons for being long on that one (now $17.15).  

Annoying as the past 7 days have been, as you can see from our Big Chart, it's really just a bullish consolidation along our resistance lines as we wait for the Dow to build up enough steam to hit 13,600 – which our Tuesday analysis of the Dow components ("Still Waiting for the Dow to Show Some Strength") determined should be possible but we're only expecting a 600-point run at most (4.4%) from last week's 13,559 as long as earnings hold up.  

That, we determined, is why the Dow was and is having so much trouble getting over the Must Hold line at 13,600 and we were so harshly rejected there on Monday that we fell all the way back to 13,400 yesterday before turning back up.  

This morning's ADP Report came in better than expected, with 162,000 jobs added in the private sector.  Of those 162,000 jobs, just 4,000 were manufacturing and 18,000 "goods producing" with all the rest coming from the service sector.  When I was in college 30 years ago and we used to talk about transitioning to a "service economy," I don't think anyone ever imagined it could get so extreme….

That shifts the focus back to Friday's Non-Farm Payroll Report, where we're expecting about 120,000 jobs to be added but last month was surprisingly weak at 96,000.  

Tonight jobs will be a big topic of discussion at the Presidential debate but, as you can see from this chart, it's amazing that it's an issue at all.  Obama took office pretty much at the dead bottom of that trough and the improvements made since that time have been nothing but stunning but, for some reason, the Democrats allow the Republicans to take control of the narrative and act like coming into office with an economy that was losing 800,000 jobs a month was somehow Obama's fault – ridiculous!

Also ridiculous is the Romney plan to cut tax rates by 20%, which will reduce taxes paid by households with incomes over $200,000 by $250Bn a year.  According to the Tax Policy Center, If you leave preferential tax rates for savings and investing (e.g., long-term capital gains and dividends) untouched, as Mr. Romney has said he would do, that leaves only $165 billion of available tax expenditures that can be eliminated from this same group of high-income earners once their marginal tax rates fall.

That means there’s an $86 billion shortfall — the difference between $251 billion in tax cuts and $165 billion in potential tax increases on this high-income group — that needs to be accounted for somewhere.  By process of elimination that somewhere must be the rest of the population, the 95 percent of households earning less than about $200,000 annually.  No wonder Pinocchio Ryan said he didn't have time to do the math!  

We're not expecting much of a move in the markets until after the debate because fiscally irresponsible nonsense like this scares a lot of investors – and rightly so.  We also face headwinds from the BOJ having a Yentervention as they try to weaken the Yen by buying Dollars this morning.  Already, at 8:45, the Dollar is back over 80 and the Yen is at 78.39, up from 78 yesterday and we assume they'll target 78.50 today and 79 tomorrow, which could bring the Dollar back to 81 if they are successful.  

That will put pressure on commodities and the good news there is that gasoline is plunging below $2.80 (/RB) and weak demand evidenced in the inventory report (any kind of build) could send us all the way back to re-test $2.70, where they'll likely make a good long.  Meanwhile, if the 2.80 line holds pre-market, /RB Futures make a fun bullish play over that line with tight stops below it as we don't expect the Dollar to go much higher from here (now 81.05) today.  

Tomorrow is a big data day with Jobless Claims, Factory Orders and FOMC Minutes while we wait for Friday's NFP report.  Earnings are not very exciting but next Tuesday is AA & YUM and then we're off to the races but today is most likely a watch and wait kind of day as we wait to see what nasty things Romney has to say about our "failed" economy – the one that's no longer losing 800,000 jobs a month with a stock market that's gained an average of 25% a year since Obama took office

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MSFT could be colored in the same light, but what I am hearing about Windows 8 is it will be a game changer.  Not to directly compete with AAPL, but aimed at businesses and going cross platform.  Meaning, one can create once and deploy to desktop/server/tablet/smartphone……interesting gamble, but could pay huge dividends if it works.  Leveraging strength of server and Office marketshare to re-establish/maintain dominance.
 
Anyone read the Vanity Fair article on MSFT?  Very interesting, and from what I have heard pretty much right on target.  Ballmer quits, the stock jumps 10%…..still have them as a core LT position…..

Burrben: Honestly, I don't think HPQ will ever become the next AAPL.  At this point, I'd be MORE than happy for just 1.5x book value. 

What are people's impressions of the debate so far?

Jim Carrey should portray Mitt Romney on Saturday Night Live. 😉

anyone of the opinion many Americans may have tuned out by now !!!!

I'll throw in my two cents on HPQ, even though it's been a long time since I've worked with them.  Actually, just the fact that Meg Whitman got up there and said that things weren't all sunshine and lollipops impressed me.  It makes me think that she was intentionally trying to throw a molotov cocktail into the last remnants of the old HP culture.   Anyone who worked with HP soon became very familiar with what was always referred to as "The HP Way",  as in, "That's not "The HP Way".   Apparently, "The HP Way" meant always being optimistic in forecasts, and then dealing with the disappointing reality later.  To me, this seemed to create a perpetual environment of over promising and under delivering,  but that was the way they wanted it.  They were great people, but had been trained to make only the most optimistic of projections, and then blame any deviations on events that could not possibly have been foreseen.  It was The HP Way.

Phil:
Can I get some advice on my HOV position? I hold Jan 2014 $2.00 sold puts. I entered the position at .90. It is now (.35-.40). Is there a better way to position myself in what I consider a long-term holding? I am a little nervous about rolling up the puts until I see HOV break and hold above the $4.00, but I am sure you may be able to provide more insight than that. TIA.

I don't think Romney hurt himself tonight. Whether you believe him or not he took advantage of his opportunity. Time will tell whether it makes a difference.

Most interesting story of the night IMO…
 
http://www.zerohedge.com/news/2012-10-03/guest-post-hyperinflation-has-arrived-iran
 
My understanding is the mullahs are a minority in control.  And, hyperinflation generally leads to social instability and regime change.  So if this is accurate, the Mullahs may be backed into a corner….they may have to lash out in order divert attention from the destruction of their economy.  This may be worth keeping an eye on…I don't think anyone's pricing in regime change in Iran…that would be a HUGE geopolitical issue….plus look how quickly it has set in…woof…

Reversing?  I do like that better than saying: flip flop. And definately more diplomatic than saying: there you go again, you lying sack-of-sh*t……

Checking in from another travel day.  Agree entirely with Hoss – Iran is potentially a very big story.  Dictatorships habitually blame and lash out at "external enemies" at times of internal crisis, and the fact is that Iran's plight is actually being caused by external enemies through the embargo.  I wouldn't be short oil right now.  In fact, it might be worth a play in the other direction.
 
 Debates? Surprising.  Obama came off as supercilious, out of touch and unprepared.  Off his game?  He hasn't shown much of a discernible game that I've notice.  Maintaining a condescending smirk whenever Romney spoke conveyed a kind of dull narcissism  –,  he gave the sense of being both inert and unprepared.  It doesn't require much partisanship to suggest that he's not exactly a second coming of the "Great Communicator"  – rather more "The Incommunicado Functionary."  He deserves the boot if he doesn't have the political skills to parlay his seat in the Oval Office into a second term  — because, ideology aside, he'll get even less done in his second term.
 
Romney — well, despite graduating in the top 5% of Harvard's MBA program, he was considered something of a lightweight in his Boston Consulting Group "class" which he entered upon graduation, according to a CA venture capitalist/engineer that I happened to speak to this week whom joined BCG the same year.  I would guess America would be better off with an energetic intellectual lightweight than our current Wizard of ObZ.  A Presidential Hobson's Choice, to be sure.  I wouldn't worry about ideology — I doubt either one is overly afflicted by it, American Presidents seldom are.  Nor are Merkel, Putin or Hu Jintao, for that matter. 

After watching about a half hour of the debates, I can only confirm the conclusion that Clinton was right:
He's an amateur. No more presidential than Sponge Bob Square Pants.
 Short WOR 20 puts.

Good Morning!   I watched maybe 20 minutes of the debate, then fell asleep.  It looked like Romney had the upper hand, and sounds like he may have 'won' the debate.   But it reminds me of something we say in the surgical world at times….."The operation was a success, but the patient died."   Thus, in future one may hear………….."Romney won the debates, but lost the election."

AAPL….I looked at Doug Kass' article on same.  His key phrase here is to the effect that AAPL may lose mojo and mindshare…….after the December quarter.   He may be right.  I'm playing AAPL to do well up through the December quarter.    Beyond that, it remains to be seen.  

Stocks To Watch For October 12, 2012
Poll: By Wide Margin, Democrats Want Biden in All Remaining Debates

 
A Dash Of Hair Transplant And Just Add Laughter
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
We always said that the presidential race in a country in which 40% of spending on wars, entitlements, interest on said debt, etc. is funded by debt (purchased mostly by foreigners and monetized by the Fed), is moot, and is merely one big tragicomedy designed to evoke nothing but laughter (especially since it is the creditors who call the shots). Today, we see that at least Joe Biden got the memo.
And for some more laughs, this.

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