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Monday Market Movement – Monti’s Move Makes Mess in Europe

INDU WEEKLYItalian banks are falling hard this morning.

Following news that Mario Monti will be resigning, Italy's 5 largest banks are falling 6-7% and that's dragging the whole Italian market down 3.7% this morning and that's putting a drag on Europe and the US futures so it's a rough start to the week already – and we haven't even gotten out of the gate yet.  As you can see on Dave Fry's DIA chart, we have a clear line at 13,146 to watch and that 50 dma has to hold to keep us bullish.  

There's not a lot of data to guide us this week but we do have a Fed meeting on Wednesday where it's expected that the FOMC will increase monthly QE purchases from $40Bn to $85Bn per month to make up for the expiration of Operation Twist as it winds down at the end of the month.  Bernanke will give a press conference at 2:15 on Wednesday and Thursday we'll see how he does as we sell both 7 and 30-year notes in the afternoon.

We'll also get the Bloomberg Consumer Comfort Index at 9:45 on Thursday and that will either confirm or deny Friday's awful Consumer Sentiment numbers and Friday we get CPI and Industrial Production but, on the whole, not a very big data week and our expectations are that we do drift higher ahead of the Fed – although the drag from Europe might make that tough today.  

Of course, the Fiscal Cliff conversation will still dominate the markets.  John Boehner met with the President in DC this weekend but neither one is talking about what actually happened – although Saturday Night Live seems to have captured the public's disgust with the whole process quite nicely this weekend

Making fun of this manufactured crisis is a good sign – it means the public is ready to move on and hopefully the markets will stop running up and down 1% every time someone drops a cliff rumor.  We need a little bit of stability if we're going to bring investors back off the sidelines before the end of the year – time is certainly running short for a "Santa Clause Rally." 

AAPL WEEKLY AAPL took another hit from analysts this morning with Jefferies cutting their price target to $800 from $900 on concerns of slowing IPhone growth and declining margins.  Jefferies predicts "just" 60M IPhones will be sold in Q4 and just 25M IPads in Q1 of 2013.  Sure $800 is about 50% HIGHER than AAPL is currently trading but that won't stop people from selling it off today on the "downgrade."  We still love selling the 2015 $400 puts for $52 as the best way to establish a long-term position in AAPL (at net $348, a 34% discount to the current price) – taking advantage of the current price silliness.  

Speaking of price silliness – IMAX is pretty cheap again at $21.15 with a lot of strong movies coming out for the holidays.  They also announced a deal to begin putting theaters in Brazil and last week, at an investor conference, they outlined their plans for China expansion so I like selling the Jan 2014 $17 puts for $2.30 and buying the Jan 2014 $15/20 bull call spread for $2.80 and that's net .50 on the $5 spread with a 900% upside if IMAX simply holds $20 for the year.  Worst case on this trade is you end up owning 1x for net $17.50, which is still 17% off the current price and THAT's the way to buy a stock!

If you want to make $9,000 with a trade like that, you just have to work it backwards and see that you'll need 20 contracts (100 shares each) that come out to $5 so you need to spend $1,000 in cash to buy 20 of the spreads and that obligates you to buy 2,000 shares of IMAX at net $17.50 ($35,000) but, of course, ordinary margin would hold at most $17,500 and TOS says the margin on the short puts is just $5,800 plus the $5,600 cash required for the spread so it's $11,400 of cash and margin required to make $9,000 (78%) in 12 months – not too bad…  We'll add that trade to our Income Portfolio and see how it goes.  

The key to trades like that is to pick a stock, like IMAX, that we really, Really, REALLY would actually like to own long-term at $17.50.  That means there's no downside to us – especially if $35,000 is a relatively small allocation in our portfolio and if, for example, IMAX fell to $12 we'd be happy to double down (+$24,000) and end up owning 4,000 shares for $59,000 or $14.75 each.  As I often say to Members – if you don't want to own 4,000 shares of IMAX at $14.75 – why on earth would you be buying 1,000 shares at $21.15?  Buy stocks you love and you will be a happier investor.  

We'll be doing a bit of year-end bargain hunting in Member Chat over the next few weeks as we look for some nice 2013 opportunities to roll our closing 2012 positions into.  Hopefully, at some point, the Fiscal Cliff will be resolved and the markets will take off but, if not – well that's why we're trying to stick to stocks that we'll be happy to buy more of if they get cheaper – especially if they get cheaper over panic relating to an artificial financial construct that isn't likely to go unresolved for very long.  

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  1. Good Morning!

  2. Oil Lines

    R3 – 87.82
    R2 – 87.37
    R1 – 86.67
    PP – 86.22
    S1 – 85.52
    S2 – 85.07
    S3 – 84.37

    Friday's high and low – 86.92 / 85.77

  3. Interesting AAPL options play from a guy who thinks it's going below 400….
    AAPL Bear Put Debit Spread
    Buy the Feb 425
    Sell the Feb 375
    Cost : 2.95

  4. Phil IMAX Jan15 17 put there is none however the 15p is 2.50 possible you mean the 15p

  5. Good Morning
    Yodi—Jan 14    17 puts not Jan 15

  6. – Deutsche Bank has downgraded the stock to "hold" from "buy," while lowering the price target to $710 per share from $800. The firm sees a more challenging environment for Priceline, even though it said the shares are still attractively valued.

  7. Savi Thanks

  8. CLDX – yeah, it works….nice 10% so far….gimme gimme gimme.

  9. The AAPL drama continues….

  10. LOL – AAPL once more bounced off the $520, more or less – double bottom?  Hope it's up from here…

  11. Good morning!

    Opening looking good so far – we'll see what sticks.  

    AAPL $400/Burr – Sure, it's easy to pick 20% lower strikes and come up with cheap spreads.  Bottom line is you still need a 20% drop in AAPL to make your $2.95 back – you only get paid the odds you're taking – it's not a magic trick. 

    PCLN dropping hard today.  

    IMAX/Yodi – That's 2014 options, not 2015.  You can go longer but the spreads are terrible as no one is trading them yet.  

    FAS Money – Wow, that's up again?  

    $25KPA – Whole loss is AAPL so may as well be AAPL Money now.  

    $25KPM – Not much left there either.  Hopefully we can cut those QIDs soon (assuming we look stable this week).  

    AAPL Money – Ouch, our very bullish stance is not being rewarded at the moment.  

  12. oticed early last night they went out and took all the stops out in the dollar /DX all the way down to 79.98 anyone have any insight as to why

  13. It seems that you are correct Jerconn, AAPL seems to be finding buyers around $520. That's what happened last month but then we tested the 509 line before we took off.

  14. Phil IMAX thanks but spread aswell as puts have very little open interest so we have little change of getting filled

  15. CLDX 7/8 Dec BCS with the 5 puts…those just might come in if we get follow through over the next few days……Yippee!

  16. Phil,
      I'm reposting this question, as I don't think you saw it on Friday.
      After a series of moves to rescue an SVU buy/write, I'm left with 1000 shares at net $2.49, 10 short JAN 2014 $3 calls and 40 short JAN 2014 $3 puts. Given your recent negative stance regarding the SVU deal, do you see a play to salvage this position, or would a shift to another horse make more sense (say Cisco or Chesapeake, for example)?

  17. Quote of the day – for our friends at Fox News:

    "It is hardly possible to overstate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar … Such communication has always been, and is particularly in the present age, one of the primary sources of progress," – John Stuart Mill, The Principles of Political Economy (1848).

  18. AAPL Money
    Phil, when are you going to be looking at selling a call for premium?

  19. On AAPL, someone tweeted yesterday a chart of one of Fidelity's fund position and these guys had been reducing their position for a while, even before AAPL hit $600. But you are talking about a fund holding something like 50 million shares and going to 40 millions shares. They were adding shares at $250 all the way to $350, sold some, added some on the next leg up and then have been reducing a lot since then. But you figure an average cost of $350 and you sell at an average of $500, that's $150 a share so when you sell 10 millions shares, that $1.5B of profits. No need to be greedy and that erases a lot of bad trades!

    My guess is that a lot of funds have been doing the same – why be greedy when you can show a good performance for the year. And as a bonus, you drive a lot of retail investors out of AAPL, start some technicians talking down the stock and you can pick up some cheap shares at the beginning of 2013 playing some good Q4 earnings.

  20. NOV  National Oilwell Varco Do you have any opinion- Oilfield services company – Buffett added to his portfolio in August.
    Mr. Buffett knows a good value when he sees it. NOV is clearly undervalued with a forward PE ratio of 11.27, a PEG of 0.79, and a price to book ratio of 1.73."
    Very thin options is the biggest problem I see. Jan 15 B/W buy at $68 and sell $65 P & Cs for $25. Two year low of $50. YTD low $60 in July  high of $85 in Sept. Obviously volatile. 

  21. GLD/ Pharm: Did you post covers for the March 170 longs?

  22. NOV/txchili:  Just my two cents on your excellent trade idea. In comparing the 2014 IV to the 2015 IV, the IV is somewhat higher for the 2014's. So comparing the 2014 straddle to the 2015, looking at the 70's, you get $18.57 for 1 year, vs. only $26.20 for 2 years. I would prefer to sell the higher year premium. Also, if you are positive on the stock, why not sell the 70 straddle instead of the 65. The 65 has a bearish bias. 

  23. AAPL – short article on making money without trying to predict what it's going to do.

  24. Dollar/Bert – I think there was some initial panic when Monti made his announcement and they may have been flushing stops ahead of what the thought would be a big move up in the Dollar but the Euro held $1.29 and the Pound held $1.60 and now they both have a bit of short-covering of their own.  

    IMAX/Yodi – Well you may need to keep the offer out for more than a few hours but they are trading. Someone sold a 2015 $18 put for $3.90 this morning – that's not a bad deal.  

    SVU/Kevin – I don't like the deal they made to break up but i'm happy enough with our spread in the Income Portfolio, that's looking for them to maintain $2.50 over time.  $3 may be pushing it and, frankly, you're looking at a net loss of what?  $500?  Is it really worth keeping it open if it's taking your attention away from other things?  CHK is just as risky but CSCO is a good deal at $19.70 and you can sell 2015 $17 calls for $4.20 and $15 puts for $1.50 for a net $14/14.50 entry so the same $2,500 you have tied up in SVU can put you in 2 of the CSCO spreads that will make $600 if CSCO just manages to hold $17 (down 13.7%), which is as much as you will make if SVU gains 20% to make your $3 target.  

    AAPL Money/Burr – I still expect AAPL to bounce back to $580 at least.  If not, we have 25 more months to sell so it just doesn't seem like an emergency yet. 

    AAPL/StJ – Also, when you factor in the logic of taking capital gains now, while they are cheap – it's easy to imagine AAPL may not go anywhere until Jan but still, it's hard to imagine it not coming back in Jan as well – especially if the reason it's being pushed down is end of year profit-taking.  

    NOV/Tx – They do seem cheap, underperforming their peers by a pretty wide margin this quarter and this year.  Of course, BHI and SLB are also dragging but, if you look at them as a long-term hold – it's a nice little business and that's why Buffett likes them.  They don't pay much dividend so you can do an artificial buy/write with the 2015 $60/82.50 bull call spread at $10 and sell the $55 puts for $7.40 for a net $2.60 entry on the $22.50 spread that's $8.28 (up 218%) in the money to start.   It's a wide enough spread where you can sell short-term calls against it like 1/2x the Jan $70s for $1.70, which is a nice .85 per $2.60 long return (32%) in 40 days.

  25. GDX is forming a nice kind of bottom and is not a bad way to play the miners.  At $46.37 they have a ton of implied volatility and you can sell the 2015 $45 calls for $9.90 and the 2015 $40 puts for $6 and that nets $30.47/35.26 for a nice 24% discount if put to you (and GDX hasn't been below $40 since 2010 and that was $39.10 for a day) and almost a 50% profit if called away at a bit below the current price.  Let's do 10 of those in the Income Portfolio. 

  26. AAPL – Here's my new safe AAPL play for the foreseeable future:

  27. NF**X / AAPL — That looks VERY safe.

  28. Jbur – thanks for the alternative

  29. NF—-wish I had seen that trade before

  30. Burrden AAPL see now why we holding out to sell covers 537 and counting !!!! I guess patience is the word

  31. Phil,
    In FAS Money the $97 Dec Putters can be bought back for less than $0.40 with nearly two (2) weeks to go. How do feel about rolling those bad boys into more premium?

  32. NAV/phil – any opinion on these guys?

  33. Phil Looking to set up a new XLF play
    Jan15 vertical 14/17 1.54
    sell Jan15 13P @ 1.37
    cost .17 what do you think TIA

  34. Phil,
    I have an ABX Jan 2013 35P sold at 2.15….Is it better to take an assignment, or roll this position to a Jan 15 28P or 30P…we are talking 5 contracts. Thanks as always for your input.

  35. Protalix BioTherapeutics (PLX +0.7%) says its the first patient has been treated in its Phase I/II clinical trials of PRX-102, its plant cell-expressed, chemically modified enzyme replacement therapy for the treatment of Fabry disease.


    My investment will stay in this company.  I think PFE will buy them, eventually.

  36. GLD/newt – when in doubt, weekly 170s.  Keep it simple.  I have been doing this every week.  We are still in March 170s, but when/if the opportunity arises, and you can sell a weekly to move your 170s down the same amount, then do it.  I still think Gold is gonna fly, esp, if the Feds do what they are borne to do…..

  37. FAS Money/CSL – I certainly don't want to increase our risk by selling higher puts.  They're not even a good price as we're in the top of the channel on XLF at $16 and, generally, we much prefer to sell puts when XLF is dropping so patience is a virtue here.  

    NAV/Scott – I don't think they're in a good part of the cycle and the threat of automatic cutbacks in military and other Government spending if we hit the Fiscal Cliff gives them a big possible downside.  While they seem historically cheap – they're simply not making any money and I'm not seeing any particular reason that's going to change in the near future.  Also, quite a lot of debt that they carry. 

    XLF/Yodi – I like it as I see no reason XLF won't improve over the next 24 months.  You could be a bit more aggressive and do a 1/2 sell of the $17s so you net into the spread for .88 and then you can sell 1/2 (fully covered by your open longs) the Jan $16 calls for .30 and if you have 4 good sales like that, you'll be collecting more than you would have selling the 1/2 covers and you'd still have over a year to make more sales.  

    ABX/Jasu – Unless you have a particular reason to flip to ownership, you only owe $1.90 back on the short puts (and that's still got .80 of premium to collect) and you can roll out to the 2015 $33 puts at $6.60 for at least + $4.70, which nets you in for better than $5 sold against the $33 puts so net $28 if put to you and $5+ in your pocket if not.  No need to own the stock when you get paid like that not to own it. 

    PLX/Pharm – Too bad they only go to may on option contracts.  

  38. BMR/Pharm – know anything about these guys from the customer side? good/bad reputation?

  39. NAV/phil – thank you

  40. BMR/scott – REIT.  Lot's of real estate with biotechs (know of them here in San Diego)…otherwise, not my area.

  41. PLX/Phil – it's called….stock.

  42. Yodi / AAPL
    I was trying to get something thinking around what level we want to sell calls.  I'm trying to fix my own AAPL Money trade that got wacked and I need to sell some premium and hope AAPL can get closer to 600 by Jan13 ex.  I had a Jan13 550-600 spread that got killed.  I removed the short calls when AAPL tanked and I was waiting for a better day to recover.

  43. Pharm: Thanks.

  44. At the open: Dow +0.03% to 13159. S&P -0.13% to 1416. Nasdaq -0.18% to 2973.

    Treasurys: 30-year +0.14%. 10-yr +0.06%. 5-yr +0.02%.

    Commodities: Crude +0.36% to $86.24. Gold +0.58% to $1715.45.

    Currencies: Euro +0.05% vs. dollar. Yen -0.37%. Pound -0.29%.

    Market preview: Stock futures are hovering around zero and not joining Italy in the frenzy that's followed Mario Monti's announcement that he'll quit as PM pretty soon rather than just soonish, as he was due to anyway. The S&P Benchmark is -0.1% but the Dow is +0.05%. Intermec soars 23% on news that Honeywell isbuying it, while Zogenix craters 43% after the FDA rejected its pain treatment. Later: Employment Trends Index

    10:00 AM On the hour: Dow +0.15%. 10-yr +0.04%. Euro +0.09%vs. dollar. Crude +0.21% to $86.11. Gold +0.53% to $1714.55.

    11:00 AM On the hour: Dow +0.31%. 10-yr +0.04%. Euro -0.01%vs. dollar. Crude +0.64% to $86.48. Gold +0.63% to $1716.25.

    11:42 AM These periphery-driven panics in Europe aren't what they used to be. Stocks across the pond show a little bit of green at the close, rebounding from big early losses triggered by Monti's decisionto give up the PM role in Italy. Stoxx 50 -0.1%, led by Italy -2.1%, but Germany, France, and the U.K. close higher. The euro, which never really reacted to the Monti news, is flat at $1.2927. 

    12:00 PM On the hour: Dow +0.22%. 10-yr -0.02%. Euro +0.01%vs. dollar. Crude +0.3% to $86.19. Gold +0.48% to $1713.65.

    Might the Fed announce a new $45B monthly Treasury purchase program when it meets this week (Tues-Wed, to be followed by Bernanke press conference)? These purchases would replace those from Operation Twist, which expires this month. The Twist was notable in that its purchases were offset with sales of shorter-term debt. A new purchase program without sales would be far more expansionary.

    Is The US Already in Recession? No (Tim Duy’s Fed Watch)

    Fighting Recession the Icelandic Way (Bloomberg)

    The Republican Tax Panic (WSJ)

    Entitlements Scare Tactics (The Baseline Scenario)

    Tying the highest level this year, 37% of respondents to a Fannie Mae survey believe home prices will rise in the next 12 months. Sellers take advantage, with 23% believing now is a good time to sell, the highest level this year, and way ahead of 10% who believed so at the start of 2012.

    There may be a bit of truth to the meme saying tax-related selling is behind the big declines in some stocks since election day, says Bespoke, but Apple being such a big part of the news is skewing perceptions. Taking a look at the 30 biggest S&P 500 winners since the bull market began in 2009 shows nearly as many are higher as are lower since early November.

    "Good grief," is Patrick Chovanec's response to HSBC's saying "China may have to rely more on investment to stimulate the economy," following the release of very weak export data. More empty cities coming?

    China's retail sales shot up 14.9% in October, providing companies selling in the region a reason to breath just a tad bit easier. The China Generak Chamber of Commerce estimates retail sales will surpass 20 trillion yuan ($3.21T) in 2012 and add another 15% to that mark by 2015. But the trick for U.S. companies with China is to move into rural areas in order to tap into growth potential without stepping into quicksand if brand recognition isn't strong or prices are too high. Walking the tightrope: FELYUMSBUXTIFMCD.

    Nov. Employment Trends Index+3.3% Y/Y to 107.84, vs. 107.82 (revised) in Oct. The report expects lag in economy in current quarter and early CY13, thus impacting employment growth.

    OPEC meets this week in Vienna, where discussions likely will be dominated by clashes over the appointment of a new leader for the group, leaving it ill-equipped to grapple with falling demand and a surge in production from both inside and outside OPEC, which prompts some observers to expect the cost of a barrel of crude to fall sharply next year.

    Goldman Sachs cuts 2013-14 met coal prices, predicting a slower, longer grind back to mid-cycle. The firm says reductions to its forecasts for China, Europe and Japan seaborne imports mean less Australia and U.S. exports should be needed. Goldman remains neutral on U.S. coal stocks, but cuts price targets for ANRACICNX,BTUSXC and WLT.

    Molycorp (MCP +15.7%) soars, taking the rest of the rare earth sector with it (AVL +6.2%REE +11%REMX +1.7%). Traders describe the move as the continuation of a short squeeze in Molycorp – whose shares dropped below 6 in mid-November after being in the mid-30s 7 months earlier. Adding fuel is a report Interactive Brokers has said there is insufficient stock available for short sales.

    Coverage of Freeport McMoRan (FCX -0.2%) is resumed with a Neutral rating and $39 price target at BAML, which expects shares to lag copper peers following FCX's surprising entry into oil and gas with last week's acquisitions. The diversification breaks a long-standing strategic focus in copper from what the firm viewed as one of the most disciplined capital allocation mining companies.

    It's turning out to be a good day for Boeing (BA): having finalized a $4.7B order from Turkish Airlines, the company is also thepreferred vendor to supply India's air force with 37 helicopters. The deal comprises 15 Chinook heavy-lift choppers and 22 Apache aircraft, with the total "acceptance of necessity cost" 55.6B rupees ($1.03B). 

    McDonald's (MCD) says global same-store sales rose 2.4% in November, ahead of estimates calling for a more modest pace of 0.4%. Sales in the U.S. grew at a 2.5% clip, while Europe was up 1.4%. Continued weakness in Japan helped drag down Asia/Pacific, Middle East and Africa growth to 0.6%. MCD +2.8% premarket.

    More on McDonald's November global sales report (previous): The audible breath of relief from McDonald's investors is deserved, but analyst Rahul Sharma notes the comparable in the U.S. comes in at only 1.3% when trading days are adjusted. Retail watcher Stephanie Link likes the turnaround in sales momentum, noting the restaurant operator faced a tough comparable from last year to deal. MCD +2.4% premarket.

    Burger King Worldwide (BKW +1.5%), Wendy's (WEN+1.2%), and Sonic (SONC +0.8%) trade higher after McDonald'sposts a 2.5% gain in U.S. same-store sales for November. Though some analysts remained concerned the atmosphere is too promotional in the fast food sector, for the moment the hamburger trade is gaining traction.

    A stark profit warning from Darden Restaurants (DRI) starts to take on the appearance of an issue with execution after McDonald's turns around its global sales numbers and Yum Brands issues a rosy forecast for profit growth. The performance of Red Lobster and Olive Garden in particular are in focus for 2013.

    Shares of Diamond Foods (DMND -9%) trade lower following the company's oddly-timed release of FQ4 earnings after the close on Friday. A series of charges related to an accounting scandal and a plant closure affected results while a 16% Y/Y falloff in snack sales doesn't bode well for brands.

    Shares of Deckers Outdoor (DECK -6.1%) slip after M&A chatter propped up the apparel company late last week. Today's action is driven by news the company could be set to markdown Ugg boots with winter weather failing to deliver as promised so far in December

  45. Priceline (
    PCLN -4.7%) and Expedia (EXPE -3.5%) are off after Deutsche downgrades Priceline to Hold on a belief a margin-compressing "Cold War" will break out in European online travel. The culprits: Expedia's growing efforts to acquire customers following an improvement in conversion rates; a declining amount of travel-related Google (GOOG) PC ad clicks thanks to the mobile shift; and the possibility Google will make a stronger travel search push once its regulatory issues are handled.

    Bank of America initiates coverage on Best Buy (BBY+1.3%) with an Underperform rating, staying consistent with the negative vibe out on the embattled retailer. While Best Buy maintains a positive tone over Q4 and the online promotions it pushed during Black Friday weekend, more and more analysts seem to be piling on what's been called the "slow-motion retail trainwreck." 

    Is Carl Icahn about to play Santa for H-P (HPQ +2.6%) investors, or is idle speculation fueling a short-squeeze? Shares of the struggling IT giant are rallying on rumors Icahn is buying shares and will soon let the world know. H-P, which already has a director from activist firm Relational Investors on its board, is now up 27% from its Nov. 20 low. (previous) 

    If Carl Icahn has bought H-P (HPQ +2.5%) shares, the company isn't aware of it, reports David Faber, who adds H-P hasn't had any talks with Icahn. The notion H-P could be the target of an activist push – perhaps one that would call for a breakup of the company – has been around for a while, and it's logical recent eventswould heighten speculation about one happening. H-P hired Goldmanlast year to advise it on how to keep activist investors at bay. (previous)

    Lenovo (LNVGY.PKgained 3% in Hong Kong following a report parent company Legend Holdings will list shares on China's A-share market in the 2014-2016 timeframe. Lenovo, which Gartner believes surpassed H-P in Q3 to become the world's #1 PC maker, is now pulling out all the stops to grow its smartphone share.

    Barnes & Noble (BKS +2.2%) trades higher after getting pegged by Barron's as a top stock pick for 2013. The read on BKS is current valuation doesn't take into account that the Nook unit is holding its own against heavyweights Amazon and Apple.

    Western Digital (WDC +3%) and Seagate (STX +3.3%) are up after WDC is named one of Barron's top 10 picks for 2013: the paper cites the hard drive maker's rock-bottom valuation, strong balance sheet, and pledge to return 50% of free cash flow to shareholders. It also likes the ongoing growth in storage demand even as PC sales falter; and the stable pricing that stems from WDC and Seagate's combined 80% share of the hard drive market. Seagate was named a top pick for 2012, and is up over 60% YTD.

    Three lunchtime reads:

    1) Markets' calm fiscal-cliff facade may be fading

    2) Is the U.S. already in recession?

    3) Europe clings to scorched-earth ideology as depression deepens

  46. You're welcome Scott. 

    Stock/Pharm – Ewwww….  8)  

    Dow volume 50M coming up on 1:15.  VIX at 16.20 and TLT at 124.73 so plenty of unease still around. 

    Any kind of positive movement is going to make the Big Chart look prettier so, hopefully, we manage to close green but people are bailing on lack of positive commentary out of Washington (indicating weekend meeting did not bear fruit).  

  47. Phil Thanks on XLF

  48. 7.2 Earthquake Indonesia (Banda sea). Thats 3 big ones in a week.

  49. SGEN down on what?  ASH meeting showing that they are moving along with their excellent technology with a NEW drug attached to a monoclonal antibody.  Selling puts.


    GTHP…lookie there!

  50. Phil,
    I couldn't even finish this article
    Europe clings to scorched-earth ideology as depression deepens
    when he coined the term "contractionary holocaust ".   Too much melodrama in the writitng for me.

  51. You're welcome Yodi.

    Scorched Earth/Jacalyn – I agree, a bit much on the drama but some people love to embellish. 

    Indonesia/Kustomz – It's that ring of fire thing again.  Dangerous trends.  

    Economists project retail sales may have edged higher in November with some automobile demand getting thrown from October to November due to Hurricane Sandy. Even with the uptick in retail sales from the previous sluggish mark, the retail season as a whole is still lagging behind estimates. Sales at department stores will be a particular focus of Thursday's report as analysts dive in to see if November saw a late-month bounce or if the weak spending in October sustained.

  52. Oil drifting back down to $85.50 into the NYMEX close.  Gasoline falling too ($2.599) with Nat gas at $3.46 so all weak, which makes sense after last week's terrible inventory report.  

    Obama late with his speech. 

  53. Kustomz Phil
    I have not heard from my contact in Indonesia about the earthquake damage. I would hate to loose business, not enough is better than none.

  54. Earthquake/Shadow – I heard no Tsunami so limited damage since the quake was at sea – about 150 miles to offshore and very deep.


  55. LOL – CNBC literally gave Obama 5 seconds before cutting away.  I've never seen anything like the way they ignore this President.  

  56. Watch AAPL 528.50ish…bad if we break below…may test the lows of the day if that happens.


  57. NTE/Angel – That's interesting.  Do they just give them the land? 

    AMZN having a very bad day.  

    PCLN down 5% and not recovering. 

    AAPL/Kustomz – Volume very much tapering off all day.  Not sure what it means but less likely they break anything significant on such low volume. 

  58. Nice  line for oil ST j
    Had a hard time at PP and a hit S1 almost to S2

  59. AAPL…WOW, 532.50 was my bounce target, now thats what I call a bounce.

  60. Worked out pretty well this afternoon Bertll… This morning was a waste of time in that tight channel!

  61. Monti in talks to run for PM, bounces the EUR.

  62. bianco-7.gif (630×477)

  63. PHIL//Only the PRC government and peasant collectives may own land in China. Our principal manufacturing facilities are located on land in which we have entered into a land lease agreement with the PRC government that gives us the right to use the land for 50 years. Similarly, the lands which we have acquired in Wuxi and Guangming Shenzhen will be by 50-year land leases. Our understanding of the practice as it exists today; at the expiration of the land lease, we may be given the right to renew the lease. For our other facilities, we have entered into factory building lease agreements with peasant collectives or other companies for 10 years or less.

  64. Land/Angel – Interesting arrangement.  Makes sense as they try to transition from collective ownership to something a bit more Capitalist. 

    Hedge funds/Angel – I have noticed the European Fund Managers are getting a lot more bullish about next year.  I think once this cliff nonsense is "fixed" we'll see a lot of money coming in off the sidelines.  

    65M on the Dow at 3:21.  Holding green so far but neither VIX or TLT backing off (so still nervous).  Dollar at 80.33.

  65. Bulls/thats actually a bad sign.

  66. This is what I think of this market…..

  67. Bernanke Wed helps the EUR bulls. Amazing how well behaved AAPL trades inside the range. Lets see if they close it @ 532.50 or 530.50

  68. Wow, quite the stick on the RUT into the close!  All but the Nas finishing at highs. 

    AAPL/Kustomz – Sort of split the difference there.  

    At the close: Dow +0.09% to 13168. S&P +0.01% to 1418. Nasdaq +0.3% to 2987.

    Treasurys: 30-year +0.13%. 10-yr +0.01%. 5-yr 0%.

    Commodities: Crude -0.29% to $85.69. Gold +0.45% to $1713.25.

    Currencies: Euro +0.12% vs. dollar. Yen -0.16%. Pound -0.21%.

    Market recap: Stocks edged higher in a quiet session, as investors shook off good news (a big jump in McDonald's same-store sales) and bad news (political turmoil in Italy) alike. Stocks continue firmly stuck in a narrow range of 1,386-1,433 on the S&P, as everything is on hold pending a resolution to the fiscal cliff. Crude oil futures fell for a fifth straight session; gold climbed to $1,714.

    A group of Democratic Senators have signed a letter urging for a delay in implementing a tax on the medical device industry that is scheduled to go into effect January 1, saying the industry has received little guidance about how to comply with the tax, and is causing significant uncertainty and confusion. The Senators are requesting that a delay be included in the fiscal cliff bill Congress is currently negotiating.

    Mario Monti's decision to step down in Italy tells us the debt crisis is getting worse again, writes Wolfgang Munchau, who calls the technocrat's year in office – and the effusive praise he received – a now-deflated bubble. Little has changed except the economy has fallen into a deep depression. Two fixes: Reverse austerity immediately and force the Germans into accepting some form of common debt.

    Cisco (CSCO +2.6%) is rallying as analysts give a thumbs-up to its analyst day. Goldman is pleased with Cisco's 3-5-year opex guidance, and argues software-defined networking is "an incremental software revenue opportunity rather than a threat," though others feel differently. Raymond James expects services growth to prop up Cisco's margins, and thinks its routing margin pressures (stemming partly from carrier adoption of router bypass tech) indicate "an under-appreciated headwind" for rival Juniper (JNPR). 

    Amazon (AMZN -1.8%) has discounted all 8 of its 8.9" Kindle Fire HD SKUs by $50 in a one-day sale. This has led Gizmodoto wonder if the 8.9" Fire HD, which (much like the 7" version) received mixed reviews, is flopping. Though Amazon claims supplies are limited, all 8 models are still in stock.

    "The reality is Apple is still a growth stock, still a growth story, still an innovator, and is being traded like a broken down value-stock. Traders and institutions have beaten the stock lower, if you are a long term investor, this is a buying opportunity."

  70. aaron, all that market cap that AAPL sucked out of competitors has reversed. Money flowing back into, NOK, RIMM, GOOG etc etc.

  71. kustomz/aapl – I don't disagree, in fact I personally made the switch to a Samsung. But I find it hard to swallow that it would happen all at once. At least anecdotally, there is some pretty strong demand for AAPL products. I'm really looking forward to earnings.

  72. I'm pretty heavy in AAPL at this point, mostly around $555 (thanks Phil) and I've lowered my basis selling calls.  I think it is an $800 stock and I'm willing to wait patiently on this one.  The last time I was this confident with a stock was loading up on IBM at about $100.  That was also too early as it fell to $80 but it made it's way back to $200 in 3 years.  I think people focus a little too much on the day to day with Apple when we're still in early innings. 

  73. Phil et al/ BCS: I can't find it in my crib sheet but how does a person go about maxing a BCS profit?  We have talked about a spread being a $50 spread but what are the steps to grab that?

  74. FT: “Stock markets are mildly firm but showing a lack of conviction as a mixed bag of recent macroeconomic data and political jostling in the US and Europe curtail investors’ risk appetite."

  75. Phil / FAS Money:  Your comment today:
    FAS Money/CSL – I certainly don't want to increase our risk by selling higher puts.  They're not even a good price as we're in the top of the channel on XLF at $16 and, generally, we much prefer to sell puts when XLF is dropping so patience is a virtue here.
    I do not understand the selling puts when XLF is dropping.  Can you educate me please.  I am obviously missing the point. TIA.

  76. Re: FT "Robot/Rentier" – Interesting to inquire which public corps. hold the biggest IP portolios — APPL, MSFT, IBM, Pharma?

  77. Looks like oil and gold are approaching the bottom of their channel:

  78. Maybe there is some tax selling:


    The average S&P 500 stock is currently down 0.06% (basically flat) since the close on election day on November 6th.  Below is a list of the 30 best performing stocks in the S&P 500 since the bull market began on March 9th, 2009.  If any stocks are ripe for capital gains selling, these are the ones.  

    Of this list of 30 stocks, 17 are down since election day while 13 are up.  Their median performance since election day is -1.60% (average is -0.73%), so there's an argument to be made that tax selling is impacting these big winners a little bit.  That being said, there are a number of stocks on the list that are up nicely as well since election day.  These include names like CBS, Tenet Health Care (THC), Ford (F) and Starbucks (SBUX).  

  79. The 5 worst moments of Wall Street in 2012:


    1. The Whale (JP Morgan $6B loss)
    2. The Facebook IPO
    3. Wall Street goes long Romney
    4. Giving money to John Paulson
    5. Knight Capital’s $440 million electronic oops

  80. I. Kaminska's writing and the entire chain of articles cited in FT/Robot Economy are fascinating.

  81. And the George Magnus piece on how technology is killing the Chinese growth miracle is superb.

  82. jfawcett/selling puts on XLF,
    I believe Phils reasoning is selling puts when stock is down you get better prices than when going up and probably higher VIX

  83. create your own reduction plan

  84. Hey Phil,  Kabuto making more "best" lists:
    Time to head back there again after seeing that piece of!

  85. Good morning!

    Futures up a bit, especially the RUT, which is up almost a point.  Others up 0.2% so big over-reach on small caps so far.  

    Dollar and other currencies and commodities not doing too much so will be interesting to see what sticks.  

    Asia was mixed and Europe is up over half a point at the day's highs.  

    XOM predicts in 12 years we'll be a net exporter of energy.  

    4:20 AM Asian shares are mostly lower but European stocks are broadly higher and seem to have recovered from the shock of Mario Monti's resignation announcement as Italian PM. The start of theFOMC's two-day meeting is one focus point for investors today. Japan-0.1%, Hong Kong +0.2%, China -0.4%, India -0.4%. Euro Stoxx 50+0.3%, London -0.1%, Paris +0.3%, Frankfurt +0.1%, Milan +0.6%, Madrid +0.7%.

    6:00 AM Overseas: Japan -0.09%. Hong Kong +0.21%. China-0.44%. India -0.12%. London +0.22%. Paris +0.60%. Frankfurt+0.52%.

    Tuesday's economic calendar:

    FOMC meeting begins

    7:30 NFIB Small Business Optimism Index

    7:45 ICSC Retail Store Sales

    8:30 Trade Balance

    8:55 Redbook Chain Store Sales

    10:00 Wholesale Trade

    1:00 PM Results of $32B, 3-Year Note Auction

    Story getting people excited about small caps:  While many companies have been holding off on capital spending because of the uncertainty surrounding the fiscal cliff, theWSJ homes in on small firms – particularly manufacturers of machinery parts – that have increased expenditures to meet demand. These include Oberg Industries, whose customers in industries such as oil and gas, medical and aerospace equipment are urging it to be ready for rising orders in 2013.

    "There's a 40% chance of a 'fiscal cliff' deal before year end," predicts Erskine Bowles. In true Washingtonian-speak however, he adds that there's also a 35% chance that no deal will get done. Interpretation: "The chances of getting it done are better," Bowles says, "That's what's key."

    Mario Monti is reportedly in talks with centrist politicians who are urging him to run in Italy's elections early next year, although Monti himself played down suggestions that he would do so. His announcement that he will quit as PM spooked Italian markets yesterday, although they're much calmer today, with shares +0.9% and 10-year yields -7 bps at 4.74%. 

    German investors are much more bullish than expected, with the ZEW economic expectations index rising to 6.9 from -15.7 in November and slaying consensus of -11.3. The current-conditions index rose to 5.7 from 5.4. "Germany will not have to face a recession," says ZEW President Wolfgang Franz, unless "the crises in the eurozone do not deepen once again." Did he not follow what happened in Italian markets yesterday? (PR) 

    More data provide further evidence that China's economy isregaining its mojo. Fiscal revenues +22% Y/Y in November to 787.1B yuan ($126.03B), copper production +2.1% to a record 531K metric tons, M/M, crude-steel +0.5%, oil refinery output +4.2% to 10.17M bpd and electricity production +7.9% Y/Y, the fastest pace this year.

    Good for SBUX:  Benchmark futures for sugar (SGG) and arabica coffee (JO)plunged to two-and-a-half year lows today, thanks to big crops from Brazil, the world’s biggest producer of both. Sugar mills have been running heavy to make up for time lost to unseasonable early rains, while coffee growers are sitting on a lot of beans hoping for higher prices – a "time bomb for the market” next year.

    Texas Instruments (TXN+1.3% AH after using its mid-quarter update to guide for Q4 revenue of $2.89B-$3.01B and (exc. $0.27/share in charges) EPS of $0.32-$0.36. This compares withprior guidance of $2.83B-$3.07B and $0.29-$0.37, and a consensus of $2.96B and $0.33. Expectations were low going in, particularly in light of TI's wireless issues. CC at 5PM ET (webcast). (PR)

    More on Intel: Miller Tabak has become the latest in a line of firms to slash estimates on Intel and provide negative industry commentary along the way. The sales of Taiwanese contract manufacturers appear to have fallen 5% M/M in November, MT claims, even though November is seasonally strong. It now expects an 8% Y/Y sales drop for Q4, and argues Intel faces a "double headwind" of weak PC sales and excess inventory. Shares are still rated Neutral on account of Intel's valuation and dividend (4.5% yield). (previous: III)

    Intel (INTC) is looking to extend its 22nm manufacturing process and 3D transistor tech, currently used in its Ivy Bridge CPUs, to system-on-chips (SoCs) meant for mobile devices. Intel boasts a 22nm SoC can outperform comparable 32nm parts (i.e. Medfield andClover Trail) by 20%-65%. The upcoming Bay Trail chip should be among the SoCs based on it. Intel has also confirmed plans to release Ivy Bridge CPUs featuring a max draw as low as 10W (previous), something that could lead to ultrabooks and "convertibles" with longer battery life.

    Alcatel-Lucent (ALU) is following Cisco's lead in creating a unit that will focus on software-defined networking (SDN) solutions, which can move a data center network's intelligence from individual switches to software-based controllers. Alcatel hopes its SDN unit,called Nuage Networks, will stand out from existing vendors such as VMware's Nicira by emphasizing the ability to manage giant service provider data centers featuring scores of customers relying on different network architectures.

    Topeka's Brian White says the Apple-dependent Taiwanese suppliers in his "Apple Monitor" collectively saw a 15% M/M sales increase in November. That's well above the 4% averaged over the last 7 years, something White attributes to the strength of Apple's (AAPL -0.6%) fall product refresh. The Apple uber-bull reiterates a Buy and $1,111 PT. (previous) 

    More on Apple: Though lowering his PT to $800, Jefferies' Peter Misek is predicting an iPhone 5S will arrive in June: he sees the device potentially sporting camera, display, battery, and storage upgrades, and arriving in 6-8 colors. He also thinks a cheaper iPhone($200-$250 unsubsidized) will arrive in June to boost Apple's low emerging markets share. But as Jay Yarow notes, Misek's Apple TV predictions haven't exactly been on the mark.

  86. AAPL/Bruce – Good note on patience.

    BCS/Newt – The max profit on a bull call spread comes by waiting for it to expire in the money.  In between, you are either on or off track but it's a targeted bet in both time and position so you always need to be realistic about where you are and where you expect to be.  With AAPL, for example, you can buy the 2015 $450/550 bull call spread for $45 so you have 122% upside if AAPL is over $550 in Jan 2015.  Since you expect to realize a $55 gain over the next 25 months, you are "on track" if you are making $2 a month and off track if you are not.  That's all there is to it – nothing to over-think.  If you get off track by, say $10 – then you can stop out or roll to a better position (after evaluating the position, of course) and, if you want to get fancy, you can sell some calls against the position or combine the bull call spread with the sale of the $400 puts at $53 and then you have a net $8 credit on the $100 spread and your worst case is owning AAPL at net $392 – which is 25% off the current price.  

    Selling puts/Jfaw – When XLF is dropping then the FAS puts get more expensive and make better sales.  Goes back to "ALWAYS sell into the initial excitement" as you get paid more for selling puts when the ETF is heading lower.  When the ETF is high, the puts are cheaper and make for poor sales as you get low prices.  So, if something trades in a channel – you need to learn to sell puts when you are low in the channel and sell calls when you are high in the channel – if that is the strategy you are pursuing. 

    IP/ZZ – I think some of these guys are spending way too much time in court.  Edison didn't make his living suing people – he just kept inventing things…

    Big Chart – Just waiting for the Nas to confirm a breakout over those 50 dmas and, of course, that 3,000 line would be nice. 

    Speaking of channels - That's why we did the long gold play off the $1,700 line last week.  Oil has fundamentals going against it but not gold.  Notice silver is outperforming too – gold still needs to catch up a bit.  Those Dec $166 calls went from $1.20 to .80 to $1.65 and now $1.35 already – very exciting (our stop was .50, never hit). 

    Tax selling/StJ – Makes a good case.   Funny that those 5 terrible things all happened in the last year. 

    Innovation/ZZ – I've been saying that for years.  The death of R&D is what's killing the US economy and it's reflected in our education system and infrastructure as well.  If we're not willing to invest in the future – how can we expect future returns?

    Kabuto/LV – Very impressive to get noticed like that.  Can't wait to go back.

  87. Phil: Thanks.