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Friday’s Fantastic Finish – Russell All-Time High, S&P Catching Up


Right on our target from yesterday's post and last week's predictions and, of course, 880 has been right on our Big Chart, plain as day for years – so don't act all surprised when we hit it (see also, Dave Fry's chart).  Now our attention turn to the NYSE, which needs to confirm the move in larger caps by hitting 8,800 (now 8,713) and the Nasdaq needs to hit 3,150 (now 3,131) and the Dow needs to cross 13,600 (now 13,471) or this little move up in the Russell may be short-lived indeed.  

Ah, but for the Nasdaq to cross over 3,150, it's going to need AAPL to move up – or at least stop dragging it down.  AAPL is down 20% from $660 since October (3.5 months) and that's cost the Nasdaq 4% but the Nasdaq is flat at 3,100 and now over that line a bit.  Add 4% to 3,100 and we're at 3,224 and almost at our 10% line at 3,300 so all it's going to take is an AAPL recovery and the Nasdaq is off to the races.  

Unfortunately, I had to warn our Members against betting on an APPL recovery coming soon (we expect it eventually), saying:  

I don't think AAPL will gap up on China as it's kind of expected, unless there is a special deal, like I outlined yesterday.  I think it's dangerous to fantasize about a sudden turn up in AAPL – even when they were $85 and I was screaming for people to buy them, it took 7 months (October '08 – April '09) for them to get back over $100 – and that was down from $200 – more than 50%, so it's not like nobody had seen better value in AAPL earlier – they had been over $150 for about a year and then spent 7 months at a 50%+ discount.  Now they fell from $600 (I wouldn't count the brief spike to $700) to $500 for about 3 months – maybe they still go to $400 and maybe it lasts another 6 months – you shouldn't care, you should be thrilled to OWN AAPL at that price.  But if you keep betting for a short-term pop, you can go broke while you wait

AAPL WEEKLY That was in the context of discussing our "One Trade" on AAPL and how to insure it so make sure you check that out if you are interested.  One encouraging note in tech was seeing the SOX finally get back to 400 – a level they haven't hit since September, when the Nasdaq tested 3,200 and AAPL was trading at $700 – encouraging indeed!

Sorry to talk about AAPL so much but, as I said in the Fall – if they were selling brand new Range Rovers for $40,000 – I'd talk about what a good deal those were all the time as well.  This week, in Member Chat, we found great discounts to make bullish plays on MT, GDX, SHLD, XLF, KO and PBR and, right in Tuesday's post, I had additional bullish trade ideas for AA, MON, YUM and BA.  

Of course, we spent some time managing our existing trades in the various virtual Member portfolios (and I will finish updating our main Income Portfolio this weekend – now up 23% in 7 months) and the only short positions we felt compelled to take were our usual TZA hedges as the Russell tested 880 and, of course, the Oil shorts I mentioned in yesterday's post.  

Oil tested $93 this morning, down 2% from yesterday's entry but hopefully we can get it back below $90 as we roll into contract expirations at the NYMEX.  The Euro has been very strong and helping to support oil a bit while the Yen is stunningly weak as Japan unveils a 10.3 Trillion Yen stimulus plan that's more like 20.2Tn Yen if you include investment from local governments and private firms the new PM (same as the old PM) has lines up.  It looks like Japan is on the way to forcing us to learn a new word – can you say "Quadrillion"?  You'll have to soon….

As you can see from the chart on the left, the Yen isn't surprisingly weak – it's surprisingly strong with Japan's total debt heading towards that Quadrillion mark at 250% of their GDP at the same time as the Yen falls to 89 for $1.  

We were discussing in yesterday's chat the way inflation sort of sneaks up on you and I noted that gold was $250 an ounce in 2006 and jumped to $600 in 2008 and then $1,200 in 2010 and hit $1,923 last year and that's not very different than what happened in Germany between 1919 and 1921 and I'm sure they had some pullbacks as well but look what happens once the real inflation kicks in:

This isn't during the war, this was AFTER WWI, which ended in 1918 – this is the result of Germany taking on unsustainable debts and printing money to pay them back over the course of just four years.  We're doing a very similar thing here in America and Japan – we're just doing it a little more slowly.  

Hopefully, we can avoid kicking into hyper-inflation but I'm sure Zimbabwe's Government had the same hope 5 years ago.  Obviously, things are different now but we ignore the current, very obvious signs of inflation at our own peril.  Note the end result of Germany's little trip down money-printing lane – 87 Quadrillion Marks for an ounce of gold.  Practice saying that word – it may come in handy sooner than you think! 

In fact, to put this "rally" in perspective, you have to look at the inflation-adjusted chart of the S&P from TheChartStore, which shows us that we still have another 40% to go before we're back to the overly-enthusiastic, turn-of-the-century highs.  When you include non-core items like oil (was $20 back then) and food (Big Macs were $2.50), we've had about 30% inflation in the past decade, which is very sad as wages have actually gone down over that same period of time AND less people are employed now than were employed then.  

1-10-13 SP500 inf adj by CPI

So, with prospects not as great as they were at the time – it's realistic that we're still off from the top of what Allan Greenspan called at the time "irrational exuberance," but we're also well-off our October 2007 inflation-adjusted high on the S&P of 1,736 by about 20% and THAT has to be our inflation-adjusted goal.  That means it's not about being too bullish to expect the markets to go up from here – it's about being very disappointed if we don't, because we still have a long way to go before we can say we're recovered and, in the longer run, stocks make an excellent hedge against inflation still to come.  

Have a great weekend, 

- Phil

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  1. Oil Lines

    R3 – 95.80
    R2 – 95.25
    R1 – 94.54
    PP – 94
    S1 – 93.28
    S2 – 92.73
    S3 – 92.02

    Yesterday's high and low – 94.7 / 93.44

  2. Income Portfolio news:

    BA - Again… FAA will apparently look into the 787 Dreamliner following this week's incidents. Looks to open lower 
    BBY - Holiday sales were down 1.4%. Lowered guidance. But stock looking up this morning!
    F - Added to GS conviction buy list (6 months after it was added to the PSW conviction buy list!)

  3. Phil,
      Having seen your references on Chesapeake go from love to risky to iffy of late has made me question my strategy of accepting the assignment of 10 JAN 13 $17.50 puts (net $16.42) and selling the JAN 14 $15 puts and calls for $5.14 for a net $11.28/13.14. It still looks pretty good as I write this. What is your current thinking on CHK?

  4. A good list there – but look who is missing:

    IBM has raked in more patents than anybody for 20 consecutive years

    Thinking about beefing up your IP profile? Try giving IBM a call. For twenty consecutive years, it's been awarded more patents than any other company. According to IFI Claims Patent Services, IBM was issued 6,478 patents in 2012. To put things into perspective, its closest competitorSamsung, trailed Big Blue by nearly 1,500 patents. No small wonder the company is the tech world's intellectualproperty broker.

    However, no AAPL or GOOG in the top 10 – what gives. Probably too busy fighting over their existing patents! And only 3 US companies in the top 10.

    But IBM should definitely be in our conviction buy list!

  5. Bloomberg has created a program called the Relative Rotation Graph

  6. And speaking of IBM:


    During development, Watson's project head had what must have seemed like a brilliant idea. If Watson's going to spend most of his time interacting with humans, he was going to need to understand common human slang. And where do you go to figure out the hip new words of today's youth? Urban Dictionary, of course.

    Unfortunately for Watson's progenitors, they seem to have overlooked the fact that 75% of Urban Dictionary contains absurd, profane, and physiologically impossible turns of phrase that could make Jeffrey Dahmer blush.

    "Watson couldn't distinguish between polite language and profanity — which the Urban Dictionary is full of. Watson picked up some bad habits from reading Wikipedia as well. In tests it even used the word "bullshit" in an answer to a researcher's query."

    Cute though….

  7. Pretty cool Diamond…

  8. scottmi, et al/  SODA/  Upgraded to Outperform this a.m. by Zacks. 

  9. Yeah, you knew that we were going to get screwed one day…...are those prices right that we see on our computer?

  10. Good Morning!

  11. What are these guys doing – speculating on oil:


    The US Federal Reserve forked over some $89 billion in profits to the US Treasury in 2012. By law, the central bank must give the exchequer any profits it makes, which it does chiefly by buying bonds and earning interest on them.

    And thanks to the bond-buying sprees it has undertaken to boost the economy, the Fed’s profits have surged handsomely. Apple and Exxon combined only made a bit more than $82 billion in profits during their most recent full reporting years.

    Treasury Fed profits

  12. See what subscribing to PSW can do for you?……

  13. Virtual MoMo trade:   Buy to Open 10  EBAY  Feb 52.50 calls for 2.55

  14. AUXL – buying March $20 calls for 1.20 or better… more than that as the spreads are wide.  Just a few, but swing trade up…selling a few $17.5 puts Feb for 40c.

  15. Maybe sell BBY in the excitement…. And collect on the second USO set now that we are back to even!

  16. This portfolio has been reset for 2013. I have kept the old one and the tab is hidden. Anyone wanting the exported spreadsheet can let me know.

  17. Only 13 more days to earnings….

  18. stjeanluc….could you add the following to the heading on the MoMo portfolio?       25 k / no margin         I won't ask for anything else.  Thanks!

  19. No problem lflan… 

  20. AAPL / China
    Off SA
    "Cook, who said in the interview that he has visited China at least 20 times since 1996 and has a Chinese sister-in-law, also emphasized that Apple focuses on the needs of Chinese consumers "

    The market has obviously not priced-in the sister-in-law

  21. Stock Funds’ Huge Week: $18B Inflow Is Fourth Highest On Record -
    Small investors come of sidelines – does this signal a top? 

  22. I wonder if austerity has anything to do with that:

    Surprisingly bad manufacturing and production numbers out today in the UK are sparking fears of a triple-dip recession. Manufacturing output fell 0.3% in November from the previous month, according to figures from the Office for National Statistics, while industrial production rose 0.3% from October, which was below forecasts. Experts had called for a better month given North Sea oil and gas production had resumed following a longer-than-expected maintenance period. The construction sector also disappointed with output contracting by 9.8% from November 2011.

    Nah, probably just bad luck!

  23. StJ
    Nice call on the USO – looking a the charts this  morning // DD ?

  24. BA for the fellows still not sold the Jan15 70p this is the time to jump 9.15 a piece!

  25. AAPL with SQQQ protection / Phil,

  26. Phil—what is your opinion on EEM or EDC now?

  27. EBAY/Lflan – is this an earnings play (earnings 1/16 4pm)?

  28. Iflantheman
    re: call recs:
    Thanks for the recommendations on FB, SODA.  
    Do you do technical analysis and fundamental review on your picks?  I have noticed that you reference MA in your justification  responses.  Do you reference  MACD?
    What is the reason(s) you have chosen non-margin status for the portfolio?
    Again, thanks from the bottom of my wallet for you postings.  We are all wiser for reading
     your thoughts on option trading.
     PS:  Your thoughts on gold(?)

  29. Good morning! 

    Here's a picture of that notorious pirate:

    Mohamed Abdi Hassan (Big mouth)

    Long John Silver must be rolling over in his grave!  

    Anyway, at these levels, anything not down is good and the Dollar is way down at 79.50 and testing that line so good rally fuel if they fall below that line.  Oil still at $93.14 and gold $1,671 with silver rejected at $31 ($30.73) and copper lame at $3.67.  Nat gas is on a tear at $3.27 but gasoline is giving us a real demand picture at $2.73 but, of course, going into the weekend, /RB is an interesting long play as long as they can hold that line.  

    Euro is very jacked up at $1.335 now and Pound dragging at $1.615 and now it's 89.19 Yen to the Dollar with 90 in site and that's got the Nikkei futures flying at 10,930.  

    AAPL testing $518 at the open but BBY is flying on not as bad as expected sales.  Shorts probably calling it a day on that one and now maybe we'll get a price next month for a buy-out.  Sales are down 6.4% globally but analysts projected 2013 earnings to fall from $3.39 in 2012 (yes, per $13.28 share!) to $2.41 and that's down 30%.  Frankly, I can live with a stock making $2.41 per $13.28 share, which is why I like them long-term but what if they aren't dropping 30% a year?  Look out above!  

    Our target for BBY in the Income Portfolio is $11.19 and it has been one of our worst performers as we sold 2015 $13 puts and bought 2015 $13 calls to get that net but it let us control 3,000 shares of BBY for a net credit of $1,810 and $8,000 in margin and all we have to do is get bought out at $15 (and they turned down $20 already) and we make $7,810 – gotta love those kind of trades!  

    You have to understand the boards logic of wanted a p/e at least in the vicinity of 10 to let go of the company and you also have to understand why Schulze, the former CEO and founder, wants to buy the company back so badly at this price.  Schulze is no idiot, he's the 157th richest person in America, with $2.5Bn so it's not like he's some guy who lost a $250,000 job and is trying to put together an investor group so he can work again!  He already owns 20% of the company and, at $4Bn in total cap, he only needs to put together $5Bn more to buy them out at $20 per share, which would net him a bonus $400M for his cut (isn't it fun to be rich?). 

    If you want to get into BBY, the 2015 $13 puts still be sold for $3.10 (we sold them for $4) and that's net $2.25 in margin for a 177% return and that return could come quickly if there's a buy-out.  If there's no buy-out, your net is $9.90 and if shares drop to $6 and you buy them and sell 2015 $5 calls for $3 (guessing), then you end up in a buy/write at net -.10/7.45 on a stock that's making $2.50 a share or more.  

    We're off to a weak start, as usual and, as usual, it's what holds that matters so we will watch and wait but, if you want a short play, here's the SQQQ idea (in the context of covering an AAPL drop) from this morning:

    AAPL insurance/Sank – Well that's easy.  With our break-even at $411, that's over 20% down for AAPL so at least a 4% bite out of the Nasdaq takes the Qs down to $64 so let's say you did 10 of the spreads for $11,400 but you don't really want to own 1,000 shares of AAPL for $411,400.  You have a $38,600 gain coming to you if AAPL holds $450 so you can take $8,000 and pick up 40 SQQQ June $36/45 bull call spreads at $2, which pays back $36,000 if SQQQ goes up 15%, which would be a 5% drop on the Nas (but expect some decay in SQQQ).  As this spread decays and drops to $1, it should only be doing so because AAPL is doing well and then you can add another $4,000 (if you still feel the need) to roll the spread back to next Jan but, if AAPL is at $700 in April and the spread is down 50% – won't be much need to re-cover for a drop to $450 and you can cash the insurance with a $4,000 loss.  

    With a 350% upside, it's good insurance regardless and you can invest $4,000 and put a stop at $2,000 to hedge $14,000 in potential losses.  That's a nice offset, especially if you have an Income Portfolio-type set-up, where we make money on premium decay whether the market goes up OR stays flat. 

    At the open: Dow -0.06% to 13463. S&P -0.03% to 1472. Nasdaq +0.04% to 3107.

    Treasurys: 30-year -0.21%. 10-yr -0.11%. 5-yr -0.07%.

    Commodities: Crude -0.65% to $93.21. Gold -0.41% to $1671.15.

    Currencies: Euro +0.6% vs. dollar. Yen +0.48%. Pound +0.05%.

    10:00 AM On the hour: Dow -0.17%. 10-yr -0.06%. Euro +0.47% vs. dollar. Crude -0.66% to $93.2. Gold -1.18% to $1658.28.

    Market preview: Stock futures are flat following yesterday's five-year high on the S&P 500. Renewed inflation concerns in China trump yesterday's enthusiasm over the country's surging exports, sending Shanghai -1.8%. Wells Fargo -1.9% after Q4 earnings came in better than expected, but the bank's net interest margin declined. AmEx plans to ax 5,400 jobs, while Ford hopes to hire 2,200 workers.

    Long-term unemployment looks like it may finally be easing: the proportion of job-seekers without work for over six months dropped to 39.1% in December, the first time the rate has been under 40% in three years. The improvements in the economy and broader job market are among the main factors, although another reason may be that millions of people have stopped looking for work and so aren't counted in the statistics.

    Gotta love those Democrats!  After facing years of ballooning deficits, California is forecasting it will generate an $851M surplus in the next fiscal year starting on July 1. Under Governor Jerry Brown's budget, which he unveiled yesterday, general-fund revenue is forecast to rise 3.3% to $98.5B and spending 5% to $97.7B. Brown expects the state's cost cuts, tax rises and improving economy to be the main factors behind its better finances.

    Business Cycle Forecasting: Robert Dieli's Superlative Results

    Make Way For The Market's New Leaders In 2013

    Doug Kass: 15 Surprises for 2013 (Real Money)

    The euro goes vertical, +0.6% to $1.3344, after Goldman's Tom Stolper recommends going long the currency with a $1.37 target. Given the track record of Goldman's currency team and the euro's 1200 pip advance since Draghi's "whatever it takes" comments in mid-summer, might some smart players be selling into today's rally?

    The euro/Swiss franc cross shoots to its highest level since shortly after the SNB instituted the CHF1.20 floor nearly a year and a half ago. Chatter on the desks says the SNB is way long yen (which it bought to diversity out of euros), and has been selling gold to cover its losses. The yen has sunk to multi-year lows vs. both the euro and the greenback. As they rise, gold falls, -1.2%.

    The German economy probably suffered a "significant decline" in Q4, the Economy Ministry says, with the industrial sector cutting output due to weak demand in Europe. However, the ministry expects the economy to "revive significantly" this year given the economy's underlying strength and encouraging signs in the global outlook. The euro is flat vs the dollar.

    U.K. November industrial output +0.3% M/M vs -0.8% in October but misses expectations of +0.8%. On year, production -2.4% vs -3% the previous month. Manufacturing output -0.3 m/m vs -1.3% and +0.5% consensus. On year, production -2.1%, as in October. The "pretty grim U.K. data will embolden the triple-dip recession mongers," tweets Reuters' Jamie McGeever.

    The Irish debt crisis appears to be over … unless you're an Irishman. A consumer sentiment index plunged to 49.8 in December from 63.8 previously – the fastest fall in a decade – after the government unveiled another round of tax hikes and spending cuts.

    The decline in Spanish industrial production accelerated sharply in November, dropping to -7.2% Y/Y from -3.1 in October and marking the 15th consecutive month of falls. All the sectors declined, with capital goods -12.9%, intermediate goods -7.4% and non-durable consumer goods -6.1%. Investors don't seem to be too bothered, though – shares and Spanish 10-year bond yields are little changed. (PR) 

    Cyprus Cut Three Steps to Caa3 by Moody’s on Bank-Bailout CostsCyprus’s credit rating was cut three steps to Caa3 by Moody’s Investors Service, citing the government’s projected increased debt load from the need to recapitalize its banking system. Nonperforming loans at the nation’s three largest banks rose to 26 percent in September from 19 percent in March, New York-based Moody’s said today in a statement. Recapitalizing those institutions may cost of about 10 billion euros ($13.3 billion), Moody’s said. “As a result of the increased debt burden, we think there’s a higher likelihood that the Cypriot government may default outright or press for a distressed exchange,” Sarah Carlson, a senior credit officer at Moody’s in London, said in a telephone interview. “It’s important to note that our base-case scenario does not assume that this will happen in 2013.” Cyprus’s debt to gross-domestic-product ratio may rise to 150 percent this year, Moody’s said

    China’s Inflation Accelerates as Chill Boosts Food PricesChina’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery. The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November.

    China Data Suspected Says 75-Year-Old Theory: Cutting ResearchA mathematical tool devised by an American physicist in the 1930s underscores doubts about the quality and reliability of Chinese economic data, according to research by Australia & New Zealand Banking Group Ltd. (ANZ) The results are based on “Benford’s Law,” which holds that in any series of numbers, certain patterns will be found only if the statistics are naturally generated. The rule, created by former General Electric Co. (GE) engineer Frank Benford, suggests patterns for the first and second digits in a numeric series and can be used to detect phony data, Li-Gang Liu, ANZ’s chief economist for Greater China, and colleague Louis Lam said in a Jan. 8 report. Benford’s work has already been adapted to show Greece should have been suspected of manipulating its data before the European debt crisis and that now-jailed financier Bernard Madoff was overstating investment returns.

    A burst of accelerated sales in December helped automakers in China see a 4.1% gain in total vehicles sales for 2012 to 19.3M units. The Chinese government says its forecast for 2013 sales is for a 7.8% rise to 20.8M units. Ford (F) expects to keep its momentum in China going next year after increasing sales in December by 43% Y/Y to 70,510.

    Volkswagen (VLKAY.PK) says it capped off 2012 with a 31% Y/Y increase in sales for December to 518K units. For the year, the German automaker saw its China sales rise 25% and U.S. sales jump 35% with the Golf model a major contributor in both nations.

    OECD European oil demand is forecast to drop by 190,000 bpd this year after falling 510,000 bpd in 2012, the The International Energy Agency says, with consumption the lowest since at least 1995and probably since the early 1990s. The decline is due to improved energy efficiency, the rise of alternative energy, and the slumping economy. In contrast to Europe, demand in non-OECD Asia, the Middle East and Latin America is expected to grow. Oil futures are flat.

    Goldman Sachs takes a broad swipe at food companies, downgrading the sector due to fundamentals and valuations that have crept up: Rating actions: Campbell Soup (CPB) removed from Conviction Buy List; General Mills (GIS) downgraded to Sell from Neutral; J.M. Smucker (SJM) downgraded to Neutral from Buy.

    As all the dust settles from the Cerberus-Supervalu (SVU-0.4%) deal, key investment firms stay on the sidelines. Citi's Deborah Weinswig notes that although some weak banners were removed, the event might be dilutive for investors – while Janney's Jonathan Feeney thinks the earnings visibility on the supermarket operator is still cloudy. Both firms have an uninspiring Neutral rating on SVU. 

    Goldman Sachs adds Ford (F) to its Conviction Buy List and takes its price target on shares up to $17. The firm thinks the automaker's product cycle is "underrated" and sees broad global tailwinds. F +1.0% premarket. 

    UBS downgrades J.C. Penney (JCP) to a Sell rating from Neutral. The note from the investment firm doesn't paint a pretty picture on the retailer, calling out "deteriorating earnings outlook & emerging signs of cash flow distress." JCP -4.2% premarket to $18.35. 

    Wads of Cash Squeeze Bank MarginsInability to Find Credit-Worthy Borrowers Is Squeezing Lenders’ Margins. U.S. banks are struggling with a problem most people would love to have: too much cash. Butthe flood of deposits into U.S. financial firms, at a time when many lenders are having difficulty making new loans, spells trouble for the industry as banks prepare to post fourth-quarter numbers. Deposits reached a record $10.6 trillion at the end of 2012, according to Market Rates Insight Inc., a San Anselmo, Calif., firm that tracks deposit data. Meanwhile, the share of each deposit dollar that banks lend out hit a postfinancial-crisis low in the third quarter, according to data tracker SNL Financial of Charlottesville, Va. Extra cash can help cushion banks in an economic downturn, but it also helps to explain why banks’ net interest margin—the sum they collect by pocketing the difference between the interest they pay to depositors and the rate they charge borrowers—has fallen sharply.

    BAML likes the homebuilding industry, unleashing Buy ratings on D.R. Horton (DHI), Toll Brothers (TOL), Masco (MAS), and Owens Corning (OC).

    More on Wells Fargo (WFC) Q4 earnings: The margin squeeze continues with net interest income of $249M, -2% Y/Y thanks to a 10 bp decline to 3.56% in net interest margins. Net charge-offs of 1.05% of loans vs. 1.21 in Q3 were higher than otherwise thanks to just-issued OCC guidance. Tier 1 common equity ratio of 8.18% under Basel III. 42M shares repurchased in Q4. Shares -0.8%premarket. (PR) 

    Expect an appeal of the SEC decision to allow JPMorgan to launch a physical copper ETF. The SEC move was "not based on substantial evidence and is therefore arbitrary and capricious," say a group of copper users who together account for about half of U.S. demand. Curious to the consumers is the SEC decision to meet with JPM execs, but not them in the days ahead of the decision.

    Another chance to buy BA!  The FAA has ordered a comprehensive review of the new Boeing (BA) 787 Dreamliner, reports the AP. Earlier: Another issue is reported as an oil leak is discovered in the left engine of one of the jets. Shares -1% premarket.

    bad week is ending on even more of a low for Boeing (BA) and its 787 Dreamliner as an oil leak is discovered in the left engine of a jet operated by All Nippon Airways. The incident adds to a cracked window in another ANA 787 today and three other incidents this week.

  30. Shares of SodaStream (
    SODA) move up 3.5% premarket to $48.65 on the back of a Citi initiation at Buy. The firm calls it one of the fastest growth stories in consumer products with new distribution channels opening up.

    Low expectations are doing wonders for Infosys (INFY+18.4%), which has taken off  following its FQ3 beat. With full-year figures aided by the beat, the company is now guiding for FY13 (ends March 31) revenue of at least $7.45B and EPS of at least $2.97, above a consensus of $7.32B and $2.95. 8 major outsourcing deals with a combined value of $731M were signed, and cloud engagements (previous) rose by 20 Q/Q to 190. Gross margin, hurt by rising wages, fell 100 bps Q/Q and 600 bps Y/Y to 37%. WIT +6.6%.CTSH +4.2%ACN +1%. (PR) 

    Electronic Arts (EA -1.1%) and GameStop (GME -1.7%) open lower after NPD reports U.S. physical retail video game hardware and software sales for the pivotal month of December fell 27% and 23% Y/Y, respectively. Those numbers are much worse than the 13% and 11% drops reported for November, and are particularly discouraging in light of hopes new game launches would stabilize demand. The Xbox 360 was again the top-selling console with 1.4M sales, but that's still down 17.6% Y/Y.

    PC sales fall 6.4% in Q4, worse than expectedUnit sales of PCs slid 6.4% in the fourth quarter compared to the same period last year, according to data released by IDC late Thursday. This was worse than the 4.4% that was predicted earlier by the market research firm — and notable in that the quarter included the retail launch of the Windows 8 operating system from Microsoft Corp. Calling the PC market "sluggish," IDC said in its report that PC sales "continued to take a back seat to competing devices and sustained economic woes." In terms of global shipments, Hewlett-Packard HPQ retained the number one slot with 16.7% market share for the quarter, followed by Lenovo at 15.7% and Dell DELL at 10.6%. 

    Best Buy (BBY) says its sales slipped 0.4% Y/Y to $12.8B for the holiday period with a 2.2% rise in its international segment not enough to offset a 1.2% decline in Domestic segment sales. Domestic comparable store growth was flat during the period, while the company's beleaguered online channel delivered a 10% gain in revenue to $1.1B.

    More on Best Buy's (BBYholiday sales: The company notes sales were positive for mobile phones, tablets, and e-readers but that sales in entertainment, TVs, and computing declined. Comparable store sales globally fell 6.4% Y/Y with results in Canada and China both trailing off. For FY13, the company lowers its 2013 free cash flow estimate to $500M due to new factors and says accounts payable as a percentage of inventories will be lower.

    ANALYST: It's Only Going To Get Worse For Microsoft(MSFT) And Intel(INTC) In 2013.

    Why Apple's iOS Will Win The Platform War Over Google's Android

    The platinum coin idea is idiotic. That is the point. (Wonkblog)

    America’s staggering defense budget, in charts (Wonkblog)

    Chart of the current flu situation.  Yeah, really smart to fail to insure 15% of the population:  

  31. BA / Yodi – It looks like a good entry point but we might get better ones if we start seeing some downgrades. Just this morning BA mentioned that defense cuts would probably have some effect on revenues. We'll have more clarity in a couple of weeks I think. Of course, they could suddenly take off!

  32. Yodi
    Thanks – filled @9.30

  33. Wow, slow day!

  34. What would it take for Ballmer to go away?  I'm a Wintel guy, because I type fast and don't like stabbing one finger at a screen in order to write, and I'm too old school to use substitute inane abbreviations for speech.  But I went over the Windows 8 product and came away without the slightest desire to buy it — who would want to touch the screen on a laptop? Doesn't Bill Gates still hold enough shares/sway at MSFT to fire his useless buddy? Is he literally too rich to care?  Inquiring minds…..

  35. Phil – RE: A link from your 10:24 am post …
    "Make Way For The Market's New Leaders In 2013" – Seeking Alpha
    What are your thoughts? Should we be looking at “a movement into materials and industrials” this year, and if so, which stocks do you like?

  36. Zero/windows 8
    I tried using it on a laptop and returned it in a matter of days.  Worst operating system of all time.  Apple must have been laughing real hard when they saw this.

  37. Phil – The above question caught my attention because of the "Relative Rotation Graph" that I posted earlier …

  38. Thanks Diamond, I used that one today.  

    F/StJ – Unfortunately, that's usually when it's time to run for the exits.  

    CHK/Kevin – First of all, they sold off a lot of their assets, so they simply aren't the same company anymore.  B (I hate it when people do that), there's a massive glut of nat gas and that's not going away and they had to shut 1/3 of their production down just to keep Nat gas over $3.  I think $16 is a FAIR price for CHK, not a bargain but, until we see new earnings and get the quarterly report and see how the remaining business looks (and their current, refinanced debt) – I really don't know for sure.  If you want to take a pre-earnings chance, you can sell 2015 $15 puts for $3.25 but, frankly, I'd much rather just keep them on a watch and hope they disappoint the market and drop below $15 and then you can sell them for $4.50 with a bit more confidence.  

    Patents/StJ – Apple's pretty narrowly focused so less patents.  AAPL tends to do design patents (for putting together a whole thing) while someone like Samsung is placing utility patents on each component and the process of making them and the materials they are making them out of etc, etc….  I agree on IBM and, if they ever get cheap, they go back on our buy list but, unfortunately, they haven't had a really good dip since 2008.  

    SODA finally getting to where I want to short it again ($50). 

    Prices/Pharm – Just one of the many things you are better off not knowing about if you want to enjoy your day.  

    Fed/StJ – They were buying mortgage-backed securities during a crash for one thing.  Good timing. 

    Pirate/1020 – Interesting article. 

    FAS Money – Watching and waiting, after the weekend it will be time to adjust.  

    $25KPA – Today should hold up and no change through the weekend other than taking 1/2 those USO puts off the table at $1.  

    $25KPM – Same with USO.  

    AAPL Money – Waiting for earnings or China, I guess…

    Sister in-law/Wombat – That's interesting.  Disappointing that there is no announcement out of China yet.  

    Inflows/Samz – So much sideline money, if we do break up here there's a lot more to come. 

    You're welcome Sank – did that fit your goals?  

    BA/Yodi – Good call (Short 2015 $70 puts at $9.15) 

    EEM/Jabob – A little too much China uncertainty (see bad data news above) to make bets.  My bullish bet on long-term US includes the idea that China won't crash but I wouldn't want to directly bet on emerging markets with inflation coming around the corner.  Could lead to wage freezes, price freezes – all kinds of madness.  

    Gasoline (/RB) popped over $2.74 but back to $2.735 now.  Of course, at $420 per penny, per contract – that's not a bad move!  

    Slow/StJ – Should be, was an exhausting week.  35M on the Dow at 11:15 not too bad but no action.  

    Industrials/Diamond – Sure, that backs up my premise that the Dow needs to catch up at some point.  What stocks?  The Dow!  AA, BA, CSCO, GE, HPQ…  These are not new ideas for us.  

    Ballmer/ZZ – When they get rid of that guy, the stock will pop 20%.  He has to be the worst CEO in history – he hasn't exactly killed the goose that lays the golden eggs but he has put it into a coma through repeated and constant incompetence:

  39. wombatcreative 
    BA good shot now put this one under your pillow and sleep on it!!!!

  40. IBM / Phil – Unless we see another 2008 style crisis (not impossible) I doubt that we will see IBM "cheap" again… A long term chart looks like a nice slow and steady climb with the exception of 2008 which was the deal of the century as far as stocks are concerned. However, IBM has been in a 190/210 channel for about a year and we are close to the bottom of that channel. They report 1/22 so we'll see. I am waiting for after to dip in a toe!

  41. Relative rotation/Diamond – That's cool but, to be honest, my brain doesn't work that way.  When I see data presented like that it's too "noisy" to be useful to me but it is interesting. 

    Speaking of what an idiot Ballmer is – you can't help but be impressed with this antique clip of Jobs.  

    Windows 8/ZZ, Rustle – I think I mentioned in the holiday shopping survey that MSFT had set up a Windows 8 Surface kiosk in the Garden State Mall and, while I thought the device was pretty nifty, there were very few people even looking and, once I put my hands on the IPad Mini, the surface seemed like a Close 'n Play by comparison.  Last weekend, the surface kiosk was gone but the AAPL store was a mob scene – as usual.  

  42. UK FTSE +0.2%
    German DAX +0.1%
    French CAC flat
    Spain IBEX +0.4%
    Italy MIB +0.3%

    We'll probably bounce around a tight range today

  43. This guy makes a good case for Intel (INTC):

    And my current fave Qualcomm (QCOM).

  44. scottmi / EBAY…..depends on performance up to earnings.  Generally I'll either get out, convert to a spread.

  45. Stjeanluc,
    I was interested in starting the FAS money portfolio for myself, would you suggest putting the positions on you have now or waiting for new positions?

  46. Rmax….I'm a momentum trader.   If I think we're going up, I'm long; down, I'm short.  I look at short-term trends on the stock  (5 to 10 day  MA), market trends, news sometimes.    I don't use margin here because I think we need something here to help guide the investor with limited capital.  It's easy to make $ if you have 500k to start…just sell premium.   Harder with 25k or 50k.  In real life of course I do both,   Gold?  I don't trade gold (though I should), so no comment on that.

  47. Ballmer //  I used to run Xbox – couldn't agree more. The man actually frightens me.
    Yodi – BA ///  thanks again – consider it packed away.
    Phil //  speaking of patents – ran into this.
    "To be sure, Zynga is serious about moving into real-money gaming from its core business of selling virtual goods on Facebook."
    The stocks that I do own, a large number have been Asian gambling and they've done REALLY well. It would seem that in America it's a political quagmire, but ZNGA has their fingerprints all over it. With the year they've had I don't think they could go any lower or simply bankrupt, but I would imagine these patents would worth more their current book.
    Any opinion ?

  48. Looking at the big picture equation for this quarter, and upcoming earnings season:
    (practically inevitable inflation) + (low option premiums due to an insanely low VIX) = huge return potentials

  49. FAS Money / Gingbaum – Here are Phil's suggestion on Tuesday:

    FAS Money/Mjj – You don't need to get the $13s, the 2015 $15s are in the money by $2 at $2.90 so 10 of those is $2,900 and you can sell 2 FAS Jan $135 calls for $2.10 ($420) and that's 14.4% of your money back in 2 weeks with 106 more weeks left to sell/roll and only 1/5 covered so easy to roll to 2x (the Feb $150s are $1.20) and, of course, you can always add more longs.  Good way to get started. 

    Looks like it could apply today although you could sell the FAS Jan 137 instead!

  50. ZNGA – may be worth a sort of a 'why not?' stab at the Jan15 4.50 calls if you can beat the spread. I nibble at these but the ask never comes down much. I'd take them for 0.45 if I could it.
    The company is horribly mismanaged and has been example of what not to do over the past year unfortunately, however. They could end up in BK….

  51. TZA/phil – i have 5 Aprl 13/17 bull call spreads, bought for insurance. Orig 98 cents on the 4 dollar spread, now down to 62 (down 36%). before the spread gets any further away, any thoughts on how can maintain, extend or reduce the cost of this insurance? thx

  52. Phil I like your view on F holding stk at 10.73 now 14.01 having rolled my caller to Jun13 12c some time back for a credit of .71 now 2.25 against me with only 25cents of extrinsic value. I am holding double the amount of putters against the caller so that even today this play still shows a profit of the day. rolling the Jun13 caller to say Jan14 15c would cost me 1.23 however the Jan14 putters are very low or I would have to sell a 15 put to make me better than even. My question is will F go up by Jan15 to even 15$. 

  53. Sorry Phil I mean Jan 14 not talking about 15

  54. scottmi // TZA
    I asked Phile pretty much the same question a few days back.
    I kept my April%16 short calls as they're ITM
    I rolled my $12 calls  to July
    I also rolled my April short puts from $12 to $10 to July as well.
    Hope that helps // I feel a little better. I agree with Phil that we have about a 30% bull run, but the econ headwinds second half are going to catch up with us. I am still bearishly cautious.

  55. TZA/Wombat – thanks, pretty much what i was thinking (roll out the longs). we're at RUT highs.. will be nice if it continues, but…  

  56. Phil,
    Regarding hedging AAPL against a gap down following earnings (1/23), is there anything besides the SQQQ 36/45 Jun bcs you might use just to get past Q4 earnings? My  concern with SQQQ is the wide bid/ask spread which would be costly since one would be dinged opening and quickly closing the hedge (if earnings are good).

  57. Ballmer:  He is noted for being able to sell refrigerators to Eskimo's.  That's the problem.  He's not in the kitchen appliance business, but boy or boy does he ever want to be:  Zune, tablet, peripherals, X-Box, Skype…..  MSFT has not transitioned into the app age.  They are still hanging on to their retail box legacy.  I bought a laptop 6 months ago.  Came with a Win8 upgrade.  I am not even tempted to go that route.

  58. PSA for PSW (From TD Ameritrade e-mail alert):
    New transaction tax when buying shares of certain French companies
    At TD Ameritrade, it's important for us to keep you informed of anything that might affect your account. We would like to let you know that effective December 1, 2012, the French government began assessing a transaction tax on net new purchases of French ADR (American Depository Receipts) and ordinary shares on companies with a market capitalization in excess of €1B.
    Accounts will be subject to the French tax based upon qualifying purchases 
    beginning Monday, January 14, 2013. Please see below for additional details:
      – You can view the current list of impacted securities here.
      – The tax is equal to 0.20% of the total daily net new purchases. The tax 
        will not be reflected on trade confirmations.
      – The applicable taxes will be applied on a monthly basis to your accounts, 
        and will be reflected in the transaction history in your monthly account 

  59. F:  Sold Jan14 $15 Puts @ $2.58 a couple of days ago in an IRA account.  Since then they doubled the dividend (not that exciting) and F jumped to $14.00.  Tied up $3k for the year with a 17% return or a $12.50 entry.  Actually, it was a roll from a Jun13 $12 Put, which had gained 70% of its value in less than a month.  F has been pretty darn good to me this year.

  60. Pharm
    Do you like TEVA at this level?

  61. Diamond / French companies:  Do they pay you if you short them? [I'm short French governments, which makes me preternatually cheerful for some reason.]
    Mjj: Since I'm kind of stuck with Wintel for lack of an alternative, do you think they're smart enough to be working on Windows 9, where you don't reach over your keyboad to stab horizontally at a vertical screen?

  62. bad news for SVU (and the entire economy…)?

  63. $1 trillion dollar coin versus the 1933 100k bill….

  64. Zynga:  I've come to understand, watching some local casino junkies, that it's just one more drug addiction  – the dopamine released in anticipation of a reward.  The paradox that confused me is that they habitually lose.  But since they plan to return the next day and the next, the dopamine keeps on coming, meaning the the reward of gambling is unrelated to success.  Wow, no wonder people do it….. now what was the quote on those calls again?. 

  65. if of interest – just noticed 
    the big gap-up on the SPY
    it's bouncing off $147 resist 
    volume is dropping towards earnings
    and the VIX is still under $14

    Feb Short

  66. zero:  hahaha.  I don't know what they are working on.  I would hope it is Ballmer's 401K,   I just watched the video Phil posted.  Someone should clue Ballmer in on how stupid he sounds when he says "Innovate".   Yeah, that's what MSFT is know for.  In a past life I worked for a contractor who built office/whse product for the Trammell Crow Co.  I was there two years and put up 5 buildings.  In that whole time TCC leased exactly 0 sf in those buildings. My projects were only 10% of the product TCC constructed in that market.  I'd go out to lunch with those guys and they just kept saying it was all good, they would "Out perform the Market"…  The gig was up in 1990, and they turned the keys over to their non-recourse finance lenders.  Ballmer is cut from the same cloth as the TCC guys.  Innovation isn't just a catch phrase, it is tangible.  Jobs knew that.  Jobs lived that.  And that is exactly what MSFT needs.  

  67. zeroxzero – Good question, but I think the French government wants your money regardless of what you do! ;-)

  68. Guys, check out AAMC. Bought some common a few days ago. Stock is already up 25%. I think this baby could go to 150.

  69. Seems like a good day for a first post.  I have been an on and off member in some form since 2008, and have learned a lot from Phil and the many contributors.  I am an American living in Switzerland for the last 18 months.  I have a cash/margin and an IRA account that I trade with, but I'm a younger guy and a small fry compared to many on this board.
    Most of my plays follow, or are similar to what's suggested on the board, but every once in a while I come up with something original that makes me a few bucks.  I've taken some recent small speculative positions in my cash account by selling puts in BTH and DWA, and a spread in CALL.  Blyth (sold June'13 15's) got caught up in the HLF drama and is a $17 stock with $10 per share in cash. Playing what seems to be a bottom in DWA (sold June'13 15's) and looking for a bounce in anticipation of new movie release in March.  I assumed there was little risk in CALL based on the chart and financials but I was wrong as they were recently hammered.  Luckily the spread (Jan 2014 12.5/10 BPS) is down in price and out enough in time that I have a minimal loss and am not looking to do anything with this position currently.  A while ago I also took a position LeapFrog-LF (Jan'14 5/7.5 BCS), and I think someone else on the board mentioned LF recently.  I have high hopes (I know…hope is a dirty word) for this one as I'm currently showing a nice profit, but we'll see.
    I'll try to contribute every now and again if I dig up something that seems interesting.  Sorry for the long post.

  70. Does anyone on site know of a good computer program for backtesting option strategies?  If so, give me a holler…..I've got a trading methodology  I want to study retrospectively. 

  71. French tax:
    Since they are doing it unilaterally,
    I'm staying away from those stocks

  72. Biodiesl
    msaybe not to bad about SUV still gotta eat.  Remember I cut out the surf and turf and went to ribeyes and now I am down to ground beef so when I get my next check I'll jut go to spam.  Good thing I have family in Hawaii …..mmmm spam must I. Lol.   Sorry about the spelling but trying out the new iPad  the screen keyboard is less than ideal

  73. I flan 
    ha ve you tried tos on demand

  74. Backtesting / lflan – I use Amibroker and Neuroshell Trader to do some backtesting on stocks. The problem with backtesting options is that they usually don't have enough historical data to make for great backtesting and the longer dated ones like LEAPS are thinly traded. I have access to the data for options and I can chart them but I usually backtest on stocks and then verify the results with options on the TOS platform. 

  75. SODA – wierd candles. looks like it has been clamped!

  76. I'm rather surprised that both gold us down 1.1% today, with the Euro up .6% against the dollar, although JPY [go JPY!!] is down a touch.  Gold has a certain coiled spring consolidation feel to it, but when you have a hammer, everything looks like a nail, and I'm long.

  77. "gold and the miners", addendum.

  78. Lflan -
    If you are testing option strategies check out thinkBack on the Analyze tab in TOS

  79. IBM/StJ – Yep, too good to get cheap, unfortunately.  

    Europe/Kustomz – Blah.  

    INTC/StJ – Not their year but long-term they should get a better mix.  

    ZNGA/Wombat – Not sure what patents they have but, of course, they are deep in that space and should do well if gambling is allowed. However, I play Zynga poker on my IPad and it does randomly crash often enough that I think I would freak out if I had real money in the game.  So designing a game people like doesn't mean you will be able to attract real-money players, where a whole new set of concerns come in.  

    Potential/BDC – Yes, the potential is there but I like it better when the VIX is huge and we can sell puts into crashing companies – easier money. 

    TZA/Scott – Good time to roll the TZA spread (Apr $13/17) as you still have $1.05 left in the $13s and that's key.  You didn't pay $1.05, you paid .98 so, if you take that $1.05 and roll it out to the July $13s at $1.55, you are simply spending .50 for another 3 months worth of insurance so it's like you buy insurance with a big up-front cost and then you pay 50% less to re-issue the coverage.  Of course it's even better because, eventually you'll be able to sell another caller and get your .50 back (the July $17s are currently .90).  Now, if you are willing to spend $1.15 up front, you can roll to the July $11s and pick up $2 in position and $1.13 of intrinsic value for $1.15 and, of course, down the road you can make a better short call sale BUT, since we're pretty bullish right now and since you can roll your short April $17 caller (.42) up to the July $23s or higher and more than double your spread – I'd stick with the roll to the July $13s and keep the other .65 in your pocket to roll down if you have to (but maybe you'll only use it in April to roll to the Oct $13s).  

    F/Yodi – I think they are on a good track for that.  You're talking a year and just inflation should give you another .50 (3%) over that amount of time.  How about if you roll the June $13 callers ($1.50) to 2x the Jan 2014 $15s ($1.02) for a .54 credit (on 1x) and then you buy the 2015 $15s for $1.70 which costs you the same $1.23(ish) but leaves you an asset in the form of the long $15 calls and you can just put a .50 trailing stop on the stock and, if you have to pull it off the table, you can use 10% or less of the stock price to double down on the long calls and keep a full cover.  

    SQQQ/8800 – Well if you plan to panic sell it on earning then yes, you might not want to play it.  The point is to protect AAPL from a big loss and if AAPL spikes down then up so fast you can't exit the SQQQ spread – then you didn't need the insurance or, if it goes straight up, then your insurance goes worthless but if you're not making 2-3x more on the AAPL longs than you're losing on the insurance, you're doing it wrong anyway.  You can do the same sort of thing on the very liquid Qs but you'll make about 70% less than SQQQ – the point is to buy cheap insurance for an accident we don't expect to happen but would like to prepare for.  You want insurance that's more likely to pay off so of course it won't give you the same pay-out.  

    Keep in mind, if you have a long AAPL spread and you're just worried about this particular earnings and you're just worried about AAPL dropping MORE than $50, then you can simply buy the Feb $495/455 bear put spread for $10 and you WILL lose pretty much the whole thing if AAPL has good earnings but, if AAPL drops to $450 and endangers your long spread, then you'll gain a quick $30.  Since the AAPL spread (the One Trade one) pays $38.60 in Jan if it works, you are spending about 1/4 of the total to guard against an early catastrophe.  Of course, you could add 25% more of the spread to pay for the hedge too (and that would diminish your coverage by 20%).  Again – these hedges are not magic beans – you don't get something for nothing and, if you're so uncomfortable with a position that you feel you need more coverage than that – GET OUT OF THE POSITION!  

    Windows 8/Mjj – I have it on a new laptop I bought and, right after my Vegas trip, I gave it to my daughter, who promptly asked for a new laptop for Christmas because the one I gave her sucked.  The main problem is that, whenever you use the touch-pad, you end up accidentally making it think you want something off that box screen and it drops what you're working on into the background and brings up the box screen.  Makes you want to throw it out the window!  

    "Microsoft is no stranger to criticism these days, and the company's new Windows 8 platform is once again the target of a scathing review from a high-profile user. Well-known Internet entrepreneur and MIT professor Philip Greenspun handed Windows 8 one of its most damning reviews yet earlier this week, calling the new operating system a 'Christmas gift for someone you hate.' Greenspun panned almost every aspect of Microsoft's new software, noting that Microsoft had four years to study Android and more than five to examine iOS, but still couldn't build a usable tablet experience…"

    Transaction tax/Diamond – Good chance we'll all be paying that soon. 

    F/Mjj – Very nice.  Can get yourself a new Mustang with that money.  

    Payroll/BDC – Yes but oil is 10% less than it was last year and will probably get cheaper as that's a discretionary $38 every two weeks.  Also, you have to factor in 2% more people working etc.  

    Good summary BDC, bears out Krugman's assertion that it's not damaging to print $1Tn coins.  Now if only they'd taken that $100,000 and bough stock in IBM (founded 1924).  I think revenues were around $10M back in the 20s so probably close to $20M value – now $200Bn valuation – up 10,000x – a little ahead of inflation and a great argument for long-term investing!  ;)  

    Gambling/ZZ – No dispute that gambling is a good business but, once it's legal, Zynga will have to compete with the big boys and I'm not sure they can hack it.   Caesar's, for example, can spend $100M to make a kick-ass app and guarantee your money is safe and reward you with real casino trips just for playing and give the top players entry into national tournaments they sponsor with trips to Vegas for the finals…  Plus they can start rumors that Zynga and other small players are populated with rings of thieves who run scams to gain unfair advantages to win games and it won't matter if it's true or not because every time you have a losing streak on Zynga, you'll blame the thieves and the company for allowing them and you eventually won't refill your account.   

    Gap up/Wombat – What gap up?  The one from the 1st?  Just been consolidating since then.  

    AAMC/Amalfi – That's one expensive penny stock!  

    Positions/GS – Nice to hear from you.  Gotta be careful getting into positions on stocks like CALL as the bid/ask spreads are so wide, it's tough to roll when trouble comes.  It's an interesting mix but a good general theme of taking advantage of market overreactions to do some bargain-hunting.  

    IPad/Willie – Try talking to it (and keep trying Spam!).  

    SODA/Scott – The fondue pot of this generation – sounds cool and people try it once and then off to the closet. 

    Gold/ZZ – Profit taking I think.  Trade was looking shakey, analysts turned sour and today was a good chance to get out for those who thought we'd fail $1,650 before recovering.  

    Hmmm, I wonder where AAPL will finish?  $523 maybe?  

  80. Phil,
    I have been reading up on RRD and would like to know your reasoning on it being at a bottom – the chart to me looks a little ugly?

  81. Short calls/Martingale: For some of my long term BCS positions I have been trying out the rolling up by doubling up on short term short calls. It's an oft recommended strategy here, but I never had the predisposition to try it. Until a few months back. 
    Take RIMM, a Phil recommendation long long ago, but I stayed with it for far too long, got assigned and buried in a hole. It remains in my portfolio as a reminder of what was not my finest hour. Anyhow, I am long 2,000 shares and on January 4 this year I sold 20 short 13 calls for a premium of $0.82 – relatively far out of the money to the price at that time (about $12). As Sod's Law would have it, RIMM only goes and starts motoring upwards (see today's pop). I can roll the Feb 13 calls to the Feb 15 calls for a debit of $0.73, and then sell 20 more of Feb 15 calls with a credit of $0.73 (it is a coincidence that both prices are $0.73) to pay for this transaction – leaving me with 40 short calls. But of course I have plenty of time as there is still plenty of premium to burn off. But I like to keep my eye on possible roll strategies well ahead of when I need them
    Risky I know, and only for the well-endowed portfolio, but I have some good fortune so far………………. (he says as the cries of derision can be heard from the back of the auditorium).
    What I tend to do as well, is let the first week of a new option period go by, and try and only sell front month calls on those long positions which look like they are taking a breather.
    Anyone else had some good experience with this approach?

  82. Phil,
    Thanks for the smorgasbord of AAPL hedging alternatives. My short term interest is to protect against a negative earning surprise on 1/23, after which I have a better comfort level with AAPL positions (mainly 4-450 level puts and 540/600 level bcs). I feel the jury is still out on Tim Cook longer term but that AAPl still has momentum from Steve Jobs now. Most indications I see are that eps will be better but there is always that shadow of a doubt … much like the small town preacher who is seen leaving the whore house on Sunday mornings, everyone is confident he was there saving souls but there is that shadow of doubt!

  83. Pharm
    would you mind giving us thoughts on CLSN? Thanks

  84. RRD/Ging – They pay $1.04 dividend (just affirmed yesterday), so worth going for on the $8.83 stock.  They've been on the outs ever since they filed GOOG's quarterly report early and they are kind of flatlining revenues and earnings but it's flatlining at a p/e of about 6 due to the drastic sell-off.  You can buy the stock and sell the 2015 $7 puts and calls for $4 and that nets you in at $4.43/5.72 and makes the dividend 23.4% while you wait and, if you do collect that $2.08 over the next two years, then your net net entry is $2.33/4.67.  Is the chart that ugly?  

    Short calls/Winston – As long as you are consistent, the odds very much favor call selling but big moves up like we're having from Dec can hurt you so it's important to use stops or simply sit out sometimes, not just sell no matter what.  The real key is to find a few stocks you can get to know very well so you know, each month and each day, when their options are mis-priced and that's when you can really take advantage.  Like with AAPL, we tend to try to do 1/3 sales when the +$5 strike is $15 AND we think we're in the top of a channel.  Then we can take a quick $5 profit off the table ($1,500) and, if we're wrong and the fall fast, we have $4,500 to collect (and we can sell more) or if we're wrong and they shoot up, the rolls are pretty easy.  When we are concerned AAPL could pop more than $20 on us (like now) we simply don't sell because you don't have to make that many $1,500s to do quite well over time.  

    Shadow of a doubt/8800 – I have supreme confidence in AAPL money but we'll have to roll out the Aprils before earnings – just in case.  I don't even think they'll miss this one but, as I said this morning – you never know.  

    Dow volume 61M coming into 3pm – lame.  

    That was fast:  The future of Microsoft's (MSFT) Windows RT is starting to look a little shaky. Not only have Surface RT sales underwhelmed, Samsung has decided not to sell its RT tablets in the U.S. The electronics giant says educating U.S. consumers on RT would require "heavy lifting," and that retail partners have indicated RT demand is modest. One could also point out RT systems, which sport ARM-based (ARMH) CPUs from the likes of QCOM and NVDA, don't support older Windows apps, and that Intel and AMD have been busy developing tablet-friendly CPUs for Windows 8 Pro gear.

    Is Apple (AAPL -0.5%) finally close to scoring an iPhone deal with NTT DoCoMo (DCM)? The president of the top Japanese carrier, which has been bleeding share to iPhone-carrying SoftBank (SFTBF.PK) and KDDI, says his company is willing to sell the iPhone if it can reach a mutually beneficial deal. DoCoMo and Apple have reportedly been at odds in the past over Apple's purchase requirements and DoCoMo's insistence on pre-installing some of its apps. (China Mobile) 



  85. AAPL/ Phil:  one day you commented on the pattern that happens on AAPL from Friday to monday.  Can you refresh us?

  86. TEVA….I like them but the chart is turning.  Ease into selling some OTM long dated puts. 


    CLSN – they are a device that microwaves a special formulation of a chemotherapeutic drug.  Basically, the doc's inject the drug to the area, nuke it and the formulation releases the drug to the area of delivery.  It is supposed to decrease the side effects of the chemo drugs and also gives a much larger dose to the affected area.  BDSM and DCTH also have 'devices' to do this.  There a few others as well.  CLSN has had a good run, now it is up to what the numbers say on potential sales as well as expanding the use.  JNJ, MDT and even GE or other 'device' maker could look at them.  Their market cap is 300M, so not too much for the big boys…..but it comes down to insurance CPT code payment/revenue.

  87. AAPL/Newt – Wish I knew.  Don't know of a pattern like that that I remember. 

  88. I spent 1000s of hours since my undergrad years playing poker online and ill tell you there is no way in hell I'd go with zynga when it becomes legal. I'd definitely sell the news on that Bc as Phil said, if one of the big casinos don't dominate, then one of the online sites poker players used to use ( and int'l players still use) like ultimatebet, partypoker, full tilt , or pokerstars will. Zynga is for people killing time on FB but I don't think too many of their players are actual cash gamers.

  89. Hey Pharm, while your at it TELK..tiny market cap, what do you think.Its had a run already.

  90. phil,
    im holding the feb 164 gld calls and selling shorter calls and puts vs it…….you had mentioned a while back that you thought further out would be a better position in gld.

    would you give a suggested role in both month and strike…… as i can continue to sell calls and puts vs it…….tks

  91. stjeanluc/edro/backtesting…thanks.

  92. Phil thanks for F added still another Jan15 10putter to get still out with a small credit

  93. Pharm
    Thank you. Do you know if CLSN has some plans for a phase III announcement next week? Volatility is 428%

  94. Good article pointing out how much money is riding on keeping AAPL low into expiration day.  

    GLD/Mill – Well, you've only got $1.16 in the $164s so why not sell the $161s for $2.37 and roll down to the Sept $165s at $6.20 (net $2.67 for the new position) and sell the $150 puts for $3.60 with a stop at $5 as the $161s would expire worthless and you'd still make $1 and drop your long net to $1.67 or, if things go up, you have a $3.60 credit towards the roll (and the July $180s are an even roll for a very wide vertical if gold really takes off.  

    You're welcome Yodi.

  95. Phil…..What do you think?GLW Jan 14 12/15 bcs @ $1 and sl 12p@ $1.40,for 40c credit

  96. Phil / Great AAPL article! Will be interesting to see how that plays out!

  97. Phil – Thanks for everything!  I've had a great week!!! :-)

  98. GLW/490 – I prefer the 2015 $10/15 bull call spread at $1.15, selling the $10 puts for $1.30 for a .15 credit and you're $2.40 in the money on the $5 spread.  Your spread needs to gain 20% to make the same as this spread makes on a flatline.  

    TLT with a pop into the close.  119.65 – that's interesting.  

    VIX not worried at 13.38.  In fact, it's on Prozac. 

    AAPL looks like it's pinning $520, not $523. 

    Buyers pouring into the close – daily event now. 

    SOX still leading, up 0.5% at 403. 

  99. TELK – no way.

  100. Phil….that's called Valium….

  101. You're welcome Diamond.  This was a fun week. 

    Have a good weekend everyone.  I'm finally off to see the Hobbit but then I promise to get the Income Portfolio done.

    Next week is more earnings and tons of Fed speak, including The Bernank at 4:30 on Monday.  We have PPI, Retail Sales, Empire Manufacturing, Business Inventories, CPI, Industrial Production, Housing Index, Beige Book (Weds pm), more Housing, Consumer Comfort, Philly Fed and Consumer Sentiment.  And then we get this:  

    Valium/Pharm – You're the expert.  

  102. Hobbit….Phil, bring a pillow and some kind of snoring aid.

    Thanks Pharm, no way …LOL

    Great weekend.

  103. Kustomz- you're the only person who I've heard give a  negative review about the Hobbit. 

  104. Dark rainy night, doing some reading, came across something in Science News that makes an interesting distinction between risk and uncertainty:
    I'm not sure if you can log in w/o a subscription, and I hesitate to clog PSW with an entire article, but since it's a weekend, here's a lengthy excerpt:




    /* Style Definitions */
    {mso-style-name:”Table Normal”;
    mso-padding-alt:0in 5.4pt 0in 5.4pt;

    "Annual forecasts of currency values from December 2001 to December 2010, which guided banks’ investment decisions, badly missed the mark nine out of 10 times, says psychologist Gerd Gigerenzer of the Max Planck Institute for Human Development in Berlin. Banks incorrectly foretold the fates of the dollar and the euro in the years leading up to, during and after the recent financial crisis….Gigerenzer described his findings October 4 at “Reckoning with the Risk of Catastrophe,” a meeting of German and U.S. scientists trying to devise ways to measure the probability of financial calamities, natural disasters and other catastrophes.

    It’s hard to predict currency values worse than the banks did,” Gigerenzer said. “Highly paid people produced worthless predictions.”
    The problem, Gigerenzer asserted, is that most economists and other risk modelers don’t distinguish between risk and uncertainty. Economic models assume that the financial world consists of known risks that can be calculated based on prior behavior of stock markets and other elements of the monetary system. But uncertainty rules in the real financial world, where risks can’t be known in advance because a complex tangle of factors triggers new, extremely unlikely hazards. In an uncertain environment, the past is an untrustworthy guide to the future.
    Financial predictions based on calculations of allegedly known risks underestimate the possibility of downturns caused by unlikely events. Banks welcome that flaw, Gigerenzer asserted, because it provides mathematical cover for pursuing high-risk investments.  “Confusing risk with uncertainty was one of the causes of the financial crisis,” he said.
    Gigerenzer and his colleagues have found that simple decision heuristics, or rules of thumb, can work better than complex calculations when navigating uncertain domains. Distributing money evenly among available investment options, for instance, yields more money over the long haul than complex formulas for maximizing profits and minimizing losses (SN: 6/4/11, p. 26).
    Financial risk modelers at the meeting acknowledged past failures of their mathematical creations but described efforts to strengthen the current approach. Economist Brenda González-Hermosillo of the International Monetary Fund in Washington, D.C., said that she and her colleagues are developing a statistical toolkit to predict upcoming financial crises based on complex analyses of currency exchange rates, money movements across countries and other factors.
    Gigerenzer lamented that approach. “We need to have the courage to look for robust, simple solutions that can strengthen a fragile financial system,” he said.  Gigerenzer is now working with economists at the Bank of England to develop a three-step decision tree to assess current financial risks and dangers, as opposed to traditional measures that calculate financial risks from multiple data sources."

  105. Anyone ever use or have an opinion on Interactive Brokers?  I've heard their interface is difficult to use, but they execute well.  Thanks.

  106. Zero
    Science News – In the DR??  Time for the Silicon Volcano ….

  107. I got the following note in my TOS account. I looked at the list of companies and noticed that ALU and FTE were on the list.
    At TD Ameritrade, it's important for us to keep you informed of anything that
    might affect your account. We would like to let you know that effective
    December 1, 2012, the French government began assessing a transaction tax on
    net new purchases of French ADR (American Depository Receipts) and ordinary
    shares on companies with a market capitalization in excess of €1B.

    Accounts will be subject to the French tax based upon qualifying purchases
    beginning Monday, January 14, 2013. Please see below for additional details:

      – You can view the current list of impacted securities here.

      – The tax is equal to 0.20% of the total daily net new purchases. The tax
        will not be reflected on trade confirmations.

      – The applicable taxes will be applied on a monthly basis to your accounts,
        and will be reflected in the transaction history in your monthly account


  108. edro:  There was a 4.9 offshore of the Virgin Islands yesterday @ 4pm.  Volcanos, no worrries.  Earthquakes, yes.  Tidal waves, big problem.  The Puerto Rico trench offshore is the deepest part of the Atlantic, second deepest in the world at over 5.2 miles in places.  The wall of the trench is precipitous and kicks off underwater landslides,  We situated the Caribbean plate, with the North American plate sliding underneath, so it really rocks & rolls around here.  I have a USGS warning system on my Galaxy.  I used to live in Chile, and found myself at the epicenter of a 6.8, watched the town of LLayLlay crumble in front of me, taking 2,000 citizens with it, and found myself in Cuzco, Peru during a 6.1 at night, in which I thought a jet hit the hotel. That was before ten years in So.Cal., which also acts up occasionally.  "Geological time is now!!" [sign under cliff in Yosemite]

  109. Iflantheman – Thanks for the new MoMo portfolio.
    Do you focus on only a certain stocks for this portfolio ? Are there any rigid rules on entry and exit (besides the Maximum 3% loss you mentioned before) ? 

  110. seer/ interactive brokers
    i use it no complaints.

  111. Phil – what do you think of SIRI here? Long term story still intact or worth taking some profits? I would wonder about the potential if they could expand internationally. 

  112. Outlier/Virtual MoMo Portfolio:   Any stock that I can find that exhibits upward or downward momentum is a candidate for entry.   I'll enter the trade generally with 5 to 10% of portfolio value.  Exit  on a loser will be sought when I'm certain that the trade is failing, or at maximum of 3% portfolio value loss on the trade.  Exit on a winner will be more complex, but winners will be held much longer.   The premise is that losers should be culled and dumped and that winners should be ridden into the sunset.  Watch how we deal with FB  this coming week in the portfolio in order to get an idea of how I think winners should be managed.  

  113. Iflantheman / Virtual MoMo Portfolio : Thanks. Sounds similar to Optrader's strategy. Would keep an open mind to learn from you all.

  114. Does anyone here loan out money on PROSPER.COM?

  115. AAPL premarket. Wow, didn't see that coming, trading at 502.02 as I type this.

  116. 499, there are just no bids down here. I think they are running stops, doesn't seem like a lot of selling pressure.

  117. AAPL / Jomptien – That's pretty drastic as far as cuts are concerned – they talk about halving the orders going from 65 millions to 35 millions screens for next quarter! If these rumors are true, this would definitely be a bad catalyst as iPhone sales are over 50% of AAPL sales. 

  118. stjean, – looks pretty credible with 2 separate reports reporting the same thing

  119. The reduction story was reported by Digitimes in early December, so this isn't particularly 'new' news.  In fact, I listened to the Dow Jones Asia reporter who wrote the story and he was hedging that the order cut might have been due to inventory balancing rather than a demand issue.  Remember that aapl had supply constraints when the Iphone 5 launched in September.  Funny how these stories and others surface right before earnings.

  120. It's all going to come down to earnings now and specifically guidance…

  121. On 12/17 we hit a low of 501.23 on AAPL and bounced back from there. That was the low of the correction so far. If they want to kill AAPL now before earnings, there is not that much support below that so could be the place to do it! My next line is at $463. That would be drastic!

  122. Good morning!  

    No time to catch up in chat.  Kustomz was right about Hobbit – way too long in many parts, then some excitement and then it suddenly ends in the middle (and there was no indication it was a part one) and, for an $18 IMAX ticket – I would have been pissed if it wasn't preceded by a 15 min preview of the new 3D IMAX Star Trek movie that I will certainly see 3 times and my kids are even excited about seeing as it was so good.  

    Was at the mall (Willowbrook, NJ) this weekend and it was packed again (as with last weekend) with plenty of people buying and the AAPL store was a total mob scene so dip to $500 this morning is just silly.  I'll be writing about this shortly, but essentially it's Asian rumors taking advantage of a holiday weekend in Japan and the usual fact that AAPL never comments about anything.  


    Apple has asked Japan Display Inc, Sharp Corp and South Korea's LG Display Co Ltd to roughly halve supplies of LCD panels from an initial plan for about 65 million screens in January-March, the Japanese daily said, citing people familiar with the situation, adding the U.S. firm also cut orders for other iPhone components.

    The move, if confirmed, would tally with analysts saying that sales of the new iPhone 5, which was released in September, have not been as strong as anticipated.

    Apple was not immediately available for comment outside regular U.S. business hours. No one at Sharp was immediately available to comment on Monday – a national holiday in Japan – and parts suppliers to Apple in Taiwan declined to comment.

    This is one of those rumors that probably has a kernal of truth.  Of course parts orders for Q1 are less than the Q4 rollout and maybe AAPL has shifted parts orders to China as part of their deal-making with CHL – who knows?  Is it likely AAPL is projecting a 50% decline in IPhone sales?  Not very.  No indication of that in the AAPL store, nor at the various kiosks around the mall that sell IPhone cases (and others but IPhones get the most space) and IPhone screen protectors and Brookstone's whole IPhone section (not one product designed for a rival phone), etc. etc.  Also, we just got activation numbers that CLEARLY indicated massive IPhone demand.  

    Such silliness.  

    That's knocked the Futures off a good start so we'll see what happens.  

    Oh yes, almost done with Income Portfolio update – you can see it under the Portfolios tab.  

  123. lvmoda/ I was thinking that I heard this before too. It also seems odd that they drop this when I've read a couple of analysts suggest  that hedge funds stand to gain significantly if share price stays below 550 on OpEx. We'll find out shortly.