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GDPhursday – Japan Drops 5%, Markets Shrug It Off

Wheeeee, the Nikkei is down 5% today.  

That's now down 14% off the top but a 20% retrace of an 85% run is 17% so, ugly as it seems – so what?  Wake us up when there's a real correction.  Another 3% down from here (14,000) is 13,580 so THAT's the line we'll be interested in seeing and, guess what, that's right where the /NKD futures bounced last night – gotta love that 5% Rule!

That same 5% Rule told us yesterday that SPY would re-test the 165 line and, lo and behold, they finished the day at 165.22.  It was RUT 975 of bust and 980 was the low of the day so we maintained a generally bullish attitude, despite the intra-day dip.  This morning we remain nimble as we played Oil (/CL) and Gasoline (/RB) Futures from both sides of the line in early morning Member Chat and had small winners in both directions.    

INDU WEEKLYWe don't have much of an inflection point until the Dow tests 15,200 again (the bottom of Dave Fry's rising channel and our perfectly predicted -5% line) and, anything below that is a strong signal to get your bear on.  

We're already using DIA puts to protect our Income Portfolio (June $148 puts, now .60) and we also have a few June TZA $39 calls but those are trashed at .32 with TZA at $31.38 but we can pick up the October $30/37 bull call spread for $1.90 and, since we have the long $39 calls, we can sell some June $36 calls for .60 to lower our cost to net $1.30 on the new spread and we can't lose more than $3 to the upside and our long spread would be $7 in the money if that happens so a good adjustment to make in our Income Portfolio.  

On the DIA puts, we "invest" another $10,000 in insurance and roll the puts (100) to the Aug $147 puts ($2.25), which is net $1.65 and we then need to find some DIA puts to sell for that .65 so it's the June $149 puts at .80, which means we're spending net .85 on the roll to the new spread.  

A 500-point drop in the Dow (why not, the Nikkei did it 3x this month) would drop DIA to $148 and put our June short puts $1 in the money and let's say they go up to $2.  Well, the Aug $147 puts are currently $2 and drop the strike 5 to match the 500-point Dow drop and we can assume we'll be able to roll the short June $149 puts to the Aug $142 puts and that would put us in a $6 bear call spread for net $2.85 (we originally paid $2 for our own June DIA puts).  That sounds perfectly fine as the only reason we'd be doing that roll would be that our Aug $147 puts are in the money!  

Option playing is like chess – you have to learn to look several moves ahead to know what the right current move should be.  We had a lot of fun moving our TSLA positions around yesterday but, on the whole, we finished the day more bearish than we began – taking 1/2 of our $85 calls off the table when they spiked over $40 – also a play in our virtual Income Portfolio.  One neat trick that may not have been necessary was my 12:45 adjustment in Member Chat:

TSLA back over $105.  Our next logical move is to roll the 40 short $115 calls in the Income Portfolio to 40 $135s for $5 – not a penny more!  That costs $20K but we sold that in short puts and it reduces our margin and widens the spread on the 20 $85/115 spreads by $20 so $40K more to make if TSLA hits $135

Keep in mind we ended up with only 20 2015 $85 calls covering 40 2015 $115 longs and we had taken $84,000 in 20 other $85 calls off the board (in an earlier call and, as discussed in the morning post pre-market).  We put $7,000 back into 20 $100/130 bull call spread that pays back $30,000 if TSLA takes off and then spent $20,000 to push the 40 $115 short calls up to the $135 short calls and, of course, we're still short the Jan $80 calls and the Jan $60 puts in a 2:1 ratio (bearish) but our long $85s now pay $100,000 if TSLA is over $135 (before our short call obligation kicks in) and the $100/130 spread pays another $60,000 and we have $57,000 in our pocket from the sale of the $85s net of the roll and purchase of the new spread.  That's a lot of headroom for a bearish bet!  

It's more of an indication of how crazy TSLA's moves have been than anything else.  The stock peaked in anticipation of yet another "MAJOR" announcement by Musk and it turns out they will TRIPLE the number of charging stations…. from 6 to 18!  Perhaps that number will be the cold slap in the face TSLA investors need to be reminded how small this company really is.  With 20,000 cars on the road and a $12Bn market cap, each car is "worth" 3 times more in market cap than it sold for.  If you did that with 100M Fords at $25,000 average, Ford would be worth $2.5 TRILLION yet, for some mysterious reason, it's only valued at $61Bn.  

So, I suppose we should load up the truck on F as that stock should going from $15.60 to $640 as soon as TSLA buyers realize what a relative bargain it is!  Now I'm not saying that TSLA should be 1/41 of where it is now, which would be $105/41 = $2.50.  I'm just saying that maybe, somewhere between $2.50 (relative to F or any other car maker) and $105, TSLA will find reality at some point.  Do you know why other automakers don't make electric cars?  Because they aren't profitable.  Teslas are not profitable, the company made $12M selling 5,000 cars last quarter – that's $2,400 per car and they only made that because they don't go through dealers (and they get $7,000 per car sold from the Government!).  

Anyway, off that topic – we discussed it to death in chat and decided to go short – how's that for a summary?  Moving on to the BIG picture:  As we expected, GDP was revised down very slightly, to 2.4% from 2.5% in first estimate.  Much more telling, Corporate Profits in Q1 fell $43.8Bn after rising $45.5Bn in Q3 so, essentially, we're back to where we were before the Thanksgiving rally began – about 20% ago on our indices.  As with TLSA, somewhere between 1,400 and 1,650 on the S&P lies the true value of the market…

Mostly it was the rest of the World that dinged Corporate Profits, with a $33Bn decline.  Don't blame taxes, Corporations paid $13.6Bn LESS in taxes in Q1 than Q4, which was already $4.4Bn less than Q3 – no wonder they have to have hearings!  

Anyway, if our economy is slowing down – what's holding up the rest of the World?

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  1. Oil Lines

    R3 – 97.2
    R2 – 96.21
    R1 – 94.7
    PP – 93.71
    S1 – 92.2
    S2 – 91.21
    S3 – 89.7

    Yesterday's high and low – 95.22 / 92.72

    The oil numbers are at 11:00 AM today.

  2. Good Morning!

  3. Got a wheee on oil off that $92.50 line just now, good call Phil!

  4. Phil – Thanks for your take on SFD. I must have missed it due to the comic on 'Clean Air Vacations'…. :)

  5. Watching the market today for a possible change in the trading pattern.  Will get more defensive if we get an afternoon sell-off.

  6. Copper/Phil – stockpiles up, but premiums too, due to "financing deals" says this article you ran this morning. I'm not really following this. Can you (or someone) explain this more sometime today?   

  7. Good morning!  

    Dollar is plunging to hold the markets up.  Gold flying to $1,412 as the Dollar drops a full point to 81.10, most of it right at the bell.  That's stopped the opening from looking too ugly but what total manipulated BS and, of course, Cramer is barking like a Carny, telling the sheeple how great things are and how they should be BUYBUYBUYing this dip.  

    We're very weak – Be Careful!  

  8. In a conference call… I'll update the portfolios as soon as I am done.

  9. Oil bottomed at $91.65 and now back to just under $92.50 again – what a ride.  Congrats Bruce – I hope you got off…

    You're welcome 1020.  

    Defensive/Albo – Dollar just hit 83.12 and is bouncing up so we'll see if the indexes can stay green off a move back up.

    I think, to some extent, the weak GDP will be interpreted as MORE FREE MONEY and that will keep the bulls in play as some of the people want to be fooled all of the time.  Same goes for TSLA, which had a very brief dip to $101 but quickly got bought back up to $105+ because a lot people are betting Elon announces something even better this afternoon.  This is like waiting on line to see Santa Claus – it doesn't matter that the kid on his lap is crying or the one that just left looks disappointed – when you get YOUR turn, it will be magical and all your wishes will come true!  

  10. Elon Musk will be interviewed on Mad Money tomorrow.  Knowing Cramer basically does infomercials for companies, I wonder if this is part of the reason the stock is strong today and might surge a little higher.  When Elon speaks, shorts get scared for now.

  11. BBY – what the..?

  12. Phil – thanks for the ELP blast this am. Got to see them as a teen, and we had what we thought were terrible seats – beside the stage in the balcony. Turned out we had a great view of Palmer on the drums – I'll never forget it – truly was a show.

  13. ABX – 5.5%!

  14. Pharm do you follow TEVA at all?

  15. Good morning! Go ABX! :)

  16. Phil – Just curious.  Why are you buying DIA puts and TZA calls rather than selling premium, i.e. selling DIA calls and TZA puts?  Do you ever sell premium on these ?


  18. TZA/Phil:  Did you want to get an equal amount ( 50 contracts ) of October TZA 30/37 bull call spreads?

  19. I think that it would make sense to take the money and run on the ABX trade with a double and 22 days to go. Also, do we want to gamble on the SCO trade with numbers coming up in 30 minutes.

  20. Free money / Phil – Well, we have to make up for that:

    Government spending fell even more sharply in the fourth quarter, and economists speculate that government agencies pulled back in anticipation of budget cuts initially due to begin in January but which took effect in March.

    In the first quarter, government spending dropped at a 4.9 percent annual rate, faster than the 4.1 percent rate initially estimated. Spending fell at federal, state and local government offices, though the majority of the downward revision in Thursday' report came at the county and city level.

  21. STJ/SCO
    Not gamble I thought we would be in that trade FOR the inventory release at 11, no?

  22. Pharm – Any perspective on Ampio Pharmaceuticals (AMPE)? It has two compounds in phase III trials: 1) Ampion, a naturally occurring anti-inflammatory compound that is under development for the treatment of osteoarthritis of the knee and 2) Optina, a reformulated dosage of danazol that is eligible for a 505(b)(2) application. The target indication is Diabetic Macular Edema (DME). Thank you.

  23. Copper/Scott – Same as gold, IBanks and Hedgies buy up the copper supply (or use it as collateral, which freezes it) and take physical copper off the market and stick it in warehouses to create an artificial shortage so, while there is a lot of copper available for sale/trade on the Futures market – there's not much physical copper available for actual use and thus, a premium is paid over spot pricing for the delivery of actual copper that people need to build things.  

    Musk/Rusle – Good point.  Has Cramer EVER had a CEO on his show where he didn't conclude the company was a screaming buy?  Ever?  Once?  

    Meanwhile, the $111 line 

    BBY/Scott – Wow, nice move on them.  They just broke out of range and got the TA people all excited.  New game console cycle is well-timed for XMas this year is the back-story.  

    Cheap seats/Deano – Some of the best concerts I ever saw were from behind the stage as MSG.  No one ever wanted those seats but I used to love being 30 feet from the band – who cares if they mostly faced out – kind of made me feel like I was on stage with 20,000 people watching me… Saw Elton John and he had two pianos and the one further back stage put him closer to me than the people in the first row.

    Corporate Terrorism/Scott – Wow, talk about kicking it up a notch!  

    Gold tapped $1,418, now $1,414.  Dollar 83.02 is super-weak – GDP report has everyone thinking QEForevermore.  

    DIA/Albo – Well, they are insurance hedges – money we expect to lose but make nice pay-offs if the market dips, at which point we can re-deploy the cash to buy more stocks.  

    Not at all as good as Consumer Sentiment last week:  The Bloomberg Consumer Comfort Index is about unchanged at -29.7 vs. -29.4 last week. The index's momentum continues to stall after breaking through in April the -30 barrier under which it had been stuck since 2008. As perspective, the 1985-2007 average of the CCI was -9.4.

    Slowing: Apr. Pending Home Sales: +0.3%  to 106.0 vs. +1.4% expected, +1.5% prior (revised)

    EIA Natural Gas Inventory: +88bcf. Futures -1.11% to 4.14.

    Oil is on deck at 11 – Now a big build is expected and oil at $92.27 so not sure if we'll get a huge dip but this is very nice.  We went very aggressive with SCO in the STP, buying naked $34 calls for $3.53, now $6.06 and selling the naked $37 puts for $1.65, now .60 so it would be way too greedy not to take this and run so let's cash out and be happy on that one with a 2-day $1,785 profit. 


  24. That's a good point on DIA.  I guess it's a disaster hedge, and profit would be limited on sold premium.

  25. BTU joins ABX in the 5% club based on Icahn rumors – nice!

  26. STP / Phil – Actually we have the Jun 34/37 BCS so not as good… But a nice profit nonetheless.

  27. TZA/Income Portfolio, Kinki – Yes, it should be the same number but I thought it was 30.  

    Build in oil (3Mb) but gasoline down 1.5Mb and distillates up 1.9Mb – thanks to worse API Report – expectation were for worse so oil not heading lower on the report.  Glad we took our profits but this is nothing to be long over! 

    EIA Petroleum Inventories: Crude +3.0M barrels. Gasoline -1.5M barrels. Distillates +1.9M barrels. Crude -0.94% at $92.25.

  28. U.S. crude oil inventories are above the upper limit of the average range and at their highest level since EIA began collecting data in 1978!

  29. and I just paid 3.97 for regular!!!

  30. SCO/StP, StJ – Damn, I though we sold short puts.  Well, spread cashed out at the full $3 but not as profitable as what I thought we had.  Oh well…  ABX was the one we played very aggressive with the long call and the short put.  I'm not inclined to cash that so quickly but we can certainly buy back the puts for .22 and see how the calls, now $2.39, go with a stop at $2.  

    Government spending/StJ – Who cares, they only hire the bottom 80% and only service the bottom 80% – dead weight, right?

    Inventory/Sage – Yes, but we got a drop to the $92.50 line, which has been strong support AND we had the additional information of the API report, which re-set expectations much lower and lessened the likelihood that even a poor EIA Report would knock prices down further.  You have to dynamically adapt your strategy as better information comes in.  We started off risking $1.88 to make $1.20 and then we're risking $2.75 to make .25 – no longer makes sense, not to mention why wait a month to make .25 on $2.75 – we're better than that at making money!

    DIA/Albo – Yes, it's a different strategy.  Especially since we could have a 500-point drop that reverses so, with naked puts, we can take a quick profit and re-set after.  

    Icahn/Deano – That guy is always buying my companies!  That's 'cause he's a cranky old Jew like my grandpa Max, who taught me how to buy things!  8)  

    LOL Sage – isn't it ridiculous?  

    Dollar back over 83 – bye bye rally, thanks for the head-fake.  

    Another group that's always following my picks (but much later):  Goldman puts MEMC (WFR +5.2%) on its Conviction Buy list and raises its PT to $10 from $8. The firm assigns MEMC a sum-of-the-parts valuation of $11, including a $5 valuation for its chip wafer ops. Rising chip industry multiples and a more shareholder-friendly board are seen as catalysts for "potential value creation." MEMC is hosting its annual shareholder meeting today

  31. Phil – Do you have any perspective on Resources Connection (RECN)? It's a multinational professional services firm that caters to a wide range of areas: audit, finance, technology, etc. Revenues have been weak, but still growing and their balance sheet looks good. Valuation appears to be attractive. IF Europe moves towards more growth oriented policies and the US makes a push on job growth, then staffing companies could be an interesting play. It has options, but currently between strike prices…. Thank you.

  32. FAS Money play in the STP:  Buying 5 FAS Oct $75/80 bull call spreads at $1.50 and selling 5 next weekly $70s for $1.80 for a net .30 credit.  We're relying on the fact that we can roll the $70s to the June $73s (now $1.62) and the July $78.33s (now $1.50) but we should still have a stop on 2 of the short calls at $2.50 to be safe.  If we stop out the short calls, we then execute the roll on the remaining 3 calls to 5 of the June "whatever is evens".  


  33. GM!  I have a strange feeling of deja vu….what a joke of a market….

    TEVA/sage – They generate a ton of revenue and profits from Copaxone.  I would be careful with them but I do like them for a longer investment.  Their CEO was from BMY, and he is not afraid to do deals. 

    AMPE/eric – I do not like them much.  I could be wrong, but their two Phase 3 trials are interesting, but I do not see how they can capitalize on the products.  Ampion is just human serum albumin (HSA).  Whuck??  Optima is an old drug for a new dog, so like VVUS, could be approved but companies (TEVA??) could replicate the drug or just cut the drug in 1/2 or smaller and take it for DME.  As a play, they are fine for a run up, but for investment, they offer nothing to me that is exciting to play for approval.

  34. 36M on the Dow at 11:30 is so-so volume.   Europe finishing at the highs, up about half a point.  

    Oil $93.68 (/CL) – going to make a nice short again – certainly at $93.50 or $94 if they make it there.  USO tomorrow $33.50s down to .32 and were .80 this morning so nice risk/reward for a fun trade.   10 of those in the STP with a stop at .15 risks $170 to make maybe $450 on a drop back to $92.50.  


  35. Phil – with oil services downgraded today, how about a HAL BCS, buying the Jan '15 35/42, selling the 35 puts, for .60 on the $7 spread, and maybe waiting to sell the july 42 half calls? TIA

  36. RECN/Eric – They are small and I don't follow them but they sound horribly dull.  I agree with your if and if premise, their costs are their 3,000 employees and they've done a very nice job already of cutting costs on flat revenues and they have cash ($130M) and no debt and the only reason cash flow is negative is because they snapped  up their own stock at about $11 last year so all good signs.   They even pay a cute little .24 dividend (2.2%).  Options don't go very far out but you can sell Nov $10 calls for $1.40 (selling at net $11.40) and the $12.50 puts for $2 (buying at net $10.50) for a net $7.60/10.05 buy/write – it's not much of a discount but it's only 7 months to November, so what do you expect?  Meanwhile, you're protected against a 10% drop for free and you get your .06 dividend at least twice and, come November, you just roll the losing side.  If you get called away at $12.50, you make a quick 64% and, if assigned to you under $12.50, you have 2x at $10.05 and then you sell $10 puts and calls for the next 6 months.  

    GM/Pharm – Maybe TSLA will buy them?  

    Services/Deano – I like the idea but I'd give it until next week.  This whole ball of wax can melt over the weekend with Europe bubbling over.  

  37. wow! WTF???
    11:54 AM Priceline (PCLN +2.5%) prices its convertible debt offering at very favorable terms. The notes, which are due 2020, will pay an interest rate of just 0.35% and sport a conversion price of $1,315.10/share, 62% above Priceline's current trading price. The buyback that will be financed by the debt offering is good for repurchasing 2.5% of shares at current levels.

  38. Another brilliant analysis….sheesh.  I need to go work for GS or someone.  This is getting ridiculous.

    Wedbush's Gregory Wade reverses course and upgrades Ironwood Pharmaceuticals (IRWD) to Neutral from Underperform — he downgraded the shares a little over a month ago after asking some pointed questions regarding R&D expenditures on the CC. Wade now says higher W/W script growth should lead to greater net sales of Linzess (IRWD disappointed with Linzess sales in Q1) which ultimately means a lower balance sheet gap to profitability ($150M versus $200M). Wade also says the company shouldn't need any more equity financing. Shares +1% premarket.

  39. Sure Phil.  I was just saying Good Morning…but I like it!

  40. STP:  Up again.  Maybe we should just cash out every time we're up and start from scratch – would have had $5K by now!

    SCTY – Once were up and now they're down but July is a long time for a roofing company to carry a market cap of 30x sales (there are no profits).  

    ABX – Up 6.66% at this moment.  June $19 calls at $2.35 with a $2 stop.  Puts are gone.  50 dma is $22 so would be smart to take money and run there and delta on the $19s is .82  and ABX is $21.13 so a .80 move should be about .64 more which is just under $3 so let's say we'll raise our stop to $2.25 at $2.40 and then make it a .20 trailing stop moving forward and hope to catch $2.75 before the pullback.  

    CLF – Nice opportunity to buy back the Jan $24 calls for $1.65 and we'll get more bang for our buck rolling the 4 Jan $17 calls ($4.30) to the $14 calls ($6.10) for $1.80 and then we'll cover with something for $3 and drop our net to $5.95-2.23 (original spread) + $1.65 (buying back caller) + $1.80 (for the roll down) – $3 (for the projected sale) = net $4.17 to be in the $14/20 ($2.85 at the moment) bull call spread – less the short puts ($4.30) of course.  That puts us low enough to sell short calls on a bounce.  

    TZA – No change so far.  

    SHLD – Fine and dandy.

    SCO – Done 

    TLT – 7-year auction at 1pm will be important.  Expect heavy buying (from Fed). 

  41. SGEN – going to exit the June 30/35 BCS 4.20 and if you have not already, buy back the June 25 puts for a nickle.

  42. Who in their right mind would buy that PCLN POS convert???

  43. The other June 30 calls I am selling for 5.60.  THAT was a nice trade.

  44. PCLN/Jabob – WOW is right!  I think PSW needs to float a bond….  Wow….  

    If people are willing to buy into crazy deals like that, then we should find a company to buy ASAP – just so we can issue paper.  Let's say we buy CLF for $3Bn by selling $4Bn worth of debt at 0.35% through 2020 so we can buy 100% of the stock and agree to sell the stock for $24 (now $19) as a kicker.  That gives us the company for free for 7 years plus $1Bn to play with!  Well, not free, we would have to pay back $14M in annual interest on the $4Bn we borrowed…  

    IRWD/Pharm – You know how that goes, someone writes a critical piece on a company and they fly him out to HQ and give him a tour and "enlighten him" as to all the wonderful things they are doing.  I turn that crap down all the time but other people purposely write about companies that are known to "correct" misunderstandings.  LOL on GM – I'm not up on the latest shorthand, I guess…

    PCLN/Jabob – Maybe it's a test.  Anyone who buys that offering gets their voting privileges taken away…

  45. /CL options… what are the hours for the futures options?

  46. BTU is chilling fast! Glad I learned rule #1!

  47. Scottmi- I believe same hours as CL, basically like 23 hours a day. Think between 5 or 5:15 pm est to 6pm it doesn't trade. 

  48. romeha – thanks – i'm looking at them but would hate to get caught opening a position and then be stuck!

  49. Always the same COST at opening up 2.30 +- now only .11 act in the excitement!!!!! You always find some crazy buyers

  50. Trying to buy AFFY Jan14 $5 calls again for a dime.  DD for me (again)

  51. Chile President Hopes Barrick Will Comply with Pascua-Lama Project Rules

    May 30, 2013 13:09:06 (ET)


    By Nirmala Menon

    OTTAWA--Chile's President Sebastian Pinera said Thursday he hopes Barrick Gold Corp. (ABX) will continue with its flagship Pascua-Lama mine project in his country, provided the Toronto-based company complies with environmental rules.
    Mr. Pinera, who was on a state visit to Canada, said Barrick didn't comply with all the conditions set out in the environmental impact assessment for the project, which was originally approved in 2001 and re-approved in 2006.
    He said Chilean authorities have identified 23 areas where Barrick will have to "improve their behavior with respect to the environment, and the company has agreed to that."
    "And therefore, I hope that if they comply with all the conditions that were set from the beginning when this investment was approved, that the investment will be able to continue," Mr. Pinera said during a joint press conference with Canadian Prime Minister Stephen Harper. He described Pascua-Lama as a "very important" investment, citing its location close to Chile's border with Argentina.
    The Chilean government recently fined Barrick, the world's largest gold miner, $15.8 million for alleged breaches in environmental controls at the Pascua-Lama mine, throwing its future into uncertainty.
    Write to Nirmala Menon at

  52. The bullishness seems very Euro driven.  It cannot be the prospect of average Americans increasing their consumption by much:
    "American households have rebuilt less than half of the wealth lost during the recession, according to a new analysis from the Federal Reserve, hampering the country’s economic recovery.The research from the St. Louis Fed shows that households had accumulated net worth totaling $66 trillion at the end of last year. After adjusting for inflation and population growth, the bank found that number amounted to only 45 percent of the wealth that Americans had during the peak of the boom in 2007."

  53. Phil // Catch Up
    Sorry been out of the loop. Had 3 family emergencies hit all at once, so haven't been able to check in. Two things I wanted to check with you, both TSLA and NFLX. These are the momo's that are on my radar. I saw a lot of activity on the boards but since I have not been following the trade from the beginning, could you comment on my present position.

    -20 Sept13 $80 calls ( cost $14.78 ) 
    +20 Jan15 $85/115 BullCall spread ( net $7 )
    you had suggested adding another 'cover' $105/135 bull call spread again, but i'm having trouble how this is going to play out to my advantage when I'm really bearish. Can you give me the thought behind the 'backstops' ? I want to be safe but I'm also really bearish on Elon mid term.
    FYI – spent a few days with one of the engineers for EV – did you know that the entire battery 'mattress' on the bottom of the S ( which consists of over 30 plates ) if one of those shorts out – the entire panel needs to be replaced. Didn't know that. You nailed the bottom line though – really good technology but absolutely not profitable.
    -10 Jan14 $230 calls ( well ITM )
    +10 Sept13 $205/225 Bull Call Spread ( again, the backstop strategy )
    -10 Jan15 $140 puts for protection ( you had mentioned you were concerned about these before ? )
    DIA hedge
    Changes made – but if we have always been concerned about a pullback in June, why are we selling June puts up at $149 ??
    Sorry about the hit and run – things a little crazy here right now //

  54. where is wombat?

  55. funny- perfect timing Wombat.

  56. EWJ / anomaly?  – Nikkei off 5.15%, EWJ only off .99%.   What in hell is in that "Japanese Index Fund" ???  I'm taking a shot here.

  57. Reminder CIM adding 500 more stk and selling the Jan15  3 c/p .35/.60

  58. Phil:
    Whats up with AAPL today? $452 and climbing……. Time to sell a call against a buy of 10 contracts of 2015 500C basis $110.6, and sold a put 2015 360 for $41.60.  your recommendation requested, please

  59. AAPL getting stronger as the market's getting weaker…go AAPL!

  60. AAPL  next weekly MOMO putters still not sure as stk is up 7.50 at present never know when this will tumble down again so we wait till tomorrow to see what might hold.
    Selling callers I personally stay away from at present as my port is growing nicely without capping the good fortune.
    Possible Phil might have other thoughts???

  61. Elon Musk talked about setting up colonies on Mars at the conference today (not kidding).  The company which hasn't started yet already has a 4B market cap.  GS is ready to do a seondary on the non public not existent company.

  62. Phil, I am fairly new to the site, so trying to catch up/keep up with your thinking and strategies.  I understand the case for holding ABX in a long-term portfolio, but not in the short term.  It appears that ABX moves in the same direction as other miners. If that is the case, why is NUGT not a better play than simply ABX, particularly since NUGT really amplifies the trend?

  63. sorry guys – my mother in law had a heart attack, and my father in law needs 24/7 infusions and bed care, so I had to jump over the bay and play RN.
    Qcmike // Hadnt forgot about ya – If you still would like assistance with the PM – let me know 

  64. Looking at many of my 1/2 short month callers sales, many of  have gone up to 50% and more against my original selling price.
    Obviously the far out tree position has gone up at the same or even better pace. Question is what to do with the short term callers? I take for example BA rolled already the 95 caller to Nov for 4.10 now 9.45. I look at it this way the caller has still 4.45 premium so surely I do not want to buy all that premium back, meaning rolling out further is out of the question, as you now paying for the premium which obviously in part you could again cover by selling putters.
    The market has gone up to fast and you might find in a near correction the excess amount of premium could quickly melt away.
    I trust many of you are in similar positions. Possible Phil you might give some general thoughts on this matter. thanks

  65. tai:  Phil's general view is that if you like a sector, you should own the best quality / strongest company in that sector, although I'm sure he will comment directly.  You're right about amplification, but it works on the way down, too!!

  66. Wombat – Sorry you're having to deal with one of life's ironies…..

  67. Color Me…not surprised at all……

  68. Oil hours/Scott – They shut them during the week from about 4:15 until 5pm but that's about the only time they DON'T trade.  Friday 4:15 until Sunday 5pm is also closed.  I think that time shifts an hour later at some point (maybe it's GMT or something).  

    Rule #1/Deano – Very useful! 

    ABX still up 6.66%, someone is having fun.  

    Net worth/ZZ – Do you have a link to that?  So much for a zero sum game – where did the rest go?  

    Welcome back Wombat.  On the whole, you didn't miss much.  TSLA still bat-shit crazy.  I would have been great if you added that cover as it would already be at the money but, in essence, you can cash the 2015 $85s for $42 (last trade is now $39.50) and used $5 to roll the short $115s up to the $135s and then spend 2x $9 to buy 2 $100/130 bull call spreads which would leave the position as 40 $100 calls offset with 40 short $130 calls and 20 short $135 calls and 20 short Sept $80 calls (can be rolled later, no hurry) and, for balance and lower margin, I'd also sell 20 2015 $70 puts for $15 as that pays for a nice roll if TSLA keeps going up.  

    That's aggressively bearish and uses margin so make sure it's realistic for you but it nets 20x $17 in your pocket from the sale of the $85s, drives your 2015 callers up to $130/135 and puts another 20 x $15 in your pocket from the put sale to help pay for the eventual roll of your Sept callers, which are currently $35 in the money (down $20 intrinsic).  So $64,000 cash collected against whatever additional margin the 20 naked 2015 $135s is (TOS says $23,000).  Of course you need to keep a stop on the naked $135s, maybe 1/2 at $27 and 1/2 at $32 – something like that to say out of big(ger) trouble.  

    NFLX/Wombat – Not sure what you mean calling the Jan $230 calls "well ITM".  NFLX at $219 so nothing wrong with that spread at all if accurate strikes.  Short Jan $140 puts, now $7 not much point to other than being a bird in the hand but you can pick up an extra $11 rolling them to the $180 puts if you need money for other adjustments but, as presented, you don't.  I may have said I'm more worried about the puts going in the money than the calls but the calls just were in the money and, if the market doesn't quit – we do need to be realistic and worry about those but they're only Jan and currently $31.50 and the 2015 $290s are $30 so you really have another $50 ($270) before there's any real need to worry as you can roll the puts up for $10 and use that $10 to roll your caller up higher than $300 and then your bull spread should be cashable for $17-18 and you can use half of that money to buy another bull spread that pays triple if NFLX actually hits $300 (the 2015 $250/280 bull call spread, for example, is $9).  

    EWJ/ZZ – Doesn't really synch up perfectly so be very careful.  EWJ tracks the MSCI Japan Index, which is not the Nikkei.  Generally, the Nikkei does go first and EWJ lags behind though.  Moves in EWJ are more subdued usually but 94% correlated.  

    CIM/Yodi – Good call adding at $3.  Going down with the REITs for no reason.   

    AAPL/Jasu – Yes, it's so confusing when they go up, isn't it?  We have a 1/3 cover on our open positions in the Income Portfolio of the June $450 calls, now $12.50 and I think we sold them for $10.  If you have 10 calls and 10 shout puts, then selling 7 short calls would be appropriate and those can roll to 14 of the July $485s (now $6) and those can roll to 20 of the Aug $515s (now $4.50) and won't you be happy if your worst problem on AAPL is your $515 caller is in the money with 16 months left to roll?  

    Dollar holding the line at 83 so far.  Oil back to $93.50, gold holding strong at $1,412.  TLT can't take $115 back:

    The Treasury sells $29B in seven-year notes at 1.496%. Bid-to-cover ratio of 2.7; indirect bidders take 40.8%. Direct bidders take 20.7%. 

    By the way – useful information for today:

    What is direct bidding and how long has direct bidding been allowed?

    In a Treasury securities auction, direct bidding is the submission of bids by an entity directly to the Treasury or Federal Reserve rather than through an intermediary such as a bank or a securities dealer. Treasury has permitted direct bidding, both competitively and noncompetitively, as long as it has conducted securities auctions.

    Who may bid directly?

    Entities permitted to submit bids directly include, but are not limited to, primary dealers, other brokers and dealers (non-primary), various types of investment funds (for example, pension, hedge, mutual), insurance companies, depository institutions (banks), foreign and international entities (governmental and private),  the Federal Reserve (System Open Market Account), and individuals. 

    Any entity or individual may bid directly as long as the entity or individual has made all the necessary arrangements for access to TAAPS and has made proper arrangements for delivery and payment for auction awards.  For entities or individuals that do not have a funds and securities account with the Federal Reserve, payment is arranged through an autocharge agreement.

    What is a direct bidder?

    "Direct Bidder" is referred to on the auction results press release as non-primary dealer submitters bidding for their own house accounts, i.e., for the bidder's "proprietary" accounts.

    What is an indirect bidder?

    An "Indirect Bidder" is referred to on the auction results press release as customers placing competitive bids through a direct submitter, including Foreign and International Monetary Authorities placing bids through the Federal Reserve Bank of New York.

  69. Yodi.  That is a great question you pose.  i wouldnt want to buy the premium by rolling either.  The only suggestion i would have is to add an oom BCS which would give you some measure of leverage and cover against a continual move up.    A BCS would also help give patience while the premium melts.   I am curious what Phil says.

  70. roberthjrfl
    BCS your suggestion is good when the stk is not at upper resistance level. I do not like to buy  expensive verticals when in the end the long call runs in to near to nothing.

  71. Who the heck watches CNBC and Fox Business New (FBN) anymore:

    • 6 to 9:15 a.m.: CNBC ratings rolled back 13% overall and 31% in the 25-54 age group, comparing May 2012 to May 2013. Fox Business Network was down 19% overall and 12% in the key demographic.
    • 9:30 a.m. to 5 p.m.: CNBC dropped 15% overall and 7% in the younger demo. FBN saw a nearly 20% drop in overall ratings, according to Nielsen, but held steady in the younger demo.
    • 5 to 8 p.m.: CNBC ratings dropped 25% overall but actually posted a gain of almost 11% in the key demographic group. FBN slumped about 33% in overall ratings and a painful 59% in the 25 to 54 age group. (ouch!)
    • 8 to 11 p.m.: CNBC ratings plummeted 32% overall and 34% in the 25 to 54 age demo. FBN saw the younger demo roll back but actually saw significant gains in this timeslot with a 42% surge overall.

  72. Pharm / AFFY - FYI I posted a while back that I was able to get the AFFY JAN 3/8 BCS for .15 instead of doing the 5 Cs.  Might want to see if that's still and option, $2 more ITM.

  73. TSLA even Musk made a big promise of charging stations from Cal. to NY I feel the stk has reached it's upper ceiling of 105

  74. CIM on the above mentioned play I have closed the stk for 3.06 and the putter for .55 however do not close the caller under .35 just put a GTC on it for any one following this play!!!!

  75. AFFY/mrm – yes, better to be closer to ITM.  But I have the 5 calls and I don't want to have 2 legged plays on this one.  I do like yours for a new play.  I am going for the home run, not a double! :)

  76. VNDA on a TEAR.

  77. Important details about the Tesla Supercharger Network to be unveiled later today at 10:30am California time


    Last note from Elon – 1:30 has come and gone, though.  

    Tesla promises to add charging stationsAP

    Callers/Yodi – I think CASH is prudent – especially if you are naked bullish as an alternative!  I hope at least you have some disaster hedges, only one more trading day in May.  

    Mars/Rustle – I'm not sure what you'd be investing in on Mars missions.  We didn't get a lot of ROI from the moon.  The knowledge is important, of course and Nasa invented a lot of important things solving the problems of getting to space but not sure if that's the purpose of Musk's Mars Corp.  If so, I wouldn't mind investing in a pure research company that's using a Mars mission as an excuse to gather top-notch scientists to advance many fields but, don't forget, NASA never paid top-notch salaries, nor did they give stock options.  Nasa invented Water Filters, Cordless Tools, Safety Grooving (for runways, used in roads too), Smoke Detectors, Satellites (kind of important), Insoles for shoes (the basis of all modern sneakers),  Ear Thermometers (and many other meters), MRIs, CAT Scans, Memory Foam (SCSS and TPX alone are worth $4Bn), Scratch Resistant Plastics (contact lenses), UV Blocking Glass, Solar Panels, the technology that makes artificial limbs and robots work….  So, if I thought we were going to actually have a serious R&D corporation to invest in that uses a trip to Mars as a catalyst to let scientists to solve 100s of problems – I think I'd like that idea….

    ABX/Taih – NUGT is just GDX x3.  While it may look exciting today, it only oupaced ABX by 100%, not 200% and, if you look at a long-term comparison chart, you can see what a disaster NUGT is over time (as are most ultra ETFs).  Many new option traders think they have "discovered" something with the ultra-ETFs but you'll notice very few of the experienced guys bother with them – for very good reason.  ABX is, in my opinion, the best of the miners and the one I wouldn't mind doubling down and rolling with over time.  GDX and NUGT are full of crappy little junior miners that you would never put a penny into if they weren't part of the ETF – the only reason we like GDX recently is that they whole sector fell so far it became likely someone would get bought and that would cause a general rally – hasn't happened yet.  

    Parents/Wombat – Very sorry to hear that.  Hope things are getting better.  I had to run to Florida last week for my Mom's friend who's very sick – it sucks to get old…

    Callers/Yodi – Just consider them good protection for additional bullish plays.  Look at our TSLA $85/115 spread.  We have short $90 callers that are $23 in the money so we cash the $7 spread for $15 and buy 2 of the $100/130 spreads for $9 so we spend net $10 to now have $50 of upside at $130 covered by a short $28 (including current premium) caller that we can roll from the Jan $90s to the 2015 $110s (now $28.50) at least.  Of course, if TSLA keeps going up, we can cash our 2x 2015 $30 spreads for $15 and roll those to 4x 2016 $30 spreads at $8-10 and then cost basis is about $5 per $30 spread and now we have $100 of upside, etc.  That's without even selling puts.  The caller only has to fail his target one time for us to get paid along the way. 

    Very sad and true cartoon StJ. 

    How's that RUT 1,000 line coming, by the way?  

    Olympics/1020 – Oh come on, it says right in the article: "A Russian official dismissed the claim."  Now, who could question that?  The cool thing about stealing $30Bn from the Government in this economic environment is they can just print more and no one in the World would notice.  

  78. I agree with you Robert.  

    Expensive verticals/Yodi – True but it's about the net delta of the long position vs. what you have short.  Those higher verticals won't lose money as fast and, of course, if you are cashing in your original long calls – you are capturing those gains as well.  

    CNBC/StJ – Sadly, I am one of the few.  Too bad they don't post the actual numbers, which are now like 20,000 people watching at night – so it doesn't take much to get wild swings.  

    Thanks ZZ!   I like this list of richest counties in America.  Notice leeches around DC make up half of the counties with high-income households:

  79. Phil- Going back last summer or was it the year before, the BOJ dumped the Yen to adjust for the dollar weakness which resulted in a disaster for the markets with up/down swings of 500 pts everyday. I am sensing some nonsense from them again given the excessive volatility of the NKD and the dollar weakness. Do you perceive any such risk. Thanks.

  80. VMW about to rollover or take off?? Chart looks like it can go either way.

  81. /DX down .73, /ES up .73 – thanks for teaching me Phil – always good to be reminded.

  82. In case you put on my AAPL trade yesterday, the Jun14 450/455 bcs, short the jul 390p.  
    The spread is up 26%, the put is up 25%.  
    I'm going to sell half.

  83. Yodi, why did you put on the CIM trade and then take it off so fast?  
    I like CIM.  11.7% yield.

  84. Phil – but some experienced traders to play the ultra ETF's – you play FAS quite a bit and also the ultras on the Nasdaq from time to time…and here's the anti -stick to round out the day!

  85. Another reason why the only people more foolish that analysts are the people who listen to them.  Glad the SEC is on top of this.  They're usually so on the ball when it comes to the big firms:

  86. Oops, chart didn't print.  Anyway, 5.7M households (5%) make 22.3% of the nation's income.  That leaves an average of 0.8% for the bottom 95% but then the next 5% actually make 12% and the next 10% make 10% so the top 20% end up with 44.3% and the bottom 80% get to have an average of 0.69% each to fight over.  When you start out with such basic inequality at the top, you have nowhere to go to fix the system.  

    Tax benefits for the rich

    TSLA/Yodi – As soon as the charging stations are up, there will be another article by someone who has a horrible trip trying to drive a Tesla from NY to CA.  I wonder how they'll avoid dying in the desert actually.  I sure wouldn't make that trip without a back-up car following me! 

    Dow up 0.5% with the Dollar down 0.75%.  S&P up 0.75% and others about the same – DO NOT BE FOOLED!!! 

    Risk/Vedan – Of course I do.  That's why I try to say I LIKE CASH at least a couple of times a day – because, after the crash – everyone will say why wasn't I more bearish….  It's very, very dangerous for Central Banks to mess with the money supply – it's like a bunch of kids in science class tossing random chemicals into a beaker to see what will happen.  Eventually, you get a reaction that either smells really bad or blows up in your face…  This is a very risky environment to trade in and the market needs to first clear our breakout levels (Big Chart) before we can get comfortable calling this a good floor to bet from.  As it stands now, this is week 2 of waiting for the RUT to hold 1,000 for more than a couple of hours  

    VMW/Kustomz – UBS put out a good note on them and people took advantage of the move up to get out.  

    By the way, TSLA is claiming (according to CNBC) that their charging stations will be solar powered.  Unless I missed a massive advance in solar technology – you need about a whole roof's worth of solar panels running for more than an hour to charge a 240-volt car for an hour so they charge 4 cars at a time, will they have 10,000 square feet of solar panels at each location?  No wonder SCTY is up but how does TSLA pay for this land when they're giving the electricity away for free?  Also, aren't there installation costs of maybe $200,000 for 4 homes' worth of panels?  That plus the land and then service and install and we're talking at least $500K per station – probably closer to $1M.  I know money doesn't seem to matter but the bottom line is they can't take a $100M hit to earnings because they don't have any earnings and they don't want to go red.  I'm sure Musk will work out some crazy rent-to-own deal with SCTY to bury the costs but someone will figure this out eventually.  

    You're welcome Deano.  Makes things much clearer – doesn't it?  

    AAPL/Burr – Very nice call, congrats!  

    Ultras/Jerconn – Yes but you need to be very aware of how dangerous those tools are.  I like them for protection but I don't usually buy a naked call or put – with our TZA's for example, we use the ridiculous premiums of the short calls to our advantage.  That's not at all the same thing as buying a NUGT call naked or even the ETF itself, which grinds away like TBT does.  

  87. CNBC/rustle – and it's not so much that the analysts listen to them, but the analysts think there's a bunch of sheeple out there who will do whatever CNBC tells them, so the analysts acting accordingly. A very strange behavior.

  88. Anyone want to take CSCO for a spin?
    CSCO Jul 26C 32522 bought for .23 today
     18116 of the jun 24c for .81

  89. And TSLA's competition begins:

    i_know_what_happens_next 20 minutes ago Flag

    1 users liked this posts users disliked this posts 1

    Honda $259 lease on Fit EV

    Honda Motor Co. is lobbing a grenade into the ongoing electric car price war, dropping the lease payment on its compact Fit EV from $389 to $259.

    The 36-month lease deal requires no down payment and comes with unlimited mileage, along with free collision coverage, maintenance, roadside assistance and a 240-volt home charging station.

    Honda’s move, announced this morning, comes after Nissan’s Leaf, Chevrolet’s Spark EV and Fiat’s 500e recently announced lease deals of $199 a month in an effort to entice more customers into all-electric cars.

  90. Phil // TSLA
    ok, want to double check this with you
    cash in the Jan15 $85 calls ( originally from the $85/115 bull spread )
    roll  the short Jan15 $115's up to Jan15 $135's ( also originally from the $85/115 bull spread )
    buy 2 ( did you mean 20 or 2x meaning 40 ? ) Jan15 $100/130 bull call spreads for ($9 )
    sell -20 Jan15 $70 puts ( $15 )
    so the position would look like this //
    -20 Sept13 $80 calls
    -20 Jan15 $135 calls ( stops at $27 and $32 )
    +40 Jan15 $100/130 Bull Call spread
    -20 Jan15 $70 puts 
    Thanks !!! 
    Also – would you wait until after exFriday ( tomorrow to put this in ? )

  91. Phil – thanks, got that on the ultras…tho I must admit that often when you call a spread on the TZA and FAS, I scalp a few extra dollars by going long on the naked calls…

  92. Phil
    That chase vehical better be a tow truck!

  93. Lol, corruption in Russia, get out of here!!!  
    Phil- what do you think about a long term position in ERIC? 

  94. You guys probably saw this but JIC – wouldn't these be the 20 you picked if you wanted to move the markets?
    20 for Tuesday

  95. You have to hand it to Elon Musk though – the guy is a master at PR. I thought that Steve Jobs was good but Elon is taking it to a different level and the guy is not selling $500 phones! 

    No matter what the stock prices is, you have to admire the dedication to promoting his companies and also what field he chose to play in – solar panels, electric cars, rockets! Not exactly easy industries. OK, so the guy is a tweet machine, but it would not hurt to have 20 of him in many other businesses…

  96. I HATE NFLX!

  97. Phil/All: Out of here on a Carnival "Dream" cruise until the 8th. Best to you all and have a great week!

  98. stjean/Elon Musk
    If all my money was tied up in a company and I could make billions promoting it from the increase in stock price, that would be my full time job.  I don't really admire the dedication of that.

  99. Phil TSLA trip Cal NY you always can take a e bike on the back gives you an other 100 KM and the rest you can paddle (8

  100. Analysts/Rustle, Snow – That's really sickening.  That's why I don't even accept ads (though now we do show ads to people who don't pay and view our site – but I never handle that stuff and Greg and Doug know the answer to any sponsor request is "no" without asking me).  I've seen so many analysts corrupted by ad Dollars and favor-trading – it's no wonder it's such an epidemic.  Even KO, after I made buddies with Muhtar Kent, put me on their list for offers to fly to Atlanta and tour the facility and stay in a nice hotel, etc…  It's ridiculous.  When I used to have my real estate company in NJ and had to play the game, the thing that really sickened me wasn't the fact that politicians COULD be bought – but HOW CHEAPLY they can be bought for.  Analysts are the same. 

    CSCO/Burr – I doubt they get there.  $25 should be heavy resistance.  

    Electric leases/Rustle – Sure, everyone wants in on the Government credit scam that TLSA's been living off.  

    TSLA/Wombat – Yes, 2x, not 2!  Keep in mind you end up MORE BEARISH than before and have to cover or stop out if TSLA goes over $112(ish) but, at the moment, they look good for a pullback.  Might pop tomorrow on Cramer's push tonight but that should be the top of this mess. 

    Scalping/Jerconn – Nothing wrong with using a scalpel if you are a doctor and know not to slice your own fingers off!  

    ROFL Shadow!  

    ERIC/Jrom – Do they even have a smart phone?  I know they do with SNE but I don't know if they have their own and I don't think regular phones will exist for more than 2 more years – it's like having a beeper at this point.  So no, I don't like them because I can't see how their future looks and they aren't that cheap at $12 as they were $8 in November and topped out at $15 in 2011.  If you know something, feel free to enlighten me but I've filed them under dead companies that still walk in my mind.  

    Dow/Deano – Don't forget the Dow is price-weighted so it doesn't mean much what the under $50 stocks do.  

    Musk/StJ – I like him but I don't trust him.  

    NFLX/MrM – Up 3.3% today, wow. 

    Dreaming/Jbur – Have a great time and make sure you pay attention during those life-boat drills!  8)  

    What a disappointing finish after all that excitement.  Dollar still at 83, oil still $93.60, gold $1,413 – looks like we've got some pinning into the month's end.  

    Time for a swim – it's hot around here! 

  101. E Bike/Yodi – I have one of those! 

  102. Burr.
    CIM did not take of any position just added positions bought 500 stk and sold the Jan15 3 putter just advised to hold back with selling the Jan15 caller as I am waiting for a better price!!!!

  103. phil // short calls TSLA
    how did you come up with the $112 ?
    also – wait until monday ?
    TSLA/Wombat – Yes, 2x, not 2!  Keep in mind you end up MORE BEARISH than before and have to cover or stop out if TSLA goes over $112(ish) but, at the moment, they look good for a pullback.  Might pop tomorrow on Cramer's push tonight but that should be the top of this mess. 

  104. ERIC – their main business not phones at all.
    They build telecom infrastructure – all those towers and transmitters.
    They also have big division that make video processing equipment  and their encoders are usually 2-3 years ahead of everybody
    Phones are produced by joint venture with Sony and if I'm not mistaken they ether pulled out that business or in the process.
    I've used to work for them while ago. Their biggest problem – they were called "child care". Means – you really had to screw up in a big way for long while, to get fired.
    They are trying to change this culture- but it goes slow.
    Technically wise – they are "CISCO" of telecom industry
    Another issue is that they are ADR – and it means that your broker will take 20-30% of the dividend (and in addition their home country taxes dividend as well) – so you will end up with less then of a half

  105. Correlation/phil – that is a neat tool!

  106. Jrom/lol730/Phil – on the foreign dividend topic – you may find this helpful:
    Special Considerations When Buying Foreign Dividend Stocks

  107. Got a little more defensive today.  Sold a few things and put on a few more hedges.  Up 16% in 5 months is a little excessive ?  Lots of talking heads think this is just that start of a  big bull move.  That's great.  If that's so, I won't have to be fully invested to enjoy it..   

  108. lol730 – I kept quiet today, but based on recommendations out of Europe, I bought them a week ago for the reasons you state.

  109. Housing & Lumber:  I try not to post long essays, but I thought this was very good [GK Research] and, given that there was discussion what the drop in lumber prices meant, I am posting this report.  I have no personal opinion worth hearing, but I thought this was an interesting perspective. 
    Lumber vs Shiller – by Joyce Poon

    The US housing market appears to be in a sweet spot, with the latest reading of the S&P Case-Shiller home price index showing the biggest gain in seven years. Yet lumber prices are down –28% from their mid-March highs, and lumber futures went limit down yesterday. Either Americans are suddenly showing a major preference for adobe homes, or something else is going on. That something could be that the US housing market has gotten ahead of itself, and will likely be pricked as finance costs rise in line with upwardly mobile bond yields (which yesterday saw the biggest intra-day move since 2011). But we think that something is less ominous.

    Lumber prices are falling because they are a victim of the US housing market’s success. The recovery in demand absorbed existing surplus in the market, created tight inventory pockets, and gave homebuilders the confidence to roll out new projects. But with prices now bouncier, new supply is coming out of the woodwork. Higher prices have lifted more mortgages out of under-water status—some estimate that 20% of mortgages remain in negative equity, down from 31% in 1Q12. Inventory remains tight by historical standards, but we have seen three consecutive months of rising existing inventories, based on number of months (see chart on web version).

    This is a healthy development. Such shift of supply-demand dynamics back into balance should not prevent US housing prices from rising further. That said, the pace of gains will likely decelerate, and US homebuilder stocks might be due for a correction, with their valuations having exceeded their 2004-05 peak levels.

    But it also makes sense to expect slower construction as builders turn their focus to pricing strategy rather than volumes (see chart on web version). Added to this is the fact that land prices have also been rising, and construction material costs are much higher than two years ago. In other words, the contribution of growth from residential fixed investment, which has been about 0.25 percentage points of GDP growth over the past six quarters, may slow in the next quarter or two. But if the US recovers as we expect the slowdown in construction will only lead to a shortage of builder-ready lots…which will lay the seeds for another price rally and ramp-up of investment down the road. After all residential fixed investment as a percentage of GDP is just 2.6%. It still has a long way to go to get back to its average of the past 67 years — or 4.6%.

  110. ABX – Last night on SA.

    Thursday, May 30, 7:01 PM Barrick Gold's (ABX) suspended Pascua-Lama project isn't likely to be reactivated for at least another year or two, given the infrastructure that needs to be built to avoid water pollution, Chile's environmental regulator tells Reuters. Last Friday, the new regulator ordered the $8.5B project halted and fined ABX $16M, citing serious environmental violations. Comment! [Commodities]

  111. Good morning!

    Looks like I picked a funny day to sleep late.  

    Futures down half a point but bouncing off their lows as Dollar recovers 0.4% to 83.40 and that's pretty much the story so far.

    Oil bottomed at $92.75 and is back over $93 now.  Gold touched $1,423 and is back at $1,410 but holding $1,400 for the week is nice.  Silver is lagging at $22.50 and that's a nice bullish spot (/SI) to play with a very tight stop below the line.  Copper fell to $3.29, Nat gas dove to $4.07 from $4.25 before yesterday's inventory but back to $4.14 now and you can see why we're not playing that crazy-assed MoFo thing.  Gasoline is relatively calm and made another BS run to $2.82 before getting slapped back to $2.79 but they'll still charge you $3.50 at the pump.

    The Nikkie, of course, did something crazy today.  This time it was a 2.5% drop AFTER the close with Nikkei Futures falling from 13,900 to 13,450 and if you think this is the result of human trading – you really don't know what's going on in this World.   Japan's core CPI dropped again but overall CPI is up 0.3%, which isn't much with all the FREE MONEY flying around:

    The Nikkei 225 (EWJ) closed +1.4% today after several volatile sessions, but that's not enough to prevent the index from ending May 0.6% lower, its first monthly loss in ten. Stocks rallied following a report that Japan's $1T Pension Investment Fund could increase its equity allocation. Elsewhere in Asia, Hong Kong -0.2%and China -0.7% ahead of manufacturing data, and India -1.4% after GDP figures.

    Japan's core CPI dropped for the sixth consecutive month in April as prices fell 0.4%, indicating how far the Bank of Japan has to go in achieving inflation of 2%. However, it's still very early in the game, while it's worth noting that overall CPI rose 0.3% on month and that core CPI for the Tokyo area grew a preliminary 0.1% in May, the first increase in over four years.

    Japanese industrial output rose for the fifth month in a row in April, increasing 1.7% on month vs +0.9% in March and consensus of +0.6%. While the increase indicates that companies have boosted output in response to a pick-up in exports, manufacturers expect production to be flat this month and to fall 1.4% in June.

    So, we need to be very careful today as clearly the Nikkei had a window-dressing session but then a horrific sell-off as soon as they printed that 1.4% gain in the live session.  Complete and utter BS market manipulation is going on on a major scale.  India had poor GDP numbers, so the MSM can blame them for the sell-off in Asia:

    India's GDP growth slowed to its weakest in a decade in FY 2012 (ending in March 2013), coming in at 5%, while the expansion in FQ4 was even lower at 4.8%. Still that did meet consensus and was above the 4.7% in FQ3. The services sector grew strongly in FQ4, while manufacturing and farming also expanded, although mining declined an annual 3.1%. The BSE Sensex is -1%, while the rupee (ICN) is -0.2% vs the dollar.

    I expect us to be pumped off the Futures lows but make sure you have hedges (see yesterday's post) in place for the weekend if you're not taking my advice to GET TO CASH into the MASSIVE UNCERTAINTY ahead.  

    4:00 AM European shares pull back from yesterday's gains – possibly due to end-of-month profit-taking - ahead of eurozone unemployment and inflation reports, and consumer data in the U.S. EU Stoxx 50-1.1%, London -0.8%, Paris -1.2%, Frankfurt -1%, Milan -0.9%, Madrid -1%.

    6:00 AM Overseas: Japan +1.4%. Hong Kong -0.4%. China -0.7%. India -2.3%. London -1.1%. Paris -1.2%. Frankfurt -0.9%.

    6:32 AM The weekend may have started in Japan but the volatility in its stock markets continues, with Nikkei 225 (EWJ) futures -2.4%.

    6:51 AM S&P 500 (SPY) futures -0.5% and Nasdaq 100 (QQQ) futures -0.6% after the Nikkei can't hold a big opening rally and closes just 0.5% higher and Europe is caught in a moderate selloff. Treasury yields – for the moment – break out of their run higher – the 10-year off 4 bps to 2.07%.

    7:00 AM On the hour: S&P -0.47%. 10-yr +0.21%. Euro -0.42% vs. dollar. Crude -0.43% to $93.21. Gold -0.03% to $1411.55.

    DJIA Price vs. DJIA EPS. (graph)

    David Malpass: Fed Policy Is a Drag on Recovery. The stock market is soaring. Yet real median income has fallen 5%, unheard of except during the Great Depression. Former Federal Reserve Chairman Paul Volcker said in a speech to the Economic Club of New York on Wednesday that the Fed should not be asked to "accommodate misguided fiscal policies" and "will inevitably fall short." He outlined a preferred monetary policy based on orthodox central banking aimed at a stable currency in order to maximize employment. "Credibility is an enormous asset," he said. "Once earned, it must not be frittered away." Those words are true and timely.

    "It's hard to believe that the greatest bond bull market in history will end without some bloodshed," writes BAML chief investment strategist Michael Hartnett. "Risks of a bond crash are high." He notes major breakouts to the upside in equity markets often coincide with "major inflection points in bond yields." Treasurys this morning are taking a breather from recent losses, the 10-year yield off 4 bps to 2.07%. TLT +0.5% premarket.

    US Worker Wages: "Not Off The Lows". (graphs)

    'Shadow' home inventory could burden U.S. housing agencies, watchdogs say. Millions of U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday.

    U.S. SEC taking steps to watch for money market fund outflows. The U.S. Securities and Exchange Commission is taking steps to help spot if money starts flowing to alternative investments as the SEC cracks down on money market funds. 

    Eurozone inflation rose in line with consensus to an annual 1.4% in May from 1.2% in April, while core CPI increased to a greater-than-expected 1.2% from 1%. Inflation is well below the ECB's target of just under 2%, so could give the bank further room to loosen monetary policy. (PR)

    As expected, eurozone unemployment edged up to 12.2% in April from 12.1% March, with an eye-watering 19.4M people without a job. The lowest rates were in Austria (4.9%) and Germany (5.4%) and the highest in Greece (27% in February) and Spain (26.8%).

    Merkel party allies accuse Hollande of shaking EU’s foundations. Leading members of Germany’s ruling Christian Democratic Union party have fiercely criticised François Hollande, accusing the French president of “shaking the foundations of the European Union” just hours before the two countries’ leaders met in Paris in a bid to repair relations. German concern about the French government’s resistance to economic reform and hostility to EU pressure emerged after Mr Hollande said it was not for the European Commission “to dictate” reforms to Paris.

    Italian unemployment hit a 36-year record of 12% in April, edging up from 11.9% in March and missing expectations for a fall to 11.6%. Young people continued to suffer the most as the youth jobless rate hit 40%. Milan shares are -1%. 

    Is This China's 'Minsky Moment'? (graph)

    China Local Debt Must Be Kept at 'Rational Level'. Chinese local government debt needs to be kept at a "rational level" by imposing a budget-regulated debt financing mechanism, Zhang Monan, a researcher at the State Information Center, writes in a commentary. The slowdown in growth is boosting local government debt to "even higher levels," Zhang wrote. China remains exposed to the risk of growing sovereign debt and is headed for a debt crisis, he said. Debt backed by "covert" guarantees from the central government poses the biggest risks in the medium and long term, Zhang said.

    Australia Banks on Track for Biggest Monthly Fall in Three Years. Australian bank stocks are on course for their worst monthly performance in three years as investors cash out of a rally that drove financial shares to a record high in April.

    Emerging-market currencies are taking a battering, with the South African rand (EZA) receiving particular punishment. What began as a "drip drip of currency weakness" (WSJ) on concerns about the end of the Fed's QE program has turned into a flood as countries' various problems become exposed. The rand is down 6.3%since last week and the Turkish lira is -2.4%.

    No wonder they think this deal is so good for America!  Smithfield(SFD) Bosses to Get $85.4 Million From Chinese Deal. Smithfield Foods Inc. (SFD) executives, who run one of the worst-performing large U.S. food makers over the past five years, are set to reap at least $85.4 million from its sale to China’s Shuanghui International Holdings Ltd

    Netflix(NFLX) to join Nasdaq 100 next week.

    Apple(AAPL) Raises iPad, iPod Prices in Japan on Weaker Yen. Apple raised prices of iPad, iPad 2, iPad mini, iPod series today, citing the U..S. maker of iPhone. Apple Japan website shows iPad mini 16GB Wi-Fi model priced at 32,800 yen; was 28,800 yen when released in Nov.

    IceCap Asset Management: "Bernanke's Bouncing Ball".

  112. jfawcett--Isn't the one or two year timeframe what they have been saying now for the last few weeks?
    I would think this isn't new news?  I thought I saw this before? (Or is it wishful thinking)?

  113. Looks like Cramer didn't give TSLA the usual bounce.  Hopefully that's the end of that little drama.  

    NFLX added to the Nasdaq explains the crazy moves.  Funds HAVE to add them and that's the story of the recent pop.

    TSLA/Wombat – $112 is a touch higher than where we topped out yesterday and Tuesday and, if we hit that again, Wednesday's move up would no longer look like a spike so, at that point, it would be prudent to hedge a bit more to the upside with a $110 stop.  

    ERIC/Lol – Thanks.  Great point on ADR dividends.  They sound more interesting than I thought but still Euro-centric, right?That's not a good thing if so.  

    Correlation/Scott – Yes, good to look at, especially ETFs to underlying or commodities to producers.  Someone should add useful tools like this to the Wiki.

    Big Chart – I don't like that pattern one bit.  That's a spitting cobra pattern and usually they strike to the downside (and, before you ask, yes – I made that up).  Still, very logical for the M to form down to the 50 dmas – especially as those 50s are right on major lines for the S&P, NYSE and the RUT and we know the Dow is too silly to worry about and the Nas is ruled by 10 stocks and 5 of them are AAPL so they also give funny readings but the 3 that are broad and hard to control are all lining up perfectly for a 2.5% drop.  

    Excellent article Deano – another good idea for the Wiki. 

    Defensive/Albo – Very wise.  

    Lumber/ZZ – Not so sure benevolent builders will be dropping prices because their lumber costs went down.  Good article. 

    ABX/Jfaw, Jabob – Funny how these "official statements" come out as soon as ABX has a good day in the market.  If you are going to invest in them, you need a 10-year horizon and the ability to ignore the noise.  If you have $10,000 – and a ticket to Chile, I can get you an "official statement" to say anything you want…

  114. Good  Morning

  115. Good morning, Phil! Good call on /SI at 22.5. It seems 22.55 might be the resistant.

  116. Definitely a spitting cobra pattern.