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Thursday, December 1, 2022

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Thrill Ride Thursday – 1,700 and Bust?

SPY 5 MINUTEAnd up we go again!  

Clack, clack, clack, like a roller coaster heading up the tracks, the market ticks higher every morning in the futures and, most of the time lately, we then sell off once the real session opens up.  As you can see from Dave Fry's chart, we had a wild session yesterday with a huge open, a big dip, a sharp recovery and a bigger dip – wheeeeee!!!!  

This morning, we're back up again, almost back to yesterday's highs as we wait for Draghi (7:45) and the ECB to give us a hint of MORE FREE MONEY.  Just like the hints they gave us at the last 3 meetings.  There's still no actual money but, as long as we believe really hard, we can still act like it's coming.  

Acting is a good way to sum up this mornings PMI reports out of China.  I'm not going to get into it again as we already tweeted out that commentary from the morning Member Chat but, suffice to say it was fake, Fake, FAKE!  

.SPX WEEKLYWe took advantage of the morning run-up to short Oil Futures at $107 (/CL), the S&P at 1,695 (/ES) and the Russell at 1,050 (/TF).  We have tight stops above those lines but, if the ECB disappoints, we're expecting the market to throw a little temper-tantrum, much like yesterday's action.  

One interesting mixed signal we're getting this morning is a sharp rise in Bond-buying, indicated by TLT shooting up from 105.76 to 107.75 since last night.  That's not what you expect to see if the market is rallying.  

Still, if we do get over that 1,700 line on the S&P, we need to switch off our brains and go long, long, long until that line fails us again.  More likely, we form an "M" pattern as we're rejected here and the S&P falls back to 1,600, which would be a nice, HEALTHY 5% correction (5.8% to be exact).  If we can consolidate between 1,600 and 1,700 between now and next earnings – I will be able to get much more bullish as we fill in that huge air pocket we have above the 200 dmas.  

7:50 Update:  No change from the ECB (expected) but it's all about what Draghi says – as he never actually DOES anything, does he?  The press conference is at 8:30 so let's contemplate:

Draghi was born in Rome, graduated to MIT in 1976 with a PHD in econmics (he's 66) and he's had the job as head of the ECB since November 2011.   Oh yes, in between he was a Goldman Sachs Vice-Chairman (2002-5) before they sent him off to run the bank of Italy and then, the ECB.  So this guy will say ANYTHING to goose the markets and please his masters.  The problem is he already has cried "wolf" (or, in this case "FREE MONEY") thee times this year and, all three times, the villagers have run out and bought stocks and all three times, there was no free money.  Now the little central banker is going to cry "FREE MONEY" once again – will anyone listen?

There's a very popular notion that you can't fight the Fed, and that's certainly been true for the past 4 years as the S&P has come back from 666 in March of 2009 to 1,696 yesterday (154%), adding $8Tn in market cap to the S&P, another $8Tn to the Dow, $4Tn to the Russell and I don't have fiigurs for the NYSE and the Nasdaq, but let's call it a lot – probably another $20Tn for a total of $40Tn but a lot of stocks are cross-listed so call it $25Tn US and $50Tn globally.  The Fed has added about $3Tn to their balance sheets and, of course, they give cash to banks for worthless assets and the banks can then turn around and leverage that cash 10:1 so that explains $30Tn of the gains.  

Of course, that's a simplistic model and, of course, the economy has improved as well.  In fact, just yesterday they recalculated the GDP to add $550Bn more dollars and, if we lever that 10:1 we have another $5Tn to add to market caps (see yesterday's post).  

Regardless of what kind of BS you think messing with the GDP is – it's a done deal so let's call that $5Tn also "legitimate" and that means that we're good for about even $55Tn – that's another 10% up from here!  It will take a while for the Banksters to recalculate that last 10% though so I'm not expecting it to impact us immediately, the way Fed injections do.  

BUT – keep in mind that MOST of the gains of the past 4 years are due to Fed stimulus – the economy itself is not all that exciting BUT, it is improving.  Over time, I'm happy to accept a larger market valuation but it's simply a question of too much too soon and there's always the overriding danger that the Fed or one of the other Central Banksters may reverse policy and WITHDRAW stimulus – which would have the net opposite effect from when they put it in (obviously, I hope).  

Long-term, we don't think they can possibly reverse fast enough to put the brakes on runaway inflation caused by too much liquidity in the market.  At the moment, the economy is so bad that, even though Corporations and Financials are swimming in cash – they aren't spending any of it.  Not for hiring, not for lending (except to each other in the top 1%), not for capital goods, not for any R&D that isn't deductable.  That's why our economy is in such a slow-motion recovery – despite the MASSIVE change in our Monetary Base over the past 4 years.  

In the bigger picture, all this QE has been having diminishing returns and that's why it's not going to take more than Draghi crying "MORE FREE MONEY" to pop the S&P over that 1,700 line, where the next stop should be 2,000, up 200% from our 2009 lows.  Even if we give them the GDP and assume that money trickles into Market Caps over the next 6 months, we're still going to be $500Bn – $1Tn shy from the Fed and the other Central Banks (who would need to, as a group, at least match the Fed).  Either they have to step up or the Global Economy has to pick up buit there will be no free ride over that 1,700 line on the S&P – we simply need more stimulus to get there.    

Fed QE versus SP500

More stimulus?  Why not?  The alternative is unpalitable to our Political Class, who are threatened with becomming one of the 500M Global Unemployed (14% of the workforce) if they can't keep their phoney-baloney jobs.  Kicking cans down the road is pretty much all our "leaders" are good at these days.

Speaking of unemployent, we got that number at 8:30 and it was very good, with just 326,000 people losing their jobs last week, vs 345,000 the week before.  Now, is that good news or bad news?  It's good if people are working but bad if a few thousand more people working leads the the Fed withrawing even $100Bn of stimulus – which would knock $1Tn (2%) off the markets per our simplistic model.  

Draghi's coments are out:

“Confidence indicators have shown some further improvement from low levels and tentatively confirm the expectation of a stabilization in economic activity,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark rate at 0.5 percent. Policy makers expect to keep borrowing costs “at the present or lower level for an extended period of time,” he said, repeating a formula first deployed last month.

Sounds like "wolf" to me – we'll see if the sheeple are buying it today.  

 

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Anyone smart/'delta'

can someone please explain the 'delta' concept to me as succinctly as possible ?

the following is the post by Phil this morning at9.37 am ( use your own example if you have to- I am trying to recruit a novice trader to PSW)

I do think it's worth taking a chance on SPY puts, the Aug $169 puts are $1.05 with a .30 delta so figure only down about a dime at 1,700 for a stop out so 20 of those in the STP and we'll call .85 a hard stop.  

Here you go Maya – trying to keep it simple:

http://www.investopedia.com/articles/optioninvestor/03/021403.asp

At this point, you might be wondering what these delta values are telling you. Let's use the following example to help illustrate the concept of simple delta and the meaning of these values. If an S&P 500 call option has a delta of 0.5 (for a near or at-the-money option), a one-point move (which is worth $250) of the underlying futures contract would produce a 0.5 (or 50%) change (worth $125) in the price of the call option. A delta value of 0.5, therefore, tells you that for every $250 change in value of the underlying futures, the option changes in value by about $125. If you were long this call option and the S&P 500 futures move up by one point, your call option would gain approximately $125 in value, assuming no other variables change in the short run. We say "approximately" because as the underlying moves, delta will change as well. 

Be aware that as the option gets further in the money, delta approaches 1.00 on a call and –1.00 on a put. At these extremes there is a near or actual one-for-one relationship between changes in the price of the underlying and subsequent changes in the option price. In effect, at delta values of –1.00 and 1.00, the option mirrors the underlying in terms of price changes. 

Also keep in mind that this simple example assumes no change in other variables like the following: 

Delta tends to increase as you get closer to expiration for near or at-the-money options. 

Delta is not a constant, a concept related to gamma (another risk measurement), which is a measure of the rate of change of delta given a move by the underlying. 

Delta is subject to change given changes in implied volatility.

Also:

http://www.investopedia.com/university/option-greeks/greeks2.asp

One interpretation of Delta used by traders is to read the value as a probability number – the chance of the option expiring in-the-money. For instance, the at-the-money 110 call with a Delta of 52.9 in this case suggests that the 110 call has a 52.9% probability of expiring in-the-money. Of course, underlying this interpretation is the assumption that prices follow a log-normal distribution (essentially daily price changes are merely a coin flip – heads up or tails down). Of course, in short- and even medium-term time frames, stocks or futures may have a significant trend to them, which would alter the 50-50 coin flip story. 

XOM – XOM down 1%, Oil / Gas production down, OIH Up 2.3%.  /CL up $2.30.  USO PUTS for sure!

I agree with zero. I have been building Jan15 far OTM positions in MCP TC, and basic materials…

They made me draw a 10% line on the NASDAQ… Can't believe that only 6 months ago it was lagging behind and now "Rocket Man" and that's even with a subdued AAPL (only up 0.7% today as opposed to double that for the index).

Bears took one on the chin today – maybe better luck tomorrow with the job number. At this point I am hoping for a gang buster number (good news with more people working) to bring around the "taper" talk again (good news we get a much needed correction)! I am guessing now that there won't be a big surprise and we keep moving up because markets going down is so 2009!

Stj/delta

thank you for that reference.

having gotten into this, now MY OWN question is: how do you calculate/determine he delta for an option at a given point in time?

for example, if I am selling a put in CLF today for Jan 14, $17 strike at $1.7….. What is the delta?

or can we not determine it from this data…do we need to see movement in the underlying and option price to calculate the delta?

Phil/bbearish 

I don't have any skin in the game, but I hope the markets keep treading higher….if nothing else, it's fun and a learning experience to follow your rolls and DD's etc.

One of these days, when you DD for the second time in a position, I will follow on your coattails…

meanwhile, keep the commentary and analysis coming…I have been too busy sticking my fingers where I probably did not want to be sticking them..haha!

Oil up ANOThER 50 cents!? Unf&ckingbelievable! 

Delta / Maya – It's a bit complicated but fortunately your broker trading platform will do that for you. For example in TOS you will see the following in the Jan 14 CLF options chain:

The delta are in the right column and you can see that for the 17 strike the delta is a 0.29 (technically -0.29 but not important here). No matter who you use as a broker I am quite certain that you will be able to display all the greeks.

Looks like they are going for 109 Jrom… Shorting anything except VXX looks dangerous now!

Very interesting story about the Google/Motorola synergy:

http://www.wired.com/gadgetlab/2013/08/inside-story-of-moto-x/

That new phone actually looks pretty good. And nice tidbit:

What’s more, Motorola will be assembling these phones in a newly acquired factory—not in Tianjin, China but Texas1. (The facility was originally built for Nokia.) Motorola rebuilt the 480,000 square foot factory to copy the exact manufacturing process used in China, except for the brand-new, highly-automated process that can deliver any of the thousands of potential color combinations that customers specify. “Many supply chain theorists and academics says you can’t do this, but when you tell Google it’s impossible, the reaction is, ‘Let’s go do it,” says Randall.

So I guess manufacturing in the US is not impossible after all!

These guys are the Keystone Cops of politics:

http://www.slate.com/blogs/moneybox/2013/07/31/collapse_of_the_house_republican_majority.html

The backstory, as Brian Beutler eloquently explains, is that the comeuppance Democrats have in some ways been expecting for years finally seems to have arrived. In its various iterations, Paul Ryan's budget documents have implicitly called for massive cuts in domestic discretionary spending that are far beyond anything any practical governing majority in congress has ever attempted to do. But as long as the debate stayed at the level of the budget, those cuts were entirely abstract, vague, and general. It's when you get down into the weeds of the appropriations process that you have to say "so much less for this program, so much less for that program" that things get thorny. This year, House Republicans intend to write domestic appropriations bills down to the Ryan level. And yet the THUD bill proved to cut too much—the specific issue looks to have been a 50% whack given to Community Development Block Grants—to secure majority support in the House. So it's back to the drawing board.

Mathematically speaking, the problem here is somewhat similar as to the failed farm billwhere writing a bill that was acceptable to the median House member proved insufficiently right-wing for a critical mass of House conservatives.

It's in the conjunction of these two failures that you see a mortal threat to the practical existence of the Republican governing majority in the House. That's because if you can't find 218 Republicans out of 234 to vote for a bill, the other option is to start with 201 Democrats and try to add two dozen Republicans. And in many ways, that kind of coalition makes more sense given that to become law a bill also needs to pass a majority-Democratic Senate and be signed into law by a Democratic president. A "Pelosi Plus" House bill, in other words, can actually become law whereas a Boehner Majority House bill is at best a bargaining ploy. Now normally that kind of legislation simply can't move in the House. The party that holds the majority forms a cartel and blocks bills from coming to the floor that don't have support in the majority caucus. Boehner has allowed select violations of this so-called Hastert Rule (though in practice the rule predates Hastert) but there's at least a chance that he'll be forced to suspend it wholesale throughout the appropriations process.

A relevant precedent for this, in some ways, could be seen in the 1981-82 congress that gave us the Reagan Revolution. Republicans won the presidency in the 1980 elections and secured a majority in the Senate, but Democrats still held the House. A large faction of conservative Boll Weevil Democrats were willing to support a lot of Reagan ideas, but that was far from a majority of the House Democratic caucus. But in what I think you'd have to consider a rare concrete example of a "mandate," Speaker Tip O'Neill let conservative bills come to the floor and let the Democratic majority get rolled by a GOP-Boll Weevil coalition on a bunch of key votes.

The dynamics of a meltdown of the GOP majority would be different from that and so would the legislative outcomes. There won't be an "Obama Revolution" if the Republicans get rolled, but there just might be bipartisan deals to replace sequestration and reform the immigration system. The Republican majority, in other words, may be nearly immune to electoral defeat thanks to favorable district boundaries—but it's not immune to its own dysfunction.

Jromeha, I feel your pain big time! I can't believe how crazy oil is…..thinking I should have bailed on it when it was in the low 102's earlier in the week…was fixated on it reaching 100 or lower…now I'm wondering if we are going to see 110 before the low 100's again….

rpme:  What I do in Europe is pretty much what I do everywhere else – let pros handle my investable funds.  I directly manage a small portfolio of my own to keep sharp and on top of market movements, for which PSW is tremendously helpful.  I am a non-resident of the U.S., so European banks/funds are willing to take my money, which can be difficult at times for a U.S. resident.  What I control is regional exposure — I am no stock analyst, and can barely read a financial statement, but I have lived and worked in Europe, Asia North and S. America, so I have a pretty good sense of how things work from a macro standpoint.  I will list the funds I currently hold, FYI:  Bestinfond, M&G Global Basics,    Patrimoine, Alken Absolute Return, Odey Pan European, and Bestinfond, whose manager Fernando Parames is amazing consistent – and up 16% y-t-d.  I have a few others which have not outperformed, and which I don’t mention because I am ambivalent about their prospects. 

 

I have no idea which of these are available U.S.-based investors, other than Bestinfond, which is, and he [F. Parames] is very good – he takes a super-micro approach, is real-time encyclopedic about his picks, while having a keen macro sense.  Alken and Odey are also real standouts – those three would be my top picks.  Best of luck.

Accidental deletion:  that was meant to be "Carmignac Patrimoine"

USO $108.5 now.  High stakes poker game, that's for sure.  I'm getting crushed, but keep loading up, hoping I have enough firepower to get even.  Who knows — maybe a government or too might even notice what's being done here.  But they're probably being paid too much to look the other way, so the laws of gravity are my last refuge.

Should we be buying CHK?

STJ/delta

thanks!

BTW, appreciate your hard work with the daily levels etc

Pharm- after doubling and tripling down zlcs is finally in the green for me:). Obviously, you'd recommend selling some here I get it. But where do you see them long term and are there any furthet catalysts coming up in the next 6 months? Thx

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