All of last week, I kept saying the market was only hitting highs because it was being manipulated that way and, by Friday we'd had enough and took our ill-gotten gains off the table once again. This week, it's obvious we're in trouble – but it's a lot harder to sell your stocks when they're already in trouble, isn't it?
It's a very hard discipline to take winners off the table but you should scale out of posiitons on the way up the same way you should scale into them on the way down (and the Strategy Section at Philstockworld has a great article about scaling – also lots of additional commentary in chat below the article).
There's nothing wrong with being in cash. Yesterday, from 1pm until 2:30, we had on of our Live Futures Trading Workshops (replay available here) and our 4 trades made $360 by the close (4pm) for a very nice $100+ per hour salary for just trading a few contracts. Our trade idea from yesterday's morning post (which you can get delivered to you pre-market, every day by SUBSCRIBING HERE) was to short the Nikkei (/NKD) at 14,350 and this morning we hit 14,050 – good for a $1,500 PER CONTRACT profit!
That's one of the things you can do with cash. We also have fun making earnings plays, like the FSLR trade we added to our Short-Term Portfolio yesterday. That trade idea was:
I think it's worth a try at selling 5 July $75 calls for $3 ($1,500) and buying, to cover, 4 Jan $77.50/85 bull call spreads at $2 ($800) for a net credit of $700 – let's do a set of those in the STP.
If FSLR is under $75 (it's about $69 after earnings), we pocket $700 PLUS whatever value remains on the January bull call spread (probably about half). That's against zero cash outlay ($700 credit, in fact) and possibly we'll just take quick money off the table and reload for our next earnings trade.
This morning, ahead of Yellen's 10am speech, we flipped bullish on the Russell Futures (/TF) at 1,105 in our early morning Member Chat and we've already tested 1,110, which is $500 up from that line (though we were more like 1,106 by the time we caught it for +$400 in an hour). We're done with the long ahead of the Productivity Report at 8:30 – which we expect to be disappointing. Also this morning, I reiterated our short entry on oil at $100.20 and we already got a dip back to $100, but our goal is $98.50 after inventories (10:30) though now we'd stop out again over $100.20 and wait for a better entry – so stay tuned!
We've been watching Brent Crude contracts drifting lower and USO (based on WTIC, which is what the /CL Futures reflect) usually tracks it very closely and now Brent is at $107.25, back where it was in early April, when WTIC was under $99. That is pegging our BS meter to 8.5, especially since the Ukraine crisis SHOULD be supportive of Brent – and it isn't. That's a huge red flag for oil bulls (the kind they run into and get skewered).
Speaking of getting skewered: Here's the Productivity report and is SUCKS – down 1.7% for Q1 and, even worse for our Corporate Masters – Unit Labor Costs are up a whopping 4.2%. In other words labor costs are rising and they can't whip the wage slaves any harder than they already are.
There are no cheaper places left to outsource, even CHINA!!! has been dealing with growing labor unrest as it becomes more and more clear that the Communist Party, which was founded to benefit the country's workers and peasants – has become a Billionaire's club for oligarchs – almost as bad as the US (but not quite).
“In China, there is a common saying,” says Lin Dong, of the Labor Dispute Center. “The government doesn’t help the people fix their problems. They fix the people who point out the problems, instead.” Workers who were valued principally as inexpensive production cogs during China’s initial economic flowering are now expected to star as consumers. Consumption accounts for only 35 percent of the Chinese economy, well below the 50 percent-plus characteristic of East Asian countries such as South Korea, which modernized earlier.
“It’s like that old Henry Ford story: I’ve got to pay my workers enough so they can buy my product,” said David Dollar, a former U.S. Treasury Department official in Beijing. “China’s reaching that Henry Ford moment.”
Unfortunately, the US is far from that "Henry Ford Moment," as you can see from the chart above. Let's face it, we're a nation of timid sheep who have just sat back and taken it while our wages have flatlined for 25 years while UK workers (the above example) were given 30% increases. At least the Chinese are smart enough to march – what the hell is wrong with US?
Maybe the rising Unit Labor Costs are finally a sign that US workers are not going to take it anymore. If so, that will be a long-term benefit for the economy but, in the short run, companies that are addicted to low wages like WMT, NKE, MCD, etc. are in for a bit of pain.
Scott – Did you read the Barrons piece on AIG I linked to? They think it could double in 5 years. Nice play for selling strangles if it rises slowly.
AIG/Burr – yes I did and thank you. interesting and I already had a calendar which is now back to it's open after yesterday's takedown. if closes below its 50ma though, i'm out. don't need quite this kind of volatile BS.
If Russian troops, in fact, pull back, is it all in on USO puts? If yes, which month would you suggest?
Hi Phil – I have a question about my NLY position. I am into the stock for a net of $10.75 with an outstanding Jan 2015 $10 Put that I've sold, now up 50%, and 2 Jan 2016 $12 Calls that I have sold as well. My thought was to buy back the 2015 Put and then sell the 2016 $12 Put for $2.55 before earnings come out later this afternoon. Do you think this a good way to play the stock/arnings, or would you wait and see what happens unil after earnings are reported? Or is there a better way to take some of my gains and position myself for the future? As always your insight is much appreciated – thanks in advance.
A rediculos thought today was the lower imports would be blamed on Russia snactions even though none are on oil of course. FWIW I bought USO puts yesterday and today, May $37. My plan is to get out late today or more likely tomorrow, the 1PM report may shake a few crooks. May should not be held until next week.
Thanks for the feedback Wombat, Phil. For the record I did not have any stops set today. I previously had tried various strategies setting stops , mainly to prevent a run-away massacre, but found that trailing or resetting lower almost always resulted in being stopped out at a less favorable and most often wrong time, as Phil repeatedly has said would happen.
TSLA – I would be delighted to see them drop to 120ish in the days following earnings tonight. really I would.
Thanks for your thoughts.
Pasting/Shadow – I'm having Matt and Greg check.
Gasoline flew up to $2.92 and failing there – no reason at all for that move, pure nonsense.
Yellen/Shadow – Blamed the weather for any troubles, says things are fantastic otherwise – WTF is right!
Disconnect/Craigs – When things don't make sense the smart move is NOT to play. Always keep in mind that the Dow is the easiest index to fake – because on stock can move it around. So, if the Dow is your outlier – ignore it. The S&P is usually the most reliable and the RUT used to be but clearly people have found a way to manipulate it (probably through ETFs). The AAPLdaq is what it is and that's why I also watch the NYSE to confirm – since that one is really hard to fake.
Also, you have to get away from the mentality that a 100-point gain in the Dow is meaningful – it's just 0.5% – it goes up and down that much in an hour, so why would you read anything into it intra-day.
CMG/Craigs – Kind of the same thing. They just did improve "markedly" from $480 to $520 and now they are $500 and, if they hold that, it will be building a bullish base. There's no magic spot at which we lose more or less, though the last 20% of premium usually stays until the last couple of weeks. Originally, in the STP, CMG was the May $525/550 bull call spread at $11.50 and we bought back the $550s for $3.40, so net $14.90 and we rolled to the June $515s for $11.60 (net $26.50) and sold the Jan $280 puts for $10 for a new net of $16.50 on the July $515s. Currently, the June $515s are $11 and they were $20 on Friday (4 days ago) and there's 44 days left to trade. Nothing changed on CMG, they went down with the market and with WFM. In fact, they just got an upgrade today:
If we sell the $500 calls for $17, we can roll down to the $480s at $28 for about even or we can roll out to a longer month, like the Jan $475/525 bull call spread at $25 and then we'd be net $13.50 on the $50 spread that's $20 in the money with our short June $500 caller. Do you want to sell a short June $500 caller? I don't, so I'm sticking with what we have for now.
Well, so much for the rally. Yellen didn't say enough to really change the direction of the river (from yesterday's webinar!).
USO/DC – I would never go "all in" on anything related to commodities futures. That's what broke the Hunt brothers. Peace talks would drag on because Putin wants to look like he's brokering it and 4th of July is a big consumption weekend so that pushes you back to Aug but still risky so I guess I'd go with the Oct $35 puts at $1.10 with USO at $36.61 as a bet oil falls back below $97. You could go for the Oct $38.50/36.50 bear put spread at $1.15 – and that's just a bet oil is under $100 that pays 73% if you're right. Still, just because Putin makes nice doesn't mean Nigeria will or that Iran won't do anything silly or the economy begins to actually recover and boosts demand so – no "all in" – no way.
NLY/Japar – I'm not into messing with things so much. Sounds like you sold one put vs 2 calls and, I assume 200 shares. If so, then sure, sell one more to cover or, if you did sell 2 that are up 50%, why not just roll one to the higher puts? I prefer to have new VALUE information before I alter my trades – not just doing it because the PRICE changed. Perhaps you are sensing a theme to today's comments?
You essentially have a buy/write on NLY at about $9/10.75 and you're getting your $1.20 dividends (13%) and, if they are over $12, you get a bonus 33% when you are called away. That's what happens if you do nothing – why is that not enough to satisfy you that you would rather move to a riskier position? Do you average more than 30% a year in your whole portfolio? Will leaving this trade along bring down your average rate of returns?
Oil back below $100.50 – lock in profits now, just in case.
Stops/Sibe – Once you get used to it, you can use it in your favor and catch a spike once in a while too.
TSLA/Scott – Well, AMZN is below $300 and NFLX down below $320 – anything can happen, I guess.
AAPL having trouble holding $590. Of course we knew they'd get resistance at $600 so no biggie. TWTR finally found a floor (for now) at $30.
SCTY dropping like a rock today – give hope to TSLA bears.
FSLR – i'm short.. but this is a joke. the only sense to the market is that everything is too damn overpriced, but woe to anyone who tries to play it
Looking at the 1PM report it is clear that total stocks went up ,gasoline supplied went down, and net imports up since last week but down 13% from last year, to me that is a lot less oil demanded.
Phil I am looking at you comment re NLY . The member has a question on the Jan15 put sold. And due to the Stock price of 11.80 is I think his concerned about assignment of the put. There for the question shall he roll the same to Jan16 12 put. I as well hold the Jan15 put and look at the situation as follows. The jan15 putter has still a premium of more than .90 cents. So now one will assign and pa you an extra .90. Rolling to Jan16 one will forefoot this premium so for my two cents why pay premium even that the stock may fall for the amount of the div. after tonight.
FSLR/Scott – LOL, I wasn't watching. WTF? Such silliness. Oh well, makes me look clever – I featured that play in the morning post.
Oil Inventories/Shadow – Refinery capacity rose 1% but products supplied only rose a tiny bit. 1% of a week's consumption of 18Mbd is about 1.2Mb that got sucked into refineries but didn't come out. In fact, very strangely, Refinery capacity is up 5% since last year but they're actually supplying LESS total products – what a friggin' scam! Where is it going? An extra 1Mbd is going INTO the refineries but it's not coming out??? I'll bet the refiners are piling up storage internally to keep cushing scarcely supplied and goose prices. Yet no arrests will be made…
NLY/Yodi – No, it was a 2015 $10 put, not a $15 put. No possible way that gets assigned and, even if it does, so what?
Phil – SCO – great call on oil last week. I closed the SCO spread out with oil around 99.5 per your recommendation.
Sorry thought it was the 15put but 10p absolute no assignment.
Oops, forgot image for oil inventories:
SCO/Terra – I wish you would have reminded me then, should have been the official call.
I get mixed up by those all the time too, Yodi.
Consensus Estimate – 0.95
Whisper Number – 1.01
Average Move – 11.1%
Priced into Options – 10.08%
Consensus Estimate – 0.12
Whisper Number – 0.15
Average Move – 9.9%
Priced into Options – 10.46%
Consensus Estimate – 1.00
Whisper Number – 1.00
Average Move – 3.5%
Priced into Options – 4.2%
Earnings Whispers has an upward bias on GMCR, a neutral bias on TSLA and a downward bias on RIG. So one of each. They have not been great so far with their predictions but it's new so maybe some tweaks are needed….
Like grocery stores won't buy what won't sell, retailers of gas won't buy at the present prices.
An aside is I pay with the computer mapping in my car mostly for performance. Lately I shut off the air flow sensor and built a volummetric effieciency speed density table. Under cruise conditions went from 23 to 34 mpg a steady 55 mph I can get 50mpg, goes down drasticly every 5 mph after that or any wind. May not pass emitions but it can be tweaked for many more miles per tank, takes only a few minutes to reflash to other maps.
Nice call on XRT! I sold just now for a 65% gain.
GMCR we already have a short bet on in the STP, the Jan $110/90 bear put spread is only $13 out of a possible $20, still a fun bet.
RIG we are already long on in the Income Portfolio with the 2016 $35/45 bull call spread, now $4.65 with the short $35 puts, now $3.70 for net $1. It was a $1 credit when we bought it, so up 200% out of a possible 1,100% so far.
I still don't see TSLA making it with only electrics. Part of my point with oil prices and tuning my car, not at all leagal but it shows what can be done with gas engines. I actually got to 60 mpg but the air/fuel was so lean I could burn a hole in the pistons. Can't afford thateven with it programed to much richer with a little more throttle. The new cafe requirements could go way up especially if the idiots would listen to reason, burn half the fuel, a few % more co and nox would still be less. And back off on diesel engines!
Gas/Shadow – To some extent, people can't live without it. They HAVE to get to work, etc, so a bit of demand inelasticity, which is why it's so profitable to manipulate the markets.
XRT/Palotay – About time!
Thanks Palotay for paying attention!
Electric/Shadow – I think electric cars are the future. Killing dinosaurs and waiting 200m years for them to liquefy and refining the ooze into fuel is just not an efficient system for powering transportation. I say, turn all roads into solar panels and put little wires under the cars (like bumper cars have) to feed power directly to them while they're driving. A few improvements in battery technology and we'll never have to worry about fuel again..
Electric roads and contact aren't needed induction just like some recargables today, no contact needed. Still need to make cleaner power when the sun isn't shining.
Electric / Phil – My colleague talked to a guy who has plans to build solar panels over the roads in some countries where sun exposure is constant. They would be basically, like a elevated train over the road except covered with solar panels. I am guessing in this country we could generate more than enough electricity with such a plan but it has not shot since it goes against the Koch brothers' financial interest. But I bet you they'll build one in China.
The panel efficiency will have to go way up or very little traffic, a big problem with electric cars and trucks is the take a lot of energy. It would take a rooftop of panels and the car home all day to charge a TSLA.
Based on what I've see re. rooftop solar and new spray-on solar, I'm taking about actually MAKING the road out of solar panels. I think we can get there. Think of the millions of miles of roads we have in this country and all the sunshine that falls on them. Probably all the electricity the country could possibly need.
Good chart from Rustle (thanks):
Phil I am still waiting for some big number per square foot. The world is a very large area half lit all the time, if we could just spray that film on the oceans we would be set with low efficiency.
High-risk TSLA – I take this to mean DO NOT PLAY THIS unless you have 50,000-plus in free margin AND are wombat-crazy. 😉
Carnage / Phil – Did you mention buying cheap this morning Phil?
I guess it's the results that count:
My quote for the day:
Good fundamental analysis article:
Buying an E/P over 7% seems to garantee no loser 5 years out!
High-Risk/Scott – Yep, those are about the right criteria.
Carnage/StJ – There's always something to buy. That's a good study, glad people are starting to call them on their BS.
Kitces/StJ – I don't know, the guy never heard of PEG?
TSLA / nice spread Phil – I like ===
PEG / Phil – That's different and PEG is a much better indicator than P/E anyway. But I guess his point is that inexpensive stocks generally don't hurt you much in the long run…
Wheee, big rally into the close now. Another low volume day but not as low as the last two.
We'll check our bounce levels tomorrow.
Just want to keep things interesting for you, Wombat.
You have to love Martin Wolf – I guess we are all Japan forever:
Wolf/StJ – So we should all just risk it 'till it breaks? Then what?
Phil. Dow up 117 and rut turning green at finish. I read the divergence as weakness. What's your take?
My take is I'm glad I'm on the sidelines, Den! UNH and V were good for 50 of the Dow points so nothing special overall. Yellen didn't say anything more bullish than usual and earnings are still pretty lame. Still, they engineered a bounce – now we'll just have to see how far they can take it.
GMCR beats but guides weak, gotta see earnings call at 5pm.
FU TSLA !!!! ( thats for you jabo )
TNA – Made 4 moves of over 1.50 today as weekly 65'puts ping ponged back and forth from 1.70 to .73 to 1.30 to .85 ending 1.53. The last move up of .50 was made in the last 30 minutes before close.
Not for the faint of heart.