Archive for 2014

Sector Detector: Rejuvenated market seeks follow-through, but earnings loom large

Courtesy of Sabrient Systems and Gradient Analytics

Scott MartindaleAs I suspected it might, the stock market bounced strongly last week. Weakness the prior week was due in part to traders exiting positions for vacation during the holiday-shortened week, protecting big capital gains, cashing out to pay taxes on capital gains, and “delta hedging” on put options. However, I’m not convinced that the pullback was sufficient to create the great buying opportunity — but it was sure a tradable bounce.

Among the ten U.S. business sectors, the big winner last week was Energy, which was up about +4.5%. Also, Financial and Industrial were each up about +3%. Defensive sector Utilities still stands alone as the year-to-date leader, up about +11%, while Energy’s strong performance last week has it in second place, up about +5% YTD. Healthcare has been the big loser as it has fallen from the penthouse to the outhouse since the beginning of March, led by the big selloff in momentum favorites from biotech and biopharma.

Wringing out some of the excesses has been healthy for the market overall. I expect that at this stage of the bull run, particularly with the Federal Reserve methodically tapering its liquidity injections, the higher-quality stocks with reasonable forward valuations that were sold off by the momentum traders will recover quickly while the lower-quality speculative stocks that surfed the wave of speculator euphoria will be left behind in a general flight to quality.

Many market commentators are warning of a similar “jobless recovery” as we saw in the 1990s. They lament the sky-high profit margins (that are likely to revert to the mean), growing income inequality, and the predominance of low-paying or part-time jobs among our anemic job growth. Moreover, most new investment and M&A in today’s high-tech society are in intellectual property or capital-intensive (rather than labor-intensive) business – whether new drilling technologies for the energy industry or Facebook’s $19 billion acquisition of WhatsApp (with all of 55 employees).

Thus, many are directing investors’ attention to emerging markets. The MSCI Emerging Markets Index is trading at a forward P/E of around 10.5x, compared with 15.5x for the S&P 500 — the biggest discount since 2006. Moreover, some of the key emerging market currencies appear severely undervalued, and there’s the potential for significant economic reforms following upcoming elections in many of the key emerging market countries.

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Comment by phil

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  1. phil

    Summary of today's Webcast (replay available here):  

    We had another great session with our small, holiday group.  Right at the beginning of the session, we were discussing time-frames for trades and, as a bonus trade, we discussed Lion's Gate Films (LGF) and our long-term trade idea there, which was: 

    Selling LGF 2016 $28 puts (now $5.20) for a net $22.80 entry.  

    This was a second chance to pick up the same entry we had selected for Philstockworld's Income Portfolio back on 11/25, in the Member Chat Room.  Our entry at the time was $5.40 and, as you can see, LGF went exactly to our $28 target line and held it since.  

    We also added the first (AAPL) of our favorite trade ideas for 2014 from the special Webcast of our "5 Top Macro Trade Ideas for 2014" – very good New Year's viewing! 

    CASH is still our preferred position and we are only about 20% invested in our long and short-term virtual portfolios, patiently waiting for opportunities as we roll into January earnings reports.  As noted last week, we called it wrong (we were hoping for a sell-off) but that doesn't mean we are going to flip-flop bullish and chase what we missed. Even being COMPLETELY wrong about what would happen after the Fed (so far) because we have BALANCE, our Short-Term Portfolio is down $2,135 while our Long-Term Portfolio is up $3,080 for a net gain of $945 in 30 days.  

    Why are we able to make money, even when we were COMPLETELY wrong about market direction?  Because we were BEING THE HOUSE – Not the Gambler, and we sold the risk on both sides to other people.  We leaned our risks bearish and we were wrong, but since we SOLD the risks, we had a wide enough margin of error that it didn't burn us.  Imagine what will happen if we get it right!  

    As I said last week, we're only interested in adding longs if we see the major indexes OVER their breakout support lines of Dow 16,000, S&P 1,800, Nasdaq 4,000, NYSE

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Comment by mrmocha

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  1. mrmocha

    JRW: "tomorrow should be a non-event"; Fridays have been flat to down for many weeks, so hopefully you're right and we watch premium burn tomorrow…

Comment by phil

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  1. phil

    Hmmm, bounced off those lines so far – they're still good if they break but no sale at the moment.  

Comment by craigsa620

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  1. craigsa620

    Phil -You misinterpreted my question. I am not concerned about the move now either, I just want to know how to play it out over time as you just began to explain. So, my question was at what date do we move to the May expiration and then June? Is it 5 days before expiration, 10 days, etc. ? I wasn't asking about the current movement, but how do you play these over time? Still trying to learn the overall strategies and how to move and roll with the positions you outline. 

Comment by Phil

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  1. Phil

    TBT/Phlit – TBT is one I feel can be aggressively owned so I WANT 10% (and I don’t consider it a hedge, I consider it a position I believe strongly in) and I’m willing to play it to the point where I may have to commit more funds, even after 10% (so very aggressive).  Meanwhile, that does not mean I don’t cash out or scale back if I get stopped off a 20%+ gain because that would go from aggressive to foolish. 

    So, as an entry off a $100KP, I’d want to go with the Sept $44/48 spread at $2.30.  Since TBT is a little high from the last run, I’d go with 10 for $2.30 to start.  That makes $1,700 at $48, which is, by itself, a fine profit on my intended $10,000 allocation so I won’t be crying if it "get’s away from me."   Also, and I should include this in some strategy post, don’t forget that, if something does go in the money early in the cycle, it then (using this example) releases the other $7,700 for another trade – that’s not a terrible thing.  Once your 1x, 2x or 4x positon gets over 20% and you set a stop, you no longer need the cash to protect it since the position either makes more or becomes cash itself (when you stop out).

    The 50 dma is $48.50 so that’s the line where I’d sell 1/2 the March $50s, now 88 for about .75.  I only need to collect .23 per month to have a free position and, since we feel the rate situation will pressure over time, it’s better to be more aggressive with sales early on, and hopefully be uncovered or less covered moving forward. 

    Should TBT fly up, we have a DD roll for the callers so I don’t anticipate too much trouble there AND we have plenty of firepower left in cash to add more longs (or perhaps another, higher spread. 

    Should TBT head lower, I have no reason to think $46 won’t hold so I’ll be looking to sell the 1/2 the Sept $44 puts now $1.95 for $2.50+.  That will knock the long net basis to .55 and, if the calls expire worthless (more likely if I’m forced to sell puts) then the long basis is down to about

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Comment by mrmocha

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  1. mrmocha

    CMG back to its old pattern, Jabo did you play the game?  I sold the today 385 P covers at 10:30 per plan, will close them EOD and use the proceeds to roll my puts up (for perhaps the fifteenth time)!

Comment by jerseyside

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  1. jerseyside

    Phil – TLT seems to have broken through resistance at 109 – any play there? Or is it better to wait for it to close above that for 2 days?

Comment by yodi

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  1. yodi

    Phil,  What is the best solution to my holding of CGA holding the stk for 14.11 down to 10.15 sold jun 20 p for 4.94 now 9.95 sold Jun 15 c for 1.35 now 0.05. The opt is very thinly traded in Dec Some member believes it is a great stk but I have change my mind shall I just take the loss and stay with the remaining stk as I do not fancy looking for doubling my putters. Your thoughts pls. thks

Comment by stjeanluc

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  1. stjeanluc

    For the Apple specialists out there, I was wondering if the leaked news about the iPad2 coming out in Q1 next  year will hurt sales of the iPad this quarter. Honestly, if I were thinking of buying one now (I have one already) I would be holding off until the new one comes out (specs look pretty good, although there are some good Android slates out there now so competition is stronger). This could push back some sales to Q1. Of course, many of us will probably buy a new one sometimes after it comes out so sales could be strong next quarter. Just a thought!


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The bilateral trade war between the US and China is gradually becoming a global trade war of global geopolitical and commercial dominance between the US and Chinese spheres of influence.

Shortly after the two largest mobile phone companies in the UK decided against launching Huawei-built 5G phones this morning, and roughly around the time a bevy of Japanese tech and telecom companies including ARM Holdings, Panasonic and SoftBank all imposed a boycott on supplying Huawei with mission critical components joining Australia, and New Zealand as major US allies to end commercial relat...

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EEM has spent the majority of the past 3-years inside of rising channel (1), which reflects that this trend remains up. The weakness of late has it testing the bo...

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Amgen announced Wednesday an agreement to buy Copenhagen-based Nuevolution for $167 million.

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Weekly Market Recap May 18, 2019

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China – U.S. trade talk continued to dominate the week.   A heavy selloff Monday was followed by 3 up days, with Friday moderately down.

On Monday, Chinese officials announced retaliatory tariffs against the U.S., hitting $60 billion in annual exports to China with new or expanded duties that could reach 25%.

Then on Wednesday:

The Trump administration plans to delay a decision on instituting new tariffs on car and auto part imports for up to six months, according to media reports.


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Friends and Fellow Investors:

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Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

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Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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