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Fragile Friday – Can Low-Volume Bounce Hold into the Weekend?

SPY  5  MINUTEWhat total BS.

The volume on the S&P to the upside has been pathetic and yesterday was no exception with just 92M shares trading on SPY.  To put that into context (which we reviewed in yesterday's Live Member Chat Room) – we've had 4 up days and 5 down days in March and the SPY volume on the 5 down days has been 647M while the volume on the 4 up days has been 344M – just half of what the down volume has been.  

Nonetheless, despite the massive outflow of funds, SPY is only 3 points below where it started the month, at 210.  Even if we give the benefit of the doubt and pretend this isn't a blatant act of market manipulation designed to fool retail investors into buying the dips while Fund Managers and Banksters run for the exits – it's still an indication that this "rally" has a very weak base and could easily collapse in a dramatic fashion.  

Date Open High Low Close Volume Adj Close*
Mar 12, 2015 205.26 207.18 205.20 207.10 92,753,300 207.10
Mar 11, 2015 205.29 205.50 204.40 204.50 108,754,600 204.50
Mar 10, 2015 206.71 206.81 204.93 204.98 153,901,500 204.98
Mar 9, 2015 207.74 208.79 207.55 208.36 89,397,100 208.36
Mar 6, 2015 210.46 210.46 207.10 207.50 169,087,400 207.50
Mar 5, 2015 210.62 210.80 209.85 210.46 75,456,600 210.46
Mar 4, 2015 210.40 210.49 209.06 210.23 105,665,800 210.23
Mar 3, 2015 211.47 212.05 210.08 211.12 110,325,800 211.12
Mar 2, 2015 210.78 212.06 210.72 211.99 87,491,400 211.99

VIX WEEKLYTraders tend to become complacent during rallies and they don't take profits or they don't keep hedges (usually because they get tired of their hedges failing during the rally) and that is exacerbated by the Corporate Media, who are also paid to stampede the sheeple whichever way the Banksters need them to go.

In this morning's news alone, US Steel (X) is idling a Minnesota plant due to lack of demand for steel and 15M tons of coal production went off-line in 2014 due to lack of demand and the IEA says oil prices will continue to fall due to lack of demand and the IDC predicts Global shipments of PC's will decline 4.9% due to lack of demand.  

XLF WEEKLYYet you are paying record high prices for stocks?  Doesn't SOMETHING seem wrong about this to you?  It doesn't matter if you can't put your finger on it – SOMETHING is wrong and, if something is wrong, you need to be cautious with your investments.  We took advantage of the dips to press some of our LONG-TERM beaten-down commodity plays and we took some profits off the table while we also ratcheted up the protective hedges in our Short-Term Portfolio because we simply think there needs to be more consolidation before this market goes any higher.  

As noted on Dave Fry's XLF chart, FREE MONEY from the Fed(s) has enabled companies to buy back record amounts of their own stock.  Last Thursday, we discussed how buyback money accounts for 85% of the inflows into the markets and that inspired the Harvard Business Review to agree with me, publishing a scathing indictment of GM's $5Bn buyback scheme (almost 10% of the stock), calling it "Bad for America and the Company."   

GM did $20.4 billion worth of buybacks from 1986 through 2002. If it had saved that money and earned a modest 2.5% on it, the company would have had $35 billion on hand when the financial crisis and Great Recession hit and probably would not have had to file for bankruptcy protection. As Bob Lutz, the veteran auto executive, said recently, stock buybacks are “always a harbinger of the next downturn…in almost all cases, you regret it later.”

GM is just a drop in the bucket, adding to what is now over $600Bn in planned buybacks for 2015.  Buying back stock doesn't build anyting, it doesn't improve your business – it only decreases the number of shares your earnings will be divided into so it LOOKS like you are earning more, which then masks the need to make investments in more productive things – dooming the company down the road.  

But most investors don't care about "down the road", they care about todays move or the month's move and hardly ever the quarter.  The average time a US investor holds a stock has dropped to 22 SECONDS.  You can thank high-speed trades for that but it wouldn't take too many people holding stocks for 31M seconds (a year) or 315M seconds (a decade) to bring that average up a bit.  But they don't – there are so few buy and hold traders left that we have a little club (the Value Investing Congress) where we commiserate once a year.  

Sadly, when the market is run to please the 22-second investors, the rest of us suffer.  When the shareholders have no loyalty to the company, there is no one to hold the CEOs and the Boards accountable and that means they can feel free to plunder their companies to enrich themselves – after all, who cares what damage they've caused after they've gone?   

That's why, rather than investing $5Bn in better electric cars or hydrogen fuel cells or better auto designs, GM is buying back 10% of it's own stock.  It enriches the guys who have stock options and the board members and the CEO gets to look like she's running the company well and, of course, it enriches the Banksters who run the buyback deals (nice commissions on $5Bn) so who cares whether GM is competitive in 2020 – not any of those people's problems…

We don't invest in R&D, we don't invest in Durable Goods, we don't invest in training and hiring employees, we don't invest in infrastructure – even though we know it's a crisis.  We're ignoring the cost of Global Warming (another way we pretend there are profits by pushing the true cost of pollution to our children) and it's no wonder the index of our competitiveness fell off a cliff (though back to 3 now that the rest of the World is also failing).  

But the stock market is up so all must be well.  

Have a great weekend, 

- Phil


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  1. Happy Friday!

  2. ….the 13th.

  3. Oil lines

    R3 – 50.26
    R2 – 49.51
    R1 – 48.30
    PP – 47.55
    S1 – 46.34
    S2 – 45.59
    S3 – 44.38

  4. 2050 seems like a good line in /ES. It was resistance yesterday morning and turned support later on. That had held this morning. I have it as a line on my daily chart and it does line up with area of resistance earlier this year. It also happens to be the Pivot on today's lines (well 2052 but close enough).

  5. Some thoughts on the strong dollar:

    Whether the dollar's boom turns out to be a net plus or a drag could depend on how the Federal Reserve reacts. With unemployment dropping, Janet Yellen & co. are widely expected to raise interest rates some time this summer in order to head off inflation. The problem is that a hike would strengthen the dollar further (again, higher interest rates attract investors, and as investors pile into a currency, it appreciates). At the same time, just like low oil prices have kept a lid on inflation these past several months, cheap imports should keep prices from rising in the near future. So theoretically, the strong greenback gives the Fed two very, very good reasons to remain at bay, by keeping inflation in check and threatening to curtail exports. If that's enough to keep our central bankers from pushing the button on higher rates, it could also allow for additional time for the unemployment rate to drop and for wages to rise—which is probably something most Americans would appreciate far more than a cheap Euro trip.

  6. And there we go, testing 2050 again!

  7. Been playing /CL mostly short.  Should have just stuck with my initial short trade earlier in the week and added to it.  Just not that smart.  Would much rather add to a winning position than to average down a losing position, but find it hard to do without getting whipsawed.

    Phil, I want to put on another hedge.  All this QE and currency shenanigans have me feeling under hedged.  What would you recommend as a new one ?

  8. Phil, What would you recommend for an existing APPL  March $125/$129 BCS at this point? 

  9. LULU and TM/Phil:  I'm in the LULU trade and not the TM trade, but you made the same kind of adjustment, basically, on each… which was to cash the very successful long call, keep the deep ITM short call and cover with a spread with the new long close to the ITM short ( in order to cover the ITM caller).

    I modeled the LULU trade this way on TOS, and I modeled it simply closing the entire old spread, and then opening the new one. The new position doing it your way was delta negative, and doing it the second way was very delta positive with more upside potential.

     It seems to me that the reason you kept the ITM caller is that there is a good amount of extrinsic in it, and this will lend some downside protection in the trade, and, there's no reason to waste money paying more premium to close.

    Is my thinking correct, or do you need to iron me out a little? 

    I'm sure in the past five years I must have heard this more than once, I guess you have to be in the right place to actually hear it.


  10. Good morning!  

    For my boyz at OPTT:

    The Carnege Perth Wave Energy Project is the first wave-generated, grid-connected power array in the world.


    Republicans are starting to sweat as heat is poured on them for the Iran letter. Some are trying to downplay their involvement, while the party begins to fear this…


    The modern Republican party has become an authentic mechanism for political subversion, and it's not just unknown crazy people from Texas who are driving the train. A rookie meathead submarines the president's foreign policy. Rick Perry is currently running for president on a platform more suited to a campaign conducted under the Articles of Confederation. Mitch McConnell, the majority leader of the United States Senate, has suggested that governors out in the several states ignore the Environmental Protection Agency. At every conservative gathering, from CPAC on down, there at least is one panel touting the benefits of nullification and old-school states rights politics. Yes, a lot of it is about how states rights got whipped over civil rights in the 1960's, but it's not all about race. It's about a deliberate, calculated attempt by one of the only two political parties we allow ourselves to dismantle the federal union. They want the country to come apart so they can sell off the pieces to the people who run their campaigns. 

    Wow, this is really happening in America right now (remember how the Hillary news was supposed to distract us from worse things?):

    WASHINGTON — Rep. Tom Cotton (R-Ark.) on Wednesday offered legislative language that would "automatically" punish family members of people who violate U.S. sanctions against Iran, levying sentences of up to 20 years in prison.

    The provision was introduced as an amendment to the Nuclear Iran Prevention Act of 2013, which lays out strong penalties for people who violate human rights, engage in censorship, or commit other abuses associated with the Iranian government.

    Cotton also seeks to punish any family member of those people, "to include a spouse and any relative to the third degree," including, "parents, children, aunts, uncles, nephews, nieces, grandparents, great grandparents, grandkids, great grandkids," Cotton said.

    "There would be no investigation," Cotton said during Wednesday's markup hearing before the House Foreign Affairs Committee. "If the prime malefactor of the family is identified as on the list for sanctions, then everyone within their family would automatically come within the sanctions regime as well. It'd be very hard to demonstrate and investigate to conclusive proof."

    And you guys wonder why I'm retiring overseas?  

  11. Wow, is Cotton reading from the North Korea rule book! Does he want to open labor camps in AK to create jobs there! It's just insane. Didn't we learn from the McCarthy experiment?

  12. Phil/Cotton

    That's insane!! 

  13. Cotton…. they sure do throw out some special kind of politicians out of Arkansas.

  14. /Es just broke 2050

  15. Big pop in the Nasdaq and all indexes recovering from opening dip.  We'll just have to see how the day plays out – could go either way as we're at our strong bounce lines of 17,840, 2,071, 4,910, 10,850 and 1,122.  NYSE is actually barely over the weak bounce at 10,750 and Nasdaq's weak line was 4,880 – so not too far over for them either.  On the whole, a bad signal if strong fails to hold today.  

    Dollar 100.36, oil $46.09, gold $1,156, silver $15.55, copper $2.66, nat gas $2.69 (surprise!) and gasoline $1.79 not worth playing with oil so low.   Europ $1.0537, Pound $1.472 (major damage) and 121.50 Yen for $1.  

    Good point on Dollar, StJ.  To bad the Fed doesn't give a crap about what's good for working Americans. 

    New hedge/Albo – I like TZA still, the April $10/12 bull call spread at 0.70 gives you 100% of the upside to $1.30 (185%) and you only lose money if the RUT goes higher.  So, if you want to cover 5% of your portfolio, you can risk 2% on this hedge and the only way you lose is if the RUT is up from here in two months.

    In July, I'd go for the $9/14 bull call spread at $1.55 because, again, no premium and you get all the upside to $3.45 (225%) and only lose if the RUT is higher.  If you just want protection from a bad drop, however, the July $12/15 bull call spread is just 0.50 and that doesn't kick in for 10% on TZA, which is -3% on the RUT but then you are good to 40% on TZA, which is 13% on the RUT and you make 500% so very good leverage for a real catastrophe where just 2% of your portfolio covers a 10% drop HOWEVER – you will lose that 2% UNLESS the RUT falls – so this is the kind of play you offset with a short put on something you REALLY want to own.

    Surprisingly terrible: Consumer sentiment declines in March

  16. And WHEEEEEE!!!! on /TF.  Wow, what a ride.  I'm out now as we'll probably bounce here (1,232 on /TFH5).  Switching to /TFM5 (June contracts), which are now the default on TOS.  

  17. Thanks, Phil.

  18. PPI also horrific.  Clearly things are not working and clearly the Central Bankster's only response is "more of the same", which is exactly the kind of economic idiocy we have come to expect from the GOP, not the Fed! 

    You're welcome Albo. 

  19. And now, looks like 2050 is resistance on /ES

  20. Phil I re read your changes at mid day yesterday. Can you explain the thoughts on rolling long 2017 call on BHI to 2016 and leaving the short caller alone. What will happen with these when BHI is purchased? Also, would you currently recommend new positions on CAT, DBA, MAT, SLW and would they be any different today?  thanks

  21. I think my dog may be Iranian. Will I be put in jail if she barks support of the current regime?

  22. Phil, apparently the large amount of capacity taken off line isn't having much effect at this point.  Oil supply still increasing.

  23. By the way my BHI holdings are slightly different:  +20 2017 50/65 BCS with -5 2017 55 put

  24. John Deering

  25. Consumer confidence not helping oil either! Down 3% for the day.

  26. Wow Fridays not fun recently. 

    Phil – as CLF continues to get beat down, is all of the steel related news changing our view there?

    Thank you. 

  27. Fridays and oil suck!

  28. These coal guys keep on getting killed! Of course, we are so close to $0 now that they can't really hurt that much more. Might be time to look for other horses!

  29. Why I don't want an Apple watch

    "Stated very simply: the Apple Watch, like every other enslaving you to the network device, is a productivity destroyer."

  30. Anyone liking 45.50 as a support line for oil today? Anyone thinking it could spike up with option expiration today? Anyone willing to play in this crazy market today? It is my 27th wedding anniversary and if I know what is good for me, I will turn off my computer soon and not look.

  31. Coal/Stj – I'm wondering when the reverse splits start coming.

  32. FU CLF!!!

    FU RIG!!!

    FU ABX!!!

  33. jcpdx


    March 12th, 2015 at 6:39 pm | Permalink | Tweet thisIgnore this user

    BHI / Phil – I have the 2017 50/65 BCS and was wondering what my roll would look like in reference to your 57.5 roll from earlier in the day. Thanks. 

    March 12th, 2015 at 8:35 pm | Permalink | Tweet this

    BHI/Pfehl – That one's in great shape, why change it?  

  34. Coal / Scott – Soon it looks like. On the other hand, look at it that way, coal stocks are now priced like options without the worry over premium or expiration!

  35. STJ – Hopefully you don't have to worry about expiration. :-)

  36. UCOO @ 6.91!

    I'm going to wait for 4.99 on this thing and then invest on credit card…

  37. Albo – Well, some of them will expire, no doubt!

  38. Looking at XOM priced in oil ($WTIC) is a bit high in a trading range channel. Suggests oil price may go up a bit or XOM down.. but not XOM up.

  39. Phil

    BHI Buy out is set at 1.1 * HAL sh price + 19 Cash.  Assuming it closes this year .  Hal Stock dropped after acquisition announce.  I am assuming at purchase price at 65 to 67 / share really modeled w/ oil as the key parameter at about 55 / sh.  does this make sense?  Do you have a view of the possible sell price, and what is the key driver on this may be?   Thanks, 

  40. BTU/Stj – still talking pretty bullish in their presentations

  41. ACI close to "expiration" LOL!

  42. Never mind my previous question about support for /CL. Wow, blowing through S1, S2 and will S3 get taken out? Ok, now I am really getting off of here. 

    One thing before I go. I have really gone to cash for the most part, using it to play futures , but I have an awful lot of cash being unproductive at the moment. I am looking for suggestions about where you guys park cash when in cautious times like this, With money market accounts paying .01% interest and CD's not much better (these are all I know since it has been so long since I have been in this position) where does one park cash waiting for a better investment opportunity to appear? Looking forward to hearing from you all.

  43. Porshce coming out with some alt vehicles

  44. craigsa, send it to me……I'll park it for you!

  45. Cash/craigs – park some of it in silver.. call the guys at and have them send some of whatever they have in stock. 1 oz, 10 oz or 100 oz bullion.  That's where you 'park' cash that isn't paying elsewhere.  Or find something here:

  46. MUB / MEN /MQY

    4-6.2% div yield federal tax free. Granted bonds can down, so not sure what you mean by "park cash" in terms of risk aversion or what not, but these instruments have performed well and consistently for the 10+ years I've been watching them.

  47. 187 has been a big support for TSLA.   Be interesting to see how far down it goes if it breaks through it.

  48. Cash/Craigs – of course, that's after you have run to Costco and stocked up your pantry, freezer, batteries… 

  49. BDC/UCO,

    Are you buying the ETF or the option?


  50. pat_swap: options

  51. BDC,

    Which ones are you piling on? Stike/Date?


  52. Here's the problem with continually weakening your currency:

    Euro Continues Fall, Bonds Yields Rise

    The euro had initially showed signs of steadying after Thursday’s mini-recovery from a 12-year low of just below $1.05. But a resurgent dollar continued to chip away at the single currency.

    So now they get higher borrowing costs and their debt spins out of control despite all the free money being printed because $60Bn a month isn't enough to cover the deficit-selling for the EU.  Of course Italy is dropping like a rock:

     AAPL/Sibe – Wow, you let that go a bit long.  AAPL now $124,down from $133 a few weeks ago.  

    The $125s are just 0.18 now so it's just a dead trade, long past fixing.  This is why I don't like short-term spreads like that and hardly ever use them – you're trapped in the trade until near the end and then, if you are not on target – you are just screwed, especially if you can't deconstruct the spread to leave a naked short call.  

    LULU/Jbur – Yep, you've got it!  It's a more bearish stance for the short term, taking the sure money off the table and profiting most from a pullback that kills the short calls and then a recovery that puts our spread back in the money down the road.  The key factor is taking our gains off the table and we can always deal with the consequences of a bigger move up than we expected when and if we need to.

    BHI/JMD – Because it was much cheaper to roll BHI down to the 2016 call and it won't matter about the timing if BHI is bought by HAL this year as that will close all contracts at their strikes, including the short 2017s and all premium will be gone.  As to the 4 you mentioned – I'd certainly wait until next week because it's end of quarter and options expiration AND we're failing our strong bounce lines today – so maybe more sell-off ahead.  

    Dog/Craigs – Be careful.  Now the NSA and Cotton have you admitting a relationship and, as he says, he don't need no stinkin' evidence!  

    Oil/Albo – As noted on Monday:

    Submitted on 2015/03/10 at 8:00 am

    Premise/Sibe – I'm not endorsing every article I put up – it's just important that we know what the MSM is telling others.  There's some truth to it though.  The rigs they take down are marginal producers – by definition they produce less oil – that's why they are marginal.  It takes the same amount of guys to run a 10,000 barrel/day rig as it does to run a 1,000 barrel/day rig and if those guys cost more than $40,000/day, then you shut down the 1,000 barrel rig and see if you can squeeze another 1,000 out of the 10,000 rig.  Of course, there's a point of diminishing returns to this strategy and running your 10K rig at 11K for extended periods of time may cause problems and then those rigs go off-line for repairs and now you are producing 0K from two wells.  As usual, these things take time to unwind and investors have the attention span of infants on crack so "it doesn't make sense" to them that there's no direct, instantaneous correlation between rig counts and productivity.

    BHI/JMD – Nothing wrong with that spread at all.  

    CLF/Steve – I'm not changing my mind on iron and steel because it's not like we don't make things out of them anymore but coal is a worry.  Actually cheap coal is good for CLF down the road but not if there's no demand for their stuff in the first place.  As I have been saying for a year, we're in the down part of a multi-year cycle and it could take years for us to bottom, so it's not an investment for people who need to see immediate (as in 1-2 years) returns.  

    This is how I look at CLF (or any cyclical).  I didn't want to buy it at $50 or $100 but, at $25, I began to get interested and at $12 I doubled down and at $5 I doubled down again for an average of $8.75(ish) on 4x and, if we go 8x at $4, that's an average of $6.38.  So beginning with a $50,000 allocation (and ignoring the benefit of selling puts and calls along the way), we buy 1x at $25 = 500 shares for $12,500 and then 2x at $12.50 or 1,000 shares at $12,500 and then 2x more at $5 of 2,000 shares at $10,000 and now we've spent just $35,000 for 4,000 shares = $8.75 per share.  

    So, at $4, if we buy 4,000 more for $16,000, now we've spent $51,000 but we have 8,000 shares which we can sell calls against and hold them for 10 years and, if we're lucky enough to catch a cycle back to just $25 – we get $200,000 back and as much as $800,000 at $100.  

    The point being that, even if CLF stays where it is now ($4.87) I can sell 4,000 (1/2) the 2017 $5 calls for $1.75 and that's $7,000 back against $25,500 in margin (27%) while I wait to see if CLF takes off.  This is not a horrible outcome.  Since I only have 4,000 shares at the moment, I can sell 20 contracts for $3,500 and sell 40 $5 puts for $2.05 ($8,200) and that is $11,700 back on my $13,000(ish) in margin (90%) while I wait to see if I do end up owning 8,000 shares at net $6.38.  In truth, if I get called away with just the 90% return - I'll be annoyed.  

    Coal/StJ – As I've been saying, I've lost faith.  Don't forget CLF is unfairly classified as a coal company, which takes them much further down than they should when, in truth:

    /NKD so far not dropping with the rest.  I'm on break-even at 19,250 with 10 but fairly confident.  Dollar 100.66 keeping it up as people panic into cash.  

    Oil/Craigs – I think it needs to prove it can hold $45.  Might be a pump into the close (2:35) but still no play to me and, please, go get stuff for your wife and plan a nice dinner – THEN she'll let you trade when it's actually a good day to do so…

    XOM/Scott – That's what I've been saying.  Holding up like they've been makes no sense.  

    BHI/Batman – Yes, $65 is our current expected target.  Oil is the key driver and BHI shareholders will likely demand more cash so probably $25 and one share of HAL in the end.  

    BTU/Scott – All up to China.  If they cut back on coal (hard to do), all coal is screwed.  China needs to do the math but the cost of not cutting coal is killing them too.  

    BBC News – Most China cities fail to meet air quality standards

    Air Pollution Turned This Chinese City Into a Ghost Town …

    Cash/Craigs – Bank and trading account.  No trust in bonds at all.  I'd rather have a ton of margin ready to deploy in case an LL deal lands in our laps or if NFLX makes another run at $500 – that sort of thing.  It all depends on how confident you are that you can make 5% on the margin you'll have.  If not, makes no sense to leave it with a broker.  

    Porsche/BDC – Jackie and I walked past a Panamera at the mall and she asked me what the big deal was and all I could say to here is that, when I was a kid, that design was kind of futuristic-looking and cool.  She said, now it's pretty ordinary and I had to agree with that.  They are diluting the brand but that's fine with VW, who wanted to do with Porsche what Daimler did with Mercedes – a little upscale but mass-produced.  

  53. Oh how silly, in the STP, let's buy back the EWJ short March $12.50 puts for 0.14.  Damn, almost forgot those!  

  54. I'm eyeballin' those UCO Apr 8 calls for 0.35 or less, with the mentality that if oil stays toxic though next month I'd pull a similar play for the same amount in May

  55. From Bloomberg, Mar 13, 2015, 11:47:26 AM

    Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Sept. 17, 2014. The Federal Reserve maintained a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed, saying the economy is expanding at a moderate pace and inflation is below its goal. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Janet Yellen

    It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  56. From Bloomberg, Mar 13, 2015, 11:29:35 AM

    (Bloomberg) — Eni SpA became the first major oil company to announce a dividend cut as the Italian group prepares for a period of lower oil prices.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  57. From Bloomberg, Mar 13, 2015, 11:23:47 AM

    (Bloomberg) — Bonds and stocks of Petroleo Brasileiro SA fell after a newspaper reported that the company is in talks with creditors to extend a deadline for publishing audited results and avoid a possible acceleration of payments.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  58. From Bloomberg, Mar 13, 2015, 10:40:49 AM

    (Bloomberg) — The Ibovespa slumped to a five-week low as unions began protests in Brazil over corruption and pension cuts, adding to concern that political instability will hurt companies.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  59. From Bloomberg, Mar 13, 2015, 10:24:11 AM

      A man works in a sugar cane field at a farm in San Antonio de los Banos, Cuba. Source: Bloomberg

    (Bloomberg) — Slumping energy prices led commodities to a 12-year low as the dollar’s best rally since 2008 reduced the investment appeal of raw materials amid surpluses of everything from oil to sugar.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  60. From Bloomberg, Mar 13, 2015, 10:00:00 AM

    March 13 — Consumer confidence fell to a four-month low at 91.2 in March as analysts expected a reading of 95.5.

    (Bloomberg) — Consumer confidence declined in March to a four-month low as optimism about the U.S. economy was tempered by weaker income expectations and a rebound in gasoline prices.

    To read the entire article, go to

    Sent from the Bloomberg iPad application. Download the free application at

  61. Fragile Friday – An apt title for today's post Phil

  62. Cash- if you have portfolio margin a/c you can trade short strangles on index's. Very conservative plays can net you 1/2 to 1% per month. I have been doing it for years. 

  63. UCO

    Ive been selling july 6 puts latest round was 0.90 this morning

  64. USO – if anyone missed out on my 'price of gas' hedge for the year, is good entry again:  Buy Jan16 18/23 bull call spread for 1.30, sell Jan16 $15 put for 1.55 or better. $310 in regular margin, pays $500+ per set if oil goes back up by end of year. if stays down here, you get paid $25 for your trouble of tying up the margin (an 8% return on your 'cash', craigs).

  65. Playing /CL for a bounce.  Close stop.

  66. Wow, and up things go.  Not seeing a reason so far other than technical support at (Futures) 17,500, 2,030, 4,285 and 1,212.  

    Now we have to work on weak bounces again at 17,720, 2,056, 4,880, 10,750 and 1,216.   As usual, the RUT is over-achieving.  Look for the strong bounce line at 1,122 on that one – if it provides resistance from above, back down we go.  

    No bounce in oil – still $45.  

    Oil/Albo – This is why it's a bad day to play.  Still, BNO down 2.77% ($20.74) and /CL down 4% at $45.15 so good chance of a bit of a recovery to $45.50 at least. 

  67. BBY – holding on well despite PPI and intel news… how come?

  68. Very helpful modeling Phil thx for the detail, model helpful for majority of what I am holding.  One part not clear so will ask, why would you only sell calls on half the 8000 shares?  Or did you not purchase the last 4000 in your example?  

  69. Stevegeb: Just my 2 cents….. sellling only 1/2 gives you more breathing room should you have to roll up/out later.

  70. NYPD alters Wiki pages on killing of Eric Garner (I can't breathe).  So 1984!  

    NASA Scientist Warns "California Has One Year Of Water Left"

    Hillary Clinton’s potential GOP presidential rivals used personal email accounts, too:

    Embedded image permalink

    Kaisa's rise and fall: In China, a Building Frenzy’s Fault Lines

    GOP’s absurd new tax scam: They want to eliminate taxes on the rich & sell it as relief for "working families"

    Embedded image permalink

    Kerry: Ignoring climate change is "just plain immoral"

    Wall Street's Macau delusion has really gone far enough

    Embedded image permalink

    The Orwellian Re-Branding of ‘Mass Surveillance’ as Merely ‘Bulk Collection’

    Here’s Why The Retail Sales Number Flummoxed Wall Street and Is Grossly Misleading

    Bankruptcy judge denies $82M sale of Atlantic City's Revel casino to Florida developer.

  71. Phil – It's been a great day to be trading crude from the short side.  Only got long 2 contracts  .Closed out one long +20 ticks.  Stop at entry on the other one.

  72. Jbur – appreciate any and all advice in this learning game. Thank you – question was also to make sure I didn't miss something on the math side of it. 

  73. Phil, where do you think oil goes if we do reach an agreement with Iran.  Supposedly they will double production over the next 5 years adding even more to our ever growing surplus.

  74. Cash/Craig – If you want to keep it literally in cash, consider the online savings accounts from Amex, Discover, Synchrony (a.k.a. "MyOptimizerPlus", a spinoff from GE Capital), and others.  Amex and Discover are currently paying 0.9% APR, while Synchrony is paying 1.0%, and it's all FDIC insured up to the usual limits.  You can link them to your regular bank account for easy transfers via ACH.  I have a couple of these accounts and am pleased with the customer service and ease of use.

  75. ~~Baker Hughes U.S. rig data showed a decline of 67 rigs. This included 56 oil rigs and 11 natural gas rigs.

  76. AERO was so much fun until they rained on their own parade.

  77. Oil/Albo – Well you're a braver man than I am but congrats.  

    BBY/Scott – They sell IPhones too!  

    You're welcome Steve.  As to call selling, you don't know when the stock will take off so you want to avoid being all covered if you can help it.  As a practical matter, we sell 2017s for $1.50, for example, and then, in Jan 2016, if all goes well, the 2017s are 0.75 and we sell 2018s for $1.50 and put a stop on the 2017s at $1 and on and on until the stock finally moves up.  

    And what Jbur said.  

    Iran/Rustle – Well it won't go up, that's for sure.  They need to find a new use for oil at this point because we don't seem able to soak up the production.  GOP is in full freak-out mode to get the Pipeline done and to get Obama to allow oil to be shipped out of the country.  They seem unable to explain how this would be a good thing for Americans (other than oil jobs), however.  Meanwhile, who's to say a flood of US oil on the Global market won't make things even worse?

    67 rigs/Albo – That's a lot now that the total is only 866, around 8% more off-line in a week is a lot.  

    oil rig count 3 13 15

    AERO/Steve – Very funny.  

  78. LL off again today – back to $31.  

  79. Trying to decide if I should roll my long LL calls down or buy back my short LL calls.  I'm in the 32/42 May BCS.  Presently down about 35% but thinking in light of the daily 10% moves in the stock, it's probably worthwhile to play more to the upside.

  80. Of course, the plan with buying back the shorts is to resell on the next $4 spike in the underlying.

  81. Pipeline / Phil – And to top it off, mostly Canadian oil would go through so how does that help us! In addition, when Dems put an amendment that US steel had to be use for the construction, it was shot down by the GOP. So far, I have not seen a compelling argument to build that pipeline in the way of energy independence or jobs! 

  82. stj- One compelling argument is that it is far safer to transport the synthetic crude by pipeline than by rail. 

  83. Rigs / Phil – That number is losing a lot of significance right now. As I posted 2 days ago, the number of rigs has gone down by 700 but at the same time, production has increased from 9 to 9.4M barrels. So rig productivity has gone from 5625 barrels/rig to 11,000 barrel/rig. Clearly they are shutting down the marginal ones that are not profitable and maybe even increasing production on the others. More important than rig count is the production I think.

  84. Phil, I've got the long April USO 17 calls @2.45 now .95, roll or wait?  

  85. Rail / Sibe – I thought of that argument, but didn't we just have 2 huge oil spill from pipelines over the last 6 months or so. But we also had big derailments. So might be correct and that's one argument. But not much to do with energy independence and jobs! 

  86. stj- Pipelines are not bullet-proof, to be sure, but it is common knowledge in the industry that pipelines are the safest means to transport materials over long distances.  Having said that I would not be jazzed to have a natural gas pipeline running next to my house, but better than a railroad.

  87. OLED having a nice two weeks.  I'm out and waiting for $ 35 again

  88. LL/Jph – Well the $32s are $4.50 and the $42s are $1.70 so $2.50 and I assume you netted in at $3.50 which means you are UP on the $32s so why not use that to your advantage and roll to the Jan $30s at $8.30 and you can roll the May $42s to the Aug $40s ($3.60) and that's net $1.90 to improve your position by $2 + 8 months.  Of course you have to get those prices or better, otherwise, I'd just wait and see.

    Canadian/StJ – It helps them by sending it out of the country instead of into this one.  It would help the US and Canadian oil producers, that's for sure – oil would be back to $100 in this country in no time!  

    Production/StJ – Yes, but, as I said, there's a ridiculous assumption that a rig is a rig and that's not the case, some produce 24 barrels a day and some produce 660 barrels a day and CLEARLY they take out the ones that produce less barrels first.  

    New-well oil production per rig
      New-well gas production per rig
    thousand cubic feet/day
    Region March 2015 April 2015 change   March 2015 April 2015 change
    Bakken 577 592 15   584 595 11
    Eagle Ford 660 680 20   1,712 1,732 20
    Haynesville 24 24 -   5,844 5,955 111
    Marcellus 36 36 -   8,083 8,130 47
    Niobrara 432 455 23   1,881 1,906 25
    Permian 202 240 38    402 459 57
    Utica 225 234 9    4,603 4,738 135
    Rig-weighted average

    Bakken, Eagle and Permian are 1.5-2Mbd each and only Niobrara is even significant otherwise (400K).  So rig count tells you nothing much – it's like saying "bones" as if they are all the same size with the same function – only people who know nothing about them would even bother using that data.  Which is, of course, why they love to feed it to the investing public.  

    USO/Jr – From yesterday's STP Adjustments:

    USO April $17 calls, now $1.35 can be rolled to the May $15s at $3.05 and we can sell the April $18s for 0.83 to pay for 1/2 the roll.  

    DOE just offered to buy 5Mb of oil for the SPR.  Remember my plan to sell 600Mb from the SPR at $100 ($60Bn) and then buy it back when the price drops (now $27Bn)?  We could have made $33Bn since July!  

    OLED/Stock – Very nice.  Interesting move off the earnings miss.  

    Universal Display Down 5%: Bulls Say Look Past Forecast to Multiple Upside Sources

    Markets dribbling in now but failure at weak bounces is not good.  /TF right on the 1,222 line as well.  

    Dollar 100.71 – soon there won't be any other valid currencies.  


  89. stj- regarding the rig count, bear in mind these are drilling rigs.  They drill the wells and have nothing to do with ongoing production.  Production is a function of the number of completed wells on-line and their rate of production.  The rig count has everything to do with future oil supply because well production declines over time, some very slowly like traditional reservoirs (eg. offshore),  and some rapidly (unconventional shale/ tight source-rock plays).  As oil gets cheaper the producers try to maintain/increase production from existing wells or soon to be completed wells to maintain cash flow.  The E&P budgets are being slashed, and as rigs complete their jobs they are idled. This will impact future production.  However, the time from start-up to completion of the onshore unconventional wells has improved dramatically so it may be that the industry can ramp up again pretty quickly once the supply normalizes.  I understand the supply side but I am puzzled by the softness in demand. 

  90. Rigs / Sibe – Good point, but wouldn't production remain constant for a while even in the absence of more rigs. I imagine that wells don't dry up in matters of weeks. So this would be a long term impact then. What would be a good estimate for a timeline?

  91. TGLDX is as cheap as it has been since 2009… not a bad day to move some funds there

  92. NROM/Phil, All:

    This pizza company I mentioned last month popped 0.15 today. Closer inspection of the just released 10Q shows that they are growing earning nicely.

  93. Dollar / Phil – In the last 20 years, the dollar has been over 100 only about for 3 years. That was the case toward the end of the Clinton years when our deficit was getting repaid and that lasted until 2003 when the Fed took matters in their own hands! Incredibly enough between 2001 and 2008, the dollar varied from a high of about 120 to a low of 72. And even with that huge tailwind, markets didn't rise that much, going from 1300 to 1600 and back to 700! Of course many other factors at play – growth, interest rates, inflation and such. Add psychology and it's getting too complicated to understand.

  94. Phil – When rolling down higher strike priced RIG puts, would you recommend $10 or $13 2017s?

    Does all the supply chatter impact our bullish conversation around oil or full steam ahead?  Interesting that a source you don't normally cite for reasons you previously shared (P+F charts) show RIG in a reversal with a $31 price objective.

  95. Phil , the other day when I mentioned KRFT , since that is all people will be able to afford, you asked who is their equivalent in Europe.  its MDLZ , but I dont see a play there.   Sales are 40% Europe, 14% Asia, 20% USA, 15% Latin America

  96. RIG/Stevegeb – how does one use a P&F chart to show a reversal and target of $31?

  97. stj – A lot of it is proprietary information, but from what I have read and the people I have talked with the fractured wells often have what is considered very steep decline curves where initial production declines by 70% (to pick number) in months to a year.  Operators and service companies have found that well completion techniques are important in this regard and have increased the volume of proppant injected into the wells to extract hydrocarbons from the largest possible rock volume surrounding the well.  Still, in order to maintain high production numbers new wells have to be drilled continuously.  Understand, this is varies considerably from formation to formation and is a generalization.  But that is the gist of it.  

  98. RIG – I see stockcharts 'stock' P&F shows a price objective.. but really?,P

  99. /ES right at 2,035, by the way, that was the 5% Rules prediction from Tuesday morning.  

    Demand/Sibe – It's those CAFE standards kicking in.  The fleet avg went from 16 to 25 on new cars and there wasn't much impact in '09 or '10 because no one was buying cars but now we have 3 years of record sales and we rolled about 1/3 of the cars over to better mileage so figure a 20% improvement overall and that's 16,000 miles x 200M cars at 16mpg was 200Bn gallons/42 =  4.7Bn barrels =  13Mb/d and now it's 160Bn/42 = 3.8 = 10.4 so there's 2.6Mbd extra and then you have solar and other stuff helping and more efficient new planes and there goes your demand in a stagnant economy. 

    Obviously oil doesn't get made directly into gas but close enough to get an idea of what's going on (and that's with only 1/3 of the fleet rolled over!).  

    As to rigs – so after the Rig gets a well going, the working well isn't called a rig?  The rig is just the drilling unit?  In that case, where is the well count?  That would be important.  I took it that the old category of "Exploratory and Development Wells" was now "Drilling Activity" which is different from "Rig Count", which I posted above.  If I'm confused with the lingo, I'd love a clarification. 

    NROM/Jbur – 4,000 shares traded today – better buy very slowly!  

    Dollar/StJ – It's A factor but certainly not THE factor.  Mostly because we don't export much ($2.5Tn), nor do we import all that much relative to GDP (about $3Tn = 18%) - it's a service economy and we print our own so there's never a shortage.  

    RIG/Steve – Which higher strike?  What year?  If you have the 2017 $20s at $9.66 and you sold them for $4, you are down $5.66 and the $10 puts are $3.25 so if you rolled to 1.5x the $10 puts, that would cover your loss.  However, if you wanted to be more aggressive, you could roll to 2x the $13s ($5) for better than even and you then are obligated to buy 2x at net $11 vs 1x at net $18 – a good trade-off.  

    It's going to be a long time before these things turn around, you don't want to get too aggressive.  As to P+F charts, TA isn't really my thing – I'm a Fundamentalist. 

    MDLZ/Stock – I guess that's because it is in Europe, doesn't work out as well.  

    Thanks Sibe. 

  100. Zero, another day of commodities trying my patience .  In Jabo's words:  FU Commodities

  101. More Rig news: This is from North Dakota.

    Hundreds of North Dakota wells also have been drilled but not completed, he said. Oil companies are saving money, and awaiting a potential major tax savings, by delaying hydraulic fracturing on 825 wells — a number that likely will increase, Helms said.

    Helms forecasts lagging oil output for a few months because the 111 operating drilling rigs — down from 193 rigs a year ago — aren’t enough to sustain production growth. He said the rig count is the lowest since February 2009 and could drop to 100 rigs this year, resulting in more layoffs.

    Tax policy is contributing to this practice. Helms said it’s “very likely” that a major, automatic state tax break designed to help the oil industry during tough times will be triggered by persistent low oil prices. The tax benefit, along with a state-mandated deadline, could bring a surge of well completions and significant increases in oil output in June, he added

  102. Phil – RIG puts 2016 and higher than $20 so don't want to let them get further away.

    With your long time comment, are you more in the camp of the cyclical model as we discussed earlier with CLF or the 2017 BCS (13/17, 2017) you mentioned yesterday?

    Lastly, in our selling calls discussion above, if we are only selling 1/2 of our total shares and rolling half way through the term, then we would only sell 1/4 initially so we didn't leave any uncovered, correct?

  103. Oil / Phil – Tough to be bullish long term though as CAFE standard get even more stringent in the next 10 years! By 2020, we might need another 2M fewer barrels per day the way it's going. With even more solar and wind! The only way out this rut would be for US producers to lower their production because clearly producing countries can't afford to do that for a long time especially of 80% of their revenues is from oil production. 

    BTW, funny enough, but I head that gas price is going higher in France because of the Euro tumble. So some things are going down faster than oil (I mean besides miners).

  104. And something about decline rates from Nov 2014, not that the headline has been all that accurate up till now:


    ~~(source: IHS, Deloitte & Touche and USGS databases; other industry sources; IEA estimates and analysis)
    The supply of the oil from an existing fields decline on an average of 5-7% per year
    The largest onshore oil fields decline at a slower rate
    Deepwater offshore fields decline 2+ times faster than onshore fields
    The latest onshore tight oil fields in North America show annual decline rates greater than 30, 40, & 50% in the first years before the rate asymptotes to a more traditional decline rate

    So: onshore tight oil has the highest decline rate, whilst deep water offshore wells rank the second. Large onshore conventional wells have the lowest relative decline rate among the three.

  105. Oil – so.. our conclusion is that oil is going to continue to go down.. and in June/july even more domestic supply will start pumping so we stay low?

  106. re: oil, you'd have to figure that at a certain point the stronger US producers will try to control production if they can in order to support price.  Maybe a few discreet phone calls to Saudi Arabia?  If some kind of friendlier understanding could be reached betw Saudis and US producers, is it possible the Saudis would play differently?

  107. Phil,  Yes the rig refers to the drill rigs.  Nowadays they often set up a drilling platform from which multiple wells can be drilled without the need to move the rig.  Once all the wells are drilled the rig is removed and the wells are developed.  This involves logging the well, perforating the steel casing if one is used, and injection of proppants under high pressure in open wells (no casing).  All the necessary plumbing is done at the surface and the wells are then tested.  Initial production rates are often published since companies would love to impress potential investors.  The number of wells is known and is public information, the rate of decline is closely kept and it varies over time too.  Wells can often be redeveloped to restore production but I believe it is rare to achieve the original production rates after the initial decline.  There are follow-on techniques as well to help improve the sweep-efficiency in a conventional well field.  For example, Enhanced Oil Recovery (EOR) using CO2 injection at reservoir pressures (liquid) and other cool engineering tricks.  With so many players and so many variables (geology, engineering, economics) it becomes very difficult to predict how much product will hit the street at any given time.  This is partly why there are booms and busts in the industry.  I have no idea how low oil can go but I do know that these high production rates that we see today come at a great cost and wont last long without additional energy being added to the system.  In physics it is termed Entropy.

  108. Output/Randers – Well more output in June would be terrible timing. 

    RIG/Steve – Yes but hard to say how RIG will be affected by next earnings.  If oil isn't back to $60 by July, this trade could be in real trouble.  On selling, no, you have 2,000 shares, you sell 10 contracts Jan 2017 for $2 and then, in Jan 2016, if the 2017s are $1 or less, you sell 10 2018s for $2 and put a stop on the 2017s at $1 and, hopefully, over the next 12 months, the 2017s expire worthless and the 2018s drop to $1 and then you sell 10 2019s for $2 and put a stop on the 2018s.  You are only 1/2 covered on the first sale, after which you use stops to keep your upside flexible.  You do realize you are selling, in the case of CLF, a 2017 $5 call for $1.75, which is 35% of the stocks price.  That means, if you sell those calls 3 times, you have a zero cost basis in the stock. 

    Oil/StJ – At a certain point, if we clearly don't need the oil, we will export it but, by then, no one else will need it either.  That's why there's so much coal laying around 200 years after peak coal was declared – we switched energy sources.  

    Declines/Lotter – That's what they used to tell us in 2008 to try to talk oil up.  

    S&P Futures already popping 10 points of 2,035.  Oops, that's the close, actually.  2,053 on the index.  

    Oil/Scott – No "conclusion" just gathering data.  

    Great summary, thanks Sibe!  

    Have a great weekend everyone,

    - Phil

  109.  i

    Hope u don't mind my posting—but a photo of my daughter interviewing the Surgeon General at the White House

  110. oops sorry I guess I am not allowed to do that

  111. Got it Phil, the part I was missing was the stops keep you from having all of the stock called away because you would hit the stop before the strike price was hit which would kill 1/2 of the calls and only have your longer term call in place.  Yes, love to cover my basis in anything, so with you there on 3×35%….

    Re: RIG – you said "(based on earnings) trade could be in real trouble" so 2017 $10 vs $13 puts?  I apologize, I am a little squeamish given the commodities-related beat down I have experienced of late but am in for the long haul.

    Weekend request if you have time – looking to build the model you helpfully outlined above re: CLF, I would REALLY appreciate your current thoughts and rankings on the group of the following commodities-related stocks we discuss and trade here:

    ABX – have to believe this would be in your top tier









    I am asking so I can have more information in a relative sense as to what tiers you would put these in before deciding to add to positions, sell calls, puts etc.

    Thank you in advance.  Have a good weekend all!

  112. Randers, This is why I like US Silica.  Aside from their sustainable core business outside of the O&G industry, they are in demand when wells are scheduled to be completed and are selling sand and service so their pricing is not directly linked to the price of oil & gas.  They have to have a price customers can afford but it is really a volume business and their customers are finding the more sand they inject the better the wells produce and behave.

  113. Savi, I'll bet that was exciting for you and your daughter.  That is not your average day for most people.

  114. Sibe14

    SLCA still profitable is good too!

    Weekend reading if anyone is interested on how the market is rigged.( Like Phil has be known to say on occasion)

    I like Micheal Lewis and met him at a Bllomberg seminar. He signed Moneyball for me and was gracious.

  115. Wow!  if no the three martini lunch must be the whole bottle of wine afternoon… Cramer is toasted!

  116. Savi – If you want, I can post that picture for you…

  117. Phil – Alternatively, in rolling RIG, BTU and CLF puts that are down, what other stocks would we consider so we would "roll away" from some of the overweight in my portfolio to the resources stuff?    APPL puts (just have BCSs there), others?  Seems like a decent way to diversify.

  118. stj—if it is ok with Phil I would love to do that

  119. Yes please Savi, post that photo, I understand a proud father.

  120. …or proud Mother…. :)

  121. Photo/Savi – I'm surprised you can't post a photo as I thought you had admin rights.  And congrats, by the way, that's fantastic.  

    RIG/Steve – You are right to be "squeamish" as commodities are collapsing and may, in fact, be leading to an overall market collapse so I hope you have good hedges to protect all those material stocks.  If you want to talk rolls, I need specifics on those positions and if you are looking to establish new ones, the rolls we just made for the LTP are a good place to start.  I've lost faith in BTU but I like all the rest, which in no way means they won't get cheaper still – just that I like them at these prices for a LONG-TERM investment.  

    Also, I wouldn't get ABX, FCX, HMY, SLW and NEW – it's not very diversified as they are all in the same gold sector (FCX about 10% gold).  You may as well just buy GLD if that's your bet (or ABX, which I think is the most likely to survive).  

    All those bets are bets on Global Infrastructure spending, rising inflation and expanding GDP – none of which we're seeing at the moment but, over the next decade – probably.  

    SLCA/Sibe – I like them too but down in the dumps with everything else.  

    Rolling/Steve – Again, if you are super-heavy in materials, that could be a big problem.  I think the whole market will sell off so it's not like AAPL is going to be some safe haven if all you are doing is selling puts and crossing your fingers.  You need to think in terms of being diversified, with no more than 20% in any one sector and ALL those material stocks are essentially one sector, which all go the same way at the same time.  

    Anyway, feel free to give us a bit more info and I'll try to suggest some strategies for diversifying but HEDGING is the most important thing, given the uncertain markets. Not that our hedges are helping lately as the market is abnormally rising despite the total lack of demand for materials.  It's a very strange disconnect.  

  122. /CL – Taking out previously lows.

  123. HI Phil

    GLD – i know you don't like GLD, but this spread looks really appealing.  '17 BCS 110/130 for ( -12.7 / + 8.6) -4.2 net.  What are your thoughts on this?