Thrilling Thursday – Can Super Mario Save the Markets?
by phil - October 2nd, 2014 8:14 am
Wheeeeeee - What a ride!
As with skiing, a nice drop can be lots of fun – if you are ready for it. If not, things can get broken… Supports were broken yesterday as we lost the 200-Day Moving Average on the NYSE (10,600) and the 50 dma on the Dow (16,930), Nasdaq (4,500) and the S&P (1,975).
We lost the Russell ages ago, when we made our Death Cross so "told you so" on that one. As I said at the time (9/16):
Of course, we've been telling you for weeks now that the markets were toppy but at least now it's getting obvious. The Fed may still pull a rabbit out of its ass and goose the markets once again but I very much doubt anything is going to stop the eventual correction now. Delay, maybe – stop, no.
Our trade idea that day in our morning post that day was:
If, however, you buy just $2,500 worth of the of the TZA Oct $13/16 bull call spread at $1 (25 contracts), they will pay you back $7,500 if TZA goes up about 15% (just a 5% move up in the RUT) AND they don't lose all their money until TZA is down 10% (a 3% move up in the RUT).
That trade is already 110% in the money and on it's way for a $5,000 per unit gain (200%) – a very nice way to hedge what is, so far, less than a 10% pullback in our indexes. What we do, once these hedges go in the money (if we're still bearish) is add another layer of hedges at higher strikes and we put a stop on our original hedges to lock in those gains. That's where we are now as we begain playing for a bounce yesterday in our Live Member Chat Room (you can join us HERE).
This morning, we're waiting on Draghi to wave his magic stimulus wand and stop the market slide but I'm not sure he can…
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Weakening Wednesday – Can Yellen Save the Day?
by phil - May 7th, 2014 8:31 am
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…
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Tempting Tuesday – Weak Dollar Props Up the Markets
by phil - May 6th, 2014 8:14 am
Whenever the manipulators need to boost the markets, they just crash the Dollar.
And what a dive we've had! As you can see from Dave Fry's Chart, the Dollar is down 7% since last summer and down 2.5% this year and that keeps stocks and commodities 2.5% higher – because we buy them with Dollars.
Keep in mind, at the same time you are buying IBM shares for $200, someone is buying the same shares for 20,400 Yen and another guy is buying them for 340 British Pounds and yet another guy is buying them for 280 Euros.
It's obvious that, if the value of the Pound or the Yen or the Euro changes, the price of IBM in those currencies will change to reflect the currrency valuation but Americans tend not to realize the same thing happens when the Dollar gets stronger or weaker too. Once you do realize this – you have a huge advantage in trading the Futures (and we have a Live Futures Workshop this afternoon at 1pm).
The Fed's easy-money policies keep the Dollar weak (because we're printing another Trillion of them each year and, in this economy, no one is using them – ie. no demand) and that has goosed the market by 7% since last summer, when the S&P was about 1,650 – about 10% lower than it is now.
That means that 75% of the gains in the S&P since last summer have been the result of a weak currency and have noting to do with a "strong" economy. Now THAT makes sense, doesn't it?
"THEY" had to tank the Dollar to get us over the 1,600 level, which was a very key technical off our consolidated bottom at 800 during the crash. It's no coincidence that we were hitting resistance there in May and pulling back to 1,560 and looking weak in July when, suddenly, the Fed went into a new round of crazy, which led to 6 months of fairly steady value erosion for every single Dollar you have worked for and saved your entire life.
It's kind…
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Japan’s New Kamikaze Central Banker and the Nikkei’s Awakening
by ilene - January 7th, 2010 1:16 pm
Japan’s New Kamikaze Central Banker and the Nikkei’s Awakening
Courtesy of Joshua M Brown, The Reformed Broker
"There are a lot of voices in the business world saying that the dollar around Y95 is appropriate in terms of trade…in cooperation with the Bank of Japan, I will make efforts to…bring the exchange rate to appropriate levels."
- New Japanese Finance Minister, January 7th 2010
Ignore Japan’s new central banker at your own risk, because he’s on a mission to blow up the Yen.
This is a developing story and I am hardly an expert on Japanese stocks, but I have to believe that Japanese bankers have taken notice of the weak dollar-led recovery in US asset prices and may want to make moves of their own.
By now, most market players are keenly aware of the dollar’s current (mostly inverse) relationship to stock prices. They should also consider that the Yen makes up about 13.5% of the US Dollar Index (USDX), nowhere near the weighting of the Euro cross (58%) but more significant than any of the other currencies.
Below is the Nikkei 225 index over the last 40 years:
The Nikkei is currently selling at a 75% discount to its 1989 high (38,000) and the country is desperate to avoid another dip as well as to stop the deflationary cycle and put an end to its two Lost Decades. The strategy, according to new Finance Minister (and deputy PM) Naoto Kan, is an orchestrated debasing of the Yen. This will help inflate assets and, more importantly, get exports going via more competitive pricing.
Kan stepped in to the role yesterday when his predecessor stepped away for health reasons; he is the sixth Japanese finance minister since August 2008.
Unlike our disingenuous Treasury officials, who pretend to stand for a strong dollar, Kan has spent his first day on the job publicly stating he’d like a weaker Yen.
Japanese stocks just took out a 15 month high on Kan’s opening remarks as Japanese analysts expressed their bullishness:
"Upward momentum for Japanese stocks is becoming apparent and that will likely continue, due to a recovery in the global economy, the weaker yen and receding worries about equity financing by banks," said Hiroichi Nishi, general manager of equity marketing at Nikko Cordial Securities.
The Nikkei is currently trading at…
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Monday Market Mark-Up – 50 Ways to Dump the Dollar
by phil - November 9th, 2009 8:18 am
"The problem is all inside your head", G20 said to me
The economy's an easy fix if you don't want to wait
All we need to do is globally inflate
There must be fifty ways to dump the dollarG20 said it's really not our habit to deflate
Furthermore, we have elections and the voters hate to wait
So we'll indebt ourselves, buy lowering the rates
There must be fifty ways to dump the dollar
Fifty ways to dump the dollarYou just buy a few Yen, Wen
Push up the Pound, Brown
You buy up the troy, boys
Give Goldman the fees
Take the IMF bling, Singh
Let it drop like a rock, Barack
Act like you're bored Jean-Claude
Let the dollar fall free
I heard they were dancing to this one at the G20 Meeting so I thought I'd share it with you. Never have so many gathered so often to accomplish so little as our G20 in the past 18 months. This weekend's meeting of the World's "top" Finance Ministers resulted in a split on whether to tax financial trading as part of a broader strategy to ensure the global economy’s expansion is less crisis-prone. The idea of the levy was to prevent excessive risk-taking and fund future bank rescues but US Treasury Secretary, Tim Geithner said trying to get the banks to behave is "not something we’re prepared to support."
That was all the Gang of 12 needed to hear and the commodity markets went wild with the guarantee of no additional regulation on the horizon and the dollar was taken down to new lows in overnight trading, plunging to $1.50 to the Euro and $1.685 to the Pound, over 2% off Friday's lows. They Yen Rose back to under 90 to the Dollar and the Nikkei, of course, did not like that one bit and an early rally turned into a flatline for the day. The rest of the global markets, however, were off to the races with Europe up 1.5% at 8 am and the US futures up over a point as well as gold flies to $1,110 an ounce and oil heads back to $78.50, up $2 from Friday's low.
Of course, doing nothing to prevent excessive speculation by the "too big to fail" crowd isn't…
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Silly chart of the day, data-fitting edition
by ilene - August 30th, 2009 1:26 am
40% Higher? You Gotta Be Kidding!
Okay, the chart was floating around earlier but I was sufficiently skeptical that I initially ignored it. Now it’s popping up at some of my favorite sites, so let’s examine it, starting with the Bloomberg article. – Ilene
S&P 500 May Surge 40% in Duplication of Japan: Chart of the Day, Bloomberg
By Alexis Xydias
Aug. 28 (Bloomberg) — U.S. stocks are behaving like Japanese equities in the 1990s, meaning the Standard & Poor’s 500 Index may return 40 percent in the next year, according to Bank of America Corp.
The CHART OF THE DAY shows the Nikkei 225 Stock Average since 1980 and the S&P 500 during the past two decades, when adjusted for currencies. The Nikkei doubled between October 1998 and April 2000 in dollar terms, as the chart illustrates. The S&P 500 has risen 34 percent since March when the Dollar Index, a measure of the dollar against currencies in six major U.S. trading partners, is factored in.
A “melt-up” rally in the U.S. may be triggered by central bankers keeping interest rates near record lows, an economic recovery or an undervalued dollar, Bank of America strategists wrote in an Aug. 26 report.
“Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,”…
Continue reading S&P 500 May Surge 40% in Duplication of Japan here.
Silly chart of the day, data-fitting edition
By Felix Salmon at Reuters Blogs
Paul Kedrosky finds this chart in a Bloomberg story: it’s the kind of thing which really reinforces one’s belief in the wonders of data-fitting. [My emphasis, bolded]
The story isn’t actually particularly clear on exactly what the graph is showing, and specifically what “adjusted for currencies” means:
The Nikkei doubled between October 1998 and April 2000 in dollar terms, as the chart illustrates. The S&P 500 has risen 34 percent since March when the Dollar Index, a measure of the dollar against currencies in six major U.S. trading partners, is factored in.
So it seems that the BofA analysts who came up with this chart first converted the Nikkei to dollars, only to then convert the S&P 500, which was in dollars all along, out of dollars. Hm. And they chose pretty random start points: what makes 1980 in…
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Monday Market Movement – Are We Done at 1/3?
by phil - July 13th, 2009 7:12 am
There it is!
The Nikkei gave up another 2.5% overnight and is now down 1,000 points for the month of July, retracing 1/3 of the gains since March 10th, at 7,000. The Hang Seng also fell 2.5% (this is why we have rules!) but finishing at 17,254 is down just 1,750 points (10%) since July 1st but also represents a very neat 1/3 retrace off 7,650-point run to 19,000 from the March low of 11,500. I hate to say I told you so (actually, it’s kind of fun sometimes) but the 2 full paragraphs I devoted to playing the FXP (ultra-short China) in Friday’s post are all huge winners, with the July vertical spread looking like a clean double already – how’s that for weekend protection? Don’t be greedy, if we are not heading lower today in the US, it’s a good idea to kill the short-term trade and take the profits off the table.
On a global basis, we need to be concerned with this 1/3 retrace trend as the Shanghai has not gone down much at all off it’s 54% run from March. The Shanghai Composite only fell 1% this morning and has miles to go to match the sell-off of the other indices. Over in Europe, the FTSE is down to 4,125, falling from 4.500 in June (8.3%) after rising from 3,500 in March (28%) so, PRESTO, a 1/3 retrace there too! The DAX is right on the 1/3 line at 4,600 and the CAC is right on the nose after rising from 2,550 to 3,500 (37%) and falling back to 3,100 (12.7%), just about 1/3. Are we sensing a theme here?
The Dow rose from 6,500 on March 9th to 8,800 on June 12th (up 35%) and is now back to 8,150 (down 7.4%) with about 5% more to fall before hitting the magic 33% mark. Call 700 the floor on the S&P with 950 as the top and we have a 35% gain there as well with 880 being a 7.4% drop. Wow, what a coincidence! Only there are no coincidences, just quant trading programs that decide these things long before you read the paper and decide what stocks look good and bad… The Nasdaq was our Icarus index, flying too close to the sun with a 50% move from 1,300 to 1,850 and they are down just 100 points which works out to 15.4% down, a 30% retrace. …
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Stop the Week, We Want to Get Off!
by phil - July 10th, 2009 7:25 am
TGIF for sure, it seems like ending the week is the only way to stop the markets from dropping!
We failed to take back our weak bounce levels I laid out in yesterday's morning post as the Dow failed to hold 8,250 on a very brief spike past it, the S&P failed right at 888 in the morning and again in the afternoon (where we were able to use it as a "go short" indicator), the Nasdaq flirted with 1,750 all day and barely held it, the NYSE also failed 5,700 in the afternoon and gave us a good, bearish indicator while the Russell never came close to 488 and failed our critical 480 mark at the close. As I've been saying all week, we really don't have to watch anything but the NYSE, which will test the critical 5,600 mark this morning and failing that level would be, in technical terms: BAD!
Oil ($62) and gold ($920) also failed our levels so there was nothing to be bullish about in yesterday's action. We were in and out of DIA puts and calls, using S&P 880 as our inflection point and we took the money and ran on our AA calls (up $330, 78%) and DIA calls (up $45, 20%) as our first two completed plays in our $5,000 Virtual Portfolio, which will now be tracked under Seeking Alpha's "Stock Talk" feature as an experiment for non-members. We did a day-trade as well in the $5KP on MCD, picking up the $55 calls at $1.65 for a quick ride to $2, adding another $175 (21%) to the kitty for the week. Our only open trade in this hit and run virtual portfolio is SGR, where we are in the $22.50 calls for $3.30, selling the $25 calls for $1.45 for a net $1.85 entry on this bullish $2.50 vertical spread (4 contracts). Earnings were a slight miss but we're not worried as the order backlog is fantastic and we'll be buying more if the after-hours sell-off holds into the morning. If this play comes through for us we'll be up about $800 in our first week and well on-track of our goal to double up over earnings season.
It will be a shame to have to play the dark side but we're back to neutral now after covering our bullish plays with DIA puts as…
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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...
Ilene is editor and affiliate program
coordinator for PSW.