You may have heard that the Chinese word for "crisis" is also the word for "opportunity".
While it makes a nice catch phrase for bored business writers it is not actually correct. The Chinese word for crisis is composed of 2 elements that signify DANGER and CHANGE. You will hear many pundits today telling you how real men buy on the dips or some such nonsense and you must ignore them! These people are up to their eyeballs in positions and they want you to come in and save them.
Today I would like you to take a post-it and put it up in the corner of your monitor, where you can’t ignore it and write in a nice, thick marker: It is NOT my Job to Save the Market! Opportunity, yes but DANGER!!! Real men (and women) protect their families (and their assets), not their egos. If we are having a real recovery than we have a 400 point gain ahead of us – you will not miss anything by sitting out the first 100!
A 20% retracement of yesterday’s losses will put the Dow up 83 and the Nasdaq up 24 and the S&P up 12. If you drop a ball from 5 feet and it bounces 1 foot do you bet 10% of your portfolio that the next bounce will be 2 feet? No – you get the air pump! If that doesn’t work, it’s time to get a new ball…
Is the air coming out of the global economy or did China just spring a small leak?
The Shanghai Composite recovered 3.9% today and that is the headline of every section of the on-line WSJ as they and CNBC put on their cutest cheerleader outfits but Europe is off 1.25% this morning and Asian markets, led by a Nikkei 500 point, 3% drop had a terrible morning!
Let’s not forget that a 4% gain off a 10% loss is really only a 3.6% retracement at best, the math trick is that you are starting from a lower point. This is like buying IBM at $100, having it drop to $50 and, when it bounces back to $75, raving about your 50% gain…
What’s great about the WSJ though, it the amazing charts they do. I’m not sure if this link will work but it’s called:
I’m finally seeing stocks at prices I may want to enter and we used the 5% rule to take some off the table and pick up a few positive postions at the close (just in case).
Even after removing these superstar positions, our short-term portfolio still finished up 28% in total (not bad after a 600 point drop in 5 days).
I was starting to feel silly sitting on all those puts and writing every other day that there were terrible things wrong with the economy and people were starting to laugh at me when I said that commodities (which includes housing, of course) are still in a bubble.
Today justified a lot of those fears… As Option Sage said in our very first educational post: "The next rule we should be equally cognizant of is The Cardinal Sin of Investing which is to ignore risk management – Don’t every do it!!! Simply put “Don’t ever put all your eggs in one basket” otherwise Murphy’s Law kicks in and no matter how confident you were in the position you might quickly find it moves against your initial expectations!"
My initial expectations of this drop began on Jan 10th when I said: " Are you prepared for a down 295 point day? Let’s remember I am a bull with a short-term target of Dow 11,500! I would like to say I would be pleasantly surprised to be wrong but I will not be able to really enjoy additional advances unless we get a long-overdue correction out of the way. I’m saying this today as I see several disturbing market trends while I also see a lot of irrational exuberance on our member site and like Uncle Greenspan, I may feel the need to take away the punch bowl if the party starts getting out of hand!"
While many of you may have forgotten my cautionary words, the portfolio didn’t as we tracked progressively more bearish over the next 45 days. Our weekly short-term profits slipped from 100%+ to 42% as I hedged like crazy but, at the same time, we let the long-term portfolio run and gained a ridiculous 100% there. We suffered for our bullishness in the long-term portfolio yesterday as they dropped back almost 10% (to a 97% gain) but they’ve got all year (at least) to recover and we gained 5% overall in the…
We’re having a China Syndrome type melt-down this morning!
The Shanghai stock exchange dropped 9%. Yesterday morning I said "his (Greenspan’s) most interesting statement is that investor appetite for risk has led to risk premiums on financial assets being "extraordinarily low," which could pose problems in the future." While the US traders may have generally ignored Greenspan’s comments yesterday, Asian investors took it as a sign to take a little off the table and did so with a vengeance early today.
"Investors are choosing to cut their positions to avoid the fluctuations in the market, but it’s still too early to say the market has reached its peak," said Chen Huiqin, an analyst at Huatai Securities.
A 9% drop is VERY bad over there as they have a 10% limit down on Individual securities so that indicates a pretty broad and nasty sell-off. All of Asia was down 1-2% in sympathy except Taiwan, who somehow managed to gain a point. Airlines got clobbered and we need a clobbering to save our BAB puts – I’ll be taking a very non-greedy exit there if I can!
Let’s keep some perspective as this is a 9% pullback off a 183% 18-month run and this drop was so widespread that it very well may have been program trading catching up after a week-long holiday. We’ll have to wait an see how our markets react (like scared rabbits so far this morning) and what kind of follow through Asia has tomorrow before we throw in the towel over here.
Europe is a nice, mature market and is taking a nice, wait-and-see attitude this morning with only a slight sell-off but our futures are looking terrible (7 am). In a move that may finally goose our AIG leaps, French reinsurer SCO is attempting a hostile takeover for Swiss reinsurer Converium. "The unsolicited proposal fundamentally fails to recognize the value of Converium’s franchise and growth prospects, and is, therefore, not in the interest of Converium, its shareholders and its customers," it said in a statement.
Any time something like this goes on it draws analysts attention to industry fundamentals and I’m be adding to our AIG Jan ’09 $70s at $8.50 or lower, hoping for a move here, still a light position until we’re ready to sell against it!
Combine all that with a gain in commodity prices and that was one crummy day!
Oil was up .25, not impressive enough to chase us out of our puts (in fact I added in the morning) and the new contract was saved at the last second from a very nasty plunge to $60.50 to finish at $61.14 so we’ll try again tomorrow.
Gold tested $690 again but could not break it, finishing the day at $689. The dollar broke below 84 but I said at 10 am: "Oil – I’m just not seeing real strength on a weak dollar. Things are just not what they seem here. I’m getting the feeling that big boys are taking this opportunity to dump like crazy." We’ll see how this pans out…
On the whole, nothing to celebrate. Al Gore won an Oscar and in his film he said Antarctica was "a canary in the coal mine" - I wonder what he would think of today’s market?
We didn’t make too many moves as I said early in the morning, despite the good open: "Markets are not looking that good – still on my IWM puts – way too dangerous looking. That was a terrible pullback off the morning open on the Dow and Nas! I was looking for oil to buy and I ended up adding to my puts… "
It was a good day to initiate our weekend set-up of CY as we sold the Apr $20s for our $1 target and bought the Jan ’09 $22.50s for just $2.70 – a better spread than we thought! The stock was kind enough to go down for us yesterday too!
GOOG Apr $530s were bought back for $2.90 (up 42%) but I applied .70 of it to DD on the $530s and $520s just for fun!
GOOG Mar $480 puts were exited at $19 (up 30%) as it was simply too…
Hmm, Greenspan calls for a recession and the markets fly up in the futures…
No wonder we have half puts and half calls!
I’m in a bad mood this morning because I sold my Dow $45 calls on Friday. I’m not even going to discuss how awful that timing was! Oil heading higher is also annoying me so keep that in mind if I come across a little grumpy.
Hong Kong was grumpy today too, down 203 points, and most of Asia was off a bit in sympathy but Japan held up and we can excuse the activity as a little bit of catch-up (down) as China was closed all of last week. Miners continued higher as gold broke $690 as Cheney continues his war of terror (a Freudian typo that I’m leaving in!) by visiting Pakistan to make sure that at least those nukes are pointed in the right direction…
Sanyo had a 4% bounce back, which should be a relief to poor GS but the big story there, like it is here, is M&A mania with deals involving Coles, PKX, BEN, MITSY and Consolidated Minerals adding to our own TXU, HBG, DCX and DOW (possible)deals as well as ERIC over in Europe to push today’s total to well over $100Bn.
With all that money pouring into the markets you would think we should be heading up from here but let’s make sure we are really breaking up before we all go and drink the Kool Aid:
If oil stays over $61 it will be time to quickly revalue those positions but we can certainly expect a test of $62 before we get a turn down. $60.50 needs to hold as a floor and we still have our oil calls from Friday’s list if it really breaks out. I’ll be…
This is not something you want to hear to start the week but the markets are probably more comfortable hearing him get back to his usual "doom and gloom" prognosis than they have been with his recent "housing may be bottoming " BS that he’s rolled out as his last few appearances.
Greenspan getting optimistic about housing is sort of like Darth Vader asking you over for tea – you’d like to think he’s really changed but you still have trouble really getting comfortable with the situation.
We like our bad guys to be bad and our bears to act bearish – then we all know our place in the world and can act accordingly – it’s way too confusing when people start switching sides!
It’s a very busy data week so we’ll see how sharp Mr. G’s forecasting skills are as we get some biggies. Here’s the list from Briefing.com:
Despite the drop in the market our bearish attitude about builders and oil companies netted us an average 84% gain on 23 positions closed with an average hold time of 19 days.
Our open short-term portfolio actually improved a little this week, with a 35% average gain on 93 open positions (23 average days old) but the big jump in open positions is due to our new portfolio tracker which now treats our 13 short-term spreads as two transactions.
The long-term portfolio has an average gain of 92% on 42 positions (same spread issue) that have been held for a whopping 47 average days (seems like forever doesn’t it?) but, now that we have our new system we’re going to start tracking the cash gain, which is $156,091 or 104.27%. There is a lot of noise in the average position gain since we buy and sell puts and calls against our positions constantly and, as we wear down the basis of plays like TIE (now down to .20) we have nowhere left to credit the money!
In the short-term portfolio, the balance (up 37%) is meaningless as the holdings change daily so I still prefer to look at the average gain there for a true performance picture. In a choppy market like this our strategy is to have a diversified mix of puts and calls, keeping the bulk of the portfolio fairly even as we cherry pick the winners and sell them in a nice non-greedy fashion.
We only had to close 5 losers this week:
BAC Jan $55s were just too tedious to hold and was banished from the LTP at $2.55 (down 12%).
BTU Mar $40 puts stopped us out at .75 (down 21%) on Wednesday’s run as they were the naked side of the calls we sold last week (too early it seems!).
DIA Mar $127 puts were last weekend’s insurance play and came off Tuesday at $1.20 (down a nickel) and I WISH I had those back (now $1.60). This weekend we have the IWM’s…
GOOG Mar $470 puts (out at $5.50 for a 53% loss) are another one we could have hung on to, I guess I am too much of a Google optimist but doubling down on the $480 puts at $8.60 was a good trade-off.
Well I spent the whole day messing around with ETrade trying to get it the way I like it.
I’m still using OXPS for my main account but I’m working on a project that’s using ETrade and I liked the way you could configure it. This "should" save me a ton of time from now on but let me know if the new format bothers you too much.
The biggest downside is that I have to book spreads as two different transactions, which I don’t like from a cash management perspective but that’s about the only thing I really don’t like about it.
On the very bright side, we can now track positions sizes without killing me and I can now include symbols, current stock price, and daily price changes. I’m not promising I will do it daily but down the road it’s a step!
The other system was burying me as I had way to much entering and formatting but if everyone can get comfortable with this way of portfolio tracking, we’re on the way to a more robust tracking system.
As I want to get much more into talking about postion management, I think it will be good to start talking about the size of positions and how we move in and out of them. Hopefully this will work well for all and believe me, I can spend a lot more time picking stocks now, rather than tallying results!
- Phil
LOL – I spoke to soon. For some reason the spreadsheet came out to be 50Mb – not terribly useful…
We’re going to work on it and hopefully have it up tomorrow but if anyone knows a stupid excel trick to figure out whats eating up all the space – please make a comment here. All I did was have Etrade create an export spreadsheet which I then cut and pasted into my regular stuff… Then I reformatted it but it looks normal to me.
[UPDATE] The newly formatted spreadsheet is available on our Portfolio page. As usual, it is viewable right in your browser but you can also download for offline viewing and sorting. -Jared
Jobless claims improve while leading indicators decline in today’s economic report card
by Wall Street Sector Selector Staff
Weekly jobless claims declined to 424,000 from last week’s 432, 000 but stubbornly stayed above the all important 400,000 level for another week.
August Leading Indicators came in at +0.3% compared to 0.5% for July, as the economy continues registering weakness.
Good news came from July Home Prices which rose to +0.8% from the previously reported +0.7%.
But the biggest economic news of the week came yesterday when the Federal Reserve said it saw “significant downside risks to the economic outlook, including strains in global financial markets.”
Global stock markets responded negatively yesterday an...
Shares of Priceline.com Incorporated (NASDAQ: PCLN) are trading higher in the after-hours following the release of its Q1 earnings results. Currently, shares are up 2.74%, trading at $548.60; they closed the regular session down 0.67 %, at $533.97.
The company said that its Q1 EPS came in at $2.66 on revenues of $809.3 million; this compares to the Street's estimate of $2.46 per share on revenues of $779.5 million. Revenues rose 38.6% year over year.
"In the 1st quarter, the Group benefited from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.
He added, "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year...
The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation ...
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the "V" shape of the the recovery since the March 2009 low. This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
This post is for live trades and daily comments. Please click on "comments" below to follow our live discussion. All of our current virtual 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 portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading portfolio (strategy, performance, FAQ, etc.), please click here
February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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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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. She manages the Favorites backup site
(