F’ing Dip Thursdsay – Do We Buy It?
by Phil - January 20th, 2011 8:06 am
Just buy the f’ing dip.
That’s the great advice we had back on December 2nd, as it was pointed out by Captain Broccoli that we should just ignore all the so-called "facts" of the economy and "just borrow money at this ridiculous low interest rate and just buy the f’ing dip." "It’s not a pyramid scheme, you idiot," says the Captain – "It’s a dip buying scheme!" So far, on every little dip we have had since December 2nd – the Captain has had the winning strategy – do we dare ignore his sage advice today?
Yesterday we had the biggest pullback since November 23rd with the Russell and the SOX, two of our most over-extended indexes, falling 2.5% in a single day. The Russell essentially gave up an entire month’s worth of gains in a single day because, as I have warned you over and over and over until I myself was bored hearing it, it has been a low-volume rally and the pure physics of the situation means that, when people finally want to sell stocks, there aren’t enough buyers in the world to support the prices they have run up to.
The Shanghai, which we’ve been watching closely, dropped another 3% today to 4-month lows this morning. We did the chart of the Shanghai vs the Hang Seng on Friday, when I was droning on about how weak the real Global economy is and how dangerous inflation was looking and how the government was papering it all over, etc. Even so, I reminded Members in Chat that none of that reality mattered and we still had to buy the dips until it stopped working. Is today the day or have we finally reached the end of the gravy train?
We did some hedged buying on Friday with new long-term bullish trade ideas on AAPL, AET, BAC, GENZ and INTC (2) as well as shorter-term bullish trade ideas on CSTR (April) and ABX (quick 50% profit and done). We also had a short play on PCX (up huge already) and hedged with RKH Feb $85 puts at $1.15 (now $1.80, up 56%) and rolled our losing QID position in the $10,000 Portfolio to the Feb $10 calls at an average of $1.15 (now .90, down 22%). This is how we can be long-term bullish and short-term bearish. Buying the f’ing dips…
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Friday Fizzle – Week Ends with a Whimper
by Phil - December 10th, 2010 7:07 am
"Woke up this morning, what did i see
A big black cloud hanging over me
I switched on the radio and nearly dropped dead
The news was so bad that i fell out of bed
There was a gas strike, oil strike, lorry strike, bread strike
Got to be a superman to survive
Gas bills, rent bills, tax bills, phone bills
I’m such a wreck but i’m staying alive" – Kinks
I thought some uplifting music might help today as the markets have not been turning in a super performance this week despite a $1Tn tax cut/stimulus package pumped into it just 3 days ago. That morning, I posted Chris Kimble’s charts from our Chart School and we were looking at key resistance at S&P 1,224, Nasdaq 2,600 (NDX 2,191), NYSE 7,751 and Russell 756. We’re above all those this morning but what we’re not above is my 11,500 level on the Dow. In fact, if you look at the Dow over the past 6 sessions, you’ll notice we hit quite a wall at about 11,375.
What’s it going to take to punch through that wall and get us up over our 11,500 breakout target? We had this same problem in early November, when the Dow just couldn’t close the deal over 11,450 and fell sharply after 3 days of trying despite the fact that the Dow Transports are up significantly (but also flatlining) since then (how now Dow theory?).
I had said we would wait PATIENTLY for confirmation at 11,500 but it’s already getting tedious. Our picks from Tuesday’s post were C at $4.56 and BAC at $11.79, with BAC outpacing C but both positions much more exciting with option plays than straight stock picks, of course. By Wednesday morning I had done the math on the Obama Tax Cut and concluded that, for 95% of America, all we could say was "Thanks for the Gas Money, Mr. President" and I’m not even sure we’ll get that as oil once again tests $89 this morning, which is fine for us as that’s our shorting spot on the Futures and has paid us for many, many tanks of gas this week.
It is, of course, all about the Dollar and our poor currency has been brutalized in the past 24-hours, with…
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Testy Tuesday – Dollar 77 Edition
by Phil - November 9th, 2010 8:28 am
The Dollar fell from 77.515 at 3:15 yesterday to 76.835 at 7:30 this morning.
That, my friends, is the story of the markets. A 0.9% drop in the Dollar overnight is a huge move, something that once upon a time would have made headlines as America’s $100Tn worth of household wealth has $1,000,000,000,000 shaved off of it in some overnight catastrophe. But there was no overnight catastrophe, just the horribly normal, shockingly ordinary destruction of the US Dollar, which has now become the plaything of International Market manipulators who boost it to pump the Asian markets up overnight and then crash it to goose the US markets in the morning. It’s MADNESS but we are loving it because, at least it’s predictable madness.
In yesterday’s post I reminded you about our $87.50 short on oil futures and we hit it again this morning and that’s exactly what I said would happen in my 2:21 comment to Members when I predicted they would run oil back up into inventories. We LOVE ranges – they are so much fun to play. Gold is now 20% above our $1,150 line and at the top of that range ($920-$1,380) we’ve been watching since March of 2009 so I updated our "Spinning Straw Trades Into Gold" post with a whole new set of trade ideas to help protect our cash if the dollar keeps getting weaker and gold keeps heading higher.
As I said to Members in yesterday’s Morning Alert, it’s all a huge sham but it’s the only game in town so we just need to learn the silly rules and figure out how to win if we want to keep playing (although I am currently advocating mainly cash and playing just for fun as we test our upside). We did go for an ABX trade in Member Chat on Friday, a play that was also made available to Stock World Weekly readers over the weekend (last chance to subscribe before we’re out of Beta and the rates double!) and ABX is, of course, flying as gold broke through the $1,400 mark yesterday. So we like gold as a small hedge against inflation eating into our sidelined cash but, on the whole, I’d rather short it – I just want to be clear about that.
We can’t short gold with Benny and Timmy running the…
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Spinning Straw Trades Into Gold – Part 2
by Phil - November 9th, 2010 5:51 am
Thank you Mr. Zoellick!
It’s been a long time (March 2009) since we’ve been on the gold bandwagon, when I said to Members: "I still think we should get a correction in gold back to $875 (no longer $850 as the trendline has been yanked up) but we’re not hedging gold because we are worried it will hit $1,000, we are hedging because we are worried it will hit $2,000. That means that the difference between buying gold at $850 or $950 is not a big enough deal to stay completely out of it now. We would LIKE to be in the 2011 $70 calls for $20."
We didn’t quite get $20 but gold hit our entry target of Gold $875 in April and we had a brilliant rolling plan (see original post) that put us in at the right net price and those calls are now $67.72, up 238% as gold crosses $1,400 (up 64%). This is the beauty of using options for a hedge. Three ounces of gold were $850 each or $2,550 and you made $1,650 if you bought it then but 1 contract of the GLD $70s cost $2,000 and is now worth $6,772, a profit of $4,772 or THREE TIMES more than the profit on gold with 20% less money committed.
Do you see why, at PSW, we love options, now? In fact, we featured an ABX option play in our Stock World Weekly newsletter this weekend which has already gone into the money after just 24 hours. Are you interested in learning how to trade with options? Well, let’s go then!
- strong positive correlation
- moderate positive correlation
- negligible correlation
- moderate negative correlation
…
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Which Way Wednesday – Can We Ignore and Soar?
by Phil - October 20th, 2010 8:35 am
Wheeeee, this is fun!
Industrial Production was DOWN 0.2% vs up 0.2% expected. This 200% miss was led by a 1.9% drop in utilities as consumers simply can’t afford to keep the lights on anymore, even with very low natural gas prices keeping costs down. The only segment that was up was – you guessed it – MINING, as top 10% speculators hoarding shiny bits of metal in anticipation of the collapse of civilization drove production up 0.7%, marking 3 consecutive months of increasing activity.
Housing Starts dropped 10% in September and Permits for future starts dropped another 4% and this morning we got word that Mortgage Applications fell 10.5% last week as the price of a 30-year fixed mortgage went from 4.21% to an unaffordable (I guess) 4.34%. Imagine prospective buyers sitting at a table saying to the broker: "4.34%? Why that’s outrageous, we won’t pay it!" Inflation (real inflation) is 3.5% and you are paying 4.34% so that is a net effective 0.84% interest rate on a home AND STILL NO TAKERS! As we noted last week, 34% of Americans think their homes will go down in value next year.
That’s just silly – home prices are ALREADY down in value by 12% this year. Your home is, unfortunately, priced in dollars so the "stable" prices this year are only stable when priced in a currency that’s collapsing. To Japanese or European buyers, your home value is swirling down the toilet just as fast as it was during the first two years of the collapse.
It’s kind of like when the coyote is standing on a rock that has broken off from the cliff and doesn’t realize he’s falling with the rock – these illusions work just fine until you both splatter into the ground…
What then, is the point of giving us the illusion of economic health by debasing our currency faster than the economy is falling? Clearly we are not fooling the consumers – consumer confidence is in the toilet because a vast majority of consumers live in the real World which is currently located between a rock and a hard place for 90% of Americans. Oh, by the way, don’t forget that those polls where 60% of the people say the economy sucks include the top 10%, who think the economy is great – so great, in fact, that…
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Wonderful Weekly Wrap-Up
by Phil - June 12th, 2010 8:28 am
I love it when a plan comes together!
Last week, I felt like I was going to have to call Animal Control to help me fight off the bears. As I mentioned in last week’s Wrap-Up, all 14 misses (out of 55 trade ideas for the week) we had were bullish plays that we were grabbing on the way down. On Friday we went bullish on USO, SSO, DIA, TBT (well, we’re always bullish on TBT), AET, ABX, Copper Futures and even poor BP. Those followed up on bullish plays we had taken on Thursday on TSRA, USO, MEE, FCX, EEM, ERX and XOM. We went into the weekend still bearish but we were excited about flipping back to bullish. My closing comment in the Wrap-Up was: " I’m hoping for a blow-off spike down on Monday with heavy volume, hopefully followed by a recovery over the next few days" and, gosh darn it, wouldn’t you know that’s EXACTLY what we got.
I don’t MAKE the markets do these things, I simply tell you what is going to happen and how you can make money on it… Needless to say, we had a LOT of fun this week at PSW! Last weekend, however, was such a bearish frenzy in the MSM that it was making our Members nervous and THAT I do not tolerate so I wrote : "The Worst-Case Scenario: Getting Real With Global GDP!" to illustrate why I felt our bottoms would hold and I began a Top 20 Buy List on Sunday and boy did we get some fabulous entries this week!
Monday Market Movement – Will We Survive?
As I said on Monday Morning: "I already stuck my neck out calling a bottom so now we’re just waiting patiently." We were disappointed to have not gotten a stronger statement from the G20 over the weekend but it was just the Finance Ministers, so we weren’t expecting too much until the big boys meet at the end of the month. While we were in a buying mood, I cautioned against getting too bullish until we took back our anticipated "weak bounce" levels, which were the orange lines on Monday’s Multi-Chart:
I pointed out (on another Multi-Chart) that Europe was already gathering strength so we were pretty confident things would go our way but, as I said in the 9:50 Alert to Members, SOX 340 and TRANQ 2,000 had be taken back before we could feel confident. My outlook for the day was:…
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Fast and Furious Four-Day Wrap-Up
by Phil - June 5th, 2010 7:12 am
Wheeeee, what a ride!
Like any good car race, the lead changes often in the markets. Yesterday the bears took the lead as the combination of Hungarian debt issues and a disappointing jobs number were like a tire blow-out for the bulls, who were forced to pull in for a pit stop. Fortunately, we had our seat belts on and had assumed the crash position as I had warned Members on THURSDAY Morning at 10:04:
Watch that 666 line on the RUT – we don’t want to lose that or even show weakness there… ISM a bit disappointing, now we’ll see what holds but I’m out of short-term, unhedged, upside plays here.
I felt strongly enough about it that we also posted it on Seeking Alpha, to warn as many people as possible, under the heading: "Phil Calls Short-Term Top." I don’t post live trade ideas on Seeking Alpha but in Premium Member Chat (and you can subscribe here) I followed right up at 10:17 Thursday morning with the following trade idea:
BGZ (large-cap bear) is at $15.27 and I like them as a hedge here with the (June) $14/16 bull call spread at .75, selling the July $14 puts for .95 and that’s a net .20 credit on the $2 spread with about $2.70 in margin so you can do a 10 contract spread for a $200 credit and $2,700 in margin (according to TOS standard) with a $2K upside if the market even twitches lower. Worst case is you own BGZ as a hedge to a dip below Dow 10,600 (your put-to area) at net $13.80 (9% lower than current price).
That’s what hedged trade ideas look like in our Member Chat. At PSW, you need to put some time in LEARNING how to trade and, more importantly, how to hedge. This is a fairly complicated options play but we take it BECAUSE IT WORKS! There are many, many simpler ways to play that don’t work (or carry far more risk) but we prefer to teach our Members how to do the things that do work. As it stands, just 48 hours later, BGZ is up 10% on Friday to $16.89 (so the spread is now 100% in the money) and June $14/16 bull call spread is now $1.50 while the July $14 puts are Down to .60 so net .90 already on the spread that already paid…
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What Me Worry Thursday?
by Phil - May 13th, 2010 7:48 am
What a freakin’ recovery!
As I said on Monday: "It’s a paper tiger of a straw man we’re building for $1Tn but you HAVE to respect $1,000,000,000,000 – you just have to… Our 5% Rule series for the S&P over the 1,155 breakdown line is the very critical 1,170, followed by 1,185, 1,200 (critical), 1,215 and 1,230 and THEN we are on the way to recovery." Wow, that guy is AMAZING! Anyway, so here we are at 1,170, after two days of testing the 1,155 line as a bottom so now it’s onwards and upwards to 1,185 hopefully. I also said on Monday: "Below that, we’re not too impressed but it also won’t be very surprising if all $1Tn buys us these days is some moderate lift that isn’t strong enough to break our major technicals."
We have been casting a wide and bullish net since the crash, finally pulling some of our sideline cash for long plays on ABX, APPY, BAC, BIDU, BRK/B, BSX, C, CAT, DIA (3), DF, ERX, GOOG, LIZ, LVS, MEE, MON (3), RIG, T (2), TBT (2), TZA (shorting it), UNG and WFR. We’re hedging heavily, of course, but it feels good to have longs again after being in cash for a while. Our short-term bearish plays (mostly DIA and TZA) have been crushing us so far, which is good in a rally but yesterday was a bit much for us and we got a little more bearish but it looks like the G7 has adopted the "Better Red Than Dead" mantra as the World racks up astounding deficits to put off admitting that this little debt problem is not isolated to the PIIGS nations.
Nonetheless, the global markets are rallying in unison – even while the Pound ($1.47) and the Euro ($1.26) collapse and even the Yen jumped back up last night, falling off the very BS 93.63 to the dollar it hit at 3am to psych up the Nikkei exporters back down to 92.75 this morning. I noted weeks ago how the Yen knocked down for Japan’s open and then drifts lower into the US open virtually every night – it’s what currency traders call the "Goldman Trade" because you can bet it every single day and have a perfect quarter. Sure it’s blatant manipulation designed to fool an entire nation of investors but, what else is new – Fuggedaboutit…
So, a TRILLION Dollars down the rabbit hole in Europe – Fuggedaboutit! I pointed out to Members in yesterday’s…
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Weak Weekly Wrap-Up – Charting Uncertain Waters
by Phil - May 8th, 2010 5:43 am
I’m just doing a quick wrap-up this week because, surprisingly, it MIGHT be time for a new Buy List!
I had said to Members on Cinco de Mayo, in our 5% Rule Review, that if we broke below 1,155 we would retrace all the way to 1,100 with our 5% Rule resistance points around 1,100 at 1,155, 1,114, 1,100, 1,073 and 1,045. We actually spiked as low as 1,066 on Thursday but finished the week at a very sad 1,110 as we watched for that "weak bounce" zone to be broken all day. This does not bode technically well for the markets next week but I told Members we would have to give the markets a pass for the day. Based on the uncertainty of the weekend, we can’t expect a lot of capital commitments ahead of the EU decision. After all, we’re in cash – why shouldn’t other smart funds be too?
When I predicted we’d hit 1,000 on Wednesday, I did not think it would be on Thursday! The markets are now negative for the year and the S&P has spiked almost to the Feb low of 1,044 (and our lowest close was 1,056). That’s right, these 5% Rule numbers are the SAME ones we used back then and it’s the same series we used to measure our winter run at the end of last year. We expect a bounce here, hopefully at least a test of 1,155 on a relief rally if Greece is "fixed" yet again on Monday but we’re not going to be too impressed until we’re over that line.
Still that means it’s time to at least lay out a new Watch List, which is the prelude to a Buy List – giving us a list of stocks we’d like to get into at lower prices. Our last Member Watch List was back in December and by Feb 6th we had our famous Buy List, which we triggered at Dow 10,058 for a very successful run through March 18th ("Bye Bye Buy List!"), when we closed 2/3 of the positions and we have since cashed out the rest as I got more and more worried about the rally, finally calling for all cash last week.
Speaking of last week, for those of you who say I don’t pick enough straight stocks – I listed 33 short trade ideas from my unofficial "Sell List" last Friday (4/30) when the Dow was way up at 11,167…
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Weekly Wrap-Up – Buffett’s Daring Derivative Deal Does Well
by Phil - February 28th, 2010 9:30 am
I was going to talk about Buffett’s annual letter to investors.
Fortunately, I procrastinated and other people did some detailed reporting like Ravi Nagarajan, Andy Fry, Scott Patterson and Joe Del Bruno – who does a great job of pointing out that Berkshire’s 4th quarter results were propped up by Buffett’s $1.05Bn gains in derivatives betting (something Buffett himself once called "weapons of mass financial destruction" but, as we well know – if you can’t beat them…), which accounted for 1/3 of Berkshire’s $3.06Bn profits.
Buffett’s biggest bet was selling a put against the S&P 500 back in March – a move I said at the time was BRILLIANT and Buffett himself now says about his own options trading: "We are delighted that we hold the derivatives contracts that we do. To date, we have significantly profited from the float they provide. We expect also to earn further investment income over the life of our contracts."
What did Buffett do? Exactly what we teach you to do here at PSW - he took advantage of an irrational move in the markets and SOLD INTO THE EXCITEMENT, getting a fat premium from some sucker that bet the S&P would not hold 666 5 years from now. Buffett effectively sold $5Bn worth of puts that expires worthless at S&P 700 between 2019 and 2027, putting $5Bn in his pocket and holding aside $1Bn in margin, which is how much he’s already ahead on the bet. Like a good options trader, he has a plan and he’s trading his plan, making sure his investment is on track and patiently letting time do it’s work as it eats away at the put-holder’s premium.
What about the risk? Well I can’t speak for Buffett’s stop-loss technique but we’re talking about a company that has (had) $40Bn in cash using their excess margin to make a $5Bn bet that the S&P would not stay below 700 for 10 years. Buffett and I both tell people – NEVER buy a stock (or sell a put against one) that you are not willing to own for 10 years. The S&P was 5% below at the time and would have had to drop, perhaps, 20% more to cost him $1Bn so let’s call the stop 550 on the S&P where Buffett risked 2.5% of his cash against a posible 400% gain on his $1Bn risk allocation over 10+ years. While it is true that if the S&P dropped 50% in one day Buffett would be…
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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
(