Monday Market Movement – Do or Dive!
by Phil - January 24th, 2011 8:14 am
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Big week ahead!
$30Bn in POMO from the Fed runs headlong into earnings reports from 15 of the 30 Dow components along with MoMo darlings like VMW (tonight), BLK (tomorrow morning), POT (Thursday morning) and AMZN (Thursday night). I already sent out an Alert to Members this morning outlining our strategy and Stock World Weekly did it’s usual amazing job of wrapping up last week’s action and laying out the week ahead so I won’t be too redundant here. The key driver for the markets continues to be the dollar, which is making more sense now as it saved the Dow and the S&P last week (50% of revenues come from overseas) but not the Russell (only 10% of revs from overseas) or the Nasdaq (30%).
The Dollar was relentlessly driven down last week, bottoming out at 78 on Friday evening, back to November lows, where they ditched the Dollar all the way down to 75.63 in early November before it broke back up and ran to 81.44 on the last day of the month. Now we’re back down 4.2% from the Thanksgiving highs for the Dollar and the Dow and S&P are up 8%, which is our usual 2:1 correlation yet Uncle Rupert’s Journal would have you believe that the Dollar no longer matters and that this rally is about (please sit down, PSW cannot be responsible for any beverages you are about to spit on your keyboad) – wait for it – Fundamentals!
According to the Journal: In recent weeks, for example, moves in stocks and the U.S. dollar have had little connection—a breakdown of the trend during much of 2010, when they were virtual mirror images of each other. Stocks were considered risky and would rise when investors were feeling confident, while the dollar was a haven, benefiting when investors were worried. Commodities, too, have broken away from rising and falling with risk perceptions. Now more old-fashioned concerns, like the weather, are having an impact. Corn, soybean and wheat prices jumped this month after supply estimates were cut due to dry weather in South America and floods in Australia.
Really? So the run in DBA from 22.85 in June of last year to 31.65 (38.5%) in early November was speculation but the run from 31.65 to 33.50 (6%) since then has been based on solid fundamentals. ROFL!!! That…
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Which Way Wednesday – Topping or Popping?
by Phil - January 19th, 2011 8:30 am
When we first began following the Alpha 2 TradeBot pattern on Jan 3rd (see Stock World Weekly for current chart) back on Jan 3rd, I said: "Let’s assume we get that extra 2.5% between Friday’s close and expiration day – that’s going to take us to Dow 11,850 and S&P 1,285." Yesterday the Dow hit our 11,850 mark, 2 days ahead of schedule! If we break higher here (and the S&P is already at 1,295 – see David Fry’s chart) then we are "off the charts" and possibly running a whole new series – which is very possible as last year the IBanks didn’t have $25Bn worth of POMO a week to feed into their machines – that has to be worth something right? At least 10 S&P points…
If, on the other hand, S&P 1,300 becomes a hard stop and the Dow can’t hold 11,850, let alone break up over 12,000 – then the second part of my prediction was that we would pull back to Dow 10,900 and S&P 1,188 – a test of the 200 day moving averages. If we get that pullback and those levels hold, THEN we will be happy to get on the bullish bandwagon – we just want a test!
Not, of course, that we are waiting around doing nothing. We already had our "Secret Santa Inflation Hedges" and, at this point, you either have them or you shouldn’t even look as they are up well over 200% already and the market is "only" up 2.5% since then. We were waiting patiently for Russell 800 to confirm our Breakout 2 levels and we not only got that but we got several nice tests since then so we’ll have to put that one in the "win" column as well for the bulls.
While I don’t like chasing the MoMo stocks higher, AAPL and IBM show us that there are some solid fundamentals underlying the big boys and I mentioned in the Morning Post of the 6th that I did like CSCO ($20.77 at the time) and GLW ($18.98 that day) as solid, go-forward positions. Even without our option plays, they are both up nicely in less than two weeks – certainly a higher percentage (5% for GLW, 2.5% for CSCO) than AMZN, which is up $3.50 (1.8%) or NFLX, which is up $6 (3.2%), who I cautioned…
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Strangle Strategist Sees Range-Bound Shares at The Cheesecake Factory
by Andrew Wilkinson - September 7th, 2010 4:03 pm
Today’s tickers: CAKE, LVS, IYR, TEVA, EEM, S, CREE & EXPE
CAKE – The Cheesecake Factory, Inc. – One premium-hungry options strategist sold a strangle on the full-service dining restaurants operator this afternoon in the expectation that its shares are set to trade within a narrow range through October expiration. Cheesecake Factory’s shares fell 1.45% late in the session to trade at $25.38 by 3:35 pm ET. The investor sold 3,000 puts at the October $25 strike for premium of $1.05 apiece and sold 3,000 calls at the October $26 strike at a premium of $1.05 each in order to pocket gross premium of $2.10 per contract. Full retention of the premium received today occurs as long as shares of the underlying stock trade between $25.00 and $26.00 through October expiration. Wayward shifts in the price of CAKE’s shares could give this strangle-player a severe stomachache as losses start to build should shares rally above the upper breakeven price of $28.10, or if shares dip under the lower breakeven point at $22.90, ahead of expiration day in October.
LVS – Las Vegas Sands Corp. – Shares in casino resort operator Las Vegas Sands commenced the session in the red but rallied in afternoon trading to stand 1.05% higher on the day at $31.32 as of 3:45 pm ET. Earlier in the day shares increased as much as 1.5% to secure a new 52-week high of $31.46. One long-term bullish investor hoping to see continued appreciation in the price of the underlying stock established a covered call in the March 2011 contract. The trader sold 10,000 calls at the March 2011 $40 strike for premium of $1.73 per contract. The transaction had a delta of .30 and was tied to the purchase of LVS shares at $31.20 each. Premium received on the sale of the calls effectively reduces the price paid by the investor to get long the stock. The bullish player is poised to accumulate maximum potential gains of 35.7% on the run up in LVS shares from an effective purchase price of $29.47 to $40.00 if the calls land in-the-money at expiration and the underlying position is called away from the trader at that time.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – The construction of a debit put spread on the IYR, an exchange-traded fund that corresponds to the Dow Jones U.S. Real Estate Index…
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Rumor Mill Generates Options Feeding Frenzy on U.S. Steel Corp.
by Andrew Wilkinson - August 18th, 2010 4:39 pm
Today’s tickers: X, BBY, AEO & CREE
X – United States Steel Corp. – Unconfirmed rumors that ArcelorMittal may be interested in buying U.S. Steel at $80.00 per share inspired an all-out options feeding frenzy on the Pittsburgh, PA-based steel producer. U.S. Steel’s shares rallied as much as 6.7% in the first half of the trading session to reach an intraday high of $50.50 as of 11:50 am ET. The churning of the rumor mill, increased demand for the steel maker’s options and the significant move in the price of the underlying stock lifted the overall reading of options implied volatility on U.S. Steel 20.1% to 55.54% just before noon in New York trading. Call options on the stock are the clear favorite today and are changing hands 3.6 times for each single put option in play with investors exchanging nearly 200,000 contracts on U.S. Steel by 12:15 pm ET. Investors initiating bullish stances purchased in- and out-of-the-money call options and sold out-of-the-money puts. The August $50 strike, which currently has volume of 21,200 calls, is the most popular as of early afternoon. At least 9,800 of those call options were purchased for an average premium of $0.82 per contract. Traders positioning for U.S. Steel’s shares to continue higher ahead of Friday’s expiration picked up at least 4,300 calls at the August $55 strike for an average premium of $0.46 each. Another 3,500 calls were coveted at the August $60 strike, while some 3,000 call options were purchased at the August $65 strike price. Investors may or may not intend to hold these positions overnight. It will be interesting to see, by examining changes in open interest at these strikes tomorrow, whether traders are buying into the rumors rather than initiating intraday transactions to take advantage of the feeding frenzy while it lasts. Options traders holding the August $50 strike calls may profit if U.S. Steel’s shares rally above the average breakeven price of $50.82 ahead of expiration in a couple of days. Finally, September $55 strike calls were the hot-ticket item in that expiry. As of 12:30 pm ET, more than 11,700 calls changed hands at that strike, with at least 4,500 of those contracts purchased by investors at an average premium of $1.37 each. Traders long the calls make money if the price of the underlying stock jumps 11.6% over today’s high of $50.50 to surpass the average…
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Things We Lost In The Fire
by ilene - June 8th, 2010 1:53 pm
Things We Lost In The Fire
Courtesy of Joshua M. Brown, The Reformed Broker
Over the last month, US markets have been burned to a crisp. Blame it on Europe, blame it on a softening of our own recovery data, blame it on the end of earnings season, blame it on the end of quantitative easing, blame it on the Gulf spill, blame it on the engineered cool-off in China.
Is it too soon to eulogize the March 2009 – April 2010 bull market, a 78% performer that even the most bullish never really believed in the entire way up? Depends on which support lines and moving averages you happen to be fixated on at the moment.
But it is certainly not too early to lament the Things We Lost In The Fire - the idiosyncrasies of the Impossible Rally that we may have lost for good. These include:
Apple as the Michael Jordan of the NASDSAQ- Steve Jobs had us from hello, we clamored around the television for each product release and conference, and Mr. Jobs did not disappoint. Nor did Apple stock, which seemed to go up 3 to 5 points a day for what seemed like an endless stretch of time. It was a reminder to stockpickers everywhere that ETFs didn’t control everything- that you could get one right on research. The release of the iPad and the move toward shattering the $300 per share mark epitomized the release of our pent-up optimism and will always be remembered as a special time in market history.
Cree Research, Green Mountain Coffee and Baidu- The hottest of hot…
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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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GDWheee Friday – Could be a Wild Ride!
by Phil - April 30th, 2010 8:30 am
Attention ladies and gentlemen:
The stock market will soon be leaving the station, please secure all personal items, pull down the safety bar (our Disaster Hedges) and keep all body parts inside ride at all times. Well you know you can follow all of the safety instructions and STILL get smacked in the face with a black swan (like our friend Fabio, pictured here) which is why we elected to get back to cash ahead of this report. The markets were just too insane this week and who the heck knows if Europe will still be a Union on Monday or what the GDP number is going to be (but I do think it’s a miss).
Since our biggest weekend fear is financial panic in Europe, our cash US dollars will become more valuable in a crisis and if the market drops, all the better as we can ride back in and do some bargain hunting. If the market takes off on good GDP and Greece is "fixed" and Spain is "fixed" and Portugal and Ireland are not really a problem (especially for MS and JPM) and the CRIMINAL charges against Goldman look beatable and and the Financial Reform Bill doesn’t disrupt the market with a disorderly breakup of the big banks and the Bank of International Settlements Report continues to be ignored and the run on the Greek banks doesn’t spread to other STUPID counties – well, then we can BUYBUYBUY because, if all this doesn’t matter, then it’s very likely that the entire planet Earth could explode but Wall Street will keep ticking higher.
Yep, I can’t wait to ride this baby mindlessly higher! After all, what can go wrong? BIDU is ONLY $710 a share, BLK is $190, CMP is $76, GOLD is $84, BUCY is $65, FAST is $56, MMM is $90, FOSL $40, F $13.50, DECK $149, SHOO $55, TPX $35, LZB $14, CTB $22, NOG $16, CEO $176, FTI $75, CLB $150, CIB $46, BBD $19, TD $75, BCA $45, BAP $87, ITUB $22, EDU $94, WYNN $93, FFIV $72, CY $14, CREE $77, UPS $70, UNP $78…
These were stocks I was looking at last week, when I told members I thought it was easier to construct a Sell List than our usual Buy List for this market but, if we’re heading…
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Contrarian Players Keep an Eye on the Upside at Intel
by Andrew Wilkinson - January 20th, 2010 4:05 pm
Today’s tickers: INTC, GA, EWZ, VIX, PALM, HGSI, CREE, CYD, BAC, CAL, XLB & CREE
INTC – Intel Corp. – Investors populating the March contract on chipmaker, Intel Corp., expect shares to rebound by expiration. Shares are trading slightly lower by 0.10% to $21.03 with about one hour remaining before the closing bell. Bullish traders utilized a couple of different option strategies. Some investors sold 2,400 puts at the March $20 strike to receive an average premium of $0.45 per contract. Put-sellers keep the $0.45 premium if Intel’s shares trading above $20.00 through expiration. The short sale of puts suggests investors are happy to have shares of the underlying put to them at an effective price of $19.55, should the contracts land in-the-money. Additional bullish action took place at the higher March $22 strike where 20,400 calls were purchased for an average premium of $0.36 apiece. Investors long the calls begin to accumulate profits to the upside if shares of INTC rally 6.3% over the current price to surpass the breakeven point at $22.36 by expiration day in March.
GA – Giant Interactive Group, Inc. – Online game development company, Giant Interactive, attracted significant option volume in late afternoon trading today. Options traded on the stock amassed to 52,350 contracts by 3:00 pm (EDT), which is more than twice that of existing open interest on GA of 25,314 lots. Shares are trading flat at $7.48 with one hour remaining in the session. While some investors are putting on risk reversals, it looks like the bulk of the trading volume represents short straddle plays. Short-straddlers sold the bulk of some 30,000 calls exchanged at the July $7.5 strike for an average premium of $0.51 apiece, and shed the majority of the 26,000 puts traded at the same strike for roughly $0.62 each. Investors selling the straddles receive an average gross premium of $1.13 per contract, and keep the full premium if shares settle at $7.50 by expiration. Shares are a scant two pennies off the central strike price of $7.50. Traders employing the short straddle strategy also benefit from declines in option implied volatility because of the downward pull such shifts in volatility have on put and call premium. Investors may profit ahead of expiration if they buy back the short straddles for less than they received on today’s sale. Option implied volatility is lower by about 3.5% to 24.44%.
EWZ…
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Testy Tuesday – Have the Markets Become Comfortably Numb?
by Phil - January 19th, 2010 8:08 am
"There is no pain you are receding
A distant ship’s smoke on the horizon.
You are only coming through in waves.
Your lips move but I can’t hear what you’re saying.
When I was a child
I caught a fleeting glimpse
Out of the corner of my eye.
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
but I have become comfortably numb." – Pink Floyd
I have a theory that the markets (and the American people in general) aren’t irrational, they are simply shell-shocked after suffering a very traumatic group financial experience…
To be shell-shocked is to be "mentally confused, upset, or exhausted as a result of excessive stress" and the most common symptoms are: Fatigue, slower reaction times, indecision, disconnection from one’s surroundings, and inability to prioritize – That certainly sounds like our Congress doesn’t it? Combat stress disorder was first diagnosed in WWI, when 10% of the troops were killed and 56% wounded – far worse than had been experienced in previous wars. Our current financial crisis has similarly affected more people than any previous crisis with almost everyone knowing someone who is bankrupt or lost their jobs or homes and almost no one escaped the carnage of the downturn without some financial damage.
Combat fatigue may go a long way to explaining the severe drop-off in volume that has plagued the markets since March, with participation now down to 25% of where we were last January and that leaves us open to the blatant sort of market manipulation that Karl Denninger caught last week as well as the usual nonsense we get daily from HFT programs that drive the market with such precision that we are able to tell how the day is going to go by simply checking our hourly volume targets. Here’s a clip from CNBC where a floor trader discusses market manipulation as a fact of trading (2 mins in).
As Nicholas Santiago points out on In The Money Stocks, "January is usually a very high volume month, yet it has started off the New Year even lighter than the last two months of 2009. Light volume markets are very difficult to short. Hence the old saying, ‘never short a dull market’." Not only is the market volume…
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Two Week Wrap-Up – Trading Our Range
by Phil - December 6th, 2009 7:58 am
Your "crystal ball" was dead-on with the insights into the report on jobs as well as the initial rise and then correction. Truly impressive. – Champstar2
We didn’t have a weekly wrap-up last week because of the holiday.
In our Nov 21st Wrap-Up, I had said next week we’ll be watching to see if we can get more bullish above our 25% lines at: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and that became the bottom of our new range while I sent out a 9:41 Alert to our Members on Nov 23rd sticking with our upside targets of Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605. That has been a very reliable range to play for the past two weeks and we’ve been having a good time playing both ends of it.
Rather than just wrapping up this week’s moves, I thought we’d add the prior week as the pattern is very much the same (and it was the same the week before) so it certainly bears (oops, don’t say bears!) studying. Of course, when I talk about patterns, I don’t just mean the chart pattern where we have all of our gains for the week on Monday and Tuesday on low volume and then larger volume selling for the rest of the week as the funds who pump the futures up dump their ill-gotten gains on retail investors. I’m talking about the global new patterns, as reported by the MSM, that make this sort of manipulation so effective. It’s not that I’m so good at predicting things – it’s really just that I’m good at spotting the BS…
Monday - Stuffing the Futures for Thanksgiving
I was pointing out that morning that 90% of the market gains since October had been coming on a single day each week and how a lot of that was happening in the very thinly-traded Futures market, where a few thousand shares traded overnight are able to lever the entire US market up by Trillions of Dollars. It’s a very sick and broken system that has been seized by manipulators to yank investors around, making sure retail investors have little ability to participate in these wild market moves as the game is already over by the time trading starts the next day.
This week, we had 2 days like that with both Tuesday and Friday gapping up over 100 points…
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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
(