Thursday: Through the Roof or Smashed into a Thousand Pieces?

by Phil - October 7th, 2010 8:16 am

GRANDPA JOE: But this roof is made of glass. It’ll shatter into a thousand pieces. We’ll be cut to ribbons!

WILLY WONKA: Probably. 

Is today going to be the day?  After pressing against our breakout levels all week, today do we should finally have the gas to get over the top or will our 7.5% levels keep acting like a solid barrier?  Oddly enough, I was asking the same question (with the same title post) on August 5th, when we were trying to break out over our 5% lines of Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666.   At the time I concluded that the only way we were going to do that was if the Fed gave us more Quantitative Easing.

We were, at the time, at the top of a very bogus-looking, low-volume rally that had taken us up 10% from 9,700 in early July to 10,680 on August 4th.  The Dow and the Nasdaq were our leaders but the Russell kept flashing warning signs as it failed to hold it’s satanic 666 target and, on Aug 2nd, just like on October 5th, we had a big, silly jump up to what we were pretty sure was a blow-off top.  Despite being dead right to call a top at the time – it took the market another week to drop but we fell off a cliff on Wednesday, August 10th and we were back at 10,200 on the 11th so better a week early than a week late with these calls.

Willy Wonka understood stock market physics, there had to be enough power to getthrough that overhead resistance or it was going to be a very painful test of the top (like the one we had in August).  Since our last dip, we’ve come back for another try but the volume has been substantially lower than it was in Aug, leading us to believe it is only TradeBots, and not Oompa Loompas, who are buying this market.  Can TradeBots alone give us enough "thrust" to break through this time?  It shouldn’t be THAT hard, in April we had highs of Dow 11,258 (5.6% higher than 10,680), S&P 1,219 (7.5% higher), Nas 2,535 (9.2%), NYSE 7,743 (7.2%) and Russell 745 (11.1%) so it’s not like we’re asking for a lot with our little breakouts, are we?

SOX were 404, now 345 (down…

Tags: COST, DIA, EWJ, GPS, LTD, PCLN, PEP, SSO, TGT, XLF, ZUMZ

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Weak Dollar Wednesday – Which Way Now?

by Phil - September 29th, 2010 8:24 am

Everything is proceeding exactly as I have foreseen – Emperor Palpatine

In Monday’s post I said: "we really would like to see a little volume consolidation before we make another run at the 1,150 line on the S&P" and we zigged and we zagged until yesterday’s close where "THEY" punched it up to EXACTLY the 1,150 line (see Dave Fry’s chart) where we, of course, failed – because it’s all a load of BS end-of-quarter window dressing but HEY – 1,150, how about that!?!  1,150 is the 7.5% line on the S&P (see Monday’s chart) and that goes hand in hand with Dow 10,965 (not there yet), Nasdaq 2,365, NYSE 7,280 and Russell 672.

As I mentioned yesterday, our betting is still all over the place as we may go up on a technical breakout or we may go down and the fulcrum for the markets is currently the dollar, whose devaluation relative to the exchange value for a stock certificate is responsible for the vast majority of our recent market.  We’re positioned bearish in that we have 10:1 bets made to the downside on some ultra hedges so we will be thrilled with a pullback but, on the whole, we’re still really just protecting our bullish bets – even our review of the September Dozen this weekend couldn’t find too many reasons to take the money and run as we just didn’t look weak enough to quit on our most bullish trade ideas.  

Our overriding concern is that Japan makes good with their promise to intervene on the Yen, which will boost the buck, knock down commodities and tank the markets.  Why is that not happening?  Well our own Government is doing everything they can to de-value the dollar.  We talked out quantitative easing yesterday and GS issued a report yesterday saying there was NO CHANCE that the Fed would raise rates and, in fact, they may even lower rates to ZERO.  

Now, I don’t know about you but I’m holding out for when the government PAYS ME to borrow money.  Maybe then I’ll be willing to let them lend me $1Bn as long as they pay me $2.5M a year to hold onto it.  Our greedy little IBanksters couldn’t wait though, and they rushed out and borrowed another $500M from the Fed yesterday (POMO) at the outrageous rate of 0.25%.…

Tags: CDS, Consumer Confidence, Dollar, EWJ, Greece, GS, SBUX, Spain, SPY, Yen

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Freddie/Fannie Friday – Fat Forclosure Folios Forcasts Further Falls

by Phil - September 17th, 2010 7:56 am

Our zombie GSE’s have now become the Nation’s biggest home sellers.

This could not come at a worse time as winter is always a poor time to sell homes, rates seem to have bottomed and there is no new stimulus (or new jobs, or immigration, or population growth) to spur demand.  Yet, Freddie Mac and Fannie Mae now own more than 191,000  homes (as of June 30th), which is double where they were last year and they are still taking back homes faster than they can sell them as we move into the peak (we hope!) of the foreclosure cycle. 

Once they take homes back, Fannie and Freddie must not only cover the utility bills and property taxes, but they are also relying on thousands of real-estate agents and contractors to rehabilitate homes, mow lawns and clean pools. Fannie took a $13 billion charge during the second quarter just on carrying costs for its properties.

If demand remains weak, Fannie and Freddie could face pressure to take more aggressive steps to hold homes off the market.  Fannie, for example, is testing an effort in Chicago where it will rent vacant foreclosures rather than list them for sale.  Such a "lease-and-hold" approach could make sense in certain markets where "you believe the supply will take a long time to absorb, but there’s going to be an increase in employment going forward," says Douglas Duncan, chief economist at Fannie Mae.

In yesterday’s post, we discussed the death of the housing market and that brought about a discussion in Member Chat about my February article where I pointed out that the math of home ownership no longer works for many Americans (I also showed 3 different ways you can shave $100,000 in payments off a $200,000 home loan so I do suggest reading it if you haven’t already).  Mark McHugh of The Daily Bail has a nice update today where he does the math and contends that "a look behind the numbers shows home ownership to be a poor investment."  Barry Rhitholtz found a chart from Reality Bubble Monitor that matches with my contention yesterday (that the US has likely bottomed) but points out that our "boom" economies in Australia and Canada (and China is about the same) have bubbles that are still likely to pop:

As I said yesterday, home prices are all about affordability of mortgages and, should we get into a rising rate environment, we could…

Tags: CHINA, CPI, CSCO, Dollar, EWJ, FNM, FRE, ORCL, RIMM, Yen, Yuan

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Testy Tuesday – Kan Keeps His Job, Yen Makes New Highs

by Phil - September 14th, 2010 8:12 am

Japan has the same Prime Minister!

That is big news after having 5 different ones the past 4 years.  With the last PM lasting just 9 months, word was Kan was going to challenge the record for shortest term after being forced into this election just 3 months after being elected the first time.  When we talked about this yesterday, the race was considered "too close to call" but the incumbent Mr. Kan ended up winning 60% of the vote – kind of makes you wonder how far off our own pollsters are with their early election calls…

Now the stage is set for the Oct 4th meeting of the BOJ, where action must be taken to get the Yen under control.  Ozawa was clearly better for the Dollar, as he favored strong intervention to bring the Yen down including a program of both QE and stimulus and they Yen blasted to 15-year highs on the result of this election, now at just 83 Yen to the Dollar, down from 120 in 2007 (30%) with a 15% move up since May.  This is TERRIBLE for Japanese exporters, who get paid relatively less for everything they sell but it’s good news for commodity pushers, who get paid in devalued Dollars.  

To what extent is Japan’s deflation simply a function of their currency appreciating an average of 10% a year?  If their deflation rate is 2% then doesn’t that mean it’s really an 8% INflation rate masked by a too-strong currency?  Perhaps that’s why the people of Japan, who get paid in Yen and shop with Yen, strongly preferred Kan, who was only really opposed, in the end, by Parliament, where he won 206 to 200 – the Japanese version of the US Senate.  This means that, like Obama, it will be very difficult for Kan to get anything done despite his popular support and, also like our own Senate: "Having witnessed the shaky ground he stands on, opposition parties are licking their chops to begin their attacks on Mr. Kan," said Koichi Nakano of Sophia University.  

Doesn’t it make you feel good to know that, despite our cultural differences, politicians around the World are all the same – just a bunch of power-hungry, vindictive bastards who put their own interests ahead of the people who they are supposed to represent?  Like Obama, Kan still faces difficulties navigating what the Japanese call a "twisted parliament," where the DPJ has a minority in…

Tags: BBY, Dollar, EWJ, social security, VLO, Yen, Yuan

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Monday Morning – Basel Boosts Bourses

by Phil - September 13th, 2010 8:03 am

Nice pop in the futures this morning!

The big news, which we already discussed in the "Weekend Reading" post, is the historic remake of the World’s banking regulations, which was finalized in Basel, Switzerland by the G20 Finance Ministers over the weekend.  You can click over there for the details, as well as discussions on gold, college costs and the jobs market – so I won’t get into all that here.  Suffice to say, the rules are good and, like FinReg, they will take a long time to go into effect and the markets are relieved that the uncertainty is over (well, that particular uncertainty, at least). 

Jean-Claude Trichet, President of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, said that "the agreements reached today are a fundamental strengthening of global capital standards." He added that "their contribution to long term financial stability and growth will be substantial. The transition arrangements will enable banks to meet the new standards while supporting the economic recovery."  Nout Wellink, Chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank, added that "the combination of a much stronger definition of capital, higher minimum requirements and the introduction of new capital buffers will ensure that banks are better able to withstand periods of economic and financial stress, therefore supporting economic growth."

All seems right with the World this morning as Oil touches our $77.50 goal in pre market trading and Gold stays below the $1,250 mark (no panics).  Copper is in the upper end of our expected $3.40-$3.50 range and is likely to break over -even our poor Natural Gas is catching bids at the $3.80 mark, now $3.85 and TLT continues to fall (TBT continues to climb – see Dave’s chart) .  This is all despite a strong dollar That held the 50 dma all last week – another week over the line and we begin to bend it up to match the rising 200 dma and then the fun can begin.  Fortunately, we have had less of a run in the commodity sectors this time so, hopefully, the rising dollar won’t be the market-killer it usually is but we will be watching out for that. 

Another chart we’ll be watching is the VIX, the volatility index, which is known as a "fear" indicator for the markets, hasn’t been below 20 since April and,…

Tags: Basel III, Copper, Dollar, Euro, EWJ, GLD, SDS, TBT, TLT, USD, USO, Yen

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Friday Fizzle – Skimming the Top of the 2.5% Range

by Phil - September 10th, 2010 8:27 am

Was this a "good" week for the markets?

Yesterday morning I put out an Alert to Members regarging our level watch:  "Keep in mind that our 2.5% levels represent a 5% run from the bottom since last week so it’s natural that we get a 1% pullback from there so the key is to hold the 1.5% line – THAT will be our bullish indicator:" 

• Up 2.5% (we hope): Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650
• Must hold at 1.5%: Dow 10,353, S&P 1,086, Nas 2,233, NYSE 6,902 and Russell 644
• Middle Range (MUST hold): Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.

As you can see from David Fry’s SPY chart, it was an interesting day and we did pull an aborted stick into the close which kept us over 1,100 on the S&P and 7,000 on the NYSE and , as you can see, our 1.5% lines did pretty much hold up as a bottom test, other than the Russell, which we had already given a pass to in the morning post as they’ve been so pathetic we’re just proud of them if they try.

We had shorted PCLN in the same Alert (congrats to all who took that one!) and the inventory report chased us out of our upside oil plays (but not nat gas) at 11 and that initiated the market slide along with, as Dave notes, a poor Treasury Auction that finally got TBT back over $33 (I had also mentioned shorting TLT several times in the past few weeks).  Is this the beginning of the end of the free money express - stay tuned for more action next week!  

This week’s action isn’t done yet and we still need to hold our levels.  As I said yesterday, the best time to take disaster hedges is when we’re testing our 2.5% tops, as we were in the morning.  The Dow topped out just over 10,455, tested it until about 12:45, then failed BEFORE the auction, the S&P topped out at 1,110 and held its 2.5% floor, the Nasdaq hit 2,255 on the button at the open, the NYSE also held their 2.5% line as a bottom, and the Russell fell hard but then played around the 635 line in the afternoon…

Tags: EWJ, Housing, PCLN, SPY, USD

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Near-Term Bears Pummel DGIT, While Bullish Player Foresees Long-Term Recovery

by Andrew Wilkinson - August 30th, 2010 4:50 pm

Today’s tickers: DGIT, LTD, EWJ, ETN, AKS, ACLI & AMR

DGIT – DG FastChannel, Inc. – The provider of digital technology services that facilitate electronic delivery of advertisements, syndicated programs and video news releases to various media outlets suffered a 38.5% decline in the value of its shares to an intraday- and new 52-week low of $15.10 today. DGIT’s shares hemorrhaged after the firm revealed that third-quarter revenue will not exceed $53 million, which is substantially less than the average analyst forecast of $61.5 million in sales for the quarter. Investors expecting DG FastChannel’s shares to remain bruised and battered through September expiration sold 1,300 calls at the September $17.5 strike to pocket an average premium of $0.96 apiece. Call sellers keep the premium received on the transaction as long as DGIT’s shares fail to rally above $17.50 by expiration next month. The company is scheduled to report third-quarter earnings ahead of the opening bell of November 4, 2010. In contrast to the near-term bearish trading on the stock today was a covered call enacted in the March 2011 contract by an investor who appears to be positioning for a lengthy recovery period. It looks like the investor sold 2,000 calls at the March 2011 $17.5 strike for premium of $3.30 per contract and purchased 200,000 shares of the underlying stock at $16.60 apiece. The sale of the call options effective reduces the price paid per share to $13.30 each. Thus, the investor is prepared to walk away with maximum gains of 31.6% on the underlying position as long as the calls land in-the-money and the shares are called from him at $17.50 at that time.

LTD – Limited Brands, Inc. – Investors picked up put options on the specialty retailer of women’s apparel, beauty and personal care products, and accessories right out of the gate this morning with the price of the underlying stock slipping as much as 3.00% to an intraday low of $24.20. Limited Brands’ put options are in demand ahead of the firm’s August sales report on Thursday morning, and after July reports showed that personal income rose less than anticipated. Bears expecting LTD’s shares to continue to decline ahead of September expiration purchased approximately 1,900 in-the-money puts at the September $25 strike for an average premium of $1.11 apiece. Put buyers are poised to profit – or realize downside protection should they hold long positions…

Tags: ACLI, AKS, AMR, DGIT, ETN, EWJ, LTD

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Market Slide has Japanese Tracker Options Active

by Andrew Wilkinson - August 11th, 2010 4:34 pm

Today’s tickers: EWJ, VIX, BP & AMT

EWJ – iShares MSCI Japan Index – Since the middle of May, shares in the Japanese market tracker have lunged between a peak at $10.00 and $9.15 creating a neat trading range. With an overnight confidence in global stocks hitting the fan and a capitulation to a 15-year high for the yen, the EWJ has pretty much fallen from the top to smack bang in the middle of that same range in just three days. One option traders appears to be translating more of the same by selling that same strangle combination expiring in January. It’s one of several strategies emerging today where this expiration contract was used to play out various views. The $9.00/$10.00 strangle appears to have been sold for a premium totaling 60 cents, which gives this investor plenty of wiggle room in the event that boom or bust just happens to prevail. The strategy works nicely if by expiration the share price continues its predictable oscillation allowing the premium seller to hold on in entirety. If, however, shares edge lower the investor has to dig in his pocket assuming a break below $8.40 or beyond $10.60. Option implied volatility on the options jumped by around 25% to 20% on Wednesday.

VIX – CBOE Volatility index – Futures on the underlying VIX index are higher by 10% in the August contract and 6% in September, where the index is currently predicted to rise to 29.15. Further maturities have gained to a lesser degree in price as the entire volatility curve adjusts upwards to what some investors interpret today as an increased fear over the health of the U.S. economy. The November VIX future reflects only one third of the gain of the front month contract and stands at 30.40. The S&P 500 index is at its worst point of the day having tumbled by 2.5%. one investor appears to be moving expectations for market weakness out further into the early winter months through use of an options combination that will benefit if another summer market rout for stocks forces the volatility curve to blows higher still. The investor appears to have sold September call options on the VIX at the 45 strike for 75 cents and gone long of the same strike using the November expiration at $1.20 per contract. Around 10,000 contracts changed hands in the spread. The investor…

Tags: AMT, BP, EWJ, VIX

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Fill the Gap Friday – But Which One?

by Phil - August 6th, 2010 8:28 am

We are in a very interesting spot this morning. 

At 8:30 we get the Non-Farm Payroll report and the whispers are all positive while the "offical" expectation is that we drop another 100,000 jobs so are expectations too low or too high?  We are also almost dead center between late April’s 1,220 top on the S&P and late July’s 1,020 bottom with the S&P closing yesterday at 1,225.  We had a huge "gap" as we flash-crashed from 1,200 to 1,100 in just 4 sessions in early May and we jumped off the July 1st spike at 1,010 all the way back to 1,100 in the next 7 sessions.  So we are at the 1,100 middle of the range we’ve been tracking all year but we got here VIOLENTLY from both directions, establishing neither a proper bottom or proper top on the 10% outside edges of our range. 

The bulls will be pointing out that 150,000 of today’s job losses will be census workers whose jobs ended and the bears will be pointing out that we need to gain 300,000 jobs a month for the next 3 years before we even rehire the people we’ve lost over that past two years so who the hell cares about any jobs number under 200,000?  If the payroll report is weak, then we are more likely to get QE2 (and maybe QE3 and QE4) and the Fed will remain on hold so the Banksters should  be happy too.  If we get a "strong" report it will be harder to push through more stimulus and scary for the Republicans as it may give people the impression that the Government is accomplishing something so good is bad and bad is good today from that perspective. 

None of this matters because Andy Zaky says we are all doomed - and he makes a pretty good case fo it too!  We’ve certainly had a boring and generally bearish week as we have been protecting our gains off all those crazy bullish bets we made back when I called the dead bottom of the market on on June 6th in "Turnaround Tuesday – Will CNBC Apologize to America?"  Of course, that was a rhetorical question because, rather than apoligize for their non-stop end of the World proclamations, to listen to, for example, Cramer now – you would think he was chasing people INTO stocks at the time, rather than out of them.  

Oh well,…

Tags: DIA, EWJ, SPY, unemployment

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Which Way Wednedsday – On the 50% Line – Again

by Phil - August 4th, 2010 8:26 am

Wow, what a ride! 

Here we are back on the 50% retracement line at 1,121 on the S&P.  As Barry Ritholtz points out, it’s the 5th time we’ve been here and, as I said yesterday, Barry says "Its going to take a lot of something — good earnings, liquidity, sentiment, breadth, momentum, psychology, quantitative easing, something – to move higher from here."  Also great on Barry’s site today is a very neat summation of the housing crisis and his take on Timmy G’s NY Times Op Ed column, which I need to add my own .02 to. 

Mr. Geithner tries to give us that "something" Barry and I are looking for by boldly stating: "Welcome to the Recovery," writing that "uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth."  He continues:

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent. 

• Exports are booming because American companies are very competitive and lead the world in many high-tech industries.

• Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

• Businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow.

• American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.

• The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.

• Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, our banks are better positioned to finance growth.

• The government’s investment in banks has already earned more than

…

Tags: EWJ, Geithner, Jobs, SPX, SPY, USO

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