Wild Weekly Wrap-Up, Topping or Popping?
by Phil - November 14th, 2009 12:02 pm
This was an annoying week for bulls and bears alike.
We had a very exciting day on Monday, topping out at 10,248 but I didn’t like the way we got there (low-volume, commodity rally, as noted in David Fry’s chart) and, when pressed for a prediction on TV that evening, I had to say that I felt that we were more likely to be down by Thanksgiving than up with a possible Santa Claus bounce into Christmas. What we did get for the remainder of the week was very choppy action on even lower volume.
I had mentioned in last week’s "Wrong-Way Weekly Wrap-Up" that we were partying like it’s 1999 as we broke through Dow 10,000 and S&P 1,080, despite rapidly deteriorating fundamentals. Stocks are being bought because they are going up in price (much like commodities), not because there is any actual demand for them and that is very clear from the rapidly declining index volume as we run back into resistance at S&P 1,100.
Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions. In fact, yesterday as we got our mid-day spike to 10,300, I told members that it was sorely tempting to just cash out all bullish positions and take 20% of the portfolio 100% bearish with a 10% stop. Rather than mess around with a mix of positions, going fully bearish can allow for some spectacular gains if we crash and stopping out with a 50% loss would suck - but a breakout like that, well above Dow 11,000 and S&P 1,200 would certainly give us reason to be more bullish.
As I concluded last week: "We’re generally not happy until we see Russell 600 and the Dow Transports over 4,000 (now 3,852) and we took a 55% bearish stance into the weekend because we’ll feel a lot less silly being burned by a move up than we would if we weren’t bearish enough for a move down. It would be nice to be able to make more of a commitment but the bulls clearly have the bears cowering in fear so we’ll just patiently wait and see how far they can play things out." Not much has changed since then and we are still waiting to confirm…
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Stock Market Crash - Year One Review III - March Madness!
by Phil - September 10th, 2009 5:51 pm
We left off in Part II with our Feb 23rd Big Chart Review.
Even though I said: "Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long" - we still weren’t fully prepared for the devastation that was to follow as the Dow fell from 7,500 to 6,500 in the next 10 days. My commentary on the environment the next day was:
According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times. Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF. So you have the man’s network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero - even though they could hold on and protect themselves with conta-funds, if Cramer didn’t spend 3 days a week convincing his viewers contra-funds are poison. I’ve never seen anything like this outside of a racketerring investigation. Speaking of racketeering - Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.
Our wall of worry continues to be a steep one. After yesterday’s failure we do not expect too much out of today, we’ll be happy to just see a bottom at this point but it’s looking a little more likely that we’re heading into a capitulation event that can take us down to frightening levels. The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread. Let’s take these levels very seriously, if the administration can’t turn it around this week - the downward momentum can easily pick up steam.
I’ll spare you the details other than to say we DIDN’T turn it around that week and the downward momentum DID pick up steam. I was at war with Cramer at the time as he was blatantly ripping off my ideas and trying…
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600-Point Weekly Wrap-Up: Selling High
by Phil - July 19th, 2009 12:01 pm
Holy cow, what a week!
It is hard to believe that last weekend I wrote: "You can hardly find anyone who doesn’t think we’re going back to the March lows. I stand by my statement to Members in yesterday morning’s Alert where I said: "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800. While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks. Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say - Show me the misses."
Here we are, just 7 days later and I found myself writing an article about the ridiculous media cheerleading that went on last week. How did the MSM go from 100% bearish to 100% bullish at the stoke of Monday? Well, according to Cramer, it was Whitney, Whitney, Whitney and the logic seems to be that, since she called the problems in the financials early on, she MUST be right by calling an end to the problems now. Of course what Whitney actually said was the banks should have a good quarter as the government pushes for massive mortgage refinancing (all those 1% fees really add up!) and she also said she sees unemployment shooting up another 35% to 13% or higher but hey - at least she said something positive about the banks and that’s all the media needed to hear to tear up the previous week’s entire playbook and switch sides so completely, you have to review the tape just to be sure we didn’t imagine the whole doomed, "head and shoulders" outlook of the week before.
What did I have to say about all this nonsense last weekend? I was emphatic, and I’m usually not, and I said for those who would listen: "So here we are, back at the bottom of the trading range I predicted back in March and even as far back as November, when I said that, based on the fundamentals the crash should settle out at Dow 8,650." I need to be clear about this so you…
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Will We Hold It Wednesday? Industrial Production Edition
by Phil - July 15th, 2009 8:27 am
Whee, this is great!
Any excuse to take the markets higher and INTC was a good one last night. We’re thrilled because my 2:43 Trade Idea for members was "INTC Jan $17.50s for $1.28, speculative naked call with earnings tonight." We don’t do those very often but we looked primed for a pop and not much was expected from Intel, who were still expected to earn just 8 cents this quarter by the 44 analysts who are paid to follow them, despite the fact that they earned .11 last quarter (an 8-cent upside surprise) and had earned .28 last year in Q2. That made the long call an excellent play since we were also willing to stick with them and add to the position if INTC had missed. As it is, that should give us a nice 50%+ pop this morning!
Other trades ideas from yesterday’s Member chat were a GS put spread, AIG puts (and we can’t wait for "earnings" on them!), DIA puts and calls as momentum plays, a YUM ratio backspread for the $5,000 Portfolio and a JPM bear put spread. So we weren’t overly enthusiastic in the run-up, mainly because we loaded up the truck in last week’s dip with 18 bullish plays that I reviewed in the weekend wrap-up. So we are looking for short plays to defend ourselves until we are sure what we have here is more than the proverbial "dead cat bounce" off our 33% retrace (which I discussed in Monday’s post). As I mentioned in yesterday’s post, our upper targets to break the dreaded head and shoulders pattern are: Dow 8,500, S&P 930, Nasdaq 1,825, NYSE 6,000 and Russell 510. We’re making good progress but nothing would be worse than failing this breakout and confirming the downward pattern so it will still be a tough week to get through, especially with todays manufacturing data, which we are concerned about.
I think David Fry summed it up for the skeptic’s camp yesterday saying:
The AP headline today read: “Goldman Sachs’ $2.7B profit shows the firm’s prowess.” Good Grief! You have to hand it to Da Boyz, they know how to bedazzle Main Street. Anyone with a HAL 9000, their bad debts taken off their books, billions in public money to trade and most of their competitors (Bear Stearns and Lehman Bros.) eliminated should do just dandy. “Prowess”? My okole!
INTC did indeed have good earnings (if you throw out that pesky $1.8Bn monopoly settlement, of course) but they…
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FAS Is Now XLF
by ilene - June 30th, 2009 2:49 pm
Courtesy of Bill Luby at VIX & MORE
For someone who gets a kick out of volatility, the arrival of triple ETFs has been a little bit like manna from heaven. Of course the launch of the Direxion triple ETFs back in early November just happened to coincide with the highest VIX readings in history. There is nothing like record volatility, except perhaps record volatility times three.
But a lot has changed since November. The VIX traded in the 80s the month it was launched; today it was as low as 25.02. At the moment the VIX is exactly 1/3 as high as it was when it peaked in November at 81.38. For those who have been selling options, the ride down the volatility slide has been an unusually profitable one. In fact, it is likely that some of the premiums harvested in the last nine months or so will turn out to be the most bloated we will see in our trading lifetimes.
My personal interest in the triple ETFs notwithstanding, these vehicles have received mixed reviews, largely because their suitability as buy and hold investments degrades rapidly after just one trading session – with the problems exacerbated by increases in volatility. On the flip side, the recent decrease in volatility has taken some of the tracking and compounding errors out of leveraged ETFs. In fact, in the current environment, the 3x and -3x ETFs are starting to look somewhat tame relative to their history. The two charts below show the (30 day) historical volatility (purple line) and implied volatility (gold line) of the most popular financial sector ETF, XLF, and the 3x financial sector ETF that has taken the trading world by storm, FAS. While there are a number of interesting conclusions to be drawn from these charts, the point I wish to make is that current historical and implied volatility for FAS (top chart) is hovering around the 100 mark, which is about where HV and IV were for XLF (bottom chart) in February, March and April. In other words, the 3x ETF FAS is no more volatile or has more uncertainty in its stock price now than XLF did during the period from October through April. Tracking error aside, FAS is now effectively the ghost of XLF.
[source: iVolatility]
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Wild Weekly Wrap-Up
by Phil - May 31st, 2009 8:29 am
What a wild week that was!
We got such a good sell-off last Friday that we went 1/2 covered into the weekend on our DIA puts (a little bearish) but we had already cleaned up on quick short plays on the Dow and USO and we were very much in cash but still making bullish plays at the time. I did a 3-part series on dividend-paying stocks over the weekend, elaborating on the 21 dividend payers we picked that Tuesday along with our $104,340 Portfolio (used to be $100,000) so we had no shortage of bullish ideas but it didn’t take us long this week to turn pretty bearish.
Last Friday morning (22nd), ahead of the holiday weekend, with the Dow at 8,323, I sent out an early alert to members saying: "I’d go long on the Dow here but frankly I’m just not in the mood today. Still full covered on long DIA puts and still in the DDMs but just hanging out and watching today since you can’t take the action seriously anyway." Our plays that day ran the gamut: We sold BAC July $10 puts for $1 (now .66), took a TBT spread that has been a wild ride but right back where we started and an ICE bull call spread ($90/$100, selling $90 puts $2.33, now .57) that is right on track. All that came before 11:33 on Friday, where I rightly called a top at 8,342. We made nice profits on DIA puts and took an EXM and T hedges that are doing well. One of our best plays on Friday was the USO $32 puts at .80 we took into the weekend, those cashed out Monday morning at $1.05 (up 44%) - those USO trades were followed through in detail in our Members Only post: "Stupid Options Tricks - The Salvage Play."
As I mentioned, we have been mainly in cash for over 2 weeks now so mainly we’re just taking small opportunities and having fun while we wait for the market to break one way or the other. One article I wrote over the holiday weekend was a timely update to "How To Vacation-Proof Your Portfolio," something anyone not in cash needs to take under strong advisement and DO NOT miss the very generous free video lesson from Sage’s Market Tamers that is on that post. Our of 21 dividend plays we had discussed on Tuesday, the 19th, I went with LYG, who flatlined for the week, TNK, who…
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Weekly Wrap-Up - Hitting Our Targets At Last!
by Phil - May 2nd, 2009 8:15 am
Finally we break out!
Last Friday we had our charts that indicated it was possible but we played 55% bearish into the weekend thank goodness and, as I predicted in the weekend wrap-up, our broken clock (going into each weekend 55% bearish) was right twice as we had a harsh sell-off on Monday that did not get us off to a good start. After last week’s action, which I called "a big, ugly W," where 8,130 capped our gains on the Dow, we got a very nice 2.5% rule move for the week on a breakout where we held 8,130 to the downside. While we still went into the weekend just a little bearish - it’s getting harder to believe it as the relentless rally continues but better safe than sorry over the weekends as our rallies are still coming on very low volume and, other than Friday, we sold off into every close this week.
We finished the week right at the 8,200 mark that I predicted weeks ago would be the top of this rally. In fact, the breakout levels we’ve been using since we first broke out over 7,632 in late March were DIA 8,130, S&P 870, Nas 1,700, NYSE 5,500 and RUT 480 - these were our break DOWN levels of January (and pretty much where we closed for the week) so, on the whole, we are nicely confirming that our "V" bottom of March 9th was an aberration and will NOT be revisited. We do still expect a retest of 7,900 but 7,632 may now be off the table and our 8,650 target (the mid-point of what we’ve considered "fair value" since October) is just as likely to be hit before we see another pullback.
What we’re looking for is a new range that confirms the 5% levels around 8,650, which is, as a floor, 8,200 (8,217 to be exact) and, at the top of the range, 9,100 (9,082). The closer we get to 9,100 before pulling back, the more likely 8,200 firms up as a floor. Volatility is certainly washing out of the market slowly but surely as the VIX finishes the week at 35.30, down 20% for the month against an 8% gain in the S&P - a complacency that indicates that up, as we like to say, is the new down.
We had an absolutely fantastic week as we learned to stop worrying and love the rally. After being cautious last Friday, my…
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Testy Tuesday Morning
by Phil - April 28th, 2009 8:37 am
So far so bad!
Sadly, we called the action pretty much on the nose yesterday. In the morning post I said that we would: "see where the bottom is today - hopefully we find it early on" and my 9:36 Alert to members I noted: "it will be impressive if this morning dip is all we get." I set our watch level at 8,130 and the Dow was rejected just under there twice and by 12:12, with the Dow at 8,106, I called the top and sent out an alert saying: "All the advance/decline numbers are very red, this is a highly selective rally and we just tested the top again and failed - I have to think it’s worth chancing going short here."
While we were expecting a follow-through to 7,900 today (same action as last Monday/Tuesday) we were concerned by the afternoon stick save attempt and did go into the close just 55% bearish (1/2 covered on our DIA puts) as we had already caught a 100-point drop perfectly and we didn’t want to be too greedy. This morning the futures are indicating that bearish greed may have been a good idea as the futures (7am) are pointing down another 1.5% on news that C and BAC may need to raise more capital along with the continuing flu scare. I emphasize scare at this point because, in a typical year, over 60,000 Americans die from "pneumonia/influenza" and, while we don’t want to make light of a virulent new strain, it’s a bit out of proportion to begin panicking when 150 people die of one particular strain.
Unfortunately, there’s a very fine and quickly crossed line between an outbreak and a catastrophe and the government is right to overreact but the markets are not. Being a forward-looking mechanism doesn’t mean seeing doom around every corner but that’s the kind of nonsense the media likes to stir up and it was amazing to see the Transports take such a huge hit - down 5% on the day with airlines down 10-20% - as the media begins recounting the damage done to the travel industry in the 2003 SARS outbreak. On the whole, this was the last thing we needed with the markets already weak but, as I said yesterday, there is great opportunity growing in this sector. We picked up a hedged entry on UAUA yesterday and CAL will be our next target as they retest $11 (hopefully $10). Since we can sell June…
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Weekly Wrap-Up
by Phil - April 26th, 2009 4:22 pm
What a strange week.
Overall, it was a big, ugly "W": We began the week at about 8,100, fell to 7,800 Tuesday morning, rose to 8,050 on Wednesday (hump day), fell to 7,800 again on Thursday and then back to 8,100 on Friday. In summary - NOTHING HAPPENED! We have that gap to fill on Monday around 8,000 (last Monday’s gap down open) and, unlike this past week, next week is going to be chock-full of scary data points including Consumer Confidence and Case/Shiller Home Prices on Tuesday, GDP and the Fed on Wednesday, Jobless Claims and Personal Income and Spending along with the Chicago PMI on Thursday and Friday is still busy with Michigan Sentiment, Factory Orders, ISM and Auto Sales for April.
It’s going to be fun, fun, fun next week as another 25% of the S&P 500 are set to report and early on, we’ll be keeping our eyes on the following:
- Monday: BEAV, CHKP, GLW, ENR, HUM, LO, ONB, QCOM, SII, TZOO, VZ & WHR. Evening: AXS, BIDU, FNF, FADV, HLTF, HXL, MAS, MTH, OLN, RCII, SWN, TUES, UHS, WRE, WRI and XL
- Tuesday: AG, AMFI, AMED, AM, BDX, BMS, BMY, BCO, CRDN, CCE, CVH, ELNK, FMD, BEN, FDP, HCP, HL, KELYA, LAZ, LCAV, LVLT, MHP, NWPX, ODP, OXPS, ORB, PCAR, MALL, PCZ, PFE, SMG, SBNY, SPAR, STFC, TLAB, X, UA, VLO and WAT. Evening: ACE, BLDP, BWLD, CRI, ETFC, FIS, HTZ, MEE, NAL, PNRA, PRAA, RFMD, SUNH, JAVA and VFC.
So plenty to keep us busy but earnings last week were way better than expected overall and guidance was not too depressing so we’ll have to see what kind of follow-through we can now get on that and if there is any gas left in the market to finally punch through that 8,200 mark or if we are still doomed to correct back to 7,632 in the very least.
As I mentioned in last week’s wrap-up, we called it right by entering the weekend 55% bearish despite the fabulous stick save of Friday the 16th. In fact, I should have gone with my gut at 3:43 that day when I said to members: "DIA - 1/2 cover into the close it is then. I wanted to go more bearish but the levels won’t let me!" Thank goodness we stay bearish though because, as you can see from the chart above, there was no time to adjust on Monday morning as we gapped down almost 200 points in…
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$100,000 Hedged Portflio Update
by Phil - April 18th, 2009 4:39 pm
We didn’t do a wrap-up last week as I instead wrote a long, Members Only post (only Part 1 too) on "Setting Up A $100,000 Hedged Portfolio" concentrating on a virtual $20,000 allocation in the financials for our first sector.
We’re going to do more of these on the weekends as people find them useful and also because, although they are very popular, I do get tired of just reviewing what we did for the past 5 trading days every week. So maybe a little of both today but I aim to keep this short (as I usually do, but it never works out) so we can do another post on earnings plays tomorrow.
How is our new sample portfolio looking after a week? Well let’s see:
- 500 UYG at $3.48, selling 5 May $3 calls for .72 and 5 May $3 puts for .28, net $2.48/2.74
- UYG now $3.79, May put and call combo now $1.12 = net $2.67 ($95 profit on $1,240 = 7.7%)
- Selling 2 FAS $7.50 puts for .45 naked
- FAS closed at $9.40 so 100% profit of $90
- 500 C at $3.04, selling May $3 puts and calls for $1.11, net $1.93/2.47
- C now $3.65, May $3 put and call combo is $1.19 = net $2.46 ($265 profit on $965 = 27.5%)
- Selling 2 IYF May $36 puts for $2 naked
- IYF closed at $40.26, May $36 puts $1.20 ($160 profit on $400 =40%)
- Selling 2 JPM May $29 puts for $1.95 naked
- JPM closed at $33.26, May $29 puts $1.17 ($156 profit on $390 = 40%)
- Selling 7 FAZ May $10 puts for $2.40 naked (adjusted to reflect Monday’s gap down open)
- May $10 puts are now $2.67 so a loss of $189 (-11.3%). Both our July and Oct escape rolls are still intact so no worries here anyway (this is a hedge to the others)
- 5 FAZ Oct $12.50 calls for $4 (adjusted), selling 5 May $21s for $1.05, net $2.95.
- The Oct $12.50s are now $3.29, May $21s are now .45 so net $2.85, a loss of $50 (3.4%)
So far so good! The FAZ hedges are holding up nicely while all of our upside plays were winners. Our 3 April put sales are expired $90 in profits so risk off the table and cash put back to work and May Put sales look safe enough at the moment, up $316, while the May option plays are up $360 against a $239 loss on the hedges. Overall, we put less than $1,500 of capital to work (there were, of course, some margin requirements - see original post) to make $527 in a week. While…
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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
(