Thrill Ride Thursday – CRE Crash?

by Phil - November 19th, 2009 8:12 am

What a nice day we had yesterday!

I led off my morning post saying it was time to short the Dow, Copper, Oil and the Euro and anyone playing those futures bets off my 8:27 post made out like a bandit.  I even posted a nice little DIA play FOR FREE (for those of you who can’t be bothered to subscribe yet), picking the DIA $104 puts at .55.  It only took 45 minutes for those puts to shoot up to .85 and I warned our Members to take it off the table on the way up and, since it was my free trade of the week, I also posted it over at Stock Talk on Seeking Alpha.  This is a great way to follow-up on some of our trades and is also the back-up for our member chat whenever we have server issues so do make sure you are signed up to follow me there (just click on my picture).  

Yes, I know that so many newsletter writers give you free trade ideas that make 54% in 45 minutes that it’s hard to keep track so only do it if you REALLY want to.  The futures, of course, make TONS more than that as they are heavily leveraged,  As I said in yesterday’s post, we have been trying to get more bullish but sometimes we just have to put our bearish foot down.  In Member Chat we also took bullish pokes at EDZ, SRS, DIA $103 puts and ERY early in the morning and then we were able to just sit back and watch the dip.  I was a penny early calling a bottom on copper at $3.12 but .05 on the futures contracts is a huge win and we are very nervous bears, especially on low volume days, and we take our profits quickly.

At 1:40, I said to members: "DIA – Well mission accomplished on the $103 puts and now we see what Mr. Stick can accomplish for the day.  Without the RUT over 600 I have no desire to cover the March puts" and we even decided to go with the DIA $104 CALLS at 3:20 to protect us against the anticipated stick save.  Those went from .65 to to .80 into the close, another very quick 20%.  We don’t do this all the time, these plays are fun to make during expiration week as the premiums are…

Tags: Copper, DIA, EDZ, ERY, FXP, Oil, SRS, TBT, UUP

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25% Off the Top Tuesday

by Phil - November 17th, 2009 8:09 am

10,500 – that’s 75% of 14,000 in the Dow!

On the S&P we topped out all the way up at 1,550 in October, 2007 so 1,162 would be the target there.  For the Nasdaq it’s 2,100 (already over), 7,750 on the NYSE is still far away and 637 on the Russell is tantalizingly close (5%ish).  The SOX still need to gain 30% to get back to 400 and the the Transports are going to need a lot of gas to get back to 2,250. (see Fallond’s breakout charts here)

Oil was $100 a barrel in October 2007 so $75 is right on track and gold is clearly our over-achiever, UP 42% from 2 years ago and that is "obviously" according to the pundits, because the dollar is trading 1.5% lower than it was back then.  We are being led higher by great companies like XOM who, at $75 are well above their 75% level at $67.  This is VERY impressive since they earned $9.4Bn in Q3 ’07 and just $4.7Bn last Q on 20% less sales but that doesn’t stop investors (or at least tradebots) from snapping them up at these prices. 

TRV was added to the Dow and that stock is now OVER the 2007 highs of $52.50, which is really impressive as they are doing it with less revenues ($200M) and less earnings ($263M, 21%).  Perhaps we are seeing a pattern?  Earn 50% less, like XOM and get valued 16% lower, earn 21% less, like TRV and get valued 5% HIGHER.  CAT was at $70 in Q3, 2007 with $11.4Bn in sales and a $927M profit so OF COURSE they are at $60 now (down just 14%) on $7.3Bn in sales and $404M in profits.  Just like XOM, 56% less earnings equals a 14% haircut on the stock price.  After all, you can’t fool these savvy investors, can you?

I’ll be going through the Dow in detail this weekend as we set up our new Buy List for Members as (if we are going to accept the premise that these investors are not crazy) there are certainly some bargains in the Dow like VZ (got ‘em already), who earned $1.3Bn on $23.8Bn in sales 2 years ago and earned $1.2Bn on $27.3Bn in sales last Q, yet they are still trading 25% below where they were.  INTC made more money on less sales but they are trading…

Tags: BAC, CAT, FXP, GE, INTC, TRV, XOM

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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…

Tags: DIA, EDZ, ERY, FAS, FCX, FXP, GLD, QQQQ, RL, SRS, TIE, TM, UUP, UWM, VIX, VLO, WFR, YRCW

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Jobless Thursday – Get Ready for the Next Million Layoffs

by Phil - November 12th, 2009 8:21 am

"California tumbles into the sea."

Yes, Steely Dan predicted it in 1973, when Ronald Reagan was still Governor but we thought they were talking about earthquakes at the time.  This year it’s clearly California’s 49.3% budget gap and 16.2% drop in state revenue that has them leading a list of lemming states to their doom.  Over 1M state and municipal employees may be getting their last checks this Christmas as 9 states face budget issues on par with California.

According to The Atlantic:  Nine more states are "barreling toward an economic disaster" according to a new Pew poll that sees deep service cuts and temporary tax hikes to avoid fiscal calamity. Some of these states will be familiar to Atlantic Business readers. I’ve been leading the funeral cry for the united states of MichiCaliFlAriVada (that’s Michigan, California, Florida, Arizona and Nevada), and all five states are on Pew’s list. Rounding out the ten are Illinois, New Jersey, Oregon, Rhode Island and Wisconsin. Here’s the graph from the Pew Center on the States:
 

…

Tags: CHINA, Cramer, DIA, FCX, FXP, retail sales, SPX, unemployment

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Weekly Wrap-Up – 10,000 or Bust!

by Phil - October 17th, 2009 8:27 am

I think I was right on the money last week when I said:

The bar for corporate earnings is still set at very easy to beat levels yet, like this limbo-playing child, when they announce their beats of very low expectations we’re going to get all excited and tell them how great they are doing.  The problem is, these are not kids who we hope may grow up one day to be President or CEOs of major companies. these ARE CEOs of major companies and they are being paid top salaries for top performance and we, the stock purchasing public, are paying top dollar for what should be SPECTACULAR performance, not beating 75% off last year’s earnings by a penny! 

In that post, I rattled off a list of stocks that seemed overpriced to me: AMZN, BIDU, AM, PALM, NFLX, PCLN, URBN, UHS, CERN, CREE, GMCR, CY, SWM, TRLG, BKE and you would have had a fabulous week just shorting those stocks as only NFLX, URBN and CREE stayed positive.  Now most newsletter writers would quit right there and make a giant ad saying they were 12 for 15 on the week but, as our members know, THAT’S NO BIG DEAL AT PSW!  I’m just going to remind members that they can refer friends to FREE advice like that in our trial newsletter and earn 20% or more off their subscriptions for doing it. 

Picking stocks is easy but a few percent here and a few percent there isn’t much fun is it?  On that list, the two we attacked were AMZN and BIDU, both of which ran (in our opinion) way too high AND had very liquid and very overpriced call options that we could sell to collect premiums.  AMZN is a staple short in our $100K Portfolio and we had set up BIDU the week before, selling Oct $420 calls for $8.30 and the Oct $430 calls for $7,20.  While both went higher on Monday, the fact that we had a plan for managing the trade kept us from panicking and, thankfully, Monday was the only day those positions gave us trouble and both finished the week worthless (100% profit for us). 

Adjusting our positions kept us busy this week as we STILL have a slightly bearish bias and I apologize for that but, as I said in Friday’s post: Every time I try to get a little more bullish, they pull me back…

Tags: AIB, AMZN, BAC, BIDU, C, CBI, CERN, EWZ, FXP, GLL, GOOG, GS, HGSI, ICE, IMAX, ISRG, NTRI, NUAN, PARD, RAD, SLX, SRZ, VZ, XOM

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Wednesday Rally – INTC and JPM’s Piles of Chips

by Phil - October 14th, 2009 8:26 am

82 cents a share for JPM!

That is a crushing beat of the 51 cents expected by analysts, who have been playing expectations catch-up for over a month, trying to get a handle on this quarter’s earnings.  JPM’s earnings are more exciting than GS’s earnings as JPM were supposed to be "dragged down" by Chase Banking.  With $2Tn under management, the company put up $3.6Bn in quarterly profit, almost 10 times what they made last quarter (.09).   "These results included the negative impact of the tightening of the firm’s credit spread, offset by the positive impact of counterparty spread tightening and gains on legacy leveraged lending and mortgage-related positions," the firm said.

Of course we could nitpick and point out that last year they had competition from LEH and BSC and last year they didn’t have $25Bn in bailout money to play with and they didn’t have a Fed Discount window feeding them countless other Billions every month at 0.25% interest but we won’t, because we are trying to get more bullish!  Not wanting the Government to get the idea that they don’t need any more free money, CEO Dimon said: "While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue."  Frankly, I think the company sandbagged the earnings as they put $4.967Bn aside as a provision for credit card losses against $5.159Bn in total sales so either their clients are MAJOR dead-beats, or there will be some more profits recognized down the road (assuming all this recovery stuff is real). 

INTC also beat earnings expectations last night but they are underperforming last year by a wide margin so not in any way as exciting as JPM’s results.  Our strategy for INTC yesterday was to short sell the Nov $20 puts and calls for a total of $1.95 so our upside break/even on INTC is $21.95 but even last night, on the announcement, I still said to members I thought they were a short at $22 but we’re not going to fight the market, not now that we’re over our breakout levels. 

The levels we’ve been watching (Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and Russell 620), should be crushed this morning and, hopefully, will hold up through the end of day.  If this is a real rally then we should have no trouble and the last thing the bulls want…

Tags: AIB, C, DIA, earnings, ERY, EWZ, FXP, GS, INTC, JPM

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Will We Hold It Wednesday?

by Phil - October 7th, 2009 7:53 am

When your first trade of the day is a cover, you know you are too bearish!

That’s what happened to us yesterday when I sent out a 9:47 Trade Alert to Members for the QQQQ $41/42 bull call spread at .57 to cover the too bearish stance I was worried about in the morning post.  We exited that trade at .70 (up 22%) and that served it’s purpose of giving us some cash to put into rolling up our puts, following through on the strategy laid out in the morning post.  As I said at the time, these are the moves we’re making BEFORE we capitulate and our short plays will form a base from which we can aggressively go long once we clear our targets. 

I called off that QQQQ trade at 11:32, about 9 cents off the high of the day as they looked about to fail our 42 target which, as you can see from David Fry’s chart, is right about the middle of the weekly range so it’s a level we have to respect on multiple fronts.  We’re still waiting for a proper test of that 40 line, a 5% drop from here and PSQ (short QQQQ) calls are the main protection in our $100K Portfolio at the moment.  Any move below 40 on the Qs can re-shape the chart to a much more bearish formation long-term. 

We also covered up our long DIA puts, which flipped us more bullish overall and ended the day half-covered – neutral and confused but with more aggressive puts than we had on Monday so some small progress was made.  In addition to rolling up our bear plays like GLD puts, we added hedged January bullish plays on EDZ and TZA, went bullish on RIMM as they sold off to $65, bearish on MOS as they ran up to $49, bullish on WFR at $16, bearish on FCX at $70, April bullish and hedged on SKF, bearish on OIH at $118.50, Jan bearish and hedged on TIF at $40.75, bullish and hedged on April SCO and bullish on FXP at $9.45.  Overall a pretty busy and bearish day of trading.

As I said to members in my closing comments, the XLF couldn’t hold $15 and the Qs couldn’t hold 42, which were both watch levels for us during the day.  The index levels we were targeting were a mixed bag as we were looking for upside…

Tags: Dollar, EDZ, FCX, FXP, GLD, MOS, OIH, RIMM, SCO, SKF, TIF, TZA, WFR

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Wrong Way Weekly Wrap-Up

by Phil - September 19th, 2009 8:28 am

I am trying to get bullish, really I am.

As I said to Members on Thursday morning in chat, like Sam Jackson in Pulp Fiction: "I’m trying hard to be the (bullish) shepherd" but the data makes it hard – so very hard!  Anyway, I’m not here to complain about the market forces moving against us but to review the carnage of our picks going all the way back to Sept 10th, when we decided the prior day’s beige book was not going to be enough to break out over 9,600 on the Dow.  Now, with the Dow at 9,820 after testing 9,900 it’s a good idea to look back and see what we missed in this last 2.5% leg up. 

On Thursday the 10th, we talked about patterns.  One pattern I recommended following right in the morning post was the famous "stick save" investment.  Simply buying high-delta DIA calls at about 2:30 each afternoon and selling into the pumped-up close.  That was a winning play on the 10th, 11th (Fri), 14th and 16th but not the last two days, when we turned a lot more bearish – but we’ll get to that further down this review. 4 out of 5 days is pretty good for a patten and seeing it broken 3 of the past 5 days is also significant.  I did promise that Thursday that we will look for more bullish opportunities once we have a clear break over our last two levels (NYSE 6,959 and S&P 1,056) and we did make those this week.  If we hold it through Tuesday, it will be time and we’re going to line up some trades this weekend.  True to my word on that Thursday, we chose a variety of bullish and bearish plays in Member Chat.  I’m posting the plays along with suggested adjustments if needed as it’s a nice way to review our various strategies in progress – especially under "adverse" conditions.

Trade ideas of the day for Members were:

• DIA $95 puts that ended up being rolled and doubled down for a net 20% gain (too much bother to detail).
• SUN at $23.36, now $28.45 (up $5.09), short Oct $25 calls at $2.20, now 3.70 (down $1.50) and short the Jan $22.50 puts at $1.15, now .70 (up .45).
  • Another buy/write at net $23.01/22.76, already up 17.5% so can be closed early here. 
• FDO short Apr $25 puts at $2.10, now

…

Tags: ABT, AMZN, BAC, BBY, BIDU, BXP, CAL, CEPH, DF, DIA, FDO, FDX, FXP, GOOG, OIH, ORCL, PALM, PARD, RIMM, SRS, SUN, USO, VZ

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Wanted: A Soaring Dollar

by Chart School - August 31st, 2009 10:34 pm

Wanted: A Soaring Dollar

Courtesy of Tim Knight at Slope of Hope

Tags: Dollar, EUR/USD, FXP

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Monday Mandarin Market Meltdown

by Phil - August 31st, 2009 8:17 am

The Shanghai Composite fell 6.7% this morning!

I mentioned our love of FXP (ultra-short China) in our August Market Review and the short sale of FXP puts (a bullish play) was our primary cover in the last $100KP since early August for exactly the reason we are seeing play out today.  Of course China’s problems were my theme on Friday and on 8/16 we warned that China’s GDP wasn’t real and on 8/7 we pointed out that China’s 2009 growth was nothing more than an accounting trick after my August 6th article in which I pointed out that GS was desperately working to pump China up at the top (likely while they were dumping their own shares on unsuspecting suckers).  Do fundamentals matter?  Sure they do — evenutally.  But we had to roll and DD our August FXP short puts (big winners now) as it always pays to remember the words of John Keynes: "The market can stay irrational longer than you can remain solvent."

We nailed the move in the Shanghai, which is now down 25% since we turned negative on it but the Hang Seng, which is much easier to manipulate as it’s controlled by foreign IBanks (our beloved gang of 12), has mysteriously flatlined near their August highs, maintaining the myth of the Chinese recovery so Uncle Rupert could run his almost daily articles telling you how great the global economy is on the other side of the world, where you can’t see it.  Interestingly, in China he’s running stories telling them how the US economy is leading the way back and in Europe he has total control of the media so whatever he wants to tell them is the truth anyway. 

By the way, this is your LAST week to get Stock Market Truth with a FREE Trial Subscription to the PSW Report

Ler’s see how rational the markets get as mainland China falls to it’s lowest level since May and let’s keep in mind that "limit down" on the Shanghai is 10% so a 6.7% drop in one day indicates that scores of companies were likely halted at 10% down.  It’s going to take some really big plate spinning by GS et al (already attempred by GS last night with this idiotic release calling China a "bright spot" and raising outlook 50%) to get this one back on track.  As I keep saying – the one thing "THEY" can’t fight is a…

Tags: BHI, BJS, CHINA, DIS, FXI, FXP, GS, MVL, Shanghai Composite

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