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 – Why Does This Rally Give Me the Creeps?
by Phil - April 25th, 2010 8:29 am
I’m sorry, I am trying so hard to get bullish but it’s not working…
My only solution is to, as we often joke, switch off my brain and stop reading the news (listening to it is great as everything is coming up roses in TV-land) and ignore the now-exposed shenanigans on Wall Street (why should I worry about my investments just because the people running the game are up on fraud charges?) and for goodness sakes don’t even look at something as depressing as "The Economic Elite vs. the People of the United States of America," neither Parts 1-3 or Parts 4-6 because that can lead to thinking and thinking makes it REALLY hard to go to sleep at night with your money riding on the top of an 80% market while gold is trading at $1,150 an ounce because of overwhelming global instability and a total lack of faith in the global financial markets.
Yep, if we don’t think about all that stuff and focus on the good stuff, like the fact that Unemployment is only 3% for those of us who earn $150,000 a year (for the poor it’s 31%), and 93% of our virtually fully-employed analysts predict the S&P will finish the year even higher (although not too much higher) with only Andrew Garhwaite of Credit Suisse in need of an "attitude adjustment" with his puny target of 1,175, which is 32 points lower than Friday’s close. Fortunately, enlightened analysts like Deutsche Bank’s Binky Chad think we can still squeeze another 100 points out of this rally (about 10%) although Goldman Sachs is wimping out at 1,250, their partner in "whatever you want to call it", JP Morgan is up at 1,300. So it’s BUYBUYBUY from the gang of 12 and we’ll be whipping Andrew into shape by the next report or he may find himself the fall guy for the next scandal…
Oops, sorry, I wasn’t supposed to mention the scandals as that’s not really a buying premise unless of course you look at the sheer volume of things the IBanks were getting away with and then look at the virtual nothing that is being done about it and then we can conclude there is no reason they can’t pump this market back up to Dow 14,000 because we already know it was such total BS last time, when we dropped 50% like…
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Wheeeeeeekly Wrap-Up
by Phil - April 17th, 2010 8:22 am
Wheeee! That was fun – let’s do it again!
There is nothing more fun than a nice, big dip in the roller coaster that you are prepared for and nothing more terrifying than a sudden, unexpected drop you were not prepared for (think air pockets on planes). I know my incessant harping on fundamentals gets annoying and makes me somewhat of a party pooper at market tops but think of my commentary as that "clack, clack, clack" sound you hear when a roller coaster is climbing to the top of the tracks – the sound lets you know there’s a big drop coming and the more clacks you hear – the bigger the dip is likely to be.
In fact, much like a roller-coaster, most of our well-prepared members were disappointed that we didn’t get a BIGGER dip on Friday but we’ve learned not to be greedy on the bear side and to quickly take those profits on our short-term plays while we let our long-term disaster hedges run wild, waiting patiently for the big score. By the way, it’s not that we’re perma-bears – far from it, when Cramer, Adami, Finerman, John AND Peter Najarian were telling you to crawl into a bunker and hide your head in the sand a year ago – I was the one yelling BUYBUYBUY while our hugely successful Buy List, which is the bulk of our portfolios, has been all bullish since Feb 8th. Just because we think a rally is BS, doesn’t mean we don’t participate in it!
As a fundamentalist, I believe there is a market "truth" a real value that can be placed on stocks and indexes based on reality, not hype and, when the MSM hype stampedes the herd and takes the market (or an individual stock) too far one way or the other – we simply step in and take advantage of it. It’s not complicated but it takes a little bit more work than the average "Lightning Round" participant is used to so PSW is not for everybody – this is our JOB, not our hobby, but boy is it fun when we get it right!
Despite the sell-off this week, we still finished up over 11,000 on the Dow but poor 1,200 on the S&P couldn’t hold and Nas 2,500 was merely a brief flirtation. The NYSE fell all the way to 7,550, down 200 from Thursday’s high…
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Thrilling Thursday Morning – Greece and Dubai “Fixed”
by Phil - March 25th, 2010 8:19 am
Wow, we got a two-fer today!
In a stunning turn-around, Chancellor Merkel laid out her terms for an aid package for debt-laden Greece, saying she supports loans from the International Monetary Fund and European governments as a last resort if default looms. “A good European is not necessarily one who rushes to assist,” Merkel told German lawmakers in Berlin today. “A good European is one who abides by the European treaties and national law and thus sees to it that the euro zone’s stability isn’t harmed. That’s our guidance for all decisions today and tomorrow, and also for the future.”
Isn’t that great? It’s just like when you have to borrow money from a relative and part of the penalty is you have to listen to them lecture you on responsibility etc… Of course, Merkel needs to make it painful because Portugal, Spain, Ireland and Turkey are watching the proceedings very closely but THIS crisis is, for now, off the table as ECB President Jean-Claude Trichet took some pressure off Greece today by extending the bank’s emergency lending rules, saying its bonds won’t be cut off from ECB refinancing operations next year. Adding even more boost to the market, now that Goldman Sachs has stopped out their sheeple on long Euro bets, their analysts tell us today that the IMF may be giving Greece $27Bn in aid, helping to boost the Euro.
Greek bonds rallied, sending the 10-year yield down 4 basis points to 6.32 percent, 321 basis points above comparable German debt. That extra borrowing cost has risen from 273 basis points on Feb. 11 when the EU vowed “determined and coordinated action” to stanch the crisis. Greece still needs to borrow $13Bn in the next month but it is the rate at which they have to borrow that’s been the issue. “The German strategy for the next couple of months is very simple: provide just enough positive rhetoric that investors continue to purchase Greek bonds,” said Peter Zeihan, an analyst at Stratfor, a geopolitical risk consultancy in Austin, Texas. “On the flip side, they want to make sure via rhetoric that there’s just enough doubt that the markets demand a much higher spread than the Greeks are hoping for. The Germans want to make very sure that the Greeks are punished.”
At the same time as Greece is being supported in Europe, Dubai promises to support Dubai World’s remaining $9.5Bn…
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Toppy Tuesday – Can We Get More Bullish?
by Phil - March 23rd, 2010 7:38 am
Here’s a fun chart to consider:
This is the S&P 500 Bullish Percent Index, which is a measure of the percent of stocks in the index that are currently trading with Point and Figure buy signals. Bullish Percent Levels higher than 70% are considered overbought and below 30% is considered oversold. We hit a high of 88 in September of last year and haven’t been below 50 since last March’s crash. Notice a move down to just 64 cost the S&P close to 10% in February so, believe me - you don’t even want to think about what will happen if we hit 30!
Note these tops can last for a couple of weeks and that fits in fine with our reasoning for cashing out last week and moving to the sidelines to watch this nonsense unfold, as funds scramble to put up the best possible Q1 numbers between now and next Wednesday, in the hopes of getting investor capital off the sidelines and back where they can charge some fees.
A funny thing about funds that most people don’t consider is that, in a cyclical market, the WORST funds to put money into are often the ones that just posted the best performance because their strategy is often stretched. Logically, you should be looking at the worst performing funds and trying to find one that backed something (like natural gas last Q) that you feel may be recovering. Of course, that’s not human nature and funds will do ANYTHING to get themselves on the top of those lists to attract the investment bucks in Q2.
Taking a look at our sector spider charts, we see the amazing run we’ve had since Feb 8th and, like our index charts, we want to be aware of those blue lines (20 dma) as a sign of short-term weakness, which means we’re very concerned with XLB (with builders reporting this week), XLE (oil must hold $80) and XLU (possibly hopeless due to consumers being unable to pay bills).
Think of the sectors as a bunch of little tug-boats, pulling the large S&P barge. One or two of them my not be pulling in the same direction as the group and that would have little effect on the broader index but, as more and more of the little indexes begin to line up and pull in the same direction – the index begins to turn and, once you have a majority pulling in one direction, the remaining stragglers…
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Free Money Thursday – 130 S&P New Highs Can’t Be Wrong!
by Phil - March 18th, 2010 7:59 am
130 S&P 500 companies hit 52-week highs yesterday.
Things must be even better than I thought in yesterday’s post and there has been a conga line of pom-pom waving analysts on GE/CNBC this morning telling us how UNDER valued everything is because we just don’t see the BIG PICTURE. As Bespoke notes in their chart of the S&P and it’s new highs, you want to see more and more stocks hitting new highs to sustain a rally but my question is – with the market now at 17-month highs and making new highs every day – what’s up with the other 370 stocks?
In an ordinary market, I wouldn’t question it but this is not an ordinary market. 52 weeks ago we were at 666 on the S&P and stocks were making DECADE lows. Here we are with the index up almost 80% off that bottom and we can’t pull a lousy 52-week high from 2/3 of the index??? We’ll be keeping an eye on this indicator to see how things pan out but notice when the market fell – there were no doubts, 80% of the stocks made 52-week lows last fall – not THAT’S a sell-off. That’s the kind of dramatic numbers you expect to see in a dramatic market move – not this wimpy 40% stuff – let’s see some conviction people!
AAPL is convicted – they are up 191% from their lows and AAPL is 15% of the Nasdaq so, all by themselves, AAPL has accounted for 28% of the Nasdaq’s move from 1,265 to 2,389 (89%). TRV is also moving with conviction, up 54% since March and adding 160 much-needed points to the Dow, a great swap for C, who would have only added about 24 had they remained in the index. CSCO replaced GM (because they are soooooo similar) and they too have been a great trade for the Dow, up 100% off the March lows and slapping 104 bonus points on the index.
Ah, now we see how our industrials can do so well despite all the unemployment and lower cap utilization and lack of demand and high commodity input costs – we just shuffle the deck until we find a set of cards that work! Even so, as I’ve pointed out this week, the Dow has been lagging the Nasdaq and the Russell by a wide margin and the NYSE and S&P have…
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Insiders: March to Exit
by Insider Zone - March 15th, 2010 6:49 pm
By Ilene
Let’s take a look at Insider Buying and Selling over the last week or so. These are screen shots from Finviz – the significant buys against a green background first and significant sells against the pink background second. All the buys fit into my screen shot but the sells did not. Click here to see all the sells.
Note that the largest buy in the group, for KITD was at a price of 9.73 (KITD is currently at 11.54). The buy was part of an Equity Offering rather than an open market purchase. Tuzman Kaleil Isaza’s (KITD’s Chairman and Chief Exec. Officer) history of buys is here.
Note selling in favorites such as CSCO, GOOG and AMZN.
Buys
Sells
Continuation of the sell list:
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Wrong Way Weekly Wrap-Up
by Phil - March 6th, 2010 8:34 am
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This whole week did not feel right to me.
We were too bearish as I had expected a bogus commodity rally in last weekend’s wrap-up but I didn’t expect it to persist for a week, even as the dollar held it’s ground above 80, a 10% pullback off the top, when oil was $40, copper was $1.50 and gold was $850. Now oil is $80 (up 100%), copper is $3.35 (up 123%) and gold is $1,135 (up 33%). Let’s say gold is a true indicator of dollar weakness – that means that only 33% of oil and copper’s move up can be attributed to the 10% drop in the dollar (not that even that makes sense but we’ll give it to them). Can the rest be attributed to demand?
Certainly not with copper. Global copper consumption was down 1.9% in 2009 and Q1 2010 is lower than any quarter since Q1 2009 and even Barclays’ very aggressive targets for China growth only bring global demand up 2.5% this year – whch would just about bring us back to 2007 levels of consumption. That, of course, also assumes a rebound in housing construction – something we are not seeing at the moment. Also, China spent $700Bn last year stimulating their economy and one of the ways they did this was to stockpile copper. As you can see from the chart – that too appears to be winding down and even Goldman Sachs has abandoned the bullish side of copper at this point.
Oil is just as silly. According to the EIA, global oil consumption is not expected to return to 2007 levels until late 2011 – and that is with some very rosey estimates of a global econonomic recovery – exactly the type of thing that can be derailed by high oil prices! Mighty China’s consumption is projected to go from 8.66Mbd this year to 9.13Mbd in 2011, a 500,000 barrel increase. Last week, the US had a build in inventories of 4Mb – we just send those over to China and everyone is happy! I’ve already had my say on oil demand this this weekend, so let’s just move on…
Let’s just say I’m a little skeptical about any market moves that are lead by commodity pushers at this very early stage in a recovery. Prices are not going up based on demand but…
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Prior Weekly Wrap-Up – February Expiration Day Special!
by Phil - February 19th, 2010 7:17 am
I didn’t get to do a wrap-up last week so we have a lot of trades to go over and, with expiration looming and the Fed tightening, I thought it would be good to just get the list out on Friday so we can adjust our rolls to March where neccessary (in bold under appropriate positions).
In our Feb 7th Wrap-Up, I was gung-ho bullish saying "It’s Only a 55-Point Drop You Wimps!" and we had been BUYBUYBUYing at the bottom all week, especially Wed-Fri as the market spiked through our projected support at Dow 10,000 but not enough to change our minds as we bottom-fished on AAPL (2 trades), ABX, ACOR, AKAM, AMED, BRK/B (2), C, CCJ (3), CSCO, DELL, FXI, GE, GOOG, IBM, LLY, LOW, NLY, TBT (5 times!), TM (3), TNA, USO (yep, we wen long oil) and UYG. To say we were weigting bullish by that Monday was an understatement as we has finished the weekend in a bullish stance and were relying on our disaster hedges to protect us.
Those disaster hedges are an interesting set to look at, especially now that we’ve recovered 400 points:
- DXD July $27/33 bull call spread at $2.50, now $2 – down 20%
- We can roll the $27 calls to the $25 calls for $5 to widen the spread and drop our b/e from $29.50 to $28.50
- EDZ July $3/8 bull call spread at $2.10, now $1.60 - down 23%
- EDZ Apr $10 calls sold for .70, now .15 – up 78% (pair trade)
- SDS 2011 $36/40 bull call spread at $1.30, now $1 – down 18%
- We can roll the $36 calls to the $33 calls for $1.10
- TBT Jan $35/45 bull call spread at $6.30, now $7.40 - up 17%
- TBT March $50s sold for .65, now $1.22 – down 87% (pair trade)
This is what is great about disaster hedges. The potential upside on these spreads, if the market headed south was up about 100% on the 4 trades so a commitment of 5% of your portfolio to each one (20%) would give you back 40% of your portfolio in cash if the markets tanked. Already, after 2 weeks, we have the markets heading in the opposite direction and what is the cost? Not even 20% of the 20% you may have allocated, a 4% insurance premium while the 80% of the portfolio that is bullish caught a huge rally up…
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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
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