Friday – Is Anybody Working For the Weekend?
by Phil - October 2nd, 2009 8:28 am
Wheeee, what a ride!
Just like any good roller coaster, market plunges can be fun when you are strapped in safely and prepared for them. Our members have been so prepared we’ll have to hand our Eagle Scout badges (we don’t need no stinkin’ badges) for riding out a toppy market for two tedious weeks, which I won’t rehash here but you can go back to my Sept 19th "Wrong Way Weekly Wrap-Up" to see how hard it was to stay bearish in the face of all that "great" news that the media kept throwing at us. Nonetheless, had you followed our trading ideas in that post, you’d be a VERY happy camper right now!
Now we are down 300 points from that Friday’s finish, about halfway to our 9,100 target, which is the top 5% of our original trading range around Dow 8,650. We’d love to see 9,100 hold, especially on a nice volume sell-off so we can move our range up 5% and make 9,100 our new mid-point, putting the 33% (off the top) lines withing striking distance of a proper breakout but suddenly the news-flow has turned sharply negative. This is something I warned members about way back on August 11th, the last time I thought we were getting toppy (and we were) at Dow 9,400 when I said: "Watch the newsflow in the MSM. If it starts to get negative, look out below."
Yesterday we talked about GS’s about-face on the REIT sector and, later that day, we noted during Member chat that JPM had decided to downgrade SKS, hitting the retail sector hard in the afternoon. I called a slightly early top on Retail on 9/16, when I said to Members: "Right now all retail is being played like a huge winner, as if no segment will lose market share to another. This is amazingly stupid in a declining wages and declining consumer credit environment." RTH was $88.76 that day after running up just about 20% from July 7th so we were looking for a pullback at least to $85, but I think worse as I see nothing in the data that makes me believe in Santa Clause this year or the rally he often brings.
As you can see from David Fry’s chart of the XLY (another Retail tracker) we topped out at technical resistance and are now looking for a completion of a 5%…
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G20 Thursday – Pittsburgh Ponders Our Planetary Predicament
by Phil - September 24th, 2009 8:29 am
Our global leaders all get together today with the Global Financial Crisis (yes, it’s still a crisis) topping the list for the 2nd year in a row.
Fresh from the UN general assembly in New York, heads of government and a vast diplomatic entourage will descend on Pittsburgh today to kick off two days of talks on economic stability, financial regulation, climate change and bankers’ bonuses. They will be greeted by boarded up shops and energetic protests. On the eve of the summit, China indicated it was willing to countenance an initiative by President Barack Obama to smooth the flow of capital around the world in the hope of securing greater long-term economic stability. The US proposal calls on rapidly expanding economies such as China, Brazil and India to boost domestic consumption in order to lower their trade surpluses, while the US and Europe would encourage more saving to reduce long-term budget deficits. Gordon Brown yesterday (see UK protests in picture) backed the effort, saying he hoped "different continents can better work together to achieve the growth we need."
Yes, like any addict we NEED growth. Stability just won’t give us the fix we need as our entire global economy is based on borrowing to spend money we don’t have today in anticipation of being able to pay it off in the future, when things are "better." The fact that this has clearly not worked out at all for the past does not seem to deter our leaders. In fact, in 2009, our pals in the G20 have borrowed an additional $5,365,000,000,0000 to see them over this little "rough patch" we’re having:
![[global_debt.jpg]](http://1.bp.blogspot.com/_7Se7iswAanA/Smm61lFPL8I/AAAAAAAAIcY/HCyeVuT39Y4/s1600/global_debt.jpg)
This doesn’t take into account the $6Tn worth of debt OBLIGATIONS taken on by our own Fed and Treasury, not to mention whatever nonsense the rest of the world is into – this is just the checks they wrote in excess of the cash that came in – and the year isn’t even over yet! Now $5.3Tn may not seem like a lot to you but it is a 16% increase in total global debt in just 12 months. In fact, according to the Global Debt Clock in the Economist, our friends in the G20 are on a path to increase our debt from a "mere" $30Tn last year all the way up to $45Tn in 2011. That’s a 50% increase in just 3 years! …
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Transportation ETF Sees Bearish Options Combo
by Andrew Wilkinson - September 23rd, 2009 5:05 pm
Today’s tickers: IYT, WYN, BBBY, XLU, ERTS, MSFT, ALTH & MT
IYT - Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December. – iShares Dow Jones Transportation Average Index –
WYN - The hospitality company appeared on our ‘hot by options volume’ market scanner this afternoon due to greater than normal call activity. Bullish option traders made moves on the stock despite the slight 0.25% dip in shares to $16.01. Traders looked to the November 20 strike where approximately 1,000 calls look to have been bought for an average premium of 45 cents each. The higher November 22.5 strike had about 8,000 calls coveted by investors who paid an average of 19 cents per contract. Call-buyers at the higher strike may garner profits if shares surge 42% from the current price to surpass the breakeven point at $22.69 by expiration in November. Wyndham has traded beneath the breakeven price described since May 20, 2008. We note that option traders exchanged 21,290 contracts on WYN today, which represents 36% of the existing open interest on the stock of 59,774 lots. – Wyndham Worldwide Corp. –
BBBY - The home-furnishings retailer received an upgrade to ‘neutral’ from ‘sell’ at FTN Equity today ahead…
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Through the Roof Thursday or Smashed into a Thousand Pieces?
by Phil - July 23rd, 2009 8:26 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 we should finally have the gas to get over the top. We didn’t have a stick save yesterday and the Dow fell, but not very much and the Nasdaq made its 11th consecutive positive move in a row, something it hasn’t done since 1996. The conditions are right, the hits just keep on coming in earnings with another 200+ earnings beats logged this week against 32 misses (those we easy to count). More importantly, 20 companies have been so bold as to raise guidance while only 12 have been worried enough to lower them.
So we have optimists outweighing pessimists by almost 2:1 in the only poll that matters – the outlook that is filed with the SEC! We also have the FACT that 85% of the companies reprorting this week have done as good or better than analysts expected and we have some signs that the economy may be improving. I said earlier in the week that it was going to be 8,900 or bust for the Dow and we’re toying with that line but it’s really 6,232 on the broader NYSE that MUST be broken and held for this great glass elevator of a market to get through those upside resistance levels and prove these moves are for real. That did not stop us from adding some QID covers into yesterday’s close because, as Willy Wonka said to Grandpa Joe – it probably won’t happen!
Willy Wonka had the physics right, there had to be enough power to get through that overhead resistance or it was going to be a very painful test of the top (like the one we had in June). Since our last dip, we’ve come back for another try and the volume has been up 35% on the average day on this leg. Is that going to give us enough "thrust" to break through this time? As it was in June, all of our inexes are making their targets EXCEPT the NYSE so we do not really care what any of the indexes do this week EXCEPT the NYSE, which must break through it’s magic number (40% off the highs). We have 3…
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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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