Weak Weekly Wrap-Up
by Phil - November 21st, 2009 8:26 am
This chart says it all (thanks Jesse).
In last week’s wrap-up I said: "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." I mentioned how tempting it had been to cash out all our longs and go 100% bearish when we hit 10,300. Our downside levels told us to wait until the 16th, when Monday’s move up was finally the last straw and we are out of the bull game (our last major Buy List was July 11th and most picks are up over 100%), probably for the rest of the year.
This chart shows you that the S&P is primed for a 5% correction back to 1,050. I don’t know why Jesse didn’t extend out the lower support line, which would take us right about to my pullback target of S&P 1,000/Dow 9,650. I stuck my neck out on TV two weeks ago, calling for a 10% correction to those levels but we’ve been playing both sides of the fence until this week, when I finally had to put my foot down on Monday, after having discussed cashing out for the holidays in Member Chat over the weekend. Our general plan this week was to cash out the winners and leave only longer-term, hedged bullish plays while adding more speculative downside plays for the short-term correction.
Why the change of heart? Well, something you don’t see on this chart but is pretty clear on the Yahoo monthly view, is that virtually all of the gains (ALL of them if you include the spikes) in the Dow for the ENTIRE month of November have come on single days each week. This week it was Monday (139 points), last week Monday (206 points) and Nov 5th was Wednesday (198 points). Take those days out of the run from our Oct 30th close at 9,712 and we’re up just 63 points to 9,975 despite there being only 1 losing day in the first week (11/3, down 16 points) of the month and one losing day in the second (Nov 12th, down 92 points). That is one super-flimsy way to build a "rally" don’t you think?
Getting 90% of our gains in on 3 days in 3 weeks indicates a certain lack of follow-through to these bullish market moves. I outlined the nature of the manipulation that takes place in yesterday’s post so…
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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 low and there are huge short-term rewards for good market timing. Our longer-term short play for…
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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 since then and we are still waiting to confirm…
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October Overview - When the Goblins Come Home to Roost
by Phil - November 1st, 2009 8:15 am
What a crazy month we had!
The Dow began the month of October at 9,712 and finished the month of October at EXACTLY 9,712. Now I don’t want to say the market is manipulated but… No, I’ve got nothing, there are no buts - the market is totally manipulated! Either that or you believe that the random outcome of tens of millions of traders around the globe trading hundreds of billions of shares of stock would just so happen to begin and end the month within .50 after going as low as 9,378.77 (on the 5th) and as high as 10,157.94 (on the 21st). So that is literally a 1 out of the 779-point swing coincidence to hit that 9,712 nail on the head.
At PSW we couldn’t be happier about this frankly. As I often say to members: We don’t care IF the game is rigged, as long as we can figure out HOW the game is rigged so we can play along. We were bearish in our September 27th Wrap-Up when I predicted that Earnings season would bring about a "Return to Fundamentals." We targeted retrace moves of Dow 9,512, S&P 1,020, Nasdaq 2,030, NYSE 9,496 and Russell 556 - all of which we hit the following Friday.
That week I highlighted my fundamental market concerns and Monday (9/28) my topic was "6 Unemployed People Per Available Job," Tuesday I said "Consumer Confidence is Key," Wednesday we caught the turn perfectly as I predicted "End of Quarter, End of Pump," and Thursday, October 1st was the day that "REIT’s Turned Rotten" - which was something we had been playing for during the September rally so we were thrilled with what is NOW the 2nd worst down day of the month. That was the day GS decided to agree with me that REITs were over-valued and gave us a signal that the Gang of 12 were no longer all on the same page. Friday, the 2nd, we were back to looking at the Jobs numbers when I asked "Is Anybody Working for the Weekend."
We could not have been more pleased with what was the worst week in the market since then end of August, which was a,most as bad at the beginning of July (are you beginning to see a pattern?) and I said that Friday: "Just like any good roller coaster, market plunges can be fun when you are strapped in safely and prepared for them. Our members…
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Testy Tuesday Morning
by Phil - October 27th, 2009 8:17 am
Well yesterday went pretty much as planned.
It’s nice to see the market behave normally for a change, going down on big volume and actually staying down as we get mixed economic news. Volume was at the highest levels since Sept 17th where, sadly, we dropped another 5% over the next two weeks. Watching our levels kept us from making stupid mistakes yesterday and by 10:28 we had lost faith in the "rally" and we went for SRS as a long and sold the $9 puts for .60, now .40. This is a fun way to play the volatile ultra-ETFs as we don’t mind owning SRS at net $8.40 (would be all-time low) if it went the wrong way and was put to us.
We lowered our bar on the Dow to 9,920 (green zone on Tim Knight’s chart) to make some bullish plays but that line held at 1pm and 1:45 and, by 3:50, the most they could manage on a spike was a few seconds over 9,900 and a big surge of volume into the close didn’t move the markets up a bit. These are all bad signs for today’s open regardless of the nonsense you see in the futures market.
Today we can use the 9,900 line to initiate some upside plays but the real line of concern will be our first major index failure, which will be NYSE 6,900. That’s today’s big test, followed (if they fail) by Russell 575. As we expected, the Russell blew 595 yesterday and that is now their critical recovery point for the day. The Russell and NYSE led us up in this rally, it should be no surprise if they are to lead us down.
BIDU (who we were short on!) shows you just how ridiculous values have become and even Mr. BUYBUYBUY himself has finally changed his tune and actually made a very good point last night, noting that many earnings reports use the caveat "albeit at lowe levels:"
While these statements may have been permissible at Dow 8,000, Cramer said, they are not at Dow 10,000. At this level, investors want to hear, “After stabilizing, we are now seeing sales accelerate” to levels at or above those before the downturn. But, again, the only firms saying that are GOOG, AAPL and AMZN. There are a few other tech companies touting stability at pre-downturn figures – Microsoft, Intel, Marvell Tech and SanDisk – but they’re not seeing sales growth beyond that point. Outside…
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Frothy Friday - Churn Baby Churn!
by Phil - October 23rd, 2009 8:26 am
What a wild week we are having!
We dumped our shorts as planned yesterday morning, getting a very nice dip at the open and my 9:36 Alert to Members was even titled "Take Those Short Profits!" and our upside targets were set (as they were in the morning post) at: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623. Where did we finish? Dow 1,081, S&P 1,092, Nasdaq 2,165, NYSE 7,182 and Russell 613 - so a bit short of all of our targets but not bad considering we were opening 167 points below that on the Dow so perhaps I can be forgiven for a 6-point miss…
If knowing about massive market moves in advance would be helpful to you - please consider subscribing to our service. If you are already a member and know someone who might like to try our newsletter, you can send them a free trial subscription using this link and you can earn yourselves discounts on membership renewals for each friend who opts into the free trial. We have over 19,000 people on our Newsletter list now and I want to see if we can break 30,000 by the end of the year now that our new mail server is up and running (we’ve been on hold for a month as we filled up our old server!). Your help in this matter would be greatly appreciated. PSW Report Members can extend their subscriptions at no cost simply by referring others to a free trial report - my little experiment in viral marketing…
Even our free PSW Report readers would have done great just following the trades we had in last week’s Wrap-Up (Report subscribers get to read our articles without the 48-hour delay). We had GS Nov $210s shorted at .87, now .35 (up 60%), CERN short $85 calls at $4.15, now $3.10 (up 25%), ISRG Apr puts and calls sold for $39.20, now $36 (up 8%), PARD at $6.87, now $7.35 (up 7%), NTRI at $18.60, now $19.15 (up 3%)…
We had other trades that are still in progress. ICE notably burned us so far, but we rolled them up and shorted them some more yesterday (now $106.56). We’ve had a wild mix of short and long trades this week as we TRY to get more bullish on the markets but yesterday’s run-up had us reloading Thursday’s successful short plays as that set made 20% or more across the board in less than a day. Note…
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Testy Tuesday - Apple Leads Earnings Boosters
by Phil - October 20th, 2009 8:29 am
Wheee, being bullish is fun!
We’re still not great at it as we shorted a few toppy-looking calls yesterday (WFMI, QLD, SPY and POT) but that was a normal offset to bullish plays on SO, ERX, VZ, RIMM, BMY, EMC, AAPL, TXN and T. Of course, we’re also playing our bullish Watch List, which still has plenty of laggards that we’re picking up. SRS was irresistible as they fell below $9.50 again but clearly we tipped bullish and all those bullish plays from last week should start bearing some fruit as well. The best thing about being a bull is - the markets went up for no reason on low volume and we were happy about it - Imagine that!
Of course we are still skeptical because the economy still sucks but it is fun to get a little more bullish while it lasts. Even our too bearish $100KP enjoyed yesterday’s action, finishing the day $101,364. That won’t last if we keep going higher and I’ll be looking for some bullish plays to officially add there if we hold our levels today (we didn’t yesterday).
AAPL is going to be a huge winner for us this morning. We’ve been selling Jan $165 and $170 puts for weeks as our key way to play earnings (collecting between $5 and $7) and yesterday, in Member Chat, I suggested selling the $185 puts for $7 as well as the April $180/200 bull call spread, also at $7. It was my position that you would be better off putting $2,000 into either of those plays than you would be spending $18,750 to buy 100 shares of the stock ahead of earnings. It will be interesting to see which position fares better today.
In other earnings fun, we are strategically taking well-hedged earnings plays. ZION was a ratio backspread, buying 4 Apr $21 calls for $2.10 and selling 6 Dec $19 calls for $1.55 in a bearish play on their earnings. Looking good so far. BSX was also played for a miss, selling an even amount of Nov $10s against the Feb $11s, both at .65 and we went bullish on TXN, buying 6 Jan $25s for .82 and selling just 4 Nov $24s for .70 as we expected good but not great earnings there. We’ll see how those do today but they’re all looking like winners in pre-market. The nice thing about plays like this is the are fairly low-risk and not capital intensive and you can often close…
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Friday - The Fed Finally Supports the Dollar
by Phil - October 9th, 2009 8:21 am
The dollar rose against the Yen for the first time in 5 days and the most in 2 months this morning.
Bernanke finally came out of his stupor and said the Fed is ready to tighten monetary policy once the economy improves. Once the economy improves? Hasn’t Ben been telling us how great everything is for the past 3 months??? The Dollar Index, which tracks the currency against six U.S. trading partners, recovered from a 14-month low after Bernanke signaled interest rates may rise when the economy “has improved sufficiently.” The yen dropped against all but three of the 16 most-traded currencies after Japan’s machinery orders gained less than forecast.
“People took the comments as an opportunity to take some money off the table before the weekend,” said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. “They came at an opportune time and allowed some people to get some profit out from bets against the dollar.”
White House economic adviser Lawrence Summers repeated the administration’s commitment to a strong dollar, citing recent comments by U.S. Treasury Secretary Timothy Geithner. “He made it very clear that our commitment is to a strong dollar based on strong fundamentals,” Summers said at a Bloomberg forum in New York.
We’ve been talking dollars all week at PSW because it has been my opinion that there has been nothing supporting this rally, especially on the commodity side, other than dollar weakness and fears of further dollar weakness. It’s been a case of so far, so wrong though as our short plays have gotten hammered this week and I was thinking of opening this morning’s post by saying: "Hi, my name is Phil and I’m a shortaholic" because, try as I might, I have been unable to stop taking short positions all week. Even yesterday, as we tested (but did not break) our upside target levels, I found myself putting up 8 bearish trade ideas for Members (DIA puts, FSLR puts, GLD puts, USO puts, EDZ calls, TBT calls, TZA calls, SRS calls) and just one bullish play, which was a DIA vertical spread to cover, just in case we got burned by today’s open.
Fortunately, it doesn’t look like I’ll have to do a mea culpa this morning as FINALLY the dollar is finding some support at pretty much the exact same place we found support on 9/23, which was the beginning of our last 5% downtrend in the market. We’re not…
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Weekly Wrap-Up, How to Make Money in a Down Market
by Phil - October 3rd, 2009 8:27 am
Wow. what a fantastic week!
Well, not for the markets but for us as we totally nailed it. It’s hard to believe that it was just two weeks ago, on Monday, the 21st, after I posted the "Wrong Way Weekly Wrap-Up" as the Dow rose from 9,600 to 9,800, that I had to apologize to members, saying: "I’m sorry because I don’t like being bearish - I’m an optimistic guy usually but I can’t just sit here and tell people what they want to hear. It’s just too irresponsible not to be cautious here. We make plenty of bullish picks but I maintain a very wary outlook until we get some real fundamental improvements."
That’s the funny thing about fundamentals, they don’t matter until they do - and then they matter a lot. It’s funny how I get labeled a perma bear when I’m shorting the market at the top and a perma bull when I’m buying the maket at the bottom. Gee, I always thought that’s what you’re supposed to do but it turns out that few people have the patience to work a market trading range and I don’t blame them, I blame the mainstream media, who encourage this destructive herd mentality to investing that culminates in Jim Cramer and his sound-board, where all the complexities of the market are supposed to boil down to either BUYBUYBUY or SELLSELLSELL.
It makes me seem downright wishy-washy when I said to members on the 21st: "I don’t have all the answers, but I do have a lot of questions - too many to get comfortable buying at these levels." On the whole, as I explained in detail way back in late July, I am neither bullish nor bearish, I am Rangeish. Yes, it’s a made-up word and I have to make it up because no other analysts these days seem to believe the market can go up AND down, everyone seems compelled to stick to one or the other AND THEY DO IT TO THE DETRIMENT OF THEIR READERS - I WILL NOT DO IT!
There are strong stocks and there are weak stocks and I can’t believe I even have to write this out but the best strategy is to short weak stocks and ETFs that have gone too high and buy strong stocks and ETFs that have gone too low. As I explained in my LiveStock appearance back on March 6th (when I was called a "perma-bull" for calling a bottom), the market is like a huge tanker being pulled by individual stocks that are like tugboats. If all the…
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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% drop back to the August highs but I’m very concerned about today’s job number and wondering how Retail indexes…
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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
(