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%…

Tags: BXP, DIA, EDZ, GS, IYR, IYT, JPM, REITs, RTH, SKF, SKS, SRS, WFR, XLY

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Jobless Thursday – REITs Turn Rotten

by Phil - October 1st, 2009 8:28 am

Look out below!

I warned yesterday that the end of the quarter may well mark the end of Goldman and their Gang of 12′s Global pump job and what better way to pull the rug out from under the markets then for Goldman Sachs themselves to issue a report that warns that REIT valuation seem "stretched" and they are projecting "flat to down 15% returns next year" with concerns that they are "just beginning what could be a multi-year down-cycle."

Other headlined charts (and Zero-Hedge has the full scoop) are:

• Still a long road ahead for a recovery in credit.
• Cap rates to rise substantially.
• Deleveraging process just beginning for the REIT sector
• Despite pipeline reductions, development remains a risk

In other words, all the stuff I’ve been saying for for the last couple of months as they IYR has climbed 50% since July 15th is now the subject of a GS report on Oct 1st.  I was fine with the sector rising 20% (IYR $36) but the move to $46 was completely without merit and, as I noted in a post last week, we shorted it there and went very long on SRS (ultra-short on the IYR).  In fact, just yesterday, in the morning post, I discussed Friday’s multiple plays on SRS.  We also have short positions on BXP and, of course, we’re still overall short on the whole market as a correction in the real estate sector is not going to be an isolated incident.

Fortunately, at PSW, we don’t have to wait for Goldman Sachs to tell us a sector is overvalued because we understand valuations and we practice sound fundamentals – something that is sorely lacking in the larger investing community.  There’s a reason REITs usually trade at 10x multiples and it’s the same reason commodity producers usually trade at 10x multiples as well – because the underlying commodity, whether it is land or oil or gold or copper, can fluctuate in price over time and will sometimes spike earnings up and sometimes spike them down so, on the whole, they are WORSE long-term investments than say AAPL, MCD, KO or PG, who tend to steadily grow their business over time and deserve stronger multiples.   

When the REITs were trading at 5x earnings in March, we were loading up on them but when they crossed 12x in August, we flipped negative.  That’s called buying low and selling high, something GS and their traders (like Cramer – and congrats on that…

Tags: AAPL, BXP, DIA, GS, KO, LYG, MCD, PG, RBS, REITs, SRS

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Which Way Wednesday – Fed Edition

by Phil - September 23rd, 2009 8:22 am

We’re just waiting on the Fed today, as are the rest of the markets.

Yesterday’s volume was the lowest since Sept 11th but not as low as Monday, which was our lowest volume since the end of June, just before we had a 5% correction.  June 26th and 29th were our last two consecutive ultra-low volume days but June 30th was much bigger (a down 100 day), July 1st was up again on low volume and then July 2nd was another big down day and we bottomed out on July 10th.  That was the time that the media was telling us we were forming a "classic" head and shoulders pattern and were doomed to revisit the March lows.  It was also the last time we enthusiastically bought stocks. 

At the time of that weekly review (7/11), we had CAL at $10 (now $16.82), CBS at $5.97 (now $12.58), COST at $43.45 (now $58.58), CVX – who we just shorted – at $58.20 (now $72.60), DIS at $22.41 (now $28.38), EXM at $6.05 (now $7.32), RT at $7.12 (now $8.85), SNDK at $14.47 (now $22.91), SPY at $87.96 (now $107.27), SPWRA at $22.35 (now $32.63), SUN at $22.09 (now $27.75), V at $59.86 (now $74.41), VLO at $15.57 (now $20.50), WFR at $16.61 (now 19.09), X at $30.77 (now $50.45), XLF at $11.10 (now $15.35), XOM at $65.12 (now $69.85) and ZION at $11 (now $19).  Of course our members had much better entries as we had been targeting our entries on all of those but anyone reading our weekend review on July 11th could have played along at home from those prices (we even spiked down at Monday’s open) and when I say we are now bearish – it is that we are bearishly protecting these ridiculous profits – the kind of profits you usually don’t get after 3 years, not 3 months!

Overall, the broader market is up 20% over that time so it can be argued that a monkey with a dart board could have made good picks at that time but, if you read that week’s notes – you’ll notice that this monkey was screaming for people to buy and was going against what pretty much EVERY other analyst was saying and I was confident enough to lay out my picks, my strategy and my fundamental arguments for everyone to see.  It would have really sucked…

Tags: AIG, BXP, CAL, CBS, COST, CVX, DIA, DIS, EDZ, EXM, Fed Meeting, FSLR, MPEL, RT, SNDK, SPWRA, SPY, SRS, SUN, V, VLO, WFR, X, XLF, XOM, ZION

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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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Toppy Tuesday Morning

by Phil - September 15th, 2009 8:10 am

Can we break higher on this low volume?

We’ve been waiting for traders to come back from their summer breaks but no sign of them so far.  Sill the market volume is at historic lows and still 80% of that volume is concentrated on a dozen financial stocks that simply get traded back and forth by robots every time the market needs a push in one direction or another. 

As David Fry’s chart indicates, the only big volume stick we’ve seen in the past two months have come attached to big sell-offs.  In mid-August we were "just about to break higher" but gapped down instead and then again at the end of August, we reversed our low volume "recovery" with a big sell-off.  Here we are in the middle of September (that every two week thing) and THIS TIME, the analysts say it’s different.  Different I guess because the volume has dropped by another 1/3 since our last fake rally. 

This, of course, does not stop us from "going with the flow" as running with the bulls can be very profitable but we are hedging A LOT and very cautious in our trade set-ups as we know how fast this can all turn around.  We took our short profits at yesterday’s morning dip and added a mix of long and short plays during the day.  We did put our foot down on SRS and the Russell, playing the SRS to go no lower than $10.25 and the Russell not to break $600 this week and we’ll be sweating out that one this morning as the pre-market pump has already jammed the futures up 40 points since Europe’s open. 

Asia was mostly flat this morning but that does little to describe the madness at the Hang Seng, which was closed for the morning due to a Typhoon and opened for just 90 minutes in the afternoon where they dropped like a rock that was tied to a rock that was wearing cement shoes into the close.  Still, thanks to a 200-point gap up into the delayed open, the Hang Seng managed to finish the day down just 68 official points.   As soon as the US markets closed, dollar repair crews were rushed to the scene and they managed to get it back over 91 Yen in time for Japan’s open and that helped the Nikkei stay above that critical 10,200 line we’ve been…

Tags: BBY, DIA, Dylan Ratigan, PPI, SPY, SRS, USO

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Wild Weekly Wrap-Up – August in Retrospect

by Phil - August 29th, 2009 8:28 am

It has been a crazy few weeks!

I went back over our Long Shots list from August 9th, thinking all our picks must be doing great but really only C, with a 67% gain, is really outperforming.  Long spreads on UYG and BHI are on target for nice gains but haven’t moved much.  Looking at our original picks in Pharmboys Phavorites from the same week, GSK is on track and up nicely already, our AZN cover is up 45% and MRK flew up 19% already.  On the riskier Biotech side, ARIA’s stock is up 16% and our spreads are all performing well, ONTY has been flat, OGXI is up 33% and the Jan $17.50s are up a rockin’ 63% with that "cautious" spread up a surprising 75% already. 

SPPI had a wild ride (as we predicted with TSCM’s failed assassination attempt) and the buy/write is already up 24%, the Feb vertical is up 50% and the naked Jan put sale is up 27% and our Feb hedge play is right on track so all good there and a fine example of how following Cramer and his lackeys and and doing the opposite of what they say can be very profitable!  Congrats to Pharmboy for a very fine set of picks, proving once again that there is room for research and fundamentals - not a single loser in the bunch in a choppy market!  It was very timely as I had mentioned just that week in my interview with AOL Finance that XLV was my favorite sector and our IHI pick of 8/10 is up 28% on the naked Feb $45 put sale while the Feb $45 calls have already jumped 16%.  It was a great call as IHI outperformed XLV and all our major indexes.

So our energy service pick (BHI) and overall financial pick (UYG) have not done much in 3 weeks and those were our leading sectors into my call to cash out our exposed long calls on Aug 13th, ahead of expirations.  The Dow was at 9,400 on that day and now, a bit more than 2 weeks later, we’ve gained another 144 points but to listen to the MSM, you would think you are missing the rally of the century the past couple of weeks.  This is one of the reasons I’ve gotten a bit more cynical about the rally – there is so much hype and so…

Tags: AAPL, AIG, ARIA, BHI, C, DIA, DRYS, DXD, EDZ, ELN, EP, ERY, FNM, FRE, FXP, GENZ, GNK, GOOG, GS, GSK, IHI, JNJ, MRK, NVS, OGXI, OIH, ONTY, PALM, PARD, SNY, SPPI, SRS, TOL, TSCM, UYG, XLV

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SRS “Less Bad”

by Chart School - August 24th, 2009 5:08 pm

SRS "Less Bad"

Courtesy of Tim Knight at Slope of Hope

Tags: green shoot for bears, SRS

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Friday Morning – Goldman’s Global Goose!

by Phil - August 21st, 2009 8:27 am

We have talked about manipulation all week but this takes the cake!

The Nikkei was plunging 250 points this morning as the dollar collapsed (in a move to boost commodities and the US markets – more on that later) below the critical 94 Yen mark and, EXACTLY AT THE MOMENT the Nikkei crossed the critical 10,200 line we’ve been watching all week (11 am, just as they were closing for lunch), Kathy Matsui, chief equity strategist at Goldman Sachs, jumped on the phone and literally stopped the presses by calling for a 73% increase in Japan’s corporate profits next year buoyed by cost cuts, a weaker yen and rising demand.  “People are going to be surprised at how sharp the recovery will be,” Matsui said in a phone interview.  

Goldman’s estimates equate to 48.9 yen in earnings per share for the Topix in the financial year ending March 2011, placing the benchmark at 19.4 times estimated earnings. The brokerage also reversed its forecast among all industries to a 23.3 percent increase in pretax profits this year from a 15 percent decline.  “Our forecasts for both the March 2010 and March 2011 financial years exceed consensus estimates largely due to our expectations of stronger global growth, continued restructuring benefits, and a weaker yen,” Matsui wrote in a report titled “Back in Black.”

Note that Ms. Matsui is the only analyst who sees this Asian miracle occurring this year as Global emerging-market equity funds posted their biggest weekly outflows of 2009 as investors pulled money out of China on concern banks expanded credit too rapidly, EPFR Global said.  Funds that invest in emerging-market stocks worldwide lost $946 million, while China funds had their worst week since the first quarter of 2008, according to the Cambridge, Massachusetts-based research company. Investors pulled $810 million from Asia excluding-Japan funds, the most in 24 weeks, while Latin America and Europe, Middle East and Africa funds had “modest inflows,” said EPFR, which tracks funds with $10 trillion worldwide.  

This amazing 200% reversal of forecast timed at 10pm on option expiration eve East Coast time, took the S&P futures from 996 all the way back to 1,010 and took the Dow futures from 9,250 (down 100 from Thursday’s close) all the way to 9,375.  The Nikkei managed a "stick save" and finished the day down "just" 1.4% at 10,250 and the Hang Seng was able to rally back 300 points…

Tags: BHP, CS, DBC, debt, DIA, GS, JPM, SHLD, SKF, SRS

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Thoughtful Thursday Morning

by Phil - August 20th, 2009 8:26 am

Maybe I am being too bearish on the economy.

Maybe there is a shining city on the hill with 1,000 points of light and if I simply close my eyes and believe in it, I will be transported there and everything will be wonderful and China will expand and Europe will expand and the US markets will rise and rise as the 18M unemployed people line up in the streets to cheer us as we all drive past them in our new cars as we head over to the gas station to pay $4 for gas, honking joyfully as we pass by each empty storefront and each abandoned home. 

It was good to take quick bearish profits, as I warned in yesterday’s post because quick profits are all the bears get these days as it was indeed a "Whipsaw Wednesday," and Buffett’s warning went in one ear and out the other of investors so quickly that clearly there was no gray matter slowing it down along the way!  I was very proud of our short plays on COF, HPQ, RTP, SRS, RTH and our DUG long but all had a half-life on their success so short you could have run an atomic clock with it.  Fortunately, we had our bounce levels to guide us and our 3 of 5 rule to get out of bearish positions so the damage was more to our pride than our portfolios.

Although I could see the turn in my 9:45 Alert to Members, I didn’t have the heart to make any bullish calls as it just seemed like such nonsense.  By 10:12 we were even more concerned that something was up and I said: "Don’t get too excited bears.  As I said in the post, profits need to come quickly off the table – this is not a market for riding 20% profits too far."  Sadly, I then proceeded to make a short play on OIH at 10:26 that stopped out at 10:34 and an incredibly poorly timed idea to get the DIA $93 puts at 11:22, just minutes before the market went flying and stopped that one out too as we flew through our bounce zone of Dow 9,200, S&P 986, Nas 1,946, NYSE 6,400 and RUT 555.   Now that they’ve held up so well, those levels now become our watch levels to the downside and it makes the previous support levels of Dow 9,100, S&P 980,…

Tags: COF, DIA, DUG, FLWS, GYMB, HOTT, HPQ, PETM, RTH, RTP, SHLD, SPY, SRS, unemployment

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Whipsaw Wednesday – Buffet Bashes Bulls

by Phil - August 19th, 2009 8:27 am

Well, you can’t say I didn’t tell you so…

Yesterday’s post was all about what total nonsense the move up was and, per usual, the whole thing was taken away in the futures, where retail investors have no chance to profit from it.  Of course, this market isn’t being run for your benefit and if you wait for Cramer to tell you what to do, then you are pretty screwed (and more so if you listen to him).  Yesterday our boy Jim fell off the wagon and declared victory for the Bulls saying: "The bears must be stunned and confused, flummoxed even" and made fun of those of us who worry about "facts" and "fundamentals" as we trade.  "Every argument the bears had for selling," Cramer said, "has been totally rebuffed by this great market."  Cramer, you are not just an idiot, you are a dangerous idiot!

As the more rational David Fry points out in his "Spin City" post: 

So we got a healthy bounce today but it didn’t undo Friday and Monday’s collective damage. We were a little short-term oversold and a bounce shouldn’t surprise even though economic and company news wasn’t great. But, the “better than expected” spin was in for retailers which frankly was laughable. And, golly, banks reported losses on credit cards were slowing (maybe because Chucky’s not shopping?) which was seen as a positive. Homebuilders disappointed (oops, scratch that)… a “worse than expected” report was spun positively because more single family homes were built. I wonder about that since there are too many of them, aren’t there? But that’s the way things are these days.

What a stark contrast between a sane and insane take on yesterday’s action.  In Monday’s post we targeted a drop to Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550 and in my 9:48 Alert to Members yesterday I set the bounce targets at Dow 9,200, S&P 986, Nas 1,946, NYSE 6,400 and RUT 555 but noting they were rough numbers that I was eyeballing on the fly, following our 5% rule.  Those levels were beat across the board but on such low volume that I called an audible and we stayed bearish, taking aggressive short positions like the DIA Aug $93 puts at $1.50 which, unfortunately, didn’t make our double down target of $1 but should do well this morning.  We also took short shots at COF, HPQ (backspread), RTP (looking…

Tags: Buffett, CHINA, COF, DIA, DUG, HPQ, JPM, RTH, RTP, SPY, SRS, YHOO

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