Which Way Wednesday – Top of the Charts Edition
by Phil - October 13th, 2010 4:20 am
Is it time to throw fundamentals out the window?
As we went through the Sept 21st Fed minutes in yesterday’s Member chat we read some things that were AWFUL about the economy. I went through my usual exercise of parsing out the minutes and making comments for Members and it’s been a long time since I had to use red highlights that often! Still the market rallied, ostensibly on the premise that the economy is SO BAD, that the Fed will have no choice but to flood the economy with newly printed Dollars so that a rising tide of currency will lift all asset ships.
The boy from Zimbabwe on the right is a multi-Trillionaire and those Trillions should be just enough to buy him a loaf of bread if he hurries to the store before they change the prices this morning. This is what is happening to our own economy, only on a smaller scale (so far). Our government, like Zimbabwe, has gotten into so much debt that they can never hope to repay it but new bills keep coming in every day so – What is a government to do?
Why print more money of course!
Now, when a bill comes in, they just crank up the presses and drop the fresh bills in an envelope. Unfortunately, after a while, the people who provide goods and services you and your government pay for begin to catch on that those bills are suddenly very easy to come by and they begin to demand more and more of them as exchange. It’s a little hard to picture unless you run it into the abstract but think of it like an auction, where 5 people have $5 each to bid on 5 items. Well those items (commodities) will get somewhere between $0 and $5 from the bidders, right? Now, what happens if one of the bidders prints himself up $45 additional dollars? Now he can bid $10 on each item and the other bidders will get nothing.
That’s what the top 1% are doing with commodities and other assets right now. The assets are the same assets they were last year and the year before that. There has been very little variation between supply and demand and demand has probably gone down a bit during the recession but that doesn’t matter as 1% of the people have MUCH…
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Testy Tuesday – Fed Pop or Drop?
by Phil - September 21st, 2010 8:27 am
Isn’t this exciting?
We popped all of our 5% levels yesterday, now all we have to do is hold them and we can start looking ahead to the 10% lines. Just 10 days ago, on Friday the 10th, we did our last multi-chart study and I said in the morning post: "I am not TA guy but If I were a bear, I’d be pretty darned concerned about the charts as it looks to me like the 20-day moving averages are registering a short-term mistake in a generally rising trend." Look at how those 20 dma’s have snapped up in less than 2 weeks (blue lines are mid-points, green circles are 5% levels):
So Gold and Transports are running away with SOX falling behind. We’ve been playing the SOX up with USD, which is up 10% since I picked it in that Friday’s post but that’s been a relative underperformer for us as we nailed the bottom with a buying frenzy into the late August drop which culminated with my very bullish "September’s Dozen" from the 3rd. There were actually 10 stocks and only 9 fit in the multi-chart (I dropped HMY, who already gained 15%) with way more than a dozen trade ideas for our Members to take advantage of the anticipated short-term moves. Of the 10, only IRM has been laying around but we weren’t expecting a quick move on them and played a conservative April spread and took the risk on Oct $22.50 calls, which are our only loser, down 30% at .20 but I still like them if we break up from here.
The leverage you can gain with option plays is truly stunning. On BRCM, for example, the trade idea was a straight purchase of the Sept $32 calls for $1.25, BRCM topped out at $35.49 with the calls close to $3 on the 14th and they expired on Friday at $2.16, which is up 72%, even for people who didn’t stop out between there and up 140% that Tuesday. That trade was a combo trade with the sale of the October $30 puts at .70 and those are down to .30 (up 57%) which are well on their way to expiring worthless for a full 100% gain. We also took an artificial buy/write that stretched from Jan to Jan 2012 so that was 3 trade ideas on one stock – you can see how quickly we get past a dozen!
We get aggressive at the inflection points – had we…
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Rising Risk Aversion Prompts Crude Oil Bears to Target USO Put Options
by Andrew Wilkinson - February 25th, 2010 4:06 pm
Today’s tickers: USO, SU, DTV, AIG, CCE, PMCS & TRLG
USO – United States Oil Fund LP – Despite a stronger dollar so far during 2010 the price of crude oil has rebounded smartly and spent some time this week trading above $80 per barrel. Today’s sudden bout of risk aversion knocking equity prices running for cover has created fears of lower oil prices ahead according to options activity today. Investors targeted downside protection as they snapped up more than 10,000 put options reserving rights to sell shares in the fund that mimics the price of crude before expiration in March. Investors chose the fixed strike price of $36.00 to lock into selling rights compared to the fund’s share price of $37.67 – down 3.4% already today. Investors forced the premium of the put options from 45 cents to as high as 59 cents throughout the morning. It appears that today’s activity is fresh investor activity since it exceeds the number of open positions as of the close of business on Wednesday, while the volume also represents more than 20% of overall options volume today.
SU – Suncor Energy, Inc. – Despite the nearby bearish overture for the fortunes of crude oil prices, a decent-sized bullish options transaction was established on the Canadian energy company. Undeterred by a 3% decline in Suncor Energy’s share price to $28.24, one investor initiated a debit call spread in the June contract to position for a sharp rebound in Suncor’s share price by expiration in four months. The trader purchased 10,500 calls at the June $31 strike for a premium of $1.26 apiece, and sold the same number of calls at the higher June $36 strike for a premium of $0.30 each. The net cost of the spread amounts to $0.96 per contract. Maximum available profits of $4.04 per contract accumulate for the bullish trader if Suncor’s shares rally approximately 27.5% from the current value of the stock to $36.00 by June expiration. We note that shares traded as high as $38.22 on January 6, 2010.
DTV – The DIRECTV Group, Inc. – Covered-call selling is the theme of the day in Directv options trading as it appears investors are picking up shares of the underlying stock while simultaneously shedding out-of-the-money calls in the June contract. Shares of the provider of subscription television services slipped 0.90% during the session to $33.30. Approximately 25,300 calls…
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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…
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Weekend Reading – Looking for Green Shoots
by Phil - October 11th, 2009 8:21 am
I’ve been beefing up our bullish plays on the Watch List.
If we’re going to get more bullish I thought it would be a good time to look for some bullish premises so we don’t feel totally silly paying 20-year high p/e’s for the S&P 500. Obviously, our main hope is that the stocks we buy will grow into their earnings so the next month’s worth of reports will be key. 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!
When I am being asked to buy IBM back at it’s all-time high or AMZN or BIDU or AM, PALM, NFLX, PCLN, URBN, UHS, CERN, CREE, GMCR, CY, SWM, TRLG, BKE, etc – then their performance better look like this:
Nothing against those particular companies, any individual company can be exceptional and beat the market, but - Are the companies we’re buying really doing exceptional things or are have we just developed such ridiculously low expectations that we have been psychologically conditioned (and Wall Street firms employ armies of behavioral psychologists for a reason) to treat these stocks and the CEOs who run them like our children? If your child was the child in the above picture and I asked you for $20 to see her limbo show – you might pay it. If it’s not your child though, would you even consider making an afternoon of it? No, of course not, for good money you expect to see the cool fire guy at the top of his game and that is what you should expect from companies trading at or near all-time highs – NO LESS!
I love President Obama but he was just given a Nobel Peace Prize simply for not being President Bush – low expectations! On Sept 17th, PALM announced that it lost 10 cents a share, not losing the 25 cents expected and gave lowered guidance for Q3. The non-adjusted…
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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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