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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Testy Tuesday - Dow 9,650, Berkshire $60 Edition!
by Phil - November 3rd, 2009 8:14 am
Wheee, this is fun!
Just two weeks ago, on October 17th, I warned in the Weekly Wrap-Up that it was "Dow 10,000 or Bust" for the next week and we failed that one and last Wednesday we were looking to hold NYSE 6,900 and THAT failed too. Now we enter into the second phase of our limbo game where the deep-voiced guy asks the question "how low can you go?" and we’ll be setting our next bar at our long-standing 9,650 target for the Dow, which we are already hitting in pre-market trading. If that fails, we’ll have to look down to S&P 1,000. As you can see from Jesse’s Chart, we took a nice bounce off serious resistance yesterday but we’re just not feeling it yet, even though the market is now as technically oversold as it was in March.
Yesterday was like a roller coaster and my first Alert to Members of the morning targeted 9,775 as the on/off line for our bullish/bearish posture on our DIA covers. We whipped past that line right about 10 am as we got good reports from ISM, Pending Home Sales and Construction Spending but by 12:45 we had broken back down so I sent out an Alert calling to refocus back to 55% bearish by adding the DIA Jan $100 ($5) and Jan $102 puts ($6.20), already covered by the Nov $99 puts ($2.50).
The reason we mess around with our covers is we don’t want to flip in and out of our option positions, which are generally either straight bearish or well-hedged long positions, is because options carry a relatively large bid/ask spread and cost you money every time you get in and out. So, on the whole, we’d rather let our over-riding cover plays, like our DIA spread, adjust our stance as conditions change, making a single adjustment that keeps us balanced as we ride out the market waves.
It’s been a couple of weeks since we had a good, old-fashioned stick save but we got a mother of one yesterday (as seen in Dave Fry’s chart) which was right on schedule as Kustomz bought it up in Member Chat at 3:09 and I agreed at 3:19 that "It does feel like a pre-stick move" and we grabbed VIX $25 puts at .85 to protect ourselves from a sudden surge in complacency.
By 3:33, my next comment to Members was: "The stick lives!" but we gave a little too much credit to…
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YRCW: NO SUSTAINED ECONOMIC RECOVERY
by ilene - November 2nd, 2009 7:14 pm
YRCW: NO SUSTAINED ECONOMIC RECOVERY
YRC WorldWide is tanking over 50% on bankruptcy speculation. The large trucking company has been entangled in brutal labor renegotiation’s and is at the heart of the economic downturn with their highly economically sensitive transport based business.
On Friday the company reported a $158.7MM loss which was followed up by a debt exchange announcement this morning. Investors are growing increasingly concerned that the announcement could result in an eventual Chapter 11 filing. Although the company is having cost difficulties (primarily labor related) the weakness at the company is primarily economically related. On the conference call CEO Bill Zollars detailed the economic struggles which we continue to see across the entire real economy. His comments would be most unwelcome to anyone who has bought into the recent stock market surge which is now not only very expensive, but pricing in very optimistic economic and earnings growth in 2010:
“The operating environment remains very challenging as we continue to face a difficult economy that appears to have stabilized, but is not showing any signs of sustained positive momentum. We remain cautiously optimistic that the economy has bottomed out, but it remains too early to know for sure. We’re not anticipating any growth in the economy for the remainder of this year and at least for the first half of next year.”
I think it’s safe to say that the stimulus based recovery is almost entirely non-organic. Without further aid from the government and the Federal Reserve this liquidity driven market is likely staring at a very difficult road ahead, if not the dreaded double dip.
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Thrill-Ride Thursday, Finally Some Earnings!
by Phil - July 9th, 2009 7:24 am
Wheee, what a day yesterday!
Of course we hit it out of the ballpark with our ICE puts as that stock melted so fast it turned to vapors (or at least the calls did!). Fortunately, we had the puts and the Aug $95 puts I mentioned in the morning post, that we had taken at $6.20 on Tuesday, opened at $8.50 and ran up to $14.35 (up 131%) at the day’s end - all without a significant pullback to stop us out. Since we LOVE to go back to a well that’s paying off, we jumped on the Aug $90 puts for $3 as our first trade of the day at 9:39 and those finished the day at $7.35 (up 145%), not bad for our 3rd play on the same stock in 48 hours!
The best thing about having 100%+ put side winners in a downturn is it gives us free reign to speculate on the upside. Since we had a bottomish view of the downturn yesterday, we were able to use the cushion provided by the gains on ICE (as well as our longer-term DIA and USO short positions) to establish a bunch of speculative upside positions on stocks we thought were bottoming. The key to this strategy is position sizing and portfolio management. If you invest, for example, $2,000 per position and are willing to take 20% losses as a stop-out, then having a 100% winner on ICE (and we had 3!) allows you to take 5 bullish position as the total risk on $10,000 is the $2,000 you gained on the bear side. We don’t just mindlessly flip-flop of course. In fact, it’s been more than a month since we picked up bullish positions for more than a quick trade and we’re not SURE these are going to work but, since we had the winning put plays, it’s a good place to make a stand - dipping our toes in the bullish waters once again.
I mentioned our brand-new $5,000 Portfolio yesterday and our first play was a net .71 spread on AA where we bought the $7.50 calls for $1.75 and sold the $9 calls for $1.04. On yesterday’s dip, we had the opportunity to take out the $9 calls for .70, which was a .35 profit and left us with the naked $7.50 calls at net $1.40, with a break-even at $8.90. We tried to sell them for $2.10 at the close but didn’t…
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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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