Trading Goddess

Digging in the Mud for Green Shoots - How Did We Get Back Here?

2009-07-12T10:26:00.003-04:00

I'm digging for green shoots but you have to sift through a lot of manure to find them this week!

A few weeks ago I complained that the MSM was irrationally exuberant and I couldn't find any negative articles (outside of PSW, of course, where people thought we were too negative calling for a correction) and now, less than a month later, you can hardly find anyone who doesn't think we're going back to the March lows. I stand by my statement to Members in yesterday morning's Alert where I said: "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800. While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks. Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say - Show me the misses."

So I said Cramer was an idiot to be herding his sheeple into stocks when the Dow was at 9,000 and now I am saying Cramer is an idiot for stampeding the herd out of stocks at 8,000? Am I that fickle? Not really, I just believe we are in a fairly tight trading range. On June 17th I warned on June 24th, as the market "rallied" back to 8,500 I warned we were simply in the midst of a "dead cat bounce" - using the following, very descriptive graphic:

We played oil to top out at $70 for a whole month before it finally fell and I had warned people to stay out of the USO oil fund on June 6th (20% higher than here), but perhaps the last straw was when I pointed out that China was buying oil in bulk for $16 a barrel and even that was a ridiculously expensive price that more sensible buyers would not pay. Not long after that, Iraq had trouble with their own oil auction, again, no one in the industry had any real faith that $70 would hold and now, not even $60 is holding. They talk a very good game but don't put their money where their mouths are! On Wednesday, June 17th, with oil already back to $70 from $73, I said in that morning post: "We’re looking for proper capitulation in the energy markets and follow-through from our indices to the 5% rule at least (we are hoping for 8% total pullback on this leg)." That leg bottomed out at $67 the next week, down 8.2% from $73 before doing it's own dead cat bounce back to $72.50, where we shorted it again!

Keep in mind that our chief fundamental indicator, that allowed me to hit the June 15th market collapse right on the head, was copper prices falling back - an event I compared to George Foreman knocking out Joe Frazier in 1973. In that morning's post (Dow 8,800) I said: "This morning copper has been knocked down and is leading commodities lower after coming off an earlier knockdown at $200 and another at $150 - having started its run way down at $125 back in December. Of course, after a 100% run to almost $250 we can certainly forgive them a 20% pullback to $225 per our 5% rule and we’re not going to call the fight just yet but Oil is also pulling back off a 100% run while gold has only moved 17.5% over the same time period, already double-topping at $1,007 and $989 in February and May respectively."

Copper is HOLDING that $225 line, finishing Friday at $221.15 despite a dollar that is holding up well (about the same as June 15th at the moment) so we are still not ready to call this fight as either copper or the dollar may come off the canvas and put in a couple of good rounds in July. Just a few days before our market view proved to be right on the money, I had to ask myself in the weekend wrap-up "Is Cramer Still Wrong?" as the relentless last-minute market saves were giving us all headaches as we sat on our bearish DIA and USO short positions and mainly sat out the June rally as it all seemed like one giant pump job to me. It turned out that, yes, Cramer was still a buffoon and I was only one day early with my top call of June 12th, which I termed: "Fall Down Friday."

So here we are, back at the bottom of the trading range I predicted back in March and even as far back as November, when I said that, based on the fundamentals the crash should settle out at Dow 8,650. 5% above 8,650 is 9,100 and 5% below 8,650 is 8,200 and that's all within the bounds of what I see as the "right" level for the markets to consolidate. Can we still go 10% up or down from there? Of course we can - the question is where is the market going to get pulled back to. Other mid-points are S&P 900 (855-945), Nasdaq 1,750 (1,650 -1,850), NYSE 6,000 (5,700-6,300) and Russell 515 (490-540). We certainly obeyed the top of our range recently and now we'll simply see if we can hold the bottom through earnings. At the moment, this "horrific" sell-off is nothing more than a long-expected trip back to the lower end of our range.

Is the current panic justified? What's really changed in the last 30 days? Obviously, there were great attempts being made to push us up and over the top during the early part of June - the media pandering, the constant "stick saves," Cramer's idiocy, Goldman Sach's $85 oil call - all attempts to pull investor dollars off the sidelines and break out of our range. Failure to do so seems to have led to a sell-off, perhaps funds are giving up on the year or perhaps the sheeple who were herded in at the top have no appetite for a market that doesn't go up and up and up.

We've been testing the lower end of our range, mostly doing buy/write plays that give us 15% discounts off the current entry price. Hopefully that's enough cushion to ride out a panic dip but we are also scaling in with plenty of cash on the side, as we're happy to buy more if the market does drop 20%, all the way back to 700 on the S&P, where we would happily load up the truck. Meanwhile, we're picking up good stocks at what we HOPE are cheap prices, given the current market conditions. While we are not yet in what I like to call "monkey with a dart-board" territory, where almost any stock is a bargain, we certainly have some clearly good deals out there already.

Earnings will tell the tale in the upcoming weeks. Don't forget we don't buy stocks to bet on the economy, we buy stocks to bet on companies - some will do well and some will do poorly but the fundamental question is: will they provide a good return on your investment? After hanging onto our cash for more than a month, since Wednesday, as stocks started falling back near the bottom end of our range, we finally took the opportunity to give ourselves an additional discount, selling puts and calls (and sometimes just naked put selling) against entry positions on stocks that are already trading near their March lows. Our hedged entries provided us with the following net pricing:

CAL at $7.36/8.18 (price if called away/price if put to us) - now $10, March (all non-spike) low $8

CBS at $4.31/4.65 - now $5.97, March low $4

COST at $43.35 - now $44.97, March low $40

CVX at $58.20 - now $61.40, March low $58

DIS at $20/20.50 - now $22.41, March low $16

EXM at $4.02/4.51 - now $6.05, March low $4

RT at $6.50 - now $7.12, March low $1

SNDK at $11.54/12.77 - now $14.47, March low $9

SPY at $85.95 - now $87.96, March low $70

SPWRA at $19.90 - now $22.35, March low $22

SUN at $19.06/19.53 - now $22.09, March low $27

V at $55.30 - now $59.86, March low $50

VLO at $13.49/14.24 and again at $13.30/14.15 - now $15.57, March low $16

WFR at $12.83/13.91 - now $16.61, March low $13

X at $25.30/$26.65 - now $30.77, March low $20

XLF at $8.98/9.99 - now $11.10, March low $7

XOM at $58.98 - now $65.12, March low $64

ZION at $9.07/9.54 - now $11, March low $8

As you can see, most of our buy/write selections were for targets very near the March lows. If you wanted to smack yourself for not being brave enough to buy stocks when they crashed in March - what is your excuse now for not taking a hedged entry that effectively gives you the same price now? Of course, hedging our entries somewhat limits our upside, but that limit is 10-20% PER MONTH, not exactly a deal-breaker in the average portfolio. Combine this hedged entry strategy with portfolio management techniques (see Strategy section on "Scaling Into Positions," something I expanded on in this weekend's Member comments) and you can get very comfortable with your bottom fishing.

We also do not make these selections in a 100% bullish portfolio. We have our long DIA covers, following our "Mattress Play" strategy and on Friday morning I also discussed setting up some long disaster hedges using the FXP on the assumption that, if our markets are going to fall back to the March lows, then China has a LOT of catching up to do and we can likely do better betting against the Shanghai composite, which is up over 100% since November, than we can betting the Dow or S&P down, which are up "just" 20% since November and 35% over the March lows.

We'll see how earnings come out over the next few weeks. All the "green shoots" talk in May and June had the effect of raising expectations for Q2 and we are not going to get the easy victory we were handed in April as Q1s earnings were and upside surprise over something I had complained was a very low bar at the time. Now I think expectations are fair and I think we are also being given fair entries on certain stocks as investors engage in a little pre-earnings panic. Keep in mind this is round one of our scaling back into stocks, the same cycle we started during the March crash before we cashed out into the end of May, waiting for EXACTLY this to happen!

Hopefully all goes according to plan and we don't head too much lower, the green shoots may have died on the vine in the summer sun but that doesn't mean we'll never have another good season. It comes down to the question - where are you going to put your money? Commodites have lost their luster and the emerging markets are looking iffy. Treasuries are still paying near all-time lows, TIPS don't really keep you up with inflation and Europe and Japan are certainly not in better shape than we are and I don't think we're going to be racing back into housing anytime soon. Money has to go somewhere and there is less money now in US equities (especailly non-commodity equities) than there has been in the last decade - the situation is ripe for a rally, we just need a catalyst to move things forward and hopefully earnings will provide it.

If not, we'll step back and reassess. We are not guaranteeing this is a bottom but we are willing to establish some well-hedged positions here, rather than miss a very good opportunity to make some new entries.

Secrets of the Temple

2009-07-11T09:17:00.002-04:00

Secrets of the Temple, soon to be out in Public ???

http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=3994&updaterx=2009-07-10+12%3A27%3A24

Fari Hamzei
Hamzei Analytics, LLC
http://www.Twitter.com/HamzeiAnalytics

Stocks Going Ex Dividend during the Last Half of July

2009-07-11T00:56:00.000-04:00

If you want to try the stock trading technique called 'Buying Dividends,' which is the process of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend, there are many stocks to choose from. This technique generally works only in bull markets.

When you buy dividends, there are many stocks in many different sectors to choose from. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can't sell the stock until after the ex date. The actual dividend may not be paid for another few weeks. WallStreetNewsNetwork has compiled a free downloadable and sortable Excel list of the stocks going ex dividend during the last half of July. They came up with many companies all with market caps over $500 million. Here are a couple examples showing the stock symbol, the ex-dividend date and the yield:

Foot Locker, Inc. (FL) ex div date: 7/15/09 market cap: $1.5B yield: 6.2%

RPM International Inc. (RPM) ex div date: 7/15/09 market cap: $1.7B yield: 5.9%

Caterpillar Inc. (CAT) ex div date: 7/16/09 market cap: $18.4B yield: 5.5%

The rest of the ex-dividend stocks can be found at wsnn.com. If you like dividend stocks, you should check out the high yield utility stocks and the Monthly Dividend Stocks at WallStreetNewsNetwork.com or WSNN.com. For more details on dividend definitions, check out definitions of dividend dates. Don't forget to reconfirm the ex-dividend date with the company before implementing this technique.

Author doesn't own any of the above.

By Stockerblog.com

UNG - Starting Small

2009-07-10T18:15:00.001-04:00

Picking up a little UNG here around 12.30 - I'm willing to build this position over a longer period of time as long as UNG tracking doesn't break down.

I wish I would have seen a little more of a breakdown but I'll buy slowly and patiently.

As I see it, it would be harder for the sentiment to get much more negative surrounding nat. gas barring a huge natural gas explosions that kills several endangered species of puppies and kittens.

I still have a couple of Oct 15 calls

Also Breaking News:

According to Bloomberg today the El Nino effect developing is probably going to make this hurricane season lighter then normal.

Then the article goes on to say it could also make it worse then normal.

So there you have it, prepare for season that is going to be:

1. Lighter then normal

or

2. Heavier then normal

What would we do without this insight?

Article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFU7peSD1U2o

Carl Swenlin on SPX & Gold

2009-07-10T18:02:00.004-04:00

Carl Swenlin, founder of DecisionPoint just posted an excellent article on SPX & Gold:

http://decisionpoint.com/ChartSpotliteFiles/090710_hs.html

Fari Hamzei
Hamzei Analytics, LLC
http://www.Twitter.com/HamzeiAnalytics

Surfing the Neck Line

2009-07-10T11:59:00.006-04:00

So California’s IOUs are going to be traded? Seriously?

So does that mean that CA now kind of has its own currency? Seriously? I don’t live there, but can someone tell me if you can now buy milk with an IOU?

IOUs pay 3.75%? If they move the decimal one place to the right I might get seriously interested in buying some!

While everyone and their neighbor’s squirrel is watching the neck line in the S&P500 at around the 880 level (which has been violated at least inter-day) I thought I would pass on some humble thoughts on some of the stuff I have been watching.

1) The oil bull seems to have already laid down his sword and is now having a schizophrenic argument with himself as to whether he is the new world reserve currency or a commodity that no one wants. Seems he is in the depressive part of his manic depressive cycle. Likewise the bulls in the whole commodity/materials complex seem to have taken very heavy fire from the bears and are in broad based retreat.

2) The oil bull was guarding the left flank of the great golden bull and basically opened the door for the enemy and put him on the defensive for now. I may have to update my wave count soon :(.

3) I trade the Canadian financials more than the ones in the US, and many were actually flirting with the bottom of their trading ranges BEFORE this whole mess started up till a few days ago. So if you have been on a mountain top in Tibet for the last year and you own the Royal Bank and you just got back, your account is probably flat and you are wondering what all the commotion is about. To quote TG WHAAAAAA!!!!! Uber overbought or just plain solid????

4) So is it the financials that are holding the market up? Seriously?

5) I noticed that the bears brought up some artillery and started shelling the financial complex Wed. It looked like we were about the take out a trend line before the bulls called in air support at that end of the day.

6) Anyway I am watching KBE closely, because if the bears can carpet bomb this sector and it lets go to the downside maybe we will see some fireworks!

Happy trading all and have a fabulous weekend!

Stop the Week, We Want to Get Off!

2009-07-10T09:24:00.000-04:00

TGIF for sure, it seems like ending the week is the only way to stop the markets from dropping!

We failed to take back our weak bounce levels I laid out in yesterday's morning post as the Dow failed to hold 8,250 on a very brief spike past it, the S&P failed right at 888 in the morning and again in the afternoon (where we were able to use it as a "go short" indicator), the Nasdaq flirted with 1,750 all day and barely held it, the NYSE also failed 5,700 in the afternoon and gave us a good, bearish indicator while the Russell never came close to 488 and failed our critical 480 mark at the close. As I've been saying all week, we really don't have to watch anything but the NYSE, which will test the critical 5,600 mark this morning and failing that level would be, in technical terms: BAD!

Oil ($62) and gold ($920) also failed our levels so there was nothing to be bullish about in yesterday's action. We were in and out of DIA puts and calls, using S&P 880 as our inflection point and we took the money and ran on our AA calls (up $330, 78%) and DIA calls (up $45, 20%) as our first two completed plays in our $5,000 Portfolio, which will now be tracked under Seeking Alpha's "Stock Talk" feature as an experiment for non-members. We did a day-trade as well in the $5KP on MCD, picking up the $55 calls at $1.65 for a quick ride to $2, adding another $175 (21%) to the kitty for the week. Our only open trade in this hit and run portfolio is SGR, where we are in the $22.50 calls for $3.30, selling the $25 calls for $1.45 for a net $1.85 entry on this bullish $2.50 vertical spread (4 contracts). Earnings were a slight miss but we're not worried as the order backlog is fantastic and we'll be buying more if the after-hours sell-off holds into the morning. If this play comes through for us we'll be up about $800 in our first week and well on-track of our goal to double up over earnings season.

It will be a shame to have to play the dark side but we're back to neutral now after covering our bullish plays with DIA puts as the upside just seemed way too risky heading into the weekend. It looks like the puts will be doing well this morning as the futures look dreadful (7am), pushed down by a 2% move up in the dollar that has oil back below $60 and gold under $910. CVX gave disappointing guidance last night and if XOM follows them down 2%, just those two will cost the Dow 25 points. We have trade data at 8:30 but I don't see that as a rally point and at 9:55 we get to see how confident (or not) our consumers are.

As you can see from David Fry's SPY charts, we have now clearly formed the dreaded "head and shoulders" pattern and only a very rapidly declining 200 dma stands between us and technical Hell. We are going to test that line today (87.69 on SPY) and possibly run into the 89 dma at 86.48, which is almost exactly a 10% drop off the June 11th top of $96.11 so we are loving that spot for a 20% (of the drop) bounce back to 88.40 so that will be our significant upside line today. Sadly, that is just 2 S&P points over yesterday's close and 888 resistance is above that so the chance of slogging through that mass of resistance to have a good day is not very high this morning.

Only the low volume caveat is giving us hope as perhaps Mr. Stick is saving up his firepower for a big finish on Friday. It will indeed take a Deus Ex Machina to save the markets this week as we're not expecting any data or announcements to move the markets this morning. Next week is a data fiesta with PPI, Retail Sales, CPI, Industrial Production, Fed Minutes, Housing Starts and the NY and Philly Fed Reports plus tons of earnings so it's good to be in cash or neutral into the weekend as we'll have plenty of fun things to play off next week, especially with options expiration day looming on Friday!

Asia closed out their week fairly flat and back around the May averages. The Nikkei finished at 9,287, 500 points off Friday's open and the Hang Seng gave up early gains to finish down 82 at 17,708, also down about 500 points for the week. Japanese shipping stocks fell after a report in the Nikkei that rates on container ships from Asia to North America had been dropped for the first time in three years, reaching six-year lows. The paper said in just-ended negotiations with businesses, shippers had agreed to reduce rates by 20% to 40% for the fiscal year ending May 2010. The dollar was propped up to 93 Yen in overnight trading but wasn't fooling anyone and is back to 92 Yen ahead of the US open yet the dollar remains strong against the Euro ($1.39) and Pound ($1.62), which means those currencies are exceptionally weak against the Yen which is, as we've been saying, TERRIBLE for Asian exporters.

Chinese exports did, in fact, fall 21.4% in June but that was a little better than May's 26.4% decline. Imports were down 13.2% in June, despite China's massive commodity stockpiling during that month and it was, of course, much better than May's 25.2% decline. You can see on the chart of the Baltic Dry Index how China's commodity binge pretty much commandeered the fleet for June, pumping up rates and then dropping them as the program wound down. That being the case, it's no surprise that the BDI chart looks very similar to the oil chart or the CRB chart for that matter. China's stimulus program is having some effect as June property prices rose 0.2%, the first increase in six months, fueled by low interest rates and government measures to support the sector including tax breaks on transactions and lower downpayment requirements - things our government needs to do if they want to get serious about building a recovery.

Europe is down about half a point (8 am) ahead of the US open with the FTSE testing the 4,100 line, the DAX bumping along 4,580 and the CAC barely holding 3,140, all right about the 10% lines off the June highs. Overall, the global markets have gone from being down about 20% for the year in March back to up about 5% at the end of May and are now (other than the Hang Seng, which is outperforming) down about 5% for 2009. Of course our starting point for the year already sucked and we're all (other than the mighty Hang Seng) still down around 40% off our highs. The question that will be answered next week is: "Do earnings justify that 40% drop in valuation?" Perhaps they do but I don't think they justify a 50% drop in valuation and the Nikkei is already there so we'll see if they can hold the 9,800 line.

If not, it's the Hang Seng that has the farthest to fall and FXP (ultra-short China) is a good way to cover the potential drop. July $12 calls are $1.07 while the July $13 calls are .57 with FXP at $12.83. Taking this $1 vertical spread for net .50 gives you a break-even at $12.50 and makes excellent weekend disaster protection as it won't take much of a dip in China to double you up by taking the FXP over $13. On a longer-term basis, the Jan $15 calls at $2.62 make excellent downside protection as naked longs (FXP was over $100 last Fall) or you can sell the Jan $20s for $1.62 against them and put yourself in a $5 spread for $1 net. These are nice protective plays as you can take $5,000 out of a $100,000 portflio and have $20,000 worth of downside protection against a collapse in Asia. 5% of your portfolio giving you a 20% hedge is a good risk/reward strategy.

Another fun way to play FXP is a FREE play you can create by buying the ETF at $12.83, selling the 2011 $40 calls for $1.75 and buying the Jan $20 puts for $8.80. This puts you in for net $19.88 and you have the right to sell your stock for $20 through January 15th (by exercising your put) so you have no downside. Should the FXP fly up, you will, of course make all of the upside gains and you will be capped out at $40 by the calls you sold. Should FXP head down and force your exercise, the 2011 caller will retain some value and that would be your loss (risk) against the potential $20 upside. Those are a few of the creative ways you can hedge against disaster as the Hang Seng is outperforming other global indexes by 20% or more and if we go down, you can be pretty sure they will go down too!

We don't want to hedge the US markets lower, we think they are low enough and hopefully today we'll get the bottoming action this market needs to break higher but Mr. Stick has his work cut out for him this afternoon as we need a move up over 8,300 to avoid printing a very ugly weekly chart. As I said to members yesterday into the close:

I just don’t get this half-assed defense of MINIMAL support levels. Right at 480 on RUT and 880 on S&P and 1,750 on Nas. Arguable the Dow and NYSE have made progress but if this is all they can do then this is very scary. Maybe they are saving up for a ridiculous rally tomorrow or maybe they simply can’t do it, even on this pathetic low volume and that means we are one snippet of bad news away from a black Friday-type event.

My logic is that clearly the markets are being supported but then I have to say, to what end? Why support them at all if you can’t close the deal? I expect better out of my evil market manipulators, that’s all….

So it's all up to Mr. Stick to save the markets today but in cash we trust is our motto as we don't like to place our faith in the invisible man pulling the strings (but we sure have learned not to bet against him!). Our trade deficit numbers were actually great, the lowest number since 1999 in May, despite a 20% rise in oil prices that month. Import PRICES, on the other hand, were up 3.2%, the biggest monthly increase in 20 years thanks to Goldman's commodity manipulation (oops, allegedly!). Excluding petroleum, import prices were up just 0.2%.

Lines we don't want to fail today are: Dow 8,100, S&P 880, Nasdaq 1,750, NYSE 5,600, Russell 470. Most likely, we will open below all of those lines so the trick will be taking them back but even that is just going to be pathetic and will give us a bad pattern into the weekend. The only thing that is going to turn us bullish is a return to Wednesday's opens and that would be Dow 8,300, S&P 895, Nasdaq 1,775, NYSE 5,750 and Russell 495. Our shining ray of hope is the SOX, which close to recovering at 262 so we'll be watching them very closely but these are the slimmest of hopes and the dark side is still the quick and easy path for most of our trading.

On the whole, we should be thrilled though. We finally got the down week we expected (and held out for) all last month but, as the old saying goes: Be careful what you wish for because you might actually get it!

Have a good weekend,

- Phil

Daily Support, Pivot & Resistance Levels

2009-07-10T09:03:00.001-04:00

Thursday Closing Put/Call Ratios

2009-07-10T09:02:00.001-04:00

Today we passed the 3,000 Followers mark on Twitter

2009-07-09T22:27:00.001-04:00

As promised back in May, to commemorate this milestone, we are offering 3 of our most popular packages -- at 33% off of our regular prices -- Proprietary Indicators, Phoenix Options Newsletter and Index Futures Chatroom and Streamer, as our Summer Specials.

Sign-up links are posted on Twitter. Just go to http://twitter.com/HamzeiAnalytics to take advantage of this offer (which expires on end of business Friday, July 10th).

Other People's Money

2009-07-09T21:08:00.000-04:00

I judge for the current market sentiment by the way investors react to companies’ earnings’ reports. When risk-aversion is the popular theme of the day, speculators subconsciously look for a reason to sell. The slightest weakness in an earnings’ call will be exaggerated and extrapolated and the stock will be sold. It doesn’t matter if a company beats the analysts’ estimates or if it guides higher for next quarter. It matters how market participants react to the news. When “good” earnings reports are getting sold, market is in defensive mood and you should act accordingly.

The story is different when investors are confident about their own and the economy’ future. During such times, people are looking for a reason to buy. They tend to ignore any weakness and a single ray of hope in an earnings’ report is enough to get them excited and start buying like crazy. You know the spirit of Wall Street is high, when slightly lesser than expected losses are generously rewarded by double digit one day gains.

Earnings’ season is here and it will provide hundreds of good trading opportunities. I will illustrate a variation of what I am looking for through one of the good trades I had lately in American Greetings (AM).

1) Reaction to news is more important than news itself. I am looking for 10%+ gains on at least 5 times the average daily trade volume.

2) Stock beats beats estimates by wide margin and guides higher for next year.

3) The breakout is from relatively tight (preferably flat) range – the longer, the better. It is a sign of a neglected stock. Stocks that run up in front of earnings’ reports, tend to be sold on the news.

4) The stock finishes the day in the upper 1/4 of its daily range. With other words, it forms a nice, long, green candle without too long shades.

5) The low of the first 30 min candle might be used as an initial spot to place your stop. The real winners rarely revisit that point. The best trades are profitable from the moment you enter. Along its way up, the stock will form several bullish flags and wedges and offer opportunities to raise your stops or enter if you missed the initial move.

American Greetings reported a profit after 2 consecutive quarters of losses. The reason behind the sudden green bottom line wasn’t higher sales or margins (typically what I am looking for), but lower expenses. The important part was the market reaction. AM went up 41% on the day it reported it EPS number.

On a side note, the company was paying 48 cents dividend, which before the earnings’ jump accounted for more than 7% annual yield. Dividend is usually the last thing I care about, but in this case it was notably good.

AM earned 25 cents per share compared to a profit of 27 cents for the same quarter, last year. Normally I look for triple digit Q/Q growth, higher margin and at least double digit sales growth, but in this case we had a discontinuation of a losing streak and a promise of higher margins in the future. To be honest, you don’t even have to put so much effort analyzing those details. The important thing was that investors were buying AM’s shares like they’ll run out of fashion.

There was only one analyst, following the company and he expected revenue of 20 cents per share. Is it possible that a tiny 25% earnings’ surprise (25c vs view of 20c) can cause an almost 1005move in a matter of a week? In general, anything is possible, but this was only one side of the story. AM has relatively small float – 36.7 mill. I prefer stocks with float below 25 mill or even below 10 mill shares as they tend to move faster. The evening before AM’s report was announced, it had over 20% of its float sold short and a short interest ratio of over 15. The last figure played an essential role in the AM’s gigantic move.

Market Commentary as of Wednesday, July 8, 2009

2009-07-08T21:56:00.002-04:00

We still stand by our May 22nd intermediate bias change, to the short side, which was again re-iterated on our June 12th blogpost here.

What is clear now is the very short-term over-sold condition we are in. The chance of short-term rebound (a dead cat bounce) has increased as we enter the Q2 Earnings Season.

This is evidenced by our MoMo reading (first chart) of below -30 as denoted by the green horizontal line and VXO trading near +3 sigma today (second chart).

Daily Support, Pivot & Resistance for Select Futures, Indices & ETFs

2009-07-08T21:03:00.002-04:00

Dollar Weighted Put/Call Ratios

2009-07-08T20:52:00.001-04:00

Which way Wednesday - For Oil

2009-07-08T09:30:00.000-04:00

This is going to be a short post as I ran a $109,729 portfolio update for members this morning.

Yesterday was "Testy Tuesday" and the market certainly failed that test, breaking below our "must hold" levels early in the day and then just getting weaker and weaker. As we already had our USO puts and our long DIA puts, we took some pot-shots on long plays, none of which are working so far of course and we took a quick stop out on Russell calls but stuck with a GOOG vertical, ABX longs, our AA spread, and DIA $84s at an average of .60 overnight. Our big winner of the day was ICE puts, which we jumped on at 10:15 with the Aug $120 puts at $16.65, which is a synthetic short on the stock as they have little premium, those jumped almost 50% and finished the day at $23.85 but we got out at $24 after flipping to the Aug $95 puts at $6.20, which we got 1/2 out of at $7.20 already. So all in all, a mixed day but that's what bottom fishing is, we take the easy money as the big guys fall and try to pick the winners for the possible bounce.

Asia is not looking at all bouncy this morning with the Nikkei diving to the 2.5% rule at 9,420, now down 6% off last weeks failure to break 10,000, which we knew would be trouble. The dollar fell to 94 Yen and exporters did not like that one bit. India also fell 2.8% and the Baltic Dry Index fell 4.7%, testing the 3,200 line. The Shanghai was relatively subdued at -0.28% while the Hang Seng dropped less than a point to 17,721, also down 6% from June 30th's high of 18,900. "These are knee-jerk reactions to the moves last night in the U.S., probably not unfounded," said Andrew Sullivan, a sales trader at Main First Securities in Hong Kong. "I suspect that the general trend is lower, and the fact that the Hang Seng Index didn't manage to regain the 18000-point level yesterday is probably a crucial thing."

Oil and commodity stocks were hit very hard in Asia as the drop in commodity prices seems much worse priced in strong Asian currencies. Crude prices were likely to keep falling, said Citi Futures Perspectives analyst Tim Evans. "We simply lack any physical tightness that would cushion a decline." Japan also got a very poor report on Core Machinery Orders, that were down 3% in May, a bit better than the 5.4% decline in April but still disappointing as "experts" had forecast a 1.8% increase despite all the other bad data we've been reporting on out of Japan (I guess they are not subscribers!). Chinese President Hu Jintao left the G8 meeting to go home and deal with the escalating violence as riots are getting more intense in Urumqi. Instability in China makes everyone nervous but, strangely, is doing nothing at all for gold as it falls below the $920 mark as the dollar maintains relative strength to the EU currencies, even while continuing to fall against the Yen and other Asian baskets.

We have stayed away from gold for quite a while, even though we do like it as a long-term inflation hedge, and we'll be watching it around this level ($920) with great interest - especially as it lines up with $90 on GLD. All commodity pricing is in quesition this week as policy makers on both sides of the Atlantic are looking to crack down on the oil speculation/manipulation that we at PSW have been bringing to your attention for 2 years. While you may get bored hearing about it, that is precicely why the ICE play was so obvious yesterday as that exchange was founded by Goldman Sachs, Morgan Stanley and the usual suspects specifically to get around US commodity trading regulations and is going to be rendered pointless if the International law catches up with them.

In an opinion piece submitted to The Wall Street Journal, meanwhile, U.K. Prime Minister Gordon Brown and French President Nicolas Sarkozy (who obviously ARE PSW subscribers) wrote that governments need to act to curb a "dangerously volatile" oil price that defies "the accepted rules of economics" and "could undermine confidence just as we are pushing for recovery." In Washington, the Commodity Futures Trading Commission, the main U.S. futures-market regulator, said it is considering tougher regulation of oil-futures markets. The proposed rules, which drew immediate criticism from traders, would seek to curb the influence of speculative investors such as hedge funds and investment banks by limiting how much money any single trader can bet on any one commodity at a time. On Tuesday, Sen. Byron Dorgan (D., N.D.), a backer of an antispeculation bill last year, called the CFTC's action "a positive first step" to curbing "oil speculators looking for a quick buck at the expense of American consumers."

The U.K.'s Mr. Brown and France's Mr. Sarkozy called on the International Organization of Securities Commissions to look at improving transparency and supervision in oil-futures markets. An umbrella organization for global securities regulators, IOSCO helps to set global standards and advises national bodies on regulation. In March, it set out guidelines on how regulators can beef up supervision and enforcement of behavior in commodities markets. This is sending oil plunging below the $62 mark, something I predicted last month when I wrote an article warning that oil speculation was reaching a frenzy and cautioning against investing in USO.

Sadly, the energy and commodity sectors are dragging down the broader markets, including the Nasdaq and SOX, which were hit hard by the fall of solar and other alternate energy companies as the media bandwagon has reversed course from predicting $85 oil to predicting $50 or lower oil. Failure of $62 to hold can lead to another leg down in the energy sector and it's happening too fast for rotation to save the broader indexes so the whole market is in danger of being dragged down by this much-needed correction in the commodity sector. We consider this a good buying opportunity but we are going to be treading very lightly until things stabilize as you never know when a "black swan" event will come up. Our strategy remains having plenty of cash on the side so we can take some opportunistic plays as they come along but not taking the markets too seriously in either direction.

Over in Europe, we have grave concerns as commodity pushers are tearing the markets down, even though the G8 statement shows "some signs of stabilization of our economies," something that would have given us a 2.5% UP move 2 weeks ago. The G8 draft states that "the turning point in the economies will be strengthened when our measures will reach their full impact on economic activity and will contribute to improve confidence." Hopefully it's not just wishful thinking but we think this (Dow 8,100, S&P 880) is a pretty good bottom. What we need to see it the EU bottoming out and the FTSE has been worrying today as it fails to retake 4,200 - a level we really want to see held. The DAX is also looking sad but at least holding 4,600, which is what we need while the CAC is also failing us below the 3,200 line. Yesterday the EU markets gave us a good preview of the US finish, hopefully today they can inspire us to do a little better.

It is all about oil holding $62 today. We don't care if oil goes to $20, as long as it does it slowly but we can't take this sudden panic out of the energy sector as it's pulling down technicals of sectors that actually BENEFIT from lower oil prices. I am encouraged that pump-monkey Cramer has turned into dump-monkey Cramer as he suddenly gets religion and declares the oil markets to be a "total farce." I spent much of last month warning people not to listen to Cramer as he herded his sheeple into the energy plays at what I was calling a ridiculous, manipulated top and seeing this joker jump on the opposite side after a more than 20% decline in the sector makes me think it may be time to flip bullish but first, let's let him stampede his followers out of the sector and push the bottom the same way he drove them in to push the top. See, we can make money by watching Cramer - AND DOING THE OPPOSITE!

Today we have the simple goal of holding yesterday's lows. There isn't much data other than crude inventories at 10:30, where we expect bad news to be baked in and a possible relief run back over $63 for oil (we are out of oil puts and waiting for a sign at $62). Hopefully that will give OIH and XLE a small boost, which will allow the Dow to retake 8,250 and anything below 8,100 is going to be, in technical terms, BAD. The S&P REALLY needs to hold that 880 line (see David Fry's chart above) and there is no or there, we flip bearish below that line. The Nasdaq has been our leader and 1,750 is the critical line for them but no clear breakdown until they fail 1,700 so we will be shorting the Qs if the S&P breaks lower as they have a long way to fall. NYSE is fine if they can hold 5,600 and the breakout of the range between there and 5,800 will probably set the market's direction for next week. The Russell failed us yesterday as we gave them a bullish toss and we won't try them again unless they show us they can hold 480 but the longs there are still very attractive as the RUT can jump 20 points very quickly off that mark.

We continue to be mainly spectators but things are getting very exciting. As I mentioned, we took the DIA $84 calls at an average of .70 in our $5,000 portfolio so we are really pulling for a 100-point move up today. We also have AA $7.50 calls with the $9 calls sold for a .71 net cost on the $1.50 spread and that too is a bullish play in our new portfolio. You don't get to make many mistakes with $5,000 and we'll see where we stand this evening after AA announces earnings but today, it's going to be $62 or BUST in the oil patch so let's be very careful out there!

Updating Some Projections

2009-07-07T15:12:00.003-04:00

The Good News:

On 6/28/2009 I wrote about there being Time for a Pullback. 7/7/2009, the highest probablity target in the 875.50 area is reached (well close enough as of 3PM EST).

On 6/27/2009 I wrote about Dollar at the Crossroads. The Dollar Index has found some support.

The Bad News:
Over the weekend I wrote about Buying the Dip in GBPUSD. This week the GBPUSD has broken down a bit. We have not completely crashed, but we are defintely in a weaker position.

Gassed

2009-07-06T22:39:00.002-04:00

UNG seems to be running on empty:

I will look to purchase some UNG common on Wednesday after the inventory numbers come out if UNG get's gassed by the numbers. Hoping to see 10's.

Followed by a recovery before the start of winter to at least the $16 level.

As a consolation if I'm wrong I will keep my house at 60 degrees all summer and turn my furnace room into a sauna all winter.

It's kinda of a win win.

SDA - Near Breakout Point / Cerca de Zona de Ruptura

2009-07-06T12:54:00.000-04:00

English-
SDA - Stock has moved to the uptrend line and forms an ascending triangle. Look for the break above 8.00 to enter longs. Price target on the breakout is a move to 10.40.

Español-
SDA - La accion se mueve en linea de tendencia alcista y forma un tiangulo acendente. Se busca la ruptura de los 8.00 para entrar en largos con un objetivo despues de la ruptura de 10.40.

Monday Meltdown - Seismic Sentiment Shift?

2009-07-06T09:20:00.000-04:00

What a difference a week makes!

Just a week ago, I was apologetic for being so bearish on the markets. People were complaining that the writers at PSW were "too negative" and that we were out of step with the MSM, who saw nothing but "green shoots" under every economic rock. On June 28th, I wrote an article comparing the US consumer to the NY Yankees as a way of explaining how the analysts can be so wrong in their expectations for a recovery. I pointed out that, although they are the winningest team in baseball history, I can still remember a 10-year dry spell from 1965-1975, saying: "Like the US consumer, you come to EXPECT the Yankees to be in contention and you may make your bets that way out of habit, but that storied history of performance is NOT going to stop you from hitting a 10-year losing streak is it?"

Like the Yankees, the media EXPECTS the US consumer to win. After so many consecutive years of stuffing our faces and shopping until we drop, the global media simply refuses to believe that the US consumer can do anything more than stumble slightly before getting right back on the horse and refinancing or whatever it takes to get out there and start charging once again. As the US consumer makes up 70% of our economy, it’s no wonder all the sentiment polls think prosperity is just around the corner because everyone believes the US consumer is simply resting. The homebuilders telll us things will rebound, the manufacturers tell us things will rebound and the companies reporting earnings, who are "beating" expectations by only doing 35% worse than last year, are all giving us sunny outlooks as well because the US consumer is coming to save us all.

Isn't it amazing how, just 7 days later, the media has suddenly gotten on a totally different bandwagon? Just as a crowd turns on a star ballplayer who strikes out in a clutch situation, the MSM has turned sour on the US economy and has changed their outlook on the US consumer from "resilient" to "dead" overnight. While extremism grabs a lot of headlines, sometimes the truth can be found in the very dull places between the labels. I have long pointed out (some may say ranted) that commodity prices were unjustifiably high and were jeopardizing the recovery by pulling money out of the pockets of already-nervous consumers and pulling disposable income away from job-creating industries in favor of imported necessities like food and fuel.

This is no way to grow an economy and hopefully this little stumble will gain a few converts who will join us in cracking down on the thievery practiced by Goldman Sachs and their ICE partners as well as other commodity pushers who are willing to squeeze the industrialized addicts to death in order to extract the last dimes from a dying global economy. Thanks to Matt Taibbi's article in Rolling Stone, some very uncomfortable light is being shined on Goldman Sachs and the rest of what Matt calls "The Wall Street Bubble Mafia" that has been systematically dismantling the American middle class ever since they accidentally made wealth gains during the Kennedy/Johnson era.

Way back in September of 2006, I noted the way Goldman was stirring the commodity pot, saying: "This is the kind of out-of-control commodity spending that took down Amaranth, only it’s happening in slow motion at the investment houses." That bubble took an additional 12 months to pop, but the rapid rise in commodities in the first half of the year is now leading to an accelerated deflation on the other side. Oil plunged all the way to $63.50 in pre-market trading, down $10 in 7 days and erasing 25% of the year's run-up. Don't blame the dollar - it's barely moved and will cause the commodity bulls a world of hurt if it does begin to recover but there was a tremendous amount of posturing this weekend from the BRIC countries aimed at holding the dollar in check along with a Bloomberg featured article calling the dollar "the world’s biggest Ponzi scheme."

According to Bloomberg: "The dollar isn’t crashing because those invested in it are propping it up and adding to their holdings. After all, the magnitude of Asia’s foreign-exchange holdings means it can’t dump the dollar without shooting its economies in the foot." Again, it's nice to see the MSM catch up with me over 2 years later as, in my Dec 2006 article "Burn Dollars to Fight Gravity," I said:

That’s where the old Roach Motel Theory kicks in - not as it applies to oil, but as it applies to dollars. The Chinese have a Trillion US dollars! While they may threaten to diversify them into something more stable Mr. Paulson is going to point out to them that they are not the only roach in the motel.

Japan also has a Trillion of our dollars, we send them more every time we buy a Toyota but the biggest joke of them all is that we’ve been shipping these ever devaluing dollars to OPEC and every other oil producing country at the rate of $165Bn a month (what, did you think Jihads just fund themselves?). Oil is traded in dollars, people who want to sell oil must accept dollars, people who want to buy oil need dollars to buy it…

Ha ha! So the devaluing US dollar will hurt China, Europe (the least), OPEC AND every one of that top 10% of the world’s richest people who have 85% of the dollars that are floating around. I challenge you to find a government, no matter how communist, that can afford to ignore them! So, we will keep printing dollars and China will keep buying them, as will everyone else.

So kudos to Bloomberg for catching up and let's keep in mind that the dollar has been pronounced dead over and over again in the 30 months since I wrote that article but, here we are, holding the line at 80 once again - with oil at the same $62 it was then and gold clearly the 2-year outperformer, up 45% from $650 at the time. Is oil too low or is gold too high? That's going to be a key indicator for us to watch this summer and the movement of oil, gold and the dollar will be a lot more important over the next 30 days than all the earnings reports we are likely to hear.

As I said in the Weekend Wrap-Up, there is nothing "new" happening here, this is all the same old stuff we've been observing for two years now. It's only "news" to the sheeple who get their market information from the talking heads on corporate news and are whipped from one frenzy to another as the focus studies tell the media whether to focus on a bull or bear market this week. While investor sentiment is important and something we keep a close eye on, we also follow these obscure things called fundamentals and make intelligent (hopefully) investing decisions that are often going against the grain of the crowd. While we remain mainly in cash, this downturn is a buying opportuntiy and we expect at least an interim bottom to be put in this morning as we test the lows I predicted in Thursday morning's post, which were: Dow 8,250, S&P 888, Nasdaq 1,750, NYSE 5,700 and Russell 488.

To the extent that commodity stocks lead the downturn I will be less concerned as we WANT to see money coming out of that sector and moving towards deserving earnings winners. Let's start playing the great game of corporate survivor and see who comes out on top with real earnings data, rather than speculation.

Speaking of speculation - the Shanghai Composite was STILL up today, gaining another 1.2% but was well against the grain in Asia as the Nikkei fell 1.4%, the Hang Seng dropped 1.2% and the Bombay Sensex dropped 6.2% as the Indian government projected the largest budget deficit in 18 years, consuming 6.8% of the GDP - still far better off than the US but --- shhhhhh! "Those of the view that the budget would encompass all sorts of exciting structural economic reforms have just had their hopes firmly dashed," said Robert Prior-Wandesforde, an economist at HSBC. "Instead this was largely a populist budget focussed mainly on the poor with plenty of promises of additional infrastructure spending." Meanwhile China is suffering floods and riots this weekend and those two are supposed to be the "hopeful" countries that will drive global growth!

Europe is down about 1.5% ahead of the US open (8:30) but led down by commodity pushers is not a bad thing if the broader markets can hold the line. Indexes are generally back to April highs and not holding this level will look pretty ugly. From a technical standpoint, if Europe can't bounce back over the 200 dmas by Wednesday, we'll be looking at a very ugly pattern that can quickly drop us back 10% to the April lows. For the FTSE, we need to hold 4,182 with 4,231 as the 200 dma. The DAX needs to hold the line at 4,591 with the 200 dma at 4,674 and the CAC is in the worst shape, right on the breakdown line of 3,126 and well below the 200 dma at 3,174. If we lose the European indexes, the US is sure to follow so we'll be doing a lot of level-watching for the first few days of the week.

We'll be watching our sectors this morning and keeping an eye on the 10 am ISM Service Report for June as we need to make an improvement over May's reading of 44 (with anything under 50 showing contraction). There is NO data at all tomorrow and Wednesday we get Consumer Credit in the afternoon with Wholesale Inventories on Thursday and Trade Data with the Michigan Consumer Sentiment Survey on Friday. All in all, a light data week and earnings officially kick off with AA on Wednesday but the real action doesn't begin until next Tuesday, when our friends at GS report in the morning along with JNJ and MTB, followed by INTC and YUM Tuesday night.

We're going to be playing earnings with a $5,000 stake and we'll be running through a variety of option trading strategies to see if we can profit from the volatility. Our first play will be made on AA, ahead of their Wednesday evening report so make sure you are signed up for a trial report membership as not everything will be published in the morning posts. Hopefully we'll put in a bottom this morning and recover well enought that the EU markets hold their levels, then everyone can take a breath and we'll have a proper test on Tuesday as everyone gets back to work after the long weekend.

OIH short at 100 or so.

2009-07-05T16:02:00.003-04:00

OIH
Here are some key signals to watch for.

***
XLI Chart **

Buying the Dip

2009-07-05T12:12:00.001-04:00

The British Pound has been strong since May. Very strong. Right now we are likely in Wave 4 of a 5 Wave pattern that should take the GBPUSD to around the 1.70 area.

Price has been pretty nicely contained in the pitchfork.The break to the lower median line is a low risk opportunity to buy the dip.

~Happy 4th of July!~

2009-07-04T12:09:00.008-04:00

Independence Day is more than a chance for family and friends throughout the country to gather for barbecues and fireworks displays, it is an annual celebration to commemorate the courage and faith of our founding fathers in their pursuit of liberty.

Here is the History of 4th of July!

Here is President Obama on Patriotism:

Here is a 4th of July video gallery!

Bottom Line:

T.G., Jr. and I are going to the Berkeley Marina today with a very good friend of mine and his 2 daughters! woohoo! Doesn't this sound like fun?

It’s a day full of fun starting at noon on the 4th of July. The south shore of the Berkeley Marina at the bottom of University Ave. is filled with great stuff to do all day. Adventure Playground, always a favorite, is open 11am-8pm. Sign up for an old-fashioned sack race or get your face painted. Try the giant slide or splash in the water at the beach. lots of international food booths. Live entertainment from noon until 9PM on the main stage. There’s art & craft booths, massages, free sailboat rides from 1-4pm, dragon boat rides from 2-6pm, and much more including the grand fireworks off the end of the Berkeley Pier at 9:30 p.m.Have a safe and happy holiday everyone!

xo

Stocks Going Ex Dividend during the Second Week of July

2009-07-04T02:24:00.001-04:00

If you want to try the stock trading technique called 'Buying Dividends,' which is the process of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend, there are many stocks to choose from. This technique generally works only in bull markets.

When you buy dividends, there are many stocks in many different sectors to choose from. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can't sell the stock until after the ex date. The actual dividend may not be paid for another few weeks. WallStreetNewsNetwork has compiled a free downloadable and sortable Excel list of the stocks going ex dividend during the first half of July. They came up with many companies all with market caps over $500 million. Here are a couple examples showing the stock symbol, the ex-dividend date and the yield:

Progress Energy, Inc. PGN ex-div date 7/8/09 market cap $10.3B yield 6.6%

Teekay Corporation TK ex-div date 7/8/09 market cap $1.4B yield 6.6%

The rest of the ex-dividend stocks can be found at wsnn.com. If you like dividend stocks, you should check out the high yield utility stocks and the Monthly Dividend Stocks at WallStreetNewsNetwork.com or WSNN.com. For more details on dividend definitions, check out definitions of dividend dates. Don't forget to reconfirm the ex-dividend date with the company before implementing this technique.

Author doesn't own any of the above.

By Stockerblog.com

A Little Science Fiction…or Maybe a Way Out?

2009-07-03T11:40:00.003-04:00

It is a quite day on the market and a quite rainy day in general where I live so I thought I would dust off my electronic quill and finish this article I have been working on for a while now.
My formal education was technical and as such I approach my trading (such as it is) from a very technical perspective. I have read numerous long term forecasts for the market. I remember reading one article that claimed we are now in wave four of an Eliot wave pattern that is centuries old. Thus this correction will be even more severe than the great depression of the 1930s. I have read other articles where the analyst sees a double top in the S&P500 over the last ten years. Since we have broken the neckline, that projects down to about a value of 200 for the index as some point.
These are all very dire predictions for how bad things will get and where we are headed and quite frankly it is scary indeed. Not to fear though these are just silly lines on a chart right? After all, our political leaders have everything under control and once they have finished printing their way to wealth I am sure that the world will be alright again. If you read the news it seems everything is just getting better and better all the time now. There are green shoots all over the place as far as the eye can see! (read: sarcasm!)
I don’t claim to be smart enough to know whether this is true or not. I will tell you that personally I believe charts which only describe the honesty of time and price, more then I trust anybody’s opinion. Beyond trading though I wanted to offer up some thoughts in a general sense on where I think we are headed.
First when an economic recovery takes hold it will have nothing to do with anything that government is currently doing. In fact, the policies to date will hinder that recovery as their primary goal is wealth preservation of the mega rich and do not address wealth creation. A new economic expansion must come as the result of new industry and new industry will come about as a result of innovation.
So what will drive this new era of prosperity when it shows up? I have an idea and I will share it, although this may lead some to question if I am serious or not, but first let us take a look backwards. The last century or so has seen changes in our world that would seem like magic to those who lived before this time. They have been quantum leaps forward. These changes, when they came moved us forward in some way by orders of magnitude. When the industrial revolution came it allowed us to make orders of magnitude more replicas of goods then we ever could before. Increases in manufacturing lead to all kinds of innovations like air travel. Air travel allowed us freedom of movement orders of magnitude faster than anyone ever had before. Imagine telling someone in the 1870s that within one hundred years you could start from any major city in the world and within 48 hours be in any other major city in the world and that this would be possible to ordinary citizens, not just a privileged few! It would have been almost impossible for them to believe or understand.
Our industry and manufacturing lead us to the ability to make things orders of magnitude smaller then we had ever done before, and this lead to the semiconductor industry. Integrated circuits lead to personal computers and the ability to process information on a scale orders of magnitude larger then every before. Semiconductors also lead to the internet and information age. We now have access to orders of magnitude more information for orders of magnitude less cost than ever before. Imagine telling someone from the 1950s that within fifty years you could get information from anywhere to anywhere else instantaneously and almost for free! I would never have been able to share this blog post with you even twenty years ago, the technology just didn’t exist.
So what is next? My guess is the next leap will be with energy. Within fifty years I believe people will have access to orders of magnitude more energy at a tiny fraction of the cost they do today. After all energy is the most abundant thing in the universe. In fact the only thing the universe has more of is space! We are virtually starving surrounded by abundance. Oil was an easy source of energy. At the start it was just laying on the ground. A pre packaged source of energy stored in chemical form that the world just gave us. Now we are going to have to be smarter though.
Oil is heavy. We need to get smarter about the way we store energy. In the future I can imagine a device that fits in the palm of your hand, weighs less than a pound and contains more energy than a tank of gas: a portable power cell that allows us to carry energy with us just like we carry information today in the form of portable communications devices. The key to Tony Stark’s Iron Man was the power source. Why can’t we all have personal flying machines? Two reasons: the energy is too expensive and it is too heavy!
So how do we generate the energy in the future to begin with? Nuclear! I do not believe that the current fascination with windmills and solar panels will last. I believe that with the invention of nuclear fusion reactors that produce electric power cleanly will see the end to all this supposed “green energy” technology.
So if I were in charge which I am not I would take all that money that has been spent on bailouts and instead invest it in research and development of nuclear energy and energy storage. I think that will be the future and some sign of a significant advance in these areas will be the sign that a new and powerful bull market is finally at hand and companies in this area will emerge as the new market leaders.
I know this doesn’t help with the next trade and it doesn’t help if you are out of work. So what to do in the mean time? Well what I am doing is learning everything I can about wealth. The more I understand wealth the harder it will be for bankers to screw me over. I am trying my best to be flexible and adaptable and learn new skills. I have heard so many tell me that there is nothing they can do about this so they would rather not think about it. Maybe they are happier that way, but for my part I would rather go down fighting with my eyes open then just put my head in the sand and let this thing plow me under.

Short Weekly Wrap-Up

2009-07-03T10:00:00.001-04:00

Wheee, what a great way to end the week!

As I mentioned in yesterday's post, we had gone into the day flipping our short firepower to BG $60 puts at $1.30 and TOT $55 puts at $1.20 as well as our remaining DIA $84 puts at .84. We went back to cash for the weekend but consider that the DIA $84 puts finished at $2.04 (up 142%), BG $60 puts finished at $2.10 (up 61%) and TOT $55 puts finished at $2.83 (135%) and you can see how even small allocations out of cash yield very nice one-day returns on put options. You do not have to take big risks to make big rewards, playing put options allows us to stay flexible and mainly in cash without "missing" too many market market moves.

We blew right through the upper targets I set in the morning and the Dow flew right down near enough our 8,250 (June lows) target that it looked bounceable, as the other indexes were holding up better than the Dow we felt we could play it for a small recovery over the weekend. We picked up some DIA $85 calls for .76 but elected not to DD at our scale-in target of .64 into the close as we already had bullish plays on ZION as well as Dow components AA, BA, GE and PFE, all longer-term plays that we are looking forward to adding to cheaper if they keep heading down. VLO and SNY were added in the afternoon as well as a UNG spread since they decided to just give it away at $13 again.

While we are just dipping our toes into some long posItions, it is the first time in a month we've been happy enough with the pricing to even take a chance. Of course we maintain our long put covers (just in case) but what's the point of having protection if you have nothing to protect? On the whole, the volume simply wasn't that impressive and we attribute much of this drop to people who were "shocked" that the economy isn't as good as they thought it was (cough, Cramer fans, cough, cough) but it's EXACTLY as weak as we thought it was and that means there are certain price points we are willing to hit long-term. Kudos to all who patiently waited with us for pretty much the whole month of June - now comes earnings, where we will really separate the men from the boys!

Keep in mind we are not bullish, this is a shift to neutral from 100% bearish in our unhedged positions (as opposed to the $100K Portfolio) but nothing has happened to change our mid-range target of Dow 8,650, where our trading range is expected to be 5% down (8,217) and 5% up (9,082) as we consolidate and build a proper base. These low volume "rallies" have simply not been enough to justify a move outside of the range and I've been saying that since Labor Day and it's really kept us out of trouble but let's not confuse my bearish attitude at 9,100 with a bearish stance 10% lower than that. While we may overshoot the range to the downside, unless something gets fundamentally worse, we will continue to to bargain hunt at what we hope is going to be an established bottom through earnings.

All we ever wanted was a proper bottom retest, something the pump-monkeys were afraid to give us in June. Just last Friday, as we came off Thursday's massive stick save, I said "Just Stop the Madness Already" where I pointed out: "The media can do their sunshine and lollipops dance all day long and I guess that’s one of the reasons I start turning negative - just trying to balance out the nonsense. I am optimistic that, long-term, we can work our way out of this crisis but we need to do it through hard work, not make-believe games that everything got magically better with no pain at all and, until the market begins to embrace that reality, I will continue to watch the sky for signs of cracks, just in case." So THIS is what we want to see, media sentiment has turned sharply negative in just 7 days, forcing Cramer to flip-flop like a goldfish that jumped out of his bowl and NOW we can see what levels hold up.

In the weekend wrap-up I noted that our best plays of the month had been our premium-burning plays, where we sell options to suckers who think they are going to get rich off a market move that never comes. What moved us off the sidelines to make our own bearish bets this week was a combination of Monday's overly exuberant rise baack to 8,550 on what we thought was poor data as well as the crash of the VIX which made the puts we wanted to buy much cheaper than they had been. It's simple logic - when the options get so cheap that we no longer want to sell them, then it's time to buy them. When the options seem too pricey to buy, then it's time to sell them. Monday the VIX hit 25, a level we haven't seen since last September - gosh, that seemed like a pretty obvious place to call a bottom, right?

My job is not really that hard, I just pay attention to stuff and try to make connections so we can build our investing premises on something more logical than a sound effects board. Monday morning I noted that oil was being irrationally jammed back over $70, despite the FACT of the EIA forecast that CUT demand estimates by 3.5%. We have been patiently shorting oil since it first hit $70 and congrats to all who stuck with the program as we got a huge pay-off this week but we also got a very good example of the old Keynesian chestnut that "the market can remain irrational longer than you can remain solvent" as it was a frustrating trade to ride out for the month of June.

We remained cautiously in cash on Monday, DIA $86 puts for $1 were huge winners and a long-term TNK spread seems like we hit it right at the bottom while PGH ($5.30/6.40 hedge) is still looking weak. I mentioned to members in comments at 1:50 on Monday as we watched the action: "If all that energy excitement couldn’t get our other indexes over the hump, I’m felling pretty good about the DIA puts." At 2:49 I put up a chart of year-to-date Dow performance and that's where our GE and PFE picks came from on Thursday as they are 2 of the 4 worst performers for the year and we think they've suffered enough.

Tuesday morning I was already predicting that Q2 would be ending "with a whimper" and that pretty much sums up the action for that day although it wasn't an obvious call as the pre-markets were up and I had to work very hard to talk members out of BUYBUYBUYing, as they were being told to do by the MSM. As I said in the morning post: "It’s dull to stay in cash, it’s like going to the track and not betting on any races." I also pointed out that: "Commodities are trading like .com stocks, where no business plan is required as long as you sell something that can be traded on the ICE or the CME, where EVERYTHING is valuable to somebody. Not since YHOO was priced at $300 a share has the greater fool theory been more evident with more and more investors chasing fewer and fewer commodities as the reality of production shutdowns due to low demand meets the unreality of a speculative bubble that is fueled by wave after wave of new buyers, who can’t find anything else to put their money into so they chase the only "performing" sector and that’s commodities." Amazingly, just 3 days later, suddenly my viewpoint has gone mainstream and now the press is full of articles that are down on commodities, even oil...

Our first trade of the day on Tuesday was GS $140 puts at $2.13, those finished the week at $3.40 (up 60%). That was a 9:53 play, notice we like to buy things that are going the "wrong" way - it's cheaper that way! My bearish stance was confirmed just 7 minutes later when we got a huge drop in Consumer Confidence and my alert to members was: "Consumer confidence 49.3, down from 54.8 and CNBC trying to confuse people and making it sound good! This is just stupid! IT’S A 10% DROP YOU MORONS!" Hopefully it was understood that I was calling CNBC morons, not our very intelligent Alert Subscribers - in an effort to get things out quickly I do sometimes end up regretting my syntax... I'm sure I will be forgiven either way as our DIA puts just went up and up and up during the day as the Dow moved straight down without triggering our trailing stops. I even called the end of day action at 10:36 as I predicted we'd get an afternoon market pump if we could hold 8,400 - and that's exactly what happened.

At 2:17 on Tuesday afternoon I decided we were going to get that afternoon pump and called us back to cash saying to members: "I’m thrilled to get the short plays off the table and get back to cash into the uncertainty." That was fortunate as we got our EOD "stick save" and then a huge pre-market rally that took the indexes all the way back to the week's highs - giving us a great opportunity to short them again. Wednesday morning I was downright incensed at the pre-market move and I pointed out that the whole pre-market move looked like manipulated BS, saying: "The window dressing has been accomplished for Q2 and now we’ll see if all the lipstick they put on this pig will attract any buyers as we begin Q3. We’d love to see earnings reports catch up to the massive increases in valuations but please, show us the money first - we’ve had enough happy talk for now."

LCC got cheap enough for us to go for a leap spread but that was for fun, By 10:35 we got the energy report we expected and, as many of us were already short USO, we went with the OIH $95 puts at $1.58, followed by the DIA $84 puts at .84 which were, as I said on our 10:43 entry: "a really easy inflection point to play off." I liked those DIA puts so much that I reminded members at 11:08 saying: "Speaking of gambling - Very little movement on the DIA $84 puts so far, still .87 but now we are clearly below all our watch levels." At 11:52 I set the target for oil saying: "hopefully they capitulate a little here and we fall back to $68.50, maybe a bit lower than $37 on USO." That was dead on for the day but we got a really nice bonus follow-through on Thursday.

As I mentioned above, we added the very rewarding TOT and BG puts Wednesday afternoon and, after hitting our bearish targets, we were willing to take a few bullish pot-shots ahead of the holdiday weekend. In this morning's action, the Nikkei gapped lower but recovered 100 points to finish at 9,800 (down 0.6%) while the Hang Seng also recovered all of a 250-point drop and finished the day up 25 points at 18,203 while the Shanghai continues to march higher, adding yet another point. As commodity stocks led the declines, I do not consider this bad market action - the healthiest thing that can happen is for us to rotate out of commodity stocks and into the earnings winners so we can build a functional base.

Europe is flat this morning but not so bad considering retail sales for May were down 0.4%, reversing the 0.1% gain last month. Banks were leading to the upside as UK homeowners paid down mortgage debt according to the BOE. As with Asia, Europe is overcoming a poor open to struggle back to flat so we'll be likely heading into this weekend in pretty much the same place we started the week internationally but, hopefully, just a little bit wiser as we head into earnings.

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