Thirty-Three Percent Thursday - Big Chart Review

by Phil - November 17th, 2009 10:58 am

Whee - we finally made it!

In an UNBELIEVABLE move off the bottom over the past 6 months and one week, we have gained 58% on the S&P and have finally crossed into our 33% levels (from the highs) that we first set as upside targets back in our July Big Chart Review.  At the time I said "I just don’t see that happening without a pullback" yet here we are, with barely a wiggle down since I wrote that on July 27th and up 20% from our July 13th S&P base at 880.

Have we been too bearish?  Is it now natural for the market to rise 20% in 2 months without a pullback?  Are we really 20% better off than we were 2 months ago?  History tells us not to mess with the 5% rule so we SHOULD encounter powerful resistance here as we approach the zone of a roughly 60% move off the March lows as well as 30% off our highs - it’s going to be a rough 2.5% from here.  As you can see from the above chart, we have already exceeded all previous recoveries by almost 100% at this point in the cycle.  And why not, our government spent $9 TRILLION dollars to do it so we damn sure better have a pretty chart as a souvenir!  The other rally that had a spectacular recovery was the the great crash of 1929 (the grey line). 

In the 1929 crash, the stock market fell first, not the banks, which didn’t begin failing until 1932 as lack of electronic data and next-day mail meant it took a lot longer for the late payment and foreclosure cycle to start impacting bank balance sheets.   Also, of course, they were nowhere near as maniacally levered as today’s institutions.  In 1929 the banks did not play the market, they simply lent money to people who invested in stocks, businesses and properties that went bust so there were two distinct waves to the market crash in the Great Depression:  First the people went broke, then the banks.

Unemployment in the US in 1930, a year after the crash, was only 8.7% - less than it is now.  No one at that time thought it was important to help the average American get back on their feet after many of them lost their life savings and went deeply into debt as their homes dropped in value and jobs became scarce.  It was only after…

Posted in Uncategorized | 159 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Popular Bank Shares Surge as Option Player Stakes a Claim

by Andrew Wilkinson - September 16th, 2009 9:25 pm

Today’s tickers: BPOP, LNCR, EEM, XLK, XL, PALM, LIZ & MI

BPOP - The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger rally lifting shares towards $3.75-resistance level. If this is the case, he is likely to exercise the calls by October’s expiration and take delivery of the underlying shares to ride with the stock’s upward momentum. Even if the move continues somewhat, it would likely reverse the structure of this trade to his advantage. – Popular, Inc. –

LNCR - The provider of oxygen and respiratory therapy services attracted option bulls today with shares of the firm standing more than 13% higher for the session to $29.85. Option implied volatility on LNCR exploded 50% higher from a low of 32% this morning to an intra-day high of 48%. The burst in volatility is likely due to increased investor demand for calls on the stock as well as greater uncertainty regarding future price movements in shares of Lincare. Perhaps the rise in uncertainty stems from news that Deutsche Bank raised LNCR’s target price from $33.00 to $38.00 today and maintained their ‘buy’ rating on the stock. Investors gobbled up 2,200 September 30 strike calls for an average premium of 31 cents. The contracts will expire worthless unless shares breach the $30.00-level to land in-the-money by Friday. Bullish sentiment spread to the October 30 strike where traders coveted 2,400 calls for about 71 cents premium. Investors long the calls will begin to amass profits if shares rally through the breakeven point at $30.71 by expiration in October. – Lincare Holdings Inc. –

EEM - The emerging markets exchange-traded fund jumped higher on our ‘most active by options volume’ market scanner this afternoon after…

Posted in Uncategorized | No Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Why Worry Wednesday - The Recession Is Over?

by Phil - September 16th, 2009 8:30 am

Uncle Ben says the recession is "very likely over" yesterday:

Even though from a technical perspective the recession is very likely over at this point, it is still going to feel like a very weak economy for some time as many people still find their job security and their employment status is not what they wish it was.   

Yeah, it sounds better in the headlines than when you quote the whole sentence and watching the video gives you even less confidence.  Speaking of confidence - I reminded members yesterday that there is no economic forecaster we should have less confidence in that Ben Bernanke:

• July 2005:  "There was no housing bubble and housing prices are supported by the strength of the economy." 
• Nov 2006: "The motor vehicle sector is already showing signs of strengthening" and "The rate of decline in new home construction should slow as inventory is worked off."
• Feb 2007: "We expect moderate growth going forward.  There is not much indication that sub-prime mortgage issues have spread into the broader mortgage market."
• July 2007: "Home sales should ultimately be supported by growth in income and employment…  The global economy continues to be strong.  Overall the US economy is likely to expand at a moderate pace over the second half of  2007, with growth strengthening a bit in 2008."

$9,000,000,000,0000 in bailout spending later, Mr. Bernanke is now telling us the recession is LIKELY over and that’s good enough for our man Cramer to tell his sheeple: "Sentiment is so negative right now it’s out of synch with reality.”  This clip is worth watching just to hear the way Cramer sneers the phrase "Nobel Prize-winning economist" as if that title, by itself, means you should dismiss Joseph Stiglitz out of hand as he warns that current bank problems are bigger than pre-Lehman.  Cramer calls Stiglitz’s article: "So stupid, wrong and anti-empirical that it’s just downright silly that it doesn’t even dignify the use of video-tape or digital or whatever they do now."   I know this sentence makes no sense but it is an exact quote. 

Jim does manage to plug his new book during this tirade against the man who has been working with the EU and other top economists to change the way GDP is measured to focus on actual improvements in the lives of the citizenry rather than just the corporations.  GDP has long been an inaccurate measure of a country’s economic prosperity:  It can make countries like Malaysia, who are tearing…

Posted in Uncategorized | 165 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

The Oxen Report: The Tech Money Making Pick You Didn’t Know

by David Ristau - September 16th, 2009 8:19 am

Tuesday was good and bad for the Oxen Report. Our short sale of the day worked very well for us. I chose Ultrashort Proshares Oil and Gas for our short sale of the day due to my expectations that oil would drop in price as the market rallied and going into crude inventories. We opened our position at 14.65 and were looking for a sale price of 14.36 - 14.22. The stock just met 14.36 for a great 2% gain on the day! On the other hand, Best Buy was not as successful. We entered our position at 40.10 and were wanting to exit around 41.00 - 41.20. The stock, however, dropped 3% and hit my stop loss point before bouncing all the way back from the lows of the day to hit 41.14, right in our range. If you held, you made 2.5%, but if you stop lossed like I do, then you were 3% in the hole.

Result: 1/2, 2% gain on short sale and 3% loss (sort of) on buy pick.

The Buy Pick of the Day was the only the second miss the Oxen Report has had in the past two weeks! On to today…

Buy Pick of the Day: Electronic Arts Inc. (ERTS)

At 8:30 AM, Core CPI numbers came in right as expected, which is probably the best thing that can happen. The CPI is the Core Price Index, and it measures inflation. An increase in the CPI means higher prices and lower signals deflation. The CPI rose by 0.10%. There is a slight rise, but it was not signficant. Another piece of data was the Current Account, which measures the difference in worth between exported and imported goods, services, and interest payments (exports minus imports). This number was lower than expected, and it is a sign that American goods are worse off than expected. The news is not great for exporters, but it probably is not a market mover.

While Electronic Arts is one of those exporters, the stock is also my pick of the day. Over the past month, Electronic Arts has dropped just under 15% in market value. In the past week, it has dropped just over 5%. The reason is due to weak deman in video game sales that have been released in the past two months. Madden 2010, for example, which is the bread n butter of ERTS’ gaming life, took a 15% hit…

Posted in Uncategorized | 20 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Joy Global Calls Active

by Andrew Wilkinson - September 15th, 2009 4:11 pm

Today’s tickers: JOYG, VRSN, GE, DAL, TER, SCHW & KR

JOYG - The mining equipment manufacturer has enjoyed a more than 2.5% increase in shares during today’s session to stand at $44.40. Investors hoping for continued bullish momentum for the stock busied themselves with buying up call options in the September contract. It looks like nearly 8,000 call options were coveted for an average premium of 85 cents apiece at the now in-the-money September 44 strike. Investors holding the calls have the right to take delivery of the stock at $44.00, but they will not realize profits unless shares of JOYG climb through the breakeven point at $44.85 by expiration on Friday. – Joy Global, Inc. –

VRSN - Internet infrastructure services provider, VeriSign, jumped onto our ‘most active by options volume’ market scanner today after 25,000 call options were traded by one investor targeting the December contract. Shares of VRSN are currently trading flat on the day at $22.46. The chunk of 25,000 calls were traded at the out-of-the-money December 25 strike for an average premium of 87 cents per contract. It appears that the calls were tied to shares of the underlying stock. It could be the case that the investor is taking a bullish stance on VRSN by initiating a covered call. If this is the case, the trader purchased shares of the underlying and simultaneously shed call options. This strategy would partially offset the cost of getting long the stock by the amount of premium received and establish an effective exit strategy. The covered call reduces the price paid per share to about $21.59 and positions the trader to attain maximum potential gains of 3.41 – or 16% – in the event that the stock rallies higher than $25.00 by expiration. Shares would be called from him by expiration day if the calls were to land in-the-money. Another possible motivation for the call transaction is that the investor is decidedly bearish on VeriSign. If this is the case, the trader sold the stock short because he believes the stock will fall, and then bought calls as an effective stop-loss strategy. If the stock should rally by expiration rather than decline, the trader can purchase the shares for $25.00 each to cover his short position and cap potential losses. – VeriSign, Inc. –

GE - As its shares rally, option traders are increasingly attracted to bullish call options on the industrial conglomerate.…

Posted in Uncategorized | No Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

The Oxen Report: Retail Leads the Way for Market

by David Ristau - September 15th, 2009 8:25 am

I am changing up the format a bit on The Oxen Report starting today. Let me know what you think. Yesterday, our buy pick of the day was very successful, giving us a solid 3% return. At 8:15 AM, I chose E*Trade Financial Corp. (ETFC) as my buy pick of the day. In my Oxen Report Morning Levels alert for members, I suggested entering E*Trade at 1.72 for an entry point with an exit at 1.79. After five minutes of the open, E*Trade pulled back to 1.72, where we opened the position. By 9:45 AM, the stock had reached 1.79 for a 3% gain. Yingli Green Energy (YGE) was our Short Sale of the Day. Unfortunately, this stock did not work as well due to the rally in the market. A First Solar downgrade, as well as, a heavily overweighted YGE was the thinking behind the pick, but the stock got too far down in price in the morning, and we entered at too low of a price with 12.55. We got stopped out for a 3% stop loss at 12.80. Went 1/2 yesterday, but made that great 3% on ETFC.

On to today…

Buy Pick of the Day: Best Buy Inc.

Typically, one does not select a company that missed its EPS and profit estimates for its second quarter results as its buy of the day, but I like the prospects for BBY. The company did miss estimates and is only down 1% in pre-market trading as of 8:30 AM. Why is that? The company made $158 million in profit in its Q2 results, which was down 22% from one quarter ago. The company hit an EPS of 0.37, while analysts had been expecting the company to hit an EPS of 0.42. On the other hand, the company grew revenue 12% beating expectations and raised its full year outlook from 2.50 - 2.70 EPS to 2.70 - 3.00 EPS, with analysts expecting 2.87 on average.

A lot of numbers but what it really means is that the company grew its revenue from one year ago and was able to raise its full year outlook while missing profit estimates in the short term. So, in the long term, the stock’s book value is higher for the full year based on its raise in expectations. This makes the long term prospects of the company better, but in the very short term, it is not as strong.

With the way the…

Posted in Uncategorized | 4 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter