Monday Mop-Up
by Phil - April 30th, 2007 10:53 pm
What was that?
We had a sudden, very broad-based drop-off at 2:17 and there was no clear indication as to what caused it. Luckily, I didn’t like the market at 9:47 when I said: "I think we have a buy opportunity on semis if the broader market holds up but meanwhile – 20% of profit stops as we need to lighten up anyway." I added: "AMZN doesn’t care, JDSU doesn’t care, HPQ and Dell don’t care, GOOG doesn’t care – could be time for tech if the SOX can shake it off. If the companies I just mentioned start tanking, then we run away!"
Well it turned out to be an excellent time to run away as we had a nice run-up in the morning that let us stop out of a lot of our positions ahead of where we were at Friday’s close. We got stopped out of 17 positions in the end including a lot of big winners that we just couldn’t leave on the table:
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Symbol |
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Qty |
Paid |
Sold |
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P/L |
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| AAPL | M | $ 100 | C |
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DiggJust Another Manic Monday
by Phil - April 30th, 2007 9:26 am
This week we’ll get a chance to see what happens to your leaps when a stock comes out of bankruptcy.
We’ve been buying an selling DALRQ (soon to be DAL) Jan $2.50s since 12/22 and have done quite well as they bounced from our nickel buys to as much as .30 but have flatlined at .05 since early February when we lost interest. There’s still 62 left in the LTP, worth a whopping $310 and people often ask me about buying bankrupt stocks so this will be an intereresting exercise for the week! This leaves NWACQ as the last airline operating in bankruptcy.
We have a busy busy data week ahead of us so it’s time for the famous Briefing.com chart:
| Date | ET | Release | For | Actual | Briefing.com | Consensus | Prior | My Guess |
|---|---|---|---|---|---|---|---|---|
| Apr 30 | 08:30 | Personal Income | Mar | 0.5% | 0.5% | 0.6% | .6+ | |
| Apr 30 | 08:30 | Personal Spending | Mar | 0.6% | 0.5% | 0.6% | .5 | |
| Apr 30 | 08:30 | Core PCE Inflation | Mar | 0.1% | 0.1% | 0.3% | .2 (rounded) | |
| Apr 30 | 09:45 | Chicago PMI | Apr | 53.0 | 55.0 | 61.7 | 57 | |
| Apr 30 | 10:00 | Construction Spending | Mar | 0.1% | 0.3% | 0.3% | .2 | |
| May 01 | 10:00 | ISM Index | Apr | 51.5 | 51.0 | 50.9 | 51 | |
| May 01 | 10:00 | Pending Home Sales | Mar | 0.4% | 0.7% | .6 | ||
| May 01 | 17:00 | Auto Sales | Apr | 5.2M | 5.2M | 5.1M | >5.2 | |
| May 01 | 17:00 | Truck Sales | Apr | 7.1M | 7.3M | 7.2M | <7M | |
| May 02 | 10:00 | Factory Orders | Mar | 2.4% | 1.0% | 1.0% | 1.5% | |
| May 02 | 10:30 | Crude Inventories | 04/27 | NA | NA | 2074K | +1 | |
| May 03 | 08:30 | Initial Claims | 04/28 | 325K | NA | 321K | >325 | |
| May 03 | 08:30 | Productivity-Prel | Q1 | 0.8% | 1.1% | 1.6% | 1.2% | |
| May 03 | 10:00 | ISM Services | Apr | 54.0 | 53.0 | 52.4 | 54 | |
| May 04 | 08:30 | Nonfarm Payrolls | Apr | 115K | 100K | 180k | 125K | |
| May 04 | 08:30 | Unemployment Rate | Apr | 4.5% | 4.5% | 4.4% | 4.4% | |
| May 04 | 08:30 | Hourly Earnings | Apr | 0.4% | 0.3% | 0.3% | .4% | |
| May 04 | 08:30 | Average Workweek | Apr | 33.8 | 33.8 |
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Smart virtual Portfolio Management – Part III – $1,000,000
by OptionSage - April 29th, 2007 5:30 pm
Options Sage submits:
Before we kick-off on part III of our Smart virtual Portfolio Management trilogy, let’s see why it is even more important than ever to employ intelligent virtual portfolio management:
Bizarro World
Bizarro World has arrived! Phil summed up Bizarro World with these words “a drop in Asian markets doesn’t bother us and a collapsing
Is the collapsing US Dollar worrying anybody?!?! Should we really care that the dollar is so low?
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1 Euro buys almost $1.36
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1 Pound
Sterling buys $2.00 -
1 Aussie Dollar buys almost $0.84
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1 Swiss Franc buys almost $0.83
Perhaps not…at least the Europeans seem happy for the moment… I knew the dollar was really weak when my European friends decided it was cheaper to fly from Heathrow to JFK, stay for a weekend, shop each day and return home rather than simply get the bus into the city center and buy holiday presents in Euros!
At what point does this become a real concern? Perhaps when 1 Euro is worth $1.50! While it might seem from the European perspective that this would mean even cheaper vacations to the US and even cheaper presents to bring back home, European exporters may experience a drawback as they run into a rising wall of resistance as the unattractive currency conversion tightens the belt on demand for their goods.
Maybe we shouldn’t care at all when we can put our money in Google…I am sure everybody read Phil’s excellent article but for emphasis let’s just highlight the quarter’s earnings one more time: 1 BILLION Dollars! How the stock closed Friday at only $482.48 I just don’t know but any creative hedge fund managers out there who do know are encouraged to drop me a line!
I am still amazed that Google has 3.5 times as much cash as Ebay, has a 60% higher profit margin, 40% higher operating margin, its all important return on equity is 23% (versus Ebay’s 10.7%), has…
Weekly Wrap-Up
by Phil - April 29th, 2007 3:05 pm
Well that was a pretty good week!
Thanks to BIDU and Google our $10,000 virtual Portfolio is now worth $17,051 just 34 days after we opened it. While you could say this was, to some extent, just fortunate timing – we did make a lot of really good adjustments to get to where we are today!
The 95 remaining open positions in our Short-Term Porfolo have an average open gain of 115% but the more important gain on cash is 29% and we closed 53 positions this week with an average gain of 121%, our best of the year so far. Because we sold a lot of positions the gain on cash was over 100% as well, which means we deployed no additional capital to make our 121% return - this is why you MUST use a broker that lets you do spreads, it is a night and day difference in your risk management.
Ironically we didn’t sell positions (for the most part) against our Long-Term virtual Portfolio as we saw this rally coming a mile away and our average open gain in that virtual portfolio is now 160% on 46 open positions but my trigger finger is very itchy on that side as 28 positions remain uncovered.
Even our pokey 18 position Stock virtual Portfolio has gained an average of 19% on 60 average days open so I would have to say that we were just very lucky to happen to be very bullish this month – but I’ll take being lucky over being good, we can always work on being good later!
Our special (and temporary) Google virtual Portfolio had 22 positions that were open an average of 11 days and have returned 96% so far with just 8 plays remaining open. That spreadsheet will be available along with the others on the members site today and anyone who doubts the rule "ALWAYS sell into the initial excitement," should compare the value of what we got out of on the 20th vs. what some of the open contracts are worth now.
I’m not going to bore you nice people reviewing how right I was about the markets – obviously you don’t generate these kinds of returns being wrong – and I’m a lot more concerned with protecting the positions we have on the table because taking profits off the table, as we did this…
Friday virtual Portfolio Moves
by Phil - April 27th, 2007 5:03 pm
BIDU – what a Jackpot – $23 for the June $105s and just $22 for the May $105s – I was worried we’d get 0 on the spread. If you are still in the $105s, rather than sell the ones you have you can sell the $115s, which carry a pretty good premium and should give you a good cushion but I’m happy to take the cash.
MSFT – I’m pretty disappointed with the double but we’ll take it! Selling the $30s for no less than .80 (hoping for a bounce here) is a good idea over the weekend and I’ll buy them back for $1 on mo. XXX
Rally on expected Fed easing – economy is down but not out and housing was 85% of the problem with the other big hit coming from less governement spending, not really a bad thing!
SNDK moving up on the loss. I’m holding off on buying out my caller for now.
QCOM is an accumulate here, sell-off for them seems unwarranted. I’m willing to go with the current $45s at .95, the May $95s are $1.70 so you’re getting you money’s worth with 3 weeks to go.
CME suddenly woke up! $530s as a dangerous momentum play for $12
CME – will be selling the $540s for $8 if it crosses down below $526 against $530s, that will put time on my side for the weekend.
BRCM is on the 5% rule, until they break $33.50 this is not a bounce. If they can’t crack that they are likely to head to a new LOD
CMI – what is up with this market? We knew days ago they were going to beat and look at the gain today! That’s just too much, I’m going with the $100 puts as a mo play XXX…
GDP Friday!
by Phil - April 27th, 2007 9:24 am
It’s all about the GDP today and the whisper number is a miss of what now seems to be a 1.9% average estimate (down from 2.5% last Q). I’m not quite sure how we get a GDP miss with 68% of the S&P 500 beating estimates but it sure is spooking foreign investors this morning.
[8:30 update: It's a big miss! 1.3% and inflation is up - Stagflation Rules!]
Asia dropped 1% today, finishing down a point for the week after 2 really nice days. They were down 2% on Wednesday so it’s not awful but there was a lot of nervous profit taking ahead of China’s week-long market holiday. The BOJ held rates steady but warned of future increases, sending chills up the spines of carry traders. Japan’s 2.1% GDP growth is up from zero, so that’s pretty impressive and the Japanese are worried about the lack of inflation after their decade-long deflationary cycle. "The economy is likely to continue its sustained expansion with a virtuous circle of production, income, and spending in place," the central bank said in the report.
Mazda earnings jumped 24%, led by strong North American sales in SUV and compact cars and I mentioned Matsushita’s 41% gain yesterday. PC sales are booming at Acer, the world’s #3 computer company, which bodes well for our HPQ calls. The dark spot on Asian earnings was NTT DoCoMo as Japan’s biggest cell phone carrier posted a 25% drop in income as they fight to keep market share.
European markets were weak ahead of our GDP and the numbers I’m seeing are unlikely to help but watch what happens next week when there is nowhere else for money to go. Japan is closed Monday, Thursday and Friday and China is only open on Monday and there are fears that Chinese officials may take advantage of the holiday to announce Central Bank tightening while the markets have time to digest it.
Commodity prices are coming under pressure in Europe as regulators there are beginning to fine de facto commodity cartels for price fixing. This is coming at the same time as Democrats here are calling for excess profit taxes, well timed in the face of another round of record oil company earnings.
We will be THRILLED to hold 13,000 today – as I said, next week there really won’t be…
Thursday Wrap-Up
by Phil - April 26th, 2007 11:30 pm
There are so many mergers and acquisitions they can’t even wait until Monday anymore.
Now KKR and GS are buying stereo maker HAR in what I consider a real vote of confidence in the US consumer as they pay a 20% premium for the company, which also makes JBL and Infinity speakers.
I find the timing interesting as Matsushita (Panasonic) just announced a 41% jump in profits as cost cutting enabled them to expand the bottom line despite stiff pricing competition and the declining US dollar (which hasn’t declined as much against the Yen as other currencies). Cutting costs and currency exchange has been a theme this earnings season and that’s a good thing as it undercuts inflation concerns.
Microsoft pulled a gotcha on the analysts in the after hours. They didn’t get us, we’ve been onto the scam they’ve been running since 3/27 when I noticed the well-timed inconsistencies in Microsoft’s various press statements where I said:
"So I guess the question is: Was Steve Ballmer lying on Jan 30th, or on Feb 16th, or was the company lying yesterday or is Steve just so out of touch with something as basic as shipping and sales of the company’s core product that he honestly can do a 180 on the numbers every couple of weeks? - "Let’s give MSFT the benefit of the doubt and just say they are despicable market manipulators who callously move the Nasdaq on a whim, causing great economic upheaval and billions of dollars of investor losses simply to push forward their own agenda. It’s not stupid at all to tank your stock while engaging in a massive buyback program, no sense in paying retail is there? UPOD is one thing but it’s totally irresponsible to "play" the expectations game when your stock is the fulcrum that moves the broader markets."
It was our realization that Microsoft had been dogging their estimates that led us to making a lot of tech investments and we were in and out of a nice April MSFT play already and we just picked up those July calls yesterday, which should do quite well too! MSFT announced a 65% increase in Q3 (for them) earnings and raised guidance and earnings included a large chunk of deferred revenue from Q2 due to the Vista coupons the company issued. You would thing a top-notch CEO would…
Thursday virtual Portfolio Moves
by Phil - April 26th, 2007 10:24 pm
AAPL –
Rule number 1: ALLWAYS sell into the initial excitement
Rule number 2: When in doubt sell half.
Breaking one commandment is forgivable but breking two often brings down the wrath of the markets!
AAPL – May $100s opened at $4.40 and you really should have taken $4 as any profit on a spread needs to be taken off the table ahead of earnings unless you have huge mo. If you’re still holding at $3.40 (puts are .25) then you may as well watch the $100 line and get out even if we lose it or you could DD on the puts and ride the month out but with a spread you need to be thrilled to make 25% – you are lowering your risk by immediately sacrificing what would be a double so a 25% gain on the spread is a 125% gain on one side – expecting better is going to lead to disappointment.
For those of you looking to get out of AAPL on either side, try playing the spikes, we’re probably going to have them in both directions today and I will be looking into working my way into a strangle, starting with an offer of $1.50 on the $100 puts and either getting the $100 calls for the same or grabbing the $105s as a mo play.
TM (5/9) – We took the loss on the $130s on Monday at $1 but now is the time to go for the $125s at $1.50 XXX.
MU – Very greedy to not take at least half at the critical $12 mark – that’s a huge move since our pick. Oops, I stopped out now anyway.
MCD/all other stop questions – Don’t think, set 20% of the profit stops. That means that you take the highest price paid for your contract and, if the price paid goes 20% below that you should sell at least half. 20%…
Thank You Bidu!
by Phil - April 26th, 2007 9:46 pm
BIDU just made our day in the $10,000 virtual Portfolio (now over $15,000). How appropriate that BIDU was the first trade we made when we initiated the virtual portfolio on 3/22!
What a difference a week makes! I was just whining about that ill-timed IBM trade and our hopeless oil puts over the weekend and I’ll admit I’ve been trigger shy this weekend as I didn’t want to risk an earnings play in the $10KP until I saw where we stood.
We’ve been in and out of Bidu a lot this year and we made 2 spectacular trades on it last year so it’s a stock we know well, which is why we committed 2 spreads to it in our $10KP.
Kudos to HappyTrading, King of WangsWorld, who, along with BillBigD, made a great timing trade on this stock back in January. On 1/9, Happy said: "BIDU – Similar to GOOG, but, more momemtum! In with Jan 125 calls @ $2.9 (thought about it at $2.7, but, didn’t act fast enough)." Two days later he hit it on the mark with: "I’m out of BIDU. 130 is high, although it might go higher; but, I watch it for other entry points."
On 1/11 I warned: "BIDU will get dragged down by China if it collapses. If the Dow was at 20,000 and Google was at $950 would you be jumping on the $1,000s? Just be careful! If you own the Feb and Mar $130s – sell them! Especially the Febs." Louis Lee called it DOA at 12:04 that day: "Divorced Bidu call at doubie, left a few as a scout… " to which Juliet made the call of the day, saying: "Should have bought BIDU puts since Cramer said last night “buy buy buy”.
That was it, we lost interest in BIDU just in time, although some people insisted on playing them again around 2/14 earnings when I said: "You’re all mad gamblers on BIDU though! Good luck…" and Prof concurred saying "BIDU – Staying out of this craps roll! Impossible to predict direction here." Those earnings were a disaster and on 2/15 I made a prediction for expiration and set a buy target: "I’ll be surprised to see BIDU finish below $100 – too many putters going in the money. If they do, then the stock is in real trouble…
Thrilling Thursday Morning – In Progress
by Phil - April 26th, 2007 8:56 am
Good morning Global Markets!
It’s a fine day to be a bull with Asia staging a brisk recovery and Europe getting quickly back in gear. MMM and AAPL gave mighty fine reports and are lifting the Dow and the Nasdaq in the pre-markets. Apple’s profits jumped 88% – take that Google! $56Bn MMM made an extra $500M and, although it was mostly from the sale of one of their divisions, that’s one of the ways global corps routinely make money so we don’t really discount those gains.
The WSJ is finally catching up to what we were talking about for the past 3 months – the disconnect between the market and the economy so it must be time for me to move on before they realize 50% of this "rally" is due to the dollar’s decline. Remember, 40% of the S&P 500′s revenues come from overseas and we pay our service sector in declining US dollars and collect rising foreign currencies, it’s a great scam while it lasts. We buy cheap goods from manufacturers who have to pay their own laborers the good stuff while we run the printing presses day and night in exchange for their hard goods – what can possibly go wrong?
I post charts like the one above to remind my readers that we need to take this rally with a huge grain of salt, even as we pursue my weekend plan to "go with the flow." A lot of the worst is already priced in but if we can move through the trough in construction and home sales without too much damage (as Europe did last year), then we may be able to keep at least a junior membership in the World Market Rally.
Asia was the life of the party today with the Nikkei (we picked up the EWJ May $14s for .60 on Monday) adding another 200 points and the Hang Seng chipping in for 130. India took a pause today but held positive at 11 after a week of leadership. The key to investing in Asia is just pick the stocks with the obvious names: China Molybdenum gained 68% in their IPO and the Industrial and Commercial Bank of China continues to fly. Gee, who’d have thought those guys would catch on. I’m waiting for the IPO of All the Tea in China, Inc. as I’ve heard it’s quite a lot!
Another…
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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
(