Monday Morning – The Calm Before the Storm
by Phil - February 28th, 2011 8:15 am
Flat futures this morning.
Isn’t that special? The futures were off a bit very early this morning but the dollar fell below 77 and cheered them right up. Oil is looking like it will be around $98 this morning and gold is flat to Friday at $1,411 with silver at $33.50 and copper at $4.47 – just the normal noises in here, it seems. Tomorrow, of course, is March first and, as we all know, the first day of the month is THE BEST day to go long. 12 of the last 14 first day’s of the month have been up days with the S&P gaining 17% on the first day of the month (Feb 1 not on this chart) and just 1.4% on all the rest of the day’s combined!
So, miss the first day and miss out on the rally is a bit of an understatement, isn’t it? In 2010 alone, the first trading day accounted for 123 of the 134 points the S&P gained. Essentially, the market traded flat the other 200-plus trading days. “Maybe it’s on that first day of the month that the Fed comes in and does its buying,” observed David Rosenberg, economist and strategist at Gluskin Sheff in Toronto. Whether it’s more Fed manipulation or just 401K money pouring in on the adjustment periods – the first day of the month has been as reliable as buying the F’ing dips as an investing strategy and we stick with it until it doesn’t work anymore, right?
February was a real classic with the S&P flying up from 1,276.34 on Jan 31st to 1,307.59 (2.44%) on Feb 1st and then went the next 23 days (through last Thursday) to get to 1,306.10. Friday, however, was a bit out of character with a huge bump back to 1,319.88 (up 1%) and this morning it looks like all stops are being pulled to give us a good February print with (according to Stock World Weekly – who knows all this stuff) another $7Bn of Federal Reserve funny money tee’d up for this morning’s pump job. At 11:10 on Friday the Fed bought $7.24Bn of Treasuries from their pet IBanks, giving them back $65Bn in leverage which they used to bludgeon the bears into the close:
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We did not take advantage of it as we were concerned about the Middle…
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DiggWarren Buffett’s Secret to Making 100% a Year
by Phil - February 26th, 2011 10:51 am
I love the Berkshire Hathaway annual report!
Especially Warren Buffett’s letter to shareholders. The report gives us a great view of the overall economy from a man who has his finger in every pot and his letter to investors gives us a very good insight as to how things are going in the various sectors his operations cover. Most importantly, what I have learned in my own 40 years or reading Mr. Buffett’s reports (my Grandfather was a shareholder) is what should shape any long-term investing strategy: Patience and performance.
I often preach to members the joys of letting gains compound and our $25,000-$100,000 virtual Portfolio, which is currently at $27,531 (up 10%) after 4 weeks, is an exercise in how to quickly compound small gains over the course of a year. Primarily, we try to follow Warren Buffett’s Number One Rule of Investing, which is: Don’t Lose Money. Buffett’s Rule #2 is: See Rule #1 and like us, it’s not that nothing Warren Buffett ever buys loses money – it’s just that he doesn’t ever buy things he isn’t willing to stick with UNTIL they make money. Sure we take a few losses along the road but, by being selective in our entries, we don’t discard stocks that we carefully selected just because the market temporarily disagrees with our valuations.
In our $25,000 virtual Portfolio, it’s only been a month so we’ve only closed our winners so far and they were SPWRA with a 100% gain (these are option trades), INTC with a 40% gain, NFLX with a 42% gain, EDZ with a 75% gain, XLF with a 15% gain, VIX with a 50% gain, USO with a 53% gain and XLE with a 5% gain. In 19 trading day we have made 28 virtual portfolio moves (counting each leg) and, as I said, netted a 10% return to date. Interestingly, we’ve been playing it very cautious as we still have over $18,000 of virtual cash on the sidelines, hoping for a sign to get a little more aggressive next week.
How, you may wonder, are we going to get to $100,000 by December with just $27,531 in February? THAT is the lesson Warren Buffett has to give us and that lesson is COMPOUNDING RETURNS! Since 1965, Berkshire Hathaway has returned an overall gain of 490,409% to it’s shareholders. $10,000 handed…
Fuggedaboutit Friday – Dip? I Didn’t See No Dip?
by Phil - February 25th, 2011 7:38 am
Dip Buyers of the World unite! You have nothing to lose but your 401Ks…
Ah, could there be a more thorough perversion of Marxist ideals than not only confiscating a portion of the workers’ wages but using that money to actually pay for the means of production in exchange for infinitesimal, powerless shares of ownership? It’s BRILLIANT but that’s the stock market, we had that back in 1848 when Marx penned his little Manifesto but what we didn’t have – what should really have old Karl rolling over in his grave today – is union busting. And it’s Union Busting by the Government no less!
While the hunt continues for runaway Democrats, state Senator, Robert Jauch, a longtime Wisconsin lawmaker, said Thursday that – despite rumors that some of his colleagues had returned to the state, "everybody is outside of Wisconsin . . . all of us." Jauch criticized what he called the "police state mentality" of Republicans in the Capitol and took issue with Walker’s assertions that Democrats who had fled the state were abandoning their duties. "I’m doing more from the Land of Lincoln to communicate with citizens in my district than he is," Jauch said, adding that the Senate Democrats talk regularly and are "trying to reach out through back channels to see what the solution could be. This governor has dug himself in – that’s very clear."
While the Capitalist tools at Forbes are already cracking the Cristal and celebrating the demise of unions, it is more likely that (like many hair-brained Republican schemes) – defeat will be snatched from the jaws of victory because, even if Walker’s Republicans don’t back down (and they will), they have already reignited the National Labor Movement in much the same way that 8 years of George Bush polarized the usually disorganized Democratic opposition and led to a rout in 2008. This is not about politics though, this is about investing and who will control the country in 2012 is indeed something to consider.
Another thing to consider is, if they do take away collective bargaining rights in Wisconsin – the next Global city you see erupting into riots may be the one by your house. That’s how pissed off the Democrats are now and you’d know this if you ever spoke to one or read one of their "liberal" publications, like the…
Technical Thursday – The Needle and the Damage Done
by Phil - February 24th, 2011 6:33 am
I’ve seen the needle
and the damage done
A little part of it in everyone
But every junkie’s
like a settin’ sun. - Neil Young
Come on Bennie, give us another hit!
We’re hurting man, we need the good stuff. The markets love to get high and, just when we thought the trip was never going to end – we crash hard! Big Ben and his Central Banking buddies fed our commodity addiction with a flow of easy money and the speculators got so hooked that they have now overdosed and the price of commodities is now killing the host (the Global Economy).
Gee, who could have ever seen that coming?
Oh yeah, right, it was me. Well, very good then… I guess. There’s nothing like a good correction to make some fast money. In yesterday’s post (and Tuesday’s) I mentioned our TZA and EDZ hedges and thank goodness we dumped XLE as they flew back to $78 on the oil madness (more on that later). In yesterday morning’s Alert to Members we added IWM $83 puts at $3 and they finished the day at $3.93 (up 31%) but we were done with them earlier as we flipped bullish when they pulled back to $3.75 and grabbed the IWM weekly $80 calls at 1:03 at .66 and we flipped out of those at .93 (up 40%) for a nice, quick gain.
We also lost .20 on an SSO trade, trying to catch one more bear wave that didn’t come but, on the whole – Wheeeeeeeeeeeeeee! This is the best ride EVER!!! We love a volatile market, especially when it gooses the VIX (something we were also long on) as that gives us better and better prices for the options we sell to suckers who think they are smarter than the market. Yes, we buy them too – but look how fast we dump them. Options are great for momentum trading and for controlled leverage but the REAL MONEY is made BEING THE HOUSE – not the gambler and what we really love to do is SELL options, not buy them.
When the VIX is low, selling options is much less fun but, when the VIX goes up, so does the amount of money people will pay us…
Will We Hold It Wednesday – Doubles in Trouble
by Phil - February 23rd, 2011 8:29 am
We’re watching our 100% lines.
While we did follow our plan and bought the F’ing dips yesterday – we did so cautiously as 3 of our 5 100% lines fell during the worst one-day drop since August 11th of last year. Not shown on this chart, the NYSE fell 2.1% to 8,325 and the Russell landed down 1.9% at 812. That means, other than the Nas – all of our indices bounced off and held their 2.5% lines and we can forgive the Nas because it was dragged down by AAPL, who was a BUYBUYBUY for us on the $340 line.
The 100% (off the March 9 lows) levels were discussed, along with the chart for the S&P showing our critical ranges, in this weekend’s "Fibonacci Rules – Sometimes, the Old Ways Are the Best!" so I’m not going to waste any time going over that but, for a quick reference, our 100% levels are: Dow 12,938, S&P 1,332, Nasdaq 2,530, NYSE 8,362 and Russell 800 (100% was 685). With the RUT so far over their 100% line, we used them as a key index hedge and the TZA’s banged right up to our target $13.50 into yesterday’s close and we took that money and ran ahead of the reverse split in our favorite Ultra-ETF this evening.
Clearly from the above chart, you can see how our logic pays off. Also, we chose the Dow for our long index for the same reason as they were lagging the others by a wide margin so we played the pair of Dow up and Russell down to cover some of our trades. Another place we took the money and ran was XLE, which was a $25,000 virtual Portfolio trade in yesterday’s morning Alert to Members. We added 10 of the XLE March $75 puts at .85 and that could not have gone better as they ran straight up to $1.30, where we got out of dodge (you can see our volume enter and exit below) as it was enough to get us out of a previous XLE position that had hurt us all even, leaving our virtual $25,000 virtual Portfolio nicely balanced at $27,511, up just over 10% in 15 trading days and on track for our goal of $100,000 by the year’s end. We just need to make more trades like this and…
Testy Tuesday – Drop ‘Till They Prop
by Phil - February 22nd, 2011 7:46 am
How low can we go?
I’m feeling pretty good about this drop because I was feeling pretty bad about leaving ourselves so bearish in the $25K virtual Portfolio (updated to a virtual $26,434 at the end of week 3) but we should be back in business this morning, especially on our key EDZ hedge, which is also one of our primary overall disaster hedges because, well because it does seem very possible that emerging markets can become a disaster, doesn’t it?
Actually, I’m feeling double plus super good about this particular drop as yesterday’s Member Alert had the very well-timed pick to play the Dow futures short on the 12,350 line. We already got a nice, fat 100-point drop below 12,250 this morning and, at $5 per point per contract – that’s a nice cushion! Futures are very useful on holidays when not everyone is closed and it was very obvious yesterday that we were going to be sitting through a Global sell-off and, without POMO and the US pump crew to prop it up – it was very likely we’d have a tough morning – at least until our local pre-market trading kicked in at 6am.
That’s right, our cynical premise is still that the US markets are not allowed to go down – not even to correct so we just buy the F’ing dips – which is a strategy that has served us very well since early December. Interestingly, at the time, we were shorting XRT as one of our safety plays and they got a nice rejection off $50 that gave us a quick win in our then $10,000 virtual Portfolio and we just took XRT as a short play off the $50 line last week, a trade idea I still like for our Members. As Doug Short points out this morning: "In light of the unemployment rate and the ongoing demographic shift, the surge in commodity prices probably poses more risk of margin squeeze" – something that can quickly become very troubling in the retail sector, many of whom still have to report earnings, as well as outlook:
Thank goodness the Government’s CPI figure is so low or I would be worried! As noted in Stock World Weekly, it was inflation that gave us good numbers in last week’s Empire State Manufacturing Index as well…
What’s the Buzz at Philstockworld?
by Phil - February 21st, 2011 4:06 pm
We have been playing with tag clouds and they are pretty interesting.
We did one to analyze the Fed’s minutes and, since it’s a day off, I thought we’d do one to see what we talked about last week at PSW. I was not entirely surprised that, in my posts, Inflation was the word of the week last week (just the 5 morning posts, not the weekend ones). What I do find interesting is that bearish did not even make the top 100 last week but there are three variants on the word "Fed," which are, with "Bernanke" clustered aptly around the word "inflation."
Now, here’s where it gets interesting. Let’s compare this cloud with the one we get by feeding in the week’s Member Chat sessions. It is my goal, in the morning post, to provoke conversation around the topics I feel are going to be the most important macro effects for that day or looking forward. We then have many excellent contributing Members who bring their own viewpoint to the table so it’s very interesting to see how things change once we go inside during live trading sessions. One note – we generally don’t discuss politics during market hours as it’s too distracting so you won’t (hopefully) see a lot of political tags:
As I have noted, WAY too many people are playing NFLX! We can expect to see my name up in lights but NFLX and AAPL are the only stock that get mentioned so often that they make the top 100 words. Perhaps we can figure out how to extract a symbol search as that would also be fun to track over time.
Now, here’s something interesting. As it was a long weekend, I took the opportunity to get back in touch with my inner Liberal and we had some free-ranging discussions on the economy and society. The following is a tag cloud of posts and comments since Friday evening (right after our 5 bullish energy trades and including my take on the American Revolution):
Notice John Boehner makes an appearance as we do talk politics over the weekend. It’s interesting that "people" got such a lot of space and it crept up in weekly chat sessions too. I suppose it reflects a general belief among Members that people are still in charge – despite the best efforts of Big Business…
Monday Market Movement – Equities Rising on “Rivers of Blood”
by Phil - February 21st, 2011 8:06 am
"Libya is at a crossroads. If we do not agree today on reforms …. rivers of blood will run through Libya.
We will take up arms… we will fight to the last bullet.
We will destroy seditious elements.
If everybody is armed, it is civil war, we will kill each other.
Libya is not Egypt, it is not Tunisia"
- Saif al-Islam Kadhafi, 38 (Moamer’s son)
Hey – happy Monday to you!
The picture on the left is not Moamer Kadhafi (he wishes he still looked that good) or Saif – it’s Vigo the Carpathian, who also promised "rivers of blood" but only actually managed to produce rivers of slime before the Ghostbusters put him back in the painting. Did Kadhafi steal his speech from the 1989 Ivan Reitman film or, perhaps, did he lift it from arch-conservative Enoch Powell’s speech? Powell warned that if the UK were to allow immigrants to have ordinary rights, that the streets of London would look like the set of Ghostbusters (I am paraphrasing slightly).
While the foundation Powell laid in England became the rallying cry for Conservatives in Arizona recently, when we see OTHER countries oppressing the rights of people we go nuts, right? About 250 protesters have already been killed by Kadhafi’s storm troopers but we’re not worried about the rivers of blood – we’re worried about the rivers of oil that are controlled by Libya, which pumps 2Mb a day out of their estimated 42Bn barrel reserves.
Libya, boarders Egypt,Tunisia and Algeria – 3 more of the biggest African oil producers and all with rioting citizens who are offended that they are beginning to starve while the top 1% of their country continue to live lives of wealth and splendor. What the people do not realize is that, even if their leaders wanted to help them – they really can’t.
The inflation that Ben Bernanke is shoving down the throats of the World (in place of food) is more than any government that can’t print money can handle. Take poor Hosni Mubarack, for example. It is reported he stole $70Bn from the Egyptian people over 30 years – that’s $2.3Bn per year or what Lloyd Blankfein would call "Mid-year bonuses" but, rather than getting invited to the White House to set economic policy, poor Mubarack is shown the door by his people.…
Fibonacci Rules – Sometimes, the Old Ways Are the Best!
by Phil - February 19th, 2011 9:59 am
Crazy stuff, right?
If you have never before paid attention to Fibonacci Retracement Levels, I would strongly consider paying attention to the S&P chart below. This chart shows, 2 years later, a consolidation and breakout that could have been predicted in March of 2009. That’s right, if you asked a Fibonacci technical guy where the S&P was going to consolidate on March 10th of 2009 – he would have said: "Assuming that yesterday was the bottom and coming off our high of 1,576, then I would say we will consolidate between 1,014 and 1,229."
Leonardo of Pisa (and independent republic at the time) was born in 1,175 and died at the ripe old age of 65. Pisa was a city of about 10,000 people – a mixture of Muslims, Christians and Jews. Construction on the great tower began in 1,173 and was not completed until 1,319 (so don’t complain about modern union jobs!) but they knew that it was listing in 1,178 so the point is: Leonardo was born in a small town that had a huge architectural problem.
Fibonacci’s father was a State customs worker (essentially overseeing floor trading) and encouraged his son to take up studies in mathematics which, at the time, included learning Hindu Vedic math, which was the foundation of modern algebra and which Fibonacci came to greatly respect, saying:
The knowledge of the art very much appealed to me before all others, and for it I realized that all its aspects were studied in Egypt, Syria, Greece, Sicily, and Provence, with their varying methods; and at these places thereafter, while on business. I pursued my study in depth and learned the give-and-take of disputation. But all this even, and the algorism, as well as the art of Pythagoras I considered as almost a mistake in respect to the method of the Hindus.
Thus Fibonacci became the driving force by which Hindu-Arabic numerals came to replace the Roman ones. Fortunately, at the time, the arts and sciences were still supported and he found the favor Emperor Frederick II, who funded his studies – even though they didn’t make him any money (imagine that!). Fibonacci did not invent Fibonacci numbers (it was probably India’s Pingala in 200 BC), he just realized they could be applied to natural growth and regression sequences and, as it turned out,…
TGIF – Holding that 100% Line Would Be Nice
by Phil - February 18th, 2011 8:16 am
Fastest Double EVER!
That’s the verdict as the S&P 500 adds 666.79 points in 23 months, the fastest gain since the index was founded in 1957. "The scale of this rally is just enormous," said New York money manager Barry Ritholtz. He calls it the most intense rally since the Depression. Even during the go-go 1990s, the S&P typically took around three years to double. For instance, it first cleared 1,000 on Feb. 28, 1998 — 35 months after its first move above 500 on March 24, 1995.
Ritholtz says the average stock market bounce following a crash is 70% or so, and is stretched over a longer period. But of course, in previous cases the Fed wasn’t buying up half a year’s worth of Treasury issuance and holding short-term interest rates near zero.
"This one is unique," said Ritholtz. "Obviously the Fed is the key difference. We have never seen them throw this much liquidity into the mix." Accordingly, most market observers are now tapping their feet waiting for the inevitable pullback. The average correction following a postcrash bounce is 25%, Ritholtz said. According to Fortune: "There are all sorts of reasons to expect the momentum to turn against stocks after their unprecedented gains. They range from rising bond yields and stretched stock valuations to political unrest in the Middle East and another iteration of the ongoing debt crisis in Europe."
Of course, as Fortune should know, IT JUST DOESN’T MATTER what’s going on in the World as long as B-B-B-Bennie and the Fed continue to prime the pumps at the IBanks and last week, the Fed set a new record as well by expanding their balance sheet to $2,492,000,000,000 after adding $23Bn of US Government Securities.
Now I wouldn’t want to force you to draw any conclusions that may link those two items. After all, Doctor Bernanke himself says that the Fed’s actions have nothing to do with either inflation in the commodity pits or in the equity markets. They are merely providing ample liquidity to their Member banks who, in turn, lever that liquidity 10:1 and spend it in the same wise fashion they always have – like the 10s of Billions of Dollars of "toxic" securities they have been splurging on again, once again hoping to make a quick buck (and get a big bonus) before the bottom drops out – again.…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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