Fandango Thursday – Does Anything Really Matter?
by Phil - February 17th, 2011 8:27 am
Scaramouche, Scaramouche, will you do the Fandango?
Nothing really matters, anyone can see, nothing really matters to me – any way the wind blows. That’s right, I am now resorting to random gibberish in the hopes of getting a better understanding of the markets. Random gibberish is exactly what we got in the Minutes of the Federal Reserve’s Jan 26th meeting, that were released yesterday at 2pm. My extensive commentary to Members is available over at Seeking Alpha, but it loses a bit without the color-coding, which they do not support (sorry).
It was really the same old song and dance: "The pace of the recovery was insufficient to bring about a significant improvement in labor market conditions, and measures of underlying inflation had trended downward… the Committee reiterated its expectation that economic conditions were likely to warrant exceptionally low levels for the federal funds rate for an extended period…"
Nothing to move the markets over which means, of course, we keep going up since up is the natural direction of the markets these days as we ride the ever-increasing tide of easy money right to the stratosphere. To summarize the Fed’s statement, it was something like: "Hast Du etwas Zeit für mich, dann singe ich ein Lied fuer Dich," which roughly translates to:
You and I in a little toy shop
Buy a bag of balloons with the money we’ve got.
Set them free at the break of dawn
‘Til one by one, they were gone.
Back at base, bugs in the software
Flash the message, Something’s out there.
Floating in the summer sky.
99 red balloons go by.Panic bells, it’s red alert.
There’s something here from somewhere else.
OK, so what have we learned from all this gibberish? Well, for one thing, we’ve learned that Nena is HOT (and still is)! I saw her at a club in Amsterdam around the time of that video and I was totally in love with her – had no idea what she was saying but I loved the way she said it. Who knew the lyrics were deep as well?
As for B-B-B-Bennie and the Fed? We (and he) have learned nothing at all. The overriding theme of the minutes were along the lines of "Inflation, what inflation? I don’t…
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DiggWhich Way Wednesday – 1,333 or Bust!
by Phil - February 16th, 2011 8:38 am
1,333.
That’s the number Art Cashin is looking for on the S&P as our breakout line. I’ve been using 1,332 but Art is right as the bottom on the S&P in March, 2009 was 666.79 so, tecnically, 1,333.58 is a 100% gain on the S&P off that low, not 1,332, which was my lazy rounding off 666. “Everyone’s got this psychological area of 1,333 [on the S&P 500]—they want to prove that we can double where we were from the panic lows,” Cashin told CNBC. “So later in the week, the bulls are going to circle the wagons and take another shot at it and that will tell us whether it’s a rest and recoup or not.”
Well, that pretty much sums things up. Have a good day everybody…
We had a good day yesterday with our bullish positions really starting to fly and our $25,000 virtual Portfolio is up to a virtual cash position of $26,240 in day 12 with a fairly even mix of winners and losers in our still too-bearish mixture. The mixture on the Nasdaq yesterday was also bearish and you wouldn’t know it from their down 5-points finish (0.17%), but declining volume yesterday was 1.35Bn vs. just 637M of advance.
Fortunately (by some amazing coincidence that could not possibly have anything to do with IBanks masking their selling by pumping the top of the Nas while selling the rest), this 2:1 bearishness in volume did not scare off the after-hours crowd, who immediately popped the Nasdaq futures from 2,382 to 2,391, right back to Monday’s highs as if 2 days of selling never happened.
The Dow is just as excited with 80 points worth of gains since 3:30 yesterday and the S&P is, of course, right up on their 100% line, as are the Transports (see Dave Fry’s chart), which we’ll be watching as they test the 95 mark on IYT. I had mentioned to Members in Chat yesterday that the Transports were the key to breaking the S&P over the line and we discussed FDX’s amazing action in yesterday’s post that seemed like a Gang of 12 effort to manipulate the Transports ahead of Cashin’s predicted run at 1,333 – NO MATTER WHAT!
We agreed and we were so bullish on yesterday’s dip that we even bought NFLX! Now that is bullish! Just a short-term in and out but you…
Testy Tuesday – Daring us to Buy those Dips Again
by Phil - February 15th, 2011 8:28 am
Should we be concerned?
As Doug Short points out in his EEM chart (click to enlarge) from our Chart School, while Egypt may be "fixed," emerging markets are not. We had a pretty ridiculous discussion in Member Chat last week on whether we should take our quick 300% profits on our EDZ hedges or wait for the full 500% and we decided to wait because, like Doug and Captain Kirk – we do not believe the trend is the friend of Emerging Markets at the moment.
Sure any one of them could be toppled tomorrow by a popular uprising like Egypt, Tunisia or Algeria or they could be swamped by runaway inflation like China (4.9% AFTER adjusting food inflation to a much lower weighting) or, well, EVERYBODY but the US, where we have no inflation because The Bernank said we don’t. UK inflation rose to 4% in January and BOE Governor King now expects the trend to rise to 5% in the coming months. That’s not very good for a CB with a target rate of 2%. This MIGHT be a temporary situation because German Q4 GDP was actually 20% lower than expected, at 1.6% vs. 2% hoped for. Europe is still a major mess and the EU finance ministers just agreed to double the "Permanent Rescue Fund" from $332Bn to $675Bn.
That news helped knock the dollar back to 78.4, boosting the pre-market futures this morning as the US had no such fund for it’s member states, who are twisting in the wind at the moment and, of course, no one has a fund to rescue the US, who spent $675Bn while I was writing this post! Of course part of the $675Bn we spent is right in that IMF slice of the pie as the US funds about 20% of that 250Bn Euros ($330Bn so there’s a quick $66Bn we pledged to bail out Europe this morning!).
This is a great, great scam because we spend dollars we don’t have, devaluing the Dollar, to prop up the EU and that strengthens the Euro – devaluing the Dollar again! It’s a double hit on the Dollar in one morning and we haven’t even seen the rotten Housing Numbers yet! We have seen the rotten Retail Numbers as ICSC Retail Store Sales showed a 1.4% drop last…
Monday Market Momentum – Prices Go Parabolic
by Phil - February 14th, 2011 8:22 am
Two percent!
That’s how much the price of EVERYTHING has gone up IN AMERICA since Christmas Day, just 6 weeks ago. This is according to the very reliable Billion Prices Project at MIT, which collects pricing data every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in the database. The daily online index is an average of individual price changes across multiple categories and retailers that provides real-time information on major inflation trends.
In other words, this is not Bernanke’s BS – THIS IS REALITY FOLKS – and reality is NOT GOOD! We’re talking parabolic short-term moves that you know and I know and the data shows is absolutely happening. Yet the Chairman of the Federal Reserve Bank of the United States of America tells us over and over and over again that it is not happening.
He tells us that inflation was down in 2010 from 2.4% in 2009 to 1.2% last year and that he sees no inflation. In fact, he is basing his mathematical models on it and directing our nation’s policies on this basis and he is conducting the most dangerous monetary experiment in the history of the Universe – ALL BASED ON HIS PREMISE THAT INFLATION DOES NOT EXIST!
But, what if it does? What if every other nation on Earth, including now even Japan, who see 3, 4, 6, 8, 12% and 20% inflation are not wrong and it is, in fact, Ben Bernanke who is wrong. I would not be as worried if The Bernank got on TV and said: Inflation is heading up to double digits, which is our plan but that’s not at all what he’s saying. This means either the Chairman of the Federal Reserver is either lying right to our Congresspeople’s faces, under oath, or that he is a clueless policymaker with his finger on the button of a weapon that can wipe out the wealth of nations – that can kill tens of millions of people through starvation and can just as easily wipe out…
PSW Wrap-Up Show for the Week
by Phil - February 12th, 2011 12:57 pm
We have a new episode of The Wrap-Up Show.
This time, it’s a quick review of the week’s activity:
Also, as we have a ton of Government Data that will be driving the markets next week, let’s review "How the US Government Manipulates Inflation Data" – just so we remember not to take it all too seriously.
Fickle Friday – Dip Buying or Dips Buying?
by Phil - February 11th, 2011 8:26 am
My what a crazy market we are having!
I’ve been chatting with Members since 4:30 this morning (see the end of yesterday’s Member Chat) and there’s a copy of my short premise on CMG (we shorted them after earnings in Member chat at $273.50) already sent in for free on Seeking Alpha so I feel like I’m already done for the morning at 7:30.
It’s been a crazy week as we have done our best to get more bullish – laying out our latest round of Breakout Defense Plays for Members this weekend (which we were able to fill again on yesterday’s dip back to Monday’s open) as well as long plays during the week’s chat sessions on XLF(Monday), KO and TBT (Tuesday), EGLE and SPY (Wednesday) along with yesterday’s busy bullish plays on DDM, CSCO and EGLE again as well as a complicated ratio spread on CMG that was a bit bearish but should be good on less than a 10% jump and pays best on a flat-line.
It wasn’t all longs. We like to BALANCE our plays – especially after we get a nice move up. So, on Wednesday we grabbed some PCLN puts and did a bearish NFLX call spread and we played NFLX puts yesterday as a day trade (went very well and now we can re-load) along with an earnings short on WYNN (winner!). All in all, it’s been a fun week and we can turn to Clark and Lana for the morning report on Egypt, CMG and food inflation:
Ah, it’s nice to have a professional news team. So much less work for me! What they didn’t discuss was the dollar. That will, of course, get a mention in the weekend edition of Stock World Weekly – who do a fantastic job of tracking that situation over time. Our bouncy U.S. buck is back to 78.68, up from a low of 76.88 (2.4%) at the beginning of last week. On the whole, the market has held up well against the rising dollar and that was the bullish sign we wanted and the basis for our new Breakout Defense plays as well as our move from 15% bearish/10% bullish and 75% cash to 20% bullish/15% bearish and 65% cash. As long as we hold Russell 800 along with our other breakout levels – we may as well enjoy…
Thrilling Thursday – What Goes Up…
by Phil - February 10th, 2011 8:28 am
Wheeee!
Come on people – this is supposed to be the fun part of the ride, let’s enjoy it! We felt yesterday’s closing spike was BS and held onto our shorts, although they were, at that point, giving us a super-wedgie (see yesterday’s Philstockworld Wrap-Up Show) as the Dollar was jammed to new lows (77.58). I mentioned in Tuesday morning’s post that we had shorted USO and XLE as well as going long on TZA to short the Russell and long on EDZ to short the markets – as you can see from the charts, EDZ is up a solid 7.5% already with our short plays looking good and TZA feeling good – just in case.
Yesterday I mentioned our distrust of valuations on NFLX, OPEN and PCLN and, as Moneypenny points out in the Wrap-Up show – we had a short play on each of them so we would love a nice little sell-off despite our new, longer-term bullish entries in this Weekend’s "5 Trades that Make 500% in a Rising Market." In fact, this entry gives us an excellent opportunity to fill out those bullish positions!
That’s what "buying the F’ing dips" is all about, right? Don’t get me wrong – we would LOVE a big sell-off but we’re sure not going to count on it anymore after 5 consecutive months of gains beginning with the announcement of QE2 in early September and then the actual fact of QE2 and the relentless POMO operations since the beginning of December. It was quite clear from The Bernank’s fairly combative stance in yesterday’s House hearings, that the Fed has no intention of backing down – an attitude Ron Paul described as "cocky" at his own hearings, which were held simultaneously without Bernanke.
I commented to Members that having Ron Paul hold his hearings while Bernanke was given all the camera time in a Ron Paul free room was very much like telling your crazy uncle that he was getting a "special" dinner in the basement so he wouldn’t bother your other Thanksgiving guests upstairs. At Ron Paul’s hearings, Ohio University economics professor Richard Vedder accused lawmakers of corruption for supporting mortgage finance giants Fannie Mae and Freddie Mac and said the banking industry would be better able to manage financial crises on its own, as J.P. Morgan did in…
Which Way Wednesday – Under the Big Top
by Phil - February 9th, 2011 8:27 am
1,332.
That is a 100% in the S&P since it’s March 2009 low of 666 (see David Fry’s chart). Does it matter? Can we expect even a LITTLE pullback after a 100% run or is it "to the moon Alice" and maybe Mars and Jupiter while we’re at it as the Federal Reserve’s multi-Trillion Dollar thrusters send us to the stars, breaking the bonds of gravity (and logic) as they send stocks every higher in an expanding universe of freshly supplied money. As fellow stock market physicist, Art Cashin said yesterday:
The Newtonian Rally Continues – A mild paraphrase of one Sir Isaac Newton’s laws of force and motion (inertia) says that a body in motion will stay in motion unless acted upon by some counterforce. That seems to be the guiding rule for the QE2 rally since it started with the Jackson Hole speech before Labor Day.
Yesterday, the Dow rallied for the sixth straight day. Simultaneously, treasuries fell for the sixth straight day. It was a low volume levitation, however. The NYSE volume failed to make it to 900 million shares.
Does the low volume indicate we are losing thrust or was it merely a function of the end of the Fed’s current POMO schedule forcing us to coast on momentum for a day as they prepare to fire stage three thrusters to help the S&P achieve final escape velocity? As I said to Members yesterday:
The Fed can feed $3.5Tn into the thrusters and you can have a spectacular launch that looks like it’s heading straight to the moon but it’s right at the peak, when you need to fire that second stage perfectly, that you have the highest probability of failure. When a market escapes gravity – you will know it. Like the Nasdaq in 1999 and oil in 2008 – not just a little up every day but spectacular gains that go unpunished. That’s what we’ll see if they hyperinflation begins to creep into the markets.
As I had pointed out years ago in our educational post on "Stock Market Physics":
What we have in this chart, along the dotted line, is an actual picture
…
Tuesday Toil and Trouble (Dubble, Bubble)
by Phil - February 8th, 2011 7:21 am
"Double, double toil and trouble; Fire burn, and caldron bubble." – Witches in Macbeth
"Cool it with a baboon’s blood – then the charm is firm and good" is the conclusion of that line. Certainly our Government witches have gotten us our double off the S&P’s Satanic drop to 666 back in March of 2009 to a high of 1,322 yesterday – just 10 points away from a 100% run.
Back in March of ’09, I was considered a perma-bull as I was running very contrary to the prevailing opinion on Wall Street. Jim Cramer was warning that the Dow could fall to 5,320 – 20% lower than it was at the time and, on Fast Money on March 6th of 2009 (the day before the bottom):
- Guy Adami said: "But I still don’t think we’re there, yet. It has to feel like the end of the world before the market can bottom."
- "The data that I’d watch to signal a bottom is the rate of decline slowing", adds Karen Finerman. "But I don’t see that, yet."
- "We won’t be at the bottom until the financials participate in the market’s broader moves," adds Pete Najarian.
- "I don’t think we’ll get a bottom until we get policy going forward that doesn’t seem like it’s just attacking Wall Street," adds Jon Najarian.
I’m not bringing this up to pick on those guys but just to remind you that "everybody" can be very, very wrong – both at the top and the bottom of the market. My 13 buy picks on LiveStock that day seem like no-brainers now: Shorting SKF (2 ways), long FAS (2 ways) and longs on RUT, GE, BAC, DIS, XLF, AMZN, TGT, HOV and RKH.
This last week, perhaps ahead of the curve, we shorted oil with USO and XLE, the Russell with TZA and emerging markets with EDZ. We did this in preparation for some buying though because, if we break over our levels (and we did) and hold them (and we are) – then it’s time to get a little more aggressively bullish. It’s a simple enough matter – If you have a virtual portfolio that was 25% invested and 15% bearish and 10% bullish then we deploy 10% of the cash into bullish plays and we are then 35% invested and 20% bullish and 15% bearish. …
Monday Market Movement – Where Else?
by Phil - February 7th, 2011 7:30 am
I read the news today, oh boy…
I need to remember not to do that when I’m trying to get bullish. Fortunately, we already grabbed a new set of "5 Trades that Make 500% in a Rising Market" to follow up on our original set, now just about 2 months old, that have already hit their cumulative 5,000% target gains in this totally ridiculous, always rising market.
We may complain about HOW the game is rigged but if practically every single roll of the dice comes up seven or eleven – you can’t blame us for betting on the trend. As the United States of Zimbabwe barrels forward on Ben Bernanke’s hyper-inflationary crazy train – we will go along for the ride – just don’t be surprised if we jump out before the rest of the riders hit the final terminal, with terminal being the operative word.
Take silver (please) as an example. There are now $102 Billion tied up in metals ETFs and the silver ones now hold 4 full years of US production. This is not including stockpiles that have been added to Central Banks and private investors (JPM is rumored to be one) and it makes us wonder – what is the exit strategy. How do you sell 4 years worth of production in a single year, or in two years? Do you try to undersell the miner’s production costs (for silver, that would be about $5) to get them to shut down production while you unload or do you form some kind of cartel that controls the flow of silver for the next 20 years?
Gold is just as bad with speculators now holding more gold than all but 4 of the World’s Central Banks. 2,028 metric tons of gold, worth $88Bn are now held by ETFs. They accounted for 21% of all global demand last year and, despite hedge funds (the "smart money"?) cutting their positions by 42% since October, the net long float of futures contracts is STILL 151,000, almost 3 times the 18-year average. That, my friends, is a lot of bull!
Investing into commodities, like high-flying stocks, is easy. The trick is getting out. That’s why we’ve been using short-term bearish bets to cover long-term bullish positions – you never know when this ride will come to and end and there’s no guarantee that we’ll be…
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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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