Traditionally, stocks do not fare well in the month of September. So much in fact that The Stock Trader’s Almanac turned this trading reality into a cute little poem:
“September is when leaves and stocks tend to fall;
on Wall Street, it’s the worst month of all…”
Of course, this poem really only applies if you are a traditional stock trader. Thankfully, as options traders we have lots of choices--we can play the upside, downside and even go sideways. And for spread traders? Well, let's just swap out the word “worst” for “BEST.”
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day of August.
• The first nine trading days of August, especially the first one, is usually weak.
Key Dates:
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options
Market Outlook
Over the last seven months, investors have withdrawn over $33 billion in stock mutual funds moving their nest eggs to safer investments such as U.S. Treasuries and other bonds. With the exception of 2008’s meltdown, investors are now on a course to withdraw more in 2010 than any other year since the 1980s--as that trend continues we'll keep seeing bonds rise--and stocks plunge.
Speaking at an economic conference last Friday, Fed chairman Mr. Ben Bernanke left the crowd with a mixed message. He acknowledged that we’re in a fragile economy but tried to appear optimistic about future growth despite the fact that the government just reported the weakest quarterly growth in over a year--1.6%--with unemployment still at a very high 9.5%.
Bernanke's colleagues warned that keeping interest rates unnaturally low was a “dangerous gamble” that could create new bubbles, high inflation or both. But Mr. Bernanke concluded by saying that the Fed was prepared to make a major investment in government debt or mortgage securities if the economy worsened or if there were signs of deflation on the horizon.
Following Mr. Bernanke's comments, stocks posted big gains on Friday as investors began fleeing Treasuries and moving back into the stock market. Trader's were breathing a sigh of relief that the Fed was ready to step in should the economy show signs of weakening and also encouraged that the revised quarterly growth of 1.6% wasn’t as bad as most economists feared.
The question is--How long can vague assurances by the Fed be expected to buoy the markets? Especially when the Federal Funds rate is already about as low as it can go.
From a technical analysis perspective, there are an ever increasing number of stocks that are now falling below their institutional 200-day moving averages and many more hitting new 52-week lows. As technical indicators continue to deteriorate, institutional traders that key off of these signals will keep pressuring stocks lower. With all the gauges flashing red, does anyone really need the house to cave in around their ears before they get concerned?
Even with the Fed’s strategies, there are no guarantees. The bar for what is good news seems to keep moving lower every day. Even with interest rates already near zero, the Fed has not yet been able to resuscitate an ailing economy. The benefits of the federal stimulus program--if any--are fading and Congress is hesitant to pass any new economic aid while heading into the mid-term elections.
Mr. Bernanke is under intense pressure to 'do something' but there are no easy or quick options for reviving the economy.
Fortunately for us, we do have a few “easy options’ for reviving our own economies...like the three great trades we've got lined up this week.
What are the Secrets of the Week?
We've got two high odds Bear Call Spreads this week: one on a company that ran up over the past month hitting hard resistance and then bouncing lower; and another on a company that rallied to a short-term high in mid-August and is now positioned to plummet. So let's saddle up and ride these bad boys to the downside.
And for our third play we've got an ETF that is busy going nowhere--a perfect candidate for a high-odds Iron Condor. Let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
Monday, August 30, 2010
THIS CLASSIC WHIPSAW ACTION SAW OUR PLAYLIST GO FROM UNPROFITABLE TO PROFITABLE AND BACK AGAIN AS THE BULLS AND BEARS BATTLED IT OUT!
This past week the market dipped at the beginning but bounced big toward the end...
THIS CLASSIC WHIPSAW ACTION SAW OUR PLAYLIST GO FROM UNPROFITABLE TO PROFITABLE AND BACK AGAIN AS THE BULLS AND BEARS BATTLED IT OUT!
Among our current open plays some are in the profit zone and some are not--but they are all so close as to be bouncing back and forth almost on a daily basis. We are extremely well-positioned for any decline in the market and that is the prevailing trend but right now the market is holding up---for that reason it is more important than ever to take a good look at...
WHICH WAY THIS MARKET IS HEADED
The markets rallied impressively Friday but their overall trends are still to the downside. At this point it's important to ask what caused the rally, has there been a fundamental shift in sentiment or fundamentals--and most importantly is the rally liable to continue?
The cause of the rally Friday was Fed Chairman Ben Bernanke's 17 page speech at Jackson Hole and some good old fashioned short-covering before the weekend. Bernanke was obviously there to please the markets and sooth the public--and it worked. Even though there isn't much economic news to cheer about right now, the Fed Chairman attempted to boost public confidence that the recovery still has enough staying power to survive until hiring and spending pick up at some undefined point in the future.
He avoided any clear commitments for more stimulus holding back fears that the recovery is more fragile than it is. Bernanke noted the recovery had 'lost some momentum' but echoed the new Fed posture that growth is on track for a 2011 recovery. Until a few months ago it was late 2010 but now the Fed's projected recovery has moved into 2011.
Bernanke continuously emphasized that the Fed was ready, willing and able to provide additional stimulus if necessary--which was a real market pleaser. He said the Fed would continue to evaluate additional monetary easing and reminded listeners the FOMC will strongly resist deflation--a safe tack because inflation is virtually non-existent.
Overall the Bernanke speech offered lots of optimism without offering any hard specifics that would scare any particular segment of the market. The stock market dropped sharply when the text was released but the dip was immediately bought. After the speech concluded and the broadcasters had time to release the text a buy program hit that powered the Dow to 10,100 and set the stage for the end of day short covering.
The market rebound was even more surprising because tech giant Intel warned that revenue would be less than previously expected which should have cast a pall over the entire tech sector. It was interesting that Intel chose to release their warning at exactly the same time Bernanke's speech began and the text released. Apparently they were hoping prevent a sharp decline in their stock price if the news could be overshadowed by Bernanke's speech. Evidently it worked because Intel dipped to $17.81 when they released the warning then rallied to close positive at $18.38. If that news would have been released just a couple days earlier the stock would have likely gone through the floor.
Intel warned that revenue could come in as much as $1 billion below its prior guidance because of weaker than expected demand for personal computers. Their new guidance calls for revenue between $10.8B to $11.2B compared to its prior high range of up to $12B. Analysts were expecting $11.5 billion. Intel also said gross margins were going to be as much as 2% below prior estimates. With its downward guidance Intel joined a long list of companies that have already warned about declining business conditions.
Dell and Hewlett Packard warned last week that the back to school shopping season had been weaker than expected. HPQ said there was weakness in the laptop market and that back to school shopping started later than normal. Several chip companies have reported that manufacturers have been canceling or delaying orders because of weak demand.
Long time chip/tech sector analyst Dan Niles said he was shorting anything with chips and he expected a continued slowdown in the economy and the tech sector. He said you could buy Apple and HPQ but only if you have enough sector short positions to offset fluctuations in those longs. Dan said he expected a double-dip over the next two quarters but he defined a double dip as a GDP of less than 1% growth. Declining demand in the chip sector does not bode well for the Nasdaq.
As far as Dan Niles recession prediction goes he may be right in light of the latest GDP revision for Q2. Expectations had been for a revision down to 1.2% growth from the last update at 2.4% growth. GDP didn't come in quite that bad but it was revised lower as the headline number dropped to +1.6% with the majority of the decline attributed to an upward revision to imports.
According to this latest report U.S. economic growth barely discernable. The GDP is also a seriously lagging indicator with the period covered ending two months ago. Weak growth in Europe is weighing on the U.S. in the form of lower exports so GDP growth is probably still slowing. Job growth remains a serious problem according to Bernanke and that will be a drag on GDP the rest of 2010--at this point GDP could easily come in negative for this quarter or just marginally above the zero line.
The Final revision to August Consumer Sentiment also declined slightly to 68.9 from the first August release at 69.6. This downward revision was small but the next release on September 17th is liable to be quite a bit worse. Economic conditions have declined significantly in the last two weeks with the higher jobless claims. Plus this coming Friday we are probably going to see another loss of jobs in the non-farm payroll report.
The factors impacting sentiment the most are jobs, home prices and for those with retirement plans--the stock market. All three of those factors are still heading lower so it's not surprising to see consumer sentiment continue to weaken--which could impact spending especially going into the all-important fourth quarter.
So the answer is that economic conditions didn't change on Friday--they are still declining---but the Bernanke speech pacified investors enough to spark some short-covering. The question is will it continue?
We've got a big test of any further bullishness coming up with some critical economic reports this week starting with the FOMC minutes released on Tuesday which will give us some insight into how bad the Fed Governors really think the economy is. We've also got the national ISM report and the big one--the Non-Farm Payrolls on Friday.
The ISM is expected to decline in line with the regional reports but remain in expansion territory over 50.
The Non-Farm Payroll report are expected to show a loss of -100,000 jobs but it is unknown what impact the lingering census terminations will have. The headline forecast is for permanent job losses and does not include any census workers. Last month the economy lost -131,000 jobs but that included a loss of -202,000 government/census jobs and a gain of 71,000 private sector jobs. It is actually possible that we see a headline job gain if the census exodus is over. However, whisper numbers range from a loss of -50,000 to a loss of -200,000 jobs. A job gain would be a very unexpected and bullish surprise.
Jobless Claims have been a problem over the last four weeks with the prior week's number revised higher to 504,000 and last week's rate at 473,000. For the last four weeks the average has been solidly over 485,000 per week and that suggests the Non-Farm Payrolls are going to be negative.
In addition to the Non-Farm payrolls on Friday China will release its PMI on Tuesday and the report is likely to show economic contraction. The world is counting on China to pull the rest of us out of recession so anything below 50 will be seen as very bearish. Two weeks ago, the market tanked when China reported slower imports.
Another contribution to the current economic slowdown is the drop in stimulus spending. More than 80% of stimulus funds have already been spent, canceled or postponed. In theory the economy was supposed to have rebounded into self-sufficiency by now but that hasn't happened and now state and local governments have no money to keep workers employed on new projects.
The bottom line is nothing has changed fundamentally--the economy is slowing and there is little on the horizon to change that. But the markets may have become oversold and Friday's bounce could continue slightly higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We have two plays lined up this week to take advantage of the current market--one is bullish and the other bearish.
Our bullish play is on a stock that produces a certain commodity that everyone seems to want--especially right now. The company just reported record earnings and investors are taking notice. The stock just broke out to a new all-time high Friday and by the looks of things that uptrend will continue taking our new call play to some very generous profits!
Our next play is bearish and it's on a stock that just hit a six month low Friday with enough momentum to keep punching lower. The company is over-loaded with debt and just reported earnings that were lower even than last year's dismal results--this stock is pointed straight down and should take our new puts with it for some outstanding gains!
We've got two super high-potential plays lined up on a market ready to move--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
THIS CLASSIC WHIPSAW ACTION SAW OUR PLAYLIST GO FROM UNPROFITABLE TO PROFITABLE AND BACK AGAIN AS THE BULLS AND BEARS BATTLED IT OUT!
Among our current open plays some are in the profit zone and some are not--but they are all so close as to be bouncing back and forth almost on a daily basis. We are extremely well-positioned for any decline in the market and that is the prevailing trend but right now the market is holding up---for that reason it is more important than ever to take a good look at...
WHICH WAY THIS MARKET IS HEADED
The markets rallied impressively Friday but their overall trends are still to the downside. At this point it's important to ask what caused the rally, has there been a fundamental shift in sentiment or fundamentals--and most importantly is the rally liable to continue?
The cause of the rally Friday was Fed Chairman Ben Bernanke's 17 page speech at Jackson Hole and some good old fashioned short-covering before the weekend. Bernanke was obviously there to please the markets and sooth the public--and it worked. Even though there isn't much economic news to cheer about right now, the Fed Chairman attempted to boost public confidence that the recovery still has enough staying power to survive until hiring and spending pick up at some undefined point in the future.
He avoided any clear commitments for more stimulus holding back fears that the recovery is more fragile than it is. Bernanke noted the recovery had 'lost some momentum' but echoed the new Fed posture that growth is on track for a 2011 recovery. Until a few months ago it was late 2010 but now the Fed's projected recovery has moved into 2011.
Bernanke continuously emphasized that the Fed was ready, willing and able to provide additional stimulus if necessary--which was a real market pleaser. He said the Fed would continue to evaluate additional monetary easing and reminded listeners the FOMC will strongly resist deflation--a safe tack because inflation is virtually non-existent.
Overall the Bernanke speech offered lots of optimism without offering any hard specifics that would scare any particular segment of the market. The stock market dropped sharply when the text was released but the dip was immediately bought. After the speech concluded and the broadcasters had time to release the text a buy program hit that powered the Dow to 10,100 and set the stage for the end of day short covering.
The market rebound was even more surprising because tech giant Intel warned that revenue would be less than previously expected which should have cast a pall over the entire tech sector. It was interesting that Intel chose to release their warning at exactly the same time Bernanke's speech began and the text released. Apparently they were hoping prevent a sharp decline in their stock price if the news could be overshadowed by Bernanke's speech. Evidently it worked because Intel dipped to $17.81 when they released the warning then rallied to close positive at $18.38. If that news would have been released just a couple days earlier the stock would have likely gone through the floor.
Intel warned that revenue could come in as much as $1 billion below its prior guidance because of weaker than expected demand for personal computers. Their new guidance calls for revenue between $10.8B to $11.2B compared to its prior high range of up to $12B. Analysts were expecting $11.5 billion. Intel also said gross margins were going to be as much as 2% below prior estimates. With its downward guidance Intel joined a long list of companies that have already warned about declining business conditions.
Dell and Hewlett Packard warned last week that the back to school shopping season had been weaker than expected. HPQ said there was weakness in the laptop market and that back to school shopping started later than normal. Several chip companies have reported that manufacturers have been canceling or delaying orders because of weak demand.
Long time chip/tech sector analyst Dan Niles said he was shorting anything with chips and he expected a continued slowdown in the economy and the tech sector. He said you could buy Apple and HPQ but only if you have enough sector short positions to offset fluctuations in those longs. Dan said he expected a double-dip over the next two quarters but he defined a double dip as a GDP of less than 1% growth. Declining demand in the chip sector does not bode well for the Nasdaq.
As far as Dan Niles recession prediction goes he may be right in light of the latest GDP revision for Q2. Expectations had been for a revision down to 1.2% growth from the last update at 2.4% growth. GDP didn't come in quite that bad but it was revised lower as the headline number dropped to +1.6% with the majority of the decline attributed to an upward revision to imports.
According to this latest report U.S. economic growth barely discernable. The GDP is also a seriously lagging indicator with the period covered ending two months ago. Weak growth in Europe is weighing on the U.S. in the form of lower exports so GDP growth is probably still slowing. Job growth remains a serious problem according to Bernanke and that will be a drag on GDP the rest of 2010--at this point GDP could easily come in negative for this quarter or just marginally above the zero line.
The Final revision to August Consumer Sentiment also declined slightly to 68.9 from the first August release at 69.6. This downward revision was small but the next release on September 17th is liable to be quite a bit worse. Economic conditions have declined significantly in the last two weeks with the higher jobless claims. Plus this coming Friday we are probably going to see another loss of jobs in the non-farm payroll report.
The factors impacting sentiment the most are jobs, home prices and for those with retirement plans--the stock market. All three of those factors are still heading lower so it's not surprising to see consumer sentiment continue to weaken--which could impact spending especially going into the all-important fourth quarter.
So the answer is that economic conditions didn't change on Friday--they are still declining---but the Bernanke speech pacified investors enough to spark some short-covering. The question is will it continue?
We've got a big test of any further bullishness coming up with some critical economic reports this week starting with the FOMC minutes released on Tuesday which will give us some insight into how bad the Fed Governors really think the economy is. We've also got the national ISM report and the big one--the Non-Farm Payrolls on Friday.
The ISM is expected to decline in line with the regional reports but remain in expansion territory over 50.
The Non-Farm Payroll report are expected to show a loss of -100,000 jobs but it is unknown what impact the lingering census terminations will have. The headline forecast is for permanent job losses and does not include any census workers. Last month the economy lost -131,000 jobs but that included a loss of -202,000 government/census jobs and a gain of 71,000 private sector jobs. It is actually possible that we see a headline job gain if the census exodus is over. However, whisper numbers range from a loss of -50,000 to a loss of -200,000 jobs. A job gain would be a very unexpected and bullish surprise.
Jobless Claims have been a problem over the last four weeks with the prior week's number revised higher to 504,000 and last week's rate at 473,000. For the last four weeks the average has been solidly over 485,000 per week and that suggests the Non-Farm Payrolls are going to be negative.
In addition to the Non-Farm payrolls on Friday China will release its PMI on Tuesday and the report is likely to show economic contraction. The world is counting on China to pull the rest of us out of recession so anything below 50 will be seen as very bearish. Two weeks ago, the market tanked when China reported slower imports.
Another contribution to the current economic slowdown is the drop in stimulus spending. More than 80% of stimulus funds have already been spent, canceled or postponed. In theory the economy was supposed to have rebounded into self-sufficiency by now but that hasn't happened and now state and local governments have no money to keep workers employed on new projects.
The bottom line is nothing has changed fundamentally--the economy is slowing and there is little on the horizon to change that. But the markets may have become oversold and Friday's bounce could continue slightly higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We have two plays lined up this week to take advantage of the current market--one is bullish and the other bearish.
Our bullish play is on a stock that produces a certain commodity that everyone seems to want--especially right now. The company just reported record earnings and investors are taking notice. The stock just broke out to a new all-time high Friday and by the looks of things that uptrend will continue taking our new call play to some very generous profits!
Our next play is bearish and it's on a stock that just hit a six month low Friday with enough momentum to keep punching lower. The company is over-loaded with debt and just reported earnings that were lower even than last year's dismal results--this stock is pointed straight down and should take our new puts with it for some outstanding gains!
We've got two super high-potential plays lined up on a market ready to move--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, August 23, 2010
An Annualized Rate of Return of 78% with an over 90% Probability of Success...
Ah, Autumn. The time of falling leaves...and falling markets. August through October is an historically bearish period in the stock market. In fact, some of the most significant bearish trends in stock market history have developed in the third quarter of the year. The Wall Street Crash of '29. Black Monday (1987). The banking debacle of 2008.
But bear markets don't have to mean doom and gloom--especially for spread traders. As we move into Autumn we should expect to see an increased period of volatility and a shift to the downside. Current world events, particularly, another wave of layoffs for Greece next month, should only add fuel to the fire, and it won't take much to see a massive selloff--perfect conditions for adding bear call spreads to our portfolio.
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day of August.
• The first nine trading days of August, especially the first one, is usually weak.
• Tuesday, August 24th and Friday, August 27th are bullish trading days.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end.
Key Dates:
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options
Market Outlook
Last week, pessimism over the economy continued to overshadow the market. Initial jobless claims rose dramatically to their highest level since November 2009. The Philly Fed was expected to rise 7.5 but it fell by almost the same amount---an enormous miss and it shows rapidly deteriorating economic conditions.
As consumer spending shrinks every day, Fidelity reported that 401k hardship withdrawals and loans are up--another sign that Main Street is struggling. In the 2nd quarter alone, 62,000 workers requested a hardship withdrawal compared to 45,000 the same period a year ago--an all-time high. In another confirmation that the situation is actually getting worse for real Americans 45% who took out a hardship withdrawal a year ago took another one this year. What happens when that well runs dry?
In the Pacific, Japan is now discussing a new stimulus package to revive its economy (like they've never tried THAT before). With a strong yen and a decline in growth, their GDP now suggests an annualized rate of just 0.4% during their 2nd quarter – down 4.4% over the previous quarter. As they try to reduce their country’s massive debt which is almost double the size of their GDP, Japan has now forfeited their number one spot in the world's economy to China--something we may be seeing right here in the US if our economic politics don't change.
Meanwhile on the other side of the globe Greece is simmering like a pot of angry lobsters. In an effort to put the country back on the road to economic prosperity, their austerity plan has done nothing but plunge them into a depression. Unemployment is reaching almost 70% in some areas and 20% of the stores in Athens have now declared bankruptcy. To make matters worse, there will be another wave of layoffs next month and some analysts are predicting widespread civil unrest as the population loses faith in their leadership.
One unemployed Greek shipbuilder summed it up best by saying, “If you take away my family's bread, I'll take you down - the government needs to know that and don't call us anarchists if that happens! We're heads of our families and we're desperate."
So in spite of the European Central Bank's assurances there are obviously other factors at work--so what do you think about Greece's potential for a default on their recent bail-out loans? Or the chances of default in the rest of the PIIGS for that matter?
Difficult times lie ahead but they don't have to be difficult for everybody---as options traders we can generate income in any type of market--bullish, bearish or neutral.
What are the Secrets of the Week?
We have two high-potential/low-risk plays lined up this week--a Bear Call spread and an Iron Condor.
Our first play is on a company that ran up over the past month hitting hard resistance and then bouncing lower. Now it’s time to ride it to the downside.
For our second play we've got an ETF that is busy going nowhere--a perfect candidate for a high-odds Iron Condor. Let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by visiting www.cashflowheaven.com/ws.
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
But bear markets don't have to mean doom and gloom--especially for spread traders. As we move into Autumn we should expect to see an increased period of volatility and a shift to the downside. Current world events, particularly, another wave of layoffs for Greece next month, should only add fuel to the fire, and it won't take much to see a massive selloff--perfect conditions for adding bear call spreads to our portfolio.
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day of August.
• The first nine trading days of August, especially the first one, is usually weak.
• Tuesday, August 24th and Friday, August 27th are bullish trading days.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end.
Key Dates:
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options
Market Outlook
Last week, pessimism over the economy continued to overshadow the market. Initial jobless claims rose dramatically to their highest level since November 2009. The Philly Fed was expected to rise 7.5 but it fell by almost the same amount---an enormous miss and it shows rapidly deteriorating economic conditions.
As consumer spending shrinks every day, Fidelity reported that 401k hardship withdrawals and loans are up--another sign that Main Street is struggling. In the 2nd quarter alone, 62,000 workers requested a hardship withdrawal compared to 45,000 the same period a year ago--an all-time high. In another confirmation that the situation is actually getting worse for real Americans 45% who took out a hardship withdrawal a year ago took another one this year. What happens when that well runs dry?
In the Pacific, Japan is now discussing a new stimulus package to revive its economy (like they've never tried THAT before). With a strong yen and a decline in growth, their GDP now suggests an annualized rate of just 0.4% during their 2nd quarter – down 4.4% over the previous quarter. As they try to reduce their country’s massive debt which is almost double the size of their GDP, Japan has now forfeited their number one spot in the world's economy to China--something we may be seeing right here in the US if our economic politics don't change.
Meanwhile on the other side of the globe Greece is simmering like a pot of angry lobsters. In an effort to put the country back on the road to economic prosperity, their austerity plan has done nothing but plunge them into a depression. Unemployment is reaching almost 70% in some areas and 20% of the stores in Athens have now declared bankruptcy. To make matters worse, there will be another wave of layoffs next month and some analysts are predicting widespread civil unrest as the population loses faith in their leadership.
One unemployed Greek shipbuilder summed it up best by saying, “If you take away my family's bread, I'll take you down - the government needs to know that and don't call us anarchists if that happens! We're heads of our families and we're desperate."
So in spite of the European Central Bank's assurances there are obviously other factors at work--so what do you think about Greece's potential for a default on their recent bail-out loans? Or the chances of default in the rest of the PIIGS for that matter?
Difficult times lie ahead but they don't have to be difficult for everybody---as options traders we can generate income in any type of market--bullish, bearish or neutral.
What are the Secrets of the Week?
We have two high-potential/low-risk plays lined up this week--a Bear Call spread and an Iron Condor.
Our first play is on a company that ran up over the past month hitting hard resistance and then bouncing lower. Now it’s time to ride it to the downside.
For our second play we've got an ETF that is busy going nowhere--a perfect candidate for a high-odds Iron Condor. Let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by visiting www.cashflowheaven.com/ws.
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
OUR NEW RAYTHEON (RTN) CALLS ARE UP A GENEROUS TWENTY-FOUR PERCENT!
This past week the markets turned radically south in the final two days before options expiration...
DRIVING OUR NEW VOLATILITY INDEX (VXX) CALLS UP A SWEET FIFTEEN PERCENT!
OUR TWO TIMES SHORT SP-500 (SDS) CALLS UP A MUCH APPRECIATED SEVENTEEN PERCENT!
AND OUR NEW RAYTHEON (RTN) CALLS UP A GENEROUS TWENTY-FOUR PERCENT!
In fact since our portfolio is currently so bearish every one of our positions benefited in one way or another--and by the looks of things this avalanche of profits is just getting started as the markets teeter on the brink.
But to be fair we were a little early to the bear-party--and some of our positions suffered for it. Our PAYX puts expired worthless Friday which is the first time that has happened in a VERY long time--not fun. We also lost money on our FAZ calls but the play actually turned out better than we thought--the FAZ jumped mightily on Friday and our position really benefited.
Now the deadwood has been cleaned out and the way looks clear for some outstanding gains--but where are the new profits to be found and how should we approach this market? To help find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
Over the last week the SP-500 rallied to resistance at 1100 twice and then closed at a new four week low tracing a textbook failure at clearly defined resistance. The only surprise was the strength of the short covering in the afternoon as traders rushed to lock in profits before the weekend.
With all the economics pointing toward future devastation you would have thought the close would have been more negative. Of course it was expiration Friday so some end of day short covering was a given as traders closed positions rather than face an exercise on Monday. There was also a rumor that the Fed was readying a new stimulus announcement--but it's hard to imagine how traders could swallow that old saw for any kind of stock recovery--the Fed has done about as much as they can.
Any Nasdaq strength Friday was due to a few small caps like CRM, INTU, PCLN, AKAM and FFIV. All the big guns like GOOG, AAPL, MSFT, INTC and RIMM were negative--not a good sign. In spite of stronger relative performance than the SPX the Nasdaq is still looking pretty bearish---chips are teetering on their 6-months lows and the PC sector has shorted out completely. Hewlett's less than exciting earnings report last week was the final straw---expect further weakness.
Friday's volume was only 6.8 billion shares--weak for an expiration Friday but one statistic was pretty telling---the new 52-week lows spiked to levels not seen since the crash at the end of June. When large numbers of stocks are not just declining but making new 52-week lows it confirms the downtrend is real and probably lasting--and there are some good reasons for that.
New Jobless Claims at 500,000 were the highest since November and the third consecutive weekly gain. The rise in new claims during the survey period for the August non-farm payrolls suggests we are going to see even more job losses on the payroll report due out on September 3rd. There are no reliable estimates because of the unknowns about the lingering census worker terminations--about the only guarantee is there will be more job losses.
The biggest hit to market sentiment came from the Philly Fed survey on Thursday. The index dropped -12.8 points to a -7.7 from a positive 5.1 in July. The experts were completely blind-sided as 58 out of 58 economists surveyed by Bloomberg were expecting a positive number on the Philly Fed. This decline back into contraction territory put the index at a level not seen since July 2009 and was one more confirmation we are already in recession.
This big of a drop in the Philly Fed is a serious problem because the manufacturing sector had been leading the rebound--and now it isn't. Plus the Philly Fed Survey is the most followed of the manufacturing surveys. The dramatic decline in the headline number and in the individual components is indicating a contraction back to levels that will trigger more layoffs and put businesses and consumers back to where they were when this panic began. This was a serious hit to market sentiment that will have a longer-term market impact.
Meanwhile the financial sector is continuing to crumble as we saw in our FAZ rally. The system lost another eight banks on Friday bringing the total casualties for the year to 118. The Chicago based ShoreBank with $2.16 billion in assets was closed at a cost of $367 million to the FDIC. That was the largest of the banks closed.
Banks are still suffering from the crash in their prime collateral--the real estate sector and a still rocketing number of loan delinquencies. Over 12 million homeowners are behind in their house payments as the various bailout or modification programs are not working. In July the Treasury Dept reported 630,000 applicants for loan modifications were disqualified for not fitting the required criteria. Only 24,577 who successfully made it into a trial modification program were approved for a permanent loan--down from 51,205 in the prior month. Meanwhile unemployment is rising bumping up the number of people in trouble on their house payments.
According to RealtyTrac we are likely to see slightly more than one million more home foreclosures this year up from 900,000 in 2009. Moody's Mark Zandi said the projection for next year in 2011 is 1.5 million foreclosures. As of June 30th only $490 million has been spent of the $75 billion set aside to help homeowners avoid foreclosure by lowering payments.
This past week the economic reports have been pretty tough--but this coming week we're likely to see more of the same as the news will be dominated by housing and the GDP revision.
The housing reports are not expected to be good--this is the first month that has no overhanging benefit from the tax credit and some analysts are expecting sales declines of 5% to 7% for the July period--or more. Sales of existing homes are expected to fall for the third straight month in July after the government ended the tax credit for homebuyers. Some economists expect existing home sales to fall 11% to about 4.78 million annualized units in July from 5.37 million in June. The figures will be released Tuesday.
These are lagging reports so any negative number will be extrapolated forward to cover August and the rest of the year. Every month for the rest of the year sales are expected to decline so the July numbers this week will be a jumping off point for future estimate revisions.
The GDP estimates are also worrisome---they have taken a shocking drop with some analysts now talking about numbers under 1.0% for Q2 growth. This is down from some estimates of more than 3.0% just a month ago. Like the Philly Fed this is a dramatic decline and does not bode well for the equity markets.
The talking heads on TV have been asking the question for weeks, "are we going to have a double dip recession?" If you look at the parts of the economy are already in recession like retail, housing and manufacturing it is not much of a jump to conclude we are already in one.
That possibility was further confirmed by the Weekly Leading Index taking a dive to 120.8 from 122.4 posting the first decline in three weeks. It is now only .4 points from a new 52-week low at 120.4 and indications are the decline to continue.
We've got a rapidly weakening economy and a market that is finally figuring that out--the question is...
HOW CAN WE MAKE MONEY ON IT?
We've waited quite a while for the markets to really break down and now it's looks like it's happening--and we've got two extremely high potential plays lined up to take advantage of it--and neither one is a stock.
They are both leveraged ETFs on sectors set to completely implode. When you combine the current market action, the leverage of the ETFs themselves AND the leverage of the options we'll be buying we've got these vehicles packed with rocket fuel---and this week we're lighting the match!
The profit potential is HUGE on these two plays and we'll be climbing on board with some brand new positions first thing this week--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
DRIVING OUR NEW VOLATILITY INDEX (VXX) CALLS UP A SWEET FIFTEEN PERCENT!
OUR TWO TIMES SHORT SP-500 (SDS) CALLS UP A MUCH APPRECIATED SEVENTEEN PERCENT!
AND OUR NEW RAYTHEON (RTN) CALLS UP A GENEROUS TWENTY-FOUR PERCENT!
In fact since our portfolio is currently so bearish every one of our positions benefited in one way or another--and by the looks of things this avalanche of profits is just getting started as the markets teeter on the brink.
But to be fair we were a little early to the bear-party--and some of our positions suffered for it. Our PAYX puts expired worthless Friday which is the first time that has happened in a VERY long time--not fun. We also lost money on our FAZ calls but the play actually turned out better than we thought--the FAZ jumped mightily on Friday and our position really benefited.
Now the deadwood has been cleaned out and the way looks clear for some outstanding gains--but where are the new profits to be found and how should we approach this market? To help find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
Over the last week the SP-500 rallied to resistance at 1100 twice and then closed at a new four week low tracing a textbook failure at clearly defined resistance. The only surprise was the strength of the short covering in the afternoon as traders rushed to lock in profits before the weekend.
With all the economics pointing toward future devastation you would have thought the close would have been more negative. Of course it was expiration Friday so some end of day short covering was a given as traders closed positions rather than face an exercise on Monday. There was also a rumor that the Fed was readying a new stimulus announcement--but it's hard to imagine how traders could swallow that old saw for any kind of stock recovery--the Fed has done about as much as they can.
Any Nasdaq strength Friday was due to a few small caps like CRM, INTU, PCLN, AKAM and FFIV. All the big guns like GOOG, AAPL, MSFT, INTC and RIMM were negative--not a good sign. In spite of stronger relative performance than the SPX the Nasdaq is still looking pretty bearish---chips are teetering on their 6-months lows and the PC sector has shorted out completely. Hewlett's less than exciting earnings report last week was the final straw---expect further weakness.
Friday's volume was only 6.8 billion shares--weak for an expiration Friday but one statistic was pretty telling---the new 52-week lows spiked to levels not seen since the crash at the end of June. When large numbers of stocks are not just declining but making new 52-week lows it confirms the downtrend is real and probably lasting--and there are some good reasons for that.
New Jobless Claims at 500,000 were the highest since November and the third consecutive weekly gain. The rise in new claims during the survey period for the August non-farm payrolls suggests we are going to see even more job losses on the payroll report due out on September 3rd. There are no reliable estimates because of the unknowns about the lingering census worker terminations--about the only guarantee is there will be more job losses.
The biggest hit to market sentiment came from the Philly Fed survey on Thursday. The index dropped -12.8 points to a -7.7 from a positive 5.1 in July. The experts were completely blind-sided as 58 out of 58 economists surveyed by Bloomberg were expecting a positive number on the Philly Fed. This decline back into contraction territory put the index at a level not seen since July 2009 and was one more confirmation we are already in recession.
This big of a drop in the Philly Fed is a serious problem because the manufacturing sector had been leading the rebound--and now it isn't. Plus the Philly Fed Survey is the most followed of the manufacturing surveys. The dramatic decline in the headline number and in the individual components is indicating a contraction back to levels that will trigger more layoffs and put businesses and consumers back to where they were when this panic began. This was a serious hit to market sentiment that will have a longer-term market impact.
Meanwhile the financial sector is continuing to crumble as we saw in our FAZ rally. The system lost another eight banks on Friday bringing the total casualties for the year to 118. The Chicago based ShoreBank with $2.16 billion in assets was closed at a cost of $367 million to the FDIC. That was the largest of the banks closed.
Banks are still suffering from the crash in their prime collateral--the real estate sector and a still rocketing number of loan delinquencies. Over 12 million homeowners are behind in their house payments as the various bailout or modification programs are not working. In July the Treasury Dept reported 630,000 applicants for loan modifications were disqualified for not fitting the required criteria. Only 24,577 who successfully made it into a trial modification program were approved for a permanent loan--down from 51,205 in the prior month. Meanwhile unemployment is rising bumping up the number of people in trouble on their house payments.
According to RealtyTrac we are likely to see slightly more than one million more home foreclosures this year up from 900,000 in 2009. Moody's Mark Zandi said the projection for next year in 2011 is 1.5 million foreclosures. As of June 30th only $490 million has been spent of the $75 billion set aside to help homeowners avoid foreclosure by lowering payments.
This past week the economic reports have been pretty tough--but this coming week we're likely to see more of the same as the news will be dominated by housing and the GDP revision.
The housing reports are not expected to be good--this is the first month that has no overhanging benefit from the tax credit and some analysts are expecting sales declines of 5% to 7% for the July period--or more. Sales of existing homes are expected to fall for the third straight month in July after the government ended the tax credit for homebuyers. Some economists expect existing home sales to fall 11% to about 4.78 million annualized units in July from 5.37 million in June. The figures will be released Tuesday.
These are lagging reports so any negative number will be extrapolated forward to cover August and the rest of the year. Every month for the rest of the year sales are expected to decline so the July numbers this week will be a jumping off point for future estimate revisions.
The GDP estimates are also worrisome---they have taken a shocking drop with some analysts now talking about numbers under 1.0% for Q2 growth. This is down from some estimates of more than 3.0% just a month ago. Like the Philly Fed this is a dramatic decline and does not bode well for the equity markets.
The talking heads on TV have been asking the question for weeks, "are we going to have a double dip recession?" If you look at the parts of the economy are already in recession like retail, housing and manufacturing it is not much of a jump to conclude we are already in one.
That possibility was further confirmed by the Weekly Leading Index taking a dive to 120.8 from 122.4 posting the first decline in three weeks. It is now only .4 points from a new 52-week low at 120.4 and indications are the decline to continue.
We've got a rapidly weakening economy and a market that is finally figuring that out--the question is...
HOW CAN WE MAKE MONEY ON IT?
We've waited quite a while for the markets to really break down and now it's looks like it's happening--and we've got two extremely high potential plays lined up to take advantage of it--and neither one is a stock.
They are both leveraged ETFs on sectors set to completely implode. When you combine the current market action, the leverage of the ETFs themselves AND the leverage of the options we'll be buying we've got these vehicles packed with rocket fuel---and this week we're lighting the match!
The profit potential is HUGE on these two plays and we'll be climbing on board with some brand new positions first thing this week--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Friday, August 20, 2010
This Stock Hasn't Made its Move Yet--but it Will...
This week's pick from the Daily Report was highlighted on September 13th and now it's ready to take off--here's your chance for another outstanding winner...
This stock has not made its move yet--but it is just about to--and the profits could be outstanding.
It has been weak relative to the market AND it recently broke below major support on heavy volume. If not for a major government contract, this company would have already gone bankrupt.
Unfortunately for holders of the stock that project will be completed this year and it was the only reason the company recorded any profit at all last quarter. It relies on municipal spending and local governments are cutting expenses as much as possible. This company will be back to square one in a matter of months--and as investors figure that out the stock will dive off a cliff.
The last time a bearish pick was highlighted like this in this newsletter (LIFE) the puts jumped 230% overnight. This trade may take a little longer to unfold, but the potential is huge - don't miss it.
I have been instructing subscribers to buy puts this week and they are making a killing today--and likely will continue to.
The stock below is ready to drop big time--subscribe now to get this pick along with two fresh plays everyday the market is open AND a Live Updates page that ranks them for you so you always know what to play.
Market Commentary - This morning, the market was set for a rally--the S&P 500 was up seven points in pre-open trading and the bulls were ready to rumble. News that Intel was buying McAfee added fuel to overnight strength in Asian markets.
But an hour before the market opened reality hit the markets like a cold slap across the computer screen---initial jobless claims were released and they weren't pretty. Analysts expected 480,000 new claims on the high end but they jumped to 500,000--the highest level since November 2009. Surprisingly, the market took the number in stride and it rallied on the open--but it couldn't last.
At 10:00 AM Eastern, the Philly Fed was released. The consensus was looking for a positive 7.5 and it came in at a negative 7.7--Ouch! That is a huge miss and it signals a dramatic fall-off in economic activity---exactly what we've been forecasting.
The economic recovery during the last year can largely be attributed to an inventory cycle build and boat load of government stimulus. Supplies have been rebuilt and wholesale inventories are rising as sales decline. This will weigh on manufacturing and eventually the biggest sector of the economy-- service---will be impacted.
Much of the job growth in the service sector has been tied to retail and restaurants. Those are low-quality jobs, but they did bolster the number and gave the appearance of a healthy recovery. This week, retailers have been posting decent results. Unfortunately, the guidance going forward has been very weak. Consumers are tightening their belts and they are only spending money on necessities. This trend was confirmed by Procter & Gamble and Colgate when they said shoppers are “trading down” to off brand products. Heck if folks can't even afford their regular toothpaste what else are they cutting out?
Last week, Cisco CEO John Chambers did a 180 and scared the pants off of everybody. All year, he has been steadfast in his belief that a full-blown recovery was underway. Now, conditions have changed quickly and “he has never had this much difficulty forecasting business conditions”. This frightenly fast deterioration is similar to what we saw in the Philly Fed number this morning.
Private sector jobs grew more than expected in July, but that was almost certainly a one-time event. Corporations are not going to add to the overhead expenses during times of uncertainty. They have had to make tough decisions and let good people go and until they see sustained demand, they will not add to payrolls.
Public-sector jobs fell more than expected in July. That trend will continue as state and local governments try desperately to balance budgets. A recent report suggested that 500,000 jobs could be cut from local governments in the next two years. States are preparing budgets for 2011 and they are running deep in the red ($84 billion next year). Their projections are always optimistic and we can expect huge deficits. According to the Constitution, states cannot incur deficits. This problem will have to be addressed immediately since states are already $300 billion in the hole.
The bottom line is that public-sector jobs will fall dramatically.
This morning, the CBO (Congressional Budget Office) said that the deficit for 2010 will be $1.35 trillion or 9.9% of GDP. That is the highest level in 65 years and enough to scare the heck out of anyone that can do simple math. Next year, they are projecting a $1 trillion plus deficit---but imagine what the deficit will be when Obama-care kicks in for 30 million Americans. Self-funding my arse!
As we warned in May employment will peak this year and it will mark the high before we slip into a double dip recession. Employment conditions are deteriorating quickly and the credit crisis will resurface as more people lose the only means they have of paying their bills.
The @#$% will hit the fan within two weeks--so start getting prepared now. China will release its PMI on September 30th and it will very likely fall below 50 indicating economic contraction. That will get the bearish ball rolling during a massive week of economic releases. ISM manufacturing and ISM services will both decline as they have been weakening for months. The ADP employment index will show a decline in private sector jobs. That will set us up for a horrible Unemployment Report just ahead of Labor Day weekend.
All of this news coincides with the weakest seasonal period for the markets--the lows from June will likely be tested and I believe they will fail. The wild card in all of this is the European credit crisis. Bond auctions have recently gone well so these concerns will probably not flare up this fall. That means we will have a contained decline likely setting up for a year-end rally.
Strong corporate balance sheets, good earnings, low interest rates and Republican election victories should set up a small year-end rally. In the first quarter of 2011, we have another chance for a major decline.
The market does not always cooperate however and longer term forecasts are often revised but a sell-off in September and October is EXTREMELY likely. Start buying October out of the money puts for the best entry prices you can--something we have been suggesting this for weeks.
If you don't know what to short, get the Daily Report now--we've got a list of the hottest down-trenders that should produce some incredible put profits over the next few weeks--sign up here for immediate access.
www.cashflowheaven.com/os
Trade Well,
Pete
This stock has not made its move yet--but it is just about to--and the profits could be outstanding.
It has been weak relative to the market AND it recently broke below major support on heavy volume. If not for a major government contract, this company would have already gone bankrupt.
Unfortunately for holders of the stock that project will be completed this year and it was the only reason the company recorded any profit at all last quarter. It relies on municipal spending and local governments are cutting expenses as much as possible. This company will be back to square one in a matter of months--and as investors figure that out the stock will dive off a cliff.
The last time a bearish pick was highlighted like this in this newsletter (LIFE) the puts jumped 230% overnight. This trade may take a little longer to unfold, but the potential is huge - don't miss it.
I have been instructing subscribers to buy puts this week and they are making a killing today--and likely will continue to.
The stock below is ready to drop big time--subscribe now to get this pick along with two fresh plays everyday the market is open AND a Live Updates page that ranks them for you so you always know what to play.
Market Commentary - This morning, the market was set for a rally--the S&P 500 was up seven points in pre-open trading and the bulls were ready to rumble. News that Intel was buying McAfee added fuel to overnight strength in Asian markets.
But an hour before the market opened reality hit the markets like a cold slap across the computer screen---initial jobless claims were released and they weren't pretty. Analysts expected 480,000 new claims on the high end but they jumped to 500,000--the highest level since November 2009. Surprisingly, the market took the number in stride and it rallied on the open--but it couldn't last.
At 10:00 AM Eastern, the Philly Fed was released. The consensus was looking for a positive 7.5 and it came in at a negative 7.7--Ouch! That is a huge miss and it signals a dramatic fall-off in economic activity---exactly what we've been forecasting.
The economic recovery during the last year can largely be attributed to an inventory cycle build and boat load of government stimulus. Supplies have been rebuilt and wholesale inventories are rising as sales decline. This will weigh on manufacturing and eventually the biggest sector of the economy-- service---will be impacted.
Much of the job growth in the service sector has been tied to retail and restaurants. Those are low-quality jobs, but they did bolster the number and gave the appearance of a healthy recovery. This week, retailers have been posting decent results. Unfortunately, the guidance going forward has been very weak. Consumers are tightening their belts and they are only spending money on necessities. This trend was confirmed by Procter & Gamble and Colgate when they said shoppers are “trading down” to off brand products. Heck if folks can't even afford their regular toothpaste what else are they cutting out?
Last week, Cisco CEO John Chambers did a 180 and scared the pants off of everybody. All year, he has been steadfast in his belief that a full-blown recovery was underway. Now, conditions have changed quickly and “he has never had this much difficulty forecasting business conditions”. This frightenly fast deterioration is similar to what we saw in the Philly Fed number this morning.
Private sector jobs grew more than expected in July, but that was almost certainly a one-time event. Corporations are not going to add to the overhead expenses during times of uncertainty. They have had to make tough decisions and let good people go and until they see sustained demand, they will not add to payrolls.
Public-sector jobs fell more than expected in July. That trend will continue as state and local governments try desperately to balance budgets. A recent report suggested that 500,000 jobs could be cut from local governments in the next two years. States are preparing budgets for 2011 and they are running deep in the red ($84 billion next year). Their projections are always optimistic and we can expect huge deficits. According to the Constitution, states cannot incur deficits. This problem will have to be addressed immediately since states are already $300 billion in the hole.
The bottom line is that public-sector jobs will fall dramatically.
This morning, the CBO (Congressional Budget Office) said that the deficit for 2010 will be $1.35 trillion or 9.9% of GDP. That is the highest level in 65 years and enough to scare the heck out of anyone that can do simple math. Next year, they are projecting a $1 trillion plus deficit---but imagine what the deficit will be when Obama-care kicks in for 30 million Americans. Self-funding my arse!
As we warned in May employment will peak this year and it will mark the high before we slip into a double dip recession. Employment conditions are deteriorating quickly and the credit crisis will resurface as more people lose the only means they have of paying their bills.
The @#$% will hit the fan within two weeks--so start getting prepared now. China will release its PMI on September 30th and it will very likely fall below 50 indicating economic contraction. That will get the bearish ball rolling during a massive week of economic releases. ISM manufacturing and ISM services will both decline as they have been weakening for months. The ADP employment index will show a decline in private sector jobs. That will set us up for a horrible Unemployment Report just ahead of Labor Day weekend.
All of this news coincides with the weakest seasonal period for the markets--the lows from June will likely be tested and I believe they will fail. The wild card in all of this is the European credit crisis. Bond auctions have recently gone well so these concerns will probably not flare up this fall. That means we will have a contained decline likely setting up for a year-end rally.
Strong corporate balance sheets, good earnings, low interest rates and Republican election victories should set up a small year-end rally. In the first quarter of 2011, we have another chance for a major decline.
The market does not always cooperate however and longer term forecasts are often revised but a sell-off in September and October is EXTREMELY likely. Start buying October out of the money puts for the best entry prices you can--something we have been suggesting this for weeks.
If you don't know what to short, get the Daily Report now--we've got a list of the hottest down-trenders that should produce some incredible put profits over the next few weeks--sign up here for immediate access.
www.cashflowheaven.com/os
Trade Well,
Pete
Monday, August 16, 2010
An Annualized Rate of Return of 91% with an over 92% Probability of Success...
We're closing in on August expiration this Friday so please consider closing out any plays that have already earned most of their credit. When a credit spread has less than $.05 cents remaining closing out with the vast majority of your profits is a great way to eliminate any further risk. On the other hand, if you don't like paying commissions on a play you are convinced will expire worthless let it ride--just know that there's a certain value in locking in a profit.
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day.
• Friday, August 13th is a bullish trading day.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end
Key Dates:
• August 19th--options expiration for some indices.
• August 20th--options expiration for all equity and all other index options.
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
Market Outlook
Last Friday, stocks extended their losses and fell for the 4th straight day after a July retail sales report failed to live up to investors’ expectations. The Commerce Department reported that retail sales rose a paltry 0.4% blind-siding economists who were expecting more. With weak consumer spending and no rebound in sight, traders are beginning to sell--and with few reasons for stocks to rise that selling should accelerate.
The Labor Department announced that the number of people filing for unemployment benefits rose for the first time last week, casting doubt on the economic recovery. The central bank confirmed those fears stating that the economy is indeed slowing down. In an attempt to stimulate lending, they announced they would start buying government debt in hopes of lowering interest rates--but with bank rates already close to zero it's doubtful this latest move will do much to improve the economy.
Congress passed a $26 billion dollar aid package last week aimed at saving thousands of government jobs nationwide. Unfortunately, this bill only postpones the difficult choices that lie ahead for states struggling with declining revenue. With deficits climbing to dangerous levels and an election on the horizon, this is probably the last time the government will come to the rescue.
The Euro Zone’s economy grew by a better than expected 1% but virtually all that growth was attributed to one country--Germany. The German economy has expanded at its fastest pace in nearly four years, however, this will probably be the high point for Germany and the Euro Zone as demand among their major trading partners continues to contract.
What are the Secrets of the Week?
As you can see the economy is slowing and there's probably going to be some rough sailing for some months to come. But in some ways that can be to our benefit as the markets price in the likelihood of a downturn. With volatility premiums rising we can sell further out of the money and collect more in premium and we've got two plays lined up this week that are perfectly positioned to take advantage of it--so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by visiting www.cashflowheaven.com/ws.
Stack the Deck on Every Trade,
Robert
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day.
• Friday, August 13th is a bullish trading day.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end
Key Dates:
• August 19th--options expiration for some indices.
• August 20th--options expiration for all equity and all other index options.
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
Market Outlook
Last Friday, stocks extended their losses and fell for the 4th straight day after a July retail sales report failed to live up to investors’ expectations. The Commerce Department reported that retail sales rose a paltry 0.4% blind-siding economists who were expecting more. With weak consumer spending and no rebound in sight, traders are beginning to sell--and with few reasons for stocks to rise that selling should accelerate.
The Labor Department announced that the number of people filing for unemployment benefits rose for the first time last week, casting doubt on the economic recovery. The central bank confirmed those fears stating that the economy is indeed slowing down. In an attempt to stimulate lending, they announced they would start buying government debt in hopes of lowering interest rates--but with bank rates already close to zero it's doubtful this latest move will do much to improve the economy.
Congress passed a $26 billion dollar aid package last week aimed at saving thousands of government jobs nationwide. Unfortunately, this bill only postpones the difficult choices that lie ahead for states struggling with declining revenue. With deficits climbing to dangerous levels and an election on the horizon, this is probably the last time the government will come to the rescue.
The Euro Zone’s economy grew by a better than expected 1% but virtually all that growth was attributed to one country--Germany. The German economy has expanded at its fastest pace in nearly four years, however, this will probably be the high point for Germany and the Euro Zone as demand among their major trading partners continues to contract.
What are the Secrets of the Week?
As you can see the economy is slowing and there's probably going to be some rough sailing for some months to come. But in some ways that can be to our benefit as the markets price in the likelihood of a downturn. With volatility premiums rising we can sell further out of the money and collect more in premium and we've got two plays lined up this week that are perfectly positioned to take advantage of it--so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by visiting www.cashflowheaven.com/ws.
Stack the Deck on Every Trade,
Robert
PF CHANGS (PFCB) PLUNGED LAUNCHING OUR SEPT PUTS TO A SWEET THIRY-SEVEN PERCENT OPEN PROFIT!
This past week the markets finally woke up to the idea that the economy may not be roaring back quite as fast as the bulls thought---and our bearish arsenal of stocks jumped to the upside...
PF CHANGS (PFCB) PLUNGED LAUNCHING OUR SEPT PUTS TO A SWEET THIRY-SEVEN PERCENT OPEN PROFIT!
PLUS LAST WEEK'S FALLING MARKETS CATAPULTED OUR VOLATILITY INDEX CALLS TO A WHOPPING FIVE-DAY SIXTY-ONE PERCENT OPEN PROFIT!
Heck even our Electronic Arts (ERTS) puts that were so upside-down after earnings are now in profit territory. In fact all of our open positions benefited from last week's market action and as good as that was it's likely to get a whole lot better because all of our current positions are bearish and the markets look poised to keep on crashing.
But will stocks keep going down in a straight line or is there a big bounce in our future? To help find out and home-in on this week's profits let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 broke down out of its rising bearish wedge indicating much lower prices from here. First support is not until the 1050 level but we'll likely see that broken--possibly before September's expiration.
The Nasdaq plunged below its old downtrend line so it is now officially bearish. Big cap techs are breaking down quickly led by the collapse of Cisco and Intel. The chip sector has broken below support to a new six month low following more than a dozen downgrades last week. The Nasdaq lost more than 5% for the week. Initial support is at 2090 but we'll likely see a lower low down around the 2000 level.
It was interesting to see how many market analysts were surprised at last week's drop especially considering the economic weakness we've been seeing. Much of the market was pinning their hopes on the Fed but they are essentially out of bullets as interest rates are about as low as they can go.
And if some Fed members have their way rates may not stay low for long. Kansas Fed President Hoenig blasted "Bernanke and his allies" on Friday for continuing to 'keep rates low for an extended period'. Hoenig joined a growing group of Fed heads including Bullard, Plosser, Fisher and Lacker in speaking out against the current Fed policy.
These are a few of Hoenig's hawkish comments from his speech on Friday, "A zero rate after a year of recovery adds to uncertainty." "Zero rates during a period of modest growth are a dangerous gamble." "Slow growth is not a decline in growth and we should not act hastily." "A continued zero interest rate is as likely to be a negative as a positive." "Bernanke and allies are trying to use monetary policy as a "cure all" for "every problem faced by the U.S. today." "Keeping rates too low for too long will lead to another severe recession in a few years."
Hoenig is apparently tired of just registering dissent at recent FOMC meetings and has decided to take his feelings public. These two sides are building to a major conflict the next time the Fed meets on September 21st, but if the economy keeps slowing and the market dives rates will likely stay low--at least for the time being.
The most important earnings report last week was Cisco as they represent the biggest chunk of the networking sector. Wednesday night CEO John Chambers disappointed investors with a warning about the current business climate, "We are seeing a large number of mixed signals in both the market and from our customers' expectations, and we think the words "unusual uncertainty" are an accurate description of what is occurring." Normally John Chamber is a huge cheerleader for Cisco and the tech sector in general so his cautious guidance really shook the markets.
Several analysts reinforced the idea that corporations are gun shy right now and will only spend money if the economy improves. They are also poised to slash spending quickly if the U.S. falls back into recession. Nobody wants to get caught over-extended like they were in 2008.
Cisco's sales are a leading edge of the IT build out cycle. The networks have to be in place before any servers or PCs will function. If Cisco is seeing a downturn in orders then everyone else is seeing the same thing. We are likely to hear more cautious guidance when Hewlett Packard reports earnings this Thursday.
As confirmation of a slowdown in the tech sector research firm Gartner cut their IT sales projections for the rest of 2010 on Friday. Overall they expect IT spending to hit $2.4 trillion in 2010, up from $2.3T in 2009. However, they cut their estimates from a +4.1% growth rate to a 2.9% growth rate. It was just a few weeks back they were expecting a 6% growth rate.
Gartner said companies were still cautious about committing to new projects and were still worried about the potential for a double dip recession. Decision-making cycles were still long and many companies had contingency plans for the next 12 months, which could see more projects suspended if the economy continues to weaken. This is just another confirmation point that the economy is hitting some resistance.
This week we'll have more evidence of economic strength or weakness in the retail sector. This is key information as personal consumption still makes up 70% of the US economy.
J.C. Penney (JCP) warned on Friday that earnings this quarter would be below street estimates. JCP expects to earn between 16 to 20 cents and the street was expecting 24 cents. Penney also lowered the full year estimates.
Joining JCP in sharing weaker guidance and flat sales was Kohl's (KSS), Nordstrom (JWN) and Dillards (DDS). Penney reported a sharp drop in same store sales in July and was forced to slash prices to generate traffic. Kohl's beat the street estimates on earnings but guided to lower full year profits than analysts were expecting. Kohl's said the biggest problem for their middle class customers was unemployment. Even those who had jobs were spending less because they were afraid they could lose their jobs if the economy slowed again.
This week we will get earnings from several more retailers including HD, LOW, TGT, ANF and others. Last week we saw JCP, KSS, DDS and JWN lower guidance so the results from the other big stores could continue to drag the markets lower.
It is pretty clear by any metric that the U.S. economy is on shaky ground. There are dozens of indicators and plenty of anecdotal evidence that consumers and corporations are worried about the future.
Corporations are sitting on record piles of cash but they refuse to spend it because of the painful lessons from 2008. Banks are also sitting on lots of cash but they are hoarding every penny because the assets they've lended against--real estate--are continuing to fall in value. A large majority of their loans are underwater but regulators are looking the other way to avoid sparking another banking crisis. They know that once the economy starts accelerating the real estate problem will solve itself--but until then the banks have to hoard reserves just in case that recovery takes longer than they thought. Eventually regulators will have to recognize these underwater loans and banks will have to add to reserves.
The point of lowering Fed interest rates is to stimulate bank lending--but it isn't happening. When a bank borrows $1 million from the Fed and then leverages it into $20 million in loans it creates a huge amount of activity. In addition to consumer loans business borrowers buy equipment and supplies, pay salaries, rents, etc and business activity skyrockets. We are not seeing that now because the banks are too scared to lend. They claim they are making loans but the numbers tell another story. You have to have perfect credit and a golden balance sheet to get any kind of bank funding. Few small businesses and startups have either after the last three years.
At the consumer level as real estate prices fall the volume of cash extracted from real estate has declined by nearly $1 trillion since 2008. Times have changed and home owners can no longer finance lifestyle improvements through home equity. This is called deleveraging and it is happening on a nationwide scale. As long as deleveraging is the primary driver of the economy growth will be minimal or negative.
This is the view going forward right now as the markets fall off of a two month peak--the question is...
HOW DO WE MAKE MONEY ON IT?
By the looks of the charts and the economic forecast we've just seen the first small step lower this past week--all indications are we've got much more downside to come. So it shouldn't be surprising that the two trades we have lined up this week are bearish and hold some excellent profit potential.
Our first play is the worst stock in a hated sector--and it's chart shows it. The company just came out with earnings about a week ago and they were down almost 60%! This stock is headed south fast and it's perfectly positioned for a brand new put play!
Our next position is on an inverse leveraged ETF that really holds the power to generate some big profits quickly--especially considering the markets current direction. We'll be buying in on any pullback in the stock for what looks to be some outstanding profits!
We've got two excellent looking plays and a market on the brink--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
PF CHANGS (PFCB) PLUNGED LAUNCHING OUR SEPT PUTS TO A SWEET THIRY-SEVEN PERCENT OPEN PROFIT!
PLUS LAST WEEK'S FALLING MARKETS CATAPULTED OUR VOLATILITY INDEX CALLS TO A WHOPPING FIVE-DAY SIXTY-ONE PERCENT OPEN PROFIT!
Heck even our Electronic Arts (ERTS) puts that were so upside-down after earnings are now in profit territory. In fact all of our open positions benefited from last week's market action and as good as that was it's likely to get a whole lot better because all of our current positions are bearish and the markets look poised to keep on crashing.
But will stocks keep going down in a straight line or is there a big bounce in our future? To help find out and home-in on this week's profits let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 broke down out of its rising bearish wedge indicating much lower prices from here. First support is not until the 1050 level but we'll likely see that broken--possibly before September's expiration.
The Nasdaq plunged below its old downtrend line so it is now officially bearish. Big cap techs are breaking down quickly led by the collapse of Cisco and Intel. The chip sector has broken below support to a new six month low following more than a dozen downgrades last week. The Nasdaq lost more than 5% for the week. Initial support is at 2090 but we'll likely see a lower low down around the 2000 level.
It was interesting to see how many market analysts were surprised at last week's drop especially considering the economic weakness we've been seeing. Much of the market was pinning their hopes on the Fed but they are essentially out of bullets as interest rates are about as low as they can go.
And if some Fed members have their way rates may not stay low for long. Kansas Fed President Hoenig blasted "Bernanke and his allies" on Friday for continuing to 'keep rates low for an extended period'. Hoenig joined a growing group of Fed heads including Bullard, Plosser, Fisher and Lacker in speaking out against the current Fed policy.
These are a few of Hoenig's hawkish comments from his speech on Friday, "A zero rate after a year of recovery adds to uncertainty." "Zero rates during a period of modest growth are a dangerous gamble." "Slow growth is not a decline in growth and we should not act hastily." "A continued zero interest rate is as likely to be a negative as a positive." "Bernanke and allies are trying to use monetary policy as a "cure all" for "every problem faced by the U.S. today." "Keeping rates too low for too long will lead to another severe recession in a few years."
Hoenig is apparently tired of just registering dissent at recent FOMC meetings and has decided to take his feelings public. These two sides are building to a major conflict the next time the Fed meets on September 21st, but if the economy keeps slowing and the market dives rates will likely stay low--at least for the time being.
The most important earnings report last week was Cisco as they represent the biggest chunk of the networking sector. Wednesday night CEO John Chambers disappointed investors with a warning about the current business climate, "We are seeing a large number of mixed signals in both the market and from our customers' expectations, and we think the words "unusual uncertainty" are an accurate description of what is occurring." Normally John Chamber is a huge cheerleader for Cisco and the tech sector in general so his cautious guidance really shook the markets.
Several analysts reinforced the idea that corporations are gun shy right now and will only spend money if the economy improves. They are also poised to slash spending quickly if the U.S. falls back into recession. Nobody wants to get caught over-extended like they were in 2008.
Cisco's sales are a leading edge of the IT build out cycle. The networks have to be in place before any servers or PCs will function. If Cisco is seeing a downturn in orders then everyone else is seeing the same thing. We are likely to hear more cautious guidance when Hewlett Packard reports earnings this Thursday.
As confirmation of a slowdown in the tech sector research firm Gartner cut their IT sales projections for the rest of 2010 on Friday. Overall they expect IT spending to hit $2.4 trillion in 2010, up from $2.3T in 2009. However, they cut their estimates from a +4.1% growth rate to a 2.9% growth rate. It was just a few weeks back they were expecting a 6% growth rate.
Gartner said companies were still cautious about committing to new projects and were still worried about the potential for a double dip recession. Decision-making cycles were still long and many companies had contingency plans for the next 12 months, which could see more projects suspended if the economy continues to weaken. This is just another confirmation point that the economy is hitting some resistance.
This week we'll have more evidence of economic strength or weakness in the retail sector. This is key information as personal consumption still makes up 70% of the US economy.
J.C. Penney (JCP) warned on Friday that earnings this quarter would be below street estimates. JCP expects to earn between 16 to 20 cents and the street was expecting 24 cents. Penney also lowered the full year estimates.
Joining JCP in sharing weaker guidance and flat sales was Kohl's (KSS), Nordstrom (JWN) and Dillards (DDS). Penney reported a sharp drop in same store sales in July and was forced to slash prices to generate traffic. Kohl's beat the street estimates on earnings but guided to lower full year profits than analysts were expecting. Kohl's said the biggest problem for their middle class customers was unemployment. Even those who had jobs were spending less because they were afraid they could lose their jobs if the economy slowed again.
This week we will get earnings from several more retailers including HD, LOW, TGT, ANF and others. Last week we saw JCP, KSS, DDS and JWN lower guidance so the results from the other big stores could continue to drag the markets lower.
It is pretty clear by any metric that the U.S. economy is on shaky ground. There are dozens of indicators and plenty of anecdotal evidence that consumers and corporations are worried about the future.
Corporations are sitting on record piles of cash but they refuse to spend it because of the painful lessons from 2008. Banks are also sitting on lots of cash but they are hoarding every penny because the assets they've lended against--real estate--are continuing to fall in value. A large majority of their loans are underwater but regulators are looking the other way to avoid sparking another banking crisis. They know that once the economy starts accelerating the real estate problem will solve itself--but until then the banks have to hoard reserves just in case that recovery takes longer than they thought. Eventually regulators will have to recognize these underwater loans and banks will have to add to reserves.
The point of lowering Fed interest rates is to stimulate bank lending--but it isn't happening. When a bank borrows $1 million from the Fed and then leverages it into $20 million in loans it creates a huge amount of activity. In addition to consumer loans business borrowers buy equipment and supplies, pay salaries, rents, etc and business activity skyrockets. We are not seeing that now because the banks are too scared to lend. They claim they are making loans but the numbers tell another story. You have to have perfect credit and a golden balance sheet to get any kind of bank funding. Few small businesses and startups have either after the last three years.
At the consumer level as real estate prices fall the volume of cash extracted from real estate has declined by nearly $1 trillion since 2008. Times have changed and home owners can no longer finance lifestyle improvements through home equity. This is called deleveraging and it is happening on a nationwide scale. As long as deleveraging is the primary driver of the economy growth will be minimal or negative.
This is the view going forward right now as the markets fall off of a two month peak--the question is...
HOW DO WE MAKE MONEY ON IT?
By the looks of the charts and the economic forecast we've just seen the first small step lower this past week--all indications are we've got much more downside to come. So it shouldn't be surprising that the two trades we have lined up this week are bearish and hold some excellent profit potential.
Our first play is the worst stock in a hated sector--and it's chart shows it. The company just came out with earnings about a week ago and they were down almost 60%! This stock is headed south fast and it's perfectly positioned for a brand new put play!
Our next position is on an inverse leveraged ETF that really holds the power to generate some big profits quickly--especially considering the markets current direction. We'll be buying in on any pullback in the stock for what looks to be some outstanding profits!
We've got two excellent looking plays and a market on the brink--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, August 9, 2010
An Annualized Rate of Return of 100% with an over 93% Probability of Success...
Good morning and welcome to your latest edition of the Winning Secret. We begin this week with one our subscriber’s questions which is a very good one--certainly worth commenting on in the newsletter. In his email, subscriber, Cristian, writes,
“You talked about closing the EWZ bear call credit spread, because delta reached 0.24, etc. For a couple of days now, DO closed with the 74.25 short call strike at a delta of 0.23, but I have seen no comment in the member area. Are you hanging on, hoping for a bounce back down?”
Here's the answer---From a Winning Secret perspective, when we close out a trade using a Delta buyback, we’ll be closing it out for good and moving on to a new a trade--and DO isn't quite there...
There are a couple of reasons why closing out completely is a good practice. If we followed what the EWZ did last week the Delta increased to a high of 31, hovered in the 28 - 29 range for most of the week before finally settling back down to 24 on Friday. Now, it could continue to fall further but with about 6 weeks before expiration there is too much time to wait with only a 69% - 76% chance of winning.
If at all possible, we need to have a mindset where we’re not trying to predict the future. I know that can be difficult because it’s our natural inclination to have a market bias--but our goal is to get away from the predicting game and instead play a set of odds that mathematically guarantees the deck is always stacked in our favor.
Risk management should always be a key focus when trading anything. An effective trading plan requires that we make every effort to minimize losses and maximize our winning trades. Great question, Cristian, thank you!
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day.
• The first nine trading days of August, especially the first one, is usually weak.
• Tuesday, August 10th and Thursday, August 12th are bearish trading days.
• Friday, August 13th is a bullish trading day.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end
Key Dates:
• August 19th--options expiration for some indices.
• August 20th--options expiration for all equity and all other index options.
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
Volatility:
Last Monday’s open was extremely bullish which is very unusual as this is historically a bearish time of the year. And as shown in the figures below, the market is becoming too complacent once again--so let’s just keep at least one eyebrow raised as we see how this all plays out.
Market Outlook
In the news this week, both stocks and the dollar fell after a weak US employment report Friday. The report had investors dumping stocks and moving into foreign currencies, gold, bonds, etc. With the U.S. recovery weakening, private job growth was only 71,000 for the month of July which is a far cry from the numbers needed to reduce the unemployment rate which remains at an optimistically reported 9.5%.
It takes about 200,000 new jobs for the unemployment rate to hold steady and keep up with the growing work force. And despite $26 billion in federal aid, local, state and federal government levels have had to eliminate 169,000 jobs. Unfortunately, more losses are coming; about 20,000 – 30,000 more jobs being cut per month is estimated for the rest of this year. It will take many years to regain all the lost jobs due to the recession. The economy lost 8.4 million jobs in 2008 - 2009 and this year the private sector has added only 559,000.
Consumer borrowing fell again in June as households kept lowering their credit card use and socking money into savings accounts. This marks the 5th straight month of cutting back and a $1.3 billion drop for the month of June. And this is the 16th drop over the past 17 months as consumer credit has fallen by $163 billion since its July 2008 peak.
Households are continuing to save more and borrow less which is important and a good thing--but it's had a negative effect on consumption and GDP. It the not-too-distant past economists were worried that consumers weren’t saving enough; now they’re worried that they aren’t spending enough!
Consumer spending accounts for 70% of US GDP, so it's THE single most important sector of our economy . Finally, on a brighter note, Europe’s economy is strengthening once several sovereign debt sales were over-subscribed--it appears that crisis has passed--for now.
Dow 14,000 in 2011?
Well Then, Make Mine a Double…and Yes, I’d Like Fries with That!
While scouring the news events of the week, I discovered two articles that shouted for attention. The first was a prediction on how the Dow could reach 14,000 in 2011. It’s an interesting read based on a number of factors including the country's GDP fluctuations since World War II. And after reading it, I thought it would be fun to put it to the test and see what the chances of this pinnacle being hit from a volatility perspective.
But before we sit down and crunch the numbers, how about we crunch on a light snack? Well, have no fear because it’s Krispy Crème Donuts to the rescue. That’s right folks…you too can try their new cheeseburger with a twist.
Twist you say? That’s right.
Not only is it just a cheeseburger but it’s a cheeseburger topped with chocolate covered bacon! And it gets even better. They’ve done away with the bun and instead sandwiched it between a couple of donuts.
What has this got to do with trading? Well, nothing.
But if we really want to play this one, I’m thinking a Bull Put spread for starters. Why? Well, it’s sweeping the nation and everyone has got to try one, right? The stock has got to go up! Then I’m thinking Bear Call spread because either we’re all going to be in the hospital or we’ll all be dropping like flies and there’ll be no traders left. I wonder…can you get fries with that?
Ok, Dow 14,000. Is it possible? Well, if we look at both historical and implied volatility, from both January 2011 to January 2012, sure there is a statistical chance. Not much of one but it is there--in looking at these odds though it looks like a better bet to sell--something we're getting increasingly good at.
What are the Secrets of the Week?
Since it’s not clear if Friday’s close is a sign of more trouble to come or just a temporary setback, the best plan is to continue with our neutral style of play. And since earnings season is winding down, if stocks are going to continue their upward trend they’re going to have to get their news from somewhere--and that’s going to be the economy. But with housing, sales, income, and jobs all down things could get pretty discouraging--unless you’re a Winning Secreteer of course--so let’s get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: http://www.thewinningsecret.com/
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
“You talked about closing the EWZ bear call credit spread, because delta reached 0.24, etc. For a couple of days now, DO closed with the 74.25 short call strike at a delta of 0.23, but I have seen no comment in the member area. Are you hanging on, hoping for a bounce back down?”
Here's the answer---From a Winning Secret perspective, when we close out a trade using a Delta buyback, we’ll be closing it out for good and moving on to a new a trade--and DO isn't quite there...
There are a couple of reasons why closing out completely is a good practice. If we followed what the EWZ did last week the Delta increased to a high of 31, hovered in the 28 - 29 range for most of the week before finally settling back down to 24 on Friday. Now, it could continue to fall further but with about 6 weeks before expiration there is too much time to wait with only a 69% - 76% chance of winning.
If at all possible, we need to have a mindset where we’re not trying to predict the future. I know that can be difficult because it’s our natural inclination to have a market bias--but our goal is to get away from the predicting game and instead play a set of odds that mathematically guarantees the deck is always stacked in our favor.
Risk management should always be a key focus when trading anything. An effective trading plan requires that we make every effort to minimize losses and maximize our winning trades. Great question, Cristian, thank you!
Trader’s Tip:
Historically,
• The “Summer Rally” is the weakest rally of the year and usually ends in July.
• Since 1987, August has been the 2nd worst month for both the Dow and the S&P 500; 5th worst month for the NASDAQ.
• In the last 13 years, the S&P 500 was up only twice on the next to the last day.
• The first nine trading days of August, especially the first one, is usually weak.
• Tuesday, August 10th and Thursday, August 12th are bearish trading days.
• Friday, August 13th is a bullish trading day.
From a stock (not options ) trading perspective, August is usually a good month to stay out of the market and go on vacation as it leaves most traders frustrated. The middle of August is usually stronger than the beginning and the end
Key Dates:
• August 19th--options expiration for some indices.
• August 20th--options expiration for all equity and all other index options.
• September 16th--options expiration for some indices.
• September 17th--options expiration for all equity and all other index options.
Volatility:
Last Monday’s open was extremely bullish which is very unusual as this is historically a bearish time of the year. And as shown in the figures below, the market is becoming too complacent once again--so let’s just keep at least one eyebrow raised as we see how this all plays out.
Market Outlook
In the news this week, both stocks and the dollar fell after a weak US employment report Friday. The report had investors dumping stocks and moving into foreign currencies, gold, bonds, etc. With the U.S. recovery weakening, private job growth was only 71,000 for the month of July which is a far cry from the numbers needed to reduce the unemployment rate which remains at an optimistically reported 9.5%.
It takes about 200,000 new jobs for the unemployment rate to hold steady and keep up with the growing work force. And despite $26 billion in federal aid, local, state and federal government levels have had to eliminate 169,000 jobs. Unfortunately, more losses are coming; about 20,000 – 30,000 more jobs being cut per month is estimated for the rest of this year. It will take many years to regain all the lost jobs due to the recession. The economy lost 8.4 million jobs in 2008 - 2009 and this year the private sector has added only 559,000.
Consumer borrowing fell again in June as households kept lowering their credit card use and socking money into savings accounts. This marks the 5th straight month of cutting back and a $1.3 billion drop for the month of June. And this is the 16th drop over the past 17 months as consumer credit has fallen by $163 billion since its July 2008 peak.
Households are continuing to save more and borrow less which is important and a good thing--but it's had a negative effect on consumption and GDP. It the not-too-distant past economists were worried that consumers weren’t saving enough; now they’re worried that they aren’t spending enough!
Consumer spending accounts for 70% of US GDP, so it's THE single most important sector of our economy . Finally, on a brighter note, Europe’s economy is strengthening once several sovereign debt sales were over-subscribed--it appears that crisis has passed--for now.
Dow 14,000 in 2011?
Well Then, Make Mine a Double…and Yes, I’d Like Fries with That!
While scouring the news events of the week, I discovered two articles that shouted for attention. The first was a prediction on how the Dow could reach 14,000 in 2011. It’s an interesting read based on a number of factors including the country's GDP fluctuations since World War II. And after reading it, I thought it would be fun to put it to the test and see what the chances of this pinnacle being hit from a volatility perspective.
But before we sit down and crunch the numbers, how about we crunch on a light snack? Well, have no fear because it’s Krispy Crème Donuts to the rescue. That’s right folks…you too can try their new cheeseburger with a twist.
Twist you say? That’s right.
Not only is it just a cheeseburger but it’s a cheeseburger topped with chocolate covered bacon! And it gets even better. They’ve done away with the bun and instead sandwiched it between a couple of donuts.
What has this got to do with trading? Well, nothing.
But if we really want to play this one, I’m thinking a Bull Put spread for starters. Why? Well, it’s sweeping the nation and everyone has got to try one, right? The stock has got to go up! Then I’m thinking Bear Call spread because either we’re all going to be in the hospital or we’ll all be dropping like flies and there’ll be no traders left. I wonder…can you get fries with that?
Ok, Dow 14,000. Is it possible? Well, if we look at both historical and implied volatility, from both January 2011 to January 2012, sure there is a statistical chance. Not much of one but it is there--in looking at these odds though it looks like a better bet to sell--something we're getting increasingly good at.
What are the Secrets of the Week?
Since it’s not clear if Friday’s close is a sign of more trouble to come or just a temporary setback, the best plan is to continue with our neutral style of play. And since earnings season is winding down, if stocks are going to continue their upward trend they’re going to have to get their news from somewhere--and that’s going to be the economy. But with housing, sales, income, and jobs all down things could get pretty discouraging--unless you’re a Winning Secreteer of course--so let’s get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: http://www.thewinningsecret.com/
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
WE ARE STILL UPSIDE DOWN ON OUR BEARISH POSITIONS BUT FRIDAY'S ACTION DEFINITELY HAD THEM MOVING IN THE RIGHT DIRECTION!
This past week the markets traded slightly higher until Friday when they hit a big bump in the road...
WE ARE STILL UPSIDE DOWN ON OUR BEARISH POSITIONS BUT FRIDAY'S ACTION DEFINITELY HAD THEM MOVING IN THE RIGHT DIRECTION!
Several open positions jumped into the profit zone Friday morning only to reverse as short-covering drove the markets higher into the close--so on several positions we're within striking distance of the profit zone. We did get stopped out of our SDS play at a loss this past week--which is a shame because that stop at 31.00 could end up being the low for the next few months. The thing is we need to have a stop somewhere and we followed our discipline and got out of the play--the key is how the rest of our trades will fare from here because one or two big winners could easily surpass the SDS.
The question now is whether the markets are ready to turn downward or was Friday's action just a temporary dip on the way to higher stock prices. To help get an idea let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The uptrend on the major indices is still intact although there are some bearish signals beginning to surface.
The SP-500 rallied above the 200-day, now at 1115 but can't seem to get over the 100-day average or horizontal resistance at 1128. Shorts loaded up every day last week but when the S&P fell to 1110 at the open Friday and held there for nearly four hours without any further signs of weakness the shorts had to cover and take profits going into the close. There is just too much news risk to hold a marginal position over the weekend but this week is a whole new ball game.
The Nasdaq hit major resistance at 2300--stalled and then reversed lower. We got the same end of day spike but the Nasdaq gained the least of the major big cap indexes for the entire week at +1.5%. The chip sector remains a drag on the Nasdaq and threatens to pull the whole sector lower.
Volume was extremely low this past week--Thursday traded only 6.4 billion shares and the average for the entire week was only 7.06 billion per day. Monday's +220 Dow gain was on volume of only 7.5 billion shares--far lower than the plus 10 million we've been seeing. Volume should only get lighter until after Labor Day which means we are going to see more triple digit swings on minimal news events.
The big market mover this week is the FOMC meeting on Tuesday. After Friday's disastrous jobs report the Fed is expected to announce some kind of quantitative easing program after the meeting and that is what the bulls are pinning their hopes on.
The Fed currently has about $200 billion in expiring mortgage backed securities and instead of just keeping the money they are expected to put it back to work in the market by either buying mortgages or treasuries. In theory that would keep rates low but they are already so low it's hard to understand how that would help.
The two-year note yield fell to another all-time historic low on Friday of less than 0.5%, and the ten-year yield fell to a fifteen month low at 2.82%. Goldman expects that yield to eventually fall below 2.5%. This is the problem that confronts the Fed on Tuesday--what can they do to stimulate the economy without pushing short-term rates to zero? And even if they did if there is little demand so even zero interest rates won't stimulate the economy as we saw in Japan over the last twenty years. The market is going to be holding its breath until the Fed announcement on Tuesday afternoon but the potential for disappoint is high.
The problem is too much bad debt that still needs to be wiped out before the economy can regroup, pick up the pieces at fire sale prices and begin real sustained growth. The longer that process is postponed the longer the economy will languish. Unfortunately most of the government's efforts are in direct opposition to this necessary process as bad assets are sustained through government stimulus.
In theory the private sector was supposed to have recovered before the government stimulus ran out but Friday's jobs report shows that isn't happening. The headline number was a loss of -131,000 jobs in July. However, there were 143,000 census terminations for the month plus a loss of 77,000 government jobs. Net of the census workers there was a gain of 71,000 private jobs---far less than the 150,000 analysts expected. In addition June's job losses were revised lower by -94,000 to a headline loss of -221,000.
The higher than expected job losses sent the markets into a spin on justified worries the economy is falling back into recession. The construction sector lost jobs again as builders cut back on payrolls now that the tax credit stimulus has ended. State and local governments are also cutting back on headcounts (finally) also because stimulus funds have run out--even the post office is laying people off.
Uncertainty about the economic recovery is keeping employers from committing to hiring new workers. If the economy were to fall back into recession then employers would be on the hook for termination payments, unemployment payments and the expense for bringing new employees on in the first place.
Unemployment remained at 9.5% but only because another 181,000 workers became discouraged and gave up looking for jobs. When the employment picture finally improves in 2011 that will rise to more than 10% as those discouraged workers come back into the job market. The wider U6 level of unemployment that includes those discouraged workers and under employed workers who took a part time job to pay the rent (8.5 million), has risen to 19.8 million workers. Only 58% of the employment population is actually working---the lowest level since 1983.
Goldman Sachs (GS) was the first big name bank to dramatically lower their economic estimates for the coming quarters. Goldman said GDP growth in early 2011 is likely to fall to +1.5% with a gradual pickup by the end of the year. Goldman says GDP is likely to average +1.9% for 2011 compared to their prior forecast of +2.5%.
Goldman expects the GDP for the rest of 2010 to average 1.5% compared to estimates of 3% last quarter. Goldman said the decline in estimates was due to congressional resistance to extending fiscal stimulus. They also expect the Core PCE Inflation to decline from its current +1.6% rate to +0.5% by Q4-2011.
In spite of some glimmers of hope reported over the past few weeks that have driven the markets higher and an encouraging earnings season the bigger economic picture is still very negative. To recap some of the most recent news--Gross Domestic Product rose by just 2.4 percent in the second quarter, down from 3.7 percent in the first. The ISM Manufacturing index dropped to a seven-month low in July. Plus pending home sales fell another 2.6 percent in June after a 29.9 percent implosion in May. And factory orders fell 1.2 percent in June after a 1.8 percent decline in May.
The most interesting phenomenon though is that in spite of a clearly slowing economy the market is STILL heading higher. Evidently many traders still believe the government can pull us out of this downturn but the only weapon it still has is a new flood of money and lower interest rates. The problem is that has been the government's approach from the beginning and the only real result has been a tripling of US government debt.
The economy continues to head lower while the stock market heads higher--one of the two has got to correct soon--the question is...
HOW DO WE MAKE MONEY ON IT?
The key is to gain exposure to any further rally while still leaving the door open to profit on the downside. We've got two plays lined up this week that are perfect set-ups to take advantage of this market.
We're covering the upside potential with a bullish play on a stock with powerful reasons to move higher--and it has been. The global push behind this stock's move, their incredible earnings and chart and some extremely efficient options point toward to high-odds profits on the right calls--a position we'll be jumping on first thing Monday!
Our next play is really poised to explode as low stock volume and increased likelihood of volatility drive this one through the roof. This is a sweet set-up and as you'll soon see the timing couldn't be better.
We've got a market on the verge of a big move and two new plays to take advantage of it so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
WE ARE STILL UPSIDE DOWN ON OUR BEARISH POSITIONS BUT FRIDAY'S ACTION DEFINITELY HAD THEM MOVING IN THE RIGHT DIRECTION!
Several open positions jumped into the profit zone Friday morning only to reverse as short-covering drove the markets higher into the close--so on several positions we're within striking distance of the profit zone. We did get stopped out of our SDS play at a loss this past week--which is a shame because that stop at 31.00 could end up being the low for the next few months. The thing is we need to have a stop somewhere and we followed our discipline and got out of the play--the key is how the rest of our trades will fare from here because one or two big winners could easily surpass the SDS.
The question now is whether the markets are ready to turn downward or was Friday's action just a temporary dip on the way to higher stock prices. To help get an idea let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The uptrend on the major indices is still intact although there are some bearish signals beginning to surface.
The SP-500 rallied above the 200-day, now at 1115 but can't seem to get over the 100-day average or horizontal resistance at 1128. Shorts loaded up every day last week but when the S&P fell to 1110 at the open Friday and held there for nearly four hours without any further signs of weakness the shorts had to cover and take profits going into the close. There is just too much news risk to hold a marginal position over the weekend but this week is a whole new ball game.
The Nasdaq hit major resistance at 2300--stalled and then reversed lower. We got the same end of day spike but the Nasdaq gained the least of the major big cap indexes for the entire week at +1.5%. The chip sector remains a drag on the Nasdaq and threatens to pull the whole sector lower.
Volume was extremely low this past week--Thursday traded only 6.4 billion shares and the average for the entire week was only 7.06 billion per day. Monday's +220 Dow gain was on volume of only 7.5 billion shares--far lower than the plus 10 million we've been seeing. Volume should only get lighter until after Labor Day which means we are going to see more triple digit swings on minimal news events.
The big market mover this week is the FOMC meeting on Tuesday. After Friday's disastrous jobs report the Fed is expected to announce some kind of quantitative easing program after the meeting and that is what the bulls are pinning their hopes on.
The Fed currently has about $200 billion in expiring mortgage backed securities and instead of just keeping the money they are expected to put it back to work in the market by either buying mortgages or treasuries. In theory that would keep rates low but they are already so low it's hard to understand how that would help.
The two-year note yield fell to another all-time historic low on Friday of less than 0.5%, and the ten-year yield fell to a fifteen month low at 2.82%. Goldman expects that yield to eventually fall below 2.5%. This is the problem that confronts the Fed on Tuesday--what can they do to stimulate the economy without pushing short-term rates to zero? And even if they did if there is little demand so even zero interest rates won't stimulate the economy as we saw in Japan over the last twenty years. The market is going to be holding its breath until the Fed announcement on Tuesday afternoon but the potential for disappoint is high.
The problem is too much bad debt that still needs to be wiped out before the economy can regroup, pick up the pieces at fire sale prices and begin real sustained growth. The longer that process is postponed the longer the economy will languish. Unfortunately most of the government's efforts are in direct opposition to this necessary process as bad assets are sustained through government stimulus.
In theory the private sector was supposed to have recovered before the government stimulus ran out but Friday's jobs report shows that isn't happening. The headline number was a loss of -131,000 jobs in July. However, there were 143,000 census terminations for the month plus a loss of 77,000 government jobs. Net of the census workers there was a gain of 71,000 private jobs---far less than the 150,000 analysts expected. In addition June's job losses were revised lower by -94,000 to a headline loss of -221,000.
The higher than expected job losses sent the markets into a spin on justified worries the economy is falling back into recession. The construction sector lost jobs again as builders cut back on payrolls now that the tax credit stimulus has ended. State and local governments are also cutting back on headcounts (finally) also because stimulus funds have run out--even the post office is laying people off.
Uncertainty about the economic recovery is keeping employers from committing to hiring new workers. If the economy were to fall back into recession then employers would be on the hook for termination payments, unemployment payments and the expense for bringing new employees on in the first place.
Unemployment remained at 9.5% but only because another 181,000 workers became discouraged and gave up looking for jobs. When the employment picture finally improves in 2011 that will rise to more than 10% as those discouraged workers come back into the job market. The wider U6 level of unemployment that includes those discouraged workers and under employed workers who took a part time job to pay the rent (8.5 million), has risen to 19.8 million workers. Only 58% of the employment population is actually working---the lowest level since 1983.
Goldman Sachs (GS) was the first big name bank to dramatically lower their economic estimates for the coming quarters. Goldman said GDP growth in early 2011 is likely to fall to +1.5% with a gradual pickup by the end of the year. Goldman says GDP is likely to average +1.9% for 2011 compared to their prior forecast of +2.5%.
Goldman expects the GDP for the rest of 2010 to average 1.5% compared to estimates of 3% last quarter. Goldman said the decline in estimates was due to congressional resistance to extending fiscal stimulus. They also expect the Core PCE Inflation to decline from its current +1.6% rate to +0.5% by Q4-2011.
In spite of some glimmers of hope reported over the past few weeks that have driven the markets higher and an encouraging earnings season the bigger economic picture is still very negative. To recap some of the most recent news--Gross Domestic Product rose by just 2.4 percent in the second quarter, down from 3.7 percent in the first. The ISM Manufacturing index dropped to a seven-month low in July. Plus pending home sales fell another 2.6 percent in June after a 29.9 percent implosion in May. And factory orders fell 1.2 percent in June after a 1.8 percent decline in May.
The most interesting phenomenon though is that in spite of a clearly slowing economy the market is STILL heading higher. Evidently many traders still believe the government can pull us out of this downturn but the only weapon it still has is a new flood of money and lower interest rates. The problem is that has been the government's approach from the beginning and the only real result has been a tripling of US government debt.
The economy continues to head lower while the stock market heads higher--one of the two has got to correct soon--the question is...
HOW DO WE MAKE MONEY ON IT?
The key is to gain exposure to any further rally while still leaving the door open to profit on the downside. We've got two plays lined up this week that are perfect set-ups to take advantage of this market.
We're covering the upside potential with a bullish play on a stock with powerful reasons to move higher--and it has been. The global push behind this stock's move, their incredible earnings and chart and some extremely efficient options point toward to high-odds profits on the right calls--a position we'll be jumping on first thing Monday!
Our next play is really poised to explode as low stock volume and increased likelihood of volatility drive this one through the roof. This is a sweet set-up and as you'll soon see the timing couldn't be better.
We've got a market on the verge of a big move and two new plays to take advantage of it so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Tuesday, August 3, 2010
An Annualized Rate of Return of 66% with an over 92% Probability of Success...
With a slowing economic rebound, unemployment fears are rising again. In fact, employers are unlikely to increase hiring for the rest of the year and it’s possible that unemployment could once again reach double digits.
With economic growth at only 2.4% as released on Friday, this has been the economy’s weakest report in nearly a year. Many economists think it is growing even slower. Consumers are spending less and companies are slow to restock their shelves.
Consumer spending rose only 1.6% down from 1.9% in the first quarter. Even the Commerce Department reported that the recession is indeed deeper than previous thought. And that doesn’t even include our nation’s trade deficit which had a much bigger impact last quarter.
Many expect unemployment to rise back to double digits by December and into next year. With the government stimulus winding down, consumers and businesses will only decrease their spending.
Now, Congress may be feeling the pressure to pass more stimulus, but so far, Republicans (and even a few Democrats are breaking ranks) by blocking additional spending measures over fears of an unsustainable national debt. With a recovery that is fizzling out, many concerns have now arisen about whether or not the economy can hold back a “double-dip” recession.
On Friday, regulators closed banks in four more states raising the number of U.S. banks to 108 that failed as the industry continues to grapple with the growing number of loan defaults--both commercial and residential. The FDIC closed banks in Port Saint Joe and Panama City, Florida; Acworth, Georgia; Longview, Washington; and in Eugene, Oregon.
Georgia and especially Florida are among the states with the highest numbers of bank collapses because this is where the real estate meltdown was really focused. With 108 closures so far, the pace outranks 2009 quite a bit as there were “only” 69 banks that had been closed. And this pace will probably only accelerate at least through the end of this year and likely into next.
From a fundamental perspective, things are indeed very bearish--yet the SP-500 spiked higher by over 24 points today and it looks like the momentum will continue--so what gives?
Oftentimes the facts will detach from the charts as investors trade off of what they think will happen down the road.
There have been several pieces of bullish news lately and that has really buoyed the markets; however the overall picture is still bearish. This 'confused' trading is actually very attractive for us spread traders as stocks tend to run in both direction without a truly sustained move either way--exactly what we like to see.
What are the Secrets of the Week?
The Federal Reserve is looking into new ways to bolster the recovery, but as we head into the third quarter and with little momentum, many key metrics are tracking weaker. But fortunately for us, we trade with enough room on either side to breathe easy inside a very broad range of movement. We have three high probable ETF plays for the week, so let’s get started.
You can get in on these trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
To access your free special report on how credit spreads can stack the deck on every trade you make for consistent profits go here now: www.thewinningsecret.com.
With economic growth at only 2.4% as released on Friday, this has been the economy’s weakest report in nearly a year. Many economists think it is growing even slower. Consumers are spending less and companies are slow to restock their shelves.
Consumer spending rose only 1.6% down from 1.9% in the first quarter. Even the Commerce Department reported that the recession is indeed deeper than previous thought. And that doesn’t even include our nation’s trade deficit which had a much bigger impact last quarter.
Many expect unemployment to rise back to double digits by December and into next year. With the government stimulus winding down, consumers and businesses will only decrease their spending.
Now, Congress may be feeling the pressure to pass more stimulus, but so far, Republicans (and even a few Democrats are breaking ranks) by blocking additional spending measures over fears of an unsustainable national debt. With a recovery that is fizzling out, many concerns have now arisen about whether or not the economy can hold back a “double-dip” recession.
On Friday, regulators closed banks in four more states raising the number of U.S. banks to 108 that failed as the industry continues to grapple with the growing number of loan defaults--both commercial and residential. The FDIC closed banks in Port Saint Joe and Panama City, Florida; Acworth, Georgia; Longview, Washington; and in Eugene, Oregon.
Georgia and especially Florida are among the states with the highest numbers of bank collapses because this is where the real estate meltdown was really focused. With 108 closures so far, the pace outranks 2009 quite a bit as there were “only” 69 banks that had been closed. And this pace will probably only accelerate at least through the end of this year and likely into next.
From a fundamental perspective, things are indeed very bearish--yet the SP-500 spiked higher by over 24 points today and it looks like the momentum will continue--so what gives?
Oftentimes the facts will detach from the charts as investors trade off of what they think will happen down the road.
There have been several pieces of bullish news lately and that has really buoyed the markets; however the overall picture is still bearish. This 'confused' trading is actually very attractive for us spread traders as stocks tend to run in both direction without a truly sustained move either way--exactly what we like to see.
What are the Secrets of the Week?
The Federal Reserve is looking into new ways to bolster the recovery, but as we head into the third quarter and with little momentum, many key metrics are tracking weaker. But fortunately for us, we trade with enough room on either side to breathe easy inside a very broad range of movement. We have three high probable ETF plays for the week, so let’s get started.
You can get in on these trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
To access your free special report on how credit spreads can stack the deck on every trade you make for consistent profits go here now: www.thewinningsecret.com.
DRIVE OUR EAGLE MATERIALS (EXP) PUTS TO A SWEET THREE-DAY FORTY-EIGHT PERCENT PROFIT!
This past week the markets drifted up and then down settling very close to where they started--but there was still enough volatility to...
DRIVE OUR EAGLE MATERIALS (EXP) PUTS TO A SWEET THREE-DAY FORTY-EIGHT PERCENT PROFIT!
That was a nice win and it materialized quickly--unfortunately we also got stopped out of our Ralph Lauren (RL) puts only to see the stock plunge right after the stop was hit--which shows the lack of conviction in RLs move higher. We also took an early exit on our MGIC Investment (MTG) calls as the stock continues to drift lower in a market with few reasons to keep climbing.
With the major earnings announcements just about over this is an excellent time to take a look at...
WHICH WAY THIS MARKET IS HEADED
The markets have had a good run but if they trend much lower the climb from early July will be over as a new downtrend asserts itself.
Aside from economics we are heading into a very weak period seasonally. Earnings are almost over and there were only 7.5 billion shares traded on Friday, and just barely 7.06 billion on Wednesday. This was a month end week and there should have been much more volume from funds squaring positions. Low volume means higher volatility which in our case can be extremely helpful--especially if it's to the downside.
The markets rallied strongly in July with gains in the 7% range across the board. The rally sounds impressive but the markets hit eight-month lows on July 2nd making a big oversold bounce relatively easy.
Earnings created a lot of excitement but now that they are nearly over and the market is struggling at resistance the outlook is tipping toward the downside. The focus is turning from earnings back to economics and the big reports this week could easily tip the markets onto a new multi-month trend lower.
For example the China PMI coming out tonight could be a big market mover. The consensus estimate is for 51.1 with 11 estimates from 50.0 to 51.7 according to Reuters. However the whisper number is below 50 and into contraction territory. The June number declined to 52.1 from 53.9 in May. You may remember the major market decline when that big June drop was announced. China's Shanghai Composite index closed at a nine-week high on Friday so their market is primed for a big fall if the number disappoints.
Keep in mind it's China that everyone is depending on to pull the world out of recession but it's the developed nations that dictate demand for China's goods--not the other way around. By the time you read this the number will likely already be released and it wouldn't be surprising to see a dip below 50 which would be extremely bearish for Monday's open.
The Nasdaq dropped back to support at 2225 on Thursday and Friday and rebounded both days to the 2250 level--an impressive recovery given the multiple downgrades to the chip sector. The SOX declined -6.2% from its Tuesday high thanks to the downgrades and guidance issues from several chip companies. The summer is not normally kind to tech stocks and the chips are leading techs lower.
Economics reasserted themselves Friday with the GDP revision a major force driving the markets lower at the open. The headline number on the GDP for Q2 fell to 2.4% compared to prior estimates of 3.0%. Dropping more than a full point was a shock to economists but the bigger surprise was the revision to the last three years of quarterly GDP estimates.
The BEA revisions show that the recession was much deeper than previously thought (at least what the economists thought). The revision showed that the bottom of the dip was a whopping 6.8% drop in Q4-2008. The revision also moved the severity of the dip backward by a quarter from previous estimates.
The GDP numbers for Q2 are just the first estimate and will be revised monthly. Until the labor market improves there will only be minor GDP gains. The 16% of U6 unemployment is going to be a drag on growth for at least another year. With this much unemployment the risks are high for a double dip recession regardless of how many analysts promise it won't happen.
Moody's is revising their Q3 GDP estimates lower and may cut them to less than 2%. They are worried about the declining inventory cycle and the potential for low job creation now that the stimulus impact is fading. Governments are going to reduce spending by about 1% of GDP in the last half of 2010 as a result of stimulus money drying up. Moody's believes as many as 500,000 government employees from all levels could lose their jobs.
There IS growth out there but it's slow--the ISM New York improved slightly from 458.9 to 463.1 in July. The current conditions component fell from 69.3 to 58.4 while the expectations component fell only 2 points from 69.6 to 67.5. However both of those components are at their lowest levels since August 2009. The Financial Regulation Reform bill probably weighed on sentiment in the New York area.
The Chicago ISM, also released on Friday, showed an improvement in activity. The headline number rose to 62.3 from 59.1 and the highest level since April. Analysts speculate this is only temporary and related to GM's decision to skip the retooling process this year and keep plants open and thereby boosting output. This additional demand probably impacted activity at all the parts suppliers and boosted the Chicago numbers.
The minor improvements and revisions in various economic reports produced a positive week in the critical ECRI Weekly Leading Index. The index rose slightly from 120.7 to 121.1. That is not an earth-shattering move but there is a definite uptick in the chart after 16 weeks of a predominately down trend. However, the annualized growth rate inched lower again to -10.7%.
The WLI is likely to make a major move after the jobs report this Friday so stay tuned.
The economic calendar for this week has two important reports. The first is the national ISM Manufacturing report on Monday which is expected to be flat. A flat report may not produce a market crisis but any material decline or improvement is sure to create a big move in the absence of earnings distractions.
The big report for the week is the Non-Farm Payrolls on Friday. The official consensus estimate is for a loss of 75,000 jobs. The unofficial estimate is for a loss of 150,000 jobs--Ouch!
However the census data will cloud the picture again---Morgan Stanley believes the headline number will be a decline of 50,000 jobs but net of the census a gain of +135,000 jobs. That means they are expecting census terminations of 185,000 positions.
This payroll report is going to be critical for market sentiment for the rest of the quarter as it will be looked at as a true read on whether the economy is improving or declining. Most of the weekly regional reports have seen the employment components improving even as the overall production components decline. This is going to be a tough report to predict and the market will probably be hesitant ahead of the news. There is a Fed meeting two days after the payroll report providing another potential market mover.
Jobless claims continue to hover in the 460,000 range and while they are down from the peak over 640,000 in early 2009, they are stubbornly refusing to return to normal in the 320,000 range. A high level of layoffs is still happening and until that improves everything from consumer sentiment to consumption to GDP will continue falling.
Meanwhile earnings have been fairly upbeat--seventy five percent of the 336 S&P-500 companies who have reported beat the street on earnings per share. Only 64% beat on revenue expectations but that is still a strong number. Q2 profits have risen more than 45% from those who have reported. Obviously that number will go down as the smaller companies announce but it is still way ahead of the 26-30% that was being predicted just four weeks ago. This has been a very strong earnings cycle. Unfortunately that early cycle boost to the market has run out of steam.
The earnings calendar for next week is still busy with more than 350 companies reporting. However the quality of those reporters is declining and the market is now left focusing on some key economic reports--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two high potential plays lined up this week and they are both bearish.
The first is on a high-priced restaurant chain that just reported same store sales that were essentially flat--not a good sign considering the lows of a year ago should have been very easy to beat. Holders of the stock agreed and began selling immediately but it looks like this downtrend is just getting started!
Our next play is also bearish and it's on a stock that historically plunges after earnings and they are coming up within the next few days. This one has HUGE potential as we can buy some extremely well-placed September puts for right around .50 cents giving us some tremendous upside potential. If this thing performs like we thing it will you'll be sweeping up at the mint!
We've got two great plays lined up on a market ready to move so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
DRIVE OUR EAGLE MATERIALS (EXP) PUTS TO A SWEET THREE-DAY FORTY-EIGHT PERCENT PROFIT!
That was a nice win and it materialized quickly--unfortunately we also got stopped out of our Ralph Lauren (RL) puts only to see the stock plunge right after the stop was hit--which shows the lack of conviction in RLs move higher. We also took an early exit on our MGIC Investment (MTG) calls as the stock continues to drift lower in a market with few reasons to keep climbing.
With the major earnings announcements just about over this is an excellent time to take a look at...
WHICH WAY THIS MARKET IS HEADED
The markets have had a good run but if they trend much lower the climb from early July will be over as a new downtrend asserts itself.
Aside from economics we are heading into a very weak period seasonally. Earnings are almost over and there were only 7.5 billion shares traded on Friday, and just barely 7.06 billion on Wednesday. This was a month end week and there should have been much more volume from funds squaring positions. Low volume means higher volatility which in our case can be extremely helpful--especially if it's to the downside.
The markets rallied strongly in July with gains in the 7% range across the board. The rally sounds impressive but the markets hit eight-month lows on July 2nd making a big oversold bounce relatively easy.
Earnings created a lot of excitement but now that they are nearly over and the market is struggling at resistance the outlook is tipping toward the downside. The focus is turning from earnings back to economics and the big reports this week could easily tip the markets onto a new multi-month trend lower.
For example the China PMI coming out tonight could be a big market mover. The consensus estimate is for 51.1 with 11 estimates from 50.0 to 51.7 according to Reuters. However the whisper number is below 50 and into contraction territory. The June number declined to 52.1 from 53.9 in May. You may remember the major market decline when that big June drop was announced. China's Shanghai Composite index closed at a nine-week high on Friday so their market is primed for a big fall if the number disappoints.
Keep in mind it's China that everyone is depending on to pull the world out of recession but it's the developed nations that dictate demand for China's goods--not the other way around. By the time you read this the number will likely already be released and it wouldn't be surprising to see a dip below 50 which would be extremely bearish for Monday's open.
The Nasdaq dropped back to support at 2225 on Thursday and Friday and rebounded both days to the 2250 level--an impressive recovery given the multiple downgrades to the chip sector. The SOX declined -6.2% from its Tuesday high thanks to the downgrades and guidance issues from several chip companies. The summer is not normally kind to tech stocks and the chips are leading techs lower.
Economics reasserted themselves Friday with the GDP revision a major force driving the markets lower at the open. The headline number on the GDP for Q2 fell to 2.4% compared to prior estimates of 3.0%. Dropping more than a full point was a shock to economists but the bigger surprise was the revision to the last three years of quarterly GDP estimates.
The BEA revisions show that the recession was much deeper than previously thought (at least what the economists thought). The revision showed that the bottom of the dip was a whopping 6.8% drop in Q4-2008. The revision also moved the severity of the dip backward by a quarter from previous estimates.
The GDP numbers for Q2 are just the first estimate and will be revised monthly. Until the labor market improves there will only be minor GDP gains. The 16% of U6 unemployment is going to be a drag on growth for at least another year. With this much unemployment the risks are high for a double dip recession regardless of how many analysts promise it won't happen.
Moody's is revising their Q3 GDP estimates lower and may cut them to less than 2%. They are worried about the declining inventory cycle and the potential for low job creation now that the stimulus impact is fading. Governments are going to reduce spending by about 1% of GDP in the last half of 2010 as a result of stimulus money drying up. Moody's believes as many as 500,000 government employees from all levels could lose their jobs.
There IS growth out there but it's slow--the ISM New York improved slightly from 458.9 to 463.1 in July. The current conditions component fell from 69.3 to 58.4 while the expectations component fell only 2 points from 69.6 to 67.5. However both of those components are at their lowest levels since August 2009. The Financial Regulation Reform bill probably weighed on sentiment in the New York area.
The Chicago ISM, also released on Friday, showed an improvement in activity. The headline number rose to 62.3 from 59.1 and the highest level since April. Analysts speculate this is only temporary and related to GM's decision to skip the retooling process this year and keep plants open and thereby boosting output. This additional demand probably impacted activity at all the parts suppliers and boosted the Chicago numbers.
The minor improvements and revisions in various economic reports produced a positive week in the critical ECRI Weekly Leading Index. The index rose slightly from 120.7 to 121.1. That is not an earth-shattering move but there is a definite uptick in the chart after 16 weeks of a predominately down trend. However, the annualized growth rate inched lower again to -10.7%.
The WLI is likely to make a major move after the jobs report this Friday so stay tuned.
The economic calendar for this week has two important reports. The first is the national ISM Manufacturing report on Monday which is expected to be flat. A flat report may not produce a market crisis but any material decline or improvement is sure to create a big move in the absence of earnings distractions.
The big report for the week is the Non-Farm Payrolls on Friday. The official consensus estimate is for a loss of 75,000 jobs. The unofficial estimate is for a loss of 150,000 jobs--Ouch!
However the census data will cloud the picture again---Morgan Stanley believes the headline number will be a decline of 50,000 jobs but net of the census a gain of +135,000 jobs. That means they are expecting census terminations of 185,000 positions.
This payroll report is going to be critical for market sentiment for the rest of the quarter as it will be looked at as a true read on whether the economy is improving or declining. Most of the weekly regional reports have seen the employment components improving even as the overall production components decline. This is going to be a tough report to predict and the market will probably be hesitant ahead of the news. There is a Fed meeting two days after the payroll report providing another potential market mover.
Jobless claims continue to hover in the 460,000 range and while they are down from the peak over 640,000 in early 2009, they are stubbornly refusing to return to normal in the 320,000 range. A high level of layoffs is still happening and until that improves everything from consumer sentiment to consumption to GDP will continue falling.
Meanwhile earnings have been fairly upbeat--seventy five percent of the 336 S&P-500 companies who have reported beat the street on earnings per share. Only 64% beat on revenue expectations but that is still a strong number. Q2 profits have risen more than 45% from those who have reported. Obviously that number will go down as the smaller companies announce but it is still way ahead of the 26-30% that was being predicted just four weeks ago. This has been a very strong earnings cycle. Unfortunately that early cycle boost to the market has run out of steam.
The earnings calendar for next week is still busy with more than 350 companies reporting. However the quality of those reporters is declining and the market is now left focusing on some key economic reports--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two high potential plays lined up this week and they are both bearish.
The first is on a high-priced restaurant chain that just reported same store sales that were essentially flat--not a good sign considering the lows of a year ago should have been very easy to beat. Holders of the stock agreed and began selling immediately but it looks like this downtrend is just getting started!
Our next play is also bearish and it's on a stock that historically plunges after earnings and they are coming up within the next few days. This one has HUGE potential as we can buy some extremely well-placed September puts for right around .50 cents giving us some tremendous upside potential. If this thing performs like we thing it will you'll be sweeping up at the mint!
We've got two great plays lined up on a market ready to move so let's get to it...
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