This past week the markets jumped at the start and then traded sideways...
DRIVING OUR UNITED STATES OIL FUN (USO) CALLS TO A SWEET FIVE-DAY THIRTEEN PERCENT OPEN GAIN!
The good news is the USO is still looking bullish and will likely exceed our profit target this week for an even greater profit. Meanwhile our other two open plays are mostly treading water waiting for the markets next bout of volatility to drive them past their profit points.
Where that volatility will come from and which way is this market will move this week is the big question right now. To help find out and to zero in on where our profits are this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The charts show the markets bouncing hard off of oversold levels from two weeks ago--the SP-500 jumped 2.37% last week scoring its second-straight weekly gain and best two-week percentage performance since November. The energy, financial and materials sectors led Friday's gains, while the health-care sector led to the downside.
The Nasdaq rose a slight 0.11% Friday to 2309.80--its seventh-straight positive close and marking the measure's longest winning streak since a 12-day run last July. The Nasdaq is up 2.95% on the week with almost all the gains coming last Tuesday.
So what happened this past Tuesday to launch the markets above their 200 day moving averages and into positive territory? In a word it’s the Euro. After the break under 119 the euro found traction in the form of numerous upgrades for European economic estimates and a couple of successful debt sales. The U.S. market rally owes its strength to the sudden rise in the euro and the corresponding decline in the dollar.
Analysts said most of the Euro rally was fueled by short covering, but the fact that Spain was able to unload $3.7 billion in 10-year bonds on Thursday didn't hurt. Demand was almost twice the amount on offer--an impressive showing. The country was also able to successfully sell almost $592 million in 30-year bonds.
The Euro rose 2.3% to $1.2388 against the greenback as traders unwound bearish bets. Hedge funds and other speculators reduced short positions in the EUR/USD pair trade to 62,360 contracts on June 15 compared to 111,945 just a week earlier – an eye-popping 44% drop.
The improved outlook for global growth even overcame bad news from the NAHB Housing Market Index. The index fell to 17 for June compared to the revised May level of 22--a sobering 22.7% drop--four times higher than expected. The decline was directly related to the end of the housing tax credit qualification period on April 30th and begs the question of how strong the US economy would be without constant stimulus to pump up the numbers.
The cycle high for this NAHM Housing Index was 72 versus this most recent reading of 17--an incredible drop and one that will take years to retrace. This is an extremely bearish level for housing and can also be seen in the mortgage applications index which has sunk to 167 from well over 500 during the boom. New home sales are going to continue to decline until the economy recovers and home buyers work through the 5-7 million foreclosures now on the market.
The overall economy is still weak but there are bright spots--the Semiconductor Index rallied more than 5% to a six-week high on comments from Best Buy and an improved global demand outlook. Best Buy said PC sales and especially laptops, netbooks and other mobile devices were selling strongly. Smart phones were also in high demand. This implied blessing of all things chip related along with a bullish report out of Taiwan helped power the SOX toward the top of its two month range.
Taiwan Semiconductor--the world's largest contract chipmaker--predicted chip sales would rise +7% annually from 2011 through 2016. Strong demand from China plus the new wave of electronic devices like the iPad were cited as the main drivers. Plus there is a wave of new devices coming in the near future as the age of portable electronics hits its stride. Chipmaker United Microelectronics (UMC) said that chip demand would exceed supply in the third quarter and they have seen no impact to demand from the Eurozone problems.
Apple reported sales of the new iPhone 4 are so strong that the company suffered a systems failure and could not process orders on Tuesday. The new phone does not officially go on sale until June 24th but Apple started taking reservations this past week with all the iPhones available sold out on the first day--another indication of the strength of the mobile electronics market.
In addition to increasing chip and electronics sales major credit card issuers reported improved results in May. The rate of payments that were 30 days or more past due declined for all six of the biggest card companies. Citigroup said delinquencies fell to 8.42% from 9.02% in April. All the other issuers said the declines were similar except for American Express whose delinquencies fell to 3.1% from 3.3%. AXP typically has fewer problems because of their higher credit standards. It looks like the worst credit risks have been charged off over the last two years and those that are left are paying their bills.
One of the best gauges of market sentiment is how traders react to news and even here we have a bullish indicator. This past week initial jobless claims rose 12,000 to 470,000 and the 4-week moving average is climbing. There is a case to be made that unemployment will rise through the end of the year and the fact that the market was able to rise in the face of that news is a bullish sign.
It will be interesting to see if that bullishness can be maintained as the economic data released over the next few days expected to be weak. We've got two reports on housing and one on durable goods. However even if the data does come in soft it could be offset somewhat by the Fed's FOMC meeting on Wednesday. The FOMC is expected to maintain its exceptionally low interest-rate policy amid persistently high unemployment and almost non-existent inflation.
We won't get the real flood of earnings until July but this coming week will provide some insights as to what to expect. We've got five S&P 500 companies reporting results on Tuesday, including Adobe Systems, Jabil Circuit, Red Hat in the tech sector and Carnival Cruise lines and drug store chain Walgreen.
On Wednesday, home-improvement retailer Bed Bath & Beyond reports quarterly results, along with Nike and payroll company Paychex Inc.
Business software giant Oracle and home builder Lennar report on Thursday. Credit card company Discover Financial Services and tax preparer H&R Block Inc. also report on Thursday. Those companies are diverse enough to provide a good read on how earnings are likely to play out this quarter.
Last quarter year-over-year comps were pretty easy to beat but that is going to get tougher as we move forward--traders are going to want to see some real growth and not just more cost cutting. Forward guidance will also be critical and what we've seen so far has been pretty cautious.
So we've got a rebounding market, persistently high unemployment, a slowing housing sector, bullish investor sentiment and several earnings reports this coming week--the question is...
HOW DO WE MAKE MONEY ON IT?
In a market like this one that has made a big move higher but is now trading sideways the key is to pick individual stocks that hold immediate potential to out-perform the larger indices--and that's exactly what we've got this week.
What is interesting is that in spite of the markets generally good performance this past week there seem to be very few charts with really compelling bullish set-ups. Many stocks have risen--but most of them simply jumped to their larger downtrend lines and stalled--not exactly confidence inspiring.
What we do have however are two charts with extremely compelling bearish set-ups. The first is a specially drug company that has just traced a classic bearish uptrending pennant--then broke below the bottom trendline Friday for what looks to be a super set-up using some very inexpensive options--with some very big profit potential.
Our next play is on a retail conglomerate that is having trouble getting out of its own way--and the chart shows it. The stock rose slightly with the rest of the market early last week and then tumbled lower on Friday--a day when the rest of the market was moving higher. This is a very bearish sign and one we'll be taking advantage of with the right puts first thing Monday morning.
We've got a market stalling sideways with two plays ready to make us money on the downside--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, June 21, 2010
Monday, June 7, 2010
An Annualized Rate of Return of 101% with an over 92% Probability of Success...
Greetings Fellow Secreteer,
Earlier this week, one of the nation’s chief economists compared what we’re seeing in the financial markets to a roller-coaster ride of many sleepless nights and a decade of no returns. He pointed out that this has been the worst market cycle since 1937, followed by the best one since 1932, followed by the worst May since 1940. As an investor, he recommended a classic long-term outlook using short strategies to protect oneself against big drop-outs in the market. Bear markets, he said, typically run in three cycles: a sharp downturn, a rebound and then a drawn-out fundamental downtrend.
That outlook should have most traditional investors curling up in the fetal position under their beds longing for their long-lost teddy bears.
According to this leading economist, we’re already beginning this third cycle--BUT he also went on to say that this was a perfect environment for “income-oriented” investment strategies (sometimes I feel like Pavlov's dog--the word 'income' invokes instant attentiveness). If this guy is right we’re in the perfect environment to be an options trader--our particular kind of options trader. With no other choice but to trade the upside, 401Ks and other mutual funds will certainly struggle. Long-term investors will most likely tread water like they have for the past ten years. But as spread traders, we have a REAL shot at creating an ever-increasing monthly income through what I am convinced will increasing prove to be the winning secret.
Trader’s Tip:
Historically,
The “Summer Rally” is generally the weakest of all four seasons.
For the week after June expiration, the Dow has been down 17 out of the last 19 years.
June ends NASDAQ’s best eight months of the year.
Tuesday, June 1st and Wednesday June 2nd are bullish trading days.
Key Dates:
June 17th--options expiration for some indices.
June 18th--options expiration for all equity and all other index options.
July 15th--options expiration for some indices.
July 16th--options expiration for all equity and all other index options.
Market Outlook:
Last Friday’s job’s report was a big disappointment for Wall Street which ultimately sent stocks tumbling causing the Dow to break the 10K psychological barrier and ending down 323 points or -3.15% on the day. The drop created the lowest close since February and the 3rd worst for the past year. It appears that all of last month’s job market gains were largely due to government hiring and unfortunately not the private sector. For the month of May, just 41,000 employees were hired as compared to 218,000 for the previous month. In a bit of a twist, the government said 431,000 jobs were created last month but the majority of them (411,000) came from temporary hiring of census workers. Even this number fell short of expectations because the projection was for 513,000 new jobs.
Adding to the sell-off was the news of yet another European country announcing financial fraud and a 'situation far worse that anticipated'. A spokesman for Hungary’s prime minister stated that its economy is in a grave situation and it hopes to avoid a crisis and bailout similar to that of Greece. Interesting enough, Hungary is not a member of the European Union and does not use the euro currency. For this reason the EU will not necessarily jump to save Hungary and there is a very real possibility that the country may soon be in default. Spain and Portugal also continue to struggle as the euro has fallen by more than 10% since stocks topped out about six weeks ago. Regardless of what happens, continued weakness throughout Europe will make it a lot more difficult for the U.S. economy to recover--for two reasons--1) our major corporations sell into the European market and as the consumer over there becomes more strapped demand will fall--and 2) European debt adds to our debt because we are the largest funder of the IMF.
Meanwhile back here at home regulators shut down another five banks in Nebraska (1), Mississippi (2), and Illinois (2). That’s 81 bank failures so far since January and the FDIC expects that the final cost in resolving all bank failures to be somewhere in the neighborhood to the tune of $100 billion over the next four years.
According to another leading economist, the global debt issues that we’re facing will most likely last another 6-8 years. And during that time low market returns and wild stock market swings will be the norm so whatever your trading style this 'new reality' needs to be considered. Fortunately we use a strategy that--win, lose or draw--we are out of in eight weeks or less.
What are the Secrets of the Week?
Fundamentally, as one could probably guess, the trend line for U.S. equity prices will be down with sessions of intense volatility. To compensate for this, we’ll continue to play bearish spreads whenever the ROI is sufficient and also incorporate neutral plays with the highest probability wins. For this week, there’ll be two plays--both of which take advantage of the market’s soured sentiment, increased implied volatility and as such, higher probability of win---so let’s get to it...
You can get in on these trades along with two new high-probability trades per week by clicking here now. www.thewinningsecret.com
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
Your comments, questions and feedback are always welcome: customerservice@cashflowheaven.com
PO Box 554, Ashland, OR 97520 www.cashflowheaven.com/ws 877-507-7878
Earlier this week, one of the nation’s chief economists compared what we’re seeing in the financial markets to a roller-coaster ride of many sleepless nights and a decade of no returns. He pointed out that this has been the worst market cycle since 1937, followed by the best one since 1932, followed by the worst May since 1940. As an investor, he recommended a classic long-term outlook using short strategies to protect oneself against big drop-outs in the market. Bear markets, he said, typically run in three cycles: a sharp downturn, a rebound and then a drawn-out fundamental downtrend.
That outlook should have most traditional investors curling up in the fetal position under their beds longing for their long-lost teddy bears.
According to this leading economist, we’re already beginning this third cycle--BUT he also went on to say that this was a perfect environment for “income-oriented” investment strategies (sometimes I feel like Pavlov's dog--the word 'income' invokes instant attentiveness). If this guy is right we’re in the perfect environment to be an options trader--our particular kind of options trader. With no other choice but to trade the upside, 401Ks and other mutual funds will certainly struggle. Long-term investors will most likely tread water like they have for the past ten years. But as spread traders, we have a REAL shot at creating an ever-increasing monthly income through what I am convinced will increasing prove to be the winning secret.
Trader’s Tip:
Historically,
The “Summer Rally” is generally the weakest of all four seasons.
For the week after June expiration, the Dow has been down 17 out of the last 19 years.
June ends NASDAQ’s best eight months of the year.
Tuesday, June 1st and Wednesday June 2nd are bullish trading days.
Key Dates:
June 17th--options expiration for some indices.
June 18th--options expiration for all equity and all other index options.
July 15th--options expiration for some indices.
July 16th--options expiration for all equity and all other index options.
Market Outlook:
Last Friday’s job’s report was a big disappointment for Wall Street which ultimately sent stocks tumbling causing the Dow to break the 10K psychological barrier and ending down 323 points or -3.15% on the day. The drop created the lowest close since February and the 3rd worst for the past year. It appears that all of last month’s job market gains were largely due to government hiring and unfortunately not the private sector. For the month of May, just 41,000 employees were hired as compared to 218,000 for the previous month. In a bit of a twist, the government said 431,000 jobs were created last month but the majority of them (411,000) came from temporary hiring of census workers. Even this number fell short of expectations because the projection was for 513,000 new jobs.
Adding to the sell-off was the news of yet another European country announcing financial fraud and a 'situation far worse that anticipated'. A spokesman for Hungary’s prime minister stated that its economy is in a grave situation and it hopes to avoid a crisis and bailout similar to that of Greece. Interesting enough, Hungary is not a member of the European Union and does not use the euro currency. For this reason the EU will not necessarily jump to save Hungary and there is a very real possibility that the country may soon be in default. Spain and Portugal also continue to struggle as the euro has fallen by more than 10% since stocks topped out about six weeks ago. Regardless of what happens, continued weakness throughout Europe will make it a lot more difficult for the U.S. economy to recover--for two reasons--1) our major corporations sell into the European market and as the consumer over there becomes more strapped demand will fall--and 2) European debt adds to our debt because we are the largest funder of the IMF.
Meanwhile back here at home regulators shut down another five banks in Nebraska (1), Mississippi (2), and Illinois (2). That’s 81 bank failures so far since January and the FDIC expects that the final cost in resolving all bank failures to be somewhere in the neighborhood to the tune of $100 billion over the next four years.
According to another leading economist, the global debt issues that we’re facing will most likely last another 6-8 years. And during that time low market returns and wild stock market swings will be the norm so whatever your trading style this 'new reality' needs to be considered. Fortunately we use a strategy that--win, lose or draw--we are out of in eight weeks or less.
What are the Secrets of the Week?
Fundamentally, as one could probably guess, the trend line for U.S. equity prices will be down with sessions of intense volatility. To compensate for this, we’ll continue to play bearish spreads whenever the ROI is sufficient and also incorporate neutral plays with the highest probability wins. For this week, there’ll be two plays--both of which take advantage of the market’s soured sentiment, increased implied volatility and as such, higher probability of win---so let’s get to it...
You can get in on these trades along with two new high-probability trades per week by clicking here now. www.thewinningsecret.com
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
Your comments, questions and feedback are always welcome: customerservice@cashflowheaven.com
PO Box 554, Ashland, OR 97520 www.cashflowheaven.com/ws 877-507-7878
OUR NEW BEARISH PLAY ON THE PROSHARES ULTRA SHORT SP-500 (SDS) IS ALREADY UP TWENTY PERCENT AND COUNTING!
Greetings Bear Rakers, Downside Raiders and Money Makers,
This past week the markets were recovering but ultimately ended to the downside adding some nice open profits to our new bearish positions...
OUR NEW BEARISH PLAY ON THE PROSHARES ULTRA SHORT SP-500 (SDS) IS ALREADY UP TWENTY PERCENT AND COUNTING!
AND OUR OTHER NEW BEARISH POSITION ON THE DIREXION FINANCIAL 3X BEAR (FAZ) IS ALREADY UP A SWEET THIRTY-SIX PERCENT!
Since these are our only open plays right now we're all in profit territory and it looks like the gains on these two play are just getting started based on Friday's very bearish close. Any more downside in the SP-500 or the financial sector and the profits on these two will launch through the roof!
So that's all good news--but what can we add this week to really benefit our portfolios? To help answer that question let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 ended at a new three month closing low just below 1065--you have to go all the way back to early February to find a lower low and before that to November. Friday's close is right at support and it's not surprising we got there considering all the global risk right now--the question traders have to asking themselves is--will support hold this coming week?
Unfortunately resistance at the 200-day was tested multiple times last week and failed every time. Support at 1065 has also held so far--but we've got downside momentum building and increasingly nervous traders so we could easily see a break-down this week.
The Nasdaq was holding above the 200-day until its -83 point drop on Friday. The tech index is still slightly more bullish than the Dow/SPX but only barely. If the SPX falls below Friday's close the Nasdaq will follow--once Apple makes their big new iPhone announcement on Monday all bets are off. Look for a spike higher on AAPL after Job's announcement--immediately followed by a crash in a classic 'sell the news' event.
All thirty stocks on the Dow closed down on Friday marking the lowest finish since February 8th. This close at the lows is also a huge warning sign that we are about to test another level of support, possibly in the 9500 range. The Dow failed multiple times to break back above the 200-day average just like the SP-500.
Friday's plunge came on nearly 11 billion shares of volume after the lowest volume week since early April. We averaged right at 9 billion shares all week until Friday's crash. Here's the tell-tale sign of a bear market--lower volume on the advances and higher volume on the declines. We saw multiple failures at high profile resistance, slowing volume as those resistance levels were hit and spiking volume as stocks broke down.
The big selling catalyst for Friday was the Non-Farms Payroll Report for May. Jobs are critical for a lasting economic recovery and investors carried a lot of hope into this report--estimates were being revised higher right up until the release. Goldman Sachs revised their estimates to 600,000 late in the week and President Obama was bragging in a televised speech about the strong jobs growth expected for May.
Unfortunately out of the 431,000 new jobs reported only 41,000 jobs came from the private sector--all the rest were temporary census works due to be laid off by summer's end.
When estimates for hiring in the private sector ran from 50,000 to 200,000 jobs that's a big whopping miss. Nobody expected less than 50K and almost everyone expected more than 100K. After adding 231,000 private jobs in April and 208,000 in March, 41,000 is a disaster. No wonder the markets sold off.
On top of a really bad total number the average duration of unemployment increased to 34.4 weeks---a new record. Plus a record 46% of unemployed workers have been out of work for more than six months. The number of newly unemployed workers (less than five weeks) increased by 2.75 million to 18.7% of all unemployed workers.
The U6 unemployment rate--which includes those working part time for financial reasons while looking for a new full time job--is now 16.6%. That is the real unemployment number not the often quoted official rate of 9.7%.
If the jobs numbers were not enough to scare investors out the door the new Hungarian government---sworn in less than a week ago---announced they are going to implement a new austerity plan to tackle the countries surprisingly bleak economic situation. The new administration warned it inherited a much worse financial situation than their predecessors had indicated and had found that the economic numbers had been falsified. Ouch--once investors know the books have been cooked it is really hard for a country (or company) to borrow any more money making further financing very difficult.
The new prime minister's spokesman said, "Hungary has only a slim chance of avoiding a Greek-style debt crisis although the administration would act quickly to avoid the Greek path." The Hungarian currency plunged over 2% against the euro and hit a new one-year low. The stock of the country's largest bank fell 11.1%.
The new center-right government won the April elections by a landslide capturing a two-thirds majority and ousting the incumbent socialists. The campaign platform was to boost growth via tax cuts and various economic stimulus measures. This was contrary to the new socialist wealth redistribution programs and tax hikes proposed by the incumbents.
Hungary borrowed money from the IMF and EU in 2008 to avoid a default. As a condition of the loan Hungary was supposed to freeze its deficit at 3.8% of GDP. The new administration claims the corrected numbers show the 2010 deficit to be 4.5% to 4.8% but some analysts are pegging it at more than 5%.
The sudden arrival of Hungary as another potential economic implosion is not such a big deal by itself--but it adds one more warning that unsustainable debt levels are endemic to Europe as a whole. Investors are now rightly wondering when the whole house of cards will fall--we heard about Greece in April, Spain in May and Hungary in June. The list of 'emergency countries' is growing and at some point soon it will be more than France and Germany can handle.
Now EU banks are refusing to lend to each other because of the potential balance sheet problems of owning too much sovereign debt. On Friday the European Central Bank or ECB reported overnight deposits from member banks reached a record 320.4 billion Euros--by far the most since the euro was created in 1999. Those deposits earn 0.25% so the ONLY reason member banks would park cash there is because they are extremely worried about a complete melt-down with massive losses. The ECB warned member banks will have to write off more loans this year than in 2009--the banking crisis is back--it's in the EU--and it's escalating.
A strong rumor surfaced Friday that Societe Generale--the international banking giant head-quartered in Paris--is facing huge derivatives losses. The euro plunged -1.6% on the news although the rumor was quickly denied by "unofficial" sources at SocGen. The company's stock fell -7.6% despite a soothing statement by the company. When asked by CNBC about the rumor a SocGen spokesman said, "If we had something to say, would have already communicated." Sounds like what the banks were saying right before our melt-down back in '08.
The economic calendar for this week is pretty light with the only material event the Fed Beige Book on Wednesday. There was a call by Kansas City Fed President Thomas Hoenig to raise the interest rate to 1% by the end of the summer so the Beige Book will be a key indicator for the June 22nd FOMC meeting.
Dallas Fed President Richard Fisher, St Louis Fed James Bullard and Philly Fed's Charles Plosser have also expressed reservations about the 'extended period' language. Jeffrey Lacker said he was "marginally comfortable" with the phrase and Atlanta Fed President Dennis Lockhart said he backed language promising rates near zero. "Waiting too long is probably less risky than moving too soon." We will hear a lot more of this kind of positioning before the June FOMC and it too will spook investors. Any threat of higher rates in this tenuous environment could be the last nail in this market's coffin.
Considering the events of the past week it is a wonder that we didn't close a lot lower. We had the Gaza peace armada and the blow up over IDF soldiers killing nine people. And in a chilling warning North Korea stated that war could erupt soon. "The present situation of the Korean peninsula is so grave that a war may break out at any moment" according to Ri Jang Gon, deputy ambassador. Plus we had an alarmingly dismal employment report and more bad news out of Europe--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two new super-high potential trades lined up this week and as you may have guessed--they are both bearish.
The other thing they have in common is they are both on indices or exchange traded funds--one of them goes down if the market goes down and one of them goes up if the market goes down--we'll position ourselves accordingly to profit on any further market weakness.
The bottom line is both of these positions are poised to make us money--a LOT of money--and we'll be jumping in first thing Monday!
We've got a market ready to move and two plays to profit from it--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
This past week the markets were recovering but ultimately ended to the downside adding some nice open profits to our new bearish positions...
OUR NEW BEARISH PLAY ON THE PROSHARES ULTRA SHORT SP-500 (SDS) IS ALREADY UP TWENTY PERCENT AND COUNTING!
AND OUR OTHER NEW BEARISH POSITION ON THE DIREXION FINANCIAL 3X BEAR (FAZ) IS ALREADY UP A SWEET THIRTY-SIX PERCENT!
Since these are our only open plays right now we're all in profit territory and it looks like the gains on these two play are just getting started based on Friday's very bearish close. Any more downside in the SP-500 or the financial sector and the profits on these two will launch through the roof!
So that's all good news--but what can we add this week to really benefit our portfolios? To help answer that question let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 ended at a new three month closing low just below 1065--you have to go all the way back to early February to find a lower low and before that to November. Friday's close is right at support and it's not surprising we got there considering all the global risk right now--the question traders have to asking themselves is--will support hold this coming week?
Unfortunately resistance at the 200-day was tested multiple times last week and failed every time. Support at 1065 has also held so far--but we've got downside momentum building and increasingly nervous traders so we could easily see a break-down this week.
The Nasdaq was holding above the 200-day until its -83 point drop on Friday. The tech index is still slightly more bullish than the Dow/SPX but only barely. If the SPX falls below Friday's close the Nasdaq will follow--once Apple makes their big new iPhone announcement on Monday all bets are off. Look for a spike higher on AAPL after Job's announcement--immediately followed by a crash in a classic 'sell the news' event.
All thirty stocks on the Dow closed down on Friday marking the lowest finish since February 8th. This close at the lows is also a huge warning sign that we are about to test another level of support, possibly in the 9500 range. The Dow failed multiple times to break back above the 200-day average just like the SP-500.
Friday's plunge came on nearly 11 billion shares of volume after the lowest volume week since early April. We averaged right at 9 billion shares all week until Friday's crash. Here's the tell-tale sign of a bear market--lower volume on the advances and higher volume on the declines. We saw multiple failures at high profile resistance, slowing volume as those resistance levels were hit and spiking volume as stocks broke down.
The big selling catalyst for Friday was the Non-Farms Payroll Report for May. Jobs are critical for a lasting economic recovery and investors carried a lot of hope into this report--estimates were being revised higher right up until the release. Goldman Sachs revised their estimates to 600,000 late in the week and President Obama was bragging in a televised speech about the strong jobs growth expected for May.
Unfortunately out of the 431,000 new jobs reported only 41,000 jobs came from the private sector--all the rest were temporary census works due to be laid off by summer's end.
When estimates for hiring in the private sector ran from 50,000 to 200,000 jobs that's a big whopping miss. Nobody expected less than 50K and almost everyone expected more than 100K. After adding 231,000 private jobs in April and 208,000 in March, 41,000 is a disaster. No wonder the markets sold off.
On top of a really bad total number the average duration of unemployment increased to 34.4 weeks---a new record. Plus a record 46% of unemployed workers have been out of work for more than six months. The number of newly unemployed workers (less than five weeks) increased by 2.75 million to 18.7% of all unemployed workers.
The U6 unemployment rate--which includes those working part time for financial reasons while looking for a new full time job--is now 16.6%. That is the real unemployment number not the often quoted official rate of 9.7%.
If the jobs numbers were not enough to scare investors out the door the new Hungarian government---sworn in less than a week ago---announced they are going to implement a new austerity plan to tackle the countries surprisingly bleak economic situation. The new administration warned it inherited a much worse financial situation than their predecessors had indicated and had found that the economic numbers had been falsified. Ouch--once investors know the books have been cooked it is really hard for a country (or company) to borrow any more money making further financing very difficult.
The new prime minister's spokesman said, "Hungary has only a slim chance of avoiding a Greek-style debt crisis although the administration would act quickly to avoid the Greek path." The Hungarian currency plunged over 2% against the euro and hit a new one-year low. The stock of the country's largest bank fell 11.1%.
The new center-right government won the April elections by a landslide capturing a two-thirds majority and ousting the incumbent socialists. The campaign platform was to boost growth via tax cuts and various economic stimulus measures. This was contrary to the new socialist wealth redistribution programs and tax hikes proposed by the incumbents.
Hungary borrowed money from the IMF and EU in 2008 to avoid a default. As a condition of the loan Hungary was supposed to freeze its deficit at 3.8% of GDP. The new administration claims the corrected numbers show the 2010 deficit to be 4.5% to 4.8% but some analysts are pegging it at more than 5%.
The sudden arrival of Hungary as another potential economic implosion is not such a big deal by itself--but it adds one more warning that unsustainable debt levels are endemic to Europe as a whole. Investors are now rightly wondering when the whole house of cards will fall--we heard about Greece in April, Spain in May and Hungary in June. The list of 'emergency countries' is growing and at some point soon it will be more than France and Germany can handle.
Now EU banks are refusing to lend to each other because of the potential balance sheet problems of owning too much sovereign debt. On Friday the European Central Bank or ECB reported overnight deposits from member banks reached a record 320.4 billion Euros--by far the most since the euro was created in 1999. Those deposits earn 0.25% so the ONLY reason member banks would park cash there is because they are extremely worried about a complete melt-down with massive losses. The ECB warned member banks will have to write off more loans this year than in 2009--the banking crisis is back--it's in the EU--and it's escalating.
A strong rumor surfaced Friday that Societe Generale--the international banking giant head-quartered in Paris--is facing huge derivatives losses. The euro plunged -1.6% on the news although the rumor was quickly denied by "unofficial" sources at SocGen. The company's stock fell -7.6% despite a soothing statement by the company. When asked by CNBC about the rumor a SocGen spokesman said, "If we had something to say, would have already communicated." Sounds like what the banks were saying right before our melt-down back in '08.
The economic calendar for this week is pretty light with the only material event the Fed Beige Book on Wednesday. There was a call by Kansas City Fed President Thomas Hoenig to raise the interest rate to 1% by the end of the summer so the Beige Book will be a key indicator for the June 22nd FOMC meeting.
Dallas Fed President Richard Fisher, St Louis Fed James Bullard and Philly Fed's Charles Plosser have also expressed reservations about the 'extended period' language. Jeffrey Lacker said he was "marginally comfortable" with the phrase and Atlanta Fed President Dennis Lockhart said he backed language promising rates near zero. "Waiting too long is probably less risky than moving too soon." We will hear a lot more of this kind of positioning before the June FOMC and it too will spook investors. Any threat of higher rates in this tenuous environment could be the last nail in this market's coffin.
Considering the events of the past week it is a wonder that we didn't close a lot lower. We had the Gaza peace armada and the blow up over IDF soldiers killing nine people. And in a chilling warning North Korea stated that war could erupt soon. "The present situation of the Korean peninsula is so grave that a war may break out at any moment" according to Ri Jang Gon, deputy ambassador. Plus we had an alarmingly dismal employment report and more bad news out of Europe--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two new super-high potential trades lined up this week and as you may have guessed--they are both bearish.
The other thing they have in common is they are both on indices or exchange traded funds--one of them goes down if the market goes down and one of them goes up if the market goes down--we'll position ourselves accordingly to profit on any further market weakness.
The bottom line is both of these positions are poised to make us money--a LOT of money--and we'll be jumping in first thing Monday!
We've got a market ready to move and two plays to profit from it--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Friday, May 14, 2010
Monday, February 8, 2010
AN EYE-POPPING THREE-HUNDRED-FORTY-SEVEN PERCENT!
The unraveling of the markets has done our portfolios a world of good...
OUR PROSHARES ULTRA SHORT QQQ (QID) CALLS ARE UP A WHOPPING ONE-HUNDRED-FORTY-FOUR PERCENT!
OUR LINEAR TECHNOLOGY (LLTC) PUTS ARE UP A BREATH-TAKING THREE-HUNDRED-TWENTY-FIVE PERCENT!
AND OUR CENTURY ALUMINUM (CENX) PUTS HAVE ZOOMED HIGHER BY AN EYE-POPPING THREE-HUNDRED-FORTY-SEVEN PERCENT!
And that's just for starters--we also have open profits of 94% on our SKF calls, 80% on our EUO calls, 37% on our TZA calls and 27% on our brand new HOG puts. In fact the only play that is close to break-even is our SHLD puts and those look like a fantastic buying opportunity.
The bottom line is it's never been a better time to be a bear--and chances are good this week that the markets will be pummeled lower adding even more profits to the right bearish plays.
To get a better idea of what is happening right now let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
As you can see the major indices are pointing due south--regardless of Friday's late short covering.
The current fear driving the markets lower is a sovereign default by Greece and several other weak Euro-nations including Spain, Italy, Ireland, Portugal and others. Because this is the current investor focus--and will be until it is resolved--we're going to take a good look at how the European situation is affecting our markets.
Late Friday there was a rumor the IMF might announce an aid package for Greece over the weekend and the reaction in the markets was instantaneous. Even if the rumor is unlikely to come true traders with heavy short positions could not afford to hold over the weekend and bought with both hands.
As of this writing it doesn't look like any 'miracles' are going to be announced and the markets will likely resume their dominant direction this week--lower.
The problem is widespread fears of national default in several countries--defaults that would wipe out billions in capital and shake the faith in several nations ability to stay solvent. For example on Wednesday Portugal tried to sell 500 million in bonds but received bids on only 300 million--in other words their bond auction failed--a situation that is usually unthinkable for a sovereign debt auction.
If Greece, Italy, Spain, Ireland or even Great Britain tried to sell a large amount of debt now the odds are good the auction would fail or be at an interest rate they could not pay. Dubai, Greece, Poland and Spain have already been forced to pay much higher interest on debt they sold recently.
The advent of the Euro and strict economic policies required in order to join the Eurozone gave lesser countries access to relatively cheap debt because the Euro was thought to be a sound currency. Unfortunately the Euro concept allowed those without sound financial policies to hide behind the Eurozone fueling their deficits with cheap debt denominated in Euros.
The problems in Greece are now starting to be seen in other Eurozone countries with hundreds of billions in Euro debt at risk. Unfortunately there is no mechanism in place for any Eurozone country to bail out another country. Membership in the zone meant you had to adhere to the strict financial rules that supposedly kept everyone out of trouble.
If anybody in the Eurozone is going to bail out Greece it would have to be Germany and that's not going to happen. Germany's economic minister reminded reporters on Friday that the same rules that required less than 3% debt to GDP also banned bailouts of one EU member country by another. Besides--Germany has their own economic problems.
The other option is a bailout by the International Monetary Fund. The IMF is in business to bailout countries from unsound financial practices but may not be inclined to spend the tens of billions necessary to rescue Greece--and then the rest of the struggling EU countries shortly thereafter.
Greece promised this week to slash its debt to GDP from 12.9% to 3% by 2012. Unfortunately nobody believes them as it is politically and economically impossible. Many analysts believe their debt is actually 15%--it was recently discovered that Greece falsified their economic statistics in 2009 and hid 40 billion in debt to make their deficit look smaller. With that kind of credibility record it will make borrowing new money extremely difficult.
Austerity proposals to reduce these crippling deficits have generated massive resistance. One of the major Greek unions with membership of more than 300,000 has called a public strike for Monday. The government deployed 10,000 riot police in Athens in December for a far smaller strike. Another union with 500,000 workers has also called for a strike in February but has not yet announced a date. These strikes will likely turn hostile. Unfortunately entitlements are fun to hand out but virtually lethal to try and take away--a situation we may have the chance to discover right here in our own country some day.
Greece owes 290 billion Euros and most of it is to European banks that are already struggling to stay afloat after the financial crisis. Greece will need to borrow another 54 billion Euros to cover its budget gap in 2010 but who is going to lend it to them? Investors are worried that any serious budget cuts by Greece would plunge them back into recession and eventually cause a devaluation of the Euro by default.
It is not going to be earnings driving our markets this week--it will be the faith in the European Union. The entire world appears to be rushing to short the Euro and buy dollars and that is killing dollar denominated stocks and commodities.
The Euro broke support at 138 to the dollar on Thursday as the crisis intensified and some analysts are now claiming it could return to 125---the level seen at the bottom of the financial crisis. The dollar has broken out to new six-month highs as it again becomes the safe haven currency for the world.
Investors holding debt on a dozen different countries are scrambling to dump it, insure it or find some way to protect themselves. This is going to keep pressure on the Euro to the downside, the dollar to the upside and pummel foreign banks holding Euros.
In late news Saturday evening the G7 agreed to tax banks for the government bailouts of the global financial system. Any kind of massive global tax on banks to repay bailout funds is not going to be met with cheers by the market--another sign that Friday's short bounce won't hold.
Secondly the G7 was assured by ECB president Jean-Claude Trichet that Greece would meet tough new targets to reduce its deficit by 2012. Unfortunately Trichet is incompetent and can't be trusted--this is the man who held interest rates high as the Eurozone crumbled into recession in 2008 and 2009.
The EU is comprised of 29 countries, each with its own political and economic system. This makes it difficult to make decisions and to act in unity. Spain, Portugal, Greece, Ireland, Italy, Bulgaria, Latvia and Lithuania could all default. There are too many holes in the dam and the ECB is running out of fingers. Once one or two countries fail, we could see a cascading effect. Lenders rightfully wonder who is safe and banks will stop trading with each other out of self-preservation. Once credit freezes up we are right back where were a year ago.
According to the G7 members, there won't be a bailout so get ready for another leg to the downside--the question is...
HOW DO WE MAKE MONEY ON IT?
First of all take a look at our existing positions because after Friday's reversal they all have new potential--if you are not in yet pick a good one and climb on board with at least a March expiration to give you some time. As far as new trades go we've got two plays lined up this week--one bearish and the other bullish.
Our bearish play is on a company that just announced earnings Friday and the market hated them. The numbers were 'massaged' to show big gains but most all the profits came from a tax rule instead of actual new business. The stock sold off breaking critical support on its first big step lower. We'll jump on board this play Monday with some well-placed puts for what looks to be outstanding gains!
Our next play is on one of the places investors rush to put their money when things get scary--like they are in Europe right now. This index bounced hard Friday and it looks like this is one case where the momentum will continue making some serious profits on the right calls!
We've got a volatile market with some great ammunition to play it--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
OUR PROSHARES ULTRA SHORT QQQ (QID) CALLS ARE UP A WHOPPING ONE-HUNDRED-FORTY-FOUR PERCENT!
OUR LINEAR TECHNOLOGY (LLTC) PUTS ARE UP A BREATH-TAKING THREE-HUNDRED-TWENTY-FIVE PERCENT!
AND OUR CENTURY ALUMINUM (CENX) PUTS HAVE ZOOMED HIGHER BY AN EYE-POPPING THREE-HUNDRED-FORTY-SEVEN PERCENT!
And that's just for starters--we also have open profits of 94% on our SKF calls, 80% on our EUO calls, 37% on our TZA calls and 27% on our brand new HOG puts. In fact the only play that is close to break-even is our SHLD puts and those look like a fantastic buying opportunity.
The bottom line is it's never been a better time to be a bear--and chances are good this week that the markets will be pummeled lower adding even more profits to the right bearish plays.
To get a better idea of what is happening right now let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
As you can see the major indices are pointing due south--regardless of Friday's late short covering.
The current fear driving the markets lower is a sovereign default by Greece and several other weak Euro-nations including Spain, Italy, Ireland, Portugal and others. Because this is the current investor focus--and will be until it is resolved--we're going to take a good look at how the European situation is affecting our markets.
Late Friday there was a rumor the IMF might announce an aid package for Greece over the weekend and the reaction in the markets was instantaneous. Even if the rumor is unlikely to come true traders with heavy short positions could not afford to hold over the weekend and bought with both hands.
As of this writing it doesn't look like any 'miracles' are going to be announced and the markets will likely resume their dominant direction this week--lower.
The problem is widespread fears of national default in several countries--defaults that would wipe out billions in capital and shake the faith in several nations ability to stay solvent. For example on Wednesday Portugal tried to sell 500 million in bonds but received bids on only 300 million--in other words their bond auction failed--a situation that is usually unthinkable for a sovereign debt auction.
If Greece, Italy, Spain, Ireland or even Great Britain tried to sell a large amount of debt now the odds are good the auction would fail or be at an interest rate they could not pay. Dubai, Greece, Poland and Spain have already been forced to pay much higher interest on debt they sold recently.
The advent of the Euro and strict economic policies required in order to join the Eurozone gave lesser countries access to relatively cheap debt because the Euro was thought to be a sound currency. Unfortunately the Euro concept allowed those without sound financial policies to hide behind the Eurozone fueling their deficits with cheap debt denominated in Euros.
The problems in Greece are now starting to be seen in other Eurozone countries with hundreds of billions in Euro debt at risk. Unfortunately there is no mechanism in place for any Eurozone country to bail out another country. Membership in the zone meant you had to adhere to the strict financial rules that supposedly kept everyone out of trouble.
If anybody in the Eurozone is going to bail out Greece it would have to be Germany and that's not going to happen. Germany's economic minister reminded reporters on Friday that the same rules that required less than 3% debt to GDP also banned bailouts of one EU member country by another. Besides--Germany has their own economic problems.
The other option is a bailout by the International Monetary Fund. The IMF is in business to bailout countries from unsound financial practices but may not be inclined to spend the tens of billions necessary to rescue Greece--and then the rest of the struggling EU countries shortly thereafter.
Greece promised this week to slash its debt to GDP from 12.9% to 3% by 2012. Unfortunately nobody believes them as it is politically and economically impossible. Many analysts believe their debt is actually 15%--it was recently discovered that Greece falsified their economic statistics in 2009 and hid 40 billion in debt to make their deficit look smaller. With that kind of credibility record it will make borrowing new money extremely difficult.
Austerity proposals to reduce these crippling deficits have generated massive resistance. One of the major Greek unions with membership of more than 300,000 has called a public strike for Monday. The government deployed 10,000 riot police in Athens in December for a far smaller strike. Another union with 500,000 workers has also called for a strike in February but has not yet announced a date. These strikes will likely turn hostile. Unfortunately entitlements are fun to hand out but virtually lethal to try and take away--a situation we may have the chance to discover right here in our own country some day.
Greece owes 290 billion Euros and most of it is to European banks that are already struggling to stay afloat after the financial crisis. Greece will need to borrow another 54 billion Euros to cover its budget gap in 2010 but who is going to lend it to them? Investors are worried that any serious budget cuts by Greece would plunge them back into recession and eventually cause a devaluation of the Euro by default.
It is not going to be earnings driving our markets this week--it will be the faith in the European Union. The entire world appears to be rushing to short the Euro and buy dollars and that is killing dollar denominated stocks and commodities.
The Euro broke support at 138 to the dollar on Thursday as the crisis intensified and some analysts are now claiming it could return to 125---the level seen at the bottom of the financial crisis. The dollar has broken out to new six-month highs as it again becomes the safe haven currency for the world.
Investors holding debt on a dozen different countries are scrambling to dump it, insure it or find some way to protect themselves. This is going to keep pressure on the Euro to the downside, the dollar to the upside and pummel foreign banks holding Euros.
In late news Saturday evening the G7 agreed to tax banks for the government bailouts of the global financial system. Any kind of massive global tax on banks to repay bailout funds is not going to be met with cheers by the market--another sign that Friday's short bounce won't hold.
Secondly the G7 was assured by ECB president Jean-Claude Trichet that Greece would meet tough new targets to reduce its deficit by 2012. Unfortunately Trichet is incompetent and can't be trusted--this is the man who held interest rates high as the Eurozone crumbled into recession in 2008 and 2009.
The EU is comprised of 29 countries, each with its own political and economic system. This makes it difficult to make decisions and to act in unity. Spain, Portugal, Greece, Ireland, Italy, Bulgaria, Latvia and Lithuania could all default. There are too many holes in the dam and the ECB is running out of fingers. Once one or two countries fail, we could see a cascading effect. Lenders rightfully wonder who is safe and banks will stop trading with each other out of self-preservation. Once credit freezes up we are right back where were a year ago.
According to the G7 members, there won't be a bailout so get ready for another leg to the downside--the question is...
HOW DO WE MAKE MONEY ON IT?
First of all take a look at our existing positions because after Friday's reversal they all have new potential--if you are not in yet pick a good one and climb on board with at least a March expiration to give you some time. As far as new trades go we've got two plays lined up this week--one bearish and the other bullish.
Our bearish play is on a company that just announced earnings Friday and the market hated them. The numbers were 'massaged' to show big gains but most all the profits came from a tax rule instead of actual new business. The stock sold off breaking critical support on its first big step lower. We'll jump on board this play Monday with some well-placed puts for what looks to be outstanding gains!
Our next play is on one of the places investors rush to put their money when things get scary--like they are in Europe right now. This index bounced hard Friday and it looks like this is one case where the momentum will continue making some serious profits on the right calls!
We've got a volatile market with some great ammunition to play it--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, February 1, 2010
Four Eye-Popping Winners...
As the markets gyrate south our options plays have been racking up some serious gains...
IN JUST TWO WEEKS OUR ULTRA-SHORT FINANCIALS (SKF) CALLS HAVE JUMPED AN IMPRESSIVE SIXTY-NINE PERCENT!
PLUS OUR PRO-SHARES ULTRA-SHORT QQQ (QID) CALLS ARE UP AN OUTSTANDING ONE-HUNDRED-SIXTY-EIGHT PERCENT!
AND IN JUST TWO WEEKS OUR CENTURY ALUMINUM (CENX) PUTS HAVE JUMPED A WHOPPING THREE-HUNDRED-TWENTY-FOUR PERCENT!
MEANWHILE LINEAR TECHNOLOGY (LLTC) HAS DRIVEN OFF A CLIFF CATAPULTING OUR FEB 30 PUTS TO AN EYE-POPPING FOUR-HUNDRED-THIRTEEN PERCENT OPEN PROFIT!
And that's just our biggest gains--we also have double digit open profits on our two brand news plays on the EUO and TZA and currently we have no losses of any kind and haven't for weeks!
Bear markets have been VERY good to us in the past and this one is no different except now we've got these wonderful inverse ETFs to buy calls on--and it's working beautifully--so far.
Some subscribers have been moving in and out of our plays as they bounce back and forth-- which is a great strategy for the nimble--but since the overall pattern on all the indices is lower it's been great to just hang in there and watch the open profits get bigger and bigger.
It's been a profitable few weeks--but will it continue? To find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
Four levels of converging support have all collapsed on the SP-500 so it looks like the big caps are heading lower. Financials, techs, chips, materials and energy have all led to the downside. It is not one sector but a broad market decline--there is no support of any significance until the 1034 level.
The Nasdaq is only 59 points away from a 10% correction to 2088. At the speed the big cap techs are dropping the index will likely continue substantially lower.
Given the lowered guidance from several chip companies it is not surprising that the Semiconductor Index is down 13% for the month of January. Compared to the other major indexes with losses in the -4% range the chips have been beaten senseless by disappointed investors. The chip sector is supposed to lead tech stocks higher whenever the economy is recovering from a recession, so a sell-off in this sector is a very bearish sign.
Qualcomm (QCOM) implied everything was great at the January CES expo in Vegas and then gave wary guidance when they released earnings last week. Qualcomm said they were seeing only a "subdued economic recovery" and that is not what investors wanted to hear--the stock lost -$8 since reporting on Wednesday night.
SanDisk (SNDK) was knocked for a 12% loss on Friday after reporting better than expected earnings of $1.18 compared to analyst estimates of 69-cents. Even though earnings were good guidance was less than the street expected and the stock got pummeled.
Steve Jobs took to the stage to announce the rumored and much anticipated tablet PC and the audience cheered at every point. That was until he told them it still ran on the AT&T network. AT&T has some serious problems and just getting a voice call through their network challenging. They claim it is the massive bandwidth consumption by iPhone users that has clogged the system but regardless of the reason service is horrible.
Their new tablet did little to impress investors and AAPL dropped over twenty dollars since Wednesday.
Then Microsoft 'blew out earnings' but on closer examination the company included deferred revenue from pre-sales of Windows 7 to PC makers and its free upgrade program. Excluding that to get the regular operating income number and the bottom line drops to 60-cents while analysts were expecting 59-cents. They beat by a penny--and the stock dropped almost four dollars from Friday's high.
You should be getting the picture--investors are disappointed and are hitting the sell button. Although earnings have been good quarter over quarter guidance is down--and the markets are always looking forward.
After five months of flat trading the financial sector finally rolled over as well--and this is a biggie because the financials underpin the entire market and certainly the SP-500. Credit problems are growing again and although the banks are fully capitalized thanks to endless debt and stock offerings the guidance from them is also questionable. The commercial real estate loan problem continues deteriorate behind the scenes as banks extend and ignore those problem loans in hopes they will go away when the recovery finally kicks in. As long as the banks keep extending their commercial loans they don't have to recognize them as in default--but they're not going away.
Goldman and JP Morgan are in full decline below recent support and are dragging the rest of the financial sector down with them.
The markets started off with a bang Friday morning after the Q4 of +5.73% growth in GDP was released. This was the largest headline gain since 2003-Q3 and much stronger than the expectations for a +4.5% increase. However the adjustment to inventories accounted for 3.4 points of the 5.73 reading. Real final sales of domestic product, which is the real GDP minus the change in inventories and a true measure of demand for U.S. goods and services, grew +2.9% in Q4 compared to +2.0% in Q3--not quite so dramatic.
The +3.4% GDP gain from the increase in inventories was the largest contribution to growth in over 25 years. Inventories had been forced to dwindle to very low levels due to the credit crisis and the inability by many companies to finance new inventory. When business conditions began to improve the additions to inventories were large on a percentage basis because the starting levels were so low.
As good as it was there were some negatives in the GDP report. Personal consumption expenditures, how much consumers actually spent, rose +2% but that was down from the +2.8% increase in Q3. Spending in the holiday quarter was actually lower than Q3. Auto and auto parts sales subtracted -0.6% from GDP because of the hangover from the end of cash for clunkers.
This will be the largest GDP reading for a long time. Overall GDP is expected to be positive but significantly weaker for this year. It's estimated that growth in the first half of 2010 will be below that needed to keep pace with an expanding labor force, and the unemployment rate will move higher, peaking at close to 11% in the fall.
According to the average estimates of fifty-nine economists surveyed by Bloomberg, unemployment will average 10% or higher for all of 2010. That is the highest rate since 1948. The average for 2009 was 9.3%, the highest level in 26 years.
However growth should pick up toward end of this year because of a stabilizing labor market, an expanding global economy, additional federal stimulus, improved credit flows, and stronger homebuilding. Growth could then be very strong in 2011 and 2012 as pent-up consumer demand kicks in, finally bringing down the unemployment rate.
Another problem that is going to push sentiment lower before we see a major recovery is the flood of foreclosures expected in 2010. Some analysts believe there are as many as 4.5 million homes facing foreclosure in 2010 and believe that while many will escape through a sale or modification there will still be more than three million that actually get foreclosed. This compares to the 2.8 million foreclosed in 2009.
The National Association of Realtors and the Mortgage Bankers Association believe home sales will rise by 448,000 in 2010 from the 5.45 million pace in 2009. An additional three million foreclosures will continue to push home prices down because most potential buyers have already taken advantage of the low prices, decades low interest rates and homebuyer tax credits in 2009. Existing home sales dropped -17% in December---the largest drop on record--not a good sign.
When the markets are declining it's smart to look at the internals to see if we are falling on lower volume--which could signal an end to the selling. That is not currently the case--Monday was the lowest volume day for the week at 8.2 billion shares and each day thereafter rose steadily to 11 billion on Friday. The selling pressure is escalating every day and four of the top six volume days of the year have been Thursday--Friday of the last two weeks.
The bottom line is the path of least resistance is still down. The highlights for the week are the Cisco earnings on Wednesday and the non-farm payrolls on Friday.
The question now is...
HOW DO WE MAKE MONEY ON IT?
We've got two positions lined up this week and they are both bearish. The first is a retail chain that is dropping from very high levels and the selling is accelerating. Puts on this diver should yield some very generous results very quickly.
Our second play is also bearish and it's on a luxury item manufacturer whose sales have all but dried up--and investors are finally starting to recognize the fact. The stock has broken key support and now looks ready to plunge--a ride we'll be jumping on first thing Monday morning.
The markets are trending south with gusto and we've got two great plays lined up 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
IN JUST TWO WEEKS OUR ULTRA-SHORT FINANCIALS (SKF) CALLS HAVE JUMPED AN IMPRESSIVE SIXTY-NINE PERCENT!
PLUS OUR PRO-SHARES ULTRA-SHORT QQQ (QID) CALLS ARE UP AN OUTSTANDING ONE-HUNDRED-SIXTY-EIGHT PERCENT!
AND IN JUST TWO WEEKS OUR CENTURY ALUMINUM (CENX) PUTS HAVE JUMPED A WHOPPING THREE-HUNDRED-TWENTY-FOUR PERCENT!
MEANWHILE LINEAR TECHNOLOGY (LLTC) HAS DRIVEN OFF A CLIFF CATAPULTING OUR FEB 30 PUTS TO AN EYE-POPPING FOUR-HUNDRED-THIRTEEN PERCENT OPEN PROFIT!
And that's just our biggest gains--we also have double digit open profits on our two brand news plays on the EUO and TZA and currently we have no losses of any kind and haven't for weeks!
Bear markets have been VERY good to us in the past and this one is no different except now we've got these wonderful inverse ETFs to buy calls on--and it's working beautifully--so far.
Some subscribers have been moving in and out of our plays as they bounce back and forth-- which is a great strategy for the nimble--but since the overall pattern on all the indices is lower it's been great to just hang in there and watch the open profits get bigger and bigger.
It's been a profitable few weeks--but will it continue? To find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
Four levels of converging support have all collapsed on the SP-500 so it looks like the big caps are heading lower. Financials, techs, chips, materials and energy have all led to the downside. It is not one sector but a broad market decline--there is no support of any significance until the 1034 level.
The Nasdaq is only 59 points away from a 10% correction to 2088. At the speed the big cap techs are dropping the index will likely continue substantially lower.
Given the lowered guidance from several chip companies it is not surprising that the Semiconductor Index is down 13% for the month of January. Compared to the other major indexes with losses in the -4% range the chips have been beaten senseless by disappointed investors. The chip sector is supposed to lead tech stocks higher whenever the economy is recovering from a recession, so a sell-off in this sector is a very bearish sign.
Qualcomm (QCOM) implied everything was great at the January CES expo in Vegas and then gave wary guidance when they released earnings last week. Qualcomm said they were seeing only a "subdued economic recovery" and that is not what investors wanted to hear--the stock lost -$8 since reporting on Wednesday night.
SanDisk (SNDK) was knocked for a 12% loss on Friday after reporting better than expected earnings of $1.18 compared to analyst estimates of 69-cents. Even though earnings were good guidance was less than the street expected and the stock got pummeled.
Steve Jobs took to the stage to announce the rumored and much anticipated tablet PC and the audience cheered at every point. That was until he told them it still ran on the AT&T network. AT&T has some serious problems and just getting a voice call through their network challenging. They claim it is the massive bandwidth consumption by iPhone users that has clogged the system but regardless of the reason service is horrible.
Their new tablet did little to impress investors and AAPL dropped over twenty dollars since Wednesday.
Then Microsoft 'blew out earnings' but on closer examination the company included deferred revenue from pre-sales of Windows 7 to PC makers and its free upgrade program. Excluding that to get the regular operating income number and the bottom line drops to 60-cents while analysts were expecting 59-cents. They beat by a penny--and the stock dropped almost four dollars from Friday's high.
You should be getting the picture--investors are disappointed and are hitting the sell button. Although earnings have been good quarter over quarter guidance is down--and the markets are always looking forward.
After five months of flat trading the financial sector finally rolled over as well--and this is a biggie because the financials underpin the entire market and certainly the SP-500. Credit problems are growing again and although the banks are fully capitalized thanks to endless debt and stock offerings the guidance from them is also questionable. The commercial real estate loan problem continues deteriorate behind the scenes as banks extend and ignore those problem loans in hopes they will go away when the recovery finally kicks in. As long as the banks keep extending their commercial loans they don't have to recognize them as in default--but they're not going away.
Goldman and JP Morgan are in full decline below recent support and are dragging the rest of the financial sector down with them.
The markets started off with a bang Friday morning after the Q4 of +5.73% growth in GDP was released. This was the largest headline gain since 2003-Q3 and much stronger than the expectations for a +4.5% increase. However the adjustment to inventories accounted for 3.4 points of the 5.73 reading. Real final sales of domestic product, which is the real GDP minus the change in inventories and a true measure of demand for U.S. goods and services, grew +2.9% in Q4 compared to +2.0% in Q3--not quite so dramatic.
The +3.4% GDP gain from the increase in inventories was the largest contribution to growth in over 25 years. Inventories had been forced to dwindle to very low levels due to the credit crisis and the inability by many companies to finance new inventory. When business conditions began to improve the additions to inventories were large on a percentage basis because the starting levels were so low.
As good as it was there were some negatives in the GDP report. Personal consumption expenditures, how much consumers actually spent, rose +2% but that was down from the +2.8% increase in Q3. Spending in the holiday quarter was actually lower than Q3. Auto and auto parts sales subtracted -0.6% from GDP because of the hangover from the end of cash for clunkers.
This will be the largest GDP reading for a long time. Overall GDP is expected to be positive but significantly weaker for this year. It's estimated that growth in the first half of 2010 will be below that needed to keep pace with an expanding labor force, and the unemployment rate will move higher, peaking at close to 11% in the fall.
According to the average estimates of fifty-nine economists surveyed by Bloomberg, unemployment will average 10% or higher for all of 2010. That is the highest rate since 1948. The average for 2009 was 9.3%, the highest level in 26 years.
However growth should pick up toward end of this year because of a stabilizing labor market, an expanding global economy, additional federal stimulus, improved credit flows, and stronger homebuilding. Growth could then be very strong in 2011 and 2012 as pent-up consumer demand kicks in, finally bringing down the unemployment rate.
Another problem that is going to push sentiment lower before we see a major recovery is the flood of foreclosures expected in 2010. Some analysts believe there are as many as 4.5 million homes facing foreclosure in 2010 and believe that while many will escape through a sale or modification there will still be more than three million that actually get foreclosed. This compares to the 2.8 million foreclosed in 2009.
The National Association of Realtors and the Mortgage Bankers Association believe home sales will rise by 448,000 in 2010 from the 5.45 million pace in 2009. An additional three million foreclosures will continue to push home prices down because most potential buyers have already taken advantage of the low prices, decades low interest rates and homebuyer tax credits in 2009. Existing home sales dropped -17% in December---the largest drop on record--not a good sign.
When the markets are declining it's smart to look at the internals to see if we are falling on lower volume--which could signal an end to the selling. That is not currently the case--Monday was the lowest volume day for the week at 8.2 billion shares and each day thereafter rose steadily to 11 billion on Friday. The selling pressure is escalating every day and four of the top six volume days of the year have been Thursday--Friday of the last two weeks.
The bottom line is the path of least resistance is still down. The highlights for the week are the Cisco earnings on Wednesday and the non-farm payrolls on Friday.
The question now is...
HOW DO WE MAKE MONEY ON IT?
We've got two positions lined up this week and they are both bearish. The first is a retail chain that is dropping from very high levels and the selling is accelerating. Puts on this diver should yield some very generous results very quickly.
Our second play is also bearish and it's on a luxury item manufacturer whose sales have all but dried up--and investors are finally starting to recognize the fact. The stock has broken key support and now looks ready to plunge--a ride we'll be jumping on first thing Monday morning.
The markets are trending south with gusto and we've got two great plays lined up 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
Monday, January 25, 2010
Four Amazing Trades...
This past week was a good one to be bearish...
OUR QID FEB 19 CALLS FINALLY CAUGHT FIRE JUMPING AN OUTSTANDING EIGHTY-FOUR PERCENT!
OUR BRAND NEW SKF MARCH 22 CALLS CATAPULTED TO A FIVE DAY SEVENTY-SEVEN PERCENT OPEN PROFIT!
OUR NEW CENX FEB 15 PUTS JUMPED TO AN INCREDIBLE FIVE-DAY ONE-HUNDRED-SIXTY-FIVE PERCENT OPEN PROFIT!
AND OUR LLTC FEB 30 PUTS ARE UP AN AMAZING TWO-HUNDRED-FIFTY-SIX PERCENT--AND RISING!
And those are our ONLY open positions--we don't have a single loser and the winners are all still open--so the profits are very likely to go higher from here!
After Friday's close toward the lowest point since early December one has to wonder what's in store for the coming week--to find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
There was some serious selling going on this past week so the two most important questions we can ask are--why--and will it continue?
If you look at the timing of the sell-off it wasn't related to the economy or even earnings--earnings have been pretty spectacular compared to the fourth quarter of 2008.
This sell-off was purely news driven.
After Republican Scott Brown's surprising victory in overwhelmingly Democrat dominated Massachusetts, President Obama spoke at a town hall meeting trying to focus people's attention on the banks--proposing tougher limits on big banks' speculative activity and an intention to 'get the people's money back' from the TARP dispersements--but noticeably left out the biggest recipients of TARP money Fanny Mae, Freddie Mac, AIG and of course the big employee voting blocs represented by GM and Chrysler.
His proposal fueled an immediate 213-point slide in the Dow when it was unveiled on Thursday and continued to drive the sell-off into Friday's session.
In president Obama's opening paragraph in the new bank rules speech he said: "Good morning, everybody, I just had a very productive meeting with two members of my Economic Recovery Advisory Board: Paul Volcker, who is the former chair of the Federal Reserve Board, and Bill Donaldson, previously the head of the SEC, and I deeply appreciate the counsel of these two leaders..."
Treasury Secretary Geithner was on the podium with the group but was not even mentioned and spent most of the speech looking at his shoes.
Volcker is just an advisor and Geithner is Treasury Secretary so it appears 'Turbo Tax Tim' may be next up on the sacrifice list as the administration tries to project a new 'get tough' on Wall Street image. Geithner is perceived as a 'Wall Street insider'.
Investors also hit the sell button on news Friday that some congressional Democrats are growing skittish about confirming Bernanke to a second term as Fed chairman. Senators Boxer and Finegold--both up for reelection this year and suddenly vulnerable--spearheaded the effort to attack Bernanke.
Several analysts estimate there could easily be a 10% sell off if Bernanke is not confirmed. There is only a week left in his term and if he isn't confirmed for a second term Donald Kohn, a Fed banker since the 1970s, would temporarily fill his seat until a successor could be named.
Analysts claim this sudden rousting of Bernanke is meant to show that our lawmakers are 'taking action' on the banking crisis by throwing out the old guard.
The Bernanke problem is going to escalate over the next few days--there is a Fed meeting on Tue/Wed and his confirmation problems will be on every news channel and every newspaper. This will be the big market influence this week with the term countdown clock going to zero at month end.
This is the last big week for earnings reports. The cycle will trickle on for several more weeks but after this week the majority of the big names will have reported. There will be little positive anticipation to drive the markets higher after this week so last week's sell-off could easily be the beginning of a new market direction for awhile.
Headlining earnings this week are Apple, Amazon, Yahoo, CAT, MMM and UTX.
Apple reports earnings on Monday and hosts its unveiling of what is expected to be a tablet PC on Wednesday. Bernstein Research warned on Friday that expectations for Apple's iPhone sales could be too high. Bernstein expects Apple to announce sales of roughly 8.5 million phones compared to the 10-million consensus estimate. Apple earnings are expected to be $2.07 per share and a miss there could drive the Nasdaq through support into another dive.
So far this quarter 92 of the S&P-500 companies have reported and earnings are up +193% over nearly zero earnings of Q4-2008. However, if you take out the financials that impressive gain drops to only +7%.
Seventy eight percent of companies beat by an average of +21%. Only 17% missed earnings but more than 50% struggled with their guidance. S&P says the bottom line earnings are still improving due to continued cost cutting but the top line growth has been minimal. This week there are 12 Dow components and 130 S&P stocks reporting.
Between the winding down of earnings--investor sentiment seeing the glass 'half-full' on even the best announcements (remember Intel?) and the ever-wilder political gyrations to 'direct the voting public's attention'--there is not a lot of positive impetus for this market--but there are some serious negatives. Every time a politician tries to save themselves by proposing to punish the 'evil capitalists' (otherwise known as employers) the market is going to tank--and when that happens everybody loses. Unless of course you are an options trader.
HOW DO WE A MAKE MONEY ON IT?
We're already sitting on some outrageous open gains on our short positions--but it looks like there is more where that came from.
We've got two super set-ups this week--our first is a currency bet and our second is a bearish play on the small caps with a unique twist.
Both of them could easily result in 100% plus gains and it won't take much to make it happen--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
OUR QID FEB 19 CALLS FINALLY CAUGHT FIRE JUMPING AN OUTSTANDING EIGHTY-FOUR PERCENT!
OUR BRAND NEW SKF MARCH 22 CALLS CATAPULTED TO A FIVE DAY SEVENTY-SEVEN PERCENT OPEN PROFIT!
OUR NEW CENX FEB 15 PUTS JUMPED TO AN INCREDIBLE FIVE-DAY ONE-HUNDRED-SIXTY-FIVE PERCENT OPEN PROFIT!
AND OUR LLTC FEB 30 PUTS ARE UP AN AMAZING TWO-HUNDRED-FIFTY-SIX PERCENT--AND RISING!
And those are our ONLY open positions--we don't have a single loser and the winners are all still open--so the profits are very likely to go higher from here!
After Friday's close toward the lowest point since early December one has to wonder what's in store for the coming week--to find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
There was some serious selling going on this past week so the two most important questions we can ask are--why--and will it continue?
If you look at the timing of the sell-off it wasn't related to the economy or even earnings--earnings have been pretty spectacular compared to the fourth quarter of 2008.
This sell-off was purely news driven.
After Republican Scott Brown's surprising victory in overwhelmingly Democrat dominated Massachusetts, President Obama spoke at a town hall meeting trying to focus people's attention on the banks--proposing tougher limits on big banks' speculative activity and an intention to 'get the people's money back' from the TARP dispersements--but noticeably left out the biggest recipients of TARP money Fanny Mae, Freddie Mac, AIG and of course the big employee voting blocs represented by GM and Chrysler.
His proposal fueled an immediate 213-point slide in the Dow when it was unveiled on Thursday and continued to drive the sell-off into Friday's session.
In president Obama's opening paragraph in the new bank rules speech he said: "Good morning, everybody, I just had a very productive meeting with two members of my Economic Recovery Advisory Board: Paul Volcker, who is the former chair of the Federal Reserve Board, and Bill Donaldson, previously the head of the SEC, and I deeply appreciate the counsel of these two leaders..."
Treasury Secretary Geithner was on the podium with the group but was not even mentioned and spent most of the speech looking at his shoes.
Volcker is just an advisor and Geithner is Treasury Secretary so it appears 'Turbo Tax Tim' may be next up on the sacrifice list as the administration tries to project a new 'get tough' on Wall Street image. Geithner is perceived as a 'Wall Street insider'.
Investors also hit the sell button on news Friday that some congressional Democrats are growing skittish about confirming Bernanke to a second term as Fed chairman. Senators Boxer and Finegold--both up for reelection this year and suddenly vulnerable--spearheaded the effort to attack Bernanke.
Several analysts estimate there could easily be a 10% sell off if Bernanke is not confirmed. There is only a week left in his term and if he isn't confirmed for a second term Donald Kohn, a Fed banker since the 1970s, would temporarily fill his seat until a successor could be named.
Analysts claim this sudden rousting of Bernanke is meant to show that our lawmakers are 'taking action' on the banking crisis by throwing out the old guard.
The Bernanke problem is going to escalate over the next few days--there is a Fed meeting on Tue/Wed and his confirmation problems will be on every news channel and every newspaper. This will be the big market influence this week with the term countdown clock going to zero at month end.
This is the last big week for earnings reports. The cycle will trickle on for several more weeks but after this week the majority of the big names will have reported. There will be little positive anticipation to drive the markets higher after this week so last week's sell-off could easily be the beginning of a new market direction for awhile.
Headlining earnings this week are Apple, Amazon, Yahoo, CAT, MMM and UTX.
Apple reports earnings on Monday and hosts its unveiling of what is expected to be a tablet PC on Wednesday. Bernstein Research warned on Friday that expectations for Apple's iPhone sales could be too high. Bernstein expects Apple to announce sales of roughly 8.5 million phones compared to the 10-million consensus estimate. Apple earnings are expected to be $2.07 per share and a miss there could drive the Nasdaq through support into another dive.
So far this quarter 92 of the S&P-500 companies have reported and earnings are up +193% over nearly zero earnings of Q4-2008. However, if you take out the financials that impressive gain drops to only +7%.
Seventy eight percent of companies beat by an average of +21%. Only 17% missed earnings but more than 50% struggled with their guidance. S&P says the bottom line earnings are still improving due to continued cost cutting but the top line growth has been minimal. This week there are 12 Dow components and 130 S&P stocks reporting.
Between the winding down of earnings--investor sentiment seeing the glass 'half-full' on even the best announcements (remember Intel?) and the ever-wilder political gyrations to 'direct the voting public's attention'--there is not a lot of positive impetus for this market--but there are some serious negatives. Every time a politician tries to save themselves by proposing to punish the 'evil capitalists' (otherwise known as employers) the market is going to tank--and when that happens everybody loses. Unless of course you are an options trader.
HOW DO WE A MAKE MONEY ON IT?
We're already sitting on some outrageous open gains on our short positions--but it looks like there is more where that came from.
We've got two super set-ups this week--our first is a currency bet and our second is a bearish play on the small caps with a unique twist.
Both of them could easily result in 100% plus gains and it won't take much to make it happen--so let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
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