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Jun 12
2011
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Thoughts on Looking Ahead Both Close-in Trading and Longer TermPosted by: Stan Moore in Stans Blog on Jun 12, 2011 Tagged in: Untagged
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Dear Friends & Fellow Traders,
Rarely does a market crash when so many people are looking for just such an event. This week the market did find its way to my 1270 target the 150 day moving average. It bounced but that's all the good I can say. We have a much better and bigger target at the 200 DMA at 1250. I always teach if there's a better bigger target above or below we'll find it.
I believe we're close to an inflection point at or near 1250. This move down should be just enough to entice buyers back into the market. We started the year off well then the proverbial crap hit the fan. We had things that were unforecastable: The Arab Spring, an earthquake, the Japanese tsunami and a nuclear crisis. Prices for energy rose and Japan caused supply chain disruptions all over the global. For instance, the auto industry will produce only 3 million cars in the second quarter down from a planned 3.5 million. Think what this alone means. Fewer people are employed and not spending money as before.
So on a macro level there are worries but on the corporate level, companies here are doing well. If gas prices come down and they should, things should pick up. I can't see further layoffs ahead except on the state and local levels. While growth will be slow and should pick up in the second half according to the Fed.
I believe the current decline is more indicative of a buyer’s strike rather than wholesale selling. Just look at the 19-20 VIX. Yes the market is weak but no one is racing for the exits. Maybe this means we have further to go on the downside. I doubt it. The bulls were 3-1 just 5-6 weeks ago and are nowhere to be found today. Outflows from domestic stocks funds for May totaled over $6 billion. Bond-fund inflows totaled $20 billion. This is a flight to safety pure and simple. It will reverse as quickly.
Still I just want to put a few more things in perspective for you. I will quote a few lines from one of my favorite commentators Marc Faber better known as Dr. Doom, "The U.S. stock market measured in Swiss francs, Australian dollars, Japanese yen or gold or silver is already down by 50% to 80% from the 2007 peak. You can adjust values in stock prices or in the currency and the U.S. has done it in the currency." He further writes, "Not to own gold is to trust the value of paper money and the government’s integrity. No one in his right mind could trust the U.S. government anymore".
I don't and for the first time in my life I'm buying my first gold stock looking for at least a triple over the next 2 years. But I'll never own the stocks. I will sell deep in the money puts and use the put $s to buy OTM calls that expire in Jan 2013. Gold stocks have lagged the price of gold substantially these last 3-5 years but they will catch up sometime in the next 2 years. I also want to sell the heck out of ITM puts in the 32-33 area and lower on the GDXJ or junior gold miners. These as a group are prime takeover candidates over the next few years.
In Summary and Conclusion
I always like to end on a positive note. It appears that the Chinese housing bubble has been pricked. This tells us the China is probably finished tightening for the next year or so. Therefore come fall or certainly late in the year the Chinese will start stepping on the accelerator to regrow their economy and jump start the world's as well. The economy will be further helped as Japan rebuilds.
The last but most important foreign companies would love to own U.S. assets on the cheap. I fully expect takeover activity from overseas to pick up dramatically over the next 2 years.
U.S. companies are what I consider the best investment choice looking ahead. We have more major cash rich companies selling at single digit PEs than I can ever remember. The alternatives, to put it mildly suck!
Fixed income can't hold a candle to U.S. equities over the long run and are still the place to be especially if Obama loses in 2012.
I sent out so many stock alerts this week there is very little I can add today except to say there was 2 million share spot secondary for PIP at $3.50. This is an opportunity to buy more PIP around $3.25 and sell Sep/Dec 5 strike calls.
Trades of the Week in Review:
The market's down 6 weeks in a row. That’s the worst performance in 9 years. In the short-to-medium term, it is more of a trading market than investment one. New Era Trader is particularly suited to this style. Right now we are focused on selling rallies aggressively to protect our portfolios until we lose money doing this. It hasn't happened yet.
After a failed rally attempt Thursday we never got a chance to buy puts early Friday. I did look at the 575W puts Thursday at $1.75 but passed. By 1:30 Friday these puts hit $10.70. Cie La Vie!
Friday after the opening I alerted the Chat Room to look for the market to break support then "They" would try to take the market higher later in the day. I sent a buy Alert Email to own the 570W calls for $0.70 and scale-in lower. The market obliged and went straight down letting us buy into more puts between $0.20 and $0.30. There were 4 to 5 hedging opportunities to more than pay for the calls as the market trading sideways for about 2 hours.
Then after 1:00 we got another surprise leg down to buy the remaining calls at $0.15 in size, right on schedule. We got a perfect 2:00 TOD breakout up to the 60ID and 40% multi-day profit taking area. I send an Alert Email to take profits into expected strength after a small pullback the market rallies to only marginal highs. The calls hit $0.80 and all calls should have been sold after the 3:00 failure at the 60% highs.
On the 1st peak before 3:00 I looked at the 570 puts. They were $0.70-1.00, a $1.00 last. I never looked again. Fifteen minutes later I told the Chat Room the up was over let's short the E-minis. I was very proud of our 4 point profit trade until I looked later and saw that the 570 puts went from $0.60 to $3.60 in just 1 hour. Those 2 put trades I missed over 2 days was for more than 10X one’s your money. The sad part was we wanted to get short but I'm just too spoiled with those $0.30 options for 3-5X possible return nearly every week. There's always next week. Reference NET Weekly Money Chart 2011-06-10.
I think what's most upsetting and I say this in the Chat Room all the time is that I love down markets. The profits come so fast nearly 3 times as fast versus the ups. Friday we worked our asses off with the calls. We hedged, we parlayed over 4 hours. I was wiped. Then the best trade falls in our lap for 6X returns and I'm happy we got a 4 point E-mini short to finish the day. I must be getting old.
As always keep those cards and letters coming I read every one.
Good trading,
Stan Moore
702.558.1814
Rarely does a market crash when so many people are looking for just such an event. This week the market did find its way to my 1270 target the 150 day moving average. It bounced but that's all the good I can say. We have a much better and bigger target at the 200 DMA at 1250. I always teach if there's a better bigger target above or below we'll find it.
I believe we're close to an inflection point at or near 1250. This move down should be just enough to entice buyers back into the market. We started the year off well then the proverbial crap hit the fan. We had things that were unforecastable: The Arab Spring, an earthquake, the Japanese tsunami and a nuclear crisis. Prices for energy rose and Japan caused supply chain disruptions all over the global. For instance, the auto industry will produce only 3 million cars in the second quarter down from a planned 3.5 million. Think what this alone means. Fewer people are employed and not spending money as before.
So on a macro level there are worries but on the corporate level, companies here are doing well. If gas prices come down and they should, things should pick up. I can't see further layoffs ahead except on the state and local levels. While growth will be slow and should pick up in the second half according to the Fed.
I believe the current decline is more indicative of a buyer’s strike rather than wholesale selling. Just look at the 19-20 VIX. Yes the market is weak but no one is racing for the exits. Maybe this means we have further to go on the downside. I doubt it. The bulls were 3-1 just 5-6 weeks ago and are nowhere to be found today. Outflows from domestic stocks funds for May totaled over $6 billion. Bond-fund inflows totaled $20 billion. This is a flight to safety pure and simple. It will reverse as quickly.
Still I just want to put a few more things in perspective for you. I will quote a few lines from one of my favorite commentators Marc Faber better known as Dr. Doom, "The U.S. stock market measured in Swiss francs, Australian dollars, Japanese yen or gold or silver is already down by 50% to 80% from the 2007 peak. You can adjust values in stock prices or in the currency and the U.S. has done it in the currency." He further writes, "Not to own gold is to trust the value of paper money and the government’s integrity. No one in his right mind could trust the U.S. government anymore".
I don't and for the first time in my life I'm buying my first gold stock looking for at least a triple over the next 2 years. But I'll never own the stocks. I will sell deep in the money puts and use the put $s to buy OTM calls that expire in Jan 2013. Gold stocks have lagged the price of gold substantially these last 3-5 years but they will catch up sometime in the next 2 years. I also want to sell the heck out of ITM puts in the 32-33 area and lower on the GDXJ or junior gold miners. These as a group are prime takeover candidates over the next few years.
In Summary and Conclusion
I always like to end on a positive note. It appears that the Chinese housing bubble has been pricked. This tells us the China is probably finished tightening for the next year or so. Therefore come fall or certainly late in the year the Chinese will start stepping on the accelerator to regrow their economy and jump start the world's as well. The economy will be further helped as Japan rebuilds.
The last but most important foreign companies would love to own U.S. assets on the cheap. I fully expect takeover activity from overseas to pick up dramatically over the next 2 years.
U.S. companies are what I consider the best investment choice looking ahead. We have more major cash rich companies selling at single digit PEs than I can ever remember. The alternatives, to put it mildly suck!
Fixed income can't hold a candle to U.S. equities over the long run and are still the place to be especially if Obama loses in 2012.
I sent out so many stock alerts this week there is very little I can add today except to say there was 2 million share spot secondary for PIP at $3.50. This is an opportunity to buy more PIP around $3.25 and sell Sep/Dec 5 strike calls.
Trades of the Week in Review:
The market's down 6 weeks in a row. That’s the worst performance in 9 years. In the short-to-medium term, it is more of a trading market than investment one. New Era Trader is particularly suited to this style. Right now we are focused on selling rallies aggressively to protect our portfolios until we lose money doing this. It hasn't happened yet.
After a failed rally attempt Thursday we never got a chance to buy puts early Friday. I did look at the 575W puts Thursday at $1.75 but passed. By 1:30 Friday these puts hit $10.70. Cie La Vie!
Friday after the opening I alerted the Chat Room to look for the market to break support then "They" would try to take the market higher later in the day. I sent a buy Alert Email to own the 570W calls for $0.70 and scale-in lower. The market obliged and went straight down letting us buy into more puts between $0.20 and $0.30. There were 4 to 5 hedging opportunities to more than pay for the calls as the market trading sideways for about 2 hours.
Then after 1:00 we got another surprise leg down to buy the remaining calls at $0.15 in size, right on schedule. We got a perfect 2:00 TOD breakout up to the 60ID and 40% multi-day profit taking area. I send an Alert Email to take profits into expected strength after a small pullback the market rallies to only marginal highs. The calls hit $0.80 and all calls should have been sold after the 3:00 failure at the 60% highs.
On the 1st peak before 3:00 I looked at the 570 puts. They were $0.70-1.00, a $1.00 last. I never looked again. Fifteen minutes later I told the Chat Room the up was over let's short the E-minis. I was very proud of our 4 point profit trade until I looked later and saw that the 570 puts went from $0.60 to $3.60 in just 1 hour. Those 2 put trades I missed over 2 days was for more than 10X one’s your money. The sad part was we wanted to get short but I'm just too spoiled with those $0.30 options for 3-5X possible return nearly every week. There's always next week. Reference NET Weekly Money Chart 2011-06-10.
I think what's most upsetting and I say this in the Chat Room all the time is that I love down markets. The profits come so fast nearly 3 times as fast versus the ups. Friday we worked our asses off with the calls. We hedged, we parlayed over 4 hours. I was wiped. Then the best trade falls in our lap for 6X returns and I'm happy we got a 4 point E-mini short to finish the day. I must be getting old.
As always keep those cards and letters coming I read every one.
Good trading,
Stan Moore
702.558.1814