S&P 1,200?
It could happen this morning. We have good earnings from INTC and a beat by JPM so there's no reason not to take out our last major technical as we party just like it's 1999 with MASSIVE gains behind us and the MSM projecting MASSIVE gains for the rest of this year too. As I said yesterday, we're not going to complain (much) – we're just going to go with the flow. Yesterday I put up a DIA play that returns 566% in 37 days if the Dow simply holds 11,000. Today we'll look at a similar play on S&P 1,200.
After all, like the crazy guy on TV says, if the government is giving free money away – shouldn't we be getting ours too. Only I'm not telling you you need to buy a book or do anything special – just join my Membership site AFTER you make your 566% – that's a pretty good deal! Of course, keep in mind these are the bull plays and we are generally hedging for a possible correction so obey the sign on the left and play wisely! Consider that you can make 5% a month by risking just 1% of your virtual portfolio on successful plays like this one – that's 60% a year if all 12 months are positive, and the last 12 months have been so why not 12 more?
As I mentioned above, the S&P is up 80% from the March lows and is still 31% off the Oct, 2007 high of 1,576. As we switch off our brains and run with the bulls, we're not going to worry about the low volume and those silly fundamentals – we're just going to use 1,200 as a key support that lets us know when to get in and out of our bullish plays along with Dow 11,000, Nasdaq 2,500 (still waiting), NYSE 7,600 and Russell 700. This makes being bullish nice and brainless and a couple of high-percentage disaster hedges let us sleep at night without being worried about a Black Friday even wiping out our gains. The other key percentages are:
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Dow 11,019, up 71% from 6,440 low. 80% is 11,592, still 30% off the Oct '07 high of 14,279
- S&P 1,197, up 80% from 666 low. 80% is 1,200, still 31% off the Oct 07 high of 1,576
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Nasdaq 2,465, up 95% from 1,265 low. 80% was 2,277, now just 10.5% off the Sept '07 high of 2,724
- Note that the Nasdaq is still 52% off the March, 2000 high of 5,132 with 108% to go to get back!
- NYSE 7,638, up 83% from 4,181 low. 80% was 7,525, still 35% off the Oct '07 high of 10,387
- Russell 707, up 107% from 342 low. 80% was 615, still 21% off the July '07 high of 856
So, what do we see in the above levels? First of all, 80% seems critical to confirm the rally and only the the Dow needs to prove it, which is why they were our upside pick yesterday as they still have almost 600 points to go just to catch up with the other indexes. Also, it's worth noting that the Russell was the first index to top out in 2007 – LONG before the others so we'll be watching out for that action going forward. Finally, the NYSE is our canary in the coal mine as they just barely got over 80% (7,525) and they haven't made it to 30% from the top yet (7,990) so we'll be watching this zone with a great deal of interest.
Notice if we throw out the abberant panics of November and March on the NYSE, we have a pretty neat Fibonacci sequence that bottoms out at about 5,500. That puts 8,000 just 45% off the bottom so no excuse for the NYSE not to make that very easy target. I had noted long ago that most of the indexes were not that impressive if you throw out the panic drops from the data series but I'm the only person that does this so either I'm wrong or the whole field of Technical Analysis is a total joke. I report, you decide…
Actually, we use TA all the time at PSW because more than half the funds use it as a primary indicator and it probably dominates overall asset allocation strategies so you ignore TA at your own peril the same way you shouldn't ignore any omens that the tribe believes in or you may find yourself served for dinner.
We've been patiently waiting in cash (with the occasional side bets to keep us occupied) for the magic numbers in our series to roll over, giving us very clear entry and, more importantly, exit points for the next round of our bullish adventure. We still need to see that magic 1,200 on the S&P because we can't believe in the Dow as the components have changed too much to make it reliable so we need that S&P to confirm our 3 of 5 rule and THEN we're willing to give the Nasdaq a pass on 2,500 (for now).
Did we jump the gun yesterday with our Dow play? Maybe but we also placed our last disaster hedge so a more neutral stance for Members and we also had a huge win betting oil to go UP, of all things as it hit our $82.50 goal early, allowing us to gracefully exit our short plays and flip bullish in the futures, which obliged us by marching to $84 before stopping us out. This morning we have a possible reload at $85 to the short side but it will be tricky with inventories, or the reactions to inventories – which have been completely irrational this month. Expectations are for a 1.6Mb rise in oil, a 1Mb rise in distillates and a 1.2Mb draw in gasoline for net 1.4Mb build and the numbers I've seen on driving statistics indicate we will once again have a build in gasoline that should send oil down but we'll be using $85 as a strict on/off line for our short betting in the futures because logic has nothing to do with energy trading these days.
I did promise an S&P play for over 1,200 and we can make a quick 500% by going with the following:
- Buy SSO May $42 calls at $2.85
- Sell SSO May $44 calls at $1.60 (net $1.25)
- Sell SSO May $42 puts at .95 (net .30)
That's another 566% profit in 37 days and, like yesterday's DIA play, this spread is already 100% in the money so all the S&P has to do is NOT GO DOWN (or at least finish up here on May 19th) and we win. Keep in mind your downside risk is that SSO, which is an ultra-long on the S&P, falls below $42 and you are forced to buy the ETF at net $42.30, no matter what the price is at the time. As I said yesterday, $42.30 is $1.75 (4%) less than the current price so this is an ideal play for bulls who intend to buy on the dips anyway.
Remember, if the S&P does NOT make 1,200 – especially on these positive reports from CSX, INTC and JPM – then it is a FAILURE and we should not be making these (or any) upside bets but I'm not going to pretend that, just because MS is losing $5.4Bn (2/3 the value) on sour real estate investments, which is the biggest dollar loss EVER in private equity real estate investing, that things like that are going to matter.
I also won't trouble you by pointing out that mortgage modifications are moving too slowly to keep pace with the growing number of foreclosures, according to a government watchdog who says "The re-defaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures" and I certainly won't connect that to the the fact that housing costs are artificially tamping down inflation data and causing policy makers to keep rates low, possibly leading to inflation or asset bubbles because that's all fundamental nonsense and, obviously, this market has no time for that…
I will point out that things are indeed worth whatever the Gang of 12 says they are worth, as evidenced by the catastrophic fall of ABK yesterday when JPM decided to agree with me and pointed out to their clients the very obivous fact that, despite earning $1.92 a share this quarter, they are still TOTALLY INSOLVENT with virtually no possible way for equity holders to expect to get paid in a liquidation. That led to a fun day of profit taking but, as with GM, there are still plenty of believers – right up to the bitter end.
Today the Gang of 12 turns their wrath on the Ag sector with our friends at Goldman Sachs downgrading POT and MOS, who are both down about 2% pre-market. This is a sector I've been warning about for some time and POT is a favorite short of ours whenever they get too high. John Shipman feels the market must be riding a massive momentum buzz, with buyers jumping from one ascending stock to the next – it's an interesting take.
Consumer Comfort fell 10% to -47 yesterday, far below the 24-year average of -13 with just 8% of the population rating the economy positively and only 25% of the people feeling it's a good time to buy things and only 47% of the people rating their personal finances positively but hey – what do they know, right? We don't need anyone but that happy top 8% to bring this economy right back to our 2007 highs, right? Yeah, right…
Asia was pretty flat and Europe is up over half a point but who cares what they think? It's rally time in the US and we are certainly partying like it's late 1999 but the Nasdaq still has 108% more to go to retake those highs and, if the Russell can gain 107% since March, why should it be ridiculous for the Nasdaq to do the same and get back to 5,132? Please answer in essay format and do not refer to any fundamental reasons as this is a purely technical rally.
Just be careful out there, we don't have 1,200 yet and this may be the week that oil finally realizes there is no actual demand. We have the Beige Book at 2pm, that's going to be a market mover if nothing else.
