So far so good.
As I said in yesterday's post (and the weekend wrap-up), we were well-positioned for the drop – It's just a quesiton of finding a bottom now. It didn't take very long as we found it at 9:46 when I sent out an Alert to Members saying: "Once again it’s a good time to sell the DIA $95 puts at $2 as the volume on this sell-off is not at all exciting so far. As long as the Dow holds 9,450 (now 9,475) it’s a good play." We had a couple of spikes below but, on the whole, 9,450 held like a champ and those puts hit our 20% target by the day's end (some of our quicker traders even had a chance to double dip). That level and 1,010 on the S&P will be our critical tests today as well.
As you can see from David Fry's SPY chart, that 1,010 line on the S&P represents the bottom of the range we broke out of on Aug 21st after failing it several times earlier in the month so it either holds this week or last week begins to look like noting more than a blow-off top at the tip of a downturn.
We followed through with our DIS play but we're still hoping to do better on the call sale to complete our buy/write. We took an early stab at shorting OIH but chickened out by the end of the day and we took advantage of a nice drops in ITMN, LZB (hedged) and CIM (hedged) while adding protective plays by going long in TZA (hedged) so it was a busier day than we planned. We also picked up some more fills for our $100K Virtual Portfolio, as per our weekend plans and that virtual portfolio jumped $500 on the day, which is nice for a down day and indicates we are doing pretty well on that balance thing…
At 1:03 I sent out an Alert to Members saying: "Should be stick time after a blow out bottom – I still like those DIA $95 puts sold naked for $2+, looking for .25 to .50." We got a false run at 2:30 then a drop down to a blow-out spike at 3:30 and then, of course, the daily stick, that took up right back to good old 9,500. The movement is getting so aggregious that even conspiracy theory-hating Barry Ritholtz is now saying: "I’m not inclined toward conspiracy theories, but it’s difficult to imagine a scenario in which this is not a (frighteningly necessary) coordinated capital infusion, with taxpayer dollars ultimately at work in financial markets." Welcome to the club Barry – One of us, one of us, one of us…
We went into the closing knowing full well that the last half hour had been fake, fake, fake thanks to another amazing performance by Goldman Sachs (played in the video clip by Julia Louise Dreyfus) as they sucker retail investors (played by Jerry and Jason Alexander) into the market by making all the right noises with a few convincing moves, all to give the impression they are participating in the rally when, in reality, they are already looking for the exits, leaving the poor retail investors broke but none the wiser in case GS wants to come by and hit them up for another dinner at a later date…
China faked it this morning with another set of good data with the government "revealing" that manufacturing levels in August expanded at the fastest pace in 16 months. This was according to the Deputy Minister of Don't You Dare Question Our Numbers so we're not going to wonder how this happened in a month when the Baltic Dry Index was dropping like a rock and global consumer demand was off across the board. Particularly interesting is India releasing a report on the same day, covering the same month that shows exports DECLINED for the 10th straight month in July with merchandise shipments down 28.4% from last year – and last year wasn't that good! India has been working very hard to stimulate trade, offering tax refunds to exporters and sigining trade accords with many countries aimed at getting their 1.2Bn person economy out of the slump.
So, is India lying and making us think that their export numbers are still bad? If that is the case then South Korea (down 20.6%) and Japan (down 36.5%) are in on it too. Between that and the fact that the BDI is also down over 30% in August one might conclude that the Chinese are, in fact, lying or perhaps, innocently, the massive government stimulus has them gearing up for phantom sales that may never be realized in a simple misinterpretation of the laws of supply and demand. Either way you wouldn't be thinking this if you read Uncle Rupert's Wall Street Journal, which has 3 headlines touting China's "great" numbers and not one mention of India's export decline in it's Asia section (8:30).
Asia was a tiny bit bouncy this morning but nothing, on the whole, compared to yesterday's drops so we'll call it a flatline as they wat to see what we will do. I had to go to Bloomberg again to find out that Manufacturing Output fell in the UK to 49.7 in August from 50.2 in July and net consumer credit fell, indicating that consumer spending in England is declining at the fastest pace since 1993 since none of this was mentioned in the WSJ's Europe section as of 8:45. Today’s figures are “a bit of a setback,” said James Knightley, an economist at ING Financial Markets in London. “There are worries about the sustainability of the recovery.” While repaying debt is “positive for household balance sheets in the medium to longer term,” it’s “not good news for near- term spending.”
The U.K. economy shrank 0.7 percent in the second quarter, less than an initial estimate of minus 0.8 percent, the Office for National Statistics said Aug. 28. Investment plunged 4.5 percent as companies slashed budgets for new equipment, vehicles and buildings (apparently, these companies live on a different planet than China). Record debt means “there is a pressing need for many consumers to improve their balance sheets,” said Howard Archer, an economist at IHS Global Insight in London. “Serious concerns over jobs, the economic outlook and pensions will also lead to people trying to save more.”
Hmm, let's think about that – US consumers, on the other hand, are tragically UNconcerned about the economic outlook and their "pensions" because the media keeps telling them everything is great to the point where 60% of the people surveyed believe their home has gained value in the past 12 months (99% haven't). The boosted market and insane projections that the markets will fully recover has led US consumers to possible spend far more than is prudent given the state of the economy, job outlook, retirement savings etc. in order to keep the US GDP looking good – literally at ALL costs and possibly at a terrible long-term expense to those very consumers. As I said a couple of weeks ago – corporate greed is literally killing the goose that lays the golden eggs.
Europe is down about 1.5% ahead of our open, something we expected yesterday as the UK comes back from a holdiday and is forced to play catch-up with the global markets (something we may have to be doing next Tuesday so be warned). Also not found in the WSJ (or heard on CNBC) this morning is the ICSC report showing US Chain Store sales fell 0.5% last week – more bad news for malls! The report also notes that: "ICSC Research expects same-store sales for August to fall by 3.5 to 4%." I don't know about you but, to me, that's news I might want to know about… We'll keep an eye on RTH around the $85 line for a possible shorting opportuntiy if we blow our levels today.
As with yesterday, we are going into this session with an open mind. We WANT to see how the market holds up under less than excellent news. Redbook Retail sales just came out too and those are showing August off 0.6% month to month and down 4.3% year over year so actually worse than ICSC's forecast, which is not surprising as ICSC's partner is GS and we already know they don't want you to hear any bad news almost as badly as Uncle Rupert, who is willing to say almost anything to get you to sit on his lap.
We also have ISM at 10am along with Construction Spending and Pending Home Sales but the day's bright spot is sure to be Auto Sales for August as Cash for Clunkers pushed more than 500,000 consumers through the doors in August alone. AIG got hit with a Bernstien downgrade this morning, which is great for our $100K Virtual Portfolio position and our futures, overall, are looking down but not out. Keep in mind that September is an historically bad month for the markets with an average loss of 1% over the last 100 years (the only other month that averages negative is February at -0.15%). July and August are typically 2 of the 4 best months of the year (April and December being the others) so let's not be too shocked if we pull back a bit.
Like Uncle Rupert's journalistic standards, we're just searching for a bottom…
