This week cannot end soon enough for the bulls.
While it's no shocker that we are finishing the week where we started and, in fact, finishing the options expiration period where we started last month (July 16th), it's still very disappointing that we are making no progress. This weekend I asked if it was "Time for a New, New Deal?" I went to DC over the weekend and I'll write about that this weekend but let's just say I'm not seeing the political will to actually do something major to put Americans back to work and, as I said last Friday, when I said "Hoping the Weekend Brings Perspective":
Weekend stance – off this disappointing two-day run I’d say as neutral as possible over the weekend. I do think we need a good blow-off bottom now because we blew our chance to turn it around on volume yesterday.
Trading Range – I was counting on QE2 AND a stimulus announcement by next week. After the weekend we may have neither so it’s really going to be all about watching our levels in absence of any fundamental market forces. Monday we have the NY Fed and NAHB Housing Index. Tuesday is Housing Starts, Building Permits and a PPI that will also be BTE along with Industrial Prodcution (probable disappointment) and Cap Utilization (dragged down by refiners). Thursday is Leading Economic Indicators and the Philly Fed and that’s it for the week so, once we get past housing, the newspaper is more likely to move the markets than the data points.
We got so-so Leading Indicators yesterday and a TERRIBLE Philly Fed, leading me to send out a 10:03 Alert to Members saying:
Whoa! Philly Fed is disaster! -7.7. Leading indicators are up 0.1%, which is in-line but Philly was expected at +8 so this is TERRIBLE! We should test yesterday’s lows at least on that.
DIA $103 puts give good bang for the buck at .74 to stop the bleeding – just keep in mind thay have a ton of premium and need to be taken off quickly when momentum stops
While that play worked out very nicely, the bleeding I referred to was my 9:43 Alert to Members where I reiterated my "small gambles" on SSO, QLD, DDM and USO – but I did say at the time: "Don’t forget we get Leading Indicators and Philly Fed at 10 and that can save us or kill us so be careful!" That's the problem with this market, danger around every corner for both bulls and bears! It doesn't do us any good to get attached to any position, as I pointed out years ago in "Bond Investing, James Bond That Is."
We are almost certainly going to be breaking 3 of 5 of our mid-range levels this morning, which is our official signal to flip bearish until we take 3 of 5 back out of: Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635. It's going to be a tricky call into the weekend but I do think we can lean a little bearish if we're under so that means adding another round of DIA Dec $104 puts to our Mattress plays and even considering additional disaster hedges (our last set are doing quite nicely!) in case we drop back to the late June lows, which are the 5% lines below our mid-range at Dow 9,690, S&P 1,016, Nas 2,090, NYSE 6,460, and Russell 603.
The Russell will give us a clue because they are already down at 610 and, if they break below our 5% line, then the others are very likely to follow down to at least the 2.5% line. Even as I write this, I'm not ready to go there just yet. Yesterday we looked at bullish plays on VLO, BWA, INTC, HOV, FAS, JNK and SQQQ (shorting it, which is bullish) because that's what we do at the bottom of a range. It may not be THE bottom, but, just in case it is, it's nice to have some upside for a bounce. We had a failed stick-save into the close and we knew that put us in for a rough ride this morning. I had already commented to Members at 3:04: "I would say that HOPE is the only thing left for the bulls right now. We did not get what we needed to move the markets higher."
Keep in mind this all seems like a lot of drama but NONE of this affects our long-term trading. Our long-term trade ideas are fairly conservative and our goal is to be about 35% invested in long-term trades that have a 20% downside cushion (Dow 8,150, S&P 850) with 65% cash so yes, we are very bullish off of those levels. Unfortunately, those long-term plays, that can make 20% or better returns, are like watching paint dry so we amuse ourselves trying to find short-term trade ideas in this roller-coaster market. Some of our Members ONLY day-trade, some are only long-term, some play both and that's all fine but when I start to see too many people worrying too much about the day to day gyrations of the market – I think it's a good time to point them back to our Buy List and our Dow Plays, which haven't been touched since early July and are doing just fine. Just because the market is stressed, doesn't mean you have to be as well…
Meanwhile, I still just can't get behind the the bears. We have a commodity sell-off this week and I love commodity sell-offs because they put money back in the pockets of the bottom 99% – who REALLY need it. Gas was hitting $3 last month and now it's heading back to $2.50, which saves people $8 when they fill up the tank. It doesn't seem like much to the investing class, who spend $8 on a latte while waiting for their tank to be filled but, to the other 270M people in America, it's a lot of money (assuming 2 cars per 100M households that fill up once a week each), $6.4Bn back in the pockets of consumers each month – so I LOVE oil sell-offs!
I don't know why people thought the BOJ would put up with the Yen falling below 85 to the Dollar. That was never going to happen and any strengthening of the dollar is very bad for oil. We had also expected the NYMEX crew to gnaw their own legs off to get out of the September contracts (and don't even get me started on that scam) and oil is still selling off this morning, below $74 but this should be the end of it and I still like USO to recover next month – even if it is another fake rally based on Iran or Pirates or Rent-A-Rebel because it's sure not going to be demand, which was destroyed long ago and is not likely to come back with 25% of the WORLD population unemployed or under-employed.
Petroleum inventories rose to 1.13Bn barrels in the US last week, the highest level since the Energy Department began keeping combined weekly data in January 1990, according to a report Aug 18th. Oil has fallen 9.9 percent since reaching a three-month high on Aug 3rd. Demand for fuel products has declined 6 percent to 19.7 million barrels a day since the recession began in December 2007.
Supplies may rise further as U.S. refineries shut for regular maintenance and the vacation-travel season ends, sapping demand for gasoline and jet fuel. “Supply is rising faster than demand is recovering,” said Tim Evans, an analyst at Citi Futures Perspective in New York. “I don’t expect the bottom to just drop out here, but I think we will be asking the question: do we need OPEC to cut back?” That's right Tim, God forbid we let oil find it's real price and give the rest of humanity a break, right?
David Ristau's Oxen Group began a series on Alternative Fuel Investing that's certainly fuel for thought, especially if we do get some hurricane activity or something else that keeps oil over $70 despite the lack of demand because this will really be the last straw for global governments, who can't afford to send larger and larger percentages of their people's disposable income to OPEC, who have done very little to endear themselves to the rest of the World since… ever.
The Yen tested the 85 line again last night and the Nikkei did not like that one bit as they fell 2% to 9,179 and that tugged the invisible 1,000-point band that connects the Nikkei to the Dow this morning. The BOJ, of course, stepped in this morning and the Yen is dropping like a rock so we'll see how long they can keep that up. We are ready for a dollar break-out but we need some positive news before that happens, one would think! The Hang Seng dropped half a point and the Shanghai took a big, 1.7% hit, dropping 45 points to 2,642 but that's not really a worrying level and they were just catching up to yesterday's late Hang Seng drop, which I pointed out in the morning post. India held flat (down 0.3%) at 18,401.
Europe is all over the place with the FTSE down 0.4% and failing their 5,200 watch level, the Dax is down 0.75% and barely over their critical 6,000 line and the CAC is down 1.14% to test 3,500 so a HUGE pass or fail day for the markets – wish us luck – because we're going to need it to avoid a downturn!
Have a great weekend,
– Phil
