For those of you that do not know of PPT, let me introduce you. The Plunge Protection Team are the institutional investors that always struggle to hold or build the market, to "prop it up." Sure enough, the boys were in action yesterday while Bernie went to jail and they promptly led the market up in "window dressing" for the end of the second quarter so that by early afternoon the Dow had topped at 8533, 8573 on the "theoretical Dow."
This is a classic support line that has turned to resistance and we saw the market struggle here for hours, simply barely moving.
Many new subscribers ask: Should I buy both positions, call and put, when you offer them?
The answer is this: profits in option trading take place by "the sum of the parts." We've had some great daily successes on trades for over 21 days now, with only one stop loss, and it's important to always sometimes lose money.
Huh?
That's right. Not all signals will be profitable, but played right, with the "sum of parts" the majority will be, and with profits to offset any losses. This is why we are so strict in our use of # of days stop loss. Remember, we NEVER hold a position longer than 4 days.
Our stop loss method is simple: The day after you buy the option is day #1. Count 4 days out and sell, no matter what. If you make a larger second buy to the option, the day you buy is recalculated to the morning of the next day, and 4 days out from there.
We find the market typically has enough retracement and whipsaw within this time period to allow profitability.
It's the end of the month. Sell off for institutional investors, or prop up for balance sheets. It's been an unusual quarter, in that most institutional investors are those that have moved the market UP so dramatically, after waiting for consolidations to buy in that never occurred until just recently. This is a week filled with data, study your economic calendars carefully, and this data can act as event trigger, as it has been, to create action in the market.
But make note that it's a shortened trading Holiday week, and that the volume and VIX have both been declining. Declining VIX means less FEAR, but it also means less volatility, and we believe after a bottom test we can have much more euphoric upside.
Yesterday was a great example of an "easy buy to the position." We recommended a new buy on OXBGH July 440 at a best buy below prior day close, and the option was available for as low as 3.20 within 45 minutes of opening.
It could have sold by noon, and did for many traders, to highs of 4.30 to 4.60 by 1.30 p.m. for up to a 44% return in hours.
We continue to hold the July 415 Put as our hedge.
Thanks to subscriber Cheryl, who helped find the URL link for the great article recommended yesterday about Goldman Sachs. You must read this article to understand Bernie, Paulson, and all the slime that are in cahoots.
Here's the link to the GS article:
http://www.scribd.com/doc/16763183/TaibbiGoldmanSachs
Unemployment rates are a wonder. And America continues to "believe" what is told us.
The real figure might be anywhere between 15% & 30% if you take into account the cuts in worked hours and the cuts in pay rates.
If I used to get 25 $/h on a 40 hours per week basis and on my new job I'm getting $20 for no more than 30h I guess I'm 40% unemployed or underemployed.
Add those who just gave up altogether ... and it might not be that good.
Many large corporations fill in the gaps in employment by using contract personnel companies. Those are some of the first jobs to be cut when business is strained. Nowadays some very large corporations are wholesale terminating contractors.
This doesn't show up on unemployment data for those corporations. The contract people just get reassigned and pushed down the rungs into lower paying jobs.
As unemployment figures come out this week, assumed to be "positive" because they aren't worse, recognize within the upswing we've experienced in the market that the job market has worsened dramatically. I smile at the false facts of "employment," noting that over 71% of responding corporations have cut employee wages since January 09 an average of 23.1%
So here's a few other "facts", perhaps even more relevant:
Stink free underwear has been invented for astronauts.
46% of six to nine year old girls wear lipstick or lip gloss.
And from Level 3 subscriber NL from Israel:
"Hi,
I've noticed how helpful volume is in looking
at market behavior.
e.g on the 15 min chart of SPY I can clearly
see volume falling off while the chart rises.
In my thinkorswim charts I have set the volume
to be colored green bars for ascending prices
and red for descending ones, and I could see
that the green ones are generally falling while the red ones
stay the same and not low.
Therefore I bought puts on the SPY about an hour or two ago
also based on a head and shoulder formation visible in the last
2 months or so. It looks like today's resistance is where
the right shoulder is at, and where the price has been during
the last few hours.
Now I also read your email for today and saw that you have
also a bearish outlook so I was glad this confirmed my guess.
What do you think?"
Consolidation should take place to our Dow low projections around any economic data, and quarterly earnings will begin to come out. All is not so rosy. Trader NL is right with us!
Tuesday, June 30, 2009
Monday, June 29, 2009
Are You More Confident?
The last day of the second quarter has been bearish for the Dow, down 13 of the last 17 years. Institutional investors will be pumping up, or selling off portfolios to try to show a good quarter.
Savings rose in May to 6.9%, a huge change for the American people, and sadly, not good for the economy, as it stops spending :)
The S&P 500 closed below its 200 day moving average last Monday and Tuesday, to Floyd an ominous sign of future market bias. As experienced traders with me know I believe in simple numbers:
*The high/low/open/close of a stock, option, or index posted in a historical pattern (as in a supply and demand point and figure chart, which takes out noise)
*How the market (Dow or SPX or OEX) will perform over the next 14 to 21 day period.
*Use of the moving average and bullish percentages in point and figure charting to see "how things hold up." Last Wednesday and Thursday, for example, the S &P 500 did climb back above its 200 day moving average, but the hesitancy remained clear through the week. Breaking a 200 day moving average typically means signs of a larger sell off.
Many traders have asked me how I feel about our economy, or the market in general. What my "predictions are":
1. We need more industrialization in this country, to "make stuff", to create jobs and move products. We have become a nation of consumers of products we buy from other countries, not because of evil corporations going offshore, but because we all want to "buy at a bargain."
2. Obama's "flow the money" plan is sound. The debacle is much greater than we realize, and further reaching. However, the next corruption will be around the end of "journalism" and "newsbite babbles taking over," instead of the exposing of corruption. The next derivative bubble is already being set up, in "carbon credits", by the boys on Wall Street.
3. We're in crappy shape and it's not really better at all. But, it's not worse.
4. No one knows when it will "really get better." It's all babble, educated or not. The market precedes the general economy in any "emotional direction." This should say it all.
At OEX Options Floyd's job is to teach us what are false facts that influence behavior, and emotion. Here's a perfect example: "Americans Save More, Amid Rising Confidence" is the headline in Saturdays' edition of The Wall Street Journal. "U.S. consumers are saving more of their incomes than any time since 1993 - a major shift towards frugality that's expected to be one of the last effects of this deep and lengthy recession." So far, so good, but what they really said is "Americans are saving more because they are scared SHITLESS." The Journal goes on to say "consumer sentiment has been rising for 6 straight months. " Again true, but not noting it had hit its lowest lows in years at Dow 6200. Much of what we are seeing is the stimulus dollars returning to Americans, and Americans NOT spending out of FEAR, and because they are scared "shitless." Of course, sentiment is better. We are a nation of hope.
Read alone "Americans Save more, Amid Rising Confidence" is fully true, but misleading, as the reasons we are saving, and what our "rising confidence really is" are undefined.
Are you more confident?
To help any educated reader gain true perspective on the financial debacle and WHO really caused it, I suggest studying the following article, written by Matt Taibbi, who I consider one of the finest "exposing" journalists in our country. Matt's basic "lack of respect" and "questioning of facts" helps us see beyond the mirrored glass "they" angle at us.
"The Wall Street Bubble Mafia"
How Goldman Sachs took over Washington by engineering every major market manipulation since the Great Depression. By Matt Taibbi-Rolling Stone Magazine 7/9/09 issue.
This is a fascinating read.
Savings rose in May to 6.9%, a huge change for the American people, and sadly, not good for the economy, as it stops spending :)
The S&P 500 closed below its 200 day moving average last Monday and Tuesday, to Floyd an ominous sign of future market bias. As experienced traders with me know I believe in simple numbers:
*The high/low/open/close of a stock, option, or index posted in a historical pattern (as in a supply and demand point and figure chart, which takes out noise)
*How the market (Dow or SPX or OEX) will perform over the next 14 to 21 day period.
*Use of the moving average and bullish percentages in point and figure charting to see "how things hold up." Last Wednesday and Thursday, for example, the S &P 500 did climb back above its 200 day moving average, but the hesitancy remained clear through the week. Breaking a 200 day moving average typically means signs of a larger sell off.
Many traders have asked me how I feel about our economy, or the market in general. What my "predictions are":
1. We need more industrialization in this country, to "make stuff", to create jobs and move products. We have become a nation of consumers of products we buy from other countries, not because of evil corporations going offshore, but because we all want to "buy at a bargain."
2. Obama's "flow the money" plan is sound. The debacle is much greater than we realize, and further reaching. However, the next corruption will be around the end of "journalism" and "newsbite babbles taking over," instead of the exposing of corruption. The next derivative bubble is already being set up, in "carbon credits", by the boys on Wall Street.
3. We're in crappy shape and it's not really better at all. But, it's not worse.
4. No one knows when it will "really get better." It's all babble, educated or not. The market precedes the general economy in any "emotional direction." This should say it all.
At OEX Options Floyd's job is to teach us what are false facts that influence behavior, and emotion. Here's a perfect example: "Americans Save More, Amid Rising Confidence" is the headline in Saturdays' edition of The Wall Street Journal. "U.S. consumers are saving more of their incomes than any time since 1993 - a major shift towards frugality that's expected to be one of the last effects of this deep and lengthy recession." So far, so good, but what they really said is "Americans are saving more because they are scared SHITLESS." The Journal goes on to say "consumer sentiment has been rising for 6 straight months. " Again true, but not noting it had hit its lowest lows in years at Dow 6200. Much of what we are seeing is the stimulus dollars returning to Americans, and Americans NOT spending out of FEAR, and because they are scared "shitless." Of course, sentiment is better. We are a nation of hope.
Read alone "Americans Save more, Amid Rising Confidence" is fully true, but misleading, as the reasons we are saving, and what our "rising confidence really is" are undefined.
Are you more confident?
To help any educated reader gain true perspective on the financial debacle and WHO really caused it, I suggest studying the following article, written by Matt Taibbi, who I consider one of the finest "exposing" journalists in our country. Matt's basic "lack of respect" and "questioning of facts" helps us see beyond the mirrored glass "they" angle at us.
"The Wall Street Bubble Mafia"
How Goldman Sachs took over Washington by engineering every major market manipulation since the Great Depression. By Matt Taibbi-Rolling Stone Magazine 7/9/09 issue.
This is a fascinating read.
Friday, June 26, 2009
Buying Against The Trend
The market opened with negative futures, and a nice drop down. First, let's teach a bit. Our new trade, July 415 Call, was available at best buy, as low as 14.30 in early trading, and experienced traders bought in, to sell as high as 18.30 by 1.45 p.m. in the afternoon, near our top sell of 19.40. This was a perfect example of buying "against the trend," on a no bias count, and profiting hugely.
Other traders had sold the July 415 Put to 9.30 profitably the day before, but for traders that had held for higher profits a larger second buy would have been made yesterday on this position. With a new buy, the # of days begins again the following day, and using our 4 day stop loss, we'd now hold this trade through Wednesday of next week.
Traders that profited well yesterday would have recalculated the Dow or the OEX at least once or twice during the day. As an example, the Dow hit a recalculated drop and a new r1 of 8440 in the afternoon.
And from a trader doing this on the OEX:
Hi Floyd,
I just did a recalculation on OEX using high 430 and low 419 and got the R1 at 427.69 and R2 at 434.35 and since the market has now dropped from the high 430 to 428 so and trading in between R1 and R2, does it mean R1 is now a support level? Because resistance becomes Support once it was broken up?
Thanks
Ken
The answer to Ken was yes.
Support and resistance lines, simply put, are historical areas where the stock, option, or market has "stopped before." Point and Figure charts show the clearest view of supply and demand, which regulates the oversold or overbought characteristics of the market. The market is always moving to, or is at, an overbought or oversold condition.
When a downtrend reverses it means the market has hit a support line that held, and it begins to move UP. As it does (stock, market, or option) it hits various resistance lines where historically the market had "held, hesitated, or crossed" before.
Many of our subscribers question me when I write "support now becomes resistance"; this means the role has reversed. For example, when a support level is broken it begins acting as its own resistance, and when the market moves up the resistance lines are acting as support for the market to go up.
Simply watch the market breathe. It tells you what to do. The market ALWAYS establishes support and resistance lines. At www.bluechipoptions.com we teach how to use S/R as a way to know when to buy long, and when to have a stop loss at a near support line, in case a breakout does not occur.
Part of trading is learning when to profit, and when to lose.
Now, for several questions from subscribers:
1. Is it a viable practice to "read the tape" at different intervals through the day to get a feel for changing bias through the day?
ex: 12:32 and 12:35 or when the market approaches a support/resistance line?
Floyd-No. the 9.32 and 9.35 is an old Wall Street trick, long before the advent of computers, and was a way of reading the tape for the morning bias. It still works.
2. I am starting to trust Dorsey's (from the Point and Figure Book we recommend) indicators more. I follow the Technical Indicator Report as one of the main pieces of feedback on market climate.
We saw the NYSE BP change in mid march from below 30 - which was a good buy signal for the bottom (it was about my second week of studying P/F and i was too scared to buy till mid April)
Recently we saw the NYSE BP drop from above 70 - a bear alert, if not a sell signal.
NYSE Momentum dropped below 30, and the NYSE 10 week is dropping like a rock.
Do you use these in your market/trend analysis at all?
Do these tend to be lagging indicators rather than leading as with the classic P/F which gives us S/R lines to look forward to?
Floyd-Yes, I use all parts of Point and Figure Charting, and we study bullish percentages, and we also do various versions of charting the same Point and Figure. We cover a great deal of this in our 130 page OEX Manual.
Point and Figure charting is supply and demand based, so never lagging. You are simply seeing a "picture" of who is buying and selling.
3. I was reading in the manual about selecting an option last weekend.
Browsing through the book I can't find the specific passage now, but I remember that we are looking for a delta of about .75 or so, and good volume.
Along with bias (when the market shows bias) what do we look for when selecting an option to watch?
Floyd- I use a simple system, believing the choice of option is not nearly as important as the condition of the market. Delta is not relevant to me. I look for heavy volume in OTM, and lighter volume in ITM.
I look for "strike points" that are near support or resistance lines
4. Dear Floyd,
Thank you for letting folks like myself try out OEXOptions for free. I sent my e-mail address on June 23 and I received the June 24 signals promptly. I may need more than 30 days to get the hang of your method as I feel I need to learn the language by which you communicate. I am not saying the problem is with you. It is with me. I need to learn a lot to be able to comprehend the market and how you are approaching it.
There were two signals I received for June 24: one to buy a July 415 put and the other to buy a July 415 call. Is this a strangle option trade?
When you say "Sell to 13.40-14.90 or tight profits," are you talking about a target price for the put option? The same when you say "Sell to 14.60-15.40" for the call option?
I am embarassed to ask but I need clarification to be able to know what to do when you say "# of days stop loss. Two buys expected."
And, for this e-mail, lastly, is there a place in the Internet where one can get the information on option prices Last, Open, Day High, Day Low and Previous Close? I have not seen any on the option chains.
Thank you again.
Floyd-This is from one of our 30 day free trial subscribers that do not gain entry to the password protected area of the websites where we have the complete manual, and all the videos from Floyd.
Trial subscribers are simply receiving our alerts and an introductory video showing them a "bit of what we do." So to answer the questions.
-Our positions when dual trades are a form of a strangle/straddle. We try to profit both ways, holding one position longer.
-When we give "selling prices" for the options we recommend these are the TOP prices we recommend. Many traders day trade or sell for tighter profits
-# of days stop loss refers to our simple rules:
The day after you buy an option is the "first day....and you count 4 days from there. This is the stop loss."
If you make a second buy on the option (part of the method we teach) the buy is twice as large as the first buy, and the cost is averaged by you. You then sell for 19 to 30% profits, or to the top sells we recommend each day for open signals. If a second buy is made the first day of the count begins again, on the day after you make the second buy.
Other traders had sold the July 415 Put to 9.30 profitably the day before, but for traders that had held for higher profits a larger second buy would have been made yesterday on this position. With a new buy, the # of days begins again the following day, and using our 4 day stop loss, we'd now hold this trade through Wednesday of next week.
Traders that profited well yesterday would have recalculated the Dow or the OEX at least once or twice during the day. As an example, the Dow hit a recalculated drop and a new r1 of 8440 in the afternoon.
And from a trader doing this on the OEX:
Hi Floyd,
I just did a recalculation on OEX using high 430 and low 419 and got the R1 at 427.69 and R2 at 434.35 and since the market has now dropped from the high 430 to 428 so and trading in between R1 and R2, does it mean R1 is now a support level? Because resistance becomes Support once it was broken up?
Thanks
Ken
The answer to Ken was yes.
Support and resistance lines, simply put, are historical areas where the stock, option, or market has "stopped before." Point and Figure charts show the clearest view of supply and demand, which regulates the oversold or overbought characteristics of the market. The market is always moving to, or is at, an overbought or oversold condition.
When a downtrend reverses it means the market has hit a support line that held, and it begins to move UP. As it does (stock, market, or option) it hits various resistance lines where historically the market had "held, hesitated, or crossed" before.
Many of our subscribers question me when I write "support now becomes resistance"; this means the role has reversed. For example, when a support level is broken it begins acting as its own resistance, and when the market moves up the resistance lines are acting as support for the market to go up.
Simply watch the market breathe. It tells you what to do. The market ALWAYS establishes support and resistance lines. At www.bluechipoptions.com we teach how to use S/R as a way to know when to buy long, and when to have a stop loss at a near support line, in case a breakout does not occur.
Part of trading is learning when to profit, and when to lose.
Now, for several questions from subscribers:
1. Is it a viable practice to "read the tape" at different intervals through the day to get a feel for changing bias through the day?
ex: 12:32 and 12:35 or when the market approaches a support/resistance line?
Floyd-No. the 9.32 and 9.35 is an old Wall Street trick, long before the advent of computers, and was a way of reading the tape for the morning bias. It still works.
2. I am starting to trust Dorsey's (from the Point and Figure Book we recommend) indicators more. I follow the Technical Indicator Report as one of the main pieces of feedback on market climate.
We saw the NYSE BP change in mid march from below 30 - which was a good buy signal for the bottom (it was about my second week of studying P/F and i was too scared to buy till mid April)
Recently we saw the NYSE BP drop from above 70 - a bear alert, if not a sell signal.
NYSE Momentum dropped below 30, and the NYSE 10 week is dropping like a rock.
Do you use these in your market/trend analysis at all?
Do these tend to be lagging indicators rather than leading as with the classic P/F which gives us S/R lines to look forward to?
Floyd-Yes, I use all parts of Point and Figure Charting, and we study bullish percentages, and we also do various versions of charting the same Point and Figure. We cover a great deal of this in our 130 page OEX Manual.
Point and Figure charting is supply and demand based, so never lagging. You are simply seeing a "picture" of who is buying and selling.
3. I was reading in the manual about selecting an option last weekend.
Browsing through the book I can't find the specific passage now, but I remember that we are looking for a delta of about .75 or so, and good volume.
Along with bias (when the market shows bias) what do we look for when selecting an option to watch?
Floyd- I use a simple system, believing the choice of option is not nearly as important as the condition of the market. Delta is not relevant to me. I look for heavy volume in OTM, and lighter volume in ITM.
I look for "strike points" that are near support or resistance lines
4. Dear Floyd,
Thank you for letting folks like myself try out OEXOptions for free. I sent my e-mail address on June 23 and I received the June 24 signals promptly. I may need more than 30 days to get the hang of your method as I feel I need to learn the language by which you communicate. I am not saying the problem is with you. It is with me. I need to learn a lot to be able to comprehend the market and how you are approaching it.
There were two signals I received for June 24: one to buy a July 415 put and the other to buy a July 415 call. Is this a strangle option trade?
When you say "Sell to 13.40-14.90 or tight profits," are you talking about a target price for the put option? The same when you say "Sell to 14.60-15.40" for the call option?
I am embarassed to ask but I need clarification to be able to know what to do when you say "# of days stop loss. Two buys expected."
And, for this e-mail, lastly, is there a place in the Internet where one can get the information on option prices Last, Open, Day High, Day Low and Previous Close? I have not seen any on the option chains.
Thank you again.
Floyd-This is from one of our 30 day free trial subscribers that do not gain entry to the password protected area of the websites where we have the complete manual, and all the videos from Floyd.
Trial subscribers are simply receiving our alerts and an introductory video showing them a "bit of what we do." So to answer the questions.
-Our positions when dual trades are a form of a strangle/straddle. We try to profit both ways, holding one position longer.
-When we give "selling prices" for the options we recommend these are the TOP prices we recommend. Many traders day trade or sell for tighter profits
-# of days stop loss refers to our simple rules:
The day after you buy an option is the "first day....and you count 4 days from there. This is the stop loss."
If you make a second buy on the option (part of the method we teach) the buy is twice as large as the first buy, and the cost is averaged by you. You then sell for 19 to 30% profits, or to the top sells we recommend each day for open signals. If a second buy is made the first day of the count begins again, on the day after you make the second buy.
Thursday, June 25, 2009
Hyenas Giggle to Express their Frustration
The Dow took a fast rise in the a.m. on anticipation of FOMC babbles, and we did not gain entry to the call. But, by midday all the gains were lost and the market was holding flat.
Traders were able to purchase the July415P at 7.00 or less in early buys as the market shot up to R3, and could have sold to 8.30 by 3 p.m.
What was most interesting within our trading around the FOMC was our earlier review that "no interest rate increases" was already factored into the market, meaning the market had already anticipated this news.
It appears Governor Sanford going crazy took more of the news today than the FOMC, and the morning showed VERY VERY light trading on the Dow, which was quite unusual for an FOMC day, but indicative of a FEAR driven market, with a rising VIX emotional index.
When I see a market on low volume around the FOMC, and in a trading range that doesn't allow much trading I know something is up. I continue to believe the market could bi-directionally move. There is STILL upside potential short term, but the market now shows all signs of overbought, including "fear and hesitancy."
A Floydian Lesson:
The FEDS say the recession is easing. They will continue the "bond repurchasing fund" (translation: buying our own debt with fake money) to keep the Treasury bill safety intact. The good news was that they are not increasing it, meaning we're continuing to find enough countries and citizens to finance our debt.
The FEDS believe inflation will be contained for some time.
Here's the lesson. They have no idea, and are just making this up on what they hope to happen, as economists historically have sad predictions about the future.
And to further our commentary about an unusual market, note our recalculation of the Dow yesterday showed a market that moved to r1, and to s3, but the moves were from tight moves.
We will continue to hold our open positions.
Two Floydian Facts to ponder:
14 parrot species are capable of keeping time to recorded music.
Hyenas giggle to express their frustration.
Traders were able to purchase the July415P at 7.00 or less in early buys as the market shot up to R3, and could have sold to 8.30 by 3 p.m.
What was most interesting within our trading around the FOMC was our earlier review that "no interest rate increases" was already factored into the market, meaning the market had already anticipated this news.
It appears Governor Sanford going crazy took more of the news today than the FOMC, and the morning showed VERY VERY light trading on the Dow, which was quite unusual for an FOMC day, but indicative of a FEAR driven market, with a rising VIX emotional index.
When I see a market on low volume around the FOMC, and in a trading range that doesn't allow much trading I know something is up. I continue to believe the market could bi-directionally move. There is STILL upside potential short term, but the market now shows all signs of overbought, including "fear and hesitancy."
A Floydian Lesson:
The FEDS say the recession is easing. They will continue the "bond repurchasing fund" (translation: buying our own debt with fake money) to keep the Treasury bill safety intact. The good news was that they are not increasing it, meaning we're continuing to find enough countries and citizens to finance our debt.
The FEDS believe inflation will be contained for some time.
Here's the lesson. They have no idea, and are just making this up on what they hope to happen, as economists historically have sad predictions about the future.
And to further our commentary about an unusual market, note our recalculation of the Dow yesterday showed a market that moved to r1, and to s3, but the moves were from tight moves.
We will continue to hold our open positions.
Two Floydian Facts to ponder:
14 parrot species are capable of keeping time to recorded music.
Hyenas giggle to express their frustration.
Wednesday, June 24, 2009
Yesterday's Market was lead by FEAR
The definition of yesterday's market: FEAR. No one is willing to move, waiting for the edge to drop off, or for all to bull back.
A number of subscribers wrote yesterday, and some great teaching about trading can take place from these inquiries. First, from Advanced Mentoring student MP, concerning something he read:
ARE THESE FALSE FACTS?
By David Wilson
June 22 (Bloomberg) -- U.S. and European stocks are destined to fall below March’s lows if bear-market history is any guide, according to Jim Reid, a strategist at Deutsche Bank AG.
Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.
The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.
Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.
“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.
Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent
Floyd response: MP's question was "are these false facts?" These are not EVEN facts, but opinions. Reid may indeed be right, but it is first important to find out more about the source of the "information" and the "opinion."
1. Reid is an employee of Deutsche AG Bank, who has not done too well recently:)
2. A bit of study shows Reid as a 34 year old analyst, who before joining Deutsche was a "European Credit Analyst."
What we can gain here is that Reid was simply "quotable." He is NOT a trader, not a stock analyst, but an employee of a bank.
Floydian Rule #785 - 98.6% of all bank executives know only about banking, and how to promote themselves. Do NOT trust anything about the financial services sector.
And from subscriber LR from Romania:
Hello Floyd,
thank you for your fast response. I didn't watch the futures to see that they were down 77 points.
I am trying to learn your alerts very very well.
I am from Romania, a EU member country. I was a subscriber of your level 2 at the beginning of 2008, but didn't have patience to paper trade for 90 days and to apply a correct portfolio management.
During that month when I was a subscriber, you sent 22 alerts ( approx) and only 1(one) of them was loser, the rest were winners. I had the bad luck to invest my whole account into it and almost lost all my money.
Floyd Comment: LR did what many traders first do when trying our service. They "buy" a position, and "buy again and again" and hold "for it to break" and lose their money. As LR is learning, it is key to learn our system through paper trading, and dollar allocating your investments for your risk level.
My favorite false fact of the day is this: " Home sales in the U.S. increased in May, for the second month, a sign that the housing market issues are abating."
The facts? Record foreclosures caused home prices to drop, allowing home sales to increase.
Now, the market. What we saw in yesterday's trading was a "waiting game" in advance of the FOMC announcement. How Bernanke says how things are somehow means a lot to a great deal of people.
A number of subscribers wrote yesterday, and some great teaching about trading can take place from these inquiries. First, from Advanced Mentoring student MP, concerning something he read:
ARE THESE FALSE FACTS?
By David Wilson
June 22 (Bloomberg) -- U.S. and European stocks are destined to fall below March’s lows if bear-market history is any guide, according to Jim Reid, a strategist at Deutsche Bank AG.
Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.
The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.
Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.
“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.
Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent
Floyd response: MP's question was "are these false facts?" These are not EVEN facts, but opinions. Reid may indeed be right, but it is first important to find out more about the source of the "information" and the "opinion."
1. Reid is an employee of Deutsche AG Bank, who has not done too well recently:)
2. A bit of study shows Reid as a 34 year old analyst, who before joining Deutsche was a "European Credit Analyst."
What we can gain here is that Reid was simply "quotable." He is NOT a trader, not a stock analyst, but an employee of a bank.
Floydian Rule #785 - 98.6% of all bank executives know only about banking, and how to promote themselves. Do NOT trust anything about the financial services sector.
And from subscriber LR from Romania:
Hello Floyd,
thank you for your fast response. I didn't watch the futures to see that they were down 77 points.
I am trying to learn your alerts very very well.
I am from Romania, a EU member country. I was a subscriber of your level 2 at the beginning of 2008, but didn't have patience to paper trade for 90 days and to apply a correct portfolio management.
During that month when I was a subscriber, you sent 22 alerts ( approx) and only 1(one) of them was loser, the rest were winners. I had the bad luck to invest my whole account into it and almost lost all my money.
Floyd Comment: LR did what many traders first do when trying our service. They "buy" a position, and "buy again and again" and hold "for it to break" and lose their money. As LR is learning, it is key to learn our system through paper trading, and dollar allocating your investments for your risk level.
My favorite false fact of the day is this: " Home sales in the U.S. increased in May, for the second month, a sign that the housing market issues are abating."
The facts? Record foreclosures caused home prices to drop, allowing home sales to increase.
Now, the market. What we saw in yesterday's trading was a "waiting game" in advance of the FOMC announcement. How Bernanke says how things are somehow means a lot to a great deal of people.
Tuesday, June 23, 2009
I Am Beginning To See How It Works!
New subscriber NTJ writes: "I am beginning to see how it works. I bought the July420P last week, and made a second buy just as the Manual teaches, and I watched it for several days "do nothing."
It lost money, it broke even, it lost money. My patience was wearing thin, as I was worrying about a loss, even though I had 5 successful trades before this in a row. I wrote you, and your comment was "Sit on your hands, and allow the market to breathe. This option is not yet through its cycle. Follow the rules :)". Of course, you were right, and I traded the July 420P Monday from a 9.50 buy to 12.90 , a 3.90 per contract profit."
Most of the world is now thinking of the stock market in a V formation. This means we were at a top, went to the bottom of the V, and are now moving back up. In actuality, we believe the market will see many more elongated W's over the next few years, and we are in the early stage of the first part of a W.
What that means: the euphoria MAY continue, there will be increasing upside, but also dramatic hesitancies and tests of the market. This has now just occurred with a 200 point drop Monday as the "real news" about our economic condition, and the state of the Global economy is now in the optimism phase, and reality began to set in. This optimism began to fade Monday as those "pressured profits, high unemployment,weaker labor wages and weakened demand" became more of a reality, after the World Bank predicted the global economy will now shrink 2.9% this year.
For the past several months the direction of stocks, commodities, and other risky assets has been driven at least partly by whether economic reports have surprised to the upside or downside. In other words, we have been "news" and "trigger" driven. What appears to have happened is that any news that was "less bad than we could expect" became good news, a reviving economy, and fodder for "it's all good." The DJIA is still down 25% from before the Lehman collapse, and before the house of cards fell.
So, now we have many chartists and stock gurus predicting a potential sell off over a short time to under 8000 again, when a week ago we had few even mentioning downside.
From Bloomberg:
“We see some positive signals pointing toward a stabilization but a V-shaped recovery is not realistic,” said Marco Huwiler, a strategist at Clariden Leu in Zurich, which manages about $88 billion. “The growth potential will be lower than before the recession.
The World Bank forecast the global economy will contract 2.9 percent this year in a report today. That compares with a prior estimate of a 1.7 percent decline. Growth is expected to return next year with a 2 percent expansion, lower than the 2.3 percent prediction about three months ago.
Federal Reserve officials on June 24, at the conclusion of their two- day meeting, may say the U.S. is showing signs of emerging from the worst recession in a half century. Following their last meeting in April, policy makers said the economy will 'remain weak for a time.' The central bankers will also keep the benchmark interest rate in the range of zero to 0.25 percent, economists said."
Floydian Rule # 456- Never trust optimists.
Floydian Rule #851-Never trust stupid people. As an example, Harpers Magazine index verifies: " 1 in 4 Americans thinks 'the Jews' were moderately or very much to blame for the financial crisis. "
"Floydian rules" may amuse you, but should be taken seriously. After years studying the market my various "Floydian rules" are what helped me create a successful trader from, and first got people "asking me for a copy of what I wrote up each day," the beginning of what is now OEX Options.
Here's an interesting fact, as we listen and read our "talking heads" on the market: 27% of all Americans have made premature withdrawals from their retirement or college savings since 2008.
Yesterday we saw a true consolidation beginning. Traders already had entry to the July420P and all made money, and no traders would have bought new calls yesterday on futures down as dramatically as they were.
The FOMC announcement is at 2.15 p.m. EST on Wednesday. Typically, there is whipsaw around the FOMC, and many believe interest rates will not be raised, and that this has already been priced into the market.
Downward moves to become what we see a beginning of true bias shift should conclude the day at least 230 points down, on increasing volume. Many pieces of data and economic reports are out this week.
Two way trades are possible, and the trader must have buy/sells in at all times.
It lost money, it broke even, it lost money. My patience was wearing thin, as I was worrying about a loss, even though I had 5 successful trades before this in a row. I wrote you, and your comment was "Sit on your hands, and allow the market to breathe. This option is not yet through its cycle. Follow the rules :)". Of course, you were right, and I traded the July 420P Monday from a 9.50 buy to 12.90 , a 3.90 per contract profit."
Most of the world is now thinking of the stock market in a V formation. This means we were at a top, went to the bottom of the V, and are now moving back up. In actuality, we believe the market will see many more elongated W's over the next few years, and we are in the early stage of the first part of a W.
What that means: the euphoria MAY continue, there will be increasing upside, but also dramatic hesitancies and tests of the market. This has now just occurred with a 200 point drop Monday as the "real news" about our economic condition, and the state of the Global economy is now in the optimism phase, and reality began to set in. This optimism began to fade Monday as those "pressured profits, high unemployment,weaker labor wages and weakened demand" became more of a reality, after the World Bank predicted the global economy will now shrink 2.9% this year.
For the past several months the direction of stocks, commodities, and other risky assets has been driven at least partly by whether economic reports have surprised to the upside or downside. In other words, we have been "news" and "trigger" driven. What appears to have happened is that any news that was "less bad than we could expect" became good news, a reviving economy, and fodder for "it's all good." The DJIA is still down 25% from before the Lehman collapse, and before the house of cards fell.
So, now we have many chartists and stock gurus predicting a potential sell off over a short time to under 8000 again, when a week ago we had few even mentioning downside.
From Bloomberg:
“We see some positive signals pointing toward a stabilization but a V-shaped recovery is not realistic,” said Marco Huwiler, a strategist at Clariden Leu in Zurich, which manages about $88 billion. “The growth potential will be lower than before the recession.
The World Bank forecast the global economy will contract 2.9 percent this year in a report today. That compares with a prior estimate of a 1.7 percent decline. Growth is expected to return next year with a 2 percent expansion, lower than the 2.3 percent prediction about three months ago.
Federal Reserve officials on June 24, at the conclusion of their two- day meeting, may say the U.S. is showing signs of emerging from the worst recession in a half century. Following their last meeting in April, policy makers said the economy will 'remain weak for a time.' The central bankers will also keep the benchmark interest rate in the range of zero to 0.25 percent, economists said."
Floydian Rule # 456- Never trust optimists.
Floydian Rule #851-Never trust stupid people. As an example, Harpers Magazine index verifies: " 1 in 4 Americans thinks 'the Jews' were moderately or very much to blame for the financial crisis. "
"Floydian rules" may amuse you, but should be taken seriously. After years studying the market my various "Floydian rules" are what helped me create a successful trader from, and first got people "asking me for a copy of what I wrote up each day," the beginning of what is now OEX Options.
Here's an interesting fact, as we listen and read our "talking heads" on the market: 27% of all Americans have made premature withdrawals from their retirement or college savings since 2008.
Yesterday we saw a true consolidation beginning. Traders already had entry to the July420P and all made money, and no traders would have bought new calls yesterday on futures down as dramatically as they were.
The FOMC announcement is at 2.15 p.m. EST on Wednesday. Typically, there is whipsaw around the FOMC, and many believe interest rates will not be raised, and that this has already been priced into the market.
Downward moves to become what we see a beginning of true bias shift should conclude the day at least 230 points down, on increasing volume. Many pieces of data and economic reports are out this week.
Two way trades are possible, and the trader must have buy/sells in at all times.
Monday, June 22, 2009
Nerve Issues
Friday I wrote a trader in response to his concern of missing signals, or not knowing how to handle the emotions of the last week of trading, by sharing this:
Nerve issues occur in three ways:
1. Fear
2. Greed
3. Fear and Greed
Right now, in a flat lining market, #3 is the issue for all of us, as we live in anticipation.
Get anticipation out of the equation.
That is key. What we are seeing this past week is a vastly overbought market, still euphoric, that hits the same resistance area time and again and bounces back to the same support area. Classic flat lining, and always occurring in advance of a large move. The FOMC announcements take place this week, and a number of "catalysts" could occur that we believe will trigger two way swings.
The trouble is: NO ONE knows which bias swing will take place first :)
Our Dow projections are new this week, and make note, cycles of projections like this can occur (recently) in as little as 4 days and up to 21 days. It is fascinating to watch how Dow projections have moved just in the past 6 months to massive swings in days, and that when we return to "100 point" moves in the Dow, it is now seen as "less volatile."
For students of the economy, and those that truly want to understand our situation, and what is being done, we highly recommend reading Krugman or Roubini. Floyd has been a student of these economists as realists that have long understood the damages low federal interest rates have done.
http://www.theatlantic.com/doc/200907/roubini
From trader MR, as he read in Bloomberg. This article is not only fascinating, but scary!
June 17 (Bloomberg) -- It’s a plot better suited for a John Le Carre novel.
Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.
Are these would-be smugglers agents of Kim Jong Il stashing North Korea’s cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money meant for terrorists looking to buy nuclear warheads? Is Japan dumping its dollars secretly? Are the bonds real or counterfeit?
The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.
The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar.
The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.
GDP Carriers
Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia. Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who?
These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border.
This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life.
Clancy Bestseller
You can almost picture Tom Clancy sitting in his study thinking: “Damn! Why didn’t I think of this yarn and novelize it years ago?” He could have sprinkled in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang and a bit of Taiwan-Strait tension into the mix. Presto, a sure bestseller.
Daniel Craig may be thinking this is a great story on which to base the next James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In 2002, the “Miami Vice” star was stopped by German customs officers as he was traveling in a car carrying credit notes and other securities worth as much as $8 billion. Now he could claim it was all, uh, research.
When I first heard of the $134 billion story, I was tempted to glance at my calendar to make sure it didn’t read April 1.
Let’s assume for a moment that these U.S. bonds are real. That would make a mockery of Japanese Finance Minister Kaoru Yosano’s “absolutely unshakable” confidence in the credibility of the U.S. dollar. Yosano would have some explaining to do about Japan’s $686 billion of U.S. debt if more of these suitcase capers come to light.
‘Kennedy Bonds’
Counterfeit $100 bills are one thing; two guys with undeclared bonds including 249 certificates worth $500 million and 10 “Kennedy bonds” of $1 billion each is quite another.
The bust could be a boon for Italy. If the securities are found to be genuine, the smugglers could be fined 40 percent of the total value for attempting to take them out of the country. Not a bad payday for a government grappling with a widening budget deficit and rebuilding the town of L’Aquila, which was destroyed by an earthquake in April.
It would be terrible news for the White House. Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.
On his blog, the Market Ticker, Karl Denninger wonders if the Treasury “has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn’t want reported over the last, oh, say 10 or 20 years.” Adds Denninger: “Let’s hope we get those answers, and this isn’t one of those ‘funny things’ that just disappears into the night.”
This is still a story with far more questions than answers. It’s odd, though, that it’s not garnering more media attention. Interest is likely to grow. The last thing Geithner and Federal Reserve Chairman Ben Bernanke need right now is tens of billions more of U.S. bonds -- or even high-quality fake ones -- suddenly popping up around the globe.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
Nerve issues occur in three ways:
1. Fear
2. Greed
3. Fear and Greed
Right now, in a flat lining market, #3 is the issue for all of us, as we live in anticipation.
Get anticipation out of the equation.
That is key. What we are seeing this past week is a vastly overbought market, still euphoric, that hits the same resistance area time and again and bounces back to the same support area. Classic flat lining, and always occurring in advance of a large move. The FOMC announcements take place this week, and a number of "catalysts" could occur that we believe will trigger two way swings.
The trouble is: NO ONE knows which bias swing will take place first :)
Our Dow projections are new this week, and make note, cycles of projections like this can occur (recently) in as little as 4 days and up to 21 days. It is fascinating to watch how Dow projections have moved just in the past 6 months to massive swings in days, and that when we return to "100 point" moves in the Dow, it is now seen as "less volatile."
For students of the economy, and those that truly want to understand our situation, and what is being done, we highly recommend reading Krugman or Roubini. Floyd has been a student of these economists as realists that have long understood the damages low federal interest rates have done.
http://www.theatlantic.com/doc/200907/roubini
From trader MR, as he read in Bloomberg. This article is not only fascinating, but scary!
June 17 (Bloomberg) -- It’s a plot better suited for a John Le Carre novel.
Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.
Are these would-be smugglers agents of Kim Jong Il stashing North Korea’s cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money meant for terrorists looking to buy nuclear warheads? Is Japan dumping its dollars secretly? Are the bonds real or counterfeit?
The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.
The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar.
The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.
GDP Carriers
Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia. Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who?
These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border.
This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life.
Clancy Bestseller
You can almost picture Tom Clancy sitting in his study thinking: “Damn! Why didn’t I think of this yarn and novelize it years ago?” He could have sprinkled in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang and a bit of Taiwan-Strait tension into the mix. Presto, a sure bestseller.
Daniel Craig may be thinking this is a great story on which to base the next James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In 2002, the “Miami Vice” star was stopped by German customs officers as he was traveling in a car carrying credit notes and other securities worth as much as $8 billion. Now he could claim it was all, uh, research.
When I first heard of the $134 billion story, I was tempted to glance at my calendar to make sure it didn’t read April 1.
Let’s assume for a moment that these U.S. bonds are real. That would make a mockery of Japanese Finance Minister Kaoru Yosano’s “absolutely unshakable” confidence in the credibility of the U.S. dollar. Yosano would have some explaining to do about Japan’s $686 billion of U.S. debt if more of these suitcase capers come to light.
‘Kennedy Bonds’
Counterfeit $100 bills are one thing; two guys with undeclared bonds including 249 certificates worth $500 million and 10 “Kennedy bonds” of $1 billion each is quite another.
The bust could be a boon for Italy. If the securities are found to be genuine, the smugglers could be fined 40 percent of the total value for attempting to take them out of the country. Not a bad payday for a government grappling with a widening budget deficit and rebuilding the town of L’Aquila, which was destroyed by an earthquake in April.
It would be terrible news for the White House. Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.
On his blog, the Market Ticker, Karl Denninger wonders if the Treasury “has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn’t want reported over the last, oh, say 10 or 20 years.” Adds Denninger: “Let’s hope we get those answers, and this isn’t one of those ‘funny things’ that just disappears into the night.”
This is still a story with far more questions than answers. It’s odd, though, that it’s not garnering more media attention. Interest is likely to grow. The last thing Geithner and Federal Reserve Chairman Ben Bernanke need right now is tens of billions more of U.S. bonds -- or even high-quality fake ones -- suddenly popping up around the globe.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
Subscribe to:
Comments (Atom)