Monday, October 12, 2015
10/12/15 Take Us Out of this Gloom
(a) USO (Crude oil) ended the day off -4.25%. I opened a position at the close.
(b) RYVIX (Rydex Energy Services) ended the day off -3.8%. I opened a position at the close.
(c) EEM (Emerging Markets) ended the day off -0.75%. I opened a position at the close. (I last shorted the sector on Friday via RYWYX at the morning window when EEM spiked to 36.26, and covered the short via RYWVX when EEM closed at 35.94).
(d) RYPMX (Rydex Precious Metals) ended the day off -3.41%. I opened a position at the close.
(e) Opened a few smaller positions. CHK (Chesapeake) on a -7.21% decline. Added to SLW (Silver Wheaton) @ 13.90.
The 'pain trade' may well be a grind higher into year end. Retail investors seem to expect a retest of the lows. I don't think we get one. Which sectors will lead the next leg up? In my opinion, the very ones that buried investors over the past year: Emerging Markets, Energy, and Commodities.
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Viewing markets from today's close, I would call it 'wall of worry.' The 'slope of hope' was buried in August. Just my opinion.
ReplyDeleteWhy do you guys think GDX sold off so hard today on a day when GLD broke out to new highs?
DeleteWho knows? A shakedown before the launch. Landry's TKO pullback. The pause the refreshes. I can tell you I'm not worried about it.
DeleteI see that you are not, given your new position in the miners. Todays pullback, though, did a nice job of keeping people away from gdx, since gaps up that later get sold way into the red often signify the end of a rally, at least in the short term...
DeleteDidn't notice $51 oil last Fri but had I I'd've been tempted into an SCO position as a hunch.
ReplyDeleteTOF, this company only sells wholesale, can you buy from them? I bought this:
ReplyDeletehttp://www.fusiondesign.us/products/417/Brigham-Medium-TV-Cabinet
and may want this in quater sawn oak:
http://www.fusiondesign.us/products/412/Brigham-Coffee-Table
possibly some other things in the future, not sure. Personally I'm not interested in a coffee table as I prefer the open space, but wife wants one. If you can buy from this company let me know thanks.
Interesting. I'll shoot them an email to see if they will open an account for us. Any idea what those items are priced for at retail?
DeleteThis Fusion brand is pricey, but the furniture is really nice. For my piece (TV cabinet) they were asking $2,499, but I bought it for $1,500 which is what I offered. I bought like seven items from this store, but do not particularly care for the way they run their business.
DeleteWe bought a complete bedroom set from them made of Hickory (a different brand from fusion) and they later told us that it did not come in a cal king size which we needed so we ended up with two side bed stands and a dresser. Later they called and said fusion would make us a cal king out of hickory but we passed.
Also its only one piece, so if its not worth the effort, I understand. TIA
David,
ReplyDeleteGDX has outperformed GLD by about 21% to 5% in October, so it could be something as simple as the relative valuation of GDX to GLD got too high or GLD profit taking.
So maybe today's decline in GDX is meaningful or more likely it is just noise.
2nd - I know you were watching this before:
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=%24SKEW&p=D&b=5&g=0&id=p04727256478
So how do you interpret this chart, Mike? Does it mean that investors are wisening up now and are not willing to pay a lot for protecting themselves with at-the-money puts, and instead are choosing to put a little money into way-out-of-the-money puts, so that another flash crash does not catch them with their pants down?
DeleteThere's not much correlation between it and major downturns from what I can seein the past. Plenty of false signals.
DeleteI think it's just another in a long list of things people conjured up over the past 6 years as reasons to worry. No one even knows the meaning of it but they see a spike and all of a sudden they panic and sell.
The thing the concerns me more is the market seems stuck at 2010. And high yield and the usd/jpy aren't confirming a move up. Those have been more reliable of recent. Plus it does seem like people have shifted to more bullish. Prob means some more time before we can get back to even on the year.
The thing I need to work on most? Patience.
ReplyDeleteIt's what separates the great us from the average us
DeleteHTWR- Rough patch?
ReplyDeleteI did manage to reopen FCX (Freeport McMoran) @ 12.44.
ReplyDeleteUnder-invested fund managers may have taken advantage of the opening decline.
ReplyDeletehttp://ibankcoin.com/option_addict/2015/10/13/skew-you/
ReplyDeleteThis validates what I've thought for a while...it's something I look at when investing in Internet companies like EROS (Eros now has 8+ million followers on FB)
ReplyDeletehttp://finance.yahoo.com/news/heres-companys-facebook-page-beat-120926214.html
https://m.facebook.com/erosnow
DeleteThis is one place where Blackberry still have almost the same market share as AAPL:
Delete3.2 percent: Apple Inc. (NASDAQ: AAPL)
3.1 percent: BlackBerry Ltd (NASDAQ: BBRY)
Monthly weed sales in colorado top $100 Million.
ReplyDeleteMarket is going back to having zero day to day memory again. Lovely.
ReplyDeleteApparently, SPY could not make the next up move without taking out my stop on UPRO. -100$.
ReplyDeleteWill re-enter again when today's highs are surpassed. Another quote from Alexander Elder: "Amateurs buy stocks like lottery tickets -- they hold them in the hopes of making a good trade, and if the trade does not work out, they walk out in disgust. Professionals don't mind taking a few stabs at a trade, until it finally works out and they make a big gain."
ReplyDelete2nd_ave -- what kind of patience were you talking about? Patience to wait for a better price before entering (such as this mornings open) or patience to hold onto EEM despite today's decline?
ReplyDeleteHere's the thing. I was waiting for a lower-risk entry, both last Friday and this Monday. EEM finally started to pull back Monday. For reasons known only to my subconscious, I decided to jump the gun on Monday. I'm guessing it was partly the serious declines in miners + energy yesterday, coupled with the 'resilience' in US indexes-> which led me to think everything would rally, the bulk of which would occur overnight prior to the US open.
DeleteThe above scenario will now (of course) unfold tonight, but I'm unwilling to leave my chips on the table. It's all good. I had 'sized up' all positions the week of October 5, and the portfolio was firing on all cylinders.
If there's a lesson to be learned, it's to walk away from the table after a winning stretch. That works well in craps, why not here?
DeleteI think a good entry point for EEM will be at the previous top, in the $34 - $34.50 range, assuming decline pauses there.
ReplyDeleteStill bullish, but cashing out. As you all know by now, my first priority in bear markets is capital preservation, which gives me close to zero tolerance for positions that move against my expectations.
ReplyDelete(a) EEM off @ 35.11 for a -1.57% loss. The 'culprit' today is iBovespa, which is off -4%. The Brazilian real is down -2% on growing concerns re impeachment of Dilma Rousseff. Basically giving back the gains from last Friday's short.
(b) SLW (Silver Wheaton) off @ 13.75 for a -2% loss from basis.
(c) CHK (Chesapeake) off @ 8 .10 for a -1.5% loss.
(d) USO (crude oil) off @ 15.10 for a -1.3% loss.
(e) EXAS (Exact Sciences) off @ 7.75 for a -6% loss. Not really sure what to make of the company's prospects right now. I trade prices, not prospects.
(f) RYVIX (Rydex Energy Services) will close end of day for an expected -0.8% loss.
(g) RYPMX (Rydex Precious Metals) will close end of day for a possible gain, but more likely a minor loss.
Believe it or not, I'm still quite bullish between now and December- but I'm a trader and not a dreamer!
Well, at least VIX futures kept their contango structure today, which means that VXX is still melting away...
ReplyDeleteLooking at the SPY chart, it would actually not be unreasonable for it to drop to 195 before resuming the uptrend. If SPY gets there, I'll also re-enter UPRO.
ReplyDeleteRYVIX (Rydex Energy Services) closed down -0.86%, but RYPMX (Rydex Precious Metals) closed up +0.47%. That said, I had 'sized up' more than usual on most positions and this was not my best day. The reason I sized up? Last week was my best 5-day stretch YTD (probably yours as well!) I gave back about 15% of last week's gains.
ReplyDeleteBad day here as well.
DeleteCPHD is today's HTWR.
ReplyDeleteWMT, there she blows, even safe stocks are not safe.
ReplyDelete-8.6%
WMT long 61.25
DeleteWow. Glad I sold.
DeleteAdded EROS today. This selloff makes no sense to me, other than a sell the news type move. They had a presentation yesterday and gave some info on their netflix type streaming service. They grew registered users 20% over the past month to over 30 million.
ReplyDeletewhen you get a chance, listen to this. go to 3 hours 35 minutes in: http://edge.media-server.com/m/p/ntd69s5u. this is the ex-president of Marvel Studios (movies). he’s a director for EROS. he says upside is far higher than Marvel and Marvel is worth $8-9 Billion.
I agree with him. I think they have a unique setup unlike Netflix because they own a huge library of movies and are coming out with new movies and TV shows every year. EROS has had a 40% or so market share of the total box office in India the past few years...this year they have close to 70% which is due to a couple of big hits. So they don't need to pay to license these films and they have said they don't intend to license it to competitors. So if Netflix was to come in, they would have a tough time getting enough compelling content for their users (US films only make up about 5-10% of box office revenues in India, majority of it comes from Bollywood films).
I'm biased but just seems unwarranted that this would drop $4 in a day other than profit taking.
meant to say they grew registered users 20% over past 2 months. Here are the figures:
Delete12/31/14: 14 million
Q1: 19 million
Q2: 26.5 million
9/30/15: over 30 million
Maisel is interesting and will put on watch list. IB has it on short restriction that usually means three days before price seems to bounce, not always.
DeleteAre you looking at this more as LT or just trading?
t3 - shit i have no idea anymore. Can't believe this thing was down 20% today. I think it's a great long term play but I'm confused by everything nowadays
Deletehttp://www.marketfolly.com/2015/10/the-collected-wisdom-of-seth-klarman.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29
ReplyDeleteSo it looks like the ominous "outside reversal day" in GDX on Monday was indeed just a ploy to get some people off the northbound train. The GDX call options I bought at EOD on Monday are up 18% now (they were deep in-the-money, so as to pay as little as possible for volatility, and so the percentage gain is not that large).
ReplyDeleteI am trying to exercise patience and so I am not cashing in yet any of the GDX calls I bought in the last couple of months. Maybe, as Jesse Livermore said, this is the chance to make money by "sitting on my hands"...
DeleteNice calls (pun intended), David!
DeleteShorts should be all over SPY now, seeing that it failed to break above its mid-September peak. If SPY reverses soon, then all those shorts will start running for cover, which should take SPY significantly above its mid-September peak. So be alert, folks!
ReplyDeleteHeading into today's close, the DJIA is off -170 points. EEM (emerging markets) seems to have printed a short-term low yesterday, and is actually up +0.7%.
ReplyDelete(a) Reopened PBR (Petrobras ) @ 4.95 on today's -1% decline.
(b) Opened CAF (China 'A' Shares) @ 24.12, also on a -1% pullback.
(c) Reopened FCX (Freeport McMoran) @ 12.75, basically where I exited yesterday.
In my opinion, much of the bullish sentiment has been worked off over the past three days. Remember our discussion re $SKEW? Out-of-the-money put buying spiked Tuesday's reading to an all-time high of 148, and is now a topic of conversation on Marketwatch! I don't buy it. 90% of options expire worthless, and despite a string of 'bullseyes' for $SKEW signals in the past two years, I think we're back to business as usual. May as well buy earthquake insurance!
(d) Reopening EEM @ 35.36, and also VEIEX (Vanguard EM) at the close.
If you're following my bullish->bearish->bullish change-ups, you're probably schizophrenic! That's exactly how I would characterize the traders I try to fade.
My one regret? Letting the miners go yesterday. GDX is up +6% from my exit.
HYG is barely negative, which suggests that smart bond traders are not really worried and today's pullback is here just to scare off some weak-handed speculators who were lucky to buy SPY a coupe of weeks ago. Having said that, I think it is perfectly reasonable for SPY to go still lower, so as to retrace 1/3 of the gains since the double bottom low.
ReplyDeleteTo be honest, I am not too tempted to close any of my GDX calls yet because SLV still has not spiked way above its previous high (Oct 7 close of $15.29). When it does, THEN I'll start getting worried that a short-term pullback is imminent, and THEN I might close some calls in the hopes of re-opening them at a better price after a pullback.
ReplyDeleteRecalling the wisdom of Alexander Elder, a good trade is the one that has an obvious level for placing a stop. So regarding SPY, I am waiting for it to print a low on its current pullback and then move up, in which case I'll buy UPRO and will place a stop at the previous low. So if SPY jumps up tomorrow, I'll have no regrets about not buying it today, since the "buy pattern" will only form tomorrow.
ReplyDeleteVIX futures are still in contango, so when they return to Monday's lows, VXX will be below its Monday lows, since it is melting away behind the scenes...
ReplyDeleteEROS - Kinda smells like a knockout before the big positive news event. Just have that feeling........
ReplyDeleteHope so. Smells like bad curry so far
DeleteConsumers forgot to update NFLX subscriptions (due to new type credit cards)?
Deleteyeah nice excuse if you can believe it
DeleteLooks like a gap up is in the cards for tomorrow. I hope that by the time I wake up, SPY will still be under 201, otherwise it will be hard for me to buy into it...
ReplyDeleteAdidas - 3D Printed Shoes?
ReplyDeleteTA - Going for new lows? WTF, over!
ReplyDeleteWOR - This is a triple top. No such thing, right?
ReplyDeleteI think that's bottoms, but I don't shop at WMT.
DeleteWOR... Put your glasses on, lol...:) Why not shop at WMT...? I guess in my case now I can buy stuff from Ebay/AMZN, so WMT doesn't see my business as much anymore. I just don't have a reason to shop WMT aside from something to stuff my face but competition there is fierce I bet. Food prices aren't soft IMO, like zinc aluminum copper gasoline....
DeleteI really have a hard time seeing what happens with retail. At some point AMZN will have to start generating profits and, when they do, will help margins of all other retailers. For now, they can keep prices low and pressure on, but if they have to bump prices say 10% to pay dividends, etc. like WMT does, I wonder what happens to their business.
DeleteI have pretty good insight into AMZN from my furniture business and I can say they're just killing every industry. The crazy part is they have direct insight into best selling products and will buy sellers out of good profitable products and take them over. WMT never had the ability to have this kind of insight without taking the risk of buying those products first.
DeleteEYES - Hey man, something's wrong... Two consecutive green days, WTF?
ReplyDeleteBad news for me. One of my small arbitrager plays cut their payout and one of my tiny energy services companies declared bankruptcy and trading stopped. Both small positions at least and not good news, but goes with the game.
ReplyDeleteI wonder I would be further ahead of I just kept my largest 15 positions as they seem to do better and just sold the rest, but might be too boring for me. Like the variety to keep it interesting. Maybe if I have some time over the next couple of weeks, I will try and run a report of my returns on my large holdings vs. these small ones. Would be interesting to see how it shakes out.
That sucks man.
DeleteI added a little more EROS today at $25.2. Taking CP's advice that this looks like a classic drop to get people off the boat.
ReplyDeleteThe selloff yesterday could have been exacerbated by fears about this lawsuit that was filed claiming the biggest hit of the year in India was copied. The guy filing the suit is asking for $7.7 Million and for his name to be added to the film.
http://www.hindustantimes.com/bollywood/bajrangi-bhaijaan-was-copied-alleges-law-suit/story-2B45L03WUw4XZoHjb4kixH.html
The courts are holding up releasing the revenues from it until the trial is done which i think is in 2 weeks. I don’t believe EROS is at fault either way because they didn't write or produce the film - they just signed a deal with the producer to distribute it. Just found out about this. Probably reason people panic sold.
Look at these:
ReplyDelete1998:
http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&st=1998-04-20&en=1998-11-30&id=p38370176354
Today:
http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&b=5&g=0&id=p42579144989
We are right at October 28, 1998 if this parallel holds.
I still think we are up into year end and the correction is over. The shock of the Yuan devaluation threw markets, but now people are realizing it was another non-event and the rally can continue.
DeleteThe one thing I've become less positive on is an interest rate increase. I used to think a raise in the fed rates would help the market, but now I am not so sure.
Long BID at $33.2. Trying to think of the fundamental negatives here...maybe the concern is the high end auctions all go online through other market places? Assuming we don't go into a nasty recession, valuation is low relative to CY estimated EPS at 15x vs historical averages (again, assuming we don't go into recession because in 2000 and 2008 it traded at lower multiples). Very heavy insider buying in August, but that hasn't stopped stocks from falling much further...remember WLT insider buying at $70?
ReplyDeleteSo Mike, would you just stay away from all retail then? Wait for a few years until we see where AMZN really goes and then maybe they are really cheap?
ReplyDeleteAt some point AMZN will have to raise prices to become profitable (or I guess they could dramatically increase volume) - maybe that will be a good time to go into retail.
I still think companies like DG will do well because AMZN can't compete on prices due to shipping fees being almost same as the product price.
DeleteAMZN has become far more than a retailer though. I almost consider them like a storage company like PSA but with the web hosting kicker. They get more and more retailers using their physical storage services (via Fulfillment by Amazon) and virtual storage services every day. The cash flow they will get from those services may be enough to keep them from having to raise prices on things like free shipping. They don't actually sell a lot of the goods on their site.
I'm liking how I'm ready about how value investing is bad/doesn't work/is too painful.
ReplyDeleteMeans we are probably getting to a turn point in the market when it starts working well again.
Everything is cyclical in the the markets and consistently people get negative about things just before they turn.
Only thing that has worked for me lately are the value stocks. But Russell Growth has been outperforming Value from June until now so there's a chance that if we get out of this selloff and rally this shorter term trend could extend itself as people try to make up for losses YTD.
DeleteDidn't have time to post it, but I placed a buy stop order on UPRO an hour ago above the morning spike, and I now see that it was triggered at 59.85
ReplyDeleteBID downtrend line. Should see a nice move if this breaks higher:
ReplyDeletehttp://charts.stocktwits.com/production/stream_44011501.jpg?1444934245
Man, this is a wild rally! Those who hesitated in the morning got left out. I'm glad I had a plan, and SPY cooperated with it (was still below 201 when I woke up). :)
ReplyDeleteYo, bro!
DeleteNot much of a football fan these days, but in the mid-Seventies you would find me glued to the television each time Roger Staubach led the Dallas Cowboys. I learned more from him about handling setbacks than from watching any other public persona. His philosophy in a nutshell:
ReplyDelete(a) Never give up!
(b) What if you’re down 12 points with less than two minutes to play? Refer to (a).
It’s a lesson that kicks in time and time again when trading. I called the right play from the sidelines on Monday, fumbled the trade on Tuesday, recovered on Wednesday and sent both wide receivers 'long.' Today? It looks to be a solid 15-yard gain, eclipsing Tuesday's 5-yard loss on the fumble:
(a) DJIA +195 points. SPY +1.52%.
(b) EEM (Emerging Markets) +2.43%. FXI (China 'H' Shares) +3.2%, CAF (China 'A' Shares) +3.4%. Both Shanghai and Hong Kong higher by +2% overnight.
http://www.marketwatch.com/story/chinese-middle-class-is-now-bigger-than-the-us-middle-class-2015-10-15?link=MW_home_latest_news
ReplyDelete'The Chinese middle class has grown to outnumber the U.S. middle class for the first time, with 109 million Chinese adults now counted in that category compared with 92 million American adults, according to a Credit Suisse report.
'China now accounts for a fifth of the world’s population, and holds nearly 10% of global wealth, the bank said in its sixth annual Global Wealth Report published Thursday.
“The Chinese middle class is now, for the first time, the world’s largest,” said the report.'
And yet the media continues to focus on how awful things are there. Things that make you go hmmmm
DeleteI hope they keep it up.
DeleteIf you were to objectively look at the situation with the emerging middle classes in China and India from a longer term perspective and keep all things in the rest of the world as they are, its hard not to be bullish longer term about things like internet usage, food / beverage intake, autos, entertainment. I'm trying my best to focus most of my longer term holdings on these trends that just won't go away.
DeleteI was planning to place a stop below my UPRO purchase at yesterday's lows, but after today's rally I think I will rather invoke the rule of not letting a profit turn into a loss, and I am placing a stop right were I entered, at $59.85. Somehow I have a feeling that SPY will gap up tomorrow as well, so as to make it most difficult for shorts to cover now that SPY rose to a new post-crisis high.
ReplyDeleteNice to see GDX holding its ground and GDXJ actually being up on a day when $USD is up! A bounce from the 94 level was expected -- $USD bounced from there 4 times in the past 6 months:
ReplyDeletehttp://www.finviz.com/futures_charts.ashx?t=DX&p=d1
I think there is a saying that there is no such thing as a "quadruple bottom," and I understand the reasoning -- if a security is so weak as to fall back to a certain level 3 times in a brief succession, then when it falls there for the 4th time, it might not have any energy left for a lift off, since all investors already expect a return to that level soon, so there won't be much buying interest left at that level. In the spirit of going against expectations, $USD has actually managed to make a quadruple bottom at 94 over the past 6 months. But it has now returned to this level again, and I doubt it will make a "quintuple bottom." The last couple of lift offs from 94 took $USD up by smaller amounts than the first two lift offs, which suggests that buyers are indeed losing interest in the 94 level. Once $USD breaks below 94, I think the chances of a rebound are slim before it reaches 92 (so as to fall the same distance as it rose during its last lift off). If all goes as I predict, and $USD drops to 92 soon, THEN I'll start covering some of my GLD/SLV call options. That's the plan. :)
Mike, the parallel with 1998 does seem to be appropriate so far. But we could also be at Oct 23 of 2011:
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=%24SPX&p=D&st=2011-07-20&en=2011-12-30&id=p38370176354
Longer term, the situation reminds me of the Fall of 2007:
http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&st=2007-04-20&en=2008-1-1&id=p38370176354
The economy is weakening, the Fed is out of ammunition and there is a strong resistance to doing another QE, now that it is obvious that all previous QEs did not help the economy. So I doubt that SPY will rise significantly above previous highs. Maybe a little bit, just like in 2007. So I plan to close all my VXX puts once SPY reaches 210 and will start loading up on long-term SPY puts.
Main difference with 2011 is the market tested lows often and then the lows gave way. This time around the market crashed on August 24th and immediately rallied without testing lows. It tested lows once and then its been off to the races. That's a different setup.
DeleteI don't get the similarities between now and 2007/8.
http://www.spdrgoldshares.com/usa/historical-data/
ReplyDeleteAs the spreadsheet on the above page shows, the GLD fund is now a buyer of gold once again, which creates a positive spiral of buying. The GLD holdings rose by 6 tonnes today despite POG being down today -- a very rare situation since 2012. So maybe that's why POG fell only a little today despite $USD being up -- the GLD fund was buying up gold in order to keep up with increased demand for its shares...
ACI went up 1000% in Sept.
ReplyDeletehttp://www.barchart.com/chart.php?sym=$SKEW&t=LINE&size=M&v=0&g=1&p=D&d=X&qb=1&style=technical
ReplyDeleteA new all-time high today, at 151.22.
Man, people are not trusting this rally! I want to read more about what SKEW means. I know it measures the demand for out-of-the money puts, but I wonder what time horizons are considered? One month or any? If it covers all time horizons, then I would understand people's concerns -- I myself will soon start buying SPY puts, but not until it makes new all-time highs. :)
DeleteWhat the heck is that, anyway?
DeleteHere is the CBOE white paper that explains what SKEW is:
Deletehttp://www.cboe.com/micro/skew/documents/skewwhitepaperjan2011.pdf
Section 2c (and in particular table 2) provides an interpretation of different SKEW values. Basically, a SKEW value of 150 implies that options traders assign a 15% probability to S&P dropping by more than 2 standard deviations over the next 30 days. The expected standard deviation for S&P is measured by VIX. Therefore, SKEW spiked to new highs today not because people became more worried about the crash, but simply because VIX came down significantly, and hence the same expected point drop in S&P now translates into a larger multiple of standard deviations (since the standard deviation, as measured by VIX, has dropped). Since VIX quotes annualized standard deviation, the expected standard deviation for S&P return over the next 30 days is VIX/sqrt(12) = VIX/3.46 = 16.05/3.46 = 4.63%. Thus, the current SKEW reading implies that portfolio managers currently assign a probability of 0.15 to a drop of more than 2*4.63 = 9.27% in S&P 500 over the next 30 days. Under "normal" market conditions, when SKEW is around 125, and say VIX is 16.05, the fund managers assign a 0.09 probability to a drop of more than 9.27%. I don't see a big difference in those probabilities. :) The bump up from a 9% chance to a 15% chance is very understandable now, given that the memories of the recent crash are still fresh. More likely, this is all done algorithmically, and the morning drop on August 24 has simply recalibrated the pricing models for out-of-the-money puts, which will stay expensive for some time. Nothing to worry about.
An interesting article: "Here's How Traders Have Once Again Botched The Gold Miners Trade":
ReplyDeletehttp://www.benzinga.com/trading-ideas/long-ideas/15/10/5914732/heres-how-traders-have-once-again-botched-the-gold-miners-tra
Saw a report today which tweaked me to check into a hot shot fund investor I used to follow. If you invested with him at the start, he turned 10,000 into 25,000 in 13 years. Good return, 28% a year. Since then, he is down about 50% in the last 9 years, so average it out and you get about 12% a year, but crappy if you bought 9 years ago and are down 50%. When I looked into it further, he really just caught a hot trend and ran with it for quite a few years, but wasn't astute enough to get off it when it turned.
ReplyDeleteExtreme example, but just goes to show how you have to be constantly evaluating your approach and be flexible to change things when appropriate.
And I thought the punchline would be, 'it's John Hussman!'
DeleteHussman was never that good!
DeleteSold EROS @ 27.00. +11%
ReplyDeleteDidn't know you bought, I nearly did but was preoccupied with other stuff. Not much interest in markets anymore given the up down nature.
DeleteIt's kind of ridiculous CP. I can't tell you how many times I've seen the late day runs followed by early morning dumps right back to where the run started. My latest holding to do this is BID.
DeleteMarkets do NOT want to go down.
ReplyDelete(a) A strong tailwind is the notable OUTFLOW of money from mutual funds over the past two weeks, despite a strong +8% rally. Prices are climbing a solid wall of worry.
(b) We are now approaching what is traditionally the most positive 3-month period for stocks.
(c) Fund managers appear to be under-invested (especially in Energy and Emerging Markets), and hold above-average levels of cash.
(d) Put interest has been extreme, with high readings in both $SKEW and put/call ratios.
The most likely scenario? Markets move up from here, forcing fund managers to chase. It's likely to be a painful slow grind higher for shorts.
I came across a Jesse Livermore quote this morning, which perfectly captures the learning process all traders must endure:
'The game taught me the game. And it didn't spare the rod while teaching.'
Great post. Sentiment is the sole reason why I am staying in stocks as I don't think we have hit the euphoria phase yet. I've anticipated it for a long time...we had some of that in 2013 and early 2014. Since then as the market has mainly gone sideways (as judged by the RUT) while people have gotten more and more bearish.
DeleteThe extremely bearish levels in put/call, $SKEW, and shorts is puzzling. I can imagine it setting up a huge short-covering rally that spikes right through resistance levels.
DeleteI also think it is pretty easy to make the case that many stocks will be fundamentally worth more in a couple years than they are now. In the long run, the value of the company drives its stock price.
Delete2nd_ave, where do you check for inflow/outflow of cash from mutual funds?
Deletehttp://www.lipperusfundflows.com/#create:home:Home:/php/signup_trial.php
DeleteAdded positions in USO (crude), CHK (Chesapeake), OIH (oil services) and EWZ (Brazil).
ReplyDeleteGood article - says we will get 1 RACE share for each FCAU share and value to FCAU holders is about $5 of the $16 stock price:
ReplyDeletehttp://seekingalpha.com/article/3577746-how-many-ferrari-shares-will-fiat-chrysler-shareholders-get
My initial estimate was for about $7-$8 value for Ferarri, leaving the rest at $8 or so. I think people are underestimating how well Ferrari will do. But if it's only $5 then FCAU is a sell as there's no way people will pay that multiple for the rest of the business in light of the multiples people are paying for F / GM
DeleteThe $5 valuation is based on the IPO price - will be interesting to see where it trades when it starts next week.
DeleteThe other reason FCAU should do well is they are working on increasing margins and ROE. If they can get to F/GM levels, they rest of the company will be trading at a p/e of around 3 vs 16/12. Fwd p/e's are 6/8, so people are expecting F/GM's profits to improve, but let's say FCAU can accomplish the margin improvement (Marchionne is very good), then you have $5 for RACE + $22 for FCAU at 6 times improved earnings, so $27.
The risk is that the auto market stops growing or even declines and margins get hurt, but I think that is still quite a few years away for both North America and Europe due to demographics, age of vehicles, etc.
Long SDS for a short trade.
ReplyDeleteYou could also make money going short SDS for a long trade :)
DeleteI actually sold it immediately after I bought :) No desire to be short this market.
DeleteSomebody decided to cash out of GLD/SLV at EOD, seeing that the short-term momentum has faded. I wonder if they'll come back next week, chasing the price up...
ReplyDeleteVIX contango at work: the November futures were up today, but VXX (which has 95% of its assets invested in November futures and only about 5% in October futures) was down more than 1% today, since it had to pay a 6% premium (November futures are 6% higher now than October futures) on 5% of its assets (every day VXX rolls over about 5% of its assets from front month futures to next month futures).
ReplyDeletehttp://www.reuters.com/article/2015/10/16/investment-flow-baml-idUSL8N12G1PY20151016
ReplyDeleteRight on, dudes. We need to see more of this in the next few weeks!
Caught a matinee showing of 'Sicario.' 8/10 sounds about right.
ReplyDeleteGrabbed some TNA after hours at $68.75
ReplyDeleteKeep an eye on small caps the next few weeks. there will be a catch up trade.
DeleteGood move. Odds are global markets gap up strong on Monday, leaving few options for sidelined investors other than to pay up. The past two weeks may have represented the last decent buying opps. From here on out, those who sold + those who went short or bought puts are going to have a tough time.
DeleteOccasionally, it just becomes obvious markets are going up (or are at least done going down). I didn't think twice about leaving for the movies around 1030 this morning, and not once did I doubt we would close green. I didn't even bother checking quotes 'til I got home around 230.
ReplyDeleteThe market has frustrated bears for over five years. It's going to do it again in the worst possible way. Now that everyone is convinced we need to retest/exceed the August lows (cashed out, shorted, and/or bought puts), the market is FINALLY going to hit new highs. And it will hit those new highs exactly when it 'should' (contra-contrarian timing if you will)-> during the seasonally favorable mid-October to mid-January 'quarter.'
DeleteChina reports quarterly GDP Monday, so I expect there were some folks preparing today. From what I see looks like that best I can tell.
ReplyDeleteRead through the Seth Klarman article t3d posted - I also have read his book and it is pretty much in line with what I'd expect. Things like be really careful on the downside, buy value, buy complex situations others avoid for better prices, etc. Then I look at this portfolio and his largest position is LNG, which has negative book value, little revenue and negative earnings. I guess he must see the value there that should become apparent over the next few years, but just shows how hard it is to understand someone else's approach, even if they do have one of the best track records of all-time.
ReplyDeleteSometimes those guys are wrong, for whatever reason. Perhaps he knows something most don't or won't divulge? Anyway, if he's right there could be a huge upside.
DeleteThe other thing he focusses on is knowing your edge. Every fund nowadays is run by very smart people with access to loads of data, so you have to find where you have an advantage.
DeleteI really see my big edge as being small and having no pressure on my investments other than my own. Makes it a lot more effective than managing a $28 billion fund for a bunch of rich investors.
Checking in here it's Sunday 5pm, are S&P futures down 50 points yet in preparation for tomorrow's complete recovery?
ReplyDeleteCME Group has December future as the only one with any trading and up .25 of 1 point
Deletehttp://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500.html
Europe has lowest % of stocks as "buy" in 20 years. All other times were major bottoms:
ReplyDeletehttp://www.ft.com/intl/fastft/409811/european-stocks-12
Bullish sentiment wise for Euro-stocks (of course assuming news does not get worse)
This links to a sign up page. Can you copy/paste the main point?
DeleteI have been watching DB closely. I mentioned a week or so ago it looks like it has bottomed. Can't buy on an up day like this but I'm watching for an entry.
DeleteEuropean equities are doing very little on Monday, but October is still shaping up to be a buoyant month for the market.
DeleteThe FTSEurofirst 300 Index, which is home to the eurozone's three hundred largest companies by market value, is little changed in early afternoon trading, but is up 4.8 per cent this month.
That's its best performance since February, when the index soared 6.7 per cent, as hopes that the European Central Bank would launch a bond-buying programme sent investors into riskier assets.
Equity strategists at Barclays reckon there are more gains for European equities this year, with the prospect of further stimulus from the ECB, a recovery in earnings growth and still mixed sentiment towards stocks. (see the chart below).
The chart shows only 43% of stocks are a buy recommendation and has turned slightly upwards. The other lows in this metric over the last 20 years corresponded with the 1998 EM Crisis, the bottom of the tech selloff and the bottom of the financial crisis.
DB announced a restructuring yesterday, so the market is liking this. Wouldn't be surprised to see a pullback as will play out over time.
DeleteWow. Doubled down on TNA this morning and brought avg to $68.38. Should have tripled down.
ReplyDeletePicked up some TA at $10.6 this morning. It's breaking out of a bullish wedge pattern. Valuation is still really low relative to book. I think there's a lot of value here. The ownership structure is all messed up and that's why there's a valuation disconnect.
ReplyDeleteI am watching $USD futures closely: http://www.finviz.com/futures_charts.ashx?t=DX&p=h1
ReplyDeleteIf the recent rebound stops soon and $USD drops below 94.50, then I'll open a large position in GLD calls in the expectation that $USD will gravitate back to 94 and then break below it.
Add TNA at $68.1
ReplyDeleteThe SPY price action gives me a distinct feeling that tomorrow will be a real green day for it...
ReplyDeleteThe DJIA drops -86 points in the opening minutes, then rallies +100 points over the remainder of the day to close +15 points. Incredible, not.
ReplyDeleteJust noticed that at the end of the day, a sell limit order was triggered for $25 strike January 2016 VXX puts I purchased on August 24, when VXX closed at $24.39. Apparently, I paid WAY too much for volatility at that point ($8 per put!), and so only now did those puts return to the original price I paid for them. I sold them flat since I have way too many VXX puts as it is, and I would rather make money on the puts I purchased later into the crisis at much better prices.
ReplyDeleteMoral of the story: it is better to start scaling into SVXY after a crash, since volatility premiums are very high right after a crash and so options are VERY expensive...
DeleteRACE starting to trade on Wednesday. Could be interesting as only10% of the float is being sold initially, so supply will be tight. FCAU shareholders get their shares early next year, not sure exactly when yet.
ReplyDeletecrazy:
ReplyDeletehttp://www.amazon.com/b/ref=ods_gw_d_h4_dash_node_offer?_encoding=UTF8&node=10667898011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=desktop-hero-kindle-B&pf_rd_r=0CA9HA02MDN4MPDWZ2NX&pf_rd_t=36701&pf_rd_p=2233265622&pf_rd_i=desktop
I really don't see how Amazon can compete selling Laundry Soap including free delivery against a WMT or COST or have such economies of scale. COST has 13% gross margins and 3% operating income, so on a $10 jug of laundry soap, that's $1.00 for warehousing, shipping, staffing, etc.
DeleteAMZN has 31% gross margins, because a lot of stuff is just pass-through of other sellers, which is a good business.
But trying to go head to head on stuff like this seems like a very hard battle that they are unlikely to win.
I picked up some more EROS today. Sold TNA before the close. probably should hold TNA as I think small caps outperform in the near term.
ReplyDeleteHave you kept EROS this whole time?
DeleteYeah, avg is "down" to 28.9
DeleteENPH- I actually kinda agree with the DB notes, but not the PT obviously.
ReplyDeleteBought some HOG at $49.5 this morning
ReplyDeleteAdded $47.8
DeleteEROS - I nibbled on some of this one, couldn't resist. :)
ReplyDeleteNWLI - Talk about a spring, wow.
ReplyDeleteTook BID off the table.
ReplyDeleteAverage in HOG down to $48.3. Might look to add one more time in the mid $40's if it gets there. I'm thinking a bounce to low $50's first. But knowing this market there could just be no bounce.
EVBS - BIG volume.
ReplyDeleteEROS - Where ya going, lol....?
ReplyDeleteYeesh. Lots of sellers in this. Let's give it some time.
DeleteLeaves are really getting ready to pop off the hardwoods, last few nights we touched the low 30's and the air seems clear and crisp, nice and dry after the soaking rains we received week before last.
ReplyDeleteGreat day for cutting firewood and getting other outdoor stuff done in prep for winter.
I took my hit on HOG at $46.95.
ReplyDeleteEROS - Holy crap.....
ReplyDeleteJeez this is nuts.
DeleteEvery f'in thing I've bought in the last couple years crashes big time almost immediately. Sheesh.
ReplyDeletei took some EROS off the table at $20.3. just in case its a f*cking scam. can’t believe i’m doing this but got to cover my ass.
ReplyDeleteEXAS, EROS etc pick your poison, the moves in these individual stocks are incredible. I really do not know how this does not drive retired investors batty. Anybody that has been in the mkt for 20 years or more knows this behavior just did not occur with such regularity. Pure casino like action, its a joke.
DeleteWith respect to regularity, meaning, the compression of a move in such a short time horizon.
DeleteYeah this move really threw me for a loop. At one point today it was down over 40% in one week on absolutely no news. Granted it was a momentum stock but it isn't excessively overvalued. I probably should have a stronger stomach for this but it was my own fault not selling immediately. Tough to do given how fast down it moved but it is what it is.
DeleteTrue, it is what is!
DeleteBut its the reason I refuse to bet on individual stocks in size, you never no when the lighting bolt will strike. I know its your style and not trying to get you to change just stating it the way it is for me.
When to hold em and when to fold em is such a fine unknowable line.
I am a big fan of diversification too. You never know for sure what will happen, so having a number of ways to win is good.
DeleteMay miss out on the occasional grand slam, but also miss out on the big strikeouts (gotta have a baseball acronym says the guy who's Blue Jays are playing game 4 in about 10 minutes)
BB glad you enjoyed Klarman. You are the only person I know that has read his book.
DeleteOmega Advisors founder Lee Cooperman recently appeared on Bloomberg TV and outlined seven reasons for market upside. Here's his rationale:
ReplyDelete1. This would be the first market peak that occurred without one Fed tightening. He says on average, the market went up for 2.5 years after the first rate hike.
2. Bear markets come due to recession, overvaluation, hostile Fed, or a geopolitical event. Those don't really seem to be present, with the caveat of the last one.
3. Markets usually peak during euphoria and he doesn't see any signs of that.
4. The stock market has already corrected recently.
5. What's the alternative to stocks... bonds yielding 2% or cash earning zero?
6. There's enormous substitution taking place of debt for equity. Corporations are announcing big buybacks and that supports the market.
7. Valuation is reasonable
I'd agree with all that 100% and think the bull market continues for a few years.
DeleteAnother thing is to think that we are only about 5% from the all-time market top and many sentiment indicators are in the range we see at major bottoms. There are a lot of people who will be buying if the market sentiment improves.
AMAT chart looks interesting.
ReplyDeleteAAPL, bought some into close.
DeleteMy size is normally 2-6% of portfolio.
For how much longer will SPY keep making higher lows and higher highs on the intraday basis before exploding higher???
ReplyDeleteBB - I just wanted you to know that the Mets are coming for your Blue Jays.
ReplyDeleteAfter tonight, looks like they'll be going for Kansas City - what a disaster!
DeleteToday's lows in $USD futures will be my line in the sand:
ReplyDeletehttp://www.finviz.com/futures_charts.ashx?t=DX&p=h1
If they drop below this level, then I'll buy lots of GLD calls and will stop myself out if $USD futures rise above the recent highs (post Oct 15).
T3d, if you want to read the Klarman book, I have it in PDF format and can email to you. No way I was paying the $2 grand it is rumoured to go for on Ebay.
ReplyDeleteWhen we see these very violent moves individual stocks, doesn't that normally proceed a market top?
ReplyDeletemb
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