Thursday Thrust: Enough To Break On Through?

 |  Includes: HPQ, SQQQ
by: Philip Davis

I've listened to preachers

I've listened to fools
I've watched all the dropouts
Who make their own rules
One person conditioned to rule and control
The media sells it and you live the role
Mental wounds still screaming
Driving me insane
I'm going off the rails on a crazy train - Ozzy

Wheeeee, that was fun!

SPY 5 MINUTEWe called for a "Whipsaw Wednesday" and it doesn't come much more whipsawed than that. Fortunately we stuck with the plan from my morning post to take the money and run on our short plays and we even pulled the hedges off our $25,000 portfolio, leaving it 100% bullish at 11:11 in member chat.

That left us a little nervous for the next hour but, of course, we had a plan for that too and, at 12:27, I put up a chart of the our indexes over the last five days saying: "Note our lows of last Friday - Those are the lines we need to give up at if we fail them."

That's a very important point about aggressively trading - it's OK to pick a bottom and flip bullish, but ONLY IF YOUR BOTTOM HOLDS. The biggest problem traders have is they guess a bottom (1,300 on the S&P was ours) but then, when their premise fails - they FAIL to give up on the position. This is much like saying in the morning that you don't think it's going to rain - then having breakfast and seeing it pouring with rain outside - and refusing to take an umbrella because you didn't think it was going to rain (see "The Microwave Oven Theory of Behavior" for more on this subject).

Here was the chart we looked at at 12:27 in chat:

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Things were not looking good, were they? Remember, we had gone bullish on that first pause and failed to hold that line so the first thing we had to do was make a new plan - just in case. If you don't know EXACTLY what you are going to do "just in case," you are going to let yourself get shoved around by these crazy markets. We had laid out our Just in Case plays in the morning alert at 9:57 with three aggressive hedges to play for the dollar over 82 (still valid today if we don't hold our weak bounces) - we had a great ride down early in the morning and - as planned pre-market in the morning post - we took the money and ran on a 1% drop (a nice 10% profit on those SQQQs, as planned) and then we rode out the next little drop but we were PREPARED to re-cover.

"Plan the trade and trade the plan" is a message we often use in our Virtual Portfolio section, where we discuss portfolio management techniques. The more short-term and aggressive your trading, the more you need to have a plan. Fortunately for us, our timing was pretty good and that same chart finished the day looking like this:

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I do so love it when a plan comes together. Still, we are not out of the woods yet by any means as we've only succeeded in getting back to the weak bounce levels that we expected to give us trouble in Tuesday's post. In the same way watching the channel on the bottom kept us from getting too bearish - watching the channel on top keeps us from "listening to fools" in the media and BUYBUYBUYing when we should be, once again, taking the quick profits and running.

Click to enlargeWe had a quick primer on Stock Market Physics in yesterday's morning alert to Members so I won't get back into it here but we simply don't have the thrust yet to break over our strong bounce levels and I'm not even sure we can hold our weak ones (Dow 12,540, S&P 1,319, Nas 2,840, NYSE 7,560 and RUT 765) without FIRM announcements of more QE, which is still the entirety of the bullish premise for the broad market.

That, of course, does not stop us from making selective bullish picks - as there are plenty of very good stocks trading too low for the SLIGHTLY improving conditions we're seeing in the U.S. In addition to the stocks I mentioned on BNN Tuesday and in addition to our Twice in a Lifetime List, we were able to identify a few additional bullish trades as we flew down yesterday including this gem at 10:29:

Hewlett Packard (NYSE:HPQ) down another 4.5% today and they have earnings later. Gonna be fun for a bullish play, I think. At this point, all they have to do is not suck as much as Dell (NASDAQ:DELL) did.

HPQ June $20/21 bull call spread is .55 and IF they have bad earnings, THEN we can sell July puts for .55 to cover them but, for now, there's 81% of upside and HPQ is at $20.80 despite the sell-off and the June $20 calls are $1.30 so they have to lose more than 50% of their value before you can't pull .55 back off the table anyway (leaving naked long calls on presumed bad earnings or general market collapse).

That one should be well on-track for the full 81% gain this month (and maybe enough today to just take it and run on a quick day's gain) after HPQ did, indeed, manage not to suck as much as DELL. It was a simple premise for a bullish earnings play and, as I often say to members: "If you're not going to buy low - when will you buy?"

8:30 Update - When I said SLIGHTLY improving conditions in the U.S., I may have been a tad optimistic as April Durable Goods came in up just 0.2% (0.5% expected by leading economorons) and, ex-transport, it was a MISERABLE -0.6% vs +0.7% expected by the clueless people who they poll to get these pointless estimates.

370,000 Americans lost their jobs last week and that is in-line with expectations but not at all a good thing as we still need to knock that number down 20-30% in order to get back to job GROWTH, something we haven't had in this country since the '90s:

(Click to enlarge)Click to enlarge

Click to enlargeWe get Consumer Sentiment tomorrow as our last major data-point for the week and that's not going to be good with the market crashing and gasoline still $4 but what's the difference if it's 76 or 66 - it's a far, far cry from 116 we had WHEN WE USED TO HIRE PEOPLE.

When did we develop the fantasy in this country that you can have economic prosperity with high unemployment? What whack-jobs came up with this joke of a concept and spun it to the masses by taking over television stations and the Wall Street Journal and brainwashing the weak-willed masses with trickle-down BS that passes for policy these days? Gosh, if only we knew, maybe we could stop them...

Click to enlargeAt least someone is trying to stop JPMorgan (NYSE:JPM) from cornering another commodity market as U.S. manufacturers are getting together to tell the SEC that JPM's planned copper ETF (which will suck up 27% of the LME's copper supplies the way they do with GLD and USO etc, etc...) would "grossly and artificially inflate prices and wreak havoc on the U.S. and global economy." Er, duh! That's kind of the whole point to doing it, but thank goodness someone besides me is finally complaining.

In the letter to the SEC, lawyers representing copper consumers argue that the ETF would result in a "substantial artificially induced rise in near-term copper prices ... simulating the effects of an artificial squeeze or corner being financed by unsuspecting investors in JPM's ETF." FINALLY people are catching on to this scam - let's hope the SEC listens this time and, maybe next time we can get retroactive and take away the many, many other ETFs that cost global consumers trillions of dollars in excess commodity costs to support each year.

Meanwhile, let's watch our levels and let's be very careful out there.

Disclosure: I am long BBY, XLF, FAS, CHK, HPQ, QQQ, TNA, HPQ.

Additional disclosure: Positions as indicated but subject to change (VERY level-dependent).