Wheeee - isn't this a fun ride?
I warned the bears on Friday that the drop was a bear trap and we told you Monday was "Time to Buy" as CNBC chased the last of the sheeple out of their bullish positions so all their fund buddies (and us) could scoop up shares at super-low prices. Yesterday we targeted 1,284 on the S&P and we were off by a point as it rose to 1,285 at the end of the day - can't win them all, I guess ...
In Friday's post I mentioned that the Barrick Gold (NYSE:ABX) 2014 $30/45 bull call spread at $6.60, selling the 2014 $30 puts for $3.40 for net $3.20 that we had picked up on 5/3 was only at $3.40 and still made a nice entry - ABX has been having a lovely week and popped from $39 to $42 and the spread is now $4.70 - up a lovely 38% in three days but should be well on the way to $45 today and the max gain on that spread is cashing the spread at the full $15 and a $11.80 profit for a 368% gain on cash so being up 38% in 3 days is what we call at PSW being "on track."
The other two trade ideas I singled out as still liking from Friday's post were both Chesapeake (NYSE:CHK) plays and the 3 CHK 2014 $25/35 bull call spreads, selling a single 2014 $18 put netted out at a $1.20 credit on Friday morning but did even better as an entry on Friday as CHK fell all the way back to $15.60. Yesterday they were back to $17 (on the way to $18, I imagine) and the spread is already netting another $1.95 for a very quick 262% gain on cash, which is why we love those.
I called for a short on TLT in the $130s and they topped out right at $130.36 at Friday's close, tested it again on Monday and fell back to $127.60 yesterday while our long point on XLF was $13.50 and, so far, not much excitement there. Those were just the trade ideas from the morning post, of course - our real fun came in member cChat where our aggressive bullish trade ideas during the panic Friday and Monday were:
- TQQQ July $43/47 bull call spread at $2, selling BA Jan $50 puts for $1.90 for net .10, now .46 - up 360%
- XLF Jan $12/14 bull call spread at $1.20, selling $11 puts for .55 for net .65, now, .51 - down 21%
- TNA June $41/47 bull call spread at $3, now $3.40 - up 13%
- Apple (NASDAQ:AAPL) June $590 calls at $3, out at $4.25 (day trade) - up 41%
- AAPL June $590 calls at $2.50, out at $4.25 (day trade) - up 70%
- FAS July $65/66 bull call spread at .65, still .65 - even
- QQQ weekly $62 puts sold for $2.05, now $1.05 - up 48%
- FAS June $69/74 bull call spread at $2, now $2.85 - up 42%
We also added our first five bullish trades to our Income Portfolio during Monday's (and another five yesterday gives us a great start to our first month) because, as I often say to our members - if you're not going to take bullish positions when the market is low - when are you going to buy? We are, of course well hedged and we had hedges ready to spring if we failed our technicals, which we post almost every day in our morning alerts. I summarized our top five bear hedges in Friday's member chat at 10:06, as we rode out the panic dip but my comment on them was:
I am NOT in favor of chasing this stuff around. I like having a hedge or two and using that as a safety net for making a few bullish bets off our TWIL List or like the FAS play above, which is more aggressive since it's time-sensitive. The conservative play is CASH - there is nothing wrong with CASH.
Have I mentioned how nice CASH is lately?
That is why we will take a few non-greedy exits into this morning's pop while we move to fresh horses (longer-term bullish trade ideas that have yet to produce big wins, like the XLF Jan spread above) and, of course, we not only have more attractive entry points on our potential hedges but NOW WE HAVE PROFITS THAT ARE WORTH HEDGING! See how that works? This is not rocket science people - it just takes a little practice to get used to the rhythms of the market.
CASH is still KING as all we have are rumors driving the markets and RUMORS will not do the trick this time - we need concrete action from the EU/ECB/IMF or down we go again. The ECB met this morning and left rates steady at 1% and that's a bit disappointing but we're waiting on Draghi's press conference, where we expect him to at least extend some LTRO funding, time-wise.
The big decisions come at next week's G20 meeting as the ESM takes shape next month, which significantly makes it possible for the ECB to bail out banks - rather than them having to go through their sovereign nations - who are generally broke.
Oh sure, you can quibble that the ECB is broke too and simply printing money it doesn't have but isn't that what the fiat currency system is all about? On the whole, we're just biding our time, waiting for hyper-inflation to kick in and we're getting our first positive signs of it in the U.S. as Q1 Productivity dropped 0.9% while Unit Labor Costs rose 1.3% - indicating our corporate masters have finally squeezed the last drop of free labor out of the population and will now have to actually hire people or purchase more efficient equipment (both good for the economy) in order to produce more goods.
Of course we need demand not to fall off a cliff or we end up with deflation instead of inflation (see Japan) so maybe it is time for Captain Ben to crank up the old helicopters and toss us another $500Bn before the economy goes back into reverse.
As you can see from the chart on the right (click to enlarge) - giving money to the Commercial Banks has been lots of fun but now it's time to do something for the Public to stimulate demand and that's likely to come in the form of some sort of housing/mortgage assistance.
Atlanta Fed President Lockhart (a moderate on the FOMC) tilted dovish this morning, telling a Ft. Lauderdale audience it's his "sense that material risks to the economic outlook are gathering .. I am confident that the committee retains the capacity to act and the tools to promote stability."
We have more Fed speak today from Tarullo at 10, Lockhart again at 2:15 (after the Beige Book at 2), Williams at 3:30 and Yellen at 7 - who is generally used to float trial balloons for Bernanke. Big Ben speaks at 10 a.m. tomorrow, Lockhart yet again at 11, Kocherlakota at 1:15 and Fisher at 3:30 so, if you think you are confused by the Fed's positions now - just wait until you see how mixed up you are by tomorrow.
Europe is just as clueless and the dollar popped back to 83 as Draghi said nothing useful at his press conference but, as I said yesterday - we have "bad news fatigue" and the markets are tired of going down at this point and will tend to drift back up to test some overhead resistance in absence of actually NEW bad news between now and the G20, who MUST act if we want to hold these market levels and must act boldly if we want to make any actual progress this summer.
As Draghi said this morning: "Monetary policy can't fill the lack of action by European politicians."
Additional disclosure: Positions as indicated but subject to change (Hedges in place with a bullish stance) - CASH IS KING.