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Market Shadows: Group of writers and investors: Paul Price, Lee Adler, and Ilene.
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Market Shadows & Cycle Editing
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  • Not Done Rising
    Not Done Rising

    Featured in: MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come

    By Ilene

    Over the last four months, we've been buying (virtual) stocks and selling (virtual) puts, without hedging our bullish bets. We explained our reasoning earlier in the year:

    "We are starting 2013 long stocks in Paul's Virtual Value Portfolio with no covered call writing hedges for one reason - the Federal Reserve's and other central banks' plans to continue printing money into existence while debasing their currencies. This does not solve any problems such as too much wasteful spending, a perverse tax code, and a rushed-through fiscal deal that does not reduce the growing debt burden." (Comfortably Bullish)

    But stocks are one vehicle to help protect wealth during a time of money printing, zero rates, and devaluation of currency.

    Lee Adler of the Wall Street Examiner had asked 'Has orgiastic market shot its cash wad?' No...

    "The Fed will be pumping every other day now, and another huge slug of MBS [mortgage backed securities] purchase cash will be coming around mid month. That should outweigh any questions that might arise about the technical analysis, the biggest of which right now is how big this rally might be." In this issue, Lee wrote, "as long as the Fed keeps pumping, the tide of systemic liquidity should continue to rise exponentially in the US and stocks should continue to oscillate along that upward wave."

    Ambrose Evans-Pritchard had also argued that the world's central banks are racing to drive down their currencies, and that will increase asset prices. He warned, "Bears beware. A monetary revolution is underway:"

    The side-effects of this currency warfare - or 'beggar-thy-neighbour' policy as it was known in the 1930s - is an escalating leakage of monetary stimulus into the global system.

    So don't fight the Fed, and never fight the world's central banks on multiple fronts…

    The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 - mindful though I am of flagging volume and a wicked 12-year triple top… (Stocks to soar as world money catches fire, Calvinst Europe left behind - Telegraph)

    In Lights, Camera, Rally?, Paul Price argued,

    With the backdrop of very low interest rates, the overall 'should-be' P/E of the stock market increases because the alternative 'safe' investments are paying such low yields. Stocks become more desirable. This dynamic makes higher risk assets, such stocks, look even more attractive. And that's exactly what the Federal Reserve wants.

    The Fed is artificially holding interest rates down with its successive quantitative easing programs (QE1, QE2, QE3, QEternity….) and its Zero Interest Rate Policy (ZIRP). Part of Ben Bernanke's plan (or plot, some might say) is to compel investors to buy "risk-on" assets, such as equities and commodities - while interest rates are hovering near zero and the dollar is continually losing value."

    The Fed's Zero Interest Rate Policy should support higher multiples going forward. It may be cliche to say 'Don't fight the Fed.' But essentially, we are not going to fight the Fed.

    This week, in "Dow 20,000 Only a Matter of Time," Econmatters argued that we need to be invested due to the growing money supply and currency in circulation, and the printing press phenomenon. Money is being created to chase assets, and that will inflate prices. It's no accident.

    The Dow will blow past 15,000, 16,000, 17,000 and so on based upon the currency creation effects alone. The fact is that markets are liquid, capital will flow in and out, and there will be occasional major pullbacks. "Those who fail to time the market will suffer losses at times. Make no mistake, though, Dow 20,000 is a foregone conclusion."

    (click to enlarge)

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    Econmatters argues that if the economy cooperates even modestly over the next three years, the Dow will hit 20,000. "Watch how the market performs once we break through the 14,200 level, and start putting in new highs in the other indexes. The pace can really take off once markets are in unchartered territory, and we can start taking 1000 point monthly clips that will leave you speechless... We are on the verge of taking that next leg up in the Dow, in fact, we should set a new high pretty soon; enjoy the ride as this breakout has been a long time coming." (Dow 20,000 Only a Matter of Time)

    In The Pullback Memo, EconMatters predicted the timing for the market's near-term upswing. March and April. (Yes, according to EconMatters, that's it for the first half of the year. If you've missed a few months of this run, too bad, it's over.)

    We are in the midst of the strongest four months of the investing cycle for each of the last four years. Basically, everyone and their uncle go long assets until late April before the annual summer selloff. Don't expect this year to be any different.

    The way I look at it new money comes into the market March 1st which is next Friday, so any window for a pullback has 5 days to occur, and less than that because everybody front runs the monthly 401k money that comes into the market the first of every month, and is usually good for a major Risk On day.

    So investors have 4 days for a pullback, you get the idea, Thursday's mid-day selloff was the pullback. There isn't going to be any ideal 7% pullback so all those who missed the rally can conveniently get right in with the rally that they missed for the first two months of the year.

    You think this stuff just happens randomly?

    There are no do-overs in markets! What were you thinking, haven't you been paying attention the last four years? You start going long in November of the previous year and you stay long until option's expiration in April, then you sell, wait for the summer sell-off when some crisis in Europe or Downgrade is the end of the world, and after the sell-off, then everybody buys back for the "Money Manager Make Their Numbers Yearly Close"!...

    Nothing stops the rally, we don't go backward, we just keep going higher till mid-April, Got it? Good, now quit your hoping, praying for the 7% pullback.

    Have we set new highs yet? I didn't think so…

    We will give you your damn pullback at the end of April after we have set new highs in all the market indexes. So don't ask "Are we going to pullback yet"? No we are not going to pullback, you will know when it is time for the pullback by checking the damn calendar!

    Here is the memo….. (The Pullback Memo)

    Source: via Knick of Time Interiors on Pinterest

    Feb 25 12:23 AM | Link | Comment!
  • Not Done Rising, But Night Will Come

    Read: MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come

    This week:

    Event Horizons: Not Done Rising. Market's going up, till the end of April. Then we'll reassess.

    Market Forces: Lee Adler's composite liquidity indicator keeps going higher: Cis Bam! Fed Drives Massive Liquidity Surge, Treasury Says Thank You Ma'am.

    (click to enlarge)

    Value Exploration: Paul Price's Virtual Value Portfolio (stocks) is almost filled up, so we sold some PUTS in our Virtual Put Selling Portfolio.

    Glimpse into the Future: Bloomberg Reports Biggest Story of All Backwards As Fed Blows Dangerous Deposit Bubble.

    (click to enlarge)

    Tags: CAT, LTM, TMO
    Feb 25 12:17 AM | Link | Comment!
  • Telling Tuesday – Earnings Season Is Upon Us!
    Telling Tuesday - Earnings Season is Upon Us!

    By Phil of Phil's Stock World

    I love earnings season!

    As a fundamentalist, it's a time to go over the data and get a better picture of how these companies we invest in are doing. How each sector is performing gives us a clearer picture of the overall economy and, of course, there are tons of quick-trading opportunities as those crazy speculators are willing to pay us huge premiums on both sides of any bet we're willing to take. We just have to play the role of bookies.

    Take AA, for example. It reports this afternoon. Although the stock is just $9.10, we can sell the Jan 2015 $7 puts for $0.80. That would, at worst case, put us into the stock at net $6.20, which is a 32% discount to the current price. In fact, if we're willing to risk owning AA at net $7.70 (still a 15% discount), we can buy the 2015 $7/10 bull call spread for $1.50 and now we're in a $3 spread that's already $2.10 in the money for net $0.70 (because we sold the Jan 2015 $7 put for $0.80 along with it). Our maximum gain with AA at $10 in Jan 2015 is $2.30 but that's a solid return on our money. (There is also a net $0.70 margin requirement according to ThinkorSwim). If you REALLY want to own AA for net $7.70 as a long-term investment - there's not much downside.

    I love trades like this on blue-chip companies. Earnings tends to pump up the prices you can sell puts and calls for, so it's a great time to take advantage and, as I'm reviewing the Income Portfolio for our Members, we're actually finding quite a few new long-term entries just like AA, which I've highlighted in blue under each relevant review.

    On ALU, for example, although we've already made 166% off our initial entry, we still have another 38% to go through the end of the year. While 38% sounds very dull compared to 166% - it's so deep in the money now that it's attractive as a new trade - even with the lower rate of return. I had mentioned our ALU play in our Morning post, on October 18, when the stock was still $1.10 (now $1.73) yet there are still people who don't think it's worth less than $2 a day to have our morning posts delivered to their Inbox every morning before the market opens

    (click to enlarge)

    We're actually going to do an experiment this year and set up a virtual portfolio for the picks I make in the morning posts. It will be tracked on an independent site that people can follow so, hopefully, we can get the great and powerful Mark Hulbert to rank us, as we'd be right near the top if he did. That would be great exposure for our newsletters (try here).

    We have asked to be ranked before, but no luck, so we'll do a little self-promotion this year for the PSW Report (our twice daily Emails with site access), Stock World Weekly (our weekly, executive review of the markets) and Market Shadows, which is a new report we send out to Report and SWW subscribers, sort of weekly.

    Our indexes are still wriggling around between the 4 and 5% lines we laid out last week at:

    • Dow: 13,319 & 13,447 (finished 13,384)
    • S&P: 1,442 & 1,456 (1,461)
    • Nas: 3,028 & 3,056 (3,098)
    • NYSE: 8,580 & 8,660 (8,636)
    • RUT: 858 & 866 (875)

    INDU WEEKLY So we still have 3 of 5 of our indexes over the 5% lines but those are previous spike lows, not our longer-term 5% lines, where we're waiting for the Nasdaq to confirm a move up. The Dow is still seriously lagging and has yet to cross over its Must Hold line at 13,600 (see Dave Fry chart), which was our problem all of last year. It at least signaled the big drop in October when the Dow failed right at that line. That means we're going to have to take it very seriously but we're currently hoping the 3rd time will be a charm. The RUT topped out at 868 in September and now made it over that line, giving us hope.

    We finished off our day uncovered on our AAPL longs as we got a dip right to our $513 target (again, the 5% Rule rules!) and finished right at our $523 target so now we're looking for $531 this morning. Another failure there is going to lead to at least some partial covers on both AAPL and the Qs. (For more on Apple, read here >)

    Treasury has some short-term notes to pawn off today and we're not expecting any trouble there but tomorrow is a 10-year auction and Thursday is a 30-year auction and they are going to be tough sells, so expect a bumpy ride. There's also an ECB meeting this weekend so more madness from across the pond.

    MON had earnings this morning and knocked them out of the park with a .25 beat at .62 (67%) and a 10% beat on revenue, just shy of $3Bn. MON also raised guidance to $4.40 per $96 share for 2013 and that's got a good chance to push it over $100 this morning, where it will probably make a nice short. It's a bit stretched with a forward p/e of 22.7. If you want a real bargain - BA had an fire on a 787 and should be down around $75 again, where we can look to sell 2014 $55 puts for $5 for a ridiculous net $50 entry. Maybe we can get $10 for the $70 puts and risk a net $60 entry in the Income Portfolio - we'll decide later.

    YUM is also getting crushed after serving contaminated chicken. It issued a warning that same-store sales will be off by 6% this Q, but it had already forecast a 4% hit and has held $62 on several occasions. This could be a good time to take advantage of a cheap entry, selling July $62.50 puts for $4 or maybe $5 if there's a good dip - just taking advantage of bad news ahead of earnings. The 2015 $50 puts can be sold for $5 for a net $45 entry (30% off current price which is already 15% off the pre-news top at $75). TOS says the net margin on that is just $5 so you either make a 100% gain on margin in 24 months or you own YUM at it's lowest price since 2010.


    Click on this link to try Phil's Stock World FREE!

    Jan 08 4:09 PM | Link | Comment!
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