The Stock Market

     

 

 

Smart Money Fleeing Stocks

DUBLIN – The Dow dropped 180 points on Tuesday – or about 1%. And another clever billionaire says he is looking elsewhere for profits. Reuters:

 

“Activist investor Carl Icahn on Monday said there was a chance the stock market could suffer a big decline, saying valuations are rich and earnings at many companies are fueled more by low borrowing costs than management’s efforts to boost results.

“I am very cautious on equities today. This market could easily have a big drop,” Icahn said.”

 

Icahn-2Famous activist investor Carl Icahn – in fact, we like to think of him as the “original activist”; we still remember when he had his way with the likes of TWA and Texaco back in the 1980s. Evidently, tempus fugit. Does he know something we don’t? It certainly seems possible. After all, contrary to us, he has made billions. According to his latest filings, he currently holds a huge net short position of 150%.

Photo credit: Platon for Time

 

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Not Easy, But There Remains Potential

As equities continue to gyrate over respective medium term support levels I do not feel particularly tempted to get sucked into placing any haphazard directional plays.

 

king of blingThe King of Bling

Photo via picsofcelebrities.com

 

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Another Vega Crush Target

Macy’s (M) may not be anyone’s favorite place to shop these days, but its volatility curve is set up nicely for a vega crush campaign.  We’re going to look at two different ways to take advantage of M’s volatility term structure ahead of earnings (tomorrow morning before open).

 

macys1900-1000x740Macy’s store of yore

Image via Frank Leslie’s Illustrated Newspaper

 

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Operation Vega Crush Part II – Post Mortem

Before we get to the specifics of last week’s option campaigns, I wanted to cover a few interesting observations we made from our strategies this past week. In an effort to show how little risk is associated with these types of vega strategies, I actually believe we were too conservative this past week. While we made money on both campaigns we could have certainly done better had we decided to be just a bit more aggressive.

 

2016-05-09_debrief-1000x679Debriefing time

Photo via harringtonmuseum.org.uk

 

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A Week to Remember

Today we look back to the recent past with singleness of purpose.  Context and edification for the present economy is what we’re after.  We have questions…

How come the recovery has been so weak?  Why is it that, nearly seven years after the official end of the Great Recession, the economy’s still mired in a soft muddy quagmire?  Squinting, focusing, and refocusing, there’s one particular week that rises above all others.

 

Hank the scaremongerHank the scaremonger – in meetings behind closed doors, he threatened Congressmen with financial apocalypse and even martial law if they didn’t hand over $700 billion in tax payer money with essentially no oversight. This has been independently confirmed by several Congressmen. Griffin’s “The Creature from Jekyll Island” is often decried as “conspiracy theory” by establishment shills, but it inter alia contains an eerie prediction of practically everything that eventually happened in 2008.

Photo credit: Talks at Google

 

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Tax Receipts vs. the Stock Market

Following the US Treasury’s update of April tax receipts, our friend Mac mailed us a few charts showing the trend in corporate tax payments. Not surprisingly, corporate tax payments and refunds mirror the many signs of a slowing economy that have recently emerged. An overview in chart form follows below. First up, corporate tax receipts in absolute figures.

 

1-corporate tax receiptsCorporate tax receipts in absolute dollars and cents – this is quite astonishing considering that the amount of money in the US economy has increased by roughly 125% since early 2008. Corporate taxes by contrast haven’t even made it back to the 2007 peak.

 

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Triangle Thrust and Reversal

In mid April, we discussed weekly resistance levels in the HUI Index. Given the recent almost blow-off like move in the index and its subsequent reversal, we decided to provide a brief update on the situation. First, here is a daily chart comparing the HUI, the HUI-gold ratio and gold:

 

1-HUI, gold and HUI gold ratioAfter building another triangle, the HUI has delivered an upside thrust in the direction of the preceding trend. This is quite normal, and so is the subsequent  move back to its origin. Three things are noteworthy here: 1. in terms of the HUI-gold ratio, the recent decline is already the strongest of the entire rally since the January low;  2. the downturn hasn’t violated the short term uptrend line just yet; 3. the peak was put in exactly on the day on which gold confirmed the rally in the HUI by breaking out to a new high for the move as well – click to enlarge.

 

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Second Helping

The first round of our IV crush earnings plays was a resounding success and as there’s about a week’s worth of announcements left in this quarter we are pumped and ready for a second helping.

 

vega crushThe next round of Operation Vega Crush begins

Photo via artcarcentral.com

 

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Operation Volatility Crush – Post Mortem

[ed note: this is a follow-up to “Let’s Crush Some Volatility”, penned by the aptly named Ray the Options Executioner for the Evil Speculator]

Our introduction to earnings-based options strategies has started off with a bang. Actually, it’s hard to imagine a much better results for our first option campaigns. Granted, we’ve been doing this stuff behind the scenes for a while, and we expected the options strategies in FB and FSLR to succeed. Still, you gotta love when what happens is pretty much exactly what you predicted.

 

make_it_rainThe rainman

Photo credit: musictory.de

 

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Stampeding Animals

The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed.  A sudden startle, or a perceived threat, is all it takes to it set off.  Once the herd collectively begins charging in one direction it will eliminate everything in its path.

 

bison-herdBetter get out of the way… stampeding bisons

Photo credit: Surface Niusance

 

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Searching for Victims

If like me you were a Monty Python addict back in the days then you are probably familiar with the phrase ‘And now for something completely different’. As you probably know we’re in the midst of Q2 earnings season right now, and Jay The Executioner in collaboration with yours truly has been on the hunt for potential IV crush victims.

 

crushing_tank-1000x622A tragic victim of Operation Volatility Crush.

Photo via gdefon.ru

 

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Market Breadth Divergences

[ed note: readers not familiar with Frank’s trading system can look at an introductory article here: The Modified Davis Method

Over the years I have developed a lot of respect for the condition of bearish breadth divergence, when an index such as the S&P 500 is rising and the NYSE daily cumulative advance-decline line is not.

 

1-NYSE-a-d-lineNYSE advance decline line vs. NYSE index – currently breadth is strong, as many of the market’s previously weakest sectors (particularly commodity stocks, transportation stocks and industrials) have begun to rally strongly. However, tech stocks and other momentum favorites have begun to lag – click to enlarge.

 

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