All posts by uranium-pinto-beans

$SPY Needs A Big Push, Could It Be Bonds?

 

The last three trading sessions have seen the $SPY  break out above $140.  Just weeks ago everyone was calling for the markets to collapse, yet here we are with stocks going on their merry way higher.  Eventually those calling for the markets to decline will be right, even a broken clock is right twice a day, but as I have said over and over and over and over again, the central banks will not let this house of cards collapse, at least not yet.

The SPY remains over the  key  $140 psychological figure.   Stocks are shrugging off bad economic data thinking it will provide the FED with an excuse for more QE.  Dips are being bought, oh my are we already pricing in QE4?   Even my 6 year old knows QE3 is coming in September and Bonds! Oh yes Bonds!   Aside from the government manipulating yields lower to "stimulate" the economy there has been a tremendous flight to bonds.  It has been a double whammy of bond buying which recently sent yields to record lows.

Today the 10 year note sale had its weakest demand in over 3 years. Is this the start of a trend?  Take a look at TLT, an ETF that gives a clear view of  longer dated bonds, which you don't want to be holding when bonds start to sell off.  (The average bond holding for TLT will mature in 27.9 years)   We can already see a potential top.

 

 

TLT is up over 50% in less than 2 years and could be in the early stages of a dramatic decline. If yields start to rise, and bonds sell off, where is this money going to go?  Perhaps junk bonds?  How about high quality, dividend paying stocks, with strong free cash flow?  How about anything that isn't bolted down to the floor of the NYSE?

Hard to believe I am a bear... right?  All this government manipulation will end very, very badly.  If the bond bubble bursts, stocks will rise, and we will see massive inflation down the road.  QE3,4,5 will quickly become QE 15,16,17 as interest rates soar and the Treasury is crippled with enormous interest payments.  But this isn't all coming over the next few months it will take some time.  Right now I am focused on the short term so I can better prepare myself for the bigger picture.  (If you haven't prepared for the upcoming global economic crash than you haven't been watching Doomsday Preppers, your next door neighbor already has!  LMAO!)

$SPY looks ready to retrace some of its gains from earlier this week and late last week.  I have highlighted each time $SPY has hit the upper trendline of the channel.  It pulls back (as it did yesterday) and then tries to make another push for it and fails (as it did today).

 

My outlook?  A pull back/consolidation to no less than $136.80, more likely $137.40, and then a resumption of this rally that will bring us to new highs for the year. There is also the chance we don't pull back and we break right out of this channel.  If that happens we will see new highs for the year within a week or two.  Wild!

This has nothing to do with the economy or earnings and everything to do with bonds.  A rush out of bonds will give stocks their next push higher.

August 8th UPB Morning Outlook

S&P 500 futures   -.29%

the US Dollar       +.22%
Silver Futures       -1%
Gold Futures        -.28%
Crude Oil Futures  -.6%
I will be running an beginners option class tomorrow at 7:30am est.  I will email the link before the class and post in the chat room.
Ditto trade is running a live seminar this morning, register here   https://www3.gotomeeting.com/register/353735726
Stocks pulled back yesterday at the top of a channel that started prior to June 4th.  Could they be heading back to the bottom of the channel?  The dollar is up slightly this morning, commodities and stock futures are down.  Europe looks poised to break its 3 day rally.  PCLN is down some 16% this morning at $570. SODA blows away estimates and is up 8% early.  DIS is down a little over 1%.   Not the move I want to see for the strangle I entered.  However those options do not expire this week so I do still have time for this trade to work in my favor.

Notable earnings:

Before the bell today - M, MOLX, RL, SODA
After the bell today:  MNST, SPWR

We have JCP earnings coming Friday before the bell.

Some possible trades for today:

CREE $27 calls at the open
BIDU $125 puts
FSLR $20 puts
XOM $87.50 puts
JCP $22 calls ( a flip into the close)



CREE target upgraded from $38 to $39 at oppenhiemer
PCLN kept a buy at GS target dropped from $850 - $760, Piper kept overweight drops target $811 to $675

Wells Fargo upgraded Jack Henry & Associates (NASDAQ: JKHY) from “market perform” to “outperform.” Jack Henry's shares closed at $35.24 yesterday. Jack Henry had $89.77 million in total cash for the latest quarter.

Bank of America upgraded CTC Media (NASDAQ: CTCM) from “neutral” to “buy.” CTC Media's stock closed at $8.52 yesterday. CTC Media's trailing-twelve-month revenue is $791.94 million.

Analysts at SunTrust upgraded Church & Dwight Co (NYSE: CHD) from “neutral” to “buy.” Church & Dwight's shares closed at $52.54 yesterday. Church & Dwight's PEG ratio is 1.90.

Raymond James upgraded Provident Financial Holdings (NASDAQ: PROV) from “market perform” to “outperform.” Provident Financial's shares closed at $12.60 yesterday. Provident Financial's trailing-twelve-month operating margin is 27.04%.

       A three-day string of gains for European stocks looked in danger of coming to a halt on Wednesday, as investors took profits after recent gains and news of a downgrade to Greece's outlook by Standard & Poor's Ratings Services dented sentiment.

In choppy trade, the Stoxx Europe 600 index fell 0.2% to 268.30. The index gained 0.8% on Tuesday as investors brushed aside negative economic data from Europe and chose to focus instead on hopes for European Central Bank action over the debt crisis.

But investors seemed eager to cash in on recent gains, particularly in oil stocks. Energy stocks have been among the biggest gainers in recent sessions. Shares of oil and gas company BG Group PLC , up more than 4% so far this week, fell 1%. Shares of French-based Total SA (TOT)

Staying on resources, shares of Rio Tinto PLC (RIO) rose 2.8%, pacing the few gainers in the FTSE 100 index , down 0.4% to 5,817.64. The mining group reported a 22% fall in first-half profit as metals prices fell and spoke of near-term uncertainty but said it was confident about demand in the long run.

Also higher were shares of banking group Standard Chartered PLC , which rallied 9% after tumbling 16% in the prior session. New York's financial regulator accused the bank of hiding transactions with Iran worth $250 billion on Tuesday.

Royal Bank of Scotland Group PLC (RBS) was also higher, up 1.2%, while 1.3% and Lloyds Banking Group PLC (LYG) fell 1.3%.

The Bank of England cut its growth and inflation forecasts Wednesday, as it released the quarterly inflation report. Economists predicted the central bank will cut its growth and inflation forecasts, which may pave the way for further monetary easing. .

The Spain IBEX 35 index was giving back some of the 4%-plus gains seen so far this week. The index led regional stock markets lower with a 1.6% fall to 7,097.50, with Banco Santander SA (SAN) off 1% and BBVA SA off 1.4%. Each has gained more than 4% this week.

The yield on Spain's 10-year government bond was under fresh pressure, up 7 basis points to trade near 7% again, last at 6.9%. A yield around 7% is viewed as an unsustainably high borrowing cost for the Spanish government.

Markets have been gaining for three days on the view that the European Central Bank will step in with bond-buying purchases based on the outcome of the last central bank meeting. .

The Greece ASE Composite index fell 1.2% to 613.15. S&P said late Tuesday that it was cutting Greece's ratings outlook to negative from stable on the view the country may not be able to secure further bailout funds from the European Union and International Monetary Fund.

Pharmaceutical stocks were also under pressure, with Sanofi SA (SNY) off 1.2%, weighing on the French CAC 40 index , down 0.4% to 3,439.23. Credit Agricole SA fell 1.4%.

Automobile group Peugeot SA jumped more than 4%. Japan'sMitsubishi Motors Corp. reportedly said Wednesday that it has "temporarily" halted shipments of its i-MieV electric car to the French group due to adjustment of inventory. The two firms have a supply deal.

The German DAX 30 index fell 0.4% to 6,941.19, with shares of airline Deutsche Lufthansa AG down 4% as members of the air-cabin-crew union UFO voted for a strike. Talks between the union and Lufthansa are to resume Aug. 16.

Financials also fell in Frankfurt, with Deutsche Bank AG (DB) down 1%.

Channel Surfing

 

Today stocks continued to show their buoyancy, with the, now customary, late day pull back the only thing keeping the bears from going back into hibernation.  Just like Monday, stocks rallied to start the session, and spent most of the day at or around their highs.  FOSL soared some 32% creating some tremendous profits for call holders:

The $90 strike from $.45 to $5.10

The $95 strike from $.27 to $2.50.

The question now is when will this market pull back.  We've had a strong reversal since mid-day on Thursday, after stocks were down close to 2%, and haven't looked back.

Today the SPY hit $140.92 before dropping $.50 into the close.  If you look at the chart below you can see exactly why that happened.

 

If we can trust this channel, at some point the SPY will be coming back down below $140, and possibly kissing $136.80 -$137.40 before heading back over $140 to ultimately make new highs for the year.

The Week Ahead With UPB

It is UPB here, hope everyone is enjoying their weekend.

Join Me Sunday Night for a look at some potentially profitable l option trades.

I wanted to remind the Diamond members I will be having my "Look Ahead" tomorrow at 10:30PM eastern.  I will have the link to the event posted about 25 minutes before the start at this link:  http://www.optionmillionaires.com/live-event-classes-jtv/
Last weeks class I covered all the big earnings.  With COH up over $60 I called for a nice drop post earnings and that is exactly what happened.  I said I'd be a buyer of  GMCR calls, FSLR calls.  GMCR went 30%+ the day after earnings and FSLR +27%.  I also said I'd be buying MCP calls and RIG puts, both ended up going the other way and my MCP calls were with a bid at the open on Friday. I am certainly never 100% right or even 75% right when it comes to out of the money stock options.  In this market you are right until you are wrong.  It is that simple.
How many people were calling for the end of the world?  "Big Crash Coming!"   "Load up on those PUTS!"   Look at us now.  The markets have defied all the naysayers.  We are at three month highs.  I remain as nimble as ever, and I am almost never in more than 3 option positions at a time.  I help mostly puts this week and coming into Friday my lone call position was MCP, which suffered a tremendous drop.  I have been getting over confident and with MCP I could have hedged my calls for a mere $90 with the $14 puts.  Those puts I could have sold later on Friday for over $2,000.  While I was right about MCP being a big mover post earnings, I did not play it that way.  That is the joy of stock options.  You don't have to be right about which way a stock is headed, just as long as it gets a big move in short period of time.... which is why earnings trades offer some great opportunities.    Tomorrow I will cover some chart set-ups, economic data, and potential earnings plays.  I hope to see you there.