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Stock Market Madness – Are We There Yet?

Stock-Markets / Stock Markets 2011 Jun 07, 2011 - 03:32 AM GMT

By: PhilStockWorld


Best Financial Markets Analysis ArticleAnother day another $453M!

That's right, there are still 335,695 open 1,000-barrel July contracts on the NYMEX with just 2 weeks left to dump them and the pump crew was foolish enough to run oil back to our $100.60 target, where we were able to jump back in and short it in last night's Member Chat (as the Gekko said: "Money never sleeps!"). This morning we took a stop at $99.25 and now we are patiently waiting for them to pretend they want to pay over $100 for oil again so we can short it again...

We don't get a lot of trades where the manipulation is so blatant that I can (and have for the last 2 weeks) publicly call trade ideas that thousands can participate in but, in this case, each single oil contract made $1,350 on that move - in 12 hours - there's plenty of money to be made and, of course, we're doing it to PUNISH the speculators so we need as many participants as possible to maximize their pain (and keep in mind we use very tight stops to minimize ours!).

Regular options players will also do well with our last trade of Friday, which was the USO June $40 puts (yet again) at $1.15, which should do well this morning with USO down about .70 with oil on the $99 line. Heck, even as a stock trade that's 2% shorting USO in 90 trading minutes - not a bad ROI even for boring old stocks...

As we expected $98.50 has been hanging pretty tough as support for West Texas Crude but I don't think it will stand up to a rising Dollar so we'll watch that for clues of a proper breakdown and a ride down to our next set of oil marks.

Speaking of lines - look how beautifully our levels are lining up with only the S&P still above (but right on) our long-predicted "must hold" level. I went over our expectations for the next two weeks in this morning's Member Alert and if we follow the script into expirations, we'll be getting this summer off to a great start!

Also in our morning Alert, we took a short position on PCLN (now $507) as we got news that the IATA slashed their profit outlook for airlines in half for 2011. The organization blames the sharp revision on natural disasters in Japan, unrest in the Middle East, and especially on oil price volatility. This is, unfortunately, also bad for the airline stocks and that will hit the Transports and that will hit the Dow and if the Dow fails 12,100 - things are going to get ugly!

So we're off to a busy and bearish start this morning but we were already worried on Friday and added a longer-term TZA Disaster Hedge that pays 2,666% paired with some short BA puts or 300% on its own if the Russell falls back to 650ish. That would be quite a disaster of course, which is why we prefer the pair trade over the straight bull call spread. When you get a 26x return on a 25% market drop, you only need to commit 1% of your cash to cover it - that's why we love our disaster hedges!

So we're certainly not "worried" about what's going to happen today. Like John Lennon "we're just sitting here watching the wheels go round and round, we really love to watch them roll." We already prepared for a "watch and wait" day today as we HOPE to get a bounce off those Must Hold levels but it's all about the Dollar and whether they can keep it below that 74 mark as I don't see the markets making much of a bounce under their own steam.

This morning, we were looking at the very scary CMI Report, which shows 1.6% DROP in May in the combined Manufacturing and Service Sectors. April (the first month of Q2) was up 0.1% and now May is down 1.6% so we are now negative 1.5% for Q2 - that indicates that our GDP numbers may still be over-estimating reality!

The manufacturing index fell to 45.8, the lowest in over 18 months. This category is now as bad as it was in the middle of the recession, meaning a great many manufacturers are in a cash flow crisis that could crush them in the near future. It is the squeeze many had referenced when the commodity price hikes began. The cost of everything manufacturers buy has gone up—oil, metals and other raw materials. Transportation costs are spiking as well. At the same time they are seeing no opportunities to hike their own prices, as consumers are still fragile. If this squeeze continues for much longer, there will be a radical increase in the factors that signal distress—the number of disputes, accounts out for collection and bankruptcies.

Not too much data this week but lots of Fed speak and the Beige book on Wednesday should be the turning point - one way or the other. Steve Jobs does a presentation for AAPL and it might boost the Nasdaq (AAPL is still over 10% of the index, even after the rebalance) but, if the new product is a yawner like the MacBook Air or if Steve sneezes during the presentation - we could go right back off a cliff so be careful with that one!

As you can see from the chart on the left (thanks Barry) we had a terrible week last week but held our 2.5% line (mostly) and now we need to see if the rest of the World is going to be catching up or ignoring us. Way too early to jump to conclusions and, as I said - it's a watch and wait kind of day.

As we can see from this next set of charts, the Dow is struggling at the 12,150 line to hold on to a 5% gain for the year. You KNOW the fund boyz and Banksters want to have that headline 5% gain for the first half of the year so they can get their hands on more of that fabled "sideline money" as they convince investors to put it back in their market casino. We noted the relentless dumping of 401K and IRA money into the fake rally at the end of May and we don't expect June to end any differently but we'll need ACTUAL QE3, not just rumors of QE3, to get the other indexes back over that 5% hump, which is now about our 2.5% lines.

We expect the usual pre-market pump into this morning's open and it's really all about what they can get to stick - hopefully we'll get another crack at shorting oil at $100 or higher (with $100.60 being our new key resistance). The UN has now jumped on our bandwagon, calling for intervention to put a stop to Commodity Speculators. As I said last week - just give us $3Bn and access to the SPR and we'll have them all bankrupt by July 4th!

Undeterred, funds have pushed their bullish commodity betting by 7.3% last week, back to the highest levels since May 3rd so there is a lot of betting that the Dollar can go lower and there will be a lot of squeezing if it doesn't. If the Dollar does dive and the speculators win - then it's record oil, gold and food prices followed by starvation, unrest, riots and revolution so forgive me if I'm with the UN on this one and continue to say we are better off banding together and bankrupting these Global criminals before they cause more needless suffering. Unfortunately, some damned fools gave Glencore Billions of Dollars and that's not helping matters much...

Even as they tell you today that Greece is "fixed", there are thousands of protesters in Athens' Syntagma Square this morning. There are reports of 50,000 to 500,000 (likely closer to the former) protesting in Syntagma Square this evening, against the government program of austerity measures, and the current political situation. Protesters have been camped out here all week, similar to the situation in Spain in the run up to their regional elections. Whether or not they'll have any impact on the implementation of the country's latest austerity plan remains to be seen.

It's one thing for the EU to vote on a rescue plan for Greece that bounds the population into lives of servitude to pay off Central Bank loans but quite another to get the people to accept it. So far, Icelanders have told the banks to drop dead and nothing bad happened to them while the Irish bent over and accepted the Draconian lending terms that were imposed on them by the EU and they are miserable. Which lesson will the Greeks learn?

Even on the off chance that Greece’s primary debt is completely wiped out, in 2012 it will have to pay some 52 Billion Euros (35 Billion in mature bonds and 17 Billion in interest), while it is expected to receive 12 Billion Euros from the troika. In 2013, Greece is not expecting to receive anything from the troika, but it will still need to pay approximately 44 Billion Euros (27 Billion in mature bonds and 17 Billion in interest). Basically, it needs to have more than 84 Billion Euros for the 2012-13 period alone, so even if it receives a loan of 60-65 Billion Euros, it will still have a shortfall of 20-25 Billion. Ostensibly, this amount is supposed to be covered by privatizations and the sell-off of state assets.

Life, however, does not end in 2013. Where will Greece find the tens of billions of euros it need annually to service its massive debt? And what will happen after 2014, when the amount to cover interest rises?

How long will the World be able to extend AND pretend?

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Philip R. Davis is a founder of Phil's Stock World (, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (

© 2011 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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