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Catching a Falling Financial Knife

Friday Fake Stock Market Rally – Wnat Are People So Happy About?

Stock-Markets / Stock Markets 2014 Mar 28, 2014 - 03:30 PM GMT

By: PhilStockWorld

Stock-Markets

As I walk on through this wicked world,
Searching for light in the darkness of insanity,
I ask myself, Is all hope lost?
Is there only pain, and hatred, and misery? – Elvis and Lowe

Once again the Futures are up in the morning and once again we have to wonder why?


Now, don't get me wrong, we love a fake rally as much as the next guy, especially when it gives us great shorting opportunities. Yesterday, even as I noted in the morning post that our Wednesday morning Futures shorts made $6,050 in 24 hours for Members who followed those trade ideas, our new suggested shorting lines of Dow (/YM) 16,200, S&P (/ES) 1,845 and Russell (/TF) 1,150 all came in and, before lunch, we hit 16,150 on the Dow for a $250 winner, 1,835 on the S&P for a $500 gain and 1,141 on the Russel for a $900 win.

So PLEASE Mr. Market – feel free to run us up again! Actually, this morning I sent out an Alert to our Members identifying the Nikkei (/NKD) as the best shorting opportunity of the day, week and probably the month of April as well. Testing 14,795 this morning, we're short below 14,800, which is the level I predicted we'd run to at 9:50 am on Wednesday in our Member Chat Room, saying:

Submitted on 2014/03/26 at 9:50 am

Nikkei/Eric – They are happy the Dollar is back up (80.27) and that means not a good short at the moment. Over 14,500 has very little resistance up to 14,800 so not a good spot to short and maybe a good long, actually, but my heart isn't in longs at the moment.

The long play was good for $1,500 per contract but, as I said, I wasn't into it. The short play, from 14,800, I'm very excited about for reasons I have outlined in previous posts and that we went over extensively in this morning's Alert to our Members, so I won't get back into it here. Once the market opens, we'll look for a nice short on EWJ ($11.21) as well.

Do you want to know something really funny? I was also detailing in yesterday's morning post how we were focusing on TZA as a great market hedge and I laid out all 5 of our bearish positions and, with the Russell making the usual fake move up in the morning, any one of them were very easy to enter in the morning. The aggressive TZA spread from our Short-Term Portfolio was up net $4,510 at the time and those same positions finished the day up net $6,100 – another 35% gained in a single day on just a 0.35% drop in the Russell.

It's right there in the morning post folks – those are just the free samples!

This is the main lesson we are teaching our Members this year, with our balanced Short and Long-Term Portfolios. The highly leveraged gains in the $100,000 Short-Term Portfolio protect our $500,000 Long-Term Portfolio and allows us to maintain our Long-Term positions so we can BE THE HOUSE and just keep playing while the premium of the puts and calls we sell erodes for the people we sold them to.

Even though it was a small pullback, on the whole, it was good enough for us to take profits on 4 position in our Short-Term Portfolio (see our afternoon Alert to Members). As the quarter doesn't end until Monday, we don't expect a big sell-off until Tuesday the earliest. Until then, there are tens of Billions at stake in keeping the markets looking pretty so that all those investment brochures with Q1 performance charts will have convincing reasons for Banksters to tell you why you should put more money into the market (through them, of course).

After all, why is NFLX trading at $360 this morning when AMZN just announced they will provide a similar service FOR FREE – not just to their prime customers, but to anyone (ad supported). If you think people won't want to watch TV shows with ads instead of subscribing to NFLX, I'll remind you that 80% of the US population still doesn't subscribe to NFLX. Earnings are after April options expiration so the May $300 puts at $7.50 should hold their value fairly well, even if NFLX doesn't fall on this news. If they go back over $365, the premise is blown and we can take a small loss – that's how you make a news trade!

TSLA had news too, with Aswath Damodaran agreeing with my proper valuation of $115 for essentially the same reasons I have. Also yesterday, we got word the Panasonic is not actually all that interested in partnering on the Giga Factory, which makes you wonder about TSLA's liability as it was one of the reasons they used to raise $2Bn from suckers just one month ago. Here's the spin as TSLA was our raising cash with crooks like MS, who gave them a $320 price target while they underwrote the bonds for fat fees (as well as owning $1Bn worth of the stock themselves):

Tesla said it will commit $2 billion of its own money to build the Gigafactory and will raise $1.6 billion from investors and the rest from partners. It didn't name its partners in the project, but Panasonic is widely believed to be one of them.

"Panasonic has built a collaborative relationship with Tesla Motors, and are looking at options for strengthening that relationship," a Panasonic spokesman said Wednesday by email. "At this stage, nothing is decided."

Tesla and Panasonic, based in Osaka, Japan, have a strong partnership. Panasonic invested $30 million in Tesla in 2010, and the two companies in 2011 finalized an agreement for Panasonic to provide Tesla with roughly 640 million automotive grade lithium-ion battery cells, or enough to build more than 80,000 vehicles, over the next four years. In October, the scale of that agreement was nearly tripled to 1.8 billion cells.

So they don't ACTUALLY lie, it's just VERY MISLEADING to investors. Unlike SOME analysts, I will disclose that, on 2/25, when MS came out with their idiotic call and TSLA ran up to $248, my lunchtime trade idea for our Members was:

SLA/MrM – And they seem to have messed with the margins (for good reason, at 20% in a day!), so a massive squeeze in progress. April $265/230 bear put spreads are $16.20 and almost all in the money with a potential $18.80 in upside at $230 and you can set a stop on those at $10.20 rather than continue to ride out the madness and that way you limit your margin and your downside and you still make as much as you'd make on a pullback to $235.

As of yesterday's close, the spread is $23 in the money at $207 and netting $31.35 so we're done with it (why risk a 100% just to make $3.65 more?). I devoted much of the next day's post to why we were short on TSLA and the other MoMos at the prices they hit that week, so you can review our logic there but what you really might want to review (if you are too cheap to become a Member and see our new trade ideas live in our daily Chat Room) is 2/21's "5 New Trade Ideas that Can Make 500% if the Market Falls." One of those Trade Ideas was:

We can sell 1 AAPL 2016 $450 put for $42.50 ($4,250) and buy SQQQ 15 June $50/59 bull call spreads at $3 ($4,500) and that's a net of $250 in cash out of pocket for $13,500 (5,300% on cash) worth of protection and our worst case is owning 100 shares of AAPL for net $452.50 ($45,250).

The AAPL $450 puts have dropped to $37.40 ($3,740) while the SQQQ spread is now $3.50 ($5,250) for net $1,510, up at our primary 504% target already but still with ANOTHER $11,990 left to gain if you want to use that old trade. If you want a new Trade Idea with better leverage – I'll see you in Member Chat!

Have a great weekend,

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), 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 eHarmony.com. 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 (www.philstockworld.com)

© 2014 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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Catching a Falling Financial Knife