This Week in Barrons – 3-22-2015:
Thoughts:
Last week I spoke about entrepreneurs and it reminded me how they are almost the exact opposite of politicians. MJP said it best, Politicians: (a) start out with a vision for their constituents, but end up seeking power, money, and continuation of their job, (b) spend taxpayers' money with no restraint, and then just print more, (c) lose touch with their customers, and (d) stand as a ‘house divided' with questionable leadership. Entrepreneurs: (a) Seek out the realization of their dreams and money, (b) define their own job, (c) spend finite amounts of money – within a budget and a plan, (d) cherish their customers, and (e) are forced to work as a team with excellent leadership – otherwise they fail. Potential entrepreneurs (want-tra-preneurs) are discouraged by the actions of our politicians, and until politicians are allowed to suffer the consequences of failure (become bankrupt and out of work) nothing will change.
A tip of the cap to Ms. Yellen this week when she said, “Removing the word patient does not mean that we are now impatient". Trillions of investment dollars moved around that statement. Sometimes I have to step back and remember that a group of ‘for profit’ individuals, every 6 weeks, determines the proper way we run our $17 Trillion economy. No one voted for them. No one required them to previously run a growing business or even prove that they can handle the transactions surrounding a lemonade stand. Yet they determine the policy that affects all of us. In the statement that acknowledged a slowing economy and an employment situation that wasn't good enough, this cleverly phrased statement gives them ‘wiggle room’ to say ‘no’ to a rate hike in April. This phrase also gives Wall Street a gift from the heavens in the shape of zero interest rates and more printed money for a least another month and a half.
Forgetting politics for a minute, and thinking about the reality of the situation:
- Can our debts ever be repaid? Nope – it’s mathematically impossible.
- Can Japan ever repay it’s debts? Nope.
- How about Europe, can they repay their debts? Nope.
If it can’t be fixed – it won't be fixed. The world wants a change to the status quo and I believe it is coming.
The Market:
Factually this week:
- Home mortgage applications fell another 4%, over the 1.7% fall last week.
- Housing starts fell by 17% - which analysts are blaming on the weather; however that doesn’t explain the 18% plunge in California.
- Fannie and Freddie have announced that they may need another bail out.
- Quicksilver Resources (a Texas-based energy company) has announced it's going bankrupt, as the fall in oil prices continues.
- The issue with oil prices isn’t so much the direction, as the speed. When oil moves too quickly in a sustained direction, the disruptions to the energy industry and the derivatives written against it by the banking industry often outweigh the gains by the consumer.
Is there anyone remaining (outside of CNBC announcers) that doesn't think this market is overpriced and in bubble territory? In the last month we've heard Alan Greenspan say that the markets are overdone. We've heard from a dozen prominent hedge fund managers, and the outgoing Dallas Fed chief (Mr. Fisher) all saying that the market is overpriced. Yet on Friday, the market went up another 168 points. Overpriced or not, keeping assets higher is job one for the FED and Wall Street and they're doing anything they can to keep all of their plates in the air. I can only imagine that they are going to try and get us up to the all time high of 2117 on the S&P. You have to lean long into this silliness, but I'll be the first to tell you it is nerve wracking.
On Wednesday, all Ms. Yellen did was kick the can down the road with her: “Removing the word patient” speech. It did allow an overbought, running on fumes and wicked manipulations stock market condition to continue. Small cap stocks are indeed leading the way higher – bringing the financials and others with it alongside. Until we break out to new all-time highs, the last high now serves as a resistance level. We could fail at that resistance level. So for me, we are too close to that upper boundary to just buy long here and ‘forget it’. It’s definitely a time to remain nimble.
TIPS:
If you were with me on the CF, CP and IBB trades last week, you should be pretty happy. In fact if you held CF all the way to the end, you ‘pinned’ at $290 – the peak of our butterfly – congratulations.
For April we found 4 trades that will PAY you to take them, and a couple others that are ‘free’ for the taking. All of the trades are complimentary, broken-wing butterflies. That is to say that you are buying a broken-wing butterfly on the PUT side and on the CALL side – 1 standard deviation out from the current price. If the stock moves the complete 1 standard deviation, you are then making money inside your butterfly. Otherwise, if the stock simply consolidates, you are getting paid just for the trade. Such as:
- AAPL (Apple) – Buy APR – PUT Fly: +120 / -118.57 / +115 = 0.25 Credit, and CALL Fly: +134.29 / -135 / +137.14 = 0.11 Credit
- AMZN (Amazon) – Buy APR – PUT Fly: + 360 / -355 / +345 = .26 Credit, and CALL Fly: +395 / -400 / +410 = 0.35 Credit
- GOOGL (Google) – Buy APR – PUT Fly: +535 / -530 / +520 = .40 Credit, and CALL Fly: +595 / -600 / +610 = 0.40 Credit
- IBB (Pharma ETF) – Buy APR – PUT Fly: +345 / -340 / +330 = .42 Credit, and CALL Fly: +380 / -385 / +395 = .12 Credit
In terms of other recommendations:
- AET (Aetna) is a strong chart, and I’m thinking of the April: +105 / -115 Call Debit Spread.
- GILD (Gilead Pharmaceuticals) is consolidating right now – looking and waiting for it to break to the upside so the April: +100 / -110 Call Debit Spread would be appropriate.
- KSU (Kansas City Southern) and CNI (Canadian National Railway) have a lot more upside on them – looking at buying an APR Call Debit Spread on KSU of +115 / -120, and buying an APR Call Debit Spread on CNI of +65 / -70.
- RH (Restoration Hardware) is currently priced at $93.75 and I think it’s going to 100. I am buying the +90 / -100 Call Debit Spread, and then probably selling the -90 / +85 Put Credit Spread on the downside prior to earnings.
I’m currently holding:
- CELG – SOLD APR Put Credit Spread: -105 / +100
- COST – BOUGHT APR – Call Debit Spread: +145 / -160
- FB – BOUGHT APR – Call Debit Spread: +80 / -90
- LL – SOLD APR – Put Credit Spread: -30 / +28,
- HEDJ – BOUGHT APR – Call Debit Spread: +63 / -66 – that I will cash in and renew for May – as it performs well with U.S. dollar strength, and
- URI – SOLD APR – Iron Condor: +80 / -82.5 to -95 / +97.5
- SYK – SOLD APR – Put Credit Spread: +85 / -87.5 and Buy Butterfly: +95 / -97.5 / +100
- SPX – SOLD APR – Iron Condor: +2010 / -2015 to -2160 / +2165
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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