Fibonacci’s Rule the Market

Written By: DragonFly Capital

This basic monthly chart of the Dow Jones Industrial Average ($ DJIA, $ DIA) tells you all you need to know about the markets.

Your first take away is that if you do not use Fibonacci’s in your trading then you are really flying blind. I have put the major Fibonacci levels from the 2007 high to the 2009 low on this chart in green. Every one of these levels has played a role in the run higher from the 2009 bottom at least once. The initial thrust higher stalled at a 50% retracement and then pulled back at a 61.8% retracement. The move lower stopped a bit short of the 38.2% retracement but also near a 38.2% retracement of the initial thrust. This signaled a bullish continuation. The next thrust slightly overshot the 78.6% retracement on the crisis move lower before pulling back to the 50% retracement level. This was a pullback of 75.8%, almost 78.6% or as others use 76.4%. The last leg higher is the conundrum. Failing to make it to the 100% retracement, and now with one day left in the monthly candle, sitting near that 76.4%/78.6% level.

This is what makes the direction in the short term difficult to determine. Sitting on support, but a long way from both the full 100% retracement and the 61.8% support levels. That is the second take away. Near a Fibonacci level inflections can occur. The long red candle for May confirming the doji Hanging Man for April suggest that 11245.95 is in the cards. But does it end there?

Dragonfly Capital

HP laptop with preinstalled software

I purchased an HP 17″ laptop with some software preinstalled in order to save myself some time. Normally I would prefer to buy from Dell, but this was the only 17″ machine that I could find with the latest generation (3rd; “Ivy Bridge”) of Intel CPUs.

The computer arrived in good shape, but once opened the purchased software was nowhere to be found, except for Microsoft Office, which was on the hard drive but demanding a product key. HP has invested heavily in a support application that enables their technicians to see everything on the hard drive. I opened a chat session and authorized HP to look at everything on the hard drive. Unfortunately the folks on the other end of this have no way to look up orders, apparently, and the hapless fellow had no clue as to whether or not purchased software should be preinstalled or not. He gave me a phone number to call.

I called the 888 number and waited for my turn. The woman who answered said that the purchased software should be on the hard drive. In fact, it was on the hard drive, she asserted (though she did not have access to the fancy support app that would have enabled her to see the hard drive). I pointed out that was nothing in the Adobe folder under “Program Files” other than Reader. If Photoshop Elements was on here, where was it hiding on the disk? She continued to assert that all of the software paid for was there and when I asked to be transferred to someone more familiar with Microsoft Windows she dumped me into HP’s tech support queue.

I called the same 888 number again and got someone different on the phone. He also had no access to my hard drive, but believed me when I said that the software was not there and that Office was demanding an activation key. He said that this case was being escalated to the highest priority available and that I would be called back by someone from HP within two business days (i.e., on Wednesday of next week, given that Monday is a holiday). I said “Given that I need an activation key, wouldn’t it be simpler for you to have someone email it to me?” That, apparently, is not an option.

My attempt to save myself some time delayed my usage of the software by at least a week (I could have purchased all of these things for download and activated immediately) and will cost me at least two hours of phone and online chat with HP.

More interestingly, I think this shows one reason why economic growth isn’t hugely accelerated by clever technology such as the latest Intel chips or HP’s fancy “look at the customer’s hard disk” support application. The fancy technology is eventually put into the hands of the same workers who made a mess of the old stuff.

Philip Greenspun’s Weblog

Technical Picture – Short Term Correction

From the weekly SPX chart above we note that the RSI usually signals negative divergence to higher prices and positive divergence to lower prices ahead of a major trend change or significant correction.  The exception was the flash crash of 2010.  So far this year, we have no RSI divergence signal, so the assumption is that we will make higher highs in the near term.

The daily SPX chart below did signal negative RSI divergence to higher prices and the current price action shows that we have been working that off through short-term corrective price action.  The mathematical Fibonacci levels in play are extension long with a target of 1454 (23.6% FE). The anchor is October 2011 high.  We anticipate that the ambush zone will hold as support and will be followed by eventual new highs.  If new highs signal negative RSI divergence on the weekly chart, we will anticipate that a larger correction will follow and lead us back to our longer term trendline on the weekly timeframe.

As depicted on the chart below, the DOW made a minor new high on May1st, but was unconfirmed by all the other major indices.  Non-confirmation of new highs and lows, usually leads to fast collective moves in the opposite direction.  Keep this chart handy as we note that the QQQQs are correcting at a much faster rate than the broader indices.  If, for example, the DOW fails to confirm lower lows, it would foreshadow a reversal of the short-term downtrend.

Wall St. Warrior

Book review: All the Devils are Here

I’ve just finished All the Devils Are Here: The Hidden History of the Financial Crisis and it shows that just when you think you know everything sleazy that happened up to and during the 2008 financial collapse you still have a lot to learn.

One of the authors is Bethany McLean, a journalist famous for helping to expose Enron’s accounting fraud. Her partner is Joe Nocera, a New York Times reporter. They concentrate on telling the story rather than offering suggestions for cleaning up the system.

Much of the reporting on Fannie Mae’s lobbying efforts was new to me. Up to the point of collapse, Fannie Mae earned most of its profits by holding onto consumer mortgages that paid, say, 6 percent, and borrowing short-term funds at lower interest rates thanks to its presumed status as an arm of the U.S. government whose debt would be federally guaranteed (as in fact it was). This was a way to make almost unlimited profits that a lot of high school graduates could have managed, yet managers helped themselves to billions of dollars in compensation for running this scheme that was guaranteed to blow up and wipe out shareholders if ever interest rates rose or homeowners began to default.

How did Fannie Mae protect its special status? They would open “partnership offices” in the districts of important House committee members. Those offices would be run by children of senators and other important politicians and would hold ribbon-cutting ceremonies, studded with politicians, to celebrate Fannie Mae putting money into a senior citizen center or whatever. Fannie gave high-paying jobs to former top officials in the Clinton administrations. By paying an above-market salary to the child of a senator or a former Democratic appointee, Fannie Mae was able to stave off Bush administration hospitality and enrich its managers permanently and its shareholders temporarily (until they were all wiped out when the government took over).

This was not the only example of the spectacular returns on investment from lobbying. One of the biggest and sleaziest subprime companies, Ameriquest, hired Deval Patrick, currently governor of Massachusetts, to serve as a board member of the parent company (ACC). Patrick was paid $ 360,000 per year and in exchange lobbied politicians such as Barack Obama so effectively that Ameriquest’s founder was eventually confirmed by the Senate as America’s ambassador to the Netherlands.

The book helps answer the question “Why does everyone hate Goldman Sachs?” An example is on page 338, in which Goldman Sachs put together a $ 1.5 billion CDO in 2004 called “Davis Square III”. This was stuffed full of mortgages from early in the decade of mortgage madness, before credit standards fell and fraud by loan officers became the general rule. The credit ratings agencies gave the CDO a triple A rating. AIG agreed to insure this CDO against default for a minimal percentage. Goldman meanwhile directed the manager of the CDO to swap out some of the better quality mortgages with 2006 and 2007 subprime loans, which were virtually guaranteed to default. There was some fine print in the CDO structure that enabled the manager to do this. Goldman then bought insurance on this crippled CDO from AIG. The ratings agencies finally woke up and downgraded the CDO in May 2008, “costing AIG $ 616 million in additional collateral calls–which came, of course, from Goldman Sachs.”

Stan O’Neal, the former CEO of Merrill Lynch, is featured in a chapter called “The Dumb Guys”. He took on $ 55 billion in exposure to subprime loans and didn’t even realize it, wiping out the shareholders who’d paid him hundreds of millions of dollars in salary. His top executives, also paid a fortune by the shareholders, were equally clueless. In July 2007, they estimated that Merrill’s total subprime losses would be no more than $ 82 million (about half of O’Neal’s golden parachute payment after he was fired). By October the losses were figured as at least $ 7.9 billion. O’Neal and his cronies at Merrill are featured as truly, adjusted for income and position, the dumbest people in the Collapse of 2008. Of course, sitting in your fully paid-for $ 50 million Greenwich, Connecticut mansion, a couple of journalists accusing you of being dumb might not sting too badly…

Alan Greenspan takes a beating in a chapter chronicling his refusal to look at any of the facts on the ground, i.e., that mortgage brokers were issuing loans to people who would never pay them back, then having Wall Street banks securitize those loans and sell them to unsuspecting pension funds. Greenspan was convinced that if these loans were truly so bad then Wall Street wouldn’t be buying and selling them. The Fed had the authority to deflate the subprime bubble but it did not exercise that authority. By contrast, Hank Paulson, who left Goldman Sachs to become Bush’s Treasury Secretary, is lauded for his practical approach and attempts to improve regulation (all blocked by Congress, basically). If you’re kicking yourself for not having figured out that inflated house prices would eventually wipe out years of growth in the U.S. economy, take heart. Paulson, according to the authors, had a similar blind spot: “Paulson didn’t suspect that housing or mortgages could be the catalyst for a crisis. … he thought the way others on Wall Street did and the way economists did: Housing prices hadn’t declined on a nationwide basis since the Great Depression! … for all of Paulson’s worries about derivatives, he didn’t understand the dangerous potential of credit default swaps on mortgages.”

Are there any fundamental problems identified in All the Devils Are Here: The Hidden History of the Financial Crisis? One them cutting through the book is that consumer-facing finance companies, if given the chance, will always try to cheat consumers with complex contracts filled with fine print. The basis of the subprime industry’s profit was that they gulled consumers who would have qualified for a reasonably priced standard loan into signing up for a subprime loan with vastly higher fees, sometimes more than 20 percent of the value of the house. These fees were rolled into the loan along with the principal, so the consumer didn’t pay the fee all at once. With low teaser interest rates, the monthly payment might be lower than on a standard mortgage even as the consumer was handing over his life savings to the subprime lender and its Wall Street investment bankers. The authors don’t quite come out and say it, but they imply that this is why it is necessary to regulate consumer lending much more tightly than it had been during the 1990s and 2000s.

Another theme is that Wall Street investment banks will, if given the opportunity, cheat “real money” investors with fine print and complexity, supplemented by optimistic ratings purchased from corrupt ratings agencies such as Moody’s, Standard and Poors, and Fitch. Sometimes the complexity gets too much even for a bank’s own employees who, despite their stratospheric salaries, aren’t very good at understanding risk. When this happens, the investment bank fails and shareholders and taxpayers are left to pay for the managers’ mistakes. Again, the authors don’t come out and say it, but they imply that this is why the government needs to regulate investment banks.

Overall the picture painted by All the Devils Are Here is of a nation whose population is nowhere near smart enough to use or operate the financial services industry that we have. Once things get to a certain level of complexity, fraud and confusion dominate.

Philip Greenspun’s Weblog

Biotech Breakout

(REPRINTED WITH PERMISSION FROM THESTREET.COM) SPDR S&P Biotech ETF (XBI) has thwarted the best efforts of short sellers in recent weeks, holding close to the 2012 high and setting up a breakout pattern, while the broad market grinds lower in an intermediate correction. This resiliency should intensify once the major indices turn higher but why […]
On The EDGE

Buying Some Dollars

Written By: DragonFly Capital

Last Friday we saw a possible Inverse Head and Shoulders in the US Dollar Index, $ DX_F, in All About the Benjamin’s. From the chart below it is still yet to trigger and continues to be on watch. but if you only trade stocks the futures contract triggering does not help you. Or does it? The PowerShares DB US Dollar Index Bullish Fund, $ UUP fits the Dollar Index Data pretty closely but

not exactly. There is no looming Inverse Head and Shoulders in this chart, but the bullishness is there. This ETF shows a break above 22.61, important just last week but also in October with only the peak at 22.85 in January between it and a new 2 year high. There is some minor resistance at 22.70 along the way as well. Digging a little deeper shows the Measured Move on the recent pullback is to 23.25. The move back higher happened on strong volume Tuesday. The Relative Strength Index (RSI) is bullish as well and the Moving Average Convergence Divergence (MACD) indicator is kinking back higher. Both support more upside. I want to wait to see the Futures break the neckline before entering long, but will have trades ready on the $ UUP for that moment.

Dragonfly Capital

Bain Capital vs. Berkshire Hathaway*

Matthew Yglesias channels … me!

Yep, that’s right.  And now that, as Yglesias discusses, Newark Mayor
Cory Booker has given the Obama campaign permission to explain the differences
between the various types of venture capital “models” (as Yglesias calls them),
conceding that, yes, that may really be more relevant to the key issues in the
campaign than Obama’s earlier relationship with Jeremiah Wright, I strongly
urge the Obama campaign to do that—in detail, with as much specificity as is
necessary to illustrate it. 
In
my earlier post, I mentioned the distinction between, say, the
funding-of-Silicon-Valley-startups venture capital model and the
leveraged-buyout-to-extract-value-and-then-close-the-company model that Bain
engaged in (apparently) regularly when Romney headed it.  Yglesias doesn’t mention the former but
contrasts the latter with the genuine-turnaround model, which is the model that
Bain and Romney claim was (and, for Bain, is) theirs. 
Yglesias
is right to point out that the genuine-turnaround model is distinct from the extract-value-and-then-close-the-company
one.  But I think there’s also a
distinction between the leveraged-buyout-to-extract-value-and-then-close-the-company
model that Bain engaged (and, I assume, still engages) in, in which the intent
is to “flip” the company as soon as possible, and the (to my knowledge)
Berkshire Hathaway model, i
n which the venture capital firm, fund or holding company invests in companies,
long-term, including buying some companies outright with the intent to actually
own them for the foreseeable future.
  (FromWikipedia“Berkshire
Hathaway Inc. … is an American multinational conglomerate holding company
headquartered in Omaha, Nebraska, United States, that oversees and manages a
number of subsidiary companies.”)
Surely
there are differences between the decisions a Bain-like company makes vis-à-vis the businesses it acquires in
order to flip quickly for large profits and a Berkshire Hathaway-like firm whose
interest in the acquired business is long-term, because the very purpose of the
investment is different.  Those differences
matter.  A lot, I would think.
As
for Booker, his short-term interest seems analogous to the Bain venture-capital
model.  Yglesias says he’s receiving quite
a bit of campaign funding from finance types. Including, presumably, those of the Bain model. 
As
for Booker, his short-term interest seems analogous to the Bain venture-capital
model.
 Yglesias says he’s
receiving quite a bit of campaign funding from finance types. Including, 
presumably, from
those of the Bain model. (Or maybe Booker just doesn’t recognize the
distinction.)*



—-
*That parenthetical was added after the original posting.


Angry Bear

“Et Tu, Bruno?”– Lessons for Traders from JP Morgan’s Recent Loss

London’s “Whale” got harpooned.

After being in the press for taking outsized positions in the credit derivatives market, it finally ended for the Bruno Iksil, aka the Whale—and badly.  JP Morgan’s recent multi-billion dollar trading loss caused a huge amount of angst in the financial press over its prop trading activities and risk controls.  As traders, we should pay attention – not out of schadenfreude but to figure out what we can learn from the whole episode.

First, let’s get clear on the facts. The exact trade that got JP Morgan in trouble was a complicated structure in the credit derivatives space. The trader bought credit protection, i.e. insurance, on sub-baskets of weaker credits and hedged the position by selling protection, i.e. selling insurance, on a basket of investment-grade credits.  Because the stronger credits were less volatile than the riskier ones, he needed to sell more face value of protection in order to be fully hedged.

According to Jamie Dimon, JP Morgan’s CEO, the trade did not go as planned. Instead, it was “flawed, complex, poorly reviewed, poorly executed, and poorly monitored.” and ended up costing at least $ 2 billion. Most of the people involved have lost their jobs. The consequences are very real for the bank and its employees.

As traders, here are some key lessons that we can draw from or reinforce from this episode. Let’s not let JP Morgan’s mistakes become ours. In no particular order, they are:

n  Hedging

Amongst some grizzled veterans, there is a famous saying—“The only true hedge is cash”. It’s a bit glib but contains a lot of wisdom. If you have a position that isn’t working, or you want to remove some risk, then the best answer is usually to close the position. If you’re sitting in cash with no position, then you simply don’t have the risk that stems from having any position on.

While hedging can possibly reduce the risk of a single position, it does not remove that risk. In the case of a hedge using the same underlying instrument, you are directly reducing your risk. One example would be being long a stock and hedging it by buying a put, as you are limiting your downside to the strike price of the put – minus the option premium. The clear link between the underlying and the hedge allows you to properly define your risk.

Problems emerge when the hedge is no longer in the same underlying instrument, as you now have to consider a host of new risks and relationships. These are called “dirty hedges” for a reason. Imagine hedging a long position in an individual stock with a put on a stock index will now expose you to several factors—the performance of the stock, the index’ performance, and the relationship of one versus the other. It’s quite conceivable that your stock drops, the index rallies and instead of saving P&L, you’ve lost money on both legs! At some point, as hedging strategies get more complicated, you are not reducing your risk on the original position—you are merely exchanging one set of risks for another. The hedge offers a false security, as you are not protecting the original position but rather expressing an entirely different view on a series of market relationships.

In the case of JP Morgan’s trades, the trade had numerous complicated risks factors that made it deficient as a genuine hedge. (You can read more about the structure here and also here). There was basis risk (the varying performance between the instrument they traded the underlying); volatility risk (as volatility in one instrument could have diverged from the other one); correlation risk (as the correlation between the subindices and higher-rated index could have diverged); and the plain old credit risk, i.e. the risk of default by the components of either basket. The trade was more of a view on the relationships between all of those moving parts.

One thing’s for sure—it was not a proper hedge for JP Morgan’s existing portfolio. Because the position was not offsetting existing risks, it was not locking in any P&L for the bank, opening up a set of new risks and the potential for large losses.  To make matters worse, it exhibited negative convexity i.e. it increased in size as it went against them, something that shouldn’t happen if you’re trying to preserve P&L!

Bottom Line: Make sure you’re clear on what risks want to hedge. After that, make sure you are genuinely hedged and not taking on a whole new position.

n  Do your homework.

On the conference call, Jamie Dimon said about the position that “It was a bad strategy”. In summary, it’s not clear if the team had done the right kind and amount of homework prior to putting on the trade. Prior to implementing a trade, it’s important to have a well thought-out rationale; to know what kind of risks you are running; and to make sure you understand how that position will work under a variety of scenarios. Similar to the hedging discussion above, you need to understand a thorough understanding of what view you are taking and what risks you are running. If you haven’t done the right kind of homework, then you are setting yourself up for losing money.

There is an old poker saying that “If you don’t know who the sucker at the table is, then it’s probably you”. In other words, if you haven’t figured out who the weakest competitor is and what your own edge is, then you are probably going to lose. This is important in all markets, and even more so in areas like credit derivatives where the instruments themselves are quite complicated. Just to show up in these markets, you need an in-and-out understanding of the product and all of its intricacies and risks. If you don’t, then you risk getting wrong basic stuff like hedging ratios and executing trades that were flawed from the very start.

Don’t become too big for the market

There is only one thing worse than having a trade that’s losing money—not being able to get out of it. Taking an excessively large loss will lead to account closure almost instantly. Apart from the aspects mentioned above, your position has to be liquid enough for you to get out—otherwise you are trapped and your potential downside is catastrophic.

In the case of JP Morgan’s trade, that seems to have compounded the damage. After the conceiving the trade, they put it on in massive size, in a way that appeared to distort the underlying market and invite traders to shoot against the bank. After rumors appeared in the press about the market activity and the trade started going against them, the situation worsened. The market, sensing that JP Morgan was one side of the trade, watch it struggle to get out of a position that was far too big for the market it was in. Ultimately, this compounded the losses and forced JP Morgan to recognize losses beyond the initial $ 2 billion estimate.  Ultimately,  when you are too big for the market and wrong, then you are going to have your head handed to you.

This matters not just in opaque markets like credit derivatives but also in markets that are supposedly trader-friendly. If you’re day trading equities, you can’t take positions that take more than one or two clicks to get out of. Even if you’re a long-term position holder, you still don’t want to buy 20% of the company where any attempt to get out of the stock will destroy it. Respect the market by trading smaller size and never, ever trying to push the market around.

Bottom Line: Always take positions that are right-sized for the market you’re trading in. Otherwise, you can’t control your losses.

Ultimately, this episode in the markets should provide a powerful reminder in why we study and repeat the basic principles of trading. A small team at JP Morgan ignored a few basic rules of trading and ultimately paid a very large price — despite working at one of the world’s most sophisticated banks, having a balance sheet of hundreds of billions of dollars and ample experience in the product area! If they can mess it up, then it should serve as a lesson to any trader, in any environment—master the basics and never, ever forget them.

Disclosure: No relevant positions

By Bruce Bower | E-mail: Bruce [at] howoftrading.com

Blog: www.howoftrading.com | Twitter: @HowOfTrading

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SMB Capital – Day Trading Blog

Walmart – Always Low Prices, Always….Well Maybe Not for Long

Written By: DragonFly Capital

A funny thing happened out of this Walmart, $ WMT, bribery and corruption scandal. Yes the stock took a hit. But then they reported earnings and gapped back higher. Now it is trading at a 52 week high. Well that is not completely accurate. It is actually trading at a more than 10 year high and an all time high on a dividend adjusted basis. But it is the last candle of the daily weekly and monthly charts that makes the stock so interesting here. Lets take a look.

Walmart, $ WMT, Daily

The daily chart above shows the stock breaking above an expanding wedge, or megaphone, that has been in place over the last 5 months. The Relative Strength Index (RSI) is bullish and just touching in the technically overbought area with a Moving Average Convergence Divergence (MACD) indicator that is positive and growing rapidly. There is a caution here as the volume has been falling on this breakout, but the picture is bright with a target on the breakout to 68. but wait there is more. The weekly chart shows strength as well. After breaking above a rising channel from July 2009 through to October 2011, the price retested the channel from above 5 weeks ago and is now moving higher. Also note on this timeframe that the volume is actually increasing over the last

Walmart, $ WMT, Weekly

few weeks (last candle is only 1 day). The RSI on the weekly points to more upside, in bullish territory with a current rising trend, and the MACD is about to cross bullishly positive as it broke above a triple top at 62. The target for this leg higher remains at 65.40, from the original break of the channel. But wait there is more. The monthly time is also strong an screaming buy me. The stock has trade in a range between 38.50 and 61.50 for 13 years. Prior to that it had a $ 30 move higher over the previous 3 years. Now breaking that channel with support from the technical

Walmart, $ WMT, Monthly

indicators it has a Measured Move higher to 84.50 on this timeframe. Not too shabby. But even removing all timeframes and looking at a 3 box reversal point and figure chart the upside is big. Breaking a double top the price objective on the Point and Figure chart is 76. So four views with four different targets of 68, 65.40, 84.50 and 76. Average them and you get a move to 73.25, or 165 higher. Not bad for a stock that also pays a 2.6% dividend.

Walmart, $ WMT, Point and Figure

Dragonfly Capital

Avengers 3D movie

I spent a couple of the longest hours of my life this evening at the Avengers 3D movie. A companion pronounced herself thoroughly bored and complained about the thin dialog. It does not seem as though it would have killed the screenwriters to have explained how Loki survived his death plunge from the Thor movie or who was behind his effort to take over the Earth and/or what he planned to do once he became supreme dictator (Loki was compared to Hitler in the movie, but Hitler at least had a published plan prior to taking power).

It occurred to me that if this is the creative energy that supposedly renders the U.S. immune to foreign competition we might be in some trouble. Chinese actors could certainly learn to speak a handful of lines in English while stuff blows up around them. Chinese screenwriters could presumably come up with a plot pretty similar to the Avengers movie. It is not the idiosyncratically creative stuff that Americans do that makes money, apparently, but the formulaic. So can we really have a sustainable competitive advantage in this area?

Philip Greenspun’s Weblog

Rain Delay EURO Tarp…………….(Evil Plan 63.0 by BDI)

51311_005A_MU-Texas_Tech_Baseball_ds_t620

Well my fellow Slope-a-Dopes, I finally scored this week, driving in six runs.  It was certainly about time!  As you all undoubtedly know, America’s national pastime has not been very kind to A-Bob this 2012 baseball season. Big league pitchers have regularly been blowing curve balls right by the notorious Gallic long ball hitter, repeatedly leaving his extended bat blowing in the wind.  Even though it does feel good to get out of my endless hitless funk, I am a bit annoyed at myself for taking my shorts off too early on my way to the showers Thursday afternoon, not to mention making an egregious error by switch hitting for my last at bat, in breathless anticipation of the cuming bouncing Faceboy.  Clearly should not have listen to my pimp bookie on that one.

I finally recognized the Bernanke knuckle ball pitch floating towards the plate, looked Benny squarely in the eyes, pointed to the upper deck, and promptly connected right on the G-spot with some serious Louisville wood, launching the ball directly towards the busty tube top babe in the outfield bleachers.
A-rod-home-run2Rejoicing with a fist pump, convinced I had hit yet another grand slam, I rounded third with all three base runners ahead of me stomping their SPX cleats firmly onto home plate. When suddenly, seemingly out of nowhere came a 38 MPH wind gust, which met the ball head on, directly in its face just as it was soaring into outer space. You should have seen my long face, much to my dismay, as instead of landing somewhere between the 45-50th rows of the cheap seats, the ball dropped like my fly directly into the glove of #38, the gifted young center fielder Mark Zuckerberg, nearly hitting the surprised MVP right in the face.  Regrettably, it was not one for the record books, as the ball did not make it out of the park, faceplanted by the 38 MPH head wind. Much to my chagrin, although I did end the day with six RBIs, I was robbed of another walk off grand slam. I probably should not have posted this personal misfortune here, but rather on my own Fadebook page.  If you don’t like it…..blow me!

Enough pathetic ramblings of the trials & tribulations of the French long ball strike out king.  Let’s get to the all important matter at hand. Will the world series game be rained out, or can the heavy plastic tarp be successfully deployed, and quickly rolled out onto the soaking wet field, just in time to save the playing surface from turning into an unplayable greasy reddish Iberian mudfest?  And if the tarp does indeed do the trick, what are the managers’ new game plans, who’s the new pitcher going to be, does he have good enough stuff, and who’s coming to the batter’s box?  We all know the score, we just don’t know how many more innings can be played in this euro-slop……….

Certainly looks like the slick & cocky GM Obummer is now fully engaged in the outcome of this all important game, he surely knows his job is on the line here, as the screaming fanatical fans and the team’s desperate owners will promptly fire him if he loses the big game for all the marbles.  

As per Reuters Saturday afternoon sports pages:

(Reuters) – A shirt-sleeved Obama opened the morning session, promising to seek ways to restore healthy growth and jobs and address concerns in Europe.

 “All of us are absolutely committed to making sure that both growth and stability, and fiscal consolidation, are part of an overall package in order to achieve the kind of prosperity for our citizens we all are looking for,” Obama said.

Obama, whose re-election chances in November depend heavily on the U.S. economy continuing to shake off recession, said there was now “an emerging consensus” that Europe ought to invest in job-creating infrastructure and other programs at the same time as it tackles its deficits and debt.

2012-05-19_1924The entire world wide MLB franchise organization seems to be pulling out all the stops for this critical game.  Major league FED/ECB easing via currency swap lines, combined with jumbotron EURO bank cash infusions & sturdy back stops should keep the ball in play. Obama will throw the first pitch over the plate for game 7, and a QE3 stadium wave will be unleashed to rally the cheering fans. Home plate Umpire Big Benny B will signal the all clear, Tiny Tim will direct the wave from the public announcement booth.

The European baseball commissioner served up moneyball comments on the crucial game: 

World leaders backed keeping Greece in the euro zone on Saturday and vowed to take all steps necessary to combat financial turmoil while revitalizing their economies, which are increasingly threatened by Europe’s debt crisis.

 European leaders seemed keen to stress on Friday that they would stand firm in protecting their banks, after news of escalating bad loans raised the specter that rescuing Spain’s banks would crash the euro zone’s fourth largest economy.

“We will do whatever is needed to guarantee the financial stability of the euro zone,” European Union President Herman Van Rompuy said.

Marc Chandler, currency strategist at Brown Brothers Harriman, said: “It is significant that a group as weighty as the G8 backs Greece and reinforces the idea that Europe needs a strong union. It strengthens its hand.”

Astonishingly, our Cricket paddle playing friends across the pond, are also showing interest in the deciding game:

British Prime Minister David Cameron, after an early morning treadmill workout with Obama at the Camp David gym, said he detected a “growing sense of urgency that action needs to be taken” on the euro zone crisis.

London relies heavily on international finance and banking instability would strike a fresh blow to an economy already in recession.

“Contingency plans need to be put in place and the strengthening of banks, governance, firewalls – all of those things need to take place very fast,” he told reporters. 

Joltin Joe Dimagio of Italian decent, and the Gallic bomber’s native country offered up the following winning game plans:

Earlier French President Francois Hollande suggested using European funds to inject capital into Spain’s banks, which would mark a significant acceleration of EU rescue efforts.

“I will outline all growth proposals at this informal meeting on May 23,” Hollande told reporters at the end of a G8 leaders meeting in Camp David. “Within this packet of proposals there will be eurobonds and I will not be alone in proposing them. I had confirmation on this at the G8.”

An Italian newspaper reported that Italian Prime Minister Mario Monti has proposed at the G8 summit creating a Europe-wide system of bank deposit insurance. Officials had no immediate comment.

The only voice missing to shout out proclamations on the decisive game, was the loud stout German blonde anchor women of the cheer leading squad. It seems a large contingent of disgruntled Greek fans from Astoria NY, poured cold Budweiser beer on her head from the stands above, and heaved jumbo sauerkraut hot dogs laced with French’s bright yellow mustard directly at her, splattering her costume with heaps of foul food stains.  She was utterly humiliated, forced to head back to the showers to rinse out her hair, and pull out a clean outfit from her austere grey locker.  Highly doubt we will be hearing a peep out of her for the rest of the game.

On an interesting side note, this just in from European MLB:  The Gyro Spartans are losing their home game against the Frankfurt Nazis 42 to zero, bottom of the ninth.  Apparently, their clean up power hitter Alex Tsipras has been ejected from the game for punching pitcher Wolfgang Schaeuble in the face, after having been beaned in the groin by his ferocious Messerschmidt fast ball. Unfortunately this leaves the Greek National team with only 8 ball players left on the roster, however, the EUMLB default rules do not permit them to forfeit the game. The League has ordered them to add their gay bat boy to the line up.  At this point, one can only hope that Wolfgang has completely lost control of his Messerschmidt, and hits the next 47 batters in a row. We wish the hapless Gyros better luck next week, as they are scheduled to face the loser of the much anticipated series between the powerful Berlin Krouts & the up and coming French Grey Poupons…………..Go Gyros!

 

 

So you see double play Dopes, the big game hangs in the balance, and the top dogs are at bat. They will make sure it’s not rained out, and that the ball bounces right out of Candlestick park.

Play ball, the count is full, swing away……Evil Plan 63.0 will run the score right back up to 1360.

 

103257945_crop_650x440
 BDI SOH’s Idiot Savant

 


Slope Of Hope with Tim Knight

Top Trade Ideas for the Week of May 21, 2012: The Rest

Written By: DragonFly Capital

Here are the Rest of the Top 10:

Athenahealth, Ticker: $ ATHN

Athenahealth, $ ATHN, has held firm during the market pullback in a symmetrical triangle. Bounded by 75.20 to the upside and 70.50 on the downside a break either way has a measured move from the pattern of 8.40. There is not any solid clue from the Moving Average Convergence Divergence (MACD) indicator or the Relative Strength Index (RSI) as to the next move. There is very high short interest at over 20% in this name. Wait for a break and then jump in.

Cerner, Ticker: $ CERN

Cerner, $ CERN, broke below support at 78 and ran hard lower on Friday to the 50 day Simple Moving Average (SMA) on big volume. Short interest is elevated at about 8%. The RSI is pointing lower and falling while the MACD is negative and growing more so. Both support more downside. I like this more than many that have been trending lower because the RSI is still far from being oversold.

Edwards Lifesciences, Ticker: $ EW

Edwards Lifesciences, $ EW, is turning a bull flag into a reversal. The RSI is running lower with a MACD that is crossed negative and growing more so. Look for a break on the real body of the gap up day candle to enter short.

HollyFrontier, Ticker: $ HFC

HollyFrontier, $ HFC, is pounding on support at 28.20. The RSI is bearish and trending sideways with a recent blip down. The MACD is flat without and information value. A break below support has a Measured Move to 20.20.

Home Bancshares, Ticker: $ HOMB

Home Bancshares, $ HOMB, is also trying to keep a bull flag from turning into a reversal. The RSI is holding at the mid line with a MACD that is negative but stalling in its growth to the downside. Notice that the Bollinger bands are opening though. A move under 27.85 looks to at least fill the gap. And a move over 28.75 has a Measured Move to 31.

Up Next: Bonus Idea

The Best

If you like what you see sign up for more ideas and deeper analysis using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Saturday which heading into the last week before the unofficial start of Summer shows the reality of a continued bearish bias is strong. Crude Oil looks better to the downside with Gold heading higher at the same time as global economic fears are growing. The US Dollar Index and Treasuries are looking to continue to strengthen with a chance that the Dollar Index consolidates first. The Shanghai Composite is now firmly heading lower in line with the crash in the Emerging Markets. The Volatility Index broke the pressure cooker to the upside and looks to continue to move higher. These influencers set a backdrop for the Equity Index ETF’s to continue to the downside. There is no disagreement or discussion this week. The charts of the SPY, IWM and QQQ whole-heartedly agree with the downside bias. Look for a reversal in the Dollar Index or Treasuries as a sign that the worst is over for equities. Use this information as you prepare for the coming week and trade’m well.

Dragonfly Capital

Facebook IPO trading details

We expect Facebook IPO to price tonight and the shares are anticipated to begin public trading Friday May 18,2012.

We expect Facebook shares to begin trading as a listed company tomorrow morning sometime after the opening of the regular market.  Here are a couple of quick bullet points of what to expect.

  • The symbol is FB.
  • The primary listing exchange is the Nasdaq Exchange (“Nasdaq”).
  • FINRA does not allow member firms to accept market orders for IPO’s prior to the issue commencing trading in the secondary public market.
  • Currently the Facebook IPO price range is $ 34-$ 38.  OptionsHouse is not an underwriter and does not have Facebook shares available at the IPO price.
  • If entering orders for Facebook, we strongly recommend using limit orders all day as Facebook shares are expected to have extreme price volatility especially on the first day.
  • Customers will be able to enter Facebook orders after the market close today which will have a pending status until the order is accepted by our vendor we expect this tomorrow morning.
  • Before the IPO is released for trading on the Nasdaq exchange:

The Facebook shares will enter a quote-only period for approximately 15 minutes

  • THE SHARES WILL SHOW A BID QUOTE AND ASK QUOTE DURING THIS TIME HOWEVER THE SHARES WILL NOT BE OPEN AND AVAILABLE FOR PURCHASE AT THE QUOTED PRICES.
  • Think of this as an opening rotation allowing time for the market to determine the first traded “PUBLIC” price
  • Again expect extreme price volatility during the first day of trading and we recommend using limit orders.

The Quote only period can be extended by Nasdaq due to excessive quote price volatility.

The IPO is expected to be released for trading at a time determined by the Nasdaq.

REMEMBER:  No market orders will be accepted in Facebook before the shares are trading publically.

 

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  1. Trading Strategies from the Authors of Buy and Hedge, Part 4

OptionsHouse» blog

A Credit Crisis of Different Kind

Written By: DragonFly Capital

We have an unabating budget crisis in the US, a sovereign debt crisis in Europe and California so broke they are drooling for the Facebook IPO to be able to get some tax revenue. There are credit crises everywhere. But up to this point the credit card companies have been a lone bright spot in the credit space. That may be changing. Lets look at the two biggies, Mastercard, $ MA, and Visa, $ V.

Mastercard, $ MA

Mastercard, $ MA, hit a peak in its run higher 3 weeks ago with a top at 466.98, as seen in the weekly chart above. Since then it has been pulling back to the 20 week Simple Moving Average (SMA) which has been support for this 2 year run higher. It has held there many time. Like the last test of support the Relative Strength Index (RSI) is at the mid line and the Moving Average Convergence Divergence (MACD) indicator is crossed negative and growing more so. These support a move lower, but as occurred last time they also support consolidation. With a day to go in this weekly candle, this time there is a difference. If the week closes with another long red candle it will complete Three Black Crows candlestick pattern, a bearish pattern. The candles are bit wider apart than a solid pattern confirmation but Bulkowski’s work shows that this reversal pattern has a 78% success rate and is ranked #3 out of 103. The risk on the wider pattern is that it becomes oversold. That means support here. But we already knew to look for that. So a continuation lower supports a continued bear case. A retracement Friday above the 410 area would turn this week’s candle into a Hammer and add to the case for support and a move back higher in the trend.

Visa, $ V

Visa, $ V, is in a similar quandary. It to is pulling back to the 20 week SMA where it has found support in the past. No Black Crows here but there are some factors that make it more vulnerable on this test. Every other test of the 20 week SMA had the RSI very close to the mid line and the MACD at zero, without going negative. This test is about to happen with the RSI a good bit higher, but still trending down, and a MACD that is negative and growing more so. Not a guarantee that is continues but stronger support for the downside than it has seen rein the last 2 years.

Keep your eye on these two names over the next few days to see if they hold at support or break through and continue. A continuation lower is a great opportunity for a short trade with major support much lower in both.

Dragonfly Capital

Federal judge rules part of new anti-terrorism statute unconstitutional

NEW YORK (AP) — A judge on Wednesday
struck down a portion of a law giving the
government
wide powers to regulate the detention,
interrogation and prosecution of suspected terrorists, saying it left
journalists, scholars and political activists facing the prospect of indefinite detention for
exercising First Amendment rights.
U.S. District Judge Katherine Forrest in
Manhattan said in a written ruling that a single page of the law has a
“chilling impact on First Amendment rights.” She cited testimony by
journalists that they feared their association with certain individuals
overseas could result in their arrest because a provision of the law subjects
to indefinite detention anyone who “substantially” or
“directly” provides “support” to forces such as al-Qaida or
the Taliban. She said the wording was too
vague and encouraged Congress to change it.

I wrote
about this case on AB back in January and said that there’s no question but
that that part of the law is unconstitutional
.  I said back then that the only real question in that
case is whether the plaintiffs, Truthdig columnist Chris Hedges and a few other
journalists, have “standing” at this point to challenge the constitutionality
of the law—that is, that they could show that things they themselves want to do
are things for which, under the statute, they possibly could be detained.  According
to today’s AP report, the government’s lawyer effectively acknowledged at the
oral argument in the case in March that that’s possible.  
That clarified that the
statute is as broad and as amorphous as the plaintiffs say it is—that there is
no way even to know whether certain activities could result in detention (a
violation of due process, which requires that laws be specific about what is
proscribed), and also that the statute authorizes detention for activities that
are protected by the First Amendment, including activities of the sort that
these plaintiffs had engaged in and plan to engage in in the future.
This
ruling is almost certain to be affirmed on appeal in the Second Circuit Court
of Appeals, based in New York.  But ultimately, the Supreme Court
will have to hear the case.  If, as I expect, the appellate court
affirms the trial judge’s ruling striking down the law as unconstitutional, the
Supreme Court will hear the case, because the Court always agrees to hear cases
in which a lower appellate court has invalidated a federal statute.  And
in the unlikely event that the appellate court reverses the trial judge’s
ruling, the Court will hear this case because the First Amendment and due
process issues are just too clear and too important here, and because the law
so clearly does violate the First Amendment speech and assembly clauses and (because
of its vagueness) Fifth Amendment due process rights.  I have no
doubt that the Supreme Court will strike it down as unconstitutional.
It
should be noted here that the only reason that Obama signed the law last
December is that it
was
a poison pill that the House Republicans inserted into a Defense Department appropriations
bill that was passed under deadline and that was necessary in order to avoid an
interruption in salary to military personnel, among other things, if I recall
correctly.  The Republicans’ purpose, of
course, was to try to fabricate a Dems-are-soft-on-terrorism issue for the
November elections.  As I said in my
January post, Republican pols think it’s still 2002. Or at least 2004.  Or maybe even 1980.  Or 1968.  It’s not; they don’t realize
that that well’s finally run dry, but it has. 
Obama should have stood his ground, although some congressional Dems voted
for the appropriations bill, for fear of political repercussions.  When Obama signed it, he said he thought that
part of the law may well be stricken down as unconstitutional, and I do think
that that’s what he expected.  Still ….


Angry Bear