McDonalds released April sales. Holders in our Blue Chip option (www.bluechipoptions.com) have already seen a 36% rise on this option, and will hopefully be selling the rest of their position Monday when slimy old McD, worst hamburger made, ugliest buildings, promoting a fat culture, will again BOOM.
Meanwhile, Friday we stop lossed on the call, our first loss in 16 days of trading, but took nice profits on the May515 Put.
Actually astute day traders reported in following our support and resistance lines and our mid day recalculation sent by Twitter were able to trade both put and call profitably several times during the day as the market massively whipsawed.
China will most likely show a second month of a trade balance, showing a deficit and this might trigger the market.
Fidelity Brokerage, and I'm sure others, has defined that all trades on May 6th between 2.40 p.m. and 3.00 p.m may be deemed "clearly erroneous" and corrected.
Of course you have read that it was Proctor and Gamble hitting new lows on "gossip" that new Pampers caused skin rashes, and falling 22% in a minute, leading the market down.
You have also read it was the fast transaction electronic trading that caused this.
Traders with us at Blue Chip Options have heard from Floyd the past 8 weeks that the market was overextended, and likely to have a 3% retracement to the 10,746 line.
That 3% runs with Elliott Wave and Fibonacci movements. However, chartists can easily prove the 5.5% actual moves we saw in the market can be correlated with extreme cycles around Elliott Wave.
More important, it is the speed in which we saw FEAR spread, and shows Floyd (screw all the reasons why, even Goldman's President says he doesn't know (sure) is correct on one thing:
When euphoria moves the market as much as we've seen in the insane run up to new highs, without healthy consolidations, the market itself takes over and "cuts your nuts off".
That's what happened. A consolidation, for whatever reason, needed to occur, and it did.
What happens next is the key.
*As Accenture hit .01 Thursday a trader theoretically could have bought 500,000 shares for .01, selling to 41.22 40 minutes later, and pocketing 20,610,000 in profit.
This is conceivable.
*It is also conceivable that the 5.7% drop we saw was NOT a glitch, NOT a computer error, or a keypunch stroke, but real.
If this is true it shows just how untrusting the public is and how nervous they are about a fall, enough to follow the hedge funds, and sell off in a panic.
*Europe’s ills have unnerved us. I have no idea why because even a high school economy student with analysis could see that the same debt game had built in the old country. We are a world of debt, all fake money, all a “house of cards”, and it’s being proven to us again and again.
*This week McDonalds, Toyota, Nissan, Macy’s and Sony report earnings.
*Porter Stansberry, one of the best market predictors out there, wrote:
“ Jimmy Cayne is a truly despicable liar. You might not be familiar with his name, but Cayne was, until late 2007, a titan of Wall Street. He was the CEO and chairman of Bear Stearns.
For a long time, he was also the single-richest banker in history. Over his long career, he amassed more than $1 billion in compensation from Bear, mostly in the form of stock. Today, Cayne testified before Congress that the collapse of Bear Stearns wasn't his fault. In fact, if you believe Cayne, the collapse of Bear was everyone else's fault:
The market's loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy. The efforts we made to strengthen the firm were reasonable and prudent, although in hindsight they proved inadequate. – Jimmy Cayne's written testimony to Congress, May 5, 2010
I know very well that when you look at the mortgage debacle, you won't find any saints. Nearly every market participant was guilty of irresponsible or illegal actions. Borrowers willingly lied about their incomes and assets. Mortgage brokers willingly underwrote loans they knew couldn't be repaid. Real estate agents deliberately sold homes to buyers they knew couldn't pay for them at prices they ought to have known were unsustainable. Bankers behaved with reckless stupidity; buying loans they knew (or ought to have known) were garbage and reselling them to investors, who were stunningly ignorant of the risks of the securities.
Having said that... few people have more personal responsibility for the crisis than Jimmy Cayne. And no one is more at fault for the company's collapse. I say so primarily for three reasons...
First, Bear Stearns was the undisputed leader in the securitization of residential mortgages into bonds on Wall Street. No other firm was more aggressive or made as much money as Bear did on residential mortgage-backed securities (RMBS). Had Bear insisted on higher lending standards, Wall Street's capital would have never poured into subprime debt. Crack houses would have never come to stand behind triple-A-rated securities. Jimmy Cayne should have made sure this never happened.
Second, no other banker was paid as much or had more authority in his firm than Jimmy Cayne. Few people on Wall Street had enough power, experience, and gravitas to stop the kind of mania that gripped Wall Street during 2005 and 2006. Out of the handful that could have prevented the crisis, Jimmy was, by far, the most experienced, highest paid, and the most respected. If Jimmy Cayne had announced at the end of 2004 that underwriting standards had collapsed and Bear wouldn't securitize any additional mortgage bonds without vastly higher lending standards, the credit crisis wouldn't have occurred.
Finally, evidence shows that had he taken steps to raise large amounts of capital in 2007, Cayne could have saved the bank... Yet he did almost nothing to prevent Bear Stearns' collapse. In fact, during those critical months in the summer of 2007, he was routinely out of the office, playing golf in New Jersey or bridge at tournaments in Nashville and Detroit.
No one disputes these facts. Default rates on subprime mortgages soared in early 2007. Investors in the "equity" tranches of Bear Stearns' mortgage securitizations began blowing up in early 2007 – starting with Dillon Reed Capital. As the default rates worsened, one mortgage company after another went bust.
On July 10, 2007, Moody's and S&P downgraded $12 billion of subprime backed RMBS. As a result, two of Bear Stearns' hedge funds collapsed. One lost 100% of its investors' money.
Jimmy Cayne cannot testify he was unaware of these events. He cannot say he didn't understand the direct threat to his firm – his own mortgage hedge funds collapsed. Nor can he say he didn't know his firm was leveraged more than 50 to 1, implying that even a 2% reduction in the value of its assets could wipe out all of its equity.
Most important, Jimmy Cayne cannot pretend he didn't understand how the collapsing price of RMBS would hurt his firm, which held more than $15 billion worth of these securities. As I explained to our subscribers on August 14, 2007, the downgrade of previously triple-A-rated securities would require all of Wall Street to raise enormous amounts of additional capital:
To hold AAA-rated paper, banks, and other financial institutions need only to maintain $0.56 in capital for each $100 of paper. But as the paper is downgraded, the amount of capital they're required to hold goes up, exponentially. At a BBB rating, financial institutions must hold $4.80 of capital. At BBB-, they must hold $8 of capital per $100 of asset-backed securities. Thus, as the crisis worsens, the demand for capital from these firms could grow substantially. – The S&A Digest, August 14, 2007
Here's a question I wish Congress would ask Jimmy Cayne. He continues to claim Bear Stearns sank due to a crisis no one could have anticipated or prevented. If that were true, then how did I write what I wrote? In August 2007, I explained all of the core problems Bear Stearns faced. These facts led us to recommend shorting Lehman, Fannie, and Freddie. They led us to doubt (correctly) Goldman Sachs' accounting and to predict the collapse of Merrill Lynch.
So I wish someone would ask Jimmy and all of the other leaders of Wall Street: "How did you miss problems so obvious to everyone else?" For Pete's sake, even Fortune magazine pegged the housing bubble as early as 2004. Yet supposedly, none of Wall Street's most elite bankers saw it coming? I don't believe it. And neither should you.
The truth is, dear subscribers, these men – the top executives at all of the biggest institutions on Wall Street and most of the people in Washington who were supposed to be regulating them – took insane risks with enormous amounts of borrowed money. They did it because they thought, quite simply, that they'd get away with it... that, in some way, shape, or form, they could hedge their risks and still make a fortune.
They tried to pull it off by selling their mortgages to suckers from foreign countries and idiot hedge-fund managers. They believed they could hedge their risks by buying insurance from companies like AIG and MBIA, which were actually leveraged more than the investment banks themselves. In short, they willingly bought into the giant delusion that they could get rich at someone else's expense by selling toxic securities as being "triple A."
It was a lie. But it's a very powerful and seductive lie, and it fueled literally billions and billions of dollars worth of compensation. Keep this is mind: Wall Street banks routinely paid out 40% of revenues in employee compensation.
Keep this in mind too: Washington continues to take insane financial risks with a phony triple-A credit rating. That scheme won't last either.
A U.S. currency crisis will come sooner than most anyone thinks possible. A global run on the dollar could happen at any moment. And the dollar isn't just another major currency. It is the world's reserve currency, the foundation of the entire system.”
*Floyd’s Seven Questions for Tea Party Advocates:
-With less government (how does this occur) and less taxes (how does this occur, take it from the government, that has no money) we will rely on Free Enterprise.
Is that right?
-Does Free Enterprise really even exist? (Read article above)
-When we take back our rights who is in charge of helping us keep them?
-If we are to “follow the Constitution” than that means there will be a complete separation of church and state?
-How many of you have studied the writers of our Constitution to prove they were these ideologues we live by. Were these just men leading us? Do many know how Jefferson profited immensely from the first setting up of banking and unscrupulous behavior occurred then?
-What is it you really want?
-Do Tea Partiers promote offshore drilling surrounding the U.S.?
There is a point to these questions, and it’s not political. Much as I think we are hearing the “people are fed up” we also have people (us) that have no interest in changing their ways. We would have to all have less, live with less, and live differently. Hundreds of thousands of jobs would be lost working with “less is better”
I led these questions so it was hard to answer, but also to show there is no logic to the anger, as it is not focused, but purely emotional. And I worry when I see even more bipartisanship entering our lives. Diversity in people and thought is life, but “game players” and KarlRoveians have created almost a series of false perceptions so believable that only those that analyze lobbyists, holdings, and the self serving of many of the beliefs, both Democrat and Republican, hinder movement.
The bottom line: Politics now more than ever dramatically effects market reaction.
Fear and greed based motivations (Proctor and Gamble on Thursday) around support and resistance lines, with pivot points, are the core of how we train, all around “no noise” point and figure charting”.
What we now have to study is the correlation with the fear in the marketplace, the good earnings and manufacturing reports we’ve been reading about, and whether some group was profiting, or computer mistakes can destroy economies in seconds.
I’ve wondered for years; who is in charge? Not God, not spiritual, but how does this whole infrastructure we have built continue to self evolve? I think I have learned that in all of this no one is really in charge.
Last weekend we provided an update on all of our holdings. Of course, we’ve dropped with the market, but have no changes to our recommendations.
Many traders have asked us why we sold our final positions in Gold, Silver in all forms. (We held SSRI or SLV, GLD, and CEF). Gold has more upside and is still on a buy signal, silver is showing a bit of weakness, and we’re convinced that the precious metals will have a fast decline on any strong market upsurge.
Our rule is NEVER to sell at the top, but to SELL near the top. We think we took safe bondage to exit the metals, but we will be buying heavily in GLD, SSRI, and CEF in coming months.
What trades to make: Any of our core positions that have lost value is an excellent buy. We built inventory, for example, in 7 or 8 holdings Thursday afternoon, all stocks that we want to hold long term and have so advised to you.
Johnson and Johnson, Bristol Myers Squibb, Exxon-we aggressively added to these positions. We are long long on all three of these core positions, all paying dividends.
We made great money on our Sept TLT Call. Two days, 40%-60% final results, and many still hold.
Long-term bonds, we think, will have a short shelf life of high prices, but now is the time to take advantage of them.
Many traders are turning short on oil, thinking it topping.
Buy into weakness this week, carefully watching our Dow projections, and seeing just what happens.
Good Trading!
