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Paging Mr. Claus…

The last trading week of the year has arrived, with the Federal Reserve finally raising rates by 25 basis points, and the S&P 500 is once again red for the year. Given the stunning selloff over the last two trading days with bears licking their chops for more, the question appears not to be anymore whether the S&P will close anywhere near the lofty targets set by analysts (and recently revised lower), but whether it will rally at all going into the new year… Commodities continue to be crushed, with crude oilgold and natural gas all hovering at multi-year lows. The double whammy of lower oil and gas has stirred some consternation over producers’ debt issuances, causing tremors in the high-yield space to be felt as well.

Judging by the recent behavior of market participants during the last few selloffs, an oversold bounce looks in order this week, although whether it can be sustained remains to be seen (futures are currently up at the time of this writing). Volumes are typically thin at this time of year, bringing the corresponding caveats for traders. As always, trade well and stay disciplined. But more importantly, enjoy your holidays and spend time with the ones you love.

Merry Christmas and Happy New Year everyone!

I Bubble Bubble

After catapulting to an eye-watering all-time high last week with catalysts coming from mergers and component companies’ positive drug test results, the IBB biotech index suffered its biggest loss in months, dropping 4.1% and dragging the Nasdaq down to a 118 point plunge, the biggest one in almost a year just after it finally breached the 5,000 level for the first time in 15 years since the tech bubble burst. Semiconductors also got slammed and were the other contributing factor to the Nasdaq nosedive. BIS has been an excellent trader to capitalize on this biotech correction, having bounced off an all time low of $29.18 last week. I managed to pick this up at $30.40, sold at $32.00 and got back in at $31.55. I scaled out again today at $34.55 and $34.10. It closed strongly but I am expecting a bounce in the IBB before we see whether the trend has actually reversed or if this is just a correction.

Interestingly, steels (AKS, X, STLD) bucked the trend (or at least outperformed the indexes) and continued to bounce after getting hit by lower guidance last week.

And just when you thought crude oil was going to have a quiet day after barely a peep on larger than forecast inventories, it staged a huge rally right before the final hour of pit trading at 13:20ET. GASL was a major beneficiary of this turnaround, up 8.8% to hit a multi-week high of $3.21. After hours crude leaped another 5.4% to $51.91 on news of Saudia Arabia launching airstrikes in Yemen.

FB faltered after a 7 day winning streak that tacked on 10%, briefly dropping below $83 before recovering slightly as Mark Zuckerberg kicked off the F8 2-day developer conference. There has been a lot of bullish call buying in this name in recent weeks and we will see if that continues. I closed some puts at a tidy profit this morning but sold far too early it seems, and started nibbling on some calls.

And it seems like every day is Friday for AAPL these days, as it suffered a massive $3.31 gutting on seemingly no news. Unfazed, some bullish posters on StockTwits continue to call for $130+ within a few days. I guess if you consider a +$0.30 bump in after-hours ‘panic buying’ and ‘shorts getting annihilated’, then anything in your mind is possible…#hopespringseternal. Also took profits on puts here and opened some calls, so let’s see if we get a bounce off these levels.

As always, trade well and stay disciplined!

A Slippery Inflection Point

On the back of falling rig counts and a technical oversold bounce oil has staged a vigorous two-week rally, climbing 22% off its 5 year lows of $43.58 on January 28. Bears are calling for a continued downtrend with this recent move being only a dead-cat bounce, whereas bulls find encouragement in the price holding above $50 for the first time in weeks. Personally I would enjoy an extended period of cheaper gas as prices at the pump have jumped correspondingly in the last couple of weeks, and it would also give me the opportunity to pick up some beaten down oil majors paying fat dividends, like CVX, TOT, or the XLE ETF. Junior oils have also staged a breathtaking surge in plays like OAS and GDP, as well the XOP ETF. Another interesting ticker to watch is FCG , tracking oil & gas producers and explorers (holdings here) and its 3x leveraged cousin GASL, which have bounced sharply after hitting all-time lows recently. The energy sector has lifted broader indices in US markets, and has also thrown a lifeline to the ailing Russian market as shown by the strength in RSX, RUSL. A strengthening ruble has also helped. DWTI and UWTI are still trending and in play with this oil volatility still at the forefront.

As always, trade well and stay disciplined!

 

Whipsawing Lower

PCLN hit a milestone today, although a bearish one, as it plunged through the $1,000 level for the first time since October 2013. January 1000 monthly put options expiring on the 17th (technically tomorrow) skyrocketed from a low of $0.55 to a high of $10.60 before closing at $8.70, representing a 625% return overnight! Many other momentum names have fallen through key levels this week, including AMZN, AAPL, BABA, GPRO, NFLX, and TSLA.

Even ‘Turnaround Tuesday’ could not save the broader indices as an initial rally was quickly sold off, with the S&P 500 down again today for the fifth straight day, closing 52 points lower since last Friday at 1,992. The 30-year yield has also been cratering all week as evidenced by fresh highs in TLT. And the VIX has been hovering above the 20 level for the 3rd day in a row.

There were a couple of monster moves in commodities, notably natural gas, which surged almost 10% yesterday after already being up 5% the previous day off year lows. After this morning’s EIA inventory report it continued to rally briefly before giving back some of the week’s gains. The other big gainer was gold, up over $30 this morning as it breached the $1,250 level, reaching a high of $1,267 before settling just below $1,260. The catalyst for this appeared to be the Swiss National Bank’s decision to unpeg the Swiss Franc from the Euro, causing the franc to jump 30% vs. the Euro and 25% vs. the USD before paring some gains. FXF would be the ETF vehicle to trade this if you are so inclined. And of course, what week would be complete without volatility in oil? WTI crude rallied briefly above $51 before settling sharply lower at $46 today. For the strong of stomach DWTI has been an excellent ‘buy the dip’ tool to ‘sell the rip’ off any spikes in the commodity at this point, hitting a low of $144.81 this morning before closing near the HOD of $174.55.

With monthly options expiration tomorrow expect another volatile day as Goldman Sachs caps off a week of financials reporting disappointing results with BAC, C, JPM and WFC having all taken a beating. As always, trade well and stay disciplined!

Checkmate

Epiphany in the Cacophony

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I remember the time my father taught me chess. On a Sunday afternoon, I sat cross legged at the center table in the drawing room, silently watching him put the pieces in place. “This is the queen, and this is the king”, he said, holding up the pieces. My eyes widened. I reached for them, running my fingers gently along the piece, examining it closely as he set up the board.

He went on to explain the rules to me. “The aim is to protect the king at all costs” he said, showing me how the different pieces moved across the chessboard. It was the most beautiful game I’d seen. I stopped listening. All I saw was a story. A story of two kingdoms, equal in strength, competing for supremacy.

I saw a battle begin before my eyes. The pieces charged towards each other, falling by the dozen as…

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Setting The Tone For The Year

Welcome back! Hope you had an enjoyable holiday with your loved ones and got some well-deserved rest and relaxation. Markets got off to a choppy start to the new year after a rough finish to 2014, with the Dow finishing barely in the green after an early 100+ point pop that quickly fizzled out, while both the Nasdaq and S&P 500 closed red on the first trading day of 2015. Amidst the volatility gold managed to stage a modest rally on Friday, but still under the $1,200 level, with miners GDX and juniors GDXJ ending strongly up on the week. Natural gas  continued to crumble with an EIA draw of -26bcf, well below expectations of -38bcf despite colder weather forecasts. Futures closed below $3 for the second time on Friday despite a strong morning rally that held above $3 most of the morning but was abruptly cut in half with a massive plunge back below by 14:25ET. The triple-leveraged UGAZ and DGAZ ETFs have been trending the past few weeks on StockTwits, with UGAZ losing more than 75% of its value in just over a month! Conversely, DGAZ has more than doubled over the same period.

Russian markets have been closed this week since Dec. 30th and reopen on Monday, but with another holiday on Jan. 7th. This has not stopped traders from making bets on the RSX Russia ETF as well as its triple leveraged cousins RUSL and RUSS, which have seen a wild ride tracking the volatile movements in crude oil and the ruble, both of which have resumed their downtrend.

The first full trading week of 2015 should set a more decisive tone for the short term, with some key economic releases including jobs data Wednesday through Friday, as well as the FOMC minutes on Wednesday. ISM non-manufacturing numbers are also due Tuesday morning (full calendar here). Some notable earnings this week include Micron Technology, WD-40, SUPERVALU, Bed Bath and Beyond, Constellation Brands and Apollo Education. As usual Alcoa kicks off the main reporting season the week after on Jan. 12th, with major financials Goldman Sachs, Bank of America, Citigroup, JP Morgan and Wells Fargo reporting the same week.

That’s it for now- trade well and stay disciplined, and wishing you all a great start to 2015!