Facebook’s Friends offer Filthy Lucre! (FB, SOCL, SPY)

Let’s open today with a look at our favorite stock (that we also love to hate), Facebook Inc. (NASDAQ:FB). We don’t intend to confuse y’all with statements like these. The truth is we haven’t much use for a company like Facebook or its product, outside of course, making money off the stock’s moves. Yet that said, we also appreciate that Facebook is emblematic of today’s tech-mad, anti-social, fame-crazed world and in accordance with that, we’ve taken the liberty of naming the current bull market the ‘Facebook Market’. And it remains very much our contention that as goes the stock of the world’s biggest time-waster, so, too, goes the broader market. And with that in mind, let’s have a look at the action in Facebook over the last few months. As the chart below shows, Facebook shares recently went into a steep decline for a good two months, along with the rest of the social media big shot (and a host of other big tech names). It seems the time for a pullback in the social media was at hand and investors sold accordingly. Facebook stock fell 25% peak to trough but now looks to be stabilizing. Stabilizing? A look at…

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Reader Discretion is Advised (XLY)

We’re going to return today to one of the themes we highlighted in last week’s letter and attempt to explore it in somewhat greater depth. For those who wish to go back and review our thoughts of May 15th, the letter was called Horrifying Research Reveals Rally-Ready Market. Now onto business. We were exploring the give and take between the consumer discretionary sector and the consumer staples, noting the relative strength of the staples during times of worry and that of the discretionaries when investor confidence prevailed. We produced for you a composite chart of the two using the Select Sector SPDR Consumer Discretionary ETF (NYSE:XLY) and the Select Sector SPDR Consumer Staples ETF (NYSE:XLP) – and wrote about them as follows: The see-saw action between the two leads us to believe that we’re now at a point of extreme worry. If we had to bet, we’d go contrary – long XLY and short XLP in a pair’s trade, with the expectation that the gap will once again widen. Since writing those words, we’ve had a closer look at the charts of both and while our assessment remains the same, we want to add some more color to the picture…

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Sitting Pretty on Three Open Trades (XLU, GLD, GMCR)

It’s always worth a second look when the leading sector of the market begins to turn over and yell ‘SPANK ME!’ And so it is now with the utilities, one of the market’s biggest gainers since New Year’s, which topped out at the beginning of May and has been edging lower ever since. Now, on the one hand, this is no surprise at all. In fact, it’s an inevitability. Every leading sector eventually gives way to a rival, turns lower and regroups before climbing again. The question that confronts us, though, is a little more subtle. And that is, whether the turn lower in the utilities is a mere matter of sector rotation, or whether it signals the start of a general retreat for equities of some unknown magnitude and duration. We leave it as an open question, because although we have our opinions, it’s important to note that that market leaders’ turning lower are also a potential harbinger of a bearish swerve. That said, have a look here at the Select Sector SPDR Utilities ETF (NYSE:XLU), for the last six months – The first item of note is just how much power the move has had. From New Year’s…

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Horrifying Research Reveals Rally-Ready Market

It’s time again to peer into the darker corners of the equity market, where only the brazen and stout of heart dare to tread. Please do follow along. We’re going to look at three distinct sectors of the market today in an attempt to build a composite picture of where things are headed over the near and intermediate term. It’s an approach we’ve had good success with for a number of years. Perhaps, you’ll read on and gain something in the process. Here we go… Our first stop is the oil patch, where we often head to get a read on potential inflationary pressures. The rationale is – as goes the price of oil, so, too goes the cost of most goods and services. Why? Because oil price inflation is nearly always a function of a hot global economy. When factories are producing a-go-go and the increased production requires more fuel, and shippers are therefore more active, you can bet that consumers are also spending their money like nobody’s business. To get a take on whether that’s happening, we’ve charted oil, as represented by the United States Oil Fund ETF (NYSE:USO), against the world’s largest producer, Exxon Mobil (NYSE:XOM). We’ve…

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A Gold Pen! My Kingdom for a Gold Pen (GLD, XLU, DIA)

Buckle up and hold on, ladies and gems, because the ride’s about to begin and we ain’t got no insurance. What we have instead is a whole mess of trades to review and a few new ideas to ponder, so get a pen while you’re at it. We begin the week with a quick word about fellow scribbler Matt McAbby, who last Thursday penned a piece on deep-in-the-money options that’s a MUST read for all who care about their investments. Here goes – On March 3rd we recommended a deep ITM CALL position on the indexes. The letter was called As the World wars, Wall Street Waxes

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A Quick Class on Deep Money Options

A long-time reader wrote us this week questioning one of Hugh’s recent options selections. He wasn’t sure why Hugh, a convinced equity bull, would choose to purchase deep-in-the-money CALLs on the indexes if he was so sure we were headed higher. Specifically, he asked – Why are you going so far out? Do you not think that the market will go higher in the shorter term? Why are you recommending deep in the money calls? Why not recommend at the money or out of the money for greater leverage? Because Hugh’s such a bookworm and barely gets his nose out of his research long enough to take a breath of the planet’s crisp fresh winds, we thought we’d take the liberty to respond to the theoretical side of our good reader’s question. It goes like this. The value of an in-the-money option is composed of two items – what’s called ‘intrinsic value’ and ‘time value’. The stock is at 100, the 80 CALL sells for $25, and we say that the option has $20 worth of ‘intrinsic value’ and $5 worth of ‘time value’. The ‘intrinsic value’, of course, is the actual worth of the option were it to expire…

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Noah Would Have Bought CALLs (XLU, SPY)

We’ve got one trade to close before we get down to business this week. It was a winner, thank the Lord, not a grand slam homer, mind you, but a nice turn of profit. It was an initiative we booked back on February 24th, just prior to the broad market top-out and at the end of what we figured would also be a top for the Utility sector. The letter was called Downside betting on Freeport and the Utilities, and there we wrote as follows – [W]e see the longer term picture is bullish, despite any temporary stall that may be upon us. RSI and MACD are above their waterlines and all the weekly MAs are unfurled and trending higher. In sum, the utilities should continue to rise, but after their most recent burst, may be due for a short term pause. And, in short, we were wrong. The utilities, as represented by the Select Sector SPDR Utilities ETF (NYSE:XLU) did exactly the opposite of what we expected, continuing to rise through last week and setting new 52 week highs along the way at $43.52, before eventually losing power this past Friday and dumping by over two percent. The rise…

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A FaceBergZucker is Born (FB)

This time we’ve really done it. We’ve gone over the edge altogether. We’ve managed to strap together a suicide belt and an Evel Knievel Snake River Canyon rocket booster and leap from a Cessna with a bottle of Maker’s Mark in one hand and a picture of Lindy Sue in the other. And there’s no turning back! In this issue we stick out our necks and call the market like John Wayne in Bozo for your Birthday, the movie he did before that lymph operation made him kingpin of the Hollywood agency wars. What the…? That’s right. We’re shooting from the hip, so keep your heads down and listen. The Facebook (NASDAQ:FB) market was reborn earlier this week – on Monday, the 28th of April, to be precise – when shares of the world’s greatest time-waster snuck below the bottom end of their late January gap, effectively closing the book on a technical formation that’s kept chartists tapping their fingers for some three months now. Have a look – We’re well aware that not all the technical’s are in place for a long side trade at this stage, but as we said, we’re sticking our necks out. Why? Because the…

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Measuring the Worry one Cup at a Time (GMCR, TSLA)

So just what is this so-called ‘wall of worry’ that epitomizes bull markets on Wall Street? It’s a phrase that’s bandied about by just about everyone. But until you open up the patient and actually stir about in his guts, you really have no idea what it means. It’s for that reason that we’re taking a minute to opine on the exact meaning of the term, its relevance, and how it works in reality. We’ll start like this. ‘Bull Markets Climb a Wall of Worry’ We’re in a bull market. It’s been going on for five years and, for technical and other reasons, there’s little reason to think it will stop. That being the case, one would expect people to be jumping out of their britches and throwing their money into the market like a pack of crazed baboons? So why aren’t they? The simple answer is – they’re scared. Or, to put it into the terms we framed above, they’re worried. Worried? About what? For starters, Russia and the Ukraine. Israel and the Palestinians. Obamacare. The IRS.  The NSA. The NBA. The Justice Department. George Clooney. Rick Perry. Benghazi.  Obamacare. Cows in Nevada. Immigrants on the border. And Obamacare….

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Market Meltdown? Maybe. Gold? – Probable. (GLD, MBI, VIX)

Ladies and gentlemen, back on the 27th of February we penned a piece on the notoriously volatile bond insurer MBIA Inc. (NYSE:MBI), in which we argued that the company would be THE place to park your cash for the immediate future. The article was called The Coming MBIA Bubble, and there we wrote –   [T]he price of ensuring corporate bonds is now at its lowest level since the Lehman crisis, and with it, MBIA’s business is exposed to less risk… And the same trend is evident in sovereign default risk profiles…. All of which is why we would tend toward aggressive bullish betting on MBIA’s prospects for both the near- and intermediate-term. And what happened? Within a week, shares of the stock had shot up 15%, CALL options were up by the hundreds of percent and we began backpedaling like Dirty Johnson at the 1964 Rodeo Clown Championships. That’s when we wrote The Fortunes of Two Space Age Rocket Stocks: TSLA and MBIA and suggested that you exit your long MBIA trade ASAP. Here’s the way the whole jumble appeared on the charts – The question for all you investment jocks out there, is how do we play MBIA now?…

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