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Friday Already? Russell Rebalancing Should Make Things Interesting

$8.5 Trillion.  

That's the value of the Russell "small cap" Index (IWM), which is up $3.7Tn (77%) from $4.8Tn in 4 years.  While that's impressive, of course, it's lagging the Nasdaq, which is up 130% in the same time-frame, so the Russell (and the other indexes) have a long way to go if they are going to catch the Nadaq (QQQ) – or maybe the Nasdaq is ridiculously overvalued?

The Russell rebalancing or "Reconstitution", as they like to call it, takes place today and thank goodness they have made their own infographic to explain it because I couldn't figure out how to do it in less than 10 pages – so click here if you want the details.  There will not likely be a huge effect, they are simply rearranging the deck chairs – it's not like when the Dow or S&P add or drop companies but strange things do happen as companies shift from the Russell 3000 to the 2000 or the 1000 because it takes them out of one ETF and puts them in another in some cases.  

Last year you can see that red spike down in June though – that was the last rebalancing and the index dropped from 1,175 to 1,075 (-8.5%) in 2 days – but then recovered the next week.  We went long on the Russell Futures (/TF) yesterday in our Morning Report and caught a $500 per contract gain up to 1,410 but today we are watching and waiting to see what happens.  

Getting back to the Nasdaq, although it seems outrageously high, the tech companies have come on strong with earnings – or at least Apple (AAPL) has, since that one company added $11Bn in profits or 50% of the Nasdaq's gains but that's enough to keep the p/e ratio of the entire index at a not-too-crazy 25.97 vs 24.09 for the S&P while the Russell 2,000 has a p/e ratio of 82.36 – THAT is why it's lagging so far behind!  

Now, to be fair, the Russell 2,000 tends to include some start-ups that are still in the money-losing phase of their existence and they have to get much bigger before they graduate to the Nasdaq 100 or S&P 500 so the bet on the Russell is a general bet on growth and what's been going wrong for the Russell is their relatively strong dependence on the US market (80% of revenues) and, of course Amazon (AMZN), which is killing small retailers with assists from WMT, TGT, COST, etc.  

You can see it on Main Street – there aren't many towns in America that don't have empty storefronts, even in "prime" shopping areas.  While there may be more jobs in America, they are jobs that pay low wages while the successfull middle to upper-middle class people who used to own those stores and the landlords that used to rent to them are the ones who are getting squeezed out of existence by the super-rich, like Bezos, who added $60Bn to his wealth in the last 4 years while his company gained $320Bn in market cap.  AAPL gained $500Bn since 2013 too so really – what's left for the little guys?

3,000 Russell companies gained $3.7Tn in 4 years while AAPL and AMZN alone added $820Bn – it's very hard to compete with that act.  While I could tell you 3,000 reasons why AAPL is a bargain at $750Bn, Amazon's $478Bn valuation is a bit insane, considering they only made $2.3Bn last year for a p/e of 200 vs Apple's p/e of 13.  If AAPL were valued like AMZN, it would be an $11Tn company!

Apple is 10 years older than Amazon but, looking at the last 5 years (2011-2016), AAPL has grown their profits by $25Bn while AMZN has grown profits by $2Bn (less than 1/10th).  As you can see from the chart above, AMZN is growing by making a lot of acquisitions, noteably Whole Foods (WFM) just last week while AAPL just sells more stuff that they invent themselves.  

Image result for amazon vs appleShould you trade in your $1,000 share of AMZN for 7 $145 shares of AAPL?  OF COURSE YOU SHOULD!!!  Come on, how can you even wonder about that.  If this tech rally is real, eventually AAPL's p/e of 13 (not including $250Bn in CASH!!!, which is 1/3 of their market cap) will look like a bargain to someone and, if the tech rally isn't real – then I'd sure rather be holding stock in the company that makes $50Bn a year with $250Bn in the bank for $750Bn than the company that makes $3Bn (assuming growth) with no money in the bank (WFM used it all up) and a $478Bn valuation.   This is just common sense folks – let's get real!  

While Amazon has been second in revenue growth over the past decade out of the tech leaders, income growth has been essentially non-existent while AAPL has gone up 10x.  In fact, Apple products are Amazon's number one source of revenues, accounting for over 10% of total sales but that amount ($17Bn) is is only 8% of AAPL's overall sales so Apple could pull their products from Amazon and it would hurt AMZN a lot more than it would hurt AAPL. 

Walmart (WMT), of course, dwarfs all of them in sales ($500Bn), which is 1/6th of all US Retail Sales and WMT makes $14Bn a year – 7 times more than Amazon yet you can buy WMT for $228Bn, 1/2 of AMZN's market cap.  Walmart is getting pissed about that and they are hitting Amazon where it hurts by going after their profit center – cloud computing – by issuing a warning to tech companies it does business with: Don't use Amazon's cloud services!

The World's largest retailer is starting to tell technology companies it works with to stop using Amazon Web Services and move to competitors instead, The Wall Street Journal reported.  An Amazon spokeswoman referred to Wal-Mart’s moves as attempts to “bully” tech suppliers. “Tactics like this are bad for business and customers,” the spokeswoman said. 

Wal-Mart and Amazon have sparred for years. Last week, Amazon sent shockwaves through the grocery industry—one of Wal-Mart’s biggest businesses—by announcing a $13.7 billion deal to buy Whole Foods. That came after Wal-Mart in recent years slashed grocery prices in part to stanch an Amazon’s online incursion into the business. More recently, Amazon lowered its Prime membership fee by nearly half for people who obtain government assistance, targeting a Wal-Mart stronghold.

Their cloud battle takes aim at the financial advantage AWS gives Amazon. The company’s global retail business operates on thin margins, but they are offset by the enormous profits AWS generates. In the first quarter, AWS posted $890 million in operating income, accounting for 89% of overall operating income, even as AWS’s $3.66 billion in net sales accounted for just 10% of the company’s total.  WMT is looking to hit AMZN where it will hurt the most and this is likely to be just an early round in a long war for retail dominance.

“People jump through hoops to do business with Wal-Mart all the time,” said Robert Hetu, an analyst with the research firm Gartner Inc. “That should absolutely accelerate the competition from Azure.”

We are long WMT, long AAPL and short AMZN.  

Have a great weekend, 

- Phil

 


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  1. It's funny to hear these moderate GOP senators posturing on TV on how they have reservations about the healthcare bill, worried that it will hurt their constituents and so on… And in the end, they'll vote for it anyway because it's party over country! And then they can go back home and tell their voters that they tried hard!


  2. Wal-Mart taking shots at Amazon:

    https://www.wsj.com/articles/wal-mart-to-vendors-get-off-amazons-cloud-1498037402

    Vendors can't use AWS…


  3. Good Morning.


  4. "Do or do not, there is no try" – Yoda


  5. :)


  6. Phil – Are you out of /NGV7?  It wasn't in your futures 'rundown'.


  7. Good morning,

    GILD initiated at "Buy" by Deutsche Bank… hopefully this will be the start of analyst's jumping on the bandwagon. 


  8. I have decided to 'do not' because trying aint workin — out of KC…who knew it could be so bitter.  Phil. Need a few winners on the futures soon.


  9. Phil – Could you remind our members that you're here to teach us to fish?…..


  10. 1020/fish  Exactly


  11. 1020 – always the sweet one are you not?.   I was just asking for a stacked pond for confidence building.


  12. latch/stacked  I googled "stacked" – it did not pull up fish.


  13. Oh, I'm sweet alright… ;)


  14. Good morning!  

    Sorry to bring this up but, Jesus, what has become of us?  

    And, of course, this:

    And you Conservatives can't understand what we're upset about???

    And I'll be expecting one of these for Christmas:


  15. Markets opening with a little dip, heading back to the pre-market lows like they actually meant it.  

    5,780 is failing on /NQ.  

    /NG/Jeff – Yes I took the move up to $3 and /SI too to concentrate on fixing oil and coffee.  Once those are better I'll be back in my usual longs (on the dips).  

    Futures/Latch – I think /KC and /CL are the best bets at the moment but scary over the weekend.  

    Fishing/1020 – Yep and when they are not biting we should just wait for a better time to cast our lines.

    Caterpillar downgraded as analyst has 'no idea' if a Trump infrastructure plan is even coming


  16. thanks hang — it was stocked, I meant.


  17. QUIK – My candidate for stock of the year is catching some bids today after announcing 3 small deals in AI and IOT.  Believe more substantial deals are coming, and that a big ramp up in revenues will follow.


  18. QUIK-I like it. In fact putting of that ARNA money into it.


  19. Ilene – fresh article on DDR, for what its worth.  Discretionary, retail and CRE, 10 foot pole territory for moi, but that's just me and Out.


  20. COST down again..


  21. Lerner / GILD – maybe their next acquisition is starting to take shape ;)


  22. GILD/ batman – yes, hopefully their next acquisition will be a nice market surprise!  



  23. FU KC


  24. ETSY has been on a nice run.


  25. I have CBI position from before. I don't want to adjust yet but am thinking of adding J19  12.50/17.50 spread for 1.80 down here as way of salvage. Your thoughts?


  26. Hanjo / / Learner GILD – That was an interesting article.  My premise early on was that they needed to make an acquisition sometime in 2017 ( or at least announce one) that would provide some revenue growth to stem some of their Hep loss.    Absent that, it still a 70 to 75 dollar stock… their pipeline will eventually kick in and  provide growth…. longer term.  The dividend is safe, so i've been moving in and out of it at 65 and 70 w/ puts and calls, but am establishing a good base position in the 65/sh range…  we'll see.  This and ESRX are the only thing i have in the healthcare sector.


  27. QUIK/Albo – Starting to move, hopefully it continues.   Too bad the options are so thin but, at $1.36, may as well play the stock straight-up.

    COST/Jabob – Out of favor, will make a good long. 

    WFM/Hanj – I doubt it.  WMT might bid to piss AMZN off but not many people want to buy 3% margin businesses trading at 28x earnings (30x if someone is going to bid them up).  It has to be a strategic buyer and SVU has 5% margins so not them, KR has 1% margins and couldn't afford WFM, COST knows they can do it in-house cheaper so not them…  There's really no metrics that make sense for anyone else (not that it makes sense for AMZN to buy them either) but WMT to put in a bid and that's only to block AMZN.  SFM has 260 stores for $3Bn and $4Bn revenues ($125M profit is 3%, same as WFM with p/e 24) so, if I were WMT, I'd grab them instead and beef them up.  Their stores are generally smaller footprint so of no use to AMZN but same upscale customers and local farmer distribution channel.  Of course, if I were SFM, I sure wouldn't want to be associated with WMT!  

    I guess, if I were hired to make it happen, I'd make it a Sam's Club exclusive and put a SFM inside each Sam's club and destroy AMZN with lower prices, getting more people to use Sam's too (not good for COST though).  There are 660 Sam's clubs – that would be attractive to SFM and would give them an instant footprint to match WFM.  

    /KC/Latch – UF for me!  

    GE Time.  Don't know why it's so cheap, don't really care.  It's friggin' GE!   I'm not even to discuss why buying GE with their $1 (0.96) dividend for $27.50 is a good idea as a stock you will proudly give to your Grandchildren one day.  You either know that's true or you don't.  

    For the LTP:  

    • Sell 10 GE 2019 $28 puts for $3 ($3,000) 
    • Buy 25 GE 2019 $25 calls for $3.85 ($9,625) 
    • Sell 25 GE 2019 $30 calls for $1.40 ($3,500)

    That's net $3,125 on the $12,500 spread and we would be THRILLED to have 1,000 shares of GE assigned to us so we could DD and have 2,000 shares to collect dividends on on the mid-$20s ($50,000ish), which would pay us $2,000 a year while we sell more puts and calls.

    At $27.60 now, you can sell the 2019 $25 calls for $3.85 and that drops the net to $23.75 so let's imagine things go badly and GE falls to $20 and we're forced to own 1,000 at $28 plus the $3,125 loss so $31.25 but GE is at $20 so we DD and we're at $25.58 avg on 2,000 shares and we sell 20 2021 calls for $2 and now our basis is $23 and we'll collect $2 in dividend and another $2 if we're called away for $4 (17%) profit despite GE dropping another 20% from here.  That's the kind of play I can feel very comfortable with!  

    CBI/TX – One of my top picks at this silly price.  


  28. Phil I noticed that RB seems to be weak compared to CL right now. Why do you think that is? I'm not in either having made a few hundred already on each, but watching with curiosity.


  29. GNC inching higher…

    FTR too..

    Please no tease!


  30. QUIK – Looks like a short squeeze.


  31. /RB/Craigs – Well /RB didn't drop as much as /CL so it has less need to recover:

    Keep in mind that the "right now" timeframe you are using is completely arbitrary, you always have to zoom out to get the bigger picture.  

    Tease/Jabob – Come on, you know what will happen!  

    • St. Louis Fed President Jim Bullard doesn't see the need to hike interest rates any further given that the economy seems stuck in "low growth, low inflation" mode.
    • Bullard has ranked among the more vocal doves this year, so his views today shouldn't be taken as too much of a surprise.
    • More: There's little evidence further declines in unemployment will boost inflation; GDP growth of 2% is not likely to change anytime soon; there's "particular reason" to doubt inflation is returning to the Fed's 2% target.
    • With the French presidential election in the rearview mirror, political risks are shrinking in the EU, says UBS. The bank expects the common currency to "grind higher" over time.
    • The team cautions that its bullishness is over a longer-term time frame. Noting a 4% rally in the euro since the French election, they say risk-reward has deteriorated in the near-term.
    • Their long-term target is $1.25.
    • The euro is up 0.4% today to $1.12.
    • New home sales rose 2.9% in May to a seasonally-adjusted annual rate of 610K. Brian Wesbury notes previous months were revised higher as well, and sales were up 8.9% from May 2016's pace.
    • Inventory did edge upward, but it's still just 5.3 months of supply – that's well less than the 7.3 months of supply at 2006's market top. Further, 20% of that inventory is homes where construction has yet to begin – a more normal share would be 15%.
    • Citing continued job gains and the related upward pressure on wages, continued thawing in underwriting, and a depressed homeownership rate, Wesbury and team remain positive on housing's outlook.
    • The ITB is higher by 0.45% this session, slightly outpacing the S&P 500's advance. The more retail-oriented XHB is down 0.3%

    • While most of the focus on oil's renewed tumble has been on supply, analysts at Bank of America say nagging questions about demand are becoming harder to ignore.
    • "We now doubt that demand growth will accelerate sufficiently," says the team, noting global oil demand this year has increased at just half the rate of the previous two years. Additionally, there are risks to the demand outlook for the rest of 2017: Economic activity is "moving sideways or already turning south" in the U.S., China, and (the rest of) Asia.
    • Black gold is enjoying a modest bounce today, up 0.85% to $43.10 per barrel.
    • At the current level of oil prices, U.S. E&P companies are on track to outspend operating cash generation by nearly $20B this year, according to Bernstein Research.
    • No problem, right? Companies can just raise equity capital or go deeper into debt? Not so fast, says the team … With the current level of anxiety in energy markets, raising money may not be so easy. Instead, look for asset sales and capex cuts to ease the crunch.
    • US Foods (USFD -5.4%), Sysco (SYY -4.3%) and Performance Food Group (PFGC -5%) are all lower after JPMorgan expounds on the risk to food suppliers from Amazon.
    • The firm suggests that a risk premium needs to be applied to the sector due to the risk of Amazon jumping into food distribution through a partnership.
    • Source: Bloomberg
    • The sell-off extends on a down trend for the sector since the Amazon-Whole Foods merger was first announced.
    • Cell phone plan pricing is plunging due to market saturation, according to the Wall Street Journal.
    • Consumer-price index for wireless phone service fell 12.5% last month compared to the prior year and was down 13% in April, the largest decline ever. 
    • The problem could worsen for wireless carriers as news of the price drops spreads and encourages high-paying customers to call for deals.   
    • Carriers only had a 1% revenue growth in Q1, the slowest ever. Verizon (NYSE:VZ), AT&T (NYSE:T) and Sprint (NYSE:S) all lost customers in the quarter while T-Mobile gained. 
    • The service providers have launched competing deals to try and woo subscribers away from the competition. Deals include a return to unlimited data plans. 
    • On the plus side, the tanking index might make regulators more open to merger deals such as the Sprint and T-Mobile proposal.
    • Previously: Sprint jumps 3.2% on report of T-Mobile merger prep (June 20)

  32. /KC with a nice move up 


  33. MFU! /KC  MFU


  34. Phil/CL-are you planning to work/currently working your avg down or continuing to hold at 44 avg?


  35. /CL/Ravi – Well I'm not adding into the weekend and we'll have to see how it goes, I would love to be done by the end of the week – I'm on a plane Thursday night, in fact.  

    As long as Brent is over $45, the catastrophe will hold off.

    Lightened back up to 4 /KC.

    • The U.S. oil rig count rose 11 to 758 in the latest week, according to Baker Hughes.
    • Gas rigs dipped 3 to 183.
    • Total rigs up 8 to 941.
    • The news seems to have knocked down oil a bit. It's now up a hair on the session at $42.82 per barrel. Prior to the release, it was trading at $43.05.
    • The good news no doubt priced in prior to last night, the banking sector (KBE -0.7%), (KRE-0.8%) is underperforming after all 34 lenders passed the Fed's stress tests.
    • Having the roughest session today is Morgan Stanley (MS -2%) after it came closet to failing on the supplementary leverage ratio in the Fed's severely adverse scenario. Macquarie is out with a note calling the decline a buying opportunity.
    • Investors can now look forward to next week's release of the CCAR results, at which lenders' capital return plans will or won't be approved (or somewhere in between).
    • U.S. Bancorp (USB -1.1%), Regions Financial (RF -1.3%), KeyCorp (KEY -1.6%), PNC Financial (PNC -1%), Fifth Third (FITB -1.8%)

  36. Phil/CL- Thx


  37. Phil / trip:

    If you stop here, let me know.


  38. Phil/GE

    I'm building a portfolio for my son (5 weeks old) and want to put some GE in there. I'm going to buy the call spread without the put sale since it's a small portfolio (20k to start). Would do something different?


  39. Would you do something different? 

    Sorry, on my phone. 


  40. Phil,

    I have -5 LB 2019 $55 Puts (net $46.40), but never got a fill on your recommended spread. Would now be a good time for one? Thanks in advance. 


  41. rustle, just curious to hear your thoughts on NFLX action today. I notice there are periodic 60K+ share blocks that are buying everytime there is a dip… some big buy program going on? 


  42. Jeff!  Is the first case I heard of a 5 weeks baby with a portfolio!!…lol…..How are your nights?.


  43. Phil,

    Re IMAX position; straight down from 30 in April. Today it is now down >the 20% DD level. I am short the Sep 26 (@1.05, now 3.50) & 28 (@1.90, now 5.25)) puts and thinking of rolling to the Dec 23s (2.15) or 22s (1.72ish). Comfortable with IMAX long term.

    AMC also down since April but seems to be basing hereabouts, unlike IMAX.

    Your thoughts appreciated


  44. Phil,

    I've got 2 long /RB at 1.40. Hold over weekend or close? I'm on the fense and can't decide 


  45. Hi Phil – what do you think of FNSR? They recently lowered earnings (but it looks like that was more or less expected) and FNSR seems to have gotten a spot in AAPL's next iPhone, which I think is why the stock rallied. It's been doing well, but still doesn't seem expensive. 


  46. Any other Interactive Brokers customers getting notices of large increases in data feed costs? Got two today – one for CME International, and another for Australian ASX real-time.

    Ron


  47. You're welcome Ravi.

    Here/Advill – Where is here? 

    GE/Jeff – 5 weeks?  I'd buy 100 shares ($27.55) and sell the 2019 $28 calls for $2.15 so you are in for net $25.40 and called away with a $2.60 profit + $1.50 in dividends is $410 back on his first $2,540 investment (16%) and hopefully you'll be able to roll it and keep it but $20,000 at 8% a year for 50 years is $1M so you're off to a good start but, when he's 25, it will be only $137,000 at that pace so you need to consider if that's realistic for your goal.

    I'd play 1/2 conservatively, as above and 1/2 aggressively and I'd backstop the aggressive half (so I'd look to replace the $10,000 any year it is lost.  So, for example, I'd buy 5 DIS 2019 $95 ($15)/$105 ($9.30) bull call spreads for $5.70 ($2,850) that would pay back $7,500 and a nice $4,650 profit (163%) so about 90% annualized and, if you can just make 90% on $2,850 for 25 years – that's $25M!  

    So a little risk is appropriate at his age.  I would take 1/2 conservative and 1/2 aggressive and see how it goes and each year, you only have to be aggressive with $10K to put him well over $250K (10x) at 25 while the rest stays conservative.  If you replace any losses on the aggressive $10K, you pretty much guarantee the $250K at graduation.

    Also, when he's a bit older, I love to have the actual (sample) certificates for the kids to look at

    LB/Kevin – They are one of my favorites!  The 2019 $45s are only $12 and you can sell the $60s for $5.50 for net $6.50 on the $15 spread.  

    IMAX/8800 – It's incredible the way this stock goes out of favor.  I don't think I'd do anything at $23 until Maybe March prints – it's hardly worth a roll to Dec.  You could make a case for rolling the Sept $28 puts ($5.10), which have no premium, to the Dec $26 puts ($4) which have $1 in premium.  That way at least you save $1 and then you can leapfrog the others when new months print.  

    /RB/Japar – You are talking to a guy holding 15 long /CL so what do you think?

    FNSR/Ilene – I love them, actually a tech that hasn't gone crazy (yet).  They are just getting to the good part where they make money and are underestimated, I think.  Estimates are for $2 per $28 share, which makes them a great one to add in the OOP and the LTP.  The AAPL thing can make them explode (if it's true) and, judging by their sudden burst of revenue with no commentary – I'd say it is.

    It's a bit late in the day to call a play so please remind me on Monday.  For the LTP, I'd start by selling 10 of the 2019 $25 puts for $4.70 ($4,700) as a great way to dip a toe in but I also want to add a bull call spread – in case they fly away from us on good news. 

    Fees/Hkg – ThinkorSwim (TD) did the same.

    Not a good finish – barely holding green on the indexes but the RUT is OK at 1,411. 


  48. Thanks Nattering Naybob. The writer sounds like he likes it, doesn't really address all that debt though, or the trends. What's he missing?


  49. Phil,

    Thanks for the IMAX counsel. The only slightly relevant issue I see in this space is that AMC  (and other chains) have more comfortable reclining seats than IMAX. Not sure what that is worth in comparable stock prices. IMAX has the reputation/aura of being the innovator in the actual film experience.  We shall see.


  50. I'll remind you; there are a few other stocks in the same sector that look cheap too. I'll note those and see if I can find some articles to share. 


  51. IMAX/8800 – The thing is the filmmakers are using it to shoot.  Going to be hard to get them to gamble $100M movies on new formats.

    Nice stick into the close – all is well.  

    Have a good weekend everyone!

    - Phil


  52. Advill/nights

    They've been busy to say the least. But the kid is doing great!


  53. Phil/GE

    Thanks! We're starting with about 20k and will be adding as he grows up. Maybe add 10k per year, shoot for 20% annually. That ends up with 7.5M in 25 years. That's not a bad start at that age!

    90% annualized?!?! Ok Phil, you have a lot of faith in your students…I'll try :)

    Thanks for the advice. Have a great weekend. 


  54. /CL – Phil what is your avg? 


  55. MGT Capital Investments, Inc. (MGTI)

    cryptocurrency digital currency

     

     John McAfee company

    ?  MGT Capital Launches Pilot Program to Mine Ethereum
    Jun 23 2017, 9:15 AM EDT

    ?  MGT Capital Announces Major Expansion of Bitcoin Mining
    May 22 2017, 9:15 AM EDT

     

    Comments Please 


  56. Phil / location


  57. Well, the paste feature doesn´t accept maps,

    Is Barcelona Spain, Vila Olimpica, near the cruise port.


  58. Albo – QUIK - Janyun and AI announcements, short interest had built up, you might have it nailed with short squeeze.



  59. Facing Putin, Trump will confront complex swirl of controversy


  60. The Fed Needs to Acknowledge Slowing Economy





  61. ?We have both Alexa and Google Home. The Google Home sound is superior to Alexa and tells better jokes…. :)


  62. Trump’s Plan To Put Solar Panels On The Border Wall Is Technically Possible, But ”Stupid And Pointless,” Solar Experts Say
    BuzzFeed News

    Building a massive solar wall bordering Mexico wouldn’t be easy, solar experts said, and makes little economic sense. Read the full story

    Shared from Apple News


  63. NN – Yeah, there has always been an active short contingent in the stock, and they have largely been successful as QUIK products continued to get delayed.  It'll be interesting to see what happens next week.  QUIK is participating in the Reach China Investment Conference in Beijing on Monday and Tuesday.  It's interesting these are not the design wins that QUIK discussed on their conference call. Think there's more to come.


  64. Phil--I was wondering about the 5% rule with a couple of the AMZN beaten down stocks. Is it too early or could you apply it to COST and TGT?

    I think Buffet is a COST believer too.

    I was surprised at how beaten up COST was after the AMZN news.

    But maybe I am wrong and it is a falling knife?

    What is your opinion?


  65. Good morning!

    Oil struggling at $43.50 and that's $46 on /BZ so resistance is normal but I'm considering taking the win if $43.40 doesn't hold and playing small ball to make back the last $15K of my loss, rather than having to hold and pray for $44.50, which isn't that realistic without risking inventories.   Also, I have to leave for NYC soon to be on TV this morning – so I can't really watch it this morning.

    Speaking of which – I'll be on Facebook Live from the Nasdaq at about 10:30 and not staying so I'll be back here around noon.  

    I'd be braver but gold and silver flash-crashed this morning and who's to say other commodities won't do the same.  /KC also popping at $124.50 and /NG blasted  back to $3.048 so big winners all around and the indexes are up 0.33% as Europe is up 0.5-1%.

    /NKD really going nuts:

    EU just playing catch-up to us:

    And, of course, not a care in the World (though we do seem to have made it through the weekend without a terror attack for the first time all month)

    That was /NGV7 that was $3.05 – I already took $3 and ran on Friday on most – I'll certainly take the last two off here and I'll likely play at $3 again if it holds on a pullback with tight stops below.

    This is what gives me an itchy trigger finger on oil.  It's more appealing to play /SI now if I wanted to go long on something (fresh horse), so I don't mind going to cash and switching to a new conviction play (/SI at $16.50 with tight stops below or /YG $1,250 – if we cross back over, of course and if the Dollar isn't getting stronger)

    First India Bans Cash, Now It's Targeting Gold

    Yen crashing is making /NKD happy but one day they will wake up and realize a collapsing currency isn't all fun and games.

    "It's A Virtual Bloodbath" – Cryptocurrency Carnage Continues

    Five Things You Need to Know to Start Your Day

    Health of the healthcare bill?

    • Top Republicans want a vote on the Senate healthcare bill this week after juggling objections from all corners of the GOP caucus this weekend.
    • Issues such as Medicaid and insurance regulations remain key holdups.
    • The healthcare sector has been the strongest 2017 performer on the S&P 500 with a gain of 16.7%, and the best grouping during the second quarter with a rise of 8.2%.

     

    • Investors are turning their attention to the ECB's fourth annual "Forum on Central Banking" in Portugal, where the focus will be on investment and growth in advanced economies.
    • The conference runs Monday through Wednesday.
    • Speakers include ECB President Mario Draghi and Ben Bernanke, and some 150 central bank governors, academics, journalists and high-level financial market representatives will exchange policy views.

     

    • Brexit minister David Davis is "pretty sure" he could negotiate a good deal to leave the EU, throwing his support behind Prime Minister Theresa May and taking his share of the blame for advising her to hold an early election.
    • It comes as the U.K. Parliament was hit by a cyberattack, just weeks after Britain's health service was caught up in a giant internet pandemic that swept across the globe.

    U.K. Credit Binge May Spur BOE's Carney to Rein in ExuberanceWhat a difference a year makes. Twelve months ago, Mark Carney reassured a nation going into political paralysis following the Brexit vote that the Bank of England stood ready to flood the financial system with cash. This week, the governor will re-examine whether it’s time to start taking back some of that bank support following rapid growth in consumer credit, a first step toward normalizing policy in the U.K.

    Japanese Banks at Risk as Borrowing in Dollars Doubles, BIS SaysJapanese banks have more than doubled their borrowing and lending in dollars since 2007, leaving them vulnerable to funding shocks such as those that exacerbated the last financial crisis, the Bank for International Settlements warned in a report released Sunday. Assets denominated in dollars on the balance sheets of Japanese banks surged to about $3.5 trillion by the end of 2016, the coordinating body for the world’s central banks said in its annual report about the global economy. Those exceed liabilities in dollars by about $1 trillion, creating a massive so-called long position in the currency. The report also cited Canadian lenders for following a similar trend, almost doubling their dollar exposure since the crisis. Their net long positions reached almost $200 billion, the BIS said.

    Japan's Bond Market Grinds To A Halt: "We'll Go Days When No Bonds Trade Hands

    Takata declares bankruptcy, sells assets

    • Plagued by the auto industry's largest-ever recall, Takata (OTCPK:TKTDY) has filed for bankruptcy protection in the U.S. and Japan.
    • It's being bought for $1.6B by Key Safety Systems, which will keep "substantially all" of the air bag maker's 60,000 employees and maintain its factories in Japan.
    • According to Tokyo Shoko Research, Takata's total liabilities stand at ¥1.7T ($15B).

     

    Next global financial crisis to hit with a 'vengeance', warns BIS

    BIS releases annual report

    • Major central banks should press ahead with interest rate increases, the Bank for International Settlements said in its annual report, stating that global growth could soon be back at long-term average levels.
    • However, the central bank of central banks warned against the rolling back globalization, which would be a blow against robust expansion, along with the risks from high debt levels.
    • Read the full report here

     

    Italian Taxpayers To Foot €17 Billion Bill As Rome Bails Out Another Two Insolvent Banks

    Italy winds down two lenders

    • Italian banks are trading strongly after news that Intesa Sanpaolo (OTCPK:IITOF) will help bail out Veneto Banca (OTC:VENBF) and Banca Popolare di Vicenza.
    • The deal could cost Italy up to €17B after the government said it will offer additional guarantees to cover potential losses.
    • It comes after a long weekend of negotiating following an ECB statement late Friday describing the two banks as "failing."

     

    Illinois debt is about to be rated 'junk.' What that means

     

    • Fed Chair Janet Yellen and New York Fed President Bill Dudley (joined by consistent hawk, Cleveland Fed President Loretta Mester) have made it clear they believe the recent slowdown in inflation is temporary. They appear ready to forge ahead with more rate hikes, with the next one perhaps coming in September.
    • Chicago's Charles Evans, Minneapolis' Neel Kashakri, Dallas' Robert Kaplan, and St. Louis' Jim Bullard, on the other hand, are showing far more concern about inflation, and appear to be in favor of an extended pause in the rate hike cycle.
    • Kashkari, in fact, voted against both the March and June rate hikes.
    • The Fed has more or less promised one more rate hike this year, but following through on that could shatter the consensus Yellen has built since taking over – a move in September could draw dissents from Evans and Kaplan, in addition to Kashkari (Bullard has no vote this year).
    • Previously: Fed's Dudley sticks to company line (June 19)
    • Previously: Fed's Bullard prefers 'wait and see' approach (June 23)
    • Previously: Fed's Kaplan sounds dovish note (June 20)
    • Previously: Fed's Evans wants to wait until December before considering another rate hike (June 20)

    Trump to Call for U.S. ‘Dominance’ in Global Energy ProductionDonald Trump will tout surging U.S. exports of oil and natural gas during a week of events aimed at highlighting the country’s growing energy dominance. The president also plans to emphasize that after decades of relying on foreign energy supplies, the U.S. is on the brink of becoming a net exporter of oil, gas, coal and other energy resources.

    Trump Accuses Hillary Of "Colluding" With Democrats "To Beat Crazy Bernie Sanders"

    UCLA Releases 'Resistance' Handbook; Defines Trumpism As "White Supremacy, Misogyny, Xenophobia…"

    Trump, Modi meet in Washington

    • President Trump and Narendra Modi will hold their first face-to-face meeting today in Washington, seeking to boost U.S.-Indian relations despite differences over trade, the Paris climate accord and immigration.
    • Trump, who campaigned on an "America First" platform, has been troubled by the growing U.S. trade deficit with India, and has called for reform of the H-1B program that has benefited Indian tech firms.

     

    Dusty Fields Signal a Peak for the Global Wheat Glut

    GOP Senators Express Misgivings About Health BillSeveral don’t rule out supporting legislation that could be voted on this week.

    Bankers Have Less to Fear From ‘Stress Tests’Fed’s focus on capital ratios rather than qualitative part of stress tests likely to result in less failures?

    Analysts express customer, software concerns in BlackBerry's Q1

    • Analysts weigh in on BlackBerry’s (NASDAQ:BBRY) Q1 miss and worry about customer losses and how to determine if and when the software product focus will show sales growths.
    • RBC’s Paul Treiber (Market Perform, $9.50 PT) thinks the software revenue miss was tied to professional services and expects that software is “back-end loaded."
    • Morgan Stanley’s James Faucette (Equal Weight, $10 PT) found the company’s software revenue disclosures confusing, making it difficult to determine and rank any underlying drivers.
    • Bloomberg Intelligence’s John Butler thinks 10% to 15% software sales growth possible for FY18 if 2H picks up. 
    • Source: Bloomberg
    • BlackBerry shares closed Friday down 12.21%.   
    • Previously: BlackBerry misses rev estimates, announces share purchase; shares down 6.4% (June 23)

    Alibaba has another 30% upside – Barron's

    • Chinese e-commerce giant Alibaba (NYSE:BABA) could rise another 30% on top of a 60% rally this year, Barron's says.
    • The company plans to bring its high-tech inventory management to brick-and-mortar retail, Barron’s says, citing a Goldman Sachs note.
    • That “could potentially be a blue ocean” that benefits both merchants and consumers, according to the bank, and could boost 2019 EPS by more than 25%, if Jack Ma’s company gets it right.
    • An interesting question to ask after watching reports on Amazon's (NASDAQ:AMZN) various business ambitions take a wrecking ball to some parts of the retail sector (apparel stores, food suppliers, auto parts, etc.) is what stocks have seen their share price correlative negatively by the largest degree to the Seattle e-commerce juggernaut over time?
    • The website aistockcharts.com has done the heavy lifting to report that Dillard's (NYSE:DDS) and Williams-Sonoma (NYSE:WSM) lead the pack. Any thoughts on which stocks might top the anti-correlated AMZN list in a year?

    SpaceX records historic doubleheader

    • SpaceX (Private:SPACEcapped off two successful missions to space this weekend – the company's quickest launch turnaround yet.
    • Boosters of both Falcon 9 rockets returned safely to floating platforms, repeating what has become a signature feature for SpaceX.
    • The "weekend doubleheader" was also a show of strength for the company that has said it intends to up the pace of its launches.
    • The European Commission last year ruled that Apple (NASDAQ:AAPL) needs to turn $14.5B in back taxes over to Ireland, but now Ireland is stalling collections due to indemnity fears.
    • The Commission found that Ireland offered Apple overgenerous tax breaks and ordered the tech giant to pay up. Apple is appealing the decision and would receive its money back from Ireland if victorious.  
    • Ireland was meant to claim the money by January 3 of this year but has delayed the process due to fears the book value will drop while the country has the funds.
    • Finance Minister Paschal Donohoe now says the government is now readying a tender to consider offers for the management of the money.  
    • Source: Bloomberg

  66. 90%/Jeff – No worries, just saying that those are good trades to make as they will obviously bring up the average if they hit – makes them a risk worth taking when you can pull 90% betting on blue chips!  

    /CL/Joseph - Just stopped out with a $15,000 net loss from $44.50 and went flat on everything as I didn't like the gold and silver flash crash (see above) and the only things I read supporting oil and /NG going up were from early in the weekend, so no new news to keep things going + I won't be able to watch so I should be thrilled to be evenish (including my wins on /NG, /SI, /RB and /KC) from what started out as a terrible week last week (though still flying coach Thursday, as I'm punishing myself for not stopping out of oil).

    Spain/Advill – Sorry, just Paris, London and Bournemouth on this trip.

    5% Rule/Jabob – Keep in mind that the 5% Rule works less and less well the thinner something is traded so it works really well for indexes and commodities and not as well for stocks and, of course, it doesn't account for news – it only tells you how a stock is likely to drift when all else is equal.  

    What you can see from COST is that it broke up from $150 to $180 (20%) and that meant a weak retrace was 20% of the run ($6) to $174 and a strong retrace was 40% ($12) to $168 and, once that fails you have the 50% line ($165) and, below that is simply failure. 

    $150 remains support so that's the line to expect a bounce and THEN you look the other way for the same (since it's a full retrace) $6 and $12 bounces which will be $156 and $162.  $162 already failed so no strong bounce off $150 means even that support is weak and if $156 fails, then even $150 may not be your final support. 

    Short summary:  If $150 is going to hold up THEN $156 should be support on the way down.  If there's no bounce at $156, you have to consider overshoots to $144 or $138 (where you can see spike low support in Nov) but, at that point, you want to see a bottom proven before guessing because clearly there's been some real damage done from recent news. 

    TGT, on the other hand, was in trouble long before the AMZN thing.  

    We're already seeing consolidation around $55 and $50 is very likely a firm bottom and $75 was the 50% move up that already failed (on cost it would be $120 before you have the same retrace) so, for signs of strength, you can look for a $5 weak bounce ($55) or a $10 strong bounce ($60) and over $60 is back on track.

    TGT p/e 10 and COST p/e 27 makes this a no-brainer in favor of TGT, which we are already playing bullish in the Butterfly Portfolio (just long calls and short puts) but in the LTP we just have the short puts so I'll be wanting to add a bull call spread and adding to the OOP as well – please remind me in the afternoon, when I'm back from the city.


  67. Comment content omitted because it is too long.


  68. My notes for Jill for our Nasdaq Interview this morning:

    Sorry I didn't send this sooner, here's a review of the positions we've discussed so far:


    Our Gilead trade is up $950 from our net $4,450 entry so +21.3% in two months so far and on track for the full $5,550 gain we expected.  As the net is still just $5,400 and there's still $4,600 of upside, this is still good for a new trade. 


    Fiat-Chrysler was a net $1,000 spread and it's already up $325 (32.5%) in just over a month so also "on track" for our anticipated $4,000 gain and, at net $1,325, it still has $3,675 of upside (277%) if FCAU gets to $15 so also still good for a new trade. 

    That brings us to our Nasdaq (QQQ) hedge, which is up $185 out of $4,450 (4.1%) and that's great because it's a hedge and simply not losing money while our stock picks are winning means we have free insurance (so far) and means we're well-protected and well-balanced into the Holidays, which is how we should play holiday weekend and that is what I'd like to talk about today – Balancing your Portfolio into the Holidays. 

    No new trades – we want to see how July earnings shake out before adding but our portfolio is nicely on track and that's great to talk about.

    - Phil