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Tuesday, August 16, 2022


Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000

So far, so good.

After a quick rejection, the Dow is drifiting along under the 22,000 line and it LOOKS bullish but let's remember that it took big moves by Caterpillar ($10), Goldman Sachs ($10), JP Morgan ($8), Boeing ($30) and Apple ($7) on earnings to give the Dow it's last 500 points.  That's a tough act to follow for sure.

And it's been a sort of a feedback loop because each earnings win pops the index, which raises all the Dow components and then the next one hits and reinforces the gains from the last win and then the index makes a new high and more money pours into the ETFs, etc.  All very nice if you are bullish but the rally, on the whole, has come on fairly low volume and, now that earnings are over, we'll have to wonder what catalysts is going to take us over 22,000 (our shorting target), let alone hold us up here.

Over in Europe, they have earnings too and the Europeans were not as impressed with earnings as the US investors were.  In fact, Germany's DAX is down 5% from their June highs along with the Euro Stoxx Index, which fell from 3,650 to 3,450 while the S&P added 50 points (2%).  

Major Global Indexes don't usually diverge from each other that much and the Nikkei has been trending down as well so someone is delusional and it's probably the country that elected a reality show host to be their President – I'm just saying…

The Dow is up 600 points since it's June high and that's 2.8% but, more importantly, since the election, the Dow is up from 18,000 so 4,000 points is 22% and I have to ask you – has Trump made things 22% better in 9 months?  And we're not taking about a 22% rebound after a sell-off, the Dow had already gained 50% since 2012 (4 years) from 12,000 to 18,000 so this 22% is just a cherry on top of all that fudge and whipped cream that was already piled on the QE sundae that had already taken us from 6,000 to 12,000 in the 4 years before that. 

Granted we were at 14,000 (which was a silly high) in 2007 so let's call 12,000 a fair base and conside the drop an abberation.  That still makes the run since 2012 from 12,000 to 22,000 (66.6%) an average of 12% a year and earnings are in no way justifying that kind of move – THAT is why I object to these market levels.  Perhaps we are simply going to have to accept the fact that, from now on, we pay 25 times earnings for stocks instead of the historic 18 average but we KNOW this appetite for risk is artificial and based very much on the lack of risk-free alternatives.  

Speaking of risk, I see Tesla (TSLA) is blasting up $20 after earnings and that's nice but they did burn $1.1Bn in cash this Q, leaving them with $3Bn to go from producting 30 Model 3s to 125,000 per quarter.  Shouldn't be difficult, right?  At $350, TSLA's market cap is $57.5Bn and perhaps the Model 3 is the greatest car ever  made and will sell 500,000 every year of a single model and perhaps Elon Musk is a genius who has figured out how to make cars for 10% profits (vs 5% at industry leader GM) but, even if we give him those huge benefits of doubt:

  • 500,000 $40,000 cars = $20Bn
  • 10% of $20Bn = $2Bn
  • $2Bn is 1/28th of $57.5Bn

This is why we shorted Tesla as it neared $400 (see "Tesla's Emperor Musk Has No Clothes!").  This is the point ($350) at which the valuation gets silly – even if you think that everyting Musk is trying to do works out perfectly. Goldman Sachs agrees with me and warns that TSLA can drop 45% as the Government Subsidies ($7,500 per car) run out and sales trail off.  

GM, by the way, sells $164Bn worth of cars, makes $9Bn and is only valued at $50Bn, 13% less than Tesla!  Guess which one we own? 

Musk, for his part, maintains that TESLA has 465,000 net deposits on the Model 3 and that's nice but doesn't that mean that $465M of their $3Bn in remaining cash is deposits, and not theirs to play with?  We're not shorting Tesla again yet – they burned us last time we started too soon, but we will grab a short position as they close in on $400 again – because it's just silly. 

Meanwhile, if you want to make big money on electric cars, buy copper!  Copper, Graphite, Nickel, Aluminum, Lithium, Cobalt and Manganese – that's what electric cars are made of and, currently, there are only 2M of them on the roads but by 2030, there should be over 100M and adding 50M or more annually after that.

As you can see from the chart, we're talking about MAJOR increases in those materials over the next decade and this is one of those macro investments that you can be very comfortable making long-term bets on.  Over the next few weeks, we will be examinging the electric car sector because, whether it's from Tesla or not, that revolution is coming and it's a change we can certainly bet on.



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Did Trump .. sort of .. just offer to invade Mexico?


looking forward to Cliff jumping again now the crazies have left the trade.

SGYP…waiting on revenues to see how they compare to IRWD.  Need time to shake things out.

it's weird, even for Trump, to simply lie about two phone calls that never happened

hysterical or not, it's scary to think trump and trump alone can order any of the United States' massive nuclear arsenal launched at any time, with no secondary authority. That's just the most extreme crisis, 500M+ people worldwide dying in 30 minutes, but there's a big pyramid of others under the top brick.

We are so screwed.

On ZYNE, you can also sell the Nov $10 puts for $3.50 for a $6.50 discounted entry. I have a few just for fun.

TEVA down 25% … dangit!

FTR down 15%.. dangit!

now these two POS stocks are frustrating

– LB –  As Phil alluded, there is too much investor attention on their comps.  The fundamentals are actually improving as they cut costs and earnings go up. They guided to the high end of their earnings guidance.  Their TTM PE is only 11 and earnings trends are starting to improve.   Their comparables get easier as we get close to Dec.  Dec 2016 also had a 8% comp decline.  One quarter of comp decline normalization (bear in mind – 4Q is their seasonally strongest qtr) and this stock might pop up.  My exit target is $50 – which I am hoping will be reached by Jan 2019 for my current spread.   


However, I am using a combination of armchair and spread strategies.

My entry price is $41.50 (assigned put).  This gets me in at a 6% div yield and selling calls and puts for Jan 2018 will get you at least 20% for the next 6 months.  The risk is the company cuts dividend (ala TEVA), however LB's payout is only 62% vs 80% for Macys.   So the risk-reward appears decent.  Will it slip down more – perhaps high to mid $30s? Possibly – then it becomes more compelling.  

I made a piddly $3k on TSLA on the way up. I'm out now. Small money I know. But better than loosing $500M!

TEVA/Phil – read your comments re: wait to confirm a bottom before rolling existing positions. However what about over the course of today a cautiously timed "still good for a NEW entry" OOP half position?   e.g. 5 – 2019 25/32.5 BCS $2.90 Sell 5 – 22.5 Puts for $3 = Net +$50 on a $7.50 spread. Looks like a short term "blood in the streets" over reaction to take advantage of? Caveat: still dropping slowly as of now! Having looked at their results is there a price that if reached soon you would "table pound" jump in with something like the above? Thx as always!

The market sentiment….

TEVA/Phil – your insight & comments are appreciated. However as I thought upon looking at my notes & reviewing this Tues Aug 1st chat I did note;  (I did not participate in this trade below so that's why I was asking about an entry today)

As a new play on TEVA, I would sell 5 2019 $30 puts for $4.20 ($2,100) and buy 10 of the 2019 $32.50 ($4.20)/$40 ($1.90) bull call spreads for $2.30 ($2,300) which would put you in the $7,500 spread for net $200 and worst case is you own 500 shares of TEVA for net $32.90 while best case is up $7,300 (3,650%) in 18 months.  

Let's add that to the OOP.

Cantor Fitzgerald's Louise Chen explains why Teva needs to hire a new CEO:


We like Teva, but we think the company has some meaningful headwinds which need to be addressed before the stock can trade meaningfully higher. 1) Whether Teva will break the company into brand and generics, 2) Whether Teva can continue to pay down its debt, maintain its investment grade rating and meet tighter covenants at the end of the year, and, 3) How the company will grow through generic drug pricing pressure. Furthermore, we don't think Teva can make decisions that would fundamentally change its strategy until it hires a permanent CEO and the new CEO has had time to assess the business. We would be more positive on Teva shares if generic drug pricing improves and/or the brand drug launches and pipeline advancements exceed expectations

FTR… may see that 80c ($12) low yet, still plan to double down if the markets are sinking too? Small caps getting no love, IWM puts up 200% so far, waiting for capitulation

I'd be the CEO of TEVA if they called me! 🙂

Pharmboy-then the stock would rocket up! 

Learner / LB – thanks for your thoughts on this.  I've passed on many retail plays ( currently in GNC which is doing as expected) and this is really hated by the analyst.  I've been watching this from the sidelines and waiting. I thought 40 may be a good entry point an selling the Nov 40 for 3 each may be a good opening play.

good point

Bought some DIA puts just now for tomorrow.  Supposedly Mueller's investigation is heating up with traction.  Low risk, high reward if market falls tomorrow.

Where you eating Phil? I’m in coconut creek just south of boca.

Sorry- let me clarify Phil- I don't want to crash your party- just curious what restaurants you go to when you are down here.

-LB – even a better entry point! 

Phil, should we expect at least a weak bounce tomorrow from TEVA, FTR, and LB or do you think it gets worse before it gets better? 

Phil, Thank you in advance for the education that I am about to receive, it continues to be priceless. I took a position in IMAX a while ago. While the runway is 5 months out, I am wondering if I should buy back my short position in the BCS.  Or, should I be patient and do nothing, roll, or ???

The position is as follows:

DEC17 $23($4.00)/$28($1.30) BCS  Now, $1/$0.30 

DEC17 $29 PUT

I hope that makes sense.

I ask cos, I had a similar situation with GNC last month.  I closed out the short side (70% of premium) after the stock dropped, then Q2 numbers improved my long position and it provided me an opportunity to exercise at a profit and now I am selling premiums to lower my basis.  Not sure if I executed this correctly, but it ended up working out nicely.  I was going to do the same with IMAX, however, there is quite a bit of time left.  thoughts?? 

@ albo –  are you watching AAOI – core dump.  3Q guidance was weaker on product transition from 40G to 100G.  

Learner, I did see that.  The 40G is definitely on the wane.  This morning :

~OCLR's CFO stated that 40G products are now in their end of life stage.

Almost bought some AAOI  in the after market, decided to wait.  China appears to be not as strong as previously thought.  Looks like it might affect the fiber optic stocks.  Still think FNSR is the best bet because of the potential for their VCELs.

Only on PSW is TEVA a buy.

". Thank God they haven't cut the dividend. Revenues missed, earning missed, lowering full year expectations, US Generics under pressure, still no permanent CEO, did they get a permanent CFO? The big positive is that appears they can sustain the dividend indefinitely and it should provide a floor for the stock price"

Hi Phil, I mad a little on shorting QM (thank you) a couple days ago but do not have the time to spend in front of the computer that much so was thinking of a SCO Jan. 32.50/42.50 BCS for around 3.80. What do you think, or what spread would be best in your opinion. Thanks

Good Morning Phil,

What do you think about JCP ? I create a value based screening of S&P 500 stocks and JCP came out to be among the top 2 so wanted to get some insights from you to validate the accuracy of my value screening formula. 



Big chart–pretty amazing divergence between the Dow and the RUT!

TEVA Moody's downgrades to right above junk (Baa3) S&P affirms current rating (two notches above junk BBB).  

Phil /ALB:

Thank you!, will sell the puts,  I liked your approach of how to follow basic parts of the EV "revolution" ( I´m still  in the side of fuel cells as a global solution) most of the world have unreliable overloaded not automated grid and electricity networks so I can´t imagine  Cairo, Mendoza, Mexico city  or Lagos having a big base of  EV´s units.

Still, most of Europe, Japan Korea and parts of Canada and U.S will be in the trend and are 60% of the new cars market.

looking like another year low for teva 

these "bargain stocks" keep getting cheaper (even without any general pullbacks) dangit!

I hear you and I am not telling ANYONE not to buy these bargain stocks at these levels.

You like to say I am a disservice to newer readers but I disagree.

Not everyone has the 4 year LT portfolio.

The FU stocks are 2017 entries that have been dropping all year in a runaway market.

It isn't your fault that TEVA crashed or FTR crashed.

Yes, I am frustrated. Sorry if I complain.

Unfortunately, my timing on the bargain stocks has been lousy and I am showing big losses owning FTR, TEVA, IMAX, JO, GE, M, LB, and GILD. 

Some of the others have come back a little–tgt, abx, gnc

But some of these 2017 bargains have been portfolio killers (FTR TEVA).

Again, I am not blaming you for my position sizes or put sales or call spreads.

But I don't see how the LT portfolio gains really matter when most of us on the board do not have those positions. Unless there are tons of people on the board who really have been making all those gains?

Also, I do appreciate your hard work and agree that your legging into positions is a good strategy. I just wish these bargain stocks did not drop so hard and I guess I am not so confident that they will be able to recover like AAPL which is a great money making company with tons of cash and not burdened by their debt load.

sorry again for the complaining. 

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