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Which Way Wednesday – Are the Markets Now Too Big to Fail?

What a long, strange trip it's been.  

This morning the Nikkei is back to its 20-year high of 20,900 but still far shy of the all-time high of 39,000 – hit way back in 1989.  We'll forget ancient history and focus on the current move, which is now up 5,000 points since the summer of 2016 – just barely over a year ago.  There's nothing too strange about that, the other Global markets have similar gains and Japan's Corporate Profits are up 23% over the same period – so 2/3 of the move may even be justified.  

Japan, along with most of the World's markets, has been quite the under-performer for the past decade.  Back in May, I was interviewed on China Global Television and we were discussing Brazil's scandals and we decided we liked Brazil's ETF (EWZ) for a bullish play, saying:

So I like EWZ down here ($32.75) and we can take advantage of this dip with the following:

  • Sell 5 EWZ 2019 $25 puts for $2 ($1,000) 
  • Buy 10 EWZ 2019 $25 calls for $11.50 ($11,500) 
  • Sell 10 EWZ 2019 $35 calls for $5.50 ($5,500) 

That's net $5,000 on the $10,000 spread that's over $7,000 in the money to start.  The upside potential is $5,000 which would be a 100% return on your money and your worst-case downside would be owning 500 shares of EWZ for net $30/share ($15,000).   The ordinary margin on the short puts is just $780 so it's a very margin-efficient play as well.

It was an easy fill and we didn't even officially add it to the Options Opportunity Portfolio until June 13th, when I repeated the trade at the new net of $4,100 but, either way, we're well on the way to our $10,000 goal and already at $7.500 so up 50% over the Summer is a good way to start, right.  Remember – I can only tell you what is likely to happen and how to make money trading it – the rest is up to you! 

Brazil was and still is a laggard in the Global Picture, down 27.66% over the last 10 years vs up 199.17% for the Nasdaq — hard to believe they are on the same planet, right?  Even the S&P is "only" up 100% since this time in 2007 but it's up 341.8% since the 3/9/09 bear market low but that's still miles behind the Nasdaq, which is now up 517.57% off the lows.

Interestingly, we're not being led higher by Technology so much as we are by Consumer Discretionary, which is up 25% more than tech over 10 years and oupacing it by 121% frrom the lows.  Only in the last 5 year has Tech really gone on the attack in an attempt to catch up.  Energy, on the other hand, has been PATHETIC, gaining just 11% since 2007 but, in context, even that is pretty good, considering Oil is 83% lower than it was at the time and Natural Gas is an amazing 97.85% cheaper over the past 10 years.  THAT is why Coal is dead – Natural Gas is cheaper!  

We can use the above Bespoke chart to think about where to invest next if this bull rally is to contine.  At Philstockworld, we are value investors, so we don't just play for things to catch up.  I was liking Brazil in the summer because it seemed like it was really hitting rock bottom in relation to the country's economic output – not just because it was lagging the rest of the World's rally.  As noted by fellow value investor, Walter Schloss:

"I believe stocks should be evaluated based on their intrinsic worth, NOT on whether they are over- or under-priced in relationship with each other. For example, at the top of a bull market one can find stocks that may be cheaper than others but they both may be selling much above their intrinsic worth.

"If one were to recommend the purchase of Company A because it was COMPARATIVELY cheaper than Company B, he may find that he will sustain a tremendous loss. On the other hand, if a stock sells at, say, one-third of its intrinsic value based on sound security analysis, one can buy it irrespective of whether other stocks are over- or under-priced.

"Stocks are NOT over-priced or under-priced compared to other companies but compared to themselves. The key to the purchase of an undervalued stock is its price COMPARED to its intrinsic worth."

That's right, all of us value investors tend to capitalize words for emphasis…  This is a concept we try to drill into the heads of our subscribers at PSW – we look for VALUE stocks and THEN we set up options spreads that both leverage and hegdge our positions – just in case we're wrong.  We also SELL premium to maximize our chance of success and, as long as we pick more winners than losers and as long as the market doesn't correct past our hedges (usually down 20% is covered) – we generally perform vey well – even better than the Nasdaq's 200%, 10-year return rate.  

That Brazil trade above made 50% since May, that's just 5 months.  Now, looking back at the above chart, we can contemplate the National Laggards to look for another bet.  Do we still like Brazil?  Yes, so we'll make another 33% from here staying with our spread, which means it's still a nice play for those of you satisfied with 33% returns in 16 months.  2%/month is better than the bank, so why not?  

Image result for global marketsChina's A Shares (ASHR) have done far worse than you'd imagine but their debt and banking nonsense are what I consider the most likely flash point for a global melt-down – so I don't think I want to place my next bet at a potential ground zero.  Italy has been a disaster but they deserve it – another shaky banking franchise there.  Spain is splitting apart so that's not good and the UK is splitting from Europe – also not good.  Russia is interesting as they just won the US elections and will likely consolidate their control in 2018 – that makes RSX interesting as a resurgence play.  

Russia is being held back by the turmoil in the states (they are the subject of investigations in the House, the Senate, the FBI, CIA and, of course, the Meuller Investigation) so they are lagging the way a company under investigation tends to lag.  Low oil prices have been hurting them but just this morning both Russia and Algeria stated they will work with OPEC to cut production and drive up oil prices to screw you at the pump – isn't that great?!?  They've also given marching orders to Donald Trump, who is doing his part by removing mileage requirements from autos that Obama put in place, which drove the US fleet average from 20mpg to 35mpg over the past 10 years – lowering the overall demand for oil.

So why not back a winner and invest in Russia?  At least we know the leadership there is stable – I don't see Putin having any Twitter wars with his staff or members of the Duma, do you?  It's a shame we missed the dip in June but Russia is begining to usurp the US on the International stage, so why not place a small bet on Rex Tillerson's favorite country?  Here's a nice spread for RSX:

  • Sell 10 RSX 2019 $20 puts for $1.75 ($1,750)
  • Buy 15 RSX 2019 $20 calls for $3.30 ($4,950) 
  • Sell 15 RSX 2019 $25 calls for $1.05 ($1,575) 

Here we're laying out just $1,625 in cash on a spread that will return $7,500 if RSX is over $25 in Jan, 2019.  That's a potential gain of $5,875 (361%) in 16 months and the risk is owning 1,000 shares of RSX at $20, plus the $1,625 cash if all is lost on the spread so net $21.08 is still $1.17 (5%) cheaper than it is now as your worst case.  

What we like about trades like that is a limited downside.  Even if all goes poorly and Russia is below $20 in 16 months, we don't feel it's likely to go much below $20 and that means we can turn it into a long-term hold that diversifies our portfolio internationally – so little harm done, even if it fails.  On the plus side, this spread is $3,375 in the money to start – so all Russia has to do is not go lower and we double our money.  THAT is the way we like to play the market at PSW!  

I have to go be on TV this morning and we'll be discussing this Nasdaq Chart at the Nasdaq and what it means for the next 45 days of trading.  We expect a bit of a pullback after the Fed minutes today (2pm) but then it's all about earnings next week – and then it's going to be all about the Fed's Dec 13th meeting and then it will be Christmas – what a year!  

Our Nasdaq Portfolio is up 17.7% in 6 months – and that's despite our QQQ hedge performing poorly.  This is a short interview, so I doubt we'll get to that this morning, but here's the portfolio:

If you want us to make more live picks at the Nasdaq – let them know, they've been downplaying them since June but I get a lot of good feedback for our public picks and I think they should get more air time, don't you? 

Of course we still like last week's TZA trade idea into the Fed, by the way.  

 


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  1. Good morning!  

    I'm heading to the Nasdaq, will be back about noon.  I expect selling after the Fed as the Minutes are not likely to be more doveish than the announcement (9/20) and that led to a 20-point sell-off in SPX and 150 points on the Nas.  

    Dollar still low, testing 93 so a bit bullish if it fails but bearish if it bounces and that's opposite for /NKD, which is a nice short at 20,900 with tight stops above.


  2. Morning All!

    Since Phil's going to be at the NASDAQ this morning, we'll be doing the weekly webinar tomorrow

    I'll post the link tomorrow morning.





  3. Because you can never have too many nukes:

    http://talkingpointsmemo.com/livewire/trump-asked-build-up-nuclear-arsenal

    During a July meeting with top national security advisers, President Donald Trump said that he wanted to significantly build up the United States’ nuclear arsenal, NBC News reported Wednesday morning, citing three unnamed officials in the room.

    Trump said that he wanted a nearly tenfold increase in the country’s nuclear capabilities after seeing a presentation that showed how the U.S. has steadily worked to shrink the nuclear arsenal, according to NBC News. The officials in the room told Trump that it would be very challenging to build up the nuclear arsenal and explained that the U.S. is in a stronger military position than it was when the nuclear stockpile was larger, according to NBC News.




  4. Good Morning.


  5. 5 more minutes, can they get all the index futures green?


  6. Good Morning, In today's post, should it read 1000 shares of RSX @ $20? 

    Sell 10 RSX 2019 $20 puts for $1.75 ($1,750)

    Buy 15 RSX 2019 $20 calls for $3.30 ($4,950) 

    Sell 15 RSX 2019 $25 calls for $1.05 ($1,575) 

    That's a potential gain of $5,875 (361%) in 16 months and the risk is owning 1,500 shares of RSX at $20, plus the $1,625 cash if all is lost on the spread so net $21.08 is still $1.17 (5%) cheaper than it is now as your worst case.  



  7. How Russia Harvested American Rage to Reshape U.S. Politics



  8. Grass, yes. He probably looked at the 15x for the calls and wrote 1500.



  9. Yes, thanks GH, will fix.  Morning math is hard!

    Nukes/StJ – Good for CCJ   


  10. Grasshopper NO shares just a BCS combined with selling Puts !!!!


  11. Phil, everyone, from Briefing.com just now re CCJ:

    09:47

    NLR

    President Trump on Twitter denying NBC News report suggesting he wanted to increase the U.S. nuclear arsenal by 10 times at a military meeting in July   (52.42 +0.00)


  12. Because he never lies on Twitter lol!


  13. Anybody looking at Coach COH changing its name and its chart?


  14. Phil, BWLD low in channel and has pricy options. How about establishing a butterfly with a 2019 100/130 bull call spread as the long call ?


  15. Everyone:  Phil talked last week about seliing 2019 $25 puts and LL has come down since then.  The below from Briefing.com so I sold that strike for $2.50 (could probably have done better too)

     

    Lumber Liquidators target raised to $39 at Wedbush — Recent checks indicate continued sales momentum  (35.01 +0.78)

    10/11/2017, 10:06:11 AM ET

    Wedbush raises their LL tgt to $39 from $35. Firm's recent store and industry checks indicate continued momentum for LL. Coupled with solid industry growth, strong traffic indicators and muted price-based promotions in a pronounced marketing shift, they see more upside than downside risk to 3Q17 consensus ests. Contrary to some concerns of increased competition, firm believes momentum for LL is building in 4Q as hurricane-related demand accelerates, pointing to additional upside. With LL's major outstanding lawsuit nearly behind co, and earnings drivers improving under the leadership of CEO Dennis Knowles, firm raises tgt.


  16. Re: LL, make that $2.55 to sell $25 puts


  17. Purely speculative bounce play.  CRMD……buying here.  Stop at 60c.  Otherwise, should bounce up to $1 or more.


  18. I’m running late, just ran out of the city. Back in 30 minutes


  19. Pharm- any opinion on BICX- Biocorrx, Inc- penny stock; Anaheim based; maybe a one trick pony? Certainly speculative. I know an investor who is in this via private placement. 









  20. LOL, tRump can suggest anything he wants… and often does. The man is nuts.


  21. Nikkei – amazing.  Kobe Steel must be an inconsequential issue.


  22. Well, I'm back, just in time for the Fed too.

    I guess the oil report is delayed to tomorrow because of the holiday.

    Things seem generally flat otherwise though /NKD surprisingly punched up to 21,000.  

    /KC with a big drop back to $130 on /KCH8.  


  23. HCP – healthcare REIT failing support from last November's swing low. I'd prefer these to shopping malls, but…still going down.


  24. Phil what holiday ???


  25. NATI – another nice little company, running on at all time new highs. Someone just can't get enough of high priced stocks at all time highs… another I wish I spotted at breakout last November…


  26. Columbus Day………I think………unofficial holiday. :)


  27. Thanks looks like no market holiday!


  28. COH/Baron – That's a lot of branding to give up.   Down 3%.

    Coach no more; New York company wants to be called Tapestry

    BWLD/JMD – When a company that charges over $1 per chicken wing uses wing prices as an excuse for missing guidance – I get suspicious.  Sales are growing 10% but profits have been flat for 3 years and I'm not seeing improvements.  I think they got cocky and over-expanded – there's only so many people who will pay those prices on a regular basis.  The wings are pretty good, but it's a narrow market and they are already at 1,220 locations in an economy where consumers are being choosy.  Gimme good old Cluck U anytime (my local favorite):

    Image result for cluck u chicken

    Image result for cluck u chicken

    Image result for cluck u chicken

    I love Nuclear – the Thermo Nuclears are a little over the top…

    LL/Baron – Was just using them as an example of a put that's a great way to raise some cash as it's so unlikely that price will ever hit and, even if it does – it's a great deal on the stock.

    When you can get 10% of a strike price for the contracts for puts that are 40% out of the money – that's free money!

    2,550 is a good shorting line for /ES.

    Anyway, so I was late because the Nasdaq was hosting a meet and greet for hot, young companies so I was meeting and greeting and this one guy is nailing it at CELLINK, which is a Bio-Printing company – CLKKF at $12.95 is the ticker and they are based in Sweden but the CTO was a guy in Cambridge, MA that hopefully Pharm will have time to talk to for us.  No options but an $84M market cap with a few million in the bank and a million dollar loss last year but turning profitable already.  They are printing body parts and that's not unique but, unlike most, they are concentrating on patenting materials, not the parts and it's like selling the blades but not the razors – much more profitable!  They are working on cloning people's cancer so, for example, they take a sample from you, replicate it 1,000 times in dishes (5 minutes per print but they could have 100 printers per sample) and then subject the dishes to 1,000 treatments to find which one is optimized for you.  I love that!  

    Columbus Day was Monday, Yodi – not a real holiday but any excuse and they delay those reports.  


  29. TSLA options expiring on 10/27 are not very expensive considering TSLA earnings are on 25th.  Either there is a very little move expected at this level or some people know that earnings will be delayed or should say lack of earnings.


  30. Phil, Thanks from a foreigner


  31. GE – sinking evermore… Kobe Steel customer?


  32. BICL/pstas…not really a 'biotech'.  More of a treatment center for alcohol and opioid addiction.  Not really my cup of tea.  Sorry.


  33. GE – sizeable put and call sales today.. huge lots in October and January.


  34. Thanks Baron,just sld LL 25p @ 2.63


  35. nice price 490union


  36. Fed minutes are out – no surprises but that's what we thought.  They are generally delaying hikes due to no inflation but more and more people are saying there are measurement issues clouding that picture.  

    FOMC Minutes Show Schizophrenic Fed Fears Low Inflation Is Here To Stay But Push For Another Rate Hike In 2017

     

    The yield curve has collapsed since The Fed's hawkish September statement (but bank stocks have soared) as rate-hike odds hit 80% and balance sheet normalization is believed to be like watching paint dry. All eyes going into the FOMC Minutes were on just how transitory The Fed believed inflation's dip was - "many Fed officials concerned low inflation is not transitory," but schizophrenically "many Fed officials saw another rate hike warranted this year."

    Additional highlights include:

    • All participants thought it would be appropriate for the Committee to maintain the current target range for the federal funds rate
    • Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors
    • Overall, the available information suggested that, although the storms would likely affect the quarterly pattern of changes in real GDP at least through the second half of the year:
    • Members judged that storm-related disruptions and rebuilding would affect economic activity in the near term, but past experience suggested that the hurricanes were unlikely to materially alter the course of the national economy over the medium term
    • Higher prices for gasoline and some other items in the aftermath of the hurricanes would likely boost inflation temporarily
    • Interpreting the next few inflation reports would likely be complicated by the temporary run-up in energy costs and in the prices of other items affected by storm-related disruptions and rebuilding
    • A few participants thought that additional increases in the federal funds rate should be deferred until incoming information confirmed that the low readings on inflation this year were not likely to persist
    • A couple of those participants expressed concern that the persistence of highly accommodative financial conditions could, over time, pose risks to financial stability.
    • It was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted
    • All agreed that they would closely monitor and assess incoming data before making any further adjustment to the federal funds rate
    • Many participants continued to believe that the cyclical pressures associated with a tightening labor market or an economy operating above its potential were likely to show through to higher inflation over the medium term
    • Most participants had not assumed enactment of a fiscal stimulus package in their economic projections or had marked down the expected magnitude of any stimulus

    • There aren't really any surprises in the minutes of the FOMC's September meeting, given that new economic projections and a Yellen press conference took place right after.
    • Many are concerned that too-low inflation readings may be due to something other than transitory factors, and some thought a delay in rate hikes is appropriate until the data shows inflation on the path to the 2% target.
    • However, many still believe another rate hike this year is appropriate.

    You're welcome Yodi.  Just assume we don't get the day off on holidays here.  

    GE/Scott – Supposedly cutting the dividend.   People are unwinding.


  37. ESRX/Phil – on your 2017 list.. BTFD?


  38. SUN/Phil – another on the list… and offering 10% dividend here…


  39. ~~ CHK – Chesapeake Energy downgraded to Underperform from Hold at Jefferies; tgt $2 

    Phil – What are your thoughts ?


  40. Can anyone explain to me why, on a day when QCOM is hit with a 773 million fine by Taiwan it is up 75%?


  41. Phil,

    Buffett had mentioned he is waiting to see details of changes in the tax code before he can sell. I believe a lot large investors will be waiting for the same hence selling is delayed ?

    thoughts ?

    Pat


  42. ESRX/Scott – We already sold the short 2019 $65s in the LTP for $7.50 so net $57.50 is our entry point and those puts are over $10 now.  The stock has been very disappointing and now people are freaking out that AMZN will compete with them and they just spent $3.6Bn to buy eviCore.  I still think it will work out – but not anxious to press our luck at the moment.  Also this:

    • FDA Commissioner Scott Gottlieb, M.D. says damages to drug makers' Puerto Rico manufacturing operations could result in shortages of as many as 40 medicines before companies regain full capacity. A small number of shortages may start to appear in the next couple of weeks. Drugs potentially affected include treatments for cancer, rheumatoid arthritis and HIV.
    • Hurricane Maria slammed into the island on September 20 causing widespread damage and power outages.
    • Dr. Gottlieb wants drug firms to be more proactive in disclosing problems with supply. For example, manufacturing facilities are using backup generators for electricity, some of which are not designed to operate for long periods of time.
    • “I‘m going to ask some of these companies to be a little more transparent around some of these issues,” he said, adding that improvements would likely come slowly, with potential setbacks along the way. “As time goes on, we’re going to see secondary impacts like the generators could start going down.”
    • Source: Reuters

    • Speaking to Bloomberg, Chicago Fed President Charles Evans says the inflation data – be it the actual inflation numbers, or surveys of expectations – are too low, and he's not expecting the price gauge to hit 2% as quickly as many of his colleagues.
    • It could take the unemployment rate falling to the area of 3.5% before inflation begins to move higher, he suggests. The Fed, he says, should be willing to push inflation above the 2% target. "I don't think we should fear 2.5% inflation."
    • As for another rate hike in December, Evans says it's too early to make a call.

    OPEC again hikes oil demand forecast; Saudi Arabia cuts oil output

    • OPEC forecasts higher demand for its oil in 2018 to 33.06M bbl/day, up by 230K from its previous forecast for its third consecutive monthly increase in the projection from its first estimate made in July.
    • The report shows growing confidence among OPEC officials that its supply cut is working, but the cartel is not depending on a surge in prices, saying it expects crude oil to remain at $50-$55/bbl in the next year.
    • “With the market moving into the winter season, distillate fuel supplies are notably tight, representing a change from the excess supplies seen in the last two years,” OPEC says.
    • Also, Saudi Arabia unveils plans to pump 9.77M bbl/day in November, in what would be its smallest output since January 2015 and ~1M bbl/day below the 10.72M it pumped in November 2016, and limit crude export allocations next month to 7.15M bbl/day.
    • But skeptical Commerzbank analysts say the Saudi supply cut "relates to an unverifiable reference level," and other countries such as Russia and Iraq could step in to fill a potential fall in production if Saudi Arabia does reduce its exports.
    • A Brazilian court has blocked part of a $2.2B deal signed earlier this year by Petrobras (PBR+0.4%) that included the sale to Total (TOT +0.7%) of part of its holdings in two of the most promising oil blocks in Brazil’s pre-salt layer.
    • The judge granted an injunction in favor of members of a local oil workers union who argued that PBR, as a government-controlled company, should have sold the assets via a public tender instead of a private negotiation.
    • The same judge in the northeast state of Sergipe has sided with the union in previous legal questions, including a case regarding PBR's proposed sale of the BR Distribuidora fuel distribution unit.
    • Some of the biggest U.S. power companies, including American Electric Power (AEP +0.3%), NRG Energy (NRG -0.8%) and Southern Co. (SO +0.4%), say they will move forward with investments in renewable and gas-fired electricity, regardless of the Trump administration’s plans to roll back Obama-era environmental rules.
    • “This will not change our planning process,” SO says of the EPA’s proposal yesterday to rescind Obama's Clean Power Plan, an issue that likely will be argued in court for years.
    • AEP produced 70% of its power from coal just over a decade ago but the total now is 47%, and the company cut reduced carbon dioxide emissions by a third during the period, CEO Nick Akins says, adding that its decision to spend $4.5B to develop one of the largest wind farms in the U.S. and a related 350-mile transmission line was encouraged my market forces, not government.
    • Calpine (CPN +0.3%), PG&E (PCG -0.6%) and Dominion (D +0.3%) also are on record as backing the Obama-era approach.
    • The EPA action does offer "a glimmer of hope" for coal producers (NYSEARCA:KOL), says a Bloomberg power analyst, as the Clean Power Plan capped coal’s upside "in the event of an unforeseen, prolonged gas-price spike, [but] the cap on that upside is now washed away."
    • General Electric (NYSE:GE-0.8% premarket as J.P. Morgan analyst Stephen Tusa cuts his stock price target to $20 from $22, reiterates his Underweight rating as well as his view that a dividend cut is "increasingly likely."
    • Tusa again lowers his Q3 earnings estimates to reflect reduced revenues and profits in the Power and Oil & Gas segment as well as higher restructuring expenses; with recently added board members potentially pushing for a quick fix, Tusa says all outcomes are on the table, including the potential for a more comprehensive breakup.
    • Morgan Stanley's Nigel Coe also sees Q3 EPS coming in below the $0.50 Street consensus, due to weakness in GE's power and aviation businesses, and he believes full-year guidance will come under pressure on a revised outlook for "flattish" results from power, H2 sales mix pressure at aviation and shortfalls at the oil and gas, renewables and transportation business segments.
    • GE is scheduled to report Q3 results on Oct. 20.
    • Earlier: Dividend cut on the way at GE? (Oct. 9)
    • Kroger (NYSE:KR) announces a strategy reset in front of its presentation at its investor day event.
    • The company says its "Restock Kroger Plan" will be fueled by capital investments, cost savings and free cash flow.
    • Kroger plans to expand partnerships to create customer value, including utilizing more of its capital to fund technology/infrastructure upgrades and create alternative revenue streams.
    • Kroger will continue building its Internet of Things sensor network, video analytics and machine learning networks and complement those innovations with robotics and artificial intelligence to transform the customer experience.
    • The Restock Kroger plan is expected to generate $400M in incremental operating margin by 2020. Also, the company expects to generate more than $4B of free cash flow over the next three years – nearly double what was generated over the previous three years.
    • Kroger also tipped its plan to explore strategic alternatives for its convenience store business, including a potential sale. The company hired Goldman Sachs to identify, review and evaluate the options.
    • Looking at financial numbers, Kroger expects identical supermarket sales to improve in 2018 and for EPS to be flat to slightly up.
    • "We have the scale, the data, physical assets and human connection to win," promises CEO Rodney McMullen.
    • KR +4.38% premarket to $21.43.
    • Source: Press Release

    • Grocery store stocks are being eyed by investors after Kroger (KR +6.5%) issues a strategy update and, perhaps more importantly, backs its current EPS forecast.
    • The grocery store giant also said that it sees flat EPS growth for next year, a shot of confidence amid sector concerns on wage pressure and Amazon pricing competition.
    • The update from Kroger has relevance for a large number of companies, including Supervalu (SVU +1.4%), Sprouts Farmers Market (SFM +1.5%), Weis Markets (WMK +0.4%), Ingles Markets (IMKTA -0.1%) and Target (TGT +1.9%).

    Dick's to 52-week low after Wells warns on margins

    • Dick's Sporting Goods (DKS -4.8%) falls after Wells Fargo warns that margins could be sacrificed by the sports retailer for an extended period as it looks to protect market share.
    • An analogy is drawn by analyst Tom Nikic with Best Buy, which saw four years of margin erosion in its turnaround cycle.
    • Shares of Dick's hit a 52-week low of $25.22 earlier.
    • Sources: StreetInsider and Bloomberg

    Goldman Sachs ups Nvidia's price target

    • Worldwide traditional PC shipments totaled 67.2M in Q3, down 0.5% on the year but better than the expected 1.4% decline, according to IDC.
    • Traditional PCs include desktops, notebooks, and workstations.
    • The top five companies represented 75% of total market sales. 
    • HP (NYSE:HPQ) held the top spot with a 23% market share with 15.3M shipments, up 6% on the year. HP was the only vendor with significant shipment growth. 
    • Lenovo was second with a 22% share and 14.5M units, up 0.1%. Dell followed with 16% and 10.8M shipments, up 0.8%. 
    • Apple (NASDAQ:AAPL) took fourth place with a 7.3% share and 4.9M units, up 0.3%.
    • ASUS rounds out the top five with a 6.2% share and 4.2M units, down 14.6%.  
    • Previously: HP tops Indian PC market in a weak Q2 (Aug. 22)
    • ShotSpotter (SSTI -0.8%) announces that it will exhibit its range of gunfire detection and location solutions in a booth at the International Association of Police Chiefs conference to be held in Philadelphia from October 21-24.
    • The company will also participate in a panel discussion on the best practices to address persistent gunfire.
    • ShotSpotter has been bid up over 30% by investors since the Las Vegas mass shooting incident.
    • Snap (NYSE:SNAP) is up 2.5% premarket after getting a higher price target from Credit Suisse, which is bumping user estimates and expects CPMs are stabilizing and even increasing slightly.
    • The firm raised its target to $20 from $17, implying 39.5% upside from yesterday's close, and analyst Stephen Ju increased his estimates for North American daily active users — to about 3.2M sequential adds, from a previous 1.5M.
    • Longer term, the firm has an Outperform rating resting on three factors: "(1) we believe SNAP shares at current levels are now exhibiting asymmetric risk/reward to the upside, with downside risk of ~6% in our Grey Sky scenario and upside potential of ~39% to our target, (2) it is a scarce asset that offers advertisers access to a coveted younger demographic; and (3) Snap is a margin expansion story with revenue CAGR exceeding cost of sales CAGR."
    • Ad agencies are trending lower today as Credit Suisse trims price targets while staying generally positive on prospects and valuation.
    • Interpublic Group (IPG -1.5%) is seeing its target clipped to $26 from a previous $27 as the firm sees lower organic revenue growth and a risk in U.S. media buying (about 6% of IPG's EBIT) where clients divert fees to targeted linear TV campaigns.
    • CS has cut its EPS forecasts for IPG to $1.59 in 2018 and $1.74 in 2019. But it's sticking with an Outperform rating, as IPG's risk compared to peers is minimal and the valuation is still attractive.
    • It's also decreased target price for Omnicom (OMC -0.4%) to $78 from $79, and its 2018/2019 EPS by 1% (to $5.38/$5.81) on similar risk, but rates the stock Neutral. It expects 2% organic revenue growth in Q3, vs. Q2's 3.5% and Q1's 4.4%. "We believe OMC's advertising business will continue to slow, despite easier comps, as client spending from key verticals including FMCG remains muted."
    • Peer WPP (NASDAQ:WPPGY) is down 2.4% and hanging just fractionally above a 52-week low of $89.40.
    • Credit Suisse's target on IPG still sees 25.7% upside, while its Omnicom target implies 5% upside.

    Fox sells off as U.S. World Cup failure dims broadcast hype

    • Fox Sports (FOX -2.6%FOXA -2.5%) is putting on a brave face, but a stunning failure of the U.S. men's national soccer team to make the 2018 World Cup is weighing heavily on shares today.
    • Volume in the company's A shares is running well above daily average at close to 10M shares.
    • The broadcaster paid $425M for U.S. rights to broadcast the FIFA World Cups from 2015-2022; next year, it will do it without the huge draw of the American men.
    • The men's team lost to Trinidad and Tobago 2-1 last night in what's termed as the most embarrassing defeat in U.S. soccer history. The team was eliminated from World Cup qualifying for the first time since the 1986 cycle.
    • It's still the "greatest sporting event on earth," Fox says. “Last night’s World Cup qualifying results do not change Fox Sports’ passion for the world’s biggest sporting event. While the U.S. was eliminated, the biggest stars in the world from Lionel Messi to Cristiano Ronaldo stamped their tickets to Russia on the same day, and will battle teams ranging from Mexico to England that have massive fan bases in America.”
    • Fox had planned 350 hours of programming, and now faces a significant ratings and advertising hit

    Facebook announces $199 all-in-one VR headset

    • Facebook (NASDAQ:FBannounces the Oculus Go, a $199 untethered VR headset that could redefine the emerging market.
    • Unlike current untethered headsets, the Go doesn’t require the use of a smartphone or special sensors around the room. The headset alone creates the VR experience.
    • Price comparison: Sony’s PlayStation VR costs $349.99 for the headset alone and, unlike the Go, the PS VR needs more parts to work. Samsung’s Gear VR costs $129 for the headset and a controller, but a user needs a compatible smartphone.
    • The AR/VR market grew 25.5% on the year in Q2 to total 2.1M shipments, according to IDC. Samsung led with 568K units and a 26.7% market share with Sony in second and Facebook coming third with an 11.6% share and 246.9K units.
    • The Oculus Go will ship in early 2018 and could push Facebook to the front of the VR market.
    • Previously: Facebook planning $200 wireless Oculus VR headset next year (July 13)
    • Update: The tethered Oculus Rift bundle with headset and controllers gets a permanent price drop to $399, matching the $100 off sale price from this summer.

    Apple considers creative office in Culver City; Tim Cook says no AR glasses for now

    • The Real Deal reports that Apple (NASDAQ:AAPL) is in talks to lease an 85K square foot creative office in Culver City.
    • The $3.83M per year property will become available in 2018.
    • Apple has committed $1B to developing original content over the next year.
    • In other news, CEO Tim Cook tells British Vogue that the company has no near-term plans to release augmented reality technology, “I can tell you that the technology itself doesn't exist to do that in a quality way."      
    • Previously: IDC: Worldwide PC sales totaled 67.2M in Q3 (Oct. 11)
    • Previously: Taiwan fines Qualcomm $773M for antitrust violations (Oct. 11)

  43. SUN/Scott – Those guys I really like.   Higher than our entry but a great long-term stock.

    CHK/Albo – I think that's a bit harsh.  

    Is the Options Market Predicting a Spike in Chesapeake Energy (CHK) Stock?

    Actually, not sure where you are getting $2:

    Chesapeake Energy Corporation (NYSE:CHK) was downgraded by equities research analysts at Jefferies Group LLC from a “hold” rating to an “underperform” rating in a report issued on Monday.

    Several other equities analysts have also issued reports on the company. Citigroup Inc. decreased their price target on Chesapeake Energy Corporation from $8.00 to $5.00 and set a “neutral” rating on the stock in a research note on Friday, July 21st. Tudor Pickering downgraded Chesapeake Energy Corporation from a “buy” rating to a “hold” rating and raised their price objective for the company from $3.76 to $4.00 in a report on Tuesday, September 5th. Vetr raised Chesapeake Energy Corporation from a “buy” rating to a “strong-buy” rating and set a $5.23 price objective on the stock in a report on Monday, July 24th. Scotiabank reissued a “hold” rating and set a $5.00 price objective on shares of Chesapeake Energy Corporation in a report on Friday, June 30th. Finally, ValuEngine downgraded Chesapeake Energy Corporation from a “buy” rating to a “hold” rating in a report on Friday, September 1st. Five analysts have rated the stock with a sell rating, seventeen have given a hold rating, six have issued a buy rating and one has given a strong buy rating to the stock. Chesapeake Energy Corporation currently has a consensus rating of “Hold” and an average price target of $6.17.

    Chesapeake Energy Corporation (NYSE:CHK) last issued its quarterly earnings results on Thursday, August 3rd. The oil and gas exploration company reported $0.18 earnings per share (EPS) for the quarter, beating the Thomson Reuters’ consensus estimate of $0.14 by $0.04. Chesapeake Energy Corporation had a negative return on equity of 16.10% and a negative net margin of 9.52%. The company had revenue of $2.28 billion for the quarter, compared to analyst estimates of $1.07 billion. During the same quarter last year, the company posted ($0.14) EPS. The company’s revenue for the quarter was up 40.6% compared to the same quarter last year. Equities analysts forecast that Chesapeake Energy Corporation will post $0.73 earnings per share for the current fiscal year.

    In other Chesapeake Energy Corporation news, Director R Brad Martin acquired 25,000 shares of the stock in a transaction dated Friday, August 11th. The stock was purchased at an average cost of $4.11 per share, with a total value of $102,750.00. Following the transaction, the director now owns 547,358 shares in the company, valued at approximately $2,249,641.38.

    At $3.90 with about 900M shares, the market cap is easy to calculate.  Revenues tracking $8Bn and earnings tracking over $1Bn so yes, I'd buy them for $4Bn.  

    QCOM/Baron – Maybe the fine was less than expected?

    Tax code/Pat – Yes we talked about that last week.  It's a valid premise for expecting us to hold the highs into Jan. 


  44. Phil,

    I just read 4 articles on yahoo and the size of the fine is does not appear to be a plus; rather, the amount was unknown and is large.  QCOM says it will appeal size and method of computation, blah, blah.  Nobody cares, just turn a bad into good ("now we know" and "we'll beat this in court.")  Nothing matters;  I'm surprised COH is not up; maybe if they renamed itself "Donkeybutt."  CNBC is laughing, playing Carole King's Tapestry.


  45. Phil/FCEL/RSOG,

    you had mentioned these some time back. Still good to sell FCEL Jan 19 $2 puts for 0.85?

    regards


  46. ~~Jefferies Group LLC Downgrades Chesapeake Energy Corporation (CHK) to Underperform

    Posted by Stan Pace on Oct 11th, 2017 // No Comments  
     
    Chesapeake Energy Corporation logoChesapeake Energy Corporation (NYSE:CHK) was downgraded by investment analysts at Jefferies Group LLC from a “hold” rating to an “underperform” rating in a report issued on Monday. They currently have a $2.00 price target on the oil and gas exploration company’s stock, down from their prior price target of $4.00. Jefferies Group LLC’s price target suggests a potential downside of 48.85% from the company’s previous close.

    Briefing also showed the $2 target.

    I agree the stock is very cheap, especially if you think /NG is likely to go up from here.


  47. Phil

     

    China Mobile Limited (CHL)

     What puts did we sell ?

    Thanks


  48. Phil - "a company that charges over $1 per chicken… I think they got cocky and over-expanded – there's only so many people who will pay those prices on a regular basis."

    Wow, $1 a wing?? You are correct Sir, and Cluck U is barely under a buck, but waddaya gonna do in Jersey or Hoboken?

    Recently had the disprivilege of visiting Buffalo BWLD and Wingstop WING (only $32 a share for 1000 places to take out ).  The MRS said $17 for 20 wings? must be one gold egg layin mother clucker?

    Conclusions:

    They both sucked.  How much? WalMart and Ralph's wings are better.

    Wholesale chicken wing prices at over $2.25 a pound, representing 30% annual inflation, are stupid crazy.  One of the reasons BWLD Q2 earnings got crushed -63%, Q3 will be disappointing, and wing prices peaked in May at 1.91 PER WING. Those insane prices will continue to crush margins in that mother cluckin industry. 

    IMHO, anyone buying the stock in these companies for upside, needs to speak with their Doctor regarding proper medication titration or a brain surgeon to have their prefrontal lobotomy reversed.

    If you want good ones, get em with your kimchee jigae and bulgolgi, go Korean baby.

    And now for your MOMENT OF ZEN…. For the price of two May wings $4, you could buy a share of CHK and have spare change… Better yet, on Super Bowl Weekend alone, 1.3 BILLION wings are consumed.

    Although others might say "your an ass man", I like my dark meat, so I'm a leg n thigh man. Off for my IV on a wing and a prayer, love that QB and dog and Out.


  49. CELLINK – Phil – Sounds like a good story but will take a while to determine whether it has a good track record.  Different approaches to cancer chemosensitivity testing (and biologics) have been developed including testing of patient blood with circulating tumour cells, cancer cell proliferation (essentially cell replication which has proven to be minimally effective), inserting cancer in mouse models (why?) and now cloned cancer cells.  In the meantime, for those concerned about anyone who has cancer I'd recommend testing the actual live tumour cells using functional profiling by the Nagourney Cancer Institute.  With a live sample they can test about 10 – 15 drugs or combos and it is done by a leading researcher and oncologist, Dr, Nagourney.  Their approach has about a 95% chance of determining whether a drug or drug combo won't work and will significantly improve the odds of selecting the right regimen (beyond standard of care recommendations).  Problem with the Rational Therapeutics business model is scalability and the need for live tumour issue but I recommend them to anyone I know with cancer.  Not sure of the current cost of testing but probably $5K - $10K.    

    https://www.nagourneycancerinstitute.com


  50. Oh yeah, in my rush to the slow liquid drip I forgot this little piece about harvesting energy from evaporating water.  Enjoy and Out.


  51. Aren't I supposed to come to NY to kiss the tuchus?

    The FU stocks have been sucking again. Dangit!

    FU TEVA M FTR IMAX GE JO!!!!


  52. stuman 

    Do they use this method for drug trials ?

    Thanks good information


  53. Up, up and away/Baron – You just have to learn to ignore facts and logic and go with the flow.  As I used to say in 2007 – the best way to play this market is to smash your head with a brick a few times before trading – it helps you not worry about little things like actual earnings or reality…

    FCEL/Pat – I like them as a concept but, as a stock, they've been very disappointing.  Earnings are not up, profits continue to elude, Trump is no help.  

    CHK/Albo – Ah, thanks.  I don't go along with that, I think they have an algo extrapolating declining earnings (from the sale of assets) that won't play out.

    CHL/QC – Just did them:

    Submitted on 2017/10/06 at 12:56 pm

    CHL/Scott – $50 is where I always love them.  $102BN in revenues, $17Bn in profits, $205Bn market cap at $50 so p/e of 11.7.  1st half revenues were up 5% so chugging along and they just made a massive order for optical equipment – so I guess they are pushing fiber service too.  They also pay a 5.5% dividend!  

    It's a good time to take a shot in the LTP but, sadly, options only go out to March so in the STP, let's sell 20 CHL March $50 puts for $1.70 ($3,400) and see how it goes.  If it goes well (as previous put sales have), we just keep the money and, if it goes poorly, we have a cheap entry point for the LTP.  It's like we can't lose!  

    Nagourney/Stu – Well that sounds well worth it, thanks.  Still, as you say, Celllink has a good story to tell.

    FU/Jabob – Well fortunately I wan't dumb enough to make a reciprocal statement (and they are 2019 plays anyway).  


  54. TEVA – still like selling $15 puts here…


  55. GE – 230,644 options traded today. right up there with AAPL (and absolute order of magnitude leagues beyond most everything else).


  56. also in the big league for today's option volume: BAC, MU, ABBV


  57. Pat/FCEL,

    I see that Oppenhiemer just rated them outperform.   Don't know why since since Phil is right earnings were not good, but they did just sell a plant to Korea Power and they are being bought by funds off that upgrade.


  58. FCEL/Pat/Baron – We did sell some puts in the LTP recently – here's what prompted me:

    Submitted on 2017/09/19 at 3:50 pm

    Also very interesting:
    • FuelCell Energy (FCEL +4.1%) moves sharply higher after Cowen analyst Jeffrey Osborne says Exxon Mobil's (XOM +0.1%) foray into carbon capture and storage technology with the company is "making progress."
    • The technology, which has moved from the lab to a commercial test at a power plant in Alabama, could be licensed globally to help countries reach greenhouse gas reduction targets, Cowen says, viewing "a successful launch of this technology, albeit in the outer years, as material to the outlook for natural gas demand."
    • Capturing 90% of the emissions at just 1% of U.S. coal plants would require 2,160 MW of fuel cells, equal to ~$6.5 B in sales and $9.7B in service revenue, Osborne estimates; FCEL's total sales in FY 2016 were just $108M.

    I like like these guys anyway – just haven't had a good reason to buy.  

    In the LTP, let's sell 50 FCEL 2019 $2 puts for $1.10 ($5,500) to remind us to keep an eye on them.  It's a net 0.90 entry ($4,500) if assigned.  


  59. LOL you beat me to it


  60. ABBV – largest option trade today was a buy/write for 10,212 Jan18 $75 calls with stock (and not a roll forward). Presumably this was someone shorting 1MM shares, buying the calls for cover. making a 50,000 limited exposure (max loss) and just a 52 cent dip to be exceeding that.  Dividend due in a couple days, so .64 hit there, but that drops the stock to so…call it ~even, and earnings on Oct 28th. Someone is looking for a miss and/or market correction with a $100 million dollar bet (not sure what portfolio margin would be on that!)


  61. Jabo – "Aren't I supposed to come to NY to kiss the tuchus?"

    Noice!!! Reciprocity is never guaranteed, you should know Dathan.  LOL….

    It's supposed to feel like this, but sometimes winds up feelin like this, enjoy and Out.


  62. Phil/Pat/McKucstars1,

    Well I took a few of those $2.00 puts for $.85 at end of day just because…it was easier than hitting myself in the head with a brick.


  63. this las vegas investigating is getting further into the "huh?" and head scratching every day. I'm not prone to conspiracies but….


  64. Barron,

    LOL…and also safer


  65. Apple Pay gets a major endorsement from Wells Fargo





  66. Rush Limbaugh says Donald Trump is acting ‘like a dictator’


  67. Hi Phil if you have a chance MIC at 72$ PE 34 paying a div of 5.52. Question is how low can you go?













  68. Good morning! 

    API

    • Crude +3.1mm (-2.4mm exp)
    • Cushing +1.216mm – 8th weekly build in a row
    • Gasoline -1.575mm (+200k exp)
    • Distillates +2.029mm – biggest in 5 months

    Not much effect so far as OPEC keeps up the rhetoric but maybe a good play on SCO this morning.

    Not much going on this morning but some data and Fed speak later:

    Thursday's economic calendar


  69. Good Morning Phil,

    Any plays on crude or RB? To me they look a little toppy but it seems I am allergic to making any profits in this market. Thanks


  70. Disregard last comment. I’m a little sleep deprived with a 2 week old newborn. Hopefully I can add more to this group once I get back into a routine again. Thanks


  71. Alergies/Dreamer – No worries.  We had a bit of a sell-off after the API report and a bit dangerous to play into EIA at 10:30 but /RB might be good for a bounce into the weekend later.

     

    MIC/Yodi – I find it interesting that the same market that fully believes Trump will pass his tax cuts does not believe he will pass an infrastructure spending bill.  Unfortunately for them, Trump has also cut incentives for renewable and clean energy – things Macquarie is heavily into.  At $6Bn ($72) they are only making about $200M so how low?  $4Bn would look very interesting, about $50.  I know the dividend looks attractive but it costs them $400M/yr and that's more than they make, so they are borrowing money to pay dividends – I hate that.