Archive for June, 2008

Monday Mop-Up

That was a very disappointing finish.

Chrysler announced production cuts, shutting down a minvan plant and cutting back production at a truck plant in St. Louis later this year.  Tomorrow is the June sales reports and Citibank is projecting vehicle sales will drop to 12.8M for the year, down from 16.3M last year (21%).  Chrysler is down 14% this year, well ahead of F and GM and, unlike "the big 2" they remain cash-flow positive.

Chrysler is still in a tight financial situation, however, and must spend billions to develop new models and start a union-operated fund to cover retiree health-care costs. "The market is at a fairly slow point," Chrysler Vice Chairman Jim Press said in a conference call on Monday. If "we want to continue to meet or exceed our financial targets, we have to move responsibly."

Just before the announcement, at 1:20, one of the members asked me about steel stocks in general and I had said: "I’ve been staying away.  High input costs and a global slowdown not a good combo for them.  Also, aren’t all the auto companies cutting back production.  I’m not sure what’s keeping them up this high really."  In light of the announcement, I think X may make a pretty good short again.  They have been a great long put to sell front-month puts again and are a little more affected by auto sales than others.  I think they would have fallen already but they were added to the GS conviction buy list on the 24th but even that didn't stop them from falling $10 since.  MT may also be a fun put play as they are already looking to test weak support at $97.50.

Here is a great article on what follows bad one-month declines.  I doubt it will help us feel better but at least statistics are on our side!  Bloggers are most bearish in 12 months.  This is how negative sentiment reinforces itself.  I read Barry, the WSJ guy reads me, 100 people who show up on TV read the WSJ and there's barely an original thought in the whole process…  Interestingly, bearish blogs reduced 15% from last month AND bullish went down 3% – neutral made the 18% gain.

 

I have a fairly encouraging Fibonacci view of the
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Finally Cheap Enough? Tractor Supply Company

Tractor Supply Company [NDQ:TSCO] June 30, 2008 close: $29.04

52-week range: $28.01 [Jan. 22, 2008] – $53.55 [Aug. 8, 2007]

 Recreational farming and ranching has been booming in suburban and rural areas of America. Tractor supply serves this market with livestock and pet products, hardware, tools, snow blowers, mowers and other products. Following the acquisition of a competitor in 2002, sales and earning grew dramatically. 2007 saw all-time records in every category yet today’s poor economy has caused TSCO shares to plummet by 57% from an March 2006 high of $67.60 to just $29.04 currently.

Here are the per share numbers* since 2002:

Year …… Sales ….. Cash Flow ….. Earnings ….. Avg. P/E …. Book Value

2007 …. $72.12 …… $3.93 ……….$2.40 ……… 19.9x ………$15.08

2006 …. $58.83 …… $3.31 ……….$2.22 ……… 23.8x ………$14.87

2005 …. $52.44 …… $3.04 ……….$2.09 ……… 22.3x ………$12.11

2004 …. $45.40 …… $2.38 ……….$1.57 ……… 24.1x ………. $9.68

2003 …. $39.39 …… $2.09 ……….$1.45 ……… 19.3x ……… $7.90

2002 …. $33.18 …… $1.51 ……….$0.99 ……… 15.2x ……… $6.25

 *sources: Value Line and MSN Money Central

 Tractor Supply management is guiding to a range of $2.54 – $2.62 but Value Line and Zacks are taking a more conservative stance with 2008 estimates of $2.45 and $2.51 respectively.

 Even the lower estimate makes TSCO’s multiple just 11.8x this year’s and 10.8x 2009’s expected earnings. Compare those to their historical P/Es in the chart above. The price/book value and price/sales are now at levels last seen during 2001’s recession. Investors who purchased during that last economic slowdown saw their shares go from a split-adjusted $2.10/share to $44.90 before the end of 2003.

 Debt is low at just 16% of capital and with total interest coverage of 19x last year. Value Line awards TSCO an “A+” financial strength rating.

 Despite all the positive factors these shares are now offered for a share price that is lower than the lows touched for even one day from July 2003 right through year-end 2007.

Some well known holders [as of March 31, 2008]:

Capital Research and Mgt. …………………. 11.30%

Franklin  Resources ………………………….. 5.99%

AMCAP Fund ……………………………….. 6.76%

Southern Sun Asset Mgt. ……………………. 4.34%

Thomas W. Smith …………………………… 4.09%

Barclays Global Inv. …………………………. 3.21%

Neuberger Berman, LLC ……………………. 3.11%

Vanguard Group …………………………….. 2.88%

Gates (Bill and Melinda) Foundation ……….. 2.68%

 Officers and Directors owned ……………….12.90%

 What
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Do not despair

Anyone despairing?  Okay, don’t.  Here’s some marginally good news for those with long positions not sufficiently hedged recently.  Courtesy of Minyanville, question by Prof. Sedacca, and answered by Prof. Jason Goepfert.  – Ilene

Minyan Mailbag: The Ruins of June

Prof. Goepfert,

What has happened historically after months this lousy, particularly during secular bears?

Thank you,

Prof. Sedacca

 

Prof. Sedacca,

One of the pieces of data that’s been drifting around the past couple of days notes that this is shaping up to be the worst June in the DJIA since the Great Depression.

That’s sobering stuff, so let’s take a look at the S&P 500 and see how this month is shaping up (subject to change, of course, as the month is obviously not over just yet).

This would be the worst June swoon in the history of the index, beating June 1962 by about 1%. There was a particularly nasty 25% spill in the four months leading up to June ’62, a touch worse than what we’ve seen so far this time around. 

Overall, this month would rank 10th on the all-time dunce list, and the worst month since September 2002. Going forward there wasn’t a lot consistent about the other months. There was a generally positive bias, but that’s the case for any random month, and especially so after a down month.

Five of these "worst months" occurred during the last bear market from 2000 – 2002, and surprisingly enough the next month was positive four of the five times, and we were positive three months later three of the five. During the mostly-pathetic 1970′s, six of the months qualified for this list, and again the performance going forward was mixed to even slightly positive when looking out longer than one month. There were some huge sell-offs following these already-disastrous months, but also some major rebounds. I’m not sure that this has a ton of use other than the headline shock factor ("10th Worst Month of All Time!"), but generally there has been a positive bias following horrendous performances like this.

-Jason





Trading Idea: VLO

Here’s a trading idea, courtesy of Daniel Jones of Option Notions, along with a summary of his recent trades. Today’s pick is a call spread on VLO.

UPDATE:  GM LONG, SPREAD

Last week we mentioned that the market was almost past the technical "Panic point" that we saw at the 11,800 Dow Industrials point.  The "left field" loop appeared on Thursday with Goldman’s friendly downgrade of GM, and the mention that Goldman’s analyst figured they would have to raise capital sometime soon.  Thus, the market’s vulnerability was exposed and the rest, as they say, is history.  Here we sit this morning about 400 points lower.  Can the bottom be far away?  It’s always darkest before the dawn, and with last week’s downside action, I have to say I think we’re approaching a very tradable bottom in the markets.
 
We mentioned GM in a bullish pick on 16 June 2008 (ouch!) with long-term 2010 LEAPs and January 2009 calls being recommended.  We don’t think the company will have to raise capital, nor will they go bankrupt.  They have $40+ billion in the bank and a solid cash flow.  Something will happen here from a strategic point – GM is presently valued at only $6.4 billion in equity.  That’s shark bait and some private equity player will pounce.  We’d like to go on record today as recommending investors add to those GM call spreads at this time.  The stock is at a 53-year low this morning (30 June 2008) due to the remaining investors throwing in the towel on them for end-of-quarter window dressing, and of course, the impact perceived from higher oil prices, which are skyrocketing today.  We would recommend buying another position of the January 2009 $15 calls that we are long in that spread for $1.45 this morning, and sell the Jan 2009 $25 calls for $0.30, for a net cost to the spread of $1.15.  The same goes for the 2010 LEAPS if you got those long.  If you didn’t, now is a great time to buy Jan 2010 $20 LEAPS at $1.55 and sell the Jan 2010 $30 LEAPS for $0.55, for a net cost of $1.00.
 
We sent an update on the FDX and UPS puts last week.  We hope you are enjoying those and waiting for the recommended sales…
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Early Morning Tidbits

Courtesy of Notable Calls,

Early Morning Tidbits:

 

- Citigroup adds Google (NASDAQ:GOOG) to Top Picks Live list based on what presents itself as a highly favorable Risk-Reward outlook. Based on extensive channel checks, they believe that GOOG’s Q2 results are well on track to meet their estimates ($3.82B revenue/$4.73 EPS), despite recessionary headwinds.

- JP Morgan reits Overweight on Research in Motion (NASDAQ:RIMM), with conviction.

Notablecalls: Both look like good bounce plays here.





Blue Chip Losses

Here’s some more interesting information from Bespoke Investment Group:

Investors Losing All Their Blue Chips

Excerpt:  "So called blue-chip stocks have struggled mightily over the last year.  The total loss in market cap from their 52-week highs for stocks in the S&P 100 (largest 100 S&P stocks by market cap) is now $2.5 trillion.  Below we highlight stocks in the index that are the furthest from their 52-week highs, as well as the loss in market cap from their 52-week highs.  As shown, GM is 75% from its 52-week high, Lehman is 72.4%, and Wachovia is 71.7%."

Read more and see table here.  





It’s All About Oil

Check out the chart that’s part of this brief note, courtesy of Bespoke Investment Group’s

It’s All About Oil

If any one tries to tell you differently, all you need to do is show them the chart below.  As last week’s trading illustrates, every time oil went up, stocks went down, and every time oil pulled back, the market gained steam.

Weekly_chart_oil_vs_stocks

 





Monday Market Madness

Oil is at $142.50.

That's it, I can end my column there.  What do you think is going to happen with oil over 100% higher than the high of Q2 last year?  You can cut back your consumption by 30% but if they drive the price to $200 a barrel, you'll be just as broke – only 30% less mobile than you were.  This morning we had the usual pre-market Nigerian rebel attack…  Well, that is to say according to CNBC there was a platform attack in which 5 people were killed.  I'm still waiting to see it pop up on a legitimate news source but I think it's just another case of CNBC reading Wednesday's copy by accident on Monday, ahead of the scheduled attack.  These mix-ups occur frequently in the summer when Rent-A-Rebel requires advanced notice of all attacks so as not to conflict with vacation schedules

Don Harrold made a scheduled attack on the Fed over the weekend and I can't say I disagree with him at this point.  Certainly the free market couldn't possibly screw the people of this country more than an active Fed has been doing lately.  The only possible way I could find a legitimate justification for the Fed's actions last week was if they KNOW, for an absolute fact, that the oil bubble is about to collapse and they are leaving liquidity in the market in order to lessen the devastation of the now $6Tn energy sector dropping 30% in short order. 

With oil at $142.50, it seems more likely that Don Harrold is right and even Cramer was right, after he was wrong, and then right, and then right even though he was wrong…  I spent the weekend reading lots of different viewpoints on the market and my conclusion is – nobody has a clue what's going on so I may as well stick to my guns.  My position is:  I think the markets are oversold.  I think that the woes of the world are entirely due to commodity prices, particularly oil, which is sucking up 10% of our Global GDP and 30% of the planet's disposable income, taking much needed money away from housing as well as goods and services.  I think the price of oil is greatly exaggerated due to speculation and I think that the…
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Are You 67% Better Off Than You Were?

Politicians often ask you if you are better of than you were 4 or 8 years ago.

I was reading some campaign rhetoric this weekend and I was amused by the fact that there are still rabid calls to "keep the Bush tax cuts" and it got me to wondering who this is really going to benefit.  We all know that the US has gone 40% more in debt than when Bush took office and, obviously, inflation is out of control, especially for the things we import, like commodities.

Since core inflation is "under control," what that means is that the price of goods and services we produce in this country are not demanding more money, even with the drastic dollar deflation, and, in terms of foreign currency, we are being paid only 2/3 of what we got paid for the same amount of work or production as we did in 2000.

Now, intuitively, you may think that if the dollar has declined 40%, you need 40% more money to offset the loss but that is not the case…  40% off of 100 leaves you with 60 but – to get back to 100 – you need to multiply 60 by 1.67!  This is why we try not to lose money in the markets, once you lose more than 20%, you need to do better than 30% just to get your money back.

So if you had a net worth of $10M in 2000 and voted for George Bush (or, if you lived in Florida, if you did not fully punch your chad for Gore) because you liked his tax cuts, the question you have to ask yourself is if you are 67% better off now than you were then.  If you do not now have $16.7M from a $10M start, then you have lost ground.  The money you worked for your entire life, not to mention the value of other assets you may have like homes, boats, cars, stocks… has been discounted by 40% over the past 7 years of Bush economic policy.

That’s why the stock market, already trading flat to 2000 levels, is much further down than you think as the Dow valued in Euros is actually already down to 6,807!  This is not a math trick – a share of IBM stock (flat at $120 since 2000) that bought you 4 barrels of oil when Bush took…
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Ready to Rally?

Most of what I read is negative, with lots of reasons for doom and gloom, but here’s an article by Sean Udall at Minyanville discussing stocks he’s watching, thinking we may be setting up for a rally next month.  – Ilene

Ready to Rally?

Courtesy of Minyanville’s Sean Udall.

Here are my targets for accumulation, my potential shorts and adds thus far today. The economic numbers were about as good as they could have been, and I feel we could be setting up for a powerful rally next month. What that means is that a full robust rally won’t happen today, but certain stocks may have set or tested lows for the year this week – including today’s follow on selling. I’ve done little this week except build an ever-growing watch list.

I did add Juniper Networks (JNPR), since I felt the valuation was compelling enough to risk some downside. Additionally, I’ll share some of my current stock themes.

Visa (V): Now in the mid $79s and under, this is a good buy. I added it again, will likely clip some for a day trade and may allow some to run. Furthermore, this is one of the stocks I’ll likely use again and again in times of market weakness.

VMWare (VMW): I sold this sometime ago, but every time it hits the low $50s, I put it on the front screen. I believe virtualization will be huge and that VMWare will maintain a sizable lead despite new product releases from Microsoft (MSFT). If it goes under $50? I’ll own some.

Research In Motion (RIMM): See my comments from yesterday’s Buzz. The cellular market, like the broadband market, is bifurcated. High-end multi-function phones are replacing the lower-end handsets – see Research In Motion results versus those of the Sony (SNE)/ Ericsson (ERIC) joint venture. Some companies will defy the prevailing negativity.

I think Apple (AAPL) and Research In Motion are moving into a more dominant position every month. And the lower each of them trade, the more I like them.

Ciena Corporation (CIEN): Another nasty downturn for this…
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Zero Hedge

Visualizing The 150 Apps That Power The Gig Economy

Courtesy of ZeroHedge. View original post here.

Go back in time a decade, and you’d have a tough time convincing anyone that they would be “employed” through an app on their phone.

And yet, as Visual Capitalist's Jeff Desjardins explains, in a short period of time, the emergence of the smartphone has enabled the gig economy to flourish into a multi-trillion dollar global market. And by leveraging apps like Uber, Airbnb, and Etsy, it’s estimated that ...



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Phil's Favorites

What's going on with Blue Apron?

By Ilene 

The Blue Apron business model appears, perhaps, flawed. While the service is convenient, I think it would appeal mostly to very busy people who don't have time to shop for food -- but enjoy cooking -- and have enough money that the trade off between paying for food delivery vs. spending time shopping is worth it. Here's the unfortunate stock chart and some numbers from Yahoo:

The company has been losing money, and is projected to lose money again next year. Revenue is projected to decrease in 2019 from the 2018 level, but pick up again in 2020, though still below 2018's revenue. Maybe a larger company that could integrate APRN's services into its existing infrastructure should acquire APRN and save it from its apparent...



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Chart School

Palladium minor cycle bottom

Courtesy of Read the Ticker.

Once again RealVision TV posts another trade idea, long palladium. We shall review it with our RTT cycle tools and parallel channels.







Any trader will be concerned with the supply shock at $1800 which pushed down price quickly. Profit taking maybe, sure! The question, is there more supply out (or more profit taking) there ready to dump on the market, either now or after any minor advance. This why waiting for the 'C' wave of the A-B-C to form over some more time is a good idea, and once done, we want to see solid buying moving price up before acting, after all we do not want to be early or a lonely bull (Richard Wyckoff logic). 

The parallel channel highl...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Kimble Charting Solutions

Banks Sending Bearish Message To Stocks, Says Joe Friday

Courtesy of Chris Kimble.

Quality bull markets prefer to see Banks stronger than the broad markets or at least keeping up with it. Concerns often crop up when banks reflect relative weakness compared to the S&P.

This chart looks at the Bank Index (BKX) over the past few years, reflecting a falling channel of lower highs and lower lows has taken place inside of falling channel (1). This falling channel has now been in play for the past 15-months.

The index hit the bottom of the channel in December of 2018 and a counter-trend rally took place. The rally off the December lows saw the index hit the top...



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Insider Scoop

Analyst: US Sanctions 'May Not Kill Huawei'

Courtesy of Benzinga.

President Donald Trump signed an executive order Wednesday that limits how "foreign adversaries" conduct business with U.S. companies.

What Happened

The Department of Commerce said China's Huawei and 70 related companies will be included in the "Entity ...



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Biotech

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

Reminder: We are available to chat with Members, comments are found below each post.

 

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>