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%

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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.


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.


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.



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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Phil's Favorites

DARK TOWERS by David Enrich


In his best-selling book Dark Towers, David Enrich, finance editor at The New York Times, chronicles the complicated history of Deutsche Bank and its entanglement with Donald Trump. Reviewing Dark Towers, Roger Lowenstein writes, 

"Enrich’s most tantalizing nugget is that in the summer of 2016, Jared Kushner’s real estate company (which received lavish financing from Deutsche) was moving money to various Russians. A bank compliance officer filed a “suspicious activity report,” but the report was quashed and she was fired. The suggestion that maybe the money was payback for Russian campaign meddling isn’t one that Enrich can prove. Similarly, we will have to wait to see if Deutsch...

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Zero Hedge

NYSE Announces Disaster-Recovery Test Due To Virus Fears

Courtesy of ZeroHedge View original post here.

In a somewhat shocking sounding move, given administration officials' ongoing effort to calm the public fears over the spread of Covid-19, The New York Stock Exchange has announced it will commence disaster-recovery testing in its Cermak Data Center on March 7 amid coronavirus concern, Fox Business reports in a tweet, citing the exchange.

During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Stree...

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Chart School

Dow, Three strikes and your out!

Courtesy of Read the Ticker

The Dow has topped out with major events, the current virus could be the third strike!

2001 - 9/11 Twin Towers
2007 - Bear Sterns
2020 (?) - C19 Virus

Chart explains all. Dow Jones Industrial's comparing market tops 2000, 2007 and 2020.

Click for popup. Clear your browser cache if image is not showing.

Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of ...

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Cities With The Most 'New' And Tenured Homeowners

By Jacob Wolinsky. Originally published at ValueWalk.

Homeownership is a major investment. Not just financially, but when a person or family purchases a home, they’re investing years – if not decades – in that particular community. 55places wanted to find out which real estate markets are luring in new homebuyers, and which ones are dominated by owners that haven’t moved in decades. The study analyzed residency data in more than 300 US cities and revealed the top 10 cities with the most tenured homeowners – residents who’ve lived in and owned their home for more than 30 years – are sprinkled across ...

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Kimble Charting Solutions

Financial Crisis Deja Vu: Home Construction Index Double Top?

Courtesy of Chris Kimble

Most of us remember the 2007-2009 financial crisis because of the collapse in home prices and its effect on the economy.

One key sector that tipped off that crisis was the home builders.

The home builders are an integral piece to our economy and often signal “all clears” or “short-term warnings” to investors based on their economic health and how the index trades.

In today’s chart, we highlight the Dow Jones Home Construction Index. It has climbed all the way back to its pre-crisis highs… BUT it immediately reversed lower from there.

This raises concerns about a double top.

This pr...

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Insider Scoop

A Peek Into The Markets: US Stock Futures Plunge Amid Coronavirus Fears

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. South Korea confirmed 256 new coronavirus cases on Thursday, while China reported an additional 327 new cases. Data on U.S. international trade in goods for January, wholesale inventories for January and consumer spending for January will be released at 8:30 a.m. ET. The Chicago PMI for February is scheduled for release at 9:45 a.m. ET, while the University of Michigan's consumer sentime... more from Insider

Biotech & Health

Could coronavirus really trigger a recession?


Could coronavirus really trigger a recession?

Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. AP Photo/Ng Han Guan

Courtesy of Michael Walden, North Carolina State University

Fears are growing that the new coronavirus will infect the U.S. economy.

A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; ...

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The Technical Traders

SPY Breaks Below Fibonacci Bearish Trigger Level

Courtesy of Technical Traders

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

Some recent headline articles worth reading:

On January 23, 2020, we ...

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Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  


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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship


Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...

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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year


Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires


Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:


The ‘experts’ I hear from keep saying that once 300B more in reserves have ...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:


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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. Contact Ilene to learn about our affiliate and content sharing programs.