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Tuesday, February 7, 2023

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TGIF! Big Chart Reveiw

Happy anniversary awful market!

That's right, today is day 20 of one of the worst market slides in history.  We began Feb 9th at 8,280 and yesterday the Dow closed below 6,600.  That's 1,680 points, almost exactly 20% in 20 days – how neat!  It's not so much the drop that's killing us as the lack of bounce.  The TOTAL lack of positive movement, something Michael Kahn in Barron's is calling "A Slow-Motion Capitulation."  Essentially Kahn is saying that traditional indicators are not working as fed up investors have stopped buying, but they have also stopped selling as there's hardly any point.  Much to the chagrin of the bears, even C at $1 is not shaking out the shareholders as volume dropped from 1.8Bn last Friday to 578M yesterday.

Essentially, we have gotten to the point where Elvis has clearly left the building and the 5Bn shares of C that are held at $1.02 are not held by people who are going to panic out at .50.  We saw JPM and WFC come under attack yesterday, as we expected after the Moody's downgrade we discussed in the morning post.  Those plays still work and the SKF hit our $250 target and we did, indeed short the hell out of it so now let's see what happens.  We are prepared for one last push higher this morning as we are going to get awful jobs numbers but we don't think this level of financial panic can be sustained – not just because of technicals or fundamentals but because the government can't risk this snowballing into an out-of-control crisis.

UNLESS – that's their plan!  That's right, one possible explanation for the inexplicable lack of government action is that the Obama administration looked at the situation, decided it was hopeless and decided it was better to let the big crash happen now than try to prop things up for a year and then having it all collapse anyway.  I said to members earlier this morning it's like when an empty car starts rolling down a hill – If you catch it right away, a single person can stop the momentum but, if it gets rolling, 3 or 4 people would be needed to stop it but, once it gets going, there is nothing to do but let it crash and pick up the pieces after.  We are probably right between stage 2 and 3 right now, it's possible that a globally coordinated effort can halt the economic downturn but, if it turns out we're too far gone, then countries that try to help will simply get crushed and end up part of the wreckage themselves.

Sadly, we had to finish yesterday net bearish once again as there was nothing encouraging about the close but we did do some bottom fishing in the afternoon and, obviously, our SKF shorts and FAS longs are pretty aggressive.  Fortunately, we took those QID calls last week (ultra short Nasdaq, see Mike's chart above) and the XLU and MDY shorts (see last Big Chart Review) are paying off as are, of course our main short plays on the DIA but our stocks are a horrible, terrible mess and we can barely bring ourselves to buy more, even at these prices.  Now I'm hearing that there is something like $11Bn in cash on the sidelines – 50% of the total value of the US markets, investors are just looking for a buy signal, almost any one will do but if this administration is flashing one, it's more secretive than the most complex of gang signs because we're all missing it.

The WSJ has a good article today "Has Fear Blinded Investors to Value" that pretty much touches on the themes we've been discussing in member chat recently.   Brett Arends points out that there are many great non-financial companies that are "accidentally" paying huge dividends due to their decades-low share prices.  "Should Kraft Foods really be so low they have a dividend yield of about 5 ½%? What about A T & T (7%)? Or DuPont (9 ½%), Philip Morris (8%), American Electric Power (6%), British Petroleum (9 ½%), drinks giant Diageo (5%) cellular network giant Vodafone (8.5%), Merck (6 ½%) or a host of many others?" he asks.  Just as we may have overshot the highs in the commodity bubble, we certainly may have overshot the lows in the bust. 

On the right is a fantastic video of the Daily Show recapping the idiocy that was passing as market commentary on CNBC during the market decline.  Well the same idiocy is being practiced now by the same same idiots, who are now cheerleading the bottom as much as they ever cheered for the top.  As Jon Stewart says:  If only I had followed CNBC's advice, I'd have a Million dollars today…  If only I had started with a hundred Million dollars!  Why then now, do we listen to these bozos?  It is just as ridiculous to tell us that WFC is going to zero as it was to tell us XOM was going to $100.  Goldman Sachs is another group of morons who still manage to move the markets with their prognostications – even though they themselves lost more money than the GDP of 300 nations last year – presumably following their own advice

So how bad are things today?  Let's take a look at the Big Chart:

    2 Week 2007 % 50% Nov 60%
Index Current Move High Loss Down Low Down
Dow 6,594 -520     14,021 53% 7,011 7,449 5,608
Transports 1,262 -188       3,114 59% 1,557 1,418 1,246
S&P 682 -61       1,576 57% 788 741 630
NYSE 4,267 -366     10,387 59% 5,194 4,607 4,155
Nasdaq 1,299 -88       2,861 55% 1,431 1,295 1,144
SOX 197 8          549 64% 275 167 220
Russell 349 -45          856 59% 428 371 342
Hang Seng 11,921 -1,254     32,000 63% 16,000 11,814 12,800
Shanghai 219 -47          588 63% 294 172 235
Nikkei 7,173 -13     18,300 61% 9,150 7,406 7,320
BSE (India) 8,325 -518     21,200 61% 10,600 8,316 8,480
DAX 3,682 -254       8,151 55% 4,076 4,034 3,260
CAC 40 2,547 -180       6,168 59% 3,084 2,838 2,467
FTSE 3,514 -336       6,754 48% 3,377 3,734 2,702

We are down to just the FTSE holding the 50% line – the rest of the global indexes we follow. Other than the Dow, are closer to 60% off than 50% off.  ALL of Asia crossed the line, with the Shanghai giving up 8% in 10 days of trading despite the efforts of the Chinese government to boost the markets but they did come sharply off the lows this week and we'll have to wait 2 more weeks to see how things turn out.   What we do not want to see is a European index cross that 60% line.  It is somewhat encouraging that the SOX are actually UP 2% in two weeks and that helped the Nasadq have the smallest loss (3%) of all the US indexes

In fact, the QIDs (ultra-short Nasdaq) have exactly hit our target top at $67 this week and seem content around that line.  The QLD (ultra-long Nasdaq) is down to $20.85 and getting tempting but not today, a day we will be happy to just survive.  Things are certainly bad but are they 60% off bad?  All I can do is repeat what I said on Feb 23rd, in the last Big Chart Review, which was: "I wish I had something optimistic to say here but I don’t."  At the time I said we were looking for leadership and so far, we have found none.  We are finally getting our long-awaited collapse in the energy sector as XOM et al come crashing down, pulling much-needed cash out of those bloated dinosaurs where, HOPEFULLY, they will eventually be put to work in companies that are good for the economy, as opposed to companies that rake in money when the rest of the economy is being bled dry by high commodity prices (and that includes the fees charged on money and stocks).

Rotation is a very painful thing as money comes out first and THEN is put to work.  This chart shows the massive exodus of capital out of the OIH and out of the XLF, which are under-performing the S&P since November by 20% and 30% respectively.  Of course this kind of rotation also means jobs rotate out of those industries and the Real Estate/Construction/Mortgage/Banking industry dropped millions of people from the payrolls and Oil Services is in the midst of the largest decline in drilling operations ever, throwing more people out of work.  So we are in a trough of money rotating out of the market and people rotating out of jobs – until we see some sector stepping up and carrying the ball, neither the money or the people will have any idea where to go

We've been essentially playing this week looking for fear into the jobs data this morning but the panic in the financial space was much worse than we anticipated.  WFC was just put on ratings watch by Moody's, who I forgot to include in my list of analysts who are clearly clueless.  That bank fell 33% this week, down to $8 from $30 at the beginning of the year.  Today WFC cut their dividend to .05 from .34, a move that will save them $5Bn a year and, in the words of CEO Strumpf: "Will help us repay the government's investment at the earliest practical date."  WFC said that its integration of Wachovia Corp is on track to achieve $5 billion in annual merger-related expense savings, and that it expects that total merger integration costs will be lower than originally projected.  I mentioned the ridiculous price of GE yesterday and now JPM has joined the gloom sqad at $16.80.  Even if you don't want them for that price, you can sell the Apr $12.50 puts for $1.20 for a net entry of $11.30, a 32% discount to today's price if put to you.  If called away, you make $1.20 on $8.15 (assuming 50%) in margin, 15% in 40 days!

8:30 update:  Jobs losses were in-line at 650,000 lost for February, but January was revised up from 598,000 lost to 655,000 and December job losses were ratcheted up over 100,000 to 681,000, the most since 1949 when 500,000 losses were the result of a workers strike (you know, demands for living wages, benefits, security, etc – something we may see here soon).  That pushes unemployment up to our expected 8.1%, 0.2% more than was expected by economists, who certainly must read different papers than I do.  Close to 2.5M jobs have been lost in 4 months, but, as I mentioned yesterday, the labor and productivity numbers indicate this fad may have run its course, providing things do not deteriorate furthern and companies begin shutting down en masse.

Well congratulations, we made it through our data point – maybe now someone will buy something (please!).  Next week we get Wholesale Inventories on Monday, probably still dropping, Retail Sales on Thursday (already BTE based on report we saw yesterday) along with Business Inventories and our Trade numbers on Friday the 13th.  Overall, a light data week so the markets are now free to do whatever they are going to do.  We do have a Consumer Credit report at 2pm this afternoon

Obviously we will be happy to cover our long puts and flip bullish, riding  our (hopefully) well-timed plays from yesterday but let's not fall in love with a bounce off a 25% Dow drop since Jan 2nd.  We EXPECT a 400-point BOUNCE along this downtrend so we're not even impressed with anything less than 7,000 next week, which is now a 6% gain off 6,600.  Of course we also need to watch our Big Chart levels for signs of further weakness but I'll be willing to go 60% bullish at the open and stay bullish into the weekend if we hold a 2.5% gain on the day (6,765 Dow, 700 S&P, 1,350 Nasdaq, 4,400 NYSE and 360 on the Russell).

I will be on LiveStock (good name) at 1pm this afternoon and you can watch it live here.  Hopefully we'll find some fun afternoon trades.

Have a good weekend.

 

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Phil
 
In reviewing the k1 posts, I came across the  safe market/collar trade you and Op Sage have reccomended in the past. Is this an appropriate time for the play, or is the market too volatile right now? If its not, could you suggest some entires? Thanks

Can we get a drumroll while we wait for the jobs data please?

Looks like the data is slightly above expectations.  Or more clearly, more jobs were lost then the average consensus was looking for.  Unemployment now at 8.1%.  But keep in mind, these are preliminary estimates and will undoubtedly revised higher.  I think we are in for more of the same.  Not a capitulation event.

 SKF crash alert !    lol

Wow.  SKP is starting to take that big BM we ( or I) need it too.  arousal levels rising!

SKF crash would come if it dropped to around 130. Until then it is not

Phil,
Again on XLF/UYG.  Essentially, they both are priced as (long-term) calls–so why not to load a bunch and forget about them, say until 2011?

There’s nothing to justify a crash in SKF off this data.  It all depends on where the big fish want to take it.

 G’day.
Phil- DIA. I have full cvr of +Jun71P and –Mar68P, In spite of  reading both posts that your wrote last night, I need advice. Thx.

 Phil
 
On the collars I like GMCR, INTC, and DIS – let me know what you think & how you’d play and thanks very much.

WebTV – How do you watch the channel on LiveStock? Do I need an account? I can open the page, read the description, but I see nothing like a "watch" button or similar that will launch a viewer.

 Matt,
Did you see the lol part ?  🙂

SKF dropping (down to 228) but premiums on 120 and 150 are not reacting.
Any clue??

Phil: marketorders on SKF, nuts with that type of spread.
 
PUTTERS: is there time to wait for the rally next week ? This drama must end, is it next week ?

WebTV – Oh, I got it, had to turn off add-blocker on my Firefox LOL

J.P. Morgan analyst Mark Moskowitz this morning trimmed his EPS estimates and price target for Apple (AAPL), while maintaining his Overweight rating on the stock.
For the September 2009 fiscal year, he now sees EPS of $4.73, down from $4.82; for FY 2010 he goes to $5.15, from $5.26. Moskowitz cuts his target on the stock to $100, from $102. Driving his more cautious view: the crumbling economy.
 
Seems every few weeks someone takes a wack at AAPL.

SRS is the new SKF!

Phil, a question about premuim (back to basics for me):
Say stock is at $50, and I am looking at a put and a call at the $51 strike.
Suppose the put and the call are each worth $5.
So, the premium for the call is $5 and for the put is $4. 
Is this right?

So Moskowitz lowers AAPL by 2% but the stock drops 4%.

Singapore Steve- was wondering what’s with AAPL.. I used that this mornign to buy back my caller and resell the putter which I had bought back yesterday.

Cap  – if you’re out there – $100 gone on SRS. Ding!

Later Phil, have fun in NYC and on the show. Can’t wait to see you on camera LOL

Unbelievable what is happening to SKF.

RMM, you should be prepared to test $300 in SKF before option expiration.  They can easily take it there and just hold it to kill premium.  The banks are viewed as weak prey and they will take advantage of that.

Remember last week I said TRLG might be a good short at $13 after their 50% run ? They are now just $8. !!! (I shorted to $9.5) thats a big fall in a week.

Goog breaking down ….

DB – great call – I noticed when you picked it – but got distracted before I had a chance to look closer at them unfortunately.

Phil/VIX
Still seems a little low…. Didn’t you mention something about 52 yesterday…. trying to find the post. 
Thanks

To all you SKF/FAS/UYG ers out there.. my feeling is this is a big headfake move.  I’m looking for a SKF entry around 246.4  (very conservative) before SKF takes off again to the upside.  Volume buying is very low and they are just trying to stir up some more interest for bagholders before resuming its acent into close.    FWIWIMHO.

…please take this little ‘s’ and insert it up there in that funny word ‘acent’.  Thanks!

phil,
aapl actually closed the 1/21 gap -up. what forces or stratigies or ‘burned on the gap’  groups are responsible for this? aapl had to move over 6% to close this thing today!

matt: bank stocks must be close to zero soon, how can SKF go even higher ?

Matt / RMM, it feels like you could have bought SKF calls at the open and sold at the close and made money on this 9 days out of the last 10, is that what you guys are seeing?  Quite the moneymaking trend if true, all you bears take heed.  I’ve been too stupid and optimistic to play this trend correctly, and now the margin requirement on my 290 call sales has gotten so large that I can no longer trade on my account until (I mean if) SKF goes down!

Phil, your HOV trick from a few days ago actually worked, today my order filled.  I bought HOV JAN 2.5 calls and sold JAN 5 calls for a nickle debit.  GO HOV!

Mocha: yes I was tempted to buy SKF but did not believe it would go this high,
last time I made $ shorting SKF was 3/4, only a few days ago.
Once the banks are destroyed, SKF will drop, that is why I take more time and I have april shorts.

Matt, looks like you’re right , SKF 300 here we come!

Matt
SKF may hit 300 but it may only stay there for an hour or so.  It dropped almost 150 points in Nov when it was up at this level.

matt: sometimes I find the traders really dumb as they want to go back always to previous lows or highs, yes, their goal for SKF is the 300 level as it was in DEC. Mindless pushing it around irrespective of true economic rationality. Big money can do it.

This is depressing.

Phil,
Do you still see a room for BXP or SGP to go much lower from here?

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