4.4 C
New York
Tuesday, February 7, 2023

Subscribe

Monday Market Movement – Trying to Get Bullish

We are still trying to get more bullish.

Over the weekend we set a new, higher set of levels for our Big Chart on the assumption that our breakout levels hold up and our new Must Hold lines become Dow 13,600 (not there yet), S&P 1,360, Nasdaq 3,000, NYSE 8,000 and Russell 800, which means it's now up to the Dow and Nasdaq to continue to show leadership if we're going to be having a rally good enough to get us to add our next 10 bullish plays.

I already added 2 aggressive upside trade ideas on XLF and SPY in the weekend post and last week we already looked at WFR, X, BAC, GLW, BBY, CHK, AAPL, AA, and BA but we also added a new Long Put List (Members Only), which had 19 stocks that we thought were good downside horses to ride if, per chance, we fail to hold 3 of our 5 breakout levels.  

It shouldn't be too much to ask – IF this is a real bull market.  We've been extremely skeptical up to this point and, Fundamentally, I still have my doubts but Technically, we can't keep fighting the tape so were drawing a line in the sand for Mr. Market to cross and, if it does so, we're happy to play along.  If it fails to do so, however, well – we've already made those bets!  

Our aggressive take on the Dow is the result of analyzing the 5 components that were replaced since the crash with MO and HON thrown out for BAC and CVX in Feb of 2008, AIG replaced by KFT in Sept 2008 and C and GM replaced by CSCO and TRV in June 2009, causing a massive distortion in the index, meaning 16,000 is the old 15,000, possibly even lower:  

The Nasdaq is similarly distorted by AAPL, who are up 500% since 2009 and when a stock that is 11.5% of an index is up 500%, that stock alone causes the index to go up 57.5%, which is why we now call it the AAPLdaq.  The AAPLdaq itself is "only" up 100%, which means the ENTIRE rest of the index is lagging with a 42.5% contribution – those who tell you that tech is somehow loved again are fooling themselves – or perhaps just you – in order to spin a market story that simply is not so.

In fact, if we removed AAPL suppliers from the AAPLdaq along with Big Daddy AAPL, we'd have an index that is every bit as pathetic now as it has been since the great crash of 2000.  The largest potential for a market catastrophe is AAPL selling off and that's why SQQQ is one of our primary hedges and QQQ July $61 puts ($1) are on our Long Put List – because the AAPLdaq without AAPL is just "daq" – and no one wants to buy daq.  

This morning AAPL went against my advice and announced a complete waste of cash dividend of $10.60 per share, which is roughly $10Bn out the window in order to give their shareholders a 1.8% dividend.  Just to prove that, perhaps, they are truly out of ideas and SHOULD have their money confiscated, they also announced a $10Bn buyback, which also works out to 1.8% of the company (at the all-time highs) and you know the Jobs era is dead when AAPL can't find something better to invest in than their own stock.  As I said to Members in the weekend post:  

AAPL investors (real ones) should be FURIOUS if AAPL pays a dividend.  Who gives you a better return on capital than AAPL?  Why would you want them to give you money – you'll only blow it on some stock that's not AAPL!   That $100Bn cash everyone is salivating about was $5Bn 5 years ago, when AAPL stock was $85.  Now the stock is $600 and they have $100Bn in cash – THAT'S GOOD!  Why would you want to take money away from them?  Did you turn $5Bn into $100Bn in the last 5 years?  Did you turn a $85 stock into a $600 stock in the last 5 years?  So who has a better chance of taking $24Bn (a 4% dividend) and doubling it in the next two years – you or AAPL?  

AAPL giving out a dividend and buying back their own stock is a vote of "no confidence" from shareholders and their own board and a black spot on the new management, who couldn't come up with a better plan to grow AAPL than this.  Sure they still have lots of money left but $20Bn to goose EPS 1.8% and give $10.60 back to shareholders one time?  What else could AAPL have done with $20Bn?  I'm glad you asked:

  • How about buying TWX ($35Bn market cap), which pays a 2.9% dividend ($1Bn) and drops $3Bn to the bottom line.  That's 10% back on your money per year and gets AAPL into the cable Biz and gives them a well-known publishing platform, ownership of music content as well as marquis TV and film content like HBO, Cinemax, TNT, TBS, Warner Brothers, New Line Cinema, etc.  
  • The CBS Corporation is exactly $20Bn and they drop $1.3Bn to the bottom line with a $200M dividend.  AAPL should love them as they bought $1Bn of their own stock last year (5%) and should help boost their EPS in 2012.  
  • DWA is just a $1.5Bn company, AAPL could have bought that by just paying out $9 in dividend instead of $10.60 and what announcement would you like better – that AAPL is giving you $2.65 a quarter or AAPL is giving you $2.25 per quarter and just bought Dreamworks?  While not as successful as Pixar, clearly it's a business Steve Jobs wanted to be in and he drove the value of Pixar up to $7.6Bn when Disney bought it from him in 2006.   

Those are just 3 quick ways, off the top of my head, that AAPL could better spend their money than paying out dividends.  They are a media company and being able to pick up media assets at depressed prices is a far better use of funds than handing it back to shareholders who don't understand the basic value of having a moat of cash around a company.  Just ask Warren Buffett what he thinks about dividends….

We'll see if AAPL declaring itself out of ideas takes the wind out of the market's sails or if it (like everything else that happens) becomes yet another reason for the market to take off to new highs.  This week's calendar has a lot of housing data, beginning with today's NAHB Index at 10, followed by Housing Starts and Building Permits tomorrow at 8:30, then the Mortgage Index and Existing Hime Sales on Wednesday, the FHFA Home Price Index on Thursday topped off with New Home Sales on Friday.  

If you're determined to be bullish this week, HOV at $2.80 is a good play as we're either going to get good housing data that pops them over $3 or the whole market is going to pull back on negative reports because, without housing coming back – this rally is definitely getting ahead of itself.  

217 COMMENTS

Subscribe
Notify of
217 Comments
Inline Feedbacks
View all comments

exec / Position

Didn't you see my posts?

I was long, then short, then long, now cash waiting to see what happens at IWM 83.33 (buy a breakout)

Priceline.com price target raised to $800 at Monness Crespi

HOV Trade  – Did anyone get filled for net 0.10-0.13?  I've been trying since the morning and no dice.  I put in a GTC order for 0.10 in case I can't watch it.

JR,

 
I did, but was wondering since the P-Bars would suggest that we may have some downside.

with all due respect to chanos hes been shorting china since the earth was cool…i am going to see how he's doing with it

Phil – IFF   
What do you think about taking a long position in IFF?  
 
 
From Douglas Kass 

IFF, my largest long (great franchise with takeover potential) is ex dividend today by $0.31. Adding $IFF

exec,

If we don't breakout, we will likely range from IWM 82.94 to 83.34 the rest of the day; I don't see a catastrophic failure here (yet) !!

LNKD/Kongen,
Not really sure about the bull case for LNKD.  Here's something to consider:  AAPL has a P/E of 18 and LNKD a P/E of 760 – does that mean that they are 42x better than AAPL?  If we assume they are about as good as AAPL, their fair stock price is $1.22.    I know, I know, I did not account for the unlimited growth potential of LNKD (CHINA!!!)…

Full disclosure: Short LNKD 100 April/ Long 120 June

Agreed on Chanos Angel, he has a vested interest. But his numbers are usually verifiable. Not saying that his analysis of them is correct. But that's more than we can say about China's official numbers!

he is probably taking a hit on it this year, but depends on how he is hedged and what he is short..but if you listen to him he has sounded increasingly frusttrated the couple years my bet is he is getting keel hauled..i don't know his performance though

An occasional beer, that's it…. 🙂

DWA/Phil:  Speaking of DWA, what do you think of it as an value investment for regular folks.  They have incredible leadership, a respectable history and portfolio of popular, profitable movies.   China growth is always a factor.  Worst case scenario liquidation they would see a good deal of net asset value if they sold off their entire movie library.  Seems like accumulating it under 20 is not a bad idea not just for AAPL. 

Nice beat down on the $.

Look at that dollar.
 
They're trying to break it out JR

Angel – If he is shorting Shanghai, he must be doing OK… they were at 3400 just 2 years ago and now the index is around 2400! 

You may want to take some profit here (IWM 83.58)

Lflan,
so what's your hunch  on AAPL  performance after the announcement?

Fairly impressive drop in the dollar in the last 10 minutes !!

Angel – Well, maybe Chanos will be proven right after all…

http://ftalphaville.ft.com/blog/2012/03/19/928801/chinese-property-alert/

Chinese property sales and prices have made for dour reading recently. Property sales value contracted 20% year on year in the two months ending in February. This is not only the worst result since the property slide in 2008 – it’s the worst result since the series began in 2006.

Interesting reading…

PLX….

Interesting theory on what is going on with oil sales from Saudi Arabia:

http://ftalphaville.ft.com/blog/2012/03/19/928521/the-saudi-oil-sales-enigma/

 

Neatly summed up, the idea is that these may be deliveries that were already sold to the market by intermediary banks in bilateral deals on behalf of producers back in the days of contango madness, completely off radar and off balance sheet. That the likes of Saudi received $$$ (or, interest-free loans) for the barrels long ago. That these “paper barrels” ended up flooding through the system, making the market think there was a lot more oil out there than there really was.

Now this “short” position taken on by the banks on behalf of the producers is starting to be covered. This time with real deliveries, since the positions can no longer be rolled forward for a profit by the banks.

One could say, it’s a spin on the gold leasing trade. The idea being that producers who wanted to benefit from the steep futures curve effectively took on collateralised loans from banks, pledging yet-to-be-produced oil as collateral. For a long while this financing was easily rolled on via the futures curve, because the premium in long-dated futures ensured that banks received the equivalent of an implicit interest return in exchange for the funding. However, if it’s no longer cost effective to sell short into the curve, it no longer makes sense to hold the short positions.

So are these deliveries being used to close out the shorts? After all, it’s presumably easier for Saudi to deliver the “collateral” than to pay back the $$$?

It's getting hard to get a "real" price for oil…

In which case, what might appear to be a temporary short squeeze could turn out to be a large oil dump soon enough.

pstas…FCX….
 

oh i think he is right..but when you are fighting an overt manipulation of a systems economic results?..if i were him i would hope that the chinese leadership doesn't read his insulting (and accurate) depitcion of a gov't riven with venal pols and corruption and decide to ruin him..he has wasted alot of npv in this trade

And another 20 cent drop in the dollar !!  (2nd today)

They're trying JR.

FCX- Pharm- yes. Opened a small position Friday. Check HAL.

Phil/VXX – the actual VIX index and VXX are diverging with a 3.5% increase in VIX met by a 3.5% decrease in VXX today.  I understand the decay in the ETF over the long-term, but on a 7% divergence on a daily move seems really strange.  How should this behavior affect our thinking regarding even a one-month time frame for a trade on VXX as you have recommended a couple times recently due to the low VIX?

Another leg down on bucky.

@Felipe
 
"….. Obama is "bad for business" despite the 100% gains in the Market under his watch and he's a "job killer" besides the massive turnaround in employment numbers since he took office – would be funny if not so tragic…"
 
I'm taking this to mean one of two things:  1) You're upset that he's not getting credit, poll numbers are so-so, BUT you think he  will still win by a decisive margin in November.
2) you actually think he's responsible for the market doing so well the last three years
3) you think that since he's not getting cred for the rise in markets that he will lose.
 
Why else is this "tragic"?  Isn't that a bit over the top for an incumbent POTUS who has already won this election? That there is no republican in the last 12 years that can beat even the worst deomocrat? 
You should be jumping up and down, spinnning around and laying by some Dom for November. This election is already over and everythine else is just hyped media speculation attempting to grab eyeballs when the election is already a fait accompli.
Rre freakin lax.

pretty big divergence bewtween vix and vxx difference usually tops at about .8 ( bet 0 and .6 iseems avg) right now almost 50% higher at 1.17, seems like something is transpiring here now.

WFR – weakening with the dollar falling…

All I have immediately above IWM 83.74 is 83.98, fwiw !!

FU MARKET!!!!

Phil, thanks for the feedback on the lines on XLE, XLF and XRT yesterday. I have been playing with some more of the sector ETFs as it could give us some good indication on what is hot or cold right now and invest accordingly. I'll redraw lines based on your feedback and also submit a couple more for analysis AH today.

I have to say that these 5 and 10% lines do look pretty good overall. I even tried on a Euro chart and that was eerie! I also find it somewhat scary that you mentioned looking at 5 and 10 year charts to look for S/R lines. That says a lot about this market that we can use lines from 10 years ago. On AAPL, PCLN and CMG you have to look at 5 min charts!

The CDS market might be broken…

http://blogs.reuters.com/felix-salmon/2012/03/19/a-top-cds-trader-quits-the-cds-market/

 

It seems to me that there were two opposing constituencies in the Greek default. One group, led by European policymakers, were very happy to see the CDS market get broken — they hate CDS, in exactly the same way that CEOs hate short sellers. The other group, led by fixed-income investors, wanted to make sure that the CDS market operated relatively smoothly and that the payouts were fair.

In the end, it seems, the buy-side won — but with the vivid realization that they had gotten lucky. Fixed-income traders never want to rely on luck and fortune when it comes to things as important as default protection. And so Heller, for one, is out of the market completely — unless and until ISDA does a root-and-branch revamp of its documentation. Which, if it happens at all, isn’t going to happen any time soon.

Let's concentrate on voter fraud to distract from the outright corruption going on in the background:

http://www.latimes.com/news/nationworld/nation/la-na-contractor-politics-20120318,0,7570089,full.story

A "super PAC" that has spent more than $35 million on behalf of Republican presidential hopeful Mitt Romney has accepted donations from federal contractors despite a 36-year-old ban against such companies making federal political expenditures.

Several contributors — including a Florida aerospace company that has contracts with the Defense Department, and a Boston-based construction company that is helping build a Navy base — are taking advantage of a legal gray area created by the Supreme Court's 2010 ruling in the Citizens United case, which said that independent political expenditures could not be regulated based on who was making them.

On the long road to plutocracy…. we'll be there with you!

manning to denver according to espn tebow to betraded

Bad day for the bears on trendlines so far. TRAN made a new high to kill off the Dow Theory divergence there. IWM broke the Feb high there with some confidence. My four month resistance trendline on SPX is now in trouble. 

What with the overall bearish picture on bonds and the bullish reversal on EURUSD the overall setup for a decent retracement soon is looking a bit grim. 

DWA/Phil: Thanks for the advice. I was reading a value investor blog who calculated the actual book value exceeding $15.73 because of the way Dreamworks capitalizes their movie inventory at cost undervalues them because the movie portfolio continuously generates revenue.  So in the hypothetical termination of business scenario, if DWA were to suddenly stop all movie production, they would cease most of their expenditures, their pre-existing portfolio would still produce income, and it could then be auctioned off at a premium to their stated book — higher than $15.73/share.

PCLN almost at 700?
Up 200 points in 2 months?
Is AAPL taking them over?

Man, FAS is killing us again today…

This was my comment on 2/3 when I decided to fold the FAS strangle trade because the treadmill got overheated:

FAS / Cwan – I am currently doing an analysis of where this market could take us and what it would mean to FAS. For example, on XLF I see resistance levels at 14.82, 15.88 and 17.21 if we reclaim last year's highs. Not saying that it will happen, just planning for the worse in our case. The levels are 1%, 8% and 17% away. That would mean FAS at around 93, 112 and 136. Planning a roll to 93 is manageable, the other levels would be very challenging in the short term. On the other hand, the good news is that it's the call side and decay works for us… But we have to plan for continued strength. Last summer, selling lasted for 3 months before we reversed.

And here we are with FAS at 111… Not very far with my predictions then!

Oh yeah! Scored a 712, or 185% faster than the average reader.  Since I mostly read comic books and Playboys growing up, I highly recommend it as a learning regimen.

FU TZA!!!

SGEN…..

Another push coming !!

Next resistance IWM 84.24-30 !!

Stay Connected

159,280FansLike
406,817FollowersFollow
2,160SubscribersSubscribe

Latest Articles

217
0
Would love your thoughts, please comment.x
()
x