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Tuesday, November 29, 2022

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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.  

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Pharm,  What's todays play on VRTX?

Why is the RUT doing so much better than the mkt today?

lflan/phil – what say you?  Does AAPL have the fire to push through 600?

jabobeast: small caps can lead the market on a bullish breakout…..along with financials/technology….could this be the day they finally show more leadership…..

china is the biggest victim of cybercrime globally – xinhua…hahahaha

GTAT/Phil – New name to me came up as a value buy on a couple AAII screens  last week.  If you know them, how do you like compared to, say, AMAT and/or WFR?

VRTX – selling the April $40 Puts.  1/3 entry.  MS down grades them, and JNJ gets OK to sell their drug in the EU.  VIX sucks for doing this though.

Speaking of lines, that $16 line on XLF looks like one strong S/R line going back over 1 year….

Lots of OB in the Bespoke list….

Stjean does it really matter if there are a lot of OB in the list? Nothing goes down anymore.
Makes me wonder if QE3 is happening and they are not calling it QE3?

AAPL cant claim 600$.. Thats interesting. And of course bullish! (more money to the other crappy stocks)

TLT fails $110…..

QE3 / Jabo – It's already in the system – look at all the money being pumped in around the world. What the Fed is doing is 1/3 of the world's stimulus (maybe even less). Don't think only US money is being invested in the markets… And all that money has to end up somewhere and I would bet that it's in the coffers of all these guys marked OB in the chart. 

Wow……I put a TZA buy order in at 16.99 and it ran up and grabbed it.
 
Need that 2:10 pullback now.

Is there a tool in thinkorswim that will calculate percentage between two points on the chart ?

exec–2:10 pullback?
 
WTF is that?

Oil Zombies – geez, oil staggering around between 108-108.50 makes me think the bullish traders are like zombies staggering down a hallway bouncing off one wall or the other.. I think need to order some pizza.

Target met (IWM 84.30) !!

Anyone know if historically there has been a bigger BS bull run?…I am curious as my experience really paying attention is only about 18 years, in that time I cannot remember more BS…even the tech bubble, as I think there was a legitimate reason, as technology was an unknown how it was to reshape things,  remember the New Economy??

JR

 
Would you mind selling a few thousand shares to get a sell off moving.

SQQQ hedge /Phil – Can you recommend an updated SQQQ hedge?

exec / Sell-off

As it is, I sold 1/3 of my position, and may have to buy it back !!

JR,

 
I hear ya. 
 
That's a pretty daunting channel to be bucking on the short side.

 Jabo, one more day of this nuttiness and I'm done with six months of shorting CMG and going long.  So don't give up yet, my flip will certainly help your puts out!

There are some interesting earning releases this week:

CMG just got the kiss of death…. Thanks MrM!

CJES – wish i looked at it friday…  CJES synthetic buy write today:  Buy Sept 12.5/17.5 BCS @ 3.30, sell Sept 17.5 Put @ 2.20 for net $1.10 entry for an ITM $5 spread. If CJES put to you, you are ahead all the way down to $15.55. May have to do something like this if get back down to $18.

Back to cash !!

Looks like another push coming; IWM 84.51?

   anyone?

Just for the record, I'm still in cash !!   (Buying a break of IWM 84.24)

Phil: short calls with no premium
I know the plan is to always be selling premium but are there ever cases where you might wait a couple of days to see what shakes out after a violent move?  For example I have 2 PCLN Apr 530 calls that were really okay until last Friday.  Now with no premium I would roll out and up but am concerned if I go too far out in time that could allow for a correction and rebound again.  Or I guess it doesn't matter if that happened since I would have collected a little more premium and improved my position, might have answered my own question but would appreciate your thoughts.  TIA

QEWorld/stjean:  Yep, here is one source of liquidity:
 
Hit by disaster, Japanese city sees spending soar

 
'Many say there is also a change in attitude towards spending, with locals flocking to luxury stores in a way they didn't see before the quake. Sales at large retail stores were up 10% last quarter. "We used to think, 'let's wait' even though we wanted to buy," says one shopper, carrying a bag from Louis Vuitton. "But after such experience we learned that such an idea was no use."'
 
I think I'm turning American, I really think so…

Earning List / Phil – Now that they are ramping up again I'll pass one along with the lines for the Weekend Newsletter.

By the way, Jabo, on an historical volatility basis (see my spreadsheet), CMG could fluctuate between $370 and $450 this month and PCLN between $607 and $744. While it sounds like a lot, these guys can swing 10% in one month either way. Not that it's reassuring…

Stj/PCLN – which spreadsheet for volatility basis?

They are so detached from reality….

http://thinkprogress.org/economy/2012/03/16/446351/akin-steelman-brunner-minimum-wage/

 

Steelman was opposed to raising the minimum wage because she “think[s] it’s high enough as it is.” A person working a minimum-wage job for 40-hour work weeks with no vacation would earn just $15,080 over the course of the year, before taxes.

Perhaps explaining their ignorance of the current minimum wage is the fact that none of the three candidates personally live anywhere near it. Akin owns two homes and receives an annual congressional salary of $174,000. Steelman has donated upwards of $400,000 to her own Senate campaign. Brunner tops them all, sporting a net worth of approximately $100 million.

Why do they hate the poor so much?

Hi Phil
 
In light of the Bernstein downgrade of S, what are your feelings towards Sprint?
 
Thanks!

Kinki – Of course using the term "source of liquidity" following up a tsunami disaster might have been a poor choice of words!

Tech bubble…I guess I should have finished my thought that there was a lot of naviete when it came to tech and the possibilitties at the time. so the excuse of too ignorant to weigh whether those 8 person companies may usurp the Blue chips of the world were somewhat excusable.
This current rally is a buy on bad news, a buy on good news, and a buy on neutral news…this is why I think this is worse than the tech bubble, we have information available but allow these BOTS to control where the bid goes and furthermore they are focused where they can manipulate the indexes the most like AAPL and the like. You and a lot of those on this board a few other crackpots like Hussman (actually I think he is brilliant) are paying attention to what is really tranpiring…just cannot bring myself to get more long, I'll let you all know when that happens as it WILL be the Apex.

AMZN – about to break north of the triangle thingy it's been building for several months; between that and three green daily candles it might be time to close that short for now.  Anybody still short from last week besides me?  Lflan?

$TRIN on TOS.  That rose like a rocket at 11:54 PST.  Now, moving back down. 

stjeanluc,

Easy to solve the minimum wage crap…..All congresspeople, and senators, should be paid minimum wage to serve as elected officials….see how many of these A'holes run for office.

Pharm / TRIN — Corresponded with the seizure the VIX had.

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