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Tuesday, November 29, 2022


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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Actually, I'm wrong. The TRIN was at 2:55, VIX at 3:16.

tsunami/stjean:  No way! The imagery is perfect.  Think about that giant tidal wave of fiat money washing over everyone and everything, including jabob with his middle-fingers extended into the air.  The movie 2012 should've been about about the world drowning in currency.

mrmocha…..I am still short AMZN but I don't want to close it out because I'm using it for portfolio balance on some AAPl longs. 

Sure Kinki, the imagery is perfect but I am not sure it would go well in the Fukushima prefecture!

BHI – buying April calls.

AMZN – April 180/195 BCS is 7.30…..not a bad risk.  Out at 6.  That candle shows up to me.

Pharm HEB up nicely today after positive news about Ampligen.  I'm in quite at bit at .45 with a DD order at .25 that never triggered, do you have any thoughts here?

HEB – Wow, blast from the past.  I need to look it up again it has been so long.

Short target met  (IWM 83.74)  !!

Phil: whoops typo
Yea I have Apr 630's, although that stock has moved so fast easy to be off by $100, still I think I get that I should be rolling now and not worry about tryinmg to time a near term correction.

if we close around this level the sp 500 will have closed above its upper bollinger band five consecutive days in a row…. never seen that happen before…that's how anomolous this trading environment is and stretched on th ebiuy side

any take on the CMG bear put spread April 410/400 for 3.75. How do you rate this spread?

AAPL $600 broken… wow

ZIXI – here is a fun little play for a buy/write..  insiders are buying. good support being respected at this 2.90 level. Buy shares at $2.90, sell Nov $2.50 straddle for $1.15 for avg entry including commissions* of $1.85/share. If over $2.50 you make 30% after commissions in November. If put to you, avg cost for a doubled posion is $2.22 share where even stronger base is for the stock.  (* your commission costs may vary.)

AAPL – is it buy time?

Oil a buggy whip thing? Shape of things to come.
Went the the propane gas station today for the very first time to fill up the cooking gas tank. $US 2.50 per gallon and bought 12 gallons, so we will see how many barbecue chickens we get to the gallon. While the tank was filling I noticed some leakage where condensation was forming which I brought to the attention of the pump attendant. Fortunately he was able to replace a rubber O-ring on the pump connector and we were off to the races again. Several vehicles were there to fill up, some of them with their propane tanks installed in the trunk, and at least one with the tank on the back seat. I think it must be a no smoking vehicle. Apparently the fuel is imported from overseas in large tankers via Santo Domingo, possibly from Venezuela. Much quieter than a gasoline station as the "pumps" are quite silent and you could hear a flag flapping in the breeze. It did not seem to me that the "gas station" needed a lot of infrastructure installation as the main storage tanks were above ground. I did notice that the facility is located down a small lane off the highway with no homes in the immediate area, which might be a wise precaution.It appeared that the tanks used for filling vehicles are smaller tanks that are filled via valves from the main monster size tank to improve safety. The pump has a counter mechanism to show how much gas has been pumped, but current prices are displayed to the nearest half gallon on a printout from an Excel spreadsheet taped to the wall, so if you want to know the price for 12 gallons you just look it up on the 12 gallon line. Saves employees and customers having to do advanced math on the fly. I didn't see any mechanism for written receipts, but maybe there is one. No convenience store, but they do have one-stop shopping of a kind as you can also exchange 5-gallon bottles of drinking water and buy ice.

Anyone note on why the dollar was crushed today, I must have missed something??

AAPL – guess i asked that question a little late. 
lflan – where do you think apple will go this week? 

Wow soft finish not what I expected… JRW, another day of great calls!! I should have listened to your 2:29 warning. Scaled out on the way down.

Phil the move in T's do you think op twist coming to an end is playing a minor or major role in the moves we've seen?


Phil awesome one of my altime favorites…my silicon chip is switched to overload, clearly:)

BTW I was sborn in1951 but what struck me was $2.50 a gallon. A dealer in Driggs Idaho is selling it for $1.86, it was a new start up last year 1 truck with a mission of break other dealers and deliver affordable but profitable product. 50 miles away it's $3.50 per gallon, no leaks or refineries in Idaho! Gust a bunch of rip artists here and maybe Texas!

No doubt. 1951 was  a vintage year. 🙂

Exasperated, I'm not really trying to fight the overall market, just missing the up move.  I am fighting CMG, LULU and PCLN which are up 22%, 55% and 44% respectively ytd.  Those are numbers that I don't think can keep going up for long, or at least not forever.  I'm trying to maintain the  attitude that I should have if I was selling puts on stocks I really did want to own, that is just keep rolling along a little up and a little out.  don't see a better way to utilize my account margin anyway, fwiw

lflan – short and oh how SWEET!

Hi All – I just posted James Kunstler's Monday article. He discusses Wall St. and Greg Smith briefly, then moves on to diet and cholesterol.

post: http://www.philstockworld.com/2012/03/19/juked-by-medicine/

It's a very interesting area – anyone have any thoughts or personal experience with statins and lowering cholesterol? Please share in the comment section of that post if you do. 

Thanks, Ilene 

Phil, can you confirm the lines and levels below and I'll redraw all the charts? Thanks.

AAPL traders…..Another gravity-defying day.   Dividends and buybacks.   Everyone seemed to like it.  The next news that comes out will be how many iPads left the shelves here, and there, and elsewhere, and that should push it higher still.    But the P/E is only 17, and the forward P/E 12.4, so there's still room to run.  Between now and April earnings I expect to see some stability, though.  I don't think it will ramp up or fall significantly in the next 3 to 4 weeks, so for me that's a good time to sell puts and (maybe/caution) sell calls.  I'm going to concentrate mainly on selling the weeklies and staying in bull call spreads.  Today I bought some July 575/625 bull call spreads (for other accounts, not for the AAPL portfolio).   These should double pretty easily I suspect.  I'll probably add some July spreads to the account  at some time.  Anyway, I'll give you the weekly trade each Friday.  Have fun!

Phil: suggestion on LULU high volatility play
Earnings this thurs morning makes weeklies look very expensive vs the Aprils.  Is there a way to take advantage of this given there will still be 4 weeks til Apr expiration?  TIA

Apple sold 3 million ipads over the weekend… jeez this is insane.

Phil- Current Highway transportation bill has an 80% tax credit of up to $64,000 for natural gas powered vehicles. Some states have an additional credit so vehicle can actually be free. Problem is no one makes an engine less than 8 liters that has been EPA approved and that is time consuming and costs about $500,000 to go through. With a stroke of the pen- Congress made all but about 3 of the companies that certify engines  in the country obsolete with changes and the 3 left that qualify are extremely backlogged. The real crux of the problem is getting a small engine certified so that Fed Ex and UPS can outfit their trucks with them. This obviously does not require the infrastructure build up as they gas each morning at their facility before they go out. Another example of Congress not realizing the problems of unintended consequences to legislation. With one hand giving tax credits for people to buy them and with  the other hand making it so the engine builders can not get an engine EPA certified.- go figure.

Best Santorum quote:

I see that both Newt Gingrich and Rick Santorum now have Secret Service with them on the campaign trail. And in Santorum's case I think it's the first time he's actually ever used protection," – Senator Scott Brown, after Conan O'Brien.

How about the July 600/650 BCS instead of the 575/625? Do you look at the net delta of the spread while selecting it? Do you use any TA line to select your prices?

My response is there Ilene…..and I happen to disagree. Go figure.

3M iPads…b'c people ain't payin' the rent.  I wish I would wake up from this bad dream.

Felix makes a good argument in favor of the AAPL dividend…


And he was against it before!

He also takes some nice shots at his colleagues from the financial press making idiotic suggestions:


There is no reason for Apple to issue debt: companies issue debt when they can invest it and get a good return on their investment. But as we’ve seen from Apple’s cash pile, Apple has essentially nothing to invest in at all. So long as there’s a cash pile, issuing debt would only make that pile go up, rather than down, while forcing the company to pay interest for no good reason. Having a cash pile and issuing debt is a bit like having a CD and running a balance on your credit card: idiotic.

And Berman’s wrong if he really thinks that Apple could issue debt cheaper than the US government. Companies which can borrow more cheaply than the US government are a bit like those faster-than-the-speed-of-light subatomic particles: if you look more closely, they turn out not to exist after all. The US Treasury can borrow more cheaply than anybody else just because the US Treasury market is much more liquid than the market in any other fixed-income name. Which in turn is a function of the fact that there are $11 trillion of Treasury bonds outstanding. I think we can safely say that Apple’s never going to borrow anything near that much money.

Now Apple could, if it wanted, declare a monster special dividend, get rid of all its cash, borrow lots of money, use that money to buy back stock, and generally lever up in the name of financial engineering. That would be rather worrisome, I think, to the vast majority of Apple’s shareholders — and it would certainly be worrisome to any potential buyers of Apple’s bonds. Basically, Apple has two choices when it comes to debt. It can issue debt while it’s already sitting on lots of cash, which is redundant and stupid. Or it can get rid of all its cash before it issues debt, in which case it could no longer borrow at ultra-cheap rates, and it would lose a lot of strategic flexibility at the same time.

So no one misunderstands- I should have said current proposed Highway Transportation bill. It came up before the house as an amendment but did not get super majority- it now will come up before house and Senate as it's own bill requiring only a simple majority to pass

pat…..When I'm choosing a bull call spread I want to know where the stock will likely be on the expiration date I've chosen to make a double or better on the investment.    You can shoot for more than a double at a higher price,  but the likelihood of success then starts to fall.   You can also settle for less than a double at a lower set of strikes and have a lower return.  I've just gotten used looking for ways to double the spread.   I don't study charts as much as I read everything I can find about the company….in this case AAPL…..and try to figure where it will be on such and such a date, then pick the spread that will double the investment for me on that date.    Doesn't sound very scientific but it works for me.    Anyway, I can double this at 625 by July, so I have no desire to move the spread any higher. 

Phil/Natural gas
Why does the President have to pass a bill? Did Edison demand tax breaks before he invented the electric light? Maybe AAPL should use some of that cash to start a new industry.

thanks Iflan that was informative.

AAPL Div/Stjean:  Aside from the reinvestment risk that Phil handily scolded AAPL for last night, theres also the dividend tax issue.  At the very least AAPL could've waited until 2013 to see if the outcome of the dividend tax legislation.   The U.S. tax system is also skewed towards taking on debt.  So a reasonable level of debt would lower their cost of capital, increasing value by a few billion.  I dunno, maybe this is a backdoor way of cutting a check to the U.S. Treasury.
In any event AAPL has a ROE of 45.5% and an ROI of 40%.  There isn't a better investment out there than AAPL, so they should've just kept it and let it grow.

AAPL / Kinki – Actually I do agree that they should have kept the money, I was just putting up another opinion and the piece was actually somewhat funny!

I think that AAPL might need the cash moving forward if they want to expand their portfolio – when 56% of your revenues are iPhones, you have to think of a day when something better might come from somebody else! Or when telcoms will finally decide that they don't want to continue losing billions subsidizing phones… But with $100 billions, you have plenty of insurance!

Here is a suggestion from Barry for Apple's cash:


With a caveat:

Let me state upfront that I believe M&A to be wildly overrated (IPOs as well); most companies do these very poorly and end up unwinding big acquisitions at great cost eventually. (See AOL Time Warner as the poster child). They pay huge iBank fees to conglomerize, and even bigger fees to de-conglomerize. Outside of big resource mergers in oil or minerals, major mergers rarely work out well. So no, I am not a fan of  most of these deals.

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