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Sunday, November 27, 2022

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Wednesday Wheeeee – Can the Markets Handle Rejection?

Rejected!

After hitting our lines ON THE BUTTON across the board (see yesterday's perfect predictions), we're taking a little pre-market tumble this morning led lower by our favorite short – PCLN, which has negotiated their way to a 15% drop on an earnings miss that didn't surprise any of our Members as it's been a focus short of ours for ages and is in both of our $25,000 Portfolios as well as our Long Put List with the Oct $540 puts, which we rolled into from the $510 puts for a net of $7.  

With PCLN dropping to $575 pre-market, we won't do as well as we did on CMG last month (another focus put of ours) but we should get about $25, which will add, at 5 contracts, $9,000 to our $25KPs!  When asked why we were shorting PCLN in yesterday's Member Chat, my response was:  

Because the exchange rate sucks for one thing (PCLN is very big in Europe), because a great Q is priced in as PCLN has zoomed up with EXPE from last Q but are now outpacing EXPE (who are a much better company) by 20% over the past year.  Also, PCLN has been diversifying into regular travel and cannibalizing their own business and, of course, because PCLN has a p/e of 30, which is a good 50% above the rest of the sector.

SPY WEEKLYThat pretty much sums up PCLN's earnings report.  They are not a terrible company, they were simply over-priced into earnings and we took advantage of it.  Now that we've had our little correction, we're moving on.  We pressed our bearish bets yesterday as we expected a rejection at our Must Hold levels and my comment to Members on the way up was: "If you are going to be bearish – days like this are when you dig in your heels and shore up your positions – not the day you capitulate!"    

As you can see from Dave Fry's SPY chart, the "rally" looks a lit less impressive if you notice the volume, which is lower now than it was before we went off the cliff in May or August or July of last year.  Traders never seem to learn that these resistance lines are very hard to cross when there is a lack of participation but it's not because of any TA mumbo-jumbo – it's just math.  

The S&P represents about 1/3 of the $60Tn Global Market Cap (AAPL and XOM alone are over $1Tn) and, when Global Markets move up in synch, a 7.5% move in the S&P is a pretty good indicator that the Global Market popped $4.5Tn since early June.  Now, I know I didn't take $4.5Tn off the sidelines and I'm pretty sure you didn't either so what's going to sustain the markets trading at a $4.5Tn higher level over time?

The Global Economy (also $60Tn) didn't grow 7.5% since June either and, even if you want to argue that perhaps the market was under-valued at the time – over the longer haul you can see that 1,300 on the S&P is probably a more realistic indicator of our "recovery" than 1,400 is.  That's why we have our little formula that tells us that we need $10Bn in G20 stimulus/QE to get 1 S&P point (at roughly $42Bn per point) with an effect that lasts about 6 months.  $10Bn is 1/4 of what an S&P point represents so, of course we get a reasonable pop – but it still isn't sustainable – even if the money went directly into stocks – which it doesn't. 

SPY DAILYYou can't reprice a $60Tn market based on the excitement of a day or a week.  As I often explain to Members, if I had 100 identical VW Beatles to sell and I sell one at $25,000 but then I have my mom buy one for $26,000 and make a big deal of it in the papers and then my brother buys one for $27,000 and then some guy off the street rushes in to buy one for $28,000 before the price goes up and then I sell 3 to my cousins for $29,000, $30,000 and $31,000 and that causes a frenzy that drives the next 4 sales to $35,000 from regular suckers off the street – how much are my other 90 cars worth?

On the chart – they'd look just like the S&P, wouldn't they? But I still have 90 unsold cars on my lot and, if we've finally run out of idiots and someone in town realizes that a VW Beatle is only worth $25,000 – do I still get to book a $900,000 profit on my 90 remaining cars just because the last idiot paid $35,000 or will that chart turn very ugly very fast?

Stocks like PCLN and CMG are very much like the Emperor parading around naked in their "invisible suit" – no one wants to say anything because everyone else seems to be admiring the threads and you've been told by Cramer that only an idiot can't see the value on display.  That all works fine as long as everyone buys the MSM BS but then, all it takes is one little boy (or an earnings report) to shout out "but he's just naked" and suddenly it is obvious to everyone what that suit is actually worth.  

Value investing isn't dead – no matter how many times Cramer et al try to bury it.  

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The mechanisms of PFE/JNJ drug (and LLY for that matter) make TRGT and EnVivo two of the better small players.  EnVivo is private.  Yes, TRGT failed in major depression as well as schizophrenia as those are very difficult to treat.  One had to try new ways to treat the diseases, and many will fail. 

The JNJ/PFE (beta-amyloid plaques hypothesis) is a valid way to go, but unfortunately, many companies made drugs that looked promising (drugs…not antibodies like PFE/JNJ/LLY), but those drugs (small molecules) failed.  Why would a monoclonal antibody be any different?

AVEO – there are some good things out on the company and their top line results here.  I will continue to buy the stock and sell options against those positions.  I do believe they are this years IMGN…..they also have some interesting things in the pipeline, although those are years away.  AV-203 is one of those drugs (BIIB licensed outside North America) and they are a perfect candidate to take this company out….

Savi – yes and yes….and yes, and yes.  oh, one more thing….yes.  Viva, Las Vegas!

And if I hear or see one more post about QE…I will puke.  READ MY LIPS…there will be no more QE this year by the Federal Reserve Bank….get over it.

You know when everyone talks, breaths, sleeps QE…it is not going to happen. Much like the AAII survey on bears and bulls. When things are expected to happen, usually it is the other thing that does. EVERYONE wants QE…not gonna happen.

Chinese data sends our futures 50pts higher, wonder if this bullshit will stick.

http://www.sciencenews.org/view/generic/id/342896/title/Global_groundwater_use_outpaces_supply
CTWS [div. 3%]; CWT [div. 3.4%]  http://online.wsj.com/article/BT-CO-20120808-709307.html?mod=WSJ_qtoverview_wsjlatest
Note:  33 out of 34 companies listed are rated "overweight" by the analysts covering them.

Well, home sweet home….

They have to find a better solution than getting stuck in a plane for 6 hours…. Maybe put us under for the duration, stack us up in the plane and feed us some speed at the arrival. On the one hand, all that security stuff would not be needed anymore since we would all be sleeping so no chance of hijacking. On the other hand, rental car companies might object to renting cars to people coming out of anesthesia and on speed. Probably could not waive the additional insurance!

And tomorrow's oil lines today:

R3 – 96.51
R2 – 95.61
R1 – 94.61
PP – 93.71
S1 – 92.71
S2 – 91.81
S3 – 90.81

Almost like knowing the lottery numbers the day before. Almost…

MA & V/ Phil
This is interesting, what I am struggling to understand is the hit to MA & V, as square readers will still use MA & V credit cards.  So is the hit a small % on the overall fees that credit card cos get on the transaction and not a whole loss of business?

PHil – I followed your link to Square, and I'm a little baffled – on the merchant side, they want 2.75% per transaction, which at first glance is IN ADDITION to credit card fees.  So, what incentive would the merchant have to go with Square, aside from money in the bank immeditately whereas with the cc's the money comes in later?  And also if you have a sales force or fund raising force out there, Square guarantees you confidentiality plus the ability to manage the force – I"m not sure what the big advantage on the merchant side is…perhaps I'm missing something?  One the customer side, I can see that Square offers more flexibility, the ability to make payments from your mobile phone, but most merchants will pass on that extra 2.75% to their customers in the form of higher costs, so even from the customer side I"m not sure that I can see a huge advantage, tho I'm willing to concede I may be missing something…
 
Here's more food for thought…if this is a disruptivbe technology, still these things take a long time to play out, and probably the demise of V and MA would be at least a couple years down the road, if at all.  First of all, they could well develop similar technologies to compete with Square and I'd be surprised if the do not do so.  Second, look at another so-called disrupter – solid state memory (Sandisk and others).  For a year at least one newsletter writer has been predicitng the demise of Western Digital and Seagate, who make the memory discs that have dominated PC's and notebooks til now.  So now you have Mac Air and Lenovo and Intel thin notebooks coming out using solid state memory that has the advantage that it starts up immediately and no moving parts, and yet Western and Seagate are doing better than ever…so obviously the disruption takes a long time to kick in…just food for thought, and perhaps I'm missing some factors here, would be curious to know what you think…

Good Morning
lol Pharm—thanks
I have the short oct 10 puts on AVEO—-would you roll down and out? TIA

Phil – I still think 2.75% is a huge percentage and outrageous, if they would take say less than .5% on every transaction they could own the market and then gradually raise their take…direct payment from your mobile phone is a disruptor but I don't think they are the first or the only…I thought what we're playing for is a big market correction and then these boys, such as MA and V and even PCLN would go down a lot more than 10%, anyway that's what I'm playing for until election season fever kicks in…

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