The Futures have given back all of yesterday's last-minute gains and then some.
After hours last night, Moody's downgraded 5 Spanish regions "driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves … and their significant reliance on short-term credit lines."
While Asia shrugged it off and finished more or less flat, Europe is freaking out – about that and the continued terrible earnings reports that are hammering the point home that the economy is certainly worse than it was last year. Why then, are the markets up over 10% from last year – well, since there's no easy answer to that – down they go!
The Euro fell down to the $1.30 line (where we went long in early morning Member Chat) and oil futures fell to $87.28 (and make a good buy over $87.50 on /CL) and gold took a pounding to $1,710 while gasoline fell below the $2.60 line, where it's also a good long play on /RB as it's unlikely the Euro fails $1.30 for very long or the Yen goes above (weaker) 80 to the Dollar (now at $79.85) and it's also not likely the Dollar breaks 80 today (now 79.93) – so, overall, this is a nice spot to go long in the Futures.
It's over an hour to the open but let's call it Dow 13,200, S&P 1,416, Nasdaq 2,980, NYSE 8,250 and Russell 810 and, as you can see from our Big Chart – we're barely holding our Must Hold levels with the Nasdaq crashing us below and we can't even blame AAPL today, which is holding up pretty well so far at $630 – after putting up a $15 gain yesterday (2%).
As we expected yesterday morning, the Nasdaq held 3,000 like a champ and rallied 20 points off that line into the close before dropping back a few but today will be harder with the Nas gapping well below 3K – painting a terrible technical picture before most people have a chance to make their first trade.
Has anything changed since yesterday? Not really – we knew Spain was a mess, we knew Q3 earnings would suck but, apparently, seeing the actual numbers is really spooking investors. In reality, only 10 of 40 companies missed yesterday but 5 of those guided down and only two companies (HSTM and LII) guided up all day. As CNBC put it: "Earnings conference calls are beginning to resemble crisis hotlines as corporate executives slash profit forecasts because of fears of higher taxes, a recession in Europe and slowing economy in China."
This morning is worse with 13 out of 52 reporting companies missing earnings (not all in yet) and a whopping 11 giving negative guidance (ARG, CPLA, CNC, DD, GNTX, IIVI, ITW, LRY, ST, XRS, MMM and TECH).
Guiding up were PLD, R and WHR. This is not encouraging – it means that, for the average person owning stocks and listening to conference calls – there's an 11:3 chance they are hearing bad news with a bad outlook.
This is the backdrop for today's Fed meeting, which goes on tomorrow as well and ends in a statement to be released at 2:15. Even as I write this – the Euro failed to hold $1.30 and the Dollar punched over 80 and oil failed to hold $87 and gasoline is dropping to $2.58 so no fun in the Futures this morning. Europe is finally together, dropping 1.6% across the board – just as our futures are down 1.2% across the board now as the Euro tests $1.296 and the Dollar hits 80.10, which is up from 79.50 yesterday, accounting for 0.75 of the drop (2/3).
We don't like to react too quickly to currency-based market moves as they have a tendency to snap back fast. It it, however a good time to review the suggested Disaster Hedges from the weekend (5 Plays that Make 500% if the Market Falls) or our DIA hedge from yesterday's post.
We're still looking at the sell-off as a buying opportunity until/unless we fail those Must Hold lines and I will point out that UPS's domestic package business is up 1.2%, which offset most of the decline in Europe – underlining what we expect this earnings season – that the companies that do International business are hurting across the board and, unfortunately, these are the guys who tend to report early.
Not to worry though, as the rich continue to get richer. COH reports an 8% jump in US sales but that's nothing compared to International, which is up 15% and led by China. Going the other way is ordinary electronics at RSH, which is down 15% on release of their earnings and XRX underscores the weakness in the office spaces with a 12% decline in net profit that is sending their stock down another 5%. back to the year's low's around $6.50.
Before we get too bearish today, we'll have to wait for a possible decision from the EU Court of Justice, where they are hearing a suit today brought by a member of the Irish Parliament on whether or not the ESM is constitutionally valid. Silly as it seems, could be a nice relief rally if the court hands down a quick decision in the ESM's favor. We hear from the Richmond Fed at 10am but the best chance for a market save today rests with AAPL, who roll out the IPad Mini at 1pm – we need to see AAPL pop over $640 to get the Nasdaq back on track and we'll be watching that 3,000 line closely.
iPad screens / Phil – The Apple presentation was very misleading. The screen in the iPad mini is 35% bigger than the Nexus, but the Nexus has 35% more pixels and ultimately it's what you see… The screen on the iPhone5 has a better resolution for cryin' out loud. I guess the retina display would have been a deal breaker! The Galaxy Note might make a better Mini after all – fits in your pocket and had also a better resolution.
Savi – I can't add just yet. Holding, waiting.
AAPL….hey hey hey…good bye!
Phil / AAPL — I have a hard time swallowing that someone that just wants to read on a tablet will drop the extra money for an iPad. I think they'd rather buy 10 books. If AMZN is selling at cost, there isn't anything to make up for (they're not selling at a loss). If they get a single book download, they've succeeded. Game consoles sell at a loss and still make up for it with razorblades.
Good Afternoon. AAPL observations: Earning report could create a significant move in either direction, up or down. Sure, they are on a tear with products, but that doesn't mean investors will reward them on Thursday evening. If investors sense anything they can construe as weakness, then punishment could follow. If they hit on all cylinders, then rocket time. I just don't know which way it will go. I've left the Jan 620 calls bare in the MoMo portfolio. That's a virtual account, as you know. Interestingly, it's not the way I'm investing in AAPL in real dollars. I'm actually in April bull call spreads, 625/725, and I've sold a bunch of Jan 2014 600 puts. The spreads are presently about $35 and will yield a triple by April if AAPL over 725. I think it will be. So in real life I've chosen to sell puts over a year out to finance the spread purchase, the spread going through 3 earnings periods to get us over 725.
AAPL/Phil
So no cover on the 10 Nov 640s tonight but probably roll to the spread you outlined tomorrow? Right?
TIA
Dow only about 140 points from the 200 DMA. Might not post the Big Chart tonight and wait until morning. Don't want anybody having nightmares.
/ES 1406 looking for this to hold
25KP / Phil – Don't know that we can have 9 short AAPL calls in the 25 KPM. That's $70K of regular margin. I think that margin is already stretched with the 14 AMZN short puts which consum $48K of margin. We want to keep margin requirements lower in the KPM. The KPA is a different setup as it uses PM margin.
AAPL// last 3 days down -23., +24, -21 for largest company in world…so dumb
spain sov cds +15%, italy +10% today
i think the real problem is the ipad 3q miss
the price is just a mild negative i think
APPL/Phil
Managed the rolls but couldn't sell the shorts because it was over margin.
Both RUT and NASDAQ bounced off their 200 DMA! I think we need to hold that line because it seems that people are looking for a reason to sell. And who has been blamed for bailing out at the 200 DMA especially fund managers!
AAPL reolution, to see a serious difference the 30 inch is minumum full HD. My laptop 15" has full HD but mt line speed is marginal so HD stops to buffer, I kick that off and the problem goes away and the picture is still good without the stops, also think about the cost for data you can't see and get out of town be ready for buffering that sucks. Spec freaks made CD perfect sound forever but it wasn't natural. 7" screen? Are you guys kidding?
AAPL/2Can – Yes, I think that general area (see above) is the best place for a roll. In the $25KP, we actually took $2.50 off the table but we'll likely spend it again when we need to (maybe stop out a few calls) so we're in the $55 spread for net $30 and, hopefully, we'll be able to do some more sales to reduce our basis down the road.
AAPL/Shadow – This is just me pounding the table on a cheap stock. If we could reasonable DD in the $25KP – I certainly would. We go through this with AAPL every year or so – some panic – everyone thinks they are worthless and then, a few months later, they are making new highs. Even in 2008-9, when they were back at $85, it only lasted until March (5 months) and by Oct 2009 there were $200 but you're not going to make 100% if you aren't willing to buy on the way down.
Oil/Button – In the $25KP, we went with the USO Nov $33s, now .58. Weeklies are a bit much of a gamble as a wrong turn leaves you no time to recover. It's fine for a day trade, where you can stop out but overnight is very risky.
Room for both/Rain – Of course. As I pointed out with AAPL desktops – they only have a 6% market share – it's not like they need to get to 40% to do well. With tablets and phones – it's a little more Coke and Pepsi but KO and PEP have done all right for the past 50 years with their respective shares.
Display/StJ – That's what I want to see. I can't use it if it's fuzzy.
Cost/Rain – It's not cost – it's the cost to manufacture. They lose on distribution and marketing, warehousing and shipping – down about $20-30 per unit when it's delivered. AMZN's margins are 5% but assume they make 20% on book and app sales – they still need at $100-200 in sales before they are seeing profits and $200 is as much as the average tablet user spends total, not to mention, for the most part, that AMZN is simply cannibalizing on-line sales for Kindle sales so it's not even new revenue. Game consoles sell $50 games, not $15 books where $10 goes to the publisher and another $3 goes to a discount and AMZN maybe gets $2 less expenses for distributing the book and running the overall company.
Well that was a crap close – glad we covered AAPL – very pathetic overall.
AAPL/Lflan – Yep same conclusion I had, better to be in a spread we can work off.
NFLX beats on earnings (big) and revenues (not much) but guides lower and gets taken out to the woodshed AH. I guess rolling out to all these countries is expensive!
AAPL/Zip – Good timing, had to pull the trigger as it was turning very ugly – can't take a break below $600 if it happens.
Big Chart/StJ – Yes, very scary-looking now.
Nas 2,990 very, very bad.
$25KPM/StJ – I'll figure out an alternate play this evening but that one is the proper play to make and, if unmakeable – then probably better off taking the loss that taking on further risk just to fit it inside margin restrictions.
AAPL/Zip – Well the idea is to raise $10,000 shorting AAPL but you spent it so you are in $55 spread for net $40 – still make $15 if they head up but not much point to the trade if you can't sell calls to reduce basis. As I said yesterday – "if you can't afford the next move – NOW (then) is the time to stop." You can't afford this move – why make 1/2 of it? AAPL was $20 higher this morning – you could have cashed out and been done with it.
FB's .12 per share being taken very well.
NFLX/StJ – I'm no fan but that's a pretty silly reason to sell off.
Grant Williams presentation re bubbles. "It's NEVER different."
Netflix analysis:
http://www.engadget.com/2012/10/23/netflix-announces-q3-2012-earnings-two-million-more-subscribers/
I love these Fast Money guys going around talking about Romney being more pro-business than Obama. Like GW Bush for example:
http://www.bespokeinvest.com/thinkbig/2012/10/22/equity-markets-under-obama.html
At that would be such an improvement over that Socialist Obama!
AAPL Market / Phil – Looking at this chart, it looks like we will achieve saturation soon on the high ticket items:
I can see the top 10% in the first quarter, but then top 1% in the next and then top 0.1% in the one below gives us about 137 million possible customers! Obviously some products like the phone will spread wider because they are "subsidized" when you buy them. That still a big market but there are limits I think. In my neighborhood, all the somewhat techie people have an iPad already but they are not the Apple fanboy types looking to upgrade with every new model. I still use the original iPad and it works well for what I do.
Not saying that Apple is doomed (I am sure they will still make a ton of money), but like VCR, DVD players, etc… eventually you reach "possible" market saturation and growth has to slow down as well as margin.
AAPL/Phil
Woulda, shouda.
I had been moving into the April spreads you've mentioned to me before during the morning but waited to see if I could get a good price on the 640s which were about 24 at one point. I thought they would pop a little more with the news announcement and I would get a better price. And as you pointed out I let the chance slide twice.
As it is, this is where my AAPL adventure has left me as I am all in spreads now. I will have some margin to sell some calls along the way to April but have to be careful not to exceed margin limits.
This is what they are and I've put in what I believe would be the profit it all goes well. Does this look OK?
5 Jan 19 2013 630/650 for $10.28 — possible gain $20 ($10,000)
2 Apr 20 2013 635/685 for $26.18 — possible gain $23 ($4,600)
2 Apr 20 2013 630/685 for $23.07 — possible gain $32 ($6,400)
4 Apr 20 2013 630/700 for $22 — possible gain $18 ($7,200)
The April sets were bought as I sold the 640s and obviously lost money on that transaction.
Even without selling calls it looks like I the spreads should bring in $28.2k. Not going to make me rich but should pull me our of the fire somewhat. If I can sell calls I will and, you mentioned about doing things to widen the spread, which on the Jan one I will do if I can.
So that's the story right now. Any comments/advice?
TIA
Global economic calendar
http://www.worldeconomiccalendar.com/
Stj: With all due respect, I don't know what you can conclude from that chart on each president's "stock market performance," other than that the stock market has risen during the tenure of 16 out of 19 presidents. Clinton was arguably one of the better Presidents, and it dropped. A more serious criticism is that, since it is not inflation-adjusted, those percentages are utterly meaningless. One thousand dollars in 1900 — the beginning date of your chart — is now worth, in commodities or income, @ $27,000. A perception of future inflation will tend to push buyers into stocks, so all your bar chart may prove is which Presidents scared the crap out of investors with their inflationary policies. That would tend to explain why Clinton suffered a stock market drop — he actually reduced the deficit. Just saying.
Stj II: Looking at your "income categories" chart led me to look in world population growth in general. One of the more surprising conclusions I reached is that it's very difficult to project, because it is [unsurprisingly] very sensitive to fertility rates, which is turn is very sensitive to urbanization. The moment more children picking corn in a rural context [good] turns into more money for education [good] in an urban context, fertility rates fall off a cliff. Yet predicting the rate of urbanization is a can of worms, because it varies greatly by region, and once urbanization reaches a certain threshold, the population density in rural areas will tend to stabilize. Of course all this is moot if global warming creates famine or touches off a nuke. My takeaway — population growth cannot be accurately predicted.
Guys- Do you know of any website that would allow me to build an excel sheet with values of technical indicators for my chosen symbols. I just want to set up a sheet with a view of tech indicators for my holdings and watch-lists. Thanks in advance.
Phil / COST – any interest in the 2015 Costco Short Puts? 9% off the recent high, Currently 16% to the 80 strike, 23% discount if put to you at 73.30. Premium collected for the 80 strike is 6.70.
Buy Google or Apple? The answer is simple
Presidents / Zero – That was somewhat humorous given what we hear these days about the fact that a Romney presidency would be so beneficial to businesses… The fact of the matter is, presidents are also victims of the macro environment. So even a "free market" guy like Bush saw a stock market decline in his first 4 years and a "socialist" like Obama got some of the better results. Look back at idiots like Kudlow trying to time the market based on who wins elections – short when Clinton took office, long with Bush and short with Obama. But I do believe that Dems have shown themselves to be better steward of the economy of the last 20 years. And maybe the market results are not completely an accident!
Population / Zero – Let's hope this chart doesn't come true:
http://www.economist.com/blogs/dailychart/2011/05/world_population_projections
Well except for China, we would be truly screwed! And China doesn't have a choice, it won't have enough food or water!
Nothing like a couple 200 points drops to cure an overbought condition:
http://www.bespokeinvest.com/thinkbig/2012/10/23/overbought-to-oversold-in-5-trading-days.html
Who could have predicted that the high flying NASDAQ would be the first index to fail it's Must Hold line (the Dow never made it). It's also the closest to its 200 DMA.
At the same time, no reason to panic yet, we tested the 200 DMA back in June and bounced back. We went up 400 points after that in the NASDAQ. So a correction was not unexpected. But gotta be careful now!
Heard an interview with Charles Nenner. He feels cycles, are a President's greatest ecomomic allies….
The interview is audio only – click the "weekend market wrap" and go to the -24:00 mark where the interview begins….
http://marketwrapwithmoe.com/
….For the interview, the "published date" was 10/20/2012….
….and so was my anniversary…. 🙂
Donald Trump is now basically just a clown. No an inch of credibility left… And yet they have him on CNBC almost on a daily basis:
http://www.rawstory.com/rs/2012/10/22/trump-fox-friends-deserves-as-much-credit-as-obama-for-killing-bin-laden/
So now the Iraq war was Obama's war! They are revising history rather quickly these days. It was so much fun when Obama skewered him at the correspondent dinner in DC last year.
Oil lines for the nigh owl and the members down under:
R3 – 92
R2 – 90.45
R1 – 88.76
PP – 87.22
S1 – 85.53
S2 – 84
S3 – 82.30 (Wow and 82 handle)
Yesterday high and low – 88.92 / 85.69
Good night and good luck!
Good morning!
Great Daily Show summary of the last debate: http://tinyurl.com/9jre3jq & http://tinyurl.com/8nqtwyu
Also, a good summary of Obama's "outrageous" "not optimal" comment: http://tinyurl.com/9r25ahf & http://tinyurl.com/8gr3zcy – Conservatives may feel free to share with their friends….
The Futures were doing well until the Euro got massively rejected at $1.30 at 3am but we're recovering back to slightly up now. Dollar at 80.17. Oil testing $87 (/CL) so good long play over that line with tight stops.
NFLX hammered to $56, down about 20%! I really disagree with their move to have original content – big gamble and I don't think much benefit – even if they end up finding a hit.
Williams/Scott – Good presentation, that's a keeper. We should save informative things like this for the Wiki.
Saturation/StJ – While I think that's a reasonable way to look at it, clearly it doesn't reflect the reality of 100M IPads sold in 36 Months, does it. Therefore, somewhat flawed assumption and I'd suggest maybe 300M would be your target consumers for high-end items. Even that may be low as 400M PCs and 650M smart-phones were sold this year (I assume tablets are included in PCs) so SOMEONE is buying 1Bn "expensive" items. You can buy a non-smart phone for $19 now – so why doesn't everyone do that if saving money is the point? The same reason every car is not a Yugo – even in poor countries.
You can't underestimate how much people will spend to make themselves happy. In fact, didn't you ever get a job BECAUSE you needed to pay for a car? If not, many people do in High School and you don't NEED the car – you can keep borrowing your parents or let your friends drive – it's a pure luxury item for teenagers but damned if they don't all work JUST to have that one item they desire.
AAPL makes products people desire. So far, GOOG and AMZN make products that are "almost as good" – the same way a used Camry is "almost as good" as a new Mustang convertible – not everyone will pick the Camry.
AAPL/Zip – You are still banking very much on AAPL having good earnings. You say "possible gain" but AAPL has to gain almost 15% to hit your levels. We're in the $630/$685 spread in the $25KP BECAUSE we sold calls for $10 and we are only worried about the upside. If AAPL drops $50, then we can expect to drop to the value of the $680/735 bull spread (now $13) and that spread, of course, can be rolled down $50 by selling another $10-15 worth of calls and we WANT to be in the $580/635 bull spread with a few more months to sell. So we can see a path to making money whether AAPL goes up or down 10% – you will simply lose 50% if AAPL drops 10% and, if you can't sell offsets to make a roll – you're stuck with either taking a loss of praying for a miracle in which AAPL rises 20% to cover your April position.
You can sell AAPL Jan $665 calls for $20 and the 2014 $700s are $60 but there's a margin issue ($35) so maybe you need to be in the $665s at $73. So that's net $53 and you can afford about $6 and I AAPL goes up 10%, that's $680 and obviously you can roll the short calls and your $700s probably are worth what the $630s are, which is $87 so up 6x $14 = $8,400 and you have a whole year to make more sales of, hopefully, around $6,000 a month. Flat is obviously the same deal and down 10% should drop your longs to about the price of the $725s, which is $53, so down just $20 x 6 and all you have to do is sell something else and roll down and wash, rinse repeat until AAPL comes back. So, using the calendar spread, your loss is a little less to the downside (and much less if not a big downside) but the more important point is that it's recoverable – whereas the bull call spreads effectively freeze you because, for the same reason you can't afford the margin to sell short calls, you can't afford to buy back your caller and roll down, right? This is very much like chess – look a few moves ahead and make sure you are not backing yourself into a corner.
Thanks, StJean!
Calendar/Kustomz – Wow, way too much information!
Stock market/ZZ – Actually you can thank Nixon for inflation – before he took us off the gold standard, it wasn't much of an issue:
So FDRs gains came against flat to down prices. How did he do it? STIMULUS (and war). Giving jobs to actual citizens – not "Job Creators" is the best way to create prosperity. You're very right regarding Reagan and Bush – they deserve zero credit for coming into office with a CPI of 50 and finishing in 1990 with a CPI of 125 so they'd better have a combined 150% gain in the market and, oops, only 71% – total failure! CPI under Clinton went from 125 to 175 (appproximations) so up 40% and his market went up 88% – my, that's much better than crap Republicans by about 100 miles. Bush the 2nd had real good inflation – up another 50 points (28%) but his markets lost money and Obama has had essentially zero inflation but the markets are putting in a Roosevelt-like 67.9% in his first term. So stimulus works and imagine how well it would work if we spent $3Tn on people and $600M on banks instead of doing the opposite – as we have so far.
Excel/Chakra – Sorry, not my thing.
Very telling charts Diamond:
It's just stunning to me how undervalued AAPL is but I guess we'll see tomorrow….
Population/StJ – That's messed up in China – If their population drops like that is will be 950M very old people…
And who ordered 600M more Nigerians? Better print more money!
Overbought/StJ – Be careful drawing conclusions from that. While the short-term indicators look oversold, the longer-term NYSE Summation Index is not at all oversold yet:
Note it's the long-term indicator that is a much better predictor of market bottoms but the short-term does indicate when it's a good time to begin bottom-fishing.
Big Chart – Ahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh! All about Nas 3,000. If we can't hold it (get it back) and especially if we then fail the 50 dma at 2,971 – it's time to aggressively short. Unfortunately – it is ALL up to AAPL tomorrow night.
Happy anniversary 1020.
Trump/StJ – Isn't today the day he's going to unveil his shocking information that will destroy Obama? I bet he found some Doctor in Kenya who says he delivered Obama…. The GOP loves their October surprises.
Time to go to work.