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Tuesday, February 7, 2023

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Which Way Wednesday – Is the Appleconomy Over?

AAPL is a total disaster.  

There's no denying it now, they had their IPad Mini event yesterday and investors charged out of the stock, dropping it from a high of $633 (which is already 10% off the Sept highs) to close at $613 and that was finally weak enough to get us to capitulate and roll back our AAPL positions to longer-term trades that have less upside but, more importantly, less downside as we are no longer confident they'll be able to turn it around on Friday.   

Notice how silly it seems to talk about how poorly AAPL is performing when the chart on the right pretty clearly indicates it's the greatest stock on Earth but that would be the logical conclusion for a company that's on track to earnings $43Bn this year, which is $81,811 a minute – more even than what they were tracking to make last month, when I set out bottom target at $600 (and that spread is an even better buy now) AND, only 68% of what they are projected to make next year!    

We didn't really think it would hit $600 – that was our worst-case but here we are – at the worst case and, since we are no longer able to say with conviction that it can't get any worse, we had to back our short-term plays to something that buys us more time.  In that same post we liked HPQ at $14.30 and at least they are holding that line and we also had a nice spread on that stock in the same post, which is still holding up as a new spread.  

In that post I mentioned (as usual) our primary hedge being TZA and the straight-up April $15 calls mentioned there have gone up another .40, from $2.50  to $2.90 off our $2.10 entry (up 38%) – not bad against just a 15-point drop in the Russell (down 2%). 

Yesterday, with our hedges already in place (see last Wednesday's TZA hedge and this Monday's DIA hedge) we had the luxury of doing some bottom-fishing yesterday with long trade ideas on TIVO at $9.78, USO at $31.75, AAPL at $623, CMG at $238 and our last trade idea for the day was SQQQ at $41.20 (that one, of course, is another hedge – always look for BALANCE!) – just in case things kept falling apart.  

These are, of course, hedged plays, using options for leverage but, as I often say to stock players, if we like a stock leveraged with options – of course we like the straight stock as well – but we'd prefer it if at least you sold the covered calls!   This morning we had a wide-ranging discussion in Member Chat about AAPL and a long trade idea for the QQQs $65.39), COST ($95.18), AMD ($2.14) and UBRG (0.01).  To give you an idea of what we mean by leverage and hedging – here's my trade idea for AMD from this morning's Member Chat:

Speaking of fair entries.  AMD may be good for the same reason INTC is bad – the landscape is changing and INTC doesn't dominate the new spaces.  It's risky but at $2.14 it's a reasonable gamble. The way I'd play a stock like that is to sell the 2015 $2 puts for 0.72 and buy the 2015 $2.50/4 bull call spread for .30 so you have a net .42 credit and, at $4 you make $1.92 (the credit plus the spread price) and worst case is you own AMD at net $1.58, which is a 26% discount to the current price. 

Think or Swim says the net margin on the puts is just $50 + $30 (for the spread) per contract is all you have to tie up to make up to $192 – a very nice 240% ROI in 2 years if it works out!  We can certainly afford to add 100 of those to the Income Portfolio (net credit of $4,200, using $8,000 of margin and committing to buy 10,000 shares at net $1.58 ($15,800) – so if it drops to .50, we DD and we're in 20,000 shares for $1 and sell 2017 calls for .50.  

See how that works?  Rather than spending $21,400 cash now in our virtual portfolio to buy AMD, we use margin to collect $4,200 in cash against our promise to buy AMD for net $1.58 in Jan 2015, which is 26% off the current price.  So the play is self-hedging against a 26% drop, ties up no cash (we have a credit) and can net us a $19,200 profit in 2 years if AMD just goes up .36 (17%).  Aren't options fun?  If we bought the stock, AMD would have to go up 90% to make the same $1.92 per share and, of course, we'd want to protect it and that might cost us some money anyway.  

As I mentioned yesterday, part of the market weakness was a result of Dollar strength and the Dollar climbed all the way to 82.23 yesterday as the Euro was slammmed all the way down to $1.92 on the usual paranoia caused by the dysfunctional EU.  In pre-market trading, the Dollar fell back below 80 and, if it stays down there, we have a chance for a nice bounce today.  Without taking the time to explain our system again (the 5% Rule) – the lines to watch today are:  

  • Dow 13,200 is a weak bounce, 13,300 is a strong bounce (we don't become more bullish until we hold strong bounces through the close).  
  • S&P 1,420 is weak, 1,430 is strong. 
  • Nasdaq 3,030 is weak, 3,060 is strong, 3,000 must hold. 
  • NYSE 8,250 is weak, 8,300 is strong
  • Russell 815 is weak, 820 is strong 

So we're not going to be in the least bit impressed by any move today that doesn't hold our weak bounce lines and we're still going to be very cautious until those strong bounce lines are taken back.  We have a Fed statement this afternoon at 2:15 and then it's all up to AAPL tomorrow night.  PMI reports are improving in Asia but falling still in the US and Europe so no help from that data.  

Bottom fishing is fun but watch out for the holes in the ice!  

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Pharm – George Carlin was on to something.

AAPL – Thanks, Phil.  I thought we were thinking the Nov spread I mentioned was a flyer – if we they tanked, we'd make back our cost with a Jan put.  The idea being we got "see" earnings before we made a move.  Are you saying changes since presser yesterday make it not worth holding as is?  Happy to roll. You da boss.

coulter
 
the guy is being very nice and eloquent in his op/ed.  it probably went right over Ann's head.  Any way he is probably one of the 47% so she doesn't need to worry about him.

As I have said….it is about biotechs and pipelines.  Big pharma has deep pockets, and no pipes…

Bristol-Myers Squibb's ($BMY) third quarter continues the generics-are-poison trend. The company saw sales drop by 30%–yes, 30%–as copycats siphoned off sales from its big-selling blood-pressure drugs Avapro and Avalide, and its even bigger clot-fighting treatment Plavix.

Plavix sales in particular took a spectacular suicidal plunge. The drug faced multiple generics as soon as its U.S. patent expired in May, rather than the usual one or two. So, prices went into free fall, and brand sales plummeted by 96%. The once-mighty drug brought in only $64 million for the quarter, Bristol-Myers said.

The bottom line wasn't pretty either. Bristol-Myers reported a per-share loss of 43 cents, thanks to a one-time hit from a failed hepatitis C progam. The company took a $1.8 billion charge after dumping that in-development drug. Excluding charges, the company would have posted profits of $685 million, or 41 cents per share.

In something of an understatement, CEO Lamberto Andreotti said, "Bristol-Myers Squibb faced challenges in the third quarter." He went on to say he was proud of the company's response to those challenges. And he touted the company's big accomplishment for the quarter–its buyout of the diabetes specialist Amylin Pharmaceuticals. Also on the bright side: Without the Plavix and Avapro/Avalide effects, sales grew by 7%.

Among the next big questions are these: Will Eliquis, its new blood thinner, finally win approval–and, more importantly, fulfill its promise on the sales side? Will the Amylin deal–and a related partnership with AstraZeneca ($AZN)–really send diabetes sales into warp speed? Stay tuned for 2013.

They keep testing /ES 1406 and /YM 13,035…bulls need to break away from those lines with some authority

Oil should be at $40 we have so much of it….

http://www.bespokeinvest.com/thinkbig/2012/10/24/crude-oil-inventories-surge.html

It's getting ridiculous!

Looks like we are breaking down again…

You wonder how come GLW is so underrated:

http://www.engadget.com/2012/10/24/corning-touts-1-billion-gorilla-glass-devices/

In addition to the mostly upbeat third quarter fiscal results you'll find after the break, the firm brags to us that more than one billion devices have shipped with some variant of Gorilla Glass in place, spread across 33 major brands and 500 individual models that are occasionally very immobile. We can't give Corning all the credit when alternatives like Dragontrail exist, but numbers like these make it hard to dispute that millions of gadgets have been spared an untimely end (or a flimsy plastic display) by some clever primate chemistry.

That's a lot of devices!

AMZN   

AMZN/  The persistent and steady downward price  movement and associated  volume over the last two weeks appears to be indicating that somebody(s) are unloading AMZN before tommorrows earnings anouncement.  It appears that they smell a miss.

PNRA:
 
I know, Phil, I know….

AMZN…… I agree

davidkordack/AAPL/11:21   What to do with AAPL Jan 620s…….put full covers on them before EOD tomorrow.  Then hold your breath and enjoy the ride. 

I guess that will play well on the comedy shows:

Donald Trump, the impossibly coiffed real estate mogul, reality TV star and de facto leader of the "birther" movement, made his "big announcement" about President Barack Obama on Wednesday, saying he would give $5 million to a charity of Obama's choice in exchange for the release of the commander in chief's college records and passport application.

What a moron! Another person who clearly got where he is because of his family name and money!

AAPL / lflan – The next earning release is after the January expiration, isn't it? 

AAPL/Phil –   Thank you, PD – done.  One more related question and this will round out my queries for another six months (lol).  I'm sitting on aapl Feb 670 long calls – bought awhile ago at 40 (averaged down) – I've written against them a few times.  Any thought on handling these?  

US FED: With the drop in unemployment, the Fed is easier than ever. This is less for the sake of stimulus, and more to put foam on the runway out of fear of the fiscal cliff and bad news from Europe and China.

Yes, it should be.   So you are probably thinking it would be better to own Feb spreads or later, no?   I agree.  I'm primarily in April spreads now. 

Stj: / Oil :  I realize that "Middle East tensions" is hackneyed reply to your observation that we're swimming in oil.  But it's a worry with any leveraged position, because it really is tense right now.  Iran is being pushed very hard, the just had a gas pipeline blow up today,,  which was probably sabotage, they've lost 60+% of their currencys value, hey're probably too embarassed to admit, a Syrian gasline was blown up today in Hasakah province, Israel has closed the Gaza the major Lebanese militanta groups have announced a pact to respond jointly to an Israeli attack, a militant blew up a bomb in a north Cairo apartment which contained RPGs, Syria is filling up with Jihadists from all over who will become unemployed as soon as Assad flies to Russia, and the Russia, a one-trick pony with oil, is fast becoming irrelevant in the Middle East and is not happy about it.  Just the usual noise?  Probably.  But there's no doubt that the "Arab Spring" has raised tensions throughout the region, and that there any number of power seeking to to advantage of it.  If you're shorting oil, make it quick.

AAPL/ lflan – That is correct as we only have tomorrow to help in a big way. My guess is that like last year, AAPL will have a good Q4 and will beat handily. Would it make sense then to adjust the MoMo portfolio to a Feb spread before earnings?

O.K……disclosure….I went long FB yesterday with Nov 20 calls after selling some Jan 15  20 puts to finance the sale.  Obviously the trade is up significantly.  Point is, I think FB is a buy right now.

Oil / Zero – Shorting oil in the long term (meaning longer than 5 minutes unattended) is not a dangerous game I would play especially when the main source is a tinderbox!

stjeanluc…let me think about that and do some calculations this evening.   I'll post an answer in a.m.   Thanks. 

Oil / Phil – I just noticed that the oil inventory is almost a perfect inverse curve of oil prices!

 15 of 17 dow stocks that have reported have dropped on report day

Woo Hoo this market is quite a ride. Disney ain't got nuthin on the Dow and AAPL

PHIL/AMZN   Barclays revised revenue projections downward for current quater at 1:30 EDT. This accounts for some of the late drop this afternoon.   In same quarter in 2011, AMZN missed and stock dropped from 245 to 175 by late December. 
I have 16 contracts on Nov 245 puts.  I have been letting the profits build.  I was going to leave them uncovered into earnings.  Do you have any advice?

Phil:  Laugh if you like, but don't fall asleep, Oil should probably be $35.    But Putin is an old-school dictator, none of that namby-pamby "Asian collectivist leadership" nonsense.  Power won't slip from his fingers, only pried from his cold, dead hands.   I was steeped in Russian power politics from a tender age, and Putin is its most perfect incarnation since Stalin.  His problem::

“Russia’s pre-crisis growth model, experts agree, is exhausted. Oil prices are unlikely to rise much, Russia’s oil output has peaked. Consumer spending is no longer exploding. So now Russia badly needs investment, domestic and foreign. But a lousy business environment is holding back both….even with continued high oil prices but without an improved business climate, annual Russian growth between now and 2030 would average 3.1 per cent. Under “moderate” oil prices, it would be 2.1 per cent. With the same scenario forecasting average global growth of 3.7 per cent over the period, Russia’s share of world output would fall… The poor climate is also contributing to capital flight of tens of billions of dollars a year…[lack of] opportunity and stifling politics are prompting scores of the country’s best and brightest to leave…. 68 per cent of Russians with above-average incomes wanted their children to study and work abroad, 37 per cent wanted them to live outside Russia for good. Today’s Russia, says a prominent economist, is “exporting oil, money and people”.   http://www.ft.com/intl/cms/s/0/ced25a3a-1deb-11e2-901e-00144feabdc0.html#axzz2AFR5bG2C

Sorry, I fell into the formatting-included trap, my apologies.

Phil / AMZN
I am getting a bit nervous about my 3 short Nov 220 puts , down to 8.20 from 2.74. Still have a long Nov 230 put but feel the need for some more protection. Thank

That $616 Fib line has worked well on AAPL today! We have been straddling it all day.

/ES back over 1406 and /YM back to 13035 AH. Got to love the bots.

FFIV with a nice dump.

Neverworkagain: On your SPY/SPX put backspread / mattress plays, I have a few questions: Do you adjust the long puts during the 6-9 month period or do you just let them run even if the market moves up? Do you set up one backspread sized to protect your portfolio or do you set up part-sized backspreads every 3 or 6 months or so? Do you set your short front month puts – slightly in or slightly out of the money? You talked briefly about the difficulties of sizing – how do you approach that problem? TIA!

FB – #1 for money flow out on wsj's "selling on strength" today..
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html

No AAPL conference call?

Sorry – Wrong day.

CROX at a 2 year low afterhours

AAPL – block trades. a fair bit of support for AAPL via block trades today. Just Apple keeping up their own stock?
172,594 shares bot via block trades vs 33,950 sold.
"A single block trade is calculated as a trade that is greater than or equal to 10,000 shares. The block trades screener gauges institutional sentiment for stocks. The net cash flow is calculated as the composite dollar value of buy side block trades minus the dollar value of sell side block trades. The bought/sold ratio reflects the volume of block shares that were traded on the buy side relative to the volume of block shares that were traded on the sell side."
Block Trades Bought/Sold, Ratio, Net Cash Flow
10 trades, 5.08:1, $85.95M
TIME,  TRADE,  PRICE,  VOLUME 
Oct 24, 2012 03:49 PM, BOUGHT,  $616.25,  18000
Oct 24, 2012 03:43 PM, BOUGHT,  $617.60,  10000
Oct 24, 2012 03:04 PM, BOUGHT,  $616.50,  11594
Oct 24, 2012 02:57 PM, BOUGHT,  $620.95,  47500
Oct 24, 2012 02:41 PM, BOUGHT,  $619.57,  28000
Oct 24, 2012 02:16 PM, BOUGHT,  $617.85,  47500
Oct 24, 2012 02:05 PM, SOLD,  $616.99,  10200
Oct 24, 2012 01:41 PM, SOLD,  $614.07,  12950
Oct 24, 2012 11:01 AM, SOLD,  $615.19,  10800
Oct 24, 2012 09:47 AM, BOUGHT,  $623.70,  10000

Looks like selling the CLF calls would have worked! Oh well…

Thank you Greece for saving the World!   http://www.youtube.com/watch?v=Zvl9N9GdraQ&feature=player_embedded

Phil / Futures (/CL) – I look forward to tutorials on futures during the Vegas gathering.  Education is priceless.

Still going in the wrong direction. The NASDAQ is only about 9 points from its 200 DMA. The RUT is closer than that (in points, not percentage). NYSE and S&P still the healthier indices.

Phil was mentioning the Dow Transport index this afternoon and it is looking pretty sick – below its 50 and 200 DMA and approaching 5000 now. But this index has been in a descending channel since June, making lower highs and lower lows. 

Probably some combinations of factors such as a global slowdown that would affect freight for example. Technical indicators seem to point to more downside.

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