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Thursday, December 1, 2022


Monday Market Movement – What Will It Take?

SPY 5 MINUTEJP Morgan cut the US GDP outlook for Q2 by half – to 1%

Don't panic – they did this Friday morning in their conference call and no once cared, with JPM saying

We are revising down our estimate for Q2 real annualized GDP growth from 2.0% to 1.0%, and revising up our projection for Q3 growth from 2.0% to 2.5%. We came into this week tracking a little light on our second quarter estimate, and the large downside surprise to May wholesale inventories moved that estimate much lower. Inventory accumulation was running light in Q1, and we had expected a significant contribution to Q2 growth from a rebuilding of stockpiles.

In the event, it now looks like inventories will be neutral for Q2 growth. Less stockbuilding in Q2 should imply a greater need to increase production in Q3, and our upward revision to current quarter growth is entirely due to a revised estimate of the inventory contribution; our estimate for Q3 domestic final sales is unrevised at 2.3%.  This revision mostly reflects a temporal reallocation of growth, though on net our 2013 Q4/Q4 forecast has been nudged lower from 2.1% to 1.9%.

DIA WEEKLYDoes it matter that the actual economy sucks and our only hope for a good quarter is what essentially amounts to moving inventory around on a balance sheet?  

Not according to Mr. Market, who, as Dave Fry notes in his charts of the S&P and the Dow action on Friday, seems perfectly content to paint the tape higher and higher as a seeminly endless supply of suckers are drawn in to buy at these nose-bleed levels.  

15,500 on the Dow was the May spike high.  It was tested 3 times over a 5 day period before we tumbled back to 14,700 – only a 5% correction and, if we do it again and hold 14,700 – there will be nothing bearish about that correction.

1,680 was tested just once on the S&P, before falling back to 1,570 (6.5%) but we've blown through Nasdaq 3,525 and are sitting exactly at 3,600 – so the Nasdaq is telling the other indexes to "come on in, the water's fine."  The Russell has jumped in too, now 1,038 and that's 30 points HIGER (3%) than it got in May – Hell, it gave us the breakout signal on Monday – we just didn't believe them.  At the moment, we're hanging back with the NYSE, who are still 100 points below their May top if 9,600 at 9,498.  

Usually, in times like these, I look to the SOX and the Transports to break a tie but no help there as the SOX, at 489, are 10 points over the May high (2%) but  the Transports, at 6,436, are 110 points under (2%) so the tie-breaker is a tie!  

So DEFENSE is where we'll be sitting as we wait for this situation to resolve itself and yes, we're talking a lot of technicals because it's a technical rally and we NEED to switch off our brains and just look at the pretty picture because the fundamentals – SUCK!  

Yes, thet suck, JPM just told you they suck – what do you think a 50% downward revision to GDP means???  That's the US GDP – we're supposed to be the guys holding UP  the rest of the World!  

The point isn't that the news and data suck, it's that the market could care less.  We're 6.5% higher than we were on April 1st and that was 8.5% higher than we were on January 1st so we're well on our way to a 25% gain for the year.  This is what we expected to happen when inflation kicked in and our long-term Income Portfolio is jam packed with bullish plays as we DID expect this kind of rally by next year – we're just surprised it's coming so early – and without any significant correction (Springheel Jack chart)!  

That's led us to be way too bearish in our short-term betting and we'll need to drink the Kool Aid and make ammends.  On April 14th we had great timing with "5 Trade Ideas that can Make 500% in an Up Market" and, in fact, by May 8th, they became "5 Trade Ideas that Made 1,816% in 21 Days"  and, fortunately, we weren't too greedy and took the money and ran into the May top.  You would think all those trades have now gotten away from us but they haven't:

Our first trade idea was a DBA Jan $23/26 bull call spread at $2, selling the 2015 $25 puts for $1.55 for .45 on the $3 spread for 566% of upside potential.  DBA has gone nowhere during this rally and the bull call spread is now $1.60 and the short puts are $1.85 so now it's a .25 CREDIT with a 1,400% potential upside as you make $3.25 at DBA $26.  $26.36 is where DBA  topped out for us in May and we could adjust this to a less aggressive entry and still have pleny of upside but, why should we?  People gotta eat, and our worst-case here is owing DBA at the current price of net $24.75.  

Obviously, you don't have to bet a lot to make a lot using these strategies.  This is upside protection the same way you buy downside leveraged protection and all we need to do is decise how much agriculture we want to allocate to a long-term portfolio and let's say that's 5% of $100,000 cash or $200,000 margined (regular margin) or $10,000 – so we sell 4 of those puts, which obligates us to buy 400 shares at $24.75 ($9,900) and we buy 4 of the spreads and, if they hit, we make $1,300 or a 1.3% gain on the WHOLE portfolio against the 5% margin risk (26% on margin).   

X is another one of our ideas that popped and faded back – only not as drastically as DBA.  Our trade idea for X was selling he 2015 $13 puts for $2, which puts us in at net $11 – and then buying the 2015 $15/22 bull call spread for $2.80  which raises our net entry on X back to $13.80 but the stock is $17.95 now – so it's STILL a 23% discount to the current price!  Currently, the 2015 $13 puts are $1.95, not too bad.  The $15/22 bull call spread is now $3.05 though, so the original trade is still up .30 (37%), even with the pullback.  Still, it's a nice entry and the same $10K commitment buys 10 of the spreads with an upside potential of $5,900 – 5.9% of the whole portfolio if X takes off!

The X trade had made over 112% ($1,125) in less than a month and that's about where we cashed it in near the end of May, while DBA was up 44% but here's a play that was up 1,750% in 21 days and is now significantly CHEAPER than our original entry:

CLF is another play on steel but this one is on iron specifically so complimentary to our X play but, from an allocation standpoint, they are two fish in the same macro pond.  Our trade idea for CLF was selling the 2015 $15 puts for $3.10, which gave us what we thought would be a really cheap net $11.90 entry but now, with CLF at $16.86, those puts are now $4. and the net is down to $11.  

Just those short puts are a beautiful play as TOS says the margin is just net $1.50 on the sale so, if you sell 10 of those contracts, you tie up just $1,500 and you are obligated to buy 1,000 shares of CLF for net $11 ($11,000) as you wait to see if anyone ever builds anything again (I'm betting yes).  Infrastructure is the key to CLF's success and it's bound to come eventually (we lost two bridges in the US last month alone) and the $13/20 bull call spread is just $3 so you still have a $1 overall credit with a $8,000 potential upside at $20.  Not a bad return on $1,500 in net margin, right?  

Our worst-performing trade idea was going for the gold with ABX.  It was $22 at the time and we thought selling the 2015 $20 puts for $3.30 (net $16.70) was a great idea as it was 26% off the current price.  Unfortunately, ABX is now $14.94 and the margin on the short puts has risen from net $2 back on April 14th to net $8 as the puts are now $7.30 (down 265%).  Rumors still abound that gold can completely collapse but, if this rally is for real – it's hard to imagine gold being left behind long-term.  

As a new trade on ABX, you can sell the 2015 $13 puts for $2.60 and that's a net $10.40 entry.  Make sure you REALLY want to not only own ABX but to double down on it below $10 and own it for many, many years before you even consider trading this one.  The good news is you can also buy the 2015 $15/25 bull call spread for just $2.15, which gives you a net credit of 0.45 and a net entry at $12.55, which is another 16% below the current price.  The upside on ABX at $25 in 18 months is $9,550 on 10 contracts, 10% of a $100,000 portfolio gained against $450 in cash.  We don't have to win all of these bets to do well – just some of them!  

Our last trade idea was buying 7 QQQ Jan $65/70 bull call spreads ($3.24 at the time = $2,268) that we paid for by selling 1 AAPL 2015 $300 put for $22.50 ($2,250).  QQQ is now at $75 and the Jan spread is now $4 (80% of max value and 700 x $4 = $2,800) and the AAPL $300 puts are $14.40 ($1,440) so the net is now $1,360 back on your $18 for a 7,455% gain on cash – impressive.  

AAPL is not much lower now than it as on April 14th but the implied volatility of the stock has dropped considerable so it's not as much fun to make this trade BUT, we can play for the Dow to catch up the other indexes with DDM, the 2x ultra-long Dow ETF, now at $99.06.  10 DDM Jan $99/107 bull call spreads are $3 each for $3,000 and we can sell and AAPL 2015 $350 put for $2,965 for net $35 on $8,000 worth of spreads!  Of course, AAPL has earnings coming up next Tuesday, so you may want to wait unless you REALLY feel comfortable committing to owning 100 shares of AAPL at pretty net $350.35.  ISRG is another one I like as an offset and you can sell the 2015 $350 puts on them for $29 ($2,900 for one) and their issue isn't earnings but a pending recall to re-test a lot of their machines for safety – so the stock may be in for another jolt before the dust settles.  

So, there's a few fun trades we can make to play an uptick from here.  I'm still very skeptical of this rally but, as I said last week – we have to hold our noses and buy the BS if they can hold it this week and, so far, the Futures are positive and it's options expiration week and we hear from Bernanke as he testifies to Congreass on Wednesday and Thursday – what can go wrong???



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Musk:  As W.C. Fields put it, you can fool some of the people some of the time — which is enough to make a living.  P.T. Barnum would be envious!!

1700 on SPX…'only' 1% more for the 1%ers.  So come on bots…come on.

Phil: Thanks.

Now "Good Omens"  — the bull case forwarded to PSW.

i feel like i have stockholm syndrome……….tsla down and nflx only up .71……….finding it hard to celebrate 😉

Record / Phil – For the Russell, it's 7 in a row:


There's still a few minutes left in the trading day, but at its current pace, the Russell 2000 is on pace for its seventh record high closing level in a row.  The last time the index closed at a record high seven or more times was in October 1997, and there have been 17 occurrences dating back to 1979.  

A little unreal I guess!

And apparently 7 records in a row is followed by a positive month 3/4 of the time:

So rally not over yet it seems!

More details about the Empire Manufacturing report:


The Empire Manufacturing report for July was positive (9.46) and better than expected (5.00) for the second straight month.  Unlike last month's report which had a lot of weak undertones in it, this month's report was considerably better.  As shown in the table to the right just three of the nine subcomponents in today's report were below zero (Unfilled Orders, Inventories, and Average Workweek).  Furthermore, the only two components that declined were Prices Paid and Prices Received.  This would indicate that, in this survey at least, inflation is not an issue.

Jen Sorensen


 That is hitting pretty close to home. My company pays some bonuses in credits. Probably the most fungible is Amazon gift cards. I am sure they get a kickback in these payments methods instead of regular payroll. I won a prize at a company sponsored golf outing last week. The reward was a credit to the company store that has all items emblazoned with the company logo for me to wear / advertise proudly. Who was it that said that legislators should be required to wear suits with their contributor's brands like race car drivers? 8)

Probably will have to redraw the lines next weekend now 🙂

Credit card / Randers – Why process through payroll where it costs you money when you can give a credit card where you get a 5% kickback? It's shameful.

I am 3/4s through Ready Player One, a novel by Ernest Cline, Broadway Paperbacks.  It is a kind of science fiction, but on Earth, 2040, in which the "Oasis", a virtual reality hyper-internet, becomes the domain where humans mostly spend their time within it's crumbling civilization.  Very creative, and it anticipates the "Chattle Card" and many other command and control inventions of the future.  Just a blast to read.

P.S. – It also anticipates NSA access to all internet and phone communications, interestingly.

I think we're headed for QE-Everywhere — including Europe — now that Germany's getting badly dinged by the fall in exports to China, where 15-20% of their stuff goes.  China's got their foot on the free money pedal, but Chinese might switch to cheaper stuff than German imports.

Apropos of which: [from Lex]: "Why is Bitcoin, gold (and London property) so popular in China?"  We’d argue, a) because in relative terms these alternative stores of value are cheap in renminbi terms for Chinese investors, who have seen their purchasing power increase somewhat synthetically. And b) it’s a reflection of the fact that the Chinese have less confidence in the renminbi’s valuation than the rest of the world.  In short, it seems increasingly like the Chinese are expecting devaluation, not appreciation."


I'm looking at Europe-based ETFs and away from commodities because I'm guessing the dollar is about to become surprisingly strong in a relatively short time frame. 

Ready Player One/zero – no kidding. i started it last week myself. If you like that, check out Daemon by Suarez.

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