Well, that was disappointing!
As noted by Dave Fry: "Stocks barely moved overall as Bernanke said little to motivate traders in any direction. It still must amaze viewers to listen to the most powerful man (along with his merry fellow governors) take over the money of the United States with only a bunch of useful idiots in congress to monitor their activities. Stunning!"
Bernanke could not possibly have been more doveish in his statement to Congress (see yesterday's post) and he speaks to the more intelligent Senate Banking Committee today, where Elizabeth Warren gets a crack at him for the first (and probably last) time.
It will not be covered as closely as yesterday's clown college in the House and nothing new is likely to be said so we turn our focus back to earnings, and we'll see if they can provide the fuel we need to take this market rocket (up 30% since November) out of orbit and out into space – where we can continue to expand forever more.
Unfortunately, we had a few misses yesterday, with MAT, NTRS, NVS and PJC missing in the morning and ALB, CNS, CYS, EPB, GHL, JAKK and KMP missing in the evening. 21 companies did beat though adn IBM, SNDK and XLNX actually raised guidance but, of the 3, only SNDK actually had revenue growth – it's just that the expectations are so low for most companies – they are stepping right over the low bars.
This morning is still messy with misses from FCS, IIIN, ERIC, PM, POOL, DGX, SAP, SCHL and SHW so far and TSM gave negative guidance – also a big concern. Even the beats have problems with NOK, for example beating by earning ZERO (expectations for a 0.02 loss) but sales were off 24.5% from last year, where they lost 0.08 – they saved the money by laying off 12,200 people – Yay Capitalism!!!
Still, that's Finaland's problem, not ours. In the US, we only fired 334,000 people last week and that's 24,000 less people than lost their jobs last week but, as people who are paying attention well know – this is the result of many, many people switching from full-time to part-time jobs (still a job, just a crappy one) and, in fact, we added 91,000 people to continuing claims (long-term unemployed), way up from 24,000 last week.
PLEASE, do not confuse us with facts – the headline number says unemployment is down and that's all that fits in a tweet and you know we don't have time to click on the details…
The fact is we are up 5% in 4 weeks and up 30% since November (7 months) so 5% per month is about our average gain in this non-inflationary environment – what can possibly go wrong? Well, several things spring to mind but we're already bearish over the weekend, no matter what nonsense options expirations day (tomorrow) brings and I'm trying to find ways to go with the flow if we have to flip bullish next week (see our 5 bull market plays from Monday morning's post as a good start).
Like that great news on Monday that we were making progress with China on a Technology pact and the Nasdaq rallied 50 points! Unfortunately, those talks have now collapsed and negotiatations have been suspended as China made a list of outrageous demands that were simply deal-breakers:
“The United States is extremely disappointed that it became necessary to suspend negotiations,” U.S. Trade Representative Michael Froman said yesterday in a statement on the Information Technology Agreement. “A diverse group of members participating in the negotiations determined that China’s current position makes progress impossible at this stage.”
But hey, the Nasdaq still has those 50 points so, party on markets! IBM is up $4.50 (2.5%) pre-market and that will give the Dow a 35-point pump while INTC is down 3% but, since that's only a $24 stock and 3% is .75, it's only going to cost the Dow 6 points – as that index is ridiculously price-weighted.
AAPL is being ramped up today (we're long, so fine with us) to offset incredibly disappointing guidance from Ebay (down 6% pre-market), who warned of "headwinds" in the second half of the year.
Chicgago's bonds are being cut to just over B (A3) as growing pension liabilities (boomers retiring) have offset all efforts to control costs. Detroit has already passed the point of no returns on pensions and is about to file the World's largest municipal bankruptcy as Detriot's plan, to pay 75% of the money back to secured bondholders while paying pension funds 10 cents on the Dollar and leaving a 20,000 citizens (3%) without retirement benefits is having trouble getting passed despite Republican Governor, Rick Snyder appointing emergency manager, Kevin Orr, to ram this deal through so his campaign contributers can get their money back.
$9Bn of the $11Bn of Detroit's unsecurted debt is in the form of health and other benefits for retirees and their pensions. People who are already reitred would get 10% of what they are currently getting but the bondholders are demanding that 10% as well, to make themselves whole.
People familiar with the matter say bondholders could tie the city up for months if not years in court with delay tactics in a bid to secure more favorable terms. And future borrowing at reasonable rates could be difficult for Detroit.
Detroit is one of many US cities teetering towards bankruptcy so forgive me if I'm going to stay bearish for a few more days…
cmg: might be a good short
MSFT – didn't impress. whacked AH.
Damn, we should have kept those GOOG short calls!
South Korea/Snow – Well, technically, she could call him and he can call Obama, right?
100 tabs/StJ – Not too big a deal.
QCOR/Eric – Well the Jan $30 puts are now .50 so I'd buy those back and look to sell 2015 $35 puts (now $2.70) for $4ish on a good dip. I'd take the $20 off the table for the $27s as that's $6 more than you could get if the spread pays off and you can use that money to buy 10 of the 2015 $40/52.50 bull call spreads for $6 so you end up with $13 in your pocket plus the $8.50 from the short puts ($21.50) and you have a "free" $12.50 spread covering the $40 calls so you don't have any trouble until QCOR is over $52.50 but you have tons of money on the side to DD on the longs way before then.
PRLB/Vedan – I prefer just peanut butter, thanks. As to the stock, now we're back to PLASTICS and I do generally like dull little companies like this but they've had a very non-boring rise in their stock of 100%+ in the past year and the earnings growth (8/1) is not likely to justify it. I wouldn't short them but too rich for my blood at $64.50 (just like PB&J).
Gold in them thar hills/StJ – This is why mining asteroids is so excliting. Mining Neutron Stars is probably something we'll have to wait for Musk to announce….
GOOG – Woops. Looks like $873 – right on target for our long play. Generally they are being hit by click price decay as the traffic numbers were good but the amount they are getting in click auctions is declining. In part, this is growing pains from traffic shifting to mobile but let's also consider that this is all gravy for AAPL while for GOOG, who used to have the whole market, are taking it on the chin. Also, of course, it's the economy – businesses are simply cutting their ad spending and the fine level of control you have on GOOG makes them an easy target for cutbacks and they have failed to demonstrate that they are superior to other forms of advertising (they probably are but GOOG doesn't have sales people with expense accounts and Knicks tickets).
MSFT $33.33 and, of course, Ballmer still gets to make it worse on the CC later!
Financial Literacy/Randers – Kudos to you. That's something I'd really like to see more of in our schools.
CMG popped $15 but only to $391 – perfect for the earnings play so far. They had huge 7.6% profit growth and raised guidance, they deserve to pop.
ISRG missed top and bottom – $377. Seems due to FDA investigation but it's really old news. Guidance lame too. They already warned and dropped from $500 to $400 so I think nice opportunity here.
Trading Futures Spreads on ICE: Brent Crude and Sugar webinar. May be of interest:
If you would like to see the archived recording please click on this link:
If you woud like to review our slides from the presentation, you may do so here:
Insane moves by the NASDAQ and Russell… Once again, lucky Peter didn't put a trade on the RUT in the strangles.
GOOG / Phil – As they grow, I imagine that traffic acquisition costs will increase. But revenue increase was pretty healthy on a year-over-year basis. Last year in Q2 they had $12.2B of revenues, this year $14.1B so a nice 15% increase in revenues. Motorola probably not helping much with profits… They had gotten a bit ahead of themselves so a nice 5% move down could not hurt.
Yeah, stjeanluc, very lucky with no RUT short calls in the portfolios. Good thing that I haven't checked in in the past couple of weeks that helped to hold me back from shorting the RUT. With SPX expires tomorrow morning, we'll look to sell some RUT and SPX tomorrow. VIX is so low that it's a pain to sell short. We'll march on nevertheless.
Phil – You say CMG deserves to pop. Revenues up 18%. Earnings up 10%. To my uneducated eye that would indicate that margins are down. Stock at a 40 PE. Think it's overpriced and not deserving of a pop. Could be a good short very soon. IMHO
CMG After Hours: 396.88 – almost penny perfect Phil!
Dave Fry has a $400 line of resistance there (actually it may be $398.12 but who's counting) so he clearly agrees with you! 🙂
SPY 5 MINUTE
Bad link paste, sorry, here: http://www.etfdigest.com/images/stories/davesdaily/3306/image018.gif
QCOR / Phil – Question regarding the sale of new puts "QCOR/Eric – Well the Jan $30 puts are now .50 so I'd buy those back and look to sell 2015 $35 puts (now $2.70) for $4ish on a good dip." Are you talking about the Jan14 or Jan15 puts?
At closing, the Jan14 $35 puts were $2.45/2.90 and the Jan15 $35 puts were $6.30/7.40.
How many times have you utilized this same strategy over the past couple of weeks on various earning plays? The strategy becomes so much clearer when applying it my own positions. Thank you for the lesson!
Peter – Following the last couple of months and the low VIX, I would stay away from the RUT or keep a very small position. That indice is trading like a 3x ETF but without the inflated premium. SPX is behaving much better it seems.
I'll start by saying I couldn't distinguish wheat from rye with a gun to my head. But I can't help but notice that 1/ DBA has fallen in a straight line from 31 to 25 over the last 12 months, and 2/ the weather sure has gotten weird all over the globe all of a sudden. Might it have bottomed? Shadow, you might know something about this, aren't you riding the range out there?
"Jail threat will bring bankers to heel, says City watchdog"
PHil – reg ISRG – "I think nice opportunity here" – I assume you mean to go long, since they're already down considerably?
Markets not off too badly considering some key misses. Possibly just held up for show on expiration day or, possibly, stronger than we think.
Detroit did file for bankruptcy and NOW it's the cover of the WSJ. This is technically an $18Bn bankruptcy. The 2nd largest was Jefferson, Alabama 2 years ago (and they finally agreed on an exit plan last month!), for $4.2Bn and Orange, CA, was $2Bn back in 1994 – and you remember what a mess that was. This can all blow up in a very nasty way:
Big whee on the Nikkei (/NKD), down to 14,480 before bouncing and we nailed the top at 15,060 as the spike high when I called it yesterday. Had I known they'd fall this hard, we could have done EWJ along with the Futures!
Oil (/CL) still drifting between $108 and $107.70 since the close yesterday so lots of fun for scalpers but no Earth-shattering Kaboom yet. Be warned they roll contracts Monday so you want to be playing /CLU3 (Sept) short from here, not /CLQ3 (Aug) as you can get very screwed on a big move against you that forces you to cash out. Generally, even though there's no logic to it, when the Aug contract begins to break down (usually just before it closes), the Sept (or any next month) follows it down. That's just the way it's manipulated, of course, since there's no reason for the new month to suffer with the old – but, of course, they want to make their rolls so they keep the prices in-line.
Last update on oil shows 61,000 open contracts, so they are right on track to be all dumped out on Monday but those last 50,000 barrels can be trouble sometimes.
The Dollar is 82.75, Yen, as mentioned, still 100.01, Euro $1.31 and Pound $1.52.
Gold is $1,288, silver $19.39, copper pathetic at $3.12, nat gas $3.79 and gasoline rejected at $3.15 again, now $3.13 but always dangerous to bet against going into the weekend.
I doubt Europe will open well and that will begin to drag down our Futures – we'll see shortly.
Notable earnings before Friday’s open: BHI, COL, FHN,FNFG, GE, HON, IPG, IR, KSU,
LH, MAN, SLB, STI, STT, VFC, WHR
I like this chart:
7:57 PM Detroit pulls the plug and files for Chapter 9 bankruptcy after emergency manager Kevyn Orr fails to a cut a deal with creditors. The city becomes the largest in U.S. history to file for bankruptcy. A few stocks trading lower on the news: MBI -15%, RDN -0.2%, MTG -1%, F-0.7%, GM -0.7%, MUNI -0.3%, PZA -0.5%, ITM -0.3%, HYD -0.8%.
Big Chart – Likely we'll end up flat for the week. I don't think "THEY" want us to end looking like we're failing but the weekly candle is still going to look toppy.
GOOG/StJ – I like them long-term, these are just growing pains. I was just talking to one of their competitors (confidential, unfortunately) and got some really good insight into what's going on with the transition to mobile – it's very painful for these guys. If anything, GOOG is handling it very well. Good point on MOT being a money sink – but it was when they bought them so not a big surprise.
NIce job not doing anything Peter! If only I could teach others not to trade so much….
CMG/Albo – Margins are down for a few reasons, one of which is they were forced to stop hiring illegals – but they can't cite that in their CC. Food costs spiked on them and they actually lucked out on an avocado surplus that mitigated it somewhat. Growth is very good and you generally give a chain like that the benefit of the doubt that they'll get costs under control over time so, while toppy at $400, not what I'd call a conviction short.
Thanks Scott. Unfortunately, you can't post images, only admins (or it would be chaos).
QCOR/Eric – Well, I may have looked at the wrong one but for sure it's better to sell those 2015s then! That's a nice pay-off on a $46 stock (net $28). It's by far my favorite way to enter a stock, for obvious reasons. As long as you REALLY want to own the stock at the net price – it's amazingly relaxing to just sell the puts and see what happens. Kind of cool when it "clicks" for you, right?
DBA/ZZ – Very strange drop-off and I think they're going to have trouble with the harvests this year. All commodities are depressed recently on slowdowns in China and Europe but, as a long-term play, I wouldn't bet against DBA and it's a fantastic inflation hedge. Also, high oil prices tend to put upward pressure on other commodities, which use oil to be produced. Look at DBC (DBA + Energy) already.
Jail/ZZ – Cool!
ISRG/Jercon – Yes, I like them long below $400. To some extent, this is the same news that took them down from $500. The FDA investigation is "new" but expected. There is the risk that they force a recall of some or all of the systems, and that can be devastating so I wouldn't go crazy with them but a light entry if you REALLY want to own them long-term is a good thing while they're in panic mode.
I don't agree with bashing Rolling Stone for an interesting take on the Boston Bomber but this is funny:
Europe opening only down a bit so back to bed for me – going to be a busy day….
Check out one of the most popular articles on SA: http://seekingalpha.com/article/1554852-how-tesla-has-already-built-a-40-000-electric-sedan – This is insane crap and it's written by a guy who "successfully passed the CFA 1 exam" and this is his first and only article. He has absolutely no background in this and, as you can see from commenters who rip him apart, no idea what he's talking about but this article was in SA's top 10 all day yesterday.
oil back up to $108. Impossible not to have the urge to short at these levels. /CL is TOS shows September, which is the equivalent of /CLU3 correct?
Should we still be shorting oil this morning? $108.27 now.
Glad we waited, not oil is over $108.50 and almost $109 but I will wait for a cross, Phil.
SA article – Phil/ So, are you saying I'm out as an aggregator in PhilAlpha? 😉 I can give my opinion as good as anyone! Facts, well, that is another story…
Obviously not, as everyone needs to start somewhere but (and this is what SA writers are pissed about) there is no differentiation between an unknown kid and a veteran writer who has earned respect over time (often years) and it's a massive disservice to the readers to treat them as if they have equal weight.
Of course, this happens all the time in the media as you never know which intern is writing your Bloomberg feed, do you? When reading about what Honey Boo Boo is doing, that's one thing but, when deciding where to invest – it's up the readers to hold the publishers up to higher standards.
Just yesterday, an insider told me that SA fired the guy who ran their app project as it's been a disaster. Turns out the guy was a young kid who was working as a low-level editor and asked if he could have more responsibilities so they put him in charge of a $2M app project DESPITE him asking in the interview for the position – "What's an App?"
That shows you the disdain that these publishers have for their readers. It's all about just putting up any crap and seeing if it attracts eyeballs – nothing else matters. When Charles Dow, Edward Jones and Charles Bergstresser founded the Wall Street Journal in 1889, they didn't do it to make a fortune (in fact, they sold it for $130,000 in 1902 with 7,000 readers) – they did it to gather the best financial news in one place for the benefit of the investors who wanted to follow the markets, which were under-covered in the broad press.
For a reporter to get a job at the Journal, even now, they have to prove themselves for years as solid reporters who know thier beat. SA, Motley Fool et al could care less if you know what you're talking about – as long as you throw words up on a page people will click on. That's what's wrong with the Web these days, you have to wade through so much crap to find anyting worhwhile.
That's what I hope to be able to change by creating a small island of sanity in the oceans of madness.
Phil: Ignor my last request… got it Thanks!