Why should we worry?
The Dow is at 16,580 so all must be well, right? The fact that we're up here on low volume and even lower earnings is just one of those nit-picky things that won't matter a year from now, when TA people use the movement to draw new, bullish trend lines.
That's what the Fed is controlling, they are painting charts in broad strokes to keep things moving along – even when they aren't.
Sure the US economy is only growing at a 0.1% annual pace and sure that's down shockingly from 2.6% last quarter but, hey, we EXPECTED to only grow at 1% – so it's ONLY a 90% miss – what, us worry?
The Fed says it's just bad weather slowing us down and, whether or not you believe that, they also promise to continue to stimulate the economy long after it is necessary. The Fed is like Santa Claus, only they don't have to put in any effort to make their toys, so Christmas comes 365 days a year for the top 0.01%. For the bottom 99.99% – well, it's 0.1% growth on the "trickle down" effect.
In fact, if you take out the Banksters, who are piling up the Fed's free money in their vaults and using it to manipulate the stock and commodity markets (and higher costs for Energy, Food and Health Care were the only reason our GDP wasn't -1% instead of +0.1%), then you can see that those companies not protected by the Fed are in big trouble.
Not since 1999 has there been less cash relative to debt in Corporate America. Yes, money is cheap, so why not borrow some but that money isn't being used to invest in plants, equipment or, God forbid, hiring and training more people – it's being used to buy back stock and pay out dividends to give the ILLUSION that earnings are improving, when it's actually only the share count that's being reduced.
As you can see from this chart of the S&P, earnings are up just 25% from where they were in 2009, when the market was 60% lower than it is now, but the repurchase of $1.4Tn worth of stock has reduced the S&Ps share count by 15% over that period.
These are the kinds of things that don't matter – until they do – and then they matter a lot. With record low borrowing costs and 50% discounts on stock prices, many companies were WISE to buy back their shares. I was advocating that AAPL buy back most of their shares at $85, because I couldn't imagine a better use of AAPL's money than buying back their own stock at the time.
Warren Buffett keeps a pretty steady floor underneath Berskshire Hathaway with buybacks but even he stood back in 2008, as his company's stock plunged from $150,000 to $75,000 per share. Why? Because there were other stocks that were even cheaper – and that's where he deployed his capital.
Yesterday morning, in our Live Member Chat Room, we deployed some of our capital to pick up positions on EBAY and TWTR, which I also tweeted out (you can follow us here) along with adjustments to our other trade ideas on STX, PNRA and SCO (I had tweeted out the original earnings trade ideas as well). Like Buffett, we KNEW the Fed would provide a backstop and that creates a very forgiving environment for equities. TWTR, for example, bounce back $2 already and our $17 spread that we bought for net $2 is already $16 in the money – up 700% on cash if TWTR simply flatlines at $39.
"Be greedy when others are fearful' – Buffett's words, not mine. The key advantage to fundamental trading is the ability to recognize a bargain when we see one. Sure the chart on TWTR looked, and continues to look, terrible but, as I said in the original set-up for that trade in Tuesday's Live Webinar (also on Twitter), the bad news was already priced in. Rather than stare at the squiggly lines, we stare at the balance sheets and we look at the competitive environment and try to determine TWTR's value as an INVESTMENT, not as a trade.
In that respect, TA people who trade against us are bringing knives to our gun fight. Their panic drove the PRICE (not VALUE) of the 2016 $30 puts to $6 – that's a net entry of $24. So, our premise isn't that TWTR would or would not hold $35 (though we thought it would) but, very simply, that it's worth more than $24 – another 33% off yesterday's low.
That's all there is too it. We find a stock that is undervalued, one where the TA people and momentum traders are jumping ship and driving up the options prices and then we practice our patented system of BEING THE HOUSE – Not the Gambler, and selling that presumed risk to other people who are panicking. I wish it were more complicated than that (so I could charge more to teach it to you ), but that's essentially all there is to it…
What we do teach, more so than the strategy, is how to fight your own bad tendencies and take the emotion out of your trading decisions. When other people are panicking, there is a great opportunity – but only if you can refrain from panicking yourself. There's no evolutionary advantage for the wilderbeast that refuses to run away from the lion with the rest of the herd – he simply dies and his "taking a stand" genes do not get passed on to future generations.
That's why there is a very strong tendency for us to join our fellow mammals and run with the pack, in and out of stocks – and it's why we're so easily swayed by the opinions of total strangers on TV or even in print – the last one to panic gets eaten – that's the law of the jungle.
The predators on Wall Street are well aware of this and use our all too human behavior to their advantage. They use machines to take the emotion out of their own training and hire people with the most reptilian tendencies to do the actual trading. They even hire psychologists – who tell them how to push your buttons. If you are cold, heartless, uncaring, ruthless and unfeeling – Goldman Sachs has a desk with your name on it!
Another thing reptiles are is PATIENT – there's not a harder thing I have to teach our Members than patience. Markets go up, and they go down – so we have many, MANY opportunities to buy low and to sell high – and earnings season comes around every 3 months and last for over a month, 33% of the year, we are presented with DAILY opportunities to buy low and sell high.
For example, the Nikkei is testing 14,500 again this morning (/NKD). What do you think we are doing? We've shorted it over and over and over again at that level and there was no NEW action from the Fed – just more of the same and there was no NEW action from the BOJ – so the VALUE of the Nikkei remains the same. The S&P (/ES) is testing 1,880 – another shorting spot we're fond of.
Oil, of course, we have been shorting since $105 but now we're at our $98.50 goal and that's down 7% from $105 so now we're looking for a bounce which, per our 5% Rule™, should be $1.50, back to $100 as a weak bounce in the very least. That's $1,000 per contract of upside if we get a cross over $99 and make it to $100 today – hopefully that will be the move into Natural Gas Inventories at 10:30 this morning and then, we'll evaluate it in our Live Member Chat Room but hopefully, we'll have a chance to short it again.
The volume was so low, we may as well have been closed yesterday. As noted by Dave Fry, the record close was the result of "window dressing" in the last minutes and, with most of the World's markets closed today for May Day, today is going to be another low-volume affair that is easy to manipulate.
We don't care because we remain "Cashy and Cautious," which doesn't mean we're not playing – just that we're taking those quick profits and running back to cash more often than not. Some days there are lots of plays to make – some days there are none.
Doing nothing doesn't seem like a strategy but, when employed strategically, it's one of the best ones:
Cashing out sounds extremely smart at this time. Even with glazed topping this thing is orver 0 GDP and that is not just weather. The GDP police have been quiet so far.
TASR/Griffin – It's amazing, isn't it? Sometimes I think we're the only humans trading.
STX/Jph – WDC just disappointed too, that pushed STX down another leg. For STX, growth SLOWED to 2.5% from 7% last year. We know the market is crap for their stuff at the moment but, if we're going to believe in Dow 15,600 – then STX is too cheap at $50.
EXPE/Wombat – We liked them at $40, now they are $75 – no thanks. Current p/e is 40, they have to show impressive growth before I'd consider them up here.
TASR/DM – I'm very upset that Putin doesn't seem to use Tasers on his people – that would be a nice re-order! We already have the short 2016 $15 puts in the LTP at $3, now $3.40. No particular reason to do more than that at the moment.
Cashing/Burr – I'm for that play. Next week is going to be tricky.
TLT/Phil – has been working an alert line all day that I set a while back. top of channel?
I entered orders to cash all my positive positions at midpoints and waiting for fills. If I get a fill, I'm putting in a order to sell it at the same price I sold it before in case we drop. I really *like* all my positions now, but I don't see us getting out of this channel until summer is over. Just my 2c. I also decided to sell calls against my losers, hopefully protecting some of the sell off if it comes again
Kind of hard to grow a forest if you keep uprooting the seedlings. I like better the idea of preparing hedges against a down market (USO, TZA, etc.) and being prepared to buy more seedlings after the dust settles. But I am not looking at a great deal of gains at this point either. If I were I might think differently.
Despite today's EWJ's gap up above recent resistance (and in a quiet mkt, lo volume), what are your thgts re buying Jun 11 strike puts (now .18) with a close stop below 16 (2014 low).
Thanks as always.
Tesla watching: Tesla Motors (TSLA) could show a year-over-year decline in deliveries in North America this year, forecasts Morgan Stanley. The investment firm isn't panicked over the potential deceleration in Model S sales growth, noting the long-term story of Tesla disrupting the industry still plays.
TASR / Phil – The Putin play is to sell lots of puts in KALA, MIG and SAM! Or whatever symbol they use in Russia for their defense contractors.
sibe14 – It's totally a personal preference. I suck at buying hedges in the right amount, right timing and right vehicle. I found it costs me less in commish (ib is cheap) to just cash winners, and then wait until I can sell the put again for a good price. Some get away on me, but locking in gains as the index's are reaching a 4th top area around 1890 locks in my gains.
Some I'm leaving like my AAPL plays my VXX play, etc. Stuff that swings like BITA and CLF and WMT (since that's up huge) I'll just take off the table.
I've found that in a downmarket I never buy enough hedges to cover my losses, and if the market doesn't fall, I cry and scream that I'm losing money on my hedges. It's just my style though.
Whats her name ?
You didn't name her 'cojones' did you ?
TLT/Scott – You would think so but hard to say with all the manipulation going on. Also, we have notes to sell next week and TLT may reflect people moving to cash, not real demand.
Good idea, Burr, sell 'em only if you get a good price.
Uprooting/Sibe – True but we end up with something else we like better. Easier to re-plant stocks than trees. It depends how invested you are and how much you like your positions as well.
EWJ/8800 – They barely worked the first time, I'm sour to them now. If they get back to $12, I'd like a short back to $11 but nothing at $11.20.
TSLA/Jabob – LOL, what a joke. MS is not worried about deceleration in the only car they sell? Shoot that analyst!
Russia/StJ – I still think Putin ultimately makes nice and scores a Nobel Peace Prize for his efforts.
Good point Burr, in the end – we have to do what makes us happy too.
I should have named her that! Lily grace.
StJean – You still in the Jan16 VXX 25P? I'm down 27% on it, avg price of 5.91. I have a order to double up at $3.
I thought I was fast but with only 90 seconds left of trading there's no way I could get the XRT trade on. Maybe tomorrow. Have a good evening friends.
oh, i remember that.
you guys are playin the VIX short
wasn't there this theory that StJ worked out that it resets itself every cycle, or something ?
i remember wan't to follow with you.
long Jan16 25 puts @ $4.65
XRT squirrel shot
got it ! come on Phil, ya gonna have to do better than that : >
LNKD beats .38 v .34 est +2% now
TSLA / ALI
I just don't understand why this is a big deal. So, now people in CHina have to go to a different website to buy a luxury vehicle ? Is it just a brand awareness thing ? Thats like saying TSLA now available on Amazon … who cares.
VXX / Burrben – Yup, my average price is about $5.50 as I already added to the position. This one requires patience, still about 18 months to go! VXX was at $54 back in February, it's at $40 today!
VXX / Wombat – Yes, resets about every 18 months or so when they hit around $10. These Jan 16 25 puts should be worth about $15 then. Call that an upside hedge!
No sure thing, but as close it will get in this market. But you need patience, not something that will work overtime. But last time I scored 45% in less than a year. I'll be patient for this kind of return.
Wynn Resorts beats by $0.26, beats on revenue
Wynn Resorts (WYNN): Q1 EPS of $2.32 beats by $0.26.
Revenue of $1.58B (+14.5% Y/Y) beats by $90M.
?Stock not moving much in after-hours. Which is good news.
So far, so good on earnings prediction:
AKAM – Up
EXPE – Up
WYNN – Up
LNKD – Down
$$$$ just dumped
guess I'm on /NKD duty tonight
Of course the one I play is LNKD
Wynn up to $212, Lnkd down to $156, and AKAM down after hours to $54.58.
Not a great earnings day.
hi wombat ,
are you shorting nkd at 14500 for tonight dropped while I was typing this.
this is getting ridiculous.
I mean, seriously, airline stocks?
Burr: Don´t call her Cojones Pleasssseee! ( lol)
I seriously thinking about your proposal and Phil comment, after all, my position is mainly in stocks not options so perhaps I will sell my stocks and just buy some PUT´s instead, surely will kill my sleep tonight.
Great call with RB, NKD and TF thanks Phil, for me it was a good day.
Good night to all, Rgds.
tommyt / NKD
AKAM // WTF ??
SGEN…..I am selling more puts…..
I was just looking at them Pharm! Do you have a more detailed opinion? Should I leave my long uncovered for now?
Quite a day on the Russell, still bouncing around the 200 DMA.
Jobs, jobs, jobs tomorrow!
I thought jabo would like this:
congrats burr! Speaking as a mom of two teenagers, this Mother's Day will be special for you and your wife!
pretty funny how TSLA seems to fight anything and everything and always needs to make a point that they are better and safer than everyone else!
It appears that the cockpit tapes of Malaysian Air Flight 370 were doctored by the Malaysian government before being released to the media. They appear to have cut out pieces of pilot speech. China will not be pleased if this turns out to be true.
StJ – well, I am in the May 40s…so I think they pop. I would sell the May 45s though.
There is a ton of activity in the June calls and puts….might have to buy some spreads.
zero // 370
Say more – whats the source ?
tommyt // NKD
hope you had a fun night ; >
Burr / VXX
can you explain ?
Pharm // SGEN
Selling more puts at …..
May and June Wombat. 40, 35 or 30….pick your gut level.
Pharm // SGEN
Thanks – I already had the June 35's – hangin
AZN turns PFE down – so do we unwind all the gains from earlier in the week since the deal isn't there? Of course not. Rumors don't need facts to back them up – just ask Elon Musk! Actually, PFE is now going to offer $106Bn with more cash in the mix but it's still only 32% cash and the rest PFE stock (talk about a messy split!).
Just waiting for NFP but what are we looking for? Too many jobs means the Fed tapers out by the end of the year – is that a good thing? Especially if unemployment hits 6.5% – the Fed's original target for ending QE. So I think over 220K and below 350K will spike us up but then we fade. Over 350K and we should just keep going up as we're in a full recovery (super-doubtful, there's no other data supporting this). Under 220K may dip us but it does keep the Fed at the table – same old song.
RB/Phil Great call Phil, 95.21 with 3 contracts! I got the full year suscription to PSW , thanks
You're welcome Advill, nice job!