Monday Market Momentum – Slowing on China Data

Good morning!  

Getting ugly fast at the open.  Oil $99.50 and indexes down more like 0.75%, led by the RUT, down more than 1% and heading for 1,100.  Same short lines as last week but those are already gone so we'll have to see if the dip buyers are still around.  

There's just not the usual M&A news to pop us so people are talking about Ukraine with no offsetting positives.  JPM and other banks have noted 20% drops in trading activity (that low volume we've been watching) and that will get much worse if they crack down on HFT (why we shorted XLF).  

Keep in mind it's meaningless Monday and that goes for sell-offs as well as run-ups.  

We discussed LQMT and how good it is this morning – people are jumping in already at .21 but we were buyers at .19 so not running away too far yet since $1+ is my ultimate target (within 3 years).

Nas 4,100 needs to hold (3,563 on /NQ) and Dow 16,400 (16,325 on /TF) along with RUT 1,000 (same on /TF) and S&P 1,860 (also the same(ish) on /ES). 

I see dip buyers in the MoMos so I think we'll get them in the indexes too.  /ES is a good play over the 1,865 line because it makes a good stop but, since we're down 1.25%ish since Friday, we're at the point where a weak bounce of 0.25% off the bottom or a strong one of 0.5% will no longer be an indicator of strength if they don't hold. 

We didn't move back to cash because we thought there'd be a 1.25% correction, right?  

CMG/Jbur – Well, that was an official play, I just don't like getting carried away so early in the cycle.  

BTU/Sibe – I LOVE talking about Butterflies (actually, that's why we usually don't do that portfolio – it get 10x the amount of questions as the others).  BTU is at $18.50 and the May $17 calls are $1.60, so .10 in premium that expires in 10 days.  The June $17 calls are $1.75 so .25 of premium that expires in 46 days means I don't really see the advantage to spending $10 to roll early – what is it that you see that makes you want to pay $10 in premium today?  Are you so sure BTU is going higher that you want to pay your short caller a premium to move him to June $18s ($1.07)?  If you are that sure of an imminent move, why not buy calls?  Why not take off your short covers?  Why not sell $20 puts?  Or, you can just remember to do your job and SELL PREMIUM and, when it expires, sell some more.  

Remember, when you buy back a short call that's in the money you are effectively cancelling an insurance policy that locks in the gains of your long position (assuming you have one).  Even if you can only roll up 2.5% of a stocks price (it's rare that you can't – it's $1 on a $40 stock) for about even, that still buys you 18% upside over each year WHILE you are protected from a pullback.  

Don't look at a sale, especially on a long butterfly-type play, as a single event – it's one of 10-20 that you will be making and those nickels and dimes add up – IF YOU LET THEM!!!   Throwing away just .10 24 times on a 2-year trade is $2.40.  Against the BTU sample above, it's flushing 13% of the stocks price down the drain.  Compound that 6.5% a year for 20 years and you lose $250,000 in profits for each $100,000 invested.  

Think about that before you squander your next dime!   

Wheeeeee! on oi – $99!  

Experts/Diamond – I've been saying that for years.  Good article on the topic.  

Burst/Toe – No, I think there are still dip buyers out there.  It's been a great strategy for 3 years, no reason to stop until they take a big loss.  

Gasoline failing $2.90, Oil $99.15, Gold $1,309, silver $19.60, copper still lame at $3.06, nat gas surprisingly strong at $4.70.  

AAPL failing at $600 again.  

GILD/Taihu – We discussed them last week, we still like them long.   I don't see how this chart indicates a "strong bias to the downside" – maybe I'm holding it upside down?

Looks to me like they ran up from $20 to $80 in two years and then they pulled back $15, which is 25% of the run-up, to $65 and that made a weak bounce $70 and a strong bounce $75 and now we'll see if they hold the strong bounce line and, if they do – then the whole event was a very healthy pullback – just like the one they had in June of last year, when they pulled back from $58 to $45, about a 33% retrace then.

You have a $75/85 bull call spread and short $67.50 puts so I guess you bought near the top but the stock doesn't care where you came in – it's going to go up sometimes and down other times for various reasons.  You gave it a tight time-frame and a tight range to match your expectations and it's not going to be pretty if the whole market collapses but, if you REALLY want to own 2,000 shares of GLD at net $67.50ish – what are you worried about?  You paid net $5 for the bull spread so, as long as the long calls are worth more than $5, if you roll them to 2016, you'll be getting your money back.  The short puts can be rolled too – so it's a question of whether you REALLY wanted to own $100,000 of GLD.  If not – what the Hell are you in the trade for in the first place?  

And what Burr said.  

Fed won't consider rate raise until October: Fisher. The Federal Reserve will likely bring its massive bond-buying program to an end in October, and only after that will it consider when to raise U.S. interest rates, a top Fed official said on Sunday.

All "Rules-based" Economists Agree: Fed Policy Is Too Easy

IMF’s José Viñals warns on eurozone bond market. A top IMF official has warned that the rally in eurozone bond markets risks ending in disappointment, with investors now lending to governments at rates that assume the region’s return to full health will be glitch free. 

 

More Bad News Out Of JPMorgan About The State Of Housing And The Boycott Of The Rigged Market

Now they tell us? There's a shortage of long-dated government paper

• In another installment of articles you never see at market bottoms, Bloomberg is out with a piece talking about a shortage of long-term Treasury bonds just at the time when new pension rules are set to force a surge in demand for the paper.
• “The long bond is marching to the tune of its own drum,” says David Rosenberg. “There is natural institutional demand.”
• At 3.39%, the 30-year Treasury bond yield is off more than 60 basis points in 2014, and at its lowest level in nearly a year.

TD Ameritrade IMX declined for the first time in seven months

• Apr. TD Ameritrade IMX: 5.67 vs. 5.87 prior.

The Number Of Working Age Americans Without A Job Has Risen By 27 Million Since 2000

Elliott's Paul Singer On The 3 Things You Have To Believe To Be A Euro Bull

Beijing's Tepid Efforts To Slow The Credit Boom Are Springing Giant Leaks

Kyle Bass Sums It All Up: "Proceed With Caution"

Gundlach pokes holes in housing recovery at Sohn

• "Single-family housing is over-believed and overrated," says Jeff Gundlach at the Ira Sohn Conference. What strength there is or was in housing, he says, came from all-cash transactions (much of it institutional money). "This is not exactly indicative of the organic growth in the market from a real buyer’s perspective.”
• New homes sales: "Remarkably weak … flat on their back just as they were at the depths of the recession."
• Affordability: If it's so great, why did last year's interest rate rise hit sales in such a large way?
• Wind down of the GSEs: Who knows how this plays out, but it's almost certainly going to result in higher mortgage rates.
• "The kids are not alright," he says, and the exit of first-time home buyers is a secular trend thanks to high unemployment and high student debt levels. "Young people were shocked and scarred by the financial crisis … [renting is] massively  more appealing."
• Related ETFs: XHB, ITB, PKB
• Earlier Sohn coverage

Shumway pitches Moody's, pans yuan at Ira Sohn

• "This is a great business … we're less concerned about litigation," says Chris Shumway (former Tiger Cub, now running a family office), suggesting a long position in Moody's (MCO+1.5%) at the Ira Sohn conference. Moody's business is like Bloomberg: Tougher and tougher every year for someone to catch up.
• On the macro picture: "It feels a little strange out there," he says, noting hammered growth stocks, Ukraine tensions, and the Chinese slowdown. It leads to another idea, which is a short of the yuan. Devaluation, he says, is the easiest way for Beijing to "get themselves out of a tough spot." ETFs: CYB, CNY, FXCH
• Earlier Sohn coverage

Fortess' Novogratz pitches Brazil at Ira Sohn

• Leading off the 2014 Ira Sohn conference, Fortress Investment Group's (FIG -0.8%) Mike Novogratz says it's a pretty challenging macro environment without many great themes. One he does like though, is Brazil, where – after four tough years – business confidence is low, consumers are levered up, the government is fiscally stretched, and inflation is high … "It's so bad, it's good."
• One caveat would be the fall re-election of Dilma Rousseff, he says, and the country is in for a "long, long dark period" if she pulls it off (her numbers though, seem to be sliding on a near-daily basis).
• Perhaps anticipating a Rousseff defeat, not to mention the end of a long rate-hike cycle, the Bovespa has been maybe the strongest reasonably-sized market on the planet of late, up almost 20% since mid-March.
• ETFs: EWZ, BRF, BRXX, EWZS, BRAQ, BRAZ, BRZU, BZQ, BRAF, UBR, BRZS, DBBR,FBZ

Bank criminal charges could be near

• "It is fully possible to criminally sanction companies that have broken the law, no matter their size," says Attorney General Eric Holder in a video on the DOJ website, suggesting criminal charges for at least a couple of lenders are getting near (CS and BNPZY are the leading candidates).
• After 5-plus years of shying away from criminal action against banks on the apparent worry of ruffling the economy's feathers, Holder's feeling his oats now, and says the DOJ is working closely with regulators to assure criminal prosecutions don't affect banks' day-to-day operations.
• The change of heart was leaked to the NYT last week.

JPMorgan warning hits the big banks

• A check of the global banks finds the group pacing market declines in morning action after Friday night's warning on Q2 trading revenue from JPMorgan (JPM -2.2%).
• Nomura's Steven Chubak is first out with lower JPMorgan earnings estimates.
• Jim Cramer sums up sentiment: "This has been a house of pain. You can't own these right now. You just can't."
• Morgan Stanley (MS -1.9%), Goldman Sachs (GS -1.5%), Citigroup (C -1.2%), and Bank of America (BAC -1%), Deutsche Bank (DB -1.2%). Far less trading dependent than the other Too Big Too Fails is Wells Fargo (WFC -0.2%).
• The iShares DJ U.S. Broker-Dealer ETF (IAI -1.2%)
• XLF -0.7%, KBE -0.8%

Petrobras says 12% of staff to take voluntary early retirement

• Petrobras (PBR +0.3%) says it has cut its workforce by 12.4% through a voluntary separation program launched in January, and expects to save at least 13B Brazilian reais ($5.85B) during 2014-18 thanks to the program.
• PBR says it bought out 8,298 employees, 55% of whom are expected to part ways with the company this year.
• In the short term, the buyouts will come at a price tag of 2.4B reais, which PBR will provision in its Q1 results, scheduled for release later this week.

Chesapeake, Encana facing state criminal antitrust hearing in Michigan

• Michigan prosecutors plan to call a former Encana (ECA) executive to testify on behalf of the state in a multi-day hearing in their criminal antitrust case against Chesapeake Energy (CHK) and Encana that begins today.
• Kurt Froistad, a former land acquisition specialist at ECA's U.S. unit until Aug. 2011, exchanged emails with a counterpart at CHK about dividing up bidding responsibilities between the two companies in nine Michigan counties ahead of an Oct. 2010 state land auction.
• Last week, the companies said they had received closure letters from the Department of Justice ending its federal investigation of possible antitrust violations related to their Michigan land-leasing activities.

Literally an accident waiting to happen:  China National Nuclear to raise $2.6B in IPO

• China National Nuclear Power Co. plans to raise up to 16.3B yuan ($2.6B) in an IPO to fund nuclear power projects, as the country pushes nuclear energy and renewables to combat greenhouse gas emissions and pollution.
• The state-owned company proposes to sell up to 3.65B new shares, or 25% of its enlarged capital, ahead of a listing on the Shanghai Stock Exchange; the proceeds would help finance four nuclear power projects in Fujian, Zhejiang, Hainan and Jiangsu provinces.
• China is starting up its 19th nuclear reactor as it pushes to more than double expansion of atomic power generation capacity this year, which may boost demand for imported uranium.
• ETFs: URA, NLR, NUCL.

South African platinum miners reject pay offer, strike nears four months

• South African platinum miners will continue their strike after workers rejected the latest wage offer from employers, according to the president of the AMCU union that is spearheading the strike.
• The world's three largest mining companies – Anglo American Platinum (AGPPY), Impala Platinum (IMPUY) and Lonmin (LNMIF) – had revised their wage offer at the end of April with an above-inflation salary increase of as much as 10%.
• The strike has been running for nearly four months and has cut global production of the metal by ~40%; the big three miners are estimated to have lost ~$1.5B so far.
• ETFs: PPLT, PTM, PGM

Tyson boosted by high beef and pork prices

• Tyson Foods (TSN): Sales of $9.032B (up 7.7% Y/Y)
• Operating income of $361M (up 53%)
• Net income per share from continuing operations of $0.60 (up 58%)
• Operating margin of 4% (from 2.8%)
• Chicken sales price down 0.3%, beef up 13%, pork up 12.5%
• 2.5M shares repurchased for $100M
• Outlook: Chicken segment above normalized range of 5-7%, beef below normalized range of 2.5-4.5%, pork at its normalized range of 6-8%. Share repurchases (32.1M remaining in authorization) to continue.
• Shares +1.1% premarket
• Source: Press Release
• Previously: Tyson Foods misses by $0.03, beats on revenue

Walgreens same-store sales rose 7.6% in April

• Walgreens (WAG) says same-store sales rose 7.6% Y/Y in April, benefiting from a later Easter, which fell on April 20 this year.
• In the front end, same-store sales rose 8.2%; customer traffic on a same-store basis improved 2.6% and basket size rose 5.6%.
• Pharmacy segment same-store sales rose 7.3%, and same-store pharmacy prescriptions filled rose 3.5%; pharmacy sales accounted for 65% of WAG's total sales in April.

When electronics become fashion:  Skullcandy gives back gains following bearish SA articles

• Though the company beat EPS estimates, Skullcandy's (SKUL -6%) Q1 report suggests its "core brands sales are in significant domestic decline," writes Charles Moscoe in a Friday evening SA column.
• With U.S. sales still under pressure, Moscoe doubts the 200 bps Y/Y gross margin improvement delivered in Q1 is sustainable. He also asserts Skullcandy has only been able to maintain minimum advertised pricing for two products – Crusher and Air Raid – following many quarters of channel-stuffing.
• Nonetheless, though Moscoe considers Skullcandy shares "overpriced by a significant margin," he thinks much better shorting opportunities exist.
• Meanwhile, in a column released shortly before Friday's close, Stan Ackman notes international gross margin fell 320 bps Y/Y to 44.9%, even as North American GM rose 350 bps to 47%. He also expresses doubts about the impact of Skullcandy's Wal-Mart deal, given a lack of detail from management.
• Shares have fully given back the Friday gains they saw in response to Skullcandy's EPS beat and solid guidance.

Twitter strikes e-commerce partnership with Amazon

• By replying to a tweet containing a link for a product sold on Amazon (AMZN) with the hashtag #AmazonCart, Twitter (TWTR -0.5%) users will be able to automatically add the products to their shopping carts.
• Amazon, which has more than its share of affiliate marketing partnerships, tells Seeking Alpha Twitter doesn't generate revenue from shopping cart additions made via #AmazonCart.
• The deal follows Twitter's hiring of Google exec Philippe Dauman Jr. to be its e-commerce partnership chief, and reports the company is looking to partner with Stripe to enable credit-card payments on its site and apps.
• Shares are edging lower ahead of a lockup expiration that goes into effect tomorrow.

BlackBerry selling Canadian real estate for $278M

• Spear Street Capital is acquiring the majority of BlackBerry's (BBRY) Canadian real estate (3M+ sq. feet of office space + vacant lands) for C$305M ($278M).
• The sale of 80% of the assets will is expected to close this month, and the sale of the remainder in calender Q3. BlackBerry will lease back some of the office space.
• BlackBerry originally announced the deal in March, but didn't give a price tag at the time. The company has also sold its Irving, TX U.S. HQ.
• Shares -1.8% premarket, following equity futures lower.

Putin Clamps Down: A Chilling Report From Moscow. Pussy Riot was just the start. How Russia is turning into a dark nation of fear, paranoia and repression.

Nigeria Is Melting Down

• The End of the Permissionless Web
• A Ray Of Sunshine – Breakthroughs On Storage Can Change The Game For Solar Power
• Nike Channels Apple Using Apps to Hit $36 Billion Target

That Solar article is very interesting:

 Storage would transform the geography of energy trade. Both solar and wind are essentially local supplies which can be harnessed in most countries around the world. Forget peak oil – think about the possibility of peak trade.

Of course there will be losers as well as winners. In the contest to reduce emissions nuclear could turn out to be a white elephant unless costs can be reduced. Across the energy market there could be serious downward pressure on the prices of gas and even coal and the most expensive projects could end up stranded. Countries heavily dependent on energy export revenue such as Russia and Saudi Arabia could find their competitive advantage undermined. Companies whose value is based on the existing technical limits would be threatened.

OK, let's look at some Portfolios: 

Butterfly Collection:

Nice and boring!  We still have 10 days to expiration so nothing to do at the moment.  

• BTU – Remember we were aggressive selling the long $18 puts that were in the money at the time?  That's paying off nicely.  So the loss on the $16 calls is just insurance and we'll roll them along – since BTU goes up AND down.  
• CZR – Such a fun stock to trade.  Right on target.  
• DIS – Earnings tomorrow, might end up on the high side but we don't care because we're well-covered (2016 $55 calls).  
• TXN – So boring we should have done 1,000 contracts!  

$25,000 Portfolio ($25KP):  

Not much to discuss here.  The market is choppy and difficult to predict so we haven't been playing much but still up 15% for the year – not playing can be a smart move.  With $25,000, the trick is to try not to lose – so you have money to bet with when there is a "sure" thing.  

• XRT seemed like a sure thing but still not working.  
• GMCR still looks like a sure thing to me – on track. 
• Speaking of sure things (hopefully) – How about we buy 5,000 shares of LQMT for 0.21 ($1,050).  Should be a cheap way to make $200 at .26. 

Income Portfolio:  

OK, going to cash has hurt us now – up just 7.4% because we missed the last leg up.  Still, we've added a lot of stuff back and sold a lot of premium and we have $566,685 in cash – if our short options expire worthless, then we're up more like 12% for the quarter.  Don't forget, this is a very conservative portfolio that's only trying to make 10% a year!  

All the puts are good, HOV back to even already.  TASR looks bad but the stock is only .50 below the strike ($15) where we sold puts for $3 – wake us up when it's at $12…  Too soon to DD at $4.40 but I'd love to at $5.  

• AAPL – We cashed our original spread and left the short Jan $550s to protect us.  So far, we haven't sold a put because there hasn't been a pullback but the long-term plan is to buy more long bull spreads and do a 2x roll on the short $550s ($66) to a higher strike like the $620s ($30.50) and offset that with the sale of maybe the 2016 $500 puts ($34) – assuming, of course, AAPL is over $600 so we have a good line to stop out the puts.  
• ABX – Right at our floor ($17), great for a new entry.  
• CCJ – We just bought those and they fell immediately.  No change, it's also at our floor. 
• CLF – Also at our floor (boy, we're nailing those floors!).  
• CZR – I love this for a current entry.  The stock is at $19, the 2016 $15/22.50 bull call spread is $2 – even though it's $4 in the money and the short 2016 $12.50 puts are $3.20 – even though they are miles out of the money.  Such a fun stock to trade.
• EBAY – As we thought, they held $50.  It's flat to our entry and I still like this set-up.  
• IRBT – We just added these too.  
• RIG – Coming along nicely.
• TWTR – Today was the day the stock was supposed to crash as all those shares came off lock-up.  We'll see what happens once that scenario fails to materialize.  We did go light on contracts (5) just in case but I still like this trade.  

Obviously, we still have tons of cash to deploy.  It should be noted that in all our portfolios, even the $25KP, we've put very little cash to work and we still made very nice returns on the overall portfolios.  The idea is to let these positions take root and, once you know which ones you will truly be keeping long-term, we set them aside and THEN we take a new batch of positions we'll be able to concentrate on.  

That's the point of our Short and Long-Term Portfolios – we'll review those next.  

Wow, the girl on Bloomberg says Alibaba has over 500Bn users!  Then the guy she's talking to says, yes, and it grew by over 50Bn last year.  No wonder the IPO is so big – I wonder what it costs to transmit to other planets?