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Tuesday, February 7, 2023

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Weakening Wednesday – Can Yellen Save the Day?

SPY 5 MINUTEI told you so!  

All of last week, I kept saying the market was only hitting highs because it was being manipulated that way and, by Friday we'd had enough and took our ill-gotten gains off the table once again.  This week, it's obvious we're in trouble – but it's a lot harder to sell your stocks when they're already in trouble, isn't it?

It's a very hard discipline to take winners off the table but you should scale out of posiitons on the way up the same way you should scale into them on the way down (and the Strategy Section at Philstockworld has a great article about scaling – also lots of additional commentary in chat below the article).  

There's nothing wrong with being in cash.  Yesterday, from 1pm until 2:30, we had on of our Live Futures Trading Workshops (replay available here) and our 4 trades made $360 by the close (4pm) for a very nice $100+ per hour salary for just trading a few contracts.  Our trade idea from yesterday's morning post (which you can get delivered to you pre-market, every day by SUBSCRIBING HERE) was to short the Nikkei (/NKD) at 14,350 and this morning we hit 14,050 – good for a $1,500 PER CONTRACT profit!  

SPX WEEKLYThat's one of the things you can do with cash.  We also have fun making earnings plays, like the FSLR trade we added to our Short-Term Portfolio yesterday.  That trade idea was:

I think it's worth a try at selling 5 July $75 calls for $3 ($1,500) and buying, to cover, 4 Jan $77.50/85 bull call spreads at $2 ($800) for a net credit of $700 – let's do a set of those in the STP

If FSLR is under $75 (it's about $69 after earnings), we pocket $700 PLUS whatever value remains on the January bull call spread (probably about half).  That's against zero cash outlay ($700 credit, in fact) and possibly we'll just take quick money off the table and reload for our next earnings trade.  

This morning, ahead of Yellen's 10am speech, we flipped bullish on the Russell Futures (/TF) at 1,105 in our early morning Member Chat and we've already tested 1,110, which is $500 up from that line (though we were more like 1,106 by the time we caught it for +$400 in an hour).  We're done with the long ahead of the Productivity Report at 8:30 – which we expect to be disappointing.  Also this morning, I reiterated our short entry on oil at $100.20 and we already got a dip back to $100, but our goal is $98.50 after inventories (10:30) though now we'd stop out again over $100.20 and wait for a better entry – so stay tuned!  

We've been watching Brent Crude contracts drifting lower and USO (based on WTIC, which is what the /CL Futures reflect) usually tracks it very closely and now Brent is at $107.25, back where it was in early April, when WTIC was under $99.  That is pegging our BS meter to 8.5, especially since the Ukraine crisis SHOULD be supportive of Brent – and it isn't.  That's a huge red flag for oil bulls (the kind they run into and get skewered).  

Speaking of getting skewered:  Here's the Productivity report and is SUCKS – down 1.7% for Q1 and, even worse for our Corporate Masters – Unit Labor Costs are up a whopping 4.2%.  In other words labor costs are rising and they can't whip the wage slaves any harder than they already are.  

There are no cheaper places left to outsource, even CHINA!!! has been dealing with growing labor unrest as it becomes more and more clear that the Communist Party, which was founded to benefit the country's workers and peasants – has become a Billionaire's club for oligarchs – almost as bad as the US (but not quite).  

In China, there is a common saying,” says Lin Dong, of the Labor Dispute Center. “The government doesn’t help the people fix their problems. They fix the people who point out the problems, instead.”  Workers who were valued principally as inexpensive production cogs during China’s initial economic flowering are now expected to star as consumers. Consumption accounts for only 35 percent of the Chinese economy, well below the 50 percent-plus characteristic of East Asian countries such as South Korea, which modernized earlier.

It’s like that old Henry Ford story: I’ve got to pay my workers enough so they can buy my product,” said David Dollar, a former U.S. Treasury Department official in Beijing. “China’s reaching that Henry Ford moment.”  

Unfortunately, the US is far from that "Henry Ford Moment," as you can see from the chart above.  Let's face it, we're a nation of timid sheep who have just sat back and taken it while our wages have flatlined for 25 years while UK workers (the above example) were given 30% increases.  At least the Chinese are smart enough to march – what the hell is wrong with US?

Maybe the rising Unit Labor Costs are finally a sign that US workers are not going to take it anymore.  If so, that will be a long-term benefit for the economy but, in the short run, companies that are addicted to low wages like WMT, NKE, MCD, etc. are in for a bit of pain.  

 

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Oil Lines

R3 – 101.66
R2 – 101.04
R1 – 100.59
PP – 99.96
S1 – 99.50
S2 – 98.88
S3 – 98.42

Good Morning!

Phil/Benghazi  It's their plan for defeating Hillary in '16….. and an insult to the dead…. 🙁

Amazing, they lie to get us to war where 3000 soldier die and Fox doesn't think it rises to the level of Benghazi…. 

Some countries will have big demographic problems by 2050:

http://www.motherjones.com/kevin-drum/2014/05/america-does-not-really-have-big-aging-problem

No wonder they are building robots in Japan. They'll have 40% of their population over 65 years old by then! The US looks positively good in comparison.

It's worth driving this point home: America doesn't really have a huge aging problem. We have a very moderate aging problem, which could be handled in the federal budget with fairly modest changes to Social Security and Medicare. What we do have is a health care problem. But that's a problem for us all.

Phil–is there a hedge you would recommend with TSLA for 'someone' who is short the 300 and 340 leaps?

Speaking of demographics – that could have an impact on housing down the road:

http://qz.com/206536/an-illustrated-guide-to-why-chinas-housing-bubble-may-finally-be-bursting-and-what-that-means-for-the-economy/

Mao also underscored the impact of demographics, a point we’ve flagged before: Rapid aging of China’s population means that future workers will have less and less disposable income to spend on housing in the next two decades.

Taking his argument one step further, JL Warren demonstrates how demographics might also explain the current collapse in housing demand. China’s birth rate peaked in 1987, and since people marry approximately 25 years later, that means demand for “new household formation” homes maxed out in 2012.

FSLR $75 calls not dropping as fast i had expected!

18 handle on TZA

/TF  crushed

CZR!  All hail Caesar!

IWM stopped on major support going back to last October. It and all associated should bounce here.

BTW this is a 10% correction of the RUT.

~U.S. crude oil imports averaged 6.9 million barrels per day last week, down by 598,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, 1.1% below the same four-week period last year.Now the facts on oil. Imports down, way down, a little draw.

Phil/ I have TASR short 2016 15 put sold for 2.60. Should I roll now, or wait for further drop as TASR seems to be in free-fall? Wondering if I'll be able to roll to 10's and double down? Sorry, new at long-dated options. Thx.

No clue why but whatever I paste is stuck in front of the alert. Makes everything out of place, been happening for quite a while.

TASR / Phil … tempting now after dipping under $13 .. Jan 2016 puts offering near $3 which gives a breakeven 23% lower at only $10 for average down position. Of course if could go lower but seems worth an initial average down position. What do you think? Thanks

I like this Kass commentrary (part 1)

The transaction fueled the bubbly action in the market leaders early in 2014.

Worshiping at the altar of price works — until it doesn't. New tech and social media companies are nothing more than information aggregators driven by advertising that have been insanely overpriced.

Twitter (TWTR), as measured by its short interest, is among the most hated. There is a reason why investment bankers priced its IPO only a few dollars more than the initial indication — they couldn't get a higher valuation. Twitter may be a great platform and concept, but the brain power and luck it will take to make it a sustainable $10-billion-plus company will be greater than what it took to create it from scratch.

Despite the recent drop in the Nasdaq, Facebook (FB) still possesses a $140 billion market cap. Twitter's capitalization exceeds $24 billion. LinkedIn (LNKD) trades at a market cap of more than $19 billion and a cool 750x earnings. Salesforce (CRM), which has been an awful stock, still has a $32 billion market cap (with financial statements that belong in the clouds because they are so damn confusing). Tesla (TSLA), down $60 from its high, is still priced as if gasoline won't have a commercial use in five years. Zillow (Z), although its commercials are touching, is priced at 20x sales, and last time I checked, it sells advertising and subscriptions. Then there is Yelp (YELP), a collection of restaurant (and other) reviews, clocking in at 20x revenue.

Bottom line: Avoid the whole social media space and cover your ears when talking heads, people in flip flops with MBAs and those walking into traffic on their smartphones tell you otherwise.

As to the broader market, short in May and go away.

— Doug Kass, "Short in May and Go Away" (April 30, 2014)

TASR/Phil … that is the Jan 2016 $13 put which is near $3 … forgot to specify that in above post.

Part 2

The beta earthquake that recently produced a return to Earth of the anointed, high-growth market leaders' stock prices has only begun to bring back reality into the markets.

The earthquake also revealed (and is a constant reminder of) the idiocy and irrational behavior of managements when the markets allow them to be relieved of common sense.

Case in point: Facebook's acquisition of WhatsApp.  To remind everyone, Facebook acquired WhatsApp for $19 billion in February.

In my view, the acquisition will eventually be known as the second worst in history — only rivaled by the 2000 merger between AOL (AOL) and Time Warner (TWX).

Then and Now

Though mostly a stock deal ($4 billion in cash, $15 billion in equity), perhaps Facebook should have waited a bit longer to make the $19 billion deal.

Below is a table of four leading social media stock prices on the day that WhatsApp was acquired by Facebook (Feb. 19, 2014) vs. yesterday's closing prices:

And below, courtesy of BTIG's Dan Greenhaus, is the broader carnage of some of the market leaders thus far in 2014:

The S&P 500 closed on Feb. 19 at 1840 — it was lower than it was at Tuesday's 1865 close!

The broad market is still flat on the year amidst this carnage, but if this is history rhyming (i.e., out of momentum stocks and into perceived value and safe havens), I have suggested that the rotation and leadership change could portend a more significant market correction than we have already experienced.

The AOL-Time Warner Template

"We are emerging from not just old media but from an analog world into a digital world, and philosophically people are beginning to understand that the digital world is a transformational universe."

— Gerald Levin, Chairman of AOL-Time Warner (2000)

Facebook's purchase of WhatsApp for $19 billion dollars can only be described as insanity. In all likelihood this purchase will go down as one of the most inflated acquisitions in history.

Today, as I listen to "Squawk Box's" Becky Quick interview the CEO of (the new) AOL — its first-quarter results were just released — I am reminded of the pendulum of corporate history and that we seem to have returned to the days of yesteryear when AOL and Time Warner celebrated their merger 14 years ago.

Although AOL had less than half of Time Warner's cash flow, the shareholders of AOL received 55% of the combined entity.

The wisdom of the AOL-Time Warner merger was simple. Time Warner had the content and broadband infrastructure, while AOL, then the world's largest Internet service provider, acted as a gateway to the Web for some 20 million subscribers.

Only three years after the largest merger in corporate history (in 2003), AOL Time Warner took a $98.7 billion goodwill impairment charge in writing down the value of the America Online unit, and Ted Turner resigned as vice chairman of the combined companies.

Both the AOL-Time Warner and Facebook-WhatsApp mergers predominantly used stock; both mergers were heralded as being transformational.

One merger bombed; the other one will as well.

In the fullness of time, probably sooner than later, the WhatsApp deal will likely yield a $19 billion write-off, mimicking the ill-fated AOL-Time Warner deal.

I use WhatsApp's product/service. It is an instant message chat room, literally nothing more and nothing less. I am not certain, but I believe WhatsApp has no revenue.

charts didn't come through, can send you the email if you want Phil, to post charts.  Very interesting.

Phil

Any trades on

Whole Foods Market, Inc. (WFM), drop on earning miss

Thanks

Phil,

/CL still playable at 100.68, or wait for the 100.75 line on the way back down? Thanks

IMGN/Pharm – back on my 'falling knife watch list.'  Getting back to put-selling zone?

Phil glade you put Wombat straight about his rabbit start on CZR after it cools down we land up with 20 again just in time for the next pair of shorts.

Phil – Geat calls on CZR !

Phil-

/cl -does 100.99 now look like a good shorting line, or is it still too soon to tell? If it is, are the bounce lines at .25 or .50?  I made the rookie mistake this morning of not cashing out a profit at 10:25AM as it hit 99.95 when you called it out, hoping to extend gains at 10:30 looking for your earlier target of 98.50. Within 3 minutes those gains had evaporated and I was lucky to get out even. So, that is a mistake that I hope never to repeat. I only share my shame for other new followers to learn from.  

/cl-looks like I have my answer! 100.99 would have been a good place to short again. 

craigsa620 – I got busted up today on /CL as well.  Comes with the territory.  I missed the 100.99 short and now it's in no mans land again at 100.65.

hey ant – i know you're in there ant. i can hear you breathing >>>

Phil,

I noted some odd behavior in the futures trades on oil this morning.  I have been in short and twice I have clicked the buy to close at a level which held stationary but my buy order did not fill. Each time it moved against me.  I reverted to the Flatten Now button to kill the trade and each time there was a delay of many seconds and I was out with a lower profit than anticipated.  This behavior has probably cost me $100 in potential profits.  Is this delayed response usual or do I have a problem with my feed? TOS says its realtime.  Makes me think I am being played…

sibe //  same prob
don't hit flatten though – it fills at mark, not limit. call the TOS desk and complain. I've had many a trade either broken or refunded.

/TF back at 1100

Phil pasteing

If you chech my post on oil, notice at the end "Now the facts on oil, etc." That was typed first, the begining was pasted but after my headline. It put the paste before and wouldn't allow me to go back and check where my headline went. Other times for the last weeek or so I could see what happened and move things around, today all I could do is submit.

Oil looking at 101, DOW up over 100 points, S&P green, and IWM heading for green. WTF is going on, you would think Yellen said something new or increased bond purchases. Fact is the economy is DEAD!

Shadow/ A friend of mine says that WTF stands for "Wow, That's Fantastic"!

Phil- I have a couple of questions for you. First is there is a huge disconnect between Dow and S&P vs. Nasdaq and Russell today. Which way would you play it? Who is leader and who is laggard? 

CMG- Still holding the June 515 calls and wondering when we roll if it doesn't improve markedly soon? Is 30 days before expiration a critical time frame? Don't we lose a lot to time erosion if held beyond that 30 day point or is this not the case? I still like this long term and just don't want to watch it become worthless. You probably answered this already in the past, but I can never seem to find what I want when looking through past comments. Thanks.

AIG – nice recovery today. makes you wonder 'WTF' was up with yesterday…

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