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!
That'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.
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!
Great bit on the Daily Show about the what can now only be described as complete idiocy over Benghazi:
The Daily Show
Get More: Daily Show Full Episodes,The Daily Show on Facebook,Daily Show Video Archive
The Daily Show
Get More: Daily Show Full Episodes,The Daily Show on Facebook,Daily Show Video Archive
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.
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/
FSLR $75 calls not dropping as fast i had expected!
Hillary/1020 – They're going to have to find a new tune by then. Probably they won't – it's not like they are very creative people…
Amazing/StJ – Stewart does a great job of pointing out the ridiculous hypocrisy of the thing. To some extent, that's the problem with the Democrats – they don't go for the throat when the GOP gets caught being evil – they just let it go as if it's so obvious, nothing needs to be said but nothing is obvious to heartland voters. The GOP gets that and the Dems don't.
Also:
Demographics/StJ – Have I mentioned I like IRBT lately?
TSLA/Jabob – I suppose, if it would help you sleep better, the Jan $275/325 bull call spread is $6.30 and the net delta is just 0.13 so a $40 drop in TSLA (20%) would cost about $4 against $44 of upside protection. Anything up or down 10% and the insurance probably only costs you $2.
China/StJ – They could, of course, fix this problem by adopting a 3 child policy. It would take just 20 years for them to have a couple of hundred million more young workers. Cheaper than robots!
Gotta switch to Bloomie for Yellen.
18 handle on TZA
Sent from Bloomberg for iPad
Watch this video at http://bloom.bg/1uzsvnw
You’ve Heard of Alibaba… but How Do You Use It?
May 7 (Bloomberg) — Chinese internet giant Alibaba filed for an IPO on Tuesday in what could be the largest U.S. initial public offering ever. It’s been labeled the Amazon of China by some and does business in everything from online payments, music streaming, cloud services, to e-commerce. Bloomberg’s Willem Marx answers The Big Question: How do you use Alibaba?
Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8
/TF crushed
Wow, what a ride! Gotta take some profits off the table on the Futures shorts – people don't like Janet's testimony but she can still pull it out with the Q&A.
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.
CZR/Burr – ROFL, debt problems vanish with the stroke of a pen.
Good time to reflect on my answer to Wombat's question re. the Butterfly trade on CZR, when he wanted to roll the $20 short puts because they were in the money:
The key is to have a VALUE in your head for the stock you are trading and not worry about the PRICE of the stock from day to day. We've been playing CZR for years now – I think we're getting the hang of it.
Oops, forgot about oil in all the excitement – Net neutral on inventories is better than a build for the bulls but the build in gasoline has to be a concern. Oil back to $100.40 on the news but let's see where they go before we short again.
Good point Shadow.
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.
Wow, very quick $1,000 gain on /TF at 1,100!
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.
Pasting/Shadow – Didn't your Mom tell you not to play with glue? I'm not sure what you mean by that, could you clarify?
TASR/DM – See above. How else are you going to control 200M marching Chinese workers?
Kass/Rustle – I was going to say that was nice and succinct but then I read the 2nd part. Good commentary though. Sure, I'd love to see the charts.
WFM/QC – Falling knife at the moment. Slower growth and margin compression not a good combo and, as I have said for many years (since we used to short them when they were $40 (post split) back in 2006 – it's just a friggin' grocery store! Grocery stores shouldn't have p/e's in the 30s, no matter how fast they are growing because, in the end, they are still grocery stores. $30 would be a nice price for them now but $38.50 isn't too exciting until they prove they can take back $40 and hold it.
Oil/Jasu – Yes, we just tested $101 and of course still a short with tight stops over the .50 lines ($101, 100.50…). It's a very rough ride to play with conviction but I don't have time to do hit and run during the day. Right now I'm 2x short at $100.68 avg.
CZR/Yodi – That's what we like about them, the constant up and down action makes for very high premiums in front-month puts and calls to sell.
Thanks Albo.
Oil/Craigs – Yes, when our bias is down, we are usually willing to get in at any .45 line ($100.45, $100.90, $101.45, $101.90) with .10 or .15 stops over the .50 lines. Greed KILLS you in this game. Getting out even after showing a loss is a victory – you have to learn to accept those. Thanks for sharing, it is very helpful to others.
No man's land/Burr – That's my average entry! Back to 1x, of course and now, if they go back to $100.95, I can DD again and my average goes up to $100.80ish. We discussed the conviction short yesterday, the risk is losing $2,500 if oil goes up $1.50 ($101.50) without a pullback but, as it stands now, my 1x is up to $100.68, a full $1 improvement over my initial conviction entry at 2:48 yesterday and I'm still even! That means, if I do get it right, I now stand to make $1,000 extra per contract on a dip. May have to wait until after nat gas inventories tomorrow, though…
Plan the trade – trade the plan!
I love Bernie Sanders, he sounds like the Aardvark from the Pink Panther cartoons.
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
You are absolutely being played, Sibe! 95% of the orders you see are fake. I demonstrated this to people in Las Vegas a couple of years ago. It's not your imagination, they are out to get you! That's why when I do my futures trading, as you can see in the live broadcast, I don't use heart stops and I often let the spike run past my limits. Sometimes it cost you money, sometimes it makes you money – with practice you get better at telling which is which (hopefully).
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…