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Fabulous Friday – Markets at (yawn) All-Time Highs

Another day, another high.

We may be too bearish into the weekend now so we'll have to play an upside hedge (in addition to RSX, which has also popped since our pick) and we'll look for something during today's Live Member Chat Room.  Today's run-up may be nothing but we're breaking over technical levels that certainly LOOK bullish enough – especially on the Russell, where we've been shorting

This morning's rally is based on Chinese Import Data, which is up 19% from last year, which sounds very impressive until you realize that the Dollar was 10% higher vs the Renimbi last year, so half of that growth is currency-related – assuming the data is accurate in the first place – which is always a question with Chinese data.

Also, think of how many parts had to be imported to be turned into new IPhones last quarter – that too bumps up the import numbers.  It's not the Chinese consumers that are buying more stuff, it's the Apple assemblers.  China is also building things with Iron Ore Imports up 10.5% (more in-line with the actual growth) and Iron Ore prices have jumped up 10.5% (what inflation) in September alone, which is good for BHP Billiton (BPH), Rio Tinto (RIO)  and Vale SA (VALE) and VALE makes a nice, bullish trade as it's still under $10/share with almost $1/share in earnings for a p/e of about 10.  As a bullish economic trade we can:

  • Sell 10 VALE 2019 $10 puts for $1.80 ($1,800) 
  • Buy 15 VALE 2019 $7 calls for $3.20 ($4,800) 
  • Sell 15 VALE 2019 $12 calls for 0.85 ($1,275)

That's net $1,725 on the $7,500 spread so the upside potential is $5,775 (334%) if VALE is up 20% by Jan, 2019.  The downside risk is owning 1,000 shares of VALE at $10 plus the potential loss of $1,725 so net $11.75 makes this an aggressive play but anything over $10 means we do not get assigned the short puts and we're already $4,500 in the money to start the trade – that's fun!  

It's a sideways play on China and we may have to consider China's ETF (FXI) for one of our longs though China Mobile (CHL) is very interesting near $50 as well.  As I noted above, we are, if anything, over-hedged, so there's little harm that can be done by us adding some bullish plays – just in case this mad rally keeps plowing along.  It's easy to pick upside winners – that's monkey with dart-board stuff – the trick is to lock those winners in during a downturn.

Our next major economic concern is the ECB meeting on the 26th, where it's very possible they will cut their $72Bn/month QE program in half.  The ECB is one of the biggest buyers of debt in the World and liquidity could really begin to tighten if they cut back quickly (our Fed does $60Bn/month and is cutting $10Bn/qtr).  Another reason markets are rallying today is Abe is polling well in Japan ahead of their elections (22nd) - so easy money policies there are likely to remain in place.  

We got our own CPI this morning and it came in at 0.5% vs 0.6% expected and core CPI dropped to 0.1%, pacing us at 1.7% for the year, which means the Fed is under no pressure at all to raise rates and, it could be argued, need to do more to stimulate inflation.  Of course the CPI does not count the cost of oil, which is back at $51.60 this morning with Gasoline at $1.62, where it will make a great short later today (/RB).  Oil and gas are up because 20% of Gulf production remains shut in but, when you think about it – how is that bullish as we had a build in inventories anyway so, when the production comes back on-line, we'll have a huge glut.

The low CPI has dropped the Dollar 0.5%, back to 92.6 and probably heading a bit lower and that's boosting commodities and equities this morning.  Another thing knocking down the Dollar is Retail Sales, which were up 1.6% in September but 1.7% was expected and ex-Autos was only up 1%, which is disappointing with all that hurricane buying that was supposed to boost the numbers. 

Keep in mind those sales are up 1.6% from last month (led by Building Materials, which were up 10.7%), which was down 0.2% so up 1.6% from a lousy month is not at all impressive.  Also keep in mind that, last October, the US Dollar Index was at 103 and now it's below 93, so down 10% means we're spending 1.6% more Dollars and getting 8.4% less stuff – what inflation, right?   Retial Sales haven't been impressive all year but particularly not so in July, Aug and Sept, which are the months we're about to get earnings reports on – so we'll be keeping our hedges, thank you – it's just that we're going to hedge our hedges as well! 

^DXY Chart

The weak Dollar is also a major factor boosting the price of commodities and stocks – just like the weak Yen is over in Japan.  We'll have to keep an eye on earnings as well, as those tend to be skewed by Dollar moves and 10% down from last year's report can lead to some very serious distortions – yet lazy analysts will ignore this MASSIVE factor and continue to pontificate and extrapolate as if the primary tool they are measuring with isn't a variable – IDIOTS!  

Of course the good news is that our $20Tn National Debt is now $2Tn cheaper to pay off in constant currency – you can thank Trump for that!  

Have a great weekend, 

- Phil


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  1. This weeks webinar replay is now up!

  2. By Trump's measure, Obama reduced the deficit by $9T!

    This is great. It’s a whole new way of looking at the Obama era. Sure, federal debt went up by about $9 trillion, but the stock market went up by $18 trillion. That means Obama reduced our federal deficit by $9 trillion. Not bad!

    Thanks to Trump, I guess Republicans are going to have to change their tune about Obama. Not only did he guide us out of a huge recession, but he slashed our national debt by trillions of dollars. It’s an amazing job, really. Thanks, Obama.

  3. Phil,

    Nice call the other day on AAOI.

  4. Not everybody benefits from the stock market highs:

    Still, we need to reduce taxes on capital gains and dividends to help the job creators… People taking these created jobs, not so much!

  5. SPY volume this week may set a record low – 35 million Monday, 45 M on Tuesday and 47 M on Wednesday and Thursday. All of the future indexes (Russell, NAS, S&P, NYSE) finished yesterday below last Friday's close with the exception of the Dow.  Doesn't seem supportive of future records being set.

  6. Yes, I am confused why you say Russell is looking strong 

  7. Good Morning.

  8. Malsg – "A sitting U.S President attending a hate group as a key note speaker.  Wow, when the U.S falls you guys don't do half measures."

    As the Family Research Council says, (the group he is speaking to) it's all or nothing at all, half a gelding never appealed to me…  and we have an apropos theme song for this POTUS.  Enjoy and Out.

  9. Oil up on kurdistan tension I assume? should pass unless fighting breaks out im assuming. 

    Also, was listening to a podcast the other day with Mark Yusko (some hedge fund manager) and he was talking about how short VIX and VXX is one of the most crowded trades right now, thought it was interesting as I know several people on this board are in on that trade to some degree or another (I've considered it many times but just never pulled the trigger). 

    Interesting article to go along with the discussion:

    Yusko's opinion on the VIX trade didnt go into too much detail, he mentioned how it has been working but if we get a big selloff obviously it can quickly go against you in a big way. However he never really mentioned the decay inherent in the VXX so not sure if he's taking that into consideration, and with long options your downside is somewhat capped so maybe not a concern if you win on the trade several times and then eventually take a loss when it finally hits the fan? 

  10. Good morning! 

    Crazy action on /TF again:

    Dow heading more straight up:

    /CL and /RB dropping already.  

    Thanks Baron.

    Records/Den – Who knows, maybe we can drive the volume even lower while the markets go higher.  If we have no more sellers – the market can fly!  blush

    Russell/Latch – Look on the Big Chart – over 1,512 is a break up.

    VIX/Crs – Ever lower on that one.  

    Of course, they said that in Aug too

  11. Oct 20 VIX $38/42 spread is almost wiped out??? Any salvage?

  12. fat fingers…Oct 20 VXX $38/42 spread…Any Salvage??

  13. ok I'll say it:

    FU TEVA   52 week low

  14. Maya

    Thank you for T  info

  15. RB do you like short under 1.60?

  16. Phil

    Good morning!

    What is your take on AT&T here? Do you think they reverse the subscriber loss trend or is their bacon cooked, with new alternatives in both cellular and TV.

    Would you buy or perhaps wait for $33? 

  17. VXX/Millard – No, I missed the adjustment so all we can do is roll the short puts.  At least it was a credit spread.  

    /RB/Dreamer – That's a bouncy line but you can play it that way with very tight stops or below with very tight stops – tricky on a Friday.  That's why I was hoping we'd go higher into the weekend and then we could have shorted at $1.625 or something.  

    T/Maya – I like them in the low $30s but no hurry.  Consider all the storm damage costs they have to warn about.

  18. RSI on the S&P is a little bit concerning:

    ^SPX Chart

    ^SPX data by YCharts

  19. Europe had pinned finishes:

  20. RSI Phil – The previous time we were at these levels we gave back 1-2%! This market will not correct ever anymore. Might as well face the facts.

  21. GM must be becoming a "data company" lol

  22. Yeah I guess better to wait it out and be patient.

  23. bitcoin crossed over $100B. sell all now. Don't get greedy. Just IMHO of course!

  24. So, anyone know what Donard Rump means by "disavow but not quit" the Iran deal?

    Yeah, me either.

  25. Perhaps this is the "storm" he was referring to. Making me seasick…

  26. muck - same as "disavow but not quit" his nazi base

    wow – CLF! :)

  27. blimey oh crikey on CLF

  28. brokerage consolidation: optionsxpress bought by chuck, scottrade bought by TD ameritrade. sharebuilder bought by capital one

  29. albo:

    I noticed you are up 12%!  Good job!

  30. Thanks !

    I didn't even know that I was trading. 

  31. Correction/StJ – It usually comes right after we give up.

    Bitcoin/BDC – Yeah, I'd diversify into the top 10 behind them at this point.  If they go legit over $5,000, others will gain interest again.

    Iran/Mkucs – He's speaking again, I guess no one knew what he meant before. 

    CLF/Malsg – Nice move!  Long way to go still.

    • Bank of America, Wells Fargo, and PNC Financial this morning joined Citigroup and JPMorgan in topping analyst estimates.
    • Lest we forget, markets anticipate, and the whole banking group has been on quite the run (up more than 10%) since Labor Day. Investors yesterday and today are selling the news. The major averages are modestly higher, but KRE and KBE are each down more than 1%, and XLFis lower by 0.55%.
    • Wells Fargo (WFC -3.4%) is being hit the hardest as investors take note of an unexpected shrinkage in net interest margin. As for reverberations from the account opening scandal, primary consumer checking customers fell 0.2% Y/Y, but total deposits grew 4%. Debit card POS purchase volume rose 5%, and credit card POS purchase volume rose 4%. Q3 quarterly supplement

    • The total U.S. rig count fell by 8 to 928 following last week's decrease of 4, recording its fifth decline in the last six weeks, Baker Hughes reports in its latest weekly survey.
    • The oil rig count fell by 5 to 743 and gas rigs tumbled by 2 to 185; one rig was classified last week as miscellaneous.
    • U.S. crude oil maintains earlier strong gains, now +1.7% at $51.46/bbl.
    • Retail stocks are posting some solid gains after a healthy mix of economic news.
    • Consumer sentiment blazed hot, while retail sales posted the strongest month-over-month gain since March of 2015.
    • Department store and apparel chain stocks in particular are in recovery mode. Gainers include J.C. Penney (JCP +3.1%), Macy's (M +1%), Dillard's (DDS +3.5%), Sears Holdings (SHLD+5.2%), Buckle (BKE +3.3%), Urban Outfitters (URBN +3.3%), Tailored Brands (TLRD +3.6%), Gap (GPS +2.2%), L Brands (LB +2.1%), Tilly's (TLYS +2.2%) and Chico's FAS (CHS +2.6%).
    • Previously: Retail sales up 1.6% in September (Oct. 13)
    • Retail sales were stoked in September by strong demand in the automobile industry as hurricane replacement activity accelerated.
    • The building materials category (LLHDLOW) also saw a hurricane-related bounce, with sales up 2.1% M/M and 10.7% Y/Y.
    • Negative sales growth was seen in the electronics (BBYGME) and sports goods categories (DKSHIBB, SPWH]]), while the health/personal care category (ULTASBHWBAELF) also disapponted.
    • Nonstore retailer sales [Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) and gang] were up 0.5% M/M and 9.2% Y/Y.
    • Overall, retail sales were up 4.4% on a year-over-year comparison during September, with 8 categories out of 13 showing positive growth.
    • The chief economist of the University of Michigan Surveys of Consumers delivers positive news to the retail sector on consumer sentiment into the holiday season.
    • "The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid 2018, which would mark the 2nd longest expansion since the mid 1800's," says UofM's Richard Curtin.
    • "While the early October surge indicates greater optimism about the future course of the economy, it also reflects an unmistakable sense among consumers that economic prospects are now about as good as could be expected," he adds.
    • The measure on current economic conditions soared to 116.4 from September a year ago, while the index of consumer expectations blazed to 91.3 from 84.4.
    • The red-hot reading bodes well for retail spending, although pricing pressure in many categories could hold back the dollars generated from the volume gains. Most estimates for 2017 retail holiday sales are falling in the 4.0% to 4.3% range.

    • Qualcomm (NASDAQ:QCOMfiles suit in China seeking to ban the sale and manufacture of Apple (NASDAQ:AAPL) iPhones in the region, according to Bloomberg.
    • The move is the latest in a long legal battle between the supplier and Apple. Qualcomm previously requested an iPhone ban in the United States. 
    • Story developing and will update when more information becomes available. 
    • Previously: Qualcomm wants a court to block iPhone imports, sales (July 6)
    • Shares of steelmakers are on the move after Japan's Kobe Steel (OTCPK:KBSTFOTCPK:KBSTY) admitted its data cheating may have spread beyond the country to affect ~500 companies, sparking global supply chain concerns.
    • "If you think of any other competitive industry in the commodity business, if one of the major players were knocked out it's looked at as potential for supply disruption which benefits the other players," says Wunderlich's Art Hogan.
    • Also, Chinese finished steel exports in September fell 42% Y/Y to the lowest level since February 2014, which KeyBanc's Philip Gibbs says is encouraging for global supply side dynamics.
    • CLF +9.6%MT +7.5%X +7.1%AKS +5.1%NUE +1.4%RS +1.4%STLD +1.3%WOR+1.3%CMC +1.2%.
    • Shares of steelmakers are on the move after Japan's Kobe Steel (OTCPK:KBSTFOTCPK:KBSTY) admitted its data cheating may have spread beyond the country to affect ~500 companies, sparking global supply chain concerns.
    • "If you think of any other competitive industry in the commodity business, if one of the major players were knocked out it's looked at as potential for supply disruption which benefits the other players," says Wunderlich's Art Hogan.
    • Also, Chinese finished steel exports in September fell 42% Y/Y to the lowest level since February 2014, which KeyBanc's Philip Gibbs says is encouraging for global supply side dynamics.
    • CLF +9.6%MT +7.5%X +7.1%AKS +5.1%NUE +1.4%RS +1.4%STLD +1.3%WOR+1.3%CMC +1.2%.
    • Restaurant same-store sales decreased 1.9% Y/Y in September, according to data from Black Box Intelligence.
    • Comparable traffic was 4.0% lower during the month. California outperformed the rest of the U.S., with a traffic drop of only 2.2%.
    • Blackbox notes the marks aren't as bad as they look at first glance due to the significant impact of the hurricanes at the beginning of the month.
    • Ray Dalio's shop has mounted a $713M wager against five Italian banks and one insurer, according to a Bloomberg story.
    • That Italian lenders have a lot of bad paper on their books isn't exactly old news, and one analyst suggests Bridgewater appears late to the party. Italian banks were among Europe's best performers in Q3, but have given back 4% in the last few sessions after the ECB announced tougher provisioning standards to kick in next year.
    • Dalio's largest bearish bet is against Intesa Sanpaolo (OTCPK:IITOF), followed by Unicredit (OTCPK:UNCFF).
    • Meanwhile, Jim Grant wonders if Dalio isn't spending too much time on Twitter and in promoting his book at the expense of running his firm. He also takes note of some odd goings-on at the $160B hedge fund giant.
    • KGI Securities analyst Ming-Chi Kuo thinks Apple (NASDAQ:AAPL) will move away from Touch ID entirely in favor of facial recognition. 
    • Kuo says the iPhone X’s TrueDepth cameras and Face ID will help the company “capitalize on its clear lead in 3D sensing design and production for smartphones.” 
    • Despite the production delays due to a 3D sensor component, Apple’s move into recognition stands apart from the 2D facial recognition offered by some Android models, which is easier to trick. 
    • In other positive Apple news, Kantar data shows that iOS usage grew in August. The U.S. market share hit 35%, up 3.7 points on the year. Market share did drop 2 points in the UK due to Samsung competition.
    • Apple showed notable market share growth in China, up 4.3 points to 17.7% in a region where the company has struggled to gain a foothold.  
    • Previously: Nikkei: Apple's iPhone X still facing production delays (Oct. 12)
    • Previously: OLED prices will drop in 2019, potentially hurting Samsung (Oct. 12)
    • Netflix (NASDAQ:NFLX) shares are up 1.6% premarket after price target increases at JPMorgan and Goldman Sachs.
    • JPMorgan raises Netflix from $210 to $225. 
    • Goldman Sachs raises its price target by $35 to $235, which marks a new Street high. 
    • Analyst Heath Terry thinks the market has underestimated Netflix subscriber numbers for the current quarter “and beyond.” 
    • Terry expects Netflix to add 13.9M net subscribers in 2H of 2017 compared to the 10.8M consensus. 
    • Netflix reports Q3 results on October 16.      
    • Previously: Teenagers pick their favorite brands (Oct. 12)
    • Mizuho's Sheryl Skolnick says the Trump administration's plan to end cost-sharing subsidies to health insurers will weigh on hospital operators saying Q4 and 2018 estimates are "likely too high" adding, "the effect of the order is likely to be profoundly destabilizing, disruptive and potentially materially damaging to hospitals and those exchange plans who are still required to offer benefits."
    • She says the change could motivate (NYSE:HCA), the largest publicly traded hospital chain in the U.S., to go private while further tarnishing the credit quality of operators like Tenet Healthcare (NYSE:THC), Community Health Systems (NYSE:CYH) and Quorum Health (NYSE:QHC).
    • Evercore ISI's Michael Newshel says Trump's executive order is "likely not the final word" on the issue since bipartisan talks to appropriate funds will probably be pushed forward and lawsuits should keep the money flowing. He also believes the move Is a "blow the market could ultimately absorb" since insurers have been exiting the market and have assumed the end of subsidies in their 2018 rate hikes.
    • Leerink's Ana Gupte says the order is most bearish for Centene (NYSE:CNC) considering that ~15% of its earnings are through Obamacare exchanges.
    • Source: Bloomberg
    • Wells Fargo warns that Chipotle (NYSE:CMG) is likely to lower EPS guidance for 2018 and 2019 by a sizable amount due to the "lingering food safety headwinds and a perceived lukewarm initial consumer reception" to the queso introduction.
    • Analyst Jeff Farmer thinks the erosion of Chipotle's comparable sales and restaurant-level margins make it hard to justify the valuation on the restaurant stock.
    • Sources: CNBC and Bloomberg
    • CMG -0.05% premarket to $314.00

  32. Well, I've been looking for something bullish to play and I find it interesting that Services (IYC) are lagging by quite a bit.

    Materials we have but Consumer Services are interesting and IYC's top 10 holdings are 47.5% of assets:

    Top 10 Holdings (47.46% of Total Assets)

    Get Quotes for Top Holdings

    Company Symbol % Assets Inc AMZN 12.32%
    The Home Depot Inc HD 6.20%
    Comcast Corp Class A CMCSA 5.82%
    Walt Disney Co DIS 4.73%
    McDonald's Corp MCD 4.08%
    Wal-Mart Stores Inc WMT 3.68%
    The Priceline Group Inc PCLN 2.89%
    CVS Health Corp CVS 2.66%
    Time Warner Inc TWX 2.56%
    Netflix Inc NFLX 2.52%

    It's a good collection and you'd think they'd get more action and, if the market is going to keep going – I'd say they have a good chance at moving higher.   Unfortunately – no options and $165 so we won't be playing it in our portfolios.  UCC is an ultra-long ETF for IYC and that's $68.50 but also no options and very thinly traded.

  33. Latch – RIG — the breakeven is NOT $50 for Deepwater operators — more like $60.

    My two cents, generally true, however of late BEP's are coming down.  And it REALLY still depends on where, what and how. Location, nature of the project, age of the asset, the commercial, tax, and regulatory regime it resides in, all can make a substantial difference in break even costs. 

    Avg BEP for deepwater (DW): GOM $37; Lower tertiary $55 avg; range 42 – 88. NWEuro conventional DW 30; heavy crude 47. LatAm conventional DW 32; ultradeep 49. SEAsia DW 56. WAfrica DW and UD 54.  

    Some GOM DW project BEP's have gone from 70 to 50.  Mad Dog Phase 2, Kaikias and Leviathan are all under 50, and a new Shell DW project hit 40. Assume an NPV15% internal rate of return hurdle. 

    How? Crack that whip… UD drillships are getting $420K daily rate. Re-eval of project design, improved well performance, scaled down projects emerge with less wells, more subsea tie backs, and reduced facilities and capacities, all translating into lower break evens.  Time for my IV and Out.

  34. UBNT   nice move today – back above the Citron report

  35. CMG making a big move today, only news I saw was a hold rating with downside of 20% expected.  Still waiting on earnings before jumping in on them, most likely on the short side if it continues up.

  36. phil / bitcoin – I could see ETH doubling from here

  37. BDC,

    How do you buy ETH?

  38. UBNT/Stock – Time for Naybob to take a victory lap on that one.  

    CMG/Rustle – Odd after the downgrade and warning but I guess not worse than expected.  FB partnering with everyone, not just CMG.  

    ETH/BDC – If Bitcoin keeps going up, yes, they should move right after it.

  39. /TF is in the red – that's encouraging at least.  

  40. Selling off into the close but nothing bad.  

    Have a great weekend folks!  

    - Phil

  41. SPY  volume comes in at whopping 48 million

  42. There was another shot at shorting /RB at $1.625, now $1.6215 

  43. Phil – "UBNT/Stock – Time for Naybob to take a victory lap on that one."

    Thank you. Wheeeee!!! Speaking of squealing like a pig being led to slaughter, for no reason in particular, UBNT dropped 8% in the 4 days PRIOR to Citrons report being released. Who knew? Somebody along with Citron made a killing on that one, total 21% down and back, 42% round trip in 23 trading days.  On behalf of all the little guys that got shaken out or panicked, no one will bother to investigate and Out. 

  44. Santa Rosa comes to terms with the scale of devastation: 3,000 buildings lost, many dead in fire

  45. AP FACT CHECK: Trump offers questionable reading of Iran

  46. North Korea says it will bomb Guam if Trump keeps tweeting threats

  47. I could not fail to notice the other day the remark of one of our members about the now Clown president.

    I see here on our site, every third news comment is about Trump, an all of them are actually negative.

    The Iran deal really takes the cake. You guys have a very very sick and mentally insane CLOWN.

    There are regretfully many shootings in the US.

    But I fail to see one brave Man.

  48. Yodi – "But I fail to see one brave Man."

    That's the problem, few and far between, a dying breed.

  49. good morning.

  50. ALL – a $10 Million Dollar Reward has been posted for information leading to the impeachment and removal from office of POTUS Trump.  Get to work and Out.

  51. Good morning!  

    Only about 24 more Mondays to go, thank goodness -  what a waste of time!  

    I'm having a late start because Maddie and I were checking out colleges over the weekend.  I don't understand how regular people can put their kids through college.  Everything is a fortune, housing too!  

    Indexes looking flattish at the moment.  

  52. The list of tasks that Congress has to deal with is daunting, even under the best of times. Humpty Dumpty is going to have a big fall.