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TGIF – Market Rally Will Finally Rest Over the Weekend

Wow, what a week!

With these wild swings, there's money to be made on the long and the short side of the market.  This morning, I called for shorting Nasdaq Futures (/NQ) at 6,850 and we just cashed out our Gasoline (/RB) shorts with a nice profit and now we're shorting Oil (/CL) from $63.60, for reasons I will get to shortly (get it? "shortly"!).  Hey, it's Friday, cut me some slack…

We caught nice dips yesterday with our Morning Report's call to short the indexes saying: 

Up and up the markets go but we see shorting opportunities this morning IF we cross back below Dow (/YM26,100, S&P (/ES2,800, Nasdaq (/NQ6,810 and Russell (/TF1,585.  The rule of thumb for shorting the futures is wait for 2 to cross below and then pick the next one that crosses and keep very tight stops back above the line and if ANY of the indexes go back above their line – kill the trade and wait for the next set-up.

As you can see, any of the indexes made nice gains – and that's PER CONTRACT on the Futures.  It's not as easy to make the call on a Friday morning but, as I noted, we did short the Nasdaq and we'll be adding a Nasdaq hedge to our Short-Term Portfolio to help lock in some of the gains we've made in the Long-Term Portfolio.  Our primary hedge in the Options Opportunity Portfolio is the Russell, using an Ultra-Short (TZA) spread to lock in those gains. 

Getting back to Gasoline (/RB), hopefully we won't regret taking a quick $5,000 gain off the table this morning at $1.865 (we still have 2 short at $1.87) but, as I often say to our Members, if you can't be satisfied making $5,000 daily gains ($1M/yr pace) – then maybe you need to play roulette instead of trading stocks.  

These are not, by the way, portfolio trades.  Our portfolios are managed to generate steady, sensible, reliable, long-term returns.  Futures trading is what we do for fun with a very tiny portion of our CASH!!! while we wait for our long-term positions to mature.  Unfortunately, since they move all the time and are short-term trades – we tend to talk about them more while our long-term trades are generally "set and forget."  For example, here's the short puts we've picked up this month in our Long-Term Portfolio:

It's only been two weeks but already our short puts are up net $2,750, adding half a percent to our portfolio simply because we are promising to buy the above stocks – if they get significantly cheaper.  If all goes well, we will either get to buy the stocks cheaply when the market finally sells off or, if it doesn't – we will keep the $38,700 which will add almost 8% to our Portfolio over 2 years.  It's almost like we can't lose!  This is a strategy we discussed in detail in: "2018 Tuesday – How we will be Building our New $100,000 Portfolios".  

Keep in mind, the above trades will make an additional $35,950 from here so of course they are good for new trades – even if you missed the original calls.  From that same Report, we had two long-term trades – one that went well and one that did not so let's look at them:

  • Sell 10 AAPL 2020 $140 puts for $9.50 ($9,500) 
  • Buy 10 AAPL 2020 $150 calls for $35 ($35,000) 
  • Sell 10 AAPL 2020 $180 calls for $20.50 ($20,500) 

Apple (AAPL) has blasted higher and already the short $140 puts have fallen to $7.65 ($7,650) and the $150/180 bull call spread is now $16 ($16,000) for net $8,350, which is up $3,350 (67%) in two weeks.  See, you don't need to day trade to make fast returns – a solid long-term investment, when you time it right, will do just as well as a short-term trade, when you time it right.  The difference is, when you don't time it right, the long-term trade has plenty of time to recover and can be adjusted whille the short-term bets expire worthless, like losing tickets at the track.

Speaking of adjustments, our other trade idea may need some:

  • Buy 1,000 shares of F for $12.49 ($12,490) 
  • Sell 10 2020 F $12 calls for $1.50 ($1,500) 
  • Sell 10 2020 F $12 puts for $1.50 ($1,500) 

It should be noted that we didn't actually make the Ford (F) trade, as we decided to wait for a pullback so NOW we are entering it but, assuming we went with the trade idea from the 2nd, the stock is down to $12.07 ($12,070) and the $12 calls are now $1.40 ($1,400) and the $12 puts are $1.90 ($1,900) so net $8,770 is down $720 (7.5%) and not really worth adjusting.  We still like Ford for the long-term and they do also pay a 0.60 dividend and, even if we are assigned another 1,000 shares at $12, our original cost was net $9.49 so we'd have 2,000 shares at an average of $10.74, less $1.20 in dividens we'll collect over two year puts us in at $9.54 and we'd LOVE to own 2,000 shares of F at $9.54 so why would we worry about $12?

Being a long-term investor doesn't just make you money – it makes you happy as well.  There is so much less stress to managing long-term positions and they make just as much money over time as the most fanatical day-traders – without all the craziness.  I know some of you are adreneline junkies who love the craziness but, as I said, we amuse ourselves day-trading futures but we do it knowing we have good, solid, long-term positions that are constantly generating profits (through premium sales) – no matter how our day-trading goes

We are not options strategists, we are fundamental investors who use options to leverage and to hedge our positions.  Our goal is to make trades where the reward is 2-3 times the risk and, if we keep our allocations consistent, then we only need to be right half the time to do very, very well.  It's a simple enough strategy, but it works very well so we don't see any need to change it.

We should get another chance to short gasoline and short the Futures at yesterday's lines when the markets pop at the open (it's a Friday thing).  This is very dangerous into the weekend but I laid out our reasons for shorting the indexes yesterday and, this morning, I said to our Members (at 6:27am) re. shorting Gasoline (/RB) at $1.875:

/RB hit $1.865 but back to $1.875 at the moment, /CL at $63.60 and I'm liking that short now with a stop over $63.75.  There was a note from IEA that US could become the World's largest producer of oil this year and also this:

UPDATE: U.S. Oil Output Expected to Surpass Saudi Arabia, Rivaling Russia for Top Spot…

Iraq’s Crude Oil Production Capacity Could Hit 5 MMbpd

And we already know the apparent US gasoline demand is driven by our exports:

Image result for us gasoline exports 2017

I don't know, I guess I put too much faith in reality coming into play at some point…

If they keep giving us these set-ups, we'll keep buying the shorts!  

For the Futures-challenged, you can play gasoline short with the Gasoline ETF (UGA), which is at $33.42 and, very simply, we can pick up the Feb $35 puts for $2, which has just 0.42 in premium betting UGA goes lower over the next 30 days.  A dip back to $32 should give you a 0.75 gain (32.5%) very quickly and, if UGA goes over $34, then it's a loser and we cut and run with, hopefully, an 0.40 (20%) loss or less.  That's 1.5x reward to a 1x risk BUT, UGA could go much lower so the potential reward is much higher than the risk if we stop out at $1.60.

Have a great weekend,

- Phil


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  1. Done with /RB shorts at $1.8515 – congrats to those who stuck it out.  Oil is hitting $63 and will likely bounce so I'm just getting out while I can.  

    Same with /NQ as we test 6,825 – that's plenty for the morning.  

  2. Blaming the Dems is getting harder now that they can't even get 50 GOP senators to vote for the stupid budget continuation. And why do they need 60 votes, well….

    But it’s worth pointing out why it’s happening now. It’s because appropriations are normally handled via reconciliation, which allows the majority party to pass them with only 51 votes. This year, however, Republicans decided to use the 2017 reconciliation bill for repealing Obamacare and the 2018 reconciliation bill for passing their tax bill. So there’s nothing left, and that means they need 60 votes in the Senate.

  3. Phil, Any interest in SO; Initial Sale of 5 contracts 2020 $40 Puts for $3 or better. Thanks as always

  4. Good Morning… IBM reported.  Too bad they are not falling more than 4%.   Though I think we will get another opportunity. 

    Despite growth in revenues, gross margins dipped a bit from cloud services mix and their 2018 tax rate is actually going up from 12% to 16% (reduced foreign tax credit utilization – go figure).  Guidance for 2018 EPS for at least @$13.80 was shy of consensus @$13.92

  5. Wonder if that's true because security is supposed to be one of the components:

    In less than a decade, hackers have stolen $1.2 billion worth of Bitcoin and rival currency Ether, according to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP. Given the currencies’ explosive surge at the end of 2017, the cost in today’s money is much higher.

    “It looks like crypto hacking is a $200 million annual revenue industry,” Sokolin said. Hackers have compromised more than 14 percent of the Bitcoin and Ether supply, he said.

    All told, hacks involving cryptocurrencies like Bitcoin have cost companies and governments $11.3 billion through lost potential tax revenue from coin sales and illegitimate transactions, according to Susan Eustis, chief executive officer of WinterGreen Research. The blockchain ecosystem — the decentralized “distributed ledgers” that track crypto transactions — is also vulnerable. 

  6. Good Morning.

  7. I reshorted /NQ at 6850.

    Go again with /RB at 1.875? I don’t really like being short these things over the weekend so holding off at the moment. 

  8. Phil / BAC – seems to be doing well,  has had a good run…. I've been out of this for a while but with tax changes and fed rate increases this may be the best of the bunch.   They have had a good run up and it may be a stretch to see 35 or 40, but …..  Any thoughts on this?

  9. BDC – Thanks for your comments on GCAP.   It looks like a reputable company with a possible upside kicker.  One to keep an eye on.

    Re: KODK.  Not really willing to own much stock at this level.  But I'm short quite a few of the July 5 puts for a possible high 3 entry.  Also short a few of the July 7.5 put, but not as many.

  10. Sold some IBM Jan 2019 150 puts.  Not ready to start a BCS yet, but ok with the short puts.


  11. albo, do you have a target price on QUIK?

  12. Good morning!  

    Watch the 10% line closely on the RUT (1,584, but we'll use 1,585), for indicator as to whether it's a good time to short (so far – not).

    SO/Jasu – My issue with utility companies is they are losing customers to solar (and can't get new ones) and they have coal and soon nuke plants to decommission as they too have to switch to wind/solar so, lots and lots of up-front costs vs no gains in revenues (they have to petition government to raise fees, which drives more people to solar) so I just don't like the whole sector this decade.  

    Now, when LMT rolls out Fusion reactors in two years, if they aren't too expensive, the game will shift back to the guy who owns the transmission lines and can distribute lower-cost electricity.

    IBM/Learner – Very solid report, good for $200 in 2020 (p/e 15).

    Crypto/StJ – It's not that secure and, once we have quantum computers, it's not going to be secure at all.  Gold anyone?

    /NQ/Jeff – Good job.  Watch that bounce at 6,325.  

    /RB/Jeff – I have to, the fundies are so against it (oil too) at this level.  

    BAC/Batman – I love them but not cheap (was our 2012 Stock of the Year at $5) so I simply don't play.

  13. GE getting clobbered again. Ouch!

  14. F'ing /KC again.  I could retire and just play this one:

  15. Thanks Phil, I took /NQ off at 6830 because any more would've made me greedy.

    Missed /RB but if they push it up again, I'll put 1x on for the March contract. 

  16. Phil / BAC – thanks…. I'm setting an alert for 29…. maybe sell some puts..

  17. Phil… related to Batman's question on BAC, yes they appear expensive right now.  Are there any banks that you like to invest right now for a 2020 bcs time frame ? perhaps insurance cos or regionals?   Given that interest rates are going up this could be a longer term bet with some improving fundamentals over time.   

  18. Phil, Thanks on SO; Looking to F again as my 2019 F 11.75 P's expire worthless…..

  19. Jr-mints – One of my sources, Rivershore Investment Research, has a 2018 $3.50 target.  Here is their slide presentation at yesterday's Needham Conference.

  20. Phil, StJL, BDC – Stack Programmers. What follows came in my inbox this AM, and I am not making this up, serendipity??  I have embellished the sales pitch italicized to fit someone dear to Phil's heart. The descriptions and PRICES are untouched and real, INSANE that is. The names have been changed to protect the innocent??

    Good Morning, Trust this mail finds you in the best of spirits. If you need programmers, we got programmers and more. My name is Gideon. I'm from Crazy Gideon, and we are crazy. Why crazy? Because my price is crazy.

    At RUssian Homeland Remote Outsourcing Help – RUH – ROH, we build team and deliver projects along with our customer.  Remote Dev Ops team: This is how your team will look like (minimum config at US$ 11.50 per man hour).

    1) Dedicated Full Stack Programmer(FTE)- 176 man hour a month

    2) Shared Business Analyst – 40 man hours a month

    3) Shared Project Manager- 10 man hours a month

    It comes at a Total cost 2600 US$ per month.

    You heard right $11.50 PER HOUR, I'm insane, that's less than burger flipper and many Walmart employees cost. While you can get a great value with Remote Dev Ops team. What really matters is the SOLUTIONS Delivered to our Customers, and here are a few example:

    - Route Management System used by Delivery Vans, for a Large Waste Management client in North Carolina

    - Ecommerce portal Architected on the latest Angular and MVC for a Publishing client in Florida

    - End to End IT support services for all Net custom apps across 3 countries, for a Garden Equipment Manufacturer in California

    We bring flexibility ON DEMAND with add on Team resources, these wild and crazy guys are available (on T&M) for any spike in project load. Add on team resources could be a Quality Analyst, Test Engineer, Technical Writer, UX Analyst, Additional Programmers, Tech Analyst and Tech Lead.

    All these high tech IT services delivered crazy cheap along with moose and squirrel since 1995, to American's too busy sacrificing their future at the altar of money, to care less.  If you don't buy from Crazy Gideon, you have a problem with your head.  

    And now back to Movies Till Dawn with your hosts Old Sourdough and Wachikanoka. Brought to you by MMM Carpets, where "going out of business" is every day of the year, and coming soon to an American business near you.

     One can laugh or cry, I don't know which to do and Out.

  21. Thanks Phil and BDC

    lol Obama's fault for govt shutdown—whats new

  22. GE/Jabob – Our first FU stock of 2018!

    How Analysts View General Electric ahead of Its 4Q17 Earnings

    Futures/Jeff – Sounds like you are playing sensibly.  /TF is the fresh horse now at 1,594 and, of course, 1,600 is a stop-out with a $30 per contract loss.  

    You're welcome Batman.

    BAC/Learner – I haven't gotten there yet.  Last time I looked, it was Canadian banks that looked more reasonable but I'll look again once we have more bank earnings. 

  23. FU GE!!!!!!

  24. FU Makan Delrahim!!!!

    ~~Justice Department’s antitrust division may sue generic pharmaceutical companies as part of a criminal investigation into possible price-fixing in the industry, the division’s chief Makan Delrahim says.

    * If taxpayers were overcharged because drugmakers conspired to raise the price
      of drugs, DOJ will consider suing to seek damages, Delrahim said Friday.
    * Delrahim spoke at George Mason University’s law school in Va.
    * The antitrust division and state attorneys general have an ongoing probe into
      whether generic-drug firms have engaged in price-fixing.

  25. Crypto / Phil – Once we have quantum computers, you might be able to mine a bitcoin every minute! I guess people at the NSA will have first dib so we can start reimbursing our debt with crypto then…

    Of course I don't know specifically if quantum computers are optimized for mining!

  26. Futures/Phil

    Yes, playing sensibly.  Over the years here I've learned the hard way.  Nearly 5k today for me so I'm done. 

  27. Phil/GOGO

    I have May 7 calls that I paid 4.6 (now 3.45) for and sold May 10 puts for 1.25.  I had intended to sell the May 12 calls but GOGO never popped and now I'm looking for a roll out to a longer date. 

    I am thinking to roll this out to 2020, and sell the 10 puts for $4, and buy the 8 calls for $4.2, then sell the 15 calls for $3.

    What do you think?

  28. Russians/Naybob – Could be legit, some of those guys are talented and work dirt cheap.  I'd hate to be questioned by homeland about why I'm transferring funds to Russia though.

    Price fixing/Seer – Gee, are they going to go after the oil companies too?

    Quantum/StJ – In theory, they can solve all BitCoins as soon as you give them the formula.  Fun!  

    $5K/Jeff – Very nice!  You deserve the rest of the day off.  

    GOGO/Jeff – So the May $7 calls less the $10 puts was net $3.35, right and now the May $7 calls are $3.45 so yes, good time to roll.  GOGO is at $10 so no biggie on the short puts (now $1.30) but you can roll them to 1/2 the Jan $12 puts at $3.75 and that would put 0.725 per current put back in your pocket and lower your margin.  Going to 2020, I doubt you can net $1.20 for the $8/15 spread but, either way, as long as it's less than $2 it's a good play and you can sell 1/3 May $12s (now 0.60) for $1 if they move higher and that gives you 0.33/share maybe 4 times while you wait.

    Holy crap does Trump have to be on TV every single day?  Now he's marching with anti-abortion people.

  29. Phil – crypto/QRL 

    Keep in mind if "quantum" computing can crack the blockchain it can crack everything else (passwords, ATM pin #'s, etc) because they use the exact same cryptography.

    Nattering – I'll pay 11.25 an hour, not a penny more… :P

  30. LOL, BDC, they have a coin for everything, don't they?  Well that's the theory on quantum, it will make passwords obsolete, which is why Apple and most sensible people are moving to biometrics.  Though I guess you can solve for face or fingerprint too so it will take some combination of things to keep things secure or, of course, we can go back to gold!  

  31. Phil/F    You would do the F trade now?  On the call you discussed selling the 2020 12 calls and selling the 10 puts.   Would you do that one now?

  32. Phil  Bought 10 CMG Jan 20 $280 calls ($63.04) and sold 10 $310 Jan 20 calls ($49.30).  Also sold 4 March $310 calls @12.00.  Planning on buying back the 4 April calls ($41.10) and selling 8 $355 June calls($27.20) .     Would you agree or suggest smoother move.  Earnings coming on 2/06.

  33. albo, Thanks for the slide presentation; very interesting.  I traded them sometime back and lost a little money so just lost interest in them.  Will take another look, thanks again.

  34. F/Taihu – I'm inclined to wait for the weekend and see where we are.  Maybe they sink lower but, either way, we're in it for the dividend, so we don't really care if it's +/- 0.50 and, for now, it looks like – is more likely, so why waste the money?

    CMG/Den – Unless earnings are staggering, I don't expect them to go much higher for now.  

    You have 10 Jan $280/310 bull call spreads at $24ish and 4 short March $310s but then you say buying back April, which confuses me.  Looking at just the March $310s, they are $41 and the June $350s are $27 so net $14 and you can sell 2020 $280 puts for $25 so 1/2 x the puts pays for 1x the roll without over-committing.  

    By the way, this is why I pretty much ALWAYS sell the short puts in the Butterfly Portfolio – Once you have a bull call spread and just short naked calls, you're more bearish than bullish in the short-term and that's NOT what you intended when you took the position, right?

    /RB back to $1.86, doesn't pay to be greedy with another $500 winner.  

    Indexes flattening out – look pinned here.

  35. thanks phil.      

  36. phil/SKX, what's your take on them?  i had foolishly sold some long legs of a spread, hoping for a pullback and am now holding the bag with 2 short $35 2020 calls.

  37. Speaking of portfolios, what a fantastic time to add hedges to the STP!  

    I'm going to try to have hedges we can make money on along the way – in case the market fails to surrender. 

    Hedge #1 is SVXY, which is the Ultra-Short VIX ETF.  This is going to be an actively managed trade:

    • Buy 20 SVXY June $140 puts at $28.50 ($57,000) 
    • Sell 20 SVXY June $110 puts at $17.50 ($35,000) 
    • Sell 6 SVXY Feb $130 puts for $8 ($4,800) 

    That's net $17,200 on the $60,000 spread that's almost $10,000 in the money to start.  As long as it doesn't drop too fast, we shouldn't have any trouble rolling the short puts and, if SVXY goes up and the puts go worthless, then we sell $5,000 worth of March puts, etc until we pay for the spread (3 more sales) and then it's free insurance.  


    We can do something similar with the Dow for the STP in something we used to call a Mattress Play.  

    • Buy 20 DIA June $280 puts for $21.50 ($43,000) 
    • Sell 20 DIA June $260 puts for $8.20 ($16,400)
    • Sell 10 DIA Feb $257 puts for $2.05 ($2,050) 

    At net $24,550 we're buying $40,000 in protection but we anticipate selling March, April and May puts for $6,000 more and this is the kind of spread we roll along all year.  Upside at the moment is $15,550 so not too sexy but these are hedges we work into and, of course, with DIA at $260, the only way we DON'T get paid in full is if the Dow goes higher – which better mean we're making money on our LTP longs.

    So here we have about $60,000 in downside protection for our LTP but we also like the STP to make money so, assuming we lose about $20,000 (half of what we're spending), let's find a couple of puts to sell.

    • 5 IBM 2020 $140 puts can be sold for $12 ($6,000) 
    • 10 IMAX June $23 puts can be sold for $3.40 ($3,400) 
    • 3 TSLA March $260 calls can be sold for $15 ($4,500) 
    • 10 ABX Jan $15 puts can be sold for $2 ($2,000) 
    • 10 CIM June $18 puts can be sold for $1 ($1,000) 
    • 20 NLY Jan 12 puts can be sold for $1.85 ($3,700)
    • 10 SKT Jan $22.50 puts can be sold for $1.85 ($1,850)

    That's $22,450 collected in premium that will mostly expire this year and, if the stock goes south, these are Watch List stocks we'd be happy to turn into long-term positions in the LTP and, don't forget, if they go down – it's probably because we're making $60,000 on our hedges!  

    Don't forget, the primary purpose of the STP is to protect the LTP so we look, generally, for opportunities that will make money if the market heads lower.  If the market goes higher, the $500,000 LTP should easily cover any losses in the $100,000 STP.  

  38. Well, I'm down $550 on 2 short /TF so it's time to DD as we test 1,600 so now 4 short at 1,596 avg.  

    SKX/Lunar – Well I used to bang the table on them when they were $20 but $40 is no longer in the bargain bin.  Growth is a bit better than 10% so it doesn't suck at $40 but it's not something I'd jump on.  However, since you sold 2 short 2020 $35s, those are now $12, which is ridiculous, so I'd rather buy 2 2020 $25s for $18 and then you are net $6 on the spread and you can sell 1 April $40 for $3.70, which pays back 1/4 of what you laid out so you can recoup your $6 over 4 sales and whatever you retain in value on the spread becomes a profit.  

  39. FTR up almost 10% today.

  40. Capitalism, Built To Last

  41. NAFTA talks seen ending happily, despite growls from Trump

  42. Amazon boosts monthly Prime membership fees by 20 percent

    • January Consumer Sentiment94.4 vs. 97.0 expected and 95.9 prior.
    • Current economic conditions 109.2 vs. 115.5 expected and 113.8 prior.
    • Index of consumer expectations 84.8 vs. 90.6 expected and 84.3 prior.
    • In a major blow to UK economy growth, retail sales declined 1.5% in December against estimate of -0.6%, 1.0% gain in November providing gloomy.
    • Core retail sales which outstrips automobile sales and fuel declined 1.6% in December against estimate of -0.8%, 1.1% gain in November.
    • Source:

    • Japanese government raised its assessment of the economy since June after retail sales, household spending, and new car sales gained momentum toward the end of 2017.
    • The rise in consumer spending signals that inflation could start to pick up this year.
    • Source:
    • Knowing the Fed was going to be the only major central bank tightening policy for the next year-plus, would you have been a buyer or seller of the dollar in late 2016?
    • Conventional wisdom would have said "buy," but the dollar has tumbled 12.5% since then.
    • h/t Jeroen Blokland
    • The greenback is lower again this morning, UUP -0.15%
    • Like Amazon or Google in their early days, it's tough to put a price on Square (NYSE:SQ) using traditional valuation metrics, says Nomura's Dan Dolev, lifting his price target from $48 to a Street-high $64. That would be 60% upside from yesterday's close.
    • Better to use bottom-up discounted cash flow, which considers the shift to big merchants, accelerating share gains, increasing penetration of higher-priced transaction types, and high-margin services like Square Capital and payroll.
    • Shares +3.8% premarket to $41.80
    • The total U.S. rig count fell by 3 to 936 following last week's increase of 15, according to the latest Baker Hughes survey.
    • The oil rig count fell by 5 to 747 while gas rigs gained 2 to 189.
    • A year ago, the total rig count was 694, with oil rigs at 551 and gas rigs at 142 (plus one miscellaneous).

    GE slides another 3%; Deutsche Bank says may need to raise equity capital

    • General Electric (GE -3.2%) shares tumble to a fifth straight decline, threatening to fall below $16 only a day after breaching $17 for the first time since 2011.
    • GE rebounded as much as 11% to start the new year but has now dropped more than 6% YTD and is the Dow's worst performing member again this year after winning the same dubious distinction in 2017.
    • The latest negative vibe comes via Deutsche Bank analyst John Inch, who says GE's current cash squeeze and growing liquidity pressure may force the company to raise equity capital.
    • Inch, who has a Sell rating on GE with a $15 price target, sees plenty of risks beyond any equity capital raise, including additional mandated insurance reserve contributions, increasing debt and debt rating downgrades, and another dividend cut.

    Cleveland-Cliffs dubbed a Sell by Vertical analyst Johnson

    • Cleveland-Cliffs (CLF +0.2%) shares are little changed despite receiving a Sell rating and a sub-$4 price target at Vertical Group, which cites rising risks to U.S. metals and iron ore prices.
    • New Vertical analyst Gordon Johnson anticipates a “sharp correction” in CLF shares over the next 3-4 months as China steel mill margins continue to fall, likely sparking a plunge in iron ore prices.
    • “With the majority of investors focusing on CLF’s coming 2018 guidance (which many expect to be impressive given where U.S. HRC/iron ore prices are today) as well as Trump’s Secton 232 decision, we see the current ‘trouble’ brewing in the world’s most important steel market (i.e., China) as largely flying under the radar,” Johnson writes.
    • IBM (NYSE:IBM) held its Q4 earnings call (transcript) aftermarket yesterday and included FY18 guidance and more details on the quarterly report.
    • FY18 guidance: Operating EPS flat on the year to “at least $13.80” (consensus: $13.92). FCF expected at about $12B. IBM expects a headwind from cash tax payments to the tune of about $600M year-to-year.
    • Tax: 2018 operating tax rate of 14% to 18% (before any discretes) incorporates the new tax law and is a four-point headwind year-to-year. Management reminds investors that the company took discrete items in Q1 and Q2 last year, which brought the operating tax rate down to 7% for the year.
    • Q4 margins: Bernstein analyst Toni Sacconaghi mentions during the call that GBS and Tech Services margin erosion was “the worst we’ve seen in history on a pretax basis.”

      Operating gross margin was down a little over a point on the year and about 0.5 points behind guidance due to mix and yield delay in the Services business. Global Business Services margins were down 2.1 points to 24.8%, Cognitive Solutions down 3.5 points to 79.2%, Tech Services & Cloud Platforms down 2 points to 40.9%, and Systems down 1.2 points to 55.7%.
    • Earnings press release.
    • IBM shares are down 3.2% premarket.   
    • Previously: International Business Machines beats by $0.01, beats on revenue (Jan. 18)
    • Previously: IBM -4.4% despite beating Q4 estimates, posting first revenue growth in nearly 6 years (Jan. 18)
    • Analysts comment on IBM’s (NYSE:IBM) earnings report yesterday, which beat estimates with revenue growth but included margin erosion.
    • Cantor Fitzgerald’s Joseph Foresi notes that the first revenue growth in nearly six years came from strength in Systems and a hardware refresh cycle.
    • But Foresi says IBM needs to return to consistent growth and margin expansion before a valuation multiple expansion can happen.
    • Cantor rates IBM at Neutral with a $152 price target.
    • More action: RBC’s Amit Daryanani questions the “quality” of the earnings since the non-GAAP tax rate was 6%, well below expectations, and gross margins were “soft.”
    • Daryanani does say the CY18 guidance was “incrementally better” and could signal stabilization ahead.
    • RBC rates IBM at Outperform with a $180 price target.
    • Source: Bloomberg First Word
    • IBM shares are down 4.5%.
    • Previously: IBM -4.4% despite beating Q4 estimates, posting first revenue growth in nearly 6 years (Jan. 18)
    • Previously: IBM Q4 earnings call: FY18 guidance, tax forecast, and margin erosion (Jan. 19)
    • Update: Corrected ticker movement at time of publication.

    Kohl's price target upped to $100 at Jefferies as Amazon partnership ramps

    • Kohl's (KSS +2.5%) moves higher after Jefferies raises its stock price target to $100 from $66, citing the company's partnership with Amazon (AMZN +0.3%) as a "win for both companies."
    • "We anticipate the pilot to roll out nationally and provide KSS stores with stronger traffic and is a nice added convenience for AMZN shoppers," writes Jefferies analyst Randal Konik.
    • KSS gets an added benefit from its stores being located off-mall where customer traffic is better, Konik says, expecting a further boost as peers such as J.C. Penney and Macy's shutter stores; he also thinks a lower corporate tax rate will benefit the company and drive earnings higher.
    • Abercrombie & FItch (ANF +3.5%) is sharply higher after Argus Research upgrades shares to Buy from Hold with a $25 price target, saying the company's turnaround plan is starting to see results.
    • ANF's marketing is emphasizing the company's historic association with outdoor adventure and exploration, and the firm thinks the brand's perception among young consumers has "improved significantly," which should contribute to longer-term market share gains.
    • Shares have rebounded to nearly $20 after two straight quarters of earnings surprises, but Argus believes ANF still looks attractive as it continues to trade at a discount to its peers and below historical average multiples.
    • Nike (NKE +3.3%) is off to a strong start after Wedbush upgrades shares to Outperform from Neutral with a $74 price target, raised from $57, foreseeing an inflection in margin and a return to growth in North America in FY 2019.
    • Wedbush believes the brand's new footwear styles are "notably higher" than a year ago while comparisons are easing, particularly around key categories such as basketball, and it says conversations with retailers indicate that NKE has a major opportunity to show improvement in 2018.
    • The firm believes NKE's negatives – North America weakness, gross margin walk-down – are subsiding, while the positives – product, ASP, DTC – are accelerating, and it sees sales, gross margin gains and mid-teens EPS growth as increasingly more likely in FY 2019.

    Overlooked competition looming for Valeant's Xifaxan – Wells Fargo

    • Wells Fargo's David Maris says the market is not paying attention to a potential competitor to Valeant Pharmaceuticals' (NYSE:VRX) lead drug XIFAXAN (rifaximin) which generated 38% of Branded Rx sales for the first three quarters of 2017 (~$712M of $1,873M).
    • Irish drugmaker Cosmo Pharmaceuticalsrifamycin could be approved for travelers' diarrhea (TD) this year and could report positive Phase 2 data in IBS-D, XIFAXAN's U.S. indication. Maris says U.S. approval of rifamycin for TD could be a near-term threat to XIFAXAN due to off-label use for IBS-D.
    • Current consensus for XIFAXAN sales for 2017 is $980M, rising to $1.2B in 2020.
    • Maris adds that Cosmos is trying to regain the rights to ulcerative colitis med Uceris from Valeant which is expected to generate $142M in sales in 2017.
    • He rates Valeant Underperform with a $9 (59% downside risk) price target.
    • VRX is down a fraction premarket.
    • Source: Bloomberg

    Apple, suppliers drop as key analyst lowers iPhone X lifetime sales forecast

    • KGI Securities analyst Ming-Chi Kuo lowers the lifetime sales forecast for Apple’s (AAPL -0.6%) iPhone X from 80M to 62M units.
    • Kuo expects production of the premium model to stop sometime in 2018 as Apple prepares to roll out new versions in 2H. 
    • The analyst cites weakness in China for the lowering, saying that high-end Chinese users do love larger screens, but the notched design and lack of compatible apps made the iPhone X seem smaller and overpriced. 
    • Bloomberg Intelligence analyst Woo Jin Ho says Apple chipmakers will likely have a cautious approach to Q1 as the iPhone cycle enters a seasonally weak period. (Source: Bloomberg First Word.) 
    • Suppliers on the move: Qorvo (QRVO -4.2%), Cirrus Logic (CRUS -2.4%),  Skyworks Solutions (SWKS -2.8%), Broadcom (AVGO -0.8%), and Lumentum (LITE -5%).  
    • Previously: Apple still owes EU tax bill, payments start in March (Jan. 18)
    • Previously: TSMC expects iPhone shipments to drop, softened by crypto mining boost (Jan. 18)

  43. So, on the whole, no news that seems like it should be moving the markets and indexes seem totally unconcerned about a Government shut-down so I guess no shutdown will push us even higher on Monday?  

    Taking the loss on /TF ($500) as the S&P is ramping up into the close.  Too scary.

  44. Arrrrgh, and now we're pulling back.  Oh well, a good day overall.

    Have a great weekend, 

    - Phil

  45. Wow, big spike into the close but look at bonds collapse (rates spike higher):

    I'm liking our SVXY puts!  

  46. Phil,

    GATES INDL CORP PLC IPO, I read the prospectus of the IPO looks like they are well diversified and can be a good long term investment. I would like to get your thoughts on them I am planning to hold them in my 401K account. 

    Thanks as always. 


  47. Earnings Season Off To An Okay Start

  48. For discerning fans of fake sports or otherwise, our NFL Championship Weekend analysis and picks are up…  enjoy.

  49. StJ – I fixed that commodities graphic for bloomberg

  50. Hi fellows,

    Need you advice. Due to an issue with TD Ameritrade, I might have to change accounts. They think they are God. So can any one recommend another reliable brokerage house with a decent trading platform where a NON US citizen can still trade. TIA

  51. LOL BDC!

  52. Picked against my Eagles again Naybob…. 

  53. There is no way to resolve this shutdown if Trump (Mr. Art of Deal) can't commit to a compromise. First he ambushes Durbin and Graham with losers like Cotton and Perdue who don't want a deal and then Schumer comes in with money for the wall and supposedly they have some sort of agreement that Trump walks back 2 hours later after I am guessing talking to Steven Miller. 

    Guttierez was on TV yesterday and he made the point that these hardliners don't just want to get rid of the DACA kids, they want to stop legal immigration altogether! It's a great electoral strategy, but it's really shortsighted economically speaking! But these guys don't care about that, it's all about winning elections now. Party first….

  54. StJL – "Picked against my Eagles again Naybob…. "

    I'll throw your Eagles a bone… Good luck.

  55. Woof, woof Naybob!

  56. Yodi, Ive been using interactive brokers and have had no issues with it. It's also a very easy platform to trade options strategies on. Not sure if it's available where you are, I'm in Canada. 

  57. Yodi – While I have moved to TOS, Charles Schwab (CS) offers International accounts, not sure about your situation, but here is the link.  They have a few software modules for trading Options, StreetSmart Central is (OptionsExpress platform rebranded to (CS)).  

  58. Phil, When you find a stock that peeks your interest, what are the 'must-haves' for it to qualify for the Watch List?   If this is too broad of a question, just let me know.  

    I found a few stocks, and one of interest is NOK. 

            Sell 10 2020 $5 puts @ $1.10

            Buy 20 2020 $4 calls @ $1.20

            Sell 20 2020 $7 calls @ $0.40

    What do you think?  

  59. Stock Picks / PSW Gang -- if anyone else would like to share how they narrow their search for good options plays on stocks, I am all ears…  I would like to learn how to fish a bit this year. 

    It is a bit of a challenge to engage into the day-to-day discussion being 12 hours ahead of the group, which means I am 12 hours behind. =) But I do read the blog everyday. Therefore, thank you in advance!!  

  60. Phil – I have the same question as Grasshopper67…I'd like to 'learn how to fish' when it comes to fundamental analysis in picking good stocks to play.

    Also, couple other questions:

    1) Could you help me understand why you use SVXY for a hedging instrument? Why not instead put the bear put spread on something like SPXL?

    2) In this post denlundy inquired about CMG. In your response you said "…this is why I pretty much ALWAYS sell the short puts in the Butterfly Portfolio". Are you saying that a typical "let's-put-this-in-the-LTP" trade idea comprised of a BCS + short put you're putting the short put in the Butterfly but the BCS in the LTP? Your original CMG trade is in this post as follows:

        Sell 5 CMG 2020 $270 puts for $35 ($17,500)
        Buy 10 CMG 2020 $280 calls for $65 ($65,000)
        Sell 10 CMG 2020 $310 calls for $51 ($51,000)

    Just wondering if those 5 CMG short puts go in the Butterfly…

  61. Yo Naybob, that Viking défense really clicking tonight. Lol



    Apple Leak Reveals Sudden iPhone X Cancellation

    From Most Popular, a Flipboard magazine by Forbes

    It may be the smartphone of the moment, but a new leak reveals Apple will soon cancel the iPhone X. And the source could not be more credible… In a new…

    Read it on Flipboard

    Read it on

  63. Grass and CRS thanks for your recommendation I will look in to it

  64. Shutdown, Showdown, Sure Thing

  65. Cory Booker just got pulled over for being a senator while black

  66. Solar industry on edge as Trump weighs tariffs on panels

  67. A President Not Sure of What He Wants Complicates the Shutdown Impasse

  68. Good morning!

    Dow is down a bit but things are otherwise flat so far this morning.

    It's a big earnings week with not too much data to get in the way:

    Of course, a lot of the data won't get released if there's no Government.

    • As the federal government shutdown enters a third day, U.S. futures are edging down, the dollar is pulling back slightly and Treasury yields are touching 3 1/2-year highs.
    • The U.S. Senate has scheduled a noon vote today on a stopgap spending measure, ensuring the government will remain closed when the work week begins.
    • "We have to see if this event is a trigger to change the market trend," said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan Securities.
    • Oil is flat at $63.29/bbl, gold is 0.1% higher at $1333/ounce and the 10-year Treasury yield is up 1 bps to 2.65%.

    How is it Jan 22nd already?  

    Euro Gains, Dollar Slips as Politics DominatesThe euro advanced on optimism Germany’s Angela Merkel has made a breakthrough toward her fourth term after months of stalemate, while the dollar resumed a decline as the federal government shutdown continued. Asian equities opened mixed on Monday and U.S. Treasuries were steady. Germany’s Social Democrats backed formal coalition talks with Chancellor Merkel, boosting the euro. The six-week slide in the greenback showed no signs of easing with the House and Senate back in session Sunday amid a spending-bill impasse in Congress. Foreign exchange traders are also watching China’s appetite for currency strength as the yuan rallies beyond the symbolically key level of 6.4 per dollar for the first time since December 2015. Equities in Japan and South Korea retreated, while Australian shares were little changed. Japan’s Topix index slipped 0.1 percent. South Korea’s Kospi index lost 0.5 percent. Australia’s S&P/ASX 200 Index was little changed. Futures on Hong Kong’s Hang Seng Index added 0.2 percent. Futures on the S&P 500 lost 0.2 percent.

    The Bank of Japan and the European Central Bank both have policy decisions this week, before an announcement from the Federal Reserve on Jan. 31. While no action is expected from any of the three this month, investors will be on alert for the latest signals on withdrawal of policy accommodation after years of unprecedented stimulus. Any dovish hints from officials could pull the benchmark 10-year Treasury yield back from the brink: It touched 2.66 percent on Friday, the highest since July 2014. Traders are on edge because technical indicators signal weak support for the 10-year Treasury if the yield breaks even higher.

    Cudmore Stands By His Call: "The Dollar Is In A Multi-Year Down Trend"

    90% of bitcoin's value could get wiped out, Wall Street veteran Peter Boockvar warns


    • 24-hour trading? TD Ameritrade (NASDAQ:AMTD) is now offering around the clock trading on its platform for several popular ETFs, while the service for individual stocks may not be too far away.
    • The move lets users buy and sell when market-moving news hits overnight – between the after-hours and premarket session (8 p.m. to 4 a.m. ET).
    • Trades will be placed as limit orders and are executed through electronic communication networks.

    200 Million Investors May Have Lost Everything In Largest Ponzi Scheme In China's History

    OPEC, Russia Signal Global Oil Alliance May Endure Past 2018OPEC and Russia reaffirmed that they’ll persevere with oil-production cuts until the end of the year to clear a global glut and signaled their readiness to cooperate beyond that. Russia is prepared to continue cooperating with OPEC and its de-facto leader Saudi Arabia even after the cuts expire, Energy Minister Alexander Novak said in a Bloomberg television interview held jointly with his Saudi counterpart. Producers should keep limits on output through 2018 as the market may re-balance at the end of the year or in 2019, Saudi Energy Minister Khalid Al-Falih said. Neither minister said whether the cuts would continue in 2019.

    The World Bank is no longer supporting the oil and gas industries

    • According to an internal memo, Philadelphia Energy Solutions (BATS:PESC), the owner of the largest U.S. East Coast oil refining complex, plans to file for Chapter 11 bankruptcy.
    • It comes six years after Carlyle Group (NASDAQ:CG) and Energy Transfer Partners's (NYSE:ETP) Sunoco rescued the company from financial distress, in a deal that was supported by tax breaks and grants that saved thousands of jobs.
    • The U.S. Commerce Department has sent President Trump the results of its national security probe into aluminum imports and is now awaiting his response.
    • The question of whether to order broad tariffs or quotas has been the subject of intense debate in the White House, pitting officials who favor more aggressive restrictions against pro-business factions who favor a more cautious approach.

    Amazon’s(AMZN) Cashierless ‘Go’ Convenience Store Set to OpenOnline retailer says, after yearlong delay, it finally has trained its in-store algorithms

    • Health officials said that 32 people under 65 died from flu in the last seven days, making it the deadliest week of the season so far.
    • Thirty-two states also reported high patient traffic, making it the busiest week for flu symptoms in nine years.
    • "This is a season that has a lot more steam than we thought," said Dr. Dan Jernigan of the CDC.
    • Flu vaccine manufacturers: SNYGSK
    • Previously: CDC: Worst flu season in years (Jan. 14 2018)

  69. I'll catch up on weekend questions in the next post.