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Thursday, October 6, 2022

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50 DMA Friday – S&P Struggles to Stay Technically Positive

Is overbought the right price now?  

Just a week ago, there were literally thousands of articles saying: "Well, of course we had a sell-off, the markets were so overbought it was bound to happen." Yet here we are, a week later and now they are saying what a great buying opportunity this is.  Seriously?  We're now only 5% below the "obviously overbought" market top.  What changed in the past 7 days?

The market has gone nuts since August, rising from S&P 2,400 to 2,872, which is a 20% run in 5 months.  Markets don't go up 20% a year, let alone in 5 months.  Hell, they hardly even go up 20% in two years and, of course, the logic is TAX CUTS – which seems to justify everything but let's consider that very few companies drop more than 20% to the bottom line (14.6% is the average) and that they are taxed on their profits, not their income so, even if the taxes were as much as the profits (they are about 20% of profits on average) and the taxes were eliminated ENTIRELY, then the companies would only make 14.6% more money.  

That is, of course, not the case and there is nothing in Q1's earnings or guidance to give any indication that the new tax law will have a serious effect on forward earnings – mainly because US Corporations never paid 20% taxes in the first place (about 13.5% on average).  So, if they actually paid the new 20% rate, it would be a tax INCREASE for those companies who routinely park their cash overseas or pay tens of millions of Dollars to accounting firms and Investment Banks to avoid paying Billions in taxes (Apple alone is bringing back over $200Bn they had stashed overseas).  

Trump is taking credit for repatriating funds from overseas but what he's really doing is giving companies a tax incentive (15%) for bringing back money they earned under the Obama Administration (because he was mean and would have taxed them) and for not paying their taxes under Obama's budgets.  In fact, Trump is REWARDING the corporations for hiding money from Democrats and letting future CEOs know that any time a Democrat tries to tax them – they are free to flaunt the law until a Republican is back in power to forgive them.   

Trump is also taking credit for the market rally, though the last couple of weeks finally got him to shut up about it.  As you can see from the chart on the left, which has been around for 100 years, there's nothing going on here that hasn't happened before and we had a late-stage parobilic move up, people got really excited and thought it would go on forever and now we had a sharp pullback and people are piling back in and here we are – at the spot labeled "Complacency" – making all the same mistakes we made just two weeks ago! 

As I noted in yesterday's Report, we amped up our hedges into the weekend and, this morning, I put out a note to our Members saying:

/YM is 25,300, that's my favorite short and we have /ES 2,740, /NQ 6,845 and /TF1,545 and my stop-outs are if we get over 2,750, 6,850 or 1,550 but, otherwise, I want to accumulate /YM shorts.  

The reason I'm skeptical of the rally is that we've bounced back on 1/3 the volume at which we sold off and forming a weak base is why we were shorting the market in the first place a few weaks ago.  Apparently, traders have learned nothing at all this month and we're right back to the madness of the Dow moving up 1,500 points on ridiculously low volume.  This is simply a lack of sellers at the moment and God help us all if they come back!  Here's the recent S&P ETF (SPY) volume:

Date Open High Low Close* Adj Close** Volume
Feb 15, 2018 271.57 273.04 268.77 273.03 273.03 103,991,400
Feb 14, 2018 264.31 270.00 264.30 269.59 269.59 120,735,700
Feb 13, 2018 263.97 266.62 263.31 266.00 266.00 81,223,600
Feb 12, 2018 263.83 267.01 261.66 265.34 265.34 143,736,000
Feb 09, 2018 260.80 263.61 252.92 261.50 261.50 283,565,300
Feb 08, 2018 268.01 268.17 257.59 257.63 257.63 246,449,500
Feb 07, 2018 268.50 272.36 267.58 267.67 267.67 167,376,100
Feb 06, 2018 259.94 269.70 258.70 269.13 269.13 355,026,800
Feb 05, 2018 273.45 275.85 263.31 263.93 263.93 294,681,800
Feb 02, 2018 280.08 280.23 275.41 275.45 275.45 173,174,800
Feb 01, 2018 281.07 283.06 280.68 281.58 281.58 90,102,500
Jan 31, 2018 282.73 283.30 280.68 281.90 281.90 108,364,800

Image result for house of cards animated gifThat's 1.5Bn shares on the way down from 275 (the low was put in on the 9th) and 480M on the way up – that's simply not at all good!  If you build a building with 1.5Bn bricks and someone knocks it down and then you rebuild the building with 480M bricks – is the build more or less sturdy now?  Like bricks, inflows form the foundation for price supports and, without them – you are looking at a house of cards.

Don't get me wrong, we were buying stocks right along with you as they went on sale because who knows if we'll see these prices again BUT we also put more money into our hedges so we're now better protected for the next drop and, if we don't get one, then we will do very well in our long positions (see yesterday's review of our Money Talk Portfolio).  

For example, I was reviewing our Options Opportunity Portfolio (OOP) yesterday and, as of 1pm, it was at $97,587 but, thanks to the ridiculous afternoon rally, the same exact positions popped to $103,550 into the close.  That's simply ridiculous, gaining $5,963 (6%) in 3 hours and, as I made many great speeches about earlier this year (and last) – it's logically unsustainable or everyone will be a Billionaire making those kinds of gains – and where would all this money be coming from?

Perhaps we will all be Billionaires if inflation keeps moving up.  Most people in Zimbabwe were Trillionaires when their currency collapsed, as were Germans after World War I and we have just the kind of burgeoning Fascist Regime to pull it off in the US as well!  Import prices were up 0.4% in January, setting a 5% annual pace and, ex-Agriculture, which has been weak, it was 0.9% – very Weimar indeed!  The Germans were brought down by war debts which caused huge deficits and rising interest was the nail in their coffins as the cost of servicing the debt became unbearable – pretty much what I was saying is happening to the US in Tuesday's Report

Also inflationary, Housing starts popped higher to 1.33M and that's good for the broad economy but very inflationary and still nowehere near our normal level of about 1.6M per year (think about how long it takes to replace 110M homes, not to mention population growth).  Overall, it would be a plus but now when you are running up $7Tn in debt to stimulate the economy.  At 3% interest, that's $210Bn a year in interest alone – enough give each home-buyer $150,000.  

So think about that, what would be a smarter stimulus, spending $7Tn to give tax cuts to people who don't need it and stomp all over the World with our armies or tell anyone who wants to buy a new home they can have $150,000 in cash?  You don't even have to give them the cash, just give them low-interest loans that make the mortages more affordable and you'll fuel housing growth.  Perhaps, since we're saving $6.8Tn AND $210Bn per year in interest expenses, we could also mandate that new homes come with solar panels, which will take pressure off the electric grid that needs $2Tn worth of repairs and that too would save the new homeowners money and would lower the demand for energy and reduce the cost for all of us.

Image result for republican clown partyYes, there are sensible ways to govern but you wouldn't know it from the pack of bozos we have in office now.  Do you want to stop Russia from interfering in the election?  Give all registered voters "VoteCoins™", blockchain tokens that they can then send to the candidates of their choice, fully traceable and verifiable and you'd have the added benefit of instant election results with no messy ballot and recount issues.  Give us just $1Bn and my team and I can have the system running in time for the November elections.  

There, what else needs fixing?  

We'll see if the indexes are going to be "fixed" today.  As I'm writing this (9am), we're up about $500 per contract on our /YM shorts already as we cross below the 25,200 line and now that's our stop to lock in $500 and make sure we can afford our Egg McMuffins.  Now we're playing for a sushi lunch!  The critical lines to watch are those 50-day moving averages which, as you can see on our Big Chart, are Dow 25,150, S&P 2,723, Nasdaq 6,612, NYSE 12,955 and Russell 1,547:

As of this morning, the NYSE and Russell (our broadest indexes) are below the lines, Dow and S&P are on the lines and the Nasdaq is off in LaLa Land – as it often is – especially after Apple (AAPL) has a good day.  Now that we're a bit lower in the Futures, we can cash in our gains on the Dow (/YM) at 25,150 (up $750 per contract) and /TF at 1,535 (up $500 per contract) and swtich to the Nasdaq shorts (/NQ) at 6,798.50 with a tight stop over 6,800.  Since they remain the highest over the line, they have the farthers to fall if everyone is giving up their 50 dmas today.

Meanwhile, nothing beats a good hedge but the time to add those was yesterday, when the market was going up – we got great prices yesterday because we took sensible precautions while others were throwing caution to the wind.

That's why we're going to have a great, non-stressful Holiday Weekend – no mattter how far we fall today.

Have a great weekend, 

– Phil

I will be giving a 4-hour "Master Class" on Hedging, Options Trading Strategies, Portfolio Management and Fundamental Analysis at the opening of the New York Traders Expo on Sunday, Feb 25th at 9am at the Marriott Marquis – so register now if you'd like to hear a lot more about these strategies and get our latest trade ideas.

 

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Nothing says Bot Moves like 5000 point swings in 10 days:

If Condition[200DMABounce] = True Then
function(BUY,BUY,BUY);
Else function(SELL,SELL,SELL);
EndIf;

Now, that was courage as opposed to our spineless Congress and president:

https://www.vox.com/world/2018/2/15/17016736/parkland-florida-shooting-trump-speech-australia

But Howard’s response to the shooting was about as different from Trump’s as you could imagine. In his first speech to Parliament after the shooting, just two days later, he called for Australian legislators to take up “the vexed issue of gun control,” and vowed to devote his premiership to the issue.

“I will do all that I humanly can, as leader of the government, to bring about a significant improvement and to address some of the great deficiencies that exist,” Howard said.

Howard made good on his word. In May, his government unveiled a controversial policy called the National Firearms Agreement that radically strengthened Australia’s gun laws. The NFA established a registry of all guns owned in the country and required a permit for all new firearm purchases. It also flat-out banned certain kinds of guns, such as automatic and semi-automatic rifles and shotguns.

Good Morning.

Phil –  like you, I think CHK is just too cheap.  They have some very valuable properties that they've demonstrated they can sell for very good prices.

Bought 2K shares at 2.85.

Sold 20 2020 3 calls for 1.05

Sold 20 2020 puts for .53.

Phil – "Johnson should be pissed too – below Trump?"  

Indeed, aside from FDR, the Johnson administration passed more legislation benefiting the 99% than any other President. Does one wonder why our Erotically Incontinent Libertine and his RNC ilk want to start by dismantling the Johnson Amendment?

Trump could not carry Johnson's gym bag! You don't have to agree with all of Johnson's deeds or values, but he was not spineless or dumb!

StJL – Indeed, and that would be jock strap not gym bag.

Phil – You are the master and I am the pupil. 

But I think I stand to make 6100 vs the 2540 ?

Unfinished business…

Phil – "I'm just saying you are looking backwards and it's not relevant as we're moving forward now.  I see real wage growth in Europe, Asia and US." 

Again, I'm just saying both of your assertions above are incorrect, which I've proved both with US real wages here and UK real wages here.

Phil – "If your answer to that is "I was only looking at the last two quarters" – then we have to get into a whole lecture on statistical sampling as well."

No, I never said.

The Jan SQQQ $30 calls have someone bidding $3.40!!

Nevermind, looking at wrong thing.  Not very abnormal at all!

RE- Chk- I read they sold the parcel for rock bottom prices 2k an acre. Shows the desperation of the situation? They should be able to come back, but like SHLD, too little to late? Without assets and pumping wells and enough profit….. I'm doing a small hedge but your BCS is already way down Phil. YEh?

Boss, I going short FB.  The logic is FANG is over with.  F is going to be weakest link.  I'd like your thoughts as you are correct a majority of the time.  

Finishing up from yesterday…

 

Phil – "Also, inflation adjusted wages don't need to go up. As long as the consumer is generally keeping up with inflation"

 

Oh munificent one, as you well know real wages are a guide to how living standards have changed. If real wages are stagnant or decline, so does said living standard.  Given that advertised inflation is severely understated, to anchor the lemmings expectations, this often means that prices are rising much faster than wages, and one is constantly worse off. 

 

 

Ask anybody who is "generally keeping up" with understated inflation, winds up reliant on SS and eating from a Le Chat or Monge buffet.  The above is something that Philip Davis or The Prince Against the War on the 99%, the wage squeeze, and the decades long screwing of John Q, knows and rants about quite often.

 

And it is that Brother Phil whom we hold to a higher standard. So how could he say, real wages don't need to go up? Time for Lil Friskies? or should I be asking this?  and Out

 

Pirate – My comment on asset sales was following reading a report from Southeast Asset Management, who own 3.6% of the stock.  Of course they could be talking their book !

"~Overshadowing strong operational
performance by CEO Doug Lawler and his management team,
domestic gas oversupply weighed down strip prices. Chesapeake
made progress delineating some of its newer plays, but the
market continued to underestimate the company's ability to sell
meaningful assets, as it has done multiple times in the past.

All the indexes straight up like a rocket launch? Amazing. Nat you are so right. Then when inflation, which is way up in some sectors like RX, medical care, petrol, heat for homes etc where do you cut expenditures? I have heard of well off people who became ill and their entire retirement savings of hundreds of thousands was gone within a year! All investments, all savings yet their taxes, insurance and meds NEVER go down, ever.

Social Security is a joke and so is Medicare. All the medical are nothing but blood suckers of the desperate. Finding honest help is practically impossible. They have a script and they follow it. My good friend, who was diagnosed with stage 3 melanoma on her leg was told by her MAYO doc Not to take a multivitamin because "it doesn't help." I was so shocked when she told me. I told her I had been taking them since I was 20 years old and they have done right by me. They put her on chemo, radiation and all the other poisons instead of amputating her leg so she would at least have had an immune system left. Seeing her go through such hell and then of course the cancer spread through her whole body was sickening. It took her 4 years to finally leave this earth but her life was not worth living for years. Couldn't even have her friends by her side and of course the finances of her husband was depleted completely. This is American, home of the brave with their AR"S blowing apart children and family's to make it complete.

This market seems invicinble. And I cannot go bullish. The way it just shot up on low volume, it just felt fake for me…

Phil// Question about FMCC – Recently the stock has been in a steady decline.  Is it worth looking at for a long term play?  Thanks.

We missed the /RB train today

Pirate/Medical-sorry about your friend.  What is really distressing is when you read Memorial Sloan's website, you see all the research they have done that proves alternative treatments for cancer work.  However, when you speak to the staff privately, they will tell you chemo and radiation are still done because they make money on it.  Standards of care in medicine were instituted by the MBAs and lawyers to limit liability.  They often preclude effective care and careful diagnosis and treatment.  

/KC – are we liking coffee down here?

Pirate, I'm sorry about your friend.  Melanoma is a very challenging malignancy to treat and has poor survival when advanced.

Seer, I'm not sure where you're getting that information.  Please remember that research and proof of effective therapy are related but not the same. If you are going to make wild assertions please feel free to include the actual data or "proof" that supports your claim.  Chemo and radiation are mainstays of cancer treatment BECAUSE they have been studied AND proven to affect survival for a variety of malignancies – and of course research is ongoing. You can't just sit at your desk and look at google to start practicing  medicine or reach some sort of peculiar conclusion about cancer treatment. 

With regard to standards of care in medicine – it's clear that you don't read any medical journals.  If you did, you'd know that "standards" are defined by clinical research – not billing, not MBA's, not attorneys.  The actual delivery of medical care, that's a different story – unfortunately that is influenced by more than just research or "standards" and for all (including those delivering care) it is particularly frustrating – perhaps that is what you meant to suggest. 

JO  / coffee

just the last two days there have been over 5500 June $16 puts bought

Phil, do you think China will start bringing us back down next week? I really thought at the very least we would be creating trading range lower, but it looks like we're headed back to test the highs. No testing of the lows?

Phil-Sorry for the rant, but thanks for the kind words. I have a friend who works for a Doc and she is the oncology nurse. She said radiation makes $ for the Doc and herself, she made good wages, but it was a total waste. All her clients died within 3-6 months, but the new ones kept coming  because they were "told" it was their only hope. Seer, I appreciate your thoughts and I agree that alternative medicine is viable BUT I have to say when I needed help previously (years ago) I was fortunate to find some Princes and Princesses who helped me. AND I did access some alternative help also. It just seems now it is much more difficult for everyone to garner the intelligent help they need and are dying needlessly when their life's can be prolonged and worthwhile.

UNG in buy territory. I have 1500 shares that I have been selling short calls against whenever it spikes higher. Also have 15 2020 $20 short puts. What further strategy would you suggest?

Phil – CHK    I misread your post.  I thought you were saying that I'd get back 3460.  I'll get back 6100, of which 3460 is profit.  My bad !

Phil, what’s your /YM position now? 

Jeffdoc – it is interesting that the "placebo effect" is a thing – like it really works. But it's weird because it really cannot be explained why. A lot of alternative therapy is focused less on physical care, which to your point is scientifically unproven, but on the individual who benefits from the positive mental effect. I'm not a doctor, armchair interent doctor or otherwise, by any stretch of the imagination, but I'm looking into something personally so this side of the conversation is very interesting to me right now.

AKS -Up sharply. 🙂

I've noticed during the healthcare debate that some of the same people that say the healthcare industry is "only in it for the money" are some of the same people that say the magic hand of efficient, free-market capitalism produces maximum benefit for society as a whole. There's probably some truth to that cutting both ways.

Stee Jobs had no less than billions of dollars and sucummbed to cancer too at 56. He had a rare pancreatic cancer diagnosis around age 50 and managed to run Apple for the next 6 years while getting treated, including a liver transplant, before dying. There are some things that money just can't buy.

Albo – AKS this why? 

So the infrastructure plan spending will go to Trump's friends and not the most competitive priced steel.

 

Commerce Department recommends major tariffs on steel and aluminum

Steel and aluminum shares are rallying as the U.S. Department of Commerce recommends tariffsX +12.7%, AKS +12.2%, MT +3.3%, NUE +4.8%, STLD +4%, CLF+5.9%, CMC +5.4%, RS +2.4%, WOR +2.2%, TS +3.7%, AA +4.7%, CENX +8%, KALU+2.2%.

The DoC recommends a 7.7% tariff on all aluminum exports, with higher duties of 23.6% on products from China, Russian, Venezuela and Vietnam.

The Department also recommends global steel duties of 24% on all imports, with a ~53% tariff on steel imports from Brazil, China, India, Russia and several other countries.

Pres. Trump has until April 20 to make a final decision.

Learner – AKS was strictly by the chart.

Bio-I was interested in Steve Jobs and his fight to survive too and actually used it to help family members get a grip on what "magic" mushrooms and alcohol  and other drugs can do to the body. Specifically the damage caused and in many cases not repairable. He had all the money needed for the best cures which didn't ultimately help him survive. It actually made an impression on the "no it all" mindsets, thankfully.

GNC  25,000 lot trade in the Jan19 $2.50 puts for .60

CSCO ( subject of Phil's comments the other day )  2000 lot sale of the 2020 $42 puts for $4.65

Phil, is this a good sale considering the buybacks announced?

Phil – Someone actually calculated how much electricity we could generate by covering all our roofs with solar panels:

https://arstechnica.com/science/2018/02/a-solar-panel-on-every-roof-in-the-us-here-are-the-numbers/

In total, they estimate that there are a little over 8 billion square meters of suitable roofs in the US. Cover that in solar panels, and you would produce about 1,400 terawatt hours of electricity each year—about two-thirds of which would come from small residential buildings. The total production is equal to nearly 40 percent of the total electricity currently sold by utilities in the US.

That might enough for residential needs! Add some wind, dams and some other renewables and we are fossil free for electricity.

Yes albo, i was just mentioning the reason AKS  and other steel names shot up.  Good for you on the trade!

With an 87% 5 year survival rate, I felt Steve Jobs just played it too smart, the guy with all the answers.

Sucks for his family, he could still be here today….

https://www.scientificamerican.com/article/alternative-medicine-extend-abbreviate-steve-jobs-life/

Pirati – "Nat you are so right…. I have heard of well off people who became ill and their entire retirement savings of hundreds of thousands was gone within a year!  Social Security is a joke and so is Medicare. Finding honest help is practically impossible. This is America, home of the brave."

Thank you for the kind words. Sorry to hear about your friend, went through similar with several. Sad but true, your "story" has become legion in our once great country.  This crumbling empire will eventually be brought to its knees by traitors, turncoats, idolators of false profits and anyone willing to sacrifice our future on the altar of money.

BDC / Placebo;

 

I had an intense discussion about "placebo effect" with my daughter  who is Ph.D. in molecular biology…and she is intense, also about cytotoxic compounds (chemotherapy), cancer has no magic bullets, no alternative therapies or things like that most of the stage III patients are in a special physiologic stage because they can accept snake venom or eating carrots all day (like Steve Jobs), the Science behind chemo and radiation is proved (I´m an example), the only other alternative is prevention and early detection.

In the future the trend is creating specific treatments based on the individual genetic code, using antibodies or modifying conditions that will create a problem in the future (Angelina Jolie tits for example), at the moment is what is available.

The placebo effect is real but is to disperse and random to rely a therapy on it.

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