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Faltering Thursday – Market Struggles Around 50 DMAs, Again

Here come those tears again

Just when I was getting over you

Just when I was going to make it through

Thinking I might just be strong enough after all – Browne

Here we go again. 

If the markets were as strong as the Wall Street narrative suggests – they wouldn't keep failing the 50-day moving averages, would they?  Not only that but we STILL haven't gotten the broadest index, the NYSE, over their Must Hold level, which means we haven't even really confirmed a broad-market rally.  

Not only has the rally had a very narrow focus but, as it turns out, the main buyer of US Corporate stocks is — US Corporations!  Last week alone, US companies bought back $1.5Bn worth of stock through Bank America (BAC) alone – the biggest week they ever recorded.  In the past 3 months, $250Bn in additional buybacks have been announced, possibly pushing us to a $1Tn year in Corporate Buybacks or about 2.5% of the entire market.  

And, of course, they are not buying every stock, mostly their own so it's those big, Top 1% Corporations, 90 of the 9,000 listed companies – the ones who were given $1.5Tn worth of tax breaks by the Trump Administration – that are bringing back the cash they hid overseas to avoid paying taxes under Obama (at no penalty) – and are using it to buy back their own stock to mask the fact that earings are not actually improving by reducing the number of shares those earnings are divided by. 

All in all, it's just a huge Ponzi scheme where companies plow back declining profits into their own stock so the CEOs can justify their outrageous salaries and lure investors into their stock while insiders and Fund Managers (ie. "smart money") cashes out.  Then, when the whole thing ultimately collapses, they will say: "Who could have seen that coming?"  

I know it's complicated but let's make it as simple as possible.  Let's say, for example, that your friend wants to open a car dealership and he needs to get 100 cars on the lot for $25,000/car ($2.5M) and he needs a lot and a building to sell them from so call it $3M.  Clearly, the liquidation value of the business is $3M, perhaps not even because there may not be an immediate market if you and he change your mind about the business but, for the moment, you can call it a $3M asset.  

Now, in Q1, we sell 10 cars for $30,000 each and make $50,000.  As your friend is the CEO and salesman he reasonably asks for 40% of the profits so $20,000 and maybe $5,000 to keep the lights on, so "SG&A" (Salaries, General and Administrative costs) is $25,000 and there's a $25,000 profit.  

Image result for used car salesIf the business continue like this, it will make $100,000 for the year and your $3M "valuation" would require a 34x multiple of earnings to be justified.  Well it's a start-up and you hope to do better so you spend money to advertise ($5,000) and you hire another salesman and a receptionist for $10,000 and now you sell 15 cars for a $75,000 profit less what is now $40,000 in SG&A and, congratulations, you now made $35,000 in Q2 – up 40% from Q1!  

Now your business is trading at "just" 21.4 x earnings and let's say by Q4 you are making $45,000 a month but now your dealership is full and the CEO wants a raise and, to expand the business further, you need another $3M to open another showroom.

So now you go public and you project your $180,000 annual profits will be mirrored or exceeded in 5 new stores and, though you make just $180,000/yr now, you project 5x that in 2 years for $900,000 and you ask for a valuation of 20x that for $18M and you sell 10% of your business for $1.8M to investors and you borrow $1.2M from the bank.  Very exciting, right?  

But wait, what is the reality?  The reality is that we're still just one car shop with $1,080,000 in sales and $180,000 in profits yet you've raised $1.8M in cash and borrowed $1.2M which, at 5% will cost you $5,000 a month in interest alone and a 10-year repayment means you need another $10,000 a month to pay back principal so $15,000 a month to service debt is the ENTIRE $180,000 you made last year!  

Image result for stock buybacks valuation

So now you are netting $0 per month so you'd better open that new store fast and staff it up and train people before the investors get pissed but, in your hurry, you make a few mistakes and, at the end of year one, store two is making only $90,000, which means the whole company is making $90,000 on $1.5M in sales and now has spent all the cash and borrowed money – oops.

Still worth $18M?  On a larger scale, this is what happens to corporations all the time as they get overly ambitious and struggle to justify their amazing salaries, not to mention the Corporate Jets and fancy offices and secretaries, etc.  I used to have a secretary – I really miss that!  Anyway, that's why Corporations like to buy back their stock – they don't need to figure out how to make more money if they make less stock and then the same monney is divided by less stock and their earnings per share increase and they look like geniuses.  

Image result for stock buybacks valuation

Let's say you and your buddy instead took the $1.8M you raised and the $1.2M you borrowed and spent $1.5M buying back half the stock.  Now you are still making nothing (due to the loan repayment) but, in non-GAAP reporting (see TSLA), you ignore your debt and focus on the $180,000 you made, now divided by half as many shares so your earnings per share double and you still have $1.5M to spend so NOW you do another round of capital raising at higher prices and pay back some of your debt.  

Image result for stock buybacks valuation

You can see how attractive this path is for Corporations but all they are doing, as a company, is treading water while their valuations skyrocket and, as soon as they stop – they will drown as the weight of their valauations and expectations crash into the reality that they haven't built up their businesses at all.

Think about this when evaluating your investments.  Are they really growing into the future or are they just playing accounting games?  Sadly, for a very, very large sampling of major stocks – the answer is accounting games.

Be careful out there!  


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  1. Good morning, All!

    The webinar replay is now available!

  2. Good Morning.

  3. Phil,

    I’m short /NQ at 7060 and trying to decide if I should get out now or wait for a better drop?

  4. /KC – Long at 1.1960 -

  5. Good morning!  

    Well the open is not going well, pretty sharp sell-off so good job holding on Japar but it's the kind of market you have to keep moving your stop down for (see yesterday's demo in the Live Webinar) and just pick up a new horse if it goes lower.  

    Like we just tested 7,040, which is up $400 so for sure 7,045 ($300) should be the stop, right?

  6. Good job, Tshroy. 

    So, for day-trading purposes, we see an opening failure at 24,900 (strong bounce), 2,760, 7,075 and 1,592.50 so now those are the crosses to go bullish (on the laggard) if we get back there.  

    You can see the bottoms put in at 7am so, if those hold, we can go long the laggard and then calculate the weak and strong bounce on the 5 min chart so, for the Dow 24,900 to 24,800 is 100 points down so 24,820 and 24,840 are our bounce lines and we can play /YM long at 24,800 with tight stops below expecting at least a 20-point ($100) bounce, which would then become our stop once we're over it and the next goal would be 24,840 and, if we get over that – it's a real recovery but I'd be very quick to take a quick $200 at 24,840 – ESPECIALLY if one of the other indexes was still lagging (having not hit their strong bounce yet).

    If that's the case, I calculate the strong bounce lines on the other indexes and then, if those begin to be taken out – I go long the laggard of that group and those lines become the stops for my next set and, if they begin to fail, then I can short the laggard off those same lines.

    • So, for the S&P, 2,760 to 2,753 is 7 points so call it 1.5 bounces to 2,754.50 and 2,756.
    • Nasdaq 7,075 (round up to 25s on /NQ) to 7,050 is 25 so 5-point bounces to 7,055 and 7,060
    • RUT 1,592 (because that was a firmer line than 1,593 to 1,582 is 10 points so 2-point bounces to 1,584 and 1,586.

    Obviously, if the lows fail, that's bearish but that's the very short-term range we watch for now.

  7. Very interesting morning post on the stock buybacks Phil, I liked that little dose of education with it. 

    One thing that kind of jumped out at me was:

    "by using cash or debt to buy back stock the company may invest less in operating businesses thus affecting their value:…..point c – positively (if investments are expected to earn less than the cost of capital)"

    i would assume for smaller companies there should be positive returns from investment in the operating business and growing, but is it perhaps the case that larger companies are in part buying back beacuase of this point "c"; if they dont feel that investment in growing the business will exceed cost of capital at this time? 

    And if that is the case then surely that would be completely contradictory to sky high p/e ratios that are rooted in the assumption of massive future growth?

    Just a thought, not sure if it makes sense or no!

  8. Hi Phil and All – What do you think of SIG? It got slammed yesterday due to a decrease in guidance but it looks cheap to me: ?

  9. Costs/CRS – Yes, that's what I was getting at (could be a whole book) with that early growth example vs the uncertainty of really pushing the business.  It's that "law of large numbers" that leads to declining returns.  When you are $100Bn company – you probably have you niche in your market and (think Dr Pepper) – throwing more money at it won't really change things as your competition will just throw money right back.

    So expanding is dicey and entering an entirely new line of business is risky but CEOs need to show quarterly profit growth because running a lovely $100Bn company that makes $10Bn a year on a rock-steady basis gets you fired in modern markets.

    That means the CEO has to engage in creative financing through tax evasion or buybacks or they have to look for a company they can buy because, even if they screw that up – they'll still be able to blame the transition for 2 years while they keep collecting their enormous paychecks and their options vest.  And, of course, most CEOs are the type of people who think they can pull off a huge acquisition 

    Now /RTY is still at the lows while others are hitting bounce lines so, if  they go over, /RTY is the best long as it's lagging but need to see 2,760 (weak), 7,075 (weak) and 24,900 (strong) break over and then long/RTY at 1,582 is the good play.

    /NGV8 retesting lows at $2.84, now only 0.05 (vs 0.10) over /NG, which is hitting $2.69.  

    Once again, we can apply the 5% Rule:

    On the day chart, we can see the Feb/March lows of $2.55 but that's a continuous (blended) contract view while THIS contract in the hourly view bottomed at $2.65, so we'll use that line and $2.80 was the top so 0.15 means 0.03 weak retrace to $2.77 and 0.06 strong retrace to $2.74 so below $2.74 is trouble – hence the fast 0.05 drop from there.  

    $2.70 though, held up nicely after the spike down and the fall (theoretical) from $2.80 back to $2.65 is the same 0.15 and the same 0.03 bounces would be $2.68 and $2.71 (strong) so now we know the key lines to watch at $2.65, $2.68, $2.71, $2.74, $2.77 and $2.80 and then we look at the 5 min chart to see how it's doing:

    Not good and I have 2 long /NGV8 at $2.847 ($2.79 on this chart) avg and I'm sure this drop is over today's not really bad /NG report – so I'm more inclined to add at $2.68  ($2.80 on /NGV8) than get out and only if $2.65 fails ($2.77) would I cut back and wait to see where a bottom forms.  

    SIG/Ilene – Looks very good to me.  Made $4.28 per $39 share with big growth in ECommerce.  Margins were down a bit and they are reducing store count and inventory by about 7%, which incurs some costs and is driving down guidance.  

    The key takeaway

    Signet's fiscal Q4 numbers were decent, but its outlook indicates that it will face some tough headwinds throughout the year. E-commerce only generates a small slice of its revenues, and Signet could struggle against higher-end retailers and bigger e-commerce marketplaces as it attempts to grow them.

    I think they are worth a put sale for the LTP since we can sell the 2020 $30 puts for $5 and that's net $25 or $14 off the current $39 (35%) so yes, we can sell 10 of those for $5,000 and promise to buy SIG for a 35% discount!  

  10. Year End 28th Jan 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 3,749 3,983 4,209 5,736 6,550 6,408 6,230 6,194 6,135 +11.3%
    Operating Profit $m 507.4 560.5 570.5 576.6 703.7 763.2 655.6     +8.5%
    Net Profit $m 324.4 359.9 368 381.3 467.9 543.2 465.5 459.9 407.8 +10.9%
    EPS Reported $ 3.73 4.35 4.56 4.75 5.87 6.93 5.76     +13.2%
    EPS Normalised $ 3.74 4.35 4.56 4.75 5.87 7.21 5.86 6.52 6.04 +14.0%
    EPS Growth % +59.7 +16.2 +4.9 +4.3 +23.5 +22.8 -18.7 -9.58 -7.30  
    PE Ratio x           5.30 6.52 5.86 6.33  
    PEG x           n/a n/a n/a 3.83

    So we're offering to buy them for 35% below the 2012 lows, even though we are now making 50% more than we made in 2012.  

    This is how we stock the short puts in the LTP.  At least once a month we get an opportunity to collect $5,000 in exchange for our promise to buy a stock very, very cheaply.

  11. $250/contract on /RTY already so stop at $200 (1,586) and then we'll look for the next good play.

  12. Ouch on /KC so far………hopefully it'll reverse and head to 1.22 again. Is that a valid investing premise. :)

  13. Thanks, Phil! 

  14. /KC/Ult – Well it's quite the day for commodity collapses it seems.  It's not a good breakdown on the weekly chart but I added one at $118 to avg $119 and hopefully $118 holds because it gets scary below there.  

    So the only other time this happened recently was last June but it was a blow-off spike ahead of a huge rally.  On the other hand, a pessimist would say we dropped 0.40 between last Jan and June and, so far, we're only down 0.12 from $1.30 in Jan.

    From there, we have to consider the real cost of coffee and supply/demand picture, etc.  We also have to consider the JO is liquidating it's contracts which should be offset by BJO buying but maybe not at an even pace.  

    15 Mar 2018

    The latest report from the respected Rabobank and based on their lowering of their new crop forecast for Brazil this year, have reduced their forecast for global coffee supply for the forthcoming October 2018 to September 2019 coffee year to more modest 3.2 million bags. This they say shall follow a 2.6 million bags deficit coffee supply, for the present October 2017 to September 2018 coffee year.

    This report while possibly seen to be near to neutral for coffee market sentiment is though somewhat conservative in comparison to many other forecasts within the market, with the speculative sectors within the terminal markets continuing to foresee more than sufficient coffee supply for the medium to longer term. As is reflected by their short selling activity and the prevailing soft nature of both the New York and London markets, which continue to take a soft sideways track.

    The new Indian coffee crop is coming to the market but reports are that there is internal market price resistance, which is resulting in a lack of selling aggression on the part of Indian coffee exporters. There are in the meantime reports from Indian coffee farmers that their new crop harvest has been below expectations and this is the reason for the slower internal market sales, but it is difficult to adjudge if this is truly the reason and is it not more so a reaction to the soft prices on offer, which is slowing sales.

    Nothing earth-shaking today so, lacking information that shows why my trade is going against me – I add to it! 


    Image result for dow 25,000 hat

  15. HBI   saw this trade pop up

    1500 Jan 2020 $18 puts sold to open for $2.40 

  16. Bloomberg consumer comfort index falls back

    • The Bloomberg Consumer Comfort Index fell back to 56.2 from 56.8 last week.
    • The State of the Economy index moved to 59.1 from 60.1.
    • The Personal Finance index edged up to 62.1 from 62.0
    • The Buying Climate index dropped to 47.3 from 48.4.
    • Mar. Empire State Survey+9.4 to 22.5 vs. +15.0 consensus, 13.1 prior.
    • New Orders 16.8 vs. 13.5.
    • Shipments 27.0 vs. 12.5.
    • Number of Employees 9.4 vs. 10.9.

    • Feb. Import/Export Prices: Import prices Index +0.4% vs. +0.3% consensus and +0.8% prior (revised).
    • Export prices +0.2% M/M vs. +0.3% consensus and +0.8% prior.
    • Median rent of $3,168 is down 2.8% from a year earlier on softening demand, and additional supply of new units.
    • Landlords are cutting rents, and offering move-in incentives to fill empty units.
    • Jonathan Miller, president of Miller Samuel, said, “Landlords, they’re not playing around. They’re being more aggressive in terms of time. They just want to get them in.”

    Crypto-world continues its decline as the death of Bitcoin rhetoric is back

    • Google searches and tweets about Bitcoin have fallen sharply, as the digital currency continues its decline.
    • “The general public is now realizing that this is not a risk-free, get-rich-quick, investment opportunity and general interest has since diminished,” said Lucas Nuzzi, a senior analyst at Digital Asset Research.
    • Bitcoin fell under $8,000 to as low as $7,676 for the first time in a month as Google announced a ban in ICO related advertisements.
    • Selling from Mt.Gox trustees is blamed as the key reason for the decline in recent months, but regulatory crackdown, and a rising bearish sentiment have also played their part.
    • The selling is not limited to Bitcoin as more than $60B has been wiped off the market value of cryptocurrencies in the past 24 hours, before prices started to recover.
    • The biggest tokens by market cap are still down in the last week, with Bitcoin at $8,415 down 16% over the last 7 days, Ethereum at $618 is down more than 18%, Ripple at $0.70 is down 18%, and Bitcoin Cash at $939 is down more than 12%.

    Reuters: Shell nears Hong Kong's first LNG import deal

    • Royal Dutch Shell (RDS.ARDS.B) is near an agreement with Hong Kong to become the first company to supply the city with liquefied natural gas, Reuters reports.
    • Shell, which beat out companies including Malaysia's Petronas, will supply Hong Kong with 1.2M metric tons/year of LNG for about 10 years starting after 2020, according to the report.
    • The deal reportedly will be subject to a final investment decision for an offshore LNG import terminal that will include a floating storage and regasification unit.
    • As part of its commitment to the Paris climate agreement, Hong Kong is aiming to increase the use of natural gas in its total fuel mix for power generation to ~50% by 2020 from 22% as of 2012.

    FDA looks to set maximum nicotine level in cigarettes

    • The FDA has pushed forward with implementing a rule to set a maximum level of nicotine allowed in cigarettes.
    • The regulator is in the process of deciding how to adopt the change and at what level to limit the nicotine in products.
    • "We envision the potential circumstance where nicotine levels in cigarettes do not spur or sustain addiction for some portion of potential smokers," says the FDA in its statement.
    • Full Federal Register posting from the FDA
    • Related stocks: Altria (MO +0.5%), British American Tobacco (BTI), Philip Morris International (PM -0.4%), Vector Group (VGR -1.4%), Alliance One (AOI +0.2%), Turning Point Brands (TPB+0.2%).

    Toys "R" Us initiates bankruptcy process

    • Toys "R" Us files with the U.S. bankruptcy court to wind down operation at all its U.S. stores and liquidate inventory.
    • The company sees closing 380 stores in North America, with the first wave of 144 to begin closing in February and the second wave of 236 stores slated to begin the shuttering process in April.
    • There are separate efforts to save the business in Canada and France, while MGA Entertainment is also hoping to buy some assets out of the bankruptcy process.
    • Mattel (NASDAQ:MAT) is down 1.20% in premarket trading, while Hasbro (NASDAQ:HAS) is flat. On a YTD look, Mattel is down 8% and Hasbro is off 3%
    • Barnes & Noble (NYSE:BKS) says it expects EBITDA in 2019 of $175M to $200M. The outlook is much higher than the consensus estimate of analysts of $145M.
    • B&N expects fiscal 2019 EBITDA to grow through improved sales trends and expense reductions.
    • The retailer plans to post more information on full-year guidance when it reports FY18 results on or around June 21.
    • SEC Form 8-K
    • Shares of Barnes and Noble are up 10.42% premarket to $5.30.

    WSJ: Alibaba pursuing listing in mainland China

    • Alibaba (NYSE:BABA) is exploring ways to list its shares in mainland China, according to WSJ sources.
    • The secondary listing could happen as soon as this summer if China’s securities rules change to allow foreign companies to list. Alibaba’s key business is in China, but the company is incorporated in the Cayman Islands. 
    • WSJ previously reported that China’s securities regulator has spoken with investment banks about allowing foreign companies to issue securities on the mainland. 
    • For Alibaba, the dual listing would give the option of domestic fundraising in local currency. 
    • Alibaba’s 2014 listing on the NYSE still stands as the world’s largest IPO with its $25B float. 
    • Alibaba shares are up 4.2% premarket to $200.55.  
    • Previously: Alibaba participates in $866M round for bike-sharing company (March 13)

  17. Phil,

    Are you still short /RB? I just closed out above 1.93. Looking for a long for weekend run up

  18. HBI/Stock – Hmm, I guess we'll have to pull the trigger on them since that may be a sign something is up.  

    HBI was our 2nd choice for Stock of the Year because our first choice, LB, had already snapped higher by Thanksgiving, when we officially make our pick.  Both are out of favor at the moment and we already picked up LB but now we can add some HBI to our Portfolios as well:

    Note our old LTP play from 2/3/17 had a rough ride:

    Submitted on 2017/02/03 at 7:46 am

    HBI/Rexx – If they go down 30% I will dump other stocks so I can load up the truck.  Goes back to what I try to teach you guys about the absolute value of a company.  This isn't some with a blown business model or a retailer with too many stores and too few customers, this is a brand clothing company in an age where it take hundreds of millions to build each brand and you get Maidenform, Bali, PlaytexHanes, JMS/Just My Size, Lilyette, WonderbraDonna KaranDKNYChampionPolo Ralph LaurenL'eggs, Hanes Beefy-T, Gear for Sports, Duofold, DIM, Nur Die/Nur Der, Lovable, Shock Absorber, Abanderado, Zorba, Rinbros, Kendall, Sol y Oro, Fila, Bellinda, Edoo, and Track N Field AND $5Bn in sales AND $400M in profits for $8Bn.  If you don't understand the value in that – stick to TA!  

    Submitted on 2017/02/03 at 12:54 pm

    HBI/Pstas – $25 seems about right.  As to 44% of sales, so the 3 largest retailers sell 44% of something that pretty much every retailer (including AMZN) sells?  That's nothing to worry about.  If you don't get your Leggs from WMT it's because you're getting them at WBA or AMZN or whatever but you are still getting Leggs and HBI doesn't care WHERE you buy their stuff.  

    Submitted on 2017/04/13 at 1:03 pm

    Hanesbrands higher after guidance update

    • Hanesbrands (NYSE:HBIreaffirms 2017 guidance. The company also says that it expects to report Q1 revenue of $1.38B and EPS of $0.28 to $0.29 vs. $0.28 consensus.
    • "We’re off to a strong start in 2017, and we are diligently focused on daily execution and performance," says CEO Gerald Evans.
    • In the C-suite, a search for a new CFO is underway after Richard Moss announced he will retire from the post at the end of the year.
    • Shares of Hanesbrands are up 6.58% to $22.50.

    Submitted on 2017/05/02 at 5:00 pm

    HBI/Learner – Bots see the words "lower guidance" and the 2.5% Rule kicks in.  Humans will fix it tomorrow. 

    Submitted on 2017/05/03 at 12:31 pm

    As noted to Jabob above, all we care about is that HBI stays over our net $17.77 and we're profitable.  In fact, because we only have 10 for a $2,230 credit and $1,800 in ordinary margin inside a $50,000 allocation block – we would MUCH prefer if they crashed to $15 or $10 or whatever and we could double down to a proper-sized position.  Unless that happens, we're merely amused by the up and down action between now and Jan, 2019.  Meanwhile, over $20 we make $2,230 – $7,230, which is 123%-401% back on our margin in 2 years.  

    When you are BEING THE HOUSE, you don't sit and stare obsessively at every bet that is won and lost on each of your games – you look to expand your casino and have more players playing more games because you KNOW that the odds are very much in your favor and, while you may lose a few individual bets – over the long run, you are very likely to come out far ahead if you simply stick to the plan.

    It's hard work being a Fundamentalist – all the waiting and arguing…  cool

    So now they are back near the $18.25 bottom of last Feb and again I look at the $1.75 they are reliably making and the $19.50 current price of a share and I check it with $645M in cash-flow (earnings were impacted by one-time tax adjustment) against a $7Bn valuation and that seems like a winner to me.  

    They pay a nice 3% dividend so we don't mind owning them, which means we can get aggressive with short puts – especially in the LTP, where we have tons of buying power.  

    For the OOP, let's just take a poke with the following:

    • Sell 5 HBI 2020 $18 puts for $2.50 ($1,250) 
    • Buy 10 HBI 2020 $18 calls for $4.20 ($4,200) 
    • Sell 10 HBI 2020 $23 calls for $2.10 ($2,100)

    That's net $850 on the $5,000 spread so $4,150 (488%) upside potential at $23 and we only risk owning 500 shares which TOS says is just $606 of ordinary margin so it's a super-efficient trade too!  

    In the LTP, we'll be more aggressive:

    • Sell 15 HBI 2020 $20 puts for $3.70 ($5,550) 
    • Buy 25 HBI 2020 $15 calls for $5.90 ($14,750) 
    • Sell 25 HBI 2020 $23 calls for $2.10 ($5,250) 

    Here we're spending net $3,950 on the $20,000 spread so the upside here is $16,050 (406%) but we're a bit deeper in the money and that will come in handy later, when we will sell 5-10 short calls in the front month (after we recover  a bit).  Even now, for example, selling 10 April $20 calls for 0.90 would put $900 in our pocket for selling just 36 of the 673 days we have to sell.  Just 10 sales like that puts $9,000 back in our pocket and would have us up over 100% leaving whatever we gain from the spread as just a bonus to that!  

  19. SIG/Ilene,Phil – SIg is one of the stocks on Cohodes short list because of fraud. Not sure he's done with them, either. He's posted some particular critiques of their numbers, and business.

  20. Consumer Product Companies – good twtr thread about the group yesterday. Here is the 'unrolled' thread: 

  21. /RB/Japar – Well I should have stopped out but I just had 2 so I added one short at $1.932 and now I have 3 short at $1.925 and, of course, that kind of commits me to 6 at $1.95 for a $1.9375(ish) avg which I'd take into the weekend because I still don't see the consumers accepting that at the pump. 

    We did hit $2 at the end of Feb so I'd stop out over $1.95 and re-enter at $2 but, hopefully, they fail at $1.94 again and come back to $1.90 or lower.

    SIG/Scott – Which fraud, the store credit fraud or the diamond quality fraud or the disclosure fraud re. sexual harassment?  They're a huge company with 3,600 stores in a sleazebag industry.  It's like not investing in a PayDay lender because they might be gouging people – it's kind of their business model!  cheeky

    Link didn't work for me, Scott – although I'm pretty sure my computer is now mining BitCoins for the Russian Mob…

  22. Bitcoin/Phil, "although I'm pretty sure my computer is now mining BitCoins for the Russian Mob"

    ?Very funny, I feel the same way

  23. DXY catching a little updraft?  I can't believe they are using MCD too keep it above 25K.

  24. OK, so we were REJECTED at 25,050, 2,766, 7,100 and 1,590 and those were all over the strong lines so now we look for 24,900, 2,756, 7,060 and 1,586 to hold up and, if they fail – SHORT THE LAGGARD!  /RTY is back at the lows of 1,582 so see if they fail or bounce for a clue as to where we're going.

    If /RTY holds 1,582 and the others hold their strong bounce lines – time to go long /RTY again.  

    Brands/Scott – That's interesting.  From observing my teens I notice they don't care about brands and, even if they did, they consume through their phones (even watch TV) and the playing field there for advertising is fairly level between big and small players so they are just as likely to go with either but the small companies are able to target directly to a niche and only advertise to that niche, outbidding the big boys for their most-likely consumers.

    The other thing the little guys get is influencer marketing, which is all the kids pay attention to.  Witness Kylie Jenner knocking $3Bn off SNAP's valuation with a single tweet.  The kids buy all kinds of stuff I've never heard of because it's marketed directly to them and their process is to hear about an item from an influencer and then check the reviews (because a lot of influencers peddle trash) and, if the score it good – they order it and then snap photos of themselves with the product and write their own review and now they are part of the process and brand loyal.

    Coke doesn't get that, Levis doesn't get that, Clairol doesn't get that…

    Brave new world!  

    Good example yesterday was Jackie sending me 5 text messages in a row because Beyonce pre-released tickets for her tour to people who used her husband (Jay Z)'s Tidal streaming service.  I happen to already use it (tickets accomplished) but I'm sure a Million Dads just signed up so brilliant cross-promotion by the power-couple.  They get it!  

    Image result for beyonce tidal tickets

    /DX/That – Kudlow is a strong dollar guy.  

  25. phil, i would appreciate your thoughts on BHGE?  i have 4x 2019 45adj/60adj spreads, showing about a 2K loss, with ~$1500 remaining value.  i had made money already on the short BHI puts already, but it would be nice to recover this loss too.

  26. Hi Scott, 

    Thank you. The link didn't work for me either. 

    Re: SIG/Ilene,Phil – SIg is one of the stocks on Cohodes short list because of fraud. Not sure he's done with them, either. He's posted some particular critiques of their numbers, and business.

    The stock was killed yesterday, so being short would have been a good idea. Is it possible to know if Cohodes is going to cover now? It looks like the stock was once at $150 and now it's at $38. 

  27. Donald Trump Jr is reportedly getting divorced as his life spirals out of control

  28. I’ve got a few /RTY now, avg is still a bit high at 1586, but I’m working that down. 

  29. FERC ruling hitting MLP pipeline stocks hard.  i.e., EPD, KMI, NGL, WMB, WPZ, etc.

  30. /TF looks ready to move, but all indexes pulling back so likely down, unless they jam it up into the close

  31. BHGE/Lunar – In theory, it's the same company we liked but we don't know what the financials look like now.  I'd certainly liquidate those and go for a proper spread on the new contracts so you can sell short calls.  The 2020 $23 ($9)/$30 ($5.50) bull call spread is just $3.50 and you can sell $25 puts for $3 to net in for 0.50 on the $7 spread and let's say you did 6 of those for $300 and you sold 2 of the April $30 calls for $1.25 ($250) – well there's your $2,000 back and you still have a $4,200 spread that's in the money and liquid.  

    Looks like /RTY was right and the indexes that went up were wrong!  

    Obviously, /YM is the best short – especially if 24,900 fails (tight stops above).   Confirmed by failures at 2,750, 7,050 and 1,580.

    MLPs/Albo – Ouch, that hurt! 

  32. Stopped out of the longs of course.

  33. 24,800 holding so far but of course it's going to be bouncy after flaling from 25,050 so 50-point bounce is just weak.

    Allegations that WMT faked ECommerce results!  

  34. SIG/Phil – yeah probably all the above frauds, and cooked books, too (but what's new?). Ilene, I'll post up Cohodes comments on SIG next time I come across them.


    here comes the panic selling?

  36. Thanks, Scott! 

  37. I would not flip long on anything with /RTY below 1,580 and /ES below 2,750 and /NQ below 7,050 but, if they all pop, then I'd go long /NQ – as they have the best chance of making a nice move (as /RTY has been dead regardless of the rest).  

    Mueller sends out more subpoena's - getting closer and closer to The Donald! 

    WASHINGTON — The special counsel, Robert S. Mueller III, has subpoenaed the Trump Organization to turn over documents, including some related to Russia, according to two people briefed on the matter. The order is the first known time that the special counsel demanded documents directly related to President Trump’s businesses, bringing the investigation closer to the president.

    The subpoena is the latest indication that the investigation, which Mr. Trump’s lawyers once regularly assured him would be completed by now, will drag on for at least several more months. Word of the subpoena comes as Mr. Mueller appears to be broadening his investigation to examine the role foreign money may have played in funding Mr. Trump’s political activities. 


    Mr. Trump’s lawyers are in negotiations with Mr. Mueller’s office about whether and how to allow his investigators to interview the president. Mr. Mueller’s office has shared topics it wants to discuss with the president, according to two people familiar with the talks. The lawyers have advised Mr. Trump to refuse an interview but the president wants to do it, as he believes he has done nothing wrong and can easily answer investigators’ questions.

    At the same time, Mr. Trump is considering whether to bring on a new lawyer to help represent him in the special counsel’s investigation. Last week, Mr. Trump spoke with Emmet Flood, a longtime Washington lawyer who represented former President Bill Clinton during the impeachment process, about coming into the White House to deal with the inquiry.

    This is our President!  Horrifying!!!  

    Perhaps most consequential for Robert Mueller’sinvestigation, sources said Trump has discussed a plan to fire Attorney General Jeff Sessions. According to two Republicans in regular contact with the White House, there have been talks that Trump could replace Sessions with E.P.A. Administrator Scott Pruitt, who would not be recused from overseeing the Russia probe. Also, as an agency head and former state attorney general, Pruitt would presumably have a good shot at passing a Senate confirmation hearing.

    17 kids are murdered in a school with an assault weapon and crickets from Republicans in the senate. 1 dog dies on a plane and we have a bill 24 hours later. priorities!!

    Denial is not just a river in Egypt:

  38. Ended up +$500 on /RB after all that.  Happy to be done.  

  39. Options - I have some short calls expiring tomorrow. All out of the money. All in order. And TDAmeritrade includes this in their "Options expiration notice": 

    "You're not alone with your options choices, though. TD Ameritrade provides options traders with a wealth of information, education, and support. We're here for you. "

    Oh thanks! I'm glad I'm not alone.  
    I don't know how long they have included that line, but first time I noticed it.
    Makes me wonder how many people they wrangle into options with no clue about what they are doing.

  40. EPD

    Enterprise Products says FERC policy revision not expected to have a material impact to earnings and cash flow.

  41. Wrangling/Scott – Actually, these days, you have to take a test to trade options so they aren't pushing anyone in who doesn't actively want to trade them.  I think it's nice they offer support but I also wonder how good it is.    

    Would be interesting to get their idea for an adjustment vs mine on a few trades.  

    Finally an addition for the Butterfly Portfolio!    

    • Sell 5 DIS 2020 $90 puts for $6.10 ($3,050) 
    • Buy 15 DIS 2020 $92.50 calls for $21.50 ( $32,250) 
    • Sell 15 DIS 2020 $110 calls for $11.50 ($17,250) 
    • Sell 5 DIS May $105 calls for $3.15 ($1,575) 
    • Sell 5 DIS May $100 puts for $2.15 ($1,075) 

    The main spread is net $11,950 on the $26,250 spread and we're generally bullish on DIS but then we're neutral in the short term and selling $2,650 worth of premium over 64 days so collecting back 22% of what we laid out in 1/10th of our trade time puts us on track to recoup the $11,950 in a year or less, which would make the spread pure profit.  Keep in mind, it's only a $100K portfolio so one winner like this is a 25% gain.  That's why we prefer to wait patiently to fill the portfolio.

  42. K/Phil – any idea what happened to them today?

  43. KMI

    Kinder Morgan responds to FERC announcements, says not expected to be material to distributable cash flow.  

  44. Phil in the DIS play do you not wish to add a long leap put?

  45. K – GIS and CAG and SJM on big slips, too. not seeing any particular news. GIS had a not very big downgrade yesterday.

  46. Phil / SIG – Was looking through this and every thing looked pretty good  have good margins, and reasonable debt ( although that may pick up) and good div  coverage.  however they just took their recently updated outlook of 6.45 to 6.5 eps – provide in Jan to $4 ish …  I view this as a falling knife…  if it this 35 to 30 I'd be a bit more interested.  I like the jewelry business model, but I'm really worried about further issues with the outsourcing, visibility and overall quality of management.  

    from last earnings – note they outlooked 6.5ish, consensus was down to 6.05 ish…..

    For fiscal 2019, Signet is expecting same-store sales to be down in the low to mid single digits. It expects sales to range from $5.9 billion to $6.1 billion and adjusted EPS of $3.75 to $4.25. The FactSet consensus is for EPS of $6.04, sales of $6.1 billion and a same-store sales decline of 1.15.

  47. ALB/Phil- my CS for 2020 is 100/130, should I roll to 75 for 13.50? I rolled down earlier from 110 to 100 when ALB dropped below 100 for 3.95.

  48. TEVA pressing below February support and looking to make a new low close for the year

  49. SIG /    Maybe you can make money playing them and sure you can sell puts for 35% off if put to you. All is good for a year or two.  However you are investing in a company selling  expensive stuff to people with lower and lower disposable income.  Is this something I want in my long term portfolio or something I want my kids to inherit, assuming its still around in 20 years?  Not really

  50. SODA continues to amaze me. no debt. issuing ton of stock. up and away, without me

  51. SIG: The stock is performing terribly but can the company turn things around?  Right now, seems no one thinks it will…

    Here's something on SIG from MarketWatch, Signet shares slide 4% as company unveils 3-year restructuring plan (

    Signet Jewelers Ltd. shares SIG, -2.05% slid 4% in premarket trade Wednesday, after the company unveiled a restructuring plan to be carried out over the next three years as it reported earnings for its fiscal second quarter. The company said it had net income of $343 million, or $5.24 a share, in its fiscal second quarter to Feb. 3, up from $287.8 million, or $3.92 a share, in the year-earlier period. The operator of Zales, H. Samuel and Gordon's jewelry chains said excluding a tax benefit stemming from the December revamp, per-share earnings came to $4.28, ahead of the FactSet consensus of $4.20. Sales rose 1% to $2.3 billion, also ahead of the FactSet consensus of $2.2 billion. Same-store sales fell 5.2% in the quarter, matching the FactSet consensus. The company announced that it is launching a three-year transformation plan, aimed at making it an omnichannel leader in its category. The plan includes cost-savings with the proceeds to be used to invest in growth and other measures. The company is planning to sell the remaining portion of its non-prime credit card receivables and to use the proceeds to buy back shares. For fiscal 2019, Signet is expecting same-store sales to be down in the low to mid single digits. It expects sales to range from $5.9 billion to $6.1 billion and adjusted EPS of $3.75 to $4.25. The FactSet consensus is for EPS of $6.04, sales of $6.1 billion and a same-store sales decline of 1.15. Shares have fallen 29% in the last 12 months, while the S&P 500 SPX, +0.02% has gained 17%.

    And from another source: 

    Signet announced a new three-year restructuring plan to drive sustainable long-term growth. The company plans to generate significant cost savings through store closures. Signet plans to close 200 underperforming stores in fiscal 2019. Signet will focus on innovation-led product launches and expand its omnichannel presence. Signet announced the second phase of its credit portfolio outsourcing and agreed to sell its non-prime receivables to investment funds managed by CarVal Investors.
    However, investors remain wary because Signet’s transformational plan entails significant costs and operational issues, which could hurt its financials.

  52. ~~ – Israeli PM Netanyahu told his cabinet that President Trump will pull the US out of the Iran nuclear deal.

    If that happens and Trump puts sanctions back on Iran, I'd think that would be bullish for oil.

  53. K/Scott – No, I don't see anything but, on the whole, they are just in their channel.  I think that whole sector is weak at the moment.

    DIS/Yodi – No, we're playing the long legs bullish as I simply don't see DIS below $100 in two years.  

    SIG/Batman – Just because someone is restructuring and taking on charges doesn't mean they are going to downwardly revise forever.  This is what I keep complaining about – investors (traders) don't let companies make investments or plan for the future.  God forbid they do anything but make more profits than last quarter and you act like the stock is toxic.  I wouldn't want them at $60 but at $40, which is 10x the revised earnings – I think they are worth a shot. 

    ALB/Dave – In the LTP, we moved into the $75/95 and $75/130 bull call spreads (10 each).  They are heading down again so no hurry, make sure you get good prices.  

    TEVA/Scott – We're done with them.  

    SIG/Stock – You think girls won't want jewelry in 20 years or rings when they get married.  I'll take that bet!  

    Remember – "If you want it you better put a ring on it!"  That's Beyonce – word!  

    Iran/Albo – Lots of ifs there but sure, short-term bullish.

    /RTY woke up right into the close. 

    On the whole, not a good technical day.

  54. AVGO makes $5.33 for the Q – very nice.  

    ADBE rockin' it too ($1.55):

  55. Diamonds; I've been trying to tell my girlfriend about how diamonds are a scam and the diamond cartel constricts supply and pretends they are more rare then they actually are and how these diamonds are way overpriced for what they are will not appreciate in value etc etc…I believe they even dumped a massive stock of diamonds into the ocean after world war 2 to reduce the glut (this could be an urban myth…), Gotta hand it to the advertisers though, the whole diamond ring scheme they cooked up has created an entire industry. Pre 1900's i don't believe the diamond engagement ring was even a popularized thing, until one of the diamond companies cooked up the marketing machine to pull on the heartstrings "if he loves you he must buy you a diamond"..

    I know I am fighting a losing battle here (kind of like that greek mythology or the guy constantly pushing the massive boulder up the hill for eternity?) Lol, but I gotta say it, even just for my own conscience. A fat physical gold ring I can get behind, gold, now there's something with value to it! 

    Anyway, eventually I will be broken and be forced to concede defeat and buy one of these scams as the arena of marriage is no place for logic. Probably go the manufactured diamond root to get more bang for the buck and feel slightly less scammed. 

    Anyway rant over! 

  56. If it makes you feel better gold is also a big pyramid scheme. As an industrial metal it is worth $50/oz. So you move from Au to C on the periodic table and that somehow = more value? I feel like with this argument people are horse trading one massive-fraud conspiracy theory for another. 

    Noble metals are cool, though I am a bit of a chemistry nerd. I sort of like both Pd and Pt because they have less commercial market appeal (jewelry or what have you) and a strong industrial demand. So that dampens the horse trading above because there is less social value aspect to be gamed by a globally conspiracy. For example, I can turn a Pd coin into a catalyst and run ethanol fuel cells (to make green power and acetate), and sell value-add chemicals, if the price of Pd goes too low. Gold — nope!

  57. Gold/BDC, King Tut would've had you beheaded or burned alive for talking like that

  58. U.S. Military Helicopter Crashes in Iraq With Seven Aboard

  59. There’s a lot of smoke around Donald Trump on the Stormy Daniels story

  60. Trump decides to remove national security adviser, and others may follow

  61. Miami Bridge Collapses; at Least 4 Are Dead

  62. America’s Phony Middle East Wars

  63. Modi may rule till 2029! How long will other powerful world leaders last?

  64. Trump can’t escape Washington’s Russia fever

  65. Inside the Trump Circus of Corruption

  66. Good morning!  

    I have a breakfast meeting at 7 but should be back before the open.

    Futures were down but ticking green now for no particular reason.  

    McMaster, at the moment, is NOT fired – lots of rumors going around on that one – it's even on the front page of the WSJ:

    Trump Plans to Oust National Security Adviser McMaster

    Meanwhile, Russia is retaliating with sanctions against the US and we are sanctioning China for trade and no one seems to notice, no on seems to care….

    Another thing people don't seem to care about is ToysRUs's violent liquidation that is knocking 30,000 people out of work with no severance, leaving hundreds of empty stores as well as non-payments to various vendors.

    Toys ‘R’ Us Liquidation Could Leave Vendors Without Payment

    It would be nice if this were the only one – but it won't be.  So many companies have been on the edge with massive debt and rising rates will shove them over that edge.  China too.

    Unfortunately, it's another wait and see day but we've made some good money on little range trades this week so we'll see what opportunities pop up during the day.

  67. crs I second your opinion on the diamond scam, gold how ever I support.