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TGIF – Silly, Low-Volume, Pumped-Up Week Finally Ends

What a week it has been! 

The S&P 500 has blasted off our 20% line (that's 20% above fair value, by the way) to the 23.33% line at 2,728 and that's what we call a strong bounce from the fall we endured way back in late Jan/early Feb and doesn't actually mean a thing until we're over it.  Otherwise, it's just a the top of the same trading range we've been in all year.  

This morning we have the Fed's Bullard speaking at 8:30, who used to be reliably hawkish but turned doveish last year – so anything can happen when he gives a speech this morning at his local Business Development Corporation (Springfield, MO) on "US Monetary and Economic Policy."  People tend to get a bit more real when talking to their hometown crowd – like the time Trump boasted that he "could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose votes" to illustrate how blindly loyal his base was.  

In our Live Member Chat Room (my "hometown" audience), I called for shorting the S&P (/ES) at 2,725 this morning as well as the Nasdaq.  Here it is in context.  

Markets holding on to yesterday's gains so far.   All about that strong bounce line.  

Bullard speaking at 8:30 so we'll see what he has to say and then Consumer Sentiment probably decreasing a bit at 10, but nothing likely to move the market other than Trump's Drug speech later and that's bound to spook that sector so I'd short /ES here (2,725) as we know they have trouble at 2,728 so $150 loss limit but very likely to give us a little run lower (though maybe wait until Bullard to be sure).  

2,725 on /ES is lined up with 24,750 on /YM, 6,975 on /NQ (still a shorting line with tight stops above) and 1,608 on /RTY and same there with a stop over 1,610.

Also, Dollar is back to 92.41 and may be bouncy here – so more ways to pressure the markets.  

Oil $71.37 and /RB 2.19 is also a short with a stop over $2.20 but only for quick money.

If Bullard doesn't boost the markets, it should be smooth sailing for the shorts as we take a couple of data hits today and no major earnings likely to boost us.  Congratulations to those who played along yesterday as our Oil (/CL) Futures short from the morning post did EXACTLY what we said it would do in our 8:33 am Report, starting about 30 minutes later with $900 per contract profits by 10 amyou're welcome!  

Remember:  I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!  

Speaking of things that are going to happen, Apple (AAPL) is bursting up to $190 this morning, just shy of our goaaallllllllll! at $195 but they don't hit $1 TRILLION actually until $205, so hang onto those party hats.  We talked about AAPL in-depth in Monday Morning's Report, so I'm not going to re-hash it but, as I've noted, AAPL's $160 to $195 run this month is 21% or $200Bn of value added to a single stock in a market that, at best, gets $4Bn of inflows a week.  

Not only does that mean that AAPL's valuation bump is purely speculative (in other words, there's no proof that the stock can be shared in large quantities at this price), but it also means that, as 4% of the S&P 500, AAPL is responsible for just under 1% of the gains this month and, as 17% of the Nasdaq, AAPL is responsible for 3% of the gains this month.  

How much did the S&P gain this month?  We started at 2,660 and we are now at 2,722 so 62 points is 2.3% so AAPL is about 1/2 of the S&Ps gains.  The Nasdaq began the month at 6,600 and is now 6,962 (falling as we speak) and that's 5.5% so AAPL is again responsible for half the gains (more).  Woe unto all of us if AAPL were to pull back!  

Volume has been anemic this week too with, 55M SPY shares trading on Monday, 67M shares on Tuesday, 59M shares on Weds and 68M shares yesterday vs an average volume of 101M shares so about 35% below "normal" volume, which is already close to half of last year's volume.  Why is volume drying up like this?  Because stocks are more expensive so the same money buys less and less stock and, because the economy isn't really growing – there is no more money to pay for the stocks – just a lot of idiots SPECULATING that there will be money to pay these ridiculous prices one day, so it's not important to actually earn any money because the greater fool theory will fix everything. 

The greatest fools, of course, are the last people to buy at the top – we call them bag-holders and I have been saying all week that this test of our Strong Bounce Lines is a good time to dump your stocks on the bagholders that are coming in and get back to CASH!!!.  Again, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!  

Have a great weekend, 

- Phil


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  1. Good Morning.

  2. Good morning! 

    Well, we're blasting up again on the Dow but the Nas is red but I'd take that money and run at 6,950 if they get back over.  

    /ES still under 2,728 but bullish once they get over it (again). 

    Not too bearish until the NYSE fails the 50 again and that's not happening today. 

    Dollar took a dive, that's helping.

  3. CBI options converted to MDR today, but not trading yet…

  4. STJ – QCOM has had a nice run.  Tempted to cover some with the 60 calls. 

    What are your thoughts ?

  5. Albo – I think 60 is a short term resistance line…  however if the deals goes through it should go past that.

    If the deal does not go through, once they announce their additional buy back program probably another 10 to 15B it will also go past that, but the timing here is open on the cc they indicated this would be announced late in year.

  6. Albo / CTSH on above comment

  7.  L Brands stock price target cut to $33 from $42 at MKM Partners 

  8. Consumer Comfort held up at 98.8, a little better than expected.  

    • "It is not necessary to change the policy rate to keep inflation at target," says St. Louis Fed President Jim Bullard, describing current policy as "neutral," and noting the flattening yield curve, and still-low inflation expectations.
    • Should the Fed press on with rate hikes, the yield curve could invert – and that's unnecessary, says Bullard, given there's no sign of an inflationary boomlet.
    • Bullard is not a voter on the FOMC this year.
    • Investors are withdrawing money from emerging market funds faster as rising U.S. Treasury yields and the dollar's resurgence, fed by concerns that the Federal Reserve may boost rates more aggressively, have added pressure on emerging markets, the Financial Times reported,
    • Emerging markets equity funds outflows were $1.6B in the week to May 9, its first weekly outflow since February, the FT reports, citing data provider EPFR.
    • Fixed-income funds focused on the developing world saw outflows increase, with EM debt fund outflows rising to more than $4B since mid-April; during the week, $2.1B flowed out of EM bond funds, the third straight week of outflows and the worst since February.
    • Argentina plays a central role in the drama, as its government sought help from the International Monetary Fund after its currency slid almost 18% to a new low this year.
    • An increasing number of private-sector economists are forecasting four Fed rate hikes this year, instead of the three previously expected, the Wall Street Journal reports.
    • U.S. and Chinese officials will meet in Washington today to discuss trade disputes ahead of a visit next week by China's Vice Premier Liu He.
    • "I think they agreed to the concept of a trade deficit reduction," Commerce Secretary Wilbur Ross declared. "Our approach has been to request individual products on which we could sell more to them, as opposed to them selling us less."
    • House Speaker Paul Ryan has set a May 17 deadline for the Trump administration to submit a new NAFTA deal if it wants lawmakers to vote on the revised pact this year.
    • "We have to have the paper, not just an agreement," he added. A spokeswoman clarified that he was referring to a notification of intent to sign the trade accord, not necessarily the full text.
    • Healthcare investors will be looking for direction today as President Trump gives a highly anticipated speech about drug prices.
    • The plan will reportedly require Medicare Part D plans to share a portion of discounts they receive from drug manufacturers with patients, as well as including ways to allow the government to better negotiate.
    • Amid concerns over regulation, the S&P 500 healthcare sector has declined about 1% in 2018, underperforming the broader index by more than two percentage points.

    • Threatening $10K as we headed into last weekend, bitcoin (BTC-USD) is lower by more than 5% today, and down to $8.5K.
    • Also plunging today are Ethereum (ETH-USD) down 6.5%, Ripple (XRP-USDdown 11.5%, Bitcoin Cash (BCH-USDdown 11%, and EOS (EOS-USDdown 15%, and Litecoin (LTC-USDdown 6.7%.
    • In the latest FUD, South Korean prosecutors this morning raided the offices of Upbit, one of the globe's top-five busiest crypto exchanges. The exchange – on which about $1.6B in trades took place in the last 24 hours – says all client assets are safe, and transactions and withdrawals are unaffected.
    • Blockchain Week New York is catching media headlines, with 8,000 people expected to descend on NYC today for the start of the industry conferences.
    • The week-long event includes some of the biggest movers and shakers in the crypto world, such as St. Louis Federal Reserve Bank President James Bullard, European Parliament member Eva Kaili and Twitter CEO Jack Dorsey.
    • Check out the full schedule here

    ArcelorMittal +2.5% after Q1 profit surge, optimistic outlook

    • ArcelorMittal (NYSE:MT+2.5% premarket after reporting Q1 net profit of $1.19B compared with $1B in the year-ago quarter, while sales jumped 16% to $19.2B, both figures coming in well ahead of analyst estimates.
    • Q1 EBITDA rose 13% Y/Y to $2.51B, above company guidance of $2.32B, reflecting higher average steel selling prices and higher seaborne iron ore reference prices.
    • MT's average steel selling price during Q1 was 18.2% higher than in the same quarter of 2017, with shipments up 1.4%; iron ore shipments rose 5.5% Y/Y while prices were down 13.1%.
    • MT says it expects market conditions to remain favorable but does not upgrade guidance for the year; it reaffirms its outlook for 2018 global apparent steel consumption rising 1.5%-2.5%.
    • “The first quarter was better than expected and the market backdrop for the second and third quarters is better than we imagined at the start of the year. It’s improving almost on a week-by-week basis,” says Commerzbank analyst Ingo Martin Schachel.
    • Caterpillar (NYSE:CAT) says worldwide retail machine sales rose 28% Y/Y for the rolling three-month period ending in April, slightly better than the 26% gain reported last month but below the respective 33% and 34% jumps reported in February and January.
    • Sales in the Asia Pacific region jumped 33%, while sales surged 56% for Latin America, 25% for North America and 23% for Europe and the Middle East.
    • Energy and transportation retail sales for the latest rolling three-month period rose 14%, led by a 43% increase in oil and gas sales.
    • Ford (NYSE:F) sales in China fell 26% in April to 69,503 vehicles.
    • Sales for Changan Ford Automobiles were down 35% to around 41K vehicles, while Jiangling Motor sales decreased 6% to 24K vehicles. Lincoln sales were down 14% to 3.5K vehicles.
    • Ford Asia Pacific CEO Peter Fleet's update: "We revealed our new range of next generation midsize cars, as part of our China 2025 Plan. These vehicles were all developed with the specific needs and wants of Chinese consumers in mind and will all be manufactured locally by Changan Ford. In late April during Auto China 2018 in Beijing, Ford announced its biggest new vehicle launch ever in China, including all-new Ford Focus, new Ford Escort and new Ford Ranger Wildtrak. Its luxury brand Lincoln announced the upcoming launches of all-new Lincoln Aviator, new Lincoln Nautilus and new Lincoln MKC which will further strengthen Lincoln’s leadership in the SUV segment. As previously announced, this is the first group of new products from the 50 new products to be introduced to China by 2025.”
    • YTD Ford China sales 21% to 277K vehicles.
    • Shares of Ford are flat in premarket trading.
    • Ford China press release (.pdf)
    • According to a report by the Nikkei Asian Review, some Panasonic (OTCPK:PCRFY) executives are expressing hesitation about new battery manufacturing investments with Tesla (NASDAQ:TSLA).
    • The two were expected to set up a new factory together in China, where they would make cars and lithium ion battery cells under one roof.
    • They already have a similar arrangement in the U.S. – the Tesla Gigafactory 1 in Nevada.

    • Ths USPS swung to a large controllable loss in Q1 off revenue of $17.5B after posting a relatively minor gain a year ago based on the massaged metric.
    • USPS by the numbers: Q2 shipping and packages revenue +9% to $5.15B; Q2 total revenue $17.5B vs. $17.3B a year ago; Q2 net loss $1.34B vs. $562M a year ago; Q2 controllable loss $656M vs. $12M profit a year ago; Q2 operating expenses +6% to $18.8B.
    • "Despite growth in our package business, our financial results reflect systemic trends in the marketplace and the effects of an inflexible, legislatively mandated business model that limits our ability to generate sufficient revenue and imposes costs upon us that we cannot afford," says Postmaster General/CEO Megan Brennan.
    • USPS press release

    Caesars preps for Japan marathon

    • Caesars Entertainment (NASDAQ:CZR) exec Steven Tight went on Bloomberg TV to talk about the company's plans for Japan.
    • Tight says the biggest challenge in the venture is educating the Japanese population that integrated resorts are more about entertainment than casinos.
    • He also said the company will look to partner in Japan with local players.
    • Tight is hopeful that the casino legislation will pass this year if not during the current Diet session that expires on June 20, but calls the process a marathon.
    • In an interesting proclamation, Tight says Caesars will spend "whatever it takes" to build a Japanese integrated resorts.
    • The Japan story is a long term consideration for investors with Caesars. A final licensing decision isn't expected until 2020.
    • Bloomberg TV interview
    • MGM Resorts (NYSE:MGM) announced that a new $2.0B share repurchase program was approved by the board.
    • The timing, volume and nature of stock repurchases will be at the sole discretion of MGM management, dependent on market conditions, applicable securities laws and other factors.
    • The company finished off its previous $1.0B share repurchase program.
    • "The latest share repurchase authorization reflects the Company's financial strength and continued commitment to returning capital to our shareholders," says CEO Jim Murren.
    • MGM -0.21% premarket to $33.30.
    • Source: Press Release
    • Noodles (NASDAQ:NDLStrades up 5.77% in premarket action after posting marked improvement in Q1.
    • "We continue to see significant and sustained improvement in our comparable restaurant sales," said CEO Dave Boennighausen.
    • Boennighausen noted that the company is sticking with a very cautious approach to unit growth (one to five openings in 2018) even as new stores outperform.
    • There was also forward progress with the CFO search and credit facility terms.
    • Noodles execs also seem very optimistic that consumers will be interested in the national launch of a Zucchini noodle menu offering called Zoodles. The word "zucchini" was mentioned 18 times yesterday on the conference call per the transcript posted on Seeking Alpha in what has to be some kind of unofficial record.

    GameStop CEO steps down for personal reasons

    • GameStop (NYSE:GME) announces that CEO Michael Mauler has resigned immediately due to undisclosed personal reasons.
    • The board says Daniel DeMatteo has been appointed as the interim CEO. DeMatteo is one of the company's two founders and has held the CEO spot previously.
    • Shares of GameStop are inactive in the premarket session.
    • Source: Press Release

    Next-generation CRISPR gene editing technology on the way

    • ScienceDaily reports that researchers at the Joint Institute of Metrology and Biology, a collaboration between Stanford University and the National Institute of Standards and Technology,  have developed a new CRISPR platform called MAGESTIC ("multiplexed accurate genome editing with short, trackable, integrated cellular barcodes") that enables a "search and replace" function for gene editing.
    • Per a recent paper in Nature Biotechnology, MAGESTIC produced a seven-fold increase in cell survival during the editing process compared to CRISPR/Cas9.
    • According to the researchers, a key feature of MAGESTIC is a new kind of cellular barcode that makes it much easier for the cell to search for a suitable DNA to repair a cut site because they are integrated into chromosomes. They say it can perform all edits at once in a single test tube making it more efficient.
    • Related tickers: (EDIT +1.5%)(NTLA)(CRSP +0.1%)

  9. Albo / QCOM – just redo below

     I think 60 is a short term resistance line…  however if the deals goes through it should go past that.

    If the deal does not go through, once they announce their additional buy back program probably another 10 to 15B it will also go past that, but the timing here is open on the cc they indicated this would be announced late in year.

  10. Jabo / LB – do you have a write up on from MKM?  That target seems incredibly low.

  11. Thanks, Batman.

    I wouldn't be too unhappy to sell some QCOM on a 60 strike ala $3 for the Jan 60 calls.

  12. Phil – REMINDER: LB trade in LTP

    LB/Winston – Well, that's why it was unofficial, I need to square all these things up first.  I'll try to get it all straight by tomorrow AM so remind me.

    May 10th, 2018 at 2:59 pm | Permalink | Tweet thisIgnore this user

    Phil – LB adjustments – apologies if I am losing track but I believe there was a later adjustment to the LTP position – from the April 20 post:

    LB – Another opportunity to deploy some cash.  We're only obligated for 10 at $45 so let's roll those short puts at $14.50 ($14,500) to 15 of the $37.50 puts at $9.40 ($14,100).  We may as well buy back the 30 short $50 calls for $2.10 ($6,300) and spend $2.20 ($6,600 to roll the 30 $35 calls ($5.80) to the $30 calls at $8 and we'll half cover by selling 15 $40 calls for $4.20 ($6,300) so we're spending net $6,600 to push our calls $15,000 into the money – smart!   We'll start selling short calls when they recover too.  Even now, Aug $40s are $1 for 119 days out of 637 so there's $6,000 we can recover over time selling 10 short calls per period (not yet, of course). 

    May 10th, 2018 at 3:05 pm | Permalink | Tweet thisIgnore this user

    Link to the LTP LB adjustment is here.

    That was a half cover on the short calls, and I don't think there was an opportunity to sell short covers as the stock did not recover.

    If I have misunderstood, ignore the post, otherwise what are your thoughts on a further adjustment to the latest LTP position of:

    15, Jan 20 $37.50 short puts

    30, Jan 20 $35 long calls

    15, Jan 20 $40 short calls

  13. LB – My wife and I discussed this a few months ago,  She is of the opinion below, and suggests that while they are still popular they are tone deaf and falling out of favor With the younger crowd….  I took a big position here but am looking to cover some with short calls and uncover later in the year in hopes of a seasonal rally.  


    L Brands: Is Victoria’s Secret Too Sexy for Its Own Good?


    Cue " I'm Too Sexy", the 1991 hit by English band Right Said Fred: Victoria's Secret owner L Brands (LB) is in free-fall after a sales report, and the problem, in part, might be cultural tone-deafness. 

    "Victoria's Secret did a great job in the 1990s making people pay up for sexy," says Jefferies analyst Randal Konik. "Twenty years later, the way they're still marketing--you have to be a perfect size zero — doesn't work anymore. Consumers want a message that speaks to them."

  14. Jabo / LB – thanks. —-  I think if the dividend is still safe, the will get support around here….  they can change their marketing and approach….  AEO and Athlea. have done this, and are tracking well…. 

  15. thanks batman. hope so.

    would love to see LB and HBI turn it around soon.

  16. Phil

    What would be a good trade on GE today or wait?


  17. CBI/Batman – So CBI shareholders got 0.82407 shares of the new company and you can already see that in MDR's option chains.  Our short puts seem very safe – it's the same strike, we just have less of them.  I think we'll wait a bit before adding back bull call spreads but I like the combined company (don't forget, MDR already has a last-minute suitor). 

    LB/Jabob – LOL:

    Thanks Winston, coming right up.

    LB/Batman – Does that include Pink?  Seems to be doing very well.  

    Again, this "disaster" company where we have 30 $30 calls and 15 short $37.50 puts at net $6,600 (break-even around $35) also pays a $2.40 dividend if we convert.  We initiated on 3/1, when the stock was $45 so even if we lose 100% on the calls and get assigned at net $39.50 – we still have a 10% discount from where we first entered and then we could DD at $32.50 to average $35.50 on 3,000 shares and we could sell the 2020 $35 calls for $4.50 and the $25 puts for $3.90 to drop our net to $27.10/26.05, which makes the $2.40 dividend almost 10% while we wait to see if we get called away with an $8 profit (29%).

    Even from that, the worst/worst case is we end up being assigned another 3,000 shares giving us 6,000 @ 26.05 (156,300) and I'm pretty sure I would love owning that long-term!  

    So, from a 1x net $7,450 entry at $45, if all had gone perfectly we would have gotten back $45,000 for a $37,550 profit at $50 but now we're still in a 1x spread but, even at 2x after an assignment ($81,300), we get back $7,200 in dividends plus $105,000 if called away at $35 – still a $30,900 profit. 

    It's not bad for a stock that dropped 33% on us!  

    GE/QC – I still like our LTP targets:

    Short Put 2020 17-JAN 18.00 PUT [GE @ $14.65 $0.03] -20 1/8/2018 (617) $-4,800 $2.40 $1.70 n/a     $4.10 $0.00 $-3,400 -70.8% $-8,200
    Long Call 2020 17-JAN 13.00 CALL [GE @ $14.65 $0.03] 50 2/9/2018 (617) $19,000 $3.80 $-0.55     $3.25 $-0.05 $-2,750 -14.5% $16,250

  18. QCOM / Albo – I think that they still have some ways to run. But sure, maybe 1/2 a cover with the Jan 19 60 at $3.30 or so. And they roll to the 2020 70 which is the latest high anyway so no great risk there I think. A full cover is not even a bad deal either with this roll.

  19. Phil—looks like Roxanne loves lowering her price targets ;-)

    Hopefully, she will be doing the opposite in the near future!

    FU ROXANNE!!!!!!!!

  20. LB / Phil – Barron's,   The article specially talked about the Victoria Secret brand, in terms of the out of touch and tone deaf advertising.  but said that pink decreased last qtr for the first time ever, and they expect to be flat to down this quarter.  I'm inclined to leave this once alone this year…. I do want to find a short term caller for maybe august and see it it My cost basis is 39 so was looking at maybe a 37.5 call if this think pops a bit and I can get it at 1.00.  

  21. STJ – Thanks.

  22. EXTR down 28% in the past 3 days.  Sold some 7.5 puts.

    ~~ EXTR – Extreme Networks defended at DA Davidson — Increased costs into Q4, but FY19 on track for solid growth.
    DA Davidson notes that despite growing pains due to the integration of Avaya and Brocade, they continue to believe EXTR is well positioned for modest top line and more aggressive bottom line growth for the next several years. They believe the co now has a very strong product portfolio of wireless, campus, and data center switches with which to capture additional market share; $20 tgt

  23. FB is 3 DIS.  5 Years from now will it be the opposite?

  24. Europe closed up, barely, on doveish remarks from ECB and BOE and Bullard has never been more doveish so no sell-off today, I guess. 

    LB/Winston – There was a roll of the $35s to the $30s but, other than that, we agree.  

    Short Put 2020 17-JAN 37.50 PUT [LB @ $32.39 $0.70] -15 5/11/2018 (616) $-14,550 $9.70 $1.25 n/a     $10.95 $-0.75 $-1,875 -12.9% $-16,425
    Long Call 2020 17-JAN 30.00 CALL [LB @ $32.39 $0.70] 30 4/20/2018 (616) $23,400 $7.80 $-1.55     $6.25 $0.45 $-4,650 -19.9% $18,750
    Short Call 2020 17-JAN 40.00 CALL [LB @ $32.39 $0.70] -15 4/24/2018 (616) $-6,375 $4.25 $-1.28     $2.98 $0.23 $1,913 30.0% $-4,463

    Not sure if I want to change this though I guess we could buy back the short calls as they dropped hard and fast but too early to make that call.  Nothing wrong with the $37.50 target and 1,500 shares won't break the bank (see above).  Somebody just bought the $25 calls for $8, I'd love to do that roll if possible but I doubt it can be done in quantity.  

    As to LB – Suggested reading:

    You don't have to play my Trade of the Year.  After all, I've only been right on every single one since 2010, when they started (BAC).  blush  Of course, picking AAPL 3 times helped…

    EXTR/Albo – They are still pre-profit, not for me. 

    They have aggressive projections but you can't say your'e going to go from losing $30M to making $80M and then blow your Q1!

    Year End 30th Jun 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 322.7 299.3 519.6 552.9 528.4 598.1 883.5 985.4 1,116 +13.1%
    Operating Profit $m 13.9 10.9 -50.2 -63.0 -25.6 -0.73 -20.2      
    Net Profit $m 15.9 9.67 -57.3 -71.6 -31.9 -8.52 -29.0 77.9 125.7  
    EPS Reported $ 0.17 0.10 -0.60 -0.72 -0.31 -0.079 -0.27      
    EPS Normalised $ 0.18 0.078 -0.42 -0.59 -0.23 0.053 0.048 0.65 1.02 -21.8%
    EPS Growth % +608.6 -57.4           +1,117 +56.9  
    PE Ratio x           164.2 181.5 13.5 8.60  
    PEG x           0.15 0.16 0.24 0.52

    Revenues were $262M so on-track there but they lost an adjusted 0.16/share ($18.4M) and they are projecting making 0.16 next Q so that's net $0 so they've have to have a miracle of a 2nd half to make $77M.  In other words, they'll be disappointing investors all year long!  

    FB/That – Is the question "When will investors sober up?"

  25. Phil – you may be right, but I like the stock at $6.60-6.70 level.  Thanks.

  26. Phil – LB LTP position – thanks for the super fast turnaround on the analysis. My bad, you are right the long position is 30, $30 calls. For me, one takeaway is the need to step up and make the adjustments when required – better than 'hoping' things will turn out alright. And the drop dead decision point is 'can you live with the potential PUT to assignment'. That should be an obvious 'YES', however good to assess the evolution of market and company specific events related to significant drops in a stock price. 

  27. winston--agree 100%

  28. VIRT/QC – I have a very hard time seeing why they should have a $5.5Bn valuation though, based on one good quarter – maybe!  Of course they are also doing a secondary at $28 so paying more than that seems a bit idiotic since they are diluting you by 15M shares at that price and it's a little disturbing that 6.28M of those shares are coming from the founders, who are cashing out right after reporting "blow out" numbers.   Oops, wait, it's even worse:

    The selling stockholders, Mr. Vincent Viola, our Founder and Chairman Emeritus, TJMT Holdings LLC (the “Principal Equityholder”), an affiliate of Mr. Vincent Viola, and Havelock Fund Investments Pte Ltd (“Havelock”), an entity affiliated with Temasek, are collectively selling 6,281,250 shares of Class A common stock.  The offering includes shares of Class A common stock held by the selling stockholders (including shares underlying options held by Mr. Viola) and 8,718,750 shares of Class A common stock sold by Virtu, the net proceeds of which will be used to purchase an equivalent number of common interest units in Virtu Financial LLC and corresponding shares of Class D common stock.  The selling stockholders will receive all of the net proceeds from the sale of shares of Class A common stock sold by them in the offering. Virtu will retain no net proceeds from the offering

    I don't know if it's a scam, it sure seems like a scam but Calvin Chu has 12 followers on Seeking Alpha and this is his first and only article telling people to buy VIRT into their cash-out secondary and he's never steered us wrong so far, right?

    Adjustments/Winston – Just make sure that, whatever you buy, you would be THRILLED to DD on them if they drop 20% and then, if they drop another 20%, you should still have the firepower to do it again.  If you keep your allocation sized right, let's say $10,000 and you buy spreads that obligate you with 5 $20 puts when the stock is at $22 and let's say 10 of the $20/30 bull call spreads.  So the stock drops 20% to $18 and the short puts are down $1,500 and the spread goes from $5K to $2.5K so down $2,500 and now you are down $4,000.  If you cut there, you lost 40% of a $10K allocation block, so no more than 4% of the portfolio.

    If you decide to DD, you sell 5 more puts and roll the spread lower and now you are obligated to buy 10 at $20 with the stock at $18 (keeping it simple without rolling) and then the stock drops another 20% to $14 and now you are down $6,000 on the puts and another $2,500 on the spread so now down $8,500 and you've pretty much lost a full allocation (8.5%).

    But the stock you liked at $22 is now $14, so 40% less than where you started and, if you still like it, you STILL have $1,500 from your original allocation block to make adjustments and you can even push it a bit if you really believe in it.

    So the worst case is we end up with a lot of the stock at close to half the price and, since I generally only buy stocks I like the value of, it's almost automatic for me to add to them as they go lower.  After doing it year after year, you learn to filter out the doomsayers although, yes, some will die on you but a lot more will recover and make a ton of money.

  29. This oil and /RB price is unsustainable without more saber-rattling with Iran:

    • The total U.S. rig count continues its rapid ascent, climbing by another 13 to 1,045 following last week's gain of 11, according to Baker Hughes' latest weekly survey.
    • Oil rigs jumped by 10 to 844 for a sixth consecutive weekly increase; a year ago at this time, 712 oil rigs were in operation.
    • U.S. WTI crude prices have ticked slightly lower following the report, now -0.5% at $70.99/bbl.

  30. Thanks Phil it is always good to see how you evaluate the investments

  31. Here's Trump with the drug speech – hope you guys have your shorts on!  /RTY at 1,600!  

  32. Well, that was super-vague.  Seems more like a shake-down for the lobbyists to get it in gear and start paying the GOP to stay in office because, as Trump said, none of this can happen without the support of Congress (wink, wink).

    Look at ESRX as he spoke:

    Then ended HIGHER because everything Trump said was complete and utter, meaningless BS!  

    So much for the shorts – just a no-play into the close now (for the indexes, oil and /RB I still like short).

  33. Health care ETFs up after the speech.   Not a good sign for consumers I think.

  34. Drugs / Phil – Why did we expect anything good from him? If there is nothing for him or his cronies, nothing will get done:

    The administration will, as expected, put pressure on foreign countries to relax drug price controls, in the belief that pharmaceutical companies can then lower prices in the United States.

    So Trump is proposing to increase drug prices overseas and then do nothing to leverage this into lower prices here. Sounds great! I can hardly wait for this novel approach to slash my prescription bill.

  35. Look at all the major drug manufacturers – up more than 1%. It's simply more money for them it seems. I guess that's the payoff for that $1.2M that Novartis gave to Michael Cohen.

  36. Phil / LB – playing your trade of year…..  I'm in it I've got the equivalent of 2x allocation size in this position and also bought the stock – w/ a 6% dividend it is well worth it to hold and wait and see.  

  37. Phil,

    what do you think about symc? Looks like they got 33% haircut due to an internal audit


  38. symc – I was reading up a bit.  A little too risky for me.  There is potential for multiple year re-statements. 

  39. Health care/Tangled – Reminds me of the time Nixon sold out the American people and gave us HMOs to "fix" things.  

    Drugs/StJ – Sounds like he wants to export our high drug prices so Democrats can no longer point to overseas pricing as an example of how we're being ripped off in America!  

    Drug stocks are popping across the board – this is the complete opposite of getting prices down.  What sick bastards!  

    LB/Batman – Up 2% today.  

    SYMC/Harip – They've been covering up weak earnings with massive pro-forma exclusions, which has now caused a major audit.  Guidance is weak too, not that they've made any money recently anyway:

    Year End 31st Mar 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 6,730 6,906 6,676 3,956 3,600 4,019 4,739 4,930 4,928 -9.8%
    Operating Profit $m 1,630 1,106 1,183 154 457 -100.0 523      
    Net Profit $m 1,187 755 898 878 2,488 -106 1,054 1,083 1,223  
    EPS Reported $ 1.59 1.06 1.28 0.16 -1.23 -0.38 0.26      
    EPS Normalised $ 1.09 1.14 1.57 0.31 -1.09 0.031 0.025 1.62 1.80 -50.8%
    EPS Growth % +20.3 +4.7 +37.1 -80.2     -21.9 +5,043 +11.2  
    PE Ratio x           927.2 1,188 18.0 16.2  
    PEG x           0.18 0.24 1.61 1.63

    Still, as you know, I don't look at a chart and say they are down 33%, I look at the financials and see they are making about $1Bn and I look at the market cap, which is $12.3Bn and I look at the business to see if it's growing (it's not) and I'd say MAYBE $15Bn would be the right price IF they didn't have an accounting scandal but they do – so I wouldn't touch them.  

    I think there's not much future for these companies as security moves to the chip and the cloud and AI screws everything up anyway.  

    Wow, the HHS Secy (Former President of LLY) says the "beauty" of this plan is that a Senior Citizens can decide how they want to pay for their drugs by choosing a plan that gives them the best trade-off based on the net prices of the pills they have to take.  What ever happened to insurance covering your friggin' pills WITHOUT having to worry about all the details – isn't that what we pay the insurance company to do?  

    Now it's up to you to be your own benefits manager.  

    These are despicably evil people who are knowingly killing millions of people in order to squeeze more money from the captive American public – pure and simple!  

  40. Speaking of a captive American public:

    • Key points from President Trump's speech detailing his plan to lower U.S. drug prices called American Patients First:
    • Bans pharmacist gag rule against advising patients on pricing.
    • FDA will accelerate approval process for generics and biosimilars.
    • Will "fix" price disparity between U.S. and foreign markets (specifics not provided).
    • HHS Secretary Alex Azar: plan will leverage private sector dynamics. Will investigate having the FDA mandate the disclosure of pricing in TV drug ads.
    • More details to follow in a press briefing.
    • Not included in the president's speech, note Adam Feuerstein and Damian Garde was the long-feared call for Medicare to negotiate lower prescription drug prices. Also missing, they say, was the loud rhetoric toward pricing that had been a feature of his presidential campaign and early months in office.
    • Instead, most of the tough talk was directed at the middlemen who negotiate drug costs for insurance companies, and pharma players have no problem with that.
    • XLVIBB, and IHE are all at session highs, ahead 1.6%3.2%, and 2.15%, respectively.
    • President Trump met with automaker CEOs today in the White House to discuss proposed ruleson fuel efficiency standards.
    • While Trump and the automobile execs agree on lowering CAFE standards, they stand far apart on NAFTA.
    • "NAFTA has been a horrible, horrible disaster for this country and we’ll see if we can make it reasonable," Trump told reporters. Automakers maintain that one of the positive results of NAFTA is increased overall production and more U.S. jobs as a result of the flexibility to lower parts costs amid integrated manufacturing.
    • The meeting at the White House today included General Motors (GM -0.7%) CEO Mary Barra, Ford (F -0.3%) CEO James Hackett, Fiat Chrysler Automobiles (FCAU +0.5%) CEO Sergio Marchionne, and Honda (HMC +0.7%) VP Rick Schostek.
    • Tesla (TSLA -1.6%) plans to enable orders by the end of next week for dual motor all-wheel drive and performance version of the Model 3.
    • Production of the new versions is expected to start in July.
    • The option to order a Model 3 with air suspension will probably be available next year, according to Elon Musk.

  41. Drugs / Phil – It's the same rethoric we heard about healthcare. They always talk about choice, getting the government out of the way, letting the market work its magic. In the end it's only about their friends being able to charge more. That 10's of 1000's of people die in the way is just collateral damage. It's truly sickening! 

  42. I agree, StJ, that Canadian border is looking very inviting! 

    Have a good weekend folks, 

    - Phil

  43. SVU is getting interesting again.  Moving to a wholesale distribution model focusing on smaller rural grocery stores (which are somewhat insulated from Amazon), selling their retail properties, paying down debt, and generating impressive EBITDA for their value.  I found this article informative:

    The 2020 $13/22 Call spread can be have for around $3.30, and you can sell $15 puts to completely offset the cost.  

  44. Interesting Palotay – My only issue is the debt load although they say they'll use the proceeds from the recent sales to pay down their debt. And their margins are quite low in that sector although could be improving with these latest moves. I think I'll wait a couple of quarters to see what happens.

  45. Good Morning folks, for me it is 6.30 AM already. So for the early risers here some thoughts for the day.

    PETS we tinkered with this one before, pretty much on the lower end of the scale, but there are a lot of dog lovers around.

    So here my thoughts for the shorter armchair trade.

    Sell Jun 35/35 straddle for 3.25 and buy the stock, before opening it stands at 34.79. Ex div 5/17. So you might get it one way or the other!

    My crystal ball says combined interest 8.95% for the 32 days. As I said you might be called, as the caller is ITM. But even if called you still will land with over 7% due to the small capital gain.

    LAZ a different type of fish, more in a middle of a range, sell the 55/55 June straddle for 3.02 and buy the stock, again before market 55.44. Ex div has passed. Your combined interest is 5.3% for the 32 days.

    As usual don’t bet the farm and do your own studies.

  46. JNJ are there any comments. Over a two year period it looks like the stock is pushing higher, but at the shorter finviz chart it looks like it is on the uper ceiling of a down ward trent.

  47. Hawaii volcano: Lava spews from 18th fissure on Big Island