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TGIF – Dow’s Down Week Comes to a Close

8 days a week

Well, 8 days in a row that the Dow has been down after topping out at 25,400 back on June 11th and having tested 24,400 for an even 1,000-point drop yesterday afternoon.  That's right about a 4% correction on the nose and the 5% line is 24,130 so, if we assume that is the full pullback (not yet completed), then the fall is 1,270 points and we'll call that 1,250 and look for 250-point bounces so a weak bounce would be 24,380, which is the 4% line again and the strong bounce, to the 3% line, would be 24,630 so that's the line we need to see the Dow take and hold today in order to be impressed.  In fact, 24,658 is the 50-day moving average on the Dow – so let's make sure we get those extra 28 points too! 

 The Dow is down 1% for the year so up 1% (250 points to 24,750) is also very important to make.  Meanwhile, as you can see from the chart above, the Nasdaq is still up 12% for the year – though we made a lovely $5,535 on Wednesday's short position (see yesterday's Morning Report) and we HOPE it bounces back towards our shorting line at 7,300 so we can do it again.  

As I said to our Members in our Live Chat Room yesterday morning:

I'm still on the 6,500 bandwagon but I don't know when so better to make $1,000 80 times than spend 3 months waiting for a big drop! 

Well, now we can cross 5 of those 80 times off the list!  Overall, it's just been a small correction but it's more the failure at the top that we're watching, and we'll see if we can retest that next week.  As I noted earlier in the week – nothing really matters unless the NYSE can retake 12,800 and I doubt we'll even get to test that today so it's a "watch and wait" day into the weekend.

The big news today is, of course, the OPEC Meeting and it appears they have settled on (over Iran's walk-out objection) increasing production by about 600,000 barrels a day effectively, though they will announce the 1Mb/d we expected.  The discrepancy is caused by spare capacity issues among the partners so this is considered a little bullish vs what was feared.  Oil is trading at $66.50 at the moment and, if it were not for the upcoming July 4th holiday, I would short it but there should be some good demand numbers over the next 10 days as gas stations look to top off their tanks in anticipation of demand from drivers.  That makes Gasoline (/RB) a good long at the moment above the $2.04 line with tight stops below.

As we discussed in this week's Live Trading Webinar (replay here), we HOPE oil goes a lot higher into the holiday so we can short the crap out of it.  $68.50 is what we expect to hit between now and than so you could play Oil (/CL) long over the $67 line – but it's not a trade I have conviction on compared to /RB, which I think is very easy money at $420 per penny, per contract….

Meanwhile, I don't think we're out of the woods on the Trade War stuff at all.  China still hasn't reacted much to what Trump has proposed but they are never quick to act (unlike some Presidents we know) and tend to play the long game.  We heard a profit warning from Daimler yesterday and the market tanked but there are 500 other large-cap companies on the S&P alone and just because they haven't jumped the gun to get out their warnings early, Q2 reports are right around the corner so we could start hearing from a lot of manufacurers over the next couple of weeks.

Another thing strangely getting no real reaction is yesterday's court decision that will force Amazon (AMZN) and other on-line retailers to collect the proper sales tax.  Previously, it has been up to the consumers to pay their own state whatever they owe in taxes for on-line purchases and, well, what am I telling you for – you certainly fill out those forms every year, right?  

Have a great weekend,

- Phil


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  1. We are still being governed by sociopaths!

    I'll be in Canada all next week – maybe I won't come back!

  2. Famed investor reflecting on his mistakes:

    One that stands out for me:

    Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized that you were far better off seeing how a stock scored on a composite of value factors that took more aspects of the balance sheet into account.

    The lesson? No single factor or fundamental piece of data is ever the answer or solution to the complicated question of how to pick stocks that outperform. For example, I have long been a fan of shareholder yield (Dividends+Net buy backs) but even though it performs well on its own, it performs much better when selected from a group of stocks that are very cheap; have good earnings quality and have a high conviction in their buybacks, as evidenced by percentage of outstanding shares they are buying. As Einstein is reputed to have said, “make everything as simple as possible, but not simpler.”

  3. Good Morning.

  4. Looks like they have finally added some longer dated STWD options! Not very liquid now but hopefully improves to allow for some better premium sales.

  5. Phil – great call on Silver.

  6. Phil – Congrats to Maddie, You and Mom on the graduation!


    Our Twins had their graduation last Saturday….. :)

  7. I guess congrats to all Graduates and proud parents!

  8. Good morning!  

    Dow seems to be grinding to a halt right at our bounce line (24,650) so we'll see how it plays out.  Nas is red so I'm inclined to short /YM below the line with tight stops above as long as /TF is below 1,700 (3 points away).

    Big Chart – As noted above, Dow has to get back over 50 dma and doesn't even matter if NYSE is still below 12,800 so I have no plans to get more bullish into this weekend.

    Canada/StJ – They want me to do a daily show up there – very tempting.

    STWD/StJ – That will be fun to trade.

    /SI/Malsg – Nice pop today, gotta take it and run though as the Dollar may snap back.

    Thanks 1020 and congrats to you and anyone else with kids moving forward in life (which I guess they all do, whether it's an official graduation or not).    Jackie is off to Europe on a class trip.  When I was her age my friend and I hitchiked across Europe, slept on trains, hostels, houses of strangers we just met etc.   I guess I'm glad she's being chaperoned but, on the whole, I wish she could have a more real experience…

  9. I had saved up $3,000 for that Europe trip including airfare so maybe $25/day we managed on…

  10. IQ – Off sharply again.  Option premiums are rich.

     Sold a few Aug 30 puts for $3.26.

  11. You could do well in places like Spain, Portugal, Italy and Greece with $25/day 35 years ago Phil! It's a matter of fact, the minimum wage in Portugal today is 680 euros or so. So people make do with less than $25/day now!

    One of the reasons I am also looking at Portugal for retirement – you can live a pretty good life there for quite cheap and the weather is decent.

  12. IQ / Albo – Look like a day-trading instrument at the moment!

  13. Stj, Re >Portugal during my last trip though Portugal I found already enough Frenchmen inPortugal!!!!!

  14. In this case Yodi, I am American! That changes depending on the situation :-)

  15. my little IWM day trade yesterday did NOT work out. :(

  16. Bitcoin et. al. heading for the previously predicted 12 month slumber.

  17. STj  you might need to learn to speak Portuguese as they do not like to speak Spanish

  18. Does anyone here follow BLUE?  It's a 10B biotech that gyrates in the most unusual ways.  I can never find why it is going up OR down – outside it is a biotech it's volatile. 

  19. Phil I think we will do well on your TSLA play, but as we do not want to praze the day before the evening!!!

  20. Blue- I was in it a while back and lost a lots. They are a pre-approval trial and depending on the news and dilution, it swings wildly. 

  21. Portuguese / Yodi – Not a problem… And my wife is great at languages, she teaches 2 and speaks 3 more. So another one is not too bad!

  22. IQ/Albo – That's why we covered!  

    June 13th, 2018 at 12:17 pm | (Unlocked) | Permalink

    • IQ – This was a great play except we also sold 4 short calls and those went flying higher and now we'll have to roll our way out of them.  We're in the spread for net $5,700 and it's a $15,000 spread if all goes well and, at $12.50 in the money, the short calls are net $6,250 so actually still a nice profit – even if we don't fix this.  Since we have tons of cash let's do the following:
    • Sell 20 IQ 2020 $15 calls for $22.60 ($45,200) 
    • Roll 20 IQ 2020 $22.50 calls at $17.80 ($35,600) to 40 Jan $35 calls at $8.20 ($32,800)
    • Roll 5 July $22.50 calls at $12.35 ($6,175) to 10 Jan $35 calls at $8.20 ($8,200) 
    • Buy 50 2020 $25 ($16.50)/$40 ($11.50) bull call spreads for $5 ($25,000) 

    ?That adds $19,200 to our cash pile and, if those short calls expire worthless, whatever net is left on the spread is more profit!  THAT is how you adjust a spread…  We opened the spread at net $5,700 and we've taken a $13,700 profit off the table and yes, we still have the risk of the short calls going more than $15 over $35 and blowing our covers but then we'll just roll and do it all again.   And we haven't even sold puts on this one!

    So we took $19,200 off the table from our net $5,700 entry so anything we end up with on the remaining spread is profit so we want IQ to be below $35 this year and that will leave us with the net of the 2020 spread as a bonus.

    While it seems like a rough adjustment to have to make, the key takeaway is, despite IQ going against us, we stuck to our plan and just sold more premium.  That's the plan and, like any casino, even when the other guy is on a huge winning steak (like our IQ longs), you just stick to your plan and keep playing and, eventually, statistics take care of the rest.

    Portugal/StJ – Yes, very nice down there.  We did live it up in southern Europe and ate a lot of bread in northern Europe.

    Nice 50-point gain on /YM – be happy with $250/contract!

    Oil $68!

    /RB $2.055 and that's over $1,000/contract, so I'm done.

    BLUE/That – It's an exciting field but I'm not at all qualified to know if their particular stuff works or not or has the prospect of working.  For me it's $9Bn valuation at $175 with $0.035Bn in sales and a $300M loss is WAY too speculative for me.

    TSLA/Yodi – It's a tiger by the tail but I'm pretty sure it's a paper tiger with a fake tail…

    I was interviewed by some English guys yesterday and I told them my premise for the Nasdaq falling to 6,500 is TSLA being revealed as the next and causing a massive rethinking of Nasdaq multiples and I think it's going to happen sooner than later.   

  23. Stj, Great I did like the place even that I was a bit worried about all the fires, boy some places were like a cinderbox. I still stuck with Germany medical ins. are great. At my age very important, even that I do not like Merkel. Same as the weather.

  24. AAPL is fozen at 185!!!

  25. IQ – Phil, I sold some stock at 42.  Will be happy to buy it back below 27,  if my puts get exercised.

  26. Yodi, watch out for AAPL.  We're due for a rumor just before earnings that sends the stock down several $$$.  Then earnings come and blow the numbers out of the water and it recovers and shoots higher.

  27. Option yes that is the normal game, we will see.

  28. IQ/Albo – Good plan.

    AAPL/Options, Yodi – Yep, that's generally the playbook.

    Oil $68.50 – too much momentum to short and way too soon before the holidays.  SCO, however, is getting interesting again below $17.50 but we should be patient.  

    SCO Sept $16 puts can be sold for $1 – not an exciting number for the STP so we'll wait a bit but net $15 is a good floor.  The Sept $15 ($3)/18 (1.50) bull call spread is a good play as $17.50 is $68.50 and we're expecting to be below that so, at the moment, the combo with a full cover is net $0.50 on the $3 spread or net $1 with just 1/2x cover so I think I'd go for that and sell 10 puts ($1,000) against 20 bull call spreads ($3,000) for net $2,000 on $6,000 worth of spreads that are pretty much in the money.  

    I guess we'll make it official for the OOP and we'll add to it happily if oil goes higher and SCO goes lower.

  29. CLF tantalizingly approaching $9. Self destruct program should kick in about now.

  30. CMG annoyingly showing momentum to blast through $470. Hoping self destruct program kicks in about now.

  31. CLF/Winston – LOL, it does seem to do that.

    CMG very strong just because no one got sick lately:

    Best-case scenario is $10/share this year so getting towards 50x here. 

    • Chipotle (NYSE:CMG) is trying out new menu items like quesadillas, nachos, salads and chocolate shakes at its test kitchen in New York City.
    • The new menu selections are expected to be rolled out nationally if the NYC test goes well.
    • CMG +0.18% premarket to $464.00.

    Here's a real sign of inflation:

    • Air Products (APD +0.8%) says it will raise prices for its liquid and bulk industrial gas products for North American customers, effective July 1.
    • The increases will include add as much as 20% to the price of liquid and bulk helium (used in the aerospace sector), 15% for liquid argon and microbulk (used in welding), and 10% for liquid and bulk hydrogen (used in rocket systems).
    • APD says the moves are in response to "continued low operating rates in the steel market, increasing operational costs and delivery costs associated with specific regional supply and demand imbalances."


    • Speaking at the Inside ETFs Canada conference, Jim Ross – who chairs the global SPDR business at State Street Global Advisors – says global ETF assets will top  $9T by 2020. That's versus about $5T at the start of this year.
    • He figures that by 2050, actively-managed mutual funds will have been completely overtaken by ETFs (why so long?).
    • Source: Bloomberg

    Heading to my $1,000 target fast:

    • A regulatory crackdown in Japan is as good of an excuse as any for today's plunge in cryptos. Concerned with money laundering, Japan's Financial Services Agency has issued business-improvement orders against six of that country's largest crypto trading venues. At least one said it would stop accepting new customers and review the identifications of some existing clients.
    • Bitcoin (BTC-USD-8.3% to $6,164. Ether (ETH-USD-10.1%, Ripple (XRP-USD) -8%, Bitcoin Cash (BCH-USD-12.6%, Litecoin (LTC-USD-12.4%, EOS (EOS-USD-18.5%.

    Financial sector vulnerable to cyber attacks, could cost $100B a year: IMF report

    • The International Monetary Fund--or IMF--says average annual potential losses from cyber-attacks could be close to 9% of banks’ net income globally, or around $100B. In a severe scenario that figure could go as high as $350B. Here are the report's takeaways:
    • Financial institutions are attractive targets because of their role as intermediaries in moving funds, IMF says . "A successful cyber-attack on one institution could spread rapidly through the highly interconnected financial system," it says.
    • Estimated losses are several orders of magnitude greater than the present size of the cyber insurance market. Insurance market for cyber risk remains small with around $3B in premiums globally in 2017.
    • Coverage is limited, and insurers face challenges in evaluating risk because of uncertainty about cyber exposures, lack of data, and possible contagion effects.
    • Strengthening the regulatory and supervisory frameworks for cyber risk is needed, and efforts should focus on effective supervisory practices, realistic vulnerability and recovery testing, and contingency planning.
    • Previously: Bank cyber attacks reported in Canada (May 29)

    Energy stocks rally after OPEC agrees to moderate production boost

    • We have an agreement” for a “nominal” production increase of 1M bbl/day, Saudi Energy Minister Khalid Al-Falih says, sending energy companies to the top of today's stock market leaderboard.
    • In reality, the deal will add ~700K bbl/day of oil to the market in H2 of the year because several members are unable to increase their production, Nigeria Oil Minister Kachikwu says.
    • But the deal gives tacit approval to Saudi Arabia to produce more than currently allowed by OPEC, as the final communique from the group avoids setting individual country targets.
    • Crude oil futures remain sharply higher: WTI +3.8% at $68.02/bbl, Brent +2.3% at $74.72/bbl.
    • Oil and gas companies are broadly higher: XOM +2.3%CVX +2.3%, COP +4.3%BP +3.9%RDS.B +4.1%SLB +3.8%HAL +4.5%BHGE +3.6%DVN +5.2%APC +6.8%APA +1.7%HES +4.6%EOG +3.1%PXD +3.9%CHK +3.1%NOV +3.1%WFT +5.9%.
    • President Trump threatens a 20% tariff on all imported automobiles from the European Union.
    • Share prices of European automakers are lower in late trading across the Atlantic, including declines for Volkswagen (OTCPK:VLKAY), Daimler (OTCPK:DDAIF), BMW (OTCPK:BMWYY), Renault (OTC:RNSDFOTCPK:RNLSY), Fiat Chrysler Automobiles (NYSE:FCAU) and PSA Group (OTC:PUGOFOTCPK:PUGOY).
    • Ford (F -0.3%) and General Motors (GM) are just slightly lower in U.S. trading on concerns over potential tariff escalation.
    • This is a big headache,” the president of Cummins’ (CMI +0.7%) distribution business laments to WSJ on the U.S. tariff on Chinese-made goods that takes effect July 6. "Making changes in your supply chain is not a three-week process."
    • Indiana-based CMI imports small diesel engines and components such as turbochargers from its own plants in China to sell in the U.S. or use at its domestic plants but nevertheless will be among U.S. companies that will be stung by the new tariff.
    • CMI is still determining how much more it will have to pay because of the tariff, Tony Satterthwaite says, adding that the company may raise prices or sacrifice profit margin by absorbing the cost to protect sales.
    • The proliferation of tariffs and worsening relations between the U.S. and its biggest trading partners undermines export-focused operations like CMI's Seymour, Ind., plant, says Satterthwaite, adding that “European and Japanese manufacturers are going to have an advantage.”

    Airbnb accuses NYC committee of bias ahead of key vote

    • An NYC committee will vote Tuesday on a bill that would require Airbnb (AIRB) hosts to disclose their names and addresses on the platform.
    • In response, Airbnb has released a report accusing council members of bias due to campaign contributions from the hotel industry. 
    • The report traces over $450K in donations to 15 council members over four years from donors that include hotel worker union Hotel Trades Council. 
    • NYC officials say the bill would make it easier for the city to catch and crack down on illegal rentals. Airbnb worries the city can use the data to punish even legal hosts.
    • Howard Schultz tells CNBC that Starbucks (SBUX +1%) is undervalued after what he calls an inevitable cyclical change in the business.
    • "For those who have looked at Starbucks whenever there has been a glitch in US comp store sales, and determined the glass is half empty they are respectfully dead wrong," maintains Schultz.
    • "With regard to China, it's going to be bigger and more robust than the US ever was, full stop," he adds.
    • Schultz steps down next week from his position as executive chairman of Starbucks.

    Valeant -2.8% as TD Securities cuts to Hold

    • Valeant (NYSE:VRX) is down 2.8% after a downgrade at TD Securities to Hold, from Buy.
    • That comes after an 81% run over the past 12 months; shares are up 55% just for the past quarter.
    • HC Wainwright reiterated its Hold rating this week with a $20 price target; shares are currently at $24.03.

    'Roseanne' without Roseanne: ABC orders 'The Conners'

    • Rebooting the reboot: ABC (DIS +0.7%) is working to try to resurrect one of the season's biggest hits, Roseanne, after abruptly canceling it in the wake of racist tweets from the show's star and creator.
    • The network has officially given a 10-episode series order to The Conners, a spinoff with most original cast members but notably excluding Roseanne Barr. She'll have no creative or financial interest in the new show.
    • It will debut in the fall and take over the Tuesday 8 p.m. time slow slated for Roseanne.
    • It's not yet known how Barr will be written out of the show, other than that a "sudden turn of events" will lead to new challenges for the family.
    • "I regret the circumstances that have caused me to be removed from Roseanne," Barr says in a statement. "I agreed to the settlement in order that 200 jobs of beloved cast and crew could be saved, and I wish the best for everyone involved."
    • The show averaged more than 18M viewers in its latest incarnation, and canceling it likely meant a hit of more than $100M in ad revenues.

  32. NYCB – could not resist adding another chip to this position, sold Jan2019 $12 put for $1.16. Happy to have put to me at $12 (or roll put), and if expires, is 16% annualized return on fully reserved commitment ( $1200).

  33. NYCB – another fill at 1.18… just looking for one more now..

  34. I found this thread interesting regarding his theory that TSLA is preparing to go bankrupt later this year.  But I do tend to like stories that feed by confirmation bias, so beware.

    I've been (painfully) short for years.  Currently short a bunch of 2020 $450 calls, and long a lot of 2020 $250 puts.

  35. NYCB/Scott – I like them, good value. 

    Confirmation Bias/Palotay – Some would call it "evidence"…


    Well, the Dow is right where we thought it would bounce to and Nas is red so no surprises today.  I'm going to take off and go get ready for Maddie's big day – you guys have a great weekend,

    - Phil

  36. Good Times Phil, Good Times.  :)

  37. Why Trump Keeps Creating Crises

  38. Greece ‘turning a page’ as eurozone agrees deal to end financial crisis

  39. STJ  I don't know what to say, but there must still be a lot of blind men walking arround in the US. Better look for this quiete place in Portugal.

    President Trump’s approval rating has hit 90 percent among Republicans. Their resilience could help his party’s chances of keeping control of the U.S. House of Representatives in November elections. [The New York Times]