Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Thrilling Thursday – Trade Talks at S&P 2,728

2,728 once again!  

It's the same bounce line we were talking about in March – and that was 4 months ago now!  At the time (3/16), I said: "That, in turn, indicates that the majority of this trading is being done by robots and those robots are not trading with emotion or enthusiasm – they are just trading their pre-programmed ranges and it won't take much of a change of human hearts to send the whole thing crashing back down another 10% from here."  As it turned out, we did fall back to 2,575, "just" a 5.6% correction. 

As Fundamentalists, we need to consider whether things have improved or not since mid-March.  Earnings were generally good but Economic Indicators have deteriorated and, of course, we have entered into a bit of a Trade War, which could destroy the entire global economy – but let's not dwell on the negatives, OK?

The Chinese markets, of course, are falling off a cliff, like they did in 2015, when our markets also ignored them, until 3 months later, when the S&P dropped 12% from 2,100 to 1,850.  Maybe this time will be different – maybe China doesn't matter, maybe Trade Wars can be won, maybe Trump is a genius and his policies will all work – even though they seem more like they are going to bankrupt us at the momnet.  Hope can spring eternal but that doesn't make me want to bet on it!  

Rising money-market rates have forced the Fed to take steps to maintain control over its key policy benchmark. With the bill issuance rising and the Fed unwinding its balance sheet, the front-end is poised to take center stage and we'll get the Fed Minutes at 2pm this afternoon and, of course, Non-Farm Payrolls come out tomorrow at 8:30 am, which can also be a market-mover.  

Note the overall p/e for the S&P 500, according to JP Morgan (JPM) is up at 20.6, about 5% over the historical norm but the forward p/e still carries inflated expectations of 16.1, which is in-line with the historical norm but a huge stretch to think earnings will improve 20% over the next 18 months but hope continues to spring eternal and the markets are indeed priced to absolute perfection at these levels:

Tech Companies and Consumer Discretionaries have led the rally, up 700% and 600% since March of 2009 respectively and Tech has grown to be 26% of the S&P's weight and a whopping 41.5% of the Russell's growth weight so it's ALL about the Tech as even the Dow has become Tech-heavy with AAPL, CSCO, IBM, INTC,  MSFT and UTX now making up over 20% of that index's weightings.  

So we have a lot riding on Tech continuing to outperform and specifically Apple (AAPL), which split 7 for 1 since 2009 but was effectively $12 back then and now 184 so that's up 1,433% and is a huge-weighted stock in the Dow, the S&P and, of course, the APPLdaq.  It's going to be hard for the indexes to make new highs if AAPL can't pop over the $1Tn valuation hurdle and they are $904Bn at $184 so up 10% would be about $202 and let's call it $205 at the Trillion Dollar mark.  While $1Tn is a fair price for a company earning over $50Bn – it's only "fair" – no longer particularly cheap.  

Real Estate used to be a huge factor in the markets and now, fortunately, it has little impact and I say fortunately because the housing market is looking downright scary as record-low rates are NOT making houses more affordable and home prices relative to income have only been higher just prior to two major market collapses and we KNOW rates are rising so we KNOW that will make homes LESS affordable – yet the market acts like this won't matter at all.

What bothers me most about these sky-high market valuations is that we took a 4% overall hit in 2007 and a 40% hit in 2008 so call 2006 100 then it's 96 and then 57.6 and while the 15% bounce in 2009 helped bring it back to 66.2, 47% growth in 2010 only bought earnings back to 92.7 and the next 7 years have gotten us to net 137.2 so 37.2% higher overall earnings than we had in 2006, when the market topped out at 1,300.  1,300 x 1.372 is 1,783.6 and that's the real value of the S&P 500 accounted for by earnings growth but earnings PER SHARE is a very different story as those same companies have bought back (and merged away) Trillions of Dollars of their own stock to reduce the share count and increase the IMPLIED earnings – even though the actual earnings have not been exciting at all.

I have already warned our Members that nothing that happens in this low-volume, holiday-interrupted week is really going to mean anything and we won't know until next Tuesday (as Monday's never matter) where we're actually standing so have a very nice couple of days off and I'll see you then!


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. Good morning

    Cl/Phil- shorting at $75 again? 

    Si/Phil- I picked a couple silver longs at $16, you think I should sell it ahead of Fed minutes release? seem like a good nonfarm payroll numbers, which probably sustain Fed's hawkish stance? then again everything seems to be rising due to optimism on the trade war issue.

  2. Phil, Would you pursue the SCO Sept 2018 16P 10 contracts/15-18 BCS 20 contracts, for net 130.00? Your advice appreciated as always….Thank you

  3. I suggest we invade Venezuela…. Insane!

  4. Good Morning.

  5. Not exactly worker's paradise in the US:

    Those factors have contributed to the United States having a higher level of income inequality and a larger share of low-income residents than almost any other advanced nation. Only Spain and Greece, whose economies have been ravaged by the euro-zone crisis, have more households earning less than half the nation’s median income — an indicator that unusually large numbers of people either are poor or close to being poor.

    Check out the sorry charts at the link!

  6. ….and Nixon's approval rating's low was still 24%….

  7. Good morning!  

    /SI/Dave - There's always something to be said about taking profits into uncertainty, isn't there?  Nothing wrong with taking a quick $500 off the table.  As to oil, we expect a good draw in Gasoline, as it's off last week's numbers, when stations were topping off their tanks and consumers were gassing up for the holiday so hopefully we hit $75 again but I'm short 2 at $74.50 and will short 2 more at $75 – just in case we don't get a pop – I'd hate to miss it!

    SCO/Jasu – While the payoff potential is exciting and fairly reasonably targeted – I'd still be more conservative and just take 20 of the Sept $13 ($2.80)/$15 ($1.65) bull call spreads at $1.15 ($2,300), which make $1,700 (74%) in 78 days if successful and THEN, if SCO goes below $15, I'd look to sell 10 $15 puts (now $1.30) for Maybe $2 and use that money to roll my $13 calls to the $11s (now $4.30) and then you'd have an $8,000 spread for about $2,000 with a way lower strike target.  So either that happens OR you "only" make an easy 74% – THAT is the way I like to have my options planned out!  

    Big Chart – Big pop this morning but it's the NYSE we need to watch and only 12,556 – even with the 63-point boost at the open – still way under our comfort zone.  Nas has to clear that 20 dma at 7,153.50, Dow needs 50 dma at 24,612 (miles away – not even at the 200) and S&P has to hold 2,719 and, of course, we're watching 2,728 so, despite the big low-volume pop – I'm just not impressed today.

    Venezuela/StJ – The fact that he even considered it is horrifying.

    Workers/StJ – That article was very well-done. 

    Watergate/StJ – I just watched Frost/Nixon again this weekend – excellent movie and makes you realize how true that cartoon is re. Trump.  

    Also, while I think the headline is too harsh, the article itself is an excellent read:

    The Times finally gets to the bottom of Trump supporters: It turns out they’re garbage human beings

  8. Phil – HMNY is at .20.

  9. FU HMNY!!!

    FU GE!!!!

  10. Workers in this town may become victims of Trump's trade war, but they're behind him 'no matter what'



    …even when we were 'winning'  the West…  :)

  12. Phil/MVEN,

    down more than 15%. good buy here for long term?


  13. HMNY/Albo – Yes, as I said the other day, that's a go for our DD and another at 0.10 and that's likely the last $3,000 we'll throw into it so then we hope for the best.

    GE, on the other hand, very disappointing as they are divesting a lot and still falling so what will be left to turn around?

    LOL 1020!  

    /RTY failing 1,666 again.  Whole morning rally already falling apart.  

    MVEN/Pat – Lots of talk and little action from them so far.  They were supposed to do something with financing by 6/30 and it came and went so cautious at the moment as we know how fast these stocks can collapse.  


    • June ISM Non-Manufacturing Index: 59.1 vs. 58.4 consensus, 58.6 prior.
    • Business activity 63.9% vs 61.3.
    • New Orders 63.2% vs 60.5%.
    • Employment 53.6% vs 54.1%.
    • There's a nice bounce in the auto supplier sector after the U.S. ambassador to Germany and European automaker execs talk about a "zero-tariff environment" in the future.
    • Notable gainers include Autoliv (ALV +3.3%), Aptiv (APTV +2%), BorgWarner (BWA +2.5%), Dana (DAN +1.7%), Visteon (VC +1.7%), Lear (LEA +1.4%), American Axle & Manufacturing (AXL +1.4%) and Tenneco (TEN +2%).
    • Previously: Automobile stocks rally on tariff relief (July 5)

    • The Bloomberg Consumer Comfort Index trickled up to 57.6 from 57.3 a week ago.
    • The State of Economy Index rose to 59.4 to 58.0 during the week.
    • Bloomberg has a great summary of China's stance as tariff day, July 6, nears.
    • China insists it will not fire the first shot, but says retaliatory tariffs will become effective "immediately" if the U.S. follows through with 25% duties on $34B of Chinese imports.
    • China says it will fight back with “equal scale, equal intensity,” targeting soybeans, corn, wheat, rice, sorghum, beef, pork, poultry, fish, diary products, nuts and vegetables, and autos in its first round of counter measures.
    • Are markets ready? "Any market rebound before the July 6 deadline would be just temporary. All eyes are on the Trump administration’s move to impose the 25% additional tariff on Friday and what’s next after that," said Zhang Gang, a Shanghai-based analyst.
    • Read the whole article here.

    • Micron (NASDAQ:MU+1.6% premarket as analysts suggest the China news is just a blip and may even help spark DRAM pricing, thus possibly prompting a positive short-term effect.
    • MU plunged 5.5% on Tuesday after a Chinese court issued a preliminary injunction temporarily blocking the company from selling 26 DRAM and NAND related items in the country.
    • "We find it almost laughable that UMC and Fujian are suing Micron for IP theft," says Evercore ISI's C.J. Muse, adding that the lawsuits ask for a total of ~$56M, "not even close" to MU's $10B-plus sales into China.
    • "Our sense is the magnitude of financial impact to Micron is much less than what the market is discounting and therefore fully reflected in today's share price," Muse writes, but "clarity on this front could take some time."
    • Stifel analyst Kevin Cassidy says China's move could pose a buying opportunity, saying the lack of details of the injunction suggests China's goal may be to push MU toward partnering with China semiconductor foundries.
    • "Based on our understanding of court proceedings in China, we think a settlement may be likely," J.P. Morgan analysts say, but MU is "being dragged front and center into the China-U.S. trade dispute as a potential bargaining chip and this could cause near-term volatility in the stock."
    • In an article yesterday, author Hoya Capital Real Estate notes that Shopping Center REITs have surged more than 13% over the past quarter, bouncing back after a rough 2017.
    • While the negative impact of e-commerce cannot be ignored, absent a revolution in last-mile delivery technology, high-quality retail stores will continue to be the center of retail distribution.
    • Further, the recent Supreme Court ruling that online retailers must collect state sales tax negates the 'online discount' that helped fuel e-commerce growth.
    • However, while high-quality grocery-anchored REITs appear poised for growth, lower-quality power center REITs may continue to struggle.
    • Hoya likes: American Assets (NYSE:AAT) (yield: 2.8%), Regency Centers (NYSE:REG) (3.6%), Acadia Realty (NYSE:AKR) (4%), and Retail Properties of America (NYSE:RPAI) (5.1%).
    • Read the full article here. Also, Julian Lin's bull case on REG. For comprehensive coverage of REITs, our REIT Center can't be beat.

  14. Howdy folks – I'm back onboard. Couldn't re-use my old screen name (Amalfi). How do we access the portfolios to view latest positions? THX

  15. Portfolios/Used to be Amalfi – We have the virtual portfolio tab at the top, I usually update once a month and, as you know, new trades are always posted right here in comments.

    I'm out of here about 1pm guys – travel day for me.  Meeting in NYC with pot company for PSW Investments this weekend and then I will touch base with update for those who have shown interest.  

    /RB plowed up to $2.15.

  16. Hi somavision, see the June portfolio review (June 17)

  17. Wow, are we going to turn red?  The bulls must be tired of all the winning…

    Wheee on oil!  /CL back to $73 for a nice, quick $1,500 and that's that for that.  Haven't even seen the report yet..

  18. EIA was disappointing as it was through June 29th:

    • EIA Petroleum Inventories: Crude +1.2M barrels vs. -5.2M consensus, -9.9M last week.
    • Gasoline -1.5barrels vs. -0.8M consensus, +1.2M last week.
    • Distillates +0.1M barrels vs. -0.5M consensus, +0.01M last week.
    • Futures -0.19% to $74.00.

    Net neutral is not what they wanted to hear.  

  19. US service companies expanded at strong pace in June

  20. Wow, you have to take those quick exits on oil – back to $73.50 already and whole market bounced back for whatever reason (nothing I see).

  21. Phil/KC- getting clobbered today. See anything in the news. Thx

  22. /KC/Ravi – No, not much news, just rumors of supply/demand driving things.  

    Not much news in general but markets determined to get to those pre-market highs ahead of the Fed.  

    I've got to get ready to leave – don't break the market while I'm down!

  23.  Really? Nobody was around for that fun dive & recovery?   Shows you how low the volume is this week…

  24. I know it is different this time but here are some past valuation metrics which may be of interest:

    Market Valuation, Inflation and Treasury Yields: Clues from the Past

  25. Bye-bye Scott Pruitt – don't let the door hit you in the back! Scumbag…

  26. EPA chief Scott Pruitt resigns amid ethics scandals

  27. Who Killed the GE Model?

  28. Embattled Pruitt Out as EPA Chief

  29. heat records. Not good.

  30. 52 Places to Go in 2018

  31. U.S., China Prepare for Trade Battle

  32. How endangered is Roe v Wade?

  33. US just put the tariffs into effect but Futures seem to be holding up well…. maybe market waiting to see China's response?

  34. It’s amazing that we’re holding up so well, though all the gains are gone now.  Still, things will get ugly and /RTY is lagging at 1,685 so that’s the morning short with tight stops above!

  35. Good morning!

    Futures are up half a point as the Bulls give a final, low-volume push.  PEP has earnings tomorrow but it's Friday when we get C, FRC, JPM, PNC and WFC and earnings season kicks off.  Banks are low in the channel and low-taxed earnings should be good but not BTE, so we'll see what happens. 

    /NQ went against me so I added 2 more short at 7,262 so now 4 short at 7,240 avg.

    6,500 from here would be $14,000 per contract so playing the risk/reward game.

    Dollar is still holding things up by going down:

    Can't be too bearish with Dow over 24,500 if it holds.