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Trade War Friday – US China Talks Collapse With No Resolution

The WSJ says: "U.S.-China Trade Talks End With No Sign of Progress"

As we predicted, trade talks between the U.S. and China failed to produce any visible sign of progress, reducing the prospects of a deal soon, people closely tracking the talks said.  The statement was significant for what it didn’t say as well, people said after the talks. There was no discussion of follow-up talks or any accomplishments.

For now, the U.S. continues to turn to tariffs to pressure China. As negotiations wrapped up on Thursday, the U.S. put in place $16 billion in tariffs on Chinese goods, raising the total to $50 billion. The Chinese have matched them dollar for dollar.  Public hearings continued on U.S. plans to hit another $200 billion in Chinese imports with tariffs as high as 25%, which would place levies on about half of Chinese imports. If the U.S. continues on the same schedule as in the past, those tariffs could start to take effect in September.

As I explained in yesterday morning's report, Trump has no interest in ending the Trade War with China as these "tariffs" are nothing more than a 25% tax on consumer goods purchased by the average American which fund tax cuts for the above-average American, who are better than you because they have more money – so don't complain!  

President Trump is complaining that Twitter, Facebook and others are cracking down on Russian Hackers, White Nationalists, Hate Mongers and Bots which spread Fake News in Social Media (often from Russian Troll Farms).  It may be difficult for Republican Congresspeople to get elected without all the fake news and fake supporters and, of course, it's a fantastic distraction as the real news flow is turning towards articles of impeachment as more and more of Trump's inner circle is convicted or "flips" on him – something else he's been complaining about.

Obviously, people who are not guilty do not complain of their associates "flipping" on them and they don't decry plea-bargain agreements and they don't screem for the Attorney General to halt investigations – especially when they are effectively uncovering many, many, MANY crimes.  No, this is what guilty people do – especially when they are the heads of vast criminal conspiracies.  Take away the "fake news" and all that will be left are the facts – and Trump can't afford to have that happen!

Image result for trump cohen manafortAnd PLEASE, do not tell me that Trump's issues are not relevant to the stock market.  Trade is relevant, right?  Well if Trump is seen as weak or soon to be dragged out of office in handcuffs by the people they are negotiating with, then he and his team will not be taken seriously in the negotiations.  Also, if you follow the money (as we did yesterday), you can see in advance that Trump is using the Trade War as a distraction and as a stealth tax on US Citizens and 25% of $50Bn ($12.5Bn) is not going to cut it, but it is enough to buy the farm vote, which Trump and the GOP will be doing in their new Senate Bill.  That money will go to rich farmers, who donate some of it back, not to poor farmers who actually need it.

Trump wants another $50Bn in taxes and the best way to take it from you is to wrap it up in a flag and put a 25% tax on $200Bn worth of things you buy and they want to get it done next month so the money starts coming in to make his Q4 Budget seem a bit more balanced.  That's all this is about.  China is just the bogey-man of the moment as it also serves Russia's interest to put a wedge between what were improving relations between China and the US.

We'll see how this plays out but it's a long game, not a short one.  My overriding premise is that there's no particular catalyst to put us over our February highs and, in fact, there are plenty of potential catalysts that can send us tumbling lower.  HOWEVER, the market is still technically bullish and we have plenty of long positions we like too much to cash in so we're simply keeply ourselves well-hedged (see yesterday's Report for one of our shorting ideas) – just in case things collapse again.

 I already put out a note to our Members this morning to look again for shorting opportunities at Dow (/YM) 25,750, S&P (/ES) 2,865, Nasdaq (/NQ) 7,450 and Russell (/RTY) at 1,725 – we use very tight stops over the lines and wait until at least two are under before shorting the laggards and, if ANY of the shorting lines break up – we take a quick loss.  Since the risk is low and the reward is high – toppy markets like this can present many opportunities to make some quick money in the Futures.  

Have a great weekend, 

- Phil


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  1. Good morning!  

    This is the guy running against Ted Cruz – I don't even see how you can compare them…

    Unfortunately, it's Texas, so it doesn't really matter how much better a Democrat is than his challenger.  Cruz won in 2012 with 56.5% to 40.6% for the Democrat (and then there were Libertarians and such). 

  2. good morning

  3. Finally getting a move back in /KCN9 but still another 0.015 to get even.

  4. Best line so far regarding the current White House situation:

    "We are watching an episode of the Sopranos with the cast of Veep"

    Trump is now sounding like a mob boss!

  5. LB – the above link is to an Morningstar article on this

    Narrow-Moat L Brands Reports Mixed 2Q With Weak Victoria’s Secret Results; Shares Cheap

  6. Good Morning!

  7. Beto O'Rourke is a rising star in the Democratic Party.


    If he can beat cruz, I'd look for him to be one half of the Presidential ticket in 2024.

    We'll have to see which half…. ;)

  8. I may be a bit biased….Beto looks like he could be the older brother to my Son Christopher who starts College today…. :)

  9. Jefferies turns cautious on both Altria (MO -1.5%) and Philip Morris International (PM -2.7%).

    The investment firm sees Altria at a disadvantage in vapor and sees the IQOS delay as an overhang, while Philip Morris is seen losing significant market share in Japan as RRP volumes skew to vapor from heated products.

    The Jefferies team lowers the price target on Altrias to $61 from $70 and drops the Philip Morris PT to $80 from $93.

  10. It is sooo refreshing to see and hear someone with working gray cells. Saw Beto on my FB page. Reminds me of Trudeau.

  11. Sold half my /GC position.  Entered it too soon, but finally profitable.

  12. Wow, Nas blasting up to 7,460 – no way to slow down…

    And the all-time winner
    Has got him by the balls
    He picks up Gideons Bible 
    Open at page one
    I think God He stole the handle and
    The train won't stop going 
    No way to slow down

    DAX, however is heading south so I'm going for a couple of /NQ shorts at 7,460 assuming people will take advantage into the weekend and do some selling.

    LOL StJ! 

    LB/Batman – Nonetheless, down again, $27.50 just failed but it's ex-dividend day of 0.60 – I think that's part of it as people who were waiting on the dividend are now selling.  LULU fell from $80 in 2013 to $40 in 2014 and played dead for a few months but not it's $138.  In fact, they fell from $80 in 2016 to $48 just last year too!  

    Things turn around, but they take time.    

    Speaking of crazy turnarounds, CMG can poison whoever they want these days:

    Our LTP position needs adjusting, it's:

    Short Put 2020 17-JAN 270.00 PUT [CMG @ $520.25 $2.21] -5 1/2/2018 (511) $-17,600 $35.20 $-31.53 $-115.14     $3.68 $-0.73 $15,763 89.6% $-1,838
    Short Call 2019 18-JAN 420.00 CALL [CMG @ $520.25 $2.21] -6 5/24/2018 (147) $-32,640 $54.40 $59.00     $113.40 $0.40 $-35,400 -108.5% $-68,040
    Long Call 2020 17-JAN 400.00 CALL [CMG @ $520.25 $2.21] 15 5/24/2018 (511) $143,400 $95.60 $64.40     $160.00 - $96,600 67.4% $240,000
    Short Call 2020 17-JAN 480.00 CALL [CMG @ $520.25 $2.21] -15 5/21/2018 (511) $-87,675 $58.45 $48.10     $106.55 - $-72,150 -82.3% $-159,825

    I think we're a bit overdone here at $520 as that's $14.5Bn for a FAST FOOD COMPANY with $4.5Bn in sales and $200M in profits so 70x earnings but let's assume 35x as they work their way back to pre-crisis profit levels.  The thing is, new traders are seeing this as explosive profit growth ($23M in 2016, $176M last year, $116M in Q1 and Q2 this year) but they make $475M in 2015 on $4.5Bn in sales – before all this nonsense although people were paying $750 back then!

    Still, I think $520 is plenty and what we can in the LTP do is roll the 6 short Jan $420 calls ($113 = $67,800) and the 15 short 2020 $480 calls ($106 = $159,000) to 20 short Jan $460 calls at $80 ($160,000) and we'll cash in our 15 2020 $400 calls at $159 ($238,000) and buy 20 2020 $460 ($118)/580 ($58) bull call spreads at $60 ($120,000) so we are taking $51,200 off the table and now we have a $240,000 spread that's $120,000 in the money covering the 20 short, rollable calls that are $120,000 in the money too so we're playing this for a pullback and, when we get one, we'll buy back some short calls to restore a 2:1 ratio.

    MO/Batman – The long game is all about the reefer.  

    Speaking of reefer, New Age/PSWI is partnering with Nicki Minaj to put out a branded line of consumables!  We'll be putting together more of these deals as time goes on but this will be our first trial.  No risk for us as we're getting paid to manufacture AND revenue-sharing on sales!  

    Durable goods were a big miss.  No one seems to care:

    • July Durable Goods: -1.7%vs. -0.8% expected, +0..7% prior (revised).
    • Core capital goods +1.4% vs. +0.5% expected, +0.6% expected

    Just in time for the holidays, baseless sanctions perfectly timed by team Trump to jack up oil into the holiday, making Billions for the Saudis, where he has hotels and properties and can get paid back in dozens of ways.  

    • Crude oil prices are tracking higher amid some "retrenching" with the U.S. dollar. Traders and analysts also have their eyes on looming supply shortages from Iran as the U.S. sanctions factor in. "Third-party reports indicate that Iranian tanker loadings are already down by around 700,000 bpd in the first half of August relative to July, which if it holds will exceed most expectations," observes Jefferies on the oil patch developments.
    • WTI crude oil futures +1.08% to $68.56/bbl at last check. Brent crude +1.00% to $75.48/bbl.

    Brains/Pirate – Hopefully Trump will cause a backlash and people will begin to look for qualified politicians again.

  13. HMNY now below 0.02 at 0.0166.  Smart money says they are going to run out of cash again and will have to suspend service again.  Also, people are saying they've sold 1Bn shares now which, wouldn't even generate much money and the next Billion would be almost pointless at 0.02 ($20M) considering their burn rate.  It is hard to imagine what the end game is here.  Valuation is less than $11M for the whole company so even a buyer who was willing to lose $50M a month for a year in hopes of turning it around wouldn't need to spend more than 0.10 tops to take it over.  

    Nas 7,483 now – all the indexes flying  despite Powell saying he's sticking with hiking regime:

    Fed’s Powell Defends Pace of Rate Hikes to Avert Overheating

    Federal Reserve Chairman Jerome Powell defended the strategy of gradually raising interest rates, pushing back against criticisms that the central bank is moving either too quickly or too slowly, jeopardizing the economy’s expansion. 12 minutes ago

    Maybe because of it?

  14. Nice Dollar take-down to boost indexes this morning:

    I have 6 /NQ short now at avg 7,471.1666

  15. /KCN9 just hit $113, so I took 2 (of 7) off the table.  

  16. Make it 8 short /NQ at 7,475 now.

  17. Phil, quick New Age Ventures questions, you had mentioned

    "I met with New Age Ventures over the weekend and they are the medical
    marijuana specialists behind half the consumable pot products (edibles,
    vapes, oils, gels..) in California, Nevada and Michigan.  What they do
    is white-label their stuff using the pot from their partners and
    generally get 25% of the profits (after their costs are paid, of
    course), which is better than being a grower, distributor or retailer. "

    If they are behind half of the consumables in these states and get 25% profits wouldn't their revenues be way larger than what they reported? 

  18. New Age/Crs – Consumable market is smaller and their "revenues" are really just the profit share but it's a growing segment and deals like Mnnaj above will push us more towards the very exciting retail revenues.

    I don't see a chart for CA but here's CO to give you an idea of the ratios:

    Image result for california marijuana consumable market


  19. Has the ship already sailed on New Age? Just back from vacation, interested in one block or splitting one 50/50 with another party.

  20. I took an even(ish) exit on /KC in order to stick with my NQ shorts (9 at 7,476 now).

    Of course I will get back in /KC but this was a hell of a run on a Dollar drop (nothing to do with coffee fundamentals) – so not worth risking the weekend.

    New Age/Atitlan – I don't think we're filled yet but more than halfway already.  It's first come, first served so, as long as you have your qualifying paperwork, just ask Greg for the Subscription Agreement and you are all set.  

  21. Just saying based on the graphic you posted which is just colorado, California is much larger (2 billion + sales of total marijuana product) if we assumed a similar % breakdown between flower / edibles / concentrates as colorado (as I couldnt find any breakdown after a quick search) that should be approx 10-11% edibles. 

    that would equate to about $200+ million in edibles sales in Cali, not sure what profit margins are? but Is it safe to assume 10%? that's $20 mil profit just for Cali edibles, if they get 25% of that that should be 5 million in revenue from California alone no?

    Am I missing something here? 

    Still interested int he venture (and have e-mailed greg for some forms to see if i can be considered accredited investor) but that one piece wasnt quite adding up to me. 

  22. sorry my math was off, they should get 50% of that if they own half the market, so it would be $2.5 mil, but again that is more than they reported total, and that is just california, and that is assuming 10% margin (which i have no clue but may be conservative???)

  23. Wow, the dominoes are falling down:

    Trump Organization Chief Financial Officer Allen Weisselberg was granted immunity for providing information to federal prosecutors in their investigation into Michael Cohen, the Wall Street Journal reported Friday.

    Another flipper… If the Trump Organization was a public entity, they would be getting killed now!

  24. GNC

    An analyst on Briefing Trader is putting GNC on his radar for a possible long entry.  He likes the set up on the stock, and is looking for an entry point.  He points out the action in Vitamin Shoppe ( VSI),  and suggests that GNC could be due for a rebound.

    FWIW – I'm short some Jan 2.5 puts.

  25. I Know they are expensive BUT good plays. PRU an armchair trade for Dec. buy the stock 98.42 and sell the Dec strangle 97.5/100 for 8.29. Combined monthly return while you smoke your pipe 2.4% p.m

    Lower protection 89.21. Some guys were just looking for some more comfortable trades. This type of trade you can repeat over and over.

  26. If you look closely, you may see our POTUS…… :)

  27. I think it is time to buy some PM again

  28. Yodi,

    Why do you sell Dec strangle?. Isn't it safer to sell monthly? 

  29. Yodi,

    Why do you sell Dec strangle?. Isn't it safer to sell monthly? 


  30. Ahh well, it's supposed to be a pic of toast…but you already knew that…. ;)

  31. Gabor

    1. It depends how hard you want to work the play. Remember most stocks pay quarterly div. so you might miss a month div. payment.

    2. I like the Dec which is relaxed play and pays over 2.4% per month no stress.

    3. You still can go further out but you will reduce your monthly income, I need a minimum of 2% p.m.

    and I expect the stock to go up. On further out months I will likely have to roll the 100 call, if you do not wish to lose the stock and get your cash back. You don't want to lose a good milk cow!

    Just remember the cash on the option play is 2.09 p.m and the div is .30 cents per month so on a monthly play you some time will not receive the .30 cents if you play monthly.

  32. $5M/CRS – Well CA is less mature than CO but that's the opportunity.  They did about $3.5M last year, not $2.5M but had the line down for a quarter as they brought things up to standards and this year trending higher, of course but also doubling the line after our investment so we should pop nicely, perhaps even 3x moving forward as we expand from medical to consumable in earnest (assuming consumables growth keeps up).  Then there's other states, other countries and deals like the one we just made add all sorts of streams down the road – it's very early stages, of course. 

    Minaj did 50 shows in 2016 for 500,000 people on her last tour and plans to sell branded pot products on the next tour (which is why she delayed it) since people are happy to pay $200-400/ticket so no stretch to think paraphenalia would do well too.  There's lots and lots of bands we can talk to and that's just a side gig that we're trying on top of expanding the core business.  If only Pink Floyd were still touring – we'd be Billionaires!   

    Image result for pot smoke at pink floyd concert

    That's not a stage effect, the smoke is from the audience:

    Related image

    GNC/Albo – About time someone noticed:

    PRU/Yodi – Good call.  3.6% dividend on rock-solid company.

  33. Why Mike Pence is such a sycophant

  34. How This Will End

  35. Yesterday we did have a fierce discussion on income on trade recommendations you could pick up on our site.
    As concluded every one finally has to make their one decision what and how to trade. It is your money you put on the table.
    In my armchair trades I am looking for a minimum of 2 % per month. That is 24% p.a.!!!
    In nearly 4 years you have your capital back.
    You will have to be selective of the stocks you trade obviously.
    But if you sure you like the stock you wish to trade you do not mined selling the put generally for a discount to the present stock price.
    Now if in my plays the stock goes down well you might get more stock to trade with, here again you obviously have the cash on the side for paying for the stock.
    In case the stock goes up over your caller, you have two choices either get the cash back or you need to roll the caller.
    You might say by rolling the caller I have to pay more money than I got for the sale of the caller originally, yes that will be true, but look at your milk cow the stock, it has got much fetter than you bought it for mostly exceeding the value of the roll.
    So the only thing you might have to do is look for good milk cows, and don’t always listen to what other people say. !!!!

  36. Barry Blitt’s “Closing In”

  37. The secret in this game is find the right stock for the right price.
    For example I have PFE in my armchair trades, but I bought the stock at 32 and 35. Would I buy PFE today NO. But I can milk this cow with my strangles.

    Take MO I bought the stock at 39, PM bought the stock 59 11/16/10 They surely go up and down.
    You find two people in this market for example TSLA some bought the stock at 377 we at PSW shorted the stock at 377. The winner? ask me in Jan 19.

  38. Even PZZA is up 5.3% taday I am playing this one for some time and build up credit even after the drop.

    But I think Phil set up a new play on them possible showing sprouts already.

  39. Fed’s Mester Sees `Compelling’ Case for Rate Hikes: Jackson Hole

  40. Well, I would have given up in /KC what I'm losing on /NQ so far ($2,500) and I hope I don't have to give up (over 7,500) into the weekend.  At some point, reality will come back from wherever it's vacationing…

    Good system, Yodi.  And look how pathetic hedge fund returns are (above chart).  I can't believe people give them money when they are averaging 11% over 5 very good years!  As you say, the secret is simply picking good stocks, making non-greedy, sensible plays and then working them for steady premiums.  Wash, rinse, repeat….

    People like to shoot for the moon but 20% a year consistently (re-investing the winnings) is:  100, 120, 144, 173, 207 (doubled after 4 years), 248,  298, 358, 429, 515, 619 so 5x after 10 years but people don't realize that those "boring" but consistent returns in the early years set them up for major excitement if they just keep plugging away.

    94.99 on /DX, hopefully this is where my /NQ shorts start to pay off!  

    PZZA/Yodi – Your idea last week, thanks:

    Submitted on 2018/08/02 at 11:27 am

    PZZA/Rookie – I think they go a bit lower, these things don't resolve quickly.  Look at WYNN.  Around $37.50 I'd be more excited to buy.

    Submitted on 2018/08/16 at 10:54 am

    PZZA/Yodi – We picked some up for the hedge fund, mostly short puts – I think they've suffered enough.

    For the LTP, I like:

    • Sell 15 2020 $42.50 puts for $7.90 ($11,850)
    • Buy 20 2020 $35 calls for $15 ($30,000)
    • Sell 20 2020 $50 calls for $6 ($12,000) 

    That's net $6,150 on the $30,000 trade that's $17,000 in the money to start!  Upside potential at $50 (not ambitious) is $23,850 (387%) which will pay for a nice cruise next summer!  

    And that was from my cabin on a cruise ship!  Who says this stuff is hard???  cool

    Keep in mind if we're just going for 20% annual returns, we only need to put 10% of our money into "risky" trades like this to hit our goal for the whole portfolio.  Of course, I don't consider it that risky as we waited for a nice bottom, checked our valuation and made the call but, of course – there's LB as a counterpoint – they don't always work out BUT, if you are only allocating 10% of your portfolio on 400% trades – then there's plenty of cash on the side to fix the ones that don't work.  

  41. Pravda on the Checkout Line

  42. Buying Emerging Markets During a Disaster

  43. Fed’s Mester Sees ‘Compelling’ Case for Rate Hikes: Jackson Hole

  44. TastyWorks – Winston, thanks for the info on the Option pricing for LB.  I was logged out around 10PM, 11AM EST.  Support is fantastic over there and as an FYI for those that use the same platform -- the issue was my browser (Arora) that I was using at the time.  I like their Web app, better than the downloaded one.  The silver lining — I missed buying more longs and as it turns out, I get them a buck cheaper now.  

  45. Yodi,
    I am sorry, but I think we misunderstood each other.

    Sorry for the questions, but I like this armchair trade (safer) and I would like to understand well.

    Why better to sell dec strangle?
    Isn't safer to sell PRU 97.5/100 sep strangle (I don't want to loose the stock as well) and then sell the Oct strangle (or roll the call)?

    I think it's more probably that the 97.5/100 sep strangle expire out worthless then the dec one. Not? After the first month expire I can sell the adjusted strangle, if the stock go higher.
    Sep 97.5/100 I sold for 2.68. If I can sell every month for 2.5 then 4 month will be $10. I will get the dividend as well If I don't loose the stock or roll the calls.
    So it's better in money, easier to adjust, safer that the stock won't go too high in one month.
    Am I missing something?

    Thank you for your answer

  46. Dollar up and down with the markets (inversely).

    So the question is, over the weekend, is it more likely something happens to make the Dollar stronger or weaker?  Since trade escalation tends to strengthen the Dollar – I assume it's better to play for the downside but today is yet another day when the default seems to be rally unless something specifically stops it but, then again, when you take a step back, we're struggling to get to the high we zoomed up to in Feb so maybe it's healthy consolidation or maybe this will confirm a double top with a big dip.  

    If we're over 7,500 on /NQ – I stop out with a $3K loss but, if we drop 800 Nas points like we did in Feb and again in March – that's $16,000 per contract and I'm 10 short at the moment so I think I like the reward vs the risk – even if I do think it's almost 50/50 which way we go.

    Also, we have an almost sure thing next week with our /RB shorts and it looks like /RB and /CL are flying up into the holiday so should be able to make up our losses (if any).

    • Japan's core consumer prices rose 0.8% Y/Y in July from a year earlier, unchanged from the previous month's gain, adding to evidence the central bank is making little headway in achieving its elusive 2 percent price target.
    • Subdued wage and price growth have forced the BOJ to extend its massive stimulus program despite the rising risks of the policy, such as the hit to bank profits from near-zero rates.
    • The BOJ last month conceded that inflation will miss its elusive 2 percent target until early 2021 and took steps to make its policy framework more sustainable.
    • Japan's economy rebounded in the second quarter from a contraction in the first three months in 2018 thanks to robust household and business spending.
    • German preliminary economy grew 0.5% in 2Q18 with robust domestic activity helping to cushion against risks to exports from an uncertain global trade outlook.
    • Construction and state spending expanded the most, both up 0.6%Q/Q but the head of one economic institute said a record public sector surplus indicating government investments should be rising more rapidly.
    • Private consumption extended its growth run to six straight quarters, reflecting steady falls in unemployment during what has been a long phase of economic recovery.
    • Overall public sector surplus soared to a record high of €48.1B in 1H18
    • Mexico's economy shrank by 0.2% Q/Q in 2Q18, one-tenth of a percentage point more than initially forecast in a preliminary estimate, data from the national statistics agency showed on Friday.
    • The economy expanded 2.6% Y/Y, with Y/Y growth was one tenth of a point less than had been predicted in the preliminary estimate, which was published at the end of July.
    • Agriculture contracted by 2.1% Q/Q, with industrial production, including manufacturing, slipping by 0.3%, while service activity grew 0.2%.
    • Mexico's central bank said early this month it believes economic growth will likely come in at the lower end of its forecast for the expansion of between 2 and 3 percent this year.
    • AMD (NASDAQ:AMD) shares are up 5.7% and potentially heading for its highest close in nearly 12 years.
    • Shares closed at $24.23 on October 18, 2006, and currently sit at $23.55.
    • Yesterday, bullish Rosenblatt Securities analyst Hans Mosesmann hiked AMD’s price target to a new Street high on the “historical window of opportunity” presented with Intel’s (INTC +1.7%) 10nm delay. 
    • Cowen was also out with a research note saying that AMD’s likely to win business with cloud computing vendors wanting to diversify risk exposure to chip-specific security flaws.  
    • Previously: Intel, AMD moving on reveal of more Intel chip flaws (Aug. 14)
    • Previously: Rosenblatt boosts AMD target to new Street high (Aug. 23)
    • U.S. dollar falls 1% against the Chinese yuan after China reintroduced the "counter-cyclical factor," a measure intended to fight depreciation pressure that had been driving the currency down against the strong greenback.
    • Add to that Fed Chairman Jerome Powell's comments today that he doesn't see inflation accelerating any time soon; that gives investors reason enough to turn to other currencies.
    • The U.S. dollar is down 0.7% vs. the euro and 0.5% against the Canadian dollar.
    • The U.S. Dollar Index, measuring the dollar's strength vs. a basket of currencies, is down 0.6% in midday trading.
    • Stock markets continue to strengthen, touching intraday records, after Federal Reserve Chairman Jerome Powell defends the Fed's policy to gradually increase the fed funds rate in a speech at Jackson Hole, WY, Friday morning.
    • The remarks come less than a week after President Trump said he wasn't "thrilled" with Powell raising rates because he expected him to be a "cheap money" guy.
    • Powell's remarks reassured investors that any rate hikes will remain gradual and since he doesn't see any signs of accelerating inflation or an overheating economy, there's no need to.
    • The S&P 500 is up 0.6% to 2,875.44 in midday trading, the Dow Jones Industrial Average gains 0.6% to 25,820.94, and the Nasdaq advances 0.85% to 7,945.62.
    • Meanwhile, the U.S. 10-year Treasury note rises, nudging its yield down 1 basis point to 2.819% as the 2-year Treasury yield barely moves, up 0.4 basis points at 2.62%. That brings the yield spread between the two notes to just under 20 basis points, bringing the yield curve to a decade low.
    • Earlier today, the 10-year Treasury yield had risen to 2.85%.
    • (TLT +0.1%), (TBT -0.3%).

  47. Gabor. I would call it six of the one or half a dozen of the other. Yes the chance of losing the stock on a further out trade is always higher. But remember a stock can always go in two directions.
    So there is nothing wrong with selling the Sept strangle, however you will not receive any div. during Sept. I think I explained this in my explanation above.

  48. Phil,  you suggested during the webinar that I remind you to discuss a gasoline short using options for those of us who do not play futures.  Would appreciate your thoughts.  Thanks.

  49. Phil/ RB – did you already take a short, asking as I am not sure if I missed a post. 

  50. Pushing higher into the close.

    Gasoline/John – Well it's not actually time to short yet, we plan to do that next week.  UGA is the Gasoline ETF and it's at $34 with /RB at $2.075.

    It's a close enough correlation that you can play it as a proxy for /RB and looking at July 4th and May 20-whatever, we had $1 spikes so hopefully next week you see $35 on UGA and then we would look to short it into Oct with with something like the $36 ($2.45)/$34 ($1.30) bear put spread which is now $1.15 and pays back $2 for an 0.85 (74%) gain if UGA is below $34 at Oct expirations. 

    Unlike SDS, which we liked vs the futures, UGA is not as good to play as a proxy since an /RB contract is $4,000 in margin and pays $420 per penny so an 0.10 drop would pay $4,400 (110%) vs 74% on the spread and, of course, the broker fees on the spread are way higher and they are less liquid but, on the other hand, you limit your risk and there's no margin required.

    Speaking of limiting risk – I guess I'll let my /NQ shorts ride into the weekend but I don't like it!  

    Have a great weekend, 

    - Phil

    /RB/Ravi – No, I am PATIENTLY waiting for next week.  

    • Pet insurance premiums rose 23% last year, and the number of insured pets rose about 16% to 1.83M last year, the Wall Street Journal reports, citing the North American Pet Health Insurance Association.
    • Americans spent about $17B last year on veterinary care-- per pet that comes to $257 for routine care for dogs and $182 for cats.
    • The largest providers of pet insurance in the U.S. are Nationwide, Trupanion (TRUP -0.1%), and Healthy Paws.
    • Only about 1% of dogs and cats in the U.S. are insured, but insurers expect that number to grow. In the U.K., about a quarter of dogs and cats are insured.
    • The policies are a hybrid product--part health insurance and part property & casualty insurance since a pets are possessions.
    • Previously: Trupanion beats by $0.02, beats on revenue (Aug. 2)
    • Previously: Trupanion announces pricing of $60M public offering of common stock (June 21)

    Yet we can't put kids through college?

  51. Trump Cancels Pompeo’s North Korea Trip Over Lack of Progress

    President Trump said he canceled Secretary of State Mike Pompeo’s trip to North Korea planned for next week, due to a lack of progress in nuclear talks with Pyongyang. 42 minutes ago

    Republican Declared Winner in Tight Ohio Special Election

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  52. Unreal market. No volume and zooming higher.  Players didn't sell into close. Nothing to worry about so enjoy the weekend!

  53. Phil/RB – Thx

  54. Honorable mention to Jabob for getting on Phil's 'shit' list twice in a year.  In all fairness, I agree with you on many of your points, but, the approach — it is as poor as a few positions in my portfolio.  If misery loves company, my port is down 15% YTD, but if I do nothing else until 2020 and all goes well, it will be up 20% (10% a year) and that is without those 'FU' stocks in my portfolio recovering.  To me, that is pretty incredible, considering I have HMNY, LB, ABX, GE, NAK, etc.  But WAIT… it gets better, I am now selling monthly, quarterly premiums, (straddles or strangles - don't really know the difference, but it is what Yodi is doing).  Whereas, I was sitting around thinking… WTF, instead of getting busy.  I have 18 more months of 'Being the House, not the Gambler'.   All this and I made my first ever trade (FTR) just 18 months ago.  Perhaps I am being naive, but when I read Yodi, Albo, Batman, StJ, and the others, I am encouraged that I am on the right track and reminded that I'll be a grasshopper for a few more years.  You tend to tarnish this outlook for me, but provide no substance to your pain, other than you are frustrated about PSW picks.    

    The membership is priceless to me, and while PSW is my largest annual expense, the return on what I'll know in 8000 more hours is worth every penny, even with my portfolio that is running behind all PSW's portfolios.  I use to think the 'FU's' are a good way to bring Phil's attention to a particular stock that may have fallen out of favor, but it is being overused and losing or has lost it's value.  I don't use the ignore, I value and read every post, so, I gotta ask… why do you stay? 

  55. To clarify on my comment about this being my largest annual expense and to let Jabo know I didn't mean to be over critical.  I live on less than 30K a year at the moment and moved to Asia in order to reduce my expenses and isolate myself from the chatter.  This is a life choice that has provided me a runway to learn Options. In fact, I have lost as much as I live on right now and I am quite confident nobody can make this claim, nor likely would.  I don't mind sharing my failures, it is only when I fail that I succeed beyond my own expectations.  As I wait on history to repeat itself, I continue putting my building blocks in place, as this journey has only begun and you gotta plan for a few speed bumps along the journey.   

  56. Looks like a couple of my comments this AM are "Awaiting Moderation", so if you are NOT tracking my last comment… i apologize in advance.  

    Phil – Do you consider February 2018 a correction?  My portfolio was new at the time and I had zero hedges in place, which put me way behind for the year.  Since Feb, I have added and continued to add insurance and "hope" my portfolio is well hedged.  The last of my TZA expired worthless, but lost overall on the trade, as I didn't manage it correctly, but I still have SQQQ and put on an uncovered DXD yesterday.   

    Could you talk about hedging this week by using an example to illustrate how you value what you have and how to protect it with SQQQ/TZA/DXD?

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  59. GrassHopper67 

    Thank you for sharing where are you in Asia ?

    I am planning on moving  to the Philippines

  60. Asia – qcmike, I am living in Thailand.  It was a perfect situation for me and had I not bumped into a PSW member, I doubt that I'd be here today.  Where in the Philippines are you planning to move?  

  61. still censored?

  62. could you please take me off ignore?

    i will no longer vent.

  63. Don’t Be Tempted by L Brands’ Fat Yield


    Ben Levisohn

    Aug. 24, 2018 7:34 p.m. ET



    Earlier this year, we asked, can L Brands be fixed? Last week, we got more evidence that the answer is no.

    After trading ended on Wednesday, L Brands(ticker: LB) said that it had earned 36 cents a share in the second quarter, topping forecasts of 34 cents, on sales of $2.98 billion, in line with expectations. Unfortunately, the parent of Victoria’s Secret also slashed its full-year guidance to $2.45-$2.70 a share, from $2.70 to $3. It was the second time this year that the retailer had cut its forecast. On Thursday, its shares dropped 13%, to $28.25, their lowest level since 2011.

    Back in March, bulls argued that if Victoria’s Secret could be stabilized, then strong performance at Pink and at Bath & Body Works would propel the shares higher. We argued that the opposite could happen, and that’s what’s playing out. In its latest report, L Brands revealed that same-store sales had dropped 1% at Victoria’s Secret during the quarter, while Pink sales suffered a “mid-single digit range” decline. Only Bath & Body Works is still growing, by 10%.

    L Brands shares have sagged 54%this year—and 36% since our article appeared. The stock trades at just 11 times forward 12-month earnings forecasts, well below the S&P 500’s 17 times. It also sports an 8%-plus dividend yield, which could make it appealing to income seekers. 

    However, Jefferies analyst Randal Konik, who cut L Brands to Underperform in 2016 when it was at $65.71, says stay away. Victoria’s Secret is discounting its wares, but shoppers still aren’t responding, and Pink’s sales, he argues, could be halved. If that happens, L Brands dividend could be cut, as well. “We urge investors to exit long positions in the stock,” Konik says.

    We see no reason to disagree. 

    Write to Ben Levisohn at

  64. Volume/Den – What volume?

    Date Open High Low Close* Adj Close** Volume
    Aug 24, 2018 286.44 287.67 286.38 287.51 287.51 57,465,900
    Aug 23, 2018 285.97 286.94 285.43 285.79 285.79 49,204,900
    Aug 22, 2018 285.88 286.76 285.58 286.17 286.17 44,993,300
    Aug 21, 2018 286.25 287.31 285.71 286.34 286.34 67,272,000
    Aug 20, 2018 285.57 285.97 285.06 285.67 285.67 39,807,500
    Aug 17, 2018 283.83 285.56 283.37 285.06 285.06 65,618,500
    Aug 16, 2018 283.40 285.04 283.36 284.06 284.06 69,967,900
    Aug 15, 2018 282.38 282.54 280.16 281.78 281.78 102,925,400
    Aug 14, 2018 282.92 284.17 282.48 283.90 283.90 43,842,000
    Aug 13, 2018 283.47 284.16 281.77 282.10 282.10 65,686,900
    Aug 10, 2018 283.45 284.06 282.36 283.16 283.16 77,076,000
    Aug 09, 2018 285.53 285.97 284.92 285.07 285.07 35,652,400
    Aug 08, 2018 285.39 285.91 284.94 285.46 285.46 42,114,600
    Aug 07, 2018 285.39 286.01 285.24 285.58 285.58 43,196,600
    Aug 06, 2018 283.64 284.99 283.20 284.64 284.64 39,400,900

    Correction/Grass – Feb was, essentially, a 10% drop and a correction is, by definition, a 20% drop but I would have considered it a correction if it lasted longer.  We did stay down into April but then took off again like nothing happened – even though nothing had changed.  

    You can see what a proper correction looks like – the market has them all the time yet, for some reason, every time they happen people are "surprised":

    An optimist would say 750 to 1,500, correct to 750 back to 1,500, back to 750 and now breaking over 1,500 to 3,000 – but that would still be before correcting to 1,500 so, to me, establishing shorts as we get close to 3,000 seems like s sensible thing to do!  

    To that end, we talked about SDS last week as a short-term hedge but, as a long-term hedge, if we assume there will be SOME sort of rejection at 3,000, then SDS only has about 10% to fall (5% gain on /ES) which means selling Jan $35 puts for $2.70 is a good idea so we can build a spread like:

    • Sell 10 SDS Jan $35 puts for $2.70 ($2,700)
    • Buy 40 SDS Jan $35 calls for $1.85 ($7,400) 
    • Sell 20 SDS MARCH $40 calls for $1.50 ($3,000) 

    That's net $1,700 on the $20,000 spread (1/2 covered) that's just out of the money.  The reason I'm going for March covers is they pay more (Jan $40s are $1.15) and they are still $5 out of the money so we will be able to roll to cover easily enough.  If we get a good spike in SDS, like 20% to $41 on a 10% drop in /ES, then we could cash half the Jan $35s for $6 ($12,000) and roll the other 20 Jan $35s to March or July $35s for very little premium (since they are deep in the money) and we'd still be covered with a 20-unit spread that's $10,000 in the money.  If SDS goes lower, the short calls expire worthless and we sell more calls when we roll.  It's a good, flexible cover.

    Keep in mind the S&P 500s Market Cap is now $26Tn, which is an average cap of $52Bn with a Price to Free Cash Flow (not earnings, but how much real money goes to the bottom line) of 35, which values pretty much all companies as if they are rapid growth companies in hot sectors.  

    As ridiculous as 35x cash flow is, it's even more ridiculous when a "risk-free" 10-year note goes for 33x (33 x 3% annual returns) and that's just about to invert and make stocks a much worse cash-flow deal than bonds – that really doesn't ever happen for very long before correcting. 

    LB/Batman – Yes, there are lots and lots of people saying LB is doomed and everyone should get out, etc. but there are also facts, like:

    Earnings per share for the second quarter ended Aug. 4, 2018, were $0.36 compared to $0.48 for the quarter ended July 29, 2017. Second quarter operating income was $228.1 million compared to $300.9 million last year, and net income was $99.0 million compared to $138.9 million last year. The company reported net sales of $2.984 billion for the quarter ended Aug. 4, 2018, compared to sales of $2.755 billion for the quarter ended July 29, 2017. Comparable sales for the 13 weeks ended Aug. 4, 2018, increased 3 percent compared to the 13 weeks ended Aug. 5, 2017.


    Comparable same store sales up

    • Comparable sales (stores and direct) rose 3% (down 1% at Victoria's Secret, and up 10% at Bath & Body Works).

    Sales by line were up

    • Victoria's Secret, $1.36B (up 1%); Victoria's Secret Direct, $360M (up 21.9%); Bath & Body Works, $824.3M (up 9.5%); BBW Direct, $139.3M (up 29.8%); VS/BBW International, $145.4M (up 27.7%).

    You could say that LB doesn't deserve a premium valuation, etc. but the same was said about M when we picked them up – they are trading LB like they are going bankrupt using the argument that their sales are off 1% when looked at a certain way – it's stupid!  

    The CEO stated several things to be positive about, yet there was little coverage of this. The CEO stated:

    "I remain confident as what's new in the assortment is what's working and we are very focused on leveraging these learnings to accelerate our progress going forward. We see signs of progress in Illusion, one of our highest AUR constructed bras and it's margin accretive. It's a bra with benefit balanced with fashion and it continues to meet and beat plan. T-shirt bra also continued to see double-digit increases and building in sales on fewer frames and after three price increases. Total panty sales are up mid-single-digits and positive for the third consecutive quarter. Speed agility and fashion are fueling that book of business. And the key adjacent categories we've added back like sleep are seeing growth and are critical to creating new loyals as these categories flow more frequently and attach to bras. Again, while we've made progress in critical spaces, we still have more to do to close the gap created with changes taken in 2016, particularly the gap in key franchises and building back high value dual channel customers."

  65. Phil,

    What are you doing with your /NQ shorts? I have 5 at 7470 and getting concerned 

  66. Not much to do st the moment.  I was going to stop out over in the line,  but I just got back from want now turns out to have been an expensive dinner!   Just going to wait and see.  

  67. Beyond Soda: How and Why Your Beverage Options Are Exploding

  68. Opera of Demons

  69. Hedges/Phil – Thank you.  I like the SDS analysis… makes sense. 

    Gold Traders – you may find this of interest, wanted to share with the group.  Kimble news on PSW site and I've followed another site since June, which supports the Kimble bullish news on Gold.  This other site has consistently nailed it with their premise since June.  I point this out, as there has been some recent interest in Gold on the board. 

  70. To all of you being Americans.
    The world has lost in John McCain, a still true American and the Demarcates have lost one of the real good Republican!
    His death is here all over the news with great sympathy.
    The discredit remarks of Trump about McCain re war hero puts Trump again in the lime light how deranged the man is.
    Again my sympathy to all.

  71. am i still censored?