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Floundering Thursday – Indexes Struggle to Get Back on Track

Just a minor set-back – so far.

We've lost a bit of ground in the past week but only halfway back to where we were two weeks ago (2,850), when we broke out to new highs – that's still pretty strong but, unfortunately, there's an outside chance that Trump could push through his next $200Bn worth of tariffs on China this afternoon and Asian markets were off 1-2.5% this morning but US Futures SEEM not to be worried at all, as they are up slightly.

I say SEEM because the reality is that the Dollar has dropped 0.6%, from 95.60 at yesterday's open to 95 this morning and that SHOULD be popping the markets 0.6% but they ae just flat so all this is doing is masking additional weakness.  Silver (/SI) is up to $14.30 so congrats to the players on that one as we're now up $1,500 per contract.  Even Gold (/YG) woke up and is now back at $1,211 but this is a Dollar-related move and can unwind quickly if the Dollar bounces.

Things can get ugly quickly on the trade front as China has already warned of retailiation over any new tariffs – so far they have matched the US dollar for dollar.  "If the U.S., regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures," according to the country's commerce ministry.  Due to China's massive trade surplus over the U.S., many expect the PBOC could further devalue its currency or crack down on U.S. firms inside the country.

Meanwhile, U.S. and Canadian negotiators are engaged in "intense" NAFTA discussions, according to President Trump.  "If it doesn't work out, it'll be fine for our county but it won't be OK for Canada," he added. "I think they will treat us fairly."  Talks broke down last Friday after the two sides failed to reach a deal that would bring Canada into a new trilateral trade pact with the U.S. and Mexico.

It's very unclear what Trump s even trying to accomplish with Canada as we have a fairly balanced trade relationship with them so Trump's complaints that Canada is taking advantage of us makes no sense at all.  Even Mexican trade is barely out of balance as NAFTA was working fine – until Trump broke it.  Failed trade negotiations with Canada or China can take the market down sharply so it's a good time to have plenty of CASH!!! and hedges.

We did get positive market news this morning as Until Labor Costs are down (-1%) and Productivity is up (2.9%) and later we'll get a look at Factory Orders, ISM Services as well as the EIA Report on Oil Storage (11am) so plenty to chew on as the day progresses but, at the moment – pretty dull.

 


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  1. Once again, nothing to worry about… Trade war entering a new stage, the cabinet thinking of invoking the 25th amendment because Trump has mental issues, other than that a completely normal situation. Of course, by now we don't need to worry about Trump accessing the nuclear codes – Matthis probably already replaced the real ones by loot codes for Fortnite!



  2. We might need to pick up the R&D investment:


  3. Buenos Dias Amigos


  4. Good Morning!


  5. Good morning!  

    Very odd ignoring of trade dangers but I think the short-term promise of a deal with Canada outweighs the long-term danger of escalation with China – may only last the morning though.

    ROFL StJ!  

    Image result for trump fortnite

    Jobs/StJ – I think we need to be careful about cracking down on the eccentricities of our top producers.  Not many people have no skeletons and, as noted in various studies, so many CEO-types are actually psychopaths – it kind of goes hand in hand.  Of course, they can go too far (Trump, Weinstein) but are we going to "stop" people like Jobs because they were bad parents?  My step-father got pissed at me when we were building something and threw a hammer at me so hard it stuck in the wall next to my head, but I didn't write a book about it.  On the whole, we had a good relationship and, if he had meant to hit me, he would have – he had good aim…

    R&D/StJ – I'm surprised we're still on top but, of course, it's in straight Dollar terms and China's economy is 1/2 our size so they already spend twice as much as we do relative to size.

    Well, so much for opening gains, indexes already red but /YM hanging on at 26,000 line – for now.  Watch the Dollar for strong or weak bounce off the 95 line.  0.6 fall so 0.12 bounces to look for.


  6. NFLX having a rough week:

    TSLA just fading away

    Our AMZN short looks good

    This is a good sign, LB not going down on so-so news:

    L Brands slips past estimates with August comp

    That won't make Jefferies happy, they tried to kill them last week:

    Stay away from L Brands – Barron's

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

    That's why we bought more last week – the ravings of an analyst are no reason to sell a stock!


  7. NG / Phil -  Late 2017 into early 18, I was in several /NG contracts and I recall many news outlets were reporting the low inventory levels based off the colder than normal weather and the inventory levels would be topped off during the slower summer months.  However,  EIA is still showing lower than normal storage levels (20%).  Current news appears to be bearish (more NG supply/tariffs), so I am looking to see more downward pressure on /NG and then hopefully I can work into a /NGV9 ($2.63) position.  

    Thoughts on building a position in /NGV9 this far out?  









  8. those FB puts were right on, now onward to earnings



  9. Does anyone have the MU trade info. from a couple of weeks ago? It's down 8% today.


  10. Phil – how do we find the latest portfolio updates for August? TIA


  11. /NG/Grass – I like /NG this time of year as hurricanes my disrupt production and, of course, you head into winter demand.  It could go lower but, if you don't mind scaling in and taking some losses down to $2.60, I think this is a good time to start getting back into /NGN9 (July) at $110.50 though it was just down at $106.85 and these are expensive contracts, so be careful!

    Factory orders down in July

    Portfolio/Soma – Due to vacations, I did not do full updates so they weren't consolidated into a review.  I'll certainly have them up during the week of the 17th with full reviews then.


  12. Soma MU I do hold the jan 20 45/65 BCS with a Jan 20 50 putter

    My cherry call is Sep 28 57 I sold for 1.49. If that helps. For me nothing to worry about at this stage.


  13. Phil / FTR – Popping today – don't see any news?  


  14. Thx yodi


  15. Trump

    Interesting that several members of the cabinet and the White House staff have issued denials about authoring the N Y Times op ed piece.  I haven't seen any of them add that they stand behind the president 100%.  I think it speaks volumes !


  16. AAPL – Starting it's September pull-back


  17. /NG -  Thanks Phil.  My target entry on /NGV9 is $2.60 (currently $2.628) and consider $2.50 to be a good line of resistance??  I see $1.50 back in 2016, but would be out before then.    

    For those following your comments above, the last part was reference to /KCN9 prices, current ($110.50) and weeks low ($106.85), of which I still hold 3 contracts — even added one at $107.10 yesterday. But, still down on this trade overall. It has become a burr under my saddle.  


  18. Hooray for an oil inventory build! Mostly out of /CL here.


  19. Trump / Albo – From my point of view, this NYT article doesn't serve many people. I think that the main objective is to pre-innoculate the GOP for the post Trump era. Once he is gone from office (soon hopefully) all these GOP guys in Congress and this admin will say that they were part of the resistance all along. That they could not stand what Trump said or did and that they were acting in the background to help the country. It's like 1945 in France – there were no collaborators, only the resistance. I hope that true conservatives see through that and get rid of all them and vote for people with a conscience!



  20. This from Briefing on MU :

    ~~Indication from Micron that NAND pricing declined in general in third quarter.  Company made remark at Citigroup Conference, triggering concerns about end demand/excess supply that go hand-in-hand with remarks about pricing declines.
     


  21. FTR/Batman – I don't see anything.  Long way to go still.  

    Cabinet/Albo – That must be one uncomfortable room this week!  I think it is Pence, trying to push Trump over the brink so he can take his "rightful" place as President.

    /NG/Grass – Oh, my bad, I had /KCN9 up.  /NGN9 is at $2.626 at the moment and the $2.60 line should be good support.  I like /KCN9 too, of course. 

    Disappointing build in /RB, as expected and net flat overall after the holiday is a disaster for the bulls:

    EIA Petroleum Inventories

    • EIA Petroleum Inventories: Crude -4.3M barrels vs. -1.3M consensus, -2.6M last week.
    • Gasoline +1.8M barrels vs. -0.8M consensus, -1.6M last week.
    • Distillates +3.1M barrels vs. +0.7M consensus, -0.8M last week.
    • Futures -0.32% to $68.50.

    Good for our SCOs! 

    NG down in sympathy.

    MU/Mike – Thanks, missed Soma's Q.  Easy fill now!


  22. thx mikezuela


  23. stjean – I'm sure some of those French 'resistors' were dealt with in the end….


  24. Biodieselchris 

    I had some short FB puts that I closed out after reading your post from 2 weeks ago. I think your premise made a lot of sense, especially after listening to Sheryl Sandberg yesterday.   

    Thanks 


  25. Phil/rightful pence  I'm sure he feels he's just doing God's work…. :(


  26. Phil – You may be right about Pence.  He's been known to frequently use the word "lodestar".

    I think an empty suit is far preferable to what we have !


  27. ….although, the word 'lodestar' may be known in WH circles and the author could be throwing it out just to put the light on pence… :)


  28. Wow, when does WYNN hit bottom?  This is after a hedge fund bought a big block.


  29. DAX is down 1,000 points since June highs, Euro Stoxx down 250 so both about 8% and still falling.  We haven't even begun correcting yet.

    And don't forget, Asia has already corrected.  This is so like 2008 where the hucksters on TV keep repeating how things that happen to other countries don't affect our markets – trying to keep the retailers from panicking out.

    WYNN/Tangled – So ugly!

    Still, not cheap, just getting realistic.  We used to play them below $100 but there's nothing at $130 that makes me want to buy as that's $14Bn and that's 20x last year's profits ($747M) and they took a $135M loss in Q1 and $205M profit in Q2 so net $70M for the first half of this year.  It's another one of those cyclical businesses being priced like a growth business…


  30. OLED & AVGO getting trashed today after several days of strong action.

    AVGO reports today after the close.


  31. Phil,

    a friend has about 1mil in a S&P 500 index fund. I don't know which fund. 

    What would be a good hedge for a 20% correction ?



  32. Phil/Greg – e-mailed you some signed forms for PSWI this morning. When you get a chance take a look and let me know if everything is in order there then I'll proceed with the wire. 

    Thanks!


  33. gardling / hedge SPY covered call collar -315 C and +230 P is net credit 1.52 for Jan 2020, allows 10% upside and protects beyond 20% drop


  34. Stj/VXX

    any option play for the ones that are low on margin. maybe buy an out call. I understand that no one likes to buy premium.

    regards


  35. stockbern – glad to hear you got out of those!

    AMZN – feel free to go down. Specifically, below 1,887.50 by tomorrow's close, pretty please?


  36. It was a long lazy summer. Almost like one of Phil's meaningless Monday's, except it lasted 3 months. But i think we are looking at the 2018 General Premise Prediction coming into play here:

    1) The markets will close 2018 lower than they started, and

    2) Volatility will be higher

    There's a lot of pent-up market anger out there. Is AMZN really worth $450B more than it was a year ago, when they cleared $3B in profit (2017)? Was facebook's real-identity ad clamp-down overly restrictive? (BDC thinks "yes"). These are lower hanging fruit. Big picture: 10-year market run now one of the longest ever (that's a bunch of selling pressure right there), housing existing sales down 4 straight months (first time in five years), markets over extended on historical P/E (did I mention AMZN?), the binge-style, nation-state, low-interest rate debt gamble is unwinding, the consequences of trump's unnecessary and chaotic/spastic trade war haven't matriculated yet (nor the tax cuts). There's no money in stocks, there's no money in debt, there's no money in gold, there's no money in commodities, there's no money in crypto. There is only money in shorts. That's it. IMHO.


  37. VXX / Pat – I would not buy VXX calls ever… It's like a lottery ticket. Do you want to play for a correction? You could be right and still lose money because of the decay – if you buy a short term call, you might not get the move you need to make any money (or no move at all) and if you buy a long term call, you get killed by decay:

    VXX iPath S&P 500 VIX ST Futures ETN monthly Stock Chart

    Note that in 2011, the lottery ticket paid off. Other times, not so much!

    The only way to make consistent money with VXX is to sell far OTM calls.


  38. Stj/VXX

    yes I want to play for the correction and I will not be buying calls as you advised. But selling calls would be out of my premise because of the margin requirement.

    regards


  39. pat_swap – same issue here – I buy UVXY calls, weeklies ONLY, as Phil describes, purely a lottery ticket but I pick the weeks when I think the weakness will show up in the market and get in and out very quickly.


  40. Very interesting that Tech can't catch a break lately.  MU and other chips getting hit hard.  We'll see what AVGO says later.

    Hedge/Gard – Well I'd go with an SDS hedge.  He'd be looking to offset a $200,000 loss and SDS is at $34 so +20% (a 10% S&P drop on the 2x inverse ETF) is $42 and the March $34 ($2.60)/$40 ($1.50) bull call spread is $1.10 and pays $6 in a big drop so let's say he wants to offset $60,000 worth of damage – he can do that for $11,000 and that's the cost of insurance.  

    I'd pair that with some short puts on stocks he'd REALLY like to own if they get cheap, like 10 MU 2020 $42 puts at $6.40 ($6,400) which drops the net cost to $4,600 on the $60,000 spread, giving it $55,400 (1,200%) profit potential if SDS is over $40.  

    Forms/Crs – I'm sure Greg will get back to you later.

    Collar/Bil – That's not bad but, if you are going to limit upside to 10% ($100,000) and you lose up to 20% ($200,000) – why bother staying in SPY with $1M?  If I think SPY will go to $315, then I can just pick up 100 2020 $290 ($20)/310 ($10) bull call spreads for $10 ($100,000) and I have the same $100,000 upside but only $100,000 risk and, since the net delta is 0.17, I'd still have almost half of that after a 20% drop.   Then you'd have $900,000 free to make money with while you wait to see if your coin flip pays off.

    Good summary BDC!  


  41. Phil – FNSR also reports today.





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  46. FNSR/Albo – That will give us a little insight into whether or not Tech is still oversold.

    Well this day wasn't very interesting.  As noted above, the whole summer has been like a Monday and may all be reversed by the end of Sept.  Overall, the S&P is up 78 points – that's 2.5% for the summer and 180 (6.66%) for the year.  Hardly the epic rally Trump keeps crowing about.





  47. This Ultrahot Exoplanet Has Metallic Skies


  48. FNSR – Solid Qtr with strong guidance

    Finisar beats by $0.06, reports revs in-line; guides Q2 EPS above consensus, revs in-line

    Font size: A | A | A

     

    4:03 PM ET 9/6/18 | Briefing.com

    RELATED QUOTES

     

    4:00 PM ET 9/6/18

    Symbol

    Last

    % Chg

     

    FNSR

     

    18.75

    -2.09%

    Real time quote.

     

     

    Reports Q1 (Jul) earnings of $0.18 per share, excluding non-recurring items, $0.06 better than the S&P Capital IQ Consensus of $0.12; revenues fell 7.2% year/year to $317.3 mln vs the $315.77 mln S&P Capital IQ Consensus. Co issues guidance for Q2, sees EPS of $0.19-0.25, excluding non-recurring items, vs. $0.18 S&P Capital IQ Consensus; sees Q2 revs of $315-335 mln vs. $333.09 mln S&P Capital IQ


  49. OOPS sorry about the formatting above….  this still looks good for a 22 price…


  50. AVGO – Broadcom beats by .16.  Stock up in aftermarket.

    Now hopefully a positive spin on CA acquisition during conference call.


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    Love your AAPL trades. Have tried to follow along and improvise a bit.

    Like your latest one and feel I should be able to roll my position into a version of yours

    (if I was only clever enough). Can you suggest?

     

       Mine

                                            price     cost             gain/loss

    AAPL C Jan19  150  20    74.10     25.02            $98,165

    AAPL C Jan19  175  -20  50.70     17.98           -$65,435

    AAPL P Jan19  140  -20      .89       9.72             $17,664

     

    AAPL C Jan20 150  20    76.50    28.57            $95,865

    AAPL C Jan20 190 -20   47.75     21.78           -$51,936

    ————-

    Yours

    As a new spread on AAPL, I'd go for:

    Sell 15 June 2020 $185 puts for $11 ($16,500) 

    Buy 80 June 2020 $180 calls for $54.50 ($436,000) 

    Sell 80 June 2020 $240 calls for $22 ($176,000) 

    Sell 40 Jan 2019 $210 calls for $18.20 ($72,800) 

     

    Thanks .. 



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  56. Good morning!

    Indexes still going down and Dow held up to keep things pretty.  All hanging on Trade Talks which are unlikely to be resolved into the weekend.   Dollar still hanging around 95, giving things a chance to normalize. 

    Non-Farm Payroll at 8:30 but no major news otherwise.

    AAPL/Wing – You have a Jan trade that's ending, nothing really to adjust there.  You can wait to cash out or take a small haircut on an early exit.  The new spread is kind of modest and net $29 out of $40 while the 2020 $180/240 spread is now net $54.50/19.80 so $35 to make up to $60 is more appealing to me than $29 to make up to $40.  I wouldn't sell more puts unless AAPL has a big pullback, then you could use the put money to roll down the long calls.  I would do a 1/3-1/2 sale of short calls though, those Jan $210 calls are now $21.20 – good protection for a 1/3 sale.