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Just Another Manic Monday

The Dow is up 116 points as of 8am.

Why?  Just because, it seems.  Asia closed down on Trade War fears but Europe is up slightly and US Futures are tracking higher on very thin trading (it's Jewish new year, people have off in NY) as Trump tweets about how GREAT things are, even though he's clearly lying as the S&P 500 was at 2,200 when he was elected and 2,300 when he took office but, even since the election, 2,850 – 2,200 is 650 and 650/2,200 is 29.5%, not "almost 50%" but, amazingly, no one bats an eye because, for Trump, that's a lot closer to the truth than most of the things he says…

We're just going with the flow for the moment.  We did add a bearish Top Trade on the S&P (SDS) last week but we also put out bullish Top Trade Alerts on  DLTR, OIH, HBI, LB, WPM, AAPL, MU and PZZA since Aug 15th, so still finding plenty of bargains – even in what we consider to be a very toppy market.  As I've said a lot recently – it's a lot like 1999 but the market doubled in 1999 before actually failing in 2000 so, if we are in a bubble – we can play it bullish while it lasts – as long as we are well-hedged and ready to act if things do begin to fall apart.

When a market is hot, we look for OPPORTUNITIES to pick up stocks that get sold off for bad reasons.  Back on Aug 3rd, China Mobile (CHL) got hit on news that two of their rivals were merging but CHL is so big, they are the reason their rivals have to merge to compete so I said to our Members:

CHL – Another one we just added to the hedge fund (also uncovered).  My notes to Doug were: They may get less per subscriber but China is smaller than the US so they are covering less area but they have 887M subscribers.  They have rich people who are as rich as our rich people and those people are willing to pay whatever for high-speed services.  China's Top 10% is 140M people – that's pretty much our top 40% so all as much as the US Middle Class and higher so why does CHL get "just" a $182Bn valuation with $16.5Bn in profits (p/e 11) while T is at $233Bn with $13Bn in profits (p/e 18)?  

In the LTP, we sold 10 Sept $47.50 puts for $3.80 so we'll be rolling them and we have we own 20 Sept $40/47.50 bull call spreads at net $5,700 and $45 would pay back $10,000 – so all good there.  As a new trade on CHL (which is essentially what we'll be moving to this month), I like:

Sell 10 March $45 puts for $2.70 ($2,700)

Buy 15 March $40 calls for $5 ($7,500)

Sell 15 March $45 calls for $1.80 ($2,700)

That's net $2,100 on a $7,500 spread that's practically all in the money to start so return over $45 would be $5,400 (257%) in just 6 months.   Wow, that one has to be a Top Trade Alert, right?  Let's officially add that to the OOP and the LTP but we can do 20 short puts and 30 spreads in the LTP.  We will adjust the old spread (basically close it out) later in the month.

We didn't KNOW it was going to turn around that fast – we only KNEW it was undervalued at $44 but we're already over goal and the short March $45 puts are down to $1 ($1,000) while the $40/45 spreads are already net $4 (of $5) so $6,000 for those less the $1,000 owed on the short puts is already net $4,000 on the spread which is up $1,900 (90%) for the month and still $3,500 more to make by March.  

Image result for einstein chalk philstockworldThe S&P is up 50 points (1.7%) for the same month so, when we can outperform the market by 50x on our spreads, it means we can risk 1/50th of our CASH!!! and still keep up with the market – there's no need to tie up a lot of money chasing a bubble – so why risk it?

That Top Trade was from Aug 3rd and we also had a long-term play on MO in that alert, which is also taking off, though not as dramatically as CHL.  As noted above, on 8/16 we sent out a Top Trade Alert for Poppa John's (PZZA) and that company is still in turmoil but that net $6,150 spread is already net $8,250, which is up $2,100 (34%), which is better than ALL of the gains Trump is bragging about for 18 months in a single month!  

Seriously though, it's out of a potential $30,000 so still good for a new trade with $21,750 left to gain.  When your trade goal is to make $23,850 (387%) then making $2,100 (34%) in a month is simply what we call "on track" at PSW!

So, when I am "negative" on the momentum stocks – keep in mind it's because I think there are far more productive AND less-risky things to do with your money than buying Amazon (we're short) at $1Tn ($1,950) and needing it to get to $1.2Tn to make 20% while I can buy PZZA or CHL at multi-year lows and make 20% in a month.  China Mobile's ENTIRE market cap is $200Bn and they MAKE $16Bn a year on $100Bn in sales while Amazon has $177Bn in sales and makes $3Bn.  

Yet Amazon will have to gain an ENTIRE China Mobile in value just to make 20% from here while CHL only has to increase profits 20% to add an entire AMZN's worth of profits.  

THAT is how you know market valuations have gotten ridiculous and I'll stick to investing on the under-valued ones rather than the over-valued ones!  

It's a very boring data week with not much Fed speak and almost no earnings so the market will be very focused on trade.  We'll see if this pre-market rally will last but, on the whole, it's just a 9-point (20%, weak) bounce off the 45-point drop on the S&P since 8/29 – wake us up when we're over the strong bounce at 2,888, where we should be rejected in this morning's no-volume rally:


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  1. Good Morning!

  2. I guess schmoozing with Trump didn't help Tim Cook! Tariffs on everything… How surprised can we be though… 

  3. STJ: your chart grid has 2 NYA, missing RUT….

  4. Yo_momma – Maybe I'm naive, but I have a hard time believing Dr. Philip Frost, CEO of OPK  was involved in a stock manipulation scheme which netted the perpetrators 27 million dollars.  He is worth 2+ billion dollars and has a history of philantropy.        

    Tempting to buy some OPK here, or sell some puts.                           

  5. Thanks Jasu! Corrected…

  6. Phil – Reminder art the momentum trade stuff from Friday. It's momentum Monday!

  7. The long term impact of the financial crisis:

    You can sum up the financial crisis in one sentence: Good things happened to bad people, and bad things happened to good people. Executives who contributed to the crisis retain enormous wealth, while many of those who trusted them have suffered life-altering losses. That result violates a basic desire shared by all investors: to believe that the rules of the game are fair.

    Today, Mr. Popik owns a handful of dividend-paying stocks and doesn’t trust that any of them are truly safe. “How do I feel?” he asks. “No one is on your side. Nobody cares about you.”

  8. Sold a little more AVGO.

  9. Good morning!

    Rally fading a bit at the open – we'll see what sticks.

    NYSE dangerously close to the 50 dma and Nas not too far over either, nor is SPY or RUT…  That's the problem with ridiculously strong moves up – they set ridiculously high expectations going forward.

    OPK/Albo – Whether he was directly involved or not, it's not good if it happened at all.

    Momentum/Soma – Well I did the requested item from last week – what stock(s) would you like to look at?

    Good article, StJ.

    AAPL down $3.  That's the biggest event of the week, their roll-out on Weds.

  10. Phil – COSt for the momentum trade. TIA

  11. Republicans in trouble in Trump states

  12. China promises retaliation if US imposes more tariffs

  13. “Best Ever” Economy? – The Big Picture

  14. Trump’s authority crisis deepens

  15. COST/Soma – We did them on Friday:

    They are back over the 5% line at $241.50 and we know each 1.25% is about $3 so $244.50 is the next place you expect to run into a slowdown and then $247.50 would be the 7.5% line, where you're very likely to get a pullback to the 6% line at $243.80 so the zone between $243.80 and $244.50 should be slow going for COST but, over that line and they should have another nice $3 move up if they make it.

    Still, it's not a good idea to just randomly play stocks – you need to look at stocks that ARE consolidating where you think they may be about to break out of a range and THEN draw the lines you can use to play them bullish or bearish.  Anything with COST is just chasing a break that already happened.  

    I'm not a momentum trader but, if you are going to be one, you should have screes for stocks that are testing inflection points – you can't just play any stock that strikes your fancy!  

    Wow, what happened to the "rally"?  Don't blame the Dollar – it's down 0.3%.

  16. Got it! Thx Phil

  17. /Rb/Phil- are you still in this short?

  18. Phil, where on site is the most detailed explanation of the "5% rule"? Thanks!

  19. STJ – QCOM at a 3 1/2 year high. 

    Tempted to cover some ?

  20. /RB/Ravi – No, I got out of those Friday.  Should have gotten back in at $2 though!  Couldn't figure out why it went up so didn't want to play it this morning.

    5% Rule/Alter:

    Oh, and it's time for BS AAPL rumors again:

    Analyst predicts iPhone delay, iPad USB-C ahead of fall event

    • Supply chain analyst Ming-Chi Kuo is out with some more predictions ahead of Wednesday’s Apple (AAPL -1.2%) fall event.
    • Kuo expects the 6.1-inch iPhone to launch in late September to early October because of “quality issues of assembly and display.” 
    • Other predictions: Face ID in the iPad Pro, which will also switch from the Lightning port to USB-C for the first time and ship with a new 18W USB-C charger. A rumored low-price MacBook could feature Touch ID without the Touch Bar and replace the current 12-inch model. The Apple Watch will have slimmer bezels and ECG support with ceramic backs coming to all models. 
    • In other Apple news, the tech giant just won its first Creative Arts Emmy. Carpool Karaoke: The Series grabbed the award for Outstanding Short Form Variety Series.  
    • Previously: Apple will announce new iPhones on Sept. 12 (Aug. 30)

    BofAML: Apple's iPhone prices could increase 20% under Trump's plan

    • Bank of America Merrill Lynch estimates that Apple’s (NASDAQ:AAPL) iPhone prices would increase up to 20% if the company assembles in the US like President Donald Trump wants.  
    • On Saturday, President Trump tweeted that Apple should manufacturer its products domestically to avoid his proposed Chinese tariffs.
    • The tweet came a day after the release of Apple’s letter to U.S. trade representative Robert Lighthizer, which said the newly proposed tariffs would affect the Apple Watch, AirPods, Mac mini, and Apple Pencil.
    • BofAML analyst Wamsi Mohan’s estimated price increase would pertain to Apple moving 100% of final assembly to the US, which would require a higher price to offset the labor costs. 
    • Mohan finds it more likely Apple would move 10% of iPhone assembly to the US, which would raise the iPhone ASP by 8%. 
    • Mohan reiterates his Buy rating and $250 price target on Apple, a 13% upside to Friday’s close. 
    • Apple shares are down 1.9% to $217.16.  
    • Previously: Trump says Apple should shift production to U.S. to avoid China tariffs (Sept. 10)

    PetroChina signs big LNG supply deal with Qatar

    • PetroChina (NYSE:PTR) has signed a 22-year supply deal with Qatar to purchase 3.4M tons/year of liquefied natural gas, state-controlled Qatargas says.
    • The agreement would be the Chinese company’s biggest supply deal based on annual volume and comes as an escalating trade war with the U.S. that threatens to stifle China’s purchases of American fuel.
    • Under the deal, Qatargas will supply LNG from the Qatargas 2 project, a joint venture between Qatar Petroleum, Exxon Mobil (NYSE:XOM) and Total (NYSE:TOT).
    • China’s LNG imports have surged 35% YTD, helping it overtake Japan as the world’s biggest buyer of natural gas.

    Energy Transfer gas pipeline explodes in Pennsylvania, under control

    • An Energy Transfer Partners (ETP +1.1%) gas pipeline exploded in western Pennsylvania early this morning, destroying at least one home and prompting the evacuation of more than two dozen homes.
    • The explosion also caused high-tension power lines to fall down, pulling down towers with it, and blocking a major road in the area.
    • ETP says the fire extinguished itself by 7 a.m. and does not yet know the cause of the explosion; no injuries were reported.

    Analysts dig in on Tesla

    |By:, SA News Editor 

    Baird maintains a bullish view on Tesla (NASDAQ:TSLA) on the upside potential it sees with the Model 3 rollout. Analyst Ben Kallo calls the extended share price fall a "buying opportunity" for investors as he names the EV automaker a "fresh pick" and reiterates a price target of $411 on the EV automaker.

    Bernstein is more cautious due to the lack of clarity on Model 3 margins, keeping a Market Perform rating and price target of $325 in place. The firm does see more risk for bears on the Tesla upside than bulls on the downside.

    Needham keeps an Underperform rating on Tesla on concerns over margins and the high rate of management turnover.

    Wall Street scorecard on Tesla: 10 Buy-equivalent ratings, 11 Hold-equivalent ratings, 11 Sell-equivalent ratings (per Bloomberg data).

    Tesla is up 2.95% on premarket avolume of ~35K shares.

    Home improvement rally ahead of hurricane

    • Home improvement retailers Home Depot (HD +1.6%) and Lowe's (LOW +2.2%) both hit new all-time highs this morning.
    • Home Depot is up 1.86% and traded as high as $211.62.
    • Lowe's is 2.30% higher and traded as high as $112.51.
    • While sentiment in general on the pair is very positive, there is also a major hurricane brewing in the Atlantic that could lead to some extra sales in North Carolina, South Carolina and Virginia. Hurricane Florence is due to make U.S. landfall sometime on Thursday evening.
    • Lumber Liquidators (LL +1.2%) is also ahead of broad market averages on the day, with hurricane-related sales a potential factor.

    Aurora Cannabis to acquire ICC Lab

    • Aurora Cannabis (OTCQX:ACBFF +0.6%) agrees to acquire ICC Labs for $1.95 per share (payable in Aurora shares) equivalent to deal value of ~$290M.
    • Aurora says that the deal establishes foundation for Aurora's South American growth medical, adult consumer use and CBD wellness markets
    • Each ICC share would receive 0.2448 Aurora Shares, resulting in issuance of ~36.2M Aurora shares.
    • Press Release

    Walgreens acquires pharmacy files from Fred's

    • Walgreens Boots Alliance (NASDAQ:WBA) announces that it acquired pharmacy files from 185 Fred's (NASDAQ:FRED) pharmacies for $165M.
    • The transaction is part of a previously announced plan by Fred’s to unlock shareholder value by monetizing non-core assets through strategic transactions.
    • Fred’s says it will continue to operate its retail stores at most of these locations after the pharmacies close.
    • Once the transaction is complete, Fred’s will continue to operate approximately 162 pharmacies across nearly 600 stores.
    • On the Walgreens side, the deal gives the company increased exposure in the Southeastern U.S.
    • The companies expect the file transfers to begin in Q4.
    • FRED +31.5% premarket to $2.15.
    • Source: Press Release

    Nike tracks higher again

    • Nike (NKE +2.1%) is the leading gainer in the Dow Jones Industrial Average today as investors gauge the company's long-term potential in the face of some social media backlash.
    • Analysts note that an overwhelming majority of Nike consumers globally view the company favorably on a brand relevancy basis.
    • Nike traded as high as $82.44 today compared to the 52-week range of $50.35 to $83.68.

    Report: Intel will outsource some 14nm production to TSMC

    • Intel (NASDAQ:INTCwill outsource part of its 14nm production to TSMC (NYSE:TSM) due to tight in-house capacity, according to Digitimes sources.
    • Intel wants to prioritize its high-margin products, server processors and chipsets. The company will outsource production of the entry-level H310 and several other 300 series desktop processors. 
    • The company's 14nm chip supply fell short of demand by up to 50%, according to the sources. The tight supply could stem from Intel delaying its 10nm chips now expected to launch in 2H19. 
    • Intel shares are up 0.5% premarket to $46.70. 
    • Previously: DigiTimes: Intel's new 14nm processors falling behind demand (Aug. 31)

    Citi raises its Amazon target, forecasts 275M Prime subscribers

    • Citi raises its Amazon (NASDAQ:AMZN) price target from $2,100 to $2,250, a 15% upside.
    • Analyst Mark May cites Prime membership growing 35% to 40% per annum. Citi expects Prime subscribers to reach 275M by 2029, up from 101M at the end of last year. 
    • The firm forecasts $633B in gross merchandise sales within the same growth period. 
    • Amazon shares are up 0.3% to $1,956.56.  

  21. Covered some QCOM with Jan 75 calls.  Happy to let some go at 78+ or roll out and up.

  22. I don't know if people haven't seen this but it's amazing how blatantly Team Trump manipulates even the optics around his speeches:

    This is NOT normal, everyone DOES NOT do this sort of thing…

  23. PLAY reports on Friday and I wish they were lower because I really like them.  Making about $2.50/share so fairly priced here so I guess we'll hope they miss and we get a nice opportunity as they've spent a bit more the past year adding stores (some inside Sears, which is very clever as a cheap way to get prime mall space):

    Year End 04th Feb 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 608.1 635.6 746.8 867 1,005 1,140 1,168 1,243 1,375 +13.4%
    Operating Profit $m 43.7 51.0 46.3 103.7 150.5 165.1 159.4     +30.4%
    Net Profit $m 8.78 2.17 7.64 59.6 90.8 120.9 120.3 110.2 122.4 +69.0%
    EPS Reported $ 0.22 0.055 0.21 1.39 2.10 2.65 2.70     +63.8%
    EPS Normalised $ 0.22 0.055 0.70 1.72 2.34 3.09 3.19 2.73 3.08 +68.9%
    EPS Growth %   -75.3 +1,160 +145.6 +36.5 +31.9 +20.6 -11.6 +12.6  
    PE Ratio x           18.6 18.1 21.1 18.7  
    PEG x           n/a n/a 1.67 0.63

    PLAY/Palotay – I liked their deal with SHLD to open stores within stores but it doesn't seem to be helping either of them.

    PLAY's numbers are good but not great but, at near $3/share, $38 is a bargain, overall.

    There's not a lot of debt either and the market cap is just $1.5Bn and I think VR will be good for them as most people aren't going to have major rigs in their homes – so they'll go to the arcade to play.  You're in for net $39, so I would not worry about it – more like it's time to buy the bull call spread!  I'd rather put money into that and save a possible 2x roll for if there is real trouble (and 2021s might be out by then). 

    Unfortunately, we never added them for our portfolios.

  24. BKNG down a lot for no good reason:

    They are now growing revenues in the teens instead of the 20s so people are bailing.  Worth keeping an eye on.

  25. Several Reported Killed in Libya as Gunmen Storm National Oil Company

  26. UK Consumers Sour on Plastic Packaging

  27. "Buy even with drama"

    they are running out of ways to make me laugh out loud on this overly tired bull market

  28. The Handmaid’s Court

  29. Cadbury owner Mondelez braces for hard Brexit, stockpiles products: the Times

  30. China bans carpooling services after murders

  31. Cuomo scrambles to stamp out Cynthia Nixon revolt

  32. U.S. Pressure on Palestinians Raises Middle East Tension

  33. Good morning! 

    Typical Tuesday with all of Monday's gains being reversed.  China filed with WTO for retaliatory tariffs (yes, there is a correct process to go through – which we have skipped).  Gee, who could have seen that coming?