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Tuesday – Trouble at 1,700 for the Russell

What's wrong with small caps?

All the other indexes seemed pretty happy yesterday but the Russell 2000 fell 1.5% and are down even more this morning in a non-stop UGLY day of trading where almost every candle formed on the hourly chart was a down one (and the up ones were pathetic).  Volume was also almost all red and much stronger than Friday's up volume, which was completely reversed by noon.  

So far, this is just a natural rejection of the Russell's 10% run for the year, which began at the 1,550 line on Jan 2nd so 10% from there is 1,705 and that's why we have been shorting the Russell below the 1,700 line, looking for that rejection.  According to our 5% Rule and rounding off to the more significant 1,700 mark, a 150-point run expects a 30-point (20% of the run) rejection so 1,670 should be a weak retrace and that's all this is so far.  Another 30 points would be a strong retract (1,640) and still not really bearish unless we fail it.  As noted in Friday morning's PSW Report:

Notice on our Big Chart that the Russell has failed its 50-day moving average at 1,700.  There's nothing bullish about the market until it takes that back and watch out below if any of the others fail to confirm a new downtrend but, as I said, not today – today we have to make the quarter look pretty so we can bring some fresh retail suckers in to hold the bags next quarter

Remember, I can only tell you what is likely to happen and how to make money trading it.  A 30-point drop in the Russell is good for gains of $1,500 per contract and, since we expect a bounce off the weak retrace at 1,670 – we already know where we're likely to stop out.  Now that we have that range, we look at the 40-point drop from 1,710 (because we can't round off in the short-term picture) to 1,670 (but we do use the goal line – even if it doesn't actually hit) and now we look for a weak bounce – which is 20% of the 40-point drop – to 1,678 and a strong bounce to 1,686, which we have to clear before looking bullish again.

Failure at those lines – especially if it's exactly at those lines – would be a good indication that the 5% Rule™ is working and then we take those failures very seriously as we may be consolidating for a break below 1,670 and on to 1,640 – another 1.8% drop that would be good for another $1,500.  So we have that to possibly look forward to!  

The 5% Rule is not TA – it's just math!  It's the math that governs the behavior of the Bots that do most of the trading in the market.  The more Bots trade – the better the 5% Rule works and it works best on heavily traded securities like indexes but it can be applied to anything with a decent volume of trading.  

The catalyst for the Russell's failure yesterday was the new NAFTA/USMCA deal being no better at all for US businesses except for, perhaps, dairy farmers, who will benefit from Canada easing requirements on milk imports.  Other than that, it's the same agreement Trump hated 2 years ago and I suppose the small caps were trading up in anticipation of getting a deal that was going to be as pro-America as Trump claims this deal is but, in reality, he got nothing from Canada and simply waster 2 years huffing and puffing over a milk trade.

Image result for trump china trade war cartoonFor the large-caps, it's all about CHINA!!! and whether or not we work out a deal with them and whether or not Trump begins a trade war with Europe as well.  60% of the S&P 500s profits come from overseas – foreign markets are more important to them than the domestic market so they are obviously relieved when they think they can continue doing business as usual but I still think China will escalate and become a big problem in 2019.

Meanwhile, there's nothing weak about the other indexes and even the very broad NYSE is holding it's 50-day moving average, which is rising to the 13,000 line so anything above that (now 13,125) is going to be bullish but, if the NYSE turns down to confirm the Russell's weakness – then we can go back to aggressively shorting the indexes but, until then, use caution in either direction.

Fed Chairman Powell speaks today at 12:30 and we had a very sharp drop in the markets when he spoke last Wednesday but then recovered – though I though it was just window-dressing at the time but we continued to rally yesteray to start October off with a bang so we'll see if the markets can shake him off this afternoon as well.  

The Fed has been widening the definition of "Big Banks" in order to offer more regulatory relief to more Banksters under the direction of the Trump Administration but the real concern for the Banking Sector is rising rates and the Financial Spider (XLF) has been off a cliff since last week, back near the February lows and that's been a bit of a drag on the S&P while the surprising stars of the year have been Consumer Discretionary and Consumer Staples sectors:

Image result for bernie sanders amazonConsumers got more good news this morning as Amazon (AMZN) announced it was bowing to pressure from a Bernie Sanders-led campaign and would be raising its minimum wage to $15/hr for all US workers AND the company will start lobbying Congress to increase the Federal Minimum Wage, still just $7.25/hr or $290 before taxes for a 40-hour work-week (ie. slavery). 

Rising wages are good for the overall economy and good for the overall market though they will negatively impact companies with lots of low-wage employees like Wal-Mart (WMT) with 2M low-wage workers.  Amazon has 575,000 employees and not all that many low-wage ones though their venture into retail and groceries is what got Bernie and his time to turn their attention on the very rich company paying very low (though competitive) wages to their new employees.  

Expect WMT and others to come under a lot more pressure now and, once again, wages are going to be an election issue as they have done nothing under two years of Trump and the voters are understandably disappointed.  To some extent, all this nonsense with Kavanaugh is a huge distraction away from discussing other issues ahead of the election (and here's a great summary of where we stand).  


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  1. Good summary of what it markets are really nuts to rally on events like that new NAFTA:

    Both Canada and Mexico had already agreed to about 90 percent of the new provisions years ago. That’s because they were included in the TPP agreement, which Donald Trump killed on his first day in office.

    In the end, Justin Trudeau decided to give Trump his dairy provisions in return for Trump agreeing to a dispute resolution process more to Canada’s liking. The total value to the US of this stuff is about a millionth of one percent of GDP. Even among dairy farmers I doubt that it’s all that big a deal.

  2. We need to stop talking about selling our debt to China! 

    Now we are buying our own crap!

  3. This could help the economy more than Trump's tax cuts as it will force others to follow suite eventually:

    Amazon is boosting its minimum wage for all U.S. workers to $15 per hour starting next month.

    The company said Tuesday that the wage hike will benefit more than 350,000 workers, which includes full-time, part-time, temporary and seasonal positions. It includes Whole Foods employees. Amazon’s hourly operations and customer service employees, some who already make $15 per hour, will also see a wage increase, the Seattle-based company said.

    I am guessing that Bezos is doing it to poke Trump in the eye!

  4. Good Morning!

  5. Here are the new margin rates from Schwab



    Base Rate – 1.750% 


    Base Rate − 1.500%


    Base Rate − 1.175% 


    Base Rate + 0.075%


    Base Rate + 0.325% 


    Base Rate + 0.375%


    Base Rate + 1.325%


    Base Rate + 1.825% 

    Base Rate = 7.75%.
    Schwab's base rate was last changed on September 28, 2018, and is subject to change without notice.

  6. Good morning! 

    Big chart getting confusing now with RUT failing so we'll watch to see if NYSE confirms a move down.

    /KC blasting higher this morning

    Sugar still good too

    Oil will hopefully fail at $75.50 as I'm still short.

    Obviously, /BZ over $85 is a stop-out.

    Deficit/StJ – So much worse that we owe it to our people.  It will never be repaid. 

    If the wages spread, then a huge boost to economy.   That's what they should have focused on in the first place.

  7. Tesla delivered 83,500 cars in Q3, which I guess is good.  There were 13 weeks so 6,423 cars a week is right in-line with starting at 5,000 and finishing around 7,000 weekly capacity.  The cheapest Model 3s are still $49,000 but if they are making AND selling them – that's not so terrible.

    Let's say that they go from 7,000 to 9,000 (12/31) to 12,500 to 15,000 to 18,000 to 21,000 so averaging about 16,000/week for 2019 would be 832,000 cars and call it a $60,000 avg (2/3 model 3s at $40,000 – hopefully) is $50Bn in sales but they've been losing 20% of sales on the bottom line and they really can't afford to lose $10Bn selling $50Bn worth of cars, can they?  

    We're going to have to see some drastic cost controls or they still have a lot of problems ahead (not to mention laying out costs to produce more and more cars even a month ahead of sales means carrying $4Bn for each month of inventory – including cars in production).

  8. Gold – Nice move up today.

  9. Phil,

    Opening remarks: wouldn't moderately higher rates be a net positive for banking sector - enable them to charge higher interest rates on loans ?  They are paying more for money but charging proportionally more. Clearly market is in disagreement.


  10. 8800 – Just  my 2 cents.

    I think it's largely the yield curve.  Banks frequently borrow short term and lend long term.  A flattening yield curve means less profit.

  11. Aapl

    I own it.

    Sold some short term $230calls against the above.This is the second attempt to cross the mark for the stock….Hoping for a drop to $215, $200 would be a gift

    Quick stop loss if it goes OVER $230.

  12. In the short-term Banks would benefit from higher rates via higher margins, but the long-term impact could/would be detrimental to borrowers. Companies may not be able to afford the higher cost of credit.  Result, bad loans and/or lower loan demand.

  13. stockbern – Schwab rates look very expensive.  Interactive Brokers are extremely competitive on both margin rates and deposit rates.  Just my thoughts. 

  14. albo,

    Quite right. The curve is flattening with prospect of inverting. Thanks.

  15. rb215600,

    thanks as well.

  16. Wow, Dow flying higher.  BA up $4, AAPL up $2, INTC up $2, CAT up $2 – that's 85 points right there.

    Moderately higher/8800 – Banks have a lot of 30-year loans at 3% so a move to 4% devalues their notes by 33% – doesn't take much to hurt them pretty badly.  Takes a long time for higher charges to balance things out after a prolonged period of low lending rates.

    Also, as I noted, XLF has been weaker then /ES but it hasn't been killing the index, obviously.

    And what Albo said!  

    Image result for yield curve

    Banks were making good money 2 years ago borrowing at 0.49 and lending at 3.14, now they are borrowing at 2.12 and lending at 3.19 with the same default risks, costs, etc.  Way less profit on the spreads and the more short-term borrowing the banks were doing, the more they risk crossing the paths of their old loans as rates move up.

    Let's say a bank lent a 5-year two years ago 2.1% and thought they'd make good money borrowing 6 months at 0.66% but that ran out and then they had to pay 1% for the next 6 months and 1.5% for the next 6 months and now 6 months is 2.36% and they are upside down on the 5-year loan with 3 years to go and rates still rising.  That sort of thing.

    Dollar down to 95, that's an 0.2% boost to the indexes too.  Saved /CL from crossing back below $75.

    AAPL,/Maya – Every $20 is another $100Bn.  So easy to create $100Bn these days apparently..

    Margins/RB – Good point but harder for banks to maintain these days thanks to the Web quickly directing consumers to the lowest possible loan prices.  

  17. biodiesel/FB

    FB down again on a data breach.  Your idea that the next earnings are going to be a disaster is one of the best ideas I have heard in a long time. Could you repost your thoughts, if you can find them. I think its worth repeating.  ( Phil, you might be able to access easier) 

  18. But the RUT is still red.  Right at the 1,670 line and looking very much like it's consolidating for a move lower, not back up.

    FB/Stock – I think you mean what BDC said about FB last month:

    I have a theory about facebook. Like all of my theories it's all conjecture and no substance, but as long as were predicting future prices it's all BS anyhow :)

    The next earning report will be a disaster. 

    * The last earnings report was a disaster and they lost 20% of their value in one day. This could be a blip, but more likely it's a trend that lasts a least a few earnings cycles.

    * The main driver will be customer verification that resulted from the Russian fake news scam and subsequent response. I have personal experience with this placing an FB ad. They wanted a scanned ID, home address verification where they then mailed a code to your house, in order to place an adthat their bots decided was "political or of national importance." Apparently a lot of people got caught upin this and it's been a Hindenberg moment for them. In the long run it's probably a good thing to have Real Person verification, but on the short term a lot of revenue can be lost because the ease of placing a $60 ad with two mouse clicks was muted for a whole bunch of folks.

    * Now that FB has 2B users how much can it really grow? There's a natural upper limit on it's growth due to this, though they can obviously grow the $/person that they are generating by a significant amount.

    * Least importantly, but still worth mentioning, there's been an F Facebook movement; folks "cord-cutting" either to ease the online addiction, get back out into nature, spend more time with real humans, and various groups with petty grievances, e.g., conservatives who feel slighted/victimized for whatever reason (thoughit seems they always feel this way so maybe that's irrelevant).

    The last piece of the puzzle is the overall market. It's obviously helpful if the next market leg down is captured simultaneously. Then this becomes an exercise in catching which stock falls the most instead of which stock falls while amazon zooms to 3000. 

    With that said, Nov options are the play but already fairly expensive with 160 puts at ~$3. Another 20% down from here is ~142, so the 145's (1.05) and 150's (1.50) are worth looking at. Long term I think FB can be cut in half (from $500B MC to ~250B) before a long 10X run up getting them over $2T.

    August 30th, 2018 at 12:06 pm | (Unlocked) | Permalink |

    FB/BDC – Good point on ad difficulties as well as growth and I think they have already saturated how many hours people can spend on FB.  Jackie is anti-phone these days, she gets really pissed at her friends for not "living in the moment" but I think she gets that from me, as I tend to go around without a phone and have a very nice time, nonetheless.  She's not the only one, there are little pockets of "get off your phones" evangalists popping up – might be a trend.  

    Nov $160 puts already $7.60, up 150% – great call by BDC! 

  19. /KCN9 $115! 

    /YM 26,800!

    /NQ 7,707!

    /ES 2,935!

    /RTY 1,669!

    You can't play this crap – just have to wait until the dust settles.  Powell up in 20 mins.

  20. Phil/Markets manipulation

    I don’t know if you or anyone has heard of a guy Jason Schwartz.

    He used to follow AAPL mostly approximately 8-10years ago.

    He, and I believe his family are now running a fund of their own and accepting new money.

    I have been impressed with his commentary on how the market has been manipulated by team Trump.

  21. Phil,

    Thanks for the detailed interest rate commentary

  22. Still short FB through Nov earnings, I believe in that play (bad earnings). People fleeing FB and apple's iOS now has a new feature that reports to you every week how much "screen time" you're doing. It's even starting to depress your dog. People are cutting the cord on social media, so I think we are near the beginning of this trend, and remember, the trend is your friend (unless your Zuck, but he's already a billionaire). 

    Dow double-top today. Itchy trigger finger on shorts but cash and patience super key right now. Only long MJ and a new long-term GLD call option play today (low volatility = great prices on premium). Some crypto of course but no one talks about that any more, so just tucked away for the next crush. Day job inventing deep seasonal energy storage for the distributed electricity revolution. Huge huge huge upside, multi-trillions, especially once we all collectively decide carbon is a problem and realize the government is useless in addressing it. In the meantime waiting for that perfect UVXY set-up and Donny boy market wipeout, which is overdue, but patience is key, you can't make money making the right call at the wrong time.

    As a friend used to say, that's the state of my investing and OUT!

  23. Several cannabis stocks up big, i.e. IGC, PYX, DTEA, etc.  

    Sold IGC yesterday :-(

    Still in PYX and DTEA.  Moving up stops behind these moves.  And taking some off the table. Also realize that these stocks could stop trading at anytime and open dramatically lower.  Not for the faint of heart !

    Also in HYYDF, which has cooled off.

  24. Schwartz/Maya – Nope, don't know him.  Got any links?

    You're welcome, 8800.

    Thanks for the notes BDC, you still need to call me re. Energy play.

    Good way to play the crazy pot sector, Albo.  Given my new experience, it's amazing how fast the values of these companies change since it takes us 30-60 days to get new equipment and another 30 days to have it installed, inspected and certified and setting up a new grow house is a 6-month process before you get your first buds.  In any legal states, there are tons of regulation so no one is growing fast – no matter how much money they spend yet they are being treated like they can just snap their fingers and 10x their revenues.   Of course it's easy to double up from $10 to $20 to $40M but, once you hit $40M, you are certain to need all new everythings to get the next $40M, etc.  

  25. Phil – Good info.

    BTW, Citron is out negative on IGC.

    Citron Research -- IGC. If you are able to short, it is a gift. No product. All hype. Raised Money 2 weeks ago at $1.15 Finger traders will get burned. This hype stock is the poster child of a cannabis bubble. Always cautious but nothing but air. Could write pages about this scheme.

  26. Phil, what do you think of LL down here?  They fell off a cliff the last few weeks.  Starting to get interesting, or stay away?

  27. Women Are Furious. Now What?

  28. Tencent’s online music unit files for U.S. listing

  29. Well Powell didn't say anything new.  Says economy very strong and Fed will continue to slowly raise rates.  Dow still 26,800.

    LL/Palotay – I know I used to like them at this price but they never turned themselves around from the damage they took a few years ago.  They are only now back to what they were doing in revenues in 2014 and without any of the profits they used to make.  To some extent, I think they now buy more expensive wood than the cheap and questionable crap they used to use and that squeezed margins in what was already a low-margin business.  

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 813.3 1,000 1,047 978.8 960.6 1,029 1,062 1,111 1,193 +4.8%
    Operating Profit $m 78.3 126 104.1 -83.2 -93.6 -37.0 -19.0      
    Net Profit $m 47.1 77.4 63.4 -56.4 -68.6 -37.8 -19.4 8.64 28.2  
    EPS Reported $ 1.68 2.77 2.31 -2.08 -2.51 -1.44 -0.79      
    EPS Normalised $ 1.68 2.77 2.31 -2.08 -2.51 -1.44 -0.79 0.30 0.98  
    EPS Growth % +80.6 +65.0 -16.8           +223.8  
    PE Ratio x           n/a n/a 51.3 15.8  
    PEG x           n/a n/a 0.23 0.81

    It's just not compelling enough to pay $410M @ $14.36 for a company 2 years away from making $28M (if all goes well).  That would be a p/e of 15, which would only be in-line for a retailer after a normal correction – which is likely between now and then. 


    M, on the other hand, is $10Bn at $34 with $25Bn in sales and $1.5Bn in profits for a p/e around 6.5 – much more interesting to me!

  30. Telco stocks strong today led by FTR.

  31. Phil,

    Whats your take on /NG? Its gone crazy the last 7-10 days. What do you think a reasonable price is right  now? 


  32. Investors Fear Italian ‘Doom Loop’ as Bond Selloff Deepens

  33. Fed’s Powell Sees No Risk of Labor Market Overheating

  34. Tesla worried by China tariffs even as deliveries surge

  35. Trust in Trump remains low worldwide | Pew Research Center

  36. Phil/small cap:

    TZA has been a winning position since 8/31. Not sure what's going on, maybe a fluke, maybe a canary in the coal mine, but TZA is a good play to be looking at right now IMO.

  37. Phil,  I've been traveling for the past few weeks so I apologize if the following question repeats something you've already discussed.  

    I have a SCO Nov 14/18 BCS at a cost of $1.33.  I've rolled some of the Nov 14s to the Nov 13s for .35.  This was originally your trade.  What are you advising now?  A roll to Dec?  A roll to a strike lower than 13?  Take the loss?  Thanks, as always, for your input.

  38. 3. China’s power seen as rising more than other major nations

  39. Citi Sees Looming Glut Taking U.S. Oil Discount to 2013 Lows

  40. FTR/Albo – Funny to see them leading anything.  

    /NG/Sun – I think, ultimately, we should be around $4-$4.50 so anytime /NG is low, I don't mind playing it long.  Given LNG exports this year and trends into the winter – I think we'll see $3.50 at some point this year or early winter and I think the day's of $2.50 and even $2.75 may be passing.

    Here's why:  US /NG prices are the lowest in the World by a mile but LNG lets us export it but it also lets other countries with land-locked /NG (Russia, China, OPEC) export it too so, in the short run – our /NG prices will move up towards the global $4.50 avg but, in the longer run, there will be a global glut and the whole thing will collapse.  But that longer run is 4-5 years so no worries for now.

    Image result for global natural gas prices 2018

    TZA/BDC – That's one of our primary hedges.  SQQQ is the other.

    SCO/John – Well you paid $1.33 for the spread and the Nov $14s are now 0.55 and the $13s are 0.90 so I'd roll those to the Jan $11 ($2.45)/14 ($1) bull call spreads at $1.45 for about 0.75 more (avg) and then you are in for about $2.05 on the $3 spreads that are $1.90 in the money.  If you can leave the short $18s, I would, they're toast.  If Oil keeps going higher, next time be sure to roll before the price of the $11s ($2.45) slips too far before the net of your entry ($2.05), though you don't have much cushion as a loss is now built in but surely by $1.80 you want to roll to establish an April spread and, hopefully, one day, oil stops going up.  Hopefully soon as I'm still short 8 /CL

  41. Now the Nas is following the RUT and /ES is red and /YM losing ground.  Kind of same pattern as last Weds after Powell's comments were absorbed.  

    /KC $116!  

    /SI hit $14.95 – I don't know why we even bother with stock options when commodities are so much fun?

  42. LQDA  just going insane since pharm mentioned them a while back. 

  43. SFIX – Falling knife.  Stock down 34% today.  Sold some Jan 25 puts.

  44. Phil,

    WHR at 115 here — would you roll a 2020 120/140 spread here with 130 Puts?

  45. also would you cover CMG short calls when (if) it gets to the 200 day

  46. BBBY – New low

  47. Getting a little bounce into the close – Nas barely red now but RUT still down 1%.

    WHR/Coulter – I think it would be better to see how much tariffs are expected to impact earnings.  They are a thin margin company, making about $500M on $21Bn in sales  but the valuation is only $7.5Bn at $115 so that's fine – as long as they aren't even more impacted by tariffs than we think.  It won't take much of an impact to knock earnings way off when 2.5% of $2.1Bn is $10% of earnings and, since tariffs are up to 25% – it's hard to say how they'll adapt.

    Earnings are 10/24 and better to roll with better information.  If it's good news, all is well as you're not too far below target.  If it's neutral, then the same roll will cost the same but, if it's bad news and they drop $20 – the 2021 $100 calls are $26 and have a delta of 0.66 while your 2020 $120s are $11.80 and have a delta of 0.48 so, if WHR drops 10% ($12) to $103, then the 2021 $100s will be $18 and your $120s will be $6 so the roll would be $12, not $14.20 now.  So there's nothing to lose by waiting.

    CMG/Coulter – Depends how and why they get there.  I won't cover for the sake of covering.   We sold the Jan $460s for $61.80 and they are now $22 with CMG at $436 but I wouldn't pay $22 to bet CMG will be higher than $482 by Jan at the moment so why should I buy the caller back for a price I wouldn't pay?  

    Chipotle shares have been on a tear since announcing a management shakeup in February, sending the stock up more than 80% and leading to more than a dozen analysts upgrades. “The Street's margin expansion assumptions could be difficult to achieve without meaningful sales upside owing to labor headwinds, potential store-level investments and lack of menu-pricing upside," wrote Oppenheimer's Brian Bittner.

    BBBY/Albo – Downgrade police at work.

  48. Phil / CMG – do you see a support line on this one?  if so where and what is the catalyst.  I know they are due for earnings (10/25), and there are lots of concerns on earnings this quarter.    

  49. Thanks Phil!

  50. CMG/Batman – When you say line, you mean TA and no, I don't believe magical lines cause a stock to hold a market cap.  The 50 dma was $480 and they blew that so the next voodoo support comes at $400, which is the 200 dma but, value-wise, $400 is $11.5Bn and do I see support for a company struggling to earn $200M at $11.5Bn – NO!!!!  That's 57 times earnings – NO!!!!  

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 2,731 3,215 4,108 4,501 3,904 4,476 4,653 4,852 5,242 +10.4%
    Operating Profit $m 455.9 532.7 710.8 763.6 34.6 270.8 251.7     -9.9%
    Net Profit $m 278 327.4 445.4 475.6 22.9 176.3 169.7 235.9 329.6 -8.7%
    EPS Reported $ 8.75 10.5 14.1 15.1 0.77 6.17 6.06     -6.7%
    EPS Normalised $ 8.84 10.6 14.3 15.4 1.25 6.47 7.49 8.57 12.0 -6.1%
    EPS Growth % +28.6 +19.9 +34.6 +7.6 -91.9 +419.5 +42.2 +32.5 +40.2  
    PE Ratio x           69.1 59.7 52.2 37.2  
    PEG x           2.13 1.84 1.30 1.34

    Hope that helps….

    The American Petroleum Institute reportedly shows a build of 907K barrelsof oil for the week ending Sept. 28, vs. a build of 2.9M barrels in the previous week.

    Gasoline reportedly shows a draw of 1.7M barrels and distillates show a draw of 1.19M barrels; the Cushing, Okla., hub reportedly shows a build of 2M barrels.

    Nymex November crude recently was at $75.06/bbl in electronic trading, down slightly from today's $75.23 settlement price.

    Not a bad report but not enough to move oil over $75, I would think.  /RB at $2.126 might go a bit higher but won't matter until EIA tomorrow.

  51. PS – What did I say on Wednesday last week?

    In the LTP, our CMG position is:

    Short Call 2019 18-JAN 460.00 CALL [CMG @ $465.60 $-0.02] -20 8/27/2018 (114) $-123,600 $61.80 $-24.50 $-139.69     $37.30 $-1.20 $49,000 39.6% $-74,600
    Long Call 2020 17-JAN 460.00 CALL [CMG @ $465.60 $-0.02] 20 8/27/2018 (478) $203,000 $101.50 $-22.55     $78.95 - $-45,100 -22.2% $157,900
    Short Call 2020 17-JAN 580.00 CALL [CMG @ $465.60 $-0.02] -20 8/27/2018 (478) $-97,600 $48.80 $-14.60     $34.20 - $29,200 29.9% $-68,400

    No change to that one but note that we have an $89,500 position (current net of the bull call spread) that pays $240,000 at $580 so massive $150,000 upside potential above $460 and we're collecting $74,600 (current price of short calls) over the next 3 months on the short calls.  That's 83% of the cost of the spread!  Great for a new trade but margin-heavy and, if it goes wrong (only CMG blasting higher would hurt us) you have to have the firepower to DD on the longs, sell puts and roll the short calls.  

    And where is it today? 

    Short Call 2019 18-JAN 460.00 CALL [CMG @ $446.68 $-7.84] -20 8/27/2018 (109) $-123,600 $61.80 $-35.05 $-139.69     $26.75 $-4.35 $70,100 56.7% $-53,500
    Long Call 2020 17-JAN 460.00 CALL [CMG @ $446.68 $-7.84] 20 8/27/2018 (473) $203,000 $101.50 $-33.00     $68.50 $-5.90 $-66,000 -32.5% $137,000
    Short Call 2020 17-JAN 580.00 CALL [CMG @ $446.68 $-7.84] -20 8/27/2018 (473) $-97,600 $48.80 $-20.05     $28.75 $-3.05 $40,100 41.1% $-57,500

    Note the bull call spread has dropped to $79,500 (-$10,000) but the short calls have dropped $20,500 so up net $10,500 since last Weds and this is just what's leftover from the massive profits we already made cashing in $360 calls when CMG was around $500 (the short $460s are the leftover leg of that spread).  That's why the LTP can make such massive monthly gains – our larger positions benefit from massive decay in a flat(ish) market.

    Again, this is a FUNDAMENTAL call that CMG simply wasn't worth $460 and just because some idiots recently paid $530 for it did not make me change my mind about what it was worth.  In fact, all 9 of those Wednesday calls were based on the same principle – looking to make $100,000 by Christmas on the premise that the market wouldn't go much higher.  

    Of the group, only GILD is looking like it's going to burn us so far and, as I was saying in the Webinar (and 100 times before) when you are BEING THE HOUSE – it's OK that sometimes you lose one of your games – the other games more than make up for it and, if you never lost – people wouldn't want to play with you!  

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  58. Phil / Cmg.  I'm trying to decide when to when to uncover some Jan $490.  short callers     So not really much help 

  59. Phil Cmg. On the short callers not cover but close out.  

  60. Hi Batman, I know where you are coming from – I’ve got some Jan 490 short calls left over from a trade idea here – as yli know CMG’s stock Price was all over the place & on one of the mega dips the discussion was to close out the longs and let the short calls ‘die on the vine’. Well, Bacchus started to screw with short sellers and the prudent strategy was to layer on BCS. I’ve got some 2020 BCS covering the vineyard and I sure ain’t going to try and judge CMG’s price based on fundamentals – it hasn’t worked up until now. I’d rather see how the land lies post January 2019 and then make appropriate adjustments to the long BCS.

  61. In a market where price is so disconnected with an underlying company’s fundamentals why apply Graham & Dodd style fundamental analysis? It’s a contradiction in terms. It takes you down the Hussman type road where many a good analyst has ended up as Road Kill. Yes, to ignore fundamentals means you have to respect the giant signpost which says ‘YOU HAVE BEEN WARNED’ – and a cashy & cautious Phil is always helpful in keeping us on the straight & narrow.

  62. Good morning!

    CMG/Batman – Well then why don't you ask that as a question in the first place?  Anyway, still not sure what the actual question is as you say "when to uncover some Jan $490.  short callers" so I imagine you are asking when it might be a good time to buy them back but my answer was that I don't see CMG going to $490 by Jan so there would be no reason to buy them back, right?  Of course, that's my feeling and I may be wrong and the CMG Jan $490s are now $12 and I have no idea what you sold them for but, if you are up 75% or more then it's never a bad thing to take them off the table and simply wait for the next opportunity.  

    Why/Winston – Well we didn't sell naked calls but we took a reasonable risk and sold reasonable covers (see original trade idea and notes around it) against a 2021 spread but we don't really believe we'll need the spread (due to those pesky fundamentals) but we're forced to buy it just in case the market continues to be insane. 

    Obviously, if you are not comfortable with a trade idea – don't play it!  All trading is gambling and if you let yourself believe that any crazy negative you can imagine will happen to you – then sure, don't bother applying fundamentals but, even in Wonderland, Alice thought losing her head would be a bad thing and putting one foot in front of the other still led her down a path – you have to find the things that do work if you are going to play at all or you can just curl up in a ball and hope the whole thing will end one day.  Me – I like to provoke the Red Queen!

    Image result for alice in wonderland animated gif

    Meanwhile, the Futures are up yet again so who knows where the top will be.  

  63. What the Actual F*ck, Republicans?

  64. CMG/Phil- never played CMG this year yet…  the old trade is on 2020 spread, would say it's still good with same strikes but in 2021 but shorting 460 2020?

  65. LOL – I love the sound of Phil in the morning!