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Flip Flop Friday – Bank Earnings Boost Confidence

Don't be fooled by weak bounces.

The Dow may be up 370 points at the open and that seems like a lot but we closed near 25,000 and, as noted in yesterday's PSW Report, we were expecting a bounce off 25,175 back to 25,450 just to complete a WEAK bounce off the 5% correction (which we also predicted) and yesterday's failure at the bounce line does not make a second attempt today more impressive.  As we discussed in Wednesday's Live Trading Webinar, it's not just making the bounce lines that matter but making them in the same time period that we fell.

It took rwo days to hit 25,175 and yes, we did bounce back in one day yesterday but that failed and got worse and now it's day 2 and all we're doing this morning is making another run at 25,450 and that is not going to be enough to flip us bullish – now we need to see the strong bounce level at 25,700 taken and held – along with the levels we set for our other indexes as well.  We called this in yesterday's report, of course and I'll repeat it again because we're looking for the same factors in play:

Nothing has happened to support the markets so far but here are some of the things that can turn things around – at least to create a dip-buying rally but whether or not that's enough to crack the strong bounce lines remains to be seen:

  • Trump could stop calling the Fed "crazy" (not likely, he needs someone to blame for the market sell-off since he's been using the market rally to measure his success)
  • The Fed could capitulate to Trump and say they won't raise rates anymore (not likely as yesterday's 10-year auction was not pretty – even at 3.25%.  Today there's a 30-year sale that also is not likely to show much demand).  
  • Brexit could be worked out (50/50 – at this point, Germany needs to put this behind them as badly as the UK does)
  • China trade deal could be worked out (not from the sound of yesterday's chatter) 
  • Tomorrow's Bank Earnings (C, FRC, JPM, PNC, WFC) could be better than expected (not likely with housing tanking over the summer)

So we're playing for the bounces but mostly watching and waiting to see if any of the negative news items change and whether or not any of the bounce lines hold but, if not, we'll be adding some more hedges into the weekend – into this evening actually – as I'm very worried about those bank earnings!  

You're welcome, by the way on WPM, which popped back to $18 after yesterday's bullish call – despite the broad-market sell-off.  We played for yesterday's bounce but remained cautious and kept our hedges.  Here was my logic during the "rally" at noon yesterday as I noted that Europe and Japan were in danger of heading back to their 2016 market levels if 3,200 on Euro Stoxx failed (it hasn't so far):

So what's our bullish premise?  That the US "only" does about 60% of its business overseas, that we now have tax advantages for our companies, that we're "winning the trade war"?   Maybe it's that we don't have a Brexit hanging over our heads – that's a good one, but is it worth that kind of divergence?  

Are Europeans stupid traders who have poor math skills and an even poorer grasp of facts.  No, wait, that's us!   

The STP is up 166% and, since the LTP is still up 85% I don't think it's worth adjusting without real evidence of a breakdown or breakout so I'm going to take no action ahead of my trip but maybe tomorrow – if things are still weak, I'll want to add some more hedges.  We certainly have the money for it.  

While it would be nice to lock in the STP gains – I certainly don't wan to be LESS hedged into the weekend, so that's not going to happen.  I'd rather give back the $40,000 gains than risk not being protected enough if we drop 10% on Monday because Trump says something stupid! 

In other words, don't be fooled by the bounces.  That's what happens along the way down.  EuroStoxx are at 3,214 this morning and I care about that line a LOT more than I care about our lines at the moment.  Germany's DAX has strugged back to 11,600 but that 11,500 line is  a critical hold as well.

Until we break back up over the strong bounce lines, I'm still going to want to maintain our hedges as what we've had so far was not a proper correction though we did finally get some good volume on the S&P (SPY) the past couple of days:

Date Open High Low Close* Adj Close** Volume
Oct 11, 2018 277.08 278.90 270.36 272.17 272.17 273,083,100
Oct 10, 2018 286.83 286.91 277.88 278.30 278.30 214,731,000
Oct 09, 2018 287.39 288.86 286.77 287.40 287.40 74,339,000
Oct 08, 2018 287.05 288.22 285.50 287.82 287.82 87,742,200

We'll see if we get that kind of volume on the move up today but, so far, all we have, is maybe 300,000 shares trading in the Futures to take us back to 277 – how is that impressive?  277 is where we opened yesterday and 273 MILLION shares traded up to 279 but then down to 270 and settled DOWN at 272 and that was more volume than we had since February, when it took the entire month of trading to get from 282 to 264 so what the Hell do you think you can determine from a few days?  

So let's not try to make predictions based on a single tea leaf – we're well-balanced into the weekend and it's a great day to sit back and see what's strong and what's weak in the bounce so we can, hopefully, find some good candidates to look at if the selling continues.  So far our value stock collection in the LTP has been performing very well but there's plenty of room for more quality stocks and here we are – at the start of earnings season again – when stocks go on sale every day!

Meanwhile, even as I write this, we're once again failing at the weak bounce lines so let's be very careful out there – we could have a whole other leg down before this is over.

Have a great weekend,

- Phil

 


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  1. Phil,

    What arr you doing with your /RB longs?


  2. Good Morning!


  3. Good Morning – should be an interesting Friday…. 


  4. Gonna take quite a bounce to gain back the lines!


  5. Good morning!

    /RB/Japar – I think ignoring them is my best bet at the moment!   I was tempted to buy more at $1.93 and drop my average to $1.97 and, had I done that, I would have been out even this morning but I didn't as I was in the airport and it could have gone 0.05 lower as easily as higher I doubt I'll be able to get out today but I'll drop back to 4 if we get back to $1.98 again today as then I'll need $2.02 on the last 4 to get out even and I'd feel better about that as a weekend hold.

    All hands are on deck this morning with a lot of sudden upgrades (especially in major components) and all the talking heads saying "buy the dip" with Cramer screaming on CNBC that everything is a bargain now that it's fallen 5%, so I really take this with a grain of salt.  Evans, however, did not help things (just now) and he was a reliable dove:

    • "On the way to neutral, we've still got the punch bowl in play," says Chicago Fed President Charles Evans. Take from it what you will, but the once-dovish Evans sounds like he's saying current Fed policy remains stimulative.
    • He's not a voter on the FOMC this year.

     

    • September Import/Export Prices: Import prices Index +0.5% vs. +0.2% consensus and -0.4% prior (revised).
    • Export prices flat M/M vs. +0.3% consensus and -0.2% prior.
    • China's export engine kicked into high gear in September, producing a record trade surplus of $34.13B with the U.S. that could intensify an already-heated trade dispute.
    • The figure further surged to $225.79B over the January-September period as President Trump threatens an additional $267B of tariffs on Chinese imports amid trade tensions between the world's two largest economies.

    • "I can tell you that personally I think I feel more optimistic today than I did a couple of weeks ago (about a Brexit deal), because we have been frankly complaining for some time that the other side wasn't really engaging with us, didn't seem to share our sense of urgency," Philip Hammond, Chancellor of the Exchequer, told CNBC. "That has gone away. It is absolutely clear now that the other side is trying to move this forward."
    • Wells Fargo (NYSE:WFC) rises 2.0% in premarket trading even as Q3 EPS, adjusted for redemption of preferred stock, fell short of consensus by three cents.
    • Q3 EPS was $1.13, excluding the effect of Series J preferred stock redemption, EPS would have been $1.16. That compares with 98 cents in Q2 and 83 cents a year ago.
    • "We saw positive business trends in the third quarter, including growth in primary consumer checking customers, increased debit and credit card usage, and higher year-over-year loan originations in auto, small business, home equity and personal loans and lines," says CFO John Shrewsberry.
    • Q3 net interest income $12.6B, up $31M from Q2 and up 1% from a year ago; net interest margin 2.94% improved 1 basis point from Q2 and up 8 bps from a year earlier.
    • Total average loans of $939.5B, fell $4.6B from Q2; commercial loans fell $1.2B from June 30, 2018, predominantly from a $2.8B decline in commercial real estate loans, partly offset by $1.5B growth in commercial and industrial loans.
    • Total average deposits $1.3T, down $5.0B from Q2.
    • Net loan charge-off rate 0.29% vs. 0.26% in Q2 and 0.30% a year ago.
    • Net income by segment:
    1. Community Banking $2.82B vs. $2.50B in Q2 and $1.88B a year ago.
    2. Wholesale Banking $2.85B vs. $2.64B in Q2 and $2.31B a year ago.
    3. Wealth and Investment Management $732M vs. $445M in Q2 and $719M a year ago.
    • Citigroup (NYSE:C) climbs 2% in premarket trading after Q3 EPS of $1.73 beat consensus of $1.68 and compares with $1.42 a year ago; net income rose to $4.62B from $4.49B in Q2 and $4.13B a year ago.
    • “Our results this quarter showed solid year-over-year revenue growth across many of our businesses, including Fixed Income, Treasury and Trade Solutions, Securities Services, the Private Bank, and our consumer franchise in Mexico," says Citi CEO Michael Corbat.
    • Effective tax rate 24% vs 34% a year ago.
    • Net income by segment:
    1. Global Consumer Banking $1.57B, up 23% Q/Q, up 34% Y/Y.
    2. Institutional Clients Group $3.12B, down 3% Q/Q, up 2% Y/Y; fixed income revenue $3.20B, up 4% Q/Q and 9% Y/Y.
    3. Corporate/Other loss $67M, compares with $13M loss in Q2 and $83M loss in Q3 2017.
    • Q3 return on average common equity 9.6% vs. 9.2% in Q2 and 7.3% in Q3 2017; common equity Tier 1 capital ratio 11.8% vs. !2.1% in Q2 and 13.0% a year ago.
    • Book value per share rose to $72.88  vs $71.95 in Q2 and $78.81 a year ago.
    • End-of-period loans $675B, up 3% Y/Y, ex-forex up 4%; end-of period deposits $1.0T, up 4% Y/Y, ex-forex up 5%.
    • Q3 total cost of credit $1.97B, up 9% Q/Q, down 1% Y/Y.
    • Previously: Citigroup beats by $0.05, misses on revenue (Oct. 12)
    • JPMorgan Chase (NYSE:JPM) rises 1.4% in premarket trading after Q3 EPS $2.34 beats consensus of $2.26.  Its Consumer & Community Banking unit drew in record net new money and the bank saw double-digit growth in card sales and merchant-processing volume.
    • Compares with $2.29 in Q2 and $1.76 a year earlier.
    • Net interest in come of $14.1B rose 7% driven by impact of higher rates, which includes lower Markets net interest income, as well as loan and deposit growth.
    • Average core loans (excluding Corporate & Investment 

      Bank) up 2% Q/Q and up 6% Y/Y.
    • Provision for credit losses of $948M fell from $1.21B in Q2 and $1.45B a year ago; decrease driven by Consumer portfolio, largely reflecting net reserve releases in current period compared with a net build a year earlier.
    • Q3 return on common equity 14%, unchanged from Q2, and up from 11% in Q3 2017.
    • Q3 effective tax rate on a reported basis was 21.6% vs. 29.6% a year earlier.
    • Net income by segment:
    1. Consumer & Community Banking $4.09B, up 20% from Q2, up 60% Y/Y.
    2. Corporate & Investment Bank $2.63B, down 18% from Q2, up 3% Y/Y.
    3. Commercial Banking $1.09B, flat from Q2, up 24% Y/Y.
    4. Asset & Wealth Management $724M, down 4% Q/Q, up 7% Y/Y.
    5. Corporate loss of $145M vs loss of $136M in Q2 and income of $78M in Q3 2017.
    • PNC Financial Services (NYSE:PNC) falls 2.4% in premarket trading even as Q3 EPS of $2.82beat consensus of $2.73. EPS rose from $2.72 in Q2 and $2.16 in the year ago quarter.
    • Net interest income of $2.47B, rose 2% from Q2 and 5% Y/Y; higher loan yields and securities balances and an additional day in Q3 (vs. Q2) was partly offset by increased funding costs.
    • Net interest margin of 2.99%, up 3 basis points from Q2, and up 8 bps from Q3 2017.
    • Average loans of $223.3B, up $0.7B from Q2 and up 2% Y/Y.
    1. Average commercial lending balances grew $0.2B, with loan growth moderated by substantial payoff volumes;
    2. Average consumer lending balances increased $0.5B Q/Q; growth in auto, residential mortgage, credit-card, and unsecured installment loans partly offset by lower home equity and education loans.
    • Provision for credit losses of $88M vs. $80M in Q2 and $130M in the year-ago quarter; net charge-offs fell to $91M from $109M in Q2 and $106M a year earlier.
    • Return on average common equity 12.32% vs. 12.13% in Q2 and 9.89% in Q3 2017.
    • Book value per common share $93.22 at Q3 end vs. $92.26 at Q2 end.
    • Previously: PNC Financial beats by $0.09, beats on revenue (Oct. 12)
    • Previously: Futures rise as earnings season begins (Oct. 12)
    • "Our position is that expensive energy is back… And it poses a threat to economic growth," the IEA wrote in its closely-watched monthly report.
    • As a result of soaring energy prices, the agency revised down its demand outlook over the next two years to 1.3M bpd in 2018 and 1.4 bpd in 2019.
    • Oil prices have surged more than 25% this year, with President Trump repeatedly blaming OPEC for rising gasoline costs.
    • Crude futures +1% to $71.69/bbl.
    • Automobile sales in China plummeted 11.6% in September to 2.39M units, according to datafrom the China Association of Automobile Manufacturers.
    • Passenger vehicle sales (sedan, MPV, SUV and crossover utility vehicles) were down 12.0% during the month.
    • The monthly drop was the largest in China since 2011 and marks the third straight month of declines amid trade issues.
    • The Chinese auto market is up 1.5% YTD through the end of September to 20.49M vehicles.
    • The three-month downturn in auto sales in China is a negative factor for global automakers as well as domestic producers due to their heavy investments in China on the expectation of a solidly growing market.
    • "It’s very alarming and is even causing panic among some automakers and suppliers. That’s because the market has been growing non-stop every year for more than twenty years, and those companies make plans based on growth," notes a Shanghai-based analyst from research firm Automotive Foresight.
    • Ford (NYSE:F) sales in China decreased 43% Y/Y in September to 64,383 vehicles.
    • Sales for Changan Ford Automobiles were down 55% to 35,540 vehicles, while Jiangling Motor sales dropped 15% to 22,094 vehicles. Lincoln sales rose 1% during the month to 5,476 vehicles. Imported Ford brand vehicles were down 16% Y/Y to 1,273 vehicles.
    • Ford Asia Pacific CEO Peter Fleet's update: "We are intensely focused on our sales turnaround plan in China, which includes an aggressive cadence of product introductions to meet the needs of our Chinese customers, including the launch of the highly anticipated all-new Ford Focus. We believe the new products, which have been custom-designed and developed with Chinese customers in mind, will help us to regain momentum in the world’s largest auto market."
    • YTD Ford China sales -30% to 585,171 vehicles.
    • Ford China press release (.pdf)
    • Shares of Ford are up 1.31% in premarket trading to $8.93.
    • Tesla (NASDAQ:TSLA) says all orders placed before October 15 will be delivered before the end of the year and qualify for the full $7.5K federal tax credit.
    • Customers ordering after the end of the year won't qualify for the full tax credit because Tesla crossed over the 200K electric vehicle sales mark in July.
    • Crossing over the 200K threshold places Tesla at a selling disadvantage from an incentive perspective as new Mercedes-Benz, BMW and Audi EVs make their way to the market in 2019 and 2020 with the full tax credit as a lure. It could also mean a frantic push for Tesla in Q4 to keep production and demand in line.
    • Shares of Tesla are up 2.37% in premarket trading to $258.20.
    • Corn and soybean futures jumped in Chicago trade today after the U.S. Department of Agriculture unexpectedly cut its production forecast, citing an anticipated lower corn harvest due to smaller than expected yields and a likely decrease in harvested soy acres in key states such as Illinois and Minnesota.
    • According to this month's USDA estimates, CBOT December corn settled $0.07 higher at $3.69/bushel, while November soybeans settled $0.06 higher at $8.59/bushel; also, December wheat came in $0.03 lower at $5.07/bushel.
    • Despite the cuts, the U.S. soybean crop is still projected as the biggest ever, while corn harvest is forecast to rank as the second biggest on record: Soybean production is pegged at 4.69B bushels with yields averaging a record 53.1 bushels/acre, and the corn crop is seen at 14.778B bushels with an average record yield of 180.7 bushels/acre.
    • In September, the USDA had forecast a corn crop of 14.827B bushels and a soybean crop of 4.693B bushels.
    • Starbucks (NASDAQ:SBUX) discloses that the company is currently executing a $5B accelerated share repurchase program as part of its previously-announced $25B buyback/dividends commitment through FY20.
    • The company says it used proceeds from the recently completed transaction with Nestlé to execute the accelerated buybacks.
    • SBUX +2.26% premarket to $56.10.
    • Source: Press Release
    • A New Jersey jury clears Johnson & Johnson (NYSE:JNJ) of liability after less than a day of deliberations in a case involving a woman who alleged that the company’s talc-based products, including its baby powder, contain asbestos and caused her cancer.
    • J&J has been fighting talc cancer lawsuits for years, but the litigation has shifted in recent months to include allegations of asbestos contamination, with plaintiffs claiming asbestos fibers in the company's products are causing both ovarian cancer and mesothelioma.
    • In July, a Missouri jury smacked J&J with a $4.69B verdict in the first trial alleging asbestos contamination caused ovarian cancer in 22 women; the decision is under appeal.
    • Wedbush Securities upgrades Fitbit (NYSE:FIT) from Neutral to Outperform with a $6.50 price target, a 44% upside to yesterday’s close. (Source: StreetAccount.)
    • Fitbit’s Charge 3 hit stores on October 7 with a high-res touchscreen, improved heart and oxygen sensors, and up to seven days of battery life. 
    • FIT shares are up 5.8% premarket to $4.76. Shares are down 10% this week, 18.6% in the month, 12.3% in the quarter, and 21% YTD.  
    • Previously: Fitbit's Charge 3 will release October 7 (Oct. 4)
    • Pivotal Research upgrades Twitter (NYSE:TWTR) from Sell to Hold with a $24 target.
    • The firm cites this week’s pullback in share prices. 
    • Twitter shares are up 2.6% premarket to $27.70.  Shares are down 4.4% this week, 9.2% in the past month, 39.3% in the quarter, but up 12.5% YTD.  
    • Previously: Pivotal upgrades Snap, says it could go private; SNAP +4% (Oct. 12)
    • Citi issues a recommendation that investors buy Netflix (NASDAQ:NFLX) amid the tech slump in the U.S.
    • The investment firm makes what it calls an "opportunistic upgrade" on Netflix to Buy from Neutral.
    • Citi analyst Mark May and team set a price target of $375.
    • Netflix is due to report earnings next week.
    • Shares of Netflix are up 3.71% in premarket trading to $333.01.
    • Macquarie upgrades Microsoft (NASDAQ:MSFT) from Neutral to Outperform with a $121 price target, a 14% upside to yesterday’s close.
    • Analyst Sarah Hindlian cites recent spending checks and long-term trends, calling the company “a name we have sorely missed.” 
    • Microsoft shares are up 3.1% premarket to $109.20

    Technology Has Fallen: Alphabet Is A Conviction Buy With 30% Upside 

    • Doctors in England, Wales and Scotland will be able to prescribe cannabis-based medicines for patients beginning November 1.
    • Home Secretary Sajid Javid previously announced that cannabis products would be downgraded to Schedule 2, allowing physicians to legally prescribe them.

    You think they only did this on one state?

    • The state of Oregon has recovered $13M it paid to Tesla (NASDAQ:TSLA) for solar power projects, after an investigation concluded that SolarCity inflated prices by 100% to qualify for higher tax credits, OregonLive reports.
    • Neither Tesla Energy nor its accounting firm, Novogradac & Company, admitted wrongdoing in the settlement.
    • The news comes as Tesla announced that all vehicles placed by Oct. 15 are eligible for full federal tax credits of $7,500 as the rebate expires this quarter due to the EV maker hitting the 200,000 delivery mark.

  6. Dow got rejected almost on the nose at 25,450 so we can assume this is some major bot-buying as it's right on the 5% rule.  Strong bounce is 25,700 so YAWN until we see that and, as I noted, now it's the weekend so, even up another 250 and I won't want to unhedge into the weekend so we're stuck where we are, I think.

    S&P 2 775 and 2,800 are weak and strong:

    Remember it's AAPL that has to bounce for all the indexes to really recover so I'm reprinting those notes from yesterday morning:

    Nasdaq 7,700 was the high-water mark and that is exactly 42.5% over the old Must Hold level of 5,400, where we topped out in 2000.  As we know, it's really the AAPLDAQ so let's consider AAPL's high of $233 and 5% below that is $221 and AAPL blew that but they really topped out at $230 since 9/1 so better to work with that and call it $218.50 which is $12 so $2.50 bounces and $216 is the overshoot.

    Pretty much we can watch AAPL for the story of the whole market.  Is the most valuable company on Earth (by a wide margin now) and the only one that comes close to justifying it's $1Tn valuation able to attract bidders after a 5% correction.  If not – what hope can the rest of them have?  If AAPL fails to hold $216 – then the 10% line on AAPL is $207 and below that is a 20% correction = all the way to $184 but, as you can see on the chart – AAPL was obeying those lines on the way up – so why wouldn't it on the way down?

    o, getting back to /NQ, we're in a 10% correction (which is why SQQQ was our primary hedge) from 7,700 to 6,930 and the 5% correction was 7,315, which held on 10/8 but wasn't even a pause yesterday so I hesitate to even used 7,315-6,930 as a range.  If I did, the strong bounce of that drop would still be the weak bounce of the 10% drop so I'd have to say that NOTHING less than the weak bounce of the 10% drop on the Nasdaq would be in the least bit bullish.

    7,700 to 6,930 is 770 points and 20% of that is 154 points so 7,084 we can call 7,100 and that's our primary goal and 150 over that is 7,250 and that's where we start to recover.  Given that AAPL $184 is RIDICULOUS and would cause me to sell everything and buy AAPL, I'd say we're not going to get a 20% correction or, if we do – it will be a brief one.  

    We are, however, in a panic and there are other Nasdaq stocks that deserve to be much lower so AAPL may get dragged down with the index – I just don't see it lasting.  We're checking our bounce lines mostly to know when to cash out our hedges – not so much to get bullish too quickly!  

    So NOTHING less than 7,100 on /NQ is going to be a bullish indicator and the same 150-points below 6,930 – call it 6,800 would be an overshoot to the downside on a 10% correction but below that is – DOOM!!! 

    Nas actually bottomed at 6,930 yesterday so 7,100 (weak) and 7,250 (strong) is still in play.

    RUT we were looking for 1,584 or BUST into the weekend as that's the 10% line on the Big Chart and we don't want 2 red boxes added for the week.  1,545 was yesterday's low and 1,555 is the 10% correction from the top line but DOOM!!! if we can't get back to 1,584 – DOOM!!! I say!!!  



  7. By the way, notice how many of my boxes "THEY" tried to check off this morning:

    • Trump's team (Mnuchin, Kudlow, etc) walked back Trump's comments on the Fed
    • We're waiting to see if today's Fed speakers lean softer
    • Progress on Brexit is being discussed
    • Progress on China is being discussed 
    • Bank earnings were good, not great but being spun as huge relief.

    So that's a lot of firepower being thrown at the market and ALL we get is a struggling weak bounce?  Nope, that's not encouraging! 


  8. Cramer's gums are flapping – Check!


  9. :)


  10. Kudlow's lips are moving so you know he is lying :-)


  11. 45* campaigned against the fed – which seemed odd at the time; this whining is more in line with his business (we think) though completely, absurd given his violation of emoluments  


  12. Phil

    Any trade on LABU

    Direxion Daily S&P Biotech Bull 3X ETF (LABU)

    Thanks


  13. Phil/market/Vegas

    Good morning!

    Went with your morning post and tried to short a few things on the spike up at open.

    So far, so good!

    If it closes around these levels, I am inclined to think we head lower next week…although Monday is a crap shoot, even in a declining market.

    Aside from that, it occurred to me to ask you if another PSW conference in Vegas is worth your consideration?


  14. Stj/Kudlow

    I love it!!!


  15. Nas still going up but /TF and /YM faltering and /TF, of course, means DOOM!!!

    Europe is red, so we're F'd! 

    Cramer/1020, StJ – Notice it's still Kudlow and Cramer (they had one of CNBCs first shows) that are the flacks that are used to talk up the market.  Cramer is an admitted market manipulator and Kudlow is a dope fiend so someone has the goods on both of those guys – makes them great puppets.

    Emoluments/Rexx – That's like 12th on the list of crimes he's worried about getting in trouble for…

    Weed/Pstas – That's why we bought a manufacturer, not a grow company though the way a lot of states are handing our licenses, we may have to build some grow operations as you are only allowed to operate a vertical market.  I wouldn't put a dime into any grower's stock and, anyway, it will all be the tobacco companies over time.  Good pot still has value, regardless of how easy it is to grow bad pot.  

    That's why I like New Age, we're a middle-man company and we are GIVEN the pot and paid to turn it it into distillates at about 10 pounds per liter and then a liter is currently fetching $9,000 in LA, which is a pretty mature market and we clear about 30% and we're not a retailer or even a distributor – our work is done once we complete our process so we could care less about the end products (though we are developing Jade House Genetics and specialty lines for celebrities but again – sales are not our problem).  

    Just like the gold rush, I'd rather be the guy selling the picks, pans and mules or even the Levis than the endless suckers who think they are going to strike it rich mining gold! 

    LABU/QC – I love it when they go on sale but is $66 cheap or was $110 ridiculous?  Keep in mind LABU is a 3x ETF so the move from $25 (where we used to play them) to $110 is up almost 300% but that reflects a doubling of the Biotechs (IBB) but IBB only went from $80 in 2017 (when LABU was $25) to $120 this year so up 50% means LABU only should have really been up 150% to, say $75 (calling $30 the middle at the time), not 300% to $110.

    What happens with ultras is that a large number of consecutive up days gives you a sort of compounding factor and also so many people chased into Biotech that the LABU fund got more money than their holdings were worth.   And, of course, if IBB drops back 30%, LABU loses 90% of it's value!  So yes, I like it but only if it hits a ridiculous-seeming bottom and only if IBB also looks like it's hitting a firm bottom as well.

    Good job Maya but be careful as they may try to dress things into the close (or more panic selling).  

    As to Vegas, I'm always happy to do a conference if we have at least 20 interested people as that pays for a room and expenses for the weekend.  I prefer to do it when we have a semi-holiday Monday so we can do a live trading workshop but sure – happy to do it if you want to organize something.

    It seemed to me that interest in a big Webinar dropped off after we went to our regular weekly webinars but maybe I'm wrong.


  16. Phil/Maya – I am in as my parents live in Vegas.


  17. RB/Phil- given the API and EIA reports certainly bearish but now <1.93, oversold?


  18. QQQ – up or down today? I'm going to go short…


  19. Maya/Phil, Count me in, I would love to attend Phil's in-person conference..


  20. Phil,

    Are you adding to /RB here to average down?


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  24. /RB/Dave – Now $1.92 and it seems oversold but there's no limit to how oversold something can get.  Oil is collapsing too and even heating oil is heading lower, which makes no sense at all as it's getting cold in the northeast. 

    As I said before, I decided to ignore today but this market re-collapse has me very worried we'll get a major sell-off next week that takes /CL and /RB with it (good for our SCO longs though).

    QQQ/BDC – It's lagging on the dip so far.  

    /RB/Japar – Not with 8 already and knowing I''d almost certainly have 16 short into the weekend (as it's not likely to bounce back into the close) – that's too much.  This way, if we're at $1.97 on Monday I'll be relieved and if we're at $1.87 on Monday, I'll be relieved (that I only have 8).

    Now CNBC interviews Kudlow for 15 mins and then spends 10 minutes talking about what a genius he is.  It's such a blatant Pump job organized by the same top 0.01% people who made Kudlow Reagan's adviser 30 years ago.  He doesn't even have a master's in Economics I think he was a history major with a minor in kissing ass.

    He used to be a Democrat until he found out Republicans pay better…

    Dow almost red!

    /NQ short below 7,100 with tight stops above is the laggard.


  25. Phil/ Vegas

    I would love to organize another PSW Vegas conference! The last one was fun and the work, although not easy, was worth it.

    Please give me 2-3 weekends over the next 3-4 months and I will pick one and see how much interest we get.


  26. Ayyaps/Vegas

    Thanks.

    We’ll see what Phil says from above post


  27. Sitting right around where we got that nice flush yesterday afternoon. Geez…. I thought that'd be it for a few days.

    Looking to sell far OTM index options if we get another one of those & a 30ish VIX. Worked a treat back in February – maybe they'll punish me for it this time, who knows!


  28. Had a short term vxx play and made a bundle. Had to buy back the short though as I had hedged not knowing the big fall was on us. Now I've got the same with the sqqq and tza!!! Thinking of buying back and hedging again, or sit on it! What a crazy market.


  29. BBBY – Thought it had put in a bottom.

    Wrong !


  30. Losing steam quickly here! Even the VIX is up. If we turn negative today, we could have a black Monday.


  31. Vegas/Maya – Of course I'm happy to do it.  Generally, if we get the first 10 people to pay up right away, then we're fairly positive we'll get to 20 over time as we firm up the date and start promoting it.  I think we ended up with 40 last time.   As to weekends, we usually do Veterans Day, since the market is open but many businesses are closed but that's only a month out so too late for that.

    I'd say any weekend is good – I don't generally fill up my calendar 3+ months out so you just need to pick a date in 2019.  Usually we do a teaching/stock picking day on Sunday and then on Monday we do live trading and Saturday we have a dinner, followed by poker and Sunday another dinner but no poker as we start at 6am on Monday (east coast open).  

    Dow is so violent – crazy to bet, but our portfolios are holding up well with the STP up over 190% now and the LTP holding on at 81% so very solid gains.   OOP over 50% now thanks to LB turnaround.  Butterfly taking a hit (32%) due to high VIX but not big deal.  

    Money Talk is a good teaching moment as you know we haven't touched it since 7/17 (and I'm on the show a week from Weds (24th) to make new changes) but, in our last review (9/19), I said:

    One year anniversary for the Money Talk Portfolio and we can't make any adjustments (as I only do them on the show) so here it is.  We haven't looked at it since I did the show back in July (17th) and we were at $84,300 and, since then, we've moved to $89,287 so up 78.6% for the year.  Keep in mind we went to much more CASH!!! last time as I didn't want to stay open for the summer and we have dogs like WPM, ABX, LB and GE left in the 

    I would certainly encourage you to go back and read the last review and contemplate how conservatively we play this ultra low-touch (once a quarter, never in between) portfolio.  All year long we simply take off the maturing winners and add a new play each Q and, despite several very disappointing stocks – we make money anyway because we keep selling premium and we take non-greedy exits.

    In fact, that $24,475 profit on short WPM calls was the short leg of a long spread but we CASHED out the long leg because $22 was the top of our expected range.  So we got more than the full expected profit on the long end and now we owe nothing to the short caller.  The new bull call spread was only set up to cover the short 50 calls, we didn't expect WPM to go that high.

    All in all, I'm very happy with this portfolio – despite the restrictions.

    The S&P was at 2,800 in July and 2,900 in Sept and 2,750 now but the COMPLETELY UNTOUCHED Money Talk positions are up another 12% during this dip.  Why?  The same things I was saying in the Webinar and earlier in the week – we cashed in our high-flyers and STUCK TO OUR TRADING PLAN on the value stocks.  That's all you have to do to be successful – it's not about trading every day, it's about trading smart when you do trade:

    Active trading is nice but the MTP is outperforming all of our active portfolios except the hyper-active STP and we only adjust it once a quarter!  


  32. Oops, just realized I never closed out the June SQQQs which finished on the 15th at $13.13 so net $6,260 is miles better than the net $3,750 it's showing – especially in a $50,000 based portfolio!  The Sept short calls did expire worthless and I don't remember if we added another hedge in July but I think we did.  Don't know why none of that got logged – guess I forgot since we can't really change this one.


  33. Nope, I'm an idiot, those are the new June SQQQs.  So it's right.


  34. Phil/50,000 Portfolio

    What is the margin that you get for the $50,000 portfolio. I guess it has to be high margin requirement as the total funds is low.

    regards


  35. Phil: 

    What’s the best short term hedge DJIA?  I have other hedges, but apprehensively could use a bit more.


  36. By the way, what the heck are all the gyrations about today?


  37. Margin/Pat – Nope we use ordinary margin, no more than 2x cash.  Currently it's using IRA rules with $30,000 in margin required for the current positions and $55,740 in buying power remaining against $87,740 in cash.  

    Wow, the Dow is INSANE!  I went from the BR, where I have CNBC to the Living Room, where I'm watching Bloomberg and it's only about 40 feet but the Dow moved over 50 points – so fast I had to double-check to see if one of them was on a delay but, no, that's how quick it's jumping around.  

    I think we can withstand a 5% drop on Monday with little net LTP/STP change but 10% would probably begin to hurt.  

    Ooh, nice flip on /RB – should have DD'd and I'd be out now.  Still, my logic was sound, just happy to get back to $1.95.

    Dow hedge/DC – I feel like this week is coming full circle because Soma asked that one on Weds and I said:

    DXD/Soma – You could have asked yesterday!  Fortunately, the short calls get more expensive faster than long calls.  I like the DXD April $26s for $4 as that's just 0.70 in premium and you can 1/2 cover those with the Jan $33s at $1 to pay for most of the premium and, if the Dow bounces, then you can also sell some Jan $30s (now $1.20) for $2 and put a stop on the $33s at 0.60 which would net you into the 1/2 cover at $2.40 so net $2.80 on the $4 spread that would be 1/2 covered.

    Don't forget you only want to MITIGATE the damage in a downturn so, if you are looking for a 10% Dow correction costing you 20% in your portfolio, that's $20,000 so your spread could be:

    • Buy 15 DXD April $26 calls for $4 ($6,000)
    • Sell 8 DXD Jan $33 calls for $1 ($800)

    That's net $5,200 and if the Dow drops 10% then DXD goes up 20% to $35 and your spread pays 8 x $7 = $5,600 + 7 x $9 = $6,300 so $11,900 is up $6,700 but hopefully you can 2x roll the short calls to widen the spread to closer to $15,000, where half the damage is erased.  On the downside, as I said, if you sell 7 of the $30 calls for $2 that's $1,400 and you've lowered the net to $3,500 while your portfolio positions should be doing well and, of course, you can then roll the long calls out to longer-term protection.

    The April $26 calls are now $5.70 ($8,550) and the Jan $33s are $1.80 ($1,440) for net $7,110 so up 36% off this small correction and you can play that, as it still has a long way to go or something similar as a Dow hedge.  

    Of course, now that DXD is at $31.50, you can do this one:

    • Buy 40 DXD Jan $29 calls for $3.80 ($15,200)
    • Sell 30 DXD Jan $35 calls for $1.60 ($6,400)
    • Sell 15 DXD Oct $32 calls for $1 ($1,500) 

    That's net $7,300 on the $24,000 spread and you have Nov and Dec sales ahead of you for another $3,000 so very cheap insurance for a $100K portfolio.

    Gyrations/DC – Fund managers have meetings, some decide to buy and some decide to sell.  Whenever a meeting ends, traders get their marching orders. 


  38. JBS (JBSAY)- a while back i posted a value play on JBS. The premise is that JBS owns 78% of Pilgrims Pride (PPC). Subtract this market cap from JBS and you get the balance of the international firm for about $2/share. 

    The WSJ Heard on the Street newsletter/column asked for readers to submit ideas (which I did) and they say they may pick this up on Monday. Stay tuned. 

    I did not save the post but perhaps Phil can retrieve it and re-post for anyone interested.


  39. Thanks Phil.  Can you now help me pull the trigger?  My gut tells me we have more to fall, but I have little conviction and limited skills calling direction.  I do like your last DXD trade.  Almost like you are hedging your hedge.


  40. why is GE so weak again?


  41. is it just because of the delay?


  42. Quite a turn around in the market !

    Used the weakness in F today to add to position.


  43. Well, the markets are getting interesting again, at least….

    JBSAY/Pstas – Way back in May but still the same price (around $5):

    If one believes that fortune favors the bold, then here is one for consideration: 

    JBS S.A. (JBSAY)- Headquartered in Sao Paulo, Brazil, JBS is the largest meat processor in the world. 150 facilities worldwide process beef, chicken, pork plus by products from processing (leather, cosmetics, etc.) . The company has 150 plants around the globe and they own several US brands- Swift; Pilgrims Pride.

    JBS got its nose bloodied when the Batista's got nailed for bribery. They spread a lot of money around to Brazilian pols. They walked away with a financial fine after helping to catch the Brazilian president's hand in the cookie jar. Brazil’s sordid tale of beef and bribes 

    The Batista family still maintains control (42%)so the foxes still own the hen house. 

    Stock has traded down lately probably due to disruption from the Brazilian truckers strike. Brazil’s Temer Vows to End Strike and Continue Economic Overhauls. 

    The JBS annual report reads like an extended press release with little actual data for analysis. However, what numbers that are reported indicate good revenue, cash flow and net profit  plus some debt reduction. 

    Here is the investment premise. JBS owns 78% of US based Pilgrims Pride (PPC) whose market cap is $5.2B and JBS's market cap is $6.7B. Assuming PPC is worth its stock price, JBS's share is worth $4B. So the balance of JBS can be had theoretically for $2.7B or approximately $2/share. 

    Unfortunately no options on JBS stock. Perhaps later as there has been some consideration of a US IPO. 

    I have an order in for some shares below current market to see if it comes in. Would appreciate any insights others may have.

    Submitted on 2018/05/31 at 1:49 pm

    JBSAY/Pstas – Great analysis.  Only monkey wrench is, if their guys go out of power, you can expect retribution to fall on them so keep an eye on the politics.  

    DXD/DC – As I said, we may get a bloody nose but I want to see what happens next week before playing Jenga with a well-balanced portfolio.

    GE/Jabob – Bears piling in again as "THEY" aren't done buying up the company under $13 yet.  Delaying the earnings allows all sorts of rumors to fly around.

    Those are just today's attack articles.

    OK, so officially we're up 287 at the close to 25,339 – that's a fail of the weak bounce but you'd think we're in a huge rally to hear CNBC screaming about it.

    Have a great weekend,

    - Phil


  44. Phil, thx for digging that out. Often, value plays take a long time for other's to grasp the upside. 

    We shall see. 



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    I couldn't agree more….


  51. will the mkt be up or down this week???


  52. Yes.  





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