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GDPhriday – Taking the Economy’s Temperature Amid Investor Concerns

Wheeeeeee!!! 

So much fun to trade a volatile market.  Already this morning (7:30) we picked a quick $1,000+ trading the Futures in our Live Member Chat Room and that's always a nice way to start the day but we stopped out Gasoline (/RB) with just over $200 per contract on a 15-minute trade and Oil (/CL) contributed $110 per contract and the indexes were good for a quict $150-250 each between 7:17 and 7:34

Now we're looking for a pullback and our 7:17 entries were:

Well, we're re-testing Wednesday's lows so hopefully a  little bounce here at 24,600 (/YM), 2,650 (/ES), 6,750 (/NQ) and 1,470 (/RTY) so I'd go long the laggard here but very tight stops below.

Also /CL over the $66.50 line and /RB $1.785 are both fun longs for a Friday.

Watch the Dollar though, we don't want to see it over 96.50 and VIX under 22 would be nice too!

We've got GDP at 8:30 and last quarter was 4.2% and this quarter we'll be lucky to see 3.3% and it's likely to be downhill from here but the question is – has the drop to 3.3% been realistically priced into the market and, sadly, I don't think it has.  Certainly any print below 3% would cause a new wave of panic and over 3.5% will be relief – so that's the zone we're keeping our eye on.  

Google (GOOGL) and Amazon (AMZN) disappointed on earnings last night with AMZN dropping 10% pre-market.  Netflix (NFLX) is down too, mostly because it's got a 100x p/e ratio and people are starting to realize how stupid that is and that does not bode well for other Nasdaq high-fliers, who may actually be held to realistic standards as they report, which can lead to that next 10% corection we've been warning you about (Nadsaq (/NQ) 5,940 should be the bottom but, hopefully 6,400 holds).  

Notice in the weekly chart, yesterday's bounce meant nothing and, if we close down today, we're looking at a very ugly, accelerating downward pattern and, if we fail Wednesday's lows today, it will mark the 3rd time in a row dip buyers have been burned and that's how many times it takes them to learn their lesson and that will cause us to lose retail support on the next leg down so make sure you are very well-hedged into the weekend!  

That means those longs we were playing for this morning were just technical bounces – it's not our conviction at all…

Image result for stock market weighing machineWe don't know for sure which way GDP will break us but, as I noted yesterday, we took advantage of the bounce and filled out our hedges and now we're back to being a bit more bearish on the market as I think it's more likely we go 10% down than 10% up and 10% up only puts us back to where we were.  10% down, however, begins to make for some interesting bargains!

We were talking about good books on valuation yesterday and I said the bible on the subject is Benjamin Graham's "The Intelligent Investor" – these are a few quotes from his work.  Value investors like us LOVE a good downturn – it's when we go shopping!  In fact, just yesterday we sent out a Top Trade Alert on International Paper (IP) as it tested the $40 line:

Since you can sell the 2021 $40 puts for $5.50 – let's sell 10 of those in the LTP for $5,500 and let's also pick up 15 of the 2021 $40 ($7.50)/47.50 ($4) bull call spreads for $3.50 ($5,250) so we have a $250 net credit on the $11,250 spread ($11,500 upside potential) and my real intention is to sell calls when they come back.  The Jan $50 calls are 0.35 but the $45s are $1.60 so let's say we pick up $1.50 per Q x 8 qs on 5 contracts is $6,000 more while we wait.

Since our Long-Term Portfolio is closing in on $1M, this is just an initial entry so we don't mind if goes lower and we can buy more but here our worst case is owning 1,000 shares (from an assignment of the short puts) at net $39.75 while a move up to just $47.50 (very low in their range) will return $11,500, which is 46 TIMES the initial $250 credit and the short puts use $3,179 of ordinary margin – so it's a very margin-efficient trade as well.

That's what makes it a Top Trade, we look for VALUE stocks that are very low in their range and then pick option spreads that have a very high probability of success AND good leverage to the upside.  We wrapped up our review of 2017 just last month (you have to give the trades time to work!) and we finished 2017 with 54 winners and 9 losers but we still love most of our losers – they just need more time to cook…

Gross Domestic Product, Third Quarter 2018 (Advance Estimate) Chart8:30 Update:  GDP came in right on the line at 3.5% so in the high end of our expected range but not really high enough to get the market excited as it's still down 0.7% (17%) from last quarter and the signs are not pointing up at the moment.  One bullish note this morning is the Fed's Kaplan saying "I’m very sensitive to not being rigid or pre-determined about the pace [of rate hikes]."  Kaplan is not a voting member but it's a crack in the Fed's recent narrative of constant rate hikes no matter what.  

So our bullish lines are back in play but very tight stops below them!  

Personal Savings went down $55Bn (5%) in Q3 – a sign consumers may be getting tapped out by the non-existent inflation the Fed doesn't see.  Another thing that bothers me about the GDP, and this is wonky but Gross Private Domestic Investments have been a major driver to the GDP recently and that's been driven by Intellectual Property Products, which have been inflated by changes in the Tax Code so a lot of these bonus gains recently are simply accounting changes – that makes me nervous.  

Defense spending has also been huge all year long, up 4.6%, which is a huge driver in the economy.  Despite Trump's tariffs, imports are down and exports are up while Gross Domestic Income is only up 1.6% – falling behind inflation and indicating that NOTHING is trickling down to the bottom 90% under Trump's tax plan.  Another thing that REALLY bothers me is that Inventories were so far up they added 2.07% to the GDP and I never like the assumption that rising inventories are a good thing – sometimes they are a sign that things are not selling…

Commenting on the report, Bloomberg economist Carl Riccadonna observed the following:

"The composition of growth in the third quarter has some important implications. The economy has reverted back to the `same old' model of consumers accounting for most of the growth. Supply-siders will be disappointed to see business fixed investment essentially stalling out after a robust first half. As a result, the implication is that the surge in growth is not the onset of the economy evolving toward a new speed limit; rather, the frothiness in the second and third quarters really does appear to be largely due to a sugar high from tax cuts. Unfortunately this is not sustainable barring tax cuts 2.0."

So nothing to get me off my bearish stance into the weekend.  We're still watching the same bounce lines we laid out earlier in the week but even yesterday's mega-bounce failed to get us there and I don't see any hope of a repeat of this today so we're heading into the weekend very well-hedged and waiting to see what happens next – though another big leg down is very likely – so be don't just be careful – BE PREPARED!  

Have a great weekend, 

- Phil

 


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  1. SGYP – Cratered.  Bought 1000 shares at .459.  Kamikaze trade.



  2. AKS – Missed estimates by .02, but gave positive guidance for 4th quarter and 2019

    Bought some in pre-market at $3.65. Will also sell some puts when the market opens.

    This will be my 4th time back to the well on this one.


  3. LB initiated at BUY by Goldman Sachs – PT $36.   Their clients and prop desk probably loaded up below $30 and now its time to push it higher. 


  4. We are running a $1T deficit to add $600B to the size of the economy. Sounds like a bargain!


  5. hope so Learner!!!

    Push it to 40!!!


  6. AMZN -   -8% at four-month low below 200-DMA premarket, weighing on QQQ.

    And positive for SQQQ.


  7. Good Morning.


  8. Good morning! 

    Whole lot of nothing in the indexes and oil and gasoline getting weaker at $66.50 and $1.77 but I like both of those as longs over that line into the 2:30 NYMEX close as long as the Dollar stays under 96.50 (just below now).  

    Hopefully we save the major breakdown for next week but you never know – so be careful!

    Buying/Albo – I would keep a good deal of dry powder at the moment.   This is far from settled.

    LB/Learner – What a scam, right?

    That's OK because we loaded up below $30 too! 

    Poor Bezos lost $15Bn this morning…


  9. mhk is d0wn big are you familiar with them phil


  10. Phil – I'm scaling back into AKS.  Initial position only today.

    SGYP – Total crap shoot.  Not unlike your HMNY play.


  11. Wow, that was a pathetic attempt at a rally – out of /RB and /CL longs with a quick profit (and the rest, of course).

    More tempting to short the indexes now than play for a bounce.  

    MHK/Tommy – Nice, boring business but I think they very much track home sales, which are not doing well.  At $120, MKK is $9Bn and they make $1Bn in a good year but half that in a bad one so $120 is not a screaming bargain – just a fair price for a cyclical.  

    Notice what's normal for a solid, cyclical stock for 25 years and then we get housing-oriented stimulus which meets pent-up demand for 10 years and it does seem like they are a real bargain when they retrace but they are only retracing back to 140% of where they used to be in a normal market.  

    Before 2007, we would routinely NOT buy stocks with p/es of 5 or 8 and we'd flat out turn our noses up at paying 10 for a cyclical – which included Investment Banks and Oil Companies because people used to understand that they had good years AND they had bad years (and also we used to actually INVEST in companies and hold them for the long-term).  

    SGYP/Albo – Well, I hope it goes better than HMNY!  cool


  12. CMG adjustments based on last night's earnings?: your comment from last week's LTP review

    "CMG – Earnings next week and we're up $85,000 on the short calls so screw that – I'm not taking a risk.  Let's buy back the short Jan $460 calls for $38,000 () and we'll leave the spread and, if it goes well, we can sell calls again and, if it goes badly, we sell puts, drop the calls to a lower strike and sell calls again.  Once again, I'd prefer if the stock goes against us as I think we'll make more money over the long run if we have to add to the position but, if it goes higher, we "only" have a $240,000 spread we paid net $19,800 for!  


  13. CMG/Winston – Well I don't like the way they spiked up to $460 last night, do you?  Now they are back to $426 but I would have been very pissed if that kept going and we had foolishly risked it into earnings.  Now the Jan $460s are $14.50, which is less than we closed them for and we still have 20 of the 2020 $460/580 bull call spreads so, if CMG goes up – we're good and if CMG goes down, we'll sell short-term covers like 10 Jan $440s for $22 and use that $22 to roll the 2020 $460s ($55) to the $420s ($64) and then we can roll 10 of our short 2020 $580 calls ($23) to the Jan $440s as well so we'd have the 1/2 covered 2020 $420s (and the cover is $160 above) with the 20 short Jan $22s and we'd see how it plays out BUT I'd rather see what the market, and CMG, do next week before adjusting a spread that's not likely to change much if we just leave it alone.  As I said earlier – I'd rather have firepower into the uncertainty. 

    Of course, if CMG does pop higher – we go back to just selling 10 short calls against our spread like we usually do.  We sold 20 of the $460s because CMG was toppy at the time – now it's not. 


  14. People are still worried and we're testing Wednesday's lows:

    We'll see how Europe closes.  

    Nat gas (/NG) getting whupped. 

    I regretted not buying it Weds but this is scary action…


  15. Corey Booker got a bomb and James Clapper got a bomb today – I think I'll let someone else open my packages for a while…

    Republicans are doing so well in early voting, and at the polls, and now this “Bomb” stuff happens and the momentum greatly slows – news not talking politics. Very unfortunate, what is going on. Republicans, go out and vote!

     

    Funny how lowly rated CNN, and others, can criticize me at will, even blaming me for the current spate of Bombs and ridiculously comparing this to September 11th and the Oklahoma City bombing, yet when I criticize them they go wild and scream, “it’s just not Presidential!”

    God, I wish I were making these up!  

    Twitter has removed many people from my account and, more importantly, they have seemingly done something that makes it much harder to join – they have stifled growth to a point where it is obvious to all. A few weeks ago it was a Rocket Ship, now it is a Blimp! Total Bias?

    Come on Republicans – he's F'ing INSANE – you KNOW he is…


  16. Replying to 

    This "bomb stuff" is the attempted murder of 2 ex-presidents, 1 ex-vice president, 2 former 1st. ladies, a sitting member of congress, a renowned actor and a building full of people. Trump was outraged that Mitch McConnell was harassed out of his spicy tuna roll.


  17. id bet my last dollar that the man who would be king would consider these packages alot higher priority if they were sent to republicans 

    ludicrous


  18. These are some of the replies to Trump's tweet (I'm guessing he doesn't read the replies because they are over 90% negative):


  19. Phil / IMAX - 

    Imax – I can't find anything wrong with the Quarter.  Revenue was down but that was due to the blockbusters from last year – Dunkirk, Spiderman etc….. China up 30% YOY, in the US they are growing faster appx 15% vs. Theater Box office at about 9%.  This means their dynamic programming at studios must be helping them more than general theater market.  Backlog is up to 635 from 545 YOY.  Maybe there is concern that China may start messing with them due to the trade war this (they mentioned in the call that the TV bus in China is giving preferential treatment to China Directors / Producers, but they have not seen this in the theater business).   Margins expanded as well.   Stop dropped like a rock on Thursday…. It must be something with China – or maybe EU the rev there was pretty low, but same issue as US with Strong Box Office.  

     

    An EPS of .95 the year and 1.1 to 1.15 next year has them firmly at 22 to 25 share price…  next year….  With a 20 Multiple.   This is a company growing at about 20 to 325% per year….  


  20. "Luna Tick"  I hope I don't find one of those on my dog….. ;)


  21. Gold seems to be attracting some "safe haven" bids here.


  22. Tech is taking a beating


  23. IMAX – that 'shooting star' candlestick on 28 September was a giveaway for a trend reversal.







  24. This Is America Right Now


  25. Yes, there is such a thing as right-wing terrorism


  26. This is starting to hurt.  My portfolio doesn't have enormous delta exposure (according to TOS), but the rising volatility can really impact buying power fast in accounts with PM.  Started this correction with 45% of my account value in available buying power, and now I'm hovering around 7%.  Meanwhile my hedges are doing their job of offsetting 40-50% of the decline.  


  27. Well, Europe is closing and they caught the bomber so hopefully we put in a floor here.  

    24,500 on /YM is still the best long to play as it's an easy stop below and we're lined up with 2,640 on /ES, 6,800 on /NQ and 1,470 on /RTY.  Oil and Gasoline did take off but I missed the re-entry. 


  28. Phil,

    any crap rolls using options for the futures challenged on indices?  I missed the SQQQ train and waiting on it now.

    regards


  29. IMAX/Batman – I know, really getting punished over nothing.  Just another value stock you have to hold onto until people catch up.

    Craps/Pat – In what direction?  We picked up 80 June $12 calls at $3.95 on Weds for the STP and now they are $4.60 and I'm thinking of taking the quick profits ($5,200).  I don't know if the market will go up or down from here today and certainly not into the weekend so I'm going to error on the side of caution and keep the extra SQQQ longs as I'd rather have the protection than $5,200.


  30. Put/call ratio reached 1.37.  Getting there.


  31. Dollar pullback is a big help at the moment.

    Regretting not buying /NG again:


  32. Phil / Russel / Imax – They tend to fall pretty consistently in the Dec / Jan timeframe… then once they provide guidance in Jan and the new motion picture schedules get firmed up they tend to move up and max out in Sep and Oct.  in '18 established a position in Dec / Jan…. and pretty much closed out at 24 /25 – now starting again.  They have $9.xx in cash per share… 


  33. Bought a couple /CL


  34. New 52 week low for GE today… DANGIT!


  35. Jabo,

    GE taken the oppertunity to roll my Jan 20 10 calls to Jan 21 10 calls for a cost of .81 cents.


  36. thx Yodi!


  37. looks like I missed to buy the stk of IP for 39 now 44 two days later, you guys say nothing is going up!


  38. Stopped out of /CL for .04 loss.




  39. Chicken !


  40. IMAX/Batman – I know, it's great for long-term holders and bad for people who watch it like a day trade. 

    Wow, I should have kept those /CLs and /RBs! 

    IP/Yodi – Plenty of diamonds out there if you know where to dig.  IP was MikeZuela's idea (thanks, by the way, Mike) yesterday.  

    Stocks still cheap from our Watch list are:  ALK, BBBY, BX, CAKE, CDE, F, FNSR, FTR, GCI, GE, GILD, GNC (took a hard dive), IMAX, LB, NLY, PSA, SKT, SPWR….  That's 18 out of 24 still trading not too far from the lows.  We could make a whole new portfolio just from them.  

    S&P cut BBBY debt to junk yesterday, that's got them to new lows.  FTR has the storm damage in Florida, which they paid $8Bn to get into (1/3 of VZ purchase).  

    I still like them but only for silly reasons like they still make good money ($400M) against a $1.8Bn valuation at $13 with $500M of Free Cash Flow.  Value – so ridiculous….

    Most of the debt is from notes:  due for $300 million in 2024, $300 million in 2034, and $900 million in 2044, so very easy to pay off and not subject to Fed hikes.  On the whole, it's very normal for the sector:

    Their time will come – eventually…

    Oil/Albo – You were shorting it?  Not good on a Friday….


  41. Phil – I was long /CL.  Stopped out with a very close stop.

    I'm the world's worst futures trader !


  42. Wow, indexes turning green – what a crazy market. 

    Worst/Albo – I may have to give you that one, Albo – you lost a bullish /CL bet today?

    Notice that EVERY candle stops you out if you let it.  You have to pick your entries VERY carefully if you want to use stops but, generally, crosses over the 0.50 lines are the best ways to play (or below) with an 0.005 ($50) to 0.01 ($100) tolerance and the object of the game is to be stopped out with less losses than the one time it goes the right way for you…

    Wow, just wow on today's move.  Did I say Wow?   Still doesn't mean anything as our bounce lines are still red but, WOW!  

    Date Open High Low Close* Adj Close** Volume
    Oct 26, 2018 265.92 268.78 262.29 268.01 268.01 97,068,375
    Oct 25, 2018 267.38 271.81 266.23 270.08 270.08 137,780,800
    Oct 24, 2018 273.33 273.76 264.70 265.32 265.32 177,806,700
    Oct 23, 2018 270.95 274.87 268.61 273.61 273.61 146,352,700
    Oct 22, 2018 277.00 277.36 274.41 275.01 275.01 82,415,800
    Oct 19, 2018 277.13 279.30 275.47 276.25 276.25 139,901,600
    Oct 18, 2018 279.40 280.07 274.97 276.40 276.40 134,557,500
    Oct 17, 2018 280.44 281.15 277.56 280.45 280.45 110,626,000

  43. This is a BS rally, only 8 of 30 Dow stocks are green, S&P also more down than up – just someone pushing the headlines into the weekend.  


  44. Markets Diary

    1:21 PM EDT 10/26/2018

    Issues NYSE NASDAQ NYSE AMER
    See 4 p.m. Closing Diaries. Volume updates until 8 p.m.
    Advancing 1,170 1,307 126
    Declining 1,806 1,666 154
    Unchanged 61 97 15
    Total 3,037 3,070 295
    Issues at
    New 52 Week High 7 13 0
    New 52 Week Low 496 418 25
    Share Volume
    Total 2,537,882,694 1,708,314,867 64,184,419
    Advancing 956,583,707 604,974,839 19,206,158
    Declining 1,558,904,442 1,093,989,720 44,763,176
    Unchanged 22,394,545

  45. Well, I think $1,500 per contract is good enough on /YM – Happy weekend!  


    • Wells Fargo adjusts estimates on Chipotle (CMG +2.5%) after taking in the restaurant company's Q3 earnings report.
    • The firm now sees 2018 EPS of $8.53 vs. $8.44 prior, but lowers its view for 2019 EPS to $11.45 from $12.20.
    • "We remain concerned about the influx of competition into the fast casual category and how this can impact CMG's path back to prior AUVs and margins… we believe this competitive intrusion will cause greater headwinds on CMG's path back to high-$2MM average unit volumes and mid-20%s store-level margins," writes the WF analyst team.
    • Wells Fargo has a price target of $420 on CMG.
    • Previously: Chipotle Mexican Grill beats by $0.14, revenue in-line (Oct. 25)
    • Previously: Margins improve at Chipotle (Oct. 25)
    • The total count of U.S. drilling rigs in the U.S. inched up by 1 to 1,068 after rising by 4 last week, according to the latest weekly survey from Baker Hughes.
    • Oil rigs in the U.S. gained 2 to 875 while gas rigs fell by 1 to 193; no rigs were classified as miscellaneous.
    • WTI December crude +0.4% at $67.60/bbl.
    • The Chinese yuan recovered from an almost 10-year low after a top Chinese policy maker warned investors to stop betting against the currency, the Wall Street Journal reports.
    • “For forces that try to short renminbi, we fought hand to hand a few years ago, and we are very familiar with each other,” said Pan Gongsheng, a vice governor of the People’s Bank of China, on Friday.
    • The Chinese yuan is up almost 0.1% against the U.S. dollar, trading at about 6.94 yuan per greenback. Earlier Friday, the currency fell as low as 6.9647 per dollar in the tightly controlled onshore market.
    • The last time the yuan hit 7 per dollar in the onshore market was in May 2008.
    • Previously: China, Japan sign currency swap deal (Oct. 26)
    • Previously: Forex discussed in U.S.-China trade dispute (Oct. 13
    • Epic Games, maker of battle royale videogame hit Fortnite, has received a new injection of $1.25B in funding.
    • That comes from a round including KKR (KKR -1.7%), Iconiq Capital and Smash Ventures.
    • Tencent (TCEHY -5.5%) owns 40% of Epic, which also has a minority investment from the Disney (DIS -1%) Accelerator.
    • The new funds come in the same month when videogaming's heavy hitters execute copycat plans to add massive-user-count battle royale modes, including Activision's (ATVI -1.9%Call of Duty: Black Ops 4 and EA's (EA -1%Battlefield V.
    • General Electric (GE -4.7%) slumps within a few pennies of a YTD low after Gordon Haskett analyst John Inch warns the company could end up owing billions more dollars for its insurance reserves, on top of the $15B in cash already committed, from an accounting change announced in August.
    • Reiterating an Underweight rating and $11 price target on GE, Inch says accounting firms and ratings agencies are just beginning to assess the impact of the FASB's directive targeting improvements to accounting for long-duration contracts.
    • In its 2017 10-K filing, GE lowered its discount rate – the insurer’s expected investment yield – to 5.7% from 6.2% to trigger a required reserve boost, but Inch believes 5.7% is still too high and “will likely have to come down” in light of the new FASB standard. “At this juncture, while the precise degree of mandated decline remains uncertain, the magnitude is expected to be significant.”

    Nothing market moving – another sign the rally is BS.


  46. Love the volatility and price improvement/desperation that can go along with it. Began initiating the MJ play yesterday during the market gyrations and I'm already a little bit profitable on it, although the stock really hasn't gone anywhere. 

    15 minute/50 point /NQ scalps aren't bad either. Kind of want to see the overnight lows taken out.


  47. Notice how we waited PATIENTLY to play /YM (11:21) until AFTER it failed 24,500 and only when it was moving back over so momentum was on our side on a 500-point (2%) drop from yesterday and, in fact, peak to bottom it was a 2.5% move down (which matters in short-term trading) so we expected 0.5% (125 points) bounces to 24,625 and 24,750, which would be the strong bounce off this dip.  So we entered the trade ONLY when the 5% Rule AND Momentum were on our sides with a solid stopping line below us to limit the losses:


  48. Oh, AND we had confirmation lines from the other indexes AND we had positive news (they caught the bomber).   THAT is when we like to go long….

     

     

    Well, Europe is closing and they caught the bomber so hopefully we put in a floor here.  

    24,500 on /YM is still the best long to play as it's an easy stop below and we're lined up with 2,640 on /ES, 6,800 on /NQ and 1,470 on /RTY.  Oil and Gasoline did take off but I missed the re-entry. 


  49. Vol/Ati – Yeah, I find if I just keep a limit bid on all 3 legs of a spread, they all tend to fill eventually about 80% of the time.  Probably a testimony to the fact that I suck at calling bottoms – but it works!  wink


  50. Really need to start racial profiling on white guys in their fifties. Who let them into this country in the first place?

    Image result for indians immigrants white men

    Image result for indians immigrants white men

    OMG – I think it was Trump!  

    Seriously though, this is the guy and his tweets:

    Image result for sayoc

    Image result for sayoc

    His van:

    Image result for sayoc van

    Related image

    Is it only Florida where they don't arrest him just for having these stickers?  

    Well, we knew this would happen:Tesla Faces Deepening Criminal Probe Over Whether It Misstated Production Figures

    Fox News Now Just Airing Continuous Blood-Red Screen With Disembodied Voice Chanting ‘They’re Coming To Kill You’


  51. TSLA is STILL up 10++

    Maybe, GE should hire Elon!!!


  52. this guy has to be kidding. I mean if he's pulling a Colbert act, it's perfect. Otherwise, it's just…. there's no words…


  53. Very frightening, BDC.

    Well, that was a fun up and down kind of day.  Still looks like we're consolidating for a move down though…

    This would be fun to send as a gift now:

    Image result for amazon gift bomb


  54. ROTFLMAO…already sent one to DT Phil… :)


  55. Wow, SGYP…best drug in class. Worst management in class.  That's a shame what they have done.



  56. Someone in my family has had pretty much every one of those phones!  


  57. And I already have the X and Jackie's getting the XSMax and Tina's up for a new phone in Jan and then it's Maddie's turn…


  58. Phil: I have a few /nq contracts.  Given that I may be even a worse futures trader than Albo, would you hold those into the weekend?


  59. HI Pharm are you still in SGYP?


  60. Jamming up to the close


  61. /NQ/Nom – Long or short?  Either way, not if I couldn't afford to lose on a 100-point move against me.

    Nice try but still down almost 300 on the Dow but only -213 on /YM – so they got that going for them.  On the whole, we're down 1% for that day and that's that.

    • Dow (/YM24,800 (weak) and 25,300 (strong) 
    • S&P (/ES2,710 (weak) and 2,780(strong)
    • Nasdaq (/NQ7,080 (weak) and 7,230 (strong) 
    • Russell (/RTY1,530 (weak) and 1,575 (strong)

     We added two red boxes — not good.

    Have a great weekend, 

    - Phil


  62. SGYP…no.  I left a while ago as I saw


  63. Phil, I have this position in GE:

    Bought 30 2020 $13 calls @ $3.58, now $1.58 

    Sold 20 2021 $15 puts @ $3.47, now $4.35

    Sold 10 DEC $13 calls @ $ .64, now $ .26

    ?I missed rolling the calls GE calls during the last dip.  I want to roll the 2020 $13 calls to 2021, when I look at 2021 $10 @ $3.77 ($2.19 Net), it doesn't look appealing to me.  Paying $2 to move myself $3 in position.  Am i looking at this correctly?

    Hedges

    I have SQQQ:

    Bought 20 Jan20 $10 calls @ $3.09, now $4.90 

    Sold 10 Jan20 $15 calls @ $.67, now $2.10

    Sold 10 Jan20 $20 calls @ $.50, now $1.05

    ?And, SDS

    Bought 20 Mar $34 calls @ $2.41, now $5.92

    Sold 20 Mar $40 calls @ $1.30, now $3.55

    ?These hedges are across two Ports, outside covering the SQQQ to soon and not having enough hedges in place.  I am bouncing these ideas off you as, yet, another learning opportunity.  If i risk taking the longs off the table it nets ($10,600) which then my port looks much better, assuming we don't keep going down.  But, as the board is suggesting… we could continue south.  I could consider closing the trades out now for net ($4100). 

    Either decision leaves me at risk.  Take the longs off, leave the short calls is risky, but March seems like a long ways from now on SDS).  Or, close out the hedges take a little profit now, either setup new on or ride with no hedges (not really an option).  And, finally, if I do absolutely nothing and the markets bounce all the way back up….. my hedges just keep costing me money.  So, I'd like your thoughts….  and anyone else that is active this weekend.  

     


  64. Hedging – I've updated my post from last Wednesday – a wider range of topics and examples – but certainly not comprehensive. All good stuff, but only a tiny extract from the PSW archives. Ranges from the general to some very specific examples and trades which are obviously contextual in time (i.e. they made sense then, they may not make sense now!).

    I've left the long URL's so you can see the original date written

     

    Article by OptionSage – one of Phil's original collaborators.

    https://www.philstockworld.com/2007/03/04/how-to-hedge-your-portfolio/

    The Stock Market Parachute – explains the Mattress Play

    https://www.philstockworld.com/2007/03/05/the-stock-market-parachute/

    comment 4th para starting 'LOL/JB' – example of Mattress Play:

    https://www.philstockworld.com/2008/07/24/thursday-morning-63/#comment-163599

    …. but Phil refers back to a subscriber example and how not to do it:

    https://www.philstockworld.com/2016/04/18/doha-disaster-opec-fails-oil-falls-markets-fall/#comment-6044011

    Phil tries out anew the Mattress Play

    https://www.philstockworld.com/2013/03/05/to-the-moon-tuesday-damn-the-torpedoes/#comment-2974291

    …and explains the amount and scaling in and in the same comment further down (starts with: 'Hedge/Turning') and the role of the hedge

    https://www.philstockworld.com/2013/03/05/to-the-moon-tuesday-damn-the-torpedoes/#comment-2974451


  65. Thank you Winston!!   Plenty to digest here.  ?????


  66. ???? = Very Good, not sure why it didn't like it.




  67. Weak Housing Data Drags Down Market









  68. I predict the next Bitcoin mega-peak will occur on 8/11/2024 at $201k per coin.

    Usual disclaimers on accuracy not needed :)


  69. Here's a GREAT chart on the historical BTC price (and other metrics).

    3 mega peaks have occurred: 6-9-11 ($0.19B), 11-28-13 (11.2B, up 59x), 12-18-17 (315B, up 28X). Factoring for 1) peaks occurring further apart and 2) factor gain decreasing, I simply used the ratio of the last 2 peaks and got to the above conclusion. 


  70. Mega peak 4 (8/11/2024, above) = $4.2T market cap ($201k per coin). Mega peak 5 will be July 2035, $27T market cap, ~$1.3M/coin.

    So you have some time! ;)


  71. The really big annual gains are behind us, but that is obvious because the adoption has upper limits and becomes more institutional / less about raw user growth. BTC is a "safer" investment now. Still, between today and the next mega peak it'll make 87% APY:

    Mega Peak 2 (2013): +420% APY (from peak 1)

    Mega Peak 3 (2017): +128% APY (from peak 2, etc)

    Mega Peak 4 (2022): +48% APY*

    Mega Peak 5 (2035): +18.6% APY

    Actually this number is 87% APY from today because the MC from the peak has gone from $315B to $112B and 11 months has gone by. These are peak to peak APY calcs, not from trough data or otherwise.

    Take home lessons: 1) patience is still the name of the game, 2) most of the risk is other coins dominating, not "beanie babies and tulip bulbs," or a catastrophic hack to bitcoin itself, though these are obviously still risks, they are less so, and 3) the knowledge economy is more efficiently served by peer-to-peer algorithmically secure transactions as opposed to politically operated nation-state fiat currencies, so adoption is inevitably assured due to its ECONOMIC EFFICIENCY, and NOT due to it being "techy" or "cool" or "anti-government." None of those things matter at all.

    Significant risk comes from the adoption of "better" coins over time. So diversification is encouraged IMO.


  72. IBM to Acquire Linux Distributor Red Hat for $33.4 Billion


  73. Phil, thoughts on IBMs redhat aquisition? 

    critical article on zerohedge… https://www.zerohedge.com/news/2018-10-28/desperation-move-ibm-buys-red-hat-34-billion-largest-ever-acquisition

    but wanted to get your take on it. 

    I do have an IBM play currently, with $120 short puts and a bull call spread that i was planning on rolling down soon. Just wondering if this aquisition changes your assessment at all?

    thanks


  74. Things changed for the worse after 9-11…. 

    https://www.huffingtonpost.com/johann-hari/the-republican-party-is-t_b_262594.html

     

    My heart goes out to the families of Squirrel Hill, a place that really was Mr. Roger's neighborhood. :(

    https://www.nytimes.com/2018/10/27/opinion/synagogue-shooting-pittsburgh.html


  75. now a plane crash what a weekend


  76. DXD/Phil- we have the short nov 30s on STP are we holding it as we see the market bottoming around here?


  77. Good morning…

    Goldman upgrades F to buy with a PT of $12 and this…

    Auto stocks rally with China considering sales tax cut

    https://seekingalpha.com/news/3401964-auto-stocks-rally-china-considering-sales-tax-cut


  78. Good morning!

    Futures are up about 1% but IBM is down 5% on the RHT acquisition at 50% over their close so paying $11Bn more than they have to out of $33Bn seems a bit silly to me.  The problem is, they didn't just wake up and decide to buy them for $180 Sunday morning, I'm sure they've been negotiating since before the big pullback in RHT.  

    It's a big move by IBM to take over the cloud by dominating Linux, which of course is free vs MSFT's much more expensive systems (RHT makes money on consulting and services as well as selling customized version of the "free" software).  

    To some extent, IBMs willingness to pay a 50% premium is what's pushing the market higher – it sends a strong signal that tech stocks are oversold at these levels but, to me, it sends a signal that the Banksters who are pushing this deal want to send a signal that will let them dump more tech stocks into a fake rally.

    Nothing really impressive about getting back to Friday's high pre-market but, of course, it's time to dress the windows as the month winds down:

    Always a matter of perspective:

    GE/Grass – I hope you originally had a bull call spread and not just the longs with the short calls.  You have the 2020 $13s at $1.58 and the 2021 $10s are $3.70 and the $17s are $1.20 so $2.50 to roll to that spread, which is still a $7 spread and you would pay $1 for the roll + $2 you lose so net $3 in the 2021 $10/17 spread is not terrible.  Consider you paid $3.58 for the 2020 $13 calls so you needed $16.58 just to break even and now $16.58 would be a $3.58 profit and you have another year to get there.  This is why I pretty much never buy a naked call – it puts you at such a massive disadvantage, it's almost never worth it. 

    Now, if you don't like selling calls against a spread, then you'd be stuck with that but better to sell $1.20 now to pay for a position than hope you don't get burned to the upside for 6 months to make $1.20 because, if you really think GE isn't going anywhere for 6 months – why be in it?  

    I would just cut back and sell, for example, 5 March $12s for 0.85 ($425) and 8 of those sales is still $3,400 while you wait – not terrible since your whole spread only has an $8,000 upside.  

    SQQQ/Grass – It's insurance and you're supposed to lose money when the market does well.  Has your portfolio  been over-hedged?  Have you made a net profit on the downturn?  If so, then sure, close out a FEW of the longs to balance more bullish but SQQQ is just under $15 so your 2020 $10s will pay you $10,000 at $15 and another $5,000 at $20 AFTER you pay back the short callers but, currently, net $7,000 so that's what you'll lose if all your long positions blast back to where they were a month ago.

    Since you do have $10,000 in the 20 2020 $10 calls, you could flip that to 40 2020 (2021 doesn't have enough leverage) 13 ($4.80)/25 ($2.50) bull call spreads at $2.30 ($9,200) and roll your $2,100 2020 short $15 calls and your $1,050 short 2020 $20 calls to 20 of the Jan $15 calls at $2 ($2,000) so you spend the extra $1,000 but now you've doubled your long protection and sold premium that will burn off faster (which means you can do that 4 more times to pay off your longs).  

    That leaves you with $48,000 worth of 1-year protection that's $8,000 in the money (about where you are now) in a more sensible set-up.

    SDS/Grass – Same thing but you have March so flipping your $12,000 worth of longs to maybe 40 2020 $35 ($7.50)/45 ($4.50) bull call spreads would accomplish the same thing.  

    By the way, if you feel that's way too much protection, you can cut the long spreads to 30 but I'd go 35 until the short calls expire and then cut them down unless we're clearly recovering. 

    Wow Winston, thanks!  

    BitCoin Mega Peak/BDC – Well forgive me for not rushing out and buying them.   I have an historic chart of my grandpa Max, who won his first race at 8 in 1911 and then in 1913 at 11 he was even faster and, in 1917, at 14, he was on the school track team but he never pursued it as a career and, since then, his all-time records never recovered for some reason.  Now he's been dead for 20 years so, like Bitcoin, I don't think I'll bet on him to win any future races based on his past performance.  

    RHT/CRS – I don't think it's desperation, I think it's the last step they wanted to take as they officially lay out their strategy to dominate the cloud in the next decade.  Unfortunately, it requires a massive, up-front investment and RHT has BS revenues ($3Bn) and cash flow ($250M) so, at $33Bn – it seems pretty crazy but IBM sees RHT as a massive leaver that steers a huge portion of the market right to their door (probably 80% of AMZN's customers and 40% of MSFTs customers use RHT).  

    IBM has always had that attitude – just get a foot in the door and their sales teams will handle the rest. 

    DXD/Dave – It's against the April $27/Jan $34 bull call spread so we'll roll them if we have to but the only reason we'd have to roll them is if our spread is $70,000 in the money and currently that spread is only net $48,000 and the short Nov $30s are $21,875 so, if SDS goes up, we roll them and, if SDS goes down, the $21,875 offsets the loss on our spread.  If SDS goes way up we buy another 100 June spreads and keep rolling and maybe split but we'd be pocketing $70,000 from the April spread first.

    China/Learner – Seems they "consider" a lot of things but, so far, nothing has actually been announced.  


  79. Getting rejections at 24,900, 2,700, 7,000 and 1,500 so good time to short the laggard (/RTY is 1,499.60) and just get out if any of them break over.