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Window-Dressing Wednesday – Painting a Prettier Picture to End the Month

And we're back!  (for now) 

Keep in mind, of course that 2,710 is only the WEAK bounce line on the S&P and we need to clear AND HOLD all the bounce lines before the market is back in a truly bullish mode.  While the 5% Rule™ protects us from jumping in and chasing false bottoms – after such a huge fall it's frustrating to sit on the sidelines while stocks recover.  

Our predicted bounce lines are:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

After yesterday's strong rally, we're already back above all our -10% lines except the Russell, which actually fell from 1,750 to 1,450, which was 20% so bounces from a 300-point drop are 60 points so 1,510 (where we are now) is weak and 1,570 is strong so really, on the Russell, that 1,575 line – is the more important number to clear which means, logically, if you are going to back a bullish horse, /RTY may be the way to go.

Meanwhile, before we go reaching for the stars, we should at least see if the S&P can get over it's weak bounce line at 2,710 and the NYSE 12,150 (they are bopth around there this morning) and whether they turn black or red this morning will likely determine the direction of the market.  As noted in the title, however, it's the last day of the month and all the stops will be pulled out by the powers that be (the Banksters, not the Government) to engineer a not-so-terrible finish to the month.  

As I noted yesterday, China, Europe and the US have all taken measures to boost the markets so of course we're hitting our weak bounce lines and the strong bounce lines won't be surprising but will we hold those?  Sadly, that's a question we'll have to answer in November but, for today, expect more of the same from yesterday and a HUGE disappointment if we don't.  Although stocks rallied yesterday, bonds did not and we should be watching them for bounces as well.

It's not complicated, 155 to 135 on the 30-year is a 20-point drop to 20% of that drop (4 points) is a weak bounce and 40% is a strong bounce (8 points) so the recovery begins at 143 and you can see how the bond index bounced off that line on the way down, which indicates it's likely to be harsh resistance on the way back up as well.  Keep in mind though that these slightly better bond rates (lower interest now is good for long-term bondholders) is very much due to the Dollar's current strength, as it's up almost 10% over the summer and that's very unlikely to continue – unless the rest of the World is really collapsing – which wouldn't be good either.

In fact, if we call 89 the bottom (where it consolidated, not where it spiked down to) early this year than 97.9 is the actual 10% line to the upside and we don't need to get there to cacluate the pullbacks, which would be 20% of 8.9 (1.78) for the weak retracement, so 96.1 and then another 1.8 down for a strong retrace at 94.3 and we can see there was good consolidation there on the way up, which indicates that's likely to hold up well on any pullback.  

So we expect to see 96.1 again and a pullback in the Dollar is a boost for the indexes as well as commodities.  Silver (/SI) is getting interesting again at $14.30, having never really had the same rally as gold in October.  You can play the Futures bullish over the $14.30 line with very tight stops below ($50 per penny per contract!) but you can also play our 2017 Stock of the Year, Wheaton Precious Metals (WPM), which is back in our buy zone at $16.50.   

Earnings are on Nov 14th and silver is much lower than it was last November ($17) and last quarter averaged $15.25, falling from Q2's $16.50 so estimates are for WPM to make just 0.10/share vs 0.15 least year and 0.16 last quarter but, for the year, they are still on track to make 0.52/share vs 0.63 last year so -20% and WPM was in the low $20s last year so $16.50 may be a bit oversold – especially considering they are a contract streamer and not a miner so, going forward, they stand to reap a huge benefit from rising silver prices as well as a new production deal on their Stillwater project.  As a new trade, I'd go with:

  • Sell 10 WPM 2021 $15 puts for $2.10 ($2,100) 
  • Buy 20 WPM 2021 $15 calls for $3.85 ($7,700) 
  • Sell 20 WPM 2021 $20 calls for $2.05 (4,100) 

The net of that spread is $1,500 and it pays $10,000 if WPM is over $20 in Jan, 2021 and that would be a gain of $8,500 (566%) and the put sale obligates you to buy 1,000 shares if WPM is below $15 for $15 so worst case is owning 1,000 shares for a net of $16.50 ($16,500), which is the current price.  I'ts a very margin-efficient trade as only $1,340 of ordinary margin is tied up on the short puts.  

Like our 2017 Trade of the Year, it's very possible you'll be able to cash in very early if the stock rockets back up, we took ours off the table in the summer rally and re-entered a position when the stock fell back in August though our portfolio spreads are more aggressive, like our Money Talk Portfolio's adjustment from 10/25, which is now:

Short Put 2021 15-JAN 17.50 PUT [WPM @ $16.58 $0.00] -10 10/25/2018 (807) $-3,200 $3.20 $0.10     $3.30 $0.12 $-100 -3.1% $-3,300
Long Call 2021 15-JAN 15.00 CALL [WPM @ $16.58 $0.00] 25 10/25/2018 (807) $10,000 $4.00 $-0.05     $3.95 - $-125 -1.3% $9,875
Short Call 2021 15-JAN 22.50 CALL [WPM @ $16.58 $0.00] -25 10/25/2018 (807) $-4,250 $1.70 $-0.19     $1.51 $-0.06 $475 11.2% $-3,775

Also interesting in Commodity Land this morning will be oil, which is testing $66 this morning and $65 on WTIC (/CL) is $75 on Brent (/BZ) and that surely will be bouncy off a fall from $77, which is right about 15% so a $12 fall and we'll call them $2.50 bounces (since oil loves the 0.50 lines) all the way back to $67.50 (weak) and $70 (strong) with the Thankgiving catalyst just around the corner so we'll look for an opportunity to go long on /CL if it dips lower on inventories – and it will if the EIA (10:30) confirms last night's API, which showed yet another 5.7M barrel build in crude, which makes 27Mb of gains over the last 6 weeks!  

Gasoline, interestingly, had a draw of 3.5Mb so there's no reason that should be at $1.79, it's merely following /CL lower but also should be bouncy off the 0.26 (12%) fall from $2.15 – just 4 weeks ago!  I'd call 0.26 the 0.21 (10%) fall from $2.15 with a 20% (of the 0.21) overshoot so I don't need to wait for EIA to tell me that Gasoline Futures (/RB) are a good long gamble here above the $1.79 line, with very tight stops below.  Below that, however, could turn ugly as the next support is $1.70 which would be a $3,780 per contract drop so – TIGHT STOPS BELOW THE LINE!

Rembember, both of these plays premise on a Dollar pullback so watch that 97 line on /DX and pay attention to API at 10:30 – there could be wild swings around that and, otherwise, let's watch those bounce lines and see what sticks! 

 


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  1. Analysts predicting gloom and doom are rarely right:

    https://www.bloomberg.com/opinion/articles/2018-10-30/meredith-whitney-was-flat-out-wrong-about-municipal-bonds

    Around that same time in late 2007, banking analyst Meredith Whitney made a prescient negative call on Citigroup Inc. that exacerbated a market sell-off and, she said, prompted death threats. Perhaps emboldened by that experience, she made another headline-grabbing prediction in a December 2010 broadcast of CBS Corp.’s “60 Minutes” program: There would be “50 to 100 sizable defaults” in the U.S. municipal market in the coming year, totaling “hundreds of billions of dollars.”

    They are just riding that one right call they made!


  2. That's an interesting chart:

    Looks like household debt is somewhat under control compared to the crazy Bush years.


  3. Good Morning.


  4. Good Morning


  5. Good morning, All! 

    Happy Halloween!

    Join us for our weekly webinar, at 1pm!

    https://attendee.gotowebinar.com/register/4451714068149592588


  6. Morning All. Phil, are still playing Nov futures (e.g., on /RB)? When do you usually switch over to a next month?


  7.  Interesting observations from Briefing Trader on the timing of yesterday's rally:

    "According to a note from one of the biggest prime brokers on Wall Street, hedge fund total short interest had risen to 2015 levels (when we saw some of the most bearish sentiment readings ever recorded).

    The second point is really best given by the 10-day average of the put/call ratio, which got above 1.18 for the first time since the night of the presidential election in 2016 and the 10% 5-day crash in August of 2015 (in both cases, signaling an important low in the market)."


  8. SPWR – SunPower beats by $0.14, misses on revs; guides Q4 revs below consensus; guides FY18 revs below consensus. 


  9. FU SPWR!!!!


  10. Another one that will require patience – selling puts and calls in the channel to lower my cost.


  11. Phil/MDR

    Do you know what happened to MDR? 30% down….

    regards


  12. MDR is the old CBI… 

    another FU stock tanking..


  13. Good morning!  

    Wow, this is so not healthy:

    Trump’s debt sales will surpass levels last seen when the U.S. was digging out of its worst economic crisis since the Great Depression

    Ben & Jerry's has a new political flavor: "Pecan Resist"

    Day-Trading' Trump Says "Today Looks Good For Stock Market"


  14. We will see what we get:

    https://www.vox.com/business-and-finance/2018/10/31/18044470/donald-trump-stock-market-tweet-dow-fed

    Either:

    He also disputed the conventional wisdom that Wall Street always prefers gridlock, because it means nothing that could upset markets will happen. “The worst average performance for the S&P since 1900 has come from a Republican president with a split Congress,” he said.

    Or:

    Markets have often been shaky ahead of midterms, but historically, they’ve tended to bounce back. Stovall said that in the past 18 midterm election contests, the S&P 500 rose nearly 17 percent from October 31 of the election year to the same date the following year.


  15. Big Chart – Another day another 300 points on the Dow and up 2.5% on /NQ (7,000 on the button) with AAPL up 2.5% as well.

    /RB fell to $1.775 and barely $1.78 but I bought a couple anyway ahead of inventory. 

    Whitney/StJ – Truly a one-hit wonder.  Happened to make a correct call one time and that was the end of it.  Debt chart is encouraging but, of course, debt was ridiculously high in 2008 and now SOMEWHAT normalized but, historically, still completely insane levels:

    Image result for household debt to gdp

    It's funny how recency bias makes us think things that are still out of control are getting better…

    /RB/Alter – The current /RB contracts are December and expire in 30 days.  


  16. SPWR/Albo – Disappointing but we're only looking for $7 next year so no big deal.

    Short Call 2020 17-JAN 12.00 CALL [SPWR @ $5.92 $-0.50] -30 1/3/2018 (443) $-6,300 $2.10 $-1.85 $-0.80     $0.25 - $5,550 88.1% $-750
    Short Put 2020 17-JAN 7.00 PUT [SPWR @ $5.92 $-0.50] -20 1/4/2018 (443) $-4,600 $2.30 $0.13     $2.43 $-0.12 $-250 -5.4% $-4,850
    Long Call 2020 17-JAN 5.00 CALL [SPWR @ $5.92 $-0.50] 30 2/8/2018 (443) $9,000 $3.00 $-1.29     $1.72 - $-3,855 -42.8% $5,145

    Oil up 3.2M, /RB down 3.3Mb – Yay!  Running back to $1.79 and should go over.  I ended up with 3 long at $1.782 avg.  


  17. Someone has to pay for this guys. OK? If we don't have it we don't have to pay for it. For those that understand no explanation is needed, for those that don't, there are no words.

    And for those struggling to hide assets into lower tax classes apparently you've never heard of long term capital gains which has no income limit, is lower than the middle class "regular income" tax bracket and is invisible to FICA and medicare.


  18. Back to 2 /RB at $1.79 so now with an $800 profit locked in with a tight stop below (but I'm shooting for $1.82 down the road).  

    I think a lot of the sell-off was people dumping out of the Nov contracts on their last day.

    MDR/Pat – Ugly report and a downgrade.  Just because someone is in a hot sector (LNG), doesn't mean they are good at it!   Fortunately, we decided to get out when they merged with our CBI.  

    Submitted on 2018/10/15 at 12:01 pm

    MDR/Soma – That's why we took money and ran.  Very rocky when you try to run a combined company at first.

    Shares of McDermott International Inc. plunged 27% toward a 2 1/2-year low, to pace all premarket decliners, after provider of technology, engineering and construction services to the energy industry missed earnings and revenue expectations, and said it plans to sell its tank storage and U.S. pipe fabrication businesses. The company also said late Tuesday that it recorded $744 million of changes in estimates on three projects after it took "significant steps to address performance issues" on the Cameron LNG, Freeport LNG and Calpine gas power projects. Analyst Tahira Afzal at KeyBanc Capital followed by downgrading the company to sector weight from overweight. "We see management as staging a potential recovery through thoughtful execution, but our concerns are more around timeline and incremental risks that could arise and stretch into late 2019, keeping the stock volatile," Afzal wrote in a note to clients. The stock was on track to open at the lowest price seen during the regular trading session since Feb. 26, 2016. The stock had already plunged 28.5% over the past three months through Tuesday, while the SPDR Energy Select Sector ETF had shed 13.5% and the S&P 500 had lost 4.8%.

    Good luck with the resistance, BDC:

    Image result for leona helmsley tax quote


  19. Gotta take a poke at shorting /NQ below the 7,000 line after that move.  


  20. Wow, got stopped out of /RB too – something happened. 


  21. BDC – I'll see your Ohio class submarine and raise you an F-35 lightning II…. :(

    https://en.wikipedia.org/wiki/Lockheed_Martin_F-35_Lightning_II


  22. …in other words, I'll see your Billion and raise you a Trillion +…..


  23. Phil/SPWR

    In the OOP you have naked long $5 calls and $7 puts sold, both 2020.  Any adjust there?


  24. resistance???? If anything, I'm more conservative than I used to be, sort of running along the old model as one gets older they get slightly more so.

    It's the right that went off the rails. We both know this. Look at Obama, he raised captial gains from 15 to 20% and he's the world's biggest socialst meanie? Come on. Even reagan had it at 25%

    1020 – "Freedom isn't Free" ain't just a catchy bumper sticker, it has a real cost! :)


  25. Winston- Taxes- a gem-thx.

    For those who do not understand, no explanation is possible


  26. Was a big draw in Distillates too:

    • EIA Petroleum Inventories: Crude +3.2M barrels vs. +4.1M consensus, +6.3M last week.
    • Gasoline -3.2M barrels vs. -2.1M consensus, -4.8M last week.
    • Distillates -4.1M barrels vs. -1.4M consensus, -2.3M last week.
    • Futures -0.53% to $65.83.

    Strong Economy Prompts Companies to Raise Prices

    From paint to air tickets to handbags, the prices of consumer items are going up as industries pass along higher costs. A long period of low inflation appears to be over. 80

    From the WSJ – finally realizing that the climate is changing:

    Mounting Climate Worries Push ‘Location, Location, Location’ Off the Beach

    Homes near the sea are appreciating more slowly than those inland, prompted by climate change fears, in a growing number of coastal counties. 20 minutes ago

    Growth Hits 3%; Here’s Why It Is Not Yet Sustainable

    The mission of 3% economic growth hasn’t been accomplished, Grep Ip writes, given finite resources, like workers, and the fading effect of the tax cut.

    GM’s Profit Jumps on Sales of Pricier Pickups, SUVs

    General Motors’s third-quarter operating profit jumped 25%, as the auto maker sold more pricey trucks and sport-utility vehicles in its home U.S. market while sidestepping the trouble in China that has tripped up some rivals. 

    Bitcoin Turns 10: Still Not All Grown Up

    Wednesday marks the 10th birthday of bitcoin. As the digital currency has grown over the years, it has become a source of fascination for investors, speculators, true believers and skeptics. However, it hasn’t become the one thing it was built to be: a payments system.

    U.S. Falls to Eighth in World’s Best Places to Do Business

    The U.S. fell two spots, dropping to eighth place, in the World Bank’s annual rankings of the world’s economies for their ease of doing business, as the American business environment was eclipsed by Norway and the Caucasus nation of Georgia.

    The America-Free TPP Is a Done Deal

    A trade pact between 11 Pacific Rim nations will come into force this year after Australia became the sixth country to ratify it, nearly two years after President Trump withdrew the U.S. from talks.

    China’s Factory Weakness Adds to Mounting Worries About Economy

    Bond-Fund Giant Is Wary on Adding China Debt to Global Portfolios.

    Baidu(BIDU) Sales Forecast Misses Estimates as China’s Economy Slows.

    Workers’ Pay Rises at Fastest Rate in a Decade

    The Morning Download: IBM’s Open-Source Hat Trick

    Southern California suffers its worst housing slump in over a decade

    JP Morgan strategist: We are not panicking,' US is best bet in this environment. 

    Raymond James' Jeff Saut: 'A major bottom' is approaching in the market.

    Nothing should derail consumer confidence this holiday season, says CEO behind survey.

    The world's first humanless warehouse is run only by robots and is a model for the future

    "Self Segregation" – Niall Ferguson Exposes The Destructive Power Of Social Networks.

    Energy Junk Bonds Tumble, Dragging High Yield Spreads To 2018 Wides. 

    Stocks Bounce In 'Pause That Refreshes' For Bears As Systemic Risk Surges.

    ECB heading for 'Titanic iceberg' as Italy crumbles and eurozone slows to five-year low.

    Not too encouraging. 


  27. IBM – I guess more skepticism on the Red Hat deal… now 114….  Wondering if 110 or 100 is in the cards?


  28. when will ge stop dropping??? good grief!


  29. GE / Jabo – Well, zero is not that far now :-)


  30. I said GE not HMNY stjean!!!


  31. GIS WTF????


  32. Jabobeast:  GE will fall until Warren B steps in and buys about 10 to 20 billion in shares…..watch and wait! He did the same with the banks, Apple and Teva….patient capital, my friend!!!


  33. Hooray FB – out of 1/2 of my 135/145/160 weekly butterflies. $70 yesterday, $335 currently. Pretending like it's helping my GE, but it isn't! 


  34. GIS/Jabob – K had terrible earnings so people are selling GIS too.

    Great time to get in if you missed that position.

    GE/Jasu – Very possible.  

    Confused my by changing /KCN9 to /KCN19 – new protocol at TOS.  Just went back in on 2 as I don't mind doubling down a couple of times if they go lower so a conviction trade for me.  

    Current round of reports is very bearish but I have faith in Global Warming to disrupt something between now and next July and people seem to have already forgotten the farmers were freaking out last time we tested 100 – so I think that's a pretty solid floor.  

    FB/Ati – Every little bit helps.  


  35. I'm beginning to wonder if my ability to understand complexity is not inherent in every person.


  36. Wow, webinar time already!  

    Indexes looking strong again.


  37. Phil- any trades from the webinar?


  38. Any trade on aapl earning ?

    Thanks


  39. BDC – It's not, but can you wiggle your ears?…. :)


  40. Webinar/Ravi – None that worked so far!  Went long on /RB at $1.76 (4 contracts) and short on /ES at 2,724.50 (2 contracts) and our IBM play was:

    • Sell 5 2021 $120 puts for $20 ($10,000) 
    • Buy 15 2021 $120 calls for $11.30 ($16,950) 
    • Sell 15 2021 $145 calls for $5 ($7,500) 

    That's a net $550 credit on the $37,500 spread so $38,050 upside potential (6,918%) if IBM is over $145 in Jan 2021.  

    Also, on GE:

    • Buy 5,000 shares of GE for $10 ($50,000) 
    • Sell 50 2021 $10 calls for $2.85 ($14,250)
    • Sell 50 2021 $12 puts for $3.15 ($15,750) 

    That's net $20,000 or $4/share and, if assigned another set at $12, the average would be $8 on 10,000 shares – so that's your downside but, if called away over $12, you get $50,000  for a 150% gain.  

    AAPL/QC – I hope they miss so we can buy a lot more but no opinion as to whether or not they'll look good enough to hold $2.20 ($1.1Tn) in this environment.

    AAPL up 3% today, huge boost for Dow, Nas and S&P:


  41. GE/Phil- that's not an adjustment but a new trade idea right?


  42. LQDA? accumulate here


  43. Wow, that was a nice sell-off at the end there, turned my /ES shorts around, taking $1,500 and running on those after being down over $1,000….

    No love on /RB though…

    GE/Dave – Yes, someone asked where I would trade it from scratch. 

    LQDA/Coulter – That's not LQMT!   I don't know what they are.  


  44. Russell almost red in the end.  


  45. Getting the upside down stick moves lately! So we went from dip buyers to rip sellers. Not a good sign.


  46. Really trying to understand these guys on CNBC pushing stocks like KMB because of high yield:

    https://www.cnbc.com/2018/10/31/three-high-dividend-stocks-to-buy-in-the-hunt-for-yield.html

    They trade at 22x earnings and are looking at less than 5% EPS growth over the next 5 years. In what universe is that cheap? Yeah, the div is nice, but that's still pretty rich. 

    One of my holdings FLR trades at 19x earnings but are projecting over 40% EPS growth over the next 5 years. Much cheaper. The div is not as nice though.

    Still doesn't make sense.


  47. Trump going to send 15,000 troops to the border to stop that caravan of 4000 people – mainly women and children. And most of them won't make it there anyway. A bit disrespectful for the troops I think.









  48. This is how republics end




  49. EPA quietly telling states they can pollute more



  50. I assume this isn't a good sign for MET tomorrow

    Allstate (NYSE:ALL) sinks 3.4% in after-hours trading as Q3 adjusted EPS of $1.93 misses consensus by 28 cents; compares with $1.60 in the year-ago period.




  51. Trump shocks with racist new ad days before midterms




  52. Segway was supposed to change the world. Two decades later, it just might


  53. Good Morning - 

    Teva up 6% on beat and raise… 

            Teva Pharmaceutical Industries Ltd. (TEVA.TV) stock rose 6.1% in Thursday premarket trade after the company reported third-quarter profit and revenue beats and raised its 2018 outlook. The company reported a loss of $273 million, or a loss of 27 cents per share, after earnings of $530 million, or 52 cents per share in the year-earlier period. Adjusted earnings-per-share were 68 cents, above the FactSet consensus of 54 cents. Revenue declined to $4.53 billion from $5.62 billion, above the FactSet consensus of $4.46 billion. The latest results include a revenue beat for the company's North America segment and and a miss for its European and International Markets segments, as compared with the FactSet consensus. Teva's revenue from other activities also came in above the consensus. The latest results include strong growth for the company's therapy for Huntington's disease chorea, Austedo, while its multiple sclerosis therapy Copaxone — which has been facing generic competition — maintained market share, Schultz said. The company has also achieved cost reductions of $1.8 billion in the first nine months of the year due to its major restructuring plan, Chief Executive K?re Schultz said. Teva now expects 2018 EPS of $2.80 to $2.95, an increase from previous guidance of $2.55 to $2.80, and above the FactSet consensus of $2.73. Shares of the U.S.-listed Teva have dropped 16.3% over the last three months, compared with a 3.6% drop in the S&P 500 and a 0.9% decline in the Dow Jones Industrial Average .