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MidTerm Tuesday – Throwing the Bums Out (hopefully)

Related imageIt's election day.

Time to erase a huge mistake that was made in 2016 or time to push America further down the path to Facism – I wonder what my fellow countrymen will choose.  If we do nothing about Global Warming for another two years – I don't think it will matter much who's in charge during America's last century, will it?  So I guess we have that to look foward too – a slow, burning extinction that erases this whole mess of species from the annals of Galactic History, just another start-up civilization that wasn't smart enough to make it.

Unfortunately, we are not likely to have a resolution today as many of the elections are so close, it will take days and maybe weeks to determine the winners.  Also, if the diffference in the House or Senate is just one or two seats, look for any close election to be challlenged.  That's the craziness that's ahead of us, plus the Fed has a statement out Thursday at 2pm and 3 Fed speakers Friday morning so we're not going to know a damned thing until next week for sure…

Meanwhile, on a bullish note, China is now saying they do want to talk trade some more – that should help a bit.  Oil collapsed to $62.50 as the Iraq Sanctions finally kicked in.  As I noted in yesterday's Morning Report, the sanctions are so weak they are not expected to affect the energy markets – just more smoke and mirrors from Team Trump.  Falling oil prices are a drag on the Dow and S&P but it's not likely we stay this low – especially into the Thankgiving Holiday.

So far, we've had a very mild correction with the S&P sitting 6.6% below its all-time high.  Unfortunately, it has to get back under 6% for us to call it a strong bounce, so we're still in "wait and see" mode ahead of the elections and the Fed.

We're well into earnings season and, for the first time since well before Trump was elected, more companies are revising their forecasts lower than higher.  There's no reason to panic yet, as 1/3 of the companies still have to report – THEN we can panic!

Unfortunately, once these revisions start crashing – they tend to get worse before they get better but, unfortunately, Guidance has already collapsed (something we warned you about at the start of earnings season) and it's since gotten worse and well into a negative ratio with about 60% of the S&P 500 having reported already.

We're already very well-hedged so there's nothing to do but wait and see who's in charge tomorrow – best of luck!


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  1. Hoping that I won't have to suffer another disappointing night! When a political ad from the POTUS gets banned on Fox for being too racist, you know that some damage has been done to the country's fiber. Time to wake up from this collective nightmare.

  2. Good Morning.

  3. I stopped out of /RB, will see what inventories do this week. It will inevitably pop now. 

  4. Good morning!

    We're still trying to make the same old levels but the Nas made an ugly fail yesterday and very badly needs to get back over the 200 dma at 7,040 – anything less than that is just another chapter in the market correction like: "The Day the Dow Went Up and the Nasdaq Kept Going Down".  On the bright side, AAPL is $204 and we all know it should be $215 so there's some dry powder building up for a rally but that doesn't mean AAPL can't still go to $184 (lowest goal) at which point I'd go bullish on the whole market based on the coming AAPL rally.

    And none of this stuff is supposed to take days – these are usually weeks-long moves.

    And let's not forget that 3,200 on Euro Stoxx and 11,500 on DAX are critical too as well as 22,000 on /NKD – all are testing on the same morning – interesting…

    People have not calmed down yet:

    Cool influence chart, StJ.

    /RB/Jeff – The new widow-maker.  Needs a healthy oil report to save it.

  5. Who knew these Nigerian emails selling bonds were a good deal:

  6. Confluence / Phil – Looks like the ideal GOP person is an uneducated straight religious white male over 75 married with children and earning over $100K who lives in the southern countryside. 

  7. Iran says it is selling the oil it needs to, despite U.S. pressure

  8. Trump Already Won the Midterms

  9. Phil,

    What is your target on /RB heading into Thanksgiving?

  10. I think we are right to be long into the holiday, probably just a bit early. It would be nice to see this week’s inventories before taking another stab. 

  11. There are no real bullish indicators on /RB at the moment. At least on medium term charts – I don't look at 1-minute ones.

  12. Oil below $62 for a moment, /RB down to $1.68, /BZ at $72 – massive fail in energy.

    Nigeria/StJ – I'll have to unblock them, I guess…  Look how great Trump has made our credit – we're rushing towards 3rd World Bond status now.  

    /RB/Japar – I thought they'd be able to run it back to $1.80 but this (below $1.72) is a real surprise and I suspect it's maybe just an election stunt but terrible technical breakdown now so it's hard to be a contrarian at this point.  I would go back in on a break over $1.70 with tight stops below that line but, other wise, gotta wait for /CL to test $60 for the next good bull line.

    Look how much worse /RB has sold off than /CL or /BZ and /NG is going the other way entirely;

    And what Jeff and StJ said!

  13. Quick .30 on /CL at $62, and short a couple /NQ at 7022. /NQ has been good to me this month but not so much on /CL – "reverse" scalps aplenty! 

  14. I'm going to a lunch thing (It's noon in Antigua), should be back before 2.

  15. 9 Out of 10 People Are Willing to Earn Less Money to Do More-Meaningful Work

  16. ETM/Phil- thoughts on ETM as it is down 11+%?

  17. Phil// How low do you think Apple will go this time?  I was trying to apply the 5% rule

    Lows (2/8/18) at $155

    High (10/3/18) at $230 (rounded it from $233)

    So 5% rule says that for a weak retrace of $15 from $230 it will be $215 and the strong retrace will be $200.  If it fails then don't know how low it will go.

    Let me know your thoughts.  Thanks.

  18. MDR/Phil:  Hey Phil.  I came back from vacation and was faced with a rather unpleasant surprise of my MDR position.  Its a remnant of the old CBI LTP position after they merged with MDR and I am left with: 20 2020 $20 putters down approx $15,000 and 30 long 2020 $15 calls which are basically worthless now. 

    I won't try to go through my cost basis, since the conversion process, as you know, was rather convoluted, suffice it to say I am down $30,000 on the position.  And I also missed the call to close the position in the LTP.  So now I am stuck with these.  How do you recommend I fix this position?  Should I roll the putters out and down and stick with MDR or do you suggest I switch all or a portion into something else?  Thank you!  

  19. Rookie / AAPL – here is what Phil Posted last week ( I think)

    AAPL 11/1/18

    AAPL/Batman – Just doing what we expected:

    October 12th, 2018 at 9:42 am | (Unlocked) | Permalink

    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?

    So, 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.  

  20. Kink I do like your first sentence re. MDR. First role never leave your nest egg unguarded.!

    Take your key from Phil he is on vacation and only takes off 2 hours for lunch

  21. yodi:  so true.  The MDR completely slipped my attention as it was not in the LTP review and I mistakenly assumed I had closed that position.  Big mistake.

  22. Oil Bulls Best Hope Nothing Messes With Texas

  23. Election 2018 Live Blog

  24. Bonds / Phil – I am trying to understand why we have pay people 2.7% to borrow their money even for 1 year, while people in France and Germany pay the government for the same privilege. It's not a new development though, but it's still strange!

  25. biopharm – is VKTX still recommended?

  26. I wonder if that was finally the blow-off bottom for /RB and /CL?

    Keep in mind that a weak bounce on /RB would have to be ($2.10 - $1.70) 0.08 so $1.78 just to be weak and below $1.70 is just BAD! 

  27. StJ – bonds 

    How much do you trust the Euro versus the dollar? That is a factor here.

  28. Yodi – I picked up on your comment about Phil only taking two hours for lunch. 

    Surprised others didn't also. 8-)

  29. Batman – Thanks.

  30. WMT Jan 55 puts are up 85,000%. Oops, no, brokerages still incorrectly report values for worthless options with no bid.

  31. ETM/Dave – Not the bargain they seem as they only earn about $30M in a normal year.  Last year they got a nice tax refund, which makes them look exciting and they come up on a lot of screens because screens don't account for one-time events.  Anyway, short story is it was way overpriced and now less overpriced but I still wouldn't buy them. 

    AAPL/Rookie – As noted by Batman (thanks!), $184 should be the low  if they even get there because, as I noted, that's the point at which I liquidate other things to buy AAPL.

    MDR/   - Be careful as they are NOT worthless.  There is a cash component to the options you have ($2.31 per contract) from the merger so don't throw them out without talking to your broker.   MDR is $9.96 at the moment and a year is a long time and the options are pretty illiquid so waiting is probably the best move for now.  Most of what you are down is 20 $20 puts that are now $10 ($20,000) I imagine and the calls essentially worthless but possibly return $2.31 (check with the broker). 

    If you end up being assigned 2,000 shares at $10, you need $25 to get even and the 2021 $10 shares are $3.50 so it would take you about 4 cycles to get even going that way.  Logically, if you want to try to make it back on MDR, the move would be to sell 20 2021 $13 puts for $5 ($10,000) and put $10,000 in you pocket and now you are down $20,000 and a move up to $15 would be another $10,000 caught up in two years and then it should be easy to recover – so there's a path if you want to stick with them and get caught up down the road.  Of course, if they go lower, you have 4,000 shares with the first 2,000 down $17 each ($34,000 at $8) so net $25 + 2,000 more at net $8 is net $16.50 on 4,000 shares if they go lower on you.  MDR is likely to be a long, slow, bumpy recovery but I do like them over the long haul.

    Bonds/StJ – Well, who would you rather lend money to – Trump or Merkel?  The bottom line is we are a poor credit risk and have to pay accordingly.  What's ridiculous is that the banks borrow money at 0.25% (even from their customers) and then turn around and buy 10x bonds at 2.25% (22.5% on the same money) and that interest paid to the banks is then charged to the people – that's quite the scam!

    Lunch/Albo – Actually, I'm ONLY taking two hours out of my day to have an actual vacation (lunch with family on the island) and the rest of the day I'm working!

    Well that rally fizzled while I was catching up.

  32. Phil – Take more time off.  We're all just waiting for the results tonight.  Enjoy the time with family.

  33. Phil, quick question about portfolio reviews. You often say "good for a new trade" on a position.  Do you mean with the exact same options/strikes as the original trade, even if it's winning or losing at that point?  I'm guessing yes, because otherwise you would advise on how to adjust.  Just want to make sure!

  34. Bonds / Phil, BDC – I understand the political risks, but the eurozone is not a great economic engine right now! And that spread has been around longer than Trump. Might be also the size of the borrowing that is needed – I don't know that there is simple explanation.

  35. Georgia is really the epicenter of voter suppression:

    As Georgia voters headed to the polls on Tuesday morning, expectations of high voter turnout collided with delays, technical issues, and a limited number of voting machines in some parts of the state with high minority populations.

    According to the Atlanta Journal-Constitution, machines in at least four voting locations in Gwinnett County temporarily went down, causing voters to resort to paper ballots. The issues further extended long lines at polling locations.

    Democratic county by pure coincidence!

  36. Time/Albo – Actually it's a good excuse NOT to do shore excursions.  I like some stuff, like catamarans and snorkeling (did that Sunday) and old castles and such, but can't stand just driving around islands for the most part.  I do love trading though…  The kids, however, are zip-lining.

    Good trades/Tom – Well they can often be optimized so, if you are entering them, just ask.  I'm not going to give a new set-up for every trade on the off-chance someone may be interested but, if you are interested – just ask!

    Bonds/StJ – You have to factor in the stability of the currency and the anticipated inflation over the course of time you are expecting to be paid back as well as the risk of not being paid back at all.  Trump is borrowing like a madman – the Fed keeps creating money and the US doesn't have good inflation controls.   Europe, on the other hand, freaks out if inflation is over 2% (so stability there) and can't print more Euros without a referendum, have very strict debt limits for Member states and semi-rational leaders so – they win.

    Georgia/StJ – Amazingly, no arrests will be made. 

    Popping back to the highs for the close, API will be interesting tonight as oil still $62 and /RB still $1.69.  

  37. Just went to vote and in my district the polling station is in a synagogue. There was of course police there. My neighbor happened to be there and we remembered when we used to vote at the local middle school and he mentioned security issues so they moved the polling stations out of there. But nowadays, both schools or synagogues seem to be security risks. Scary times…

  38. MDR/Phil:  Thanks for giving a roadmap for the long trek back.  A voice of reason as always.

  39. Election – my weary, cynical post predicting big repub wins was based on what I see, sitting here at a distance – namely, the democrats again running as "not trump" and the democrat theme being one of "get rid of those repubs". Positive agenda? Not highly visible, with a few exceptions. You don't win election by not being a bad guy.

  40. oil weaker?

  41. Elections / snow – I disagree, actually most Dems ran on the issue of healthcare which seemed to be quite important in this cycle. Republicans did as well but by lying about their positions. And running as "not being immigrant" it seems! Not a super positive agenda either. You should not win election by being racist and xenophobic… 

  42. FTR earnings - The is actually good paid off debt as well….

    Frontier Communications beats by $0.37, reports revs in-line; slightly lowers adjusted EBITDA guidance

    Reports Q3 (Sep) loss of $0.07 per share, excluding non-recurring items, $0.37 better than the S&P Capital IQ Consensus of ($0.44); revenues fell 5.6% year/year to $2.13 bln vs the $2.12 bln S&P Capital IQ ConsensusCo slightly lowers adjusted EBITDA guidance to ~$3.55 billion, from ~$3.60 bln

    -- Following the close of the quarter, Frontier retired the remaining 

    October 1, 2018 maturity of $431 million. 

    -- Frontier's 11.125% Mandatory Convertible Preferred Stock converted into 

    shares of Frontier common stock on June 29, 2018. The final dividend 

    payment was made on July 2nd. 

    -- In November 2018 we entered into an agreement to sell 95 wireless towers 

    for approximately $80 million. The transaction will be immaterial to 

    revenue, earnings, and Adjusted EBITDA, and is subject to customary 

    diligence closing conditions. 


    -- Adjusted EBITDA — Approximately $3.55 billion 

    -- Capital expenditures — $1.15 billion to $1.20 billion 

    -- Cash taxes — Less than $10 million 

    -- Cash pension/OPEB — Approximately $140 million 

    -- Cash interest expense — Approximately $1.5 billion for the full year; 

    fourth quarter cash interest payments of approximately $230 million 

    -- Operating free cash flow — Approximately $625 million

  43. Hope you're right, StJ – over here I don't see the ads, so I'm missing that aspect. Just the Facebook chat, which seems to be all "vote the bums out".

  44. Snow – Keep in mind that ads running on Facebook might be posted by people who want you to have a negative view of some people. I am off that platform – not much useful there.

  45. who's winning?

  46. Beto and Ted within 100 votes. 

    Florida too close to call.   

    It’s certainly no rout but House does still seem in the grasp of the Dems.  

  47. FiveThirtyEight (live updates) is currently giving the dems a 69.4% to take control of the house (that's up from 5 in 9 a little while ago): here. 

    The NY Times is more optimistic:

  48. Fox called for Dems to take the house… Will see. Looks like a lot of people voted on both sides. Looks like fear is working again. So much for making America great again, more like make America fear again!

  49. Stjeanluc, after 2016, it's easy to imagine anything crazy happening regardless of the current odds from 358 (up to 89.8%) and NY Times (95%)… (The Senate is a lost cause.)

  50. Cuomo Wins Third Term in New York, Matching His Father

  51. Apple’s Asia suppliers fall on report iPhone XR production boost canceled

  52. ETM/Phil- I was referring to our ETM position in our LTP

  53. Not the blue wave I was hoping for….lot's of work to do by 2020….

  54. Let's all hope the republican lightning rod – Nancy Pelosi, keeps a low profile the next two years….


    Too late… :(

  55. Looks like the Dems picked up 35 seats, that’s almost 10% of Congress flipped.  Congrats to all who worked hard to make that happen – you may have saved the planet and the Human Race (talk about votes that matter!).  

    Senate still in GOP hands but they’ve got him by the purse-strings now and, of course, no more rubber-stamp bills or investigations.  

    Speaking of investigations, I hope they take a close look at some of these elections!   And now, of course, it’s Mueller time…

  56. Political Engagement Around the World | Pew Research Center

  57. Wow, Dow up 200 but Nas up 100 – We've still got it!

    November 5th, 2018 at 11:03 am | (Unlocked) | Permalink

    Poll/Pstas – 2 and sideways.  I don't think the people really believe its Trump that's caused this rally.  All the House gives us is gridlock for 2 years – markets generally like that anyway.

    What a lot of 2s!  Hope we're not over-confident!

    I know I'm relieved enough to buy things!

    Dollar dive has been helpful overnight, down 0.6% to 95.56.    

    Look at /RB go!

    Honey badger still don't care:

    Now that the Dems have control of the budget, people are more confident about our notes:

    Just two more boxes left to confirm we're back to bullish.

    • 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

    I wouldn't be too complacent – Trump may try to pass more sweeping powers for himself while he still can or fire Mueller or whatever now that he's under the gun.  Sadly, he's so crazy that even those of you who still support him know that that's not out of the question:

    Now it's all up to the Fed tomorrow:

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    Not Just Midterms: Investors Bracing for Packed November.

    Italy flirts with recession as eurozone slumps.

    China's Top Steelmaker Says Demand Has Probably Peaked for Now.

    China's Middle Class Is Again Desperate To Move Its Money Out Of The Country. 

    Oil Teeters on Brink of a Bear Market.

    WTI Extends Losses After Big Surprise Crude Build.

    Erdogan to Defy U.S. Sanctions on Iran.

    Supply Crunch Looms in Commodities Markets.

    U.S. Troops’ First Order at the Border: Laying Razor Wire.


    Amazon(AMZN) is reportedly moving into Long Island City, Queens: Here's what the neighborhood is like.

    Long Island City To Offer Amazon Huge Tax Incentives.

    These charts suggest stocks will rip higher into next year.