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Friday Market Failure – Weak Finish to a Weak Week

Down and down we go.

The Futures are off about 200 points on the Dow (/YM) at 24,250 with 2,625 on the S&P (/ES), 6,500 on the Nasdaq (/NQ) and 1,470 on the Russell (/RTY) and on Wednesday Morning we put up this chart of the bounce lines and that means the Dow, S&P and Nasdaq have now all turned red and only the NYSE is still above the DOOM!!! line, below which we have to start looking for the next 10% leg to our correction.  

And CORRECTION is what it is as stocks move towards CORRECT prices that are more closely matched to their values and some stocks are even below their fair values already – but that won't stop them from going lower just the same – because stocks can become as undervalued as they were overvalued.  That's what makes stock-picking so much fun!  

Meanwhile, before we go bargain-hunting, we have to make sure we are well hedged for the next downturn and Wednesday we published an SQQQ hedge in our Morning Report and it had already gone out as a Top Trade Alert on Tuesday afternoon and this morning, unless we get a 200-point bounce early on – we're going to add it to our Short-Term Portfolio as well, to give us another $50,000 worth of protection because this is starting to get ugly folks – though today is a low-volume half-day in the US – so we can't be sure anything we see today is real.

China's Shanghai Composite brought the pain this morning, dropping 2.5% into the close.  As you can see from the chart above, the Shanghai did it's own weak bounce on talk of a resumption of Trade Talks between Trump and Xi but comments made by China over the past couple of days indicate the two countries are miles apart and Trump is now asking that all US allies stop using Chinese Tech Giant Huawei (World's 2nd largest phone maker) amidst unproven allegations of spyware. 

Certainly this is not a good way to broker trade deals though Trump may think this is some kind of bargaining chip he'll be able to use as in "Sure they're spying on us but, if you give us 2% off on autos, we'll look the other way.  And, by the way, if you need to kill any journalists without repercussions – we're having a special this week…"  

Image result for trump khashoggi cartoon latuffIn Trump's Americas, even our morality is for sale to the highest bidder…  

Meanwhile, Oil (/CL) Futures hit $50.60 this morning and Gasoline (/RB) is testing $1.40 and both make good long plays for the bounce – with very tight stops below the line as oil is simply in free-fall until OPEC gets its act together.  Overall, the volume is too thin to make any serious bets in the Futures – we'll just have to see where things shake out next week.

Meanwhile, Germany reported a 0.2% DROP in Q3 GDP this morning, their first dip since early 2015.  The Eurozone Composite PMI fell to 52.4, its lowest level in 4 years so trouble in China, trouble in Japan, trouble in the UK, France, Italy and Germany is now confirmed – still want to play the US like there's no trouble ahead?  

On the bright side, however, online shopping on Thanksgiving is up 29% but keep in mind we're talking $3.7Bn out of $5Tn worth of Retail Shopping in the US.  More interesting to me is that smartphones are the bulk of the increase, now accounting for 37% of overall sales – up from 29% last year.  Let's not forget, worries about Apple's sales have bee a major driver of the market sell-off.  What if they do turn out to be just rumors? 

That's why we did flip more bullish on Tuesday but we still have our new hedge ready to fly if the indexes can't turn it around this morning – better fafe than sorry in this market. 

Have a great weekend,

- Phil


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  1. oil!!!!

  2. Good morning!  

    I hope everyone had a good holiday.  It's a half day (1pm) and I'll be in and out this morning.

    Oil and indexes bouncing a bit but nothing exciting and no volume at all so it's all meaningless – enjoy!

    Actually, the Nas and RUT are bouncing back to near even so I'm not ready to pull the trigger yet on more SQQQ but it will take more than this by lunch to keep me from re-hedging. 

    • Weaker exports were the primary driver behind Germany's first quarterly economic contraction since 2015, according to the Federal Statistics Office, which confirmed a preliminary negative reading of 0.2% in Q3.
    • The data didn't get any better as flash PMI figures from IHS Markit showed Germany's manufacturing output slipping to a 67-month low amid a broader eurozone economic slowdown.
    • Mastercard (NYSE:MA) declines 1.3% and Visa (NYSE:Vfalls 1.4% in premarket trading after news that the two credit-card companies offered to trim fees they charge merchants when tourists in the European Union pay with plastic, Reuters reports, citing people familiar with the matter.
    • The offer is an attempt to reduce or avoid possible fines from a long-running EU antitrust probe.
    • Mastercard has warned that it could be fined more than $1B if found guilty of violating EU antitrust rules; a negotiated settlement may lower the fine.
    • Even with the fee cut, the fees paid by merchants when they accept card payments will likely be higher for EU cards, according to Reuters.
    • Previously: Mastercard +2.3% after Q3 adjusted EPS beats consensus by a dime (Oct. 30)
    • Amazon (NASDAQ:AMZNreports "record levels" of Black Friday shopping in the U.K. as international retailers turn more towards the US-centric shopping day.
    • Earlier this morning, Amazon said 100K toys and 60K beauty items had been purchased since midnight.
    • A recent eMarketer report showed shoppers in the U.K. and the Nordic countries were some of the most active Black Friday buyers.
    • Amazon hired 20K holiday workers across the U.K. for this shopping season.
    • Amazon (NASDAQ:AMZN) staff at five U.K. fulfillment centers are staging a protest today against what they call "inhumane working conditions."
    • Insiders have told BuzzFeed that employees have been "knocked unconscious, taken away in ambulances and suffered broken bones" while at work.
    • "Our European Fulfillment Network is fully operational and we continue to focus on delivering for our customers," Amazon said in a statement. "Any reports to the contrary are simply wrong."

    • In an earlier preview of 2019 strategy, Bank of America Merrill Lynch says the firm is Overweight the healthcare, technology, financial, industrials and utilities (from Underweight) sectors.
    • The firm is Marketweight the energy, materials and consumer staples sectors.
    • BAML is Underweight consumer discretionary, communication services and real estate.
    • Stocks with high free cash flow are viewed more positively than stocks with increasing capex, high labor intensity and leverage.
    • "Our 2019 year-end target for the S&P 500 is 2900, where we believe the peak in equities is likely before the end of 2019," writes analyst Savita Subramanian.
    • The firm also calls bonds a compelling alternative for equities given their rise in yields.
    • Apple (NASDAQ:AAPLwill offer subsidies to mobile operators in Japan to allow for iPhone XR discounts due to underwhelming sales.
    • The XR price cuts in the region could happen as early as next week, according to WSJ sources.
    • Earlier this week, the WSJ reported that Apple slowed production on all three iPhone models released this year with the XR suffering the most drastic cuts.
    • Apple shares are down 0.5% premarket to $175.90
    • Aurora Cannabis (NYSE:ACB) has completed previously announced acquisition of ICC Labs (OTC:ICCLF). Pursuant to the acquisition, Aurora has acquired all of the issued and outstanding common shares of ICC for $1.95 per share, reflecting an aggregate purchase price of ~$290M. ICC is now a wholly-owned subsidiary of Aurora.
    • Completion of the Arrangement follows receipt of approval of the Arrangement from the Instituto de Regulación y Control del Cannabis, the Uruguayan regulatory authority overseeing the regulation and control of cannabis in Uruguay.
    • Under the Arrangement, each holder of common shares of ICC has received ~0.2161 Aurora Shares and Aurora has issued a total of 31,904,668 shares, which as of November 21, represented ~3.20% of the outstanding Aurora Shares after giving effect to the Transaction.
    • Retailers are preparing for one of their biggest weekends of the year, with an estimated 164M Americans going shopping Thanksgiving Day through Cyber Monday, according to the National Retail Federation.
    • The majority of consumers are planning to make their purchases on Black Friday, although the day is becoming less and less crucial to retailers as sales stretch beyond Thanksgiving week and more shoppers opt to make their purchases online.
    • The Satanic Temple has "amicably" settled its copyright lawsuit against Netflix (NASDAQ:NFLX) and Warner Bros. (NYSE:T) over their alleged misuse of its goat-headed deity in the series Chilling Adventures of Sabrina.
    • The group sought at least $50M of damages, claiming its statue "Baphomet with Children" was misappropriated in a manner implying that it stood for evil, and that the depiction hurt its reputation. Terms of the settlement were not disclosed.
    • Facebook (NASDAQ:FB) has recruited Kate Patchen, a veteran of the DOJ and one of the top antitrust lawyers in Silicon Valley, to be a director and associate general counsel of litigation.
    • Her hiring comes amid ongoing scandals at Facebook and tougher scrutiny from lawmakers concerned about competition and corporate power.
    • President Trump earlier this month said his administration was "looking at" antitrust proceedings against Big Tech.
    • Tesla (NASDAQ:TSLA) has slashed prices of its vehicles in China by as much as a quarter to absorb the impact of tariffs from the U.S.-Sino trade war.
    • Beijing imposed 25% duties on $34B of American goods, including cars, in July, in response to Washington's move to slap levies on $34B of Chinese imports.
    • Earlier this year, Tesla also cut prices of the Model X and Model S in reaction to the tariffs, but later raised them
    • U.S. regulators are pushing for clarity on automated flight control systems in Boeing's (NYSE:BA) latest 737 models as a result of last month’s Lion Air crash, as they address inconsistencies in how airlines have informed pilots about one of the features, WSJ reports.
    • Since the accident, some pilot union leaders and others have criticized Boeing for failing to highlight the operating principles and potential hazards of the MCAS system which automatically pushes down the nose of an aircraft that is approaching an aerodynamic stall; Boeing has denied it intentionally withheld information about the feature and said it had described the relevant function in its manual.
    • But a second automated feature, which has not previously been reported as part of the overall crash review, is intended to prevent cockpit crews from mistakenly further pulling up the nose of an aircraft that is already in a stall; that system, called elevator feel shift, is described differently in aircraft manuals used at Southwest Airlines (NYSE:LUV), American Airlines (NASDAQ:AAL) and United Airlines (NASDAQ:UAL), according to WSJ, citing pilots, safety experts and documents.
    • In a note today, Canaccord analysts said the fallout from the Lion Air tragedy will continue to weigh on Boeing shares: "While the near-term stock reaction may be overdone, there is legitimate concern about what the costs for a fix to the [MCAS] system could be, or what the long-term implications could be for the MAX aircraft… We believe the near-term concerns about emerging market growth and the potential implications for the 737 will continue to limit upside on the stock."
    • Canadian Prime Minister Justin Trudeau is offering tax breaks to businesses instead of cutting the country's deficit, as the Liberal government uses increased revenue to keep up with U.S. tax reform, Bloomberg reports.
    • The corporate tax cuts are worth C$14B (US$10.5B) over six years, according to a fiscal update unveiled on Wednesday.
    • The Canadian dollar is up 0.6% against the U.S. dollar, trading at 1.32 per greenback late Wednesday.
    • The tax changes will allow companies to write off capital investments more quickly, especially in manufacturing.
    • “This incentive will encourage more businesses to invest in assets that will help drive business growth over the long term,’’ said Finance Minister Bill Morneau in prepared remarks. “Because our economy is doing well, we also have the fiscal room to follow through on the commitments we made.’’
    • AGNC (NASDAQ:AGNC) closes its public offering of common stock that raised total gross proceeds of $794.4M.
    • Sold 46M shares including 6M under overallotment option.
    • Proceeds to be used to finance the acquisition of agency securities, non-agency securities (including credit risk transfer securities), other real estate-related assets, and hedging instruments and for other general corporate purposes.
    • Credit Suisse, Citigroup, JPMorgan, Morgan Stanley, BofA Merrill Lynch, and Goldman Sachs acted as joint book-running managers for the offering.
    • Previously: AGNC Investment -3% after stock offering prices (Nov. 15)

  3. /CL and /RB stopped out already – I don't want to try again if they re-test – too weak and too scary.

  4. Good morning, All!

    Hope everyone had a good Thanksgiving!

    The webinar replay is available!

  5. Yuch, turning lower.  

    We already have a lot of AAPL puts and we have 10 IBM puts too, so, for the STP, let's just buy the SQQQ bull call spread:

    • Buy 100 SQQQ March $15 calls for $3.10 ($31,000) 
    • Sell 100 SQQQ March $22 calls for $1.45 ($14,500) 

    That's net $16,500 on the $70,000 spread so plenty of upside ($53,500) on just that, without an offset.  The whole LTP is kind of our offset anyway…

    I feel better with the hedges on than off into the holidays anyway.

  6. wow oil down 6%, you know some traders somewhere are having a great black Friday!

  7. Wow is right-Have you seen the puts of 10.5-11 @ about 140k of them? 19x. I'm truly amazed. No one thinks that there will be a rebound thru Xmas?

  8. pirate – which issue?

  9. I would say that traders got BIG margin calls and we are in trouble. Can't say I'm surprised. BDC USO.

  10. There are not many bullish scenario for oil now and we know that the Saudis are probably doing their best to tank the market to help Trump help them! He was just as subtle when he said "Can we go lower?" as he was when he asked for Hillary's email…

  11. And that is only TODAYS trades. Add on another 130K from previous trades.

  12. ST jean and then he will take "credit" for gas lower. Your probably right. No change about a half a million short trades previous to today. Anyone else going to climb on this train? That's a lot of traders getting burned if it changes tracks!!

  13. I'm the proud owner of an AAPL Jan-2020 235 call, but looking at oil and market charts over the last 1-2 months, I'd say look out, something big is coming to the downside.

    UVXY 90 calls, QQQ 150 puts, be ready, keep rolling out as needed.

  14. Oil/BDC – Or a terrible one…

    Oil/Pirate – There's really no catalyst with Thanksgiving blown, people don't travel that much for XMas.  It's all up to the OPEC meeting but they haven't been able to do much so why should it suddenly improve?

  15. GBTC – I won't mention it again for 6 months, but GBTC at 4 was the price I was looking for to accumulate. Crypto winters are long and cold (the last one from Jan 2014 – Sept 2015, and the price took 2+ years from there to go from 200 to 20,000). So there is no hurry. Even $100 a month for next 24 months is a good plan. Crypto might go to zero, however, if it doesn't it goes up 10 – 100X from here. It might go down another 50% before it does, so accumulation is a good plan. Oddly, crypto investment has always favored the patient strategy, as opposed to the sensational technerds get-rich-quick articles you always read about. Those are actually the exception to the rule. Imagine that.

  16. black friday crowds?

    the US consumer is looking a little fatigued. uh oh.

  17. What  next- insurance companies going bust, housing collapse. That deficit count going up just terrifies me. On the positive side maybe MJ will go up! Everyone on tranquilizers!!? Have a good weekend everyone. Suns out for 5 seconds. Going to take advantage of it!!

  18. BDC – OSTK is up more than 25% today as they announce plans to sell their retail operation and concentrate on blockchain. Any thoughts ? 

  19. Phill / AAPL – you still confident in you apple price moves / recovery that you presented in the last webinar? to me it looks like we will test 165

  20. Phil – was there an update on the WBA short 75 calls? I think in the portfolio review you said you would follow up on that later? – thanks

  21. Albo / OSTK – interesting move! Retail is toxic. OSTK is pioneering inside the knowledge economy. I've never heard of tZero before and it's been 3 years without a product so that's troubling. But I do agree with the basic premise that I hate retail and like blockchain, in general.

    Personally, I think coins (tokens, etc) should be operated as non-profits, and force fitting tokens (in this case, really just a proxy for securities) is trying to make crypto behave like the deprecated assets they are replacing. So I don't like it, but I can see how people are married to the past so they make these mistakes.

  22. Thanks, BDC.

  23. have a great weekend PSW

  24. Phil/aapl

    Good morning!

    It seems to me that the market is pricing in some more bad news in the stock than is already known.

    Market seems to think that Aapl may be next Nokia or RIMM (blackberry- remember them?)

    If we consider Aapl a hardware earnings company, they may be right!

  25. Have a good weekend, Pirate.  I was just saying that smoking lounges are going to be a big thing – nice environments for people to hang out and smoke…

    AAPL/Batman, Maya – I'm confident in the VALUE of AAPL – the price is whatever people decide to trade it for.  The big problem is AAPL is tied to a very over-priced Nasdaq and it could drop 10% easily and that will take AAPL down 10% to about $155 but it won't change the VALUE of it.  Look at April and May, down to $160 then up to $230 – it was the same stock earning the same(ish) money – no major changes – just changes in sentiment and now sentiment is off for the moment.

    So what's more important, the FACT that Q2 18 was $2.8Bn higher and the FACT that Q3 18 was $3.4Bn higher than last year's income or the RUMORS that sales are disappointing and some squiggly lines on a chart?

    Show me the losses!

    Image result for show me the money gif

    That extra $6.2Bn earned in the last two Qs vs last year is more money than 90% of the S&P 500 companies make ALL YEAR!!!

    WBA/Coulter – I said later as in the next part of the portfolio review!  

    Well I'm glad we added that hedge!  

  26. Well, look at that, the markets are closed.

    Have a great weekend everyone,

    - Phil

  27. Phil / Apple thanks.  I was looking at selling some Jan short callers  Jan '19 205 @ 1.xx. think this is a good short caller on a naked Jan '21 180 long callers?  Or you; you choose something else?  thanks. 

  28. These low oil prices are painful for a lot of people including the Saudis:

    Image result for fiscal cost oil by country

  29. Phil / Apple .  I was looking at selling some Jan short callers  Jan '19 20i5 @ 1.xx. think this is a good short caller on a naked Jan '21 180 long callers?  Or do you think i choose something else?  thanks. 

  30. BMW to offer ride hailing services in China from December

  31. The Two-Emperor Problem

  32. Health chief calls for drastic intervention to cut salt intake

  33. These waterless hi-tech toilets could be the answer to urban Africa’s waste problems

  34. Dolce&Gabbana fiasco shows importance, risks of China market

  35. Phil / Apple .  I was looking at selling some Jan short callers  Jan '19 20i5 @ 1.xx. Do u think this is a good short caller on a naked Jan '21 180 long callers?  Or do you think i choose something else?  thanks. 

  36. Seems like Phil's post from earlier this am are gone?   Did anyone else notice?

  37. @batman- Dont think there has been a post yet from Phil, did you see one?

  38. I did not make a post yet, running a bit late.

  39. i was watching but havnt seen any posts from phil yet

  40. Folks / Post – thanks I mistaken – woke of at 2AM ( In CA) and could not sleep – so must of imagined this….