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Testy Tuesday – Is China Enthusiasm Enough to Flip the Death Cross?

We're still in technical trouble.

The rally, while impressive, has not been enough to avoid the dreaded "death crosses" in the stock indexes, where the 50-day moving average falls below the 200-day moving average (indicating acceleration to the downside) and, keep in mind that's 50 business days so more like 2.5 actual months of downward movement is being tracked – that's not the kind of thing you reverse in a single session or even a very bullish week – is it?

You can see from the "W" pattern on the NYSE that has formed below the 200-day moving average since early October and now it's December and we are making our second attempt at a rally after the early November rally failed so spectacularly into the Holiday.  But now it's Santa Rally time and Team Trump is promising us a trade deal for Christmas and when have they ever lied to us, right?

Trump has named China hard-liner, Robert Lighthizer, to head up the negotiations and that's not a good sign as Lighthizer fought hard in 2001 to stop China from joining the World Trade Organization in the first place so it would be really, Really, REALLY ironic if he were to suddenly put together the largest trade deal in history, with China…

Treasury Secretary Mnuchin would have been a more China-friendly and negotiating-friendly choice or even pro-trade Economic Adviser, Larry Kudlow, who said China committed to rolling back tarriffs on autos and agriculture to which China has already replied "He said we said what???"

Pushing things back 90 days let's Team Trump make all sorts of BS claims that can't be verified for 3 months and, even then, they can push it back another 3 months.  The two sides even disagree whether there is a deadline for talks.  While the U.S. said it would “endeavor” to wrap up talks in 90 days. In Buenos Aires, Chinese officials made no mention of any deadline, and were angered when told about the U.S. claims.

After popping 450 points near the open yesterday, the Dow gave back 150 of those points and, this morning, the Futures are giving back 100 more but that still leaves us with 200 points and the 50-day moving average on the Dow (/YM) is 25,570 and, as long as we stay over that, the 50-day moving average will improve and, MAYBE avoid making it's own death cross.  The other indexes however, are already putting out very negative signals.

The S&P (/ES) is right at the lone at 2,667, that's right where the cross is inverting against that index, Nasdaq (/NQ) is right at the 7,000 line, well below it's own cross occurring right at 7,077 and nowhere near the weak bounce line at 7,080 which is, not coincidentally, also the same inflection point!  12,400 is the strong bounce line on the NYSE and we're still over that at 12,478 but very bad if we fail that – especially as the declining 50 DMA is at 12,515.  Last is the Russel, which is back to 1,520 this morning and that's a very harsh rejection right at 1,550, where it hit the 50 dma so, in short, I'd say we're DOOMED!!!

So let's be careful out there!

 


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  1. Macron Reverses Fuel-Tax Hike After Yellow Vest Protests


  2. Market participants should know by now that Trump tweet are not actionable items. They are generally lies directed to his base or corroboration for Mueller of various crimes.


  3. This is what $1.5T of added deficit bought you:

    https://www.vox.com/policy-and-politics/2018/12/3/18118225/republican-tax-cut-bill-economic-stimulus

    The Congressional Budget Office estimates that GDP growth, spurred by fiscal stimulus including the tax cuts and increased government spending, will be 3.1 percent in 2018 and will decline to 2.4 percent in 2019 as business investment and government purchases slow. It then projects that GDP growth will slow further to 1.6 percent each year from 2020 through 2022 and 1.7 percent annually from 2023 to 2028.

    An increase of 0.5% over the baseline for this year (or roughly $95B in increase) and then a slowdown for years to come as we have no stimulus slack and ramp up debt payments.


  4. Some good examples of bad buybacks:

    https://ritholtz.com/2018/11/bad-buybacks/

    General Motors. The General bought $14 billion worth of stock back from 2015-17 – and at considerably higher prices – only now to reverse course, slimming down to “remain competitive.” (GM spent billions buying stock in years prior, too).[...]

    While GM was spending billions on buybacks, its competition was spending billions innovating: building out a nationwide electric charging station infrastructure, developing autonomous driving technologies, creating the latest generation battery technologies. GM has fallen behind its competition in technological innovation.

    Is this really a firm that should be spending billions buying back its own stock? This is not merely bad governance and misuse of capital — IT IS CORPORATE SUICIDE.

    GE is also in there…



  5. Good Morning.


  6. Good morning! 

    My apologies, my last leg home hit a snag and I just walked in the door.

    Looks like we're selling off though.  I take it the morning data didn't go well…


  7. AAPL down 2%, that's not helpful.

    • Japan -2.39%.
    • Hong Kong +0.29%.
    • China +0.42%.
    • India -0.29%.
    • London -0.50%.
    • Paris -0.49%.
    • Frankfurt -0.44%.
    • The rapprochement between President Trump and Xi Jinping fired up markets on Monday, but skepticism is creeping into investing sentiment, with U.S. stock index futures down about 0.5%.
    • None of the commitments that U.S. officials said had been given by China – including reducing its 40% tariffs on autos – were agreed to in writing, while there was initial confusion on when the three-month negotiating window would start.
    • Meanwhile, the curve between U.S. three-year and five-year and between two-year and five-year paper inverted on Monday for the first time since the financial crisis, and analysts expect the two-year, 10-year yield curve – seen as a predictor of a U.S. recession – to follow suit.
    • Oil is up 2% at $54.03/bbl, gold is 0.4% higher at $1245/ounce and the 10-year Treasury yield is down 4 bps to 2.95%.

    On The Yield Curve Inversion: The Camel's Nose Is In The Tent – Maybe 

    • CIA Director Gina Haspel will brief Senate leaders this morning on what the agency knows about the death of Saudi journalist Jamal Khashoggi.
    • President Trump has previously said the findings weren't conclusive and there was no direct evidence of Mohammed bin Salman's involvement, but many lawmakers are unhappy about his response.
    • Their anger has resulted in an upcoming vote on pulling U.S. support for Saudi forces in Yemen.
    • Chain store sales increased 7.0% in the latest weekly read by Johnson Redbook vs. +6.2% for the week prior. An earlier Hanukkah holiday period this year is believed to have contributed to the strong sales tally.
    • Month-to-date sales are 6.8% higher. November sales are expected to be up 7%.
    • Britain can still cancel Brexit by revoking Article 50 without the consent of other EU member states, according to the ECJ's top legal advisor.
    • The news is a win for Remainers hoping to reverse Brexit when MPs vote on Theresa May’s controversial withdrawal agreement on Dec. 11.
    • While the decision is not binding, in around 75% of cases ECJ judges will follow the advice of their Advocate General's opinion.
    • Sterling +0.8% to $1.2820.

    Toll Brothers -5.6% after Q4 shows demand slipping

    • Toll Brothers (NYSE:TOLsinks 5.6% in premarket trading after Q4 contracts reflect a decline demand followed by further softening in November, with the biggest decline in California.
    • Fiscal Q4 net signed contract value of $1.50B fell 15% from a year ago and contract units of 1,715 declined 13%.
    • “Current market conditions create a wide range of possible scenarios for our full year results. While we are targeting modest community count growth by FYE 2019, we have limited our forward-looking income statement guidance to the first quarter of 2019," says Toll CFO Martin P. Connor.
    • Q1 guidance:
    1. Deliveries of 1,350-1,550 units with average price of $850,000-$880,000.
    2. Q1 adjusted gross margin of about 23.5%.
    3. Tax rate of about 27.5%.

    French government delays fuel tax hike

    • The French government is reportedly ready to suspend a controversial rise in fuel tax that has triggered protests by the gilets jaunes – or yellow vests – throughout the country and dramatic scenes of violence and civil unrest.
    • Initial demonstrations have now morphed into wider anger at a perceived drop in living standards, price rises and a rallying cry for those who say Emmanuel Macron's policies favor the elite and wealthy.
    • Update 7:00 a.m. ET: "After hearing (the) anger I am suspending for six months three fiscal measures including fuel tax increases," Prime Minister Edouard Philippe declared, adding that the violence that has beset France in recent weeks must stop and that no tax should endanger national unity.

    Crude oil extends gains on expectations of production cuts

    • Crude oil adds to yesterday's big rebound ahead of an expected supply cut agreement later this week among OPEC and Russia: WTI +1.9% at $53.96/bbl, Brent +2.2% at $63.03/bbl.
    • OPEC is striving for a deal to cut production by at least 1.3M bbl/day, but the group is still talking to Russia about the extent of the reduction, according to reports.
    • Russia is playing tough,” an OPEC source tells Reuters, which also reports Russian sources have indicated the country could contribute 140K bbl/day to a reduction but OPEC wants Russia to cut by 250K-300K bbl/day.
    • Saudi Energy Minister Al-Falih issues a cautious tone in comments to Bloomberg, saying it is “premature” to provide specifics about an agreement and walks back previous statements about the size of any supply reduction, saying the group likely will cut but still needs to “figure out what needs to be done and by how much.”
    • Another challenge is to bring on board Iran and Venezuela where production is already low.
    • Helping OPEC in reining in supply was the weekend order by Canada's Alberta province for producers to cut output by 325K bbl/day until excess crude in storage is reduced.

    Honda U.S. sales down 9.5%

    • Honda (NYSE:HMC) unit sales -9.5% to 120,534 units vs. -0.6% forecast by Edmunds.
    • Car sales fell 12.6% and truck sales -6.8%.
    • Sales in the Honda division dropped 11.6% to 106,481 units, while Acura sales rose 10.5% to 14,053 units, led by 13.8% rise in trucks
    • Civic sales declined 29.8% while Accord sales rose 1.6% for the month.
    • YTD Honda sales down 2.8% to 1,449,713 units.

    Hyundai November U.S. sales rose 1%

    • Hyundai (OTCPK:HYMLF) reports sales in the U.S. rose 1% in November to 57,499 units.
    • Volume leaders during the month were the Elantra (18,148 units) and Tucson (11,908 units).
    • YTD Hyundai U.S. sales fell 1.6% to 612,225 units.
    • "Hyundai's product portfolio makeover of 10 all-new or redesigned models in 2018 are attracting consumers and resulting in sales growth in an industry we expect to be down slightly for the month," said John Cook, director, Sales Operations, Hyundai Motor America. "We continue to focus on retail sales and with compelling offers during the Hyundai Holidays winter sales event we are aiming for an increase on the year. Going into 2019 with these new products and our new flagship premium three-row Palisade SUV that was launched at the Los Angeles Auto Show last week, we are building momentum and are poised to pick up market share."

    Kia Motors America announces November sales

    • Kia Motors America (OTCPK:KIMTF) units sales rose 1.8% to 45,101 in November.
    • The sales were led by 17% gain in brand's popular Forte model and 26% growth in popular Sportage CUV.
    • YTD Kia sales decreased 1% to 497,144 units.
    • "Sales picked up throughout November and culminated in a strong Thanksgiving weekend that drew significant showroom traffic," said Bill Peffer, vice president, sales operations, Kia Motors America. "With the global debut of the all-new, 2020 Soul at the LA Auto Show last week and the new product introductions slated for first quarter 2019, we are confident that interest in the Kia brand will continue to grow."

    Tesco questions Sainsbury-Asda deal

    • Tesco (OTCPK:TSCDFOTCPK:TSCDY) is questioning the economics of Sainsbury's (OTCQX:JSNSFOTCQX:JSAIY) proposed takeover of Asda in the U.K.
    • The grocery store operator thinks "extensive remedies" are called for if precedent is to be followed.
    • Under the terms of the mega-merger, Sainsbury is paying £2.98B to Asda parent company Walmart (NYSE:WMT) and issuing 1.6B new shares for a 42% stake, while Walmart has written off Asda's debt and pension obligations.
    • Kroger (NYSE:KR) and Walgreens (NASDAQ:WBA) say they plan to build on a exploratory pilot set up in October by offering Home Chef Express meal kits in 65 Walgreen stores in the Chicago region. Each Home Chef Express meal serves two and starts at $8.50 per serving.
    • The companies highlight that the partnership combines America's food and grocery authority with Walgreens global expertise in pharmacy, health and beauty.
    • "We're pleased to continue working together to explore new concepts that expand product selection to provide a better shopping experience and greater value for our customers," says Walgreen exec Richard Ashworth on the initiative.
    • Source: Press Release

    • Dollar General (NYSE:DG) reports same-store sales increased 2.8% in Q3 as an increase in average ticket helped offset flat traffic during the quarter. Management cited positive results in the consumables, seasonal and home categories. The consensus estimate from analysts was for same-store sales growth of 2.4%.
    • Gross profit fell 39 bps to 29.9% of sales.
    • SG&A expenses were down 21 bps to 22.9% of sales.
    • Operating profit rose 5.9% to $442.1M in Q3.
    • The company ended the quarter with merchandise inventory of $3.98 (+4.0% on a same-store basis).
    • Looking ahead, Dollar General expects FY18 sales growth of ~9.0% vs. prior outlook of 9% to 9.3%, EPS of $5.85 to $6.05 vs. $5.95 to $6.15 prior and $6.11 consensus.
    • Shares of Dollar General are up 0.85% in premarket trading to $112.65.
    • Previously: Dollar General beats by $0.04, beats on revenue (Dec. 4)

    Intel's "good as it gets" downgrade

    • Northland downgrades Intel (NASDAQ:INTC) from Market Perform to Underperform.
    • Analyst Auguste Richards cites reduced expectation of 10nm ramp in 2H19, weak demand from Apple, and soft Flash pricing.
    • Richards says "this is as good as it gets" for Intel with trade trauma and market share loss to AMD.
    • The analyst drops the target from $46 to $42 and cuts 2019 estimates while modeling for further declines in 2020.
    • Source: Bloomberg First Word.
    • Intel shares are down 1.3% premarket to $49.49.
    • NXP Semiconductors N.V. (NASDAQ:NXPI) announced pricing of the $2B aggregate notes offering by its subsidiaries NXP B.V. and NXP Funding LLC.
    • 4.875%, $1B notes will will mature on March 1, 2024.
    • 5.350%, $500M notes will mature on March 1, 2026.
    • 5.550%, $500M notes will mature on December 1, 2028.
    • Interest on the notes will be payable semi-annually. The issuance of the Notes is expected to close on or around December 6, 2018.
    • Net proceeds will be used to repay the $1B aggregate principal amount outstanding under the senior unsecured bridge term credit facility agreement and the remaining proceeds for general corporate purposes, which may include the repurchase of additional shares of its common stock.
    • Source: Press Release

    FANG Tumbles But Microsoft Stands Strong 

    • It's already been run up the flagpole a few times by analysts, but Saxo Bank has added Apple (NASDAQ:AAPL) buying Tesla (NASDAQ:TSLA) to its list of "outrageous predictions" for 2019.
    • "Apple has the financial strength to fulfill Elon Musk’s wildest dreams, ensuring that Tesla doesn’t have to balance capital expenditures to cash flow generation in the short term," reads the Saxo update.
    • "Apple realises that if it wants to deepen its reach into the lives of its user base, the next frontier is the automobile as cars become more digitally connected. After all, the late Steve Jobs showed that a company needs to bet big and bet wild to avoid complacency and irrelevance," reasons the Danish investment bank.
    • The Saxo prediction is that Apple secures funding at $520 per share for Tesla.
    • As is typical with the AAPL-TSLA linkup speculation, there's not much of a reaction from investors. AAPL is down 1.89% in premarket trading after a HSBC downgrade, while Tesla is off 0.63%.
    • HSBC downgrades Apple (NASDAQ:AAPL) from Buy to Hold and cuts its target from $205 to $200.
    • The firm cites slowing emerging market economies and Apple's reliance overdependence on a single product
    • Key quote: "Apple's iconic hardware unit growth is broadly over for now. Revenues are only supported by higher selling prices and by the development of services."
    • And: "While we understand the company's interest of not disclosing unit sales of hardware and focusing more on service gross margin, investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts."
    • Apple shares are down 1.9% premarket to $181.35.
    • Apple (AAPL -2.1%) execs moved some marketing staff from other projects to focus on boosting iPhone sales, according to Bloomberg.
    • The worker shift happened in October, one month after the iPhone XS went on sale.
    • Bloomberg's source referred to the move as a "fire drill."
    • Apple has since increased its trade-in offers for older devices to boost sales of the three newer models.
    • Last week, Japanese carriers cut iPhone XR pricing by offering subsidies.
    • Yesterday, Apple supplier Cirrus Logic followed Lumentum, Qorvo, and several other suppliers in cutting its guidance on smartphone weakness.
    • Previously: Apple downgraded on market saturation (Dec. 4)
    • Previously: Cirrus Logic -6% on guidance cut (Dec. 3)

  8. Big Chart – Watch those death crosses.  Obviously, if we can't stay over those declining lines we are DOOMED!!!

    Great cartoon, StJ.

    Oh, and what's this about a market holiday tomorrow?  I don't remember closing the markets for other dead Presidents….



  9. when Ford died I wanted the NY Daily News to run a headline "City to Ford: Drop Dead" https://filmforum.org/series/new-york-in-the-70s-series  (I used to think Gerry was ok; but now I think his pardon of Nixon only encouraged the crooks more).


  10. i am still seeing in progress for the main post?



  11. Ford/Mike – Didn't remember that. 

    Ford/Rexx – Yes, he was no fan of NY but that's what we're doing to Chicago now too.

    IN PROGRESS/Jabob – Yes, I never finished it but maybe now I'll circle back.

    Damn, I was just thinking I wanted to look at them because the fires in CA present a major long-term need for housing:

    • Down nearly 10% after reporting its first year-over-year decline in new home orders in four years, Toll Brothers (NYSE:TOL) has reversed dramatically, now higher by 0.2%.
    • We could attribute the move to comments in the conference call, but that doesn't begin until 2 ET.
    • More likely, there's some sell (buy) the news action going on – the homebuilders have been relentlessly sold this year, squeezed by higher rates, higher prices, higher costs, and the removal of the SALT deduction. But the news is improving, at least on rates. The 10-year yield is at a three-month low and the Fed rate hike cycle is showing signs of ending.
    • Previously: Homebuilders cry for help (Dec. 4)

    Still very low at $33 but $30 was a huge bargain.  $33 is $4.85Bn and they are good for $600M but very big in CA so, once the insurance money comes in – lots of opportunity for all builders out there.  

    Year End 31st Oct 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 1,883 2,674 3,912 4,171 5,170 5,815 6,716 7,037 7,773 +25.3%
    Operating Profit $m 63.4 214.3 397.2 446.9 490.1 644.9 732.2     +59.0%
    Net Profit $m 487.1 170.6 340 363.2 382.1 535.5 629.1 710.5 756.6 +1.9%
    EPS Reported $ 2.86 0.97 1.84 1.97 2.18 3.17 3.75     +2.0%
    EPS Normalised $ 2.86 0.90 1.75 1.93 2.13 3.13 3.73 4.61 5.06 +1.9%
    EPS Growth % +1,038 -68.4 +93.2 +10.2 +10.6 +47.1 +18.9 +47.1 +9.79  
    PE Ratio x           10.7 8.99 7.27 6.62  
    PEG x           0.23 0.19 0.74 1.59
    Profitability

    I think, for the LTP, this is one of those things where there's certainly no reason not to sell some puts for income so let's sell 10 of the TOL 2021 $30 puts for $4.50 ($4,500) and, in the very least, we get a nice net $25.50 entry.


  12. TOL / Phil – The fundamentals are great, but talk about the tale of 2 years:

    TOL Toll Brothers, Inc. weekly Stock Chart

    Looks like they just completed the roof a new house!


  13. There you go Jabob – all finished! 

    TOL/StJ – That's why I like those solid builders when they are down.  Some asked about HOV yesterday:

    HOV is much less reliably profitable than TOL with wild swings from +$300M to -$300M but you only have to pay, at $1.14, $177M to be on that ride so, when they are making 1/2 as much at TOL for 1/50th the price – they are a screaming bargain – you just have to wait for times when they are losing money to get in – but then it's a question of how brave you feel.

    TOL has $778M in cash and $865Bin in investments along with $3.7Bn worth of land that's probably worth a lot more once they develop it.  They are also $3Bn in debt, but that seems very manageable – even with rates climbing.  

    HOV, on the other hand, has $273M in cash, $1Bn in inventory and $61M in investments but I'm far less likely to trust the value of their investments as I know those guys and they are not Donald Trump, but they are Jersey Builders where "assets" can mean many things.  HOV has $2.2Bn in debts which technically gives them a negative total net equity value and their slide presentation looks like one of the grandkids did it for a school project:

    The main point they try to make in the slide show is that they are rapidly turning over their expanding inventory so, in effect, hitting their groove again and paving a path to future profitability:

    But HOV is concentrated in the heavily-taxed Northeast with rising rates and no particular catalyst but they do have $2.1Bn worth of tax losses to defer their earnings for many years to come – that's a huge plus.  

    So HOV is way more speculative than TOL and options only go out to May.  We used to like them back in the crash when the options went out 2 years and were in 0.50 increments.  Now the May $2 puts are 0.85 so the net entry is the same $1.15 they are trading at and the $1 calls are 0.35 so there's really no fun way to play them so the winner is TOL.

    Year End 31st Oct 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 1,485 1,851 2,063 2,148 2,752 2,452 2,098 2,015 1,951 +10.5%
    Operating Profit $m 14.9 130.3 128.3 97.9 134.9 91.5 106.7     +43.8%
    Net Profit $m -66.2 31.3 307.1 -16.1 -2.82 -332.2 -29.8 -12.2 8.80  
    EPS Reported $ -0.52 0.22 1.87 -0.11 -0.019 -2.25 -0.20      
    EPS Normalised $ -0.37 0.22 1.87 -0.11 -0.005 -2.10 -0.18 -0.090 0.050  
    EPS Growth %     +757.7              
    PE Ratio x           n/a n/a n/a 24.4  
    PEG x           n/a n/a n/a 0.10
    Profitability

    Definitely TOL!


  14. markets turning sharply down?


  15. batman--because Phil forgot to finish his post?


  16. What a difference a day makes!!!


  17. The clown must have run out of rabits.


  18. When do non-PSW market participants get too seasick from all of this and decide to start liquidating? It's fun for us but it's got to be painful for most people.


  19. what is causing the panic?


  20. Jabo don't worry it is only 12.30PM


  21. ;-) no worries


  22. ' Stocks extend losses as investor revise initial take on trade truce' or 'Economic doubts drag treasury benchmark rate further below 3%'  – from WSJ


  23. I hope some sold the puts on PSA when I mentioned it!


  24. Yodi I sold one 200 PSA put


  25. Tol as well they must have read you notice Phil!


  26. Kagabor good shot! Wish I bought the stock as well when it was below 200.


  27. Winston still playing that AAPL game? See how quickly things can turn.


  28. In retrospect, fading the BS tariff rally yesterday was the best trade in a long time.  


  29. Tariffs / Albo – What was telling is when they asked Kudlow and Mnuchin to expand on the deal, they could not because they said it was only an oral agreement! Trump heard some vague promises and tweeted crap meant for his followers sounding like a great victory. As I posted earlier, market participants really need to stop reading these tweets – they are not policies or news, just Goebbels style propaganda! Or Baghdad Bob if your prefer.


  30. Yodi, 

    I did your PSA put play. Thanks! How did you find PSA and that particular put?


  31. ALBO thats for sure still kicking myself for not entering short this morning around 9am

    ive been waiting for a long entry for a bounce since 1230 but i got scared off once dollar and vix headed back up.


  32. Extension Brings 21-Hour Futures Trading to Frankfurt This Month


  33. Disney’s Hail-Mary Sports Deal


  34. We are giving back gains from Friday and Monday now! Maybe a good thing we are closed tomorrow.






  35. My comical play of the day was buying 1515/1500/1485 RUT butterflies at open, thinking we might grind up and down to that level over the next few weeks. Right about price but not time, making only .15 per spread! :P


  36. Painman, PSA I did investigate the stock for my armchair trades. On top I traded the stock before with good results. A stock like this always becomes interesting for me when it gets to the lower side of the scale. On top people always need extra space to store there stuff.


  37. Just by chance, I close 90% of my short VXX calls yesterday because they were under $0.05 (no commission on TOS to close) and tying up margin. I usually wait for expiration but had a larger than usual position because I rolled up. Maybe I'll be able to open new positions again.


  38. I wish they would add more expirations though – nothing past January and I like to sell 60 days.


  39. Put/Call ratio only 85-90.  No real panic yet.


  40. Financials among the hardest hit   XLF down more than 4%.


  41. Nothing really changes.  A quote from the moderator of a 1935 town hall radio program:  

    "If we persist in the practice of Republicans reading only Republican newspapers, listening only to Republican speeches on the radio, attending only Republican political rallies, and mixing socially only with those of congenial views, and if Democrats follow suit, we are sowing the seeds of the destruction of our democracy."

    Quote from Ivy Lee one of the first public relations specialists in the 1920’s

    “Facts don’t exist, or at least they can’t be reported. The effort to state an absolute fact is simply an attempt to achieve what is humanly impossible; all I can do is give you my interpretation of the facts.”


  42. What a difference/Yodi, Batman, Jabob – That's why I'm very skeptical about those sort of things.  As I noted yesterday morning:

    When you think about it, of course, not only has NOTHING changed since last week but now we know for sure there will be no trade deal until March at best.  Trump showed real weakness backing down on more tariffs since that was the only leverage he had in this negotiations and China's tariffs have always been retaliatory – so Xi has given up nothing at all and Trump has stopped fighting – how is that worth $500Bn of stock advances?

    Still, it is what it is and we'll just have to see how things shake out.  We're now solidly over our bounce lines but that doesn't matter unless we're still over them on Wednesday so today is very much a watch and wait kind of day, which is good – because I'm on vacation.

    Be careful out there, 

    I hate to be "that guy" but it's my job to keep people from overreacting….

    Most people/Ati – Never be one of them! cool

    Doom!!!

    Pump prices finally came down more in-line with the recent sell-offs in /RB

    AAPL crushed back to $177.50 on return of the IPhone sales rumors and more downgrades. 

    Closed tomorrow/StJ – May not be a good thing at all, Thursday could be a real flush as Europe and Asia spend tomorrow catching up with us and we have to fill a gap Thurs morning.

    Another retrospective lesson in why we do the things we do:  Remember our SQQQ adjusting on Friday afternoon – "just in case"?  When we tilt more bearish it covers us for buying more longs, which we would have done if this rally was real but, wisely, we waited before jumping on the gains and now those pressed hedges are paying off well because we added to them when they were cheap – rather than chasing them on a day like today.

    Butterflies/Ati – That's the kind of stuff we used to do in the original Butterfly Portfolio but, over time, I decided our new structure was much more stable.

    Looks like we're finding a bit of support at 2,700 on /ES but maybe just a bounce off an 80-point drop so watch out for 16-point bounces.  Lined up with 25,050, 6,815 and 1,485 – which hyas often been significant.

    Wow, TSLA keeps plowing on – back to $360.  Very tempting to short – I still can't quite believe it but not enough evidence on my side at the moment.


  43. Phil—on the sqqq adj – did we buy back the short call?


  44. SQQQ/Savi – No, we just rolled the March $15s to June $12s which gave us 180 June $12 calls vs 100 short March $22 calls – certainly no reason to buy back the March $22s with SQQQ at $13 (now $14) as it would take a 50% bump (15-20% drop in QQQ) for those to be in the money and we're over-covered anyway.  


  45. Not even weak bounces on the indexes = sad…


  46. Phil – I am curious if a double-diag would make sense for a stock like GE that is down in the dumps. For example, buying the 2021 3 Puts and 10 calls and selling March 7 puts and 8 calls against it. You have a wide range to win by March anyway and of course roll and keep on selling quartelies. 2 sales and your longs are paid for anyway with 7 more sales coming up. And you are covered in all cases – if GE takes off, you have the free long calls and if they go BK, you collect on the free long puts. The strikes are for the example only, not optimized. It seems that the GE situation is ideal for this type of trade – little downside move possible where they stand. You don't have to worry much about that side of the trade.


  47. Nice day for cherry calls


  48. DD/StJ – My only issue with that is that, at $7.50 (not even), GE is just a $64Bn company and, as such, may get bought.  That would blow you out but probably not too much damage as you lay it out (you owe the $8 callers $2 but you are selling $1.40 in premium against a $2 long position so $2.60 loss if it happens in the first Q vs (8 x $1.40) – $2 = $9.20 profit potential).   With a 50% drop in a month, it's too volatile to be a Butterfly Play but certainly something you can play with.

    • A commission appointed by President Trump recommends that the U.S. Postal Service hike its rates for shipping packages.
    • Trump assembled the commission after slamming Amazon (AMZN -5.9%) for allegedly underpaying the USPS for package shipments.
    • Commission member and Treasury Secretary Steven Mnuchin: "Today’s report contains achievable recommendations that fulfill the President’s goal of placing the USPS on a path to sustainability, while protecting taxpayers from undue financial burdens and providing them with necessary mail services.”
    • Last month, the USPS reported FY18 results with an overall volume decline of 3.2B pieces and a net loss of $3.9B. Revenue was up $1B Y/Y largely due to the Shipping and Packages business, which had a 10% Y/Y revenue growth to $2.1B.
    • Amazon shares are down 5% on the news while Stamps.com (NASDAQ:STMP) is down 5%, UPS (NYSE:UPSdrops 7%, and FedEx (NYSE:FDXdips 5.9%.
    • AT&T (T -2.9%) threaded the needle by striking a deal with Netflix (NFLX -4.9%) that keeps Friends on the streaming service, while also retaining the rights to add the still-popular sitcom to the company's upcoming direct-to-consumer service after 2019.
    • Netflix will be the exclusive Friends streamer next year, but will have to pay $100M for the rights, up from the $30M per year the company has been paying.
    • Today's big, broad selloff is sparing no sector except for the utilities (XLU +0.6%), seeing a nice flow of investor cash as the S&P falls 2.5% and the 10-year Treasury yield drops 5.6 basis points to just 2.91%.
    • It was only a bit more than two months ago when the S&P 500 was outperforming the XLU by a wide margin for 2018. Flash forward to today, and the S&P 500's 1.1% YTD advance is a full 700 basis points worse than the utility SPDR.
    • The REIT sector often sees some buying on days like this when the major averages sell off and interest rates fall. The iShares U.S. Real Estate ETF (IYR -0.9%), however, is in the red (though outperforming the S&P 500's 2.6% decline by a wide margin).
    • What's working in REITs? Interestingly, the only group within that sector in the green are the self-storage players – Public Storage (PSA +0.7%), Extra Space Storage (EXR +0.1%), CubeSmart (CUBE +0.4%), and Life Storage (LSI +0.3%) among them. After all, if the economy is headed south and homebuying is in the dumps (see Toll Brothers results today), self-storage cubicles should benefit?
    • The U.S. stock declines deepen as 2-year/10-year Treasury curve continues to flatten, fueled by some hawkish comments from Fed officials, little progress on the China-U.S. trade front, and a heap of negative Brexit news.
    • S&P -2.5%, Dow -2.5%, and Nasdaq -2.9%.
    • New York City's Taxi and Limousine Commission votes to establish a minimum wage for app-based drivers working for services like Lyft (LYFT) and Uber (UBER).
    • The minimum pay will be $17.22 per hour after expenses, in-line with the $15 minimum wage that will take effect for typical employees in the city at the end of the year. The extra goes towards the driver's payroll taxes and the need for paid time off.
    • Key quote from Uber's statement: "The TLC's implementation of the City Council's legislation to increase driver earnings will lead to higher than necessary fare increases for riders while missing an opportunity to immediately reduce congestion in Manhattan's central business district."
    • Swift, a legacy payments platform owned by 2,500 banks, is testing a new system to speed up banks' cross-border transfers and to reduce errors, the Financial Times reports.
    • The pilot seeks to take on a blockchain-based project and payment fintechs that offer faster, less-expensive services.
    • More than 130 banks, led by JPMorgan Chase, have signed on to a competing blockchain-based system called Interbank Information Network, which shares information between banks on a distributed ledger. Revolut and TransferWise are fintech startups also created to speed up cross-border payments.
    • Some banks though are signing on to more than one system. Several banks that are part of IIN are also a part of the Swift pilot, which aims to fix lengthy payment delays caused by errors in the legacy system.
    • Previously: Malaysian bank CIMB joins RippleNet (Nov. 15)
    • Previously: J.P. Morgan set to roll out next blockchain program (Oct. 16, 2017)
    • "BBB" downgrade risks may be overstated, according to S&P Global Ratings' Credit FAQ.
    • Scenario analysis indicates $200B-$250B of potential fallen angel debt in the next recession, in line with past cycles when viewed as a percentage of the speculative-grade bond market.
    • Debt tends to be concentrated among the most stable sectors and issuers:
    1. About 84% of BBB debt leveraged above 5x falls in the real estate, regulated transmission/transport, and regulated utilities sectors.
    2. Outside of the sectors named above, 90% of BBB debt is projected to have leverage below 4x by 2019, and 70%-80% of BBB debt is leveraged below 3x in 2018 and 2019 forecast years.
    • President Trump is scheduled to have a "brief meeting" with top German automaker execs today at the White House, according to a statement from Press Secretary Sarah Sanders.
    • Commerce Secretary Wilbur Ross said yesterday that the U.S. is asking for a higher level of production in the U.S. out of Daimler (OTCPK:DMLRYOTCPK:DDAIF), BMW (OTCPK:BMWYY) and Volkswagen (OTCPK:VLKAFOTCPK:VWAGY).
    • Fresh off reassurances from Verizon (VZ +0.5%) that it will have Samsung 5G phones ready in the first half of 2019, AT&T (T -1.9%) says its second mobile 5G device will be a Samsung smartphone in the same time frame.
    • That phone will give those on a compatible plan access to the 5G network AT&T says it will roll out before the end of the month.
    • AT&T says as of today it's installed mobile 5G network equipment in areas of the 12 introduction markets, with plans to expand to seven additional cities in the first half of next year.
    • It also says it's working with Samsung on a manufacturing-focused 5G Innovation Zone, a testbed to understand the impact of 5G on smart, robotics-driven factories.
    • Previously: Report: 5G iPhones coming in 2020 (Dec. 03 2018)
    • Sophisticates across the pundit and professional economic classes have been busy the past couple of days telling us an inverted yield curve means nothing.
    • Jeff Gundlach would beg to differ. Curve inversion (only at the short end for now, but coming soon to the 2-10 spread), says Gundlach, signals an economy "poised to weaken," and suggests "total bond market disbelief in the Fed's prior plans to raise rates through 2019."
    • The Fed, he says, needs to be careful in its communications. "There can’t be another screwup like last time, when they dropped 'accommodative' but simultaneously characterized the Fed Funds rate as 'a long way' from neutral."
    • Banks lead midday U.S. stock market declines as the U.S. Treasury yields narrow and news that trade talks with China weren't as productive as originally made out to be.
    • The 2-10 curve now stands at a mere 11 basis points.
    • Financial Select Sector SPDR ETF (NYSEARCA:XLF) -3.6%; YTD,it's now down 4.7%.
    • Looking at individual stocks: Bank of America (BAC -4.9%), Citigroup (C -4.1%), JPMorgan Chase (JPM -2.9%), Wells Fargo (WFC -3.3%), Goldman Sachs Group (GS -3%), and Morgan Stanley (MS -4.9%).
    • SPDR S&P Regional Banking ETF (NYSEARCA:KREsinks 5.4%; YTD, -7.2%
    • Among the biggest decliners: Bank OZK (OZK -9.1%), which was downgraded by Piper today; Regions Financial (RF -5.5%), Fifth Third (FITB -5.4%), Axos Financial (AX -5.3%), SunTrust Banks (STI -5%), PNC Financial (PNC -4.8%), and CIT Group (CIT -4.8%).
    • Previously: Averages tumble in afternoon action (Dec. 4)
    • The tech sector (NYSEARCA:XLK) presses down 2.9% on a combination of Cirrus Logic's guidance cut on smartphone weakness, Apple's newest downgrade, and a lack of specifics for the US-China trade war truce.
    • Semis are taking a particularly hard hit with the Philadelphia Semiconductor Index down 3.8%. The S&P 500 IT index is down 3.1% and the tech-heavy Nasdaq 100 dips 2.7% compared to the 2.3% for the S&P 500 and 2.8% for the Nasdaq.
    • Related semiconductor ETFs: SOXLSOXXSMHUSDPSIXSDSOXSSSGFTXLXTH
    • Previously: Apple suppliers, chips drop on Cirrus cut (Dec. 4)
    • The British pound falls 0.3% against the U.S. dollar after Theresa May's government has been found in contempt of Parliament and is ordered to hand over the Attorney General's legal advice on Brexit.
    • The government had lost in its bid to water down the opposition contempt motion.
    • The debate on May's Brexit deal begins later today.
    • Invesco CurrencyShares British Pound Sterling Trust ETF (NYSE:FXBfalls 0.4%.
    • It's easy come easy go for Caterpillar (CAT -4.7%) shares, which have surrendered all of yesterday's gains that followed the U.S.-China trade truce and an upgrade from BofA Merrill Lynch.
    • But Ari Wald, head of technical analysis at Oppenheimer, says CAT is not the stock to take advantage of the trade war truce, telling CNBC that "in general, we are cautious on capital goods stocks that are exposed to the global economy and what we see as a decelerating macro backdrop."
    • "If you're buying this stock, you're making the case that the global backdrop is bullish," according to Wald. "What we instead see is a stock rallying into very formidable resistance at around $142."
    • BK Asset Management managing director of forex strategy Boris Schlossberg is more bullish on the shares, saying "The Fed seems to be easing its monetary path cycle, and therefore if it really isn't going to hike rates as much as the market thinks in 2019, that's positive for Caterpillar, which obviously [would have] a lower cost of capital."
    • The U.S. House Judiciary Committee postpones Google (GOOG -1.4%)(GOOGL -1.4%) CEO Sundar Pichai's testimony until December 11.
    • The hearing into the company's social media practices, including an alleged bias against conservatives, was rescheduled due to the state funeral of former president George H.W. Bush.
    • Previously: Google CEO hearing likely to be postponed (Dec. 3)
    • Broad selling in the transportation sector is being taken by some market watchers as a leading indication of weakening investor sentiment on stocks as a whole.
    • While FedEx (FDX -5.8%), UPS (UPS -6.2%) and trucking stocks were hit by biting analyst commentary this morning (Amazon Air impact, intermodal pricing) – railroad and airline stocks are also seeing some selling pressure.
    • Notable decliners include American Airlines Group (AAL -4.8%), Delta Air Lines (DAL -4.2%), United Continental (UAL -3.4%), Mesa Air (MESA -4.1%), Southwest Airlines (LUV -2.5%), Allegiant Travel (ALGT -3%), Greenbrier (GBX -2.8%), FreightCar America (RAIL -2.6%), Genesee & Wyoming (GWR -2.4%), Canadian Pacific (CP -2.5%), Trinity Industries (TRN-1.8%), Ryder (R -5.1%), Avis Budget (CAR -3.5%) and Landstar System (LSTR -4.5%). In the trucking sector, some names such as Knight-Swift Transportation (KNX -8.3%), Werner Enterprises (WERN -4.7%), Old Dominion Freight (ODFL -4.1%) and Schneider National (SNDR-6.9%) have extended on their early declines.
    • It's not a surprise give the widespread sector weakness that the iShares Transportation Average (BATS:IYT) is down 3.15% on the day.
    • ETFs: IYTXTNFTXRXKST
    • Previously: UBS sees pricing headwind for trucking sector (Dec. 4)
    • Previously: UPS and FedEx slide on Amazon Air anxiety (Dec. 4)

  49. Phil/crap rolls,

    any weekly call options on the indices to play for small bounce tomorrow….

    regards


  50. Looks like an ugly close.  This is why you REALLY need to see at least a weak bounce before making any kind of bullish play and then confirm at strong.  With /ES, we said 80 points down to 2,700 meant 16-point bounces so 2,716 was easy (weak) and 2,732 (strong) is where we failed.  

    Dow 25,700 to 25,000 (incomplete) means 140-point bounces to 25,140 and 25,280 – this is just math folks!

    Nas 7,050 to 6,800 is 250 so 6,850 and 6,900:

    RUT 1,550 to 1,480 is 70 so call it 15 points to 1,495 and 1,500

    When you see our 5% lines hit on the button like this, across all 4 indexes, you KNOW this is a completely bot-driven sell-off, which means it should be predictable so now we know that the -5% line (off the same tops) should be significant as should the weak and strong bounces from there.  

    That means, on /ES, which matters most – that 2,780 x 0.95 is 2,641 so call it 2,640 and that's a 140 drop so call it 30-point bounces to 2,670 (weak) and 2,700 (strong) so today we are bouncing off the strong bounce line of a 5% correction but anything below 2,700 means we're almost certain to go for 2,640, which is a $1,200 drop on /ES so we certainly want to take a short below 2,700 with tight stops above.

    You can calculate that for each of the indexes to get your entry (and exit) points.

    Craps/Pat – It's not craps when you have the path drawn out for you! 


  51. Finishing at the lows – this is a terrible time for the markets to be closed tomorrow! 

    Fortunately, I don't have any plans so I'll make a post in the morning and check in once in a while regardless.  


  52. Started adding short /NQs at 7025 this morning (it was the laggard!), closing some at 6800. 

    Bots are definitely fading Trump for the rest of the year. 


  53. Tomorrow was supposed to be Powell's Congressional Testimony – crazy that we're skipping that.  Also, Beige Book was supposed to be out at 2pm tomorrow.  

    And check out what a crazy day Thursday is going to be:

    Weekly Bill Settlement



    8-Week Bill Settlement



    52-Week Bill Settlement

     

     

    ADP Employment Report
    8:15 AM ET

     

    International Trade
    8:30 AM ET

     

    Jobless Claims
    8:30 AM ET

     

     

    PMI Services Index
    9:45 AM ET

     

    Factory Orders
    10:00 AM ET

     

    ISM Non-Mfg Index
    10:00 AM ET

     

     

     

     

     

    3-Yr Note Announcement
    11:00 AM ET

     

     

     

    4-Week Bill Auction
    11:30 AM ET

     

    8-Week Bill Auction
    11:30 AM ET

     

    Raphael Bostic Speaks
    12:15 PM ET


    Treasury STRIPS
    3:00 PM ET

     

    Fed Balance Sheet
    4:30 PM ET

     

    Money Supply
    4:30 PM ET

     

    John Williams Speaks
    6:30 PM ET


    Jerome Powell Speaks
    6:45 PM ET

    I don't see what Powell can say if his testimony is cancelled.  I'm sure he planned to spin that…

    Friday has NFP at 8:30:

    Employment Situation
    8:30 AM ET

     

    Consumer Sentiment
    10:00 AM ET

     

    Wholesale Trade
    10:00 AM ET

     

    EIA Natural Gas Report
    10:30 AM ET

     

    Lael Brainard Speaks
    12:15 PM ET


     

    Consumer Credit
    3:00 PM ET

    Fading Trump/Ati – Yes, I'd say shorting Trump at this point is a good bet. 


  54. GE / Phil – Thanks. As I pointed out, the risk is on the upside, but you would need to see some crazy premium on today price to be hurt badly. This is not some high flying, high growth company so I think that it's manageable. Fun to try anyway… 


  55. Trump / Phil – We are getting to a point where we might short his presidency and possibly go long on jail time for someone named Trump.


  56. Looks like Putin might be deciding that he picked the wrong horse to ride:

    https://talkingpointsmemo.com/dc/report-house-gop-campaign-committees-emails-were-hacked

    The National Republican Congressional Committee was hacked this election cycle, it admitted Tuesday afternoon.[...]

    According to the report, no one at the NRCC alerted outgoing House Speaker Paul Ryan (R-WI), incoming House Minority Leader Kevin McCarthy (R-CA) or anyone else in House GOP leadership. NRCC officials told Politico that was to try to keep the information close to the vest to make it easier to investigate and avoid alerting the hackers that they’d been detected. They believe a foreign agent was behind the hacks. No information from the emails was used publicly, according to Politico.

    The thing that Trump and the GOP didn't understand is that guys like Putin don't care who wins. He might start helping the Dems if he feels that he would work best for him. So closing your eyes now because you benefit from the hack is not a good play.


  57. /ES / Phil – 60-point drop @ $50/point is a $3,000 move.  You were doing /NQ math @ $20.  Even more reason to take a swipe if does break down.


  58. Atitlan – Great trade !


  59. Looking at the bright side, the Dow can only lose 800 points 31 more days!


  60. Very bright, StJ!

    Thanks Buck.  


  61.  Interesting, the rest of the world kind a fairly muted response to our selloff. 

    I guess, on the whole, it’s just a reversal of last week’s BS window dressing.








  62. Wisconsin Republicans work overnight on lame-duck bills



  63. Lots of long red bars these last 2 months!


  64. That can turn into a very ugly pattern.  


  65. Lampert is a scumbag:

    https://www.institutionalinvestor.com/article/b1c33fqdnhf21s/Eddie-Lampert-Shattered-Sears-Sullied-His-Reputation-and-Lost-Billions-of-Dollars-Or-Did-He

    Many on Wall Street believe Lampert’s actions just prolonged the inevitable. But others — including insiders — disagree. 

    In 2000, Sears generated $1 billion in free cash flow. “It could have been saved,” notes Mark Cohen. But under Lampert, he says, “Sears was a slow-moving train wreck.”

    It seems doubtful that was what Lampert had in mind when, in the 2006 Fortune interview, he was coy about his plans for Sears. “One of the unspoken secrets about business leaders is that they often have no idea about where they’re going to end up,” he said. “I know the right direction. Whether we end up at the destination — rebuilding Sears Holdings into a great company on many dimensions — I don’t know. But we’re headed in that direction.”

    Cohen shakes his head at such comments. “Little Eddie, I don’t know what really makes him tick,” he says. “He’s either delusional, disingenuous, or dishonest — or some combination of the three.”

    Whichever it is, he’s made a boatload. 



  66. The best ever – Fun Fact: Donald Trump now owns 10 of the Dow’s top 20 worst single-day declines in stock market history…

    #1 2/5/18 -1175
    #2 2/8/18 -1032
    #3 10/10/18 -832
    #4 12/4/18 -799
    #7 /22/18 -724
    #11 2/2/18 -665
    #15 10/24/18 -608
    #16 11/12/18 -602
    #18 4/6/18 -572
    #20 11/20/18 -551


  67. stjeanluc – that's fake news, those are point drops not % drops, obviously point drops will be higher the more recent you get and the higher markets are to begin with 


  68. Yodi – didn't get time to reply yesterday – got caught in traffic.

    yodi 
    December 4th, 2018 at 12:50 pm | Permalink | Tweet thisIgnore this user

    Winston still playing that AAPL game? See how quickly things can turn.

    +++++++++

    I've only just started!!!! I entered a starter position w/o short puts. I generally tend not to follow the day to day movements of a longer term spread position, even if I have sold extra calls.

    In fact, I don't care if AAPL goes up or down, nor what the market does. Whatever happens I know I can handle it. 


  69. My AAPL position and how to manage it garnered some interest and questions about managing the short calls if they start to move too far against you. 

    The US markets are closed, and the board quiet, so I'll post some perspectives from Phil from back in July 5th, 2011. That was the day that a new $25k portfolio was started, and a position in CMG kicked it off:

    Phil 
    July 5th, 2011 at 10:46 am | Permalink | Tweet thisIgnore this user

    NFLX – DEADLY!  Low VIX makes the Dec $220 puts at $10.20 a fun play.  They were $20 last week so 20% shouldn’t be too much to ask on a pullback.  You can offset with the short Aug $240 puts at $4, a 3/4 sell net’s $3 off the $10.20 investment.  

    3 CMG Aug $310 calls can be sold for $18.50 ($5,550) against 2 Dec $340 calls at $18 ($3,600) for a $1,900 credit and that will be our first trade in our new $25KP!


  70. There was a follow up on July 9th, 2011, the whole post is worth reading, including the comments section which goes through a number of trades. But the most relevant was planning the possible moves needed if CMG kept going on higher, particularly layering on long deltas. Some excerpts:

    +++   +++   +++

    As it's earnings season, we're doing a few ratio backspreads to get warmed up.  Ratio backspreads are a great way to take advantage of high front-month premiums with short sales, which giving yourself a little fall back protection – JUST IN CASE – you are totally wrong.  As we are here to PRACTICE strategies, it does not upset me when trades go badly as it gives us an opportunity to discuss adjustments and we have a great opportunity right off the bat with CMG, which we went short on Tuesday at 10:46 with this trade idea:  

    3 CMG Aug $310 calls sold for $18.50 (-$5,550)

    2 CMG Dec $340 calls at $18 ($3,600) 

    So that was a net credit of $1,950 and CMG was trading at $317 at the time. Unfortunately, the madness continued and they ran up to $329.80 before pulling back to finish Friday at $325.  Is this a disaster then?  Hardly.  The 3 Aug $310 calls that we are short on ran up to $24 ($7,200, up $1,650) while our 2 Dec $340 calls ended up at $22 ($4,400, up $800) so a net UNREALIZED (big lesson from the first half) of $850 with 4 months to roll and adjust the position before we're even forced to move our longs.


  71. …cont'd – background on the rolls:

    Although down $800 at the moment, we don't think CMG will survive earnings on July 19th AND, with the stock at $325 and the $310 calls at $24, there's still $9 of premium baked into the price of those 3 contracts and there's $2,700 of our $850 "loss" right there (in other words, still a nice profit if the premium wears down at this price).  Another thing we need to do is consider what our next move would have to be.  At the moment, the September $320 calls are $21.50 so that is currently our Roll Target.  If we did it now, it would cost us $750 to make that roll and that would cut our net credit on the roll down from $1,650 to $900 – that's not so terrible, is it?  

    So we're going to keep an eye on that relationship (the $2.50 cost of the roll).  No matter what price the Aug calls are – as long as they are only $2.50 more than the Sept $320s, we don't care if they are trading at $24 or $34 because it's still "on target" for our rolling plan.  Since we can make that roll (up $10 to the next month for $2.50), we can assume that we can make a roll to the October $330s for $750 more (net credit $150) and the November $340s for $750 more (net debit of $600) and that would wind us up a spread of 2 Dec $340 calls that are at least at the money (or we wouldn't have done the next rolls) covered with 3 Nov $340s which means we are at least even with two of our callers and only stand to lose whatever amount CMG is over $340 by on the 3rd short call.  

    See what I mean by FLEXIBLE?  This is why I sometimes get annoyed when people panic 3 days into a 6-month trade just because a stock spikes.  We don't care if CMG is at $325 or $335, as long as we don't believe it's going to be over $350 in December, we can't lose more than $1,000.  As long as we're confident that CMG won't gain 7.5% ($1Bn in market cap) between now and December expirations (16th) – we're still on track for a profit!   


  72. Even with a p/e of 55, adding $1Bn in market cap would imply another $200M in profits, which would be 10% more than the $200M currently projected for this year.  Even if we do get nervous – let's say if CMG does go over $330 – we can simply add another long call (either the same Dec $340s or something a little higher like the Dec $360s) and suddenly we're bullish on CMG for the long haul!  Heck, we could add 1 more long at $330 and one at $340 and one at $350 and one at $360 and, by the time CMG hit $370, we're have 6 long calls against the 3 short ones.  How's that for a trading plan?  

    As we buy each additional long option, we simply set a stop on one offsetting long that we already have profits on so if, for example, we were to cover with an additional Dec $360 call, now $15 ($1,500), we could do that and set a stop on one of the Dec $340s at $20 (now $22, so a 10% pullback) and that would take $200 in profits off the table and put us back with one Dec $340 at $18 ($1,800) and the Dec $360 at $15 ($1,500) for a total outlay of $3,300 less the $200 profit we took off the table against the 3 Aug $310s we sold for $5,550 so now it's a net credit of $2,450 (up $500 from our initial spread) and keep in mind that we only trigger that position AFTER CMG pulls back enough to drop our longs 10%.  

    Our Dec $340s were at $20 Tuesday at noon, when CMG was at $318 and it's not going to line up exactly but that means that, down the line, we'd have that $2,450 net credit against 3 CMG $310 calls that have $800 of intrinsic value ($2,400) as they get closer to expiration.  So, when someone asks me in chat whether we should adjust CMG on a spike to $330 and I say "don't worry yet" – that's the background to my answer.  I wish I had time to lay that all out every time someone asks but that's in my head in 30 seconds but takes about 15 minutes to write out so I stick with "don't worry" but this virtual portfolio, on weekends – is a good time to lay out the logic.  


  73. Today, having time to look at the damage of yesterday, I do like stocks I just selected recently for some of my armchair trades.
    VOD bought 11/14 for 20.56 today 20.72, OAK bought 11/26  for 40.64 today 40.62.
    Looking during the carnage yesterday I could not fail to notice one member shouting “time to sell cherry calls” I was too busy to reply, but wish to mention, yesterday was one of the worse days to sell cherry calls. Monday yes when everyone is buy buy and jumping on a running train, yes that is the day you sell cherry calls, as they all lose their value on a day like yesterday.
    Today is a day to revalue your positions. PSA did not even drop enough to sell more puts.
    However I am looking at AVGO dropped from 241 to 232, a more expensive stock but not a bad contender for my armchair trades. It has a yield of 3% and pays a quarterly div of 1.75.
    However I rather buy the stock at a lower price.213 is more my range. So at this point I am going to only sell puts. Jan 19 220 put for 7.50. My PM margin is 1904.00. So at this stage the play gives me an intentional return of 39% in 44 days. My breakeven is 212.50. Yes it can drop another 8% from 232.00 and I am still in the green.
    Here I am looking at stocks I hold, which have weathered the storm well, and at this time I make up my mind, whether or not I want to add. Obviously not selling cherry calls.


  74. Winston,
    CMG Now there you picked on a stock, which is anything but stable. My last short puts 310 and 350 expire in Jan and I hope with a total profit of some 40K.
    But to compare this with AAPL and the effort you put in to keep ahead is just a bit too much.
    I am still not sure if the AAPL Mar play, I suggested, will actually work in real life. Today it looks good on paper but in real, I do not know.


  75. So adjusting a spread with short covers is not rocket science when you think of it in terms of how much short delta you are carrying – because it is the net short deltas that are suffocating your profits from the spread. You just need to add long deltas.

    As Phil shows in his CMG trade you can add long delta through adding long calls until you reduce the net short deltas to where you are comfortable. Long stock does the same thing. Long futures adjusted for the beta relationship between your underlying and the futures contract also works (but that for me is on another level of management, and experience).

    And we also discussed the rule of buying back the additional short calls in tranches, as the option price of the short calls increases, 25%, 25%, and then roll the remaining 50% to a higher strike/longer dated contract combo and then add another 1 times (double down).


  76. Phil/ Anyone

    Any ideas on a new spread for UGA?  The one from a month ago BCS 28/31 doesn't seem to fit here for a new entry.

     

    TIA


  77. Jeffl UGA I rolled to Jul 25 and sold half 28 callers at this stage and left the Jan 31 callers.


  78. Of course crs, although % drops are getting there as well… Still fun to point it to out to Tariff Man.


  79. Thanks Winston for digging up that great stuff by Phil up on CMG and rolling.


  80. yodi-

     

    I am very interested in the armchair method – need more time to study but I'd like to dip my toe in with a small actual trade to play along.  Can you suggest a current one for F?


  81. Jeffl Can you tell me why you wish to start with F ??


  82. I thought it was on your list (i might be mistaken) — and it's only $9 a share so I won't be laying out too much $$$ while I get start to get the hang of the trading mechanics  — if you have another idea that would be welcomed as well just don't want to commit too much capital and margin to begin with


  83. JeffL , yes it is on my list and I trade it. The car industry is not one of the best industry at present. GM is still in my bones. They are crooks, first go Bankrupt and then start with new shares, leaving the investors in the cold. Only F still seem to have still a clean shirt. But especially the US car market is in decline.
    To recommend a stock to trade with is not really my thing. I can see you wish to start with a lower price stock.
    I do have NLY, which I am trading for years. I buy the stock and sell the Jan 21 10/10 Straddle for 2$, which leaves you in piece for two years and you do enjoy a monthly div of .078 quarterly.
    With F you buy the stock and sell the Jan 21 Strangle 10/7 for 1.80 and you hope to receive a quarterly div of .15 cents.
    You might try both. My advice never put all eggs in one basket.


  84. Yodi: NLY – premium is lousy on the Jan 21, $10 call – you're getting just $0.49 ($0.25 per year). I like selling just the Jan 21, $14 put against the stock, if you can sell it for $4.60 then you can net in for an additional chunk of NLY stock for $7.40 and you get to keep all of the upside – even though it is unlikely to become a high flyer.


  85. you're welcome roberthjrfl! 


  86. Winston, NLY Jan 21 14p sells only for 3.10 and puts you from the start 100% ITM.

    In this case I never be that greedy.


  87. Yodi, you should be able to do much better than $3.10 (TOS showing $3.40/$5.80. It doesn't matter that you are 100% ITM, if someone is willing to put the stock to you and cancel out the put contract that would be great. You turn around and sell another put!


  88. Yodi, 

    Your armchair trades have been going well for me. What screening method do you use for selection of you trades? Thanks again


  89. UGA/Jeff – We have 30 UGA Jan $28/31 bull spreads in the STP and they were net $1.20 and now the calls are 0.60 so we should have rolled them already.  There's no real catalyst until May and options are April and July so really you'd have to go out to July for a new trade and, at $25.11, the July $22 ($4.60)/$27 ($2) bull call spread at $2.60 pays about double on a small move up but we're down about $2,500 and I don't know that I really want to do that for the STP – just not worth the bother.  It was a fun bet that didn't work so we're done.


  90. Futures fell over a ledge at 6 pm.


  91. Tomorrow could be ugly! I guess we'll see what happens when Europe opens but things are not getting better there either – France, the UK, Italy… What kept the markets up so far is beyond me. I guess there are always the Trump tweet but now it's like gasoline on a fire – a quick burnout. 

    Funny tweet this morning when someone was saying that it was scary when you have more trust in what comes out of the Chinese news agency than from the White House press office.


  92. Winston NLY I see Jan21 at 3.40 now but put 12 there is no 14. Yes I agree at more than 3.40 You have 1.40 premium. I guess we are today on the down again.


  93. Yodi – momentary dyslexia, I meant the Jan 21, $12 puts – but the put to math is correct.


  94. painman, Armchair trades. I slowly have a record of stocks, which are more or less, more stable than others. I prefer to use stocks which have a positive cash flow and a yield more than 3%.
    At the same time, under today’s circumstances, the stock should as well be on the lower side of the scale and show an upward trend. See our yesterday's discussion on NLY and F.
    I just recently entered with D, OAK, CPB,TXN,TD and VOD. All have weathered the Tuesday's dip very well. These are my selections and no recommendations.
    All stocks need your research before deciding to enter a play. Finally I put them in to an Excel program, to check my decision, so I receive at least a return of 2% per month.
    Against these type of stocks you just sell further out month calls and put, possible close the stock price. However here again it depends very much on the expected movement and past performance of the stock. See the discussion on F and NLY. NLY will give you return on 10/10 Jan21 a return of only1% as the same play for Jan 20 will give you 1.5% per month.
    However if you sell the Jan 21 12 put und 10 call, your return will be 2.2%. It is an individual decision.
    F With only a very positive outlook on the stock, the Jan20 10/10 will bring some 2.2% per month. Against the Jan21 your return is only 1.8% per month.
    Again there is no iron rule and you definitely need to do your own research and make your own decision. There is no blind plan to follow!


  95. Winston Correct see my comments above and I agree with you.


  96. Holy cow Jabob, what did you do?

    Damn, I went out last night and didn't even look when I got home as the last I saw we were just drifting along yesterday.  Of course, this is just the follow-through we expected to the full 5% correction and NOW we'll see if we bounce but, very simply, 800 points Tuesday + 430 points this morning is 1,230 which is 5% of 24,600 and where is the Dow – 24,600!  This is not hard stuff to predict folks (see my notes above from Tuesday).

    So don't panic – especially if you have our hedges.  Don't forget this is why we took that extra $100,000 worth of protection back on 9/26 and why we added the SQQQ hedge before Thanksgiving, which was only two weeks ago.   As I said Monday morning – nothing has changed since then except more lies from the White House and, as StJ notes – people are catching onto that game.  

    Because of the shorts, the LTP is holding up very well – especially as we followed through in our adjustments on the 19th and significantly raised our CASH!!! level (reducing our long exposure which then made the STP hedges more powerful – as they had less to protect).  As I said at the time:

    Also, the STP is doing its job and making money while we lie still and, while it's tempting to get bearish, this market is actually just making the bullish 10% correction we expected, only it's starting from 10% higher than we thought it would be so MAYBE down another 10% if panic ensues but we'll be buying then, not selling.  

    Meanwhile, our primary goal is to preserve cash and buying power so we're only going to change the really compelling positions and generally try to stick with what we have which is $555,528 in CASH!!! with $1M of our $1.8M buying power in use at the moment – that's something else I'd like to reduce so we'll take a hard look at our bigger margin-eaters and see if they are necessary. 

    So there's nothing happening here that wasn't likely to happen before all this G20 BS lifted the market and THAT is why we don't get more bullish until and unless the strong bounce lines are HELD for 2 FULL trading days without failing.  It's a strict rule but it keeps you out of trouble.

    That's not to say we don't buy anything – we did take a few pokes, but that's because we have plenty of cash and we're well-covered – so just for the sake of balance we needed a few more longs and we'll be on the prowl today if there are new opportunities.  Even if the market goes another 10% lower – that's not very important as we establish initial entries into 2-year trades, right?  In fact – we LIKE it when things get cheaper before we add our 2nd round, don't we?

    /NQ at 6,666 – maybe a sign?  24,600 is a good spot to play for a bounce on /YM but so will 24,500 be so tight stops below.  2,650 on /ES is a good bottom too and 1,455 on /RTY would be nice if they hit 1,450 but no luck yet.  

    Oil just about hit $50 so of course bounced off that but weak so far.  /RB hit $1.40 and also weakly bouncing – total catastrophe if they break lower.