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What Now Wednesday – Bad China Data Gets 2019 off to a Bad Start

2,480.

That's the weak bounce line we've been talking about on the S&P all quarter and that's the line we're playing with this morning as the markets digest China's Caixin Manufacturing Index, which fell to a declining 49.7 in December, the first time China has shown contraction since May of 2017.  

Still, the theme follows through from last quarter that we are all suffering from self-inflicted wounds as the ongoing trade war has sent New Export Orders plunging to their lowest levels since Q4 of 2011, when we didn't have a trade war and things turned around sharply from there so it's hard to say what happens next – but it is certain this negativity can all be unwound very quickly, IF our President pursues a rational course of action (see, now you are worried again!).  

That is a theme I notice when pundits are discussing US policy these days – noithing is off the table – we are an insane super-power that could nuke North Korea or strike a trade deal with North Korea or annex North Korea or Sanction North Korea or push North and South Korea together – it's all on the table because no one knows what the F our foreign policy is – even from minute to minute.  

Image result for trump insane cartoonThat kind of madness internally means the markets can be moved on any sort of insane rumor because ANYTHING is possible.  "Trump Declares War on Apple" is not a headline you would ignore because it MIGHT be true and, unfortunately, modern trading algorithms are trained to respond to headline news – on the assumption that thing that make the headlines of mainstream media are likely to be true.  This is no longer the case as the MSM also doesn't know if something is too insane for Donald Trump or not.

Back in China, President Xi seems to be taking a harder line against Trump this week as well as talking about taking back Taiwan by force – something that would have been unthinkable but, now that Trump has given Russia a hall pass for Crimea, there's no reason for China to think he'll suddenly grow a spine over Taiwan – especially with all of his top Generals either having resigned or come out openly against Trump's policies.  

Xi may be using Trump as a convenient fall guy to blame any economic hardships that may befall China as the Government attempts to reign in their own stimulus and debt issues.  Meanwhile, Trump's pal and slighly less crazy dictator, Kim Jung Un warned Trump that his patience with the US is wearing thin and North Korea will go back on the warpath if the US does not lift sanctions – as Trump promised they would last June.  

“I am willing to sit with the U.S. president any time in the future and will strive to produce outcomes that would be welcomed by the international community.  However, if the United States does not deliver its promise and misjudge our people’s patience, making unilateral demands to continue sanctions and put pressure on us, we will have no choice but to seek a new path to protect the country’s independence, interests and peace on the Korean Peninsula,” Kim said.

South Korea also had a big drop in Exports in December, down 1.2% vs up 2.5% predcicted by leading economorons but that is nothing compared to China's 13.9% drop and our own Regional Manufacturing Indexes were ALL in contraction last monhty – Trump's Trade War is single-handedly destroying the Global Economy.  Global Sentiment is down sharply and, so far, other than Trump's positive tweets – there's no concrete evidence that these trade issues are being resolved.  

South Korea is the first country to release trade date for the New Year and, if other countries look as dire – we may be re-testing those market lows.  Don't forget Europe has the same POTENTIAL issues through a messy Brexit, which hasn't even happened yet but could give us a whole new round of bad news beginning in Q2.  Housing in Australia is dropping the most since the 1980s, worse than 2008 and those loans kick back to the Asian banks as well.  

In the US, things are not so bad but a big warning indicator is the nearly $14Tn in non-mortgage debt, which is about $1Tn more than where we toppped out in early 2008, when we were also pushing a rally too far just ahead of a major economic collapse – so try not to be too complacent, okay?

Our Government is also hitting all-time highs on Debt, including debt to GDP (110% and growing) and that can become a problem if people stop buying short-term bonds at 2% as the interest on $21Tn at 2% is $420Bn but at 3% it adds $210Bn, which would boost our current debt by 20% so each 1% increase in interest rates adds 20% to our annual debt.

Since Trump's new tax plan has dropped Corporate Tax Collections down to $300Bn, it's up to us citizens to fund the other $3.7Tn the Government needs to operate so I guess it must be time to give more tax cuts to the rich – as that does seem to be the GOP solution to everything, right?

Credit-card loan losses are rising from a year earlier despite the low unemployment rate. The average share of card balances that eight of the largest credit-card issuers wrote off as a loss increased to 3.16% in the third quarter, compared with 3.03% a year ago and 2.59% two years ago, according to Fitch Ratings.  Lenders are pulling back in certain areas, lowering credit limits for subprime consumers and tightening auto-loan underwriting, which can lead to pullbacks in spending and this is how a slowdown begins to snowball into a recession very quickly.  

Student loans also are a particular concern. There is more than $1.5 trillion of outstanding student-loan debt, and some 92% of it is owed to the federal government, according to MeasureOne. Many federal-loan borrowers are postponing or making smaller payments on their loans than originally required despite the economic rebound.  “If borrowers can’t pay down their student-loan debt now, in a time of relative economic prosperity, what will happen during the next economic downturn?,” John Anglim, a credit analyst at S&P Global Ratings, wrote in a recent report.

Image result for s&P 2008 2018Let's not forget what a volatile start we had to 2018 and that was coming in off a relatively calm 2017 but the indexes have ended 2018 already bucking like wild broncos with this morning's Futures down 400 points on the Dow (which is nothing as China was down 2.5%) back at 23,000 but, as I said, it's the S&P 500 (/ES) at the weak bounce line of 2,480 we need to keep our eye on – losing that level (now 2,466) would be a VERY BAD sign – especially with the weekend just 2 sessions away.

Fundamentally, nothing has changed and there's plenty of stocks we'd love to buy but Technicals are also a Fundamental factor we have to take into account so we're going to be sidelined while we wait to see how this thing resolves itself.

As I've said, these are very much self-inflicted wounds, including the ongoing Government Shutdown, so they can be quickly undone but they can also cascade into a much larger failure if we don't do something about it soon.  

 


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  1. BDC is predicting doom and I think that his 40% retracement might be too much but I don't think that we are done going down. When a correction is done, things are cheap. Things are cheaper now, but still not very cheap. The most valuable company (bye-bye Ballmer) MSFT still trades at 24x earnings with growth projections of 13%. That's not cheap… GOOGL trades at 25x, AMZN is crazy. AAPL at 13x is what cheap is although I think that growth will slow there but that's what a correction is all about. The S&P still trades at close to a 20x multiple. That's not a correction. Just my $0.02.



  2. Sending a message:

    https://www.bloomberg.com/opinion/articles/2018-12-26/stock-market-drop-trump-s-favorite-barometer-is-warning-him

    No, the market isn’t all about Trump. It is reminding the White House, however, that its policies have a price. Not maybe, not somewhere down the line, but here and now. It’s not a cost Trump seems willing to bear, and sooner or later his administration will have to do better than symbolic gestures and fake outrage. 


  3. Good Morning.


  4. 2019 – I feel the markets will turn out to be footnote compared to the seismic events to come out of Washington and abroad…..


  5. Good morning, All!

    Join us for the first webinar of 2019! Today at 1pm.

    https://attendee.gotowebinar.com/register/6521318209437180171


  6. Happy New Year!  

    I'm in Orlando but I think we can do the Webinar today – there's certainly plenty to talk about! 

    What matters is whether or not we hold the weak bounces, bouncing around between the lines is called CONSOLIDATION and is not, in itself, a bad thing:

    • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
    • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
    • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
    • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
    • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

    So we've lost a green box on the S&P but it's at 2,470 so not dire just yet so waiting and seeing for now.

    Correction/StJ – I agree, things aren't CHEAP but at least not unreasonable now and we are paying more people more money and that is the basis for a sustained rally but it takes a while for money to trickle up from the wage-earners into corporate earnings – especially if the corporations first have to pay the wages and then wait for the money to come back but it worked for Henry Ford when he began paying workers $5/day (100% increase) – so they could afford to buy a Model T ($500).  

    I think the open is an over-reaction and I'm still looking to work our way up to the strong bounce lines but THEN I don't know what will happen – it's likely to be very news-driven next week and into earnings, which kick off around expiration day (18th).


    • I'm loving /NG19 at $2.90 (I have 2 long).  
    • /CL is worth a toss at $44.50 with tight stops below. 
    • $1.28 has also been a good line on /RB – also tight stops to keep out of trouble.
    • /NQ popped off 6,200 – that's a good sign. We can play /YM over 22,900 with tight stops below.

  7. Watch /BZ $53 if you are playing /CL or /RB – if that fails – get off the longs.

    Watch the VIX too, of course it's bouncing off 25 but below that is a good sign for the indexes.

    /HG very tempting here, you can play $2.60 with tight stops below but no conviction at all as any more negative PMIs can send it lower.

    Strong Dollar handicapping all others this morning:

    Euro and Pound failing.

    That's not even getting traction but Brexit could start a chain reaction that destroys the EU and then the Euro which would send insane amounts of capital running to Dollars and that would crash everything relative to the Dollar (and wreck our exports too).  March 29th is Brexit day – with or without a deal.


  8. TSLA down 10% as they cut prices to make up for 50% reduction in Government credits – ROFL! 



  9. U.S.-China trade war takes toll on global manufacturing







  10. Trump fires back at Mitt Romney for scathing op-ed


  11. 23,125 – Nice!  

    That's a stop out on /YM, over $1,000 per contract.  

    /CL flying with /RB – nice way to start the week.  Tight stops now as we test $47 and $1.36 – Huge money to make out the gate!

    /NG still playable.  






  12. ABX/GOLD/Phil    They started trading under the GOLD symbol. How do you feel about the new combined company?


  13. Budding Cannabis Trends In 2019



  14. Massachusetts recreational marijuana sales soar despite obstacles




  15. Albany must help fix the subway


  16. Almost green for the year :-)


  17. ABX/Stock – I think they got GOLD for a fair price but integration years are a bitch so not expecting fireworks this year – unless we luck out on Gold getting back to $1,400.

     

    /KC $100 again.  /KCN19 $106.60 is a good deal.

    Almost green/StJ – We should quit while we're ahead!  


  18. GOLD shareholders got 100 new shares for each 612 of the old shares and ABX shareholders got one share but we also still have our ABX shares for some reason.  

    Under the terms of the Merger, each Randgold Shareholder will receive 6.1280 New Barrick Shares for each Randgold Share. Following completion of the Merger, Barrick Shareholders will own approximately 66.6 per cent and Randgold Shareholders will own approximately 33.4 per cent of the New Barrick Group on a fully-diluted basis.

    The merger has created a sector-leading gold company which owns five of the industry’s Top 10 Tier One gold assets1 (Cortez and Goldstrike in Nevada, USA (100%); Kibali in DRC (45%); Loulo-Gounkoto in Mali (80%); and Pueblo Viejo in Dominican Republic (60%)), and two with the potential to become Tier One gold assets (Goldrush/Fourmile (100%) and Turquoise Ridge (75%), both in the USA). Barrick has the lowest total cash cost2 position among its senior gold peers3, and a diversified asset portfolio positioned for growth in many of the world’s most prolific gold districts.

    Webinar time!


  19. ABX/GOLD – "we also still have our ABX shares for some reason" – not me – I got the equivalent # of GOLD shares, and am showing zero ABX shares.


  20. Ahead / Phil – Right now the S&P performance is 10% better than last year :-)


  21. Phil I am looking very careful to the selling of further Feb 19 calls. My Jan 19 180 calls possible going worthless. AAPL reports 29 Jan. Do you think a Feb 175 caller would be called for? 17$ different at present.


  22. We are going to buy 10 AAPL 2021 $140/185 bull call spreads for $20 in the OOP.  


  23. Did anyone else lose webinar audio? 


  24. I lost audio


  25. No audio for me either – re looked on did not help – could see the video


  26. Anyone:  How do I look up prior posts, by date or posting individual?   Thanks. 


  27. Sorry about the Webinar audio – not sure what happened.  Hopefully the recording picked it up.

    Will be back at home next week so should be good but week after that I'll be at the Miami Cannabis Investing Conference. 

    Speaking of Cannabis Investing, I'm not sure MMNFF (MedMen) will survive.  They have massively over-extended themselves into a lot of high-cost locations and are burning $50M or more per Q on a $1.4Bn valuation and were down to $65M on 9/30 so they'll have to raise cash to keep going after this Q most likely.

    ABX/Snow – I guess they will be resolved over the next few days.

    AAPL buy was from me – got logged in as Greg for a min.

    Prior posts/Iflan – I don't even know how to do that.  By date you can go to the date on the Phil Tab but by individual, not sure.  


  28. Search: best to use Google Advanced search. Put the date/posting individual in the must contain these words. Also try adding 'Permalink' (this will eliminate non PSW daily reports). Use http://www.philstockworld.com as the URL address in the advanced search.


  29. C/Phil- was there any adjustments for Citi since the LTP review on 14th Dec?


  30. CMG Catching a bid up to 442 - would like to see see if a short caller could be had a 450 ish - 


  31. Hey Phil, looking at making some adjustments (or leaving) a couple of my positions, just wanted to get your take to see if what im planning makes sense:

    IBM: 

    I've got:

    short 5 (jan 2020) $120 puts

    I could roll these to the Jan 2021 $110 puts for essentially even? thinking of doing that or just leaving what I've got in terms of short puts

    long 10 (jan 2020) $140 calls

    short 5 (jan 2020) $160 calls 

    short 5 (jan 2019) $155 calls

    was planning to roll the Jan 2020 $140 calls to the Jan 2021 $120 calls for approx $8,250

    rolling the short Jan 2020 $160 calls to the Jan 2021 $140 calls for a credit of approx $2100

    re-selling more shorter term calls to take the place of the Jan 2019 $155s that are about to expire. I looked at a couple options and it seems like selling the Feb 2019 $125s give a slightly juicier "premium per day" (approx .04/day) than the june 2019 $130s (.024/day). So thinking I will go with selling 5 (or maybe 7?) of the Feb 2019 $125s and then keep selling/rolling as they expire as the year goes.

    AAPL

    short the Jan 2019 $140 puts 

    long the Jan 2019 $150/165 bull spread

    too late to do anything here i think? Just wait for expiration and hope for the best!

    TGT

    short 5 Jan 2020 $52.5 puts

    Long 10 Jan 2020 50/65 bull spreads

    the spread is still 100% in the money (although just), and the position still has more than 50% to gain so thinking of just leaving this one as is? 

    HBI

    short 10 Jan 2020 $18 puts

    long 15 Jan 2020 $18 calls

    short 15 Jan 2020 $23 calls

    thinking of rolling the 10 short $18 puts to 15 of the Jan 2021 $15 puts for approx even (net $0)

    roll the short Jan 2020 $23 calls to the Jan 2021 $17 calls for a credit of approx $1100

    roll the Jan 2020 $18 calls to the Jan 2021 $13 calls for approx $2550

    that will leave me approx $2025 out of pocket on the position and if HBI recovers to 17 in 2021 its still almost a $4000 a profit on the position which would be a nice salvage play…

     

    Anyway, let me know if you think my above plans make sense when you get a chance.

    One thing I feel I've learned this year is being more disciplined about taking profits when they're right there in front of me. For example, the AAPL spread above at one point only had about $600-700 left to gain, but it looked like such a "sure thing" and was getting close to expiration i figured I'd just leave it, now its a nail biter!

    Next year im going to institute more hard rule for myself where if positions are up 50% of their max early on (i.e. within less than a year on a 2 yr position) I'll take the gain, or if position are up 75% of their max in their final year I'll take the gain off the table.

    Thanks in advance for any feedback!


  32. Update on last week's AAPL trade:  Weekly Condor Bought 175 C/ Sold 165 C//Sold 150P Bought 145 Put. That trade is profitable by >70% as of this afternoon, so I've taken 1/2 of the contracts off the table.  I will let the rest ride out the week, at a > 90% likelihood of success for those, and further profits.  Happy Trading!


  33. Well, not much is being determined from today's action.  

    C/Dave – I don't remember any adjustments but very hard to search for "C" as it brings up everything with a C in it.

    IBM/CRS – At $115, I don't think it's low enough to be worth rolling the short puts.  I'd sell the new puts and put a stop on the old ones.  As to the spread, if you can roll down the the $120 calls for less than $10, then I'd do that and if the $120 calls for less than $10 more, I'd do that too and maybe go to 2021 while I'm at it.  The short $155s will certainly go worthless so you could cover 5 2021 whatevers to help pay for the rolling.  

    AAPL/CRS – The earnings are after the expiration so not likely to do you any good.  The Jan $150s are still $9.50 out of a possible $10 so I'd take those and roll out to that 2021 spread we just took though watch the margin as your short Jan $165s will be "naked" shorts.  

    TGT/CRS – You seem to be in a good spot on that one as TGT is $66.  Your $52.50s are $16 and the 2021 $50s are $19 so that's a no-brainer roll to me as you get a year and $2.50 position for $3.

    HBI/CRS – Put roll makes sense as does the long call roll but I'd do a half sale and give HBI a chance to bounce back on earnings and, if not, then you can sell more 2021 calls. 

    Good point about profit-taking.

    AAPL/Iflan – Very nice!  


  34. What’s our trade of the year? I think I missed it somewhere along the way…


  35. congrats to anyone getting GBTC under 4.

    Accumulate all coins at coinbase. BTC BCH ETH ETC ZRX ZEC BAT LTC



  36. AAPL- down 8% AH on revenue warning. 


  37. Trade of the Year/Japan – IBM

    AAPL – Guided down revenues 10% but those fears are priced in by now.  It seems to be all about China boycott.  


  38. Phil / AAPL – looking at the charts to determine where it makes sense to cover some naked longs 

    I have the following key points or bounce lines: 146 / 157 / 166 / 175 / 184 / 193 / 202 / 211 / 220. this is 20% Rule based off the 230 higher and 146 ish lows.  The only support line I see left is is about 140, while resistance lines look like 157 – 172 – 193 – 211 ( based on squinting charts).  I was originally looking at cover some of my long calls at 166 and 175, but am thinking it makes more sense to wait till it hits around the 170 to 172 area. Does this make sense to you?   IT seems like a long way to go so and no sure it makes more sense to cover some at 165 as well.  Thoughts?  


  39. AAPL – goes we're heading to 140


  40. AAPL release pre announce – I think they are a barometer for the global economy –  Obviously this announce places most of the blame on China – but they had issues with other emerging markets as well.  It is rare for them to miss earnings and as just about every exposure they had came to pass – this makes me much more concerned on the broader economic macros.  

     

    https://seekingalpha.com/pr/17368901-letter-tim-cook-apple-investors


  41. IBM Trade of the Year / Details - from post of 21/11/2018:

    "This is our favorite kind of market because so many stocks are going at ridiculously cheap prices as babies get thrown out with the bathwater and we just cashed in $100,000 worth of hedges and we're either going to plow the money back into $300,000 worth of additional hedges (if the weak bounces fail) or we'll put the money to work buying $300,000 worth of longs for $100,000 – either way, we're going to have a good time!  

    IBM, for example, came back down to our buy zone ($115) yesterday and our Top Trade Alert from Oct 31st was:

    Sell 5 2021 $120 puts for $20 ($10,000) 

    Buy 15 2021 $120 calls for $11.30 ($16,950) 

    Sell 15 2021 $145 calls for $5 ($7,500) 

    That's a net $550 credit on the $37,500 spread so $38,050 upside potential

    That's why IBM, who were our runner-up for Stock of the Year in Nov 2015 at $140, are now our official stock of the year at $117 and that makes the above trade our PSW Trade of the Year and usually we promise to give people who buy an Annual Subscription between now and Dec 31st a full year bonus if our Trade of the Year doesn't make 100% before the renewal next year (you don't have to make the trade but you do have to subscribe), but this one is so cheap we'll simply guarantee that, by November next year, this trade makes at least $5,000 – or your renewal is FREE!  (6,918%) if IBM is over $145 in Jan 2021.  "


  42. I like AAPL … at 90


  43. Appl ouch!


  44. 2019: Long MJ, gold/silver, crypto

    cash or short everything else


  45. I think that the guys at AAPL have known for a while that iPhone sales would not grow as fast or even decrease. The writing was on the wall when they decided not to release unit numbers anymore. This is confirmation. Could be the result of the trade war with China but that could also be upgrade fatigue – when phones are over $1000, you don't change every year.


  46. StJ: In other words, it SHOULD be baked in by now.


  47. That type of news doesn't seem to be baked in…


  48. Hmm… I figured that the difference between larger AAPL 37% drop and the broader NASDAQ's 23% drop were the consequences of the U.S.-China Trade War. Consequently, an amiable resolution to the trade war would have a disproportionately beneficial effect on AAPL (and vice versa).  But who knows nowadays…


  49. Oh nevermind, it was simply an even give back of all the gains in 2018. 


  50. Good morning!

    /NQ 6,200 is a good spot to go long again- with tight stops below.  


  51. Good Morning


  52. Good Morning… Celgene acquired by BMY for 53% premium ! 


  53. 'Update on last week's AAPL trade:  Weekly Condor Bought 175 C/ Sold 165 C//Sold 150P Bought 145 Put. That trade is profitable by >70% as of this afternoon, so I've taken 1/2 of the contracts off the table.  I will let the rest ride out the week, at a > 90% likelihood of success for those, and further profits.  '

    This looks very interesting lflantheman .. would you consider explaining it in more detail for the less experienced? 

    Thanks ..