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TGIF – Market Rally Pauses Just Shy of our Weekly Goals

Image result for stock market dead cat bounceWell, we're right on track…

Back on Dec 26th, in our Morning Report, when the market was collapsing, we began playing for a bounce.  At the time I said:

Each month the Government is closed knocks 2% off our GDP and the slowing economy will contract wages and Corporate Profits and, guess what?  That will make the deficit explode as it lowers the rate of tax collections.  That's why the market had such a harsh reaction to this shut-down but it's still been an over-reaction nonetheless and we are certainly now looking for at least a weak-bounce correction, which would be a 4% gain on the indexes from these levels.  Let's call it from the 20% correction lines:

  • 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)

Remember:  I can only tell you what is likely to happen and how to profit from it – the rest is up to you!   Once we hit that goal we began looking for the strong bounce lines and, as of this morning (8am), we're at:

  • 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 8 of the 12 red boxes have turned and the S&P 500 (/ES) Futures are at 2,586 after being rejected at 2,599.50 into yesterday's close.  That's the second rejection on /ES and we expect the 3rd time to be a charm but, this morning, the Futures are pulling back a bit so we may have to wait until next week to turn all green (except the Russell (/RTY), which is very unlikely to make it next week).  

Keep in mind we are not doing TA here (TA is BS), our 5% Rule™ simply uses good old-fashioned math to determine these bounce levels and, when the market is being traded by robots, math trumps Rorschach every time!  In yesterday's PSW Morning Report, for instance, I put up the following chart of the S&P 500 along with this comment:

The market sold off as word of the White House Meeting failure spread in the afternoon and we kept going down overnight but progress on the China talks (because Trump was NOT at that meeting) are likely to keep us from failing the weak retrace line at 2,567.50 so I like that on the S&P Futures (/ES) as a bullish play with tight stops below (next stop would be 2,535).  

Here's what actually happened:

As we predicted, the S&P held the top of it's bounce range, which indicates it's likely consolidating for a move above but that's not something we expected until next week so we took our profits and ran as we got back to that strong bounce line.  Trading the Futures is not hard – it's learning not to be greedy that's difficult!  

By the way, if you would like to get our PSW Reports pre-market every day (it's on the site and usually via Email while in progress around 8:35 am), you can sign up for that HERE.  The annual cost is $995 and that's $2.72/day but yesterday's /ES trade made $1,500 for each contract and, of course, we make plenty of other calls – usually options and Futures plays – that more than justify the cost.  Also, you can earn unlimited discounts by simply referring others to our service (by giving them free trials) – so you don't have to pay anything if you know a lot of people!  

Just to show you how our system works, I'm going to give you a trade idea that can pay for the entire Annual Report Subscription and, IF YOU SIGN UP FOR AN ANNUAL REPORT THIS MONTH AND THIS TRADE IDEA FAILS TO MAKE AT LEAST $1,000 by next January (you don't actually have to make the trade but you do have to actually pay for the full Annual Membership) I will give you a FREE 2020 Trend Watcher Membership, worth $2,499 – how's that for a good deal?

Since the pressure is on me, I'll have to go for what I think will be a sure thing and that's my beloved Apple (AAPL), which I only just made a long call on in our Jan 4th Report, pretty much righ at the lows.  AAPL is up 10% since then but nowhere near its true value so, as a new trade idea to make $1,000 by next January, I like:

  • Sell 2 AAPL 2020 $140 puts for $13.50 ($2,700)
  • Buy 2 AAPL 2020 $130 calls for $35 ($7,000) 
  • Sell 2 AAPL 2020 $155 calls for $21.25 ($4,250) 

The net cash outlay for this trade is $50 but we're using the short puts to pay for the spread and that obligates you to buy 200 shares of AAPL for $140 ($28,000) so you have to REALLY want to own AAPL at the recent lows to make that trade.  Otherwisse, you can just take the $130/155 spread for net $2,750 and that will pay $5,000 for a gain of $2,250 (82%) by itself.  If you can afford to own AAPL, however, then adding the short puts will cost about $3,520 in ordinary margin and reduce the cost of the spread to $50 in cash and then your upside is $4,950 for a whopping 9,900% return on cash in 12 months.

Keep in mind that AAPL is at $153 this morning so the trade is almost completely in the money and all AAPL has to do is not go lower and this trade will be a huge winner and, if you think I'm cheating on our deal by picking an almost sure thing that will easily make $1,000 in 12 months – I would say to you:  ISN'T THAT WHY YOU SHOULD SUBSCRIBE TO OUR SERVICE?!?

Related image

If you don't want to learn how to use options and futures trading to your full advantage, don't subscribe.  As I said above, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!

My biggest worry on this trade is that Trump blows his trade negotiations with China and a year won't be long enough to recover.  Clearly Trump has made a complete mess of his wall negotiations and, if he can misplay that so badly – it's not much of a stretch to imagine that China will eat him for lunch because there's nothing worse than a bad negotiator who thinks he's a good negotiator!

Other than that, I think we'll drift along around these levels in 2019, a bit up and a bit down but AAPL – being the World's Greatest Company – should easilly be over our $155 goal – just $2 to go!  

Have a great weekend, 

- Phil


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  1. Ticking one more green box…

  2. GM – Up big after hiking guidance.

  3. BBBY – Strong again.  Closed out some short puts.

  4. Good morning! 

    I love that AAPL trade above, so silly what you can do with options…

    As I noted yesterday, it was very unlikely we'd pop the 50 dmas on our first try so that's next week's job but this week has been good progress – as long as we don't turn any red boxes today.  

    Have to give the markets a pass this morning as the Dollar popped into the open and sent other stuff (that's priced in Dollars) lower.

    Big Chart – 1,440 on /RTY is the bull/bear line to watch.  

    • Carl Icahn is building a position in Caesars Entertainment (NASDAQ:CZR), according to CNBC.
    • While the size of the position isn't known yet, the development is sure to throw an even brighter spotlight on the M&A potential for the casino operator.
    • Shares of Caesars are up 7.88% in early trading.
    • Oppenheimer is out with an early preview of Amazon's (AMZN -0.7%) Q4 earnings report.
    • "We believe AMZN exceeded its domestic gross profit estimates on strong macro holiday sales and continued share gains, supported by Adobe Insights and Similarweb," notes the firm.
    • The Oppenheimer analyst team also reasons that while brick & mortar retailers suffered, Amazon's gross profit growth vs. B&M outperformance has been widening. On the cautionary side, ASOS' miss across the pond is seen as a warning on slower international growth at Amazon. Meanwhile, AWS revenue and margin growth is expected to remain at similar levels on software adoption and capex efficiency.
    • Oppenheimer keeps an Outperform rating on Amazon and price target of $2,020.
    • Bank of America Merrill Lynch checks in on Dell Technologies (NYSE:DELL) after meeting with management.
    • "Management is focused on generating cash flow, margins and profitable share gain," notes the firm.
    • BAML maintains its Buy rating on its expectations for strong revenue growth at Dell, share gain as new mid-range storage product becomes available in 2019 and margin expansion on higher mix of storage.  A mix shift to premium in PCs and servers is also expected to boost Dell.
    • BAML's price objective on Dell is $63 (39% upside). Shares of Dell are down 7.5% for the early part of 2019.
    • Polish authorities detained and charged a local sales director of Huawei Technologies, a Chinese national, with spying on behalf of China, as the tech giant comes under increased scrutiny, the Wall Street Journal reports.
    • The arrest comes after the early December detention of Huawei's CFO in Canada at the U.S.'s request; that arrest was for charges related to Iran sanctions.
    • A Chinese Foreign Ministry statement said Beijing "is highly concerned" about the arrest.
    • Previously: Huawei CFO detention sparking Canadian arrests? (Jan. 4)
    • The U.S. airline sector is on watch again for volatility after U.S. Bureau of Labor Statistics shows a drop in airline fares for the month of December..
    • U.S. airline fares fell 1.5% month-over-month in December on an adjusted basis and were down 2.6% on a year-over-year unadjusted basis.
    • The industry also saw a drop in fares on average in November amid a lower fuel cost environment and heightened competition in certain markets.
    • Analyst have pointed out this week that the U.S. government shutdown is now long enough to actually move the meter on bookings and potentially fares as employees and contractors cut back on travel.
    • Shares of Delta and American are both down roughly 1% in premarket action.
    • Starbucks (NASDAQ:SBUX) is lower in early trading after Goldman Sachs pulls its Buy rating.
    • The firm expects Starbucks to feel pressure in China and warns on a potential Apple-type warning on sales growth expectations for the region.
    • GS settles in with a Neutral rating on Starbucks and price target of $68.
    • SBUX -2.71% premarket to $62.45 vs. a 52-week trading range of $47.37 to $68.98.
    • Citigroup (NYSE:C) rises 1.9% in premarket action after entering an agreement with one of its largest shareholders, ValueAct.
    • The information sharing and engagement agreement formalizes and expands on dialogue that began early last year.
    • The pact enables ValueAct to have access to confidential information about the company and engage with members of Citi's management team and board on areas such as strategy, governance, and operational planning matters.
    • The agreement also provides for ValueAct's support for management and the board through December 2019.
    • ValueAct isn't pursuing a board seat at Citi at this time because it has a representative on the board of Alliance Data Systems, which competes with Citi in certain business lines. When that changes, it's likely ValueAct will propose a candidate for a board seat at Citi.
    • ValueAct currently owns about 32M shares of Citigroup common stock.
    • Previously: ValueAct takes $1.2B stake in Citi (May 8, 2018)
    • December Consumer Price Index: -0.1% M/M vs. in-line with consensus, +0.0% prior.
    • Core CPI +0.2% M/M in-line with consensus, +0.2% prior.
    • Core CPI +2.2% Y/Y in-line with consensus, +2.1% prior.
    • Bank of America Merrill Lynch expects another year of solid sales for restaurants offset largely by expense pressure. The forecast feeds into its thesis that the franchised model is the best way for investors to play the sector.
    • "We continue to be concerned about costs next year with an expectation for 4% labor inflation (including 4%-5% for hourly wages). Commodity inflation should be up 1%-2% driving 2.5%-3% total inflation. Sales accelerations and decelerations have historically lagged cost changes by two quarters," warns BAML.
    • Favorite picks in the sector from the analyst team include Domino's Pizza (NYSE:DPZ) and McDonald's (NYSE:MCD). A more surprising recommendation from BAML might be Darden Restaurants (NYSE:DRI). "We think Darden is well positioned for an industry shift towards scale going forward, which we think show up in its capabilities around data analytics and customer insights," write the restaurant analysts. "The company has also been able to weather margin pressure better than peers due to G&A leverage opportunities, store level operating efficiencies and its avoidance of small order delivery cost pressures," they add.
    • The firm also sticks with a Buy rating on Starbucks (NASDAQ:SBUX): "CEO Kevin Johnson continues to streamline equity ownership to primarily the U.S. and China markets with recent moves including the sale of the packaged coffee business to Nestle in F’4Q and the restructuring its Europe business in mid-October… We believe the stock is attractively priced for a low double digit EPS compounder at 14.5x our calendar year 2019 EBITDA estimate and a 23x P/E."
    • Other BAML updates from within the sector include keeping Yum Brands (NYSE:YUM) at Neutral due chiefly to the large exposure to China and slotting Chipotle (NYSE:CMG) at Underperform on lower earnings estimates than where the Street stands.

    I certainly like /RTY for a bounce off 1,440 (tight stops below!)

    • Stocks open lower following five straight days of gains but remain poised to post strong gains for the week; Dow -0.8%, S&P and Nasdaq both -0.7%.
    • Both the Dow and the S&P finished yesterday's trade up more than 10% from their December lows, marking their exit from correction territory.
    • European bourses also are taking a breather today, with France's CAC -0.6%, Germany's DAX -0.5% and U.K.'s FTSE -0.3%; in Asia, Japan's Nikkei closed +1% and China's Shanghai Composite ended +0.7%.
    • In U.S. corporate news, General Motors +7.8% after the company guided its FY 2018 and 2019 earnings above consensus, and Activision Blizzard -12.5% following news it is cutting ties with a videogame studio.
    • All 11 S&P 500 sectors are lower, with energy (-1.3%), industrials (-0.9%) and financials (-0.7%) leading the retreat while the consumer staples group (-0.1%) shows relative strength.
    • U.S. Treasury prices are higher, pushing the two-year yield 4 bps lower to 2.53% and the 10-year yield down 3 bps to 2.70%; the U.S. Dollar Index -0.1% to 95.46.
    • WTI crude oil -1.7% to $51.70/bb
    • Capital markets stocks face a "challenging" 2019, as the sector slides 31% from recent highs and has potential for swings either way, Bank of America Merrill Lynch analyst Michael Carrier writes in a note.
    • For trust banks, Northern Trust (NTRS -0.7%) cut to neutral on tough revenue view, reduced expense flexibility; raises State Street (STT -0.9%) to buy as challenges may already be priced in.
    • Among asset managers, Legg Mason (LM -1.6%) upgraded to neutral as flows hold up better than its rivals; cuts Franklin Resources (BEN -2.2%) on outflows, weaker markets and asset levels.
    • CME Group (CME -0.3%) cut to neutral.
    • Sees upside for most brokers; favors Morgan Stanley (MS -1.4%) and alternative asset managers like Carlyle Group (CG -0.8%); sees "decent" upside for online brokers like Schwab (SCHW -1%).
    • Caterpillar's (NYSE:CAT-1.1% pre-market as Goldman Sachs cuts earnings estimates, now seeing 2018 EPS of $11.44 vs. the consensus estimate of $11.64 and 2019 EPS of $12.70 vs. $12.82 consensus, citing reduced demand for oil and gas reciprocating engines.
    • Goldman analyst Jerry Revich says U.S. construction equipment indicators have deteriorated through December, following a Q3 earnings season that already showed signs of a potential slowdown, including rental rates growing slower than normal seasonality, aerial work platforms surpassing the 2014 peak and building dealer inventories at CAT’s North American construction industries business.
    • Revich expects flat organic growth for CAT in 2019 although with potential for a re-acceleration in 2020 if mining equipment order rates improve in H2 2019 off a low base.
    • The firm maintains its Buy rating and $156 price target on CAT, saying end markets are closer to trough than mid-cycle and valuation is attractive compared to Goldman’s broader machinery coverage.
    • Raymond James upgrades Netflix (NASDAQ:NFLX) to a Strong Buy rating, up a notch from the previous rating at the firm of Outperform, per Bloomberg.
    • The firm points to positive app/search data and the streamer's solid content slate.
    • "We believe the combination of positive revisions and emerging signs of long-term profit potential will yield share price outperformance," writes analyst Justin Patterson.
    • RJ also sees upside with the film business after Bird Box rattled some cages.
    • A price target of $450 is assigned to Netflix to rep 38% upside potential.
    • NFLX +1.95% premarket to $331.00. Shares are now up 22% in the last month.
    • Chico's FAS (NYSE:CHS) announces a series of strategic initiatives, including a retail fleet optimization plan and an expanded review of the company's operations.
    • "Our focus is on implementing those initiatives that drive the greatest levels of growth and profitability of our business," says CEO Shelly Broader.
    • As part of the new strategy, Chico's says it has made the strategic decision to rebalance the mix between its physical store presence with its digital network and to close at least 250 stores in the U.S. over a three-year period. Closings will be across the three brands and weighted to years two and three.
    • For Q4, the company anticipates a low double-digit decline in sales  and a mid-single digit decline in consolidated comparable sales. Gross margin rate is expected to decline approximately 500bps compared to a year ago, primarily driven by the initial ramp-up in costs from the company's omnichannel programs, more aggressive promotional cadence to clear through seasonal merchandise and deleverage of fixed costs from lower sales.
    • Shares of Chico's are up 1.9% in premarket trading.
    • Source: Press Release
    • "Coupled with positive app/search data and a solid content slate, we believe there is an upward bias," to earnings and revenue projections, says analyst Justin Patterson, upgrading Netflix (NASDAQ:NFLX) to Strong Buy. His $450 price target suggests nearly 40% upside.
    • Patterson takes note of the success of "Bird Box," as pointing to "meaningful potential" for Netflix in films.
    • Source: Bloomberg
    • Shares are up 2.5% premarket to $332.70.
    • Citing Fed signals suggesting a "pause in the hiking cycle," Barclays cuts its full-year 2019 forecast for 10-year Treasury yield to 2.75% from 3%, strategists led by Rajiv Setia write in a Jan. 10 note.
    • Refers to minutes from Fed's December FOMC meeting and recent comments from Fed members that they're "open to remaining on hold."
    • U.S. rates "now unlikely to challenge the highs of late 2018" and the team sees 3% as "an effective cap" for 10-year yields even if "recession risks diminish."
    • 10-year Treasury yield currently ~2.72%; had been 3.25% in November.
    • Source: Bloomberg First Word.
    • Previously: Fed's Bullard – Last rate hike an "overreach" (Jan. 10)
    • Hitachi (OTCPK:HTHIYOTCPK:HTHIF) plans to suspend its ¥3T U.K. nuclear project and to post a ¥200B-¥300B (~$2B) writedown for the year ending in March, and will vote on the planned suspension at its board meeting next week, the Nikkei Asian Review reports.
    • Hitachi has had trouble finding corporate investors in Japan for the project, and recent talks with the U.K. government for additional financing made no progress, according to the report.
    • Hitachi said the asset value of the plant in Wales was ¥296B as of the end of September
    • Pot producer and distributor WeedMD (OTCPK:WDDMF) and fast casual franchise restaurant chain Pita Pit Canada team up in a venture called Pioneer Cannabis Corp. aimed at building out a chain of retail cannabis stores.
    • Pioneer will provide would-be entrepreneurs with a range of support services to help them establish their respective stores, including identifying locations, assisting with licensing and security, point-of-sale and payments systems, marketing services and training programs.
    • Interested parties should visit for further details.
    • Wedbush doubles down on its bullish view of Tesla (NASDAQ:TSLA) ahead of the company's earnings report and Q1 guidance update expected next month.
    • "With profitability targets moved up ahead of Street expectations based on the impressive 3Q performance, and Model 3 production now past the Nightmare on Elm Street bottlenecks/issues seen over the last year, it all comes down to gauging consumer demand and the product roadmap for the mid-range and base versions ($35k) heading into 2019," writes analyst Dan Ives.
    • While Ives expects some Q1 shipments in Europe will spill into Q2, he sees the demand from the continent strong enough to neutralize some anticipated softness in the U.S. He also assigns a 30% to 35% probability that Tesla fires off a capital raise of $2B to $2.5B this year to invest into core production and related initiatives such as the China Gigafactory, Tesla Energy and Tesla Semi.
    • Tesla is slotted with an Outperform rating at Wedbush and assigned a price target of $440.
    • Shares of Tesla are down 0.64% premarket to $342.75.
    • Brexit looks increasingly likely to be delayed beyond the scheduled exit of March 29, Cabinet ministers revealed to the U.K.'s Evening Standard, due to "a backlog of at least six essential bills that must be passed before Britain leaves the EU."
    • Sterling had been trading close to 1.272 against the dollar before the report, but soared to $1.284 before erasing some of those gains.
    • Britain's economy cooled in the three months to November, expanding by 0.3% and marking its weakest pace in six months.
    • Besides tough global trade conditions and weaker overseas demand, the future of trade with the European Union hangs in the balance.
    • Theresa May is widely expected to lose a Brexit vote Tuesday that would leave the nation without any transitional arrangements upon leaving the EU on March 29.

    • The Board of Directors authorized Lennar Corporation (NYSE:LEN) to repurchase from time to time up to $1B in value, or 25M in shares, of the Company's outstanding Class A or Class B common stock.
    • During the year ended November 30, 2018, the Company repurchased 6M shares of its Class A common stock for ~$250M.
    • Volkswagen (OTCPK:VWAGYposted an annual sales record by selling 10.83M cars in 2018, an increase of 0.9% Y/Y and likely solidifying the German group as the world's largest carmaker.
    • It comes despite a year of myriad headwinds, including trade tariffs and new emission standards to diesel bans in many German cities.
    • In 2017, VW contested the crown of world's biggest automaker with the Renault-Nissan-Mitsubishi alliance, which claimed the title with 10.6M and said Volkswagen should not have counted trucks.
    • Apple (NASDAQ:AAPL) is planning to release three new iPhone models again this fall, including a successor to the struggling XR, which will include some new camera features, WSJ reports.
    • Apple is also considering dropping its only LCD model in 2020, marking a complete shift to OLED displays.
    • It's been a tough year for iPhones, including reductions to sales estimates, as well as recent reports that resellers in China have slashed prices for the smartphones by up to 22%.
    • Saudi Arabia is now planning its long-delayed Aramco (ARMCO) IPO for 2021, undertaking a series of moves that may give more transparency to potential investors.
    • The kingdom has released the results of an independent audit that confirmed it controls more than 260B barrels in oil reserves and announced that Aramco will issue bonds next quarter.
    • In order to tap the debt market, the oil giant will need to release additional financial information.
    • ETFs: KSA
    • China plans to set a lower economic growth target of 6%-6.5% in 2019 compared with last year's target of "around" 6.5%, policy sources told Reuters.
    • The proposed target will likely be unveiled at the annual parliamentary session in March.
    • As the trade war takes its toll, U.S. Treasury Secretary Steven Mnuchin also said top trade negotiator, Chinese Vice Premier Liu He, will "most likely" visit Washington later in January for talks.
    • Joining a number of other drugmakers this month, Johnson & Johnson (NYSE:JNJraised prices on about two dozen prescription drugs today, including top sellers Stelara (for psoriasis), Zytiga (for prostate cancer) and blood thinner Xarelto.
    • Most increases were in the 6-7% range, Reuters notes.
    • The company says average list price increase on its drugs will be 4.2% this year, but it expects net price it receives to drop after rebates and discounts. It says it doesn't plan to raise prices on any more drugs this year.
    • Shares are down 0.4% after hours.
    • Hulu is shoring up its live TV offering with plans to launch a more traditional programming guide with a two-week view.
    • At launch last year, the live TV service avoided a guide entirely, choosing to present live TV mixed in with on-demand and recorded content. It later added a simple guide showing what's on and what's next.
    • The newer guide allows for further browsing ahead, more similar to traditional pay TV offerings.
    • The company will still focus on presenting live and on-demand content in the same interface overall.
    • Hulu is still currently owned by Comcast (NASDAQ:CMCSA), Disney (NYSE:DIS), Fox (FOXFOXA) and WarnerMedia (NYSE:T).

  5. AAPL- checking the numbers on the above trade. Net is around $780 , not $50. 

    Are we all on the same page?

  6. MJ stocks strong today – i.e., CGC, PYX, TLRY, NBEV, etc.

  7. AAPL/Pstas – You'll have to explain your math to me.

    MJ/Albo – Well TLRY is doing a retail partnership and that raise possibilities for all of them (us!). 

  8. AAPL- using midpoints: 

    2020 140 puts = $10.90

    2020 130 calls = $31.15

    2020 155 calls = $16.52

    31.15-10.90-16.52=3.73 x 200 = $746

  9. Indexes staggering back into the green.  SOMEONE really wants this market to go up.

    • New York Federal Reserve's Nowcast model expects U.S. economy to slow to 2.11% in 1Q19, down from 2.12% in the last week.
    • The revised data is based on this week's data on services sector activity and consumer prices.
    • UK manufacturing sector output fell 0.3% in November against consensus of 0.4%.
    • Industrial production fell 0.4% M/M in November, below the consensus forecast of 0.3%.
    • Traffic jams at the Houston Ship Channel caused by extra-large container ships are placing at risk the growth of exports of crude oil, refined products, natural gas liquids and other petroleum products, says Enterprise Products Partners (EPD) Senior VP Tony Chovanec.
    • Demand from Asia and other foreign markets sparked a record $141B of petroleum product exports from the U.S. last year and are expected to grow to $330B by 2025; with two-thirds of the exports coming from the Houston Ship Channel, Chovanec warns recent traffic jams threaten that growth.
    • Container ships up to 1,100 ft. in length reduce the normal two-way traffic in the channel to one-way traffic, meaning the port’s oil and natural gas customers must sit and wait until given clearance to move their ships.
    • EPD, Kinder Morgan (NYSE:KMI), Targa Resources (NYSE:TRGP) and four other companies which have invested billions of dollars in export facilities along the Houston Ship Channel have formed a coalition to pressure port officials to limit one-way traffic to one pre-scheduled time per week.
    • Economists surveyed by Bloomberg over the past week see a median 25% chance of a recession in the next year, up from 20% in the December survey and at the highest level in more than six years.
    • The dimmer view comes amid financial market volatility, a trade war with China, and the partial federal government shutdown.
    • The economists surveyed now expect the Federal Reserve to keep interest rates unchanged in Q1, instead of increasing them, and project two hikes this year.
    • Median 2019 economic growth projection slips to 2.5% after 2.9% in 2018, as the effect of fiscal stimulus fades.
    • Previously: Most economists see Fed holding rates at least until June: WSJ survey (Jan. 10)
    • Investors should beware of earnings quality at General Electric (GE -0.4%), Gordon Haskett analyst John Inch says as he cuts his FY 2019 EPS estimate to $0.85 from $0.93 and stock price target to $7 from $10.
    • “Instead of moving GE toward a GAAP earnings presentation or more conservative accounting, former CEO John Flannery instead shifted the presentation of GE’s earnings toward an even more aggressive framework by excluding massive [recurring] restructuring charges,” Inch warns.
    • The restructuring charges were “significantly” over $3B/year, Inch says while doubting the company will slow the pace of cuts given Flannery’s termination was tied to his not moving fast enough.
    • Investors should get an idea of the direction of new CEO Larry Culp when GE reports Q4 earnings on Jan. 31.
    • Vail Resorts slides (MTN -13.7%) toward 21-month low, after the company said that despite good conditions, destination guest visitation was "much lower" than anticipated in the pre-holiday period
    • Hence, MTN now expects FY EBITDA to be "slightly below the low end" its previously provided guidance of $718M-$750M.
    • "Weak pre-holiday visitation resulted from concerns from two prior years of poor pre-holiday conditions at US resorts, and the lack of pick up in short-term bookings as expected", said CEO Rob Katz
    • Over the holiday, results were as expected, except at Whistler Blackcomb and Tahoe resorts that were lower than anticipated
    • Season-to-date lift ticket revenue for North American mountain resorts is up 12.2%, ski school revenue +9.5% and total skier visits +16.9%.
    • Press Release
    • On the heels of a new round of price increases by drug firms and worn-out patience waiting for President Trump to follow through his campaign promise, Senator Bernie Sanders (D-VT) and Representative Elijah Cummings (D-MD 7th District) have introduced a bill aimed at reining in drug prices.
    • Their bill, similar to the Trump administration's idea to benchmark U.S. drug prices to Europe's, would create an "international pricing index" as a means to more closely align the U.S. with other countries.
    • It would also allow the Secretary of Health and Human Services (HHS) to negotiate prices under Medicare Part D and allow Americans to purchase medicines from Canada and other countries.
    • Predictably, the Pharmaceutical Research and Manufacturers of America, the industry's top lobbying organization, is opposed, saying the bill would "interfere with patient access to medicine while also undermining the U.S. intellectual property system, replicating the flawed policies of foreign governments and circumventing the FDA's robust safety standards."
    • Drugmakers blame pharmacy benefit managers (PBMs) for the problem saying they continue to demand ever-increasing rents for inclusion on formularies.
    • Several drugmakers maintained prices for a short while last year, but reinstituted increases this month on more than 250 medications, including top seller Humira at AbbVie. On the plus side, the increases were more modest, with almost all being less than 10%.
    • Talks at the Federal Reserve are intensifying over how big the central bank's portfolio of bonds and other assets will be and what it will be in it when it's done shrinking its balance sheet, according to the Wall Street Journal.
    • It seems the Fed is leaning toward holding a larger portfolio than it was aiming for a few years ago, and that those holdings will be weighted toward short-term Treasury securities, according to the minutes of the Fed's December meeting. Some members of the FOMC wanted to start selling some mortgage securities gradually.
    • Fed Chair Jerome Powell has said while the Fed doesn't believe the portfolio runoff contributed to recent financial market volatility, it can adjust the portfolio runoff program if needed.
    • The Fed purchased bonds in several rounds after the financial crisis to push down long-term rates. In late 2017, it started to let some bonds mature without replacing them, reducing its holdings to about $4.1T last month.
    • On Thursday, Powell said it's too early to say what size it will be when the runoff program ends. "It will be smaller than it is now but nowhere near what it was before," he said.

    • General Motors (GM +9.1%) trades at its highest level of 2019 after the company's business update today.
    • All in all, CEO Mary Barra's talk was a victory lap of sorts after the company hiked guidance above expectations for Q4 and 2019. She highlighted GM's electrification push, including a planned Cadillac EV. The update on Cruise Automation was also promising as the self-driving upstart looks to break into the ride-sharing business. As for job cuts and plant closings, Barra said there is nothing new to announce based on current business conditions.
    • An interesting aside from Barra's presentation was when she said Tesla's (TSLA +0.3%) interest in acquiring old GM plants is a "moot point" because the company doesn't want to unionize employees. Will Elon let that one go?
    • GM presentation slides
    • Previously: GM +6% after hiking guidance (Jan. 11)

  10. Turns out I have a lot to do Tues and Weds next week at the Cannabis Conference.  Tuesday they only invited 100 top industry guys and I guess I'm one of them for this agenda:

    Weds is the open conference with lots going on:

    Much as I hate these things, I think there's just too much opportunity for me to skip this but I can work Tues AM and check in from the conference on the IPad and Weds I'll just try to do my best.

  11. AAPL trade pricing, here is what I see

    $30.60 Jan 2020 $130 call

    -$16.10 Jan 2020 $155 call

    -$11 Jan 2020 $140 put

    $3.50 net

    Chaning put to June 2020 $140 put brings net down to around $0.50

  12. AAPL/Mike, Pstas – As an adjustment based on the current prices, I'd go with:

    • 2020 $130 calls at $30.50 
    • 2020 $155 calls at $16 
    • 2020 $145 puts for $13 

    That would net you in for $1.50 and still a $25 spread – only difference is a $5 higher strike on the puts which I'm not very worried about as the 2021 $130 puts are $13 so an easy roll 10% lower.  

  13. Saudi Women, Tired of Restraints, Find Ways to Flee

  14. /NG flying today!  

    Really drifting into the close.  Low-volume day.

  15. mr stick….

  16. Trump is putting on a big show of sitting at his desk waiting for the Democrats to pass his bill but they adjourned so he's saying they ran out on the American people…

    Too funny if it wasn't so tragic – hard to believe this is real life! 

    Have a great weekend, 

    - Phil

  17. Oh, and a nice stick into the close!  

    Image result for stick save animated gif

  18. awesome pic

  19. The point was less to actually build “the wall” than to constantly announce the building of the wall…

  20. Looking for some basic help – am I missing something?

    In this BC spread on GILD, for example, my broker (web broker) won't let me sell two sets of short calls against a single long position.  Does this mean I just don't have enough margin available?

    Let's buy those back and sell 15 of the GILD 2021 $67.50 puts for $8 ($12,000).

    Buy 25 2021 $65 ($18.50)/80 ($11.50) bull call spreads for $7 ($17,500) 

    Sell 15 Jan $77.50 calls for $3.30 ($4,950)

    Ignoring the profit on the original short calls, the new trade is net $550 on the $37,500 spread with 8 more quarters to sell going forward.  

  21. Good morning! 

    Indexes down as shutdown appears to be ongoing but off their worst and it's Monday, so it doesn't matter.  

    /RB is a good play at $1.3894 but I'd wait for over $1.39 and play it with tight stops and be happy with a penny.  /CL crossing over $51 is also playable.  

    /NG gapped higher!

  22. GILD/Wing – You really have to ask your broker, which is probably hard if they are a discount one.  Your account may not allow you to sell "naked" calls – even if covered by a bull spread or it may be a margin issue as 15 short Jan $77.50 calls use about $10,000 of ordinary margin (and are now 0.03 so there's no cash to offset it).  Since the spread, at $77.50 would be worth $31,250, in a portfolio margin account (which, of course, you should have if making large trades like this anyway) the net margin would be effectively $0 as the gains offset the potential losses.