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Will We Hold It Wednesday – 200 DMA Edition

Which way?  Who knows?

It's all up to Trump, who may tweet anything at any time about China, the Shutdown, OPEC, Comey…  There's no way to tell what the President will do because what he does seems totally random and 80% of what he says is a lie and the other 20% are pronouns – so you can't go by what he says or what he does and you can only react to what he tweets – that's crazy!  

The markets rocketed higher yesteday as we finally broke through our 200-day moving averages, which are currently Dow 25,015 (now 25,502), S&P 2,743 (now 2,752), Nasdaq 100 7,047 (now 7,050), NYSE 12,500 (now 12,500) and Russell 1,587 (now 1,543) so we need confirmation from the Nasdaq and the NYSE today and, of course, the Russell has some work to do to catch up.

Yesterday we had Congress telling us they had a funding deal and Trump saying he might approve it – even though it only gives him enough money to build a picket fence – as long as he paints it himself.  We also had all the people on the US side saying China Trade Talks were going great but then Trump said he's not planning on meeting with Xi in March – so how great can it really be if the March deadline is on the 10th?  Trump also said he might extend the deadline – again, who knows?  

Today we have 3 Fed speakers:  Bostic, Mester and Harker speaking at 7:15 (Europe), 8:50 and noon respectively and they are all going to echo Powell's comments on how the economy is great but nowhere near great enough to raise rates or they may crash the markets another 20% because, you know, great markets are fragile – like great egg shells…

25,600 would be a great place to short the Dow Futures (/YM) if it fails, with tight stops above but ONLY ENTER AS IT CROSSES BELOW!  At $5 per point, per contract, if you give it 20 points to the stop (25,620, you risk $100 but the Dow is up 600 points off Monday's lows and up 3,600 points since Christmas so it's very likely we get a 20% retrace of 500 in the short run and that's 120 points for $600 per contract reward and, if we get lucky, we retrace the larger rally by 720 points for a $3,600 gain – so I think it's worth a toss – especially in light of these frightening charts:

While we're nowhere near the 2008 crisis levels in delinquencies, don't you wish you would have heeded the warning signs in 2007 and been more careful with your investments?  We have been pressing our hedges on the way up and will continue to do so in this week's Portfolio Reviews for our Members.  Another interesting chart is where people are putting their money in 2019 vs the historical norms and CASH!!! is, of course, king while money is flowing OUT of equities at an alarming rate:

And here's what investors are worried about:

Notice that Qualitative Tightening came quickly off the table but now people are suddenly worried about Corporate Credit, which wasn't even on the radar a month ago and US Politics also entered in 4th place as the Trump investigation (37 indictments so far) heats up and the Democrats bring oversight back to the House Committees and, it turns out, when you shine a light on a swamp that's been ignored for 4 years – you find A LOT of very ugly things!

Image result for economy fuckedGeorge Soros says the European Union is heading for a "Soviet-style collapse" and our National Debt passed $22Tn yesterday – which is the real reason the Fed is too scared to raise rates (it would increase our borrowing costs by $220Bn per percent rate hike and also increase our Annual Defict by over 20% a year) and China is in no better shape as they also have to reach out to Foreign Money sources to finance their growing debt.  

So what happens when the World's two largest economies (3 really as Japan is worse than either of us) are all competing to borrow money from the rest of the World?  Well, usually that would cause rates to go up – with or without the Fed or it becomes very, very expensive for the Fed to step in and save us (again).  So it's likely that we are very, very F'd but it's a long, slow F that will take several quarters before most people realize how F'd we are so, for now – lie back and enjoy it!  


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  1. Good Morning!

  2. Good morning, All!

    It's Wednesday! Webinar at 1pm!

  3. BofA Fund Managers Survey :


    Global stock allocation in February is lowest since 2016:  BofA


    Net cash investment is highest overweight since 2009 crisis.

    Money managers moved into cash instead, taking the net allocation to 44 percent, the highest overweight since the 2009 financial crisis, according to BofA. Still, the strategists believe that investor hesitancy is going to be favorable for markets this quarter and BofA’s cash balance indicator is currently flashing a contrarian buy signal, the note said.







  4. TEVA

    Teva Pharma slumps 12% after reporting mixed Q4 results & light FY19 guidance 

  5. Phil,

    What are your thoughts on AR, Antero Resources. I was wondering if there can be an earnings play ?



  6. Good morning!

    I'm going to try to knock out some Portfolio Reviews ahead of the Webinar.  This rally is crazy – the LTP crossed $1M just after the last review and already it's just under $1.2M just a few weeks later.  This is our current snap-shot – let me know if I forgot to enter anything.

    Those short CMG calls are killing us but we'll roll them eventually and we fortunately bought back our IBM short calls ahead of earnings.  Not sure if we were too greedy staying naked long on AAPL as it's a $237,000 position – I'll have to think about that…

  7. Phil / All Futures folks-

    Newbie question- has anyone tried buying / selling /ES just prior to cash opening on large overnight / pre-market moves?  Seems like you could scalp a couple of points each time the markets are +/- 0.5% or more in pre-market trading, but not sure if this is a "good idea until you blow up" observation.  Thanks!

  8. CASH!!!/StJ – I love that they say if Professional Investors pulled their money out that the Retail Investors should call that a buy signal when the market is already toppy.  They are just herding lambs to the slaughter.  

    Image result for wall street sheep

    TEVA/Albo – Gee, who could have seen that coming?  cool

    TEVA/Learner – They were $11 last Nov so $18 isn't that much of a bargain.  They lost about $18Bn last year but this year looks like break-even but it's not a very exciting-looking investment.  On the plus side, they've written off a ton of dead-end drugs but, on the bottom side, they have a portfolio of aging drugs that are all facing declining sales and stiff competition – all in a price-pressure environment.  On the whole, I'll keep my $18.5Bn until I see clear evidence that they can make at least $300M in a quarter – which shouldn't be a hard trick for an $18Bn company but TEVA has only pulled that trick once in the last 6Qs.

    Remember – I can only tell you what's going to happen and how to make money playing it – that is the extent of my powers…

    AR/Pat – How the Hell should I know?  blush  Seriously, I don't follow them at all so making an earnings call would be silly.  They are a $3Bn ($9.35) E&P Company but very heavy in Marcellus, where the infrastructure is too stretched to allow for much growth.  They SEEM to have made a lot of money last year but that was because they took a $400M tax credit on $129,500,000 worth of income in Q4 putting them at $785M for the year but that's a trick they won't repeat and, so far, in 2018, they are back to being below break-even.  

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 444.5 1,313 2,681 3,955 1,647 3,656 4,116 4,456 4,429 +52.4%
    Operating Profit $m 444 298.6 1,279 1,790 -992.8 738.6 304.1     +10.7%
    Net Profit $m -285.1 -18.9 673.6 941.4 -848.8 615.1 210.9 337.3 139.6  
    EPS Reported $ 0.89 -0.092 2.56 3.43 -2.88 3.30 2.02     +30.1%
    EPS Normalised $ 0.17 0.040 2.55 3.67 -2.70 3.68 3.12 1.13 0.41 +84.5%
    EPS Growth % -84.3 -76.5 +6,218 +44.0     -15.1 -69.3 -63.2  
    PE Ratio x           2.52 2.97 8.22 22.3  
    PEG x           n/a n/a n/a n/a

    I don't know if the forward projections are the result of idiot analysts extrapolating the negative taxes forward but that's often the case so I take them with a grain of salt and, even if that made it a toss-up (it's not) I'd still say no simply because oil is $10 (20%) lower than it was in Q1 of last year – and these guys weren't making $10/barrel at $65 so, at $55 – they are probably screwed.  

    /ES/Emike – Fun but can go either way so only good if you like big wins and losses.  I'd say, on the whole, it's a good percentage bet but keep in mind that, even if you are 60/40 in predicting the move – stringing together a few losses in a row (which WILL happen in any decent-sized series of attempts) will put you very deep in a hole and, if you don't have the firepower or will to keep playing until your percentages true out (assuming you aren't deluding yourself about how good you are) – then eventually you will quit while you are behind. 

    Notice as the market has gotten crazier I have made very few Futures trades – I don't trade unless I think things are pretty predictable – that's why I'm around 60% successful on Futures – because 90% of the time I choose not to play at all!  

  9. Speaking of Futures, /KCN19 (July) back to $105.60 with front-month /KC testing 100, that's a nice bouncy line for a long play!  

  10. Money Talk Portfolio Review:  Well, we're starting with the easy one as we can't change anything and I did a big review with all our goals last month (1/30) so this is just a snapshot and now we're at $118,630, which is up a very nice 137.3% from our $50,000 start last year and up $12,785 in the last two weeks on this rally.  We made some pretty aggressive adjustments which paid off and I HOPE we have enough hedges to get us through April, which is the next time I'll be on the show.  

    Not including the new trades (IBM, CAT), we were on track to make $152,476 by Jan 2021 so that's about $6,500/month so $12,785 is well ahead of schedule and the more ahead of schedule we get the more we should want to hedge.  Hedging doesn't stop us from making the $152,476 – it just takes some of those expected gains to lock in the gains we already have.

    It is a VERY good idea to go back and read last month's notes so you can see how our adjustments worked out into earnings.  Thinking about WHY we made changes and then seeing the effect those changes had is how you will best learn to think of these things on your own!  

  11. Phil,

    What did you think about the EIA numbers?

  12. Oil/Japar – Not a good report with across the board builds but maybe not as bad as feared and, of course, Saudis said they would cut another 500,000 barrels and next week is a holiday weekend so no reason for them to go lower though $55 will be a tempting short.

    • EIA Petroleum Inventories: Crude +3.6M barrels vs. +2.7M consensus, +1.3M last week.
    • Gasoline +0.4M barrels vs. +0.8M consensus, +0.5M last week.
    • Distillates +1.2M barrels vs. -1.1M consensus, -2.3M last week.
    • Futures +2.15% to $54.24.

  13. YM/Phil – Well, there's our near-term goal.  120 pts down from 25,600

  14. Wheee on /YM!  Very tight stop on the profits now – at least 1/2 of them adn back over 25,500 is an all stop.

  15. Phil / Pre-Market /ES – Cool thank you for the insight, sounds like this trade would not be worth the risk to me

  16. Butterfly Portfolio Update:  What a difference a VIX makes!  We were getting killed last month ($109,404) and we really didn't make any major moves – just rode out what went against us and now we're back on track in what is usually a rock-steady 20-40% annual gainer.  If you don't understand HOW options work and how they are priced – you will tend to get chased out of perfectly good positions by simple market fluctuations – don't let that happen!    

    We were too AAPL heavy when AAPL went down and that hurt us but now we have a sensible trade though I won't promise I wouldn't do it again if given the chance as we're up $17,746 overall on AAPL for the year, so worth a little worry now and again…

    $139,601 is up 39.6% for a year and a month so right where we expected to be from day one and certainly on track for 40% more in 2019 (as we started slow last year and the Butterfly Portfolio tends to do much better over time).

    • AAPL – The short June puts should expire worthless and drop $24,600 into our portfolio and we're done for the year, right?  Since we have 15 long spreads and 10 short puts – it would be irresponsible not to sell some calls so let's sell 5 of the April $175 calls for $5 ($2,500) because who doesn't like collecting $2,500 over 64 days against a 702-day spread?  Where do you think our AAPL profits came from last year?  Certainly not from the bull call spread (though the rolled one has a nice profit).  If AAPL goes up, the puts are worthless so we have $25,000 to play with and, if AAPL goes down, the calls expire worthless and we have $2,500 to roll the short puts with – can't lose!  

    • DIS – Just waiting for April to see how we do with the $4,525 worth of puts and calls we sold in Jan.  Boring is good!  

    • MDLZ – We adjusted to a new position that's more like a proper Butterfly play since our bullish position got too high to stay in.  Now we're just hoping the stock calms down into March expirations but it's only a 1/2 cover, so I'm not too worried if we have to roll.

    • OIH – Well now it's just a bullish play on the index but I can't see how the oil industry can go another year without investing in E&P.  SLB and HAL are 36% of the portfolio so watch them for signs of a turnaround.  

    Now that the VIX is low, I'm having a lot of trouble finding a good play to add to this portfolio – I'd love to hear some suggestions.  We want to find stocks that are volatile within a channel, like BX:

    It's a solid stock with plenty of ups and downs and we could buy a 2021 $33 ($4)/40 ($1.90) bull call spread for $2.10 and sell the $28 puts for $2.70 so we'd have a net 0.60 credit on the long position (but not put protection) and we can sell April $34 calls for $1.15 and April $33 puts for 0.90 but that's barely $2 for 64 days and BX is more volatile than that so we're likely to not even make $2 every time so let's say we average $1 or $4 for the year – is that worth it?  I think we can do better with something else…

  17. Pre-market/EMike – Well look what I did today, the Dow was up 100 pre-market and over 25,500 so I figured it would make about 25,600 and then reality would strike so I wrote up a CAUTIOUS entry as it crossed back below 25,600 and we never came close to our stop (quick spikes back up) and it all worked out perfectly – but the POINT is that I was being very careful and waited patiently and that paid off very well.  

    Same goes with the exit – I only expected a mild pullback so we took the money and ran – it's a very bad thing to turn greedy after the fact!  

  18. STJ = Interesting article on QCOM.  Are you still there ?

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  21. Russia, Back From The Brink

  22. GOLD is down for silly reasons, they merged ABX and GOLD and ABX's extraction cost was $750 (about) and GOLD's was $850 (about) and now the average cost of extraction is $800 but people are acting like ABX's cost of extraction went up and something is wrong.  A sad commentary on our education system.

    As a new trade, I'd go with:

    • Sell 20 GOLD 2021 $15 puts for $3.40 ($6,800)
    • Buy 50 GOLD 2021 $10 calls for $4 ($20,000)
    • Sell 50 GOLD 2021 $15 calls for $1.80 ($8,000) 

    That's net $5,200 on the $20,000 spread so $14,800 (284%) upside potential and we'll move to something like that in our own portfolios. 

    For the Butterfly Portfolio, we're going to add:

    • Sell 5 WHR 2021 $100 puts for $8.40 ($4,200) 
    • Buy 10 WHR 2021 $120 calls at $29.75 ($29,750)
    • Sell 10 WHR 2021 $150 calls at $16.00 ($16,000) 
    • Sell 5 WHR June $145 calls for $5.75 ($2,875) 
    • Sell 5 WHR June $125 puts for $4.70 ($2,350) 

    The initial cash outlay is just $4,325 and the puts require about $5,000 in margin but we have 700 days and we've only used 128 so figure 4 more $5,000 sales is $20,000 and our $30,000 spread is $18,000 in the money to start so lots of upside potential from this one!  

  23. NGL – Up another 8%.  Covered some with the Jul 15 calls for $.45.  Really don't expect the stock to be called away, but nice incremental income.

  24. Like a broken slot machine.  

    EU Industrail Production was bad.  Looks like 1% GDP growth this year.  

    Causing more pullback after hours.  

  25. CTL

    Reports Q4 (Dec) earnings of $0.37 per share, excluding non-recurring items, $0.04 better than the S&P Capital IQ Consensus of $0.33; revenues rose 8.5% year/year to $5.78 bln vs the $5.78 bln S&P Capital IQ Consensus.

    After extensive review, the Board of Directors plans to reduce the company's annual dividend to $1.00 from $2.16, beginning with the Board's next dividend declaration. Under this revised capital allocation policy, the company plans to reduce the net leverage target to a range of 2.75x to 3.25x in a specified timeframe of approximately three years and continue to fund its growth and transformation initiatives. The company expects to return more than $1 billion annually to shareholders through the $1.00 annual dividend.

  26. CTL – ouch

  27. QCOM / Albo – I still like them but I am out now. although it's in a good spot for a new entry now. As far as CTL is concerned, that dividend reduction makes a lot of sense, once the shock is gone, it should be on good footings. They go to a 7% or so div which is good in their sector.

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