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Monday Market Madness – Boeing’s 2nd Crash Since October Takes The Dow Down With It

Is China over-reacting or are we under-reacting?

Aviation safety is one of those things you would hope don't get politicized but that's what we're getting this morning as an Ethiopian Airlines 737 Max crashed on take-off, killing all 157 on board less than 6 months after Indonesia's Lion Air 737 Max crashed on take-off, killing all 189 on board that plane.   The FAA was supposed to be looking into the matter in January but, you know – the Government shut-down and the investigation was delayed.

It's POSSIBLE (nothing is proven) that the 737 Max has problems with it's software automation and that means China and Ethiopia are right to ground the fleet immediately but it's also possible that China and their trading partner are sticking it to Trump and BA, using America's largest exporter as a negotiating chip – exactly the same way Trump has been using Huawei to put pressure on China.  

That's how dysfunctional and unstable the World has become – we have no way of knowing if Governments are acting in the people's best interest or if they are simply playing Cold War-style Economic Brinksmanship.  

Image result for boeing crashIn the Lion Air crash, investigators have indicated the pilots fought the MCAS system as it strongly and repeatedly pushed down the plane’s nose, but didn’t follow an existing procedure to deactivate it.  On MAX 8 models, under certain conditions, pilots may be unable to pull the plane out of a dive unless they react quickly and proceed to the most relevant portion of their emergency checklist. Outside safety experts have questioned how the FAA gave the green light for such a design lacking redundant software or hardware safeguards.

One malfunctioning sensor or a single stream of faulty signals—called a “single point failure” in engineering lingo—can lead to a catastrophic dive, if pilots react improperly, so China may have a very good point and maybe it's the US who is politicizing the issue by NOT grounding the 737 Max's pending a full investigation – who the F knows anymore???

There's a lot at stake here as Boeing is a large part of US Exports and, while only 378 737 Max planes are currently in service (green), BA has orders for 5,525 more (purple) and, of course, China is working on rolling out a competing plane that won't be ready until next year so any sort of delay in BA's program can have huge benefits for China.  Air China is also BA's biggest customer.  

“The China groundings definitely increase the pressure on Boeing,” said Richard Aboulafia, a vice president at Teal Group, a U.S. aviation intelligence company. The aircraft maker needs to deliver swift and convincing proof of the jet’s safety. Otherwise “the damage could get more serious, both in terms of sales and reputation.” 

Image result for boeing 737 max orders

Boeing's stock is down about 12% pre-market ($29Bn) and that's 50 points and, as a Dow component, it's costing that index over 400 points in what would, otherwise, have been a very bullish open.  As it stands, the dow is down 150 points and may head lower at the open – probably re-testing Friday's lows around 25,300.  The S&P, which also has BA stock as a major component, is flat but the Nasdaq and Russell are up a bit though they may go down in sympathy if the S&P turns red.

Southwest (LUV) is the US carrier with the most 737 Max's in service and they should be down a bit this morning and, at this stage, I'd rather play for them to recover than BA since LUV can always buy different planes but the 737 Max is BA's bet for the decade – they have to do some epic damage control over the next few days, which will be heavy on rumors and low on facts (it usually takes at least 3 days before any facts are known in an air crash).  

We're finally done (mostly) with earnings season and we came through that OK so the focus shifts back to data and this morning we got Jan Retail Sales at 0.2% which was much better than December's -1.6% BUT people ignored December's poor number, thinking it must have been some mistake that would reverse in Jan but I don't think 0.2% up after 1.6% down constitutes a "reverse" – we're still a long way from making real progress.  

Also, it pays to be very careful until Wednesday at 1pm, when we have our 30-year note action, as it pays for "THEM" to let the market drop to scare people into buying bonds at ridiculously low interest rates.  Jerome Powell speaks tonight at 7pm and Lael Brainard speaks tomorrow morning at 8:45 and, other than that – the Fed is going to leave us alone this week.  Powell was already on 60 Minutes last night and his message was "Stay the Course."  

Apple (AAPL) is up almost 2% this morning for no obvious reason but we know that "THEY" often use AAPL to offset market sell-offs since it has such a profound effect on the Nasdaq – as well as the Dow and S&P.  While Monday's don't really matter – it will be interesting to see who's up and who's down once the dust clears in the afternoon.

 


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  1. The answer to these crashes is probably more deregulation! Who needs the FAA anyway? 


  2. Speaking of China – we now have a Chinese owner of a prostitution ring selling access to the president for Chinese business people and she also has suspected ties to organizations that are possibly controlled by the Chinese communist party. With any other president, this would be a term ending scandal – with Trump, it's just another weekend at Mar-a-Lago.



  3. Good Morning!


  4. Good morning!

    If BA pops us below the 200 dma, it will trigger a lot of sell programs and we could have some real trouble.  We already failed those averages on all the other indexes last week so down is not an option. I did expect the big push back up this morning but BA has messed that up and made propping up the market much more expensive today.  Some big funds may take advantage and dump BA on the manipulators. 

    FAA/StJ – Another messed up agency with no head.

    Trump considering personal pilot to lead FAA 

    In Pushing His Personal Pilot For FAA, Trump Shows Disregard For Air Safety 

    As to the Madame:

    Trump 'Likes' Tweet Linking Spa Owner to Mar-a-Lago – Political Wire

    @realDonaldTrump liked this tweet:

    Mother JonesVerified account @MotherJones
     
    A Florida massage parlor owner has been selling Chinese execs access to Trump at Mar-a-Lago http://bit.ly/2SPVAeA 
     

    11:50 PM – 9 Mar 2019

    This would be so funny if he didn't have the nuclear codes! 

    Richest/StJ – Small wonder you can't afford to live in those cities (or get good seats to shows!) 


  5. I am following Phil's words "watch the stock of BA when an engine falls off" Well two planes now fell out of the sky. Might be a good point to watch for selling put if you wish to get in, but still shy of buying the stock.


  6. Yodi – What is the source of your quotation on CTL ?   

    Thanks.


  7. That was a big dive…

    https://ritholtz.com/2019/03/americans-net-worth-in-q4-fell-4-trillion/

    The $4 trillion drop in Americans’ net worth in Q4 was the single largest quarterly dollar drop on record. As a comparison, the U.S. bear market losses from 2007-2009 = $11 trillion dollars. Markets are now 4X as large, so a 20% drawdown is a third as large as a the peak to trough GFC drop.


  8. Very interesting market today.  From Briefing :

      The YM contract (Dow futures) is going to be a proxy for Boeing's woes today, which makes it less representative of the broad market given that BA is the highest priced stock in the Dow and the Dow is a price-weighted index.

     

     China sent out word that March exports are booming higher on a comp basis and US retail sales came in solidly better than expected. And, just for good measure, Fed Chair Powell was on 60 Minutes last night reiterating the "patient" theme for monetary policy.


  9. Nuclear codes – I'm not too concerned. The 'Football' his military aid carries is actually made of leather… ;)


  10. albo, CTL good question, I now you are a fan of the stock. I think I picked it up via Finviz, put in CTL and you get all the good news from a bunch of publications. In the back of my mind it could as well be Yahoo.


  11. Yodi – Thanks.   Differing opinions are what make the stock market what it is. 8-)


  12. Wow, coming back hard and fast as AAL and UAL say they have confidence in BA.

    So now we're back to seeing if the other indexes can take back the 200 dma.

    BA/Yodi – If there are real issues and they have to halt production, we may see $300.  Too risky at $400 – even for a put sale.

    Net Worth/StJ – That can't be good!


  13. IMAX having a good day on Captain Marvell huge weekend:

    Going to be a huge year for them.


  14. Report: Shows Cannabis Product Demand Rose 20% In The Last Year


  15. Bulls Missing in Action: $SPY Chart 3/10/19


  16. Phil// Clarification the below trade on FTR you had mentioned on March 4th.  The BCS has the long calls for 2020 and the short calls are 2021.  Shouldn't the short 4.00 call should also be 2020?  Thanks.

    Frontier Communications (FTR) is a regional carrier we feel is undervalued and you can buy that stock for $3, not $30.  The don't pay a dividend so we don't need to own the stock but, risking owning just 15,000 (5,000 shares) worth of FTR, we can construct the following options spread:

    Sell 50 FTR 2021 $3 puts for $1.50 ($7,500) 

    Buy 100 FTR 2020 $1 calls for $2 ($20,000) 

    Sell 100 FTR 2021 $4 calls for $1.30 ($13,000) 


  17. Decline in readers, ads leads hundreds of newspapers to fold


  18. NCAA Loses Critical U.S. Court Ruling on Athlete Compensation


  19. Barrick Withdraws $17.8 Billion Hostile Bid for Newmont




  20. Looking for a logic check here -   I have the SKX Jul '19 22/28 BCS .  $6 spread I bought for $2.31, so $3.69 net.  It looks like I can sell the spread today for $4.8 making about $1.10 more than waiting for expiry.  Any reason not to close, am I missing something?  Thanks!


  21. SKX- if you sell the spread for 4.80 your net is less the cost, i.e., 4.80-2.31=2.49.

    At expiration, if stock is over 28 your profit is 6-2.31=3.69


  22. pstas/ Thanks.  I felt like I was missing something :)


  23. Not going to get much money from Silicon Valley:

    https://www.vox.com/policy-and-politics/2019/3/11/18259885/elizabeth-warren-break-up-apple-google-facebook

    On Friday, the Massachusetts Democrat laid out an ambitious plan aimed at promoting competition in the tech industry and proposing to break up some of the biggest names in the sector. Over the weekend, she discussed the proposal with Nilay Patel at The Verge and confirmed that beyond the three companies she initially named to split up, she would also focus on Apple. She said it would have to choose between running the App Store and distributing the apps in it.

    “Apple, you’ve got to break it apart from their App Store. It’s got to be one or the other. Either they run the platform or they play in the store,” she said. “They don’t get to do both at the same time.”


  24. Bidding war in the microprocessor world:

    https://www.engadget.com/2019/03/10/nvidia-enters-bidding-war-for-mellanox/

    If you needed any further evidence that NVIDIA is becoming more of a direct competitor for Intel, you might just have it. A Calcalist source claimed that NVIDIA has made an offer to acquire Mellanox, a chip maker best known for its high-performance computing and networking tech. While it's not clear how much NVIDIA has been willing to pay, Reuters insiders said that NVIDIA could pay more than $7 billion — well past the $6 billion Intel reportedly offered a few months ago.

    Mellanox and Intel have declined to comment, while NVIDIA wasn't available for comment on the weekend. Xilinx is also believed to be involved in the bidding, but Reuters believed that NVIDIA is close enough that it could unveil a deal as soon as March 11th.


  25. FTR/Rookie – No, I purposely sold the 2021 calls as they had a lot more premium.  There's no danger of being burned as the 2020s are deep in the money to the 2021 $4s and, when Jan 2020 comes along, we either buy back the short calls (with half their premium gone) or we roll our $1s to 2021.

    SKX/Music – That does happen as option prices go up and down and of course you should take advantage but you may not get your price when you try to close – so be careful.  The July $22s have a bid/ask of $10.80/11.20 and the $28s are $6.10/6.20 so looks like net $4.80+ to me but it is a $6 spread so not MORE than waiting and making $1.20 more on $4.80 is 25% and it's 130 days (4 months) so do you have a better, safer way to make more than 25% on the cash in the next 4 months is the question.  

    And what Pstas said!

    Warren/StJ – Maybe not from the big guys but how many smaller tech players would LOVE to see that happen?

    Interesting issue for INTC.  Not hurting them much.

    Bidding on what INTC wants is still a very far cry from becoming a legitimate processor competitor.  NVDA has to do something before INTC chips them out of more systems.


  26. Good old 2,780 (/ES) can be shorted again with tight stops over.  Lined up with 25,550, 7,175 and 1,550.

    /NG got clobbered today:


  27. Well, that didn't work, we're popping over for now. 

    Next test would be 2,800, of course.  

    • U.S. stocks extend their gains in early afternoon trading as January's retail sales number came in stronger than expected and the outlook for retail also looks healthy.
    • In addition, consumers see inflation remaining tame in the short- and medium-term outlook, according to the New York Fed.
    • The Nasdaq surges 1.9% and the S&P rises 1.3%; the Dow, tempered by Boeing's decline, gains 0.6%.
    • All 11 of the S&P 500's industry sectors advance. Information technology (+2.1%) and energy (+1.8%) lead the rise, while utilities (+0.4%) and industrials (+0.6%) underperform.
    • Oil increases 1.1% to $56.69 per barrel, as gold dips 0.6% to $1,292.30 per ounce.
    • 10-year Treasury edges down, pushing yield up 1 basis point to 2.65%.
    • The Dollar Index weakens 0.1% to 97.25.
    • Consumers' expectations for inflation declined in February by 0.2 percentage points to 2.8%, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations.
    • Medical care price growth expectations declined to the lowest reading of the series since it began in June 2013; it's still a high number--the median one-year ahead expected change in the cost of medical care fell to 7.5% from 8.3%.
    • Median home price change expectations were steady at 3.0% for the third straight month.
    • The median one-year ahead expected price change for gas, college education, and rent changed little last month, staying within 0.1 percentage point of January's expectations.
    • Previously: Fed has a framework for ending balance-sheet runoff: Powell (Feb. 27)







  28. Well, it turned out to be a very strong day after all. 

    I love CA time – only 1pm – still have a whole day ahead…


  29. Not many survivors in the cloud business:

    https://developers.slashdot.org/story/19/03/10/2333211/cringleys-next-2019-predictions-only-35-cloud-players-will-survive

    He seems to believe that IBM Cloud and Oracle Cloud and doomed to fail, and Alibaba will only survive because of its strong Chinese presence. These seem like safe predictions, but his comments on Google Cloud are somewhat controversial…

    After AWS, Alibaba, and Microsoft, "All the others will eventually disappear," Cringely writes, adding "Remember you read it first here."


    Google's largest cloud customer will always be Google and that will inevitably lead to poorer service for outside customers. That's why I think of Google Cloud as half of a player. Feel free to prove me wrong by delighting customers, Google… I don't see the marketing effort to help clients migrate. Lots of handholding is needed that IBM and Microsoft are happy to provide. Google does not understand customers whose IQs are sub-200. As such, Google doesn't have (and likely won't) have a history of winning outside of search advertising


  30. SPY AT 65 million turnover. Atlanta Fed lowers first qtr GDP FROM .5 to .2.   I'm not a believer in today's move.








  31. Good morning!

    A bit of a sell-off so far but nothing severe so far.

    Yesterday's volume was so low, it didn't matter at all.

    Cloud/StJ – I've been saying that for years – ultimately, it's a commodity business and there's little profit in it once it matures.  That's why I've never been bullish on AMZN – since that's where ALL of their profits come from (they lose money on the Retail side).

    Volume/Den – Well-spotted

    7,,200 is a good shorting line on /NQ, lined up with 25,600, 2,790 and 1,555.