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Testy Tuesday – Trouble at 2,800 – As Usual

Here we go again.

We made it back to our favorite shorting line yesterday as the S&P 500 (/ES) once again tested the 2,800 mark, failing to cross it into the very fake, Fake, FAKE close and already down 14 points this morning but still up 35 from the 2,750 open so we'll have to see how things go on the first real day's trading of the week.

Boeing (BA) came all the way back to $400 at the day's end, down "just" 5% after being down 12.5% at the open but we're not bottom-fishing BA as there remains an open question as to whether their primary plane is safe enough to fly and it probably is, but BA is no bargain at $400, which is $225Bn for a company making $10Bn a year so p/e about 22.5 and I'm certainly more than 10% less sure BA will be able to justify that multiple than I was last week.  Other investors seem to feel differently but there's no way I'd take that risk right now.

As noted, this is a political issue as much as a corporate one and we can't really trust the FAA under Trump to make an impartial decision so we can expect a lot of countries (who don't trust Trump either – see why we watch those polls?) to ground 737 Max planes until their own agencies can re-certify the aircraft.

To some extent, the behavior of BA stock is very similar to the behavior of the S&P 500 and the other major indexes.   We made it to all-time highs and, despite numerous new risk factors popping up – the indexes keep recovering back towards the highs – as if that's where they belong – despite all the problems we are now seeing in the Global Economy.  Apparently we've learned nothing at all since 2008.

Image result for 2008 crash vs todayCertainly investors haven't learned NOT to buy stocks on margin as Margin Debt is 25% higher than it was in 2007 – despite being drastically reduced over the past quarter.  First Margin Debt contracts and then the Indexes contract is pretty much the market norm – as people have to buy stocks with real money and begin demanding real performance and we'd better keep our eye on this chart because it seems to indicate we're pretty close to a significant correction.

Speaking of corrections, it's still March and already 5,000 Retail Stores have closed in 2019.  Dollar Tree (DLTR), Abercrombie & Fitch (ANF), Kohl's (KSS), Gap (GPS), J.C. Penney (JXP), Victoria's Secret (LB) and Tesla (TSLA) alone have already announced 4,810 store closures in 2019 though Tesla is a bit on the fence, it seems.  Last year's TOTAL was 5,524 so we're pacing 300% higher than last year…

Speaking of TSLA, Morgan Stanley (MS) just cut their 2019 EPS forecast to $1.30 from $4.17 per $290 share – that's even more ridiculous than the valuations of AMZN or NFLX!  In 2020, so far, MS has reduced their earning forecast from $10.22 to $6.69 and their price target is $260 – or down more than 10% from where we are now.  

News isn't all bad this morning as OPTT, one of our favorite penny stocks, just announced a "master service contract" with a leading offshore oil and gas explorer (it's a secret) to provide renewable (wave) energy to ocean platforms.  It's been a frustrating stock to hold but congratulations to all who did as today should be a very nice payday!  


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  1. Tiny Costa Rica Has a Green New Deal, Too. It Matters for the Whole Planet.

  2. Pelosi rejects Trump’s proposed budget cuts as ‘cruel’

  3. Everything is awesome!

  4. This is quite interesting:

    Here’s a simple math problem for you: If the companies in the S&P 500 Index have 289 billion shares outstanding, and they repurchase 82 billion in a decade, how many shares will they have at the end of those 10 years? The answer, of course, is 294 billion, 5 billion more than what they started with. I’m guessing that’s not the answer you came up with, right? But those are the real numbers for the past decade, and they point to the fact that investors, long thought to be the chief beneficiaries of buybacks, may not be.[...]

    Buybacks haven’t returned cash to shareholders, or boosted share prices, Yardeni says. All they have done is bought back the shares that have been issued to employees, essentially enabling higher executive compensation by picking up the tab of stock options. Based on data from S&P Dow Jones Indices, the current members of the S&P 500 had 284 billion shares outstanding in early 2009, and have bought back bought 81.5 billion shares through the end of 2018. That means shares outstanding should have dropped by nearly 29 percent, instead of falling 2 percent, by Yardeni’s calculations – or rising slightly, as data from S&P show.

    Even after accounting for equity issuance and share-count changes due to acquisitions, I calculate that roughly two-thirds of what companies spent on buybacks appears to have gone toward offsetting executive compensation. 

    I guess more reasons to scrutinize the practice!

  5. No surprise at the top:

    Top 15 Global Brands in 2018

    Watch the video at the link to see the evolution! 

  6. Good Morning!

  7. Good morning!

    Big chart back above the 200 dmas and still waiting for either /RTY to confirm or one of them to fail again. 

    /NQ is above the 7,200 line, which is good for shorting if it fails, though 2,800 on /ES is better, of course..  

    Buybacks/StJ – That's crazy if true. 

    Top brads/StJ – How is DIS ranked below MCD?

    /NG worth a toss at $2.77.  

    Oil doing well on Venezeula's blackout effectively cutting off shipments.  

  8. DIS below MCD?

    Because anyone can afford MCD…. :(

  9. Buybacks / Phil – The numbers seem convincing…

  10. RIG – Looks like it's breaking out from consolidation.

  11. Buybacks/StJ – It's possible but why wouldn't large investors care?  It's a terrible way to use money (salaries are out of control anyway).

    Wow, that's the most I've ever gained in a day (my kids actually hold all the penny stocks – don't tell them they're rich!).

    Submitted on 2016/06/01 at 11:45 am

    OPTT/Lunar – I know, it's been frustrating, with a lot of false starts but I'm really proud of them for grinding it out

    Submitted on 2016/06/02 at 2:16 pm

    LOL, OPTT just screwed over all the people who chased them up yesterday by pricing a new offering at $4.60 (417,000 shares at $1.9M is a 15% dillution), .  Good for them, they need to raise money and the stock price going up 300% didn't do them any good.  

    Submitted on 2016/07/15 at 11:16 am

    OPTT/Randers – It's funny how long these things take to get going.  How many years have we been talking about them? 

    Submitted on 2016/10/14 at 10:35 am

    OPTT/1020 – Yeah I saw that.  They are diluting at $2.75 to raise cash ($6.6M), that's why we didn't want to chase them but now I'm interested again.  

    Submitted on 2017/10/18 at 12:43 pm

    My boys are scoring!  

    • Ocean Power Technologies (OPTT +41.7%) skyrockets after the company is granted a patentfor a wave energy system that harnesses free power from the ocean.
    • OPTT's "invention is directed to a novel [wave energy conversion] technology which may be referred to as pitch driven WEC technology and which, in its implementation, eliminates the need of springs to overcome gravitational forces."
    • The company has not yet issued a press release discussing the patent award.

    Submitted on 2017/10/19 at 11:10 am

    OPTT/1020 – What a ride!  It's because they are raising $8M with a stock offering at $1.42

    Ocean Power Technologies, Inc. Prices $8,150,000 Offering of Common Stock

    Ocean Power Technologies, Inc. Announces Proposed Public Offering of Common Stock

    Do I want them to have $8M more than I need them to hold $2 – yes!  

    Submitted on 2017/10/19 at 12:09 pm

    OPTT/Japar – Very speculative but sure, I'd grab some down here (already have it in my kids' accounts).

    Submitted on 2017/11/29 at 3:29 pm

    OPTT/Scott – They got a patent approval in Oct (huge spike) and that allowed them to quickly raise $8M at $1.42 but, since then, drifting lower on no news and impatient investors.  If you want to wait 2 years for testing, building, selling and deploying – it's a fun place to park money.

    Hopefully the next one we look back on will be LQMT – another one we've been waiting forever on (NAK is our other penny-stock that we like to gamble on).  

    RIG/Albo – Hopefully it's enough to move the needle on OIH.

  12. Looks like OPTT did a 20:1 reverse split today

  13. Bought RIG at $9.04.  Sold May 10 calls for $.34.  Looking for a 14% return in just over 2 months if options are exercised..  Risk is $8.70.  If not exercised, will keep stock and write again.  Good premiums.

  14. OPT/EMike – LOL, you're right, the sneaky bastards did a split along with the announcement.   Was 0.30 so $6 is post-split and only 0.50 of the gain since is real.  Good thing I didn't tell my kids they were rich!  Still, they are on a good track again – hopefully they build on it.

    /ES defiantly holding on to 2,800 – just to show us, I think…

  15. hilarious!

  16. I blame Seeking Alpha:

    Ocean Power Tech soars past $7 on deal with offshore oil and gas operator

    |About: Ocean Power Technologies, Inc. (OPTT)|By:, SA News Editor 

    Ocean Power Technologies (NASDAQ:OPTT+2,230% pre-market to surpass $7/share – which would be the stock's highest price since September 2016 – after signing a master service contract with "a leading offshore oil and gas operator."

    The company says the contract is its "first with a U.S. oil and gas operator, opening the door for OPT to provide solutions into the Gulf of Mexico where we believe there exists significant need for cost-effective remote offshore power and communications."

  17. LOL!!!  Yeah, I was sad when I figured out why my account was a few $thousand short based on the OPTT quote

  18. BA keeps getting bad news, 31 airlines (56%) have grounded the plane.  Side effect of having a President who appoints his pals to run agencies – no one trusts the US FAA, who said the plane is safe to fly.  

    Meanwhile, could we be more complacent?

  19. Phil:  Please see the news below regarding FTR.  Extending debt maturities to 2027 is welcome news.  Do you know how much remaining debt there is that matures in 2021 or 2022?  

    Mar. 12, 2019 10:40 AM ET|About: Frontier Communications Co… (FTR)|By: Jason Aycock, SA News Editor 

    Frontier Communications (FTR +1.5%) is rolling over debt via an offer of $1.65B in first-lien secured notes.

    The company will offer that amount in 2027 notes in a private transaction, and use proceeds to repay all indebtedness under its senior secured term loan A (maturing in March 2021) and a credit agreement with CoBank ACB (which matures in October 2021).

    It will also amend its credit agreement with JPMorgan Chase, in part to extend the maturity of $835M of its $850M revolver to February 2024 from February 2022.

  20. Phil

    I know you’ve talked about the general rule for rolling puts down

    Do you have a rule for rolling short calls out

    Like 5 2020 AAPL 185 calls

    I have bullish AAPL spreads and puts but want to roll the 185 calls before the “showtime” day

  21. Just over the news European air space has been blocked to fly for Boing air plane 737 Max

  22. Whole EU just grounded 737s and banned them from air space – this is very serious now.  

    FTR/John – Well there was a chart of all their pending debt from the conf call but I'm screen-short in CA, so you'll just have to imagine it.  That takes care of about half of what's due through 2022, which was their trouble-spot (if indeed there was any).  Again, this is what Telcos do – freaking out over their debt is silly – as long as it's being serviced through recurring revenue cash-flow.

    Rolling/Coulter – It's really the same rule, when 3/4 of the premium is gone, you may as well roll them.  AAPL $185 calls are all premium, why would you roll them?  If you are more bullish on AAPL and don't want so much cover, then buy a few back but paying 100% premium to roll something isn't the best use of your money.

  23. Phil:  The last time the VIX was low I sold some VIX-related short puts to finance some hedges.  I know that you do not like VIX  options, and you suggested another instrument at the time with a symbol something like UUVY.  This was not the symbol and I cannot figure out what the instrument was.  Does this ring any bells?

  24. Even if Boeing will fix the problem with the software of the plane, I feel the shock to fly with this plane will remain for many future passengers.
    The loss can be enormous.
    Just remind you of the conversation with Phil of yesterday to sell puts on a dip, are very valid today. Possible we will see 300 or less.

  25. Phil

     Would you please look at the DAL 2021 45 Puts

     Would selling them  be a good trade ?

    Thanks as all ways

  26. VIX/John – I think that was probably StJ as I'm not a big fan of playing the VIX.  I think you mean UVXY, which supposedly tracks the VIX x 1.5 times.  The VIX can go lower (10 lows, now 13.8) but the real danger is the spikes up.

    So dropping to 10 is about 33% so 45% drop in UVXY would be just over $20 on the low likely end but again – these instruments suck and I don't like playing them. 

    BA/Yodi – I just think that BA, out of caution, should be grounding all planes and conducting a full review.  Hiding behind the FAA's skirts is making them look bad.  

    Uh-oh, TSLA down $6.66!

    DAL/QC – I'm not a huge fan as oil prices are low and that's the best they can do but, if you sell the puts for $6 it's net $39, which is more than a 20% discount so not a bad way to enter if you want to play them.

    Another Brexit vote coming up!  

  27. FTR: Looks like this $1.65B loan is intended to roll out the 2021 batch of debt ($1.6B).  The next spike coming up is almost $3B in 2022 but this will have bought them a lot of runway. And who says they can't roll the 2022 batch at some point?

    It's slide 12 from their last presentation. (Sorry I can't paste a screen shot here).

  28. QC DAL I am in with the stock and opt. plays in a small way. Looking over your 2021 put sale, I feel is a relative save play as the stock has not dropped below 45 over the last 2 years. As well very margin efficient..

  29. Thanks Yodi

  30. EU Gives Up on Tech Tax Plans as Countries Vow to Go It Alone

  31. Coffee Futures Slump to Lowest Since 2006

  32. OMG – Brexit defeated again!  This is just a farce.  Now she lost by 150 votes instead of 200.

    I expect Europe to head lower tomorrow, not sure how Asia will take it but that 2,800 short on /ES is still looking good!  

    Gotta get to my meeting (I have a whole day of work ahead of me!).

    See you tomorrow,

    - Phil

  33. Mitomelo:  Thank you for the FTR debt information!

  34. Good morning!

    Europe shaking off Brexit nonsense.  

    Dollar has been diving, in fact.

    And there’s the week so far:

  35. U.S. Pilots Reported Issues With the Boeing 737 MAX 8 Last Year

  36. U.S. Congress invites pharmacy benefit managers to third drug pricing hearing

  37. Ties between Boeing and Trump run deep

  38. Russia mocks US collusion probe ahead of Mueller’s report