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Which Way Wednesday – Weak Bounce Edition

Image result for wile e coyote animated gifSo close but yet so far.

The Futures are down yet again as we revisit yesterday's lows ahead of the open (7:30).  The bond market is still causing trouble around the World as investors are getting jittery and Draghi came out with some comments this morning about the danger of negative rates – even as German 10-year notes fell further into negative territiory.  Draghi also said he's ready to get even more doveish but he's not too worried about the economy, saying:

"During the four euro area business cycle expansions since 1970, there have been 50 soft patches – defined as a two-quarter growth slowdown – and only four recessions. In fact, the euro area faced an analogous situation in 2016, when the economy also went through a soft patch triggered by a contraction in world trade. At that time, the strength of the domestic economy was able to shield the recovery from external uncertainties."

Somehow, this makes me worry more because 2019-1970 = 49 years and Draghi is saying we've had FIFTY (50) 2-quarter slowdowns in less than 50 years – and he thinks that's OK?  Sounds like a good case to get out of the EU to me!  Speaking of which – the first rat to attempt to leave the sinking EU ship is, of course, the UK and the chart on the left gives us an idea of where they stand. 

The original deadline for the decision was Friday but now it's the end of June but Parliament is voting today and notice that most paths lead towards a General Election, tossing out Theresa May and throwing the UK into turmoil yet again but all is not lost as Conservatives seem to be coming over to May's side in favor of the deal they just rejected – mostly because they just want to get this thing over with so they can go back to worrying about the names of new tugboats ("Boaty McBoatFace" won last time) without all that nasty interference from the EU (who submitted the name "Tugboat 12").  

Still, it's all the same nonsense that took the market down earlier in the month and we're not expecting a major breakdown without something new happening so we're still making the same bullish bounce bets we made earlier in the week and our bounce lines are the same bounce lines we looked for on Monday, which are:

  • Dow 26,000 to 25,400 is 600 points so 120-point bounces to 25,520 (weak) and 25,640 (strong)
  • S&P 2,860 to 2,790 is 70 points so 14-point bounces to 2,804 and 2,818
  • Nas 7,525 to 7,300 is 225 so 45-point bounces to 7,345 and 7,370 
  • Russell 1,580 to 1,500 is 80 points so 16-point bounces to 1,516 and 1,532 

As the morning has progressed, we have taken back 2 of the 4 strong bounce lines and, once again, we'll see if they manage to hold up for a whole day.  Clearly, yesterday, they did not.  Meanwhile, we're having fun with the Futures and Gasoline (/RB) is down to $1.925 this morning but that's the new contract (/RBK19).  Yesterday's shorting idea from the morning report was good for gains of $500 per contact – as was our call to short Oil (/CL) at $60 for $500 per contract gains at $59.50 while Natural Gas (/NGV19) is down to $2.86 – even cheaper than yesterday by $400 per contract!  

We're waiting for the 10:30 EIA Report before jumping back in on oil plays and Trade Talks resume on Thursday in Beijing, which I assume means tonight in the US and then both teams head back to the US for more talks next week so it's very dangerous to short the market which may be on the cusp of announcing a Trade Deal – keep that in mind.

Image result for china industrial profitsMeanwhile, China's Industrial Profits fell 14% from last year to the worst correction since Reuters began tracking in 2011.  The drag was mainly due to price contractions in key industrial sectors such as auto, oil processing, steel and chemical industries, Zhu Hong of the statistics bureau said in a statement accompanying the data, adding that production and sales are slowing as well.  Zhu said the timing of Lunar New Year holidays that fell in early February also had a bigger negative impact on business operations this year than in 2018.  The trade war with the United States has put a dent on factory activity, corporate earnings, business sentiment and overall consumption in a blow to the economic outlook.

Policymakers have acknowledged China’s economy is facing increasing downward pressure, hurt by multi-year campaigns to curb debt risks and pollution, while the trade war with the United States took a toll on export orders and employment.  Beijing is beefing up measures to support the manufacturing industry by cutting the value-added tax, increasing infrastructure spending and reducing direct government intervention and now they are talking Corporate Tax Cuts to boost the bottom line (don't worry, it will trickle down!).  

This is not all about US Trade for China, which makes up about 10% of their GDP – this is about the same Global Slowdown Draghi fees is no big deal and it's spreading all around us and the Central Banks have been throwing money at the problem but it still isn't going away – it's just getting bigger and bigger while we continue to ignore it.  A trade deal with China will help – but the problems run much deeper than that and, meanwhile, no one is doing ANYTHING about Climate Change – and that's actually going to kill us!

Remember when you used to look at lemmings following each other over a cliff and wondered how they could be so stupid?

Image result for climate change cartoon

Image result for climate change cartoon

 


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  1. EU/ Phil – They certainly have their share of problems and it looks like the UK will try to escape so that they can create their own problems with no help from anyone else! Still tough to understand why anyone would be bullish about anything going in in the US as well – we know have Trump ready to throw the entire healthcare in chaos and how can that not impact the economy when possibly 30M will find themselves with no healthcare and possibly another 100M (healthcare industry estimates) will have lower protection. Or when we have a GOP controlled senate so bent on making fun of technology that could save the planet in the long run! I guess markets don't care about 30 years down the road but there will be a price eventually!


  2. Barry asks some interesting questions around bias:

    https://ritholtz.com/2019/03/fact-versus-fiction/

    Here is a fun thought experiment, in a few deceptively simple questions:

    • What is it that you believe that would surprise you if it were not true?
    • How much of your thought system is provisional, and subject to change?
    • What do you believe that you are 100% positive about?
    • How much of what you know is based on probabilities?
    • How often do you admit error, and reverse yourself?

    How you answer those questions might be very telling about what sort of investor you are — how how successful you have been.

    The cognitive errors and behavioral biases we see in all investors are merely one aspect of this realm, albeit one with a large, expensive price tag attached. That’s why it gets so much attention. But other aspects of our daily life are similarly impacted by what we choose to believe in.

    I would hazard the following guess: At least some of the things you are 100% sure of are incorrect. And, you would be surprised if someone showed that to you . . .




  3. Phil, NG tanking, must be good for a trade? Thanks


  4. Good Morning!


  5. Morning, All!

    We will not be having our usual webinar today.


  6. Great recovery in the futures… but not /NG! I guess warmer weather on the way!


  7. Good morning!  

    Big Chart – Still watching the RUT to get a confirmation.

    Eventually/StJ – Well this was supposed to be eventually, when we woke up at the last minute and realized how much we have to start spending to fix all the damage we've done but we've hit the snooze on that – who knows if we'll ever wake up?

    Thoughts/StJ – Hmm:  Lots of things, 80-90%, lots of things (mostly science stuff), quite a lot, not as often as I should but I do aspire.  

    Funding/StJ – I don't think it's a positive that we have a self-funded deficit.  It means if we default, we only hurt ourselves.  

    /NG/Jomp, StJ – Well I like to accumulate down here for sure (/NGV19).  We noted the weather last week that said this week would be warm, next week cold.  Not complicated so I like /NGV19 at $2.85 and 1x more at $2.80 to avg $2.825 (and 1/2 back out if even).

    Oh yeah, sorry, no webinar as I feel better but my voice is still shot and I need it next week for meetings.  

    /RTY rejected at 1,532 and taking the others with it.  

    VIX never made it to 15:


  8. Oil up 2.8Mb, Gasoling down 2.9Mb, Distillates down 2.1Mb so not a terrible report but not enough to hold $60 and /RB even lower now ($1.92)


  9. Check out the poor front-month contract on that news (last 2 days to trade):


  10. LOL, Barney's on CNBC, selling a $950 Bong and other high-end pot supplies:  https://www.nytimes.com/2019/02/11/style/barneys-weed-head-shop-beverly-hills.html

    Also a vaping line:

    Image result for barney's bong

    Leave it to Beverly Hills to find a way to charge 10x more to get high…

    Image result for barney's bong

    OK, this I might want:

    Image result for barney's bong

    Image result for barney's bong


  11. Maybe we should raise more than $100M for our MJ Hedge Fund?  


  12. That fish bong is cool…. 


  13. Dive, dive…. 



  14. 25,500, 2,800, 7,300 and 1,515 – same old, same old.  These should be bouncy again, /NQ 7,300 is a great stop line but the others are solid two so just wait for 2 to cross and then pick up the laggards with tight stops.  

    Oil tested $49, /RB tested $1.90, /NG still $2.70.  

    • Q4 Current Account-$134.4B vs. -$133.6B consensus, -$126.6B prior (revised from -$124.8B)
    • The Atlanta Fed's GDPNow model estimates Q1 real GDP growth at 1.5%, up from its 1.3% estimate on March 26.
    • Contribution of net exports to Q1 real GDP growth rose to 0.12 percentage points from -0.29 pp, while its nowcast of Q1 real nonresidential equipment investment growth fell to 0.2% from 2.2%.
    • Previously: Big drop in trade deficit in January (March 27)
    • U.S. stocks' slight early gain swings to a decline amid worries about slowing economic growth and after some Fed officials say it's too soon to consider trimming U.S. interest rates.
    • The Nasdaq slips 1.0% as the S&P falls 0.7% and the Dow eases down 0.6%.
    • Utilities (-0.7%) and energy (-0.6%) lead the decline, while financials (-0.2%) and industrials (-0.3%) lose the least.
    • Crude oil declines 0.4% to $59.72 per barrel as U.S. inventories rose.
    • Instead investors turn to the safer havens of Treasuries. The 2-year Treasury gains, pushing yield down almost 6 basis points to 2.198%, as 10-year Treasury yield falls ~5 bps to 2.37%.
    • Some Fed officials are pushing back on the bond market's expectation that the Federal Reserve is finished raising rates and may consider trimming them as its next move.
    • Before considering such a move, "I'd need to see an inversion of some magnitude and/or some duration, and right now we don't have either," Dallas Fed President Robert Kaplan told the Wall Street Journal in an interview.
    • Last week, yields on the 10-year Treasury note dipped below yields on the three-month Treasury bills for the first time since August 2007.
    • In recent trading on Wednesday, the 10-year Treasury yield of 2.363% trails the 3-month Treasury yield of 2.456%.
    • An yield curve inversion typically precedes a recession by a year or two.
    • “I’d be careful not to over-read or overreact in any moment to what markets are saying…because they have the ability to change on a dime,” Kaplan said.
    • Previously: Stocks tumble to biggest loss since January on global growth worries (March 22)
    • The Philadelphia Semiconductor Index drops 1.7% as U.S. chipmakers slide after German peer Infineon (OTCQX:IFNNYcuts its 2019 forecast for the second time in two months.
    • Infineon now expects revenue of within 2% of $9B, up 5% on the year compared to the previous +9% expected.
    • The company attributes the cut to "slower demand recovery than expected" with a number of end markets still "sluggish," particularly China's declining auto sales.
    • Yesterday, Samsung said its Q1 profit would likely miss expectations due to memory weakness.
    • Semi movers include Micron (MU -2.6%), Microchip (MCHP -3.3%), Monolith Power Systems (MPWR -3.8%), Analog Devices (ADI -2.5%), Texas Instruments (TXN -2.1%), and Skyworks Solutions (SWKS -2.2%).
    • The pound sterling erases an earlier loss vs. the U.S. dollar on Wednesday after Theresa Mayindicates she'll try to get her Brexit deal through the House of Commons this week after a group of Euroskeptic Conservative MPs reluctantly line up behind the plan.
    • The pound, up 0.2% to $1.3228 per U.S. dollar, had been down as much as 0.3% Wednesday.
    • May said to one rebel MP in her weekly prime minister's questions that "if this week he and others support the deal" then Brexit could soon proceed.
    • The statement was seen as a signal that a third "meaningful vote" on May's Brexit deal could occur before the weekend, the Financial Times reports.
    • Previously: Parliament attempts to break Brexit deadlock (March 27)
    • The cost of borrowing Turkish liras overnight soared past 1,000% on Wednesday as local banks are being pressured to not provide liquidity to foreign fund managers seeking to bet against the lira.
    • As a result, investors sold Turkish bonds and stocks amid the currency crunch that was intended to prevent the lira from declining days before local elections this weekend.
    • The yield on two-year Turkish bonds surged above 20% and stocks fell the most since August.
    • The lira sinks 1.5% against the U.S. dollar.
    • iShares MSCI Turkey ETF (NASDAQ:TUR) slumps 7.1%.
    • Previously: Turkish banks continue to withhold lira liquidity (March 27)

    • Tesla (TSLA +0.5%) Board Chair Robyn Denholm says Elon Musk doesn't pose any problemsfor the board and thinks he uses Twitter "wisely" from her perspective.
    • Ahead of a hearing next week with the SEC, Denholm observes that the company has done everything it needs to under the settlement.
    • Denholm, who has held the chair post since November 7, has been on the EV automaker's board since 2014. She is stepping down from serving as Telstra's CFO on May 6.
    • Nomura starts coverage of mortgage REITs Annaly Capital Management (NYSE:NLY), Redwood Trust (NYSE:RWT), New Residential Investment (NYSE:NRZ), Chimera Investment (NYSE:CIM), PennyMac Mortgage Investment (NYSE:PMT), Dynex (NYSE:DX), and New York Mortgage Trust (NASDAQ:NYMT) with buy ratings.
    • Initiates AGNC Investment (NASDAQ:AGNC), Two Harbors Investment (NYSE:TWO), and Armour Residential (NYSE:ARR) at neutral.
    • Analyst Matthew Howletts sees core EPS run rates improving and lower dividend yield requirements on improved carry economics.
    • Book value should be stable-to-higher as the Fed approaches the end of its tightening cycle, housing fundamentals stay solid, and mortgage credit performance is strong.

    • The $9.9B iShares 20+ Year Treasury Bond ETF (TLT +0.6%) is heading for its worst month of outflows on record as investors pile into shorter-duration ETFS amid a continuing downward slope in benchmark yields.
    • More than $1.47B has been pulled out of TLT in March, more than its previous outflow record of $1.37B in November 2017, according to Bloomberg data.
    • Oddly enough, the outflows are occurring even though it's one of the best-performing fixed-income ETFs this month with its shares up 4.6%, according to Bloomberg.
    • Mohit Bajaj, director of ETFs at WallachBeth Capital, says the TLT outflows are because 10-year yields are below 2.4%. "Investors would rather not take the interest-rate risk on the 10-year if they are getting better yield on short duration ETFs," he said. "Less risk, more reward."
    • Meanwhile, the iShares 1-3 Year Treasury Bond ETF (SHY +0.1%) has pulled in more $1.46B this month and the Vanguard Short-Term Corporate Bond ETF's (VCSH +0.1%) inflows are about $158M.

    • Select shipping stocks are gainers after JPMorgan stuck its head into the sector with an upgrade on Navios Maritime Container (NMCI +49.5%) to an Overweight rating and a price target hike that implies +350% upside potential.
    • Notable gainers include NMCI holders Navios Maritime Partners (NMM +7.1%) and Navios Maritime Holdings (NM +24.5%), as well as Global Ship Lease (GSL +5.3%), Danaos Corporation (DAC +5.3%), Eagle Bulk Shipping (EGLE +3.2%), Seaspan (SSW +2.1%) and Pangea Logistics Solutions (PANL +2.3%).
    • Previously: Navios Maritime Containers pops after JPMorgan call-out (March 27)
    • Northcoast Research starts Lyft (LYFT) at Neutral and sees a fair value between $75 and $90 per share for the upcoming IPO.
    • Analyst John Healy says Lyft has "much to like" including a recognizable brand name, a U.S. focus, and the Lyft Express Drive program.
    • Healy sees a bear case at the mid $60 level with concerns about driver retention, high losses, and difficulty assessing costs.
    • Lyft will make its public debut this Friday, and the company told investors it expects to price above the $62 to $68 targeted range. But WSJ sources said the price likely wouldn't reach $80
    • Berkshire Hathaway's (BRK.B -0.9%) (BRK.A -0.9%) HomeServices of America takes over the top spot of the largest U.S. residential real estate company based on transaction sides.
    • Its associates closed 346,629 residential transactions, up 5.6% from 2017, according to REAL Trends 500 report.
    • HomeServices surpassed Realogy's (RLGY -0.5%) NRT unit this year, which logged in 337,235 transaction sides closed.
    • A transaction side counts for each time a firm represents a seller or buyer in a real estate transaction; if a firm represents both, the transaction will count as two sides.
    • Previously: Warren Buffett looks abroad to expand real estate network: Bloomberg (Nov. 13, 2018)
    • Changes to General Electric's (GE -1.4%) struggling power business have only just begun, as the company likely will pursue sales of individual power businesses, including steam, nuclear and power conversion, says RBC analyst Deane Dray.
    • "We believe that GE's endgame is to shrink Power down to just the core gas turbine equipment and services platforms that have technology overlaps with Aviation," Dray writes.
    • GE has said it would reorganize the power business into two divisions – a gas products and services unit and the remaining power units; the latter power portfolio consists of the steam, electric grid, power conversion and nuclear energy businesses which RBC estimates have respective annual revenues of $2B, $5B, $1B and $500M.
    • "It is our position that all of the remaining businesses in Power portfolio have been deemed non-core and are likely being evaluated for future divestitures," Dray says.


  15. Does anyone have an online brokerage other than TDA that they actually like?  I want to diversify my holdings a bit, and I tried signing up for Interactive Brokers, but their service is a complete joke.  Tons of errors on their website, blank screens, disconnections, firewall problems, and their trading software is garbage.  I'm giving up. 


  16. Palotay-take a look at Schwab's Street Smart Edge online program. I use it for my Investment Club and have been satisfied with it so far. There is a local office nearby in Mission Viejo and I have been impressed with the quality of help and support.


  17. Thanks Pstas, will definitely check it out.


  18. My brother Andy works at Berkshire Realty now.  He just got an award yesterday for being one of their top regional agents (Florida and wherever).  They do a lot for the realtors on the back end – he has a personal app (customized) that he gives to clients with all the exclusive listings and MLS links – something Mom and Pop shops can't touch and even the other big boys are way too cheap to do cool stuff like that.  Check it out here, works for any area of the country.  

    Silly markets – mostly back now.  

    TDA/Palotay – I thought TradeStation had some cool stuff when they did a demo but not sure how the overall service is.  I haven't found anything I like better than Think or Swim.  

    • Theresa May says she'll step down as U.K. Prime Minister if her Brexit deal is backed by a majority in Parliament.
    • "I am prepared to leave this job earlier than I intended in order to secure a smooth and orderly Brexit," she said at a meeting of a group of Conservative lawmakers known as the "1922 Committee," Buzzfeed reported.
    • The U.K. Parliament has twice rejected her Brexit deal and the House of Commons speaker has said it can't be brought for another vote unless it's substantially changed from previous versions.
    • May has been aiming to bring her deal for a vote on Friday.
    • Homebuilder stocks climb after improving outlooks at KB Home and Lennar helped boost hopes for a brisk spring selling seasons.
    • The iShares U.S. Home Construction ETF (NYSE:ITBjumps 2.4%; in the past five days, it's risen 3.7%, outperforming the S&P 500, which fell 0.2% during the same period.
    • PulteGroup (PHM +5.1%) advances the most, with William Lyon Homes (WLH +4.5%), Lennar (LEN +4.3%), and Beazer Homes (BZH +4.9%) also showing strong gains.
    • Previously: Lennar saw "choppiness" in Q1 but sees housing market improving (March 27)
    • KB Home (NYSE:KBH) gains 1.9% after fiscal Q1 EPS of 31 cents beat the average analyst estimate of 25 cents and forecasts stronger revenue growth in H2 2019 on improving market conditions.
    • Q1 EPS compares with a loss of 82 cents in the year-ago quarter, which included a charge of $111.2M related to U.S. tax reform.
    • Q1 total revenue fell 7% Y/Y to $811.5M and average selling price slipped 5% to $370,900.
    • Q1 cancellation rate was flat at 20%.
    • Average community count rose 10% to 244.
    • Previously: KB Home beats by $0.06, misses on revenue(March 26)


  19. Assuming Nas gets back over 7,345, everyone is back between the weak and strong bounce lines.  Tight stops on /NQ now if you played them – over $500 per contract is happy enough for me to lock in!  


  20. Great call on the bounce Phil, thanks!


  21. Phil

    would selling out of the  money  calls  work as hedges  ?

    Is  that a good idea  ?

    Thanks


  22. You're welcome Mike.  

    Calls/QC – Depends on what?


  23. I have a trading account at Tastytrade that I like. Cheap opening trades on options, free closing trades, and very quick/good fills. If you're in and out of a lot of options positions it might be something to check out.


  24. Thank Phil


  25. March Madness Treat: 16 Sweet REITs

    Annaly Capital's Dividend, BV, And Valuation Vs. 19 mREIT Peers (Includes Q2-Q4 2019 Dividend Projections) – Part 2

    Jefferies expects Tesla to rebound after rough Q1

    Walgreens to sell CBD products in nine states

    One third of all plastic in the open ocean comes from microfibres shed from washing our clothes

    The Washington Post reports that Trump advised then-Chief of Staff John Kelly and and then-Office of Management and Budget Director Mick Mulvaney not to send Puerto Rico a “single dollar” for its recovery efforts.



  26. Kind of a dribble into the close – ended up red across the board.  


  27. Anyone have thoughts on LQDA

    I know it was recommended on the board a while back, been keeping an eye on it

    the Share Offering At $11.50 dropped it pretty hard


  28. Turkish lira tumbles 5 percent, central bank acts on swap limits


  29. How hydrogen is transforming these tiny Scottish islands