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Why Worry Wednesday?

And we're up again in the Futures.

Why?  I don't know why, do we need a reason?  We closed down yesterday and felt pretty smart about adding more hedges in the Morning Report (and subsequently in our Live Member Chat Room) but when the markets closed and the volume died down last night, "THEY" popped the indexes right back to new highs making it look to Asia and Europe as if we had a great day yesterday.

Seeing how great the US markets looked, China's Hang Seng Index jumped higher at their open and closed up 1.22%, back at the 3,000 line (still down from highs over 5,000) and, of course, Europe, seeing how well the US and Asia were doing when they woke up, began buying as well and now their stocks are up 1% and, of course, our Futures are up because Asia and Europe seem so happy.

This is the "Fear of Missing Out" we were discussing on Monday and it's a terrible reason to buy into the market.  Not that we're not buying anything – there are still plenty of bargains around and earnings season is likely to give us many more.  Yesterday we noted WBA seemed to be over-selling off an earnings miss and lowered guidance and the stock dropped 13% to $55 – where we promptly jumped in and bought it because it's FUNDAMENTALLY too cheap – no matter how bad the chart looks.

The headline in the Wall Street Journal this morning is: "Investors Brace for Profits Hit as Costs Rise, Economy Slows" but I stuggle to see how S&P 2,885 is "braced for a profit hit".  The lead line in the article is "Increasing wage and energy costs threaten to hurt companies’ margins just as the U.S. economy slows" and that's certainly true, wages grew at the fastest pace in a decade in our last Non-Farm Payroll Report and tomorrow we get the March Report and again we're likely to miss the job growth target of 160,000, even after growing an anemic 20,000 jobs in February.

I feel like I'm at a very loud party smelling smoke and yelling "FIRE" and, rather than running for the exits, someone puts the song "Fire" on and the the party rages on as if nothing is wrong.   For a FACT there is going to be a severe drop in Q1 Corporate Profits and Corporate Profits are kind of the things we are investing in when we buy a stock (theoretically). 

We haven't had a drop in Corporate profits since the 2nd Quarter of 2015, which was reported in July, when the Dow was at 18,000 and, by August, we were down 2,000 (11%) as we absobed the news but still testing 16,000 all the way into early 2016 yet here we are, at 26,300, acting as if we don't have a care in the World.  Seems a bit fishy to me – that's all

 I'm fighting the urge every day to liquidate out positions but the market keeps on going higher so I guess we'll keep riding the wave until it finally crashes – hopefully we'll get out with most of our gains still intact – yesterday's hedges should help.


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  1. The reckoning will only get worse it seems!

  2. The insanity of our great healthcare system:

    Americans borrowed a staggering $88 billion in the past year to pay for health care, a new survey finds.

    About 1 in 8 had to resort to borrowing to afford care in the previous year, according to a West Health-Gallup survey released Tuesday. Also, 65 million adults say they had a health issue but didn't seek treatment due to cost. Nearly a quarter had to cut back on spending to pay for health care or medicine.

    But Trump promised a great new plan after 2020! 

  3. An easy decision:

    Pass a gas tax and bring America’s bridges, tunnels and roads fully up to date with smart-traffic controls and embedded signals ready for the next generation of autonomous vehicles. Rebuild the nation’s dismal sea and airports, harden our electrical and data grid, make the nation’s infrastructure again the world’s best.

    But more likely than not, I’m going to be disappointed one more time. We should be better than this, but it’s getting harder to escape the conclusion that we’re not.

  4. Hi All,

    We will not be having our usual webinar this week.

  5. Good Morning!

  6. What.was the ISM non manufacturing index at in this mornings release?

  7. SPY volume yesterday of 40,070,351 was less than the half day pre Thanksgiving Wednesday volume. ANEMIC.  Is low volume precursor to coming correction?

  8. AAPL - Apple in jeopardy of being unable to ship 5G iPhones next year, UBS says


     analyst Timothy Arcuri expressed concern that Apple Inc. (AAPL) will not be able to ship a 5G iPhone next year. While that "would not be good," he reiterated his buy rating and $215 stock price target as iPhone units are already at or below full replacement rates, which he said should soften any potential impact from the lack of a true 5G phone next year. The stock rose 0.5% in morning trade. "Barring settlement with [Qualcomm] in the next few months, field work suggests Apple is increasingly in jeopardy of being unable to ship a 5G iPhone in 2020," Arcuri wrote in a note to clients. He said he doesn't believe Intel Corp. (INTC) will be ready with a single chip backward compatible 5G modem, while others, such as from Samsung or Mediatek, are unlikely solutions. The stock has rallied 23.6% year to date, while the Dow Jones Industrial Average has gained 12.4%. 

  9. Good morning!

    Still in Philly, meetings went well so not a wasted trip.  Flying back at 6 so I'll leave a bit early today and tomorrow is a 1/2 day because I have to fly to Boston, where I'll be all next week.

    Big Chart looks at least a week from turning down and golden crosses all over the place so I think something would have to get much worse before we turn lower and earnings don't really begin until next Friday (12th) when we hear from FRC, JPM, PNC and WFC but CBSH, FAST and RAD go on Thurs and BBBY Weds night along with DAL that morning.

    AAPL $195, /NQ 7,566, /RTY 1,575 – wow!  

    Fuel tax/StJ – And, of course, the lack of taxes gives people no incentive to economize.  It's like when they say you can't control cow farts – put a $4/pound tax on beef and suddenly we'll be using half as many cows.  This country misses the point that the Government is SUPPOSED to control what the people do and how they eat and one of the ways they do that is trough taxation targeted to change behavior.  We subsidize corn instead of fruits and vegetables so we have a very fat population – all you have to do is tax corn and subsidize fruits and vegetables and people's habits will change very fast. 

    ISM/Den – ISM comes out at 10, was 59.7 last time, likely lower.  

    • The ADP reported just a 129K job gain in March, well short of expectations in the 165K-175K range.
    • The bond market is mostly yawning at the numbers, with the 10-year Treasury yield holding onto its roughly four basis point gain for the day to 2.515%. One week ago, the yield had touched as low as 2.37%. TLT -0.7%TBT +1.4%
    • The government's nonfarm payroll report for March is due on Friday.

    Volume/Den – Yes, yesterday was strangely low, even for a Monday.

    Very tempted to short /ES below 2,880 – so ridiculous! 

  10. ISM big miss at 56.  

  11. ADP payroll   129K vs 160 expected

  12. semiconductors flying!

  13. The more misses we have on these economic numbers, the higher the markets climb! We'll have Q1 GDP at 1.5% and the Dow will make new highs. Maybe they expect that the Fed will cut rates under pressure from the administration.

  14. Jabob – Yes. For example,  MU up 5% to new recovery high.  Trading above the 200 dMA.

  15. I think SOX is at an alltime high…WOW

  16. what does it mean when 5 million plus barrels are hidden in other oils from eia report phil 

  17. Check out OPTT….

  18. Good morning PSW members!  Still lurking and watching.  This day job thing is for the birds!  

    VKTX/MrM – we established a position in them last year at the lows, buying stock and selling C/Ps along the way. Still in them, and now data are starting to show that their drug may actually work in the 'fat' department, which is part of NASH.  The other is ICPT. I tried to write something on them in a chat room but lost it on the plane as I was traveling to the FDA.  Overall, I like both. ICPT is more of a selling Ps for now at lower strikes out in time.

    I really hope you all were selling premium in CELG when all the hoopla was around the BMS buy.  The puts were juicy and the deal was never in doubt.  

    ARNA….I am starting to buy BCS in Jan20s.  They are all premium, but a shot in the dark.  55/70s can be had for 3.30.  Selling Ps here there to pay for the spread.  Not sure if they get bought out, but if they do, it should be in that range.  

    Hope all is well!!

  19. Phil / If I wanted to get into our GS spread but am late to the table, is it ok to raise the strike prices by, say, $10 or is it better to enter into the trade using the original strikes? The stock has moved up a bit…

  20. For those that like to swing trade, SMAR is now green and should move very fast to $45 to $50.  Use $39 as a stop loss. wink

  21. Coffee up 3.6%. I just wonder, when it's time to close, because it goes up like a bird…

  22. Comment content omitted because it is too long.

  23. 5G/Batman – Won't be widely available this year anyway but missing 2020 would be bad.  

    VZ turning on 5G early in Chicago.

    Ginny Rometty from IBM on CNBC talking about how we'll all be replaced by machines.

    Semis/Jabob – Very nice turn for MU:

    Short Call 2020 17-JAN 55.00 CALL [MU @ $44.46 $2.02] -20 8/17/2018 (289) $-10,000 $5.00 $-1.78 $-0.45     $3.23 $0.69 $3,550 35.5% $-6,450
    Short Put 2020 17-JAN 42.00 PUT [MU @ $44.46 $2.02] -15 8/17/2018 (289) $-7,500 $5.00 $-0.07     $4.93 $-0.68 $112 1.5% $-7,388
    Long Call 2021 15-JAN 35.00 CALL [MU @ $44.46 $2.02] 40 10/23/2018 (653) $48,000 $12.00 $3.63     $15.63 $1.68 $14,500 30.2% $62,500
    Short Call 2021 15-JAN 55.00 CALL [MU @ $44.46 $2.02] -40 10/22/2018 (653) $-26,800 $6.70 $0.20     $6.90 $1.00 $-800 -3.0% $-27,600

    MU/Batman – The $50s are $7.75 and the $55s are $6.40 so, for $1.35, I'd rather have more headroom on the net $7.20 spread that's 1/2 covered because we can sell Jan $40 calls for $3.40 so our net net on the 1/2 covered spread is about $20,000 and, if we sell 20 Jan $40s for $3.40, that's $6,800 collected for 1 qtr out of 8, so I'm not at all worried about getting my money back – especially that $1.35 – but I am worried about getting blown out at the top of my range – so I'd rather have $5 more upside protection than $1.35.  And, of course, if we sell some Jan $40s (not yet, hoping it bounces) and it goes lower, $6,800 is enough money to roll the 2021 $35s ($13.20) to the $33s ($14.40) and, if we roll down $2 each quarter – we're likely to be in very good position no matter when MU comes back.

    Essentially, you are looking at the opening move of a chess game and asking why we would do that.  You have to learn to think further ahead and also to think of the positions as dynamic things whose primary purpose is to generate an income for us.  When we get a chance to get into a Butterfly-type position like MU (but too violent to be a Butterfly) in the LTP that promises great returns over time – we grab it!

    Als, keep in mind that $40 on MU is a $45Bn market cap and this goes back to last week's discussion on cyclicals – if you aren't going to buy them during a down cycle – you will be overpaying.

    Again, you can buy this company for $45Bn and here's Batman – a generally savvy valuation guy, questioning the VALUE because "most bullish projections don't have this at $50".  My God, if I listened to "most projections" I'd have gone broke long ago!  So, when you see crazy big numbers like $14Bn in 2018 profit you certainly check another source to see if maybe Stockopedia has it wrong but Yahoo says the last 4 Q profits were:  $2.7Bn, $3.3Bn, $3.8Bn and $4.3Bn and the last 3 are 2018 so yes, $14Bn in profits is very doable.  

    Looking ahead, let's say MU does suffer a massive turndown and profits drop back to 2015s $3Bn – I still don't mind owning them for $45Bn but MU was $12 in 2015 so about $15Bn and for sure I would DD and average $30BN ($27ish) and I'd be very happy to hold that for years if that's how long it takes for the next cycle when they make $10Bn a year.

    This is what cyclical stocks do and you have to have a very long-range plan for scaling into them as well as a plan to generate income to pay for your scale.  Overall, our 40 $7.20 spreads (we rescued the original money) are $28,800 – 1/4 of an LTP allocation block – this is very early innings in playing MU in the LONG-Term Portfolio.  Hopefully, before we deploy more cash, we'll recoup a bit of money selling short calls.  Even if we only sell 10 shorts for $3,400, in 8 quarters that's $27,200 back in our pockets but keep in mind that our 1/2 cover expires in 4 Qs so we get 4 x $3,400 ($13,600) conservatively selling the first year but double that, even selling 1/2 covers the second year ($27,200) and that's $40,800 back on $28,800 less the 15 2020 $42 puts we sold for $7,500 so $21,300 was our outlay (of course we'll roll the puts lower and longer until we get them right).  We initiated the trade in August so it's a 2.5-year trade that's on track to make $19,500 (91.5%) so far but, of course, we plan to roll and keep playing this for many years and the only way we stop is when MU goes OVER our limit – otherwise, as I said above, this is just a 1/4 entry so far…

    You guys may not realize it but this is the reason the gains in the LTP accelerate over time.  As these positions mature and get bigger – those quarterly sales get bigger as well and the thing turns into a monster cash-generating machine – especially when we have a higher VIX! 

    MU/Winston – Notice how conservative I was when it was higher (about $54 at the time).  My valuation doesn't change just because the PRICE is high!

    "MU/Dave – Another one I used to love at $10 just 2 years ago but very hard to get excited at $54, though they've certainly grown to keep up with it, dropping $5Bn to the bottom line last year on a $62Bn market cap makes them still very reasonable – especially in this space.  So yes, I do like them – even at $54 but I'd still go conservative:"

    In the recent OOP trade, I was struck by the ridiculous price of the 2020 $55 calls ($4.50) so the rest of the trade was constructed to take advantage, leaving us in 20 2021 $45/60 bull call spreads with 10 short $35 puts for a net $1,000 credit.  Again, $60 is not our target but simply a vehicle that will allow us to sell short calls along the way but no pressure – as it's a $1,000 credit and we have nothing we need to work off.

    MU/Albo – I don't see a $30 target, they are $48Bn at $43.50 and dropped $14 BILLION to the bottom line last year.  That was abnormal (top of the chip cycle) but last 4 Qs were $3.3Bn, $3.8Bn, $4.3Bn and $3.3Bn and they are likely to go back to more like $1.5Bn but I doubt right away so call it $7Bn for 2019 and that's still very reasonable to pay $48, $30 is just silly!  

    Buying a Semi is like buying a builder or a REIT – they have ups and downs and you try to thread the needle but this analyst is completely off the rails – no wonder the stock is up 8.5% on his downgrade. 

    Nice to look back in retrospect at what we were discussing when we set up a trade. Also reminds us why we mostly just leave things alone while the market goes up and down.


  24. Other oils/Tommy – That's just a way they shuffle the inventory to fake a report.  No one looks at "other" so they can bury millions of barrels there to make it look like a draw.  In this case, however, even with "other oils" the overall report still sucks with a huge build in crude only 50% offset by draws in Gasoline and Distillates.

    • EIA Petroleum Inventories: Crude +7.2M barrels vs. -0.4M consensus, +2.8M last week.
    • Gasoline -1.8M barrels vs. -1.5M consensus, -2.9M last week.
    • Distillates -2.0M barrels vs. -0.5M consensus, -2.1M last week.
    • Futures -0.10% to $62.52.

    /RB is a good short below $1.925 with tight stops over.  Obviously, $62.50 is a good shorting line on /CL too.

    OPTT/1020 – Yay, my kids are rich again! 

    OK, now I officially feel bad for making Maddie work at Subway!

    Hola Pharm!   Been missing you.  

    GS/Soma – They should pop once they make it over $200 but tricky into earnings.  I'd go light with something you're happy to roll so let's say you start with a 1/4 allocation like this:

    • Sell 5 GS 2021 $180 puts at $17 ($8,500) 
    • Buy 10 GS 2021 $180 calls at $30 ($40,000)
    • Sell 10 GS 2021 $220 calls at $20 ($20,000)

    That's net $11,500 on the $40,000 spread so $28,500 (247%) if GS just pops so not a terrible use of an allocation block but, if it says flat or goes down, you can always sell more puts for another $8,500 and use that money to drop the calls $20 (the $160s are now $53 so +$13 but the $200s are $29 so +$11 which means if you can roll for less than $11,000 on a dip – it's a good deal).  That would put you in a $60,000 $160/220 spread for net $15,000ish so 300% upside potential and plenty of room to sell some quarterly premium while you wait (selling just 5 (1/2) June $210s for $4.25 generates $2,125 x 6 = $12,750 for an almost free spread).  Just keep in mind it's a big buy commitment on the short put side and GS could drop 20% so, if that would force you take a loss – it's probably not a good trade to be in.

  25. Subway??? Have a heart, Phil….. ;)

  26. Pharm

     Any thoughts on BeiGene, Ltd. (BGNE)


  27. BGNE/qc – they are a Chinese 'me too' company.  The targets already have drugs on the market or close to market.  Will they only be used in China?  ROW (rest of world)?  Now, they do have lots of shots on goal, and the targets are validated.  So, do you want to invest in China? What's their controls on manufacturing, clinical trials, etc? They burn a crap-load of money, so not one that I am interested in, so again, the question is do you want to invest in China?  Too much risk for me.

  28. Pharm


  29. How Much Debt Do Americans Have?

  30. The United Kingdom Has Gone Mad

  31. California turns to dam’s spillway for 1st time since crisis

  32. 20 Ways to Retire Rich

  33. I’ve got the following positions and they’re starting to seem like they’re not aggressive enough:

    20 AMD 2020 25/12 BCS

    200 AMD 2021 30/18 BCS

    The share price has overrun my 2020 short calls and is about to overrun my 2021 short calls. 

    Any thoughts on how I can improve my returns without getting too crazy?

  34. dawg – be happy! Sit back and watch the full profit of the spread come to you as theta decay works its magic. It's a wonder to behold.

    The last person I met along the way who said 'my positions are not aggressive enough' disappeared from the radar a long time ago.

  35. Pharm – Hello !   Missed you.

    Any thoughts on AIMT ?  Have been told that their new drug for peanut allergy could be a big one, although approval has been delayed .

  36. Coffee/Kgab – When I make $1,350 in a day – I take it off the table! 

    If it's over $98 tomorrow (trading closes soon), then we can play bullish with that stop but, often as not, it comes back down and we get back in below $95.  On the front-month, $96 is the line to watch:

    /NGV19 hit our DD line at $2.80 so now 2x at $2.825.

    Subway/1020 – Actually she's quitting because she only just started and they are dumping Sat night shifts on her until 2am – all by herself dealing with the drunks that wander in after the bars close.  Not fun.  It's her fault though as she never had a HS job so no experience made it tough to find work in Amherst (with 100,000 college students looking for jobs). 

    BGNE/Pharm – Very wise.

    AMD/Dawg – I take it that's a $12/25 bull call spread?   With AMD at $29.30, I'd cash in the 2020 $12s for $15 ($30,000) and roll the 200 short 2021 $30s at $8.55 ($171,000) to the $35s at $6.80 ($136,000) for $35,000 so, for net $5,000 out of pocket, you've widened the spread by $100,000 and you are only covering 20 short 2020 $25s at $8 ($16,000) but I'd roll those to 40 short July $28s at $4.10 ($16,400) and you should be able to roll them along until they expire, hopefully generating $60,000 in income while you wait.  If AMD goes lower, you have $16,000 of protection on your net $106,000 spread that pays up to $340,000 if AMD holds $35 (and you don't get burned on the short calls).  Either way, plenty of upside coverage and enough downside coverage to roll the $18s to the $15s.

    What Winston says is also true though – nothing wrong with having spreads that are nicely in the money that you don't have to worry about – that's what we usually do in the LTP and it just goes up and up and up ($1,351,336 at the moment is up $36,000 in two days – untouched).

  37. AIMT…let me look at their data.  I would happen to agree that if it works, it would be a big one.

  38. Well, in reading…it works. They need FDA approval.  Their competition had a setback with manufacturing, and had to pull their NDA with the FDA. I would start with a smaller lot, as they are filing with the FDA…..and any hiccups will send the stock down quickly.

  39. FDA looks into regulating CBD in food, beverages and more

  40. How about stock with the Sept 25/20 C/P straddle.  100 shares at most. if it goes, it is a nice win. If it tanks, the losses can be minimized.

  41. Trump is reading the base wrong on the Affordable Care Act

  42. Trump’s Darwinian Truth

  43. Phil/AMD – Brilliant! Thanks!!

  44. Thanks, Pharm.

  45.  I’m heading off to the airport but should be able to get online there before they close     

  46. Small pullbacks so far but does look like we’re overbought.

  47. That Twitter link didn’t work but check out the Philstockworld Twitter feed,  amazing video of the Amazon drones mothership.  

     This surprise index is exactly what I’m worried about:

  48. do you like SIG for a BCS spread? is the premium enough to justify?

  49. Pharm – HI!!!!!!

  50. Pharmboy — what about LQDA

  51. SIG/Millard – Remind me tomorrow, not enough screens…

    Nice saves into the close, all is well – or at least looks that way.

  52. GME now trading at 5x earnings but that looks like a value trap to me. It's all digital download mostly now. They'll need some change of direction – started to sell collectibles which is cool, but they'll need more.

  53. Sounds like a major design fault:

    The pilots of Ethiopia Airlines Flight 302 apparently followed the proper steps to shut down an errant flight control system as they struggled to regain control of the 737 MAX aircraft shortly after takeoff. But according to multiple reports, data from the ill-fated aircraft’s flight recorder revealed that the anti-stall feature of the aircraft’s Maneuvering Characteristics Augmentation System (MCAS) was triggered at least three times—and at least one time after the pilots followed the correct steps to shut it down.

    You won't see me flying one of these planes in a while!

  54. BA/StJ –  This amazes me. Obviously, there is a design flaw in the plane and they are “fixing it“  with software that does nothing more than correct for the poor design – albeit imperfectly.  They should’ve change the design but, if they did they would have to scrap 200 planes and probably re-design the engines. Also that would then kill the whole fuel savings that was the whole point of the change, not to mention the sales pitch.  

  55. WPM – an interesting trade happened today. Volume was 8M vs. 2.3M average, and there were 50k contracts traded for both 25C and 25P expiring this Friday. Looks like an to capture the dividend (ex tomorrow).   Smart play – but still, committing $125M to make $0.5M?

  56. This Tesla news is huge. Deliveries were down a ton, and even when you count cars in transit (which have apparently been sold) it indicates a massive drop off in demand. There is also a ton of evidence of heavy discounting, especially of the higher margin S/X models, which should shred their margins if they don’t somehow cook the books to disguise it. I’m banging the table on this. BK is very close unless they somehow raise a few billion. There is a negative article on the front page of the WSJ, and articles in the LA Times, and other papers. Institutions have been selling under the radar in dark pools all quarter, and at the same time retail investors have been buying a ton. The narrative is shifting. How long can Elon’s flock keep the faith?  Put spreads can atill

  57. Put spreads can still be bought cheap. As I have mentioned before, I’m heavy in June 2020 $100/50 put spreads, and $10 puts (that pay close to 20 to 1 if Tesla goes to 0). Mostly offset by short 2021 $400 calls. 

  58. Good morning!

    Back in the command center for half a day, then I have to go off to Boston.

     We’re short on TSLA in the Hedge Fund, nice way to start Q2.

  59. Tesla reports biggest sales drop in its history

  60. China’s construction binge spreads to Americas, rattles US

  61. A bad 24 hours for the president