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Monday Market Movement – Boeing (BA) Once Again Takes Down the Dow

Here we go again.

Boeing is still having trouble fixing the 737 Max planes and announced over the weekend they would be cutting production of the planes for now, which is sending their stock down $16, pre-market, which is good for about 130 Dow points and BA is also a big player on the S&P 500 so it's responsible for all of the pre-market losses (as of 7:30 am) so far.

"As we continue to work through these steps, we're adjusting the 737 production system temporarily to accommodate the pause in MAX deliveries, allowing us to prioritize additional resources to focus on software certification and returning the MAX to flight," CEO Dennis Muilenburg said in a statement. "We have decided to temporarily move from a production rate of 52 airplanes per month to 42 airplanes per month starting in mid-April."

Other than BA, the rest of the indexes are continuing to show strength and there's no sense fighting the tape, especially with all of our indexes now above their 200-day moving averages with 3 of the 5 majors making what are called "Golden Crosses", where the 50 dma crosses over the 200 dma – a fairly reliable bullish chart patten.

 

That doesn't mean this isn't a good time to grab some hedges.  In fact, it's the best time to hedge as the indexes are high and the Volatility Index (VIX) is low, which means your cost of insurance is low as well – since the general sentiment is that the rally will continue

In Friday Morning's PSW Report, we liked shorting the S&P 500 Futures (/ES) at 2,900 and we topped out at 2,899.50 and now we're back town to 2,895, which is still a good shorting spot as long as you keep very tight stops above.  Nasdaq (/NQ) 7,600 is also going to be hard for the bulls to cross, so that's another excellent shorting line with tight stops above in the Futures.  

Last Tuesday we asked: "Are We Moving Up to a New Range?" and we have gained 50 S&P points since then and the Nasdaq Ultra-Short (SQQQ) Jan $10 calls we liked at $1.80 are now $1.65 and they are still the best overall market hedge as we thiink a lot of the high-flying tech stocks are about to be spanked for earnings disappointments. 

This is the first week of earnings season and it really kicks off on Friday with some Big Bank earnngs but we are long Bed Bath and Beyond (BBBY) so we'll be watching them closely and last week we made Walgreen's (WBA) a big long on their dip, which means we'll be very curious about Right Aid's (RAD) earnings on Thursday morning as well.

There's not a lot of data this week but we do have Fed Minutes on Wednesday along with a 10-Year Note Auction and we often sell off a bit into those to chase investors into bonds so we can keep the rates low.  Powell is the headliner at the Democratic Caucus in Virginia Weds-Friday, which is why Trump hates him again and we'll see what hints come out of that.  The only other Fed speaker all week is John Williams Thursday morning – to spin Wednesday's note auction.  

It's very tricky as we test new highs and the news cycle is more like a clyclone these days, with whirls of confusing data coming from all sides so our best bet is to stay well-balanced and nimble but, in general, I will be very surprised if we're not down 5-10% into earnings season as there doesn't seem to be much there that will be able to justify these record-high market levels.

 


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  1. Only the little people pay taxes:

    https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits

    On June 30, 2016, an auto-parts magnate received the kind of news anyone would dread: The Internal Revenue Service had determined he had engaged in abusive tax maneuvers. He stood accused of masking about $5 billion in income. The IRS wanted over $1.2 billion in back taxes and penalties.

    But after seven years of grinding bureaucratic combat, the IRS abandoned its campaign. The agency informed Schaeffler’s lawyers it was willing to accept just tens of millions, according to a person familiar with the audit.


  2. FYI, my cousin in France told me that his son just bought a place and borrowed at 1.5%! Rates are so low, it's almost like free money.


  3. Good Morning!


  4. GE

    GE is down 6% as J. P. Morgan cuts stock to underweight with a $5 target.


  5. Good morning!

    Nice little dip to pay us this morning but already reversing so that's it for now.  I wouldn't re-enter the shorts on the way up but, if they begin to break down again we can consider it.

    Was in Boston this weekend, now in Amherst and I sure do like the Northeast better than Florida.  Weather has been glorious Spring and I love walking around cities – especially in Mass, where there are far less chain stores than most places.  

    Borrowing/StJ – If I had time, I'd be looking into buying rental properties over there.

    GE/Albo – Down 7% now.  I hope they do get back to $5 so we can DD.  There's nothing new in the JPM report – just reshashing the same stuff they are already fixing. 

    We took the money and ran on GE over $10 – I'd love to get back in.

    Lyft went public at a $24 billion valuation. Here's how that compares to other high-profile tech companies dating back to the dotcom bubble.

    "It Belongs To The People, Not The Bankers" – Italy Moves To Seize Gold From Central Bank. 

    Is Beijing Signaling An Imminent Currency Devaluation: China Unleashes Gold Buying Spree. 

    Watch This New Drone Taxi Take Off In Vienna. 

    The Number Of Americans With "No Religion" Has Soared 266% Over The Last 3 Decades.

    Homeland Security secretary resigns after meeting with Trump at White House.

    Looming Pullback in Earnings Threatens Rise in Stock Market.

    Add-On Services Drive Car Dealers’ Profits.

    Houston Ship Channel Shut as Storm Hits Chemical Disaster Site.


  6. Every time I look for great stock values, I come back to Macy's (M).  Still getting no respect at $26 ($8Bn) and our LTP position is still playable at:

    Short Put 2021 15-JAN 30.00 PUT [M @ $25.88 $0.39] -10 9/26/2018 (648) $-5,250 $5.25 $2.80 $-5.18     $8.05 $-0.10 $-2,800 -53.3% $-8,050
    Long Call 2021 15-JAN 20.00 CALL [M @ $25.88 $0.39] 25 1/10/2019 (648) $20,000 $8.00 $-0.60     $7.40 $0.20 $-1,500 -7.5% $18,500
    Short Put 2021 15-JAN 25.00 PUT [M @ $25.88 $0.39] -10 1/14/2019 (648) $-5,900 $5.90 $-0.85     $5.05 $-0.05 $850 14.4% $-5,050

    Ideally, if they do recover, we can sell 10 short calls for $2 each Q and raise another $10,000 or so while we wait.  The spread is $12.500 at $25 (with 15 uncovered longs) and currently net $5,400 with the aggressive puts.  

    Year End 02nd Feb 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Revenue $m 27,931 28,105 27,079 25,778 25,641 25,739 24,978 24,995 -1.6%
    Operating Profit $m 2,678 2,783 2,039 1,315 1,769 1,617     -9.6%
    Net Profit $m 1,486 1,526 1,072 619 1,566 1,108 977.9 929.3 -5.7%
    EPS Reported $ 3.86 4.22 3.22 1.99 3.20 3.50     -1.9%
    EPS Normalised $ 4.01 4.40 3.77 3.18 2.65 3.18 3.11 2.95 -4.5%
    EPS Growth % +16.0 +9.8 -14.4 -15.6 -16.7 +20.0 -2.32 -5.12  
    PE Ratio x           8.01 8.20 8.65  
    PEG x           n/a n/a n/a
    Profitability

    They only didn't make $1Bn once in the last 6 years and their competitors are falling by the wayside which, of course, is why people are panicked out of M but it's possible the survivor reaps the benefits.  

    For 2019, Macy's expects flat sales and EPS of $3.05-$3.25.

    Very positive for the company are current cash flows because Macy's is able to repay big amounts of debt.

    (in million $) 2018 2017
    Net cash provided by operating activities 1,735 1,976
    Net cash uses by investing activities (456) (351)
    debt repaid (1,149) (0,988)
    dividends paid (463) (461)
    Cash and cash equivalents at the beginning of the period 1,513 1,334
    Cash and cash equivalents at the end of the period 1,248 1,513

    Macy's repaid over $2 bn of debt but the level of cash nearly remained flat (-6.4%). The company's dividend is well covered by its cash flows and Macy's management can use the remaining cash to improve the balance sheet which is already solid for a department store retailer.

    (in million $) February 2, 2019
    current assets 7,445
    total assets 19,149
    total current liabilities 5,232
    Long-term debt 4,701 (-1,153)
    Shareholder's equity 6,436 (+ 703)

    The equity ratio is 33.6% and up from last year (29.3%).

    Looking ahead, Macy's expects flat sales growth for the full year and EPS of $3.05 to $3.25 vs. $3.27 consensus. The company is targeting $100M in annual cost savings through restructuring actions.


  7. Japan faces recession risks with dearth of ammunition


  8. Russia Eyes Greater Energy Dominance as Novatek Taps Arctic LNG



  9. Speaking of Rite Aid, I imagine that the stock will soar on any hint of an end to the bad news. Trailing PE under 1 right now. 


  10. Phil in your above M trade you have 2 short puts 25 and 30 is one of them supposed to be a short call?


  11. Phil,

      What do you recommend for a new trade on M? Same one as the one in the portfolio?


  12. RAD/Dawg – 0.56 is $600M and yes, they have made that in the past – last year even, but sales have been in decline and they seem to be running towards losses, unlike WBA, with $130Bn in growing sales and $5Bn in growing profits for $50Bn at $55.

    Year End 03rd Mar 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 25,392 25,526 26,528 20,770 22,928 21,529 21,654 21,803 22,092 -3.2%
    Operating Profit $m 506.2 658.8 820.6 337.1 241.9 133.4 -586.6     -23.4%
    Net Profit $m 118.1 249.4 2,109 165.5 4.05 943.5 617.8 -32.2 16.3 +51.5%
    EPS Reported $ 0.12 0.23 2.08 0.098 0.004 -0.024 -0.54      
    EPS Normalised $ 0.26 0.32 2.11 0.15 0.028 -0.042 -0.072 -0.020 0.020  
    EPS Growth %   +21.9 +562.9 -93.1 -80.8          
    PE Ratio x           n/a n/a n/a 29.2  
    PEG x           n/a n/a n/a n/a
    Profitability

    I agree that RAD seems cheap and makes for a fun play but, for a serious investment, I prefer WBA.

    M/Doro - I though one was a call above but I was wrong.  We originally had 15 2021 $30/40 bull call spreads with 10 $30 short puts from back in Sept but we bought back the short calls, rolled the calls lower and sold more puts in Jan, waiting for a bounce before selling calls.  

    M/Japar – Given the new information that they are both puts, I'd just buy the stock and sell just the short $30 puts (still a good target) and wait for a bounce to sell 10 2021 calls and 10 front-quarter calls.




  13. aapl and cmg…wow


  14. CMG/Jabob – Monster, just never stops.  At least we're long on AAPL and can enjoy it.

    CMG short is holding back the Hedge Fund, down about 10% on that position but I kind of look at it like a piggy bank that will pay off one day.

    If not for AAPL, markets would be much uglier.

    HOV making a move:

    Nasdaq erases loss as IT moves into the green

    • The Nasdaq erases its earlier loss, improving to flat in afternoon trading, while the S&P 500 and Dow pare their losses as more industry sectors start to rise.
    • The Nasdaq had fallen as much as 0.6% in morning trading.
    • The S&P is down ~0.1%, vs. -0.4% earlier; the Dow, -0.5%, had declined as much as 0.7%.
    • Following energy (+0.4%) and consumer staples (+0.3%), the consumer discretionary sectorrises 0.2% and information technology gains 0.2%. Lagging the broader index are industrials (-0.9%), utilities (-0.7%), and real estate (-0.6%).
    • Crude oil +1.8% to $64.24 per barrel.
    • 10-year Treasury price falls, pushing yield up 2 basis points to 2.516%.
    • Bank of America Merrill Lynch reiterates a Buy rating on AMD (AMD -1.7%) and raises its PT from $30 to $35 saying that while cyclical headwinds exist for H1, gross margins are expected to expand in 2020.
    • Analyst Vivek Arya cites the "potential for more benign price competition with key rival Intel (INTC -0.3%)," where the new management is more focused on FCF and 5G than pressuring AMD on pricing.
    • Additional AMD margin tailwinds include new products and lower costs.
    • BofAML raises its 2020 and 2021 view for AMD's revenue and earnings.
    • Previously: AMD unveils new Ryzen Pro mobile processors (April 8)
    • There's not a ton of action out there, but a 7.4% decline for GE and a 5% dip for Boeing is helping the Dow to being 0.5% in the red, and the S&P 500 and the Nasdaq to 0.2% drops.
    • The energy sector is modestly in the green as oil pushes to new highs, up another 1.65% today to $64.13.
    • Also modestly higher are the consumer staples, led by a 1.2% advance for P&G.

    • The Philadelphia Semiconductor Index dips 0.3% compared to the 0.2% gain for the tech sector (NYSEARCA:XLK) after Credit Suisse downgrades semis from Overweight to Benchmark while staying Overweight on global tech stocks.
    • The firm says semi valuations are less attractive now than at the end of December with P/E relatives now at levels that have the sector underperforming about 75% of the time.
    • Credit Suisse strategists also cite concerns about the lengthening smartphone cycle.
    • The Turkish lira slumps 1.1% against the U.S. dollar as President Tayyip Erdogan questions the validity of Istanbul's mayoral election, saying "almost all" of the vote was irregular.
    • "The Turkish lira is the weakest link due to rising market concerns that political tension may increase in the coming days/weeks," writes Rabobank emerging markets FX strategist Piort Matys.
    • The lira's decline may not be over. "Speculators are also able to bet against the vulnerable Turkish currency without severe restrictions imposed ahead of the crucial local elections on March 31," Matys wrote.
    • He also noted that the country's central bank resumed weekly repo auctions on Monday and cut FX swaps to 24% from 25.5%.
    • The lira has weakened 28% against the greenback in the past year.
    • Previously: Lira slides as Erdogan loses Ankara (April 1)
    • Copper industry analysts and executives going to Santiago, Chile, for the Cesco conference are feeling bullish, as a key indicator of the market for copper concentrates points to the tightest market in more than five years.
    • "We are looking at a classic resource cycle," says BMO Capital's Colin Hamilton. "No one has copper coming now, when it is needed, but everyone has projects coming 2022-2023 – potentially after we’ve had to drive some substitution."
    • Anglo American (OTCQX:AAUKFOTCPK:AAUKY) has started building its Quellaveco mine in Peru, which will begin ramping up in 2022, and Teck Resources (NYSE:TECK) has said its Quebrada Blanca expansion in Chile will start producing in 2021, joining First Quantum's (OTCPK:FQVLF) Cobre Panama mine, which started producing this year.
    • As a result, CRU Group has cut its deficit forecast and now expects the market to enter a small surplus this year and next.
    • Morgan Stanley, which last month listed copper as its top pick among metals, expects the market will post a deficit of 406K tons this year and of 187K tons next year and foresees prices rising above $3/lb. by the end of this year or the beginning of next.
    • The case for a supply-driven deficit in copper this year is strengthened by news from Glencore (OTCPK:GLCNFOTCPK:GLNCY) that it would cut capacity by half at its Mutanda plant in Congo, a two-month road blockage at MMG Ltd.’s Las Bambas mine in Peru and rains in northern Chile at the beginning of the year, Stanley analysts say.
    • Consumers see home prices rising 3.0% in the next year, on a median basis, for the fourth straight month, staying at the lowest level of the series, which goes back to 2013, according the Federal Reserve Bank of New York's March Survey of Consumer Expectations.
    • Median inflation expectations at the one-year horizon are stable at 2.8% in March, while increasing by 0.1 percentage point to 2.9% at the three-year horizon.
    • Median expected change in the cost of gas increased to 4.7% from 4.3%, the highest reading since last June.
    • One-year ahead expected changes in the cost of food, medical care, college education, and rent in March all stayed within 0.1 pp of the prior month's expectations.
    • Consumer still expect household spending to rise faster than income growth. The median expected household income growth increased to 2.8%, after three months of declining, however median household spending growth expectations was unchanged at 3.1%.
    • Previously: NY Fed survey shows anchored inflation expectations (March 11)
    • WrestleMania 35 came off last night with a record-setting performance, capping the year for World Wrestling Entertainment (WWE +0.6%).
    • The event set a MetLife Stadium record by grossing $16.9M; that surpasses the previous record, the $12.3M grossed by WrestleMania 29 in 2013.
    • It was the third-highest in-person attendance at a WrestleMania event, with 82,265; that record-holder was WrestleMania 32 three years ago, which drew 101,763 to AT&T Stadium in Arlington, Texas.
    • And it was the second-highest grossing event in WWE history.
    • This year's event was the first WrestleMania to feature an all-female main event on its card; wrestler Becky Lynch prevailed in a three-way contest with Charlotte Flair and Ronda Rousey.

  15. /NG with a nice comeback today.

    /KC too:

    Hopefully we can short oil at $65 tomorrow.

    Or /RB at $2.

    Dollar is holding things up:


  16. Hi Phil, in response to Japar on Macys, you suggested buy the stock and sell $30 calls, then wait for bounce and sell long dated calls and sell short dated calls – was that what was intended?   

    "M/Japar – Given the new information that they are both puts, I'd just buy the stock and sell just the short $30 calls (still a good target) and wait for a bounce to sell 10 2021 calls and 10 front-quarter calls. "


  17. M/Mike – No, it was buy the stock and sell the puts (I meant).  That part of my brain totally doesn't work, apparently – I mix up puts and calls constantly.  With M at $25.70, selling the 2021 $30 PUTS for $8.20 nets you in  for $19.80 – a very good price. 


  18. 2,899.75 was the high on /ES.  Only a point below it now.  I picked up one short and we'll see how it goes.  




  19. Scientists reverse memory decline using electrical pulses



  20. Saudis Reemerge From Khashoggi Crisis With $60 Billion Aramco Bond Sale



  21. Trump is removing US Secret Service director



  22. Aramco Receives Blockbuster $100 Billion Demand for Debut Bond