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Monday Market Madness – Trade Worries Continue to Weigh Down Markets

And down we go again!

Don't worry, it's not only Monday but it's a pre-holiday week so the volume is likely to be low and it's hard to break out of a range on low volume – even to the downside.  That means we kind of like playing 7,400 on the Nasdaq (/NQ) Futures for a bounce – with tight stops below tha line.  The S&P (/ES) Futures are also playable if they get back over 2,850 (now 2,845) with very tight stops below that line as /ES is $50 per point, per contract – so we don't want to mess around.  

The Nasdaq bottomed out at 7,300 on the 13th and the S&P was 2,800 with the Dow (/YM) 25,200 and the Russell (/RTY) 1,520 so, if we fail to hold our lines this morning – that's the next place we'll take a stand but the Russell is already down at 1,527 and looking a bit shakey – so be very careful this morning. 

We did get a nice pop this morning on Natural Gas, which was our long idea from Wednesday's Live Trading Webinar and we're already up over $500 so that's now our stop line but hopefully $2.75(ish) will hold and we'll leg up further but congrats to all who played along with that one on the quick winner.

We also, of course, blew through our hoped-for 25-point drop on the Nasdaq (/NQ) as we're now down over 100 points from our Webinar short and that one is good for $20 per point, per contract so $2,000+ on that short and that's why we love the Futures – it's a great, quick way to hedge your portfolio that quickly returns the cash you need to adjust your bullish positions – like we did last week in our Portfolio Reviews.  

Speaking of the Portfolio Reviews, I want everyone to keep in mind that I have been saying for the past month that we are only staying in our portfolio positions to demonstrate how to trade through a downturn in the market and we ABSOLUTELY would have cashed out any portfolio that mattered to our long-term financial future. 

We are very likely heading into a down market and we may correct back to the December lows and that will be ugly and painful and it will take much longer to recover next time.  This is a teaching site so we're going to teach how to handle a down market but I would much prefer to be 100% in CASH!!! – which is where my kids' college funds have been since September and there has been nothing since then that's made me think it was worth risking their education on!  

There's nothing wrong with being in CASH!!!  You can take the summer off and go on vacation or catch up with family and friends – the market will still be here when you get back…  That's why people "Sell in May and Go Away" – they have other things to do in the summer than stare at screens all day.  This is my job – what's your excuse?  

If anything, the Trade War with China is intensifying.  I can't believe the market isn't down much more with China telling Trump to shove his negotiations last week and now Trump is attacking Huawei in what China says is an attack based on unsupported claims of spyware and simply an attack on a successful Chinese company that threatens the US's dominance in tech.  

Image result for huawei spyThe basis of Trump's claims against Huawei is that the company does work for the Chinese military but so does INTC and GOOG and MSFT, etc.  That's what big companies do with major buyers of technology – that in itself is not a crime and Huawei is being treated as if it were tried and convicted of spying based on what China says is rumor and innuendo.  Since there were claims of "spy chips" yet none of these chips have ever been actually seen by anyone (and think how many thousands of customers around the World would have to be lying) and since our President is hitting the 11,000 lie mark this month – it's kind of hard to take Trump's side on this one.

Just consider that it's POSSIBLE that the Trump Administration is making something up to futher their ends and that Huawei is an innocent corporation that employs hundreds of thousands of people that is being targeted by Trump and his allies.  What should China do about that?  What would we do about that?  This goes far beyond a trade war, now we're having a tech war and soon we'll be having a Cold War and I guess, to some, that was when America was great but I lived through the first one and I'm not looking forward to another – and neither should investors.  

While it's likely to be a quiet week in the markets, the rest of the World isn't taking a vacation and we have FOURTEEN (14!) Fed speeches this week including Powell, who speaks this evening in Atlanta and he'll be speaking about the next decade, which starts in 7 months.  Wednesday we get the Minutes from the last Fed meeting and, during the week we get the Chicago and Kansas City Fed Reports with PMI Thursday and Durable Goods on Friday and Monday, of course, is a market holiday – so next week will also be low-volume BS but we still get the Non-Farm Payroll Report next Friday. 

And earnings season is still a thing, the S&P is pretty much done but there are thousands of other public stocks and some of them take a while to report – so these are the stragglers that are coming in – still some big names.

Tesla (TSLA) is taking a dive this morning and might test the $200 line as more and more analysts are starting to agree with my premise that Emperor Musk has no clothes.  Better late than never I suppose…

As I noted back in 2017:

A month ago, on April 4th, I wrote: "Tuesday Turmoil – Tesla Valuation Reaches Peak Insanity" in which I noted how ridiculous it was to value Tesla (NASDAQ:TSLA), who struggle to make and sell 25,000 cars in a quarter, at the same price as GM (NYSE:GM) or Ford (NYSE:F), who each make 25,000 cars PER DAY, (that's 90 times more). The companies are not even playing in the same ballpark (though they are playing the same game, so investors get confused) – it's like betting your son's undefeated little league team can take on the Yankees – there are other factors involved than just their record against other children.

Well, Tesla is playing in the big leagues now – and getting their asses kicked! 


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  1. Phil,

    How will you play /RB this week?

  2. Good Morning!

  3. OGI – Organigram lists on the NASDAQ tomorrow under OGI.  I like this Canadian based company which has the lowest cost production in the industry even though its operations are indoors as opposed to greenhouse.  They also have an investment in Hyasynth which is looking at producing CBP through the use of yeast.  Stock has of course moved on the upcoming NASDAQ listing but I expect a further move as this stock may be added to ETF's and simple supply/demand.  No options available.

  4. Palotay must be happy today – TSLA looks to be on their way to zero! It's really not looking good there. Maybe someone with deep pockets swoops in to collect all the IP at least.

  5. Good morning!  

    No bounce on /NQ – look for the lows (above) to be retested.  

    • Dow 25,200 is the 5% line and the bounce lines are 25,450 (weak) and 25,700 (strong)  
    • S&P 2,860 is the 5% line and the bounce lines are 2,875 (weak) and 2,890 (strong)
    • Nasdaq 7,475 is the 5% line and the bounce lines are 7,540 (weak) and 7,605 (strong) 
    • Russell 1,550 is the 5% line and the bounce lines are 1,565 (weak) and 1,580 (strong)

    So, clearly, short /YM if you need a short – below 25,600 with tight stops above pays $2,000 per contract back at 25,200 so risk $50 to make up to $2,000 is a good trade-off.

    /RB/Japar – They just hit $2 on /RBN19 so that's a good entry and it's $2.03 on /RB.  /RBN19 did bottom out at $1.94 last week so I wouldn't be a hero if $2 fails but it's very unlikely we don't hit at least $2.05 into the weekend.

    Big Chart – Looks a lot more like consolidating for a move down than up at the moment. 

    OGI/Stu – Hard to do greenhouse in Canada.  We've been weighing costs of greenhouse in MA and it's a tough call but we think we can get a greenhouse going.  In CA, however, one of our partners just set up a massive indoor grow because he can manage the quality much better – that matters in more mature markets as some people want the gourmet stuff.  If you assume the same quality, greenhouses are usually cheaper but if you are going for premium plants with ultra-high THC content – indoor growing begins to have an edge.  I'm leery of investing in any of these IPOs, however, they are generally over-hyped and will have a lot of trouble living up to their valuations.  

    AAPL down $6 (3%) – that's killing the Nas and about 50 Dow points and bad for /ES too so I'm still leaning towards looking for a bounce once AAPL calms down (retaliatory trade fears).  

    TSLA/StJ – Not really that much IP there.  TSLA has 243 patents – total.  IBM got 9,100 patents LAST YEAR!  

  6. Pot/Stu – By the way, I lived in Rockland County, NY – about 20 miles north of the city and, when we were in High School, we planted some seeds we sifted out of some pot we had and planted it in the corner of a farm that was at the end of our block (all developed now) and, with ZERO care on our part, we got quite a few plants that summer.  Growing pot is not hard – it's just a question of yield – especially in the winter.

    • Emerald Health Therapeutics' (OTCQX:EMHTF) joint venture, Pure Sunfarms, has received a Standard Processing License from Health Canada for its 1.1M square foot Delta 3 greenhouse facility.
    • The Processing License permits Pure Sunfarms to extract and process cannabis at its Delta 3 facility, which will enable the development and manufacture of products derived from cannabis, including oils, other concentrates, and edibles.
    • Pure Sunfarms will require an additional amendment to its sales license to sell cannabis oil, which it expects by Q4.
    • The Processing License is one of two regulatory steps required to sell directly to provincially/territorially authorized distributors and private retailers.
    • Stocks are off to a weak start as fears over the effects on tech companies from the Trump administration's crackdown on Huawei add to concerns about the trade war between the U.S. and China; Dow -0.3%, S&P -0.7%, Nasdaq -1.6%.
    • Alphabet, Qualcomm, Xilinx and Lumentum are some of the companies that have suspended business with Huawei following new regulations that require U.S. licensing approval to conduct business with the Chinese firm.
    • "Huawei has its tentacles in so many parts of technology sector." says Quincy Krosby, chief market strategist at Prudential Financial. "That's why this is not a one-day event."
    • European bourses trade deeply in the red, with Germany's DAX -1.9%, France's CAC -1.7% and U.K.'s FTSE -0.8%; in Asia, Japan's Nikkei +0.2% and China's Shanghai Composite -0.4%.
    • In the U.S., the S&P information technology (-1.6%) sector leads the retreat, with the Philadelphia Semiconductor Index -2.7%; the utilities sector (+0.2%) is the only group trading higher in the early going.
    • Chip stocks including Micron Technology (-3%), Nvidia (-3%), Advanced Micro Devices (-2.9%) and Lam Research (-3.3%) all trade lower, and telecom supplier Lumentum -3% after cutting its quarterly guidance.
    • U.S. Treasury prices are little changed despite the lower start in equities, with the two-year yield down a basis point to 2.20% and the 10-year yield flat at 2.39%; U.S. Dollar Index -0.1% to 97.94.
    • WTI crude oil +0.1% to $62.78/bbl as U.S.-Iran tensions remain high.
    • Shares of Tesla (NASDAQ:TSLA) are down 6.88% in early trading and have slipped below $200 for the first time since 2016.
    • Earlier today, Wedbush issued a "code red" on Tesla due to growing concerns on Model 3 demand.
    • Technical traders see support for Tesla on the chart at around $194. The low point of the day so far is $195.25.
    • Previously: Tesla -4% after Wedbush cites major concerns (May 20)

      T-Mobile/Sprint conditions might not satisfy DOJ – CNBC

    • Throwing some cold water on Sprint (S +23.1%) and T-Mobile's (TMUS +4.9%FCC-related positivity this morning, CNBC's David Faber says the conditions that could get the companies an FCC OK may not win them Justice Dept. approval.
    • The companies appear likely to commit to 5G buildout with consumer price protection and to sell prepaid brand Boost Mobile to avoid dominance there.
    • While both the FCC and DOJ must sign off on the deal, the FCC has a slightly higher standard: While the DOJ is ensuring competition concerns, the FCC additionally can accept or reject a deal that otherwise would pass DOJ muster based on whether it's in the public interest.
    • Update: FCC Chairman Ajit Pai tells Bloomberg: "In light of the significant commitments made by T-Mobile and Sprint as well as the facts in the record to date, I believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it.”
    • Original Post: Reuters sources say the FCC will formally approve the T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) deal.
    • The announcement won't come today since the FCC still needs to draft the order.
    • Sprint shares are up 20.9%, T-Mobile +5.2%, Verizon (NYSE:VZ+2%, and AT&T (NYSE:T+1%.
    • Previously: Concessions expected to clear T-Mobile-Sprint deal (May. 20 2019)

    • Boeing's (BA -0.4%) next commercial jet design, a New Midsize Airplane dubbed by most as the 797, could come with a cockpit built for just one pilot, according to industry analysts, while a second ground-based pilot would "monitor several aircraft" at the same time.
    • But reported plans for a big reveal at the Paris Air Show next month may have been put on hold due to Boeing's ongoing problem with its 737 Max planes.
    • A note released by Jefferies on Sunday claimed the technology to do this is still 10 years away but Boeing customers would find the capability "valuable."
    • Boeing Research and Technology VP Charles Toups also said in February that one-pilot jets would likely begin with cargo flights and it would be a "couple of decades" before passengers would be convinced of their safety.
    • Whirlpool (WHR) trades slightly higher after Raymond James says the appliances maker could unlock tremendous value by exiting the Europe, Middle East and Africa regions.
    • Analyst Samuel Darkatsh thinks a sale of the EMEA business could fetch as much as $3B and set up shares to trade with a more attractive PE ratio.
    • Darkatsh doesn't think an announcement by Whirlpool is likely at this week's investor day event.
    • Baidu (NASDAQ:BIDU) is 3.4% lower, adding to Friday's post-earnings tumble, after Macquarie downgraded the shares to Neutral.
    • The firm cut its price target to $140 from $205, implying 9.1% upside.
    • The stock fell 16.5% on Nasdaq Friday, reaching six-year lows, after the company posted slower growth in its Q1 results and guided below consensus on Q2 revenues.
    • Ford (NYSE:F) plans to cut 7K salaried jobs by August as part of a corporate restructuring aimed at saving $600M per year.
    • The overall job cuts amount to about 10% of the global salaried workforce.
    • As many as 900 salaried job eliminations are anticipated this week.
    • Shares of Ford are up 0.58% in premarket trading to $10.35.

    Broadcom (NASDAQ:AVGO-5% on Huawei blacklisting.

    • Union Gaming adjusts price targets on Macau casino stocks after factoring in a variety of factors, including softer China macro trends from the trade war with the U.S. and new competition from APAC casinos with lower tax rates.
    • "We are now forecasting VIP revenue in Macau to decline 15% in 2019 (vs -8% previously). Our mass market revenue forecast for 2019 is unchanged at +10%. Overall, we estimate Macau GGR to decline 2% in 2019," updates analyst John DeCree.
    • Union Gaming lowers its price target on Las Vegas Sands (NYSE:LVS) to $78 from $80, while the PT on Wynn goes to $150 from $165. The setup on MGM Resorts (NYSE:MGM) looks more favorable to the firm, with the PT only being dropped $2 to $38.
    • In premarket trading, Las Vegas Sands and Wynn are both down 1.2%, while MGM is off 1.5%(Boston Encore news could be factoring in).
    • Morgan Stanley moves to the sidelines on Delta Air Lines (NYSE:DAL) after seeing shares rise 10% YTD.
    • MS on Delta: "As we look at our refreshed 2020 estimates, which are moderately below consensus and reflect pilot step-ups, higher oil, elevated supply growth (3-4% 2019/2020), and healthy LSD RASM, shares are trading closer to an appropriate multiple (of ~9x). This compares to history of 9-10x over the last several years and the group at ~8x, thus the airline is now better reflecting its premium margins and balance sheet relative to the long-run."
    • The firm also points out that Delta's free cash flow yield is falling below 10% for the first time in recent years.
    • Morgan Stanley trims its price target on Delta to $61 from $62.
    • Shares of Delta are down 1.62% premarket to $54.00.

  7. Phil, what do you think of CBS?  They seem very undervalued, they have a lot of good content, and a rapidly growing streaming offering.  There is some uncertainty with sexual harassment allegations against the former CEO, and there is some ownership drama and a potential merger with Viacom that may be depressing the multiple.  Analysts seem to expect continued growth, and they have been averaging over 14% per year in operating earnings growth for the last 10 years.  If they continue to grow earnings at 14% per year, and the multiple expands to 12x this turns into a $78 stock (currently $48).  

    • Greenpeace activists block entrances to BP's London headquarters, declaring a "climate emergency" and demanding the company end all new oil and gas exploration.
    • The protestors arrived in the early morning and encased themselves in heavy containers weighing several tons each that are blocking all five entrances to prevent staff from entering BP's offices in St James Square.
    • The activist group says it aims to keep BP's headquarters closed for "at least the whole of this AGM week," referring to the company's scheduled annual general meeting in Aberdeen on Tuesday.
    • Piper Jaffray says recent checks on Chipotle (NYSE:CMG) came in stronger than anticipated.
    • The firm forecasts Chipotle's Q2 comparable sales will increase 8% on increasing demand and traction with the chain's digital initiatives.
    • PJ boosts its price target on Buy-rated CMG to $783 from $760.
    • Shares of Chipotle are down 0.15% premarket to $714.85.
    • In a series of tweets. President Donald Trump said the New York Times report that many banks didn't want to do business with him is wrong.
    • "I built a great business and don't need banks," he said.
    • In his continuing feud with the newspaper, he parenthetically implies the company will go out of business once he leaves office.
    • About Deutsche Bank, he said it "was very good and highly professional to deal with."
    • Deutsche Bank (NYSE:DB), which denied the NYT story earlier, falls 2.4% in premarket trading in New York amid a decline of macro-sensitive equities in Europe and after UBS downgraded the German lender to sell.
    • Deutsche Bank (NYSE:DB-1% premarket after a NYT report said employees' ignored calls to flag transactions made by legal entities controlled by President Trump and Jared Kushner to the Treasury Department's financial crimes unit.
    • Denying the report in its entirety, Deutsche said, "at no time was an investigator prevented from escalating activity identified as potentially suspicious. Furthermore, suggestion that anyone was reassigned or fired in an effort to quash concerns relating to any client is categorically false.

    • Deutsche Bank analyst Chad Dillard, which rates Deere (NYSE:DE) at Hold, has lowered his price target on shares to $148 from $159, after FQ2 results "missed the mark" and deteriorating ag fundamentals drove an outlook cut.
    • While shares "de-risked significantly" following the results, he continues to see a few overhangs, namely the uncertainty surrounding 2020 and the pricing assumptions embedded in the second half of 2019 guidance.
    • DE -0.6% premarket
    • Wedbush drops its price target on Tesla (NASDAQ:TSLA) to $230 from $275 after once uber-bull Dan Ives sees even darker clouds just ahead for the Neutral-rated EV automaker.
    • "We continue to have major concerns around the trajectory of Tesla's growth prospects and underlying demand on Model 3 in the US over the coming quarters which is putting more heat in the kitchen on Musk & Tesla to reign in expenses at an accelerated rate with profitability targets in 2H19 a Kilimanjaro-like uphill climb," warns Ives.
    • Ives and team sees a best case deliveries total of 360K to 370K for the full year and a base case scenario of 340K to 355K.
    • "Additionally, with a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser focused on shoring up core demand for Model 3 and simplifying its business model and expense structure in our opinion with headwinds abound," he goes on.
    • Shares of Tesla are down 3.57% premarket to $203.60 after shedding 7.58% on Friday. Tesla hasn't traded below $200 since late in 2016.
    • Ryanair (NASDAQ:RYAAY) is the latest airline to warn that profit this year would be dented by the global grounding of Boeing's (NYSE:BA) 737 MAX.
    • The European discount carrier was due to receive its first MAX planes this spring, which would have provided more seats and greater fuel efficiency, but has now pushed off deliveries until at least this winter, assuming regulators clear the plane to fly before that.
    • Exact timeline? Ryanair currently expects the FAA to clear the MAX to resume flying around the end of June or in July, with Europe's regulator to follow in late July or possibly August.
    • It will also carry around 1M fewer passengers this year because of the delayed MAX aircraft, which likely equates to about €37M in lost sales. "We will be looking for compensation from Boeing," CFO Neil Sorahan said, without giving a figure.
    • TUI and Norwegian Air, currently Europe's largest 737 MAX operators, have also signaled they expect Boeing to compensate them for the financial impact of the grounding.
    • BA -1.4% premarket
    • Morgan Stanley upgrades Target (NYSE:TGT) to an Equal-weight after having the retailer set at Underweight on its view that margin erosion will moderate.
    • "We are modeling flattish EBIT margins in 2019, below guidance for ~10 bps expansion yet an improvement from 35 bps decline in 2018," writes analyst Simeon Gutman.
    • "We think the risk that TGT misses its margin guide is appropriately reflected in the stock’s relatively inexpensive valuation," he adds.
    • MS reiterates a price target of $67 on the "retail survivor" vs. the 52- week trading range of $60.15 to $90.39.
    • TGT -0.10% premarket to $70.82.
    • Morgan Stanley lifts United Continental (NASDAQ:UAL) to an Overweight rating from Equalweight.
    • The firm takes its price target on the airline stock to $110 from $101 to rep 35% upside for shares.
    • UAL +0.25% premarket to $81.70. The 52-week high is $97.85.
    • Last week, mutual fund giant Capital Re bought a bunch of Juul Labs (JUUL) shares in the secondary market at a price that values the company at more than the $38B valuation it fetched in December, sources told the New York Post.
    • One source even said the investment could value Juul at close to $50B.
    • Meanwhile, Juul has been working with JPMorgan in a secretive, months-long assignment that has triggered rumors it is planning a new round of fundraising.
    • High on the agenda this evening is a keynote speech from Fed Chair Jerome Powell at the Atlanta Fed's annual Financial Markets Conference, entitled "Mapping the Financial Frontier: What does the next decade hold?"
    • Investors are also likely to monitor a flurry of other speakers today including Philly Fed President Patrick Harker and Vice Chair Richard Clarida.
    • Ahead of the events, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was up 1 bps at around 2.4015, while the yield on the 30-year Treasury bond was also higher at around 2.8307.
    • A major oil deal between Iraq and Exxon Mobil (NYSE:XOM) was "very close" but had been slowed by Exxon's decision on Saturday to pull 60 of its international personnel from the West Qurna oil field.
    • "Had we concluded we would have signed a heads of agreement," Iraq's Oil Minister Thamer Ghadhban declared, "but now they are out of the country, why should I run after them?"
    • Exxon's evacuation came days after Washington sent non-essential staff home from its U.S. embassy in Baghdad over what it said was a security alert caused by threats from Iran.
    • Several key chipmaker suppliers, including Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM), Xilinx (NASDAQ:XLNX), Broadcom (NASDAQ:AVGO) and STMicroelectronics (NYSE:STM), have reportedly cut off Huawei after the Trump administration added the Chinese company to a trade blacklist last week.
    • Over the weekend, Google suspended some trade with Huawei, leaving it with access only to the open-source version of Android.
    • Nokia (NYSE:NOK), which usually benefits from Huawei's woes, is up 4.1% premarket, while Ericsson (NASDAQ:ERIC) shares are 1.6% higher.
    • Update: Semis are falling on the latest news. QCOM -3.1%, INTC -1.8%; XLNX -2.7%, STM -7.4%, MU -3.7%


    • In an unusually strongly worded statement, Toyota (NYSE:TMrebukes Pres. Trump's declaration that imported cars threaten U.S. national security, a signal that difficult talks may lie ahead for the U.S. and its key trading partners.
    • The company says it has spent $60B-plus building operations in the U.S., including 10 manufacturing plants, and Trump's declaration that the U.S. needs to defend itself against foreign cars and components "sends a message to Toyota that our investments are not welcomed."
    • The Trump administration earlier today set a six-month deadline for negotiating deals with Japan, the European Union and other major auto exporters.
    • Toyota says it remains hopeful that the talks can be resolved quickly but warns reducing imports would prove "a major setback for American consumers, workers and the auto industry."


    • Boeing (NYSE:BA) has acknowledged it had to correct flaws in its 737 MAX flight simulator software used to train pilots after recently discovering that they couldn't accurately replicate the difficult conditions created by a malfunctioning MCAS anti-stall system, which played a role in both the Ethiopian and Lion Air disasters.
    • The company did not indicate when it first became aware of the problem, and whether it informed regulators, but its statement marked the first time Boeing admitted there was a software design flaw linked to the 737 MAX.
    • The disclosure is the latest blow to the reputation of Boeing and will challenge CEO Dennis Muilenburg on engineering a recovery course.
    • Crude futures climbed 1.4% to $63.78/bbl overnight after Saudi Energy Minister Khalid al-Falih indicated there was consensus among OPEC and allied oil producers to drive down crude inventories "gently," although his country would remain responsive to the needs of what he called a "fragile market."
    • "This second half, our preference is to maintain production management to keep inventories on their way declining gradually, softly but certainly declining towards normal levels," he told a news conference following a ministerial OPEC+ panel in Jeddah.
    • President Trump also threatened the "official end of Iran," prompting further concerns about future oil supply.
    • The 2019 crypto rally began attracting plenty of attention over the past couple of weeks – just in time for Bitcoin (BTC-USD) to plunge from about $8.3K to $7K last Thursday/Friday.
    • That's reversed in a big way over the weekend, with Bitcoin climbing all the way back to last week's high.
    • Theresa May has pledged to set out a "new and improved" Brexit deal next month as she attempts to put together a cross-party coalition of MPs to finally pass her Withdrawal Agreement Bill.
    • The "bold offer" is expected to include new proposals to uphold EU standards of workers' rights and environmental protection to win over some Labour MPs despite the collapse of cross-party talks last week.
    • May is also holding renewed talks with Northern Ireland’s Democratic Unionist party to see whether she can overcome their opposition.
    • Australia's Liberal-led conservative government is headed for a surprise win, though it's unclear whether the Scott Morrison-led coalition can govern with an outright majority or will need to negotiate support from independents.
    • The national election comes at a pivotal time for Australia, as global trade rivalries, falling home values, record debt and stagnant wage growth bite.
    • The economy, which has been expanding for 27 years and counting, nearly stalled in the second half of 2018, while the country's central bank is expected to begin cutting interest rates as soon as next month.
    • Lockheed Martin's (NYSE:LMT) Sikorsky unit is awarded a $1.1B contract to build 12 CH-53K King Stallion heavy-lift helicopters, the Department of Defense announces.
    • The contract covers Lots 2 and 3 of the helicopter, which will replace the aging CH-53E Super Stallion.
    • After cost growth in the Lot 1 contract for the helicopters, the Navy and Marine Corps reduced the latest contract to 12, compared to a previous plan to buy 14 under Lots 2 and 3.
    • Most of the work will be performed in Stratford, Conn., the Pentagon says.

    • Lions Gate closed sharply higher today (LGF.A +14.7%LGF.B +12.5%) after The Information's report that CBS made an informal offer for the Starz cable operation that was rebuffed.
    • The studio reportedly rejected that offer of about $5B on valuation, but the sides may not be as far apart as it seems: Reuters reports Lions Gate turned around and offered the sale for $5.5B.
    • Lions Gate had bought Starz for $4.4B in cash and stock in 2016.
    • CBS interim CEO Joe Ianniello made the informal offer about six weeks ago but was turned away, according to reports.
    • Adding Starz would (along with Showtime) give CBS two of the key three premium cable networks, and a better chance at competing with clear leader HBO (NYSE:T).
    • CBS has a board meeting in 12 days at which it will be reviewing strategic options, almost certainly including talks about re-merging with Viacom (VIAVIAB).

  8. CBS/Palotay – Thanks for reminding me (though the above news item did too!).  That offer is one of the reasons they began to drop off and I knew this was coming as their CBS subscription service is not getting the traction they'd hoped with just Star Trek and a couple of other unique things (though Star Trek Discovery is great).  Now they are trying to buy LGF, who own Starz so they can get their film library but are you going to cancel Comcast and go with CBS because you can't get Starz anymore?  I hate the way this whole industry is going…

    LGF has $4Bn in revenues and makes about $150M a year yet CBS is willing to pay $5Bn (33x) even though they are valued at $18Bn on $2Bn in earnings (9x) so they want to spend $5Bn – effectively diluting you by 25% in order to add 7.5% to earnings?  That seems silly, right?  They are doing this to cover up the mistake they made with CBS All-Access, not because it's a good decision.

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 14,005 13,806 12,671 13,166 13,692 14,514 14,920 15,485 16,155 +0.7%
    Operating Profit $m 3,025 2,544 2,658 2,691 2,460 2,768 3,224     -1.8%
    Net Profit $m 1,879 2,959 1,413 1,261 357 1,960 3,032 2,107 2,370 +0.8%
    EPS Reported $ 2.79 2.41 3.18 3.46 3.53 5.00 7.89     +12.4%
    EPS Normalised $ 2.81 2.91 3.24 3.86 4.38 5.44 7.49 5.62 6.52 +14.2%
    EPS Growth % +19.4 +3.7 +11.4 +19.1 +13.4 +24.1 +55.8 +3.32 +16.0  
    PE Ratio x           8.89 6.46 8.61 7.42  
    PEG x           2.68 1.95 0.54 0.62

    The VIA deal is another thing but at least VIA is a more similar operation with a similar valuation and, of course, if you put those two together first then the dilution of LGF becomes negligible but still hard to justify.  Either way they'll be taking on a lot of debt so there's forward execution risk they didn't have before (but, as I said, All-Access is an execution failure that hasn't been admitted yet).  

    Still, content is king and they will have lots of it and, worst case, NFLX ($152Bn) will buy them all so it's not such a bad idea of a play down here and I'd go with the 2021 $40 ($11.50)/$50 ($6) bull call spread at $5.50 (no more than $6) and be very happy to make 66% if it goes straight up but, if it falls $5 (10%), THEN I would sell 1/2 the 2021 $42.50 puts (now $3.50) for $5+ and use that money to roll the $40s down to the $35s (now $15) and then you'd be in a nice, conservative spread with a not-too-bad entry – even if things did turn lower on you.

  9. I've seen everything now – 1. CMG surging through the $720 shorting line, and 2. T turning into a MOMO stock.!!

    As to the virtual portfolios, I hope that most people treat these as purely educational vehicles and certainly not real money portfolios to be followed pure rote. Or if they are copying the trades like for like, at least using money they can afford to lose. 

    Thus, I don't think there is any shame in keeping on with the portfolios through thick and thin, because for most people with real money portfolios they are not cashing out portfolios every time there is a market turn against them. And I think the jury is still out on whether the ultra hedges actually work or not – especially when one is hedging the hedges – which kind of complicates matters. So, the real value in the virtual portfolios is seeing how you manage them during a sustained downturn – that is really precious. Making money is easy – it's holding on to it that is the difficult part. 

    So I for one would really like to see the strategies in action to see how various hedging strategies work (or not work) to learn to improve my management techniques for the future.

    And no one will hold it against you if the portfolios don't hold onto their impressive virtual gains and give some back in the interests of education.

  10. My TSLA short is going very well, to say the least, but I'm not taking profits. Expectations are still way too high for Q2 deliveries.  Most of the channel checks I have seen have them barely delivering 70k.  What happens to the stock when everyone realizes that Elon lied by saying they were on track for 90-100k deliveries in Q2 to get the raise done, and then misses deliveries by 20-30% just 8 weeks later?  They could lose $700M+ again in Q2. Keep in mind, the raise only plugged their working capital hole. Their cash levels are still in danger zone, and demand is falling off a cliff. My plan is to lighten up a little at $150, and then hold the rest for $TSLAQ.

  11. could this be one of those shake off Europe after they close days

  12. CBS   Look at its monthly chart.  Gone nowhere in six years

  13. Why are the REITs getting pummeled again today?

  14. Good morning Phil and the Gang.  I have 15 SIG short call '19Jul19 $21.5 ($1.075) against 15 long BCS Oct $18 / $22 ($1.80).    Do you have a rule of thumb for rolling the front month callers?  I believe SIG has been hurt with this trade war stuff.   In the event of a turn around with the trade war issues, I believe SIG could pop.  If SIG moves up to $25 and the front month callers start getting buried when is a good time to roll to the next month?  I want to keep my eye on that adjustment.  TIA.

  15. Palotay — Couldn't agree more re TSLA.  Out of curiosity, how did you structure your TSLA short?

  16. Portfolios/Winston – Well, as I said, my kids' college funds represent money they can't afford to lose so I damned well did go to cash – DESPITE THE INCONVENIENCE – when I lost confidence in the market and I wish more people would do the same with money they actually count on.  Similarly, our Hedge Fund, which was up 40% at the end of April, cashed in about 25% of it's holdings (because we were making too much money) and flipped more bearish – and now we're up almost 10% in May.  It's pretty much pacing with the LTP/STP as it follows a very similar strategy.   

    It's not ALWAYS a good time to play the market – CASH!!! is a reasonable asset class to allocate to.  As to whether the hedges work – well the STP is up 600% BECAUSE they work great in a proper downturn.  They're not designed to work in a 5% correction or even a 10% correction.  As you say, making money is easy but holding money includes a strategy of cashing out. 

    By the way, the STP is up 20% this morning since Friday morning's post.  I'd have to say that those hedges are "working", wouldn't you?

    And, by the way, we wouldn't have made much money at all in the STP if we didn't CASH IT OUT when we felt each bear cycle had run it's course.  In fact, it was betting on those reversals that made us such ridiculous gains last year.  Why would you not do the same thing when a market is topping out – THAT's what makes no sense…

    VIX down (from Friday morning) and market down (going our way) is why we have such a nice gain in the STP this morning:

    TNA made big money as did SQQQ so at least now we know our hedges will work if we get a proper correction.  The only change we made Friday was to get more bullish on CAT and so far, so bad on that one.  

    TSLA/Palotay – Down from consolidation at $300 to $200 is a 33% drop and weak bounce is $220 and strong is $240 so be careful.  We just cashed in our HF shorts (the short-term ones) as we were thrilled to get $200.  I agree it's a total scam but it's a scam that can burn the shorts very badly if they can just seem to do something right as expectations are way down on them now.  

    Europe/Tommy – They've got issues, we have issues, Asia has issues – too much to shake off I think.

    CBS/Stock – Nowhere doesn't stop us from betting on things.  Options let us make good money off stocks that go nowhere.  

    REITs/Tangled – Notes failing again.  That means people think future notes will be higher (rising rate expectations).

    Interesting when you consider the grand scheme of things:

    When the Fed actually does start raising rates, bonds will collapse and cost bondholders 20%, 30%, 40% — they are in no way prepared for those sort of losses.  Not the RIETs, the bondholders.

    SIG/Robert – SIG is at $20.22 and you sold July $22.50??? calls that are now $1.20.   I don't know what you sold them for but your tight Oct spread leaves you litte room for error and you are fully covered with limited upside ($2.20).  Still, SIG is kind of dead money at the moment so I wouldn't cash out July $22.50s out of fear but maybe a stop on 1/3 at $1.50 and 1/3 at $1.75 and 1/3 at $2.00 so your worst case is buying them all back at $1.75 and, by then, you should be well in the money on your longs.

  17. Robert SIG

    First a a rool you should have only 1/2 the short calls against a BCS. You did not say what you received for the Jul 21.5 calls. Possible you show a profit. At worst you could cut the Jul caller to half, but again you just buying premium. So in principal I would wait and see if SIG will come up to 21,5 until Jul. An other thought is buy 7 JAN 21 17.5/22.5 BCS for 1.75 and you out of the woods, sell still 3 Jan 21 13 puts and you looking fine.

  18. PS on SIG well I do hold the stock so calls went worthless and I can sell the next Jun 19  23 call for .80 cents. The advantage with stock they might drop but usually do not expire, provided the do not go BK.

  19. Not sure what you are saying here:  "When the Fed actually does start raising rates, bonds will collapse and cost bondholders 20%, 30%, 40% — they are in no way prepared for those sort of losses.  Not the RIETs, the bondholders." 

    Dump REITs while the dumping is good (actually already not good)?

  20. Going through my list it is hard to recomment anything in this questionable market but NLY is on the low side and by buying the stock at 9.30 and selling the Jan 21 8 caller and 10 putter for 3.40 is not such a bad deal.Remember they pay 12.9% interest while you wait!

  21. REITs/Tangled – No, I'm saying the bondholders will get killed and REITs may suffer but it's not their first rodeo so, if you are in for the long-term, stay in for the long term.  Here's NLY for the last 20 years:

    Dividends were 0.25 in 2000 = $1

    • 2001 = 1.75
    • 2002 = $2.60ish
    • 2003 = $1.95
    • 2004 = $1.95
    • 2005 = $1.04
    • 2006 = 0.48
    • 2007 = $1.04
    • 2008 = $2.08
    • 2009 = $2.55
    • 2010 = $2.66
    • 2011 = $2.44
    • 2012 = $2.05
    • 2013 = $1.50
    • 2014 = $1.20
    • 2015 = $1.20
    • 2016 = $2.52
    • 2017 = $1.20
    • 2018 = $1.20 

    So, the stock has gone nowhere in 20 years, which isn't surprising since they give 90% of the profits back to shareholders but, had you held onto this $10 stock over that time you'd have gotten back $32.41 (324%) in dividends alone and you'd still have a $9.30 stock plus whatever you got for puts and calls along the way.  

    In 2006, the stock was this low and seemed like it should be dumped but they came back and now they are back in the bottom of the channel so it's time to buy, not sell.  If you're going to keep a REIT, make sure the dividends and option sales make it a no-brainer and, if not, then find one that is.  

    And what Yodi said!  

  22. looks like /rb has a chance of hitting 2.0  and 1.97  on july 

  23. MAGA: Making Asbestos Great Again? | Editorial

  24. My option plan for NLY in particular was kind of trashed (for now) by the price change.  Oh well.

    Raises another question though:  is hedging to protect principle different from hedging to protect gains?  Say you want to dump $1M into some diversified portfolio.  Would you invest some as a hedge there though as yet no gains to pay for the hedges?

  25. Phil, what do you think of MMM down here? Worth starting a position? Maybe with some short puts? Or still catching a knife? 

  26. Gasoline/Tommy – Getting very tempting now at $1.98.

    Since it's July, I'm willing to go one long at $1.98 on /RBN19 and I'd DD at $1.92 to avg 2 @ $1.95 and I'd hold those until July 4th if I had to.

    Those are liters above (4 to a gallon/apx).  In CA, this is what the pumps look like:

    This is going on in Congress:

    Zero-emission vehicles, or ZEVs, may make up less than 2 percent of the nation’s car sales but a bill introduced on Capitol Hill by Rep. Mike Levin, D-San Juan Capistrano, would require half of all sales of new passenger vehicles in 2030 be ZEVs, with the mandate ramping up 5 percent per year to 100 percent by 2040 — essentially eliminating the sale of gasoline-powered passenger cars in the U.S. in little more than 20 years.


    Amsterdam is considering a ban on the use of internal combustion vehicles—meaning diesel and gasoline-powered cars and trucks— inside the city by 2030


    Image result for gasoline savings electric

    Image result for gasoline savings electric

    Related image

    Image result for gasoline savings electric

    Hedging/Tangled – Well I wouldn't go and deploy $1M all at once.  First you get some stocks, then hedges, then more stocks, more hedges, etc.  As you start making money a rule of thumb is to put 20-33% of paper gains into more hedges to lock in the gains but it also depends on how bullish you are short-term.  

    We built up our portfolios over about 6 months and never went past 50% invested so slow and steady can do very, very well in the race – there's no need to hurry as sideline cash is the World's best hedge!

  27. MMM/Martin 

    – $166 is still $96Bn for them and they only make $5.5Bn a year so p/e about 18 is not a bargain I feel compelled to leap at for a company with NO growth AT ALL.  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 30,871 31,821 30,274 30,109 31,657 32,765 32,350 32,555 33,468 +1.2%
    Operating Profit $m 6,666 7,135 6,946 7,027 7,788 7,207 7,336     +1.6%
    Net Profit $m 4,659 4,956 4,833 5,050 4,858 5,349 5,638 5,572 6,021 +2.8%
    EPS Reported $ 6.72 7.49 7.58 8.16 9.17 9.18 9.37     +6.4%
    EPS Normalised $ 6.72 7.49 7.71 8.03 8.34 8.46 8.67 9.58 10.5 +4.7%
    EPS Growth % +6.3 +11.5 +3.0 +4.2 +3.8 +1.4 +15.4 +13.2 +9.80  
    PE Ratio x           20.3 19.8 17.9 16.3  
    PEG x           1.53 1.50 1.83 2.55

    As I said earlier, in an uncertain market, this is not one I'd be jumping on.  As to what's a good price – 15x would be about $140, that's where I think I'd want to sell a put and those puts are $10.50 and the 2021 $170 puts ($30 higher) are $23 so a lot closer to $23 to sell the $140 puts before I think it's worth getting involved.  

  28. Phil,

    Just for learning. MMM EPS grows 4-10% a year. Why it's zero growth?


  29. 3M/kgabor, take a look at the quarterly revenue numbers from the income statement, revenue trending down with 1st quarter 2019 down about 5% over 1st quarter 2018 and lower than previous quarter as well 

  30. That efficiency chart is interesting.  Seems to be totally consumer centric though.  In terms of total environmental impact I wonder how the cost of mining and processing materials for batteries and fuel cells would factor in.

  31. Phil and Yodi.  Thanks for the comments.  This was part of a larger position in SIG.  The whole position still has a lot of positive delta.  

    I started with 30 July $21 calls with 20 short July $22.5.   20 Oct $20 / $22 BCS , 36 Jan $17.5 / $20 BCS,  20 Jan $22.5 / $30 BCS with -3 short Jan $25 puts The July spread has started taking it on the chin with the recent downturn so I sold 25 of the long July $21 calls and bought 22 Oct $18 / $22 BCS figuring either I capture the premium on the July Calls and / or roll the short calls along until Oct.  If the short calls beat me then the Oct $18/$22 will be completely in the money and I can still roll the shorts along.  The tight spreads are typically well in the money and produce theta so they have very little premium.  Also, I look at it like if I buy a $1 BCS  (let's say $19 / $20 BCS)  for $0.70 if it ends up ITM it is a 42% return on cash invested.  Another adjustment is If the stock goes down I can also sell the put.  I am very curious on your opinion of these tight spreads.  You have mentioned you feel they are hard to adjust.  If the stock goes up, I just "accept" the 42% return and if it goes down, I execute this type of strategy.  Your comments are greatly appreciated. 

  32. tangled – they did a study in Germany that came up with a different conclusion than the happy greenwashed graphics above. When you figure total production and operation, BEVs lose to ICE and they lose badly to hybrids. It's like putting ethanol in gasoline – reduces tailpipe emissions but considering ethanol is net zero energy production, you're replacing passenger car tailpipe emissions with agricultural emissions. Plus you wouldn't want to consider the pollution caused by the pesticides and herbicides, or the topsoil erosion and run off into streams, lakes and rivers, because then you might decide that ethanol is actually really bad for the environment – just like BEVs, especially when China is the biggest BEV user and they are building coal-fired power plants. Does anyone think the Chinese care about the environment? LOL. They're switching to BEVs because they can power them indirectly with coal which they have lots of, instead of petroleum which they have none of.

  33. MMM/Kgab – No growth meaning for paying 18x earnings and profit was $5Bn in 2014 and $5.5Bn estimated this year so, after 5 years, you are being generous and let's not forget taxes are far less now so what happened to that $1Bn?

    And what Mike said – not a good trend.

    Consumer/Tangled – Well, to some extent, I think we can better control things at the manufacturing level (we don't, but we COULD) but there's no point until we can get the consumers reliably using renewables – then we go after the rest of the chain.  

    SIG/Robert – Well now you made it complicated!  I just prefer to have a wider, longer-term spread so I don't have so much pressure.  You have 30 of this and 20 of that  and 20 of something else – that would give me a headache.  SIG is at $20 and I guess you are trying to sell short-term premium but why not just go with 100 2021 $15 calls at $7.50 ($75,000) and sell 60 of the 2021 $22.50 calls for $4.50 ($27,000) and 40 July $22.50 calls for $1.25 ($5,000).  That's net $43,000 on the $75,000 spread that's mostly in the money so the short calls can't hurt you at all and, if you sell $1.30 in premium every 60 days against your 600 day spread, that's $50,000 back and you have a free $75,000 spread and you can sell more or less short-term calls as you see fit in the channel but I mean 30 or 60, nothing crazy.  That's 100% return on cash invested – even if it pops higher, not 42%!    Of course I would also offset with at least 30 of the 2021 $17.50 puts for $4.75 ($14,250) because the margin would be offset by your short calls and you plan on collecting that much in call sales anyway – so it shouldn't hurt you much and $14,250 would lower the entry basis to $28,750.

  34. I'm starting to get a bit nervous on Apple.  The trade war could really bite them. They get 15% of their revenues from China, and a boycott is gaining steam there now.  Now with this aggressive action against Huawei, it is starting to feel like China is going to be forced to retaliate against Apple.  I followed you and took big profits off the table above $200, and shifted to the 180/220 spread, and have been short a good amount of calls that have been hedging things really well, but I'm a little worried about another trip down to $140/150.  What does your crystal ball say?

  35. Phil your comment on SIG is genius.  I started with a 1/8 position and added more because I like what I saw with SIG so the position sort of grew.   I like how you add the July $22 calls to the mix because you can always roll the short calls to the same strike further out in time.    Is there any reason you wouldn't do all the short calls July and plan to roll?   


    Can you talk a little about the specific benefits of a wider spread.  I am fast becoming a believer of the long term spread vs. short period spreads.    I also like how sometimes if you have a BCS and the spread goes way into the money you will cash out the longs leaving the shorts and buy new BCS "protecting" the shorts with the proceeds usually taking a large sum off the table.

  36. Good morning! 

    Running late so responses later.