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50% Friday – Indexes are Halfway to What?

So far, so good.

In the past 3 days, we've taken back 50% of the drop that we had in the prior 3 days but, if you think about it, that's not as strong going up as it was coming down and certainly the volume is fading with just 85M shares traded on the S&P ETF (SPY) yesterday vs 142M shares last Thursday (1st) on the way down.  Total down volume for the 2nd, 3rd and 4th was 438M shares while total up volume for the 5th, 6th and 7th was 346M shares so 1/4 less shares traded with 50% less results.

What that means, in a nutshell, is there was a net exit of cash from SPY and, so we infer, from the entire market and that's like letting the air out of a ballon (or, in this case, a bubble) – it's simply not able to get back to the way it was before.  That's why the 5% Rule demands symmetry, you need to rise as fast as you fell or we're still in danger and, since we're going into the weekend – we'll be adding back some hedges in the Short-Term Portfolio as we lightened up when we crossed over our Strong Bounce lines (which are all green at the moment).

We are still going back and forth with China and Monday we get a USDA Report on Farming just as China has halted the purchase of US Farm Products and is threatening to put Tariffs on them when they resume.  So a lot of uncertainty into the weekend is a good reason to maintain our hedges and now we're watching the 50-day moving averages to see if we can confirm a return to strength by the indexes into the weekend – that will determine our hedging stance – which we'll have to determine in our Live Member Chat Room during the day.


Have a great weekend, 

- Phil


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  1. Phil  - This is weird    I am logged in, but can't read the rest of your post, and although I see 18 "messages'. when I click on that I don't see any message and your post is also truncated.

  2. there are 29 comments but I can't see them….  

  3. Phil, can you look at KHC, would it be a candidate to start a long term position? 

  4. Good Morning!

  5. batman – 29 includes articles….

  6. Refresh / Batman – I have to hit F5 to refresh the web page until Phil finishes his main post.  Then the comments will auto populate throughout the day.  The "messages" include the news posts too.

  7. Buckeye Thanks a refreshed page several times tried F5 – zrelaunceda. new page and now I see more… but probably the articles was throwing me off.   I can see more responses 

  8. Phil / Hedge Looking for a new SQQQ hedge I closed out my hedges on this during the last drop ( for a nice gain) thanks….  what would you suggest now?

  9. M is going for a good spot again!!!!

  10. Good morning!

    Post/Batman – Well I finished the post late as I had a CC this morning that went longer than I thought.  In addition to news being counted – don't forget Basic Members can't see Premium chat.

    KHC/Jeff – Why do I feel like I have this conversation every day?  Here's yesterday's note - just not sure enough to add to our position yet (or pick a new one).

    Good chart:

     Oil blasting higher on Saudi support noise ("whatever it takes") 

    /NGV20 hasn't moved much yet – $2.355 at the moment.

    CMG hitting $820 (Goldman gave them a $1,000 target) and so tempting to re-short:

    This is $23.5Bn at $820 and last Q they made $91M and the Q before that $88M and last year $176M so call it $400M this year and that's 58x earnings but the REVENUES are $1.5Bn so call it $6Bn but in 2014, they made $445M on $4.1Bn and in 2015 they made $475M on $4.5Bn (and 2016 was the bad year, $23M on $4Bn) so they are getting LESS margins than they were so growth is very unlikely to keep up this pace – they are simply getting back to normal – albeit with lower margins!

    For a restaurant, $23Bn needs at least $1Bn in profits and they are MILES away from that.  In 2013 they had $3.2Bn in sales and dropped 10% to the bottom line and it's taken them 6 years to double it so 6 more – even 3 more (if miracles happen) to get to $10Bn in sales AND get their margins back to 10% would be wildly optimistic. 

    In the STP, let's:

    • Sell 3 CMG Jan $800 calls for $80 ($24,000) 
    • Buy 3 CMG June 2021 $900 calls for $109 ($32,700) 
    • Sell 3 CMG June 2021 $1,020 calls for $72.50 ($21,750) 

    That's a net $16,050 credit and we're using the 2021 spread for a bit of protection and assuming it won't lose all it's value if CMG goes down but, either way, we'd be happy to make $16,050 by Jan.  

    Non-PM Margin is $48,800 so it's not a trade you want to make in a non-PM account (which wouldn't take the offset into account) though it's still a good return on margin (33%) for 161 days and we have tons of unused margin in the STP.

    Hedges/Batman – We'll go over the STP and OOP hedges later this morning (into lunch).  Let's let the market show us what it's doing first so we can make better decisions.

    M/Yodi – Back to $20!

    Earnings 8/14 should be exciting:

    Analysts expect M to post earnings of $0.46 per share. This would mark a year-over-year decline of 22.03%. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $5.63 billion, up 1.02% from the year-ago period.

    For the full year, our Zacks Consensus Estimates are projecting earnings of $3.11 per share and revenue of $25.10 billion, which would represent changes of -25.6% and +0.53%, respectively, from the prior year.

    In terms of valuation, M is currently trading at a Forward P/E ratio of 6.58. This represents a discount compared to its industry's average Forward P/E of 9.53.

    Also, we should mention that M has a PEG ratio of 0.88. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. The Retail – Regional Department Stores was holding an average PEG ratio of 0.95 at yesterday's closing price.

  11. Can anyone tell me the latest M trade?

  12. I think it was rolled down.

  13. Wow VRAY – was $9 last week, currently $3.22. Thanks for keeping me out of that one Phil!

  14. Phil/KHC/Everyday

    Sorry for that!! Rookie mistake to not check for the latest post on it with search. Thanks. 

  15. Short WMT, they are taking on the gun lobby:

    In the wake of one mass shooting and the threat of another in its stores this week, Walmart has made the courageous decision to remove violent video game displays — but not actual guns — from its stores.

    Well, the virtual gun lobby!

  16. CMG – at the moment (and) for the recent past) it's trading as a voting machine not a weighing machine. Throw the financial analysis books out of the window and perhaps better to focus on some of the gazillion other stocks where some form of rational analysis makes sense. Trying to short CMG is insanity, by its very nature continuing to try and short CMG is likely to be insanely frustrating. One day, the collective (whoever they are) will decide that it is time to run the numbers and assess CMG like most other companies. Unfortunately we won't be told in advance, so until then it might be advisable to give CMG a wide berth as a trading or investment vehicle.

    The 2021 480/540 long spreads that are in some of the portfolios are gaining profits at a glacial pace, with an inordinate amount of extrinsic locked in. That is also what is frustrating. But it's a fantastic winning trade. It would be a pity to spend those profits, when they realize, on funding all the short bets that have going in the wrong direction.

    But it is bizarre that a plain vanilla restaurant chain would bewitch and bewilder so many people in the way that it has – except for Bill Ackman of course.

  17. Trump calling for a full point rate cut!  

    Now, let's look at UBER, who lost $5.2Bn on $3.2Bn in revenues but it included a $3.9Bn accounting charge to recognize the insane value of their stock-based compensation due to their $100Bn valuation (now $75Bn) as they issued options to employees to buy 43M shares for $9 so $46 (June 30th) was $1.5Bn effectively "paid" to employees.  Then there's tons of restricted stock for management and the Banksters – this is kind of normal for an IPO but magnified significantly due to the insane run-up in the price. 

    A lot of Cannabis companies have the same issue and, in fact, New Age is having that problem and the accounting is holding up PSWI's Q2 Report at the moment.  It's only going to get worse next year if New Age starts making $1M/month and ends up with a $100M+ valuation less than 2 years after we bought 27.5% for $1.5M (with a clawback to 16.5% once we're paid 2x).

    Speaking of which, the new Cannabis Fund is moving forward – I just signed papers with the EU investing group (this morning's meeting) - so make sure Greg (at philstockworld dot com) knows if you are interested!  

    As to Uber, $3.2Bn in revenue is the key and keep in mind that Uber only nets about 1/4 of the actual revenues collected by drivers (there's insurance fees and taxes and such):

    Uber Fees: How Much Does Uber Pay? (With Case Studies)

    These are the gross revenues:

    So, as an Uber investor, it's all about the self-driving car future where UBER gets a substantially larger portion of those revenues.  

    WOW!  That's an amazing number!   Keep in mind these are QUARTERS we're looking at, not years so trips is up close to 100% in 2 years!!!

    Right now, this is Uber's cut:

    Note the $1.4Bn tax hit – that's non-recurring:

    So the key to this is 99M users making 1.6Bn trips a quarter or 500M per month so average Uber user takes 5 trips a month and an Uber driver does about 20 trips a day (12 hours) so that's 1M drivers (WOW!) taking in $12Bn (only $12,000 per average driver).  

    If Uber were to replace them with 1M cars that cost $5,000/yr ($400/month on 3-year leases) plus another $1,500/yr for insurance and call it 45,000 miles so 1,500 gals of gas is $4,500 (though I'm sure they'll go electric) so $11,000 cost is $11Bn for self-driving cars (and I'm assuming no savings from 24/7 operation) so they clear another $1Bn/yr plus growth WITHOUT gaining efficiency or saving on gas or insurance (assuming self-driving is cheaper and they can get bulk rates or even self-insure).

    So that's the Future Uber investors are in for and I can see them getting to $5Bn in profits like that and justifying $100Bn but it's probably 10-years out – though that never stopped AMZN investors from betting on the Future (and they turned out to be right).  

    So UBER is a "stay-away" to me.  Can't justify the current value but I wouldn't bet against them.

    VRAY/Ati – You are welcome!  

    KHC/Jeff – No worries.  

    M/Pirate – Well, in the OOP, we have:

    M Short Call 2021 15-JAN 30.00 CALL [M @ $19.90 $-0.42] -25 4/1/2019 (525) $-6,000 $2.40 $-1.58 $-1.45     $0.83 - $3,938 65.6% $-2,063
    M Short Put 2021 15-JAN 28.00 PUT [M @ $19.90 $-0.42] -10 4/18/2019 (525) $-7,400 $7.40 $2.65     $10.05 - $-2,650 -35.8% $-10,050
    M Long Call 2021 15-JAN 18.00 CALL [M @ $19.90 $-0.42] 25 5/6/2019 (525) $15,750 $6.30 $-2.25     $4.05 - $-5,625 -35.7% $10,125

    In the LTP, we have:

    M Short Put 2021 15-JAN 30.00 PUT [M @ $19.90 $-0.42] -10 9/26/2018 (525) $-5,250 $5.25 $6.60 $-5.18     $11.85 - $-6,600 -125.7% $-11,850
    M Long Call 2021 15-JAN 20.00 CALL [M @ $19.90 $-0.42] 50 1/10/2019 (525) $32,750 $6.55 $-3.46     $3.10 $-0.41 $-17,275 -52.7% $15,475
    M Short Put 2021 15-JAN 25.00 PUT [M @ $19.90 $-0.42] -10 1/14/2019 (525) $-5,900 $5.90 $1.85     $7.75 - $-1,850 -31.4% $-7,750

    In the LTP we bought back the short calls but the OOP is more conservative so we left them in place.  We're in the OOP for about $22,000 and down about $25,000 so 1/4 allocation block which means we're either pulling the plug or doubling down and, of course, I'd rather DD but we're waiting for earnings – just in case it goes lower or we change our mind.

    In the OOP, I'd like to buy back the short calls but I'm good with the target on the short puts ($28) and the 2021 $13s are $7.20 so net $3.15 to roll is a bit more than I want to pay ($2.50) so not change for now though I do want to do that roll if possible. 

    In the LTP, the 2021 $15s are $5.70 so net $2.70 is a no-brainer and we're going to roll our M 2021 $20 calls to the $15s and, if they miss, THEN we will double down. 

    The OOP is in for about $2,000 and down about $4,500 and the allocation blocks in the OOP are $20,000 so pretty much in the same place but we have less cash in the OOP so we're not as gung-ho to commit to a bigger position.

    Video games/StJ – What a joke!  Is that why we have church shootings – the violent video game displays?  

  18. Wow, it's so easy for the Dow to slip 200 these days.  

  19. Phil, retail has been getting killed.  M, SIG, LB, BBBY to name a few.  What is your experience for retail in the last half of the year?  Does it typically go up?  The big holiday seasons are in the last quarter of the year.  TIA.

  20. Phil/CMG
    Think the credit for the trade posted today might be incorrect. Should be 13,500 credit. Thanks

  21. Retail/Robert – At the moment, the sentiment is very low but it's up to them to show improving numbers.  Consumers are downshifting a bit so the sentiment that Retail is in trouble may be self-fulfilling to some extent.  Also, if the market keeps going down – that's not going to help.

    CMG/Ravi – LOL, I did the same thing this time that I must have done last time and subtracted $27,000 instead of $24,000 – I think the $700 in the $32,700 caused a malfunction in my brain.  So the net credit on CMG is only $13,050, not $16,050 – thanks.

  22. Phil/CMG- Thx

  23. STP adjustments:

    $777,495 is right where the STP was yesterday ($780,195) before we moved things around but now we have $100,000 more CASH!!! to play with.  What's more important now is what we discussed earlier in the morning and that's our bounce lines, which are:

    • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
    • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
    • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
    • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

    So the Nasdaq is still green but the rest are on the cusp, which is kind of iffy.  Now we should shift our attention to the LTP, which lost about $200,000 in value on the 5% drop – and consider whether our current hedges are good enough to cover perhaps $400,000 more in losses:

    • DXD – We can assume we can roll the Oct $30s to the Jan $35s, which are also $1 at the moment.  That means this is a $150,000 spread and currently net $41,250 so $108,750 of downside protection.  DXD is a 2x ETF and $35 is up 27% so a 10% correction in the Dow would hit it.
    • SDS – This is also a 2x ETF with about the same 10% correction required and that makes this a $100,000 spread currently net $13,675 so $86,325 of downside protection.
    • SQQQ – $48 is not going to happen by Jan so we can ignore that and consider it a 1/2 cover but the Sept short calls are very rollable so I'd call this at least a $300,000 spread and SQQQ is a 3x ETF at $35 so getting to $40 only requires a minor dip ($200,000) and getting to $50 is up $15, which is up 42%/3 = 14% so a 14% drop in the Nas gets us to $50 where the $30 calls would be $400,000 and currently the spread is net $182,250 so call it a $217,750 potential protection at most and probably closer to $140,000 on a 10% dip.

    That's a total of $335,075 of protection on a 10% dip and we're not likely to wake up to that on Monday so I think it's best to just sit on what we have and see where the chips fall.  The LTP is just over $1.3M so our total for the paired portfolios is just under $2.1M, which is $200,000 below where we topped out but we KNEW that was silly and wouldn't last.  

    To some extent, when you make silly paper gains – that's part of your hedge!

    The key to this is I'm fairly certain we can preserve $2M which is up $1.4M (233%) from our original $600K so I'm very happy with going to cash on those returns and starting again next year with $600K again.  That means, between now and then – balanced is good!  

    We're still aggressively long-term bullish because, if we were to go through the whole LTP calculating what we'd make in a bull market – I'm sure there's another $800,000 or so to tack on and that's plenty to gain in the next 16 months – especially if we don't lose the whole STP while that happen…

    The LTP has about $600,000 in CASH!!! and we'll see where we end up after our adjustments next week but, for now, I'm happy with our adjusted hedges.  

  24. Phil – Do you have a view on Tech Resources (TECK)? As an industrial metals and minerals miner it's price  seems to anticipate a global recession or at least major trade dislocation affecting their business. Is the company fundamentally sound or are there issue in your view?  Thanks, Eric

  25. Thanks for the M update. Was thinking of a buy write, but your right. Might be wise to wait for earnings.

  26. Well, there no point in adjusting the OOP because it was $336,374 on the 17th and it's $329,276 now so I'd say we're pretty well-balanced!  

    Sorry, bad copy as I have to run (Key West).

    TECK/Eric – I think they are very sensitive to a recession.   They lost $2.5Bn in 2015 and were on a recovery path ($3Bn last year) but less than $900M in Q1 + Q2 this year.  On the whole, they are a cyclical company and there's nothing wrong with accumulating down here but it could drop 50% more and it could take years for them to get back – so make sure that's the kind of investment you want to be making.

    You're welcome Pirate.

    Well, we're not down too badly on the Dow or /ES (2,923) so I'm comfortable with our hedges and hopefully the close doesn't prove me wrong.

    Have a great weekend everyone, 

    - Phil

    ps – Monday I'll make a morning post but then we're driving back in the afternoon (4 hrs) so I doubt I'll be on much after 10am but back in the Command Center Tuesday.

  27. Forgot to mention in the OOP, we raised $60,000 in Cash from our changes in the 7/17 review, that means we are getting more bang for the buck out of our hedges as they have about 30% less position value to protect! 

  28. What an idiot…..

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