Well, here we are.
As expected, we got to our strong bounce lines on yesterday's pre-market rally but then we went nowhere and now we'll have to wait and see if we go somewhere for the rest of the week. After getting properly spanked by Wall Street for his latest China tweets, the President has been more conciliatory – other than his continued attacks on the Fed, where he is now demanding a 1% rate cut. That too may backfire as it will be impossible for Powell to please the market with even a 0.5% rate cut and expectations are now over 85% that the Fed will cut at the next meeting.
As you can see from our S&P 500 chart (SPY), we're at the Strong Bounce Line – which is the same line we've been using all month, predicting both the bottom and the top of the correction. As you can see, the 50-day moving average is just above at 2,945 and the S&P is at 2,920 this morning and MUST HOLD that bounce line at 2,910, which I think it should do into the Fed. Our other indexes are also right around their strong bounce lines:
- 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)
The Dow (26,135) and the Russell (1,509) are too close to call green but both are also over their lines which means we are on the way to recovery if these lines can hold up and recovery is still 3% up from here so there's a lot of money to be made on the rebound if we play it right (and if it comes).
While we expected the strong bounce, we're still pretty skeptical it goes farther than this as we only got the strong bounce through a lot of intervention by the Fed, the Administration and even other Central Banksters – all talking things up into and over the weekend. None of that changed the actual underlying Fundamentals of a weakening economy that led to the sell-off – it just masked it and, for how long is the question?
"Oh, your friends with their fancy persuasion
Don't admit that it's part of a scheme
Then I can't help but have my suspicions
'Cause I ain't quite as dumb as I seem
And you said you was never intending
To break up our scene in this way
But there ain't any use in pretending
It could happen to us any day." – Ace
Good morning!
Welcome back Maya! Hope you had a good time. Yes, PFE really did fall off a cliff as they are spinning out Upjohn (Lipitor, Viagra…) to merge with Mylan and, while PFE will collect $12Bn in cash, they are cutting revenues tremendously going forward. Essentially, holding PFE now is a bet on their forward pipeline only. Also, people are worried the dividend will be cut (makes sense) and companies that cut dividends don't fare too well – so people are selling early and often.
I think the sell-off is probably overdone, almost 25% is about $60Bn in market cap but very hard to judge until there are better details on the split. You're ahead on the puts (+$1) so no big deal there as you can just cash them out and eliminate the risk and, if you take back $2.85 on the spread (though you may not want to leave the naked short calls, you only lost $1.20 (net 0.20 on the whole thing) and you wisely cashed out at $39.60 – so still well ahead of the game.
If you want to stay in PFE, you could buy back the puts (+$1) and sell the long $33 calls (-$1.20) and buy the stock for $34.61 and sell the 2021 $30s for $6 to drop your net to $28.61 and the short calls will expire worthless (or you just buy more stock over $37.50 and get called away at $40) and, once those clear, you can then sell puts like the 2021 $33 puts for $3.15 and use that money to roll the short 2021 $30 calls up to the $35s (now $3) – assuming, of course, the next few months keep PFE closer to $35 than $30.
WBA/Robert – If they go lower, the $50s can be rolled to a lower strike and, when 2022 options come out, the $50 puts can probably roll to the $45s even so 10% cushion for free but, of course, these are meant to be short-term plays so, if $50 doesn't hold – you might want to just consider pulling the plug. Again, I chose WBA because they are at a price I think is irrationally low – if I had $46Bn, I'd be very happy to spend it on WBA knowing it would drop $5Bn a year in my pocket as long as people continue to have ailments.