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Technical Tuesday – Markets Pause at Our Strong Bounce Lines

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


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  1. Good morning! 

    Sorry, something went wrong with the first draft of the post so redoing now.

  2. /KCN20 getting cheaper – $102!  Blow-off bottom, I hope:

    There was that one time in 2002 when /KC failed the $100 line – it got very ugly!

    Indexes selling off a bit at the open but nothing alarming so far.  

    Dollar strong at 98.27 up 0.30 from yesterday.

    Brent rejected at $60, watch $55 to see if that holds on /CL.  Remember when they had a $10 spread?


    Fed speeches were not on the calendar for the week but are now popping up:

    • Tesla (NASDAQ:TSLA) is once again offering to rent solar panels to homeowners in a bid to revive its slumping home solar business.
    • Rentals will be available in six states – Arizona, California, Connecticut, Massachusetts, New Jersey and New Mexico – starting as low as $50 per month (plus tax) with no upfront costs or long-term contract.
    • Once among the largest installers of renewables through SolarCity, the company is now a distant third in U.S. solar power behind SunRun (NASDAQ:RUN) and Vivint Solar (NYSE:VSLR) which deployed 103 and 56 megawatts of new installations last quarter, respectively. Tesla only installed 29 megawatts.
    • The U.S. government's decision to add more Huawei affiliates to a blacklist is "unjust" and "politically motivated" and will not help the country advance its technological leadership, the Chinese telecom equipment supplier said in a statement.
    • On Monday, the U.S. Commerce Secretary extended by another 90 days a temporary reprieve for Huawei to continue doing business with American companies, but the Bureau of Industry and Security added another 46 Huawei affiliates to the blacklist, bringing the total up to over 100.
    • Huawei founder Ren Zhengfei further warned in an internal memo the company is at a "live or die moment" and advised underutilized employees to form "commando squads" to explore new projects.
    • More (and juicier) tidbits dribbling out tonight about the launch of Apple TV Plus (NASDAQ:AAPL), from Bloomberg: The company is looking at a November debut and a $9.99/month price point after a free trial.
    • The timing is a critical point amid thinking that Apple wants to race to get its subscription video service out alongside the launch of Disney Plus (NYSE:DIS), set for Nov. 12.
    • And pricing is also key, as the streaming market starts to fill up with big spenders competing hard for a rapidly growing universe of cord-cutters and other content consumers. Disney plans to charge $6.99/month for its offering, while the least expensive plans from Netflix (NASDAQ:NFLX) and Amazon Prime (NASDAQ:AMZN) are $8.99/month.
    • And big services are still on the way from WarnerMedia (NYSE:T) and Comcast (NASDAQ:CMCSA).
    • If Apple TV Plus comes in at $9.99/month, that would match the price of Apple News.
    • Apple's also considering splitting the difference on release strategy between Netflix's "binge it all" and HBO's weekly approach: It may release the first three episodes of a show at once, then switch to weekly for the rest.
    • Earlier, a Financial Times report noted that Apple was blowing past its initial $1B spending estimates for content, passing $6B and more.
    • Apple's (NASDAQ:AAPL) spending plans for its streaming service have raced past initial assumptions, the Financial Times reports, saying the company has now committed $6B-plus for original shows and films.
    • The tech giant had originally set a $1B milestone — but each passing week brings more details about hot competition in the streaming wars coming from not only Netflix, (NASDAQ:AMZN) and Hulu but also WarnerMedia (NYSE:T), Comcast (NASDAQ:CMCSA) and Disney (NYSE:DIS).
    • One high-profile Apple show (The Morning Show, starring Jennifer Aniston, Reese Witherspoon and Steve Carell) has already logged hundreds of millions of dollars in spending; a higher price per episode than HBO's pricey Game of Thrones, the FT says.
    • Apple's overall budget still trails Netflix's (NASDAQ:NFLX) expected $15B, but heavy per-show spending (and earlier payment) is helping it to secure talent for deals.
    • Apple's TV Plus is set to go live within the next two months as it races the November opening of Disney Plus, according to the report.
    • Saudi Aramco (ARMCO) has formally asked major banks to submit proposals for potential roles in its planned initial public offering, source told Reuters, in what could be the world’s biggest IPO.
    • Work on the deal, which proposed a listing in Riyadh and an international exchange, was halted in 2018 when Aramco began a process to acquire a 70% stake in petrochemicals maker Saudi Basic Industries Corp.
    • Pimco has pared its positions in government debt on fears that a breakthrough in U.S.-China trade talks could trigger a violent selloff, putting an end to one of the biggest fixed income rallies in history.
    • Several big Pimco funds controlled by investment chief Dan Ivascyn, including the $128B Pimco Income Fund (PONAXPIMIX), have therefore been lightening up on their positions.
    • "We're a lot more defensive," he declared. "Even if we get a narrow trade agreement [between the U.S. and China] we could see a pretty powerful snapback in yields."
    • In a letter to European Council President Donald Tusk late Monday, U.K. Prime Minister Boris Johnson said the controversial Irish backstop plan was "unviable" and must be removed.
    • He also hinted that such an effort could see a Brexit deal approved by a majority of parliament before an Oct. 31 deadline for the U.K. to leave the bloc.
    • Brexiteers fear the backstop would prevent the U.K. striking trade deals with other nations after Brexit, while the EU maintains it's essential for the free movement of goods, services and people.
    • Hong Kong's biggest conglomerate, CK Asset Holdings (OTCPK:CHKGF), has scooped up U.K. pub chain Greene King (OTCPK:GKNGY) for £2.7B, signaling the country’s plan to exit the EU won’t sink the economy.
    • Greene King, which operates almost 3,000 pubs and restaurants, had lost almost a third of its value over the last four years.
    • It's the second big U.K. pub deal in as many months as the falling pound makes assets cheaper for overseas buyers.
    • A €50B budget is necessary next year to bring about a "shock" fiscal stimulus, according to the leader of Italy's ruling League party, Matteo Salvini.
    • He recently pulled the plug on a coalition government with the anti-establishment 5-Star Movement, starting a potential countdown to elections which could complicate the nation's preparations for the 2020 budget.
    • Investors must now wait to see if a fragmented parliament and the Italian President Sergio Mattarella can find an exit strategy that will, at the very least, provide some certainty about the country’s immediate future.
    • Seadrill (NYSE:SDRL+11% pre-market after reporting a narrower than expected Q2 loss and seeing continued improvement in Q3.
    • SDRL says it made $69M in Q2 adjusted EBITDA, above the $55M it forecast in May, and sees Q3 adjusted EBITDA of $70M-$75M vs. $61M analyst consensus estimate.
    • Q2 operating revenues totaled $321M, down 8% from $348M in the year-earlier quarter, and rig contract revenues fell 18% to $253M from $311M a year ago; order backlog at June 30 was ~$1.9B.
    • SDRL says the spot market for short term work remains competitive and rates for longer-term work are improving.
    • SDRL says it sees "pockets of strength in the markets for harsh environment units and high-end ultra-deepwater drillships, with marketed utilization approaching 90%. The improvements in forward pricing and utilization are leading indicators that the recovery is progressing, and we believe benign environment floater fixtures made in 2018 marked the low point."
    • The company also sees improving trends in the premium jack-up market, with marketed utilization above 80% and rates trending towards $100K/day, and says "while we are committed to continuing our disciplined approach to jack-up reactivations, we believe there are near term opportunities for some of our idle units."

    Amazon: Fundamental Valuation Update 

    A China Syndrome – One Year Later: The Memory Industry And The Emerging Balkanized Global Economy 

    • Harmony Gold (NYSE:HMY+1% pre-market after reporting headline earnings for the full year ended June 30 rose to 1.07B South African rand from 763M rand in the previous financial year, helped by full-year production contributions from its Moab Khotsong mine in South Africa and the Hidden Valley operations in Papua New Guinea.
    • HMY's unadjusted net loss for the fiscal year totaled 2.61B rand compared with a 4.47B rand loss in the prior year, as impairments for the period fell 27% to 3.9B rand.
    • Operating cash flow for the year increased to 4.68B rand from 3.88B in the previous fiscal year, as revenues for the year rose 32% to 26.91B rand.
    • Full-year gold production rose 17% Y/Y to 1.44M oz., and the company says it expects to produce 1.46M oz. of gold in FY 2020.
    • Hilton Grand Vacation (NYSE:HGV) could be an acquisition target of PE firm Apollo Global (NYSE:APO), according to New York Post.
    • Sources indicate that Apollo could bid as much as $36 per share.
    • Shares of HGV are up 13.48% premarket to $32.00 vs. the 52-week trading range of $24.16 to $33.99.

  3. Still going:

    • JPMorgan takes Beyond Meat (NASDAQ:BYND) to an Overweight rating from Neutral as it points to the potential for the company to acquire new food service customers. The analyst team also makes the case that valuation on Beyond Meat is attractive on a long-term view.
    • The firm is also positive on the near term with new chains selling Beyond Burger products. "We thus think the potential for sales to keep beating consensus estimates is legitimate," advises JP.
    • JP assigns a price target of $189 to BYND vs. the sell-side average PT of $160.14.
    • Shares of Beyond Meat are up 7.15% premarket to $154.84.

    Of course, JPM was BYND's lead underwriter…

    Somehow, this kind if thing is not considered manipulation.

    • Visa (NYSE:V) unveils a line of security features to help prevent and disrupt payment fraud.
    • “Visa’s new payment security capabilities combine payment and cyber intelligence, insights and learnings from breach investigations, and law enforcement engagement to help financial institutions and merchants solve the most critical security challenges,” said RL Prasad, senior vice president of Payment System Risk at Visa.
    • New capabilities include: Visa Vital Signs, which actively monitors transactions and alerts financial institutions of potential fraudulent activity at ATMs and merchants that may indicate an ATM cashout attack;
    • Visa Account Attack Intelligence applies deep learning to Visa's network of processed card-not-present transaction to identify financial institutions and merchants that hackers may be using to guess account numbers, expiration dates, and security codes through automated testing;
    • Visa Payment Threats Lab, which tests a client's processing, business logic, and configuration settings to identify errors leading to potential vulnerabilities; and
    • Visa eCommerce Threat Disruption, a proprietary solution that uses sophisticated technology and investigative techniques to proactively scan the front-end of eCommerce websites for payment data skimming malware.
    • Comptroller of the Currency Joseph Otting signs off on a final rule amending the Volcker Rule that's designed to simplify the rule while keeping protections core to the safety and soundness of the federal banking system, his office said.
    • "The limits and protections put in place by the prior version of the 'Volcker Rule' remain to ensure inappropriate risk practices do not recur," Otting said in a statement. "At the same time, we have made substantial progress eliminating ineffective complexity and addressing aspects of the rule that restrict responsible banking activity based on our experience with the rule."
    • The Volcker Rule bans short-term trades that couldn't be shown to meet exemptions for things such as hedging or market making.
    • Among details expected in the new version -- removing an "accounting prong" that was considered last year as a way to determine which kinds of trades would be permitted; banks' ability to make markets for customers will be made clearer; and clarification that banks can build stakes in funds on behalf of clients without counting against the banks' own limits.
    • Other federal agencies that still need to approve the changes are Federal Deposit Insurance Corp., the Federal Reserve, the Securities and Exchange Commission, and U.S. Commodity Futures Trading Commission.
    • The final rule will be published in the Federal Register after it's approved by the participating agencies.
    • A number of sources report Germany tomorrow will offer €2B of zero-coupon, 30-year paper, with a 0% coupon.
    • A buyer at par could thus expect thirty years from now to receive back exactly what he/she paid, and not a dime more. The current yield on German 30-year bonds is -0.04%.
    • A zero-coupon, 0% long-term bond is not without precedent – Germany sold 10-year, 0% paper in April 2015. The lack of demand at that sale is sometimes credited with sparking a sizable selloff in bonds, but that was before the ECB moved rates into negative territory and bought up every asset in sight.
    • The Apple (NASDAQ:AAPL) credit card in conjunction with Goldman Sachs (NYSE:GS) is now available to all U.S. customers.
    • The Apple Card includes a Daily Cash rewards program, which acts as a 1% cashback bonus when used with Apple Pay. Customers can get 3% back when using Apple Pay for Uber and Uber Eats purchases.
    • Disney (NYSE:DIS) is 1.6% lower premarket after a price target cut at Imperial Capital, which is looking at a tougher college football schedule.
    • "ESPN simply faces a difficult comp in terms of gross ratings points and advertising CPMs," says Imperial's David Miller, and games have "very little in terms of 'Power 5' flavor" — referring to matchups in the top college football conferences.
    • He also expects losses to continue in direct-to-consumer.
    • He's cut the price target to $140 from $147, trimming implied upside to 3.5%.
    • Seadrill Partner's (SDLP -8.3%) says that economic utilization of 84%, was below its historical performance standards due to West Auriga downtime
    • Q2 revenue fell ~58% Y/Y to $178.5M primarily due to downtime on the West Auriga, idle time on the T-16 after the transfer of its remaining contract term to the T-15 and idle time on the West Capella prior to commencing a new contract in Q3.
    • Operating income declined to $5M and posted a net loss of $38.8M as compared to income of $217.2M last year; adjusted EBITDA of $79.8M.
    • Order backlog stood at $692M and the company ended the quarter with $712M in cash and cash equivalents.
    • In July 2019, SDLP completed 1-for-10 reverse split and the number of shares outstanding reduced from 75.3M to 7.5M
    • Previously: Seadrill Partners reports Q2 results (Aug. 20)

  4. Better later than never – on calls since 6:00 AM

  5. Good Morning Phil!

  6. Still a sellable rally:

    Charles Hugh Smith summed this up nicely on Monday:

    "As the saying goes, a market-topping is not an event, it's a process. There are a handful of historically useful characteristics of topping markets:

    1. Declining volume / liquidity
    2. Increasing volatility-major swings up and down that increase in amplitude and frequency
    3. Inability to break decisively above previous resistance (i.e. make sustainable new highs in a stairstep that moves higher).

    We see all these elements in the S&P 500 over the past few years.A healthy, stable advance in 2017, led to a manic blow-off top that crashed in February of 2018, setting off a period of high volatility.

    This set up another stable advance that was shorter than the previous advance, and also steeper. This led to the multi-month period of instability that concluded in a panic crash in December 2018.

    Since then, advances have been shorter and steeper, suggesting a more volatile era. Three advances to new highs have all dropped back to (or below) the highs of January 2018. In effect, the market has wobbled around for 18 months, becoming more volatile after every rally."

    Given we are now more than 10 years into the current bull market cycle, here are three questions you should ask yourself:

    1. What is my expected return from current valuation levels? (___%)
    2. If I am wrong, given my current risk exposure, what is my potential downside? (___%)
    3. If #2 is greater than #1, then what actions should I be taking now? (#2 – #1 = ___%)

    How you answer those questions is entirely up to you. What you do with the answers is also up to you.

    Have I mentioned how much I like CASH!!! lately?

  7. I was late too, StJ, thought the post was published but it wasn't.  

    There's lots of news in the previous post, by the way, since I thought I was putting it in this post this morning.

    Big Chart – Nasdaq at the 50 dma but 20 dma is death-crossing so rejection is no surprise there.  All death-crosses on 20 dmas so we should have seen this coming on the 50 dma tests.  I was wishy-washy yesterday morning:

    Watching for the 200 dma on the RUT at 1,518 – that's a key point and I doubt we take the 50 dmas on the other indexes today but will be impressive if we do.

  8. J. P. Morgan on BYND.  Are you kidding me ?

    This makes CMG seem undervalued !

  9. Phil/Ace     excellent music choice this morning 

  10. Here's an interesting play:

    APO seems to be bidding for Hilton Grand Vacations (HGV) at $36.  Like many hotel chains, Hilton converts some properties into time-shares and then collects fees for managing them – like I wanted to do in Vegas during the last crash.  $36 is 38% over $26 and would be a bit over $3Bn for $300M in income on $1.8Bn in revenues.  

    I'm not a Hilton fan, I think their quality has gone to crap – even at their Waldorf properties BUT, I have been looking at Marriott Vacation Worldwide as I do like them and they have drastically expanded their brand with the Starwood purchase last year and now VAC is buying ILG (Hyatt Vacations) for $4.7Bn, which is what knocked their stock down recently.  I was hoping it would go lower but they bounced on the Hilton rumors. 

    Going forward, they should be good for $350-$400M in profits on $4.5Bn in sales because, as I said, they put more into their actual properties than HGV, and I think that's to their long-term advantage.  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 1,750 1,736 1,811 2,000 2,183 2,968 3,930 4,424 4,729 +11.1%
    Operating Profit $m 143 158 218 200 245 140 230     -0.4%
    Net Profit $m 80.0 81.0 122.8 122 235 55.0 81.0 338 396.8 -7.2%
    EPS Reported $ 2.19 2.34 3.82 4.30 6.14 1.65 1.19     -5.5%
    EPS Normalised $ 2.49 2.70 3.84 4.27 6.27 4.27 5.06 7.76 9.12 +11.4%
    EPS Growth % +110.5 +8.5 +42.4 +11.3 +46.7 -32.0 -10.2 +81.9 +17.5  
    PE Ratio x           21.2 17.9 11.6 9.91  
    PEG x           0.26 0.22 0.67 0.45

    While it's likely to be a bumpy transition year for VAC, I want to establish a conservative entry position in the Long-Term Portfolio and it's going to be the first in a series I had planned to do called "5 Trade Ideas to Make $25,000 in 5 Months".  

    VAC doesn't have very long options but that doesn't matter as we're looking to make Jan trades in this set.  Due to the recent volatility, we can get a good price for short puts and the premiums on the calls are also higher than they should be – we can take advantage of both with this play for the LTP:

    • Sell 5 VAC April $85 puts for $6.75 ($3,375) 
    • Buy 7 VAC Jan $80 calls for $16 ($11,200) 
    • Sell 7 VAC Jan $90 calls for $9 ($6,300) 

    The net cost of the spread is $1,525 and, if successful, it pays $7,000 at $90 or higher for a gain of $5,475 (359%) in 5 months, though the short puts won't expire until April – it should get us very close to our goal by January.   The ordinary margin requirement of the short puts is $5,280 so a pretty efficient way to make $5,475 in 5 months!  

  11. Our second company looking to make $5,000 in 5 months is, of course, Wagreens (WBA), which I consider one of the most underpriced stocks out there.  

    WBA could not be more consistent with their earnings at about $5Bn a year yet, at $51.50, you can buy the whole thing for $46.5Bn (Warren, call me!).  They are almost done digesting Rite-Aid (RAD) and investors were spooked as they announced closing 200 US stores and taking a $2.4Bn charge but, going forward, they expect cost savings of $1.5Bn PER YEAR, which would have a massive impact on the bottom line.  

    Keep in mind that's out of 9,560 stores – what would you expect after a major merger?  In the recent quarter they beat on Earnings and Revenue and management believes they are right on track to drop that $1.5Bn to the bottom line by 2022 and that's a 30% increase in profits over 3 years PLUS the 10% increase in Revenues should also yield some additional gains.

    Year End 31st Aug 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 72,217 76,392 103,444 117,351 118,214 131,537 136,354 136,771 140,463 +12.7%
    Operating Profit $m 4,092 4,194 4,668 6,269 5,557 6,236 5,631     +8.8%
    Net Profit $m 2,548 1,932 4,220 4,173 4,078 5,024 4,817 5,530 5,342 +14.5%
    EPS Reported $ 2.67 2.00 4.00 3.82 3.78 4.92 4.92     +13.0%
    EPS Normalised $ 2.74 2.15 4.36 4.07 4.80 5.64 5.74 5.98 6.02 +15.5%
    EPS Growth % +11.9 -21.5 +103 -6.7 +17.8 +17.6 +9.4 +6.06 +0.69  
    PE Ratio x           9.07 8.92 8.56 8.50  
    PEG x           1.50 1.47 12.5 1.30

    With WAG, it's not so much about the increasing profits as we're looking for an increased multiple at some point as 9 time earnings is just silly.  WAG also has the attitude that, if you don't want their stock – they sure do – they are less than halfway through buying back $10Bn of their own stock, which trades less than 1M share a day for $50M so it will take them 120 days of buying every single share that's traded just to get to their planned $10Bn – that's why I'm very comfortable betting $50 is the floor going forward.  

    When a stock has been as volatile as WBA, we don't have to play them to win – they just need to not go lower so we're going to engineer a spread that pays us if the stock simply holds $50 into January options expiration (17th):

    • Sell 10 WBA Jan $50 puts for $2.90 ($2,900) 
    • Buy 30 WBA Jan $47.50 calls for $5.90 ($17,700) 
    • Sell 30 WBA Jan $50 calls for $4.30 ($12,900) 

    The net cost of the spread is $1,900 in cash and the ordinary margin requirement for the short puts is $8,918 and, if WBA is over $50 on Jan 17th, the short puts expire worthless and the spread would be $7,500 in the money for a $5,600 (294%) gain in 5 months.  

    We are already long WBA in our Long-Term and Options Opportunity Portfolios and make sure you REALLY want to own 1,000 shares of WBA if the market turns down – because it's not likely they'll be exempt from a downturn – despite the great value.  The 2021 $42.50 puts are $3.20, so assume that would be the roll and that's another 15% lower – so not too bad as a worst case.

    I love these kinds of trades as the worst case is owning 1,000 shares of WBA for net $42.50 (assuming our roll works out) plus the $1.90 per share cash we put in, so $44.40 is still almost $7 below the current price.  If we don't get to own WBA that cheaply, our consolation prize is making $5,600 – and then we can do it again and again and again – as long as they want to keep paying us NOT to buy a stock – we are happy to keep taking their money, right?

  12. I'm not the only one noticing that narrow gap between WTIC and Brent could have repercussions:

    • Two long-awaited pipelines out of the Permian Basin started shipping oil to Gulf Coast export hubs last week, just as the gap between the U.S. West Texas Intermediate crude benchmark and the global Brent price has fallen to lowest level since July 2018.
    • The gap was at $3.73/bbl earlier in today's trading as U.S. crude fell 1.3% to $55.46/bbl and Brent slipped 0.9% to $59.19/bbl, a day after the difference fell to $3.53/bbl, its lowest level since July 2018, but Brent was ~$7/bbl more expensive than WTI just a month ago.
    • While the new pipelines have supported U.S. oil prices temporarily, they have started limiting U.S. exports as the WTI discount shrinks and the two prices converge; the drop in exports has contributed to a buildup in domestic inventories, a trend traders say could exacerbate fears of excess supply if it continues.
    • The options market is underestimating stock market volatility, especially in a week with events that can spur activity, such as Fed Chair Jerome Powell's speech at Jackson Hole on Friday, according to Bank of America's derivative analysts.
    • With extreme swings in the S&P 500 — for example the VIX receded to 16.9 on Monday (now at 17.0) from over 24 last week — it's "statistically unlikely" the market will calm that quicky, they wrote.
    • The market is "underpricing the likelihood that a body in motion will remain in motion," write BofA equity derivatives analysts including Michael Youngworth and Benjamin Bowler.
    • BHP (BHP -1.3%) CEO Andrew Mackenzie says he will "stick up for globalization" and is more worried about damage to the world economy from trade disputes than their impact on demand for the commodities the company produces.
    • BHP has begun the new fiscal year with positive momentum but the outlook is clouded by the U.S.-China trade dispute, Mackenzie said after the company issued its full-year earnings and pledged it would pay a record dividend to shareholders.
    • The trade war is "causing disruption and the partial unraveling of global supply chains," Mackenzie said. "We're not completely immune to some form of downturn and that's why we're nervous."
    • BHP expects global growth this year to be near the low end of a 3.25%-3.75% range.
    • "We continue to enjoy strong sales to China," Mackenzie said; record steel production at Chinese mills contributed to iron ore prices surging to a five-year high in July, but prices have fallen of late as the impact eases of supply disruption at the start of the year caused by Brazil's dam disaster and extreme weather in Australia.
    • An international panel created after the two Boeing (BA -1%) 737 MAX crashes is expected to recommend the Federal Aviation Administration change the way it certifies planes and address safety concerns that aircraft technology is becoming far more sophisticated than the regulations that govern it, CNN reports.
    • The Joint Authorities Technical Review is in the "final stages of completing their work" and is expected to issue its report as soon as next week, according to the report.
    • In particular, the JATR reportedly has been looking into ways to prevent problems from slipping through the cracks, as appears to have happened with the MCAS automated stabilization system that investigators believe is linked to both MAX crashes.
    • The JATR's work is separate from the review FAA will conduct of the 737 MAX to determine when to allow it to fly again in the U.S.
    • The global airline sector remains under pressure due to persistent concerns about economic activity and trade war repercussions.
    • Despite the investor concerns, global load factor has been fairly impressive this year, including a record for June of 84.4% per IATA data.
    • Decliners today include Avianca Holdings (NYSE:AVH) -7.1%, Mesa Airlines (NASDAQ:MESA-2.8%, Deutsche Lufthansa (OTCQX:DLAKF-5.5% in Frankfurt, China Southern Airlines (NYSE:ZNH-2.8%, China Eastern Airlines (NYSE:CEA-2.6%, Ryanair (NASDAQ:RYAAY-2.0%, Alaska Air Group (NYSE:ALK-1.5%, SkyWest (NASDAQ:SKYW-1.2%, Southwest Airlines (NYSE:LUV-1.1%, EasyJet (OTCPK:EJTTF-1.0% in London and American Airlines Group (NASDAQ:AAL-1.0%.
    • Netflix (NASDAQ:NFLX) falls on some selling pressure that appears to be related to news that Apple is rolling out its Apple TV+ service by November, the same month that Disney+ is anticipated to debut.
    • Shares of Netflix are down 3.09% to $299.83 vs. the 52-week trading range of $231.23 to $386.80.

    • Fitch Ratings is next to take aim at General Electric (GE -3.2%) after Madoff whistleblower Harry Markopolos released a report last week that slammed GE's insurance accounting and its holdings in Baker Hughes.
    • The company ranks among the riskiest backers of long-term care insurance, suffering from both "very high" exposure to claims and a relatively small cash pile to pay them, the agency wrote in its annual Fitch report.
    • GE is not alone, but ranked second on Fitch's list of the 16 riskiest long-term care insurers, because it has mostly older policies written when the costs of long-term care were poorly understood.
    • A large portion of GE's policies also provide lifetime benefits and some contain inflation protection benefits, which are unusually risky because costs are volatile and vulnerable to interest rate changes.
    • Italian Premier Giuseppe Conte has told senators that he's planning to resign because his right-wing coalition partner — the League party led by Interior Minister Matteo Salvini — is pulling its support for the populist government, the AP reports.
    • He'll officially inform Italian President Sergio Mattarella of his decision later today.
    • Mattarella could ask Conte to stay on and try to find an alternative majority in the Parliament or accept his resignation and see if another leader can put together an alternative coalition.
    • In another possibility, Mattarella could dissolve Parliament, setting up for a new general election as soon as October.
    • Italy's 10-year government bond yield falls 9 basis points to 1.336%.
    • Freeport LNG becomes the sixth major U.S. liquefaction facility to start operations after confirming that production had begun at the Texas terminal.
    • However, the project is pushing back the scheduled date for its first export to later this month from mid-August.
    • The primary long-term buyers of offtake from Freeport LNG Train 1 are Japanese utilities Osaka Gas and Chubu Electric, which each control 2.2 M mt/year of capacity.
    • In total, long-term contracts cover 13.2M mt/year of the proposed 15M mt/year three-train facility's output, with additional short-term contracts covering the remaining supply.
    • Freeport LNG now joins Cheniere Energy (NYSEMKT:LNG), Dominion Energy (NYSE:D), Sempra Energy (NYSE:SRE) and Kinder Morgan (NYSE:KMI) in liquefying U.S. shale gas for export; Cheniere operates two facilities, and KMI's plant in Georgia has been producing LNG for several weeks but has yet to load its first cargo.

  13. U.S Steel to layoff half its workforce in Michigan plant, potentially for six month or longer period. I guess this is part of the Renaissance that Trump promised the working folks of America.  How is that infrastructure program coming?

  14. X/Den – Tariffs are torturing them.

  15. I'm on the Hemp Boca show at 2:30 so I'm leaving at 2. 

    Hemp Boca Portfolio Review:  $43,205 is down $6,795 (13.6%) since we started so not off to a good start but that's why we scale into positions.  The market sell-off has given us some good opportunities to add to our current positions as well as pick up new ones but we don't want to deploy too much cash until we see the positions we have begin to stabilize.

    • IMAX – We're about even on this one and $21 is our goal so, if all goes well, this trade will pay us $4,000 but the current net is only $1,450 so $2,550 (175%) left to gain if IMAX can hold $21 through Jan 17th – not bad!  

    • M – Macy's fell very much out of favor along with the rest of the retail sector but we like them as a real estate play.  I'm still happy with the $23 target – even though it now seems far away but we do have 16 months to get there.  For the moment, let's roll the 15 2021 $20 calls at $1.15 ($1,725) to the $15 calls at $2.65 ($3,975) so we're spending net $2,250 to roll $7,500 lower in strike.  Let's also buy back the 15 short 2021 $25 calls for 0.50 ($750) as they can only pay us about 0.04/month so we're better off waiting for a bounce to sell something else.

    • MJ – The marijuana ETF took a big hit as earnings from some of the big cannabis companies did not live up to unrealistic expections.  We should take this opportunity to buy back the 10 short 2021 $35 calls at $1.95 ($1,950) as they are already up 2/3 and, like M, we'll wait for a move higher to sell calls again.

    • TAP – They had disappointing earnings but we're in this for the long haul but it's a big position already and would be expensive to roll ($5,000) so it's not a luxury we can afford at the moment and we'll simply wait for it to improve.

    We're going to add Tenet Healthcare (THC) as it fits the theme of the portfolio and it's a great Health Care stock (mostly hospitals and clinics), which is a growing business thanks to changing demographics.  Uncertainty about Health Care Regulations has hurt the sector but THC at $20.50 is only valued at $2.1Bn and they made $463M last year and are projected to make well over $200M this year, so a bit oversold down here.


    As a new position, we'll take the following:

    • Sell 5 THC 2021 $18 puts for $4 ($2,000) 
    • Buy 10 THC 2021 $13 calls for $10 ($10,000) 
    • Sell 10 THC 2021 $20 calls for $6 ($6,000) 

    That's net $2,000 on a $7,000 spread and all THC has to do is hold $20 and we make $5,000 (250%) in 16 months.  The ordinary margin requirement on the 5 short calls is just $910, so it's a very margin-efficient trade as well, which makes it perfect for this portfolio.

  16. /KC coming back – I thought that was a blow-off:

    It's possible we cause those things.  Perhaps when I say something, people start buying and the pro traders see a lot of small orders come in and they try to force them out before taking the contracts higher.  That's why it's good to go into a contract with the intention of doubling down on a dip – as long as the Fundamentals haven't changed and it's still within the bounds of "normal" deviation (which is another thing Pivot Points are good for). 

  17. Dollar has done a lot to save the market today – so don't get complacent! 

  18. Ace/'How Long': first heard it on Radio London when it was released in 1975 (showing my age now) – the band was a bit of a one hit wonder. Paul Carrack went on to be lead singer with Mike & the Mechanics – their hit the living years.

    1975 was the year Margaret Thatcher was elected leader of the Opposition in the UK. Also the year of the referendum which took the UK into the European Union. The title of the song by Ace was rather prescient.

  19. Hello Phil!

    Took the summer off and traveled.

    However, my PFE position tanked while I was enjoying the life.

    In Jan 2018, I sold my PFE stock for $39.60 or so and bought 100 of the Jan 2020 $33/40 (now $2.85/$0.29) spread for $4.05, AND sold 40 $35 puts for $3.20, now $2.19.

    What do you think is a good roll, if any? I think the AGN purchase announcement did the stock in. Don’t know if any other factors involved.

  20. Hello Phil, on the WBA trade what would be an expected adjustment if WBA heads lower.  I understand the short put side but I am curious on the BCS.  Thanks.

  21. Phil/PFE

    And, BTW, I was not complacent…had a standing order to sell the spread for many months as the stock went up to $44….my order just did not fill.

  22. Save Capitalism by Paying People More

  23. U.S. will act if tanker carrying Iranian oil delivers oil: Pompeo

  24. First on CNN: More NRA leaders step down amid spending controversy

  25. 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.