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Testy Tuesday – S&P Tests 3,000 (again) on Strong Bank Earnings

Why are we in cash? 

Certainly it starts to feel like we're missing out as the indexes rally back near their highs but this is where we got off in mid-September and here we are, a month later, not quite back to where we were when we cashed out.  Some of the uncertainty is out of the way now – it looks like we will have a trade deal with China, no one seems to care that Trump is being impeached (no on trading), Brexit is likely to have no deal but will happen anyway and Bank Earnings, at least so far, aren't so bad-looking.

Of course I'd like to see more than one day of earnings before jumping back in but what really bothers me is that ALL these positive things happened and we're still struggling to get back to 3,000 on the S&P 500.  Even Apple (AAPL) has been leading us again. blasting back to $236 yesterday – up 20% since early August.  With all this "great" stuff going on – why is the broad index only back at 3,000?  Something is not right and, until we can see what that is – CASH!!! is still safer than equities.

Of course we are picking up some bargains:  Just last Friday, we added Freeport McMorRan (FCX) to our Short-Term Portfolio in the Morning Report and that spread, with a target of $10, is already on track as FCX blasted 0.50 higher so far.  

Earnings season should give us plenty of opportunities to pick up cheap stocks as traders panic out of positions but it's too early in the cycle to start guessing which way they will go – even the banks presented a mixed bag this morning: 

  • Citigroup (C) had 3% lower Interest Revenues but beat low expectations by 0.02 on strong Consumer Debt Spending.
  • Wells Fargo (WFC) significantly missed on Earnings but Revenues were up slightly.
  • JP Morgan (JPM) had rising delinquency rates but overall Consumer Debt Spending boosted profits. 
  • Goldman Sachs (GS) missed Earnings and Revenues and took 67% more Loan Loss Provisions than last year – which indicates trouble ahead.  
  • Blackrock (BLK) had a really nice $84Bn of Net Inflows in Q3 as they tend to be seen as a relatively "safe" place to store money.

So nothing really bad is happening but will it be good enough to lift the Banking ETF (XLF) to new highs.  We've been in a "bad news is good news" market for a couple of years but what if good news no longer moves the market, presumably because it's over-priced and very hard to move higher than S&P 3,000 – what is the market going to do for the closing quarter of the decade?

No really, what?  Usually I know so I tell you what's going to happen but, this quarter, I have no idea – another good reason for us to stay in cash for now – why play when you aren't confident in the outcome?  This is not gambling, this is investing and investors don't play unless the odds are in their favor.   We have a fun week of earnings and these are some of the more exciting reports we're expecting:

Image

I like URI and I like AA but, as we're in cash, we hope the sotcks we like sell off for a silly reason (that doesn't change our long-term premise) so we can jump in and buy on sale.  Then there's stocks like Netflix, which pay so much for a move that we decided to bet it WON'T move as much as expected (less than 10%), giving us an excellent chance to make money on both sides by selling out-of-the-money puts and calls to people who want to bet on a big move.

 


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  1. Good Morning!



  2. This Ukraine scandal is starting to make Watergate look like an amateur job – It seems that 1/2 the cabinet was in on the plot! When Bolton (who let's not forget was part of the Iraq war crew) thinks that you are doing illegal stuff, it must be major league bad!


  3. Robots will replace everybody:

    https://www.autoblog.com/2019/10/14/a-robot-housebuilder/

    FBR claims that Hadrian X can build a 3 bedroom 2 bath house in less than 3 days. FBR plans to have its robotic bricklayer building houses out in the real world soon.









  4. This looks reasonable to me:

    https://www.motherjones.com/kevin-drum/2019/10/a-quick-look-at-the-democratic-tax-plans/

    The people all the way to the right are the top richest 400 people in the US. It looks like most of these plans only affect to the top 0.1% as compared to today. And 98 of the taxpayers are better off with Warren and Sanders. Sanders is a bit extreme though…


  5.  

    GameStop: Hestia Capital Partners discloses 5.09% active stake

    New recovery high.


  6. What function do you use to search Philstockworld and not the internet for previous blurbs about a stock?


  7. site:www.philstockworld.com search term into the search box should work.


  8. Phil, last week you recommend me a short strangle in TSLA , which I think  is a good combination for times as present, could you consider others like that or what is your idea with this (doing 1-3 months short strangles)


  9. search (stjeanluc) the PSW search box goes to google search for me on Apple computer


  10. looks like they really want this market higher this morning I wonder why?


  11. Advill are there not enough short strangles running around in Barcelona? Why do you want more? I am too scared to go through there soon, need to make a big bow around Barcelona???


  12. Good morning!

    Had a nice breakfast meeting, doing a $5M round for New Age to build 3 more facilities.  

    Talking to VC's at the moment but if any private investors want to go through our MJ Hedge Fund – contact Greg at Philstockworld dot com and we can discuss in detail.

    Speaking of which, it is time to restart our investment in the MJ ETF as some of the companies are starting to report profits and that can change things very rapidly value-wise.  This was a big loser for us in the last cycle but our plan was to DD when we started seeing profits so, now that we have clean portfolios, now is a good time to take a new poke.

    I'm still not ready to go to an LTP but, in the STP, let's start with the following:

    • Sell 10 MJ 2022 $20 puts for $5.40 ($5,400)
    • Buy 30 MJ 2022 $15 calls for $7 ($21,000) 
    • Sell 30 MJ 2022 $30 calls for $2.20 ($6,600)
    • Sell 5 MJ Jan $20 calls for $1.65 ($825) 

    That's net $8,175 on the $45,000 spread so there's $36,825 (450%) of upside potential at $30 but, even if we don't get to $30, we have  829 days to sell and we just sold 94 days for about 10% of our cost on just a 1/6th cover.  That's what I always liked about this ETF but we were too enthusiastic and failed to sell short-term calls, which is what really hurt us last cycle.  

    See, that's already two trades for our new cycle – at this pace we'll be fully invested by March!  cheeky

    Big Chart looking good now.

    Robot Builder/StJ – I think that's a net positive as the benefit of cheaper housing outweighs the loss of jobs.  

    Sanders/StJ – Well he's pissed now, going to take all their money!  I think 70% is a fair top for people earning $50M a year, as long as there's a one-time exemption (like homes) for people selling founders shares in a business – that would encourage more early-stage investing and less mid-level BS as well.

    GME/Albo – Coming into a more positive console/game cycle too.

    Search/JMD – In Google, you can go "philstockworld:" before your query.  

    Short strangles/Advill – The way this market is flying again, not sure I'll have a lot of those but we'll see next week after we get some of the early results off the table.  When our portfolios are empty, I like to do short-term plays like that.

    Higher/Tommy – UNH is about 1/2 the Dow's gain but also a big relief rally for the financials.


  13. Citron Research out with positive comments about BHC.


  14. BHC

    Put on an April 21/25 BCS for $1.65.  Currently.42 in the money.


  15. Albo – BHC – Put in a BCS? Did you go long on the BCS or go short? 


  16. Vkat – Long.  Bullish call spread.


  17. BHC/Albo, Vkat – We liked them recently but they took a long time to find a bottom.  

    Since they are not likely to blast over $25, I'd set up like the above MJ trade – looking to generate income along the way.  You don't want to get burned to the upside so 3x coverage is best, something like:

    • Sell 5 BHC 2022 $18 puts for $4 ($2,000)
    • Buy 15 BHC 2022 $20 calls or $7 ($10,500)
    • Sell 15 BHC 2022 $27 calls for $4.50 ($6,750) 
    • Sell 5 BHC Jan 24 calls for 0.80 ($400)

    That's net $1,350 on the $10,500 spread so $9,150 of upside potential at $27 in two years.  Small put-side commitment and, of course, you get about 8 more chances to collect $400 ($3,200), which turns this into a lovely credit spread over time.  




  18. CBS News poll: Most Americans want a national health plan


  19. London retains global finance throne amid Brexit chaos





  20.  

    GLUU -(to join S&P SmallCap 600)

     

    Up 12 % today.


  21. Phil, how about similar trade OIH? Biggest companies in it reporting soon


  22. MJ/Phil -
    Hi Phil,

    Usually when you propose a deal with a bull call spread and some short puts, you sell half as many puts as there are spreads. This time, on the MJ deal, you went with one third. Can you say why?  I'm VERY new at this, so what is obvious to you is not to me. Thanks.


  23. OIH/JMD – We tried them last cycle and it was a miserable trade for us, I don't want to go back there – the sector seems broken at this point. 

    We'll see how the reports go, maybe things are turning up.

    MJ/Saguro – It depends how badly you want it (not very) and how sure you are it won't go lower (kinda) and, of course, how big of a commitment you want to make.  Since our STP allocation blocks on a $100,000 portfolio with $200,000 in margin are $10-20,000, starting off with $5,000 worth of MJ is a sensible beginning.  So we can, if all goes well, make $36,0000 (36% of the portfolio) on this one trade while our worst case is owning 500 shares at $18 + $1.70 so net $19.70 = $9,850 would be 1/2 of an allocation block if assigned – that's plenty for an initial entry.

    Also, as I noted recently, when we begin our portfolios I am far less aggressive and, as they improve and we have more money to play with – I tend to make bolder entries.  This is very early innings, so we follow Buffett's Rule #1.

    On that note, I have to get across town before traffic sets in.  I'll check in this evening.  


  24. With WHR doing so well should I roll my short $140 calls to $150s?

      10 Jan’20 $120c @ $20  

    -10 Jan’20 $140c @ $11.48

    -5 Jan ’20 $130p @ $17.87

     

    Thx!

     


  25. MJ/Phil

    Thanks again!