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Monday Market Movement – Back in the Bottom of our Range

Well this is no surprise

Back on April 15th, in our Live Chat Room, I said to our Members:

"What we really care about is the bigger picture and we know 2,850 is our old Must Hold and 2,300 (2,280) is our -20% line and 2,550 (2,565) is our -10% line and that's the range we expect to be in.  

Once things calm down, we should range up or down 10% around 2,850 for the 2nd half of the year but I think for the next few months, it's more likely we stay between 2,550 and 2,850 and consolidation there would be nice and healthy for a good move back to the top of the range that's more likely to stick."  

For more details on our trading range and how we took advantage of the move, see March 17th's:  "2,400 Tuesday – S&P Tests the Bottom of our Target Range"

We expected the top of the range to be a barrier and we lightened up on our longs and added more hedges at the top and, since then, we're pretty much right where we were at the time but this morning we're down yet again on the Futures, down 5% in the last 3 sessions as the Adminstrations "Blame China for Everything" strategy is not really inspiring investor confidence. 

Warren Buffett isn't buying this dip and that's kind of disturbing.  My long-time readers know how much I love Buffett but I don't always agree with hm these days as he's losing a few steps from what he was so, just because he says something doesn't mean it's true – as evidenced by his sudden love of airlines, now ended as he dumped them all – since he's not confident that industry will recover from the virus any time soon (and "soon" to Warren Buffett is years, not months!).  

Buffett said his $137Bn cash on hand "isn't that huge when you think about worst-case possibilities… We don't prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum."  You can understand why Buffett is upset – Berkshire Hathaway (BRK.B) is down 20% at the moment and probably headed back to down 30% after reporting a $54.5Bn loss in their stock holdings that netted them a $30.6Bn loss for the quarter.  

Berkshire is a wonderful proxy for the S&P as it's a selection of well-run companies that are privately held by Buffett as well as his hand-picked selection of stocks.  Now that he's gotten rid of those airlnes, I think it might be an interesting play for us again – especially if they re-test the -30% line at $160.  The airlines will be interesting to watch today as Buffett announced they had dumped ALL of their airline holding, roughly 10% of UAL, AAL, LUV and DAL and those stocks are all down 10% this morning but that's a bit silly since Berkshire already sold their stake – which is why they are so low in the first place!  

The airlines are tempting down here but a lot of things are tempting down here and, like Buffett, we have resisted temptation and kept plenty of our CASH!!! on the sidelines.  As I said back on April 7th, when the market began to bounce in our Earnings Portfolio Review:

"Smart Portfolio Management is all about BALANCE and we need to be aware of when we are making too much money as acutely as when we are losing too much money.  We did not expect a V-shaped recovery but we're getting the start of one with the S&P 500 back over 2,700 already this morning.  We are generally expecting 2,850 to be the top of our range so we need to now look at each of our positions and make sure we are comfortable and for sure we will be adjusting our SQQQ hedges to lock in these gains."

That balance took the portfolio from $155,140 to $183,713 as of Friday's close, now up 83.7% for the year thanks mainly to our hedges, which paid us very well and continue to do so (we unwound the first set at the botttom – this is our second set).  This time, to get more bearish, all we need to do is cash in our short SQQQ calls, which is going to happen if 8,600 fails on /NQ!

So far, everything is proceeding as we have foreseen so there's no need to do anything drastic.  We are still looking for opportunities but, like Buffett – I'd rather sit on the sidelines for another quarter and see how things shake out as NOBODY knows which way this virus will break as many cities around the World open back up.

"Oh oh people of the earth
Listen to the warning
The Seer he said
Beware the storm that gathers here
Listen to the wise man
I watched as fear took the old men's gaze
Hopes of the young in troubled graves
I see no day, I heard him say
So grey is the face of every mortal" – Queen


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  1. Good Morning.

  2. And I don't see a reason to buy the dip now when states and country are re-opening and then we start seeing an uptick in cases! What happens when we have to go in confinement again for 3 more months or until a vaccine is developed! 

    We are well on our way to 100,000 deaths and the WH is saying how good of a job they are doing (remember Biden did a bad job with H1N1 when 12,000 people died) and Congress talks already about not adding another aid package for states who are going to have to fire police, firefighters and teachers. No big deal, right. These are non-essential people.

  3. It'd be nice if the daily drops settled down to 1% or less. That would put VIX back at 20 and at least my short VIX trade would make a profit, along with hedges. I think we're going to see 2200 again before we see 3000. 

  4. Is everybody off today?

  5. With no place to spend, consumers are saving:

    That's the one good number I see. On a personal basis, my bills are also much lower so saving more. Might be a new habit I am forming.

  6. Good morning!

    Big Chart not dead yet and Monday's don't count so we'll have to wait until tomorrow to see how the 50 dmas hold.  Going to be hard to get people investing ahead of NFP on Friday.

    Not a whole lot of data other than that this week either. Plenty of earnings, though:


    Of course the earnings are pointless as they are mainly through end of March so only 1/6th affected by virus and companies have mostly pulled guidance – so they're not even speculating on the impact.  We're flying blind here – which is why Warren and I prefer CASH!!!


    2,200/Dawg – As StJ notes, it all depends on how well the re-opening goes but we won't know anything about that really for a couple of weeks (infection/testing cycle).

    Off/StJ – I need a vacation, that's for sure!  

  7. StJ/  It's Meaningless Monday. And as long as 1020 has given the morning greeting, I'm good.

  8. Phil,

    Last week you very correctly opined that AMZN would report higher rev but lower EPS for Q1. I understand the basis for the higher rev estimate but what was the basis for your lower earnings call?


  9. Just reading and scalping ES for some MC muffin money. About done for today though

  10. AMZN/8800 – They have employee issues, delivery issues, sterilization issues… and they run on very thin margins and, as I point out every quarter – THEY DON'T MAKE MONEY ON DELIVERY!  They make all their money on Web Services and lose money on delivery so the more they sell- the less they make and this Q the growth in web services wasn't enough to cover it up.

    Good scalp Burt.  

    Speaking of needing a vacation.  I think I'm going to find a local hotel that has a pool open and go there for the weekend – I just have to be SOMEWHERE else for my mental health…

  11. Stir crazy here in MA. That said, /ES has been fun to play (thanks again for teaching me how to trade futures Phil), and I think we slowly slide from here thru the week. 

  12. Speaking of vacation. POTUS seems to be off today. Accuses the Dems of doing nothing in his 50th tweet of the day!

    Irony died again!

  13. As lockdowns ease, some countries report new infection peaks

  14. CBS News poll: Elizabeth Warren tops Democrats’ wish list for Biden’s vice president

  15. Savings/StJ – That's nice, actually though I think debts are piling up too.  My Mom thought the bank was letting her skip a mortgage payment but they sent her an arrears notice and she just had to pay double this month – they only let her skip the late fee for 30 days.  I'm sure that's happening to a lot of people.

    You're welcome Deano – At least our casino is still open!  cool

  16. How Boeing was rescued by the Fed, without a bailout

  17. Hi Phil, I work for a bank. We are letting people skip payments "if" they have been affected by the virus otherwise they are expected to continue to make payments. First they have to apply and then they get contacted for further discussion (just a quick call to confirm info).  Also, if you skip payments your subsequent payments first go to pay off the interest that you have accumulated and then once you catch up you start to pay down principle again. There's no free lunch.

  18. Phil,

    Thanks for the analysis of AMZN's operating financials. Given those operating realities and Bezo's latest missive to shareholders ("You may want to sit down" … because I'm devoting all Q2 profits to battling the virus"), would selling a short-term otm call or two above 2500 be a reasonable speculative risk?

    Or is boredom getting the better of me?

  19. Tanstaafl/Motox – No there isn't but that's a big problem, unfortunately.  The government should have extended any mortgage payment by 3 months and paid the interest charges (or even let the payee pay interest only) for 3 months.  That would have put real money into the system without changing things too much.  Then they could have handled renters by maybe giving a credit for the period of the shutdown.  Not a free lunch, just a deferred one.  

    AMZN/8800 – Too scary to bet against.  I would argue that you've moved people AMZN habits forwards by 5 years so, if they hold onto these new customers – they could get some monstrous growth when this is over.  Still not worth 110 times earnings but I've been saying that for years and no one seems to care.  

    Year End 31st Dec 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Total Revenue

    88,988 107,006 135,987 177,866 232,887 280,522 334,053 391,394 25.8%
    Operating Profit

    178 2,233 4,186 4,106 12,421 14,541     141%
    Net Profit

    -241 596 2,371 3,033 10,073 11,588 14,227 20,464  
    EPS Reported

    -0.522 1.25 4.90 4.55 19.8 23.0      
    EPS Normalised

    -0.522 1.25 4.90 4.55 19.8 23.0 28.3 39.7  
    EPS Growth

        +292 -7.08 +336 +15.9 +22.9 +40.7  
    PE Ratio

              99.4 80.9 57.5  

              4.35 1.99 1.63  

    Even making $20Bn a year, it's hard to swallow their $1.15Tn valuation.  AAPL makes $20Bn a quarter and Buffett just lost $54.5Bn in his portfolio.  Berkshire's valuation is just $430Bn and they make $20Bn year….

    Good article on the Berkshire meeting.

    Tesla's Illusory Liquidity: An Update And Cash Burn Estimate

    15% Downside For The S&P 500

    Speaking of Berkshire, Buffett has been buying his own shares, about $2Bn worth (0.5%) in Q1 and it's likely he did say around $190-200 so, below that, I think he'll buy more.   The snapshot of their portfolio was 3/31 – not the best time for a snapshot and they "only" lost $4Bn (out of $10Bn) on airline bets while the rest is probably better blue-chips that are likely to bounce back.

    For the LTP, we're going to assume we're making an entry too early so the plan is to take a high spread now (in case we're wrong and it pops) and wait until they drop to sell more puts and, if they never drop – we can live with just this position.

    • Sell 5 BRK.B June 2022 $150 puts for $18.50 ($9,250) 
    • Buy 10 BRK.B June 2022 $150 calls for $48.50 ($48,500) 
    • Sell 10 BRK.B June 2022 $200 calls for $21 ($21,000) 

    That's net $18,250 on the $50,000 spread so there's $31,750 (173%) upside potential at $200 but, as I said, we actually would prefer it go lower and sell 5 more puts for $20 ($10,000) and then spend $25,000 (net $15,000) to roll the $150 calls to the $100 calls (now $87 or $87,000).  That would put us into the $100,000 spread for net $33,250 and we could also sell some short calls while we wait to bring that down to under $25,000.  See, we'll be disappointed if Berkshire goes straight up and all we make is 173%!

    When I think about a roll, I look at the strikes above and the June 2022 $250 calls are $6.50, so the cost of that $50 roll to the $200s is $15.50.  So we can be reasonably confident, if BRK.B drops by $50 (28%), that we'll get our roll and that would be about $125 so our short puts would be $25 in the money but we sold them for $18.50 – so not a big deal – though it will give us an ugly balance for a while.  

    That's what we HOPE will happen but let's say we just get a $20 drop…  The $220 calls are $14 so $7 to roll down $20 is a good deal and we'll take that if we can get it as a first step.  That makes the $130s our first target, they are now $63, so +$14.50 is a long way to go before we get that roll.

  20. They are telling us something and predicting another:

    The Trump administration anticipates that more than 3,000 Americans will be dying each day of COVID-19 by June 1, according to a newly revealed internal government document obtained by the New York Times.

    The Times obtained an internal Centers for Disease Control document providing detailed projections on the progression of the COVID-19 pandemic around the country. The data goes up to May 2.

    The document says that new cases will grow to a rate of around 225,000 per day by June 1, and that deaths will reach around 3,000 per day by the same date.

    There are currently around 25,000 new cases each day in the United States, and around 2,000 deaths each day.

  21. Killing the poor/StJ – Well they didn't order 100,000 body bags for no reason!  Sadly, this is going exactly as I predicted for the reasons I stated – they can't contain the virus so they are going to get us used to the idea of 100,000 people a month dying of the virus while we build up our herd immunity.  

    They can't/won't shut down the economy for the duration – certainly not if the people expect them to pay for it so it's back to work and best of luck to all of you!

    The sun beams down on a brand new day

    No more welfare tax to pay

    Unsightly slums gone up in flashing light

    Jobless millions whisked away

    At last we have more room to play

    All systems go to kill the poor tonight - Dead Kennedys 

  22. The Bug/StJ – I do not see where they're getting those numbers. This wikipedia site lists the CDC numbers, and 3k deaths a day seems very unlikely.

  23. And now this:

    Deaths/Snow – Looks like we're averaging 1,500/day in April up from not even 500 in March so not much extrapolation to get us to 3,000 in June.

    Meanwhile, what really pisses me off is that – if I thought I might die – I'd be in Vegas having a really good time and going out every night, not sitting on my couch for months!  That's what sucks the most about this – you can't even go out and enjoy your potentially last days, nor can you go see your friends and family or even check off a bucket list….

  24. Its just cabin fever phil it will pass. I hope trump doesn't think Canada is going to open its boarder to non essential travel cause we are not up for his final solution.

  25. Hang in there Phil – It's tough when you are a 'people person' like yourself.  :)

  26. Extrapolation/Phil – don't you sometimes post a cartoon about extrapolation? Something about husbands and wedding cake…………………

  27. Extrapolation/Snow – Yes, that's based on when you are extrapolating based on small samples, we have 45 days of samples in the US and a pretty clear trend has formed.  

    Trumpless Tuesday – Small Cap Stocks Erase ALL the Gains of the ...

    Re-open the states too soon and you will see what looks a lot more like the chart on the right of the cartoon!

    Tired of lying in the sunshine staying home to watch the rain.
    You are young and life is long and there is time to kill today.
    And then one day you find ten years have got behind you.
    No one told you when to run, you missed the starting gun.
    So you run and you run to catch up with the sun but it's sinking
    Racing around to come up behind you again.
    The sun is the same in a relative way but you're older,
    Shorter of breath and one day closer to death.

    Every year is getting shorter never seem to find the time.
    Plans that either come to naught or half a page of scribbled lines
    Hanging on in quiet desperation is the English way
    The time is gone, the song is over,
    Thought I'd something more to say. – Pink Floyd

    2,800 holding.

  28. The Bug/Phil – ummm, that's cumulative, not daily deaths in your chart there. We were talking about the trend in daily deaths and whether that would rise. The cumulative deaths (or cumulative anything) will be definition rise and then level off. If you look at the 11th page of that CDC report cited in the article, that chart looks to me like leveling off, and the modeling seems odd. I'd load a copy here, but can't do it.

  29. The Bug/Phil – I did notice that in the maps in the CDC report, they're using a three-day spline of "incidence" (newly reported cases). I've been using, and California is using, a seven day moving average (a "spline") because reporting varies a lot by day of the week. Thursday is generally high, Sunday and Monday are generally low, for example. But I suppose the CDC modelers know what they are doing and have their reasons.

  30. Cumulative/Snow – Ummm, DUH!  Yes, there are not 8,000 deaths per day, thanks so much for clearing that up. There were, however, a TOTAL of 5,151 deaths on March 31st and there were 63,856 dead on April 30th so that's (63,856 – 5,151) = 58,705 deaths in the month of April and there are (checking Wikipedia…) 30 days in the month of April so, if we want to determine the AVERAGE number of people who died each day in April that would be 58,705/30 = 1,957 people per day.

    That then becomes our BENCHMARK and now we can say about 14,000 people per week are dying and we can look at the weekly numbers to see if things are getting better or worse. 

    The first week of April, we went from 5,151 to 15,526 – that wasn't too bad – certainly less than 15,000.  Week 2 was 15,526 to 30,081 – that's a bit more than 14,000.  Week 3 30,081 to 45,536 is also over 14,000 and week 4 (ends 4/28) took us to 59,265 so pretty steady as that's another 14,000.  

    Today is day 7 since the 28th so no final body count yet but 68,598 as of yesterday is up 9,333 so this should be our best week in a month unless 5,000 people die today but it would be very foolish extrapolation to declare a trend based on a single, improving data point like that, right?  

    And yes, I'm sure you can find a report that has been approved by the Trump administration that shows that to be a very significant leveling off but how ridiculous is that when there are still about 1M people in the US who have the virus and have not yet recovered?  

    Let's hope that 28% level doesn't stick on those 1M or your death chart is going to look pretty parabolic.  

    Only 193,353 people had the virus (confirmed) in the US as of March 31st so +1M in a month means it takes us about a month to have outcomes so I guess our goal is to see if less than 250,000 people die in May and THEN you can start crowing about the improving numbers.

    CDC/Snow – Those reasons are they are being threatened by the Administration to shine a positive light on the data.

  31. *sigh* – please. In no way am I a trump supporter, don't do this to me because I'm less than fully pessimistic. Trump et al are making a complete and completely unnecessary mess of this. It's really tough being an epidemiologist when anything I say gets this political slant, in which I have no interest.

    Anyway, this whole discussion started with StJean's link to talking points memo, which is a link to an NYT article, which links to the CDC report. Okay?

  32. Trump/Snow – I didn't say you are a Trump supporter, I said Trump influences the CDC so I take their spin with a huge grain of salt.  I'm just looking at raw data and cutting it into even sample blocks to see if things get worse or better.  Not epidemiology – just math…

  33. Didn't get the GBTC pull back I to 7 or even 8 that I wanted. Eyeballing the upcoming halving, typically bullish for BTC. GBTC could double from here, or more. Will re-enter on any dip… if I get one!

    Shorting TLT on May 11th. I forget why, some reddit post if I recall. But I wrote it on the calendar so I'm sticking to it. Will get May puts so just playing it for the work week and then getting out.

  34. The Bug/Phil – Okay, fair enough; I misunderstood you, but it is a problem in general. Apropos of nothing, I consider Bernie too conservative and think, as you recently said, it's time for the US to break up.

    Anyway, the problem with these modeling analyses (and not just the CDC's) is that they seem to be done in isolation by "data scientists" (I used to call them statistical programmers, but maybe they're a bit more sophisticated) who look at the numbers, try various fits, make some assumptions, and then predict the future. The problem I see is that they seem to have limited understanding of where the numbers come from, the vagaries of diagnosis and reporting, and even less of virus load, shedding, dose, and spread. In that they resemble in a lot of ways people who do technical analysis of stocks. Well, we shall see. I like looking at the countries where the outbreak is subsiding, examining why (it's not herd immunity; they can't possibly have 60% of the population infected), and thinking how that would apply to countries where the outbreak is still blazing along.

  35. wow have we missed the move on NG?

  36. snow: do you give credence to the BCG vaccination theory as for why countries like Germany and Japan seem to be less affected than countries who don't conduct mass tuberculosis vaccinations?

  37. The Bug/Kinki – no, I do not. It's like masks, simply something that Germany, Japan, and Korea did – but they have effective outbreak control programs (although I'm not sure about Japan). Western media and amateur analysts, including some physicians, keep grabbing onto things like BCG or masks as magic remedies, when in fact they're most likely what epidemiologists refer to as 'confounders', and sociologists call 'covariates'. There's just enough biologic plausibility behind them to make you think this could be part of the answer, and maybe I'm wrong, maybe they do work – but those countries are doing a hell of a lot more to stop the outbreak.