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Testy Tuesday – 11,000 and Bust on the Nasdaq?

Happy 11,000!  

That's right, only 4 months ago the Nasdaq was at 6,771 and now we're over 11,000 this morning, up 62.5% in 4 months.  OK, so we fell from 9,000 in January so we're "only" up 22% for the year and that's normal in such a booming economy with people out frolicking and shopping and fully employed with bonuses and rasises for everyone, right?  

No, this is so wrong,  actually.  Last year, without the virus and with the tax cuts and with the Fed and with the China Trade Deal – the Nasdaq was at 8,000 but, since last October, we've one crazy and popped 37.5% overall and we gave it all up in a flash crash in March and now, despite the fact that the virus (remember the virus) is much, much worse than it was then, we're up much more than that now. 

Will the virus be cured?  Yes, probably by March we'll have a vaccine and certainly we'll have treatments that lower the damage done by the virus – hopefully it will be more like pneumonia or bronchitis – something people get and get treated for routinely.  Still, that's not the case yet and ignoring the economic risks that lie ahead is insane.  To a large extent, this is simply a reaction to all the money that's being thrown at the problem but that money can't all stay in the market because the problem is long-term and expensive – and it will suck that money right back out.

Speaking to CNBC’s “Managing Asia” anchor Christine Tan, Piyush Gupta said government stimulus in many countries is helping businesses tide through the current difficult period. But when those measures come to an end, many companies may not survive, he explained.

“Do you keep putting money … using public finances to support companies or do you let creative destruction happen a la Schumpeter? This is going to be a real challenge particularly in the SME space around the world, I suspect this will be a big, big challenge next year,” he added.

“I think you will see more stress on the financial system in the later part of this year and next year without a doubt. And that’s just because the fallout of the macroeconomic shock has still to filter through the financial system at this point in time, I think it will come,” he said.

Donald Trump's war on coronavirus is just his latest war on truth ...As noted by VOX, the US hasn’t fixed the coronavirus problem, so the question now is whether the government tries to prop up the economy while it (hopefully) tries to do that, or whether it leaves the economic problem as unaddressed as the public health one.  One of the most pressing points of concern is the extra weekly money to the unemployed, which is set to expire at the end of the month. As Vox’s Li Zhou recently laid out, if the program is allowed to expire, some 33 million people who have been kept afloat by those benefits will take an enormous hit. Congress is still haggling about it, and the outcome remains uncertain.

The issue stretches far beyond unemployment. Much of the money given out through the Paycheck Protection Program to keep workers paid has been spent, and many small businesses were locked out of those loans altogether. There is evidence people are already hurting. An estimated one in three people in the US missed their housing payments in June, and while we’ve seen a recovery in the aggregate unemployment rate, for Black workers, that progress hasn’t been shared.

We already know that family food insecurity has increased dramatically with the pandemic and is racially disproportionate. Missed mortgages and rent payments, even with the CARES Act, are substantial,” Logan said. “If there’s no additional support, we will see a significant number of household balance sheets go to immediate insolvency.”

Come on folks, you know this is ridiculous.  Just be careful in your trading – we are living on borowed time – in more ways than one!

"It seems you're having some trouble

In dealing with these changes

Living with these changes 

The world is a scary place

Madness is the gift, that has been given to me" – Disturbed


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  1. anyone know what popped oil

  2. all the metals popped too – EU further stimulus?

  3. Read that the fracking is in bad shape because of pricing and lack of demand so is putting pressure on pricing presuming demand picks up? Not likely with the virus spreading like wildfire. Though on the South Shore and North Shore of Lake Superior, we're swamped with visitors. 

  4. Good morning!

    Dollar failed 96 and then failed to get back over it, that was a help.  

    Technical buy signal in oil:


  5. Phil / WBA – Morning Phil. How do you feel about a new position like 2022 35/45 BCS, sell 35P?  They seem weak in this propped market so not sure what a solid bottom is.

  6. Good Morning.

  7. RE WBA. Went by the store and the sign says they are open from 8 to 2PM ONLY. Change from a week ago. Shopping everywhere seems dead which is unusual for weekends.

  8. Interesting take on the exuberance going on…. and the fact that it can stay that way for a while

    ‘Don’t get greedy’ — Mark Cuban warns investors of stock similarities to 1990s dot-com bubble

  9. There are many saying 'Don't get greedy'…in other words, they may be saying 'I missed this rally'…. :)

  10. 1020 lol 

  11. Phil – thoughts on IBM earnings? 

    I've got $120/$140 Jan 2021 BCS, planning to just sit on those until expiry but would like your take. 


  12. The Fed…..

  13. Those bankers catching it all….

  14. crs101010

    Time to sell some short term calls such as 135.

  15. Phil / Rolling SPG (posting from yesterday)

    "SPG/SK – I don't know why you want to pay money to have less protection.  It's not looking that strong so why not just leave it and be happy if you just hit your target at $70? "

    Trying to understand your BCS strategy and comments better. 

    I thought shorting calls in addition to long calls was to reduce the cost basis of the trade. Does the protection come from off-setting long call cost with reduction in short call cost if stock price were to go down?

    When the stock price goes up, the short calls limit the upside. 

    When the stock price goes down significantly and If we expect the stock to go back up, wouldn't it make sense to roll up for more upside at a lower cost to roll?

    Sorry to persist. It will help me understand the strategy better this balancing between protecting the downside vs benefiting from upside. 


  16. Phil / TSLA (post from yesterday)

    TSLA is up $142 today. Thank god I got out of my short strangle at $1,300 though I agree it will come down. 

    When I closed my short strangle, I also initiated (trying to recoup my significant loss)

    TSLA Aug 21 BCS 1400/1600 and short 1100 puts. Still kept the original Long Jan 2021 $1200 Put. 

    I assume TSLA will show profit this quarter and don't know how long it will take S&P to decide if TSLA makes it to their index. Hope $1600 holds until Aug 21.

    Am I doing this correctly?


  17. Good move in NAK. Sold enough $4 sept calls to cover the initial cost of the position. Good one Phil!

  18. IBM – Numbers were not terrible, but certainly not great….  Just the beginning for new CEO – I sold the Sept 140 Call for 1.3  i think this is pretty safe ….

  19. IBM  - 

    IBM analysts neutral on Q2, premarket enthusiasm wanes

    Analysts largely held their positions after IBM's (NYSE:IBM) Q2 beats, which were partially attributed to lower expectations.

    Stifel (Buy, $147 price target) says demand improved through the quarter but June was soft and there's not much clarity going forward.

    The firm says the 5% dividend yield and strong FCF support the share price and sees a potential catalyst in revenue stabilization, especially in Global Technology Services.

    MoffettNathanson (Sell, $115 target) says IBM's results were in-line with other IT service companies, showing enterprise IT spending has proven more resilient than in past recessions.

    The firm expects declines to continue until the pandemic clears enough for new CEO Arvind Krishna to execute his new initiatives.

    BMO (Market Perform) nudges its IBM target from $135 to $140 but didn't see the quarter as thesis changing. The firm wants sustainable organic growth before becoming more constructive.

    IBM shares were up close to 7% in after-hours trading following the results, but are up 1% now, having drifted lower through the morning.

    Dive Deeper: Read IBM's Q2 earnings transcript.

  20. Momentum selling value buying

  21. Phil/tsla

    good morning!

    I have the Jan 2022 $500/660 spread, now $1155/1030, that I paid $80 for the $160 spread, way back ago.

    a lot of money tied up it seems…how can I unlock it and capture some gains and take some off but keep a reasonable spread in place, perhaps going out to Sept 2022.

    Am trying to figure out the numbers myself, having a tough time.

  22. Phil/tsla

    we are only dealing with 2 contracts

  23. Yodi – do you have some rules / general strategy for selling the short term calls against a BCS? 

    I've never really done it, i suppose just out of conservatism for avoiding the small chance that the stock blasts higher (above the top end of the BCS) and you start losing money on the short calls. 

    What is your general plan with these, sell half as many as your spreads and then roll them if they go in the money near expiration? 


  24. SPG/SK – Sorry I missed this yesterday.   You already sold calls against your long calls.  Selling more long calls is too risky in a market that is fluctuating like this one (see TSLA).  You are going to make wonderful profits if you leave it alone so why do you want to gamble?  

    TSL/Sk – So you went long to recoup from being short?  I'm not a fan.  Be very careful.  

    WBA/Jeddah – They got smacked after earnings again but $40 is holding so I love them as a new play.  People need their drugs and, long-term, it will come back.  

    Cuban/Batman – Words of wisdom.

    Nice shorting line on /NQ at 11,000.  

    Hope it wasn't something I said.

    IBM/CRS – Sales were off 5.4% and earnings were off 46%, which was to be expected.   I was hoping they would sell off more but the week is young.

    I'd roll the $120s to 2022 and then you get to sell again to cover again and buy some time.  I think we go lower before we go higher – the whole market. 

    /CL topped out at $42.50 

    NAK/Ati – My kids are very pleased too!  Congrats.

    TSLA/Maya – Very dangerous to mess around with as it moves so much and the bid/ask spreads are wise. Still it's $125 now so you are up 50% on the way to being up 100% – that's what's supposed to happen.  I would just leave it as you make 33% more and there's little chance you lose.  You could ask for $130 on the spread and see if it fills – you can find another way to make the last $20.

    TSLA taking a hit now, back below $1,600.  What a ride!

  25. crs101010

    Rules on Leap BCS IBM, Stock was this morning up to 133. At such a point you should have sold say the Aug short 135 call against your BCS but max only half of your BCS. I only sell short term calls against BCS on an up day but not if the market on the specific stock is down. 

    • Defense company stocks trade higher after Lockheed Martin (LMT +2.6%) topped Q2 earnings and revenue expectations while also raising guidance for 2020, as it continues to thrive during the coronavirus crisis: BA +2.6%RTX +2.3%NOC +2%GD +2%.
    • Despite production problems caused by the pandemic, Lockheed's Q2 sales jumped 12% Y/Y to $16.2B, building a record backlog of more than $150B in orders.
    • Defense stocks had severely underperformed the S&P 500 since June, but their steady income payments now look desirable in an environment of ultra-low interest rates and a global economic slowdown, says Jon Sindreu for WSJ's Heard On The Street, adding that U.S. military spending historically has been unrelated to recessions and whichever party is in the White House.
    • The troubled F-35 program may have been a fiasco for taxpayers, but that never fully translates to the margins of a military contractor, Sindreu says, noting the successful production ramp-up of the fighter played a big role in Lockheed's strong Q2 results.
    • "With a backlog that amounts to more than two years of business, higher net margins than its competitors and a cheaper valuation, there seem to be few economically minded reasons not to put Lockheed in an investment portfolio," Sindreu writes.
    • McDonald's (MCD +1.4%) says 700 restaurants in the U.K. and Ireland will open back up for dine-in service again tomorrow in regions where business restrictions have been eased due to COVID-19 cases trending in the right direction.
    • Diners will only have the option for table service in order to reduce interaction with other customers and delivery couriers.
    • In the U.S., the latest developments aren't as rosy for the fast-food chain as employees in some cities (Detroit, St. Louis) have been protesting today in front of stores for higher wages.
    • Chipotle (CMG -0.3%) is due to release earnings tomorrow in a report that is once again expected to highlight the strength of the digital business.
    • With Chipotle re-opening stores, foot traffic data from Gravy Analytics shows Chipotle visits in an improving trend from -64% Y/Y in April to -30% in June and -31% in July, although lagging many competitors with fast-food traffic down 26% in June on average (chart from Gravy Analytics).
    • What Chipotle might have lost in foot traffic market share, it more than made up with digital sales market share as the chain has converted even more customers to mobile pickup/drive-through, while competitors fall behind. Overall, comparable sales are forecast to fall 11.9% for Chipotle in Q2, which will likely easily top the industry average.
    • The impact of the higher mix of digital sales on margins could be an interesting topic on the Chipotle earnings call.
    • Earlier today, another fast-casual concept updated on digital sales, with Noodles disclosing a huge 138% Q/Q jump.
    • The Nasdaq 100 is retreating today after Monday’s 3% gain, as the Fab 5 megacaps moved into negative territory this morning. The Invesco QQQ ETF (NASDAQ:QQQ) is off 0.8%.
    • But the previous session’s rally brought momentum in the Nasdaq 100 to its highest level since right before the dot-com crash. The gap between the price and the 100-day moving average is the widest since March 2000 at about 21%.

    QQQ moving averages

    • The QQQ sits at 24% above the 200-day SMA and 10.4% above its 50-day SMA. Looking to other momentum indicators, the Relative Strength Index is just below 70 before QQQ, a level that typically indicates overbought conditions.

    • Volatility today and last week in the index may be indicative of some rotation back into value as the economy improves, but it didn’t look like that yesterday as the Fab 5 megacaps took back control (including a 7% jump in Amazon). Those stocks also boosted the broader market, even though the average S&P 500 stock was down 0.5%.
    • Economist Christophe Barraud tweeted today that as of Monday the combined value of 4 of the 5 — Apple, Microsoft, Amazon and Alphabet – hit $5.97T, more than every stock in the Japanese market at $5.84% (chart below).


    • Wolfpack Research believes the Microvision (NASDAQ:MVIS) buyout rumors "have absolutely no basis in reality" and comes out short on the stock, sending MVIS down 11.1%.
    • In April, Microvision announced it had retained Craig-Hallum to explore a potential sale or merger to avoid bankruptcy.
    • The resulting rally of over 1,000% in the past three months could have cost MVIS a potential deal, says Wolfpack. The firm notes a buyout could've been possible at the $22M enterprise value in March but sees today's $386M EV as "entirely unrealistic."
    • Wolfpack: "We see near term downside of at least 90% as insolvency looms and investors wait on a deal that isn’t coming."
    • Energy sprints to the top of today's S&P sector standings, with oil prices aided by an agreement among European Union leaders on a €750B fund to prop up their coronavirus-hit economies, lifting prospects for fuel demand.
    • Continued gains in crude oil futures are accompanied by gains in gasoline and natural gas futures; WTI crude (CL1:COM) +3.1% to $42.09/bbl, its highest since March 6; RBOB gasoline (XB1:COM) +3.8% to $1.276/gal; Nymex natural gas (NG1:COM) +1.5% to $1.666/MMBtu.
    • The European stimulus "really seems to have set the stage for the energy rally," says Price Futures Group's Phil Flynn. "The expectation is if they can get this through all the individual governments and the approval process there is going to be a surge of oil demand."
    • The Energy Select Sector SPDR fund (XLE +6%) is on track for its best day since June 5, while the SPDR S&P Oil & Gas Exploration & Production fund (XOP +6.9%) is poised for its best daily showing since June 8.
    • AT&T (T +1.7%) is set to report its Q2 earnings on Thursday morning, and headed into the report Citibank is reiterating its bullish stance.
    • It's maintained its Buy rating and holds a $36 price target, implying 18.5% further upside after today's gains so far.
    • Citibank is expecting revenues more or less in line, with EPS and EBITDA coming in at a beat. Consensus expectations are for AT&T to post EPS of $0.80 on revenues of just under $41B.
    • Meanwhile, Citi says it thinks the dividend (forward yield currently at 6.97%) is supported and there's potential for a partial recovery in the second half.
    • Results from a Phase 1/2 clinical trial at five sites in the UK evaluating the safety and immunogenicity of Oxford University's chimpanzee adenovirus-vectored COVID-19 vaccine candidate ChAdOx1 nCoV-19 [dubbed AZD1222 at licensee AstraZeneca (AZN -0.8%)] in 1077 healthy volunteers showed a positive effect.
    • 543 were assigned to receive a single dose of ChAdOx1 nCoV-19 (dosed at 5×10¹? viral particles) and 534 assigned to receive a single dose of meningococcal conjugate vaccine (MenACWY) which served as a control. 10 participants were enrolled in the non-randomized ChAdOx1 nCoV-19 prime boost group (received two doses, the second at day 28).
    • At data cutoff, neutralizing antibody responses were observed in 91% (n=32/35) of participants after one dose via one measurement and 100% (n=35/35) via another. In the prime boost group, all subjects showed neutralizing antibody activity.
    • Marked increases in SARS-CoV-2 spike-specific effector T cell responses were observed as early as day 7, peaking at day 14 and maintained up to day 56 as expected with adenoviral vectors.
    • On the safety front, there were no serious adverse events associated with the COVID-19 vaccine but there were higher rates of local and systemic adverse events (pain, headache, chills, fever, muscle aches/injection site pain, tenderness, redness, swelling), many reduced via prophylactic paracetamol (acetaminophen), banned in the U.S. in 1983 due to cancer risk.
    • Per the authors, limitations of the study include the short follow-up period to date, the small number of participants in the prime boost group and single-blinded design. Also, the volunteers were "fairly young" (median age of 35) and healthy and mostly Caucasian.
    • Phase 3 studies are underway in Brazil, South Africa and the UK.
    • Results were published yesterday in The Lancet as were results from a China-based study on another COVID-19 vaccine candidate which resulted in some confusion.
    • German discount grocer Aldi plans to open more than 70 stores in the U.S. by the end of the year as it pushes forward with a $5B investment to open new stores and remodel existing ones.
    • Aldi has crossed the 2K-store mark in the U.S. and has locations in 36 states.
    • The latest expansion plans will bring Aldi to the Phoenix area for the first time and add more stores in New York, Texas, Kansas and California. The company will also open a new regional headquarters and distribution center in Loxley, Alabama next year to support growth along the Gulf Coast.
    • The big push from Aldi arrives with Albertsons (ACI +1.3%) now a public-trading stock and attracting sell-side commentary.
    • As you may have noticed Tesla (TSLA -0.8%) has been bid up to a market cap of over $300B in a rush of investors bets on the company's role in EV disruption.
    • Amid that backdrop, Morgan Stanley is out with a note today comparing a $300B Tesla to where Apple (AAPL -0.3%) and Amazon (AMZN -1.9%) stood historically at the same market cap.
    • "Tesla is less than half the size of Apple in revenue and roughly 1/5th the EBITDA of Apple at that time. Compared to Amazon’s $300bn crossing in late 2015, Tesla today is 70% smaller by revenue with about 1/3rd the EBITDA. Tesla’s $300bn milestone reflects a significant valuation premium vis-à-vis when Apple and Amazon achieved the same cap. At $300bn, Tesla trades at roughly 61x our forward year EBITDA estimate. Apple’s valuation when it crossed $300bn in early 2011 was 11x forward year EV/EBITDA. Amazon’s valuation on the same metric in November 2015 was 22.4x. Tesla’s EV/EBITDA multiple is nearly 6-fold that of Apple and roughly 3-fold Amazon when they achieved the milestone," writes analyst Adam Jonas.
    • Jonas observes that an inflation of the S&P 500 market multiple in general helps explain some of the valuation premium for Tesla (S&P P/E 70% higher vs. Apple and 33% vs. AMZN). Then, while harder to quantify, he surmises that Tesla is garnering greater levels of enthusiasm from investors given its technological dominance and points to the overlay of important ESG/climate related factors may also be a contributing influence. There is a myriad of other reasons to pitch the Tesla $300B case as well.
    • Still, Apple hit $300B in market cap on the heels of a two-year streak of +50% revenue growth and Amazon showed profitability improvement in AWS and retail to justify its run to $300B. Of course, the $300B threshold was just a pit stop on the way to a +$1B market cap for both companies and those in the Tesla bull camp are looking for the company to see accelerating growth.

  26. /SI/Phil- Move up is crazy, have you seen anything or just stimulus effect?

  27. /SI/Ravi – Just part of the overall Dollar devaluation – it's only catching up with gold.  

    We saw this coming years ago, that's why SLW/WPM was our stock of the year a few back.