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Which Way Wednesday – Hurricane Edition

Hurricane Laura is coming.  

It's a good excuse to get Oil (/CL) back to $43.50 but it makes a nice short there as nothing else is going on in the energy market to prop it up.  We do have a holiday weekend approaching (next Friday) but driving is mostly off the table this year and, for oil, I'm a lot more concerned with the Dollar bouncing back from it's -10% position and kicking oil's ass after Powell's speech tomorrow at the Jackson Hole conference.  

While the Dollar deserves to be weak, it's weak relative to what?  All the other countries are printing money too – maybe not as fast as we are but the US Dollar is 60% of all the World's currency so, if we are debasing it, we'd have to debase it twice as hard as the Euro (30%) to fall as fast. 

Infographics: Global coronavirus stimulus packages compared ...Europe has indeed spent about half of what we've spent on stimulus but they've spent it much more effictively and seem to be getting their virus under control.  Japan has spent the most, by far and the Yen is another major currency the Dollar is measured against so why should the Yen be higher against the Dollar?  It makes no sense, so the Dollar is probably too weak now and a move back up in the Dollar to 96 will likely knock commodities and stocks down about 5%.

While I prefer to short the Oil (/CL) Futures at $43.50 with very tight stops over that line, we can also make the simple bet that oil won't be over $50 in April by picking up the following bearish spread on USO:  

  • Buy 20 USO April $35 puts for $6 ($12,000) 
  • Sell 20 USO April $30 puts for $3.15 ($6,300)
  • Sell 10 USO Sept $30 puts for 0.52 ($520) 

If USO goes below $30, we need to take a loss on the short Sept $30 puts but, if not, we can sell those puts for 0.50 each month and collect $2,000 more through January.   As it stands, the net of the spread is $5,180 and it's $8,000 in the money at $31 to start.  If we drop our basis by $2,000 more, we should be in very good shape.  

As to the Dollar itself, the UUP ETF that tracks it has pretty good support at $25 but it now a big mover but we can play for a simple bounce with the September $25 calls, which are just 0.30.  If the Dollar goes up 2.5%, it will add 0.50 to UUP, which is now $25.13 so $25.63 would be a double on the calls so fun for a craps bet (the amount you'd be willing to lose at a craps table) 

Another boost for the Dollar is a very strong durable goods report with a headline of +11.2%, though that's off a slump and, of course, it's all about Boeing delivering planes again as ex-aircraft, the gain was only 2.4%.  Ex-Aircraft, we're in a long-term slump in Durable Goods as America still just doesn't make stuff anymore and all the tariffs in the World aren't going to fix that – it takes infrastructure investment, education and training to make US Factories competitive again.  As much as I think they are over-hyped – look at Tesla – US factories, solid US jobs because they INVESTED in automation that makes the higher US wages a small factor compared to the benefits of not having to ship their goods in from overseas.  

TSLA has 48,000 employees making $25Bn worth of cars so about $520,833 per employee.  Honda (HMC) has 220,000 employees generating $150Bn so about $681,000 per employee – not that bad of a difference.  Of course HMC makes $5Bn a year and TSLA makes $0 and HMC is valued at $43Bn but TLSA is valued at just under $400Bn – go figure…

Go figure can sum up this entire market.  3,450 is a good shorting line for /ES this morning and 11,800 is a good line to short the Nasdaq (/NQ) as I really don't think Powell is going to save us from an awful GDP report tomorow (-32.5% expected).  The 2nd Q is a write-off, of course but keep an eye on the estimates for Q3, which we are now 2/3 through

At the moment, the Atlanta Fed 's GDPNow is expecting a 25% comeback for the economy though those expectations are pulling back for the last two weeks.  Even so, when you drop 33% you are at 66 (from 100) and then adding 25% to 66% is only 17.5, which brings you back to 83.5 – still WAY under where you started so there's 6 months of our year miles below the line.  

What is our bullish premise again?

 


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  1. Good morning everyone.. Here is your link to today's webinar.

    https://attendee.gotowebinar.com/register/6278559249477663499


  2. Good Morning.



  3. 2020 is looking like one for the ages! We only need a locust infestation now to complete the bingo card!


  4. Hi andy, have there been links provided yet for last week and the week befores webinars i havent noticed them.thanks


  5. Good morning!

    Russell is at 1,563 so we might see it attempt the Must Hold line if we get more of a pop but, as noted above, I"m not betting on that.  

    Locust/StJ – They have that in Africa.  

    Somalia declares locusts a 'national emergency'

    Webinar/Tommy:

    It's right on the main page the next day.  


  6. Everything is awesome:


  7. Good Morning Phil !

    Back to hedging--trying to hedge another $100,000 portfolio amount against a 20%-30% drop.  On Aug. 19th you indicated that you prefer TQQQ as it will provide a 60% pop against a 20% drop.  Would SQQQ not do the same (but inversely) and if so, I am wondering why you prefer one over the other.

    Secondly, when looking at 2 similar strategies, please help me understand why I see much less 'risk of capital' by doing the SQQQ over the TQQQ—here is the analogy:

     

    10 Contracts of the TQQQ March $125-$95 Put Spread = roughly $10,700 Debit with a Max Gain of $19,300

    10 Contracts of the SQQQ March $25-$35 Call Spread = roughly $1,450 Debit with a Max Gain of $8,550 

    Overall much less outlay with SQQQ.

    I understand prices have moved and this example may not be optimal as it isn't as close to the money as when you spoke about it but I thought showing apples to apples would be easier for me to understand your answer.

    Thanks in advance and sorry to beat this horse again….its just not dead to me yet!


  8. Phil// Rumour about WBA being swapped for Amazon/Alphabet. How does that affect our trading in WBA?  Should we position to DD at this point now?  

    https://www.cnbc.com/2020/08/26/dow-should-swap-walgreens-out-for-amazon-alphabet-trader.html

    Thanks.


  9. Just a reminder on SQQQ TOS has taken this off PM margin. So full margin as I understand


  10. A some what strange phenomena even that the /ES is positive most of my ports show a loss. Take KO, T, QCOM,PM,ABBV,BX, PG, MO, just a view, you just name them, strange times!!!!! Is it a warning?


  11. Oh no, not Chuckie Cheese!  What a nightmare that place is during the virus.  

    TQQQ/Hicket – TQQQ is at $150 so a 60% drop in TQQQ takes you to about $50 which SQQQ is at $23 so a 60% pop takes you to $37.  3x ETFs tend to decay over time so you are at a disadvantage betting SQQQ will go up and at an advantage betting TQQQ will go down and you can find better spreads with TQQQ due to the very wide range you have to work with.  You're assumption is only "better" because you are starting in the money yet the same move on TQQQ that takes SQQQ to $35 would allow you to play the March $100 ($15)/70 ($8) bear put spread for net $7 so $1,400 would pay $6,000 for a gain of $4,600, which is just fine for a hedge. 

    Ideally, you want to adjust it by rolling the long puts out before they fall below $7 (what you spent on the net spread).  That way, you recover your investment and set up a new, longer-term hedge.

    WBA/Rookie – That would be crazy but clearly they are manipulating the Dow to squeeze out more gains.

    Must be nice for Trump to have his conservative friends at the WSJ manipulating the entire stock market for him during the convention.  

    November 21, 2005[edit]

    3M Company E.I. du Pont de Nemours & Company JPMorgan Chase & Co.
    Alcoa Inc. Exxon Mobil Corporation McDonald's Corporation
    Altria Group Incorporated General Electric Company Merck & Co., Inc.
    American Express Company General Motors Corporation Microsoft Corporation
    American International Group Inc. Hewlett-Packard Company Pfizer Inc.
    AT&T Inc. †
    (formerly SBC Communications Inc.)
    The Home Depot, Inc. The Procter & Gamble Company
    The Boeing Company Honeywell International Inc. United Technologies Corporation
    Caterpillar Inc. Intel Corporation Verizon Communications Inc.
    Citigroup Inc. International Business Machines Corporation Wal-Mart Stores, Inc.
    The Coca-Cola Company Johnson & Johnson The Walt Disney Company

    April 6, 2020[edit]

    3M Company The Goldman Sachs Group, Inc. Pfizer Inc.
    American Express Company The Home Depot, Inc. The Procter & Gamble Company
    Apple Inc. Intel Corporation Raytheon Technologies ↑
    The Boeing Company International Business Machines Corporation The Travelers Companies, Inc.
    Caterpillar Inc. Johnson & Johnson UnitedHealth Group Inc.
    Chevron Corporation JPMorgan Chase & Co. Verizon Communications, Inc.
    Cisco Systems, Inc. McDonald's Corporation Visa Inc.
    The Coca-Cola Company Merck & Co., Inc. Walgreens Boots Alliance, Inc.
    Dow Chemical Company Microsoft Corporation Walmart Inc.
    Exxon Mobil Corporation Nike, Inc. The Walt Disney Company

  12. Dow / Phil – Someone yesterday mentioned that these Dow moves are simply meant to compensate for the Apple split. Basically, they needed more high priced stocks to continue to distort the numbers. It's a useless index anyway but used by many as the economic indicators. Such BS!


  13. lot of volume in NAK today


  14. NAK/Coulter – My newsletter went out.  Hopefully it works out.  0.80 was our target entry with the short $1 calls at 0.45, which they are back to.


  15. Webinar time!


  16. Phil//  Trade suggestion needed.  I had sold AAPL $200 Jan. 2022 puts for $25.00 and now they are at $5.15.  I was thinking of rolling that puts to Jun 2022 $300.00 for a credit of $15.35.  Let me know your thoughts.

    Thanks.


  17. Another big finish into the close.