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TGIF – The Holidays Can’t Come too Soon

Wow, what a day!

I know some of us forgot that markets don't always go up.  As I have been warning you for quite some time, they can go down very violently after these low-volume rallies.  I think the worst thing about yesterday's sell-off is that there wasn't any particular bad news and, in fact, we're being promised vaccines by Election Day (what a coincidence) and whether they work or not is certainly not the point from the same people who gave us hydroxychloroquine and suggested we drink bleach and inject sunlight into our bodies.  

Remember from last week that 3,420 is our support line on the S&P and that's 20% above our must hold line at 2,850 (see "Toppy Tuesday – As Usual").  We're not there yet, with the S&P bouncing off 3,420 yesterday but, if that breaks – there isn't any real support on /ES (S&P 500 Futures) until we hit the 50-day moving average at 3,300.  That makes shorting /ES below the 3,400 line a high-probability play where we can keep tight stops above it and hopefully catch a ride down to 3,300, which would pay $50 per point, per contract or $5,000 per contract.  

What we have, so far, is just a minor correction and, if we hold that 20% line, we're still in a very bullish market. What matters now is how much of a bounce we get from yesterday's drop, which began at 3,590 on Wednesday (see "Record High Wednesday – Up, Up and More Up"), which is 5% over the 20% line which is what we call a "normal overshoot" in our 5% Rule™, which also tells us that we can expect at least a 20% bounce (of the drop) off 3,420 so it's a 170-point drop so a 34-point bounce (weak) takes us to 3,455 and another 34 points (strong) would be 3,479 so those are the lines we'll be watching this morning.  

A failure of the weak bounce on the first day after a drop is a very bearish sign and, by day two, which is all the way to Tuesday now with the Holiday Weekend, would also be a bearish sign while clearing the strong bounce line on the first day indicates a V-shaped recovery and that would mean it was the drop that was the outlier, not the rally.   See how easy that is? 

So easy, in fact, that the same shorting lines we used on Tuesday were in play yesterday as I said to our Members in our Live Trading Chat Room at 10:46:

Still our shorting lines:  

  • Dow 28,750
  • S&P 3,500 
  • Nasdaq 12,000 
  • Russell 1,585 

The Dow bottomed out at 28,150 for a gain of $3,000 per contract, the S&P bottomed out at 3,440 for a gain of $3,000 per contract, the Nasdaq collapsed to 11,600 for a gain of $8,000 per contract and the Russell bottomed out at 1,540 for a gain of $2,250 per contract.  We also had our long play on Gasoline (/RB) that we featured in Wednesday's Live Trading Webinar and that was good for $1,200 per contract as well – exactly the pop we were looking for!  

We did have 1.4M new jobs added in August so that's good and, officially, the Unemployment Rate is down to 8.4% from 15% in April so about 1/2 of the laid-off workers are back on the job after 4 months but there was a lot of temporary hiriing for the Census and a lot of discouraged workers.  On the whole, there are 11.5M fewer jobs today than there were in February.  29M people were receiving State or Federal assistance as of last month.  

“We are in the hole by millions, and the longer we stay in that hole, the more people will suffer,” said Martha Gimbel, economist at Schmidt Futures, a philanthropic initiative.

Some companies that reopened in late spring and early summer hired back a portion of their furloughed workers but aren’t seeing enough demand to bring employment back to precrisis levels.  Many businesses must operate under government-mandated capacity restrictions and consumers remain cautious about venturing out, reducing employers’ need for new workers.  In fact, another reason there was no way Trump would allow school openings to be delayed was that it would cause 4M teachers to be laid off and that would make him look bad – so he is risking their lives and the lives of all of our children and grandchildren to give us this 1.4M gain.

4 more years!?!??????

Have a great holiday,

- Phil

The kingdom is ransacked

The jewels all taken back

They put up a poster saying: "We earn more than you

We're working for the clampdown

We will teach our twisted speech

To the young believers

We will train our blue-eyed men

To be young believers"

The men at the factory are old and cunning

You don't owe nothing, boy, get runnin'

It's the best years of your life they want to steal

In these days of evil Presidentes

Working for the clampdown

But lately one or two has fully paid their due

For working for the clampdown

No man born with a living soul

Can be working for the clampdown

Kick over the wall, cause governments to fall

How can you refuse it?

Let fury have the hour, anger can be power

Do you know that you can use it? – Clash

 


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  1. Jeffdoc / PHIL – From yesterdays discussion….  Adding here in hope we can get some ideas going. 

     

    Batman, how about Vegas brands, MGM, Wynn, etc. Airlines – along with your travel premise.

    I would be interested in the big medical device companies. Elective procedures have been slow to come back, so some relief opening up proceduralists to go full speed should benefit them – MDT.

    Disney – I think Phil has commented on this one recently, but they should fair better once we get moving around again. 

    Penn National Gaming – getting lot of publicity due to Dave Portnoy and his antics on twitter etc. But, I can see the premise, sports betting will be big once sports are back. People are hungry for their loved pastimes to come back.

    I agree with your thought that Trump will push for a vaccine to be released, he's illustrated his intent to manipulate this entire event as a means to push the market higher, and the timing of it will be deliberate. Whether or not the vaccine is entirely ready, or best available is a different question – one I think most logical people understand is not likely. Safe enough will be good enough for this President.  Not the case for many of us, but for him it is.

     

    Ignore this user

    Jeffdoc / Vaccine…. Those are good areas that you brought up… all good.. Gambling is good, gamboling travel.   – PENN though has already risen back to previus levels WYNN is good, LUV is good as well.  The issue is I don't know these companies as well so I think we need to collectively study this and figure out which companies within these areas is a high quality co, and pick some to develop a trade set ups - I've been scanning – MCD, DBUX, DIS, PLAY, LYV, MGM, WYNN, BA, EXPE, HLT, MAR, URBN, AMC ECL, PENN, LUV. MDT, SYK may be good as well…


  2. PHIL / Jeff / MDT – I think this is the leader in the joint replacement and also moving into diabetes maintenance… I researched them last year and they just got a new CEO who wants to focus on growth  I have them at a Price target of 130 in 2 years….  this may be a good one to look at …. Phil thoughts?


  3. Good Morning.


  4. PHIL / MDT – what about a .jan 22 – 100 / 120 BCS with a putter at 100 or 105?


  5. Phil/XOM – What are your thoughts on XOM?  Are they solely dependent on the price of oil?  I was wondering if the dividend is safe (8% as of last quarter – I am reading conflicting opinions.  Thoughts from anyone?


  6. Good morning!

    Yeah I missed that conversation last night actually.  

    Hotels:  We are not out of the woods and we don't have an effective vaccine.  I cannot believe your premise for jumping into these stocks is that Donald Trump says he'll have a vaccine in November?  ARE YOU INSANE???  

    MAR, for example BORROWED massive amounts of money to stay afloat during the crisis.  They took on debt not to buy properties or build new hotels but to AVOID going out of business and now you, the new shareholder, will be paying that debt for many years to come.  The good thing about MAR, at least, is they are somewhat less affected than other hotel chains because they have a very high percentage (99%) of either Franchises (58%) and Managed Properties (41%).

    The company furloughed 2/3 of its workforce and its executives have taken drastic pay cuts, thereby reducing its daily cash burn. The interest expense of the company’s debt comes to roughly $100 million per quarter which is a manageable amount. I am assuming given Marriott’s Baa3 credit rating, it should be relatively easy to roll over any debt due. Marriott's credit rating is still above investment grade and we are still in a low interest rate environment.

    Still at 20% occupancy, there's no amount of staffing cutbacks that are going to help (70% is normal) and how fast will we be back to "normal" and what is normal and what additional costs will there be and how quickly will businesses want to incur travel expenses again and when will conventions happen again and when will people feel like they can afford and or risk a vacation again?

    You can borrow money to avoid bankruptcy but surviving another quarter doesn't mean you are "healthy"!

    While MAR may have the ability to raise cash – what about their Franchisees and the properties they manage?  This may be the flaw in Marriott's model – they have to depend on the ability of thousands of relatively small operators to stay in business or they will suffer long-term risks to their revenue stream.

    And is that a bargain?  NO!  Not at all….

    And that is the BEST of the hotel/travel sector.  Next…

    Medical devices/Jeff – Did they not make the devices or are they just not being used.  If they made them and they simply weren't used, then how is it a boost when the stockpile begins to go back down?  

    DIS is another dangerous play and not cheap enough here that I'd initiate.  

    You guys are all stir-crazy – you need to get hobbies other than trying to force yourself to like stocks so you can throw money at them!  

    PENN – $7.3Bn for a company who's best year was $473M and that was an outside profit, ordinary proifts maybe $100M if all goes well so 70x for what?  They are not even cheap!

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

    2,591 2,838 3,034 3,148 3,588 5,301 4,117 3,473 4,789 15.4%
    Operating Profit
    $m

    257 468 543 422 613 572 -535     17.3%
    Net Profit
    $m

    -184 0.686 109 473 93.5 43.9 -871 -847 110  
    EPS Reported
    $

    -2.34 0.007 1.10 7.82 0.932 0.373 -7.37      
    EPS Normalised
    $

    -1.01 0.302 1.08 8.74 1.20 1.08 -3.11 -6.28 1.07  
    EPS Growth
    %

        +256 +712 -86.2 -9.93        
    PE Ratio
    x

              49.7     50.3  
    PEG
     

                    0.734  
     

    XOM/Jeff – We gave up on them.  Look at oil now.  

    Look at the indexes now – weak bounces failed and down we go! 


  7. At least these guys are still great (3 years ago):


  8. What great quality!  


  9. are we shorting ES yet?!


  10. LOL! Phil, they are just ideas. It's ok if you think they suck, we are just thinking here. I don't think anyone is diving head first into these things.  And I'm with you, Trump is just saying things about the vaccine, that's why yesterday I suggested we WAIT until there is data to make decisions about it. Investment decisions as well. 

    Ok, gotta operate. See you all next week!


  11. Cut/jeffdoc – surgeons gotta surge, epidemiologists gotta, ummm, count? oh, well.


  12. AVGO – Strong Quarter – beat on top and bottom lines… also grew business and GM and OPmgn were higher.  Wireless weak, SW infrasture and CLOUD strong.  Wireless will have a 50% growth YOY in Q1 '21 and Q@ will also grow by 50% ….. AAPL launch is / volumes are in OCT with Jan Quarter also strong..  has supply constraints in SI materials ( substrate).  Div will increase in Dec to $14 per year.  I'm reviewing my models but it appears they have significant upside probably a price target of 340 to 380  … 


  13. /ES & /NQ

    Phil – You mentioned 3300 as a potential stop for ES shorts. What's the stop point for NQ?


  14. AAPL/Phil     A while back, you said to someone in chat, I don"t remember who, "sell the June 22 $350 puts when you can get $50-60.   

    We are almost there.  Post split, it would be the $87.50's    460 of them have traded today,


  15. NQ 11,000 is a possibility….


  16. phil! i think the team needs your thoughts on shorts! ;)


  17. Second that)


  18. /ES/Monk – You mean like this?

    Remember from last week that 3,420 is our support line on the S&P and that's 20% above our must hold line at 2,850 (see "Toppy Tuesday – As Usual").  We're not there yet, with the S&P bouncing off 3,420 yesterday but, if that breaks – there isn't any real support on /ES (S&P 500 Futures) until we hit the 50-day moving average at 3,300.  That makes shorting /ES below the 3,400 line a high-probability play where we can keep tight stops above it and hopefully catch a ride down to 3,300, which would pay $50 per point, per contract or $5,000 per contract.  

    What we have, so far, is just a minor correction and, if we hold that 20% line, we're still in a very bullish market. What matters now is how much of a bounce we get from yesterday's drop, which began at 3,590 on Wednesday (see "Record High Wednesday – Up, Up and More Up"), which is 5% over the 20% line which is what we call a "normal overshoot" in our 5% Rule™, which also tells us that we can expect at least a 20% bounce (of the drop) off 3,420 so it's a 170-point drop so a 34-point bounce (weak) takes us to 3,455 and another 34 points (strong) would be 3,479 so those are the lines we'll be watching this morning.  

    A failure of the weak bounce on the first day after a drop is a very bearish sign and, by day two, which is all the way to Tuesday now with the Holiday Weekend, would also be a bearish sign while clearing the strong bounce line on the first day indicates a V-shaped recovery and that would mean it was the drop that was the outlier, not the rally.   See how easy that is? 

    Remember, I can only tell you what is likely to happen and how to profit from it – the rest is up to you…

    Ideas/Jeff – Well I need to make sure people understand why they suck.  Like the vaccine, we are not sure the stimulus will work and we have a very sick economy that has already been infected.  We just need to wait for better information – tedious as that is.  

    As long as there is ONE stock that's a good deal (WBA!), I don't feel pressure to do anything with my cash other than wait.  Good stocks always go on sale if you are patient.  Gosh, you can even buy TSLA for $380 again… cheeky

    Submitted on 2020/09/02 at 10:22 am

    TSLA diving to $450.  We have a huge loss on our short Jan $380 calls in the STP but they have so much premium in them (50%) that I'm not inclined to change them.  I still think the target is very fair and we also have the short 300 puts post-adjustment.

    11,200 should be bouncy on /NQ (jij) and of course 1,500 on /RTY and we'v got 3,350 on /ES and 27,750 on /YM so expect a bounce here and we'll see how that one goes now.

    AVGO/Batman – Not at all affected by the virus.

    AAPL/Stock – Still the right target but I'd take the money ahead of the weekend, not wait.  

    What about the shorts, Monk?


  19. Phil, right there with you on ES with 2 contracts. Just wondering where your stop might be

    thanks!


  20. Survey: 35 Percent of US Companies Do Not Know When They'll Reopen Workplace

    -- Vaccine not a deciding factor: Just 5 percent say wide availability of vaccine would guide reopening plans --

    -- Some employees overlooked: About 60 percent of companies consulted employees about comfort levels in returning --

    -- Inconsistent testing standards? Only 67 percent are requiring screening, testing, or temperature checks --

    -- Top worker safeguards: Companies are buying PPE, creating social distancing rules, prepping workspace for return -

     

    https://www.prnewswire.com/news-releases/survey-35-percent-of-us-companies-do-not-know-when-theyll-reopen-workplace-301123685.html


  21. USO/Phil – I have 10 short USO Sept 18, 2020 $29 puts, sold at
    $0.30. They are now about $1.00.  I would like your suggestions for
    rolling them. Thanks.


  22. Phil / AAPL and AVGO – AAPL – I closed. all the BCS  early this week, that had made money this year, as well as a small percentage of stocker the last 2 months ….  nice profit.   waiting for 80 to 90 to get back in…. selling some puts.   

    AVGO. I sold out my BCS when they popped at 34 nice gain.  , hoping for a pull back.   I think they will have the best 12 to 24 months coming up…. 5G will be very significant for them.  they cover storage, wireless, and telco….  I'm selling puts at 300 and have .  I have a few hundred shares ( nice dividend ) at a 180 price and want to load back up on these at 300 ish…  small BCS as well.  If they pull back I want to load up I updated my model with the color they gave…  in addition to the below – they should have a dividend of $14 / sh starting in Dec, which provides some support.

    EPS

    '20 at $21.95,

    '21 $25.20

    '22 at $27

    with a PE of 14 ish we're at a price range of 355 to 375…   

    What do you. think?


  23. PHIL / AVGO. I sold out my BCS when they popped at 340 nice gain.  , hoping for a pull back.   I think they will have the best 12 to 24 months coming up…. 5G will be very significant for them.  they cover storage, wireless, and telco….  I'm selling puts at 300 and have .  I have a few hundred shares ( nice dividend ) at a 180 price and want to load back up on these at 300 ish…  small BCS as well.  If they pull back I want to load up I updated my model with the color they gave…  in addition to the below – they should have a dividend of $14 / sh starting in Dec, which provides some support.

    EPS

    '20 at $21.95,

    '21 $25.20

    '22 at $27

    with a PE of 14 ish we're at a price range of 355 to 375…   

    What do you. think?


  24. back into /ES short 

    stop @3401


  25. hi phil, are you back in /rb at 1.16


  26. Stop/Monk – As noted above, out already.  When we think some lines are going to be bouncy and they are, in fact bouncy – WE GET OUT.  Why ride out the bounce?  If the bounce lines break down, then it's back to shorting the laggard with tight stops above and you can calculate those bounce lines with the same 5% Rule.

    3,390, 27,850, 11,500, 1,525 – those are the likely bounces and, if they fail, we short from there.

    You shouldn't need to be told to take a $5,000 per contract profit off the table and if you make $2,000 then $1,500 should be your stop and $3,000, $2,000 should be your stop and then -$1,000 after that until you're at $7,000 and then maybe let the stop be $5,000 if you are insanely greedy but, since $7,000 is 40% more than $5,000 and very unlikely, why on earth would you wait to stop out once you hit $5,000?  

    THEY ARE NOT PROFITS UNTIL YOU CASH THEM IN!!!

    Companies/Tx – 10% of the companies are going out of business, hard to hire back when you aren't there any more.  So then it takes what, 1/2 the companies to cut 20% and then there's another 10% of the workforce not coming back at all so that's 15-20% so 30M jobs out of the economy and a booming economy creates maybe 2M jobs a year so we're about 15 year out, maybe 7 great years out of returning to normal.  I know the President thinks someone can wave a wand and it will all go away but

    Shoot, I thought I sent this ages ago!



  27. Graduates of Elite Universities Get Paid More. Do They Perform Better?




  28. Vaccines – here's a good wrap up of where the covid19 vaccine race is right now: https://blogs.sciencemag.org/pipeline/archives/2020/09/03/coronavirus-vaccine-roundup-early-september


  29. Above 3420


  30. /NG flying higher.

    USO/Sag – The problem with USO is there's a lot of decay so, even if oil is flat you lose money.  I'm not bullish on oil but maybe something like VLO, who are a solid refiner and actually can do well when oil is cheap (and demand comes back).  You can sell their 2022 $35 puts for $4.50 and sell just 2 of those to get most of your losing USO money back.  VLO makes $3Bn in a normal year and $51.50 is $21Bn in market cap.

    It's the same reason I like a miner like GOLD vs GLD – the miner can still make money when GLD goes lower.  

    AAPL/Batman – Very nasty correction but they were so stupidly high.  Someone said something about physics, I think….

    I love AVGO but $150Bn around here has all that good news pretty much priced in.   

    Year End 3rd Nov 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Total Revenue
    $m

    4,269 6,824 13,240 17,636 20,848 22,597 22,891 23,548 25,025 39.6%
    Operating Profit
    $m

    438 1,632 -532 2,205 5,029 3,444 3,399     51.0%
    Net Profit
    $m

    263 1,364 -1,739 1,692 12,259 2,724 2,510 9,664 10,791 59.6%
    EPS Reported
    $

    1.16 4.95 -4.45 4.03 11.6 6.46 5.59     41.0%
    EPS Normalised
    $

    1.71 5.44 -2.36 5.12 12.1 7.72 5.94 21.4 24.0 35.3%
    EPS Growth
    %

    -19.4 +219     +137 -36.4 -38.2 +177 +12.1  
    PE Ratio
    x

              45.6 59.3 16.5 14.7  
    PEG
     

              0.258 0.336 1.36 1.76  
     

    I agree $350 is fair but it's not a bargain so why would I buy it.  I like to buy bargains.  

    /RB/Tommy – I would have been if I had been paying attention.  Right on the S2 pivot too.

    3,420/Coulter – But still failing the weak bounce – that's still bad for the day but bets the alternative we almost saw. 


  31. Looks like they might use AAPL to get the weak bounce (they are trying)


  32. /ES bouncing between 3350 & 3450


  33. Phil / AVGO – I'll keep an eye one this one….  it may drift down a bit….. analysts had it over PT at 400 to 450 today


  34. WBA stock price is down today – but all the 2022 call options are up — only a tiny bit but still seems weird.




  35. Take Five: ECB takes the hot seat



  36. WBA/Jeff – The high VIX is keeping the prices up on long options.

    Well, that could have been worse. 

    Have a great weekend folks,

    - Phil



  37. Tesla and the audacity of hype





  38. No S&P for TSLA!

    Best No Soup For You GIFs | Gfycat





  39. Pentagon reaffirms Microsoft as winner of disputed JEDI deal






  40. The Trump campaign is broke