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Which Way Wednesday – Fed Edition

And once again the Futures are up.  

As you can see from the S&P chart, we have had some massive gaps up in

the thinly traded open and then drifted down during real trading at the end of the day.  This is like someone who works for the auction house shouting "100 Million Dollars" on the first bid for a painting to make sure the other suckers in the audience start bidding higher.

In the case of the markets, the Banksters buy up the Futures on thin trading (so it's very cheap to do) and cause the Retail Suckers to pour in and chase the momentum so the Banksters can dump their stocks all day long during real volume trading.  This is how rich people exit the market – they create a buying atmosphere and they take their profits while poor people follow their advice – which doesn't actually apply to their own actions.  You see the big brokerage houses doing that all the time, exiting positions while their analysts are pumping the Tesla stock.

We had a good day yesterday shorting the Dow (/YM) Futures from our trade idea in the Morning Report and congratulations to all who played along.  Our morning call for our Members was:

So we're sticking with our strategy of shorting the indexes (which didn't work yesterday) as we're likely to be rejected here (Dow (/YM) 28,100, S&P (/ES) 3,405, Nasdaq (/NQ) 11,475 and Russell (/RTY) 1,550) and, as usual, we can just short the laggards, which would be /ES crossing below 3,400 and /YM confirming below 28,000 – we should catch a quick ride down but the Fed goes tomorrow and that should give the marketsupport until they are disappointed by that so tight stops above!

As you can see, this wasn't rocket science, the pivot points on the Dow were 28,014 and 27,795 and we simply allowed for the pre-market BS pump job and took a stab at shorting early but once we confirmed the move below 28,000, it was a no-brained to jump in for the 200-point drop on the Dow (at $5 per point, per contract!).  This morning we're back to 28,000 again but we have a Fed Meeting at 2pm so it's not a good day to play the futures – too volatile.

Speaking of volatile, as I predicted yesterday, Retail Sales in the US are not mirroring the success in yesterday's China Report – BECAUSE WE ARE NOT CHINA!  The US has not beaten the virus, we have not put people back to work, we have not fully re-opened shops, restaurants and even movie theaters like China has and we certainly haven't gone a week without having new infections.  So why would we have the same bounce in Retail Sales that China did?

Oops I Did It Again Snl GIF by Saturday Night LiveYet that was the expectation but the REALITY is that August Retail Sales were only up 0.6% vs 1% expected AND July was revised down 25%, from up 1.2% to up 0.9% – oops!  In fact, the "Retail Sales Control Group," which filters out the more noisy elements like gasoline sales (which fluctuate more on price than demand), FELL 0.1% vs a 0.5% increase expected so, as usual, our leading Economorons are off by 120% yet they will ask these same clueless idiots to forecast Retail Sales next month as well.

It's all about the Fed today, though it's very doubtful they are going to do anything at all so it's really all about Powell's Press Conference at 2:30 and we'll see what he has to say and, of course, rumors are the stimulus bill is up to $1.5Tn but I've already said anything under $2Tn will ultimately be a disappointment but nobody listens to me…

In either case, we'll be shorting a little more aggressively as we adjust our portfolios this week but we have to wait for the Fed so we can see where things stand so it's going to be a very busy Thursday and Friday for us as we adjust our Member Portfolios.

I'm liking LNG today as Abu Dahbi took a $615M stake in the company (5.1%) and Natural Gas (/NG) prices should rise as we have a busy hurricane season in progress.  $48 is a $12.5Bn market cap for LNG and the company made $1.2Bn last year so 10x earnings is very fair.   

My timing on LNG is based on possible supply disruption as well as accelerating global warming and President Biden will be anxious to do something about that, as will other World leaders as the IMMINENT collapse of the Pine Island and Thwaites Glaciers has already caused a 5% rise in sea levels with the potential to push the oceans 10 FEET HIGHER when (not if) they completely melt down.  This is now happening much faster than sceintists thought – mostly because they thought we would do SOMETHING but, of course, we have not only done NOTHING but Ex-President Trump has reversed what little progress we had made.  

Fortunately, we have some handy maps like these to plan your next move:

This is where you can die from just being outside in the heat:

This is where your house will be under water at high tide:

A is where I live….

Purple is where farming will no longer be viable:

4 MORE YEARS!!!  Right?

Anyway, so if we have a global climate emergency then Natural Gas is one of our fastest ways to switch to alternative fuels and cut down on emissions so I think LNG will do very well over the next decade so let's do the following play in our Future is Now Portfolio:

  • Sell 5 LNG 2022 $40 puts for $5 ($2,000) 
  • Buy 10 LNG 2022 $40 calls for $14.50 ($14,500) 
  • Sell 10 LNG 2022 $55 calls for $7.20 ($7,200)

That's net $5,300 on the $15,000 spread that's $8,500 in the money to start.  The upside potential is $9,700 (183%) in 18 months and the 5 short puts have an ordinary margin requirement of just $1,183 so it's a very margin-efficient play and the worst case is you are assigned 500 shares at $40 ($20,000) plus you lose all $5,300 so your net would be $50.60 – just a bit over where it's trading now.  

In our Long-Term Portfolio, we're just going to sell 20 of the 2022 $47.50 puts for $8.50 ($17,000) and that gives us a net $39 entry, which is 18.7% off the current price against the promise to own 2,000 shares for $78,000 yet the margin on that is just $5,778 – so also nice and efficient!

 


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  1. Good morning everyone…

    Here is a link to today's webinar. Have a great day!

    https://attendee.gotowebinar.com/register/3714426665712787216


  2. Good Morning.


  3. Phil,

    Morning from Atlanta. As a QQQ spec trade on the possibility that the $1.52T aid package is passed before Congress recesses, what about a bull/credit put spread (Oct 276/270 for $2.14 credit) with worst case intentions of buying back the short 276s if the market tanks (there is no/inadequate stimulus) and letting the long 270s ride?

    Thanks


  4. Phil,

    QQQ spec option 2:

    More conservatively, using Oct 268/262 for net credit of $1.60.

    Thanks, as usual


  5. Phil/Banks

    In general, how do you think banking will fare with rates low for long periods of time?  Are there any opportunities that you see in that sector?

    Same threat, what do you think of Citi specifically.  They got a haircut, but it seems to be a bit of an overreaction. 


  6. Phil/WBA

    Good morning!

    Reminder- you were going to  WBA position in the portfolios sometime this week.


  7. Good morning!

    Same pattern again – up on now volume, down on volume.

    Nas 11,400 is the R1 line on the pivots so we'll see if they have trouble there and Dow 28,000 is key along with, of course, good old 3,420.  1,150 on /RTY too.

    Not bettable today due to Fed rumors.

    QQQ/8800 – I think we have enough bets on that one for now.  You can try that but we could have some major jolts.  As you know, I'm not a fan of those credit spreads or anything where you risk more than you can make.

    Banking/Jeff – Well it's tough for the consumer banks but great for commercial banks as they make money on the fees on the loans more so on the interest and, of course, they make money playing with other people's money.  I do like Citibank but, of course, we have no idea how many defaults there will be into the holidays if Christmas turns out to be a bust this year for travel and retail.

    WBA/Maya – I was waiting for the Fed so we can get an idea of what's really going on but if you desperately need something now, then tell me what your particular position is..

     


    • Snowflake (NYSE:SNOW) priced its IPO last night at $120, well above the initial expected range of $75-$85. That $120 equated to a valuation of $33B vs. $12.4B at a valuation round a few months ago.
    • Early indications were for the stock to begin trading at $155-$160, but things have been steadily rising, and now Bloomberg reports the opening price to be $195-$200.
    • KB Home (NYSE:KBH) gains 3.6% after Evercore ISI analyst Stephen Kim upgrades the stock to Outperform from In-Line against a backdrop of what he calls "housing's golden age."
    • He also boosts estimates and target prices for all builders that he covers.
    • Of course, all homebuilder stocks are up strongly today as the September NAHB Housing Market Index jumps to 83, an all-time high, indicating robust homebuilder confidence.
    • "In our view, the roots of this demand strength run deep, nourished by a reservoir of millennial households now springing forth, nesting and upsizing trends, accommodative housing policy, and record-low mortgage rates," Kim writes.
    • Sees share buybacks by homebuilders rising over the next few years, elevating builder returns and valuations.
    • Homebuilder stock movement by name: D.R. Horton (DHI +2.6%), Lennar (LEN +3.4%), MDC Holdings (MDC +1.1%), Meritage Homes (MTH +1.1%), NVR (NVR +2.6%), PulteGroup (PHM +2.7%), Toll Brothers (TOL +2.5%), TRI Pointe Group (TPH +1.8%).
    • Compare KBH's total return with ITB and S&P 500 over the past six months
    • Delta Air Lines (DAL +2.2%) will raising $9B in new bonds in what Bloomberg call the largest debt deal ever in the aviation industry.
    • Sources indicate that Delta is looking to borrow bonds maturing in five years and eight years, with yields expected to range from around 4.75% to close to 5.00%. The company's SkyMiles program will back the debt.
    • The debt raise is up from an original $6.5B, which was made up of $4B of bonds and $2.5B of loans.
    • See what Delta's balance sheet looked like at the end of Q2.

    • Former Goldman Sachs CEO Lloyd Blankfein tells a CME metals briefing it’s “probably a good time” to put money to work in commodities, Bloomberg reports.
    • “From an inflation point of view, as an investor, I think investing in material sectors while they’re under-appreciated is not a bad thing now,” Blankfein says. “Now probably is a good time.”
    • He disagrees with the view that “we’ll never have inflationary pressure again” and that “oil prices will never go up again,” but was more hesitant on gold and silver, saying “it’s been so long since those metals played a role as a store of value”.
    • Crude futures (CL1:COM) are up more than 3% today, but are still down nearly 40% in the past year. Spot gold (XAUUSD:CUR) is up more than 30% and spot silver (XAGUSD:CUR) is up more than 50%.
    • ETFs: (NYSEARCA:USO)(NYSEARCA:GLD)(NYSEARCA:IAU)(NYSEARCA:SLV)
    • EIA Petroleum Inventories: Crude -4.4M barrels vs. +1.3M consensus, +2.0M last week.
    • Gasoline -0.4barrels vs. -0.2M consensus, -3.0M last week.
    • Distillates +3.5M barrels vs. +0.6M consensus -1.7M last week.
    • Futures (CL1:COM +2.6%)

    Not much of a net fall, $40 might make a good shorting line on /CL (tight stops above).

    So $37.50 back to $40 is $2.50 so 0.50 is a weak retrace back to $39.50 and then $39 is the strong retrace. 


    • Roth Capital Markets drops Wynn Resorts (WYNN -4.8%) to a Neutral rating from Buy.
    • Analyst David Bain point to several factors in the cautious outlook for Wynn, including a peer-high Macau VIP reliance combined with VIP liquidity risks, heightened concession renewal risks for U.S. operators, lesser Cotai weighting versus peers MLCO and LVS and likely sustained softness for the Las Vegas business.
    • Looking at the price target math, Bain notes that each valuation turn (EV/EBITDA) equates to about $13 per share in either direction. "Our estimates infer shares would trade for ~$57, ~$70, ~$83 and ~$96 at 11x, 12x, 13x and 14x CY22E EV/EBITDA, respectively," he writes.
    • Roth's sum-of-the-parts valuation on Wynn is $75 vs. the average Wall Street price target of $98.76 .
    • Read Roth's breakdown of MGM.
    • Roth Capital Partners lowers its rating on MGM Resorts (MGM -3.4%) to Neutral from Buy on what it sees as a tough setup for the casino company.
    • "Given a decoupling of real-estate holdings, MGM has become a more volatile equity vehicle, highly levered to the Las Vegas Strip. The cyclical, competitive, capital intensive nature of the Strip combines with a basket of well-known macro/specific travel and Las Vegas negatives, seemingly dismissed by investors since IAC took a 12% stake in MGM," warns analyst David Bain.
    • Bain also points out that Macau concession renewal and other risks are heightened for U.S. operators in the current environment.
    • Adding it all up, Roth assigns a sum-of-the-parts valuation of $19 to MGM. The average Wall Street price target on MGM is $19.98. Shares of MGM have ranged from $5.90 to $34.64 over the last 52 weeks.

    • September Atlanta Fed Business Inflation Expectations+1.6% vs. +1.7% in August.
    • Current economic environment: Sales levels and profit margins "compared to normal" continued to improve over the month, though they remain at historically low levels. Year-over-year unit cost growth decreased significantly to 1.3 percent, on average.
    • July Business Inventories+0.1% to $1,914.3B vs. +0.1% consensus and % -1.1% prior.
    • Sales +3.2% to $1,441.1B (M/M)
    • Inventory/Sales ratio 1.33.
    • Volvo Group's (OTCPK:VLVLY +0.5%) American subsidiary Mack Trucks seeks to commercialize the Mack LR Electric, its revolutionary refuse model equipped with a fully electric integrated Mack drivetrain.
    • Orders for the Mack LR Electric will open in Q4, deliveries scheduled for 2021.
    • The LR Electric was introduced as a prototype in 2018.
    • "The LR Electric is paving the way toward widespread acceptance of zero-emissions refuse trucks," Mack Trucks president Martin Weissburg commented.
    • General Motors (GM +1.0%) is out with its official announcement on the new Ultium Drive program.
    • The automaker says next-generation EVs are set to be powered by a family of five interchangeable drive units and three motors. Ultium Drive is expected to help the company transition its current portfolio to a fully electric lineup, providing significant advantages over GM's previous EVs in performance, scale, speed to market and manufacturing efficiencies.
    • What is Ultium Drive exactly? The platform is said to combine electric motors and single-speed transmissions to apply power – generated by Ultium battery cells – to the wheels of GM's upcoming electric vehicles.
    • "Ultium Drive will be more responsive than its internal combustion equivalents with precision torque control of its motors for smooth performance."
    • Will it be the jolt to get GM shares moving out of their five-year slog?
    • A new study from lobbying group Semiconductor Industry Association and Boston Consulting Group says the U.S. should spend $50B to remain the leader of the global semiconductor market.
    • The SIA says the federal incentives would fund 19 new chip facilities (and 70K high-paying jobs) in the U.S. over the next decade.
    • “With swift, ambitious action, the U.S. government can help turn the tide of decades of decline in the share of global chip manufacturing done in the U.S., which now stands at only 12 percent, and make America one of the most attractive places in the world to produce semiconductors," says Keith Jackson, ON Semiconductor CEO and SIA chair.
    • The study notes that U.S.-headquartered companies account for 48% of the world's chip sales but U.S.-based fabs only make up 12% of the global manufacturing capacity. And the fab figure includes overseas facilities operated by a U.S. company.
    • The semiconductor is often in the middle of the U.S.-China trade tensions. Reports recently suggested that the U.S. could blacklist SMIC, China's largest chipmaker.
    • The Philadelphia Semiconductor Index is up nearly 21% YTD compared to the 27% gain for the broader tech sector (NYSEARCA:XLK). The VanEck Vectors Semiconductor ETF (NASDAQ:SMH) is up 23% YTD.
    • Image source: Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing report.

     


  8. Phil,

    Thanks for the cautionary QQQ thoughts.


  9. Hang in there…We are experiencing technical difficuties. Phil has to reboot, Let's try 1:15


  10. Andy

     Are you taking Greg place  ?

     If yes would you please send me a e mail please

     

    qcmike@hotmail.com


  11. Here's the new link for today's webinar.

    https://attendee.gotowebinar.com/register/3448039187562307851


  12. Sorry about that, when MSFT forces an update it screws everything up and I only use the webinar computer to travel (what's that) or for webinars so it had to go through the cycle again.

    We're back on at 1:15 and Andy will post new link.


  13. Phil/WBA

    In no rush to know about the position. I am sitting just fine with the 2022 spreads.

    Take your time, Sir


  14. GE up over 10%


  15. I think the rally off the Fed is silly and, of course, 3,420 is our shorting spot on /ES (as I mentioned in the Webinar) so tight stops above.  

    The Fed said nothing new at all yet we rallied?

    WBA/Maya – Tomorrow. 

    GE/Ati – Wow.  Amazing how they suddenly become more valuable.

    In the Webinar we were still liking IMAX and M and LNG from above though LNG is already popping.

    For Macy's it was (I'm changing the year):

    • Sell 20 M 2023 $7 puts for $3 ($6,000)
    • Buy 50 M 2023 $5 calls for $3.70 ($18,500)
    • Sell 50 M 2023 $10 calls for $2 ($10,000)

    That's net $2,500 on the $25,000 spread so good for a 10-bagger if M gets their footing back.

    IMAX is now going to 2023 but the spreads are all over the place so we'll have to wait a bit.

    LNG has popped a lot, now $50.44 but we can adjust it as:

    • Sell 5 LNG 2023 $45 puts for $9 ($4,500)
    • Buy 10 LNG 2023 $40 calls for $18 ($18,000) 
    • Sell 10 LNG 2023 $55 calls for $11 ($11,000)

    That's net $2,500 on the $15,000 spread so $12,500 (500%) of upside potential at $55 and we've got 2.5 years to get there.  


  16. That did not end well, did it?



  17. Americans Keep Spending, but Growth of Retail Sales Slows