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The Week Ahead – 200,000 Deaths Weigh Heavily on the Market

"At least one more cycle."

That's what former FDA Commissioner Scott Gottlieb said he expects for the US as the virus moves into the fall and winter when, presumably, it's more active.  U.K. Health Secretary Matt Hancock said the country is at a “tipping point” and more measures will be taken unless people comply with rules to contain the resurgent coronavirus. He didn’t rule out national action.

There were 36,765 new cases in the United States YESTERDAY – the most new cases on the planet Earth and almost half as many people that have been affected in China, TOTAL, in a single day – yet Trump still calls this the "Chinese Virus" despite America being the epicenter of the World since March.

If, as top scientists fear, we are heading into a second cycle of viral infections, we are now starting off a base of 31,089,558 cases in September vs 100,000 in March that expanded over 300 times in 6 months.  Despite the cautions we have in place, 36,765 people in the US caught the virus yesterday – that's 1% of all the cases in the World, that's 30M cases in 100 days kind of pace.  We are FAILING to contain the virus bigly:

“We have a very serious situation unfolding,” said Hans Kluge, the World Health Organization’s regional director for Europe. For the first time, he wore a mask at the press conference on Thursday. “The September case numbers should serve as a wakeup call for all of us.”

Relax Chicken Little, The Interoperability Sky is NOT Falling! - Great  Lakes Health ConnectI'm sorry, I know this is depressing and not what we want to talk about in a stock market newsletter but this is REALITY and, as an investor, you can't afford to put your head in the sand and hide from unpleasantness because denying the reality of the situation can lead to even more unpleasantness in your portfolio when ignoring a problem doesn't make it go away.  

As noted above, the global markets are only down 2% since Wuhan was first locked down on January 23rd yet the Global Economy has taken a 20% hit in Q2 and is likely 10% down in Q3 so, if we're not out of the woods as we begin Q4 on October 1st – what the Hell are the markets so happy about?

We saw this coming (early) back on August 22nd, in our first Newsletter, where my opening line was: "GET OUT!!!"  The S&P 500 was at 3,373 at the time and we did move up to 3,600 but now we're back at 3,254 and we'll be lucky to hold 3,200 with 3,000 being a more likely target for the next down move.  

This morning, some of the largest technology companies, which helped drive the market to record highs over the summer, are now dragging it down. Sentiment has soured as investors assess an array of risks including delays to additional fiscal-stimulus packages, an increasingly heated U.S. election campaigning season, continuing tensions with China, and the threat of renewed lockdowns in many places because of higher coronavirus infections.

The worry is definitely that we’re going to see restrictions on economies and that’s going to have a big negative impact going forward,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. “There’s the noise from politicians across Europe on the threat of further lockdown, that we’ve reached a tipping point on the rate of infections.”

The Euro Stoxx Index is down 3.5% this morning and we're following suit in our own Futures.  That 8/22 Newsletter was titled "View from the Top: Hedging for Disaster" and our two primary hedges were 10 TQQQ March $125/95 bear put spread at net $11 ($11,000) and 5 (post-split) TSLA March $400/October $400 calendar put spreads at net $37 ($18,600).  

TQQQ is down to $111 this morning and the spread is $43/17 for $26,000 – a gain of $15,000 (136%) and the TSLA spread is now $90/40 at net $50 ($25,000) for a gain of $6,400 (34.4%).  While it seems like the TQQQ spread is doing better, we only sold 2 out of 8 potential months of TSLA so far and those short October $40 puts are out of the money and stand to gain another $20,000 in 25 days if TSLA is over $400.  This is how we use premium decay to our advantage in our hedges.

Since we haven't picked up too many longs in our Newsletter Portfolio, we're in very good shape for a further sell-off and I'm not in the mood to add more longs until we see how this week shakes out.  Of course there will be more stimulus but the Fed was already disappointing last week and can't reverse themselves less than a week later so it's not likely more stimulus talk is going to help as everyone focuses on 200,000 US deaths and then 1M global deaths this week so virus, virus, virus will be the week's major topic.  

On the calendar, however, we have Powell speaking to Congress Tuesday, Wednesday and Thursday so maybe he can spin us a bit higher there.  John Williams and Robert Kaplan speak this evening, Evans tomorrow, Mester and Rosengren surround Powell on Wedneday and 3 more Fed speakers on Thursday indicate that they are bound and determined to talk the markets up this week – whatever it takes (11 speeches, it seems).  

Data-wise, we have the Chicago Fed, which already showed an anemic 0.79, down from 2.54 last month and tomorrow we have Home Sales and the Richmond Fed with PMI and Home Prices on Wednesday, New Home Sales and the KC Fed on Thursday and Durable goods bringing up the rear on Friday.  Notice the Fed speeches are scheduled around the Fed reports so I don't think those reports are going to look very good – they already know that.

As predicted by our 5% Rule, we slipped to the 15% line on the S&P at 3,277 so we'll see if we can get back over that but, if we don't, we have a "death cross" on the 100-hour moving average (call it a week) moving below the 400-hour moving average (month) and that would not be good in the short-term for the markets:

Be careful out there.


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  1. Good Morning

  2. I have very little confidence investing in a country where the party in power (getting a minority of the votes) makes new rules to maintain that power. There is a name for that and it's not conducive to business…

  3. Good Morning.

  4. Good morning!

    I'm in a good mood as I left my Futures shorts over the weekend:

    Still have the /RTYs too as I was distracted doing the portfolio reviews and missed the stop out and then I decided ot leave it under 1,540, which they never crossed back over. 

  5. Big Chart – Well now we blew all the 50 dmas.  200 dma is a mile away on /NQ, not good if we head down there.  Notice the 200 dma is now the 5% line.

    Confidence/StJ – We never thought it would happen here but here it's happening and we all act like it's normal and there's nothing we can do about it – not even vote…

    Waiting to cut out the deadwood
    Waiting to clean up the city
    Waiting to follow the worms
    Waiting to put on a black shirt
    Waiting to weed out the weaklings
    Waiting to smash in their windows
    And kick in their doors
    Waiting for the final solution
    To strengthen the strain
    Waiting to follow the worms
    Waiting to turn on the showers
    And fire the ovens
    Waiting for the queens and the coons
    And the reds and the Jews
    Waiting to follow the worms
    Would you like to see Britannia
    Rule again, my friend?
    All you have to do is follow the worms

    Noémie Girard on Twitter: "Where Donald Trump becomes a great worm-mutant  creature thanks to you :"

  6. WBA holding up better than the rest. Maybe another sign it's hit bottom??

  7. Confidence – I don't know. One would think the Senate has no problems with an accurate vote count and they have been the fly in the ointment for a long time. 

    THAT'S where the change should occur. Until then, we're f*cked….


    We get the majority, it won't matter if tdump wins. He's gone by February.

  8. WBA/Jeddah – I think people are going to start looking for value stocks again as this tech bubble bursts. 

    Ouch, leg down continues!   There goes the summer gains….

    That's why I advocate taking those sensible exits – you don't have time to do it once we start dropping like this.  

    Majority/1020 – That's true, we need that Senate either way.

    I guess we'll need a 12-judge Supreme Court too.

  9. Phil,

    I have 9 TQQQ long puts for Jan 21 115. with the big dip in the morning I was thinking of selling the Sept 25th 101 Puts for around $2.40 to get some premium. But not sure whether TQQQ will reach there with more down movement. I can just wait to see where the market stop and then sell puts. What do you think


  10. going short on the /NQ pivot @ 10730.  tight stops above. What could go wrong. ;)

  11. Market is moving….because of this

  12. And now this is released…. 

  13. another one of my comments that didn't age well haha

  14. Pharm – The 2 sides of that ledger should still be very negative. On one side $2T of stuff that is very suspicious and on the other $50B of fresh money!

    Oh, and BTW, Deutsche Bank responsible for $1.2T of the $2T. Remind me again, who their customers are? And who in the US banks with them?

  15. StJ…who??

  16. BANKS/The Federal reserve knows all about. Their job is to provide cover.

  17. Yuch, down 3% on the Dow, 4.4% on the RUT.  Nas only down 1%…  /ES right at the 2.5% line at 3,225 - we'll see if that bounces.  Oil also down 5%.

    • Fundamentals are overwhelming jawboning as oil tumbles.
    • The SPDR Energy Sector ETF (XLE-5.4%) is the worst-performing sector of the day as oil prices sink on worries on further COVID-19 lockdowns and a stalemate on fiscal stimulus.
    • Crude futures ([[CL1:Com]], -5%) are back below $40/barrel, breaking a three-session win streak.
    • Saudi Arabia's energy minister helped prices last week, threatening short-sellers, who would be "ouching like hell".
    • U.S. crude inventories showed an unexpected decline last week.
    • Prince Abdulaziz bin Salman also lash

    People are so panicked they are running to the Dollar!

    • The day is still young, but Nikola (NASDAQ:NKLA) has pared its loss and is now down only 18.40% after Deutsche Bank joins JPMorgan, Cowen and RBC in defending the company.
    • By DB's reckoning, the departure of Trevor Milton from the executive chairman position could be a "clearing event" for the company due to the intense focus on his past, although the firm did lower its price target to $29 from $50.
    • For the second time in a week, General Motors has said it is standing by its relationship with Nikola.
    • Earlier Nikola defended at JPMorgan
    • The Wall Street Journal reports that Medicare won't cover the cost of any coronavirus vaccine approved under an FDA Emergency Use Authorization (EUA), consistent with current policy of not covering EUA drugs considering the lower approval standards.
    • The situation, if not rectified, could impact vulnerable seniors who represent 44M Americans (~15% of the U.S. population).
    • The Trump administration is exploring options to quickly address the issue since the Coronavirus Aid, Relief and Economic Security Act, passed in March, ensures free vaccine coverage and no out-of-pocket costs for Medicare beneficiaries.
    • Selected tickers: Pfizer (PFE -3.0%), BioNTech SE (BNTX -5.0%), AstraZeneca (AZN -2.1%), Moderna (MRNA -3.8%), Johnson & Johnson (JNJ -3.6%)
    Another one no one would listen to me on:  General Mills profiled favorably at Barron's event
    • Barron's live event today with Senior Managing Editor Lauren Rublin and Deputy Editor Ben Levisohn covered General Mills (GIS +0.4%) ahead of the company's earnings report later this week.
    • Levisohn notes the the company could be a beneficiary again if COVID cases in the U.S. increase again in the fall and leads to more pantry stocking, which could bring in some buyers if earnings satisfy.
    • General Mills has topped earnings estimates 11 quarters in a row. 
    • See the consensus estimates on General Mills.
    • Wheaton Precious Metals (WPM -3.0%)  said it is planning to list on the London Stock Exchange, though does not intend to raise capital and will retain its primary listing on the Toronto Stock Exchange and New York Stock Exchange. Seeks admission during the next quarter.
    • The company says that the listing will enhance its access to the pools of equity capital available in the U.K. and select financial centres in the EMEA region.
    • Wheaton reported stronger than expected Q2 earnings and revenues, with a 40% Y/Y increase in operating cash flow.
    • This year shares have witnessed a growth of over 70%
    • The trucking industry continues to see sequential improvement off improvement in import activity at West Coast ports.
    • "Companies are bringing in more of their containers than usual to the West Coast ports and then moving truck or rail inland from there to help with low inventory levels. They’re choosing to pay higher transport costs to keep goods in stock rather than wait for the extended transit time it takes for containers from Asia to travel all the way to East Coast U.S. ports. August container volumes grew double digits at the Ports of L.A. and Long Beach – the fastest growth we’ve seen since the rush in 2018 to pre-ship and avoid potential tariffs," notes the research firm.
    • The Cass Freight Index on shipments fell 7.6% Y/Y in August, while the truckload linehaul index was down 5.1% and the intermodal price index was off 18.9%. As shown by the Cass chart below, the index has returned to its pre-pandemic level.
    • Trucking stocks are lower on the day amid a broad market decline.
    • Sector watch: Knight-Swift Transportation (KNX -2.4%), USA Truck (USAK -4.8%), Marten Transport (MRTN -2.5%), YRC Worldwide (YRCW -6.0%), U.S. Xpress Worldwide (USX -4.6%), ArcBest (ARCB -5.3%), Old Dominion Freight Line (ODFL -3.2%), Werner Enterprises (WERN -2.2%), Schneider National (SNDR -3.0%), J.B. Hunt Transport Services (JBHT -1.5%), Heartland Express (HTLD -2.9%) and Daseke (DSKE -8.2%).

  18. phil/SI – Any thoughts here?

  19. ravi_s / SI – I bot this dip at 24.75 which historically means that you'll get a better entry point tomorrow :)

  20. /si/MrMocha- Tx

  21. ravi_s – /GC bouncing better than /SI if you just want a daytrade

  22. TQQQ/Pat – TQQQ can fall REALLY fast once it gets going.  Jan $115s are $25 and the Oct $100s are $6.50 and I wouldn't touch the weeklies as they are not liquid.  In reality, if you don't think TQQQ is going to be below $90 in the near future, you should just be cashing out $25 for your $115 puts, shouldn't you?  If you cash those in, you can pick up the Jan $115 ($25)/90 ($14) bear put spread for $11 and put a stop at $6 so you get no less than $20 off the table and possibly $14 more if TQQQ goes below $90.

    FINCen/Pharm  – This is what's amazing:

    Reporters saw more than 2,100 leaked SARs — but this is just the tip of the iceberg.

    According to the ICIJ, more than 12 million SARs were filed with FinCEN from 2011 to 2017, meaning those in the leak are 0.02% of the total.

    LOL Monk!

    /SI/Ravi – Yes:

    /SI smacked down as the Dollar bounced.  10% dip!  Gold too but I wouldn't touch either one this high, though I still like them long-term.

    /NG is the bargain of the day, testing $1.80.

    Mr M taking one for the team!  

    Actually, if you see /GC bouncing and /SI and /HG are lagging, you wait for the next one to confirm and then go long on the laggard.  See how easy these lessons are to apply?

    And, of course, watch the Dollar – if it starts pulling back – you're golden!

    We are stardust

    We are golden

    We are Billion year-old carbon

    And we've got to get ourselves

    Back to the garden

    Then can I walk beside you

    I have come here to lose the smog

    And I feel to be a cog in something turning

    Well maybe it is just the time of year

    Or maybe it's the time of man

    I don't know who l am

    But you know life is for learning

  23. Basically just gave back all the August gains. Just to show how moronic that spike was.

  24. Democrats unveil temporary funding bill to avert shutdown

  25. Less than a total disaster with a stick into the close.  What a way to start the week.  

    • A new exchange backed by Wall Street banks and asset management behemoth BlackRock (BLK -1.8%) started giving existing stock exchanges a run for their money today.
    • Members Exchange, or MEMX, executed its first trade at 7:48 AM ET today with 100 shares of Consolidated Edison (NYSE:ED) changing hands at $73.90 a share.
    • To start with, MEMX will handle trade in only seven stocks, including ExxonMobil and Alphabet. But it will open up to all U.S. exchange-listed securities on Sept. 29.
    • The other four securities initially trading on MEMX are: Acasti Pharma (NASDAQ:ACST), BlackBerry (NYSE:BB), Ford Motor 6.20% notes due June 1, 2059, and iShares Ultra Short-Term Bond ETF (BATS:ICSH).
    • The group of companies backing MEMX banded together due to their frustration over fees charged by the major exchanges — NYSE, owned by Intercontinental Exchange (ICE -0.6%), Nasdaq (NDAQ -0.7%), and Cboe Global Markets (CBOE -0.2%).
    • The new exchange plans to charge lower fees than the existing exchanges and to initially give away its data for free.
    • While it's building up trading activity, MEMX plans to pay out more in rebates than it collects in transaction fees.
    • "We’re prepared to be aggressive and lose money on every transaction to get people to participate," MEMX CEO Jonathan Kellner told the Wall Street Journal in an interview.
    • It's also hoping to gain an edge by building a better trading platform from scratch as compared with those of its rivals.
    • Besides BlackRock, MEMX's other investors include Bank of American (BAC -3.5%), Citigroup (C -2.5%), E*Trade Financial (ETFC -3.6%), Fidelity Investments, JPMorgan Chase (JPM -3.4%), Morgan Stanley (MS -3.4%), TD Ameritrade (AMTD -2.7%), UBS Group (UBS -5.8%), Wells Fargo (WFC -4.4%), and high-tech trading firm Jane Street Group.
    • It's not the only exchange seeking to take away shares from the big exchanges. Long-Term Stock Exchange, backed by a group of Silicon Valley entrepreneurs and VC firms, plans to list companies that focus on long-term strategic thinking over reaching short-term financial targets.
    • And on Friday, options-exchange operator Miami International Holdings, plans to launch trading at its first U.S. stock exchange, MIAX Pearl Equities, which is being positioned as a low-cost, tech-forward competitor to Nasdaq and NYSE.
    • Previously: New stock exchange MEMX adds Citi as investor (June 12)
    • A bill introduced in the Michigan legislature last week would block any manufacturer other than Tesla (NASDAQ:TSLA) from selling cars to customers without a dealer as an intermediary, according to Bloomberg.
    • The bill would also prevent a new company from owning and operating service and repair facilities. The legislature may vote on the bill as early as tomorrow in a development that could be negative for Rivian (RIVN) and Lucid Motors. Tesla already has an agreement with the state that allows it to deliver vehicles directly to customers.
    • "This is a bullseye on Rivian and Lucid and any EV manufacturer that would come in after Tesla does," notes Rivian VP of Public Policy James Chen. Rivian is looking to sell its R1T pickup and R1S SUV in Michigan, Illinois and California in its first market launch.
    • Saudi Arabia's Public Investment Fund is an early investor in Lucid Motors, while Ford (NYSE:F) and Amazon have stakes in Rivian.
    • Read Seeking Alpha Marketplace author Matt Bohlson's breakdown of all the EV contenders.
    • Citing valuations after the recent selloff, Stifel upgrades semi equipment companies Lam Research (LRCX +1.5%), KLA (KLAC -0.0%), Ultra Clean (UCTT +4.3%), Ichor (ICHR +1.5%), Axcelis (ACLS -0.4%), and Brooks Automation (BRKS -2.2%) to Buy.
    • The firm says the pullback has "brought several names to more attractive valuations and entry points and thus, warrant a more favorable rating and outlook."
    • Stifel is "incrementally more positive" on wafer fab equipment spending for next year and sees "more upside when all is said and done" despite the near-term uncertainties.
    • Price targets: Axcelis, $26; Brooks, $52; Ichor, $31; KLA, $211; Lam, $352; Ultra Clean, $26.
    • Indicating stalled recovery, JPMorgan analyst Gary Taylor downgraded Universal Health Services (UHS -9.8%) and Tenet Healthcare (THC -14.1%) to Underweight from Neutral (PT, lowered from $138 --> $115) and (PT, lowered from $28 -->$20) respectively.
    • Quick look at the price comparison vs. broader index (NYSEARCA:IYH):

    • National hospital revenue trends recovered by late June, but have remained generally stalled since, he added; Also, he sees an increased political overhang on the space.
    • Quick look at the revenue trends in past one year:

    • HCA Healthcare (HCA -6.3%) was dragged to Neutral from Overweight (PT, lowered from $161 -->$143) citing the aforesaid reasons mentioned.
    • While the analyst believes that HCA remains the "best-in-class" hospital operator, he is skeptical that the shares will outperform.
    • The analyst believes UHS hospital revenues must meaningfully accelerate to drive valuations higher; Q2 revenues were down 4.1% led by dip in inpatient and outpatient revenues.
    • On the contrary, SA Contributor Michael A. Gayed, CFA has a different opinion, "For investors looking to bet on hospital operations returning to normalcy, a COVID recovery, and a stronger response to a potential second wave during flu season, THC is an opportunist’s dream. It appears greatly undervalued and has outperformed its most direct competitors."
    • Cisco Systems (CSCO -2.1%) may be on a Chinese blacklist of American entities that Beijing officials are hastily drawing up, according to The Wall Street Journal.
    • Some Chinese leaders are hesitating on pulling the trigger and arguing a decision on the list should wait until after the U.S. election. But that points to struggles in China over how to respond to contentious action from the Trump administration.
    • China had first announced a plan to create a blacklist in May 2019, as restrictions against China's Huawei started to heat up. But it's resisted action up until now, even as the Trump administration has intensified pressure against companies like TikTok/ByteDance (BDNCE) and Tencent (OTCPK:TCEHY).
    • Of all the blacklists that Chinese ministries have been asked to draft, Cisco – a key Huawei rival – has made each one, the WSJ says.
    • Suddenly moving lower off the news: Acacia Communications (NASDAQ:ACIA)-1%. Fabrinet (NYSE:FN) is -2.3%. Meanwhile, optical firms are higher: Applied Optoelectronics (NASDAQ:AAOI) +5.9%; Lumentum (NASDAQ:LITE) +4.8%; NeoPhotonics (NYSE:NPTN) +1.8%.

  26. phil / general market

    are there any rules in place for financial professionals – namely banks – as to when or how they can issue upgrades/downgrades?  that must be a pretty exploited system and i assume something those with the power make use of in the best possible way (for themselves)