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50-Point Friday – The Week Finishes on a High Note

Not a bad week.  

Especially if we ignore Trump's "No stimulus" hiccup on Tuesday night but the market qickly reversed itself again and got back on the pre-programmed path of onwards and upwards we default to whenever there's not enough news to cause any volume of selling.

Market volumes have indeed been anemic this week and all it took were 90M S&P ETF (SPY) transactions on Tuesday to knock us down 80 points in two hours.  That was more trading than we had in any two other days this week as we haven't had any serious market volume since early Sepember, when the S&P 500 fell 15% and, before that, early June, when the S&P fell 10%.  This is a very low-volume rally and that's a very dangerous kind to invest in at they can easily pop – like a bubble!

Date Open High Low Close* Adj Close** Volume
Oct 08, 2020 342.85 343.85 341.86 343.78 343.78 44,892,400
Oct 07, 2020 338.12 341.63 338.09 340.76 340.76 56,999,600
Oct 06, 2020 339.91 342.17 334.38 334.93 334.93 90,128,900
Oct 05, 2020 336.06 339.96 336.01 339.76 339.76 45,713,100

Take a look at the NYSE's total trading volume this summer, down about 50% and our trading volume had already been low the past few years, now it's below what used to be half-day holiday levels on a daily basis.  

That certainly hasn't stopped the market from being volatile but it does make it easy to maniplulate because it's cheap to manipulate it when very small amounts of trading can make a very big difference.  That's why a tweet from the President can send the entire market down 2.5% ($2.5Tn) and then back up again the next day, even though only 100M shares of SPY were traded at $335 ($33.5Bn).  That's a 75x leverage ratio for your manipulating Dollar – what a bargain!  

Then conside that most of our "rallies" come in the very thinly traded futures and you can see that, with just a few hundred Million Dollars, you can make the market dance pretty much any way you want and our Federal Reserve and this Administration are pumping Billions of Dollars into stocks and bonds every single day to prop up the markets so the President can tell you how great the economy is doing – even as one out of 5 businesses that were open last year are closed this year.  

32.9M Americans (10%) were collecting unemployment benefits in July yet the "official" unemployment figure was 17.8M. In it's most recent report, the Government claimed that on 12.6M (8%) people were unemployed but that's very hard to square with what each and every one of us are able to observe among our friends and family.  

Even 12.6 is still double the amount of people that were unemployed in February – hardly what a normal person would call a "great" economy yet, if you repeat a lie often enough there are plenty of gullible people who will believe it – that's something Hitler's propaganda chief, Joseph Goebbels, used to say and, oddly enough, "My New Order" was our President's favorite bedside book – besides the bible, of course

Meanwhile, the only chart that really matters is this one:

The US is not the worst country on Earth when it comes to rates of infection – we are second to India, though we still have more total cases than a country with 4 times our population but they are catching up, with almost 7M cases now vs 7.6M in the US.

With 212,000 Americans dead from Presidential neglect, we'll be over 240,000 dead by Election Day and close to 350,000 dead by the time Biden is sworn in and it will still take a while to clean up Trump's mess so we're looking at 500,000 people dead into next year – twice as many as we have now and that's only IF we enforce more stringent rules that will NOT be good for the economy.

Still, 3M Americans die every year so, as our President says "it is what it is" and the country will move on.  The economic aftermath may be long and painful but we'll get through it and we're happy to hold our blue-chip stocks but only if they have reasonable valuations.  Fortunately, many do and we'll be concentrating on those next week, as we reveiw our portfolios into Friday's expiration and, after that, EARNINGS SEASON!

Have a great weekend,

- Phil

 


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  1. Do I sense sarcasm in your last sentence? Poor fellow is still miracle recovering from Corona.


  2. Good Morning.


  3. Good morning,


  4. Who said it:  Hitler, Mussolini, Stalin or Trump?

    “Beauty and elegance, whether in a woman, a building, or a work of art, is not just superficial or something pretty to see.”

    “I'll turn my life into a masterpiece.”

    “The world belongs to the man with guts!”

    “A single death is a tragedy; a million is a statistic.”

    “Good people don't go into government.”

    “It is better to live one day as a lion than 100 years as a sheep.”

    “A little hyperbole never hurts.”

    “It is not the neutrals or the lukewarms who make history.”

    “In the end, you're measured not by how much you undertake but by what you finally accomplish.”

    “Gratitude is a sickness suffered by dogs.”

    “Success is the sole earthly judge of right and wrong.”

    “In most cases I'm very easy to get along with.”

    Answers, T, M, H, S, T, M, T, H, T, S, H, T

    Remember Wednesday, when Biden was talking about Trump's incredible success with manufacturing?

    Boy, he really does try to undo everything Obama accomplished! 


  5. Saguaro; Thanks for your input. I am impressed by his School- Hamilton. David Solomon is an Alum. and on the Board of Trustees. It helps to have about 1BB endowment with only 1,850 students. Believe or not, that's about middle of the pack among peers. Like a lot of things, it's about the money. Williams and Amherst have over 2.5BB!


  6. Phil,the SPWR spinoff MAXN.would you buy the stand alone company today?


  7. Just out curiosity did any one even see my Wednesdays and Thursdays comments on ABBE and BHP not to mention the discussion on AYX, I am not even sure if Marcel finally got my point???


  8. Phil I like your four heroes, they all will be remembered in history


  9. Hi Phil, could you explain again your point in AYX? I need more time to get faster. Tks



  10. IBM Splits Into Two Companies



  11. ETHE strong buy


  12. Atlas Coughed






  13. Phil / IBM – I think the split is great and new IBM ( cloud) will do great…. I have the following positions and am thinking of closing out as I'm not clear on how the new co will be valued after slit and how the options will react. Do you understand the new company mkt cap / pricing?  I can close out at a small gain and wait for new co options to price…   Would like your view.

    Jan '22 BCS 110 / 130 ( 9) 

    Jan '22 BCS 120 / 140 ( 6) 


  14. Will there be a bidding war for xlnx?


  15. marcel/taxes   Be mindful of what you read.  <$$$


  16. 1020 you are right. but in this case, he spoke several times in public and vice president also as well. They are committing suicide by talking nonsense. Talk about up taxes is really nonsense.
    The wise man already said: it is easier to deceive people than to convince them that they have been deceived. We are in the age of untruth.


  17. BDC – why the ETHE buy premise?


  18. Analysis: That Gallup poll doesn’t say what Donald Trump thinks it does


  19. Sorry, went to the bank 2 hours ago to get something done and it took forever.

    MAXN/Tstep – I forgot about those guys.  We're supposed to have some of that stock and we never got credit for it in the portfolios.  They are the panel manufacturing part of the deal and yes, I like it.

    AYX/Marcel – My point was simply to clean up the position and pick a direction and let it play out.  My adjustment went back to the basics of having a long spread with some short calls and short puts for income while you wait.

    ETHE/BDC – The way our currency is going, crypto may be the answer.  

    IBM/Batman – No, I haven't looked at it carefully, remind me on the weekend.  The stock really went up and down on the news.  

    XLNC/Harip – I'd short the guy who pays more than 50x for XLNX.


  20. All (including Phil)

    In the account with portfolio margin, where I do all the option activities, the account went down 21% from 9/16 to 9 /24. Now, it's back up more than 9/16. I went through my positions looking for uncovered options (like INTC, WBC etc). I am up 18% since 7/14 – when I started tracking daily values.

    Is this swing normal?

    I was mostly in cash when the market went down in March. I don't know how my portfolio would have done in March – may be 50% down.

    Is there a way to forecast it?

    I tried hedging and didn't do well (mostly because I sold SPY calls and bough TSLA puts). Only TQQQ seemed to do well for me compared to SQQQ & SDS. 

    What else can I do to avoid potentially down 50%? I still have cash & margin left to potentially take advantage of any buying opportunities. 

    Thanks for your valuable insights. 


    • A strike that shut down 8% of Norway's oil and gas production – but threatened to cut much more - will end after successful mediation talks, the Norwegian Oil and Gas Association says.
    • Six offshore fields shut on Monday and another seven had been scheduled to follow in the coming days, with the outage set to grow to 966K boe/day by Oct. 14, the industry had said.
    • The agreement also averts the shutdown of Norway's largest oil field, Equinor's (EQNR +1.3%) 460K bbl/day Johan Sverdrup facility.
    • Crude oil futures fell on the news, with WTI (CL1:COM) now -1.4% to $40.60/bbl and Brent -1.2% to $42.81/bbl; earlier, both benchmarks had surged on optimism over the potential for agreement on a U.S. financial stimulus package.
    • Update: President Trump has upped the stakes on stimulus funds again, saying he wants more than either Republicans or Democrats are offering, which would mean a package of more then $2.2T.
    • “I would like to see a bigger stimulus package than frankly either the Democrats or Republicans are offering,” Trump said on Rush Limbaugh's show, according to Bloomberg.
    • The market is looking a little punch-drunk after all these headlines, but the S&P +0.9% is still maintaining its gains.

    #####

    • The White House will offer a $1.8T stimulus package when Steven Mnuchin and Nancy Pelosi speak later today, CNBC reports.
    • That would still be shy of the House bill of $2.2T. Pelosi stressed the need for a big bill that would address state and local needs yesterday.

    #####

    • The S&P (SP500) +0.9% spikes to daily highs after White House economic advisor Larry Kudlow says President Trump has approved a relatively broad-based stimulus deal.
    • Shortly after, Trump tweeted his support for a "big" bill.
    • "The president has approved a revised package," Kudlow says. "He has approved a revised package. He would like to do a deal."
    • "Covid Relief Negotiations are moving along. Go Big!" Trump tweets.
    • Kudlow says the package would include relief for airlines, small business and PPP. There is no word on the sticking-point issue of state and local aid.
    • Nancy Pelosi and Steve Mnuchin will talk today, Kudlow says.
    • Nasdaq (COMP) +1.2%, Dow (NYSEARCA:DIA) +0.8%

    #####

    • The market is still gaining, with tech taking the baton after the more stimulus-sensitive sectors weakened on Majority Leader Mitch McConnell's pessimistic remarks.
    • President Trump and Speaker Pelosi have been driving the stimulus speculation so far this week, but the Senate has to be on board and now McConnell is out saying a deal is unlikely before the election.
    • McConnell holds the cards on any relief agreement Pelosi and Secretary Mnuchin can come up with, but if a deal is struck it would put him in a position of directly staring down Trump, who is reportedly very keen on some kind of bill.
    • But as cyclicals lost their momentum, Technology (NYSEARCA:XLK) has stepped up with an excited chip sector, with talk of AMD making a play for Xilinx.
    • All of the Fab 5 megacaps are in the green.
    • Energy (NYSEARCA:XLE) has backed off from its rally, down 1%, with crude futures lower despite Hurricane Delta still heading for the Gulf Coast.
    • American Airlines (AAL +1.9%), United Airlines (UAL +1.6%), Delta Air Lines (DAL +1.3%), Southwest Airlines (LUV +1.4%), JetBlue (JBLU +0.1%) and Alaska Air Group (ALK +0.5%) are all higher after President Trump and Lawrence Kudlow indicated that a broad stimulus package is on the table. The $1.8T package is said to include relief for the airline industry.
    • The gains in the sector might be higher if Senate Majority Leader Mitch McConnell hadn't said earlier in the day that a deal before the election was unlikely. He also reiterated that the Supreme Court nomination is the top priority of the Senate at the moment.
    • More details: White House reportedly offering $1.8T after Trump says 'Go Big' on stimulus
    • Cinema stocks are lower today after MKM cut targets – reflecting the dawning realization that there's no salvation for the sector until major markets come back.
    • Despite steadily growing reopenings in the U.S. since Labor Day weekend (AMC says it will have 86% of its theaters open by next weekend), a "lack of clarity" isn't likely to change soon, as "no consequential films will launch" until theaters in New York and Los Angeles can open, MKM says.
    • When that happens is anyone's guess, as L.A. infection rates are too high, and New York Gov. Andrew Cuomo hasn't rushed to give an NYC timeline.
    • MKM's Eric Handler expects domestic box office to slide 80% this year, and says the "one saving grace" is that studios haven't yet found a financially viable way to distribute their films. (Disney's (DIS +0.8%) latest action is to move Soul, planned for November theatrical release, to Disney Plus.)
    • He's trimmed fair value expectation for Cinemark (CNK -4.2%) to $15/share, from $18/share. (That now implies 79% upside, however, and he rates Cinemark a Buy). And he's cut the target on AMC (AMC -1.3%) to $4 from $4.50 (shares have dropped to $4.08).
    • And for in-theater advertising company National CineMedia (NCMI -0.6%), he says fair value is down to $2.75 from $3; current price is $2.67.
    • Other stocks: IMAX -0.3%; Marcus (NYSE:MCS) +0.1%; Reading International (NASDAQ:RDI) -2.9%; Cineplex (OTCPK:CPXGF) -2.4%
    • Ryanair expects Boeing's (BA +0.2%) 737 MAX will return to service in the U.S. "in the next month or so," paving the way for the carrier to start receiving planes in early 2021.
    • Eddie Wilson, chief executive of Ryanair's (NASDAQ:RYAAY) main airlines business, says the company hopes to start taking delivery of the planes early next year; Ryanair had 135 of the 737 MAX jets on order before flights were banned.
    • The Federal Aviation Administration issued a draft report earlier this week on revised training procedures for the 737 MAX, a milestone to return the plane to service.
    • Yesterday, the Wall Street Journal reported that AMD (NASDAQ:AMD) wants to purchase rival Xilinx (NASDAQ:XLNX) in a deal that could be worth more than $30B.
    • Citi analyst Christopher Danely (Neutral, $107.50 price target) says the deal would be accretive to AMD's low margins, but he doesn't think Xilinx management will agree to an acquisition due to the company's dominant position in the high-margin programmable logic device market.
    • Danely notes that Qualcomm reportedly made an offer for XLNX several years ago, which, if true, was turned down.
    • CNBC's Jim Cramer also doubts that XLNX wants to sell, saying that if a deal is happening, "it's certainly not happening today."
    • Xilinx shares are up 13% to $119.73.
    • Previously: AMD seeking to buy Xilinx in latest big semiconductor tie-up – WSJ (Oct. 08 2020)
    • FuelCell Energy (NASDAQ:FCEL) +6.3% pre-market after it was selected by the U.S. Department of Energy for an $8M funding award to support the design and manufacture of a SureSource electrolysis platform capable of producing of hydrogen.
    • Following the design, manufacture and testing of the system at FuelCell's Danbury, Conn., facility, the electrolysis system will be delivered to Idaho National Laboratories, where it will be tested to confirm electric efficiency as well as the ability to utilize nuclear power plant waste heat to obtain higher efficiencies.
    • Separately, Orion Energy Partners exercised warrants to purchase 5.3M FCEL common shares for $1.3M ($0.242/share); Orion Lenders will hold 14.7M shares, nearly 5% of the company's shares outstanding.
    • FuelCell rocketed 10% higher in yesterday's trade after J.P. Morgan launched coverage with an Overweight rating, citing an "early stage but massive" opportunity in hydrogen-based energy storage solutions.
    • OPKO Health's (NASDAQ:OPK) unit BioReference Laboratories has commenced its COVID-19 testing program for New York City schools throughout the 2020-2021 school year.
    • Under a collaboration with New York City, the Department of Health, New York City Health & Hospital, the Test & Trace, and the Department of Education, BioReference will be performing COVID-19 molecular testing for NYC schools, as well as collect specimens from principals, teachers, administration and students from 950+ schools across the city.
    • Update: Shares up 2% premarket on modest volume.

  21. TOS alerts were randomly not firing for the past few weeks (confirmed with TOS Support), does anyone still see this behavior or know if it was fixed?


  22. Thanks Phil.By the way, it's that time of year in New England,outdoors, a bit magical around the pond,with just a touch of early crisp air to make the breathing easy.

    Forget the insanity for awhile.

    Have a good one.


  23. PM/Sk – You may be over-extended in margin, be careful.  Seems very drastic as it was only like a 5% dip in the S&P during that time.  Generally you just have to observe but something caused that huge move so you need to identify it.  At this point, if you don't have a good handle on things, I'd stick with the simply long-term index hedges, like the kinds we have in the STP.  We can talk more on the weekend.

    TOS/MrM – I'm still not getting them like I used to.

    Fall/Tstep – I love it up there this time of year.


  24. Thanks for the imagery, Tstep2 – the smoke is finally clearing out here in Altadena, and a bit of rain is due soon. It's cooling off, and the live oaks are dropping acorns like crazy. The Tongva Indian guy who lives down the street says that means a cold winter.


  25. snow/ no idea what a cold winter in altadena consist of, but if it help to keep the fires down-bring it on.

    you guys sure can use a break!


  26. Well it's a good finish to the week.  

    Have a nice weekend everyone,

    - Phil






  27. Hologram ‘phone booth’ can beam Trump and Biden on to debate stage



  28. Robert Redford: The big question I want answered


  29. Can the Economy Be Saved?


  30. sk2020 – If you have TOS you can stress test your portfolio using the analyze tab weighted against SPX. If you need help doing it there are videos on TOS and  the TOS guys should be able to assist.


  31. deano

    Thank you for the suggestion. I use TastyWorks. Let me find out if it can stress test the portfolio in TastyWorks. 


  32. Phil / IBM – Wanted to remind you to take a look at IBM's new valuation ( cloud / AI) company to see what the new value / price pint may be….  

     

    I'm thinking at a possibly a 10 to 12 X multiple with the Core ibm ( IT/AI) Est earnings for '21 of about $12.3 EPS ( based on my estimate of RedHat Rev / GM and some AI both high margin, and relatively high growth). this would get my to a price of 150 to 170 / share in 1 year after spin off .  Would love your thought on this.  






  33. There Will Be No Trump Coup



  34. Do schools kill creativity?


  35. Phil / IBM —- Reminder

    Phil / IBM – Wanted to remind you to take a look at IBM's new valuation ( cloud / AI) company to see what the new value / price pint may be….  

     

    I'm thinking at a possibly a 10 to 12 X multiple with the Core ibm ( IT/AI) Est earnings for '21 of about $12.3 EPS ( based on my estimate of RedHat Rev / GM and some AI both high margin, and relatively high growth). this would get my to a price of 150 to 170 / share in 1 year after spin off .  Would love your thought on this.  




  36. The Sedition of Donald Trump


  37. Good morning!

    Hope everyone had a good weekend.

    Should be kind of a slow semi-holiday today.

    IBM/Batman – Krishna says the hybrid cloud opportunity is a $1Tn market:

    "Client buying needs for application and infrastructure services are diverging, while adoption of our hybrid cloud platform is accelerating … Now is the right time to create two market-leading companies focused on what they do best."

     

    The company will spin off the Managed Infrastructure Services unit of its Global Technology Services operation into a new public company. The tax-free deal is expected to be completed by the end of next year.

    The company sees Q3 adjusted EPS of $2.58 vs. consensus of $2.58, and revenue of $17.6B vs. $17.56 consensus.

    So they've raised guidance ahead of the spin-off and they're not doing the spin-off to head lower, right?  Last two Qs were $1.84 and $2.18 so these guys are pretty virus-proof so $2.58 and last year's Q4 was $4.71, which would put us at $11.31 though I doubt Q4 will be as strong as last year.  So $12.30 is not out of the question but the spin-off and transition could be a bit disruptive so I wouldn't go too crazy but I'm certainly comfortable with IBM at $125 for the long-haul as the same good value it was when we picked it at $110 in Nov 2018 as our Stock of the Year for 2019.  

    The Stock of the Year doesn't have to go up (we hit $150 in Jan 2020) but it does have to be one we are certain will make 300% with an options trade and just knowing we got a bargain was enough to be sure with IBM.   

    At the moment, I wouldn't make IBM the stock of the year because it COULD fall back to $100 if the market tanks.  THEN I would love it but $127.79 is simply a good price at the moment.

    Of course you can own IBM for $100 by selling the 2023 $100 puts for $11.50 so, if we consider that free money, then our trade can be:

    • Sell 5 IBM 2023 $100 puts for $11.50 ($5,750) 
    • Buy 10 IBM 2023 $110 calls for $26 ($26,000)
    • Sell 10 IBM 2023 $125 calls for $19 ($19,000) 

    That's net $1,250 on a $15,000 spread so there's $13,750 (1,100%) upside potential if IBM stays over $125 and, if it doesn't, we should be thrilled to invest more money in rolling down the short calls to the $100s for $5 ($5,000) or less or the $90s for $10 or less ($10,000) and then we'd be in a $35,000 spread for net $11,250 with $23,750 upside potential if we make it back to $125 but our break-even would be $101.25 – that's a risk I could certainly live with!

    That's what makes a great trade, the downside to this one is owning 500 shares of IBM for net $102.50.  I'd LOVE to own 500 shares of IBM at $102.50 so there's nothing about this trade that worries me.  I'll almost be disappointed if it goes straight up and all we make is 1,100%.  Meanwhile, it's a nice, margin-efficient trade as the ordinary margin is just $4,028 as it's more than 20% out of the money on the short put side.

    We don't have IBM in the LTP so let's add this one but with 10 short puts and 20 long spreads. 

    Be aware that they are spinning off so these options will get messy down the road but, like SPWR, I'm not afraid of a good decision affecting our position.  


  38. Phil / IBM – tha dks I'll review not sure how you arrived 12.3…  but with the growth rate say   8.8 ish in '20 and 12.3 ish  in '22 and 14.5 ish in '23 looks like good growth that diver serves a higher multiple….