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Faltering Thursday – Rally Runs Out of Steam without Stimulus

"You give it all but I want more
And I'm waiting for you
I can't live without you" – U2

It's GDP day and we're all expecting some fantastic numbers at 8:30 as the US economy bounces back from Q2's -31.4% drop but, as I have pointed out before, 100% less 31.4% is 68.6% but 68% + 31.4% is only 89.35% so we need more like a 45% gain in GDP just to get back to our Q1 level, which was already crap at -5% – before Trump even had the virus to use for an excuse on what a terrible job he was doing with the economy.  

Q2 was the biggest downturn in GDP in US history – including the Great Depression, including 9/11 and, since then, the Trump Administration and the Federal Reserve have put over $4,000,000,000,000 to work proping up the market.  $4Tn is, by the way, an entire Quarter of GDP so, rather than be excited that the GDP is coming back to "normal" we should be alarmed at how adding 100% to the Q3 GDP ONLY gets us back to normal.

Category Q2 Q1 Q4 Q3 Q2
GDP -31.4% -5.0% 2.1% 2.1% 2.0%
Inventories (change) -$287.0B -$80.9B -$1.1B $44.0B $49.4B
Final Sales -28.1% -3.6% 3.2% 2.7% 2.5%
PCE -33.2% -6.9% 1.6% 2.7% 3.7%
Nonresidential Inv. -27.2% -6.7% -0.3% 1.9% 0.0%
Structures -33.6% -3.7% -5.3% 3.6% 1.6%
Equipment -35.9% -15.2% -1.7% -1.7% -3.8%
Intellectual Property -11.4% 2.4% 4.6% 5.3% 4.1%
Residential Inv. -35.6% 19.0% 5.8% 4.6% -2.1%
Net Exports -$775.1B -$788.0B -$861.5B -$950.2B -$951.4B
Export -63.2% -9.5% 3.4% 0.8% -4.5%
Imports -54.1% -15.0% -7.5% 0.5% 1.7%
Government 2.5% 1.3% 2.4% 2.1% 5.0%
GDP Price Index -1.8% 1.4% 1.4% 1.5% 2.5%

It will be fun to see how much of a V $4Tn buys these days.  So far, the Futures are flat ahead of the report and that's despite Oil (/CL) making yet another 5% drop this morning – all the way down to $35.50 with Gasoline (/RB) hitting $1.0275.  That's triggering our plan from the PSW Report from Thursday, the 15th, where we used the Ultra-Short Oil ETF (SCO) to short oil at $41, which was:

SCO (2x short oil) could be fun to play as it popped 200% in March/April.  Figure $30 as a target and the Jan $22 calls are $1 so let's buy 50 ($5,000) for fun in the STP and risk $2,500.

If for some reason we get a quick double, we take half off and it's a free ride on the rest.

Those calls should be well over $2 this morning so we take 1/2 off the table with a double and we have a free ride on the rest and, assuming we're over $2, we set a stop there so we have a nice $5,000 (100%) gain in two weeks locked in with plenty of additional upside potential.  Congratulations to all our subscribers who played along at home!  

If you want to get fancy, we can also lock in our gains by placing a long bet on /CL (like we did yesterday) at $35.50 of higher with tight stops below that line.  2 long contracts at $35.50 would make $2,000 at $36.50 and our risk would be losing a few hundred dollars if the line fails and we stop out but we're protecting a $5,000 gain with this insurance.  That way, we don't have to be so quick on the trigger to stop out the SCO play as we're sure to get a bounce off $35 and, since we fell from $40 ($41 really but call that an over-shoot, which is why we shorted it!), it's a $5 drop and a weak, 20% bounce would be $1 back to $36 and a stong bounce would be $37 so we can ride SCO back to $37.50 (yesterday's level) while making $4,000 from the /CL longs, STILL take 1/2 off the table but leave the other 2,500 SCOs, which are free, to run AND have $2,000-4,000 in our pocket from the Futures as well.  Aren't options fun?

I don't want to talk about the virus this morning but this is a really good info-graphic that demonstrates how it spreads and how we can (if we ever decide we have the will to) prevent it.  Share this link with all your ignorant friends!  

8:30 Update: 33.1% – AMAZING!!  So, if you are wondering (and I'm sure the President is) why the markets aren't soaring off of what is now the BEST quarterly GDP ever recorded – it's because the "smart money" is selling into this news as it's bringing in the suckers who don't understand the math of the situation.  In reality, this is the quarter/quarter chart most people look at:  

And this is the annualized chart looked at by people who understand what context is:

On an annualized basis, we are still lower than the lows of every recession since World War II.  And that's AFTER $4,000,000,000,000 in stimulus.  Still, it beats the alternative because, had we not added 100% of our GDP (by borrowing it, by the way) as stimulus, we would have been down a whole 'nother stick and then it would have taken a 200% gain to get back to even – and that would have been very hard, right?

ImageNothing that happens today matters as we have earnings from Amazon (AMZN), Apple (AAPL), FaceBook (FB) and Google (GOOGL) this evening and that will decide the fate of the market.  We did the math on AAPL in yesterday's webinar, however, and decided it's very unlikely they are going to be a market-booster and AMZN probably trended down as retailers re-opened in Q3 and people have got to be sick of Facebook by now but, then again, political ad spending is probably through the roof – so they should do well and Google is Google – you're probably using it right now, aren't you?

Starbucks (SBUX) also reports and I can't figure out why they are trading at $87.50, which is a $102Bn valuation for a company that lost $678M last Quarter but, more importantly, only made $4Bn the last two years.  25x earnings isn't terrible but this company has very much saturated the market.  There are many cities in this country where you can see a Starbucks across the street from another Starbucks – not even McDonald's is that crazy.  

I'm not gung-ho to short them as I like the company but you can sell the Jan $90 calls for $4.35 so let's sell 5 of those for $2,175 in the Earnings Portfolio and we can also buy 10 Jan $70 puts for $1.25 ($1,250) as those might be fun if they drop 10% as the $80 puts are $3.25 so we could make $2,000 on that play if all goes well, plus the short call money.

What are we doing here?  We're selling more premium than we're buying so if SBUX goes down, we win, if SBUX is flat, we win and unless SBUX is over $91.85 into Jan expirations (21st), we don't lose and we think SBUX will be weak and the market will be weak so many, many ways to win and not many ways to lose makes for a good earnings play.


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  1. There you go – best GDP numbers ever! These tax cuts are really paying off now, best economy ever. Of course, we are on track for a down GDP this year, but that's fake news from the enemy of the people.

  2. good morning from Sydney

  3. Phil/ V and MA


    i havent watched weekly yet, but if you didnt include them, Any thoughts on trades for these 2 beaten down by earnings?

  4. Good Morning.

  5. Good morning!

    As expected, market not as excited as you would think it would be by this chart:

    That's a very dangerous sign if investors are not buying the BS anymore.

    As I noted in the webinar – KEEP IN MIND THAT I DO NOT ENDORSE RIDING OUT OUR LONG POSITIONS!!! This is a very dangerous market and we are keeping the portfolios open to play out what we do in a market collapse but I think risking our gains into this kind of uncertainty is INSANE and certainly not something you should be doing with money you care about.

    The best thing to do in a market collapse – especially in the beginning of one – is to cash out and wait!  

    We're off to a disappointing open already. 

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  6. Phil / S&P – What are you looking for in bounce lines for this (short term) ….. you mentioned 3400 weak and 3440 strong… but in the shorter term where do you see the market bouncing off. down at?

  7. Phil…Any thoughts on Nokia?  Big drop today due to missing on revenue.  Supposedly heavily involved in 5G.  Worth taking a flyer on?

  8. Hi everyone. Nice to see the bleeding stopped, for now. Here is a replay of yesterday's webinar, in case you missed it.

  9. Bounces/Batman – The 15% line is 3,277.50 – we talked about that yesterday:

    Meanwhile, with the 15% line of 3,277.50 now in sight on the S&P 500 (/ES) it's a good time to take profit on our hedges as that line should be bouncy.  How bouncy?  Well if we count this as a 10% drop from the 25% line then the weak bounce should be 2% or, more exactly, 3,562.50 is the 25% line so we had a 285-point drop which means we will have a 57-point weak bounce to 3,335 and a strong bounce would take us to 3,392 and that is the now-declining 50-day moving average. 

    Now, keep in mind we haven't actually hit 3,277.50 but, if we see the strong and weak bounce lines from that PRESUMED drop acting like they matter – then that's a pretty accurate predictor that we WILL be testing our 15% line again.  Still, even if we do, the bounce back to 3,335 is almost inevitable – even if we're going to drop another 5% or more, so NOW, at 3,319, is a good time to cash out our hedges and get ready to take advantage of the bounce.  

    The 5% Rule doesn't change from day to day – we've been using these lines for 2 years because there hasn't been any particular change in the earning power of the S&P 500 in two years – that's what drives it – though the flaw (I've been considering lately) is that doesn't allow for the fact that the Nasdaq is not bound by the earnings of the S&P 500 anymore as it's 15% AAPL.  It doesn't invalidate the rule, it just means I have to do a whole separate calculation for the Nasdaq 100 aside from the S&P 500 because they are on totally different tracks these days.

    Also, the "M" is just about complete – another way you can tell a bounce is coming:

    If that floor (3,200) fails to hold, then you have to worry about the bigger "M"

    NOK/Ult – They guided down on margin and revenues.  VZ was a customer and they lost them – that's not easy to replace.  

    "Our financial performance in 2021 is expected to be challenging, and more change is needed. We have lost share at one large North American customer, see some margin pressure in that market, and believe we need to further increase R&D investments to ensure leadership in 5G. In fact, we have decided that we will invest whatever it takes to win in 5G."

    That's from the new CEO – I'd  be careful.


  10. NOK – Every time I see a "whatever it takes", it's usually not a good sign…

    Trump gave the VZ 5G business to Samsung so they won't supply chips to China. If you are looking for a beneficiary to Huawei's 5G business (loss), ERIC may be a better play.  Their solution is also easier / cheaper to transition from 4G to 5G. 

  11. There were three IBM insider buys posted today

  12. Phil / S&P – thanks…. chased out some hedges yesterday…   looking to pick up some SPXU at stores the 3330 and to load up on SDS as well

  13. Stj, Sorry to see what is going on in France today again. Islam a problem in Europe.

  14. AAPL – this s qtr outlook should be interesting….. Last quarter they indicated that the Government Hero plan was a big driver to their sales, coupled w/ WFH in computers….  Interesting to see what they say not with paycheck subsidies stopped.

  15. Phil - CIEN,

    From yesterday, any thoughts on them?  thx.

  16. Phil,

    In the Webinar yesterday there was a discussion on Invesco IVZ. Wondering about your feelings about the Financial Services/ Asset Management Sector . There was a GS play recently too. 

  17. Misinformation Overwhelms Local Election Officials

  18. AAPL – great QTR – + 29% on Mac, +46% on IPAD, +21% on IPAD, + 16.3% on Services, and – 20% on Phones —- Great Qtr – Once phones kick in next qtr this will take off and other business is solid….  

  19. ERIK/Mito – Yeah but they've done nothing for years. Hopefully they are coming off a building phase – kind of hard to tell, really.  $38.5Bn at $11.36 is still pretty aggressive with -4Bn, -722M and $194M as the last 3 years' "earnings" but the last 4 Qs have been $451, $223, $253 and $603 so call it $1.5Bn and that's not terrible if they can keep growing.  

    IBM/Stock – I agree with those guys!

    SBUX sales were down but not as down as expected.  

    GOOGL up 6%, FB up 1%, AMZN down a bit and waiting on AAPL. 

    Ah, AAPL slight revenue beat but phone sales a bit disappointing.  Down 3% – so silly (but expected)

    CIEN/Jeddah – Ah, right, I was going to look at them.  To some extent they are dragged down by the weak Telco sector but cloud, on the other hand, is being boosted by everyone being at home – though that may be temporary.  They did not give encouraging guidance but that's fine (honesty) and $39 is $6Bn in market cap so we need to see them making $300M and they are well past that pace now that their investment cycle is winding down.  

    So yes, I do like them down here and we can call this a Future is Now Portfolio play with the following:

    • Sell 5 CIEN 2023 $30 puts for $4.65 ($2,325)
    • Buy 10 CIEN 2023 $30 calls for $14 ($14,000)
    • Sell 10 CIEN 2023 $45 calls for $7.80 ($7,800)

    That's net $3,875 on the $15,000 spread so there's $11,125 (287%) upside potential at $45+, which doesn't seem like a very hard goal for the next couple of years.  Ordinary margin requirement is just $1,064 so it's a super-efficient way to make $11,125.

    AAPL down around $110…  Also not unexpected but very painful for the Nas (and Dow and /ES

    No AAPL here!  

  20. SBUX – earnings :  Sales and Earngins were in line – outlook was fairly low……  this is what hit the stock…. at 2.5 eps shares are high today….. however at 2.74 this would have been OK…. I think they will ratchet up earnings as they move through the year.

    Starbucks guided for its fiscal first quarter and full-year fiscal 2021, forecasting global same-store sales growth between 18% and 23% and revenue between $28 billion and $29 billion for 2021. 

    The retailer said it expects a GAAP EPS in a range between 32 cents and 37 cents for the fiscal first quarter and between $2.34 and $2.54 for the full year. 

    Adjusted EPS was seen between 50 cents and 55 cents for the first quarter and between $2.70 and $2.90 for 2021. 

    That compares with expectations of an adjusted EPS of 63 cents for the fiscal first quarter, according to FactSet. The FactSet consensus also calls for an adjusted EPS around $2.73 for the full year. 

    Capital expenditures were pegged at around $1.9 billion for the year.

  21. Phil / AAPL – given the outlook APPLE gave – double digit growth on all products ( except iPhone which will show a growth for the quarter)….. GM about 38% ( they said in line with previous quarters) OPEX 10.8 to 10.7B and 16% tax rate…. just a hair under 17B shares out…  My projection is for $100B to $102 B in Rev and 1.32 to 1.42 EPS,  additionally I think Q2 will be above normal as well since they will probably be catching up and filling channels in that Quarter….   Hope this drops more tomorrow…. I'll be buying under 110….

  22. very scary 

    little packs of candy sold with either trump or biden button from california the trump button outsold biden by 3000 percent

  23. I'm in Santa Barbara which is pretty liberal. People driving big trucks with Trump flags cruising around today honking incessantly. So annoying.