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Fragile Thursday – Market Reminds Us How Quickly it can Fall

"Once I had a love and it was a gas

Soon turned out had a heart of glass

Seemed like the real thing, only to find


Mucho mistrust, love's gone behind" – Blondie

Wheeee, that was fun!  

Especially if you took our advice and shorted the Nasdaq at 12,000 yesterday as we got a lovely 50-point drop twice, followed by a 100-point drop during the day and, eventually, we hit our target at 11,800 at 4am but we were happy to take 11,850 off the table before going to bed – still good for gains of $3,000 per contract – you're welcome!  

I also said that, if the Nasdaq fails the 50-day moving average at 11,500, that we have no real support until the 200-day moving average at 10,250 – a 10% drop so let's hope I'm not on a hot streak for predictions coming true in a day.  From 12,000 to 11,800 is a 200-point drop so we're looking for 40-point bounces to 11,840 (weak) and 11,880 (strong), which is where we are at 8am so we'll see if that can be beat at the open.

If not, the next lines to watch are the bounce lines off 11,500 and that's a 500-point drop so 100-point bounces to 11,600 (weak) and 11,700 (strong) and that is how we can plan out our Futures shorts – if 11,800 fails.   Of course Congress is on vacation through Thanksgiving so there's no chance of a bailout this week or next and we're running out of Fed Speakers (see Monday's line-up) with Mester going right now (8:30) and Bowman at lunch and tomorrow it's Barkin, Bostic and Kaplan, all pre-market, but they've all already had at-bats this week and failed to deliver much encouragement.  

  • https://www.reuters.com/article/us-usa-fed-barkin/feds-barkin-lets-see-how-it-goes-on-whether-more-qe-needed-idUSKBN27Y2TD?il=0

  • https://www.marketwatch.com/story/feds-bostic-says-softer-retail-sales-data-fits-the-picture-of-a-weaker-q4-11605623744

  • Right now, the trends are in the wrong direction,” Kaplan told a virtual event for the Louisiana communities of Shreveport and Bossier City.

Kind of the opposite of helpful, right?

So not much support going into the weekend and we'll continue to cash out positions over the next two days.  This morning we'll take at our Money Talk Portfolio, which is easy to review since we can only change it on the show so no changes since October 6th (show aired on the 7th) other than VLO had been cashed in earier (June show) and we forgot to log it.

We're up about $12,500 (12.5%) since 10/6, so things are going well and I'll be on the show on the 9th next month, taping on the 8th so there are no changes to make today – just keeping tabs though, of course, I would be cashing out with a nice 39% gain on the year if the show were today because why risk the holidays?  

We'll see if 11,880 (strong bounce) holds this morning but, if not, we can just use that for the shorting line on /NQ back to 11,800 for a $1,600 per contract gain and then, if the weak bounce fails at 11,840 – it's very likely that 11,800 will fail and then we're in for a very nice drop to at least 11,700 for $2,000 per contract.  Watch AAPL, they are likely to test their own 50-day support at $115 and failing that would be devastating – for AAPL, the Nasdaq, the Dow and the S&P….

 


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  1. Good Morning.



  2. good morning Phil, 

    i have a PLTR spread (only 2 weeks ago i was asking if this was a good idea..that was 100% ago…such madness) 

    Anyway; i have:

    35 x 2022 $10s / covered by 20 x 2022 $20s.    

    basis for the whole spread was $11,500 currently "worth" around $22,000

    I've doubled in 10 days which is making me nervous, i mean, happy and nervous. It's 90 % in the money and i still have $6.45 to go on the $10 spreads.  Thoughts?  thank you!


  3. Trump targets vote certification in late bid to block Biden





  4. Crisis Rock Stars Rate the World’s Response to Covid-19


  5. MonkMan

    PLTR Very lucky draw! Going a bit through the profile of the stock. it looks like they got a big order from Trump "how to get out of jail free". Positive cash flow. Obviously if you nervous take the money and run. You must have had a reason to set up this play in the first place. If you feel still good about it, I would sell the rest of the leap calls 15 off and sit on it. You can always sell some short term calls while you wait. 


  6. Good morning!

    PLTR/Monk – Great call! 

    PLTR is making around $1B and has a $13B Market cap.  Trading @ $9. Government defense data contracts etc.  i suppose it was a pretty highly anticipated IPO that didn't really do much.  All that being said the 2023 $10/$20s are $1.85.  The $5/$15s are $3.30.  

    i know we don't gamble but might be worth a dice toss given how quickly these momo stocks take off – if they do 

    Submitted on 2020/10/15 at 10:41 am

    PLTR/Monk – Looks like $20bn but that's not bad.  Not a bargain either so not something I'd jump on (too new) but you can sell 2023 $7.50 puts for $3 to net in for $4.50 so why not if you want to establish a long-term position?

    I would suggest, since you are in for $11,500, cashing in 10 of your $35 calls at $10.60 ($10,600) so you are left with an essentially free 25 2022 $10/20 bull call spreads worth up to $25,000+ more and currently net $4.50 ($11,250) so, if you keep a stop at about $6,000, you are locking in a 50% gain and taking all your cash off the table and you still have $14,000 upside on your $11,250 that's in play.

    Nas plowing higher, 11,890.

    A pessimist might say driven by lack of demand:

    • 30-year fixed rate mortgage averages 2.72% for the week ending Nov. 19, 2020, its lowest level in the Freddie Mac Primary Mortgage Market Survey's history dating back to 1971.
    • Compares with 2.84% in prior week and 3.66% at this time a year ago.
    • "Weaker consumer spending data, which accounts for the majority of economic growth, drove mortgage rates to a new record low," said Sam Khater, Freddie Mac’s chief economist. "While economic growth remains unstable, strong housing demand continues to have a domino effect on many other segments of the economy."
    • 15-year FRM averages 2.28% vs. 2.34% a week earlier and 3.15% a year ago.
    • 5-year Treasury-indexed hybrid adjustable rate mortgage averages 2.85% vs. 3.11% in prior week and 3.39% a year ago.
    • October Leading Indicators+0.7% to  vs. +0.7% consensus and +0.7% prior.
    • Coincident Economic Index +0.5% to 102.7 .
    • Lagging Economic Index +0.1% to 107.1.
    • “Furthermore, downside risks to growth from a second wave of COVID-19 and high unemployment persist. While The Conference Board projects the US economy will expand in Q4, the pace of growth is unlikely to exceed 2.2 percent (annual rate).” says Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board.
    • October Existing Home Sales: +4.3% to 6.85M vs. 6.47M consensus, 6.57M previous (revised from 6.54M).

    • Target (NYSE:TGT) is up 3.65% as investors and analysts continue to take in the strong Q3 earnings report.
    • On Wall Street, Deutsche Bank lifted its price target on Target to $194 from $177, MKM moved to a Neutral rating from Sell and UBS hikes its price target to $175.
    • "We think TGT's second straight quarter of 20%+ SSS growth helps to underscore the effectiveness of its strategy amid a disruptive consumer backdrop. Importantly, TGT is working to hold onto much of its newly gained market share. It's harnessing its steady traffic gains to attract in demand brands such as Levi's, FAO Schwartz, & ULTA. This should help it continue to stimulate sales at a time when consumers are consolidating trips," sums up UBS analysts Michael Lasser on the Target quarter.
    • Target rose to a new high all-time of $173.40 earlier in the session.
    • Previously: Target runs roughshod over specialty retail as shoppers reel in trips
    • The EV rally today includes Electrameccanica (SOLO +22.0%), Arcimoto (FUV +17.5%), Blink Charging (BLNK +6.4%) and Kandi Technologies (KNDI +16.8%) as investors continue to expand their interest in the sector as more major automakers fully commit to electrification programs.
    • There is also a new name in the mix with Ayro (AYRO +17.9%) breaking higher. Thinly-covered Ayro intends to sign EV supplier agreements with universities, governments and food service providers with its unique-looking models.
    • Read about BMW's latest EV news.
    • L Brands (NYSE:LB) has extended on yesterday's post-earnings rally and is now up 16.65% in premarket trading.
    • On Wall Street, Jefferies raises its ratings on L Brands to Hold from Underperform and bumped up its price target to $33 from $20. The call is notable since Jefferies has been a bear on L Brands for four year.
    • Wells Fargo hiked its price target to $60 from $45. The firm calls the material Q3 earnings beat one of the strongest prints it has seen this year with upside surprises all the way down LB's P&L and across the portfolio.
    • "BBW earning a multiple as a stand-alone has always been a core tenet to the bull case, but now with what appears to be a 'stable' VS brand in hand, LB shares should also benefit from a higher value of its second concept (we raise our assumption of VS value to ~$3.0B from ~$1.0B following recent restructuring efforts and now today’s comp/profit inflection – implying a ~4.0x EBITDA multiple)," writes analyst Ike Boruchow.
    • Yesterday: L Brands higher after comparable sales pop 56% for Bath & Body Works business
    • Raymond James (Outperform) raises Nvidia's (NASDAQ:NVDA) price target from $550 to $600 after the "strong quarter and guidance" driven by "very strong gaming revenue associated with their new product ramp." Analyst Chris Caso notes that Nvidia "still can’t get enough product to satisfy all demand."
    • Cowen's Matthew Ramsay (Outperform) raises the PT from $540 to $600, noting the "stellar" fundamentals in the key gaming and data center segments with the upside "only limited by supply." Ramsay calls NVDA "the industry’s best open-ended growth story."
    • NVDA shares are down 1.6% pre-market to $530.50.
    • Previously: Nvidia Q3 beat driven by record gaming, data center sales; guidance tops estimates (Nov. 18 2020)
    • As a result of the recent spike in COVID-19 cases, United Airlines, a wholly-owned subsidiary of United Airlines Holdings (NASDAQ:UAL) saw deceleration in system bookings and an uptick in cancellations in the last week, ending November 18, 2020.
    • The company's scheduled capacity for Q4 is now expected to decrease at least 55% Y/Y vs. previous guidance of a decrease of ~55% Y/Y.
    • The company now expects total revenue to be down by ~67% Y/Y in Q4 vs. consensus of $3.61B (-66.82% Y/Y).
    • Average daily cash burn for the quarter to be ~$15M-$20M, plus $10M of average debt principal payments and severance payments per day. 
    • Source
    • Jack In The Box (NASDAQ:JACK) is 5.86% higher in premarket trading after topping Q3 estimates off a 12.2% jump in systemwide comparable sales.
    • The increase in comparable sales was driven by a 21.9% increase in check as consumers appear to still be ordering in bulk for lunches and dinners with one family member picking up the group's order.
    • Cowen analyst Andrew Charles called the report a strong end to fiscal 2020 for the restaurant company. "Beyond sales, we note a $5M tailwind from lower SG&A (including ~$4M lower stock-based comp year over year), while store-level margins of 27.0% were in excess of our 23.3% estimate (vs. 23.7% Consensus Metrix). Despite the improving sales, we note allowance for doubtful accounts as a percentage of trade receivables plateaued at 7% of sales in fiscal 4Q, in-line with 3Q's level following an improvement from 17% in fiscal 1Q to 11% in fiscal 2Q," updates Charles.
    • Previously: Jack In The Box +4% after comparable sales shine, margins expand
    • CIBC analyst Paul Holden switches "from defense to offense" on that basis that consumer spending and capital investment will occur sooner as a result of President-elect Joe Biden's win and the brighter outlook for a COVID-19 vaccine.
    • "We are more bullish today on the outlook for loan growth and less concerned about tail risk," Holden wrote in a note.
    • Upgrades Toronto-Dominion Bank (NYSE:TD) and Bank of Montreal (NYSE:BMO) to Outperformer from Neutral.
    • Cuts Royal Bank of Canada (NYSE:RY) and National Bank of Canada (OTCPK:NTIOF) (OTC:NTIFF) (OTCPK:NBKCF) to Neutral from Outperformer.
    • The more positive U.S. outlook gives TD and BMO, in particular, the possibility of upward EPS revisions.
    • See how Canadian banks' Quant factor grades:
    • Also says: "This is more of a tactical call within our bigger-picture framework, which remains rooted in a lower-for-longer interest rate scenario."
    • Boeing (NYSE:BA) shares struggled to take off yesterday, despite the FAA clearing the 737 MAX to return to the skies, a key event in a two-year saga that resulted from two crashes in 2018/2019.
    • The stock initially soared more than 5%, only to close down 3% amid a broader selloff that dragged the major averages lower.
    • "This [news] should drive some reduction in uncertainty and likely additional upside to shares over the near-term. Moreover, we note that (1) BA's recent rally now puts it within striking distance of the largest constituents of the XLI, and (2) based on our conversations, most long-only investors continue to be underweight BA shares. This dynamic could help fuel additional momentum for the stock as some long-only investors chase the stock higher," write analysts at Credit Suisse. "Every rally needs fuel, however, and news flow can only go so far for a mature company – higher estimates will be required at some point. For a bull case to gain traction from here, the virus and air travel recovery would need to be faster and better than expected, which would result in an increase in forecasts."
    • Overbought territory? "It's just a normal and healthy reaction after a huge rally," added Matt Maley, chief market strategist at Miller Tabak. BA is up 37% this month 114% from its bottom in March.
    • "If it can break out and break above its June highs, which is right in the 230 to 230.50 level, in any kind of meaningful way, it's going to be really bullish for the stock. Short term, it needs a little bit of a breather. That's OK – again, normal and healthy. Long term, the stock looks great."
    • "We know there's been a sector rotation out of growth and into value. Cyclicals have benefited and industrials in particular," said John Petrides, a portfolio manager in the wealth division of Tocqueville Asset Management. "If we get a Biden infrastructure package plus some Covid relief and an economic recovery and this help from Boeing now that the 737 is back in play, then I think there’s a broader picture here that the industrial sector in general looks very attractive."

  7. /NG / Phil - must have been a bad draw; with new lockdowns I would have thought that people at home would drive consumption. You find it interesting down here?


  8. Good morning. Here is the replay of yesterday's webinar.

    https://youtu.be/dyi5GqBR9vI



  9. /NG/MrM – Not interesting as it was too high to be bullish on (hence my lack of betting post-hurricanes) but I don't like shorting /NG so just staying away until we figure out the bottom of the next channel.

    Doesn't take much to knock something down when it's too high in the channel.  

    Speaking of which – we forgot to short TSLA!  

    Still can't short it in the STP because the only reason we played with TSLA last time is we were up 200% at the time so it was just fun money.  Now the new STP is flat and we can't afford to gamble on nonsense but, if I did have funny money to bet, I'd go for:

    • Sell 3 TSLA Jan $600 calls for $34 ($10,200) 
    • Buy 2 TSLA 2022 $600 ($128)/$800 ($87) bull call spreads for $41 ($8,200) 

    That's a net $2,000 credit and we'll have lots of opportunities to sell more or roll.


  10. Phil TSLA your play above. Even that the 3 Jan 600 short calls are only two month out, this are two naked calls of the three against the OTM BCS. It would be very easy for TSLA to jump 100 pts in two month, meaning three calls working against two long calls very un-even . Selling one or upmost two short month calls, would that not be a saver play?


  11. I just like to give a typical example with CREE which stock increased by 5.85. The Nov 20 72.5 call increased by 6.23, even more than the stock at times, whereas the the Jan23 50/80 BCS increased 4.25/3.65. Even that I have only 2 short Nov. 20 options, against 6 BCS, the complete play is running –minus 885.00 Dollar.


  12. do not. short. TSLA.


  13. it is a complete anomaly of a stock that follows it's own rules.  It is fueled by the wild popularity of retail investors, actually no, whatever a step below retail investors is.. just people with phones. It should come back to earth, it will come back to earth in the end but why not $3,000 before then? Phil, you are a physicist, but this molecule consistently operates outside of those rules.



  14. Germany Breaks With The ECB


  15. Walmart Snags 16% Higher Profits in Q3





  16. TSLA/monkman – but Musk has covid19 and we've shorted TSLA here before….let me go look it up

    okay, hmm, that didn't go so well…..what about the time before that…

    could've sworn that went better…………….maybe the time before that, remember that one, with the exploding cars?

    ummm, nope. Dang!


  17. Phil// Your thoughts on CLF.  I bought CLF 2022 naked $3.00 strike at $1.60.  Now they are trading at $5.90.  Should I close it or sell calls against it?  Let me know.  Thanks.


  18. All,

      Anyone heard of ADYEY ?  Would like to hear your thoughts on this company.  Looks like a disruptor in the payment processing food chain.

    Thanks.


  19. EBAY is going to use ADYEY and replace Paypal as their default payment processor and gateway


  20. looks like they are pulling all the levers to keep this market up for today


  21. TSLA/Yodi – It would be safer but I have conviction that TLSA won't go much higher and we have $40,000 of buffer protection on the 2022 spread so TLSA would  have to be well over $700 to burn us and then it can be rolled to $900, $1,000, etc. As I said, too much risk for a $200,000 portfolio but a fun play for me.

    TSLA/Snow – It would have to gain 20% in a month, when does that ever happen?  

    Dang!  

    CLF/Rookie – I generally love those guys.  Still, how greedy can you get?  Up 100% and you are not sure what to do?  Take the money and run.  If you want to keep playing, go back to your $3 with the 2023 $5 ($4.75)/12 ($2) bull call spread at $2.75 which is $3.85 in the money so you get all your money back + 0.25 and you can put a stop in at $1.75 to lock in a 50% gain and you still have $4.25 upside potential.

    ADYEY/Rookie – They've picked up a stunning valuation ($57Bn) already on $2.6Bn in total sales and $200M in profit and yes, they sound really interesting but not THAT interesting to me.  DFS is $23Bn with $11Bn in sales and $3Bn in profits and it took them years to get there – even though they were backed by Sears who flipped all their store CCs (tens of millions) into Discover to get things going.  I just don't see, realistically, how DAYEY is going to get there in the next 5 years.  The EBay think might help but default just means it comes up as first choice, V, MC, AXP and DFS will still be cheerfully accepted by EBAY. 

    Nas just shy of 12,000 again – have to short a couple of /NQ just to see what happens.


  22. Rookie/ADYEY – efficiency and cost reduction in the payment stack are becoming a big deal


  23. MonkMan - IDK on TSLA. Historically it's the Worst Short Ever. Simply buying OTM calls would've made even a modest investment a million dollars, BUT, the past is the past. TSLA is at $427B market cap. They'd have to take over much of the next 5 years' growth of climate change mitigation and decarbonization to justify this valuation. I think it's possible they could do this, they are well situated as the renewable revolution to not have a good shot, BUT, they are a) still mostly just an electric car company which is becoming a commodity, and b) they are too heavily reliant on batteries to make a much of dent in energy storage. The latter requires understanding and implementing a nexus between renewable energy and renewable chemicals (where the energy becomes stored in the chemical), which is far far cheaper and more massively scalable than mega-farms of lithium ion batteries.

    A Jan 2022 266 put is $8-9 and one would be making the simple prognostication that if TSLA can be wroth $420B (….Elon!), they can certainly be worth $210B without anyone thinking twice about it, and your theory of Gen Z-ers with phones skyrocketing the price also fits, e.g., what happens when they move on? Crater city.

    also, I think it's funny TSLA 1/21/22 1 puts (meaning, a strike of $1.00) has a bid/ask of 0.01/0.02

    One time in crypto I turned a penny into $2670. I'm still trying to find a way to beat that record.


  24. Sorry Phil I shorted /NQ with you and thereby froze it in its tracks. Better luck after hours!