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Thursday, August 18, 2022

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3,850 Thursday – S&P 500 Seems Comfortable 700 Points Over the Must Hold Line

3,150.

That's still the true value-line we have for the S&P 500 based on old-fashioned notions like actual earnings and actual prospects without the assumption of Trillions of Dollars being pumped into the economy.  It's "only" a 20% drop from where we are now and we were down there as recently as October and below 2,850 in June.  2,850 was our old Must Hold Line but we capitulated by 10% on the assumption that Corporate Tax Cuts would not be going away completely – it's the MASSIVE stimulus that's been an upside surprise since then.  

The Chart above is still using our 2,850 base and the 5% Rule is still working from 2,850 so it's still in play and that means 3,990 is the 40% line.  We had good consolidation at 30% (3,705) during December so we can assume the lines in between that 285-point run will be 20% (57 points) each and that's going to be 3,762, 3,819, 3,876 (which we're testing now) and 3,933.  Those are the lines to watch to see how the S&P behaves during earnings season.

Generally, companies have been beating low expectations and, so far, investors seem to be in a forgiving mood as, for example, United Airlines (UAL) lost $2.1Bn in Q4, which is 15% of their $13.2Bn market cap and $7 lost per $45 share in the past 3 months.  Yet the stock is only down 2% pre-market.  Why?  FREE MONEY!!!  There will be more free money and no one thinks Joe Biden will let the airlines go bankrupt – even though he is a train guy.

Delta (DAL) also lost $2.1Bn for the quarter but they expect to turn it around in Q1 and show a profit.  A month into Q1 – I think they are on drugs.  There's no changing travel trend to indicate a turn-around that rapid – unless they are counting on $2.1Bn in stimulus to get them over the top.

At $41.62/share, Delta's market cap is $26.5Bn and Delta's net income in previous years has been $3-4Bn but this year they have taken a $14Bn loss, wiping out the last 3 years of gains.  Of course, that's not your problem if you are coming in as a new investor – you only care what they do in the future so the optimistic outlook is just what new investors want to hear.

DAL was $60+ before this crisis began but they were also $17 in March – it's very tricky to invest in Airlines – as poor Warren Buffett was recently reminded…  While I can't endorse playing an individual airline, I do like the Airline ETF (JETS) and we're already playing that since October in our Future is Now Portfolio:

JETS Long Call 2023 20-JAN 15.00 CALL [JETS @ $22.80 $0.00] 15 10/8/2020 (729) $9,750 $6.50 $3.63 $6.50     $10.13 $0.00 $5,438 55.8% $15,188
JETS Short Call 2023 20-JAN 25.00 CALL [JETS @ $22.80 $0.00] -15 10/8/2020 (729) $-5,475 $3.65 $1.98     $5.63 $0.00 $-2,963 -54.1% $-8,438
JETS Short Put 2023 20-JAN 15.00 PUT [JETS @ $22.80 $0.00] -15 10/8/2020 (729) $-6,600 $4.40 $-2.27     $2.14 $0.00 $3,398 51.5% $-3,203

At the time, we were aggressive with our short puts and that worked out nicely and our net $2,325 credit entry already has a liquidating value of $3,547 for a gain of $5,872 (252%) so far but it's a net $15,000 spread that's now deep in the money so, even if you take it as a new trade – it still has $9,128 of upside potential if JETS can simply manage to continue on to $25 over the next two years.  That's a lot more comfortable than putting all our eggs in one airline, isn't it?  

Yesterday, in our Live Trading Webinar, we also saw good trading opportunities for GM (GM) and AT&T (T) and you can view the replay HERE.  As I pointed out to our Members, we can make truly stunning returns on blue chip stocks that are still trading at reasonable valuations so why mess around chasing these high-flyers in a very toppy market.

Even better yet, why buy anything until we see how earnings shake out?  I'm sure you know that INFORMATION is the key to having a trading advantage and what better information is there than earnings reports, which let us know who's really making enough money to justify their valuations.  I'm still very much preferring to see how things go for the next few weeks and, of course, we'll begin to get a handle on what Joe Biden's policies are going to be (and whether they get through Congress) – or we can just guess and trade blindly.

Which would you prefer?  

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Good Morning!

The S&P is up 507% on an annualized basis under the Biden administration!

Phil/ET/PAA,

What is up with ET and PAA? They have come up with oil but ideally oil pricing should not affect them as much I guess.

They are muted in this rally

regards

Phil / TOT – I'm looking for companies that can benefit long term from a move to renewable energy, and have financial heft to stay around long term.   Total seems to get this…. It has been investing in solar tech and companies for the last 20 years and has pledged to have sold make up 20% of its rev by 2030 ( from 5 % today).  It also has large stakes in several renewable energy companies in US and globally.   I thint it will also benefit from re-opening with its Gas and oil portfolio… Currently Paying just short of a 7% dividend ( historically this has hover around 5%) ….   I think it's in a good position to benefit from US and global move to renewables, and will be around for the long term.    I think this may be a good dividend stock with covered calls / puts …   Ideally i'd like to but this for 40 sh as I see earnings for  '20 – '23 being. 1.3, 3.3, 4.0. aging gaining from incentives in US ( which have not been announced per say)… This could the at 50 to 55 dollar second in '23. at 12 to 15 multiple the sis a 50 to 60 dollar stock ….   It does not have long term options but it's dividend seems solid.   I'm looking at the following….

1000 Buy Shares at 42.5 ish maybe a bit lower.

sell 5X  the Aug 40 puts for 3.5

Sell 5X of the 45 calls for 3.3

Thoughts?

Phil . TOT – another Norte…….  I've usually kept XOM in y portfolio as an anchor, but removed this 2 or 3 years ago…… was also looking for a new anchor in the energy space….   

batman worked on this stock this morning. not too bad but directly 1000 shares????

Phil / TOT – makes sense on the full cover…..  possible 12 % run in 8 months, or drop purchase price to 41 ish…. and if I pick up more at 37 net on the puts that would be ok as well…

Phil / IBM,

Just the opposite for IBM .. missed sales estimate and down -5%.  Are you a buyer down here?

I'm a little late to the IBM party so looking to build up a decent position given the opportunity.  this may be just that.

Phil / INTC.   This is not what the street was pricing into the stock…..  may have a pull back tomorrow…

New Intel CEO says company will handle 'majority' of product production; TSMC shares fall • 5:31 PM

Earlier this month, reports suggested that Intel (NASDAQ:INTC) held advanced talks with foundry TSMC (NYSE:TSM) about outsourcing production.

On the Q4 earnings call, incoming Intel CEO Pat Geisinger says he believes "a majority" of the company's 2023 products will still be handled internally, though it's "likely" outside foundries will be used more than in the past.

The company also declined to provide FY21 guidance at this time. Intel says the forecast will come no later than the Q1 earnings call.

Intel also plans to provide more details about its 2023 product plans after Geisinger formally takes the reins on February 15.

TSMC shares are down 1.6% after Geisinger's comments.

Earlier, Intel reported Q4 beats and upside Q1 guidance.

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