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Faltering Thursday – Economy Shows Signs of Struggle

These are not the headlines for a record-high market.

Best Buy isn't cutting jobs because the 2nd quarter is going to be fantastic, are they?  The Biden Administration isn't cutting school expectations because everything is going to be normal after the Summer break.  The virus isn't resurgent in Germany because it's about to go away, Seadrill isn't going Bankrupt again because the oil industry is rebounding.  

At what point do we plan on getting realistic?  We don't have to because Uncle Sam keeps writing checks and everything is awesome until the money runs out (and maybe it never will).  Meanwhile, we're being asked to pay record-high prices for stocks based on future expectations that everything will remain awesome for years so come and will, in fact, get much better because, currently, we're paying 30-40 times the earnings potential of these stocks.  That means it will take 30-40 years for those companies to generate a return on our investment – AWSOME!

That means people are either buying stocks with irrational expectations or they are rationally using them solely as trading vehicles and have no intention of being long-term investors.  To the extent that is true, market sentiment can turn on a dime and, if it does and if there are no fundamental investors to underpin the stock prices – what is going to happen when that sentiment changes?

The change in sentiment in February led to a 35% correction in the market and it could have been worse but the Government quickly stepped in with FREE MONEY and, since then, we've been promised MORE FREE MONEY over and over again and, though we are still waiting for it – it does seem very likely that it will be here in a few weeks.  March's FREE MONEY led us to a very nice market recovery and promises of FREE MONEY have kept things going but, at some point, we need to get the actual economy working again for all this to have a lasting effect.

4,000, if we get there on the S&P 500 (/ES), is going to be a great shorting line as it's almost certain to be rejected on the first attempt.  If we measure the rally off the break over the 200-day moving average at 3,000, it's a  33%, 1,000-point run that should pull back at least 200 points (weak retrace) and possibly 400 points, back to the 3,600 line – which has already shown signs of consolidation (indicating it is, indeed, significant support/resistance).  

SDS is the Ultra-Short for the S&P 500 and the March $11 calls are 0.65 and SDS is at $11.30 so you are paying an 0.35 premium for the position but SDS is a 2x short on the S&P so, if it does drop 20% in the next 36 days, that would pop SDS 40% – to $15.82 and the $11 calls would be $4.82 in the money for a gain of $4.17 or 641%. 

So, if you have a $100,000 portfolio and you are worried about losing $20,000 on a 20% S&P drop, you can mitigate that loss by buying 50 of the calls for $3,250 and they will pay $20,850 in profit at $15.82 and, if you put a stop on the short position at 0.40, you limit your loss to 0.25 x 50 contracts – $1,250 – not a big price to pay for insurance over the holiday weekend!

Be careful out there!

 


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  1. Good morning!

    • Initial Jobless Claims: -19K to 793K vs. 760K consensus, 812K prior (revised from 779K).
    • Four-week moving average for week ending Feb. 06 was 823K, down 33.5K from the previous week's average of 856.5K.
    • Advance seasonally adjusted insured unemployment rate was 3.2%, a decrease of 0.1 percentage point from the previous week's revised rate.
    • The advance number of actual initial claims under state programs, unadjusted, totaled 813.15K, an decrease of 36.5K (or 4.3%) from the previous week.
    • Continuing jobless claims of 4.545M is down from 4.690M and higher than 4.490M consensus.

    While we are getting better, we are still miles above normal.  We are way above where we were in the crisis of 2008/9 – that's what we've "improved" to!


  2. Good Morning

    MA and BK getting involved with crypto.  Bitcoin is seeing more and more tailwinds.  Phil, not saying todays price is the price to buy,  but its hard to deny its now becoming mainstream. 


  3. Crypto/Stock – It would be foolish not to "get involved" if you are a large player but I stand by my prediction that, if this gains traction, the Governments will shut it down because the ability to coin money is kind of the whole reason they form Governments – that and declaring war.  Frankly, I don't think the Bitcoin Army will fare well against the military of most countries.  


  4. Phil – I am curious with your NAK position if you are planning on selling anytime soon or waiting to see how the appeal goes? 


  5. NAK/Wilsons – We always sell 1/2 at $1 and DD around 0.50  This position is long past free and, so far, I haven't regretted a sale yet!  The two times it went over $2, we sold the rest and then bought again at 0.50.  


  6. /NG draw was a little disappointing (compared to bloated expectations):

    /RTY back to 2,300 (still short 2).


  7. IMO the markets, stocks and crypto both, are reaching extreme speculation tiers across the board. 

    Governments banning crypto is a real risk. Like the miserable UIGEA law, they would ban the major cash/crypto institutions. Crypto would still be around of course, but it would set off a 10 year bear market for it. It's not a good reason for refusing to invest in it however.


  8. Phil/Cannabis,

    Mostly all cannabis down…MJ down 20%….crazy

     

    regards


  9. How risky is it to buy a Tesla using bitcoin?


  10. Extreme speculation/BDC – It's the end-stage of a bubble and people are running into all kinds of crap (see cannabis).  As far as the risk of Government interference – CHL anyone?  That's all it takes to shut down an asset class when you have judges and guns.

    Cannabis/Pat – Living and dying by Reddit this week.

    • The Nasdaq (COMP) +0.1% remains the outperformer on strength in technology stocks that isn't translating into broader-market strength with the megacap stocks mixed.
    • The S&P (SP500) +0.2% keeps ebbing from earlier gains and the Dow (DJI) -0.3% is the worst performer.
    • Info Tech (NYSEARCA:XLK) is leading the S&P sectors, where just three of 11 are now in the green. Chip equipment stocks are all rallying. And Zebra Technologies is the big winner in XLK after its results.
    • Energy (NYSEARCA:XLE) is the big decliner, followed by Industrials (NYSEARCA:XLI).
    • Tesla is leading the megacaps with a modest gain, with Microsoft the other of the Big 6 higher. Apple is the weakest.
    • Molson Coors is the biggest decliner in the S&P after its European volumes plummeted.
    • Virgin Galactic (NYSE:SPCE) is up 7.67% as investors take a positive stance on the opening of the company's test flight window on Saturday.
    • CNBC's Michael Sheetz says the flight appears to be on per a FAA temporary flight restriction filed today for a two-day window.
    • The rally in SPCE follows a downgrade yesterday from UBS on concerns over the "stratospheric" move higher in share price.
    • 30-year fixed rate mortgage averages 2.73% in the week ending Feb. 11, unchanged from a week ago, and down from 3.47% a year ago, according to the Freddie Mac Primary Mortgage Market Survey.
    • "New COVID-19 cases are receding, which is encouraging and that has led to a rise in Treasury rates. But, the run-up in Treasury rates has not impacted mortgage rates yet, which have held firm," Freddie Chief Economist Sam Khater said.
    • On Monday, long-term Treasury yields hit their highest level in a year, with the 30-year yield topping 2%.
    • 15-year FRM averages 2.19% vs. 2.21% in the prior week and 2.97% a year ago.
    • 5-year Treasury-indexed hybrid adjustable rate mortgage averages 2.79%, up a tick from 2.78% in the prior week and down from 3.28% a year ago.
    • Homebuilders are in the green in morning trading with the iShares U.S. Home Construction ETF (BATS:ITB) up 0.5%; by name, KB Home (KBH +3.2%), D.R. Horton (DHI +1.8%), PulteGroup (PHM +1.0%), Toll Brothers (TOL +1.6%), and Lennar (LEN +1.2%).
    • Mortgage REITs  are also on the rise, with the exception of Annaly Capital (NLY -1.2%) and Two Harbors Investment (TWO -0.1%); iShares Mortgage Real Estate Capped ETF rises 0.8%; Chimera Investment (CIM +1.0%), Armour Residential REIT (ARR +0.6%); Orchid Island Capital (ORC +0.9%), Invesco Mortgage (IVR +0.8%).
    • Researchers at the University of Oxford say that the Roche (OTCQX:RHHBY) rheumatoid arthritis drug Actemra cuts the risk of death in hospitalized patients with severe COVID-19.
    • Actemra, also known as toclizumab, appears to work particularly well when combined with dexamethasone, a steroid.
    • Results from the RECOVERY trial show that Actemra shortens the time to patient discharge from hospital and also reduces the need for a ventilator.
    • "The results from the RECOVERY trial clearly show the benefits of toclizumab and dexamethasone in tackling the worst consequences of COVID-19 — improving the survival, shortening hospital stay, and reducing the need for mechanical ventilators," Martin Landray, PhD, joint chief investigator, said in a statement. "Used in combination, the impact is substantial."
    • Roche shares are down 0.1% to $43.62 in morning trading.
    • After sharp gains witnessed in premarket trading, many of the cannabis stocks are in the red again. Sundial Growers (NASDAQ:SNDL) remains up 6%, but earlier had been higher by more than 20%.
    • Tilray (NASDAQ:TLRY), which was up 10% earlier following a ~51% climb on Wednesday, is currently down ~28.4%.
    • The interest in early market hours was attributed to the increased attention on Reddit and high short interest.
    • Related tickers: Cronos Group (CRON -12.6%), OrganiGram Holdings (OGI -20.5%), GW Pharmaceuticals(GWPH -0.3%), HEXO Corp. (HEXO -14.0%), Curaleaf <<OTCPK:CURL>>, ETFMG Alternative Harvest ETF(MJ -14.9%). WeedMD <<OTCPK:WDDMF>>, Aurora Cannabis (ACB -14.7%),Canopy Growth (CGC -15.9%),TerrAscend Corp. <<OTCQX:TRSSF>>, Aphria <<NASDAQ:APHA>> 
    • Union Gaming increases its price target on Buy-rated MGM Resorts (NYSE:MGM) to $45.
    • Analyst John DeCree: "Although expectations for 4Q20 moderated given the increase in public health concerns during the quarter, we were still encouraged to see sequential EBITDAR improvement across all operating segments. While trends in Las Vegas and Macau will likely plateau during 1Q21, we remain cautiously optimistic the recovery can resume in 2Q21 and accelerate in the back half of the year."
    • UBS is a bit more cautious on MGM as it keeps a Neutral rating in place with the timeline of the Macau and Las Vegas far from certain.
    • Analyst Robin Farley: "Management believes business in Vegas could be back to 90% of 2019 levels by Q4 of 2022. Outside of group business recovery and in preparation for spring break and summer uptick in leisure travel, MGM notes that roughly 40% of Bellagio guests over the summer are sourced internationally so recovery in air traffic remains important."
    • MGM execs discussed a "gradual" rate of recovery in Macau during its earnings conference call.


  11. Hi Phil,  What are your thoughts on AMYZF (American Manganese) these days?  The stock has shot up since December.  I bought at .15, AMYZF is now 1.32.  Manganese is used in battery production for electric vehicles and steel.  The company focuses on Lithium-Ion battery recycling.  Company has applied to list on the OTCQB market.  Sounds good, but Is this market froth, or is there really something here?  Should I take the money and run?  I can't find financials for the company.  https://americanmanganeseinc.com/investor-info-3/investment-proposition/



  12. AMYZF/John – It's a penny stock trading on pink sheets priced at $250M.  It does have the word "manganese" in it – so it must be valuable, right?   They had $2M in revenue last year and they just raised $2M at 0.20/share so why not pay 6.5x what those guys paid in September?  Manganese!


  13. Johnc I mentioned this stock a few months ago and I too bought it @.15 a few thousand shares. Thought it looked promising. I sold mine when I made a profit I couldn't ignore. I like Canadian metals stock as they seem reliable. However waiting for a pullback to get back in. Phil has done this with many stocks like Nak etc. when you have profit I say take it.


  14. They are trying to get into the OTC so that might make a difference. The battery stocks are worth getting into. Ev's are the wave of the future I think.


  15. A look at the main manganese miners

    Diversified miners that produce manganese

    South 32 Limited [ASX:S32] [LSE:S32] (OTCPK:SOUHY)

    South 32 is an Australian company (BHP spinoff) with global operations and one of the world's largest manganese producers. They have mines that produces bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc.

    South 32 has manganese ore and alloy operations in Australia (Groote Eylandt Mining Company and Tasmanian Electro Metallurgical Company) and in South Africa (South Africa Manganese operations).

    In FY20 South 32 produced 5,348k wmt of manganese ore and 163kt of manganese alloy.

    Current market cap is AUD 11.2b. Analyst's consensus price target is AUD 2.71, representing 18% upside.

    Vale SA (VALE)

    Vale gets by far most of its revenue from their Brazilian iron ore operations. They also have expanding nickel operations in Canada. Vale is the largest manganese producer in Brazil, accounting for roughly 70% of the country’s market. The Azul Mine in Pará is responsible for 80% of Vale's manganese output and it has high ore grades of >40%. You can read more on Vale in my recent articles here and here.

    Others

    • Assmang Proprietary Limited
    • Anglo American plc [LSE:AAL] (OTCQX:NGLOY)
    • African Rainbow Minerals Limited (OTCPK:AFBOF)
    • Consolidated Minerals Holdings
    • Compania Minera Autlan
    • ERACHEM Comilog Inc.
    • Eramet SA [FR:ERA] (OTCPK:ERMAY)
    • Metals X Limited [ASX:MLX] (OTCPK:MLXEF)

    Note: Many iron ore miners also produce some manganese.

    Purer play manganese miners

    Element 25 [ASX:E25] [GR:QFP] – Price = AUD 1.13

    Element 25 is an Australian company developing their 100% owned advanced stage Butcherbird manganese project in Western Australia. The Project has a large resource, currently >260 mt of manganese ore in Measured, Indicated and Inferred JORC resources. The maiden Proved and Probable Reserve is 50.6m tonnes at 10.3% Mn for 5.22mt of contained manganese.

    It's a promising sector but those guys are a mosquito.


  16. I think AMYZF's market cap is currently nosebleed compared to its real value, which is IP I'm having trouble finding. Never a good sign. 


  17. amyzf-What I can gather is the recycling part might be more of it's genre. BDC ever try to get SPCE earnings etc? It is over 50 bucks now with absolutely nothing to go on. Spac's have basically nothing as far as earnings. Seems to make no difference anymore. On balance sheets is nothing but "borrowed" funds. As PHil says'Pigs get slaughtered so take profits.'


  18. Here is the link to the replay of yesterday's webinar.  

    https://youtu.be/KerS4yxz9GM


  19. BDC-I have another long shot for you. TLOFF, Talon Metals. It is about 60 miles west of me in MInn. and this one is nickel and is underground. Apparently meeting environmental standards from what I read.  Anyways, VALE and other miners are having problems environmentally getting hit with fine after fine so I try to keep things involved with metals to US, Canada, or Australia. FWIW


  20. If you do buy Tloff make it small amounts or it will drive the price up.


  21. Thanks everyone regarding AMYZF.  My instinct, as well, was to take the money and run.


  22. how about rare earth miner MP

    MP owns and operates the Mountain Pass facility, one of the world’s largest integrated rare earth mining and processing facilities and the only major rare earths resource in the Western Hemisphere.  MP currently has a market cap of $5.55B and revenues seen rising 88.6% in 2021 and 35% in 2022, also EBITDA positive with 78% and 79% growth seen for 2021 and 2022.


  23. someone put this trade on LYFT today:

    sold 7000 Jan2023 $35 puts for $5.40 to buy 3500 of the $80 calls for $9.50


  24. Stockbern 

    At least that one is on the NYSE & optionable. Here is another junky miner. TMRC up "only" +100% last month.


  25. stockbern/options

    Asking you again maybe..how do you get the unusual option acitivity alert. Do you have a screen setup? The market rebellion website sells the option activity report for around $1000 per month.

    regards


  26. MP , overvalued yes but not junky.  MP acquired its assets out of bankruptcy from Moly Corp who had spent $1.7B on the mine.  The recent run up in price was from the military coup in Myanmar.  They will be refining NdFeB used for magnets, a huge component in EV


  27. pat_swap .  there are services that will give you the raw data for a lot less money, just look.  From that raw data you have to draw your own conclusions.  


  28. Is it just me or do others find that buying anything nowadays is very challenging.  I look at most of the stocks/idea suggested on here (aside from Phil's of course. :)   and they are all trading at or near 52 week highs and way above the 52 week target (yahoo finance).  Hard to pull the trigger on a trade…So I'm just developing a list of stocks to look at if/when there is a corrections.  Though it feels like there never will be another correction.  Sitting up here in Northern Alberta,……-41 degree today with the windchill), real estate is booming, crypto's are booming, gold/silver has been on a good run.  All the indexes are hitting all time highs…………just feels very unrealistic.


  29. stockbern/options

    sorry it is $1000 per year… Yes I will look around for raw data.

    Thanks.


  30. There was a huge 75 car pile up with 8 casualties just a few miles from where I live.  We only had 1/4 inch of ice, but inexperienced drivers in Texas 


  31. ultguy   yes!     i liked yodi's setup on AMGN the other day.   Patience is the hardest part. 


  32. MP/Stock – That one has no financials at all.  Revenues rising from what to what?  I see $41M in revenue and $14M in profit from Q3 but there's no consolidated financials without digging.  Let's assume they make $100M/yr, so they are at 55x for a miner.  GOLD has a $40Bn market cap at $22.20 and they have $12.5Bn in sales and make $2Bn (in a bad 2020).  So I can put my money in MP and hope this and that happen and they eventually make 50x more profits than they currently have in sales – or I can buy GOLD now and just sit back and relax.

    LYFT/Stock – Well Uber did well so they hope LYFT replicates.

    Challenging/Ult – As I said earlier in the week, there are bargains to be had, but they are boring like T or GOLD or WBA or PFE that no one is excited about but, using options – we can make 300% or better returns in 24 months if they simply don't go down from where they are now.  If they do go down – we don't lose much and our downside will be owning cheap blue-chip stocks for the long haul.  And, of course, if the market goes up and up and up or if inflation kicks in – these companies will go up with the rest – just more slowly.  Doesn't stop you from making 300% though…

    Ice driving/Stock – Yeah, it's bad enough in NY/NJ when the roads are icy.  In Texas with inexperienced drivers and no snow tires – they should have closed the roads or required chains.  Of course then you are being a "nanny state" and overprotecting the citizens….


  33. the PSW play is with WBA but today someone sold 5000 of the 

    CVS $70 puts for $7.40 and 5000 of the $82.5 calls for $4.75    =  $12.15 and CVS pays a 2.7% div. 



  34. CVS was January 2022


  35. CVS/Stock – They are good too for a lot of the same reasons but WBA was, to me, a better value.


  36. ulty-welcome to the below zero club. No Wisc warmed up to -2. Whopee! Thankfully the wind is down.


  37. pirate, thanks for the tip. I tend to jump on all these things. The gambler in me….

    Also, snow coming to seattle and SNOW going into my portfolio tomorrow. Coincidence????? ;)