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Which Way Wednesday – Dow 34,000 Edition (again)

Here we are again.  

After testing 33,900 last night, the Dow is back to 34,100 pre-market and we did spend April building a base at 34,000 so it should, at least, be bouncy.  If we look at this as being rejected at 35,000, it's a 1,000-point run so the weak bounce takes us to 34,200 and the strong bounce would be 34,400 – nothing less than that is going to impress us today and I don't think we'll even get to the weak bounce as sentiment seems to be shifting a little. 

Like Bitcoin or Dogecoin, it doesn't take much of a dip for the bullish investors to start to wonder if maybe they overpaid for their positions after stupidly chasing the price up 35% from the November lows.  Were the people who valued stocks in November all crazy?  Did none of them understand how awesome the earnings potential of these companies are?  

Well, we're in the middle of earnings season now and it's not that stocks are not hitting their estimates – it's more like they are disappointing the bulls who have bought into fantasies that are impossible to realize.  We are re-opening this year but it's already mid-May and things are certainly not "normal" by any stretch of the imagination so why would the market be worth 30% more than the 2019 average of 26,500 on the Dow?  

Did the economy grow 30%?  No, it did not.  Then where would these magic beans have come from that made this valuation beanstalk grow up to the clouds?  We all know the answer – it's stimulus.  There are not 30% more people in the World spending 30% more money with 30% more jobs – the opposite is closer to the truth after losing 3.3M people – roughly the population of Los Angeles.  Another 160M people in the World have been infected and the jury is still out on the long-term effects of covid and the long-term drain on our our heath system for people with chronic conditions.  

Out of 160M cases in the World, 64M of them are actively infected.  The World has never had more active cases at one time.  817,345 people caught covid Saturday and we are partying like it's 1999.  Ignoring reality is fun, we did it all the time when we were kids, so we have a lot of practice at it but ignoring reality when we're investing is foolish and we have to be careful of the narrative the Corporate Media and the Corporate Government are feeding us and try to look at things as they really are.  

How great can things be for Airlines, Restaurants, Hotels, Retail, Energy… if most of the population is still at home, if office buildings are empty?  Here's a chart of ACTUAL credit card spending in various sectors and you can see – even with Trillions of Dollars being handed out – that the drop in spending is nothing short of catastrophic.  Of course Trillions of Dollars are also being given to these industries to make up for the shortfall and they are calling that money EARNINGS – because it does not need to be paid back and technically they are earnings – they earned their bailout – I guess…. 

U.S. Financial Markets Update: The Path To Normal - See It Market

So you, the investor, are paying inflated multiples for inflated earnings based on money you gave them because their business sucks.  In REALITY (a place we've heard of but never visit anymore) the organic business is down and earnings are way off where they were in 2019 but the comps we are doing are against 2020 and everyone is oohing and ahing over how much better things are getting.  It's like when Grandpa is able to open one eye at the hospital and he smiles and nods and everyone says what a "good day" he's having…

Notice these are "year over year" so, if you are down 50%, like Furniture was last April, it's not made up for by being up 10% now, is it?  If your baseline is $10Bn in furniture and you are down 50% to $5Bn, being 10% up from $5Bn is $5.5Bn – not only have you done nothing to make up the 5Bn you lost last year but you're STILL operating 45% where you were in 2019.  People don't understand how these charts work and make very poor decisions when reading them.

This is why we still love Wayfair (W) for a short.  W has very much benefitted from Covid as people have been ordering furniture on-line but, based on 86% of reviews being negative, I don't see that this is a trend that will continue post-covid.  Q1 Earnings were strong and revenues are running 50% ahead of 2019 but only 10% ahead of 2020 so the "growth" is slowing already and W made $185M last year and projected almost $500M this year but that's still no reason to pay $34Bn for the company (68x earnings) at $326.  This is where we came in last time and, in our Short-Term Portfolio, we still have:

W Long Put 2022 21-JAN 300.00 PUT [W @ $325.94 $0.00] 5 3/15/2021 (254) $30,500 $61.00 $-18.25 $45.22     $42.75 $0.00 $-9,125 -29.9% $21,375
W Short Put 2022 21-JAN 260.00 PUT [W @ $325.94 $0.00] -5 3/15/2021 (254) $-21,000 $42.00 $-16.00     $26.00 $0.00 $8,000 38.1% $-13,000

We had originally sold the April $320 calls for $28 and those expired worthless for an $8,000 profit (we bougth them back a bit early) and the next earnings are early August so now we can sell 3 June $320 calls for $26 ($7,800) knowing that the August calls will be easy to roll to as they will have plenty of earnings premium.  In fact, the Aug $360 calls are $36 – so that's where we'd roll to if W pops higher but what would the catalyst be now that earnings are past and they already jumped 20%?  

We'll be looking at some other over-priced retailers today.  Seeing the air come out of TSLA this Q makes me think there's a lot more to come. 


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  1. Good Morning.

  2. Good morning everyone!! Here is the link to today's webinar…

  3. Good morning,

    I have trouble connecting to PSW most mornings with a "504 gateway error". After 9am it usually fixes itself but I do wish to read on my morning commute @8:40!


  4. Monkman-just go to comments to sign in. I've been doing this for a month or so and it works.

  5. Phil. BABA – What are your thoughts on rolling this position in the LT port ?

  6. MonkMan – Same for me – couldn't get in to this site for 25+ minutes this morning! Quite annoying. 

  7. Hi Pstas need your advise how to proceed with my CHL shares which are now have been transferred to IB. What is the next step you did to get them converted and receive div from this stock. TIA

  8. crude oil/ above 66.50
    w short calls paying off nicely! Thanks Phil

  9. did you grab the oil short phil

  10. Oops- Phil- can you delete the above post?

  11. pstas,

    I used IBKR when I bought CHL stock and options. How will IB convert sold put and call options?


  12. Good morning!

    Sorry about the connection issues, they are working on it.  We're doing a site update soon so things are a little chaotic.

    BABA/Batman – I was waiting to see where the bottom is.  $220 should hold but we're doing portfolio adjustments next week.  Most likely we'll buy back the short $300 calls and roll the $250s down – the puts are fine.

    BABA Long Call 2023 20-JAN 250.00 CALL [BABA @ $221.30 $-0.08] 15 2/3/2021 (618) $106,500 $71.00 $-37.78 $71.00     $33.23 $0.51 $-56,663 -53.2% $49,838
    BABA Short Call 2023 20-JAN 300.00 CALL [BABA @ $221.30 $-0.08] -15 2/3/2021 (618) $-78,000 $52.00 $-32.73     $19.28 $0.22 $49,088 62.9% $-28,913
    BABA Short Put 2023 20-JAN 200.00 PUT [BABA @ $221.30 $-0.08] -5 2/3/2021 (618) $-15,500 $31.00 $-0.05     $30.95 $-0.35 $25 0.2% $-15,475

    CHL/Yodi, Pstas – Be aware Biden has officially left them on the naughty list.

    Oil/Lionel – $66.50 was our shorting target.  

    There's not much to read into the EIA report but, as I said, holiday driving season is approaching so it's a bit tricky so very tight stops above $66.50 if you are shorting /CL.

    What I do want to do is DD on the SCO Jan $6 calls in the STP (75 more) for $1, that will bring our average down to $1.88 and I'm happy to roll that to 2023 as we'll get it eventually.  

    Done, Pstas.

    IB/Kgab – You need to take it seriously.  Make sure you convert to Hong Kong ordinary shares and have them placed in a tradeable account.  Biden doesn't seem like he'll reverse the decision and that means those ADRs can go worthless in September – don't put it off.

  13. Yodi- CHL Conversion

    Log on to your account and go to the "Help" link in the upper right hand corner and click "Help" again and type in the search box:

    How do I convert ADRs to ordinary shares?

    That will give you step by step instructions. 

  14. Kgabor- CHL options- I have no idea what happens with the putters and callers. I have a couple a sold option straddles that are in my account but listed at no value. So, for now, I am doing nothing and assuming the options are worthless since the underlying is no longer traded. Very much a gray area. 

    I will echo Phil's comment- don't wait to convert the ADR's as from what I understand, after Aug/Sept you may be stuck.

  15. Thanks Pstas for all the help. We see how it goes. Yes I do still have Jan 23 short 25 strike puts and 30 strike calls. For me they can deliver the 25 puters and I pay them out for the 30 callers I would still gain about 2K in cash.

  16. TXN received a hair cut in the last few days!

  17. Just made an offer to close my CHL 30 callers for .05 was rejected!!!

  18. Obviously half off the table on /CL at $66.  Technically we want to be all out if it crosses the strong bounce at $66.20 at this point.  Getting 1/2 out at $66 locks in an 0.40 avg gain (providing you stop at $66.20 on the other half) which is 80% of max profit (on the major lines) – it's a good way to play these volatile futures trades.

    Speaking of bounces, /NQ 14,000 to 13,000 is 200-point bounces so 13,200 is weak and 13,400 is strong and things are not looking good for /NQ but that doesn't mean you can't pick up a few Dollars going long at 13,000 with tight stops below until the bounces fail 13,100 – then get ready for 13,000 to fail.

  19. Phil,

    With SCO. Why don't you sell puts? Is there any special reason for that?

  20. SCO/Kgab – Not willing to commit, that's all.

    Webinar time (15 mins)!

  21. Who ever has the Fidelity number to get CHL stock converted  could you post it again plz

  22. So I just spoke with representatives from Interactive Brokers, Charles Schwab and TDA. Non of them will be able to help convert CHL evidently….

  23. Phi/CHL-makes no sense to keep them on the list.  Sure doesn't hurt the Chinese.  

  24. Fidelity - contact Fidelity International Trading group – 800-544-2976; 5 a.m. to 7 p.m., Eastern; Monday through Friday

  25. According to my conversation with them, Fidelity will not allow any transfers of CHL into their brokerage either. You must hold the shares at Fidelity already. 

  26. CHL-seems like a lot of people will get stuck with ADRs they can't trade.  I heard that the OCC may impute a value for the short options based on the value of the HK shares and assign accordingly, but it seems difficult to accomplish that procedurally.  Leave to these assholes to screw up what was a probably a perfectly profitable investment.  So much for the retirement crisis.  

  27. speaking of utter idiocy possibly coming to its inevitable end, GME July 50 puts are 1.20

  28. CHL/Seer – It's very strange to single them out.  They don't even sell in the US.

    GME/BDC – Well I sure wouldn't risk selling them.

  29. We're really hugging that 13,000 line into the close on /NQ and /YM is 33,500 – also not good.