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Thursday Thrust – Low Market Rally Between the Holidays

49,343,700.

That's all the trading on SPY yesterday.   The average volume is 100M, but we only hit that one time in the whole month of June and, in those big (relatively) volume days of June 16th, 17th and 18th, SPY fell 5% – what is going to happen to this market if people really try to sell their holdings en masse?     

There's a very strong correlation in this market, and any toppy market, between volume and direction.  When the volume is low, the automatic buying done by ETFs (there are very few short ETFs) floats the market higher as they simply buy at market prices at the day's end.  That's why you have all those late-day rallies.  If there are not a lot of people selling (complacency), the market drifts higher.  And who is putting in this "dumb money" every day?   Well you are – it's your 401K, your IRA, your 529 plan that is doing this.  That's where most of the ETF money comes from…

Date Open High Low Close* Adj Close** Volume
Jun 23, 2021 423.19 424.05 422.51 422.60 422.60 49,343,700
Jun 22, 2021 420.85 424.00 420.08 423.11 423.11 57,700,300
Jun 21, 2021 416.80 421.06 415.93 420.86 420.86 72,822,000
Jun 18, 2021 417.09 417.83 414.70 414.92 414.92 118,573,500
Jun 17, 2021 421.67 423.02 419.32 421.97 421.97 90,949,700
Jun 16, 2021 424.63 424.87 419.92 422.11 422.11 80,386,100
Jun 15, 2021 425.42 425.46 423.54 424.48 424.48 51,508,500
Jun 14, 2021 424.43 425.37 423.10 425.26 425.26 42,358,500
Jun 11, 2021 424.20 424.43 422.82 424.31 424.31 45,570,800
Jun 10, 2021 422.96 424.63 421.55 423.61 423.61 51,020,100
Jun 09, 2021 423.18 423.26 421.41 421.65 421.65 48,436,300
Jun 08, 2021 423.11 423.21 420.32 422.28 422.28 47,134,300
Jun 07, 2021 422.59 422.78 421.19 422.19 422.19 51,555,000
Jun 04, 2021 420.75 422.92 418.84 422.60 422.60 55,938,800
Jun 03, 2021 417.85 419.99 416.28 418.77 418.77 58,138,800
Jun 02, 2021 420.37 421.23 419.29 420.33 420.33 49,097,100
Jun 01, 2021 422.57 422.72 419.20 419.67 419.67 54,216,600

And what else do ETFs do?  They rebalance – which is to say they tend to reallocate capital to match the index they are tracking which means they effectively chase the high-flying stocks.  So who are the idiots who buy stocks when they hit new highs – that's you too!  Now, when sentiment changes, that's a different problem as the ETFs begin to engage in program selling but, since they were the primary buyers on the way up – they find no one to buy their stocks on the way down but they sell at market anyway – and prices plumet. 

MY VIEW | PHIL HANDSThat's why I want you to be especially careful with the Nasdaq (our primary short) as a House Committee just approved far-reaching legisltation to CURB THE MARKET DOMINANCE OF TECH GIANTS.  The centerpiece of the six-bill package, a measure to bar big tech companies from favoring their own products in a range of circumstances on their platforms, was approved early Thursday by a vote of 24 to 20.

Known as the American Choice and Innovation Online Act, the legislation would prohibit big platforms from engaging in conduct that advantages their own products or services, or disadvantages other business users, or discriminates among similarly situated business users – which is pretty much their entire business model!  

The package was the culmination of a lengthy investigation by a House antitrust subcommittee. It found that the big tech companies have leveraged their dominance to stamp out competition and stifle innovation, adding that Congress should consider forcing them to separate their platforms from other business lines.

Taken together, the bills represent the beginnings of an effort by many in Congress to reinvigorate antitrust enforcement among high-tech companies by updating laws they say have fallen behind. Rep. David Cicilline (D., R.I.) said the unchecked power of the biggest tech companies threatens economic fairness and even American democracy itself.  “At its core, this issue is fundamentally about whether or not we have an economy where businesses fighting for economic survival can actually succeed,” Mr. Cicilline said.

Llewellyn King: Big Tech should be left alone while it is still creating |  Columnists | wacotrib.comIt's not just the US that is looking to reign in Big Tech.  The last 5 years of US politics has warned Governments around the World that Social Media can raise up and bring down Governments and I wouldn't be surprised to see a major "News" campaigns shortly that will tell you how Congress is attacking your freedom to be a drone in the matrix.  Your life, or at least the Data about your Life, is a product that is bought and sold by Big Tech and those pesky Democrats, like Keanu Reeves, are concerned about that being a bad thing.  

Three years ago, the Supreme Court issued a ruling that appeared to reaffirm Americans’ right to privacy in the digital age.   It turns out that all the government really needs is cash and a data broker. Government agencies - as several publications have reported – have discovered ways around what seemed to be robust constitutional protections for sensitive location information. They are engaging in creative legal interpretations and secretly exploiting gaps in the law to buy Americans’ personal information from intermediaries. This practice of buying Americans’ data has become routine, effectively hollowing out both Carpenter vs United States and privacy safeguards enacted by Congress.

Key to this activity is the proliferation of entities that collect, package and sell Americans’ information. The government no longer needs to compel the production of location data from Verizon or T-Mobile, because there are innumerable cellphone apps that gather and track precise geolocation coordinates (along with a wealth of other personal data).  I personally saw a demo of a package from one of the Credit Reporting Agencies that is available to any mortgage broker with a reason to verify your data and it told me where you work, where you shop, who you associate with (and who they associate with), what you own, what cars you drive (data comse from Toll Cameras that Face ID you driving whatever license plate) and all sorts of other things that you would think are private.  

Of course, most of us are in the "so what, I have nothing to hide camp" but don't you get junk mail from people who seem to know way too much about you?  How do you think identities are stolen?  In fact, here's something fun you can do today.  Go on social media like Facebook or Twitter and mention a vacation place or a hobby and then pay attention to what adds you see popping up all over the place wherever you connect to the net – it is kind of disturbing once you start paying attention.  

Advances in technology have eroded Fourth Amendment protections as well as created major gaps in our privacy laws. The Supreme Court has made clear, however, that we don’t forfeit our constitutional privacy rights simply because so much of our personal information lies in the hands of companies. To prevent the government from buying its away around those rights, we need to rewrite privacy rules for the age of apps.

As more and more Governments look to reign in the madness and politicians start popping those red pills, it's going to be a bumpy ride for big tech and, with Big Tech accounting for about 20% of the market cap in the US these days – a bumpy ride for them is going to be very contagious.  About $300Bn worth shares are traded on the S&P 500 each day and they are bought and sold in near-balance but what happens if AAPL ($2.2Tn) falls 10% and you need to find $220Bn worth of buyers?  Add another $500Bn from the other Trillion-Dollar companies and you can see where unwinding just big tech could swamp the indexes for a week or more.

Be careful out there!  

 


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  1. Phil – any thoughts on Mosaic (MOS) now? I think we played it… long ago. Intrepid just raised potash price, and MOS indicated last week they expect improved realized prices (https://finance.yahoo.com/news/mosaic-mos-announces-revenues-volumes-130001649.html). Yahoo states a forward PE <11. 


  2. Good Morning.


  3. Good morning!

    Dow flying higher. 

    08:52 AM EDT, 06/24/2021 (MT Newswires) — Apple (AAPL) received a slight
    boost to its price target from Morgan Stanley as the firm said investors'
    concerns about the consumer technology company's fiscal 2022 growth prospects
    are "overblown" and create a long-term buying opportunity.

    Morgan Stanley's new price target on Apple's stock is $162 per share, up from
    $161. In comparison, the shares closed Wednesday's session at $133.70 each and
    edged up 0.6% to $134.60 in recent Thursday pre-market trading. Morgan Stanley
    kept its investment rating on the shares at overweight.

    "Investors are concerned about AAPL's FY22 growth prospects given the
    expectation for an iPhone s-cycle and waning cyclical [work-from-home]
    tailwinds," Morgan Stanley analysts said in a note to clients. However, they
    added, "we're not as concerned and see a good [long-term] buying opportunity."


    The firm pointed to four main factors making investors cautious about Apple.
    First, "we are at a seasonally low period in the iPhone cycle, which creates a
    demand information vacuum and elevates the relative impact of supply chain
    noise," Morgan Stanley said. "Second, Apple is increasingly in the eyes of
    regulators, and while we believe their model is defensible… regulatory risk
    is likely to remain a stock overhang."

    Third, the firm said, "as the world slowly returns to normal, there are
    concerns that cyclical work- and learn-from-home demand will decelerate at the
    same time Apple faces increasingly difficult" comparisons. Finally, "investors
    fear that a more evolutionary (rather than revolutionary) iPhone s-cycle will
    lead to extending iPhone replacement cycles and [year-over-year] revenue
    declines next year."

    The Morgan Stanley analysts said they recognize these risks but have a more
    positive outlook on Apple. For the near term, the firm is calling for the
    June-ended quarter to be stronger than originally expected, which prompted it
    to increase estimates for the quarter's revenue and earnings per share.

    Apple shares have an average investment rating of outperform from analysts
    polled by Capital IQ, with price targets ranging from $90 to $185.

    More free money is the overriding story:

    Biden to meet with senators in bid to finalize agreement on bipartisan infrastructure plan

     Analyst: They'll 'iron out a few wrinkles and presumably seal the deal with
    a photo op'
      President Joe Biden on Thursday was taking part in efforts to achieve a
    bipartisan deal on infrastructure spending, as he was slated to host a White
    House meeting with senators who have crafted a framework for an agreement.
      Biden and Vice President Kamala Harris were due to meet at 11:45 a.m.
    Eastern Thursday with a bipartisan group of senators on infrastructure
    (PAVE) negotiations, according to the White House.
      Members of the group said late Wednesday that they had agreed to a framework
    for a package
    (https://www.marketwatch.com/story/infrastructure-negotiators-agree-to-framework-for-nearly-1-trillion-package-11624492824),
    after recent talks had focused on how to fund the package, which has been
    expected to feature $579 billion in new spending and an overall price tag of
    nearly $1 trillion over five years.
      Momentum has been growing for a two-step approach to infrastructure spending
    (https://www.marketwatch.com/story/momentum-grows-for-2-step-strategy-on-infrastructure-as-11-republican-senators-back-bipartisan-plan-11623941980).
    With that approach, the bipartisan plan first would draw the 60 votes in the
    Senate that are needed to bypass the filibuster. Then, Democrats would go it
    alone to pass a bigger spending package by a simple majority vote through a
    process known as budget reconciliation.
      "Today members of the bipartisan group will meet with President Biden at the
    White House to iron out a few wrinkles and presumably seal the deal with a
    photo op," said Benjamin Salisbury, director of research at Height Capital
    Markets, in a note Thursday.
      "Resistance from Congressional progressives is the next major obstacle to
    overcome," he added. "The White House will woo progressives to support the
    bipartisan bill by pointing to a subsequent/parallel budget reconciliation
    bill including the omitted green incentives from the President's American
    Jobs Plan and potentially key elements of the American Families Plan."
      Related: A guide to budget reconciliation, which Democrats could use to push
    Biden's agenda
    (https://www.marketwatch.com/story/a-guide-to-budget-reconciliation-which-democrats-could-use-to-push-bidens-agenda-11611608516)

      Also: Bernie Sanders floats $6 trillion Democratic spending plan for
    infrastructure, Medicare, drug prices, immigration
    (https://www.marketwatch.com/story/bernie-sanders-floats-6-trillion-democratic-spending-plan-for-infrastructure-medicare-drug-prices-immigration-01624024272)

    Good sign I guess:

    Carnival CEO says 'we continue to experience an acceleration in booking
    trends' – CEO Donald added, "Despite our minimal advertising spend, we
    continue to experience an acceleration in booking trends globally, including
    capturing significant latent demand for our new sailings this summer. This
    strong demand affirms confidence in our future. In addition, customer
    deposits grew this past quarter, a significant milestone on our path to
    resumption." Donald continued, "With the aggressive actions we have already
    taken to optimize our portfolio and reduce capacity, we believe we are well
    positioned to capitalize on pent up demand and to emerge a leaner more
    efficient company, reinforcing our global industry leading position." Booking
    volumes for all future cruises during the second quarter of 2021 were 45%
    higher than booking volumes during the first quarter of 2021. Cumulative
    advanced bookings for full year 2022 are ahead of a very strong 2019 as of
    May 31, 2021. The company highlights that this level of bookings was achieved
    with minimal advertising and marketing. (Due to the pause in guest cruise
    operations, the company's current booking trends will be compared to booking
    trends for 2019 sailings.) Total customer deposits as of May 31, 2021 and
    February 28, 2021 were $2.5B and $2.2B, respectively. During the quarter,
    customer deposits on new bookings exceeded the impact of refunds provided.  
    S.FO  HOTS.FLY CCL

     


  4. The Challenge of Rebuilding U.S. Domestic Supply Chains


  5. Who Will Win — and Lose — in the Post-Covid Economy?


  6. The Fastest-Growing U.S. States Have the Worst Health Care


  7. What Corporate Boards Can Learn from Boeing’s Mistakes





  8. @Pharmboy

    Any updates on or thoughts on KPTI, TRIL, ABUS?  Holding a small amount and hoping.

    Thanks


  9. TTE/Tangled / Phil   Schwab says the TTE ex-date was Jun 22, so the .80 drop was already factored in.  



  10. Phil,

    Any thoughts on why DQ is rallying today after the announcement that Biden will block solar components from China in response to abusive labor conditions/treatment of minorities. I understood why DQ, etc had fallen 2 weeks ago when the policy change was circulating but now that it has seemingly become policy (11:17 AP article above) why would DQ rally?

    TIA


  11. Oh, so if you were called away yesterday, you should have gotten the dividend – bonus!  

    MOS/RN – If you would have asked me at $20, I would have said MOS might be good in an economic recovery.  $20 is $8Bn and they should make $1Bn+ in a good year so no-brainer.  Even $30 is only $12Bn so still reasonable but Potash shortages don't last as it's easy to get, just environmentally dirty work.  

    Year End 31st Dec 2015 2016 2017 2018 2019 2020 TTM 2021E 2022E CAGR / Avg
    Total Revenue
    $m

    8,895 7,163 7,409 9,587 8,906 8,682 9,181 11,127 10,719 -0.485%
    Operating Profit
    $m

    1,279 319 466 928 -1,095 413 792     -20.2%
    Net Profit
    $m

    1,000 298 -107 470 -1,067 666 1,026 1,172 1,049 -7.81%
    EPS Reported
    $

    2.78 0.847 0.998 1.22 -2.78 1.69 2.65     -9.51%
    EPS Normalised
    $

    2.80 0.847 1.02 1.54 -0.054 2.19 3.04 3.05 2.66 -4.81%
    EPS Growth
    %

    -4.14 -69.8 +20.3 +51.1       +39.1 -12.8  
    PE Ratio
    x

              14.1 10.2 10.2 11.7  
    PEG
     

              0.362 0.260   3.69  
     

    At about $20 I find them compelling as they are cyclical and probably average about $500M so 15x is $7.5Bn valuation.  If you are short-term, however, you should catch a couple of good earnings reports ahead.  They do have 2023 options and good volatility so I'd go for:

    • Sell 10 MOS 2023 $25 puts for $3.25 ($3,250)
    • Buy 15 MOS 2023 $20 calls for $13 ($19,500) 
    • Sell 15 MOS 2023 $27 calls for $8.70 ($13,050) 

    That's net $3,200 on the $10,500 spread so $7,300 (228%) profit potential as long as they don't fall more than 15% is a nice way to start.   Worst they can do is assign you 1,000 shares at net $28.20, which is still way below the current price and then you could get serious about building a position.  I wanted 15 longs so we can sell 5 short calls, the Sept $35 calls are $1.30 so $650 per quarter but I'd wait for a better bounce, hopefully $2 ($1,000).  That would be 30% back on your money per Q while you wait to make 228% in 16 months – not terrible…

    DQ/8800 – Love the Blizzards!   Well, they are already down 50% in anticipation of this and that's why the saying goes "Sell on the rumor, buy on the news" (or the reverse).  It may not be as bad as feared, they may be news or analysis in China that this ban won't have a material impact on them – or at least not enough to cost them 50% of their market cap.   Also, DQ is a $4Bn company and only products made in Xinjiang are being banned (forced labor accusations – not unlike minimum wage in the US, which bothers no one) so what percent DQs products are made there and what percent of DQs business goes to the US and why don't they just ship Xinjiang-made products to everyone else and ship non-Xinjiang products to the US and problem solved and they can "hire" even more workers?   See, problem solved.  My guess is people thought the ban would be broader so this is, on the whole, good news.  

    Polysilicon manufacturing overview


  12. Phil,

    Thanks for your take on DQ. I'll see what I can do about sending over a Blizzard or two.


  13. Reminds me of this:


  14. OMG, these indexes are out of control.


  15. Biden speaking about infrastructure deal and futures not even really reacting either way…


  16. Infrastructure – How many times can we go up on the same news? Except now we have a watered-down version of the infrastructure bill. Doesn't make sense to me.


  17. Hello everyone, here is the replay of yesterday's webinar

    https://youtu.be/Fiewzjjcuws


  18. I think they already reacted with the Dow and RUT up 1% and the others up 0.6%.

    How many times can you react to the same news?  (a lot, apparently).

       

    We'll be paying at the pump this weekend (and next):

       

    That was strange.

    And what Dave just said! 

       

    Will The Scarface Remake Ever Happen ... And Should It? - CINEMABLEND

    You know that was Oliver Stone's private stash?  The guy goes authentic all the way…


  19. Any idea what happened in Miami this morning?  That looks like a bombing…


  20. Phil/PAA-

    What are your thoughts on PAA going forward?  After accumulating some in the 5's and 6's – Turns out I have about 5% of my taxable account in the shares – bought originally around 18 but now my cost basis on the shares is 13.  Why isn't it back to original prices (20's) when energy is higher and economy is reopening? They are currently uncovered but I have sold some calls on the way back up so I am about breakeven with the dividends also.  I ask because my account is kind of cash strapped as some of my buy orders got executed a few weeks ago (good prices) on the small dip in the indexes.  Just wondering if there are greener pastures elsewhere with the cash.

     

    Thanks


  21. Building/JPH – Seems to have just collapsed.  100 missing – hard to say if they are dead or injured as it's right on the beach – $600,000 units so most people are probably part-time and luckily not there.  

    https://www.cnn.com/2021/06/24/us/building-collapse-miami-thursday/index.html

    A lot of this stuff is going to happen in Florida as the ground is getting softer and shifting more from erosion (putting stress on buildings).  

    Miami may be underwater by 2100 - YouTube

    Study: Miami Beach, Florida Keys Could Be Underwater Within 30 Years -  YouTube

    People don't get this.  Underwater in 30 years doesn't mean you'll be fine for 29 years….

    PAA/Jeff – They are not going back to $20 because they divested assets to decrease their debt so they no longer have the ability to generate those revenues.  They are still very leveraged and subject to rate increases that will impact cash-flow and, of course, they give away most of the profits in dividends – so not a great base for growth.  They are simply lucky things came back but don't forget – they don't sell energy, they transport it – so they don't get a great upside from higher prices.  

    In the LTP, we have:

    PAA Plains All American Pipeline LP 8000 1/24/2020 517 $83,000 $10.38 $1.01 $10.20     $11.39 $-0.10 $8,080 9.7% $91,080
    PAA Short Call 2022 21-JAN 5.00 CALL [PAA @ $11.39 $-0.10] -40 3/23/2020 (211) $-8,000 $2.00 $4.40     $6.40 - $-17,600 -220.0% $-25,600
    PAA Short Put 2022 21-JAN 10.00 PUT [PAA @ $11.39 $-0.10] -40 1/14/2021 (211) $-8,600 $2.15 $-1.50     $0.65 - $6,000 69.8% $-2,600
    PAA Short Call 2023 20-JAN 7.00 CALL [PAA @ $11.39 $-0.10] -40 1/15/2021 (575) $-15,600 $3.90 $0.55     $4.45 - $-2,200 -14.1% $-17,800

    We doubled down twice to get to 8,000 – 2,000 at $18 with short 2022 $18 calls (and $20 puts) at $7.10 so net $10.90/15.45 and then we added 2,000 more to average $15.50 on the stock and then 4,000 more to average $10.375, as above and we rolled the short puts to 2x and those are working now.  

    Given the Dividend is 0.75 and you can sell 2023 $10 puts for $1.45, there's not much point to owning the stock if you need cash.  We're kind of stuck since we sold the Jan $5 calls when we doubled down (to drop the basis and in case we were wrong) but, once they expire, we can do a 2x roll higher on the 2023s – probably to 2024.