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Monday Market Delta – Virus Fears Pull Us Back

This is why we hedge.

Last week, as we were doing the Portfolio Reviews for our Members, we noticed a pattern of poor performance from our Small Cap Stocks, so we adjusted our hedges from favoring the Nasdaq (which never goes down far) to the Russell and boy has that worked well over the past week!  The Nasdaq is down too but only down 500 (3.3%) from the 15,000 top (where we shorted it, of course) while the Russell has now fallen 240 (10.25%) points from 2,340 at the start of the month.

I've been talking about the Delta Varient all month and here we are, on July 19th, and people are starting to pay attentionSurging cases of the coronavirus in many parts of the world, including highly-vaccinated countries such as the U.K., have prompted investors to dial down their expectations of economic growth in the coming months.  Some also are concerned that a steep rise in prices will pinch consumption and prompt central banks to withdraw stimulus, creating an environment of lower growth and higher inflation in which stocks tend to struggle.  

Consumer spending climbed 5% in March after Congress and the White House enacted a $1.9 Trillion pandemic relief package that sent $1,400 checks to many households.  The money was reaching pocketbooks at the same time many people were getting vaccinated and venturing out more as service providers reopened their doors.  Monthly spending increases have slowed since then as the initial stimulus effect fades.  “You can’t eat out twice in a night,” said Steven Blitz, chief U.S. Economist at TS Lombard.

Los Angeles County on Sunday became the first major county to revert to requiring masks for all people indoors in public spaces.  Coronavirus case counts have risen sharply under the less stringent guidelines, especially as the highly transmissible Delta variant continues to spread.  The county’s daily average of new cases has more than doubled in each of the past two weeks, reaching almost 1,400 as of Saturday, and Covid hospitalizations are up 27 percent.  

“When you look back at the last seven days, obviously a whole lot has changed,” Hilda L. Solis, the chairwoman of the Los Angeles County Board of Supervisors, said on ABC’s “This Week” on Sunday. Ms. Solis called the increase in Covid cases “very disturbing.”

55 Athletes and workers at the Olympics have tested positive already and are being sent home.  3 of the US NBA players had to stay home with Covid and the NBA in general has a Covid problem – now that they are playing outside of last year's bubble – which worked great (zero cases last year).  The incubation period of up to 14 days for the virus means athletes could test negative repeatedly before suddenly producing a positive test result just before or during competition

It's been a very long time since we've had a proper sell-off so we'll just have to wait and see what levels hold.  14,000 on the Nassdaq (/NQ), 33,000 on the Dow (/YM), 4,100 on the S&P (/ES) and the Russell (/RTY) is already failing 2,100 so that's what we'll be watching this week.  There's very little data this week and no Fed speakers scheduled so it's going to be all about earnings – and there's plenty of those:


Let's be careful out there!


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  1. Wow the market is tanking. Big surprise!

  2. Phil – Thoughts on IBM ? was thinking of a earnings play with some fun money. 



  3. Good morning!  

    Down over 1% across the board – interesting way to start the week.


    Money running into bonds:



  4. IBM/Monk – I don't think I'd want to guess at the best of times but in this volatility – may as well bet on the roulette wheel – at least you get a free drink.

    LOL – Well, the STP is sure working:

    Value Change Today: $62,298
    Security Value:  $90,505
    Cash on Hand:  $159,569
    Total Value:  $250,074
    Portfolio Ret.:  25.0%

    We're still net bearish, which is good as the LTP took a hit:

    Value Change Today: $-36,766
    Security Value:  $774,017
    Cash on Hand:  $1,080,646
    Total Value:  $1,854,663
    Portfolio Ret.:  270.9%

  5. A new world of plasma screens?

  6. Oil $67.50!  

    • Mohamed El-Erian, former CEO of PIMCO and the chief economic adviser at Allianz, said Monday that stagflation represents the biggest worry for the economy, as inflation remains high and worries persist that a COVID resurgence could threaten economic growth.
    • "[Stagflation] is our biggest worry out there and we don't want that worry to start being a big concern, let alone materialize," he told CNBC. "Because then we have nowhere to hide."
    • El-Erian predicted that continued Federal Reserve stimulus will feed inflation.
    • "If we continue with this monetary stimulus, we will have higher inflation persist," he said.
    • On the other hand, he said stimulus in the form of government infrastructure spending could be helpful because it fosters growth in the economy.
    • "You do want the stimulus to persist, but you want a different type of stimulus: more infrastructure, less monetary stimulus," he concluded.
    • Speaking to the recent performance of the 10-year Treasury, which has seen yields drop below 1.25%, El-Erian said that growth worries played a part in the rally in bonds.
    • The former PIMCO CEO said that the Fed's asset purchases also supported the Treasury market. At the same time, "liability management" by low-risk investors prompted bond buying, as they look to lock in gains posted in the stock market earlier this year.
    • For more on recent movement in Treasury yields, check out a note issued by Jefferies, which doubts the "peak growth" story.

    • XPeng Inc. (XPEV -2.7%), a leading Chinese EV manufacturer, announced that the presale price range of its new electric vehicle, the P5 smart sedan, would be between RMB 160,000 and 230,000 (~$25k to ~$35k).
    • The P5 will be the first mass-produced electric vehicle equipped with LiDAR, a sonar that uses light waves to map the surrounding environment, and will expand the car's autonomous driving assistance system from being used on highways and expressways to urban roads and traffic intersections.
    • The P5 is Xpeng's 3rd model and will launch in the third quarter of this year. Deliveries will begin in the fourth quarter.
    • XPeng has no official plans yet to sell its vehicles in the United States.
    • Read about XPeng's previous electric SUV launch here.
    • Copper and other base metals fall across the board, weighed by fears of a resurgence in COVID-19 cases and slower global growth that could follow, part of a larger risk-off sentiment across asset classes today.
    • Meanwhile, the dollar hovered near its highest levels in months, making dollar-priced metals more expensive and less appealing to holders of other currencies.
    • London copper (HG1:COM) is now down more than 3% to session lows, with other base metals including aluminum and nickel also in the red.
    • Early decliners among industrial metal mining stocks include FCX -4.7%SCCO -3.1%HBM -6.9%TECK -7.4%AA -5.6%CENX -8.8%.
    • Steel stocks are lower too: X -5%CLF -5.9%NUE -3.6%MT -3.6%STLD -4.7%TMST -7.3%SCHN -7.9%.
    • Theme park stocks are sliding on concerns that the Delta COVID-19 variant could impact traffic and the overall recovery trajectory for the sector.
    • Six Flags Entertainment (SIX -7.1%), Cedar Fair (FUN -4.9%) and SeaWorld Entertainment SEAS (SEAS -5.9%) are all notably lower in the morning session.
    • One of the biggest concerns being raised is that local officials could reimplement mitigation strategies to stop the spread of COVID-19 with hospitalizations rising in some regions and straining the health system once again.
    • Over the weekend, Six Flags generated some negative news apart from COVID after more than 60 people were treated following a chemical incident at a waterpark in Houston.
    • SeaWorld has been the sector outperformer for the year.



    • Apple (NASDAQ:AAPL) shares are down 2.3% pre-market amid reports that spyware from Israel-based surveillance software company NSO Group is capable of breaching even the latest generation of iPhones through zero-click attacks, which don't require human interaction or error to take over the device.
    • The Pegasus spyware was able to compromise devices running the iOS 14.6 operating system through a zero-click iMessage exploit, according to security researcher and Pegasus specialist Bill Marczak. Apple rolled out a new framework in the iOS 14 update that was meant to make zero-click attacks more difficult.
    • A consortium of global journalists, lawyers and human rights groups have launched the Pegasus Project to investigate the scope of the breaches and surveillance.
    • NSO has said Pegasus is only used to target criminals and terrorists. The Pegasus Project instead says the spyware was sold to authoritarian regimes to spy on activists, rival politicians and journalists.
    • Pegasus also compromised Google (GOOGGOOGL) Android phones.
    • Apple recently used iOS security to defend its 30% "app tax" on in-app game purchases and subscriptions through its App Store. The argument was central to its defense in the Epic Games antitrust trial, which is still awaiting a verdict. 
    • Covid fears appear to be driving market action this morning, with Europe down 2.4% at midday, and U.S. stock index futures pointing to more than a 1% loss at the open. The 10-year Treasury yield has plunged all the way down to 1.22% – a level completely incompatible with a strong economic growth and surging inflation, but totally compatible with another virus-related slowdown to come at some point in the near future.
    • Commodity prices are down sharply across the board, including crude oil - now down below $70 per barrel for the first time in a month.
    • After holding in an increasingly tight range for the past week, bitcoin (BTC-USD) has broken out to the downside, now selling for $30.5K. In the news is the crypto's fourth-consecutive downward difficulty adjustment as the market continues to deal with China's mining ban. Hash rate has staged only the most modest of recoveries, and remains far below the April peak. To review, Bitcoin is designed for new blocks to be mined about every 10 minutes, but with lower hash rate (computational power mining), that timing can rise, leading to the need for downward difficulty adjustments to return to 10 minute blocks.
    • Oil stocks plunge in pre-market trading alongside crude oil prices sinking after OPEC and its allies reached an agreement to gradually restore production to pre-pandemic levels.
    • WTI August crude (CL1:COM) -3.7% to $69.13/bbl, and September Brent crude (CO1:COM) -3.3% to $71.11/bbl.
    • OPEC and its allies will start raising output next month and continue until all of its 5.8M bbl/day of halted production has been revived.
    • The agreement has initially deflated prices, but several analysts including Citi's global head of commodities research Ed Morse say the market remains tight.
    • Goldman Sachs analysts agree the planned increase is moderate and will keep the market in deficit, while warning that oil prices may gyrate in the coming weeks due to concerns about the delta variant.
    • European oil majors Shell (RDS.ARDS.B), BP, TotalEnergies (NYSE:TTE), Eni (NYSE:E) and Equinor (NYSE:EQNR) all trade sharply lower.
    • Among major movers in the U.S. pre-market: XOM -3.1%CVX -2.6%COP -3.8%OXY -6.1%MRO -6.7%SLB -4.5%HAL -3.7%RIG -6.5%.
    • The top energy ETF (NYSEARCA:XLE) -3.3% pre-market.

  7. 5% Rule Time:

    So that's daily and we see 2,350 is the top of the RUT and 1,500 is the lower consolidation but 50% over 1,500 is 2,250 so we should take that line more seriously than 2,350, which is 53.333% and we'll assume that whole show above 2,250 is just an overshoot.  So the pullback lines we care about on a 750-point move up would be 150 points (20% of the run) back to 2,100 (as noted above), which is a weak retrace and then 1,950 would be the strong retrace and, below that is DOOM!!!

    But holding 2,100 indicates a mild pullback and there's 2 ways to slice this as we have the big picture calculation from 2,250 to 2,100, which is 150 down and 30-point bounces to 2,130 (weak) and 2,160 (strong). 

    In the smaller picture, the bounce from 2,350 to 2,100, the bounces would be 70-points to 2,170 and 2,240.  Since 2,160 is significant in the 1-day charts, the zone between 2,160 and 2,170 on the hourly charts should be very significant.  If we get stuck there – we're probably consolidating for a move down – even though it will look the opposite.  

    Time is important too – you need to form a "V" pattern to really be able to say a downturn was a blip and the V has to be the same time on each end.  The longer it takes to recover (presumably requiring more volume), the weaker the recovery is. 

    Case in point, the way the S&P "recovered" last week:

  8. I'm looking to rotate my portfolio. Does anyone remember what industries or assets did well during the Carter Administration?

  9. Variant – Why do I feel a bit smug about taking the shot and still wearing a mask?….

  10. Here you go Dawg:

    What Investors Can Learn From the History of Inflation – WSJ

    The Road Back to the 70s Implications for Investors – Amundi …

    Winners and losers in inflation – Investors' Chronicle

    Smug/1020 – Yeah, it's incredible how anti-science people have become.

    Now that's a V! 

    The most important thing hedges do is they allow us to do nothing.  When the market dips like this, it would be so wasteful to rush in and out of things in a panic.  We can just sit back and see what happens – with no pressure to make any quick adjustments.

  11. See, rejected at 2,160:

    Makes it very easy to call these things.

    2.5% Rule kicks in for the Dow at about -900, maybe 33,650 and so that should have 180-point bounce back to 33,830 and ten call it 34,000 for the strong bounce (as we like to round off when we can). 

    Looks like we're going to need more chart though….

  12. F   lots of trades for the Jan23 options  

  13. same with VIAC in the Jan22 and March calls. 

    VIAC and F    both great stocks in our portfolios 

  14. pharmboy stocks

    KYMR and GLUE both up in todays market

  15. It's always good to see who's bucking the trend on days like today.  

    Third Covid Wave Upends Fragile South Africa, a Warning for Developing World

    The pandemic is pummeling the country’s economy, adding to the longstanding frustrations of an impoverished majority. The resulting unrest shows how difficult it will be for many emerging economies to recover from the coronavirus.62 8 min read

    U.S. stock indexes, oil prices and government-bond yields slid, amid concerns that the spread of the Delta coronavirus variant would hold back the global economy.85634 min ago 5 min read

    Passport Renewals Are Taking Months

    Anxious U.S. travelers find their passport-renewal applications are taking longer than in the past—sometimes up to 18 weeks.

  16. The $20 Billion Winner of EV Startup Boom: Saudi Arabia

    The single biggest financial beneficiary of the boom is an unlikely candidate: the world’s largest exporter of oil, which made a well-timed bet on Lucid Motors.

  17. Old school power hour close :)