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Monday Market Movement

4,490.

That's the strong bounce line on the S&P 500 according to our Fabuluous 5% Rule™ after falling 100 points to 4,450 last week, which gives us 20-point bounces to 4,470 (weak) and 4,490 (strong).  In the bigger picture, we round off so 4,500 is going to be the line of contention for the week and we don't want to be below it at the end and the end of this week is a quad-witching end of quarter for options and futures – could be very volatile indeed.

Last week was the worst week in the market since February and down 100 points really isn't that bad – we've just forgotten what a sell-off looks like after 7 months of not having one.  The volume was high (relatively) during Friday's sharp sell-off, with 89M shares of SPY trading vs 50M(ish) the rest of the week.  So, if we rally back 40 points (strong bounce) in the no-volume futures – it's not very impressive, is it?  

Meanwhile, Daily Covid Deaths are now higher than the peak of last year and I hate to bring it up as it's depressing and it doesn't seem to matter to anyone but we MIGHT have to go back to lockdowns – just before the holidays or, even worse, we may not go back to lockdowns BECAUSE it's right before the holidays and our Corporate Masters are willing to sacrifice a few hundred thousand consumers rather than risk having a bad Q4.

Older Americans still account for the most Covid-19 deaths, but their higher vaccination rates have helped hold down the numbers. About 54% of the overall U.S. population and 63% of eligible people ages 12 and above are fully vaccinated, while the average among nursing homes is 84% for their residents, Federal data show.  Despite gains in protecting seniors, the Delta surge has presented major risks to other groups. CDC data continue to show that, compared with non-Hispanic whites, Black and Hispanic people face almost three times the risk of hospitalization and more than twice the risk of death. The rates among Native Americans are even higher.

The Delta variant has reversed some of the reopening momentum seen earlier in the summer. Rising numbers of Covid-19 cases in recent weeks have led to canceled concerts, postponed trips and the return of mask mandates.

Covid-19’s resurgence is creating whiplash for restaurants, which have slogged through a year and a half of pandemic-related disruptions. Sales that had steadily grown earlier in the summer have fallen in the past five weeks, data from restaurant analytics firm Black Box Intelligence showed.  Bars and restaurants lost 41,500 jobs in August, the largest monthly decline of any single sector, according to Labor Department figures released earlier this month. It was the food-service industry’s first monthly decline since December.

Shares of casual-dining restaurant chains, which depend more on dine-in sales than fast-food companies, have sagged in recent weeks. Chili’s owner Brinker International Inc. said last month that Delta had begun to depress sales, and its shares are down 16% since early June. Dave & Buster’s Entertainment Inc. shares have lost 18% and Applebee’s owner Dine Brands Global Inc.’s stock has fallen 14% over the same period.  We have Chipotle (CMG) as one of our primary shorts in our Short-Term Portfolio.

Here's a chart from Statistica showing "Year-over-year daily change in seated restaurant diners due to the coronavirus (COVID-19) pandemic in the United States from February 24, 2020 to September 11, 2021": 

While I would love to throw caution to the wind and run with the bulls, clearly restaurant dining has been trending down all summer (holiday spike last week) and the odds are 50/50 at best that we don't head back down due to either another lockdown or people just getting nervous and curtailing their habits.  10% of the US workforce have jobs in the restaurant industry – this is a major part of the economy and they really can't afford another winter like the last one – we have lost 17% of the restaurants that were open pre-covid already, 30% in California and only grant money is keeping many of the remaining restaurants alive as it is.

Southeast Asia is giving up on their lockdowns because they simply can't afford another round of bailouts so, despite the rising death rates, on the factory floors of Vietnam and Malaysia, in the barbershops of Manila or office towers of Singapore, regulators are pushing forward with plans to reopen, seeking to balance containing the virus with keeping people and money moving. That’s leading to a range of experiments including military-delivered food, sequestered workers, micro-lockdowns and vaccinated-only access to restaurants and offices.

Southeast Asia’s factory shutdowns have rippled across the world to create supply chain hiccups, with automakers including Toyota Motor Corp. slashing production and clothing retailer Abercrombie & Fitch Co. warning the situation is  “out of control.”:  Tangled Vietnam Supply Chain Highlights Threat to Global Economy

There is no Fed speak scheduled this week and today we just have the monthly Treasury Statement at 2pm but tomorrow we get Business Optimisn and hyper-inflationary CPI, Wednesday is Empire State Manufacturing, Industrial Production and Business Expectations.  Thursday we have the Philly Fed, Retail Sales and Business Inventories and Friday is Quad Witching Day with Consumer Sentiment also weighing in.

We'll see how that 4,500 line performs for the week but I think most likely we're heading for a proper retracement, back to 4,200 at least – as I noted last week in our Live Member Chat Room.

Be careful out there!  

 


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  1. Good morning! 

    Once the volume came back, the selling resumed but we had a huge pump in the Dow so we'll see if it gets back to red.

       

    Oil hit $70.95 – same BS.

        


  2. Good Morning.


  3. Does anyone own any VALE currently? Phil – what are your thoughts?


  4. Good Morning Phil !  

    I recall a short while back you had indicated that VIAC Leaps would trade today and that we may look at them wrt our existing positions.  I see the January 24's are out.  Thanks.





  5. VALE/Willsons – I have decided that companies which natively report in foreign currency somehow get missed by screeners and that's why we tend to find these deals.  VALE has a $91Bn market cap at $18.15 yet they are making $27Bn a year so p/e around 4 but that's based on insanely high copper prices along with high iron ore prices (a bigger part of their business)

    At normal prices, they make about $6Bn so 15x is about right for a miner.  Brazil is a mess so I'd rather go in on a pullback but let's say $10 is a no-brainer and the VALE 2023 $15 puts can be sold for $3 to put you in at net $12 so let's sell 20 of them in the LTP to either set up a $24,000 opening position or we just keep the $6,000 for our troubles.

    VIAC/Hicket – Yes, we'll decide when we do our portfolio reviews this week.  In the LTP, we have:

    VIAC Short Put 2023 20-JAN 40.00 PUT [VIAC @ $40.21 $0.56] -10 3/29/2021 (494) $-12,300 $12.30 $-4.90 $0.82     $7.40 $-0.26 $4,900 39.8% $-7,400
    VIAC Short Call 2022 21-JAN 60.00 CALL [VIAC @ $40.21 $0.56] -10 3/29/2021 (130) $-6,500 $6.50 $-6.14     $0.36 $-0.01 $6,140 94.5% $-360
    VIAC Long Call 2023 20-JAN 30.00 CALL [VIAC @ $40.21 $0.56] 30 5/6/2021 (494) $39,750 $13.25 $-0.73     $12.53 $0.53 $-2,175 -5.5% $37,575

    The 2024s are out but they are not really trading yet, so we have to wait and see but the 2024 $25 calls are hopefully $18 so we could spend $5.50 ($16,500) to widen the spread and then pay for it by selling just 15 of the 2024 $40 calls for $9.50 ($14,250) so we've put ourselves $15,000 deeper in the money and the short $60 calls will go worthless and then we can pick up another $10,000 selling more short calls and reduce our basis to near zero.  I don't even see the point in rolling the puts as they are currently on target and we really don't think VIAC will be lower than $40 in two years, do we?

    This is the data we read so we're not "surprised" by the CPI Report tomorrow:

     

     

    • Expectations for short- and medium-term inflation and income growth rose to new series highs, according to the New York Fed's latest Survey of Consumer Expectations.
    • Home price growth expectations, though still elevated, continued to moderate in August.
    • Median one-year-ahead inflation expectations increased by 0.3 percentage point to 5.2% in August, the 10th consecutive monthly increase and a new series high.
    • Median year-ahead home price change expectations ticked down to 5.9% from 6.0% in July, making the third straight decline, but expectations for year-ahead price changes jumped 0.8 percentage points for food, and 0.2 percentage points for rent and medical care.
    • Consumers, especially among respondents aged 60 and over, seem less confident than prior months about finding a job since the mean perceived probability of finding a job (if one's current job was lost) fell to 54.9% in August from 57.0% in July.
    • Also, mean unemployment expectations — or the mean probability that the U.S. unemployment rate will be higher one year from now — rose by 3.3 percentage points to 35.0%.
    • Still, the median expected growth in household income rose by 0.1 percentage point to 3.0%, a new series high; offset with median household spending growth expectations falling slightly to 5.0% from 5.1% in July, though still elevated from pre-Covid-19 levels.
    • Previously, (Aug. 9) New York Fed survey signals consumer expectations continue to improve in July.
    • Disney's (DIS +0.3%) impressive run at the 2021 box office continues, as its latest Marvel movie kept up a robust pace, offering still more good news to movie theaters as the industry ponders the way forward on in-person/streaming strategies.
    • Shang-Chi and the Legend of the Ten Rings grossed $35.8 million in its second-weekend follow-up, keeping the film on a record pace even before plans for a release in China (a big market for Marvel).
    • That brought its cumulative domestic box office to $145.6 million (the fastest film to a domestic $100 million in 2021), good enough for fourth-best of 2021, passing Jungle Cruise. Worldwide, it's grossed $257.6 million (and again, that doesn't yet count China).
    • It was an easy repeater over the second-place film, also Disney's: Free Guy drew $5.8 million to keep plugging along. That film has also crossed the $100 million mark domestically, arriving at $101.8 million (and $276.5 million worldwide).
    • And both those films were better than the weekend's other key wide release debut: horror film Malignant (T +1.7%), in third place with a lackluster $5.6 million. It came in ahead of the third week from Candyman (NASDAQ:CMCSA), with $4.8 million, and the seventh week of Jungle Cruise (NYSE:DIS), with $2.5 million.
    • It's more reinforcement for Disney's decision to drop its hybrid Disney+/Premier Access model and release the rest of its 2021 films to theaters exclusively (though on the new shorter release window than in the past).
    • Between the impressive Shang-Chi follow-up and a boost from Disney's theatrical vote of confidence, key theater stocks are higher today. AMC Entertainment (NYSE:AMC) is +1.2%; Cinemark (NYSE:CNK) +7.7%IMAX +6.9%; Marcus (NYSE:MCS) +6.6%; Reading International (NASDAQ:RDI) +1.5%; in-theater advertising firm National CineMedia (NASDAQ:NCMI) +8.1%.
    • Cineplex (CPXGF -0.5%) and Cineworld (CNNWF -2.4%) are lower.
    • Uber drivers are employees, not contractors, according to a Dutch court ruling Monday. Uber drivers in the Netherlands will now be covered by the collective labour agreement for taxi transportation, entitling them to better pay and benefits.
    • Uber announced that it would appeal the decision and that it has "no plans to employ drivers in the Netherlands." The company will also be fined €50,000 ($59,000) for failing to implement the collective labour agreement if the ruling holds.
    • "We are disappointed with this decision because we know that the overwhelming majority of drivers wish to remain independent," Maurits Schoenfeld, Uber's Northern Europe general manager, said in a statement.
    • The court decision is similar to a British court finding in February that classified Uber drivers as employees and allowed them to join unions.

     

     

    • The verdict arrived last week for the antitrust trail between Fortnite publisher Epic Games and Apple (NASDAQ:AAPL). U.S. District Judge Yvonne Gonzalez Rogers disagreed with the market definition offered by each company and found that Apple wasn't guilty of antitrust violations with the exception of its anti-steering provisions, which didn't allow app developers to link to outside payment routes.
    • The relevant market for a business is central to antitrust trials and determining whether a company is stifling competition in that market. Epic's central argument was that Apple's App Store is a monopoly with no major competitors. Apple disagreed, arguing it operates in the same market as all digital video games. Judge Gonzalez Rogers decided the appropriate market was the $100 billion mobile gaming market.
    • "Having penetrated all other video game markets, the mobile gaming market was Epic Games’ next target and it views Apple as an impediment," said Judge Gonzalez Rogers in the court decision.
    • The court found that the App Store has a market share of over 55% and "extraordinarily high profit margins," but those alone don't show antitrust violations since success isn't illegal. Epic failed to provide evidence of critical factors, including barriers to entry, conduct decreasing output or conduct reducing innovation in the industry.
    • Apple was only found to violate California's competition laws with its anti-steering behavior, which became the basis of a nationwide permanent injunction. The injunction allows App Store developers to link to external payment sources within the app, which would circumvent Apple's 30% commission rate on most subscriptions and in-app purchases.
    • Responding the the verdict, Wedbush analyst Daniel Ives says Apple's regulatory pressures "look containable for now." Ives estimates that a worse-case scenario would cost Apple 3% of total revenues and 4% of EPS. from the App Store change for gaming publishers. The losses will likely be closer to 1% for the top and bottom lines as Wedbush believes "the vast majority of consumers will continue to use the App Store for in-app purchases." Ives maintains an Overweight rating on Apple and a Street-high price target of $185.
    • Jefferies analyst Kyle McNealy calls the decision largely a win for Apple with some negative consequences. The analyst says the injunction changes will increase the volume of transactions moving to alternative payment methods. However, McNealy sees the exodus as limited by most developers lacking the scale and brand recognition to build an independent payment workflow and "consumer aversion to entering payment details for a high volume of apps separately." The firm maintains a Buy rating and $175 price target.
    • "Overall, we think the eventual impact from here will be driven by – a) how many developers will continue to use AAPL’s payment system for ease of use and b) will gamers really stop a game mid-way to go to a website and purchase the needed widget?" writes Evercore analyst Amit Daryanani, reiterating an Outperform rating and $180 price target.
    • Epic Games and Apple have both said they will appeal the decision.
    • Apple is still facing heat for its App Store practices in the U.S. Congress after lawmakers responded to the court verdict. 
    • Upcoming catalyst: Apple will host its "California streaming" fall launch event tomorrow. The company is expected to launch the iPhone 13 lineup and the Watch Series 7. 
    • Sports betting volume was up 123% year-over-year for the first weekend of the NFL season, according to pinging data from Geocomply. Jumps were seen in states where gambling were live last year to add to the hauls in new geographies. Morgan Stanley says pricing was slightly more favorable for customers, but concerns over hyper promotional activity may be overblown. Sports books are likely to have had a strong weekend with their hold after bettors favored NFL favorites, but 11 out of 15 underdogs covered the spread.
    • Bernstein checked into the sector today with an upgrade on MGM Resorts (MGM +1.8%) to Outperform based in a large part on the BetMGM upside and see additional clarity on the big picture,. "We value MGM Resorts with a sum-of-the-parts as it remains a complex structure; however, with the real estate transactions announced, MGM becomes a much easier company to understand and value for investors," updates the firm.
    • In a development out of Australia, PointsBet Holdings (OTCQX:PBTHF) attracted an investment from Penn National Gaming's (NASDAQ:PENN) Penn Interactive Ventures of 16.5M shares, which works out to a 6.27% voting stake.
    • The broad casino/sports betting sector is having a mixed day, with gains for Las Vegas Sands (LVS +2.9%) and Wynn Resorts (WYNN +1.7%), but some reversing for DraftKings (DKNG -3.1%), Full House Resorts (FLL -2.2%)> and Golden Nugget Online (GNOG -3.3%).
    • Read about the casino stock with the biggest gain over the last four weeks amid growing enthusiasm over the sports betting upside
    • Energy stocks (XLE +3.2%) dominate the top of the S&P 500 leaderboard in the early going, as the slow restoration of oil production in the Gulf of Mexico from Hurricane Ida helps lift WTI crude prices to their highest level in nearly six weeks.
    • Nearly half of crude production from the U.S. Gulf remained shut in as of yesterday, according to the latest data from the Bureau of Safety and Environmental Enforcement, and Tropical Storm Nicholas is poised to disrupt Texas.
    • MRO +7.3%APA +6.2%OXY +5.6%SLB +4.7%EOG +4.2%XEC +3.6%COG +3.5%.
    • WTI October crude oil (CL1:COM) +1.2% to $70.56/bbl, and November Brent (CO1:COM) +0.8% to $73.56/bbl.
    • ETFs: XLEUSOUCOXOPVDEGUSHOIHERXBGRBNO
    • Despite plans by OPEC+ to continue gradually restoring production and China's release of crude from stockpiles, Goldman Sachs analysts predict crude oil will lead a Q4 rally in commodities alongside strong demand and growing scarcity of supply.
    • Bank of America is resurrecting talk of oil potentially hitting $100 if the winter turns out to be much colder than usual, adding the weather is becoming the most important driver of energy markets.
    • However, the number of rigs in operation in the U.S. rose in the latest week, according to data from Baker Hughes, indicating production could rise in coming weeks.
    • Separately, OPEC raised its forecast for global growth in 2022 crude demand, now seeing demand rising by 4.2M bbl/day next year, up nearly 900K bbl/day from its previous guidance.
    • The U.S. government reported last week that crude stockpiles fell less than expected.
    • Thomas Lee, managing partner and the head of research at Fundstrat Global Advisors, said Monday that COVID-related concerns remain foremost in traders' minds this week, but that recent data suggest "good news on that front."
    • In an interview with CNBC, Lee pointed to statistics showing that 38 states out of 50 "have promising trends in COVID," suggesting to him that most areas of the country are seeing a peak in the Delta variant.
    • "Central to how investors make decisions today, it's a lot about the macro — and the thing that dominates macro today is COVID," he said. "[COVID] affects central banks, policymakers and investor confidence."
    • Lee highlighted a consumer-confidence survey due out on Friday as another potential catalyst. He argued that the market was well-positioned for a "win-win" reaction to the data.
    • Lee contended that following a weak showing in last month's consumer-confidence report, a rebound in the latest numbers would suggest that the U.S. economy had passed a bottom in consumer attitudes.
    • However, he said another dip in confidence could also prove positive for markets, as it might delay the Federal Reserve's decision to begin removing its stimulus programs.
    • Lee has been a vocal near-term bull for U.S. equities. Previously, he predicted an "everything rally"  that would last into the end of the month.

    • Facebook (NASDAQ:FB) is up 0.9% premarket, and Alphabet higher premarket (GOOG +0.6%GOOGL +0.6%) following their initiations at Buy by Goldman Sachs.
    • The firm started coverage as part of a broad new look at U.S. Internet.
    • For Facebook, it sees a leading social/mobile platform continuing its evolution. "While the short-term is likely to see some digestion of recent COVID-19 tailwinds to user growth and time spent, we don’t see Facebook’s utility in mobile computing receding in the coming years.
    • It also praises continued focus on investing against long-tailed platform shifts "in video, commerce, payments, messaging and augmented reality (including the Metaverse)."
    • It's expecting a 2021-2026 compound annual growth rate of about 17% in revenue, rising to a 2026 EBIT margin of 40%. Goldman has a $455 price target, implying 20% upside.
    • Alphabet is another leader, in digital advertising, but it still has exposure to an "array of upside optionality across a number of secular growth tailwinds (media consumption, cloud computing, local commerce, omnichannel commerce, gaming, hardware, computational shifts to AI/ML, etc.)."
    • It expects 2021-2026 revenue CAGR of about 15% and a 2026 EBIT margin of 37%. It has a $3,350 price target on GOOGL, implying 19% upside.
    • Wall Street is Very Bullish on GOOGL, while Seeking Alpha authors are Bullish as well. It has a Quant Rating of Very Bullish.
    • As for Facebook, the Street is Bullish, as are Seeking Alpha authors. It too has a Quant Rating of Very Bullish

  6. Phil / UBS – I have the following position on this and am looking to rolll the short call and add a putter on a pull back as well….   

    2500 UBS at 15.15

    10 X Short Sept '21 $15 Call (1.15)   (Note I closed out 15 Put  at a gain already)

    Looking at the following for a roll ….

    Buy 500 Share at 16.5

    15X Short Feb  '21 $15 Call ( 2.2)

    10X Short  Feb 15 Put at (.5)  ( if it drops sell 5 more of these) 

    Thoughts?

    Thanks


  7. CMG took a pretty good hit today.

    Only $350 more to go and our short Sept $1,500 calls go worthless!  Have to keep tight stops on them in the LTP as they expire this week.

    UBS/Batman – Essentially it's just a new position.  Rather than buy more shares, I'd sell more puts or be more aggressive with the short puts.  Rather than buy 500 more shares, you already have 2,500 so you can sell 10 Feb $17.50 putsfor $1.40 and that nets you in at $16 on 1,000 more and you sold 15 of the Feb $15 calls for $2.20, which knocks another $1.32 off your 2,500 longs and, if UBS doesn't hold $16 – you can still sell 10 more calls.  

    TROX/RN – See, they were too cheap.

    Top of the Market Tuesday – Cashing Out While We Can

    • TROX – Plenty left to gain and I love them.  KEEPER!  
    • August 10th, 2021 at 12:34 pm | (Unlocked) | Permalink 
    • Recently, as Top Trades, we liked LPL, TROX, HPQ, HBI, VTRS, WHR….  That's the last two weeks so I never have an issue starting from scratch.  
    • Top Trades for Tue, 03 Aug 2021 14:36 – TROX
    • So, as a full play on TROX in the LTP, let's:

    • Buy 25 TROX Feb $15 calls for $4.40 ($11,000)
    • Sell 25 TROX Dec $20 calls for $1.40 ($3,500) 
    • That's net $7,500 on the $12,500 spread so not a huge upside but we already sold the short puts for $5,400 which drops the net to $2,100 and now you see why I don't mind scaling into this as we'll end up making $10,400 (495%) if all goes well as opposed to "just" $5,400 if the puts ran out.  

      As a new trade, if you pair the above spread with 15 short Feb $17 puts at $2.25 ($3,375), that drops the net to $4,125 on the $12,500 spread with $8,375 (203%) upside potential in less than 200 days.  That's a nice rate of return 

    Will be nice if they get bought and we cash in early but, either way, I think we're in good shape as $20 was a very easy target.


  8. CMG   finviz shows Pershing Square bought 40,000 shares at $1910 just a few days ago.    lol.   Obviously they are not a PSW subscriber 


  9. Phil / UBS – that sounds reasonable…. 

    Sell 10X of Feb 17.5 Puts (1.4). sell more on drop to 16

    Sell 15X of the Feb 15 calls for 2.2 rolls down to 15 callers if 16 does not hold 


  10. Phil,

    Any interest in  CAG Conagra…500 shares+ sale of 2023 $32P and $35Call.

    Thanks as always….


  11. What a recovery into the close.  /ES from 4,435 to 4,455 – still not a weak bounce though. 

    CMG/Stock – And no news that I saw. 

    UBS/Batman – I said more calls on a drop, not more puts.  

    CAG/Jasu – A lot of inflationary margin pressure in this space.  They did very well last year due to more people eating home and probably a big bump due to people stocking up their refrigerators and cabinets in a way we don't usually do (COST also did well).  Profits jumped from $840M to $1.3Bn and they estimate the same going forward but I don't see that continuing.  At $16Bn ($33.50) if they earnings are $840M then they are a bit high but at $1.2Bn they are well-priced but I'd error on the side of caution.  I default to the wisdom of 2019, when the stock topped out at $30 and I'd say that's a fair price, at best.  


  12. Phil / UBS – got it….   Thanks.