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Wednesday Weakness – Struggling to Hold Last Week’s Lows

This is not a good chart:  

Clearly we're in decline but more worrying are all those big red spikes (high volume selling) with very few green anything in the last 7 sessions.  It's been a low-volume market for a couple of years now and that means it's very unlikely there are enough buyers out there to cash out the people who want to exit – especially if panic ensues and people feel forced to sell.  That makes for a very dangerous situation and is a big part of why we cashed in about half our positions last month, moving our Member Portfolios to 80% CASH!!!

Perry cartoon: Stock market fears | The StarA stock market sell-off is simply an auction in reverse.  Instead of a room full of traders bidding up the price of one stock, you have a room full of sellers and just the one (few) buyer and the sellers panic and offer lower and lower prices to attract their attention.  As the prices begin 1to fall, the panic builds and things can drop very, very quickly in those situations.  Getting back to CASH!!! is how we avoid getting stuck with shares we can't sell and it also puts us in the position of being that buyer when everyone else is panicking.  All you need is a little patience.

Stocks have slipped in September amid worries that markets are ripe for a pullback after marching higher for much of the year. Just as concerns about high valuations are on the rise, investors say the economic rebound likely won’t be as fast as they previously expected. The spread of the Delta variant of the coronavirus, an economic slowdown in China and supply-chain difficulties have all damped sentiment – things we've been pointing out for quite some time.

Stock indexes in mainland China and Hong Kong fell after data showed growth across a range of Chinese economic indicators pulling back in August.  An outbreak of Covid-19 and tighter property regulations hit consumer spending and the housing sector.  The CSI 300 index, which includes large stocks listed in either Shanghai or Shenzhen, fell 1%. In Hong Kong, the Hang Seng Index shed 1.8%, with gambling and property companies among the biggest fallers in the market. Casino companies Sands China and Galaxy Entertainment dropped 33% and 20%, respectively, following steep falls in some U.S.-listed peers.

Oil prices are extending their recent rally, driven in part by disruption to output caused by Hurricane Ida. Brent-crude futures, the international energy benchmark, gained 1.3% to $74.53 a barrel at $75, we will look to short it (/BZ), which should be $72.50 on WTI (/CL).  More than 39% of oil output in the Gulf of Mexico and 48% of gas output was offline Tuesday, the Bureau of Safety and Environmental Enforcement said.  Yesterday's API report showed a 5.4Mb draw in Crude along with a 2.8Mb draw in Gasoline and a 2.9Mb draw in Distillates.

We have already picked up a few bargain stocks (that's what the cash is for!) but, for the most part, we're waiting for Q3 earnings to see how much the Delta virus has affected business in the last few months (along with the lack of new stimulus).  If Q3 looks good – we'll be happy to get more bullish into Q4.

In a shocker for Republicans, who live in an alternate reality, California Governor Gavin Newsom won a recall vote by a landslide (or, as they claim on Fox, via voter fraud) and this does not bode well for Republican candidates in 2022 as the GOP was pulling out all the stops to get rid of the Nation's most powerful Democratic Governor, who only had 60% of the vote when he was first elected (now 67.5%).  Newsom said last night:

“We said yes to science. We said yes to vaccines. We said yes to ending this pandemic. We said yes to people’s right to vote without fear of fake fraud and voter suppression. We said yes to women’s fundamental constitutional right to decide for herself what she does with her body, her fate, her future. We said yes to diversity.”

California Recall: “No” Vote Projected to Win in Recall Election; Newsom  Remains Governor – CBS San FranciscoThe governor charged that far-right extremists and supporters of former President Trump were attempting a hostile takeover in a state where they could never hope to attain majority support in a regular election. He also contrasted California’s low rates of coronavirus infection with the large numbers of deaths and hospitalizations in Republican-run states like Florida and Texas.

Tuesday’s defeat — in a special election that cost the state an estimated $276 million — marked “another nail in the coffin,” said Mike Madrid, a California Republican strategist who has been deeply critical of the party under Trump, charging in particular that the G.O.P. has driven away Latino voters.  He said Trump’s party had become part of “an increasingly radical, exercised and shrinking Republican base, lashing out in different ways in different parts of the country.”

For example:  Despite the yawning gap in support, Newsom's opponent, Mr. Elder, demanded this week, BEFORE the voting was finished, that a special legislative session be called “to investigate and ameliorate the twisted results.” He said there had been “instances of undocumented ballots” but provided no examples and now the California GOP is petitioning for a recount of a landslide election – more costs, more time but it gives the GOP an excuse to squeeze more money out of their base to "stop the steal" and gives Fox something to rant about – so that's a win for them.

This is how we do things now in America – your vote doesn't count until the last court battle is decided and the winner of the last election gets to pick the judges….

 


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  1. Good morning! 

    Once again the opening bell leads to immediate selling – doesn't smell good to me…

       

     

    • August Industrial Production+0.4% M/M vs. +0.5% consensus and +0.8% prior (revised).
    • Capacity Utilization 75.3% vs. 76.4% consensus and 76.1% prior.
    • Manufacturing Output: +0.2% M/M vs. +0.4% consensus and +1.6% prior (revised)
    • August Import/Export Prices: Import prices -0.3% M/M vs. +0.3% consensus and +0.4% prior (revised from +0.3%).
    • That represents the first monthly drop since October 2020. Import fuel prices fell  by 2.3% in August, following a 3.0% increase in July, marking the first monthly decrease since a 1.0% decline in October 2020.
    • Excluding fuel, import prices edged down 0.1% in August as lower nonfuel industrial supplies and materials prices more than offset higher prices for automotive vehicles; foods, feeds, and beverages; capital goods; and consumer goods.
    • Import prices increased 9.0% over the past year, the smallest 12-month increase since March 2021.
    • Export prices+0.4% M/M vs. +0.5% consensus and +1.1% prior (revised from +1.3%). The August increase is the smallest one-month since October 2020.
    • Prices for agricultural exports advanced 1.1% in August after falling 1.7% in July. Higher prices for nuts, wheat, meat, vegetables and dairy products more than offset lower prices for corn, animal fees, fruit, and soybeans.
    • On a Y/Y basis, prices of U.S. exports rose 16.8%.
    • Excluding agricultural, prices for exports rose 0.2% in August, the smallest one-month increase since October 2020, when that number declined.
    • On Tuesday, the core consumer price index rose 0.1% in  August, the smallest increase since February
    • September Empire State Manufacturing Index: +34.30 vs. +18.6 consensus and +18.3 prior.
    • New Orders Index: +33.7 vs. +14.8 prior.
    • Shipments Index: +26.9 vs.+4.4 prior.
    • Number of employees index: +20.5 vs. +12.8 prior.
    • Labor market indicators pointed to strong growth in employment and the average workweek.
    • Looking ahead, firms remained very optimistic that conditions would improve over the next six months, and capital spending and technology spending plans increased markedly
    • Macro optimism among fund managers is "tanking" to pandemic levels, but they still won't move to risk-off, according to BofA's latest survey.
    • “Rare fund manager survey disconnect between asset prices and fundamentals is growing,” BofA strategists led by Michael Hartnett write in a note. “Growth expectations are saying equity allocations should fall, but risk taking is telling the story that investors are ignoring the macro.”
    • The market is looking to shake off the September doldrums this morning, with S&P futures (SPX) (NYSEARCA:SPY), Nasdaq 100 futures (NDX:IND) (NASDAQ:QQQ) and Dow futures (INDU) (NYSEARCA:DIA) all pointing higher.
    • In its September survey of 258 managers with $839B in assets under management, BofA found that expectations for global growth are down to 13%, the lowest level since May 2020. It was at 75% in June 2021.
    • Expectations for rising profit are at 12%, down from 89% in March, and inflation expectations have turned negative for the first time since May 2020.
    • But equity protection is at the lowest level since January 2018 and liquidity conditions are "ominously" viewed as the best since July 2007, Hartnett says.
    • Managers have also moved their positioning from long cyclicals to a barbell approach of long Health Care (NYSEARCA:XLV) and Info Tech (NYSEARCA:XLK) for growth and Banks (NYSEARCA:KBE), Industrials (NYSEARCA:XLI) and EU (IHPXF) for value. Utilities (NYSEARCA:XLU) is the biggest Underweight.
    • Long U.S. tech remains the most crowded trade at 40%, with long ESG at 20% and short China at 11%.
    • The contrarian trades are "position for a recession via long bonds & utilities, short commodities, banks & EU; position for stagflation via long Japan & energy, short health care and tech."
    • Concern about China has grown in a month. Last survey shorting China shot up onto the list of crowded trades at 11%.

    • Iron ore futures in China sink to nine-month lows, extending the recent selloff as data showed August steel production in the country falling 13% Y/Y.
    • China's crude steel production fell for the third straight month to 83.24M metric tons, according to the National Bureau of Statistics, sending average daily output to the lowest since March 2020.
    • The most-traded iron ore futures (SCO:COM) on the Dalian Commodity Exchange fell as much as 4.3% to 683 yuan/mt ($106.02), the lowest since December, before settling -2.9% to 693 yuan/mt.
    • Spot prices of iron ore with 62% iron content for delivery to China (TIOC:COM) fell $2 to $125/mt, Reuters reports, citing SteelHome consultancy.
    • Relevant tickers include RIOBHPVALEOTCPK:GLCNFOTCPK:GLNCYOTCQX:AAUKFOTCQX:NGLOYOTCQX:FSUMF
    • China recently reported its monthly factory activity contracted for the first time since April 2020.
    • Ray Dalio, founder and co-CIO of Bridgewater Associates, said Wednesday that government authorities will eliminate cryptocurrencies like Bitcoin (BTC-USD) if they become rivals to national currencies.
    • "At the end of the day, if it's really successful, they'll kill it," he told CNBC.
    • Still, Dalio backed crypto as a viable asset class despite the regulatory risk.
    • "That doesn't mean it doesn't have a place, a value," he said.
    • The billionaire investor underlined the fact that cryptocurrencies lack intrinsic value, meaning that people should remain diversified to protect against volatility in crypto.
    • Speaking on the larger market, Dalio echoed earlier comments he had made, declaring "cash is still trash." He said rising inflation meant that people needed to invest their money in order to protect the value of their holdings.
    • The Bridgewater founder advised investors to remain diversified but warned that most people don't have a wide enough variety in their portfolios.
    • Dalio said investors should look to hold assets in different countries, in different currencies and in different asset classes.
    • Beyond inflation, the famed investor spotlighted two other crucial factors impacting the long-term market: political division and the rise of China.
    • On China, Dalio said the country "is not going back to the old communism" but, rather, would treat the Chinese people like "a strict parent" would.
    • He contended that the Beijing government uses its capital markets to build strength and wealth but will also use its powers to redistribute that wealth.
    • Despite the increased regulatory risk in China lately, Dalio has argued that the country should remain part of investors' portfolios. Check out comments he made last month on the subject.
    • Meanwhile, for more on the fate of Bitcoin (BTC-USD) as the markets struggle to deal with elevated inflation, check out a deep dive from SA contributor Richard Durant, who says the relationship between the cryptocurrency and higher prices isn't what people generally think.


  2. Good Morning.


  3. Snow-thanks for the poem yesterday. I tried to make a comment, first in four days, and "they killed it." Posting too fast. Maybe they don't like my questioning vaccine's efficacy.. Disappointing. The joy of this site is the intelligent and generally wide variety of interests that are represented. Your imput is very much appreciated, just to let you know. Yes I do agree with you on FB. My family is far flung all over the world so that is a way to keep in touch. I love the pictures and the updates.


  4. pirate – I get hit with 'posting too fast' as well. You just need to wait a few seconds and click 'submit comment' once again.

     

    Don't sweat what 'they' say about the vaccine efficacy. It's your life.  :)


  5. 1020- Thanks for your comment. There was a man on radio called Paul Harvey I listened to while much younger. He would always tell the "news" story, the shallow version then say "And now for the rest of the story." It was the deep dive in and he would pull it apart and get into the background. I found in life that there are no easy explanations for anything. That there is an underlayment hiding out of sight out of my knowledge. Learned that from Dave Obey, our former congressman in Wisc. Wrote him a letter and he wrote me a 3 page letter back. To say I was impressed was an understatement. It was on the polar bears plight up in Canada with the global warming. I wrote back and thanked him for the details of why it was not in our control and the time he took to inform me of what we could and could not do. Since then I have always "deep dived" into things. Phil and this site is so great for that too. So many amazing people here including our Phil.


  6. I was a big Paul Harvey listener when young, but I learned if you don't accept much of life at face value, you'll be less happy in the long run. If it matters, research then move on…life is too short for conspiracies….

    More, happy FB news: 

    https://www.bbc.com/news/technology-58570353

    https://www.theaustralian.com.au/commentary/editorials/follow-instagram-for-clues-to-teen-mental-health-crisis/news-story/3aee91088c870248ea56c76913ca2aaf

    https://www.dailymail.co.uk/news/article-9993553/Scarborough-tears-Facebook-screaming-rant-report-Instagram-killing-teen-girls.html

     

    Sounds like big tobacco, right?  :(


  7. Pirate/poem – you're welcome. But someone from the military on Facebook jumped all over me yesterday for expressing sympathy and admiration fro my friend's working with the Taliban. They're evil, doncha know…


  8. "like our founding fathers"

    https://www.youtube.com/watch?v=c9RWtx8myQc


  9. taliban – I will judge, not on poems, but on their actions. Enough said.


  10. Phil/AAPL – We added Short puts in the LTP, was it AAPL 105 Jan 24 puts?

    Can't seem to find them. TX


  11. They/Pirate – It's just a computer thing, usually a glitch when you get that comment.  Possibly you double-clicked submit.  "THEY" don't censor comments.  

    As to vaccines – I think they work great or everyone in Florida would be dead by now.   Restaurants and bars are packed, clubs open, concerts, etc – not a mask in sight.  

    LOOK: Fans flock to UFC 261 for first full-capacity UFC event in more than  a year - CBSSports.com

    EIA has 6.4Mb decrease last week with a 1.9Mb decrease in Gasoline and 1.7Mb decrease in Distillates.  Considering the ports shut down and the holiday – not that big of a deal but oil popped to $73 with Brent at $76 – that should be the end though, going for 2 shorts but might be painful. 

    Paul Harvey/Pirate – Classic!

    AAPL/Ravi – Last week:

    Record-High Wednesday – Stop Worrying and Love the Rally?

    Now THAT one we can put in our LTP, as we'd LOVE to own AAPL for a 33% discount.  It will probably never happen but then we'll keep the money so, in our $2M portfolio, we can buy $200,000 worth of AAPL and that would be 2,000 shares at $98 which means we can sell 20 puts but we can start with 10 and see how they go – still pocketing a nice $7,000 for promising to buy AAPL for 33% below the current price.


  12. Oops, didn't include the actual trade:

    Meanwhile, we're waiting for 2024 options to come out so we can sell more premium, which gives us better hedges.  Apple (AAPL) has Sept 2023s out so we're almost there.  With AAPL at $151.83, you can sell the Sept 2023 $105 puts for $7, which puts you into the stock at net $95, more than 33% below the current price. 


  13. 1020/action – of course – but bear in mind unless you follow something outside US media (al jazeera, maybe), you'll get a very biased picture. My commenter yesterday said much the same thing, really sneered about poetry. People, art changes society, and does it very effectively, without (usually) obnoxious rants


  14. Taliban/Snow – All I know is they were the heroes in 1987 James Bond – politics is so confusing!


  15. snow – I consider al jazeera, a reliable news source and I can appreciate the bias. I'm biased.

     

    It's all about da actions, baby!  :)


  16. ravi, you can get $7.50 for the AAPL put trade above 


  17. Phil/AAPL – Thank you!

     

    Thx Stockbern.


  18. AAWW     Atlas Air    found this company after someone sold 1600 Nov 2022 $65 puts for $5.60    I dont know why it trades so cheap, nevertheless it should do well short term with the shortage of air freight capacity and demand for ecommerce.  Freight continues to see strong pricing at least for the next several months.   I was thinking selling the Feb $65 puts.  Yesterday they were almost $3 , now a little lower 


  19. Actions/1020 – well, yes, but you won't see a lot of them. There are some very promising diplomatic efforts happening (US is not involved) having to do with Afghanistan's worry about China. The inside bickering with the Taliban is a problem, but my friend is addressing that. Afghanistan respects elders.


  20. Nasdaq with a big recovery, back to 15,400

       

    AAWW/Stock – Just $2.2Bn at $76.75 and they make about $400M so good deal for sure.  I think they should have an excellent year – especially this Q as there are so many sea delays, their 750 cargo planes should be very busy and they also rent crews for on-board and maintaining – should also be in demand with Covid knocking people out.  Unfortunately, they don't have long options but you can sell the Nov 2022 $65 puts for $6 to net in at $59, which is a very fair price – even if things slow down.

    In fact, for the LTP, let's sell 10 of the AAWW Nov 20222 $65 puts for $6 ($6,000) so we remember to watch them into earnings.  

    Webinar time!


  21. I would have though you could get a better price for the 20222 puts


  22. And I would have though(t) I could type better.



  23. Actions/snow   Come to think of it, it's the taliban 'inaction' that might be just as important as their actions…


  24. All- never been "against" vaccines. Encouraged everyone to get them even son, grandson, spouse even though some were actually were very ill with the disease so had antibodies. So far so good. I do follow my intuition for myself, however. Yes, I only do the deep digging for things I feel are very important to me personally. That way one is always learning. But a Universal Vaccine is not only important to me and 20 years is more than enough time to get one developed. IMHO


  25. Puts/Tangled – It's a function of whether or not people think it will be lower too.

    Big recovery day in the end.  This seems to be the good news:

    • FDA scientists say that currently available data indicates that the approved or authorized COVID-19 vaccines continue to provide protection against severe disease following standard dosing regimen.
    • The group was asked to weigh in on Pfizer's (PFE +0.5%) request for authorization of booster doses of its vaccine developed in partnership with BioNTech (BNTX +2.3%).
    • In a briefing documents, they say, "There are many potentially relevant studies, but FDA has not independently reviewed or verified the underlying data or their conclusions," adding that some observational studies have found declining efficacy of the Pfizer shot over time, while others have not.
    • They also note that the benefit of booster shots should be balanced against safety considerations, such as local and systemic adverse events. "Post-licensure/post-authorization studies should be conducted to assess longer-term safety for serious and other medically important adverse events."
    • However, the FDA scientists didn't provide a formal opinion either way on boosters.
    • Pfizer's briefing documents for Friday's advisory committee meeting cites data from Israel that showed waning effectiveness of its vaccine over time.
    • In an opinion published on Monday, two senior FDA vaccine officials and WHO scientists argued that current data doesn't support the use of boosters.
    • Energy (XLE +3.2%) is the clear leader among today's S&P industry sectors, supported by a 3.4% surge in WTI October crude oil (CL1:COM) to $72.86/bbl, rising for the fourth straight session to its strongest level since late July.
    • Both WTI and Brent crude (CO1:COM)+3% to $75.85/bbl, are on track to post the highest settlement for a front-month contract since July 30.
    • The latest U.S. inventory report showed a larger than expected crude oil draw and a smaller than expected gasoline draw.
    • Today's five biggest advancers on the S&P 500 are energy producers: EOG +7.4%FANG +6.7%OXY +6.6%MRO +6.5%DVN +6%.
    • Other oil and gas gainers include SM +13.5%RRC +10.1%AR +9.5%CDEV +7%XEC +5.9%COG +5.9%HES +5.5%APA +5.4%.
    • ETFs: XLEUSOUCOXOPVDEGUSHOIHERXBGRBNO
    • Oil is "being lent buoyancy by the supply outages in the Gulf of Mexico, which are tightening the market in the short term," Commerzbank commodity analyst Carsten Fritsch says.
    • "Going forward we could see crude drift higher as there are several storms that are still out there," Tyche Capital Advisors' Tariq Zahir tells MarketWatch, but adds the risk to the energy complex from the coronavirus Delta variant, noting some weak economic data out of China recently.
    • Chevron trades higher but lags many of its oil producing peers after J.P. Morgan downgraded shares on higher energy transition spending.

     

     

    • Ahead of tomorrow's latest retail sales numbers, the chart from Arbor Data Science below shows consumers' propensity to spend based on search activity is rising.
    • Liz Ann Sonders, chief investment strategist at Schwab, who tweeted the chart out, says: "Google search activity showing consumers’ intentions to spend picking up again (perhaps because we’re seeing some improvement on Delta variant front)."
    • BMO recently recommended staying invested in Consumer Discretionary (NYSEARCA:XLY) despite its underperformance.


  26. Here is the replay of this week's webinar. As always, all of the previous webinars can be found on our YouTube channel