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Toppy Tuesday (Yet Again)

This is the chart from August 24th:

I made a new one but, since it's monthly, you can't see any difference so let's just use the one I put up the last time I called it "Toppy Tuesday (Again) – S&P 500 Tests 4,500 (Again)."  Yes, we were higher a month ago – closing just over 4,350 yesterday and we're clearly hitting strong resistance at that 4,500 line that, so far, has not proven to be futile.  

Last month, I warned:

An endless series of low-volume rallies is not enough to get you over a major level on the S&P 500 so, once again, we are being rejected at the 4,500 level.  EVEN IF there were no stimulus and this were an honest 28% increase in earnings – we are still 20% too high at 4,500.  This is not sustainable – especially if the Government isn't going to throw in another few Trillion Dollars to keep things humming next year.   

As you can see, it took the S&P 4 years to get from 2,000 to 3,000 (up 50%) and that 1,000 point rally had two 500-point pullbacks along the way.  This is our first attempt at 4,500, less than 2 years after crossing 3,000 and that's a 1,500-point rally and the pullback we'll be looking for is 3,750 at some point, which is only down 16.66% – so not too big a deal if it happens (and we hold it).

Lemmings GIFs | TenorMeanwhile, we are still ignorning the virus, aren't we?  How many Americans were infected in the past 28 days?  Think of a big number….  How about 4.25M?  45,822 Americans died of Covid in the month we marked the 20th anniversary of the day 2,996 Americans died of terrorism.  We declared war on Terrorism – we're "learning to live" with Covid…

There is something very, very wrong with us that we're not even TRYING to stop Covid in the US.  Perhaps it's a symptom of the virus that does something to your brain and gets you to give up or perhaps it is something "THEY" have been putting in the water for a very long time that makes us so complacent to all the greed and corruption that runs rampant in this country?   When did we stop caring?  When did we stop trying?  

Of course there is some token resistance, like having SOME people get shots and enforcing a few rules for social distancing and wearing protective masks – but only if you feel like it because, after all, this is AMERICA (F-Yeah!) and we are free to get (or spread) any disease we want to – read the constitution mother f-er

Evergrande Is Near Systemic Collapse in China's House Bubble Burst of 2022  - The Last FuturistYesterday's sell-off wasn't about Covid, of course, it was about China but that is about Covid as China is very concerned as 1 (one) person died of Covid in the past 28 days and 1,226 people were infected so the country is putting back restrictions and budgeting (what's that?) in case there's another major outbreak.  That means, economically, China can't continue to support failing companies – especially ones which are mismanaged messes like Evergrande.

Speaking of mismanaged messes.  The catastrophic logjam of almost 40 container ships backed up at the port of Los Angeles last month hit 73 ships on Sunday and is still growing.  This is causing supply disruptions for all sorts of goods in the US and a container shortage in China – as they aren't getting any empties back to supply the next round of ships.  

The Organization for Economic Cooperation and Development said on Tuesday that a global economic recovery from the pandemic was taking hold, but it inched back its forecast for worldwide economic growth and warned that the rebound was benefiting wealthier countries more than the developing world as vaccine distribution occurs at an uneven pace raising a host of related economic problems that are affecting global supply chains and pose a risk for the future.

A failure to vaccinate globally puts all of us at risk,” the report said.  The warnings came as the O.E.C.D. released its semiannual economic forecast, in which it lowered its outlook for global growth, the U.S. economy and emerging markets.  The global growth outlook for 2021 was revised down slightly to 5.7%, from 5.8%, but that's coming off a terrible 2020 – so not at all impressive rates.  

475,519 Medical Mask Photos - Free & Royalty-Free Stock Photos from  DreamstimeWe're keeping an eye out for which companies are warning or guding down into Q4, which seems bound to be disappointing given the Covid-19 numbers we're still seeing at the end of 2021.

"Cold and misty morning, I heard a warning borne in the air
About an age of power where no one had an hour to spare
Where the seeds have withered, silent children shivered in the cold
Now their faces captured in the lenses of the jackals for gold

"Suffering in silence, they've all been betrayed

They hurt them and they beat them, in a terrible way

Praying for survival at the end of the day

There is no compassion for those who stay

I'll be there!

I'll be there!

I will be there!



"There must be someone who can set them free:

To take their sorrow from this odyssey

To help the helpless and the refugee

To protect what's left of humanity

Can't you see?

Can't you see?

Can't you see?" – ELP

 


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  1. Good morning! 

    Go gold – back to $1,775 so tight stops now as we're up $2,000 per contract.  Still waiting for /SI to pop.

    Copper keeps dropping.

     

    Oil with another nice sell-off as well.  

        

     


  2. Nasdaq with a quick turn for the worse.


  3. Good Morning.


  4. Summary

    AT&T provided pro forma results highlighting how weak the Video business was over the last 18 months.

    The company has started aggressively discounting streaming video and wireless services in another bad sign that it will just move focus to another struggling business.

    The Verizon estimates don't support the 2022 and beyond financial projections of AT&T.

    Investors should continue to avoid the stock until the wireless and media company can close the media transaction and actually report growth.

    AT & T

    https://seekingalpha.com/article/4456286-at-and-t-ongoing-struggles?mail_subject=t-at-t-ongoing-struggles&utm_campaign=rta-stock-article&utm_content=link-2&utm_medium=email&utm_source=seeking_alpha

    AT&T: Ongoing Struggles


  5. Phil,

    Interested in your thoughts on the possible effects of AMZN selling its holdings in AAWW and buying shares in ATSG. AAWW is far and away a better operation but also at >2x the price. Also, would the fact that AMZN bought cargo planes to add to its AMZN AIR fleet suggest that AMZN is planning to become self-sufficient in air cargo and/or enter the space as a competitor?

    Thanks




  6. Phil/IBM

    32 IBM '23 $115c ($26)

    6 IBM '22 $120c ($16.5)

    -30 IBM '22 $140c ($12)

    -8 IBM '22 $140c ($11.44)

    -10 IBM '23 $120p ($10.3)

    Would you roll the 10 short '23 $120 puts (in the red) to '24 $110p at $12?

    Thx!


  7. Phil/AAPL

    100 AAPL Jun '23 $130c ($34.53)

    40  '23 $100c ($47.5)

    -40 '23 $160c ($20)

    -80 Jun'22 $160c ($15.8)

    -10 Nov $155c ($5.9)

    -10 Nov $160c ($4)

    -5 '23 $140p ($24.6)

    Wondering if I should TRY to roll the long $130calls (now in the red) down to $120s? Would have to work the swings to swap them for around $4.

    Or would you be looking at the '24s if anything?

    Thx!


  8. T/Batman – Getting down to $27 after spiking down to $26 pre-market.  

    The big worry is it seems inevitable that T will cut dividends back to 4% to maintain cash flow ($7Bn/year) for other activities, one of which should be debt restructuring while rates are low.  T is the market leader with $168.5Bn in sales and VZ is at $135.2Bn so it is hard to grow at this point.  All they can do is cut costs and diversify revenues (Time/Warner).  Either way, they are still dropping $23Bn to the bottom line and $27.16 is $194.28Bn in valuation so I'm  not getting off that bus.

    AMZN/8800 – I'll be surprised if they do it as they'd then be left with a massive, money-losing retail operation.  They've already indicated their interest in air cargo and they sell whatever they have in excess including web services, cloud storage, warehouse space, logistics support….  would be silly not to get into shipping when FDX and UPS have $230Bn in market cap which, at AMZN's multiples (56x), would be $2Tn!  

    IBM/Wing – Well you have 38 Jan $115 or $120/140 bull call spreads you were too greedy to cash in when they were at $150 and the short puts should be good so I'd let them expire and roll the Jan calls that are mostly $20 (call it $68,000) to 40 2024 $125 ($19.50)/150 ($9.50) bull call spreads at $10 ($40,000) and you'd be taking $28,000 off the table and waiting for the short calls to expire in Jan and then sell more short calls for 2 years and maybe some more short puts.   Let's say you sold 10 of the 2024 $110 puts for $12 ($12,000) and 20 of the June $145 calls for $5.30 ($10,600) – that's another $22,600) off the table and you still have a $100,000 spread.

    AAPL/Wing – I'm sure every time you ask I tell you how dumb it is to carry $100 calls yet here they still are so what's the point?  Yes, whenever you can roll down $10 for less than $5 you should try to take advantage of that (if you still believe in your upper target) but 40 2023 $100 calls at $48.50 ($194,000) will be $60 ($240,000) at $160 but, if you cashed them in and bought 80 2024 $130 calls for $33 ($264,000) and covered them with 40 2024 $170 calls at $17.70 ($70,800) that's net $193,200 but then you get the same $240,000 at $160 but room for another $80,000 or better at $170 as you can certainly roll the short 2023 $160s to higher strikes if things go well.  You also won't get so crushed on a pullback and THEN you could roll down to the $115s for $5 ($40,000) if you get an opportunity down the road. 

    The idea of not having a $100/160 spread is the delta is 84/43 so call it 40 in 2023 while the delta of the 2024 $125s is 69 vs the same 43 in the 2023s and 43 in the 2023 $170s so the net delta is 26 vs 40 and what happens if it's flat or up – you simply get paid so the lower delta has ZERO effect on you over time but, if AAPL goes down, the lower net delta SIGNIFICANTLY slows your losses and protects your net to adjust the spread.  


  9. Phil,

    re AMZN and air freight, are you saying that you feel they will go into air freight as a business? If so, which one – AAWW (bigger and better run) of which they seem to be selling off or ATSG which they appear to be buying?

    Thanks again


  10. Phil/IBM  Well that’s enlightening Phil, now I can see that I’m so dumb that I didn’t even realize that I was being greedy at the same time!

    Could you explain (for us dummies) why you would cash in a  nice (I thought) IBM '23 $115/ '22 $140 spread rather than waiting for the ‘22s to expire or lose more premium? What do you mean when you say it was $150 and what would alert you to cash it in rather than being ‘greedy’?


  11. AMZN/8800 – Well that is Atlas' business, isn't it?   AMZN has carried warrants to own up to 10% of AAWW for a long time, I'm sure they are weighing their options but AAWW is only a $2Bn company – AMZN could have them for breakfast – on their toast.  ATSG is the same size and I think it's just a preference after working with them which way they are moving.  AAWW is a better value, making double what ATSG makes but how much of that business is AMZN if they lose them?

    IBM/Wing – Well you could roll the $140s but one way or the other you realized over 80% of the full value and didn't take it off the table or adjust it.  I'm sorry you seem insulted but I'm just saying we weren't greedy and took ours off the table on 8/18:

    • IBM – This is a $24,000 spread at net $17,230 so there's $6,770 (39%) left to gain if IBM holds $140 into January but we already made $25,290 as we started with a credit due to aggressive put selling that paid off already.  So we're really risking $25,290 to make $6,770 (26%) more and, though it's short-term, the risk does not justify the reward so we're going to kill it.

    And on 8/17:

    IBM – $35,000 profit, $140,000 if we're forced to own it.  Killl it

    So no, we didn't take it off the table right at $150 but when $140 looked like it was going to fail – there wasn't any point to holding it any longer – not with those risk/reward ratios.


  12. Phil,

    AMZN and air freight: Yep that's my concern. If AMZN pours money into AMZN AIR and shifts its freight biz there and draws other customers in, AAWW would not fare well – my concern in owning AAWW. Best outcome for AAWW shareholders would be that AMZN just buys them outright. See if you can use your influence to get AMZN to do that.

    Thanks


  13. AMZN/8800 – I was in a hot tub with Bezos' secretary 3 years ago up in Whistler – that's about as much influence as I have at AMZN.  AAWW just settled with their pilots and I doubt AMZN is more than 25% of their business and they are 50% undervalued so I don't consider it a big gamble to take a stab at them.  AAWW has the biggest fleet and the lowest cost factors – those are advantages they would carry with them even if AMZN goes elsewhere.  

    It's likely they are having a great quarter as ships are so backed up and that should continue into the end of the year but that means tough comps going forward and they don't have long-term options BUT you can sell the AAWW Nov 2022 $60 puts for $6 to net in at $54 (26% off the current price), so that's the way I'd play them at the moment.  


  14. Phil

    Thanks for the AAWW analysis. 


  15. Phil/IBM   Too old to be insulted, more entertained ;)

    BTW I did see your note on IBM but that was for the low touch portfolio and was a '22 spread whereas mine was '23 so I thought I had more time to work with it.

    Appreciate the suggestions and your example of the delta analysis for the ITM calls for AAPL. Mine have mostly been good to me with extended rises and conservative use of funds but I can see the risk when they go the other way and the benefits of re-purposing the cash in better positions.


  16. IBM/Wing – One was for the LTP and one was for the MTP.  Of course AAPL was good to you as it did nothing but go up but that doesn't make it the right way to play it.  Once an option is "too" in the money – it should be moved to something more productive.  As a rule of thumb, if there's less than 10% premium left – you may as well own the stock.

    Meanwhile, move up in the pre-markets but flat since – not a very constructive day other than gold – now $1,775 but it's back from $1,780 so I'm pulling the plug on /GC and letting /SI ride ($22.50).  

     

  17. Good morning, everyone. Here is the link to today's webinar.

    https://attendee.gotowebinar.com/register/7211182613011666700