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Which Way Wednesday – Over the Top Ahead of GDP

4,575.

Do we deserve to be here?  Judging from earnings so far, I'd say no but the rally has kept going with a massive 275-point (5%) surge in the S&P 500 so far in October.  The real move we care about was the one from 4,390 to 4,550 – just 140-points but that causes us to expect a 28-point (weak) retrace to 4,522 or a 56-point (strong) retrace to 4,496 in the very near future – probably tomorrow.

Tomorrow is our first look at the Q3 GDP and expectations by Leading Economorons are still averaging 3.2%, which would be down 50% from Q2s GDP of 6.7% but the Atlanta Fed, based on silly things like Data – are telling us GDP is more likely to be 0.5% – that's quite the discrepency.   Will the market care either way?  A GDP Report so close to retraction could spur Congress to print more money and/or keep the Fed printing theirs with QE – both have been a big positive for the markets.

This morning we got the Durable Goods Report and the headline there is MINUS 0.4%, down from +1.3% in the August report – which wasn't very good anyway and was revised down from 1.8% originally reported.  July was also negative so we have net 0% for July, August and September and that keeps our poor Q3 GDP thesis intact, doesn't it?  

According to the WSJ:  "Money managers still have worries, ranging from the fate of President Biden’s infrastructure and social-spending plans to the potential unwind of Federal Reserve stimulus measures that have goosed markets since early 2020. For now, though, many investors say they are sticking with stocks in the expectation of modest if bumpy returns through the end of the year."

Our indexes are holding up well pre-market but BA was disappointing and will drag down the Dow and the S&P 500 and Asia closed down 1% and Europe is off about half a point so it's not very clear what US traders are so excited about.  MSFT, TWTR and MCD all had good earnings, however – so maybe they'll offset other weakness for the day.

Nothing really matters until tomorrow's GDP Report but there are already some bargains to be had on companies like INTC and IBM and, after next week's Non-Farm Payroll Report, we'll be more than halfway done with earnings and we can begin bargain-hunting in earnest.  

We shorted Oil (/CL) again at $84.77 avg. yesterday and we'll see how inventories go at 10:30 but a stop at $83.75 will lock in $1,000 gains per contract – so that's how to play that one.  We have more conviction with our S&P 500 shorts at 4,576 avg – those are for tomorrow's GDP Report and we'll discus those trades and others in detail during today's Live Trading Webinar (1pm, EST).

 


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  1. Good Morning.


  2. Phil – I think we once added BG (Bunge) to the butterfly (https://www.philstockworld.com/2021/07/22/thrill-is-back-thursday-markets-recover-ahead-of-the-fed-next-week/#comment-8088404)

    Either way, my position is as follows: I have 15 long $70 calls, 12 short $85 calls, 6 short $62.5 calls (all Jan 2023). This cost me $7210. I sold short calls against this, I am currently short 6 November $80 calls. The short calls I have sold so far have given $1900, so the overall position is $5310.

    BG is now up to $90. How would you suggest rolling the short November $80 calls?  



  3. Good morning!

    Nasdaq is flying but it's on over-reactions to earnings so we'll see if it lasts.  Done with /CL as it popped. 

    Not worth risking into inventories.

    BG/RN – If we did we forgot to log it.  Too bad as it's a good prospect (but not when high in channel).  That's a good ratio and hopefully you mean 6 short $62.50 PUTS, not calls.  The short calls have another month and, had you cashed in the short $80s back in May with a month to go – you would have been kicking yourself in June so why rush to pay the short callers so much money?  If you were going to chicken out – you should have done that before earnings.  You can always do a 2x roll and the Nov $80s are $10 and the Jan $87.50s are $5.20 so way too early to panic – isn't it?  

    FLGT -1.46%Oct. 27, 2021 10:02 AM ET1 Comment

    • The Bank of Canada ends quantitative easing and moves into the reinvestment phase, in which it will buy Government of Canada bonds solely to replace maturing bonds.
    • Holds target for the overnight rate at the effective lower bound of 0.25%, with the Bank Rate at 0.5% and the deposit rate at 0.25%.
    • The loonie strengthens 0.5% against the U.S. greenback.

    Not scales back – ENDS!  

    APH -0.46%Oct. 27, 2021 9:49 AM ET2 Comments

    • Famed asset manager Rick Rieder said Wednesday that high consumer demand will remain in place well into 2022, as people continue to spend cash they stored up during the pandemic.
    • The chief investment officer of global fixed income at BlackRock also told CNBC that he sees signs that supply chain bottlenecks are easing, although it will take "some time" to work through the issues.
    • Detailing his views on the well-publicized supply chain distributions that have impacted many businesses, Rieder argued that corporate inventories are "not bad" on an aggregate basis.
    • However, Rieder contended that the large spike in spending has made it difficult for producers to keep up with consumers' desire for goods.
    • "It's demand that's so darned strong," he said.
    • Asked about inflationary pressures, Rieder described companies as having a "pretty luxurious position" in terms of pricing power, allowing them to take advantage of high consumer demand to stay ahead of rising costs.
    • Rieder also suggested that worries about hyperinflation are overblown.
    • "I don't think it's an inflation spiral," he asserted, although he acknowledged that the economy will see some "stickier inflation well into 2022."
    • Rieder noted that wages will likely continue to see increases for a period of time and supply constraints in areas like semiconductors and energy will remain in place until new capacity comes online.
    • However, he projected that some of the higher prices associated with the post-COVID reopening will abate in a relatively short period of time.
    • In addition, Rieder argued that an increased focus on data and improved technologies will keep inflation under wraps, as companies innovate to sidestep any raw material cost increases they face.
    • Looking at the stock market, Rieder predicted that stocks could continue to rise in the near-term, led by tech, automakers and healthcare.
    • Rieder's comments add to a healthy public debate on inflation that has involved some of the most high-profile Wall Street names. See where some of the top market minds stand on the inflation issue.

    TSLA -0.63%Oct. 27, 2021 9:00 AM ET

    • Goldman Sachs boosts its price target on Tesla (NASDAQ:TSLA) to $1,125 from $905 based off the new partnership with Hertz.
    • Analyst Mark Delaney: "We believe this news is important for Tesla, and while the 100K order is material on its own, we also believe that it will help the company to sustain strong growth and margins when considering the order in the context of other dynamics."
    • Goldman Sachs keeps a Buy rating on the electric vehicle juggernaut.
    • Meanwhile, Morgan Stanley has some more thoughts on TSLA after hiking its price target to $1,200 earlier in the week.
    • Analyst Adam Jonas: "When compared to Apple’s crossing of the $1tn mark in August of 2018, Tesla is less than 1/5th the size of Apple on forward year revenue and roughly 1/6th the EBITDA of Apple at that time. Compared to Amazon's $1tn market cap crossing (intra-day) in late 2018, Tesla is less than 1/5th the size of AMZN in forward year revenue and roughly 1/3rd in terms of forward year EBITDA."
    • Working in the favor of Tesla is S&P 500 multiple inflation. The S&P 500 P/E multiple is noted to be ~25% and ~23% higher today than when Apple and Amazon reached their $1T milestones.
    • TSLA +1.25% premarket to $1,031.11. Five years ago today shares stood at $37.99 on a split-adjusted basis.

    We're gonna need a bigger chart... - Jaws Meme | Meme Generator


  4. Senators Propose Corporate Minimum Tax – CFO


  5. High-Risk Artificial Intelligence



  6. The Rising Sustainability Challenge



  7. Germany Inc.’s China syndrome




  8. Morning. VIAC is definitely moving in the wrong direction.  Concerned earnings are a blow out. News shows they are nearing the sale of their LA studios. Feels like they're gearing up to sell the company 


  9. BG – Sorry, I did mean the $62.5 Puts. Not chickening out, the plan is to hold this long. 


  10. VIAC — I feel like everyone knows something I don't know…  it's a terrible feeling


  11. Not a bullish oil report:

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.3 million barrels from the previous week. At 430.8 million barrels, U.S. crude oil inventories are about 6% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week and are about 3% below the five year average for this time of year. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.4 million barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 2.0 million barrels last week and are about 15% below the five year average for this time of year. Total commercial petroleum inventories increased by 4.4 million barrels last week.

    BG/Rn – I meant chickening out on the short calls.  

    VIAC/Jeddah – They have Paramount+ for streaming and, unlike HBO, Hulu, Netflix, etc – they also have CBS, which puts them in essentially 100% of the homes with TVs and, rather than buying content, they own everything CBS ever made as well as 2,500 Paramount films – so their cost of content is miles less than their competitors.   Net margins were 12.6% last Q vs 7% as a sector average.  

    They have something else their competitors don't (and won't) have – affiliates – who generate a lot of income for VIAC as well.  Streaming was up 92% over last year, now  at 42M monthly subscribers but their base audience is half the planet.

    Netflix Should Buy ViacomCBS (NASDAQ:VIAC) | Seeking Alpha

    Netflix Should Buy ViacomCBS (NASDAQ:VIAC) | Seeking Alpha

    I think at this price ($24Bn at $36) the company very well may get bought – it's stupidly cheap, making about $1Bn/qtr.  Since NFLX has over 50x p/e, even spending $50Bn to buy VIAC would add $200Bn to their market cap, so why not?


  12. Phil / VIAC –  I think AAPL should buy them – it makes sense…..   However regulators may have issues with it….  but at 30B  to 35Bit could work.


  13. As long as they buy them for $50 a share (VIAC) — that sounds good to me!


  14. JEFFL / VIAC – the only issue is that VIAC has rather poor growth, so APPL would have to bank on that accelerating with appleTV 


  15. Great info Phil, thanks. The news article it indicates they are selling off non-core assets to focus on developing new shows/movies for burgeoning streaming services. They see the future


  16. Pelosi expresses optimism over Biden plan, infrastructure bill


  17. Phil/IBM: "IBM/Wing – Your asset is the 2024 $125 calls, now $15.50 ($62,000) and the 2023 $115 calls, now $17 ($54,400).   You can roll those ($116,400) into 100 of the 2024 $110 ($21.50)/140 ($10) bull call spreads at $11.50 ($110,500)  and then you can roll your 34 short 2024 $150 calls at $7 ($23,800), which have a nice profit, to 30 Jan $130 calls at $2.80 ($8,400) and you'll catch up after a few sales with not much pressure (or you can sell more puts) but now you have a $300,000 spread that's $160,000 in the money that's only 2/3 covered with plenty of room to roll."

    My IBM position has an equal balance of long and short positions (after your earlier suggestions to set up 40 $125/150 spreads) but your current suggestion seems to propose rolling the long $125s and $115s down to 100 ’24 $110/140 bcs with -30 short Jan $130calls along with my existing – 38 ’22 and ’23 shorts, leaving me with 68 uncovered shorts rather than the 2/3 covered calls that you mention. What am I missing here?

     

    40 ’24 $125c      ($21.4)

    32 ’23 $115calls ($26)

    - 30  ’23 $140c   ($12)

    - 8    ’22 $140c   ($11.5)

    - 34  ’24 $150c   ($14)

    - 10  ’23 $120p   ($10.28)


  18. IBM/Wing – I mean your long spread 2/3 covers the short calls, yes.  You have 100 $110/140 longs covered by 30 short 2023 $140s and 30 short Jan $130 calls at $2.80 and 8 short Jan $140 calls, which expire in 85 days.  IBM is at $125 so, if it makes you feel better, set stops on 1/2 of each set but your upside is about $150,000 so that's your protection if the short calls go in the money – that and rolling. 

    SIX -10.22%Oct. 27, 2021 12:02 PM ET1 Comment

    • Six Flags Entertainment Corporation (SIX -9.1%) is down sharply despite topping Q3 estimates by a comfortable margin on attendance that was at 92% of the pre-pandemic level.
    • The company pointed to accelerating attendance trends and a growing Active Pass Base. Notably, Six Flags (NYSE:SIX) total guest spending per capita in Q3 increased 23% compared to the pre-pandemic quarter in 2019. Adjusted EBITDA was $404M vs. $456M in 2019.
    • Cedar Fair (FUN -2.5%) and SeaWorld Entertainment (SEAS -4.5%) are also lower for the session. Theme parks stocks were running ahead of the S&P 500 Index over the last month, so investors may have been looking for an even bigger Q3 from SIX.

    AA -6.17%Oct. 27, 2021 11:39 AM ET1 Comment

    • Alcoa (AA -5.9%) shares plunge as aluminum prices fall sharply, extending a retreat from a 13-year high, as China ramps up measures to ease a power crunch that has slowed economic growth as well as metals supply.
    • Also: ACH -3.4%CENX -3.3%.
    • Three-month aluminum (LMAHDS03:COM) on the London Metal Exchange -2.7% to $2,755.50, its lowest level in eight weeks.
    • Prices for Chinese thermal coal, which powers much of the country's aluminum smelters, have dropped more than 9% this week, as the government tries to curb rising coal prices.
    • In the latest effort, China's state planner wants coal-producing provinces to probe illegal storage sites and crack down on hoarding.
    • Just two weeks ago, aluminum prices jumped to their highest since 2008.

    BA -1.46%Oct. 27, 2021 11:35 AM ET4 Comments

    • Boeing CEO Dave Calhoun described the company as on "a decent trajectory" going into next year, despite quarterly results from the airplane maker that missed analysts' expectations and in the face of headwinds related to China and its 787 Dreamliner product.
    • "I am an optimist. I'm feeling good about where we are and where the year's going next year," he told CNBC on Wednesday.
    • Boeing (NYSE:BA) reported a quarterly loss that was wider than analysts had projected, with revenue that fell nearly $1B short of expectations. Still, the company reported a core operating profit and showed improved cash flow.
    • Calhoun supported his optimism by pointing to the recovering demand for commercial air travel, which he thinks will spike in the second half of next year.
    • While he believes airlines have enough planes to meet current demand, the Boeing CEO expects more capacity will become necessary as carriers react to a ramping up of international travel in the coming months.
    • Asked about China, where the U.S. has accused the government of blocking purchases of BA products, Calhoun said he remained "optimistic" and "constructive" that the country will eventually open up to deliveries scheduled under existing agreements.
    • Still, he acknowledged that the company would have to reign in planned production increases if China hasn't opened up to the company by the middle of next year.
    • On the company's 787 Dreamliner, which has faced significant manufacturing problems, Calhoun said BA was "following a very deliberate process" and that he couldn't predict delivery times at the moment.
    • The company estimates it will eventually cost about $1B to get the Dreamliner production on track, an amount Calhoun characterizes as "an investment" that keeps its production capacity intact while it works through the process necessary to get manufacturing up to scale.
    • BA slipped about 1% in Wednesday's intraday action, dipping to $207.20.
    • Shares ticked up in February and March, reaching a 52-week high of $278.57. The stock came off that peak in the middle of the year and has remained in a range since.
    • As a result of its recent lackluster trading, BA has severely underperformed the broader market. Shares have dipped about 2% in 2021, compared to a 23% rise in the S&P 500:

    Oct. 27, 2021 11:25 AM ET

    WMT -0.55%Oct. 27, 2021 11:08 AM ET10 Comments

    • The National Retail Federation predicts the highest holiday retail sales tally ever is on the way. The NRF forecast is for holiday sales to rise 8.5% to 10.5% for the two-month period to between $843.4B and $859B. The predicted rate of increase is much higher than the average increase of 4.4% over the past five years. Online sales are seen jumping 11% to 15% to between $218.3M and $226.2B.
    • "There is considerable momentum heading into the holiday shopping season," notes NRF President and CEO Matthew Shay.
    • "Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger. Retailers are making significant investments in their supply chains and spending heavily to ensure they have products on their shelves to meet this time of exceptional consumer demand."
    • Another surge of COVID or worse-than-anticipated La Nina weather effects are seen as potential headwinds.
    • Some of the retailers looking for a burst in spending include Walmart (NYSE:WMT), Target (NYSE:TGT), Best Buy (NYSE:BBY), GameStop (NYSE:GME), Etsy (NASDAQ:ETSY), Wayfair (NYSE:W), Lululemon (NASDAQ:LULU), Boot Barn (NYSE:BOOT), Victoria's Secret (NYSE:VSCO), American Eagle Outfitters (NYSE:AEO), Carter's (NYSE:CRI), Zumiez (NASDAQ:ZUMZ), Children's Place (NASDAQ:PLCE), Shoe Carnival (NASDAQ:SCVL), Guess (NYSE:GES), Williams-Sonoma (NYSE:WSM), Amazon (NASDAQ:AMZN), Gap (NYSE:GPS), Urban Outfitters (NASDAQ:URBN), Kohl's (NYSE:KSS), Dick's Sporting Goods (NYSE:DKS), Bath & Body Works (NYSE:BBWI), Macy's (NYSE:M) and Nordstrom (NYSE:JWN)
    • Value shopping: Read about the sleeper mall stock that ranks in the top 1% of all consumer discretionary stocks by Seeking Alpha Quant Rating and has a single digit forward PE ratio.



  19. Someone remind me to officially buy IBM, INTC and more VIAC!

    Also adjust CAKE.


  20. Phil

     Is this a good time to buy  T  ?

    Or wait

    Thank You


  21. T/QC – I think anything below $30 is good for T but that was a bad close and we'll see how GDP looks tomorrow.   Of course $25 is going to be bouncy – that doesn't mean it ends up being support.  I very much doubt they'll keep the dividend at $2.08 if the stock is at $25 too – something's got to give.


  22. Here is the link to the replay of this week's webinar from 10/27/2021

    https://youtu.be/BE-rR-XDf_M