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Testy Tuesday – 2,200 on the Russell 2,000 is the Line to Watch

Political cartoon U.S. Grinch Jerome Powell Federal Reserve Powell is speaking this morning.

The newly re-appointed Fed Chairman will speak to the Senate at 10 am and it was going to be the same old, same old but, in his prepared remarks, he's got this warning about the economy:

"Pandemic-related supply and demand imbalances have contributed to notable price increases in some areas. Supply chain problems have made it difficult for producers to meet strong demand, particularly for goods. Increases in energy prices and rents are also pushing inflation upward. As a result, overall inflation is running well above our 2 percent longer-run goal, with the price index for personal consumption expenditures up 5 percent over the 12 months ending in October.

Most forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate. It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year. In addition, with the rapid improvement in the labor market, slack is diminishing, and wages are rising at a brisk pace.

We understand that high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation. We are committed to our price-stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.

The recent rise in Covid-19 cases and the emergence of the omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation.  Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Meanwhile, Janet Yellen is calling on the Senate to quickly pass Biden's "Build Back Better" stimulus bill and warned (GOP) lawmakers they must soon raise the nation’s debt limit before the Treasury runs out of cash on Dec. 15th.  “I cannot overstate how critical it is that Congress address this issue,” Yellen said of the debt limit. “If we do not, we will eviscerate our current recovery.”  

Inflation accelerated to 4.9% in November

Over in Europe, November Inflation hit 4.9% – the most since the EU was formed.  This was 10% above predictions of 4.5%.  Like our Fed, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.  Think about it – they aren't doing anything about it – other than spending their time telling you the inflation you see every day isn't real.  This is some kind of anti-policy double-speak we all are suffering through.  

Energy prices are driving the inflation surge in Europe and, here in the States, Biden has ordered an FTC probe on gasoline prices as the gap between wholesale prices and prices at the pump have hit new records.  Many drivers in the US were seeing $4/gallon at the pumps over the holiday weekend and Biden has ordered the release of supplies from the Strategic Reserve to lower prices.  Between that and Omicron, Oil prices fell 18% in the past two weeks but Gasoline is a bit stickier so far.  

Don't blame the workers, that's for sure.  For all the BS you hear about rising salaries, keep in mind that workers compensation hasn't been keeping up with Corporate Profits in the entire 21st Century and it WAS getting a little better into 2019 (the spike up is due to Corporate Profits dropping, not wages rising) but now workrs are back to losing ground – making 10% less than there were in 1999.  

So we have lower rates of compensation and soaring inflation – that's not good – certainly not for the Proletariat, anyway.  As noted recently by John Oliver, our Corporate Masters have been going to great efforts to keep the workers from anything that even has a hint of collective bargaining to it.  Whether you were in a union or not, the strength of unions in the 20th century put pressure on all corporations to treat their workers more fairly.  When I was a young worker in the 80s, we knew how to demand a raise and no one was shy about it – raises were expected, as were bonuses.

My daughter has been working in a restaurant that has been unwilling to add more staff as they get busier so people are putting in more and more overime and, when I suggested she ask for a raise, she laughed at me, saying "Dad, I need this job" as if just asking for a raise gives your employer the right to fire you.  That's how the workplace is these days for our kids – workers have no rights anymore – it takes Government policy to fix these imbalances.    

Three-fourths of the decrease in labor share in the United States since 1947 has come since 2000.

If the Governments don't step up and start to force some balance back to the labor markets, we can expect a return of labor unrest and that's not good for anybody.  Since the pandemic began, 500,000 additional people have become self-employed, now 9.44M of us.  4.54M new businesses have filed this year, up 56% from the same period in 2019 and the most since 2004.  All this becomes competion for existing businesses as the danger of these compensation mis-matches is that workers realize they could do better working for themselves.  In September, U.S. workers resigned from a record 4.4 million jobs

We're watching the Russell 2,000 closely this week as that index is down 10% from the highs and back to where it's been flat-lining all year.  2,200 is the line to watch and below that, there is not much support all the way back to 1,500, which would be a 33% correction from here – very unpleasant.  

So, if the Russell breaks, look for the other indexes, which are only about 2.5% off their highs, to begin catching up and that could get very ugly, very fast and that means we need to be very sensitive to signs of worsening news as a warning to add more hedges.  We went over the levels to watch on each of the indexes in yesterday's Live Member Chat Room.  

We will see how Powell's chat with the Senate goes this morning and see how the market reacts – perhaps he will put a more positive spin on his comments but I wouldn't bet in it because, even though he was just reappointed, he won't want to look like he's clueless if the the market corrects right after he says all is well.


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  1. Phil – What date are you looking to announce the trade of the year?

  2. NG Whee! Twitter new CEO should monetize operations better than Jack Dorsey. Any play here?

  3. Good morning!  

    Trade of the Year/Batman – Well I'm on Money Talk tomorrow so I guess I'm going to try to get it done today so I can put it in tomorrow morning's post.  If the market looks strong – INTC and if we look weak – GOLD is what I'm thinking at the moment.  

    TWTR/Pman – I don't think Dorsey was a bad CEO – I think Twitter has, to some extent, run it's course and is no longer exciting.  TWTR may look like a bargain at $45 but only because idiots were paying $80 earlier in the year. $45 is still $36Bn for a company that maxed profits at $1.4Bn in 2019 and lost $1.1Bn last year and is making $242M this year and, they hope, $800M next year.  I'm not sure what wand the new CEO is going to wave but you are dealing with a platform that simply isn't conducive to selling ads and they've lost their biggest draw (Trump) and, even worse, people are starting to go outside again.  

    Facebook’s average engagement per post is well above three times that of Twitter and Instagram’s is almost 17 times. The engagement rate affects ad performance, and this is where these platforms make their money. A higher engagement drives ad return on investment for advertisers and increases the value of ads. A higher ROI benefits platforms two-fold; it brings more advertisers to the platform and increases the value per ad.

    Engagement rate across all industries

    Twitter’s low engagement is reflected in its advertising cost. Comparing the platform to peers highlights the situation; both Twitter’s cost per click (CPC) and cost per thousand impressions (CPM) are well below those of its peers. Advertising on Twitter is cheap. There’s a very good reason for this, Twitter is less effective.

    Table Description automatically generated


    Source: WebFX, author analysis

    So, short story is it's not for me.  If FB took a dip like that, I'd be all over them but $333 is $940Bn even though their CEO is an idiot but at least they make $40Bn a year to justify it and they are going to own the Metaverse – for good or ill.  Well, who are we kidding – for ill…

    Newzoo_Metaverse ecosystem diagram and infographic- the metaverse supply chain and infrastructure

  4. Morning. Man, 3 of my biggest holdings T, VIAC, BIG just going South for the winter I guess. Hoping they capitulate soon as this is seriously testing my patience. I'm in for the long term and need to see a bottom to refactor my positions. Feel I've come a long way with position sizing + patience vs. old (young) me freaking out, selling out, missing the bounce and generally over trading. See how the new me pans out. 

  5. Metaverse- I think it's the next big thing as the stars are aligning with real advances in AR,VR, 5G,Blockchain. Super early stages so a lot of hype. The one I'm playing is RBLX, a platform for human co-experience.  Popular with kids. I got the 2024 $100/200 BCS for $25 with no put sell as I have no idea what to own but the premium on way OTM calls is downright juicy.  I'm no expert so proceed with caution 

  6. metaverse – I'm not sure if I'd be willing to bet on zuckerberg's 'will' to see if this pans out. Let's hope not. We do not need any more 'distractions'  :(

  7. Well that testimony was a disaster.  

    Powell finally admits "transitory" is not a thing.  Markets are somehow shocked…

    T/Jeddah – Baby with the bathwater today.  Just caught up in index selling, despite already being sold to death.  

    We added Bog pm 10/1 in the LTP – pretty much back to where we started so good for a new trade:

    BIG Long Call 2024 19-JAN 40.00 CALL [BIG @ $44.14 $-1.56] 20 10/1/2021 (781) $23,000 $11.50 $1.45 $11.50     $12.95 $0.88 $2,900 12.6% $25,900
    BIG Short Call 2024 19-JAN 55.00 CALL [BIG @ $44.14 $-1.56] -20 10/1/2021 (781) $-13,500 $6.75 $0.80     $7.55 $0.48 $-1,600 -11.9% $-15,100
    BIG Short Put 2024 19-JAN 40.00 PUT [BIG @ $44.14 $-1.56] -10 10/1/2021 (781) $-10,000 $10.00 $0.20     $10.20 - $-200 -2.0% $-10,200

    AT&T: Taking A Closer Look At The Bear Arguments

    ViacomCBS Stock: The Good Price To Buy The Solid Business

    Metaverse/Jeddah, 1020 – I get A/R as a concept if I can wear "normal" glasses and get an augmented view of the world with more information (like the names of people at a party or convention with notes about them or comparative pricing while you shop or sports stats while you are watching a live game) but I can't see sitting like a lump all day in a VR headset while I pretend to live my life in a virtual world.  I've played Warcraft for a whole weekend so I do get the appeal and Maddie (21) still is active on-line and "hangs out" with friends all over the World but still she prefers real life and Jackie (19) is always Snapchatting but that's all about sharing real-life experiences at the heart of it.  

    Nonetheless, if you consider that even 1 in 100 people move to the Meta-verse, that's 80M people who will engage with 800M visitors and we're past the Super-Bowl in a whole world where every surface is designed to sell you something – even the products you are "using" as you go around from place to place.  Someone will give a live concert and charge $1 to get in and 100M people will attend and it will set a record for an event and that will become a thing, etc….   

    So it can't be ignored – a lot of money will be made there.

    RBLX/Jeddah – My kids used to love that but they dropped it at around 13 so I never thought much of it but they really took off recently. 

    Roblox: A Metaverse For Everyone

    Roblox Is Winning Because Of Developers

    Roblox: Buying A Piece Of The Metaverse

    Meta Vs. Roblox: The Battle Of The Metaverse Stocks

    Roblox Stock: The Long-Term Investment Outlook

    $130 is $75Bn for a company with $2.5Bn in revenues losing $500M – MADNESS.  Keep in mind Maddie is 21 and played RBLX 10 years ago so it's not like they are a startup.  This is very much like the dot com boom where people think just saying you are an internet company makes you a winner when, in fact, that wasn't true 99.99% of the time.  

  8. This guy gets it:


    @david_heron_property Here’s why Governments can’t raise rates despite inflation running hot ???? #stockmarket #economics #inflation #realestate #interestrates ? Educational – TimTaj

  9. Putin warns West: Moscow has ‘red line’ about Ukraine, NATO

  10. PHil-This guy gets it? Blank page, black.

  11. Phil / VIAC good points….  full article link

    ViacomCBS has over 47 million streaming subscribers worldwide. The company also has 54 million monthly active users of its Pluto TV streaming service.

    App Annie metrics show the company's Paramount+ streaming app is one of the top downloaded apps in America, and the top ten grossing apps in the entertainment category in America.

    The company is a profitable S&P 500 component that pays a dividend, yet has a trailing P/E of 7.6 compared to a market multiple of 28.

    The company has recent higher streaming revenue and subscriber growth rates than competitor Netflix.

    The company's streaming services segment has revenues and subscribers similar to Netflix in 2013.

  12. Phil Metaverse – I agree RBLX appeals to the younger kids but the macro trend of virtualization that RBLX will tap into is what I see as interesting. As an example, MSFT is partnering with FB to integrate msft Teams into FB Workplace

    The work from home trend post pandemic will be a huge driver for Metaverse as MSFT is showing. 

    i'm definitely not a fan of this trend as the world is a pretty weird place now and MV will only exacerbate it but if there's $$'s to be made, well why not

  13. Feels like markets want to test Oct lows. 

  14. Blank/Pirate – That's strange.  It's a TickTok, do you have an AAPL or IPad?  I can see it on my Dell.

    VIAC/Batman – If they just spun out Star Trek and had a channel for all those shows, I bet they'd get $10/month from 20M people.  

    Trends/Jeddah – Well, if Elon is right (and when isn't he?) then we're already in a MetaVerse and now we're inventing a MetaVerse within our MetaVerse – so there shouldn't be much increase in the overall weirdness.    I assume you saw Ready Player One – you can see the appeal of a fully developed World – especially as this one goes to shit in the future.  

    2020 in Review: Global Temperature Rankings

    If the Metaverse has air conditioning – I'm there!  

    Lows/Kustomz – Well we lost 2,200 and the other indexes have a lot of catching up to do:


    RUT down 2.5% TODAY!  


    Everything is dropping:


  15. if AAPL goes red this market is toast.  

  16. AAPL/Stock – Up 2.5% while others are dropping.  Safety stock.

    4,580 is where we bounce on /ES on Friday so not a bad place to go long on /ES today with tight stops below.  Very very tight stops until /RTY is back over 2,200.

    VIX also peaking out at same spot:

    That One Time "The Munsters" Gave Us an Animated Special - Bloody Disgusting

  17. RWLK market cap has dropped below cash on hand

  18. So, out of our Trade of the Year finalists, INTC, IBM and GOLD have all held up pretty well the last few days – that's a good sign.  

    I think, as an overall trade (with great spread dynamics), INTC is the winner but it's really a two-year play due to their current investment cycle and profits will be off 1/3 this year so Q/Q comps will suck and traders are stupid so there's still a chance they trade lower – even if undeserved.  

    IBM, I think, is going to show positive trends in 2022 so the catalyst is better earnings off a stupidly cheap floor.  IBM hasn't spend more than a few weeks below $110 since 2010 as that's about their 11x line.  Generally IBM is more like $120-140 and we can make a conservative spread there I can be very happy with.

    In the MTP, we already have GOLD, SPWR and VIAC.  I'd go with T if not for the split (too complicated) so MO and WBA I guess are the other runner-ups.  WBA made $457M last year and MO made $4.5Bn (people gotta smoke) and let's not forget their earnings were depressed due to that JUUL disaster ($12.8Bn down the drain) they stepped into.  If pot is fully legalized, they will take over that industry too and they already own 45% of CRON, which they bought for $1.8Bn and they are down about 50% on that.  

    I guess WBA is not as safe as MO but they only just started doing vaccinations and that will be a huge business in 2022 and was our original reason for liking them long-term, as is their 10x valuation.  

    So I guess all 4 will be additions, just in varying degrees but IBM will end up being the Trade of the Year as it's the safest bet with the best chance of success.  

    IBM – Another former Stock of the Year.  Also approaching 10x earnings at $115, which is just over $100Bn in market cap and IBM is good for about $9Bn/yr in earnings but they also have pricing power in an inflationary environment.  They are just finishing their 3-year digestion of Red Hat and now we should begin to see the benefits of this combination moving forward.  IBM has very little downside at this price and the upside could be well over $150 in two years so great risk/reward ratio on them.  My play would be:

    • Sell 5 IBM 2024 $100 puts for $12.50 ($6,250)
    • Buy 15 IBM 2024 $110 calls for $16 ($24,000) 
    • Sell 15 IBM 2024 $125 calls for $10 ($15,000) 

    That's net $2,750 on the $22,500 spread so $19,750 (718%) upside potential if they gain $10 in two years is a pretty obtainable goal.  Downside is being forced to own 500 shares at net $105.50, which is almost 10% below the current price and, long-term, I certaintly don't mind owning IBM in our portfolio.

    That was from Friday's close.  At the moment, the 2024 $100 puts are $11.45 so I'd sell the $105 puts for $15 instead ($7,500).  The $100 calls are now $22.33 and the $115 calls are $16 for net $6.33 ($9,495) so now we have a $22,500 spread for $1,995 so deeper in the money with $20,005 (1,002%) upside potential makes it a lovely trade of the year.  

    That's for the MTP, for the LTP, same trade but with 20 short puts ($30,000) and 50 of the spreads ($31,650) and now we are spending net $1,650 on the $75,000 spread but we need to be damned sure we REALLY want to own 2,000 shares of IBM for $105.  Hmmmm, yes, I believe we do!  

    Keep in mind this spread is CURRENTLY 100% in the money and our worst-case is owning IBM for a bit over $105 so it's simply a question of how much IBM are you willing to own to determine what size spread you can take.  As you know, I certainly don't look at this as a risk of $210,000 since it is incredibly unlikely IBM goes below $75, which is the lows of this century.  At $75, we're down about $60,000 and, of course, we could roll or whatever so the risk/reward is good and the likelihood of success is great – what else could you want from a Trade of the Year? 

  19. Phil / IBM – What's the final spread. —  115 / 130 ???   with 105 put?

  20. Phil, I’m in some different T positions that just continue to get clobbered. Any thoughts? Here’s what I’ve got:

    Sold 2 T Mar 22 $28 puts $4.10

    Sold 10 T Jan 23 $27 puts $3.41

    Sold 7 T Jan 23 $30 puts $3.30

    Bought 35 T Jan 23 $27 calls $2.15

    Sold 25 T Jan 23 $35 calls $.91

    Like I said, it’s a bit of a mess especially with recent news. Any ideas would be greatly appreciated  

  21.    IBM-Trade of the Year- I agree with this one-good pick. BTW- Barron's touted IBM over the weekend:

  22. IBM put- I would want to at least collect the equivalent of the dividend up front on the putter so about right either way – 100 or 105- two years of dividends is $13.12

  23. Trade of year – My tiny brain = numbers aren't working —--  does anyone know what the BCS is on it?

  24. The IBM 100/115 spread is more like $9, not $6?

  25. psts  - thank you. – that's what I see as well. lower run

  26. RWLK/Pman – I really like them long-term.

    IBM/Batman – The new (final) one is the $100/115 with the $105 short puts.  The other spread was the one I posted over the weekend – prices have changed.

    T/Swamp – Just cash it out and go with a sensible 2024 like 20 of the 2024 $23 puts at $4.50 ($9,000) and 50 of the 2024 $20 ($4.15)/27 ($1.70) bull call spreads at net $2.45 ($12,250) and that's net $3,250 on the $35,000 spread that's $15,000 in the money.  That should make your money back.

    Barron's/Pstas – Only 2 years behind our original pick but at leas they are catching up.

    IBM/Pstas – Last on the $100 calls is $22.60 and last on the $115s is $14.40, which is net $8.20 but, since we're bullish – the idea would be to offer $22 and see if those fill and then ask for $16 on the short calls, say 5 out of 50 and see which side fills first and then work on the other.  You have to use your head when your execute these.  Whoever jumped on the short $115s at 3:15 took way too little, the last sale before that was $16.15.  On the $100s, at 3:05 they went for $22.25 but then someone paid $23.50 – if you can't lean to be patient getting your fills, you are just throwing money out the window.  

    If I'm trying to fill 50 IBM long $100s at $22.33 and 50 short $115s at $16 then I'm going to offer less on the long calls and ask for more on the short calls 5 at a time and, whichever side fills first, then I work on getting a $6 spread for the other side.  Of course, since I'm overall bullish on IBM, if I get 5 calls at $22 and don't get 5 short calls at $16 but IBM goes lower – it's just like any trade I want to DD on so I offer to buy 5 more at $21, which would give me a $21 avg and, if those fill before I get my $16 on the short calls, I will only need $15 on the 10 short calls to fill that part of the spread. 

    Since I'm bullish on IBM, I don't mind being naked long 10 calls at what I consider a floor and I'd even buy 10 more at $19 to average $20 and then I'd only need $15 for the short calls or, at that point, I may want to roll lower since it's dropped $3 since I came in so spending $2.50 more to move to 20 of the $95 calls at an average of $22.50 would make me very, very patient for IBM to pop or, if the $95 calls drop to $17.50, I'd add 20 more so my average on 40 $95s is $20 (currently about $25) and I'd be very pleased to hold those naked long for a very long time.

    Etc – the point is, use your head and think about your actual goal on the trade – you don't need to fill everything in one day.  In fact, that's almost never a good idea.  

    Options have ranges just like stocks so, just like stocks – don't be a dummy and buy at the top of the range or sell at the bottom of the range:

    So, in the course of 3 sessions, you could have easily sold the $115 calls for $17 and bought the $100 calls for $22 – $21.50 even.  All you have to do is ask!  

  27. Phil / IBM –  Not sure how you arrived at the numbers in the 100 / 115 BCS  -  the long $100 call wear close to 22.6 which is fine, but the short 115 caller was never closer to 114 than to 116….  really never above 114.5ish….   This makes the return on this a bit lower than what was projected  130Ish return on outlay to less than 90%…  is there anything you  would do differentiations ely on this?

  28. Phil / IBM – looking through your response now…. came out right as I posted the question above.

  29. IBM/Batman – See above.  We'll track it for a few days and see what comes out but the current offer would be asking for $15.50 and offering $21.50 to see what fills first on 5.  IBM is at $117.17 at the moment.

  30. Meanwhile, that was not a good finish.  Missed all the bounces….

    November 29th, 2021 at 11:42 am | (Unlocked) | Permalink 

    Looks like weak bounces to me:

    The zone around 35,200 and 35,250 is going to be very critical and hard to break over as it's double-resistance


     we'll call a 25-point bounce to 4,625 (weak) and 4,650 (strong)

    we'll look for 100-point bounces to 16,300 and 16,400 (since the Nas is generally pushy anyway).


    we'll call it 2,150 so 50-point bounces to 2,200 and 2,250 so, if my theory is right, 2,250 should fail and we'll fail 2,200 on the way back to 2,150 and, if that happens – then the correction isn't over for the others either and we'll expect retests of their 2.5% lines.

    When you have big drops like this, you are better off figuring out where the proper line is:

    • Dow 36,000 x .975 is 35,100 and we round that off to 35,000 so 1,000-point drop gives us 200-point bounces to 35,200 (weak) and 35,400.  Keep in mind 35,200 is VERY WEAK since it should have been 35,100 + 200.  Since we actually dropped to 34,700, 1,300 points gives us 260-pont bounces to 35,000 (see the rounding?) and 35,250 so, now we know 35,000 REALLY has to hold as it's the 2.5% line and the weak bounce off the actual drop.  The zone around 35,200 and 35,250 is going to be very critical and hard to break over as it's double-resistance but, if that is passed – 35,400 is the next proper test.
    • /ES 4,720 x 0.975 is 4,602 so 4,600 is our base and 120-point drop we'll call a 25-point bounce to 4,625 (weak) and 4,650 (strong) and you can see how the action fits the bill:


    • Nasdaq 16,600 x .975 is 16,185 so 16,200 is down 400 and we'll look for 100-point bounces to 16,300 and 16,400 (since the Nas is generally pushy anyway).
    • Russel 2,400 was the top and I'm making a judgment call that we're in a 10% correction to 2,160 so let's do the math and see if that's right.  That's 240 points down and we'll call it 2,150 so 50-point bounces to 2,200 and 2,250 so, if my theory is right, 2,250 should fail and we'll fail 2,200 on the way back to 2,150 and, if that happens – then the correction isn't over for the others either and we'll expect retests of their 2.5% lines.

    I put the relevant notes under each chart for quick reference but the original notes in context are underneath.  That's how we use the 5% Rule to stop ourselves from confusing a bounce with a rally.  Now that we've failed the strong bounces and retested the lows, it's very important that we don't fail the weak bounce lines on the next attempt or… DOOM!!!

  31. Boy I miss my /ES shorts.  First time all month I didn't have any was Wednesday night.  

    Also miss our SCO longs!  We gave up on those too early.