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Failing Thursday – Indexes Testing New Lows

Omicron, Inflation, Fed Tightening, Debt Ceiling…

Take your pick, there's plenty to worry about and Omicron seems to be the straw that is breaking the market's back as the Dow and the Russell are bact to testing the September lows.  It's bad enough now that we have to recalculate our bounce lines, using the fabulous 5% Rule™, which has been right on the money so far and is, at the moment, indicating we are only in the beginning of a correction.  

  • Dow 36,000 is the official line we fell from – the rest was just overhoot on the way up which we will ignore.  36,000 x 0.95 (a 5% drop) takes us to 34,200 and BINGO! – here we are at the -5% line.  That means the bounce lines are 20% of the 1,800-point drops each so 34,560 will be the weak bounce and 34,920 would be the strong bounce.  

The problem for the Dow (and S&P and Nasdaq) is, as I was saying in yesterday's Webinar, that AAPL is used to prop up the markets and mask the true weakness but AAPL rose 5% in the past two days so it too will pull back and make things worse today as it normalizes.  Watch out for AAPL failing $160 – that would be bad…

  • S&P 4,700 x 0.95 is 4,465 and we're not these yet but that doesn't stop us from calculating the bounce lines from our expected 235-point fall so 47 points to 4,512 (weak) and 4,559 (strong).

  • The Nasdaq moves in 5,000-point units over the long-haul so 15,000 was significant and 10% over that is 16,500.  The Nas topped out at 16,700 but, again, overshoot that we will ignore so 16,500 x 0.95 = 15,675 and we're well above it but we'll see how support works out on the way down which would be 20% of 825 (165) off 15,675 is 15,840 (weak) and 16,005 (stong).  At the moment, the Nas is 15,812 so already failed the weak bounce line and likely to test 15,675 by tomorrow.  
  • The Russell topped out at 2,450 but 2,400 is the big picture top as Russell moves in 800-point chunks so 1,600, 2,400…  You can see that plainly on the monthly chart – as we insanely added 50% to the Russell since 2019 – despite no actual improvements in earnings or revenues.  It's just 50% more expensive to buy stocks than it was 2 years ago.  

Clearly that's ridiculous and we're looking for at least a 20% (weak) correction of the whole 800-point run so -160 from 2,400 would be 2,240 and woops, we already failed that so the next -160 takes us to 2,080 and, let's assume that's what's happening.  Then we'd have a 320-point drop from 2,400 which should give us 64-point bounces to 2,144 (weak) and 2,208 (strong).  SO, if 2,144 fails, we're looking at a strong pullback of the Russell's idiotic run for the past two years and then we'd have to expect the same from the other indexes.  That means it's still up to the Russell to prove us wrong and get back over 2,208 and hold it into Friday's close – or we'll be adding more hedges into the weekend!  

There's not much going on on the news front but we do have Non-Farm Payrolls tomorrow along with Factory Orders and ISM Services.  Today we're getting a lot of bad Auto Sales numbers and we have 3 Fed speaches at lunch – so more rumors of tigheining will likely hit the market this afternoon.

Be careful out there.


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  1. U.S. to Tighten Rules for Travelers Over Omicron Concerns

  2. Phil – any thoughts on rumors around Alibaba's possible NYSE delisting? 

  3. Good Morning.

  4. Good Morning from Denver.  Its going to be 70 degrees here today. Looking west toward the front range, not a whitecap mountain in sight. 

  5. Stockbern-Same here. Had some snow but it is gone. It was 43 yesterday. Might rain today? 


  6. open interest on BABA $20 Put expiring Dec 17 is 100K+…

  7. Phil// I see that the Nasdaq topped at 16057 on 11/19.  I don't believe that it went as high as 16700.  What will be the numbers we look for in case the high is only 16057?  Thanks.

  8. Good morning! 

    Getting a bit of a bounce but not much.  

    Oil has been on a crazy ride this morning too.

    Playing bullish at the $65 line is still working.

    BABA/Rn – These are just rumors to knock down the price.  I haven't seen anything official saying BABA will be delisted.  What China is doing is tightening procedures on future IPOs for VIEs (Variable Interest Entities), it won't affect companies already listed.  

    The China Securities Regulatory Commission said on its website Wednesday that a media report about banning the overseas listings of companies using the VIE structure is not true, without giving further details.

    While a universal ban on the VIE structure isn’t being contemplated, a halt on foreign listings and additional review for Hong Kong IPOs would mean the model will no longer be a viable way for many startups to tap capital markets. Some investment banks have already been advised by regulators to stop work on new deals involving VIEs, a person familiar with the matter said.

     relates to China to Close Loophole Used by Tech Firms for Foreign IPOs

    As with CHL, each share of BABA can be converted into 8 shares of 9988 (the Hong Kong symbol) on the Hong Kong Exchange.  Delisting in the US only takes them off the US exchanges, it doesn't dissolve the company.  CHL (0941) is currently trading at $46.65 in Hong Kong and that's about $6 or $48 per US share – the people who transitioned their shares ended up doing very well once the idiocy and panic ended.  

    Snow/Pirate – Today's snow is the summer's water – could be problems.

    BABA/RN – If I had more balls, I'd be selling a ton of short puts too at this price.

    Nasdaq/Rookie – I guess you have a different Nasdaq.

    I'm using the 100, you are looking at the broader Nasdaq.

  9. Phil// Thanks for the clarification.  Yes, I was using the broader Nasdaq index.

  10. Old CHL ADR holders who converted have not done so well – the CHL ADRs were equal to 5 HK shares – so $29.92 now. I am holding the HK stuff (100 ADRs, so 5000 HK shares) – got ~2K in dividends this year, so no complaints about that. Still about 4K down (after option sales on the ADRs and dividends), waiting for a price up to sell before next summer's ban on US persons holding even the HK stock kicks in. 

  11. Good news for BA:

    BA -4.88%Dec. 02, 2021 7:05 AM ET3 Comments

    • Boeing (NYSE:BA) +5.3% and supplier Spirit AeroSystems (NYSE:SPR) +6.4% pre-market after the 737 MAX regained airworthiness approval from the Civil Aviation Administration of China, a major step forward for the jet's return to service in the country after being banned for more than two and a half years.
    • The airworthiness directive orders certain software installation and a revision of the flight manual, among other changes, but does not specify when China would allow flights to resume.
    • The CAAC, which was the world's first regulator to ground the MAX in March 2019 after two deadly crashes, says it completed a review of the design changes proposed by Boeing.
    • "After conducting sufficient assessment, CAAC considers the corrective actions are adequate to address this unsafe condition," the regulator says.
    • Chinese airlines have ~100 MAX jets, with hundreds more on order from Boeing and aircraft leasing companies.
    • Boeing has been aiming toward winning Chinese approvals for the MAX by the end of the year, with deliveries expected to resume in Q1 2022, CEO David Calhoun said in October.

    FIVE -7.01%Dec. 02, 2021 6:58 AM ET

    • Five Below (NASDAQ:FIVE) is attracting positive attention from analysts after a strong Q4 earnings report.
    • Jefferies analyst Randal Konik says FIVE's business model is proving to be superior after the retailer delivered gross margin improvement despite the inflationary backdrop.
    • Morgan Stanley reiterates an Overweight rating on Five Below (FIVE).
    • MS analyst Simeon Gutman: "Strong Q4 results confirmed the core tenets of our recent upgrade, primarily that inventory and freight fears were overblown. Robust +14.5% comps accelerated >700 bps on a 2Y geometric stack to a record +29.5%, suggesting no shortage of inventory or waning consumer demand. Gross margin expanded 160 bps (vs. fears for contraction on freight headwinds) and was likely still up excluding occupancy leverage and a timing benefit."
    • Price target increases are in from Guggenheim (to $250 from $225) and Telsey Advisory Group (to $235 from $230).
    • Shares of Five Below (FIVE) are up 12.87% in premarket trading to $213.54.
    • Dig into Five Below's earnings call transcript.

    DG +0.67%Dec. 02, 2021 7:01 AM ET

    • Dollar General (NYSE:DG): Q3 GAAP EPS of $2.08 beats by $0.05.
    • Revenue of $8.5B (+3.7% Y/Y) in-line.
    • Press Release
    • Outlook for fiscal year 2021: Net sales growth of approximately 1.0% to 1.5%; compared to its previous expectation in the range of 0.5% to 1.5% vs. consensus of 1.52% Y/Y.
    • Same-store sales decline of approximately 3.0% to 2.5%, which reflects growth of approximately 13% to 14% on a two-year stack basis ; compared to its previous expectation of a decline of 3.5% to 2.5%.
    • Diluted EPS in the range of $9.90 to $10.20 vs. consensus of $10.19, which reflects a compound annual growth rate in the range of 22% to 24% (or in the range of approximately 21% to 23% compared to 2019 Adjusted diluted EPS) over a two-year period  compared to its previous expectation in the range of $9.60 to $10.20.

    It's interesting that these guys can do well despite all their stuff being shipped from China and Inflation coming against their price caps.  Dollar General is now $1.25 General and $5 Below was more able to just shift prices to the higher end and dumped things that hit margin ceilings.  Very interesting dynamics for both stores (both overpriced, though).  

    I love TD:

    TD -0.46%Dec. 02, 2021 6:46 AM ET5 Comments

    $74.50 is $130Bn and these guys are making $14Bn a year and made $12Bn last year so rock-steady income stream.  They have long-term options now and only a 3.5% dividend ($2.55), so not worth owning the stock but, for the LTP, let's:

    • Sell 10 TD 2024 $70 puts for $8.50 ($8,500) 
    • Buy 25 TD 2024 $60 calls for $15 ($37,500) 
    • Sell 25 TD 2024 $75 calls for $7.50 ($18,750) 
    • Sell 5 TD April $75 calls for $3 ($1,500) 

    That's net $8,750 on the $37,500 spread so we have $28,750 of upside potential where we are now and we have 7 more quarters to sell calls as well to knock down the basis.  Our risk is owning 1,000 shares at net $68.75 – and we'd be happy to do that anyway

  12. CHL/RN – I thought it was 8 but you are right, only 5 shares – big difference!   Still, we had the $27.50 calls and the $30 short puts in the LTP – still on target if it were listed.

  13. Snow/Phil – yes, it's that Sierra snowpack that provides water for California.

  14. Phil/ How to play the upcoming California water shortages? Technology or water futures

  15. just noticed KRBN had a nice November     good one Phil, working out so far

  16. Carbon Credit course / Phil    I got this email, thought you might be interested

  17. Phil TD I am trading this stock since Jan 2019. My average stock price is 47.86. With selling options and receiving div., I can not complain.

    Looking at your present play, I ask myself, is the stock not too high, really on top of the scale, to enter a play now, even both your short calls are already ITM. ???

  18. Water Futures/Pman – ???  Do they have those?  I think desalination plays are getting interesting but mostly small caps. 

    • WTRG is a utility company with a kicker as they are grow their footprint in the Northeast - not cheap though at 26x earnings but earnings were $225M in 2019 and $430M this year so just wait a couple of years and $12Bn should seem very cheap.

    • XLY is interesting too, they are like a water tech company working with utilities and commercial users around the World and up to $21Bn in market cap with $5Bn in sales and $500M in profits – would be a good one if they get cheaper.  At $80 I would be a fan.

    • DHR, by the way is one of the biggest companies people never heard of and they are getting heavy into water but they are nicely diversified and interesting across many lines for Global Infrastructure:

    • They went up way too much this year and I'd be much happier at $200 than $300 but, in 2019 they were making $3Bn and this year $7Bn so people are betting on continued growth.  

    • FIW is an ETF for water infrastructure with nice diversification but ran up a bit much this year:

    If you want to dig around, start with the ETFs and look at what they hold and then do the research on those.  Should be some gems in there:

    • Invesco Water Resources ETF (PHO)
    • Invesco S&P Global Water ETF (CGW)
    • Invesco Global Water ETF (PIO)
    • First Trust ISE Water Index Fund (FIW)
    • Ecofin Global Water ESG Fund (EBLU)

    KRBN/Stock – Well we're playing for the habitable planet shortage there….

    Thanks Stock.

    TD/Yodi – We used to play it but haven't in a while.  I think they are growing into their value at this point.  The 5 short calls are just a hedge and we're happy to add more longs if we're wrong and the stock goes higher than we plan.  

  19. BA boosting the Dow with a 5% pop – good for 85 Dow points.

    I love it how Chanos finds his balls only after there's a correction – I made this call back in August, when we first hit these levels!

    WYNN +5.98%Dec. 02, 2021 1:37 PM ET

    • High-profile short-seller Jim Chanos said Thursday that he was betting against Wynn Resorts (NASDAQ:WYNN), DraftKings (NASDAQ:DKNG) and DoorDash (NYSE:DASH), as he looked to take advantage of some valuations that have gotten out of control in the last year.
    • "It tells you just how nuts things got over the past 12 months in some of these high growth names that are getting hit now," the founder and managing partner of Kynikos Associates told CNBC.
    • His comments sparked selling in DASH and DKNG during midday trading.
    • Commenting on specific names, Chanos argued that WYNN was overvalued, even leaving out concerns surrounding its investments in Macau.
    • On DKNG, Chanos reported that he's held a short on the online betting platform for most of 2021. He contended that, given its current structure, the company would still lose money even assuming the most aggressive revenue growth scenario.
    • "You can believe in sports betting, you can bet on football and basketball to your heart's content, but this business model is flawed," he asserted.
    • DoorDash (DASH) also came into Chanos' crosshairs. The short-seller slammed the company for missing its opportunity to grab profits during the high demand for food delivery that came with the COVID shutdowns.
    • "If not now, when?" he asked. "If you're not making a lot of money and the capital markets turn a lot less friendly, valuations for these kinds of companies … get destroyed for money-losing companies when capital is not available."
    • Looking at the companies Chanos listed as shorts over the past three months, all three have lost ground during that time. DKNG has performed the worst, dropping by about 48%. Meanwhile, WYNN has fallen about 25%, while DASH has retreated around 16%.
    • For a benchmark, the S&P 500 is essentially flat over the past three months:

    NSANY -0.69%Dec. 02, 2021 1:28 PM ET

    • With workers who are sidelined during the pandemic also having to pay higher prices, the Federal Reserve "might need to taper asset purchases faster than we anticipated," said San Francisco Fed President Mary Daly in a webcast discussion also featuring Richmond Fed President Tom Barkin.
    • The central bank may need to "start dialing down the extra accommodation we're giving the economy — not completely taking away the accommodation, but lessening it" until economic growth is self-sustaining, she added.
    • Still, the Fed is always balancing the progress on its dual mandate of price stability and full employment, she added. With the last recession, the two goals weren't in conflict. But this recovery is different. "That's the balancing act we're at now," Daly said.
    • Barkin warns that inflation readings are likely to be "messy" in coming months as supply disruptions continue to affect the recovery. "At some points we get chips in cars, then used-car prices will come back down. I think it's going to be messy," he said.
    • Overall, Barkin isn't worried about the amount of debt in the economy. He points out that household debt has declined during the pandemic. There's elevated debt in the corporate and government sectors, but "what I'm really concerned about is the debt I don't see," he said, giving the collapse of Archegos Capital as an example.
    • Daly's comments on quickening the pace of the taper align with Fed Chair Jerome Powell saying the monetary policymakers will discuss speeding the tapering of its asset-purchase plan at its next meeting on Dec. 14-15.

    Wow, this is premature:

    DIS +2.98%Dec. 02, 2021 1:05 PM ET2 Comments

    • Travel and leisure stocks are up across the board even after the Biden Administration announced increased international travel restrictions due to the Omicron variant.
    • Analysts believe that yesterday's drop was overstated as more information arrives regarding the new variant. JPMorgan said the sell-off presented an "opportunity to buy the dip in cyclicals, commodities and reopening themes," while CNBC's Jim Cramer told investors to buy stocks like Disney (DIS +3.0%) and Wynn Resorts (WYNN +5.9%) before "omicron becomes nothing more than a running nose for the vaccinated."
    • According to the Australian Government Department of Health, all patients infected with the Omicron variant so far have reported "very mild" or no symptoms at all. This is in-line with historical trends in which less severe and more transmissible variants crowd out more severe variants, potentially turning COVID-19 into something more like the seasonal flu.
    • Airlines: American Airlines (AAL +5.8%) Delta Air Lines (DAL +7.9%), Southwest Airlines (LUV +6.3%), United Airlines (UAL +6.0%), JetBlue (JBLU +7.1%), Hawaiian Holdings (HA +7.5%), Alaska Air Group (ALK +6.5%), Spirit Airlines (SAVE +8.5%), Mesa Airlines (MESA +4.6%), SkyWest (SKYW +6.5%) and Frontier Group (ULCC +3.3%).
    • Hotel and lodging: Marriott International (MAR +5.4%), Hyatt Hotels (H +5.1%), Hilton Worldwide (HLT +6.2%), Airbnb (ABNB +2.1%), Wyndham Hotels & Resorts (WH +4.7%), Choice Hotels International (CHH +3.4%) and InterContinental Hotels Group (IHG +3.6%).
    • Other travel: Expedia (EXPE +3.1%), Booking Holdings (BKNG +4.4%), TripAdvisor (TRIP +2.2%), Travelzoo (TZOO +3.4%), (TCOM +3.1%), Avis Budget (CAR +6.1%), Hertz (HTZ +4.4%), Carnival (CCL +7.6%), Royal Caribbean (RCL +5.7%), and Norwegian Cruise Line (NCLH +5.3%).
    • Casinos: Las Vegas Sands (LVS +2.5%), MGM Resorts (MGM +5.2%), Penn National Gaming (PENN +2.7%), Caesars Entertainment (CZR +5.3%), and Melco Resorts & Entertainment (MLCO +3.7%).
    • Use Seeking Alpha's screeners to compare the top-rated hotel, resort, and cruise line stocks.

    Fine by us, we just picked DAL but I'd be holding off for the moment on other stuff.

  20. Should we not have a look at AMGN?

  21. T got a very nice lift today

  22. AMGN/Yodi – Nice company but we don't need more Pharma/Biotech at the moment.  The thing is, if we think the market might collapse, I'd rather spend the money improving what we do have, rather than adding more positions that we'd be draining cash to adjust.  At $202, AMGN is $113Bn and dropping $10Bn to the bottom line, a solid 30% improvement over 2019 (and they didn't miss much in 2020) – so a nice, solid pick down here – short put worthy I'd say.  In the LTP, we can sell 5 AMGN 2024 $175 puts for $20 ($10,000) and that puts us in for net $155 – and I would be happy to find room in the portfolio at that price.  

    The knock on AMGN is that Enbrel is 16.6% of revenues and has gone off-patent   Revenues are off almost 15% in the first year and likely to drop a good 1/3 more over the next two years:

    Amgen drugs

    If I had more confidence in their pipeline replacing their blockbusters, I'd like them better but certainly I don't like them as much at PFE, GILD, MRNA or BNTX, which we already have (and PETS!).  

  23. Good point Phil, still the put sale looks good, as AMGN was 188 during Mar 20!!!

  24. Phil / BABA – Im looking at selling some '24 Sort of Torn between selling with 100, 120 and 140…  !00 would be my go al in on this, 140 140  would be what I think the floor should have been. – Any feedback idea on this?

  25. Phil / BABA –  For above fingers were not working


    Im looking at selling some '24 Short Puts  of Torn between selling with 100, 120 and 140…  100 would be my go all in on this, 140  to 150  would be what I think the floor should have been. – Any feedback idea on this?  Also, Baba has an investor meeting on 12/6 and I think there may be more clarity around business 

  26. Amazing RUT hanging on that 2208 line

  27. Pihl / VIAC Archegos  ( follow up from my comment yesterday) – My theory is  large banks off loading  Archegos stock that they bought to cover positions. – the largest holdings of  Archegos were –   VIAC, BIDU, VIPS and TME.  -- If you look at those stocks they look ( to me ) like they preformed similarly early in the year – and all have dropped about 30 % in the last in the last 30 days with  -   with strikingly similar starts of selling % drops 

  28. BABABABABABABBABA/BATMAN – We sold the 2023 $200 puts in the LTP for $33.25 on 2/3, when BABA was $260 ish and we thought that would be a good floor at the time.  Those puts are now $78 in the money at $83.50, so they are pretty much toast.  We sold 10 of them and we're down $48,525 so we only have to roll the loss and the 2024 $150 puts are $50 – that's where we'll go in the LTP and, hopefully, we'll be able to roll to the 2025 $100 puts down the road.  I would not go looking for too much trouble on BABA as we really got trapped in CHL and there was no way to fix it.  

    RUT/Coulter – It is scary when you see the 5% Rule nailing the marks – it means the bots are firmly in control of this market, not the humans.  

    Similarities/Batman – That's a very good observation, you are winning me over!  Good job digging deeper…

    KR -3.18%Dec. 02, 2021 3:41 PM ET

    • Kroger (NYSE:KR) is up 11.45% and trades at its highest level since early September after boosting its full-year sales forecast on strong demand.
    • There was not much of post-vaccine letdown in grocery demand based on the sales tally. "We believe the food at home change is structural and not temporary, with most people consuming meals at home and grocery stores continuing to capture the majority share of stomach," noted Kroger CEO Rodney McMullen.
    • The impact of labor and commodity inflation on Kroger's (KR) margin line was not quite as bad as feared.
    • Dig onto Kroger's earnings call transcript for more details.

    GDX -0.96%Dec. 02, 2021 3:18 PM ET1 Comment

    • Gold prices slipped to their lowest settlement since mid-October, as the initial safe haven demand for the metal caused by worries over the new COVID-19 omicron variant proves short-lived.
    • Most traders and investors believe that the omicron variant "won't cause catastrophic damage to the global economy," Insignia Consultants research director Chintan Karnani tells MarketWatch, adding that stocks are preferred over safe havens and short-term technicals are bearish.
    • February Comex gold (XAUUSD:CUR) closed -1.2% at $1,762.70/oz, the lowest settlement for a most-active contract since October 12.
    • Gold miners (GDX -1.1%) trade broadly lower but have clawed back from their worst losses on the day: GOLD -1.2%BTG -1.9%FNV -1.8%EGO -0.8%AEM -0.5%KGC -0.5%IAG -3.2%AU -2.7%.
    • "Omicron fears have somewhat subsided late this week and that's putting some risk appetite back into the marketplace," according to Kitco's Jim Wyckoff.
    • Also, Fed Chair Jerome Powell's hawkish pivot yesterday has prompted talk of rate hikes coming sooner than expected, also weighing on the non-interest bearing metal.
    • Newmont (NEM -0.8%) shares hit a 52-week low after its 2022 production guidance missed the 6.6M oz. analysts had forecast, citing COVID-19's impact on the gold industry this year that also will affect the company's output through next year.
    • Newmont said it forecast 2022 gold output of 6.2M oz, up from 6M oz. the miner expects to produce in 2021.

    Old favorite:

    CLF +2.29%Dec. 02, 2021 3:15 PM ET15 Comments


    Let's make them a new favorite again in the LTP as $20 is still under $10Bn in market cap and last year they lost $122M but the last 4Qs have been $256M, $288M, $1,197M and $1,775M so back on a path for a solid $3Bn+ which makes $10Bn a no-brainer for our LTP:

    • Sell 20 CLF 2024 $20 puts for $6 ($12,000) 
    • Buy 50 CLF 2024 $15 calls for $8.75 ($43,750) 
    • Sell 50 CLF 2024 $22 calls for $5.75 ($28,750) 

    That is net $3,000 on the $35,000 spread that's $25,000 in the money to start with $32,000 (1,066%) upside potential at $22.  Worst case is we own 2,000 shares at net $21.50 – 7.5% above the current price.  

  29. BABA/Phil – We would still be able to do a conversion to the foreign shares and not have to divest like with CHL. Not advocating going big, but it seems there is a crucial difference here.

  30. The Radical Pluralism of Money