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Failing Friday – Hedging the Dow for a 3,000-point Drop

Was it all just a dream?  

How much of the rally of the past two years will be erased on this correction?  The Dow has already fallen 3,000 points from it's height but it's not done.  Strong earnings from AAPL will help it today but it can't hold up the whole, overpriced index now that the value police have woken from their long slumber.  

It has literally been two years since valuations have mattered as 0% interest rates meant companies could borrow money for free to cover up mistakes and even to buy their own stock – if no one else wanted it.  Decreasing share counts made equities rarer (and made earnings seem larger) so, like BitCoin, demand outpaced supply – especially with fresh money coming in from the side as everyone wanted to play the stock market.  On top of that, there was stimulus money – TRILLIONS of Dollars in stimulus in a World where, the Economic Stimulus Act of 2008 (under Bush) was "just" $152Bn.

The amount of stimulus from our Government (and don't forget the Fed) over the past two years has been roughly $11Tn – $6Tn added to our National Debt and $5Tn added to the Fed's balance sheet.  Our GDP is only $20Tn so 1/4 of our GDP over the past two years has been stimulus.  Where are we going to be without it?  And, at the same time as the stimulus is removed, the Fed is cutting back the money supply.  They have to – they are now overcompensating for the overeasing they just did (maybe $11Tn was too much), which has now led to massive inflation.

a. When to Go to Walt Disney World - yourfirstvisit.netIn fact, yesterday's very impressive-sounding GDP growth of 6.9% (over last year's crap numbers) isn't so impressive when you consider that 7% of that comes from inflation.  This is not economic growth – this is price growth.  Yes you are getting a bigger salary but good luck filling up a 20-gallon tank for less than $75 and, if we still went to movies, how about those $15 tickets and $10 for a popcorn and coke?  Everyone is raising prices and rents are rising too – it's not a raise when all you are doing is keeping up with inflation.  

We were shocked last year when Disney (DIS is a Dow component) raised their highest ticket prices to $125 but this year's peak pricing is $147 – 17.6% higher than last year and the AVERAGE ticket price is now over $125 for a single day and around $115 for multi-day.  At this rate – if you don't have children yet, in 10 years time a day ticket to Disney will be $743.69 so you'd better get started tonight on those kids or you'll be paying $1,000/day to walk them down Main Street!  

We had inflation in the 70s, it was EXPECTED that you would get a 10% raise every year and that was not even keeping up with inflation so we also switched jobs a lot, looking for better pay – something that is happening now as well, but this is only the very early stages if the Fed can't put the inflation genie back in the bottle – something they have never done without tanking the economy.  

Visualizing the History of U.S. Inflation Over 100 Years

We have gone through a fairly unique period of about 30 years in which there was relatively little inflation and good economic growth but that was ARTIFICIAL and our Government and the Fed have racked up over $30Tn in debts to paint that economic picture.  Now it is time to pay the piper and it's very likely we are about where we were at the start of the last inflationary cycle.  The Fed is trying to stop it early in the cycel but how much of this is really going to be under their control – short of raising interest rates to 15%, like Volker did?

Look at the components of the CPI and think about what the Fed can do about it?  Food costs are up 8%, Housing up 15%, Clothing up 10%, Education is fairly flat at the moment, Medical Care had their usual 10% increase, Recreation doesn't exist for most of us, Transportation is going through the roof thanks to Oil Prices, etc…  People NEED these things to live – they aren't optional – that's why they NEED raises and no, it's not making their lives better because it's too little, too late – that's why Consumer Confidence is dropping off.  

Only 28% of the people in the US rate the economy as being "good" or better and 10% of those people are in the Top 10% – generally clueless that 72% out of the remaining 90% are having a lousy economic time.  That number was 23% when the markets crashed in April of 2020 so, 2 years and $11Tn later, we've made exactly 5% more people happy.  Even of the 28% who think the economy is good – only 27% think it will get better in the near future, with 37% saysing "same" and 35% saying worse.  

Chart shows public expects economy to worsen or remain the same in the near futureThat means, even among the people who think things are already bad, there's a large amount of them who think it will get worse than that.  Makes me think of something else that was popular in the 70s – punk rock – NO FUTURE!!!  And they were right.  In 1965 the Dow Jones was at 8,600, two years after Kennedy was shot but then we had a little correction and by 1977 (when punk was getting started), the Dow was around 4,500 and that was 50% off the lows of 1974.

Punk was a protest by disenfranchised youth who couldn't find jobs to keep up with inflation – screaming at an Elitist Society who thought things were just fine.  They also were not too thrilled with being sent off to war to be killed in Vietnam or wherever, but it was an effective way to keep them from causing trouble at home, wasn't it?  

"All the power's in the hands

Of people rich enough to buy it

While we walk the street

Too chicken to even try it

White people go to school
Where they teach you how to be thick
And everybody's doing
Just what they're told to
And nobody wants
To go to jail" – Clash

Chart shows public sees prices, availability of goods, deficit worsening; majority says job availability has improved

By 1982, inflation-fighting measures has pushed the Dow all the way down to 2,300 but then we were saved by the computer revolution – which was the most important thing that had happened to the human race since fire – and we entered a golden age of economic growth and prosperity – and overpopulation, and pollution and disease and debt – the same things that happen to all civilizations as they peak out….

This time, there are no barbarians at the gate – this time we are doing it to ourselves. Joe Biden is President yet we have gone another year without addressing the Climate Crisis or the Student Loan Crisis or the Affordable Housing Crisis or the Water Crisis or the Pandemic… the list goes on because this Government, no matter who is "in charge" is dysfunctional and we are just drifting along while our problems get worse and worse.  

Finally the Fed has woken up and decided that 7% inflation, which is 250% above their mandated 2% level, might be a problem they need to address.  God help us if they do!  

So, just in case things hit the fan, let's set up a Dow hedge for our Short-Term Portfolio (STP).  DIA is the Dow's ETF and it's at $341 with the Dow at 33,724 this morning and we think 33,000 is a good target so figure $310 on DIA.  The hedge I like is: 

  • Buy 50 DIA Sept $350 puts for $27 ($135,000)
  • Sell 50 DIA Sept $320 puts for $17 ($85,000) 
  • Sell 10 DIA Feb $330 puts for $5 ($5,000)  
  • Sell 20 LABU 2024 $15 puts for $7.50 ($15,000) 

That's net $30,000 on the $150,000 spread.  We're using LABU (Biotech ETF) as an offset because we don't mind owning 2,000 shares at $15 ($30,000) long-term but you can use short puts on any stock you REALLY want to own to help offset the spread costs.  We have 7 months to sell before September so collecting $5,000 for a 20% cover close to our goal in February is fine and we can put a stop on them at $7,500 to make sure they don't do too much damage.  If we make 6 more sales like that we'll collect $30,000 and have a no-cost spread so, if the Dow is up or flat, the protection is free and if it goes down, we pay $7,500 to buy back the short puts and our net goes to $37,500 and our upside potential is $112,500, which will pay for the LABU with plenty to play with left over. 

Also nice is that this spread is currently $45,000 in the money to start!  

That is how we like to hedge – many ways to win, even if the market recovers (which would be good for LABU). 

  

"Pay attention to the cracked streets

And the broken homes

Some call it slums

Some call it nice

I want to take you through

A wasteland I like to call my home

Welcome to paradise

A gunshot rings out at the station

Another urchin snaps and

Left dead on his own

It makes me wonder why I'm still here

For some strange reason it's now

Feeling like my home


And I'm never gonna go" – Green Day

Have a great weekend, 

- Phil

 


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  1. Good Morning!


  2. Where does /NG go from here!


  3. Just a reminder Today is the day to sell APPL calls, while the sheep are buying the stock. I am looking for the Apr. 175 call for about 5.50


  4. Obviously only if you can cover!!!!


  5. I see 5.60 is in already so I wait what give in the afternoon. More sheep betting up the price on a running train!







  6. Phil / AAPL –  Last week I concord my April 150 callers for a Nice profit….   I"m looking for a short term caller on this again  - covering 120X of a '24  120/180 BCS, coupled with 50X 115 Puts…   I think 180 will be very bouncy ( 3T)  but not sure if this is too high ( although very safe)   I"m thinking of Sept 190 Caller for $8.5 ish   or a April 180 Call for 4.xx.   would like your view on this.   t hanks, 


  7. Good morning!  

    More crazy action to start the day but RUT 1,906 and Nas 4,305 means this week is a lost cause.   

       

    If the week is a lost cause, then we need to consider the weekly charts:

       

    Er,,,,

    Monty Python Run Away GIFs - Get the best GIF on GIPHY

    And Europe hasn't even realized we're in a sell-off yet.

      

    If China comes back from New Year's (2 weeks) and corrects to catch up to US, then Europe can't keep ignoring things over here (and there).

    Nikkei is already falling:

    Image

    3 billion people around the world have yet to receive a single #covid19 shot. Billions more have yet to receive a booster. It is in America’s interest to lead on ending vaccine inequity and empowering the world to vaccinate itself. None of us can leave the pandemic unilaterally.

    Kids say the darndest things….

    INFRASTRUCTURE!!!


  8. Phil / AAPL –  Last week I uncovered  my April 170 callers for a Nice profit….   I"m looking for a short term caller on this again  - covering 120X of a '24  120/180 BCS, coupled with 50X 115 Puts…   I think 180 will be very bouncy ( 3T)  but not sure if this is too high ( although very safe)   I"m thinking of Sept 190 Caller for $8.5 ish   or a April 180 Call for 4.xx.   would like your view on this.   t hanks, 




  9. Jeremy Siegel: Bear Market for Nasdaq; Correction for S&P

    There is no more Powell put that will keep the market from going down 20%. The Fed will not ease even if the market is down 15% or 20%. “That is not a crisis when you are facing 7% or 8% inflation,” he said.

    The Powell put strike price is around 30% or 40% below the market – much lower than most people think, Siegel said.



  10. Here's a nice chart from last week, where a TA guy said there was nothing to worry about in our strong, uptrending channel:

    Image

    And then here's what happened:

    That's why I hate TA – so silly!   

    We, on the other hand, were watching the bounce line fail and that let us know the channel was likely to fail.  Now that we're quite a bit lower – don't fall into the same trap – watch the bounce lines!  

    Quick take is 480 to 430 is 50 points so 10-point bounces to 440 (and you can see the weak bounce line is becoming upside resistance – which is not good) and 450 would be a strong bounce but it's already been too many days for anything but a strong bounce to be a positive signal.  Most likely we are consolidating for the next leg down.  

    Zooming out:

    /NG/Pman – Cold weather (surprise) is one factor but Russia is another as a Ukraine war could disrupt all sorts of supplies to Europe so what we had yesterday was panic buying in case supplies get short in Feb (the Jan contracts deliver in Feb) and now we have the rollover buying of the March delivery contracts that will trade during February as the front month.  We did that, we moved our Feb contracts to March as the end drew near, which is a shame as we would have made more on the Feb spike yesterday than we did on the March but too risky.

    Oil hit $88.84 this morning – I missed it – absolutely would have shorted that.  

        

    AAPL/Yodi – I don't know if I'd call them sheep.  At $2.6Tn ($166) AAPL is now making $100Bn a year and they have multiple new products coming out like payment systems (V, MA, AXP = $1Tn), VR (Meta is $1Tn), Auto System (another T), Autos (several T) and Apple TV is becoming a thing – 5th biggest subscription app in the World already.  So they are certainly not on sale but I'd be very careful shorting them.  The thing you have going for you is the sheer weight of inflows required to move that stock 10% – it's very unlikely to spike you out.  

    $140 would be irresistible to me and that's only down a bit more than 10% so AAPL is getting close to the point where I'm willing to put it back in the LTP.  We already sold 10 2023 $105 puts for $7 ($7,000) and they are, amazingly, still $7 – that's kind of ridiculous.  We may have to sell more.  The 2024 $140 puts are $16.75 – that's what I would sell now.  

    AAPL/Batman – Wow, that's a big spread.  The $115 puts are $9 so I'd keep my eye on the $140 puts at $16.75 as you commit to 30% more cost on half as many shares.  I'd also rather sell the 2023 $115s at $7 since you can sell them twice in the same time period for $14 vs $9.  As to the spread, the 2024 $120s are $60.50 and the $180s are $27.50 ($396,000) and I don't disagree with the target but the $140s are $47.50 so you can pocket $13 ($156,000) and still have a $40 spread at net $20 so $240,000 upside potential and $156,000 in pocket is very flexible.  I would then sell 30 (1/4) of the July $180s for $9.25 ($27,750) and now you have $183,750 to buy them back or adjust.  

    Why do I like July?  Because options expire in July on the 15th, which should be well ahead of earnings so you should get a good roll to September and you're collecting 10% of your spread (not counting the short puts) per Q with 6 more Qs to sell so it's a good, conservative position and you can always sell more if AAPL fails $160 and buy them back (or roll) if AAPL goes over $180 – so hard to imagine how you'd get hurt with the 25% cover. 

    EW/Batman – You put a /EW so I thought that was about the Futures.  I'll get to them.

    Siegel/Pstas – I agree, the Fed thinks the market is overbought and wants to see it come back a bit. 

    Nas up 240 at the moment, though….  


  11. Speaking of bounce lines:  

    • Dow 36,000 to 28,800 would be a 7,200-point drop with 1,440 bounces to 30,240 (weak) and 31,680 (strong).  We were below our predicted 33,120 mid-point at yesterday's lows.  
    • S&P 4,800 is 20% above 4,000 and that makes it an 800-point drop with 160-point bounces so 4,160 (weak) and 4,320 (strong) is where we are this morning (again).
    • Nasdaq is using 13,500 as the base and we bottomed yesterday at 13,706.  14,100 is the weak bounce and 14,700 is strong.  
    • Russell 1,600, would be about an 800-point drop with 160-point bounces to 1,780 (weak) and 1,960 (strong).

    Russell went red since yesterday.  Nas only just pulled out of 2nd red – hit 13,831 and, of course, that's halfway to the next key point at 13,500.


  12. Hopefully CAT falls a lot further.  Guidance was off due to supply chain issues but what kind of idiot sells CAT against a global infrastructure wave that's coming?  

    $198 is only $116Bn in market cap and this bad boy is dropping $6Bn to the bottom line so below 20x is not bad considering we should be heading into an up cycle but, historically, you're lucky if they are at 15x, which means they could fall 25% ($150) for no particular reason.  Split the baby at $175 and that makes selling the 2024 $175 calls for $23 (net $152) a nice play – but let's not catch the falling knife – just keep an eye on it.

    Man with knives for eyes - Drawception

    FDX has not come down much and that's because $240 is silly at $64Bn, since they are making $5.5Bn/yr.  They made $4.5Bn in 2018 so it's not a Covid fluke either. 

    In the LTP, we can sell 5 FDX 2024 $200 puts for $20 ($10,000) – that's a nice way to play for now.  


  13. What happened to 3M today? 


  14. Phil Sheep I look at them who are buying when the stock is running up 8 to 10 dollars. They should have bought the stock when it was 158 and not jumping on a running train. I did the same with BILL STX MSFT etc. Nice premium on the calls at the day of declaration. 


  15. Phil / AAPL –  thanks – On the $115 '23 puts are at $4.5 are you suggesting to wait for a pull back to sell these?  or is there another  strike like the Jan '23 130 cal that is a 7?  

     

    on the callers I'd be OK with July, Except  Has a pretty high spike from a seasonality standpoint ….. but I could look at closing early if profitable ( sort of what I di the quarter when AAPL fell with the market)  wait for earnings….  


  16. OK, seems 3M lost another earplug trial, and the jury ordered them to pay 110M in penalties. JPM is now out saying they could be liable for 10B to 1.5T (wtf?) (https://seekingalpha.com/news/3793163-3m-plunges-after-earplug-verdict-jp-morgan-sees-significant-liabilities). The JPM analyst is Tusa, the GE permabear (whom the market seems to follow)


  17. MMM/Rn – Good job noting the analyst!  heart  Yes, that's a shocking high-end number he's extrapolating.  I'm sure they'll end up paying just as much as XOM or JNJ did – $0.  MMM is trading at 16x earnings so SOME of the lawsuit is certainly baked in but not $1.5Tn.  They will just do what JNJ did – spin off the division into a separate company and bankrupt the company.   NOW is a good time to sell those puts we talked about last week.

    Sheep/Yodi – I was just watching CNBC for a half hour and I almost ran out and started buying stocks.  It was literally non-stop analysts and statements from the cheerleaders saying this is a great opportunity to get into the market before it takes off again.  They had studies and expert opinions, etc.   Once I snapped out of it I think more likely we should get the hell out!  

    "Hopelessly passing your time in the grassland away
    Only dimly aware of a certain unease in the air
    You better watch out
    There may be dogs about
    I've looked over Jordan, and I have seen
    Things are not what they seem
    What do you get for pretending the danger's not real
    Meek and obedient you follow the leader
    Down well trodden corridors into the valley of steel
    What a surprise
    The look of terminal shock in your eyes
    Now things are really what they seem
    No, this is no bad dream" – Sheep, Pink Floyd

    Never forget that CNBC is nothing but a propaganda network for the banks and brokers that sponsor them:  https://www.cc.com/video/uc9y5b/the-daily-show-with-jon-stewart-cnbc-financial-advice

    This is what they do in a sell-off, they steer the sheeple into buying whatever their Wall Street puppet masters are selling.  In this case – it's most of the market.

    AAPL/Batman – Sorry, I was looking at our original price.  The $130s are $7.10 at the moment and, since they can be rolled back to the 2024 $115s anyway, I don't see why you want to give the short putters 2 years instead of 1.   As to the Julys, just keep a tight stop on 1/2 and a loose stop on the other half and look ahead to Sept and Jan to see what you can roll to.  All the while, your longs go in the money.  Being uncovered is foolish – so you have to sell something. 


  18. Oil is crazy if you have the stomach for it:

    Pays off in both directions.

    Dollar turning into spitting cobra:

    /CD long seems sensible to me as high oil prices are good for Canada.  Their bank didn't tighten, but they will..  And, of course, the key is it's not likely they have further to fall.


  19. FIVE is getting interesting but another possible falling knife.  I don't think they have the same issue as the Dollar Store with inflation – they just have to change their product mix.  $155 is $8Bn, which is 26x, so not super-cheap but 15% annual growth shows no signs of slowing.  2024 $120 puts are $16 to net in at $104, which is another 1/3 off from here.  Let's sell 5 of those in the LTP for $8,000.  


  20. By the way, notice what we're doing during a sell-off.  We're selling some puts to put money in our pockets because we get great prices for them while the market is heading down.  There are always going to be stocks we want to buy if they get cheaper, so we make promises to buy some stocks.  If we do one a day for $5-10,000 and there's a month-long sell-off, that's $100,000+ in our pocket when things turn back up.  Again, if you have cash in the portfolio and plenty of margin – these things are no-brainers.  


  21. Yesterday's panic about T up to 25 again today, to be noticed.


  22. Of course we take that money and buy more hedges – as we did this morning.  That's how it goes, we hedge, then we take some longs, then we hedge, then some longs… wash, rinse, repeat until the market calms down and then decide which one you do last (bullish or bearish). 

    On Monday we went over the LTP puts and they were this:

    Now this:

    YETI took the biggest hit and we turned them into a full play.  IBM made a huge gain so, on the whole, not much damage from the sell-off, so far.  As I noted on Monday, the key is regular re-evaluations to make sure you don't have anything that might hurt more than you mind.  

    This is why people over-estimate the risk of put-selling.  You aren't on the hook for $105,000 because you sold 10 AAPL Sept $105 puts for $7.  Aside from the fact it would be net $98,000 – what are the chances AAPL will fall below $100 and the $105 puts have a delta of 0.11, so it would take a $10 drop for them to gain $1 and cost you $1,000 (the $115 puts are $7.50) so what's the risk really?  $2,000?  $3,000?  AAPL would have to drop 20% for us to get hit for $3,000.  Can it happen?  Anything can but, realistically, I would count my risk on this at no more than $14,000 – a 200% loss from the $7,000 we collected and THAT is what I allocate to my block for this trade.  

    Still, don't use that logic to short 100 stocks – if there's a 9/11-type sudden collapse – you can still get killed trying to unwind all those puts going bad at once.  In the $500,000 LTP, we generally sell 1 2-year put per month for $5,000-10,000 so we collect at least $60,000 per year promising to buy stocks.  So, generally, we don't carry more than 24 short puts at a time and when it gets over 30 I look to cut back.  We have had 40 because, at times like these when the VIX pops and stocks drop – I tend to sell more puts and then, if the VIX goes back down and the market goes up – there's just no reason to trim the positions.  But that's when we're lucky.  The good news is, sticking to this system means we get lucky on a fairly regular basis…

    T/Yodi – Damn, I was going to buy more!


  23.  

    this does not look good:

    Exclusive: Russia moves blood supplies near Ukraine, adding to U.S. concern

    WASHINGTON, Jan 28 (Reuters) – Russia's military buildup near Ukraine has expanded to include supplies of blood along with other medical materials that would allow it to treat casualties, in yet another key indicator of Moscow's military readiness, three U.S. officials tell Reuters.


  24. Comment content omitted because it is too long.


  25. No, not good.

    At least the rally didn't sell off but not too much of a rally.  

    PMI, ISM, Productivity and Non-Farm Payrolls next week.  Lots of earnings too.

    This is nice: 

    Welcome to Seeking Alpha's Catalyst Watch – a breakdown of some of next week's actionable events that stand out. Check out Saturday morning's regular Stocks to Watch article for a full list of events planned for the week or the Seeking Alpha earnings calendar for companies due to report.

    Monday – January 31

    • All week - Options trading volume has jumped on Hertz Group (NASDAQ:HTZ) and Oatly (NASDAQ:OTLY). Stocks generating strong interest on Reddit's WallStreetBets include Roblox (NYSE:RBLX) and Block (NYSE:SQ). On Stocktwits, AMD (NASDAQ:AMD) and Lucid Group (NASDAQ:LCID) are near the top of the buzz list. Short interest on electric vehicle stocks Blink Charging (NASDAQ:BLNK), Arcimoto (NASDAQ:FUV), Workhorse Group (NASDAQ:WKHS), Nikola (NASDAQ:NKLA), Romeo Power (NYSE:RMO) and Lordstown Motors (NASDAQ:RIDE) is still high.
    • All day - CITIC Capital Acquisition Corp. (NYSE:CCAC) shareholders will meet to vote on the SPAC deal to take lidar specialist Quanergy public. After Quanergy starts to trade, it will join Velodyne (NASDAQ:VLDR), Luminar Technologies (NASDAQ:LAZR), AEye (NASDAQ:LIDR), Ouster (NYSE:OUST), Innoviz Technologies (NASDAQ:INVZ) and Aeva Technologies (NYSE:AEVA) in the growing lidar sector.
    • 10:45 a.m. Ocuphire Pharma (NASDAQ:OCUP) will hold its Investor R&D Day 2022 event. Topics will include a review of previous Phase 2 and 3 readouts from 2021, status updates for ongoing clinical trials, a preview of expected 2022 catalysts including a potential NDA submission for the RM indication, and prospective commercial dynamics and competitive positioning of Nyxol in RM and presbyopia, and APX3330 in retinal diseases.
    • Postmarket - Cirrus Logic (NASDAQ:CRUS) is expected to see a 10% move after it reports earnings based on options trading. Harmonic (NASDAQ:HLIT) is anticipated to see a 14% swing. Harmonic jumped 13% after its last earnings report.

    Tuesday – February 1

    • All day - Chinese electric vehicle makers Nio (NYSE:NIO), XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are lined up to post their monthly deliveries update. The stocks have seen heavy selling pressure over the last few weeks. Morgan Stanley warns that the January numbers could be soft due to a normal slowdown in activity ahead of the Chinese New Year and COVID restrictions impacting part of the supply chain.
    • All day - The latest monthly gaming revenue report from Macau could impact casino stocks like Las Vegas Sands (NYSE:LVS), Melco Resorts & Entertainment (NASDAQ:MLCO) and Wynn Resorts (NASDAQ:WYNN) once again. The Chinese New Year holiday also begins, although tight border restrictions due to COVID cases is seen leaving just a little upside for gaming revenue compared to recent months.
    • All day - The two-day MicroStrategy World 2022 event will feature several keynote addresses and talks on the outlook for Bitcoin (BTC-USD). MicroStrategy (NASDAQ:MSTR) CEO Michael Saylor is hosting a Bitcoin for Corporations panel that will include Block (SQ) Jack Dorsey and Silvergate Capital's (NYSE:SI) Alan Lane. Tesla (NASDAQ:TSLA) will not have a representative at the event, but the company just reported no change to its Bitcoin balance sheet holding.
    • All day - Ivanhoe Capital Acquisition Corp. (NYSE:IVAN) shareholders will meet to approve the SPAC deal to take lithium-metal battery supplier SES Holdings public. Shareholders with Omnichannel Acquisition Corp. (NYSE:OCA) meet to vote on the SPAC deal with Kin Insurance.
    • All day - Analyst research opens up on Amylyx Pharmaceuticals (NASDAQ:AMLX), CinCor Pharma (NASDAQ:CINC), Hour Loop (NASDAQ:HOUR) and Vigil Neuroscience (NASDAQ:VIGL).
    • Postmarket - Companies due to report earnings with large share price swings implied by options trading include MicroStrategy (MSTR) with a 13% expected move and AMD (AMD) with a 10% anticipated move.

    Wednesday – February 2

    • All day - The OPEC and non-OPEC Ministerial Meeting will take place via videoconference. Analysts expect OPEC+ to stick to a plan to hike production 400,000 barrels a day in March. In December, OPEC+ nations only achieved about two-thirds of the expected increase due to shortages with Nigeria, Angola and Russia. Oil prices are poised for their sixth weekly gain ahead of the meeting. Brent crude futures (CO1:COM) stand at $90.24 per barrel and U.S. West Texas Intermediate crude futures (CL1:COM) are at $87.17 a barrel at last check.
    • All day - Athersys (NASDAQ:ATHX) is scheduled to present a program milestone update titled "MultiStem Clinical Programs: An In-Depth Look." Some analysts have circled the event as a potential share price catalyst.
    • All day - Shareholders with CyrusOne (NASDAQ:CONE) will vote on the KKR buyout on February 2 and NeoPhotonics Corporation (NYSE:NPTN) shareholders vote on the Lumentum (NASDAQ:LITE) acquisition.
    • 10:00 a.m. LendingTree (NASDAQ:TREE) will hold a virtual analyst and investor event with senior management scheduled to introduce the company's outlook for fiscal year 2022 and update the investment community on the business performance and key strategic priorities. Shares of TREE have rallied significantly in the past during similar events.
    • 10:30 a.m. ARK Invest's Cathie Wood is due to speak at a CBOE-hosted webcast titled "Invest with Impact: The Importance of Transparency in a Portfolio." The ARK Transparency ETF (BATS:CTRU) hit the market last month and includes top holdings in MaxLinear Inc. (NASDAQ:MXL), Teradyne Inc. (NASDAQ:TER), Nvidia (NASDAQ:NVDA), Tesla (TSLA) and HP Inc (NYSE:HPQ).
    • 11:00 a.m. A10 Networks (NYSE:ATEN) will hold an Investor Day event a day after reporting Q4 results. Management is scheduled to outline the company's long-term strategy.
    • 11:00 a.m. The U.S. House Committee on Transportation is on tap to conduct a hearing on "The Road Ahead for Automated Vehicles." The hearing could hold some interest for autonomous vehicle companies like Aurora Innovation (NASDAQ:AUR), TuSimple (NASDAQ:TSP), Cruise (NYSE:GM), Waymo (NASDAQ:GOOG) and Embark Technologies (NASDAQ:EMBK).

    Thursday – February 3

    • All day - SilverBox Engaged Merger Corp I (NASDAQ:SBEA) shareholders will meet to vote on the proposed business combination with Authentic Brands LLC in a SPAC Deal. Authentic Brands is the parent company of Black Rifle Coffee Company. The Black Rifle coffee brand has become popular in military, conservative and gun-rights circles and sells through top retailers like 7Eleven (OTCPK:SVNDF), Bass Pro Shops and Walmart (NYSE:WMT).
    • Premarket - Companies due to report earnings with large share price swings implied by options trading include Regis (NYSE:RGS) with a 30% expected move, Vista Outdoor (NYSE:VSTO) with a 14% anticipated swing and Penn National Gaming (NASDAQ:PENN) with a 13% expected move. All three stocks saw double-digit share prices moves after their last earnings report.
    • 8:30 a.m. InflaRx NV (NASDAQ:IFRX) will host a R&D event that will feature insight on the development of vilobelimab in Hidradenitis Suppurativa, including details on the study design and novel endpoint for the Phase III trial. Shares of InflaRx have soared in the past off positive vilobelimab data.
    • 8:30 a.m. Cigna (NYSE:CI) will hold its earnings call with traders watching for any information concerning the reports that the company reached out to Centene (NYSE:CNC) about a potential takeover. Centene has seen extra attention ever since activist Politan Capital Management took a stake in the company and is reported to have started to push for board changes.
    • 10:00 a.m. The Senate Committee on Banking, Housing and Urban Affairs will hold a confirmation hearing on Sarah Bloom Raskin to be Vice Chairman for Supervision and a member of Fed board of Governors. The Raskin pick has raised some pushback over her calls for federal regulators to transition financing away from the fossil fuel industry. The hearing will also cover the Fed board picks of Dr. Lisa DeNell Cook and Dr. Philip Nathan Jefferson.
    • 11:00 a.m. Texas Instruments (NASDAQ:TXN) will webcast a capital management update. Top execs will share TI's strategy to maximize long-term growth of free cash flow per share. They will also review TI's 2021 performance against its stated capital management metrics and discuss management's expectations for performance in the years ahead.

    Friday – February 4

    • 8:30 a.m. The January employment report is expected to show an increase of 178K jobs adds to fall back from the 199K jobs added in December. Bank of America is forecasting nonfarm payrolls will actually be down 150K in the month due to the short-term quarantine effect with hourly workers amid the surge of Omicron COVID variant cases.
    • 10:00 a.m. Gain Therapeutics (NASDAQ:GANX) will hold its R&D Day 2022 event. Shares of Gain Therapeutics are down 23% on a year-to-date basis.
    • 10:00 a.m. SomaLogic (NASDAQ:SLGC) will hold an analyst and investor meeting with presentations from company leaders outlining SomaLogic’s unique positioning in proteomics, financial profile, and plans for continued business evolution and growth as the company furthers its scientific and commercial progress.
    • 10:00 a.m. Needham will host an expert call on the home furnishings sector. The call will focus on recent trends in the home furnishings space both online and in brick & mortar. Read-throughs are anticipated for Wayfair (NYSE:W), Overstock.com (NASDAQ:OSTK), RH (NYSE:RH), Williams-Sonoma (NYSE:WSM), Arhaus (NASDAQ:ARHS), Amazon (NASDAQ:AMZN) and Walmart (WMT).

    • Visa (NYSE:V) Chairman and CEO Al Kelly says the company will "continue to lean into the crypto space," as crypto-linked payments gain interest, Kelly said at the Q1 earnings call.
    • Visa credentials and cryptocurrency wallets had more than $2.5B in payments volume in the first quarter of 2022, which is already 70% of the payments volume for all of fiscal Q1, Kelly highlighted.
    • Note that digital asset exchange Coinbase Global (NASDAQ:COIN), along with 65 other crypto platforms, have partnered to issue Visa credentials. More than 100 million vendors in the Visa network are also accepting Visa crypto payments, the company added.
    • Recall that Visa's Q1 payments volume grew 20% Y/Y, with cross-border volume up 40% and processed transactions up 21%.
    • Shares of V gap up about 9% intra-day. Its rival, Mastercard (NYSE:MA), which has also dipped its toes into crypto product offerings, jumps 8% following a strong Q4 earnings report on Thursday.
    • In the crypto world, bitcoin (BTC-USD +4.6%) extends gains to $37.2K and ethereum (ETH-USD +5.3%) jumps back to sub $2.5K.
    • Earlier this week, Visa declared a $0.375 dividend.


  26. Caterpillar (CAT -6.3%) is Friday's biggest loser on the Dow Jones index and sparking broad losses among machinery stocks, as the company's Q4 earnings beat is outweighed by higher costs that weighed on margins and will continue to do so into early 2022.

    Also lower: DOV -2.9%PH -2.8%IR -2.7%CMI -2.6%SWK -2.6%EMR -1.9%.

    A combination of higher freight costs, rising material costs and production inefficiencies related to supply chainconstraints caused Q4 operating margin to contract by 600 bps Y/Y to 11.7%, and Caterpillar sees those pressures persisting into Q1, causing a lower margin on a Q/Q basis.

    Higher manufacturing costs more than offset Caterpillar's price increases, which added $507M to Q4 operating profit while the increased costs reduced it by $816M.

    On the plus side, the company says additional pricing actions should offset manufacturing cost increases over the full year, leading to stronger margins in later quarters.

    Caterpillar also expects declining demand from China this year, driven mostly by a slowdown in the construction market, which could see benchmark sales of 10-ton and above excavators slump 10%-50%.

    Q4 earnings call presentation slides

    The Federal Aviation Administration and wireless companies have come to an agreement that will turn on more 5G towers, the latest development in a messy spat between the aviation sector and phone companies.

    "Through continued technical collaboration, the FAA, Verizon (VZ +2.2%), and AT&T (T +3.7%) have agreed on steps that will enable more aircraft to safely use key airports while also enabling more towers to deploy 5G service," the FAA says, praising the strong collaboration from wireless companies that offered more precise data on transmitter location and how signals interact with instruments.

    The FAA says it's determined it was possible to more precisely map the shape of affected areas, shrinking the spaces where carriers had deferred turning on towers – and that will enable carriers to safely turn on more towers.

    That's a "positive development" highlighting progress on the issue of ensuring better 5G service alongside safe flights, says Nick Ludlum of telecom trade group CTIA.

    Since the dispute began that eventually pushed AT&T and Verizon to delay offering some service on Jan. 19, the FAA has cleared most types of aircraft's radio altimeters for use around the signals.

    Along with moves higher at AT&T and Verizon, T-Mobile (NASDAQ:TMUS) is up 0.7% today, and Dish Network (NASDAQ:DISH) +0.1%.

    Even if the planned collapse in air travel didn't come to pass, the dispute still suspended a number of planned flights.

    The interest rate hikes that the Federal Reserve has indicated are coming soon equate to letting its "foot off the accelerator just a little bit," said Minneapolis Fed President Neel Kashkari in an interview with National Public Radio.

    The economy is fundamentally doing well now, said Kashkari, known as one of the more dovish members of the Fed. "But it's a little imbalanced right now and we need to bring it back into balance."

    The move is needed to slow demand a little to allow supply chains to catch up, he said. "We think a lot of the reasons that prices are high right now are temporary factors related to COVID… The hope is that as some of these supply chains sort themselves out, some of these price pressures will naturally relieve themselves, and that will mean the Federal Reserve will have to do less."

    When asked if the three 25-basis point rate hikes that most Fed members had penciled in to their economic projections is enough, Kashkari said, "we just don't know." The central bankers will have to monitor the data to see what happens with jobs and supply chains, he said.

    Previously, Kashkari was in favor of keeping rates at near zero for the rest of this year.

    On Wednesday, Fed Chair Jay Powell said there's "quite a bit of room" to raise rates"

    Chevron (NYSE:CVX) has been a star performer in the energy sector, reaching an all-time high earlier this week. That said, shares are lower by ~5% today as earnings and cash flow came in below market expectations. On the call, management provided additional detail on the "miss" and discussed key moving pieces for the business into 2022:

    • LNG was a source of fundamental and cosmetic headwinds this quarter as 1) management guided to higher LNG profits on the Q3 call, but under-delivered operationally on volumes, failing to sell spot cargoes at record prices in the quarter 2) ended the quarter with two cargoes on the water, and although these cargoes are to be sold at very high spot prices, they were marked for accounting purposes at lower, annual average prices.
    • Further bridging the cash flow gap, CEO Mike Wirth jumped in to remind Wall Street that during the downturn Chevron generated a number of net operating losses; those losses have shielded pre-tax income, but in a high commodity price environment, analysts need to assume tax shields will be used up quickly and cash taxes will rise.
    • On production, management sees Permian volumes up 10% YoY in 2022 on 50% higher spend and 50% higher well completions, they also hope for better uptime at Gorgon, and feel confident in improved results from Kazakhstan; the only item dragging the production forecasts lower is the Indonesian and Thai gas concession expirations.
    • Chevron sees oil prices (NYSEARCA:USO) falling back to "mid-cycle" levels; CEO Wirth indicated that "there's a lot of resource that can be produced economically at prices lower than we are seeing today" and that Chevron would manage the business for lower price levels.
    • Management saw around one week of impact to TCO production on the back of protests in Kazakhstan; however, the work force is now fully operational, relatively unimpacted by Omicron, and Chevron planning to deliver TCO expansion within guidance.

    Chevron is a good oil business operating in a favorable price environment; however, management is delivering a somewhat sober message. Operations are proceeding well, a few accounting headwinds will reverse in Q1, but oil prices will not sustain these levels, and cash tax payments will go up.

    Loup Ventures analyst Gene Munster praised Apple (NASDAQ:AAPL) for delivering stellar quarterly results despite a series of roadblocks, like supply chain tangles and a continued disruption from COVID.

    "They just crushed it and I'll remember this [quarter]," the Loup Ventures founder and managing partner told CNBC on Friday.

    He added: "I've seen a lot of Apple quarters. I've seen many impressive, countless impressive quarters. They all just blur together on some level. There is a recency bias I want to try to guard against when I say this, but this was a particularly memorable quarter."

    Apple (AAPL) jumped nearly 6% in Friday's intraday trading after reporting quarterly earnings that easily beat expectations, despite supply limitations.

    Calling the issues faced by the company "multi-layered," Munster estimated that AAPL would have expanded its revenue by 18% if supply chain bottlenecks hadn't existed, rather than the 11% growth it posted during the quarter.

    The Loup Ventures founder also estimated that in a different market, AAPL would see its stock pop 10% on its earnings beat. However, worries about the Federal Reserve raising interest rates have suppressed the appetite for tech stocks, leading to more condensed valuations.

    For a different perspective on AAPL, check out a bearish take from SA contributor Stone Fox Capital, who thinks the current COVID boom for its sales "ultimately ends in tears."


  27. Looks like we're heading into a good finish which means next week is now "wait and see" but I do feel better with the extra DIA hedge into the weeked.

    Have a great weekend, 

    - Phil