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Testy Tuesday – Nasdaq Fails 4,700 and Moves Lower

Down we go again!

It's important to have some perspective when contemplating the future so here is the Nasdaq's chart for the 21st Century, so far.  I'm sure it's not how you remember it because of something called a recency bias and it's hard to imagine, after going up from 2,500 to 16,500 (560%) in the past 10 years, that the Nasdaq has done anything else in the past 20 years but, other than another silly 400% run we had from 1997 to 2000, we were essentially flat for the first 10 years.   

ImageTo some extent, "this time is different" – that's what they said last time as well but now, as it was in 1999, what we can say for sure is there is no evidence in Corporate Profits that shows us that 15,000, let alone 16,500, is justified for the components of the Nasdaq.  In fact, earnings in Q1 have been a bit of a disappointment and, more Nasdaq companies benefit from Covid (stay at home, work remotely, cure infections, deliver stuff) than suffer from it (supply chain issues, less retail shopping).   This is their time to shine! 

Guidance, as you can see, is also a big problem, with Corporate Guidance now coming in at the worst since warning signs were flashing in 2008, ahead of a 66.6% correction.  As you have been seeing this season, notably with FaceBook – investors seem to have little tolerance for any company that is misstepping in either earnings or guidance – not at these lofty levels…

So, please turn your attention to the MACD line at the base of the Nasdaq chart.  This is a very common technical signal and it utilizes moving averages, which is the one TA thing I actually believe in.  Notice on the monthly chart, that we have only just begun to cross under the red line and even the relatively mild pullback of 2018/19 was 20%, which would take the Nasdaq from 16,500 to 13,200 – which is what we do expect to happen this month.

ImageWe are also letting a lot of things slide that won't be able to slide anymore like 20% of US Public Companies now pay more for their debt service than they make in profits.  That's up from 5% the last time our economy collapsed and this time is different as rates are starting at 0%, meaning these guys can borrow at 3% but it also means if the Fed ever raises rates back to 3% – it will wipe out ALL of the profits of 20% of the market (and take a big bite out of the rest).  

I don't know how many times the Fed can tell us that is exactly what they intend to do and how many times traders are going to ignore it – probably until after it happens and then they will wonder why no one saw it coming – as usual…

ImageOn the bright side, S&P 500 Earnings are up a solid 20% from where they were pre-pandemic with 66.6% of the companies reporting.  Certainly then, the S&P 500 should be up 20% from where it was pre-pandemic and yes, I agree, it would be justified if we were to be at 4,080 (up from 3,400).  Unfortunately, we are at 4,468 AFTER falling from 4,818 so, like the Nasdaq, the S&P has another 10% left to drop to get back to reality.  

The Russell 2000 has already fallen 20%, from 2,400 to 1,920 is exactly 20% and that's 480 points but we'll call it 500 at 1,900 and call the bounces 100 points which makes 2,000 the weak bounce line and 2,100 the strong bounce line.   This morning, as we have for two weeks, we are flirting with that 2,000 line but I fear we're consolidating for a move down – not a recovery:

If the Russell can't recover from its 20% drop, don't expect the other indexes to do any better.  Since the net trend of earnings has been punishing for companies so far, with 1/3 left to report we can assume another 1/3 lower on the indexes until they finally stop telling people how badly things are going.  THEN it will be time for the Fed to hike.  See – fun days ahead! 

ImageOf course the Government could still pass a stimulus bill to save us but, at the moment, they couldn't pass a bill agreeing which way down was and that was something analysts were not predicting for 2022.  

That's why the Fed's initial estimate of Q1 2022 GDP is way down at 0.25%, several miles below that of leading Economorons, who have yet to get around to revising their stimulus-expecting forecasts from last year and are still looking for 2.75% growth.  We won't even get our 2nd estimate of Q4's GDP from the Government until Thursday the 24th so it will be April before we officially put a stake in the heart of Q1 estimates but the smart money is already getting out – as it takes a very long time to unwind bullish positions in a low-volume market – keep that in mind!

With the Nasdaq back below 4,700, we are back to watching our 20% correction bounce chart.  These bottoms are our estimates – we haven't hit them – yet:

  • 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).
  • 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).
  • Nasdaq is using 13,500 as the base and we bottomed 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).

 


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  1. Good Morning!


  2. Phil/Market – What supports that enormous run for the last ten years after stimulus and low rates are removed? It doesn't add up that a 20% correction is enough to account for that unless the economy booms.


  3. Good morning! 

    The good news is I still don't want to cash out of the portfolios.  I was considering it again but I think we are well-hedged enough to get through things and I think our holdings are exactly the kind you need in what is bound to be a stock-picker's market for 2022 – where we'll be lucky if we end up where we started on the indexes.  

    We have potential war with Russia keeping oil prices up – along with OPEC talking up demand every chance they get.  That causes traders to take on too many long positions and we may be in for a nasty unwind (like last spring) if all these bullish premises begin to fall apart.  That, in turn, could take down the energy sector, which has been leading the S&P in Q4 and Q1.  

    That's up 40% from $50 in the summer!  

    I certainly like those FB 2024 $200 puts (still $30) as a bullish offset to a hedge.  Selling 5 raises $15,000 which should get you well over $50,000 of downside protection on an SQQQ spread.  

    AAPL is the reason I'm not more bearish.  It's 20% of the Nasdaq and not likely to fall much and it's 3.5% of the S&P as well AND it's a Dow component – hard to kill the indexes when AAPL is the top-weighted stock in 3 of the 4 majors. 

    Actually, there's one more major index and that, too, is looking s-t-r-e-t-c-h-e-d – the NYSE:

    Same issue with the MACD except we haven't even made the cross yet but, more importantly, do you see any other places were we run up into alternating red candles and it DOESN'T lead to a large correction?

    Be careful, be careful, be careful is all I am saying…

    They played the Dollar card already and that hasn't really helped the indexes too much (I guess it saved them from heading even lower):

    Bonds aren't done falling apart yet – and we have auctions this week.

    20%/Seer – I'm hanging my hat on the S&P 500 being able to keep churning out earnings at a $180 annual rate (after a $50 Q4), which is up 20% from 2019.  More so because of inflation than because of anything they have done right but we're looking at a good 20-30% inflation from 2020 to 2025 and stocks are priced in Dollars and earnings are recorded in Dollars so Dollar weakness drives both factors higher overall.

    I also think that a 20% correction will finally get Congress to agree to add stimulus as the GOP can't risk being the clear cause of an economic collapse into a critical November election so that should put a floor under us for 2022.  After that, with the Fed tightening and a possible Republican Congress coming into a certain to be contested 2024 election (no matter who runs) and I think I'll be booking a flight to Mars.

    "And Jesus, he wants to go to Venus

    Leave Levon far behind

    Take a balloon and go sailing

    While Levon, Levon slowly dies" – Sir Elton John


  4. Phil-what are your thoughts on the housing market? I have a lot I'd like to unload (again) BUT am unsure if it's best to wait. IF inflation persists will it be wiser to wait, or if interest rates are still low better to sell . Anyways, there is no shortage of housing available in this country it seems, it just is at nose bleed prices. Personally 2-400 per sq ft is ridiculous, but if inflation keeps persisting, which I doubt, if there is a stock market rout, which I and you  expect at some point it seems best to cut and run. I did a quick check via Z and there are thousands of homes available nationwide, but not much left up here. We are actually getting Californians moving here! Of course our prices are affordable compared to theirs. TIA!


  5. Cali/Pirate  Prices are a bit nutty in the zip code Pharm and I used to live…..

    https://nsdcar.stats.10kresearch.com/docs/lmu/x/92011-Carlsbad?src=map


  6. pirate,  I'd list the lot when things thaw out up there to catch the summer buyers.  If you get a contract, then you have options.  Prior to having a an offer, you are just guessing.  You might find the market is stronger ( or weaker ) than you are thinking.  Also, your lot is different than the next, so you cant always tell.   Ive bought and sold a lot of real estate and have figured out that when you want to sell is not always when the next guy wants to buy. 







  7. Housing/Pirate – Well depends on where, etc but, assuming it's easy to sell, I think prices have more to rise.  Someone was just projecting 16% in 2022 for real estate, crazy as that may be.  I'd say see how the first rate hike goes but, if that gets a bad reaction – there's a lot more behind it, so that would be time to get out.  It's cute how you think $200-400/foot is a lot of money!   NYC is $1,400/sqft, Boston is $760,  It's about $500 down here on the Florida coast but probably more in Miami.  Everything seems cheap to us in the rest of the country.

    California/1020 – Also nuts. 

    Stock makes a good point.  If your lot is $500,000 now and you HOPE to get $550,000 by waiting – why not just ask for $550,000 now and see if you get a good offer?  Same as selling options…

    Getting some bouncy action in the last hour.  This is why it's hard to let go of the longs – we keep recovering.

       

    Oil came way down:

        

    ARKK -0.10%Feb. 08, 2022 10:26 AM ET

    As the U.S. 10-Year Treasury yield continues to rise, now approaching 2%, the action has placed added pressure on technology exchange traded funds.

    Traditionally as bond yields rise, they typically add pressure to high-growth exchange traded funds and stocks as higher rates mark down the current value of future profits. Therefore, high valuation technology names have a habit of hurting more than value stocks when yields rise.

    On Tuesday, the 10-Year yield is up five basis points to 1.96%, its highest level since Nov. of 2019.

    Not coincidently, the prospect for higher rates has come at the same time that tech-related funds have experienced a severe downturn. Year-to-date, the tech sector finds itself -9%, and the Nasdaq Composite (COMP.IND) is -10.9% due in part to the 10-Year yield rising 43 basis points or +28.3% over the same period of time.

    See below a YTD chart of the Nasdaq and its relationship to the 10-Year.

    Yields are approaching 2%, and ETFs like ARK Innovation ETF (NYSEARCA:ARKK), Invesco DWA Technology Momentum ETF (NASDAQ:PTF), BlackRock Future Tech ETF (NYSEARCA:BTEK), BlackRock Future Innovators ETF (NYSEARCA:BFTR) and the Next Frontier Internet & Ecommerce ETF (NYSEARCA:FMQQ) have all felt the squeeze.

    Large-scale benchmark tech sector funds have also found themselves in hot water, trading well into the red in 2022. Two examples are the Technology Select Sector SPDR ETF (NYSEARCA:XLK) and Invesco QQQ ETF (NASDAQ:QQQ).

    YTD Price action: ARKK -23.4%, PTF -16.6%, BTEK -21.2%, BFTR -19.5%, FMQQ -17.9%, XLK -8.8%, and QQQ -10.7%.

    On the day, major averages trade mixed with yields climbing.

    BTC-USD -0.53%Feb. 08, 2022 10:04 AM ET3 Comments

    • Amid repeated warnings from regulators on the growth of cryptocurrencies, the Central Bank of Ireland will not allow retail investment funds to hold volatile digital assets, Bloomberg reported.
    • “There are too many unanswered questions around things like custody, and money laundering, and even just volatility and liquidity,” the central bank's Director of Securities and Market Supervision, Patricia Dunne told Bloomberg in an interview.
    • Recall at the beginning of February when India said it wanted to impose a whopping 30% tax on income from digital assets and non-fungible tokens.
    • Additionally, Dunne raised concerns over special purpose acquisition companies regarding issues around transparency and complexity for retail investors. As a result, the regulator has limited investments in SPACs to a maximum of 10% of the net asset value for retail investment funds, Bloomberg noted.
    • In the crypto world, bitcoin (BTC-USD -1.3%) and ethereum (ETH-USD -2.2%) traded slightly lower in the past 24 hours.
    • Earlier this week, the New York Federal Reserve made a case against stablecoins.

    Feb. 08, 2022 11:13 AM ET4 Comments

    Treasury Undersecretary for Domestic Finance Nellie Liang on Tuesday said technology firms should not issue stablecoins, or digital currencies that are pegged to sovereign currencies.

    "We believe stablecoins as a payments instrument should not be issued by a technology firm," she told lawmakers during a virtual hearing regarding the President's Working Group on Financial Markets' report on stablecoins. This comes shortly after Meta Platforms' (NASDAQ:FB) Diem, a blockchain-based stablecoin payment system, sold its assets to crypto bank Silvergate Capital (NYSE:SI) for $182M at the end of January.

    Remember the President's Working Group in October said stablecoin issuers should be regulated as traditional depository institutions. Currently, stablecoins such as, Tether (USDT-USD) and USD Coin (USDC-USD), don't have an agreed-upon regulatory framework to function as a payments vehicle. Moreover, "the regulatory frameworks that apply to stablecoin issuers and service providers are inconsistent, creating opportunities for regulatory arbitrage and uncertainty among stablecoin users," according to Liang's written testimony.

    Meanwhile, stablecoins "could potentially reduce the cost of payments," and yet there's "far too many cases of cryptocurrency fraud," Liang said.

    On Monday, the New York Federal Reserve said stablecoins are unlikely to become the future of payments.

    BKKT -3.45%Feb. 08, 2022 11:01 AM ET

    • Bitcoin (BTC-USD) takes a breather from its 23% rally since Jan. 22, with the world's largest cryptocurrency by market cap slipping 0.7% in the past 24 hours to ~$43.3K.
    • On Monday, bitcoin (BTC-USD) touched as high as $44.4K, with commentators naming $45K as its next resistance level.
    • Along with bitcoin's (BTC-USD) action, many crypto-linked names slide even more — Bakkt (BKKT -3.6%), Marathon Digital (MARA -1.0%), Bitfarms (BITF -0.8%), SOS Ltd (SOS -3.6%), BIT Mining (BTCM -3.1%), Coinbase (COIN -0.7%), and Galaxy Digital (OTCPK:BRPHF -2.7%). A few names manage to rise — MicroStrategy (MSTR +0.8%), Silvergate Capital (SI +2.9%), Bit Digital (BTBT +4.5%).
    • "Today's pullback is due to some profit-taking after a big move," as some traders take short-term profits, Matt Maley, chief market strategist at Miller Tabak told Bloomberg News.
    • Analysts have also been observing cryptocurrencies tracking with riskier assets, including U.S. stocks.
    • "Much like U.S. equities, BTC’s price performance lapsed into negative territory in the month of Jan. as risk-on assets sold off following the hawkish shift from the Fed and continued Omicron fears," crypto exchange Kraken said in a report it recently issued.
    • Note that the among a portfolio of crypto-related stocks, the SA Quant rating flags four of them for potential to perform poorly — Bakkt (NYSE:BKKT), Bit Digital (NASDAQ:BTBT), Riot Blockchain (RIOT -0.5%), and MicroStrategy (NASDAQ:MSTR).
    •  


  8. ABNB +1.05%Feb. 08, 2022 9:43 AM ET

    BTIG cut its rating on Airbnb (NASDAQ:ABNB) to a Neutral rating after having it slotted at Buy.

    The firm pointed to concerns over consensus expectations and the sustainability of the trading multiple if growth is slowing.

    In particular, analyst Jake Fuller and team noted ABNB has seen a much smaller Omicron impact than the other online travel stocks, but still see downside with the Q4 of 2021 and Q1 of 2022 consensus numbers amid aggressive post-Omicron expectations.

    The main concern with ABNB cited was the post-Omicron outlook and what BTIG see as an aggressive consensus with Q2 of this year a potential flashpoint.

    "We expect room night growth to slow to +13% y/y (+12% vs. 2019) on a hard comp and look for ADR to be -10% y/y (+25% vs. 2019) with geographic mix shift, getting us to single-digit bookings growth at +2% y/y (+16% vs. 2019) for 2Q22. Consensus has room nights at +31% y/y (+30% vs. 2019) and bookings +13% y/y (+54% vs. 2019). To go from below 2019 room nights in 1Q22 to 30% above in 2Q22 would require a bigger q/q gain in room nights than we have seen at any point in the recovery."

    The firm pulled its price target of $190 on Airbnb (ABNB) but called out a fair value of $73 to $150. See the advanced trading chart on Airbnb.

    NCLH +3.26%Feb. 08, 2022 9:28 AM ET

    Norwegian Cruise Line Holdings (NYSE:NCLH) has provided business update with expectation to report net loss until the company resumes regular voyages.

    The spread of Omicron variant has dented the company's relaunch of cruise voyages during Q4 2021 and Q1 2022 relating to the new travel restrictions and increased protocols. However, the cruise operator expects to have positive Adjusted Net Income for H2 2022 with the full fleet expected to be back in operation during the early part of the period.

    Capacity: As of the date hereof, 16 of 28 ships, or 70% of Norwegian's berth capacity, are operating with guests on board. This excludes a vessel which was paused from service beginning December 2021 due to the cancellation of its South Africa and related itineraries as a result of travel restrictions.

    The company expects to have about 85% of berth capacity operating by the end of the Q1 2022.

    Booking Volumes: Q4 2021 started off on positive note with sequential weekly growth in booking volumes but got a hit in second half of the quarter due to Delta variant of COVID-19.

    In recent weeks, net booking volumes have reportedly continued to improve sequentially. "Booking trends for 2023 demonstrate continued strong demand for sailings in the medium and longer term with booked position and pricing meaningfully higher and at record levels when compared to 2019," report.

    Cash Burn and Liquidity: Monthly average cash burn for Q4 2021 was approximately $345M, slightly below the company's prior estimate of $350M.

    In November, Norwegian issued $1.15B aggregate principal amount of 1.125% Exchangeable Senior Notes due 2027 and repurchased $715.9M aggregate principal amount of its 6.00% Exchangeable Senior Notes due 2024 for approximately $1.4B.

    Stock is up 3% in premarket trading.

    Also Read: Royal Caribbean is Stifel's top leisure pick for 2022 as it goes 'all in' on cruise lines

    AA +10.46%Feb. 08, 2022 8:58 AM ET

    Alcoa (NYSE:AA) +3.1% pre-market as aluminum prices rise near October's 13-year high, helped by investor concerns over tight supply and falling inventories.

    According to Reuters, benchmark aluminum on the London Metal Exchange (LMAHDS03:COM) recently was +1.9% at $3,192.50/metric ton; prices rose as high as $3,229/mt in October, which was the highest since 2008.

    Aluminum is leading gains in the base metals complex so far this year, up ~13%, partly owing to China, which produces more than half the world's supply and has restricted production to reduce pollution.

    The threat of sanctions against Russia if it attacks Ukraine also has ratcheted up supply concerns, since Russia is a major aluminum producer.

    Stockpiles in LME-registered warehouses have sunk to the lowest since 2007 at 767.7K metric tons, down from nearly 2M mt last March.

    Concern about supply on the LME spiked the cash metal's premium over the three-month contract to $40/mt, its highest since July 2018.Other potentially relevant tickers include [CENXACH, [ARNC]], CSTMKALUJJU

    Goldman Sachs commodities maven Jeff Currie this week named aluminum among the markets that are "incredibly tight from a physical perspective."

    RAIL +6.95%Feb. 08, 2022 8:48 AM ET7 Comments

    • FreightCar America (NASDAQ:RAIL) has provided business update and outlook for the next year ahead of its special call with investors scheduled for later in the day.
    • The company records its first positive Adjusted EBITDA in Q4 2021 at the Castaños facility with total railcar deliveries up 130% Y/Y for the year.
    • During the quarter, FreightCar completed its transition of railcar manufacturing operations to Castaños, Mexico, making it the only railcar manufacturer serving the North American markets with production exclusively in Mexico.
    • Booked 1,032 new railcar orders.
    • Annual fixed cost savings of approximately $20M.
    • The company ended the quarter with $26.2M in total cash and liquidity of over $40M.
    • FY 2022 Outlook: FreightCar targets to achieve 2,350 – 2,650 railcars deliveries during the next year, an increase of over 44% Y/Y at the midpoint.
    • To stay Adjusted EBITDA positive.
    • Complete construction of additional production lines, doubling annual capacity to between 4,000 – 5,000 railcars by early 2023.
    • Also, the company aims to add operational efficiencies through expansion scheduled for completion by mid of this year.
    • "2022 will be the first year for which our operations and results will not be obscured by restructuring activities. As such, we believe that our performance this year will provide more clarity on the full potential of FreightCar America," said President and CEO Jim Meyer.
    • The company has scheduled its fourth quarter and full year 2021 results to be released on March 22, 2022.
    • Stock is up 2% in premarket trading.
    • This FreightCar's investor call event was flagged in this week's Seeking Alpha Catalyst Watch; see what's coming next this week.

    I like RAIL – I think there's a lot of growth potential there.  

    Thinly traded options but it looks like you can sell 2024 $5 puts for $2.50 to net $2.50 so you make 100% even in an IRA for promising to buy them for a 37.5% discount to the current price.   Seems very reasonable.  They don't make any money but don't lose much either and only $265M in sales and only $60M valuation means ANY profits going forward will make a huge difference.   I say let's sell 40 of the 2024 $5 puts for $2.50 in the LTP and that's a nice $10,000 and worst case is we own 4,000 shares for net $10,000 – nothing wrong with either outcome there! 


  9. Back to 14,700 already. 

    Feb. 08, 2022 8:46 AM ET22 Comments

    There could be some drama next week with the FTC expected to make a decision late in the week on the antitrust case over Altria Group (NYSE:MO) and Juul (JUUL).

    Morgan Stanley said it expects the FTC rules that Altria (MO) will have to divest its stake. A negative early share price reaction is expected, although the outcome is called favorable for MO's strategic and financial options.

    Analyst Pamela Kaufman: "We see little downside to MO from an adverse FTC ruling. First, MO would appeal the decision, which could result in a multiyear legal process (first with the full Commission and then US Court of Appeals). MO would be able to retain its stake in JUUL during this process. Second, JUUL's impaired valuation (worth $1.7 bn as of 4Q21, down from $12.8 bn) underscores JUUL's tempered growth prospects. Third, continuing the legal process leaves open the possibility that the companies can reach a favorable settlement."

    Even if Altria (MO) does not contest the FTC decision and sells its stake in JUUL, Kaufman and team said it would benefit from crystallizing its loss on the original investment and could apply the tax shield to offset capital gains.

    Morgan Stanley has an Equal-weight rating on MO and price target of $51.

    Wall Street ratings scorecard on Altria Group: 6 Buy-equivalent rating, 12 Hold-equivalent ratings and 0 Sell-equivalent ratings.

    Decliners

    After a long struggle with regulators, a deal for Nvidia (NVDA) to acquire Arm from Softbank has been terminated. The news sent NVDA falling nearly 2% in pre-market trading.

    The cash-and-stock deal was valued at $40B when it was announced in September 2020, although with NVDA's massive rise in stock value, it would now carry a value of $80B. Arm is now expected to pursue an IPO.

    In other news, Pfizer (PFE) reported a quarterly profit that topped expectations. However, its revenue figure fell short of projections, despite more than doubling from last year, bolstered by sales of its COVID vaccine.

    PFE also gave a disappointing forecast for 2022. The firm predicted revenues of $98B-$102B, compared to analysts' consensus of about $104B. Weighed down by the guidance figures, PFE retreated nearly 4% in pre-market trading.

    An analyst's downgrade put pressure on shares of General Motors (GM). The stock retreated nearly 5% before the opening bell, as Morgan Stanley cut its rating to Equal-weight from Overweight. The firm cited GM's disappointing guidance released last week.

     

    AAPL +1.32%Feb. 08, 2022 7:30 AM ET13 Comments

    • Apple (NASDAQ:AAPL) has acquired a London-based startup known as AI Music to help generate customized music, Bloomberg reports.
    • According to the news outlet, Apple could use the technology to help with its current music offerings, including Apple Music, HomePod or Apple Fitness+.
    • Bloomberg added that the timing of the deal happened in the past few weeks, as the company has pulled its social media accounts, save for LinkedIn, since the early part of January.
    • Apple did not immediately respond to a request for comment from Seeking Alpha.
    • Over the weekend, Wedbush Securities said Apple (AAPL) should buy Peloton, with analyst Dan Ives reasoning that such a deal would be a major strategic coup, as well as catalyze the company's aggressive health and fitness initiatives over the coming years.

    GM -3.69%Feb. 08, 2022 7:07 AM ET32 Comments

    Morgan Stanley dropped its rating on General Motors Company (NYSE:GM) to Equal-weight from Overweight in a ratings cut that is in reaction to the guidance issued by the automaker last week. The firm noted that the automaker's outlook was materially lower than anticipated due to cost creep and deteriorating product mix.

    Morgan Stanley warned on rising execution risk on an absolute and relative basis for GM's plans for EV industrialization and has an increased level of concern on competition in China.

    Analyst Adam Jonas: "We have also re-evaluated GM as a SOTP story and this has led us to change the valuation methodology for GM from SOTP to DCF(resulting in $10 cut to our PT). We now expect GM to remain one holistic company for at least the next 12-18 months as management builds out its EV, AV and connected car capabilities. We still harbor concerns around the legacy OEM's shift from ICE to electrification, which we have modeled via forecasting GM to be a smaller company going forward (-2% revenue CAGR to 2030)."

    Jonas and team assigned a new base case price target of $55 to GM vs. $75 prior, while the bull case PT was cut to $90 from $120 and the bear case PT was lowered to $30 from $32.

    Shares of General Motors (GMfell 4.59% premarket on Tuesday to $48.38.

    See all the valuation metrics on GM.


  10. RAIL – What's the point of selling an ITM Put expiring in 2024? For a non-IRA account, aren't you better off buying the stock and selling the OTM call? The margin requirements are the same (even in my PM account), and if it is called away, it is long-term capital gains, rather than the short term capital gains the short puts will be subject to.


  11. U.S. Trade Deficit Hit Record Level in 2021



  12. Pharm, is KPTI kind of maxed out for now or are they still a decent hold at these levels? I started picking up some RETA. Thank you as always! 


  13. RAIL/Rn – It's not about in or out of the money, it's about the net cost of the stock.  I think it's very fair to assume the stock will go up 25% to $5 and we'll make all of the $2.50 we sold.  Even flat at $4, we make $1.50 and we could sell the $2.50 puts for $1 but I have more confidence than that and net $2.50 is a fine price to be assigned for.  I don't think you can get $2.50 for the $5 calls, more like $1.50, which would net you in at $3.50 so more margin than just the short puts (and it's virtually no margin at all in a PM account).  The chance of being assigned short $5 puts with $1.50 in premium on them is infinitesimal, but, if they want to cancel the short put contract (leaving $2.50 in my pocket) and force me to buy the stock for $4, which I then sell for $4 – I still make my $2.50 early and, boo hoo, I pay 20% tax on my profits but I can make another $2.50 next year and pay taxes on those too.  

    Tax avoidance should not be profit avoidance….


  14. May I mention AMGN as a shining star today up nearly 20$


  15. AMGN/Yodi – Very impressive.  

    STP not taking any damage so far as we did flip a bit more bullish last week.  As long as 14,700 is not holding on the Nas though, we still have to expect to need these hedges!  

    • SQQQ – We have a $200,000 2023 spread with 24 short calls.  When the June $37s resolve themselves, we'll roll the Jan $37s to something shorter-term.  
    • TZA – Messy now but we have 50 open Jan $20s so 200/150 there and 400/400 in 2024 and the covers are all calls (no puts): 150 of the Jan $50s and 50 2024 $40s and 50 April $40s.  The 2024 $50s will be rolled to shorter-term whatevers once the April $40s expire (assuming they do) so we'll pretend that plan will work over 2 years and that means we have 100 uncovered Jan $50s but they are covered by $900,000 worth of covered calls that would be in the money before we have to pay them so I think we'll be fine as it stands.  As I said before, I think the RUT has taken most of it's damage (assuming Covid is ending) - it's the other indexes I'm expecting to correct more.

    Seems fine to me.  We have plenty of protection but also just enough short puts that I'm worried we're over-covered so we shouldn't fear a rally (in fact, that's why we're not taking damage this week) but we need to remember to stop out our short ultra-calls if it does look like the Nasdaq or Russell are breaking lower.  


  16. Phil / 20%
    how are you paying 20% tax on short term gains ? do you pay less taxes on short term gains if your a professional investor ? or what's the trick  :) always looking to reduce taxes !


  17. PHil-1020-stock- Thanks for your info. Yes I know that doesn't sound much, the sq footage costs to you, but I know about about construction costs and yes  I am definately NOT comparing my area with any megapolis'es ie NY, Boston, Miami, Calif. This area is strange as so many buyer's are local. Families with lakefront, or farms turning them over to family members then finding somewhere close to move to. My neighbor across the street has mentioned interest in the farm, but the Lake Superior waterfront is the wild card. Anyways, because I listened to PHil I sold out most of my Fla holdings at the top "of the wave" and knew what was going to come after since I was in the business and agreed. With inflation roaring I am not sure now about where the top of the wave is! But there is plenty of inventory. My nephew sold his San Ramon place in Calif after trying off and on for 4 years, but didn't wait long enough. His neighbor sold their smaller home 6 months later for a half million more than he had got! California is like the lottery. But being close to Silicon Valley helps. Get got that feeling that the bottom is going fall out AGAIN just how soon is the ? I  have too much property to manage right now for sure. Thanks for all the info!


  18. Failure at 14,700 is the only story that matters on today's rally.  

    Still red on the higher chart otherwise:

    • Dow  36,000 to 34,200 has bounce lines of 34,560 (weak) and 34,920 (strong) 
    • S&P 4,700 to 4,465 has bounce lines of 4,512 (weak) and 4,559 (strong) 
    • Nasdaq 16,500 to 15,675 has bounce lines of 15,840 (weak) and 16,005 (strong) 
    • Russell 2,400 to 2,080 has bounce lines of 2,144 (weak) and 2,208 (strong)

       

    SP500 +0.50%Feb. 08, 2022 2:36 PM ET14 Comments

    The stock market is off its highs but still firmly higher.

    The Dow (DJI) +0.8% now leads the major averages thanks to a big price jump in Amgen. The Nasdaq (COMP.IND) +0.6% leads the S&P 500 (SP500) +0.4%.

    By sector, Basic Materials (XLB +1.2%), Industrials (XLI +0.8%) and Financials (XLF +1.1%) lead the markets, while Energy (XLE -2.1%) and Real Estate (XLRE -0.8%) are the big decliners.

    The 10-year Treasury yield continues its march towards 2%, up 4 basis points to 1.96%, topping the closing high of December 2019. The 2-year yield is up 4 basis points to 1.33%.

    "Even if we’re a long way from crisis territory, the coming months will be fascinating in terms of just how far central banks are able to go when it comes to tackling inflation, and investors are getting more confident that we’re set to see plenty of hikes from global central banks over the coming months," Deutsche Bank's Jim Reid wrote. "Indeed, even if the Fed hikes in line with what futures are pricing (5 hikes in 2022) and doesn’t move to go faster, 125bps worth of hikes in a calendar year would still be the most we’ve seen since 2005, so a completely different playbook to the last cycle."

    See the stocks making the biggest moves this afternoon.

    /NG is getting interesting again.  $4 is a good spot to go long (tight stops below).

    BA +0.13%Feb. 08, 2022 2:58 PM ET

    Boeing (BA -0.1%) announced 75 additional net new jet orders in January, boosted by both the launch of its new 777 freighter, but 32 deliveries marked a three-month low after handing over 38 jets in December and 34 in November.

    The company delivered 27 737 MAX jets in January and three widebody aircraft, including a 777 freighter.

    A Qatar Airways order for the 777 added a net increase of 14 orders for the new freighter, after subtracting 20 orders for the passenger version that the airline converted to the new cargo model, the Seattle Times reports.

    Boeing also won 53 net orders for the 737 MAX, including 23 for American Airlines and 12 for Southwest Airlines, and eight orders for the current 777 cargo model.

    Deliveries of the 787 Dreamliner remain halted, as Boeing still awaits clearance from the Federal Aviation Administration for repairs to various quality problems.

    According to a new report, FedEx is in talks with Boeing and Airbus to buy next-generation freighters.

    20%/Micro – I meant 20% more than capital gains.  

    Properties/Pirate – It's going to be tricky.  Been many, many years since we had rising rates but there will be a point where people feel it, I'm sure.  Just have to keep your ear to the ground.


  19. You just can't please some people…

    WMG -8.07%Feb. 08, 2022 1:47 PM ET1 Comment

    Warner Music Group (NASDAQ:WMG) is off 8.4% and revisiting lows from two weeks ago in the wake of its fiscal first-quarter earnings, where revenues came in better than expected.

    Revenues grew 21% to a record $1.61 billion (up 22% in constant currency).

    Of that, Recorded Music revenue rose 19% to $1.39 billion; Music Publishing revenues rose 31%, to $229 million.

    Digital revenue rose 21%, to just over $1 billion.

    Adjusted operating income rose 30% to $274 million, and adjusted OIBDA jumped 26% to $355 million.

    “The strength and diversity of our revenue streams coupled with our operational efficiency drove margin growth, even as lower-margin revenue lines recovered," says acting Chief Financial Officer Lou Dickler.

    Cash from operations fell 24% to $129 million, as strong operating performance was more than offset by heavy A&R investments, and timing of working capital. Capital expenditures jumped to $34 million from the prior-year $18 million.

    Free cash flow fell 37%, to $95 million from $151 million.

    Shares fell despite the top-line beat. Citi holds a Neutral view on the stock, and while it says underlying trends are "positive" it notes the quarter benefited from an extra week compared to the prior year.

    Wow, that's something that's got to be boosting most of the earnings this Q (as well as GDP, etc).  That's 8% more time to make money vs last year.  


  20. Phil-Still laughing. Love your sarcasm! Laughed at many musing today. Feels good!






  21. Good morning. Here is the link to today's webinar.

    https://attendee.gotowebinar.com/register/3516527778153981712