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Monday Market Madness – War Fears Send Us Back to the Lows

This is certainly not going well:

   

As I've been saying, it's more likely we're consolidating for a move down than a move up but we're still hanging on by a thread as only the Nasdaq is red on our lower bounce chart – so far.  

  • 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.  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).

We touched 14,100 this morning but bounced back quickly but the catalyst that's driving us lower is rising tensions in the Ukraine as the U.S. and its allies are withdrawing diplomatic staff from Kyiv in a sign Western capitals see diplomatic options narrowing.  Companies are also taking precautions. Dutch airline KLM has stopped flying in Ukrainian airspace. Shares of Air France KLM, the Paris-listed holding company, dropped 5%.

Russia is the World's largest exporter of Natural Gas (/NG) and, fortunately, that was our war hedge over the weekend and we got a huge 0.15 bump in /NG this morning, allowing us to cash out with a huge profit (/NG contracts pay $100 per penny move).  If Moscow were to attack and the U.S. and its allies responded with sanctions, the hostilities could affect the world economy and markets in unpredictable ways – so it's a very tricky week for the markets but all this is trading on rumor – so we can't take it too seriously and we need to get profits off the table.  

We have two Fed speakers scheduled right after Learing Economic Indicators are announced on Friday and that adds weight to our theory that that is going to be a bad number and Evans and Williams will be on spin patrol.  Monday is a market holiday and they do not want to go into a 3-day weekend on a down note.  The rest of the week is light on data, so the spotlight will remain on Earnings – mostly smaller-caps at this point:

Image

There's a few stocks here we're already watching or playing like GNRC, VIAC, MAR, GOLD, CSCO, YETI and WYNN – so it will be an interesting week for us, in any case.  Congratulations to the Rams for winning the Super Bowl but our bet was on SOFI – who had their name on the stadium and got hundreds of mentions and my trade idea for our Members was:

February 10th, 2022 at 3:47 pm | (Unlocked) | Permalink 

Speaking of the sidelines.  SOFI stupidly bought the name rights to a stadium ($30M/yr for 20 years) but who's laughing now as the Super Bowl is there and their name will be mentioned several hundred times during the Super Bowl.  SOFI got the bank charter that wanted and they are pre-profit but not pre-revenue, as they punched up to $1Bn last year and project $1.5Bn in 2022 (losing $250M).  

They are back near their IPO price and that makes them interesting enough to add them to our Future is Now Portfolio by selling 30 of the SOFI 2024 $10 puts for $3.20 ($9,600) as that adds to our cash position and we only risk owning $21,000 worth of SOFI at a 30% discount to their IPO – even after the risk of not getting a bank charter is behind them.  

It's tempting to be more aggressive as they could get a squeeze higher on Monday (name recognition) but there's about 1Bn shares so it's not like there's a shortage.  March $15 calls are 0.67 and they are a fun play and I'd take half off the table if they double and then see how high the free shares take you and, if you put a stop on them at 0.40, you risk losing 0.27 so say 40 contracts at $2,680 risks losing $1,080 but, if they pop, then you have no cost basis on 20 contracts and hitting $1 would make you $2,000 in profit.  That's a fun Super Bowl bet!

 

We'll see how much of a pop they get this morning.  The Rams may have won the game but they failed to beat the 4-point spread, which is a nice consolation for Bengals fans and the basis behind our options system, which sells Premium (spreads) to people who think they know which way the market is going to go (options buyers).  Like any good bookie – we don't really care which way things go – we're going to win half our bets every time and, ofetn enough, even when people make a winning bet – they don't win by enough to cover the spread.   That's where we clean up!  

Happy Valentine's Day, 

- Phil

 


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  1. Good Morning!



  2. Solar-paneled canals getting a test run, could result in significant water savings


  3. Phil/profits

    Trying to understand profit taking better as I rarely seem to time that well. Can you help me understand if you'd do anything with this position?

    Bought 15 IBM Jan 2024 $110 Calls for $16.67
    Sold 15 IBM Jan 2024 $125 Calls for $10.60
    Sold 5 IBM Jan 2024 $105 Puts for $14.87

    Would you take profits? Or adjust anything?



  4. Good morning!

    Euro Stoxx and Germany's DAX are down 2.5% this morning – so not a good sign if they don't bounce (weak bounce is -2%, strong -1.5%):

      

    They'll give us a clue on how real Ukraine concerns are.  Our local indexes are far from bouncy so far:

       

    And the VIX near 30 can't be good, can it?

    Energy is all over the place.  We're flat again – $4 on /NG was just too good to pass up but now back to scary.  

        

    SOFI came all the way back already.  March $15 calls are 0.70 – we didn't get a big pop so I'd be thrilled with 0.90-$1 if it gets there.  They didn't do an ad this year, that was poorly played, I think.

    Profits/Swamp – IBM is at $130 so the spread is in the money but so much time to go.  The short puts are $9 ($4,500) and the spread is $27/19 which is $8 out of $15 so the $22,500 spread is net $9,000 – that's more good for a new play than something you'd want to cash out two years early – unless you've lost faith in IBM and want to bail with a still-nice profit?

    More importantly, do you have something better to do with $9,000 than make $13,500 (150%) leaving it in IBM for 2 years?




  5. Chinese Developers’ Sales Tumble in January



  6. Speaking of doing nothing AND taking things off the table, the Money Talk Portfolio is back to 140% after being down to 120% on the 25th.  Of course we're unable to make adjustment between shows but I'm on tomorrow so let's make this our first portfolio review of the week:

    • BYD – Pretty new and well on track.  Our premise on this one (sports betting) was solid and seems to be playing out and we're at $17,275 out of a potential $40,000 so we still have $22,725 (131%) left to gain.  Certainly no reason to get out of that!  Good for a new trade, in fact…
    • GOLD -   We rolled our longs lower in September and now we are reaping the rewards.  Net $9,287 out of a potential $30,000 leaves us with $20,713 (223%) upside potential and it's a great inflation hedge (and Gold is having a great day today).  

    • HPQ – Already in the money at net $9,210 out of a possible $20,000 so $10,790 (117%) left to gain if we hold $35.  The puts are way out of the money, so no worries there and the spread is tight ($5), so we're not likely to take a big hit in a downturn and we'd be very happy to roll our long 2023 $30s ($8.25) to the 2024 $25s ($13) if HPQ goes lower so no reason not to ride this one out.

    • IBM – We were very conservative with this spread so already in the money at net $12,675 out of a potential $30,000 if IBM can hold $115.  So we fully expect to make $17,325 (136%) more and, if not, happy to re-invest.  

    • INTC – Sold off a bit and we're back to where we started at net $200 and that's no surprise with the chip shortage, etc.  It's a $20,000 spread so $19,800 (9,900%) of upside potential and I love this trade!  

    • MO – Just had nice earnings and legalization of marijuana in the US could be huge for them.  It's a $15,000 spread at net $7,549 so $7,451 (98.7%) left to gain is nothing to throw away.

    • SPWR – Finally, something we can adjust!  SPWR is selling their commercial division to TTE for $310M and SPWR's total income for 2022 was projected to be $35M so another $310M will certainly help!  Their market cap at $16 is $2.7Bn.  TTE is the majority owner of SPWR as well (50.83%).  The cash improves SPWR financially and allows them to finance their transition to Consumer, which we already expected.  It's a long-term play and we need to be patient but that doesn't mean we can't make adjustments:  The 25 short 2024 $35 calls are down 81.5% to $1.41 ($3,513) so of course we want to lock it in and buy those back as well as the 15 short Jan $25 calls at $1.68 ($2,513).  Our 35 long 2024 $25 calls at $3.23 can be rolled down to the 2024 $15 calls at $6 for net $2.77 ($9,695) and we know, if we'd like, we can sell 35 of the $25s for $3.23 to someone else and get $11,305 back but, for now, we're spending net $15,721 to get more aggressive without the cover.  Should SPWR get back to $25 now, this would be a $35,000 spread but we're not going to project any gains until we see this thing find a bottom.

    • VIAC – These guys finally found a bottom and we're fine with the $40 target, which seems pretty easy to get to.  It's currently net $23,875 on the $60,000 spread so we have $36,125 (151%) of upside potential here – well worth keeping! 

    • WBA – We waited a long time for them to wake up and we hit our goal but now backtracking a bit.  Still, $52.50 seems very reasonable and currently net $5,974 on the $18,750 spread so $12,776 (213%) of upside potential is another solid position.  

    Damn, these positions are too good to cash in.  Although they currently net $80,423 as a group, we have $147,705 (183% of cash in play) of upside potential over the next two years – plus whatever we make on SPWR.  We don't really need new positions with this kind of firepower but we do feel they are rock-solid (they have to be as we only touch them quarterly on the show) so we may as well put some of our sideline money to work but we also want to stay cashy and cautious until the market does stabilize.  

    We have 3 Techs, so no more tech and that's counting SPWR as Energy and not Tech.  BYD is Entertainment, I guess and so is VIAC then.  MO and WBA are Consumer Sales and HPQ is Tech but Consumer Tech.  So definitely no more Tech!  

    C is interesting.  

    T we are only avoiding because the stock split will be messy but what a shame.

    Someone asked recently where our watch list was.  It's here:  Fabulous Thursday – Ending the Year on Top

    • Medtronic (MDT) is another old favorite and $104 is 23% off the high and a $140Bn market cap for a company that makes about $4Bn/year and is growing nicely.  As with ALK, I'd be happy to promise to buy them if they get cheaper. 

    • Generac (GNRC) is a generator company we always like when they are down and $347 is 33% off the highs at $22Bn and these guys made $351M in 2020 and are making $604M this year and project $756M for 2022.  Every time there's a natural disaster – their phones ring and, the way this World is warming – business will be booming for years to come.

    But MDT reminds me we like LABU, and I think they've suffered enough at $18.50 and they have such exciting upside potential.  So, we're going to do a mixed trade by selling MDT puts to pay for a LABU bull spread:

    • Sell 5 MDT 2024 $90 puts for $9 ($4,500)
    • Buy 20 LABU 2023 $15 calls for $8 ($16,000) 
    • Sell 20 LABU 2023 $30 calls for $4 ($8,000) 

    That's net $3,500 on the $22,500 spread so we have $19,000 (542%) upside potential and plenty of room to  adjust along the way.  




  7. Skills-Based Hiring Is on the Rise


  8. This corroborates the skills bases hiring. Are workers actually gaining traction? System is rigged, but perhaps the retirements are actually having some effect.

    https://www.cnn.com/2022/02/03/perspectives/imf-labor-shortage-employment-us-uk/?hpt=ob_blogfooterold


  9. LOL Pstas, sadly true. 

    Dollar is coming back fast but oil rising anyway.

    /NG back to $4.15 too.

    NRT -2.51%Feb. 14, 2022 12:53 PM ET

    China was early in forecasting an energy crunch this winter, and instructed domestic coal producers to increase production to record levels. The Country also accelerated LNG imports, and according to IGU data became the world's largest importer of the fuel in 2021. A title historically held by Japan following the Country's reduction in nuclear power generation post Fukushima, Japan saw volumes fall in 2021, as China increased import volumes 18% YoY (NYSE:TTE) (NYSE:SHEL) (NYSE:CVX) (NYSE:XOM) (NYSE:LNG).

    The majority of Chinese and Japanese LNG imports are on long-term, oil-linked pricing contracts; however, in Europe, utilities rely heavily on the spot market. This spot market reliance, paired with increased Asian buying, saw gas prices in Europe hit record highs this winter (NYSE:EQNR) (NYSE:VET) (NYSE:NRT). Today, it was released that Germany will propose a plan to force suppliers and utilities to stockpile gas ahead of next winter.

    Gas inventories in Europe remain below historic levels, though they have increased seasonally from alarming levels seen earlier in the year.

    An announcement overnight from China's NDRC indicated the Country will accelerate plans towards a more energy efficient future. And although this is unlikely to impact the Nation's LNG demand, a more stable European energy market and more efficient Chinese energy market may have knock on effects for the coal market (NYSE:BTU) (NYSE:CEIX) (NYSE:HCC).

    MLCO +4.90%Feb. 14, 2022 12:52 PM ET

    Las Vegas Sands (LVS +5.1%) gained the most of any consumer stock in the S&P 500 Index after the emergency approval of the Pfizer antiviral pill is seen by analysts and investor as an indication that the zero-tolerance COVID policy in China could be lifted after the Olympics.

    The emergency approval is the first China has given to a COVID-19 drug or vaccine developed by a foreign country, according to Bloomberg.

    Wynn Resorts (WYNN +1.7%) and Melco Resorts & Entertainment Limited (MLCO +5.3%) also showed gains following the development.

    Jefferies noted earlier today that Macau daily revenue for the week ending February 13 improved from the prior week, although a choppy recovery is still a distinct possibility. The firm also has reasoned that an impending SARs CoV2 outbreak in Hong Kong could provide a catalyst for China to open up and move away from its zero- COVID strategy as a relatively low Hong Kong death rate could result in the the local government pivoting away from the current approach.

    More Macau casino stocks: Wynn Macau (OTCPK:WYNMFOTCPK:WYNMY), , Sands China (OTCPK:SCHYYOTCPK:SCHYF), MGM China (OTCPK:MCHVFOTCPK:MCHVY), Galaxy Entertainment (OTCPK:GXYEF), SJM Holdings (OTCPK:SJMHFOTCPK:SJMHY), Studio City International (NYSE:MSC).

    Sector watch: Online gambling and sports betting stocks are volatile after Super Bowl.

    That's great for LVS:

     

     

    We were discussing picking up a travel stock yesterday and they all seem overbought but LVS is not too bad.  Shelly died so new management and it is a bad time to lose him as China/Macau is iffy and he had personal connections that may not continue – that's the big knock on them but I think it's priced in at $46.82.

    They used to make $2.5Bn and lost $2.5Bn in the past two years and will be lucky to make $2.5Bn in 2022/3 combined but THEN, going forward, $36Bn is not too bad a price to pay.  The main worry I have with LVS is that they sold their Vegas properties so they are very Asia-Centric now but, when China lifts covid restrictions – they can really pop.  

    So, for the LTP, let's just Sell 10 2024 $40 puts for $6.40 ($6,400), which nets us in for $33.60 – that's a good initial entry.

    Also, let's hedge our bet with Vegas-centric MGM, which is at $48.30 but we can sell 10 2024 $40 puts for $6 ($6,000) to net in for $34.

    See, you just need to stay ahead of the news….


  10. TTE -1.45%Feb. 14, 2022 12:02 PM ET17 Comments

    • On the sidelines of an industry conference in Egypt, UAE Energy Minister Suhail al-Mazrouei told reporters that "it looks like it is not supply and demand, the major hike is geopolitical tensions, that is what is causing prices to be where they are today" (NYSEARCA:USO).
    • The Minister indicated that OPEC's monthly increases are helping, and the 400kb/d quota increases are enough to meet demand (NYSE:XOM) (NYSE:CVX) (NYSE:SHEL) (NYSE:TTE).
    • Conversely, former OPEC Secretary General Barkindo flagged underinvestment as contributing to higher prices, saying "the world will continue to be thirsty for oil for foreseeable future, but we are beginning to have challenges to access investment capital" and continuing "OPEC is concerned about meeting oil demand."
    • The contrasting comments are noteworthy, Barkindo represents Nigeria, a serial under-producer within OPEC; al-Mazrouei represents the UAE, a country that has sustainably produced at rates above current levels.
    • These comments come on the back of statements from Saudi in January, which indicated the Kingdom would not "make up" for underproduction from fellow OPEC members.
    • If the UAE and Saudi, the only two OPEC members with material spare capacity, see the current strategy as satisfactory, there is little chance of OPEC+ accelerating production growth, regardless of accelerating inventory draws.

    SHY -0.24%Feb. 14, 2022 11:19 AM ET25 Comments

    Kansas City Federal Reserve President said Monday the central bank should actively sell bonds from its $9T balance sheet to curb 40-year high inflation.

    Since mid-October last year, the short-end of the U.S. Treasury curve (NASDAQ:SHY) has been ripping higher in anticipation of the Fed's intention to tighten financial conditions as soon as March. But if the central bank maintains a large balance sheet, long-term interest rates (NASDAQ:TLT) could be held down in a way that distorts lending decisions, George told the Wall Street Journal in an interview. Moreover, “with a $9 trillion balance sheet pushing down on long-term rates, we’re going to have to face some considerations about how much downward pressure” is being placed on various maturities of Treasury securities, she told the WSJ. At the end of January, George explained it's time for the Fed to "move to a more neutral stance."

    Note implied measures of inflation, such as the 5-year, 5-year forward inflation expectation rate and the 10-year breakeven rate, have been consolidating in a range of 2.0% to 2.5% since March, 2021 – not far from the Fed's average inflation target of 2%. Meanwhile, the 10s/2s yield curve has been flattening during the same time frame, recently standing at just 42 basis points, the lowest level since Sep. 2020, implying bond investors are pricing in slower economic growth and disinflationary trends ahead.

    With respect to the Fed's potential path for shrinking its balance sheet, “what we have to do is be systematic,” Ms. George told the WSJ. “It is always preferable to go gradual…Given where we are, the uncertainties around the pandemic effects and other things, I’d be hard-pressed to say we have got to get to neutral really fast,” she added.

    Earlier, St. Louis Fed President James Bullard said the central bank should front-load rate hikes to tame inflation.


  11. GILD/Phil Should I roll my '23 $45s out to '24s for $17 which would cost less than a dollar at the moment?

    20 '23 $45 calls ($17.15)

    -20 '23 $70 calls ($7.5)

    Thx!



  12. Clariant Reveals Possible Accounting Fraud; Shares Plunge




  13. That is cool stuff – still, we'll have to sacrifice speed for the environment – that will be a hard sell.  NY to FL in 6 hours with a stop to change batteries?  And at what cost?


  14. Day is turning ugly.  Very weak and Euro Stoxx and DAX finished at 2.5% line – bad sign.  VIX still around 30.

    Here’s What the Pandemic Has in Store for the World Next

     

    In the midst of a vast wave of milder infections, countries around the world are dialing back restrictions and softening their messaging. Many people are starting to assume they’ve had their run-in with Covid-19 and that the pandemic is tailing off. 

    That’s not necessarily the case. 

    The crisis isn’t over until it’s over everywhere. The effects will continue to reverberate through wealthier nations — disrupting supply chainstravel plans and health care — as the coronavirus largely dogs under-vaccinated developing countries over the coming months.

    Omicron Surge

    The newest variant has created a vast global wave of milder infections

    Before any of that, the world has to get past the current wave. Omicron may appear to cause less severe disease than previous strains, but it is wildly infectious, pushing new case counts to once unimaginable records. Meanwhile, evidence is emerging that the variant may not be as innocuous as early data suggest. 

    There’s also no guarantee that the next mutation — and there will be more — won’t be an offshoot of a more dangerous variant such as delta. And your risk of catching Covid more than once is real.

    In six months’ time, many richer countries will have made the transition from pandemic to endemic. But that doesn’t mean masks will be a thing of the past. We’ll need to grapple with our approach to booster shots, as well as the pandemic’s economic and political scars. There’s also the shadow of long Covid. 

    Read More: What Experts Know About Long Covid

    The sheer size of the current outbreak means more hospitalizations, deaths and virus mutations are all but inevitable. Many people who are infected aren’t making it into the official statistics, either because a home test result isn’t formally recorded or because the infected person never gets tested at all.

     

    Trevor Bedford, an epidemiologist at Fred Hutchinson Cancer Research Center in Seattle known for detecting early Covid cases and tracking the outbreak globally, estimates that only about 20% to 25% of omicron infections in the U.S. get reported. 

    With daily cases peaking at an average of more than 800,000 in mid-January, the number of underlying infections may have exceeded 3 million a day — or nearly 1% of the U.S. population, Bedford estimates. Since it takes five to 10 days to recover, as much as 10% of people in the country may have been infected at any one time

    He’s not alone in projecting astronomical numbers. At the current infection rate, computer modelling indicates more than half of Europe will have contracted omicron by mid-March, according to Hans Kluge, a regional director for the World Health Organization.

    “With omicron, because it has more of an upper respiratory component, it’s even less likely to result in durable immunity” than previous variants, Hotez said. “On that basis, it’s incorrect thinking to believe that this is somehow going to be the end of the pandemic.”

    Inoculation is still the world’s primary line of defense against Covid. More than 62% of people around the globe have gotten at least one dose, with overall rates in wealthy countries vastly higher than in developing ones. At the current pace, it will take another five months until 75% of the world’s population has received their first shot.

    Or never in the US.

    The immense strain on global supply chains is only worsened by workers sickened or forced to quarantine as a result of omicron. The problem is especially acute in Asia, where much of the world's manufacturing takes place, and means global concerns about soaring consumer prices are unlikely to disappear any time soon. China’s increasingly vehement moves to keep quashing Covid are also becoming disruptive.


  15. GILD/Wing – Would I pay $1 for a year of growth potential?  Sure I would!  When the $70s expire worthless and you sell something else, you'll get the money back anyway.  The $40s are $21 – worth considering too.


  16. Actually, Wing, if you buy back the short $70s at $2.35 ($4,700) and roll 20 2023 $45 calls at $16.70 ($33,400) to 20 2024 $40 calls at $21 ($42,000) and buy 20 more for $42,000 and sell 40 of the 2024 $60 calls for $7.50 ($30,000) then it costs you net $25,300 to roll into the $80,000 spread that's 100% in the money.  I think, overall, you'd be in for $45,000.


  17. I'm working at an non-lithium battery start-up. $700k left on a $2.5M preferred round (valuation at $17.1M). Ping for more info.