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Testy Tuesday – Dow and Nasdaq Flirt with Dangerous Inflection Points

33,075.

That's the 10% line on the Dow off the January high of 36,750 and while we don't care about that line much at PSW, as we follow the much more accurate 5% Rule™ – it is something the Financial Media tends to latch on to so we're going to get our bounce here and see how strong that is.  The line we care about on the Dow is 31,680, which is the strong bounce line off the 20% correction at 28,800, which is 20% off 36,000 because we consider the whole 750-point move above it to be unworthy of being counted.   

  • 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 yesterday at 13,103.  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).

4,320 on the S&P 500 turned red since yesterday and all that matters today is whether or not we can take it back.  The S&P is at 4,231 this morning – so about 100 points to go but we hit 4,138 yesterday, briefly getting even redder, so things are not looking too promising for the rest of the indexes staying out of that 20% correction territory.   The Nasdaq is even below it's 20% line at 13,370 so who cares what 30 Dow stocks do when the major (and harder to manipulate) indexes are still weakening?

We're getting a little pre-market pop due to a cease-fire this morning but it's limited and not likely to last – Russia is allowing some civilians to flee so they can start dropping bigger bombs, basically.  At $122.50 per barrel, Oil threatens to upend calculations for company costs, consumer behavior and the course of inflation – NOTHING is fixed at all until oil is back below $100.  

“The market’s on increasingly shaky ground,” said Hans Olsen, chief investment officer at Fiduciary Trust. “When you combine the price shocks that we’re seeing in the energy complex on one hand and the galloping inflation that we’re dealing with on the other hand, that’s a really tough mix for an equity market to hold valuations where we are right now.”

Monday’s losses were broad-based, with 9 of the S&P 500’s 11 sectors declining.  The Energy group, of course, added to its gains for the year while the Utilities segment advanced for the day as well.  Consumer Discretionary led the decliners, dropping 4.8% on the day.  Investors appear to be in classic flight-to-safety mode and stocks are suffering as a result, said Kelvin Tay, the Singapore-based regional chief investment officer for UBS.  Very high oil prices will function as “a tax on the global economy, and therefore global growth will actually have to slow,” he said.

Travel-related companies that could be hurt by higher fuel prices and the possibility that consumers could cut back on travel because of geopolitical tensions got hit hard yesterday.  United Airlines (UAL) shares dropped $5.51, or 15%, to $31.20, and Delta Air Lines (DAL) shares fell $4.41, or 13%, to $30.11 and they are back below the November lows that caused us to send out a Top Trade Alert to our Members – so great for a new trade again!  

War is not Covid.  People are still allowed to fly.  Probably not to Russia or over Ukraine but, if the war isn't spreading then it's just a matter of cost and fuel is 1/3 of airline costs so if you have a $300 ticket and 1/3 of that ticket doubles – you have a $400 ticket – not a shut-down airline.  Will it impact earnings while the airlines adjust prices – probably but, again, they are still flying and revenues will come in and profits will correct – this is very silly.   And shame on the airlines, by the way, for not buying up futures contracts when oil was cheap.  They KNOW they will be consuming fuel for the next 10 years – so why not lock it down when prices were low?  

Cartoon Tuesday: Drilling Deeper – Streetsblog New York CityOil was below $30 in March, April and May of 2020 and because Delta Airlines only pays $100,770 to their "Commodity Manager" , they lost out on an opportunity to save hundreds of millions of Dollars over the next decase by locking in sub-$50 oil – which I bet they really wish they had some of now.   I used to consult for F500 companies and it is truly amazing how much they neglect commodity trading as part of their business process. 

A company like Delta, that actually uses massive amounts of oil – about 3.4Bn gallons a year so call it 100M barrels.  That is a market-moving amount of oil and their ability to take delivery of 10M barrels (10,000 contracts) per month means they COULD play the oil market with very little downside consequences and, if they play it right, they should be able to save Hundreds of Millions of Dollars each year through trading.  

Joe Biden could do the same thing.  We have 650M barrels of oil in the Strategic Petroleum Reserve and, this month, he can sell 60M of them for $120 and flood the market with oil and that will either drive down the prices (which is what we want) or we can do it again next month.  Since we can do that for 10 months, I can buy 60,000 Jan 2023 contracts for $95 to replace the 60M barrels we're selling for $120 now and I've locked in a gain of $25 ($1.5Bn) on the sale and replacement of our oil reserves.  See how easy it is to make money when you have actual use for a commodity and know how to plan?  

Speaking of Biden, he is about to issue an executive order on Cryptocurrency as a first step towards regulating it.  The order is expected to describe what government agencies, including the Treasury Department, need to do to develop policies and regulations on digital currencies. It is expected to include a request for the State Department to ensure that American cryptocurrency laws are aligned with those of US allies and will ask the Financial Stability Oversight Council - which monitors the stability of the US financial system - to study illicit finance concerns.  Additionally, the order will explore the possibility of a new central bank digital currency. The Federal Reserve issued a paper on the topic in January that explores the risks and benefits of US-backed digital currency.  

We may have to add more hedges if our 20% lines start failing – be careful out there. 

 

 


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  1. Good Morning.


  2. Global collapse is in view


  3. is the dow the best index if someone want s to try and play futures for the bounce?

    thanks


  4. EXPLAINER: What would happen if the US banned Russian oil?


  5. Good morning 


  6. Phil/hedges, if you were to add TZA hedges what would you choose today? TIA



  7. Good morning! 

    Gold $2,070!!! 

    Silver lagging at the moment:

    And that's with the Dollar crushing it:

    Bounce/Tommy – I wouldn't bet on it in any event.  The only thing that stopped the selling yesterday was the bell.  As I've been saying, there are not enough buyers out there to handle high-volume selling.  Very dangerous to make bullish bets – especially with 13,500 failing on /NQ.  Maybe if the S&P (/ES) gets back over 4,200 you can use that as a stop line for longs.

    Hedges/Stuart – Well let's look at the STP.


  8. Rising Gas Prices Have Drivers Asking, ‘Is This for Real?’





  9. Good Morning

    PRU / Phil      I was looking into our PRU trade, especially for their 4.7% dividend. I read the latest earnings report and their last investor presentation.  Actually PRU looks pretty good, mostly life insurance, annuities, a little health and some financials.  Nowhere did I see anything about property / casualty  or car insurance though.  I still like the trade for something very conservative. 


  10. PRU does have Europe and China exposure 


  11. Short-Term Portfolio (STP) Review – $444,738 is only up about $17,000 from last week.  We had moved to a more-covered set of hedges and they don't react quickly to market changes but let's focus on whether or not they are adequate long-term protection to enable us to hold our longs.  The LTP, by the way, is at $2.1M so $2.55M combined is down $145,000 from our $2.7M high but, like I said, we're not realizing gains in the hedges.  Also, I haven't fixed PARA yet.

    Keep in mind the purpose oft he STP is to let us ride out the LTP (and the other long portfolios).  If we decide to cash in our longs – we don't need the hedges.  Our premise in the last adjustment was these 20% levels would hold for now so we didn't want our hedges to be too reactive but, if they are not holding, we'll have to re-evaluate the hedges as well as the longs.

    • COIN – I hope $150 holds but we're in at net $74.50 so hard to be worried.  
    • LABU – Just added.
    • UNG – Not at all worried.
    • W – We're in at net $126.55 and I think that's the correct value.  Plus we can roll it.

    • TZA – Here we are again with the Jan $20s at $20, which is as much as we can expect to make from them.  The short Jan $40s are $12.20 – but they are 100% out of the money and we can cash out $100,000 now by selling 50 of the $20s.  On the other hand, the net of the spread is $108,000 so $192,000 left to gain means this is still great for a new hedge because all the RUT has to do is stay where it is and we triple up.  Fortunately, we can do both because the 2024 $40s are $15.50 and the 2024 $60s are $13 so 100 of those is $25,000 which means we can cash out 50 of the Jan (23) $20s for $100,000 and buy 100 of the 2024 $40/60 spreads for $25,000 and those will be covering the loose 50 short Jan $40s, which we will buy back if they get cheaper or roll along if they don't.  
    • I guess then we have a $200,000 spread that's pretty much in the money and then we have another $200,000 spread that's out of the money which is 1/2 covered by the 2023 $40 calls.  Overall, I'd say we have $100,000 of downside protection remaining on this position for now.  But, for $25,000 more, we can add another $200,000 so this will be our GoTo hedge if things get worse.    

    • TQQQ – Deep in the money.  We were hoping for a bounce and didn't get it so we have 10 extra short $75 puts which is negating any upside we have on this hedge for now.   Either it gets better and we buy it back or it gets worse and we have to add another long hedge and roll these but, for now, we're just waiting and seeing.

    • DIA – Working perfectly.  We spent net $45,600 on the $150,000 spread and we're at net $58,325 so far so call it $90,000 more to go but we'll sell more short puts to improve that at some point.  

    • SQQQ – The short June calls are hurting us but we can roll them.  The long spread is $300,000 and currently we're at net $69,505 so $230,495 left to gain and already $200,000 in the money means this is a good one to press so let's add 50 more bull call spreads for $46,250 to buy another $103,750  upside for a total of $334,245 of protection in this spread.  

    • TZA – Oh, silly me, we already have a bunch of 2024 TZAs.  Still, the above adjustment was good and here we have half in the money $600,000 spread at net $28,125 and we might have a little trouble with the short calls but I'll still call this $500,000 of upside protection that's $250,000 in the money – that's a nice hedge!   The Russell only has to twitch lower to pump TZA 20% higher and we're 100% in the money.

    Overall then, we have $1,024,245 in downside protection that will realize if the indexes go down AND STAY DOWN into next year.  If the market, for example, were to crater 50%, we'd have $1M in cash and whatever we can salvage off our longs – let's say it's only $1M (half of what we have now) and that means we'd still have net $2M when the markets are down 50% and, if it then recovers – we'd have $4M vs $2.55M now.  Sounds good to me!  

    So our goal is not to let the long portfolio lose more than $1M and, if that's starting to happen – then we have $1M coming here and we're happy anyway.  

    Hedging is fun! 


  12. PRU/Stock – I thought they did property/casualty but, if not, then I like them more.  Apparently they do P&C with Plymouth Rock – not sure what kind of arrangement that is.  Liberty Mutual apparently bought PRUs other P&C business a long time ago. 

    PRU/Stock – Well any major is going to have global exposure.  

    China/Ilene – I don't think China has any desire to bail out Russia.  I think they were thrilled Russia was going to take Ukraine when they thought it was going to be like Crimea – with barely a shot fired (the way Hitler took Austria) as that would be their green light to take Taiwan but this International disaster with sanctions and such is China's worse nightmare and they aren't going to make it worse by going down with the Russian ship.  


  13. APPLE event today at 10:00 PST if anybody cares.  Its nice that on their event web page they have a place to donate to unicef 


  14. Hi Phil,

    Assuming that oil/ng will stay high for awhile, what do you think of buying etfs of countries that will benefit from it? KSA is Saudi ETF, for example


  15. Phil – On China and your comment, good. 


  16. lots of fear right now


  17. Markets liked Biden's speech.  

    XLE -1.18%Mar. 08, 2022 12:16 PM ET76 Comments

    In a speech Tuesday, President Biden announced measures to eliminate Russian oil imports into the United States. He also addressed the US oil & gas industry directly, and eluded to further conversations with producers (NYSEARCA:XLE).

    While the Russian oil import announcement was expected, comments directed at energy producers were not. Oil and gas CEOs have been perplexed by silence from the Administration of late, and Tuesday the President clarified his position on domestic production. President Biden said, "to the oil and gas companies and finance firms that back them, we understand war is causing prices to rise, but its no excuse to exercise excessive price increases … its no time for profiteering or price gouging." Thereafter, the President went on to say that, "its not true my policies are withholding production … companies are making the decision not to drill."

    CEO's from Devon (NYSE:DVN) and Pioneer (NYSE:PXD) have indicated a willingness to increase production. Pioneer's (PXD) Sheffield recently said industry could grow production by ~1mb/d annually for three years. Sheffield went on to say his firm would participate in a coordinated effort to accelerate US production growth. Exxon (NYSE:XOM) is planning to grow Permian production by as much as 25% in 2022. While Biden's statements elude to the need for more production (NYSEARCA:USO), they do not point to a coordinated effort from the White House.

    President Biden ended his speech saying, "and now I'm off to Texas." It could be that the President's trip is unrelated to the current global energy crisis. However, it's also possible the President would prefer to meet with producers privately, rather than enflaming public debates related to energy security and climate change.

    Oddly oil prices are calming down.

    Traders will be looking to see if the S&P can hold the 4,200 level today.

    "The clear thing we will be watching today is – can they hold onto to this 4200 region and if they break below, will we make a quick run to the recent low of 4114," UBS' Art Cashin wrote. "These are tough times to try and trade the tape. Believe me, after decades and decades, this is one of the more unusual ones."

    "A lower close today would indicate that momentum is still bearish and there are still no real bids just yet," Kinsale Trading said.

    Eight of 11 S&P sectors are now higher. Energy is the standout gainer but off earlier highs. Defensive sectors are still the weakest with Consumer Staples at the bottom. The megacaps are all in the green.

    The VIX is a little lower, but still above 36.

    The "Fed has never started a rate tightening cycle with a VIX over 25 let alone two standard deviations above its long-run mean, as is the case now," DataTrek wrote. "FOMC policymakers may still hike rates next week, but this data shows they will be in unprecedented territory relative to historical VIX levels and that makes for an additional risk factor for US equities."

    WTI is at $124 per barrel. Prices pared gains after the U.S. confirmed it would be restricting energy imports from Russia.
     
    "Surging oil prices can't singularly trigger a recession and it would take more than sky-high energy prices for the consumer impact to become recessionary," David Bahnsen, CIO of The Bahnsen Group, said. "The big question now is what the plans are to replace Russian oil in American and European supply needs and then how effective an embargo may prove to be in de-escalating the military situation in Ukraine."
     
    "The recent speed of oil's surge is truly a matter of changing supply and demand dynamics, and not about traders and speculators trying to make a quick profit. The Russia/Ukraine crisis significantly changed global oil supply forecasts and this is a key input into how oil is priced globally."
     
    Other commodities are seeing wild price swings, such as nickel where a short squeeze halted trading on the London Metals Exchange.
     
    "Nickel prices have divorced from reality," UBS chief economist Paul Donovan wrote. "Holders of sizeable short positions are realizing it is not a good time to be short. Such wild prices have limited economic effects, provided there are no banking casualties."


  18. AAPL/Stock – I care.  Always fun to see what's new.  

    Oil/Harip – Russia's oil will go to China and the oil china buys from other countries will go to the ones who refuse to buy Russian oil – these prices won't last because it's $100 for a tank of gas and people can't afford that so either the prices come down or you have a recession in 3 months or less.  RSX benefits from high oil prices, don't they?  Canada would be my top choice.  

    Fear/Ilene – Lots of it finally.   Still, we haven't had any big volume selling – I think there's still a nasty wave ahead.

    Date Open High Low Close* Adj Close** Volume
    Mar 08, 2022 419.62 425.45 415.12 424.96 424.96 76,079,122
    Mar 07, 2022 431.55 432.30 419.36 419.43 419.43 137,501,700
    Mar 04, 2022 431.75 433.37 427.88 432.17 432.17 113,978,200
    Mar 03, 2022 440.47 441.11 433.80 435.71 435.71 105,501,700
    Mar 02, 2022 432.37 439.72 431.57 437.89 437.89 117,726,500
    Mar 01, 2022 435.04 437.17 427.11 429.98 429.98 137,785,900
    Feb 28, 2022 432.03 438.20 430.70 436.63 436.63 145,347,600
    Feb 25, 2022 429.61 437.84 427.86 437.75 437.75 121,804,500
    Feb 24, 2022 411.02 428.76 410.64 428.30 428.30 213,942,900
    Feb 23, 2022 432.66 433.26 421.35 421.95 421.95 132,578,000
    Feb 22, 2022 431.89 435.50 425.86 429.57 429.57 124,391,800
    Feb 18, 2022 437.33 438.66 431.82 434.23 434.23 132,642,900
    Feb 17, 2022 443.22 446.57 436.42 437.06 437.06 102,259,100
    Feb 16, 2022 443.93 448.06 441.94 446.60 446.60 84,863,600
    Feb 15, 2022 443.73 446.28 443.18 446.10 446.10 88,482,700
    Feb 14, 2022 439.92 441.60 435.34 439.02 439.02 123,006,300
    Feb 11, 2022 449.41 451.61 438.94 440.46 440.46 153,064,100
    Feb 10, 2022 451.34 457.71 447.20 449.32 449.32 140,103,700
    Feb 09, 2022 455.22 457.88 455.01 457.54 457.54 92,589,900
    Feb 08, 2022 446.73 451.92 445.22 450.94 450.94 81,012,000
    Feb 07, 2022 449.51 450.99 445.85 447.26 447.26 84,472,900
    Feb 04, 2022 446.35 452.78 443.83 448.70 448.70 118,335,600
    Feb 03, 2022 450.95 452.97 445.71 446.60 446.60 118,024,400
    Feb 02, 2022 455.50 458.12 453.05 457.35 457.35 117,361,000
    Feb 01, 2022 450.68 453.63 446.94 452.95 452.95 123,155,400
    Jan 31, 2022 441.24 450.28 439.81 449.91 449.91 152,251,400
    Jan 28, 2022 432.68 442.00 427.82 441.95 441.95 164,457,400
    Jan 27, 2022 438.26 441.59 429.45 431.24 431.24 149,878,300
    Jan 26, 2022 440.72 444.04 428.86 433.38 433.38 186,391,100
    Jan 25, 2022 433.06 439.72 427.15 434.47 434.47 167,997,300
    Jan 24, 2022 432.03 440.38 420.76 439.84 439.84 251,783,900
    Jan 21, 2022 445.56 448.06 437.95 437.98 437.98 202,271,200
    Jan 20, 2022 453.75 458.74 444.50 446.75 446.75 122,379,700
    Jan 19, 2022 458.13 459.61 451.46 451.75 451.75 109,357,600
    Jan 18, 2022 459.74 459.96 455.31 456.49 456.49 109,709,100
    Jan 14, 2022 461.19 465.09 459.90 464.72 464.72 95,849,600
    Jan 13, 2022 472.19 472.88 463.44 464.53 464.53 91,173,100
    Jan 12, 2022 471.59 473.20 468.94 471.02 471.02 67,605,400
    Jan 11, 2022 465.23 469.85 462.05 469.75 469.75 74,303,100

  19. Wheat did not go limit up today – busted back to Friday:


  20. They are starting with TV, I'm not too thrilled with that  

    And now two new colors for iPhones – not exactly a wow.  

    SE 5G @ $429   This is like the IPod Mini killing off all competitors.  


  21. KRBN leaving a bit of stranded hammer down there at 35. War or not, the carbon problem has to be solved. Maybe carbon credits is the way to go, maybe it's crypto.


  22. Apple M1 Ultra chip reveal

    iPhone SE 3: The iPhone SE 3 (2022) features the same A15 Bionic chip found in the iPhone 13 lineup, and it adds 5G connectivity. Ceramic Shield front and back. Cost is $429.

    iPad Air 5: The iPad Air is getting Apple's M1 chip for much better performance, along with 5G connectivity. And it supports the Magic keyboard. Starts at $599. 

    Mac StudioThink of the Mac Studio as a supercharged Mac mini with a M1 Max chip or even more powerful new M1 Ultra chip, offering 3.8x more power than the iMac 27-inch. Starts at $1,999. 

    Apple Studio Display — There's a new Apple Studio Display. It's a 27-inch panel with 5K resolution and 600 nits of brightness, plus a 12MP camera and powerful speaker system. Starts at $1,599. 

    Apple M1 Ultra chip — This new super chip packs a 20-core CPU, 64-core GPU and 32-core Neural Engine. And there's up to 128GB of unified memory. The chip will be an option in the Mac Studio for the $3,999 configuration. 

    Nothing game-changing but amazing stuff when you think about where technology is these days.

    AAPL stock is flat at $159.

    Rally fizzing out.  Every rally is just a way for more people to sell to the dip buyers so far:

       

    KRBN/BDC – I think there's a strong future in it but I think Biden has to put all this stuff on the back burner for now.   He was just saying the Government has 9,000 open O&G permits that are not being used so it's up to the energy companies to get out there and drill baby, drill.


  23. And, if you think a 32-core Neural Engine with 22Tn Op/s is incomprehensible techno-babble – just wait a few years until they are telling you how many QBits we have.  As Arthur C Clarke said: 

    Any sufficiently advanced technology is indistinguishable from magic”.

    That includes all the strange names and the chanting like "Hey Siri" or "Alexa" to invoke the genie….

    Quantum computers - infographics

    https://www.visual-science.com/projects/quantum-computers/infographics/


  24.  " drill baby " well that's a vid I've never seen before.  


  25. Oh that's a classic, from the good old Palin/McCain days.  

    Shows you the GOP didn't just go crazy overnight – all the signs were there…


  26. This is how the Israeli's help Ukrainian refugees:  Partner with EL Al, fly loads of food, medical supplies, doctors and medics to Moldova and return with as many refugees as the plane can hold.   Immigrants who, by the way, are greeted at the airport with cheers and support. 

    https://www.youtube.com/watch?v=5JLimXGAGtc     March 1

    https://www.youtube.com/watch?v=j375T9KBYi0       March 8 


  27. That’s nice, I wish more countries were willing to put in that kind of effort.   


  28. Good morning everyone. 

    Here is the link to today's webinar

    https://attendee.gotowebinar.com/register/1099812216037309964