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Which Way Wednesday – S&P 4,200, Nasdaq 13,000, Russell 1,900, Dow 33,500

Lots of critical levels to test.

We are back to using our 20% Bounce Lines, which have been a great guide all year for where we expect support and resistance using our fabulous 5% Rule™ and there's a lot of red on the board – especially the Nasdaq already below its base – which iindicates we may be consolidating for a move another 10-20% lower.  Fortunately the Dow still has about 5% to fall before it's really in danger but any break below 31,680 will likely mean it's time to go to a lower-zone chart.  

  • 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 1,760 (weak) and 1,920 (strong)
   

The only "positive" note I have to add at the moment is the strength of the Dolllar, now 102.73, has been putting tremendous pressure on stocks and we thought it would correct a bit this week but China is still propping up their economy as their Property Sector is still in melt-down and the Covid lockdowns are killing their economy in general.  The Central Bank has been easing over there in what Bloomberg is calling "unprecedented liquidity."  Sounds like fun, right?

“The PBOC’s struggle reflects the broader predicament Chinese policy makers are facing amid a challenging external environment — how to find balance between contradictive policy goals of zero Covid and a 5.5% economic growth target,” said Seema Shah, chief strategist at Principal Global Investors in London. “This is not the time to go overweight given the uncertainty that lies ahead.”

Foreign outflows from Chinese markets hit a record in March

China has taken more decisive actions to spur growth and prop up markets – with little visible success.  Just this month, authorities freed up liquidity in the banking system, nudged the country’s social security fund, banks and insurers to boost equity investments and made foreign currency more readily available onshore in a bid to stop the yuan from weakening further.  The PBOC said just yesterday that it will promote the healthy and stable development of markets and provide a good monetary and financial environment – reiterating that liquidity will remain reasonably ample but that's going to have the opposite effect as our Fed is removing liquidity – so the Yuan can't compete with the Dollar.  

CSI 300 Coming Under Strong PressureJust like with Covid – China wants to have it both ways – they want to have lockdowns and economic growth and they want to have more liquidity and a stronger Yuan.  Unfortunately, reality doesn't work that way and you would think China should understand that and the fact that they clearly don't is extremely concerning going forward

If Zero Covid does not work as a policy in China, then FIRST they have to abandon it and then they are two years away from herd immunity and first there would be a serious spike in infections and death as the people feel the Government has betrayed them and is just letting them die (like our Government did).  The US "only" had 1M citizens die of Covid, China's population is 1.4Bn – 4 times the size of ours.  

So that sounds like a terrible idea but attempting to keep 1.4Bn people from getting Covid is proving more terrible so far and, ultimately, if it fails, you are back to herd immunity anyway.  Either way I'd say let's not count on China to prop up the Global Economy any time soon and Europe is at the beginning of World War III, so they are a little distracted and that means it's all up to us and our $32Tn in debt to help avoid a Global Recession by….  I don't know – sprinkling fairy dust?  

That's why Texas Republicans (redundant) are going after Wall Street firms who are trying to fight climate change by steering their investments to "environmentally responsible" companes.  Texas calls this "boycotting" of their Fossil Fuel industry and they are looking to restrict the business of companies that try to save the planet elsewhere from doing business in their state.  Firms that end up on the list will face restrictions on doing business in the state, possibly losing out on managing billions of dollars in public-pension assets, for example.   Several other Republican States are preparing similar legislation.  

Isn't that bat-shit crazy?  We are so doomed it's pretty much just funny at this point – you can see why Nero said "F-it" and grabbed a fiddle – he had a Senate too!

Japan's economyAlso pushing the Dollar to higher highs this morning are our friends in Japan as the BOJ keeps their rates unchanged (negative) against our Fed's tightening.  So you still have to PAY Japan to hold your money – getting back less than you give them to hold.  Japan has an interesting problem as their economy is SO DEAD that they still don't even have 2% inflation – despite painfully high fuel prices.  They have been trying to get their economy moving for the entire Century now in what used to be called "beating a dead horse."  

GOOGL is being beaten like a dead horse this morning – down 5% and slipping below $1.5Tn in valuation (awwwww) for the first time since last May.  $2,400 is a 20% pullback from the November highs – back when Covid was "cured" and Putin was "strong", Inflation was "transitory" and the Supply Chain issues would be cleared up "right after the holidays"…  Ah, good times…

As I said to our Members in yesterday's Live Chat Room:

GOOGL – As noted above, it's too early in the cycle to have any idea how these guys are being affected by war, inflation, covid, supply chain – doesn't make sense to guess.  I imagine if NFLX saw pullback, YouTube might as well so GOOGL might take a hit but who wants to bet against them?

GOOGL is actually doing well compared to Zoom (ZM), who are down 75.8% from the high, PayPal (PYPL) down 73%, Netflix (NFLX) down 71.7%, Etsy (ETSY) down 67.5%, Penn National Gaming (PENN) down 61.9%, Match Group (MTCH) down 56.3%, Generac (GNRC) down 56.1%, Biogen (BIIB) down 55.8%, Meta/Facebook (FB) down 52.9% and Wynn (WYNN) down 50.1% – all big names that have taken big dives and – most notably – no one seems to consider them bargains just yet.

THAT is how overpriced the market has been, which is what I was preaching all of last year.  A CORRECTION is just that – stocks dropping back to their CORRECT level – it does not mean they are going to bounce back to ridiculous prices that investors should not have been paying in the first place.  We talked about NFLX in yesterday morning's Report and, even down 71.7% – it's only just now getting interesting to get in.  We had been shorting it in the fall.  

We thought it was safe to go back in the water on Boeing (BA) but they just reported losing another $1.24Bn on supply chain issues and Russian sanctions and the stock dropped to $160 this morning – where we still like it but it will take a while to recover.  Microsoft (MSFT), at least, came in strong, led by growth in Cloud Computing.  

FB reports this evening along with QCOM, PYPL, TROX, DFS, F, CAKE, AMGN and AFL – the fun continues…

Mortgage Applications dropped another 8.3% this week, which is what we expected with the combined rise in borrowing rates over 5% and the Median Sales Price of all home rising from $360,000 last year to $436,700 in March – more than 20% higher.  So, last year, a $360,000 mortgage at 3% cost $1,518/month (+ taxes, insurance) and now the same house at $436,700 at 5.5% costs $2,480/month (+taxes, insurance that have also gone up).   That's a 63% increase in monthly payments for the year! 

Image 

Something has to give….  

 


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  1. Good morning, everyone. Here is the link to today's webinar

    https://attendee.gotowebinar.com/register/5842209277372018192


  2. CMG opportunity to short the earnings pop….


  3. FB PE ratio at 12.8 is starting to get interesting.


  4. TWTR / Phil     TWTR is about $48.25 today, reflecting doubt about the deal.  Is there an arbitrage play that might be worth a shot based on the deal price of $54.20 in October 



  5. Good Morning.


  6.  FB  / BDC    It seems worth a shot on some 2024 sold puts at some point, probably not today though


  7. What a reversal, doom may be back on the table

    FB PE to be determined today after the close, guidance will tell the story going forward. 

     




  8. XBI is back to where it was in June 2017. I'm not going back in yet (I originally called September as the market/crypto lows), but I'm watching for the green shoots. I have a few things like KRBN, NEE, etc



  9. kustomz , they just took the opportunity to sell the pop, typical n a bear market 




  10. LABU is a dog with fleas right now, but playing a biotech rebound, June 20 calls are only 0.15

    worth the contrarian shot with all the doom and gloom around



  11. Phil/BA-What are your thoughts down here?


  12. Good morning!

    That rally didn't last too long, did it?

       

    Retail and Wholesale inventories were up 2% and 2.3%, indicating slowing demand.  Pending Home Sales fell 1.2% and EIA was better than expected but not a big deal:

        

    Wow on /NG though…

    CMG/Pman – We shorted them when they were more like $1,800 – hard to get excited about $1,450.  Not that they're worth $1,450 but it's been proven there are enough buyers to blow you out at that level.

    FB/BDC – We took a poke with a small position in March and I'm just waiting for a bottom to form so we can roll and DD:

    FB Long Call 2023 20-JAN 260.00 CALL [FB @ $175.78 $-5.17] 5 3/17/2021 (268) $32,500 $65.00 $-58.08 $26.10     $6.93 $-0.77 $-29,038 -89.3% $3,463
    FB Short Call 2023 20-JAN 300.00 CALL [FB @ $175.78 $-5.17] -5 3/17/2021 (268) $-23,500 $47.00 $-43.70     $3.30 $-0.50 $21,850 93.0% $-1,650
    FB Short Put 2023 20-JAN 230.00 PUT [FB @ $175.78 $-5.17] -3 3/17/2021 (268) $-8,310 $27.70 $35.50     $63.20 - $-10,650 -128.2% $-18,960
    FB Short Put 2022 15-JUL 220.00 PUT [FB @ $175.78 $-5.17] -3 4/14/2022 (79) $-6,000 $20.00 $28.28     $48.28 $5.33 $-8,483 -141.4% $-14,483

    I'm not too worried about the short put targets of about $200 so it's really a question of rolling the long calls down to a better spread but it will be basically a new trade when we're done, carrying the loss forward.

    TWTR/Stock – Elon is a serial BS'er so I wouldn't want to bet he follows through on this.  He owes TWTR $1Bn if the deal fails and I think that's why they agreed.  European regulators and probably other countries too won't allow him to run an unmoderated Twitter – that's already been proven to be a catastrophe so who really wants to go back to the age of misinformation already?  

    If you want to make a play on TWTR at $48, the 2024 $45 puts can be sold for $5 and that's net $40 so almost 20% off the current price if the deal fails and you get "stuck" with TWTR + $1Bn and, if Musk buys them over $50, a very quick $5 in your pocket for having faith. 

    FB/Kustomz – Tricky report for them as we expect contraction from post(ish)-Covid and they are in a heavy Metaverse investing cycle.

    LABU/BDC – I just hope they are accumulating holdings at these prices.  Biotech went WAY out of favor fast.

    BA/Tully – 777x production is halted through 2023 but they have a lot of 737s to deliver so not a big deal.  Basically their costs went up and they haven't had a chance to pass it through yet and they took a $1.5Bn charge on the 777 delays, which was the entire loss for the Q.  737s will ramp up to 31/month vs 77 delivered last Q1.  Space and Security revenues were off by $1Bn to $5.4Bn and that's not really under their control as it's Government project money.  

    What matters to me is they have $371Bn worth of planes on back-order so I'd very much like to participate in that going forward.  If they were a start-up, we'd be happy to fund their losses to get that prize so why not with a going concern that's already selling $80Bn a year and should get back to making $4Bn next year and $10Bn/yr down the road (current market cap $98Bn).  

    Still, don't catch the falling knife – let's see where it finds support. 


  13. President Biden’s Climate Ambitions Are All But Dead



  14. Is the US housing market headed for a price correction?


  15. UN says up to 40% of world’s land now degraded


  16. Phil / BAC

    Here's my trade 

    Bot   200 Jan 2023 25 Calls
    Sold 100 Jan 2023 30 Puts
    Sold 200 Jan 2023 35 Calls 

    It cost $19,200. Now, it's worth $130,000. BAC is now $36.55. I expect BAC to do well in rising interest rates. I am inclined to just to stay put.

    What do you think? Thanks.


  17. Wow, that's hurtful:

    NCR -24.35%Apr. 27, 2022 11:24 AM ET

    • NCR (NYSE:NCRshares have lost 24%, Wednesday, on heavy volumes as software company had fallen short of consensus for first quarter's earnings blaming to macro-economic challenges. Guidance cut added to the sell-off.
    • Volume of 4.46 million shares is more than triple average daily volume of just over 1.33 million shares.
    • The company's Q1 2022 Revenue of $1.86B (+20.8% Y/Y) missed consensus by $70M.
    • "As a global company, a confluence of external factors impacted NCR. Inflation skyrocketed to the highest level in over 40 years, interest rates increased more rapidly, a war broke out in Eastern Europe and the Omicron variant spread. The multitude of headwinds negatively impacted revenue and costs," commented CEO Michael Hayford.
    • Segments Revenue: Payment & Network revenue reached $299M following the acquisition of LibertyX on Jan. 5, 2022 and Cardtronics last year.
    • Digital Banking revenue rose 11% to $136M; Self-Service Banking Revenue declined 3% to $611M; Retail revenue up 5% to $546M; and Hospitality up 18% to $211M.
    • Gross profit dropped slightly to $411M (vs. $414M) while gross margin rate contracted to 22% (vs. 26.8%) when compared with same quarter prior year.
    • Adjusted EBITDA increased to $271M (vs. $258M).
    • First quarter free cash outflow was $10M, compared to free cash flow of $93M in Q1 2021.
    • Non-GAAP EPS of $0.33 missed by $0.30.
    • Lowered Guidance Range: The company has revised its full-year's guidance range to reflect the negative impact of another coronavirus wave disruption, war scenario in Eastern Europe and inflation and rising interest rates.
    • Revenue is now expected to be ~$8B (vs. prior $8-$8.2B), vs. consensus of $8.11B
    • Adjusted EBITDA is expected to range between $1.4-$1.5B (vs. prior $1.5-$1.575B); Free Cash Flow projected to be $400-500M (vs. prior $500-$600M).
    • Non-GAAP EPS to be in the range of $2.7-$3.20 (vs. prior $3.25-$3.55) vs. consensus of $3.39
    • Earlier (Mar. 08): NCR is latest to pull out of Russia in response to Ukraine war

    This is not good, you never know what bombs are ticking away in your portfolio…

    No surprise here (and this is before we started crashing again):

    Apr. 27, 2022 11:18 AM ET

    • State Street Investor Confidence Index92.9 in April vs. 99.7 in March.
    • North America ICI to 95.2, down 8.0 points.
    • Asian ICI to 92.0, up 2.4 points.
    • European ICI to 76.2, down 6.7 points.
    • ”The increasingly hawkish stance from the Fed in the face of surging inflation coupled with dampened global growth expectations likely drove aggregate risk sentiment lower," said Rajeev Bhargava, head of Investor Behavior Research, State Street. And "with COVID infection rates soaring in some regional markets and the resultant lockdowns impacting economic activity, it remains to be seen if this constructive path persists.”
    • Earlier this week (April 26), consumer confidence expanded at a slower than expected pace in April.

    SPOT -11.96%Apr. 27, 2022 11:15 AM ET6 Comments

    Spotify (NYSE:SPOT) has tumbled 10.7% to its all-time low, breaking the $100/share barrier after a mixed first-quarter report that initially drew a positive focus, but with analysts raising concerns about margin guidance.

    Revenue was mostly in line with expectations with 24% growth, and users grew at a 19% clip (with premium subscribers rising 15% given a wind-down in Russia). Ad-supported monthly active users also beat expectations with a 21% growth rate to 252 million.

    That's better than feared, bullish Citi reports, though it fretted about Spotify's guidance that second-quarter gross margins would stay flat at 25.2% (somewhat below estimates for 27%) – as well as forecast of an operating loss of €197 million.

    J.P. Morgan agreed the report was solid, with most metrics beating guidance (once you excluded Russia), "and we are encouraged that ad revenue continues to grow 20% … suggesting increased podcast ad traction." But it too is concerned about guidance for the same issues: operating loss and gross margin.

    Truist Securities likes the "very solid" report – though it adds that not only gross margin guidance but also subscribers were below its model.

    Citi, J.P. Morgan and Truist all have Buy ratings, but one bear also weighed in: Underweight-rated Wells Fargo also found the margin guidance the "most worrying" part of a report but praised growth in average revenue per user (premium ARPU rose 6%, or 3% at constant currency). Sentiment has turned against the business model and the margin is the "fulcrum" for a rebound, the bank says.

    In recent podcasting news, Barack and Michelle Obama parted ways with Spotify, planning to take their post-White House podcasting projects to another home.

    TWTR -2.25%Apr. 27, 2022 10:56 AM ET71 Comments

    Elon Musk is barred from sending disparaging tweets about the $44 billion Twitter (NYSE:TWTR) acquisition, according to the merger agreement. Twitter shares fell 2.5% and are currently trading at 11% discount to Musk's $54.20/share deal with the social media company.

    "Notwithstanding the foregoing, the Equity Investor shall be permitted to issue Tweets about the Merger or the transactions contemplated hereby so long as such Tweets do not disparage the Company or any of its Representatives," according to the definitive merger agreement.

    The disclosure is part of the merger agreement released on Tuesday that also requires Twitter (TWTR) to pay a deal termination fee of $1 billion to Musk if the social media company ends the deal.

    Musk would be required to pay Twitter (TWTR) a reverse termination fee of $1 billion if the deal is canceled by the Tesla (TSLA) founder and billionaire due to certain conditions, according to the merger agreement. The deadline for the deal to be completed is October 24, though it can be extended by six months.

    The clause about not disparaging Twitter (TWTR) comes after the social media company earlier this month added a poison pill after Musk had accumulated a 9% stake and after Musk decided against taking a Twitter board seat amid a tweetstorm from the billionaire.

    Also see, Tesla looks to break free from Twitter distraction wildcard.

    JKS +9.10%Apr. 27, 2022 10:48 AM ET3 Comments

    JinkoSolar (NYSE:JKS+9.5% after surging as much as 12%, following news Wednesday that it achieved a "major technical breakthrough" for its 182 mm high-efficiency N-type monocrystalline silicon solar cell.

    JinkoSolar (JKS) said it set another record for maximum solar conversion efficiency of 25.7% for its large-size monocrystalline silicon TOPCon solar cell, which was independently confirmed by the National Institute of Metrology in China.

    The company said a series of material upgrades were integrated into the cell process to set break the old record for maximum conversion efficiency of 25.4%, set in October 2021.

    JinkoSolar (JKS) has been an exception to the weakness in Chinese stocks, and is "setting up for a breakout year," BOOX Research writes in a bullish analysis published on Seeking Alpha.

    USO -1.18%Apr. 27, 2022 10:42 AM ET33 Comments

    Oil markets (NYSEARCA:USO) have struggled to understand the impact of sanctions on Russian oil production following the country's invasion of Ukraine. Though western oil majors have exited Russia, private trading businesses have waffled on commodity trade policies. Consultants too have adjusted sanction-impact estimates significantly over the past two months. Wednesday, for the first time since Russia's invasion, the Kremlin indicated it expects to see a 1.8mb/d production decrease related to sanction impacts in 2022 (XLE).

    Finance Minister Anton Siluanov said Wednesday that the country may see oil production decline by 17% this year, or 1.8mb/d. Shortly following the war, Energy Intelligence estimated a 3.0mb/d supply impact, though that estimate was later revised to zero. Wednesday's comments provided no detail on refined product impacts, though falling distillate exports have tightened global diesel markets.

    According to the IEA, oil markets were in a 1.5mb/d deficit in February. Losing an additional 1.8mb/d from Russia would likely overwhelm any supply response from the US, OPEC or Iran. Suggesting that the coordinated SPR release (VLO) (XOM) is likely needed, though not enough to balance oil market this summer.

    That's about $150Bn – ouch!


  18. Nope, misread it, that's 657Mb at $80 = $52Bn.  But it's not like a LOSS – it's just foregone revenue they will get down the road.  Not to mention, last year was $60 so $100 currently is 66% more than last year and 1.8Mb/d is maybe 20% of their production so they are coming out ahead anyway – on the ware they started.  


  19. hi phil

    silver is at 23.50 from below dollar appears to be coming down from 103 would you enter long here if you didnt have a position?

    thanks


    • /SI/Tommy – As long as $23.50 holds on /SI, it's a good support line (again).  Just make sure the Dollar doesn't retake it's high.
    • Gold (/GC) over the $1,900 line (again) is good for a long 
    • Russell (/RTY) over 1,900 also good for a long.

    All with tight stops below!



  20. *META PLATFORMS SEES 2Q REV. $27B TO $29B, EST. $30.74B

    Picked up from ZH…Leaked info 
     





  21. FB/Kustomz – I heard the leak was incorrect?  Hit the stock by 5%.

    During the Webinar, we decided BA and GNRC are buys – please remind me for tomorrow.  


  22. Phil / BAC – reposting.

    Here's my trade 

    Bot   200 Jan 2023 25 Calls
    Sold 100 Jan 2023 30 Puts
    Sold 200 Jan 2023 35 Calls 

    It cost $19,200. Now, it's worth $130,000. BAC is now $36.55. I expect BAC to do well in rising interest rates. I am inclined to just to stay put.

    What do you think? Thanks.


  23. GNRC   for what its worth dept. Assuming our do nothing Texas leadership is not going to fix our power grid, I ordered a Generac generator.   its actually here, but waiting on the electrician and plumber to do the hookup.  My power actually quits about once every month or two. Do I really expect that to improve in the future?  A typical home installation for 24kw runs about $16- $18,000. FYI


  24. PARA has a serious Netflix sympathy issue. Getting brutalized 


  25. Phil…FB I see that, maybe just a way to lump the stock price lower. Maybe thats a bullish signal, Hard for me to see it going much lower from this level, it would have to be a total disaster. 

    Jeddha,PARA  I see a chart floating around showing that new customers for online streaming leveling off. 


  26. BAC/SK – Sorry, missed that one.   The key is it's $130,000 out  of what?  It's a $200,000 spread and you are risking $130,000 now, not $19,200, right?  You only have to wait until Jan – so that's good so the only question is do you have anything better to do with $130,000 between now and Jan than make $70,000?  Probably not.  Still, if $35 does not hold – you may want to consider selling some short calls or maybe getting to cash.

    GNRC/Stock – That's a lot more than I thought.   We bought one a long time ago that was about $3,000 plus whatever it cost to install (I didn't care at the time) but we already had nat gas to the house and they used the same line as the grill was using.  Seems like they've gone up quite a lot though still worth it over 10-20 years of homeownership without losing power.  

    PARA/Jeddah – Can't catch a break.  

    FB/Kustomz – That's the problem though, I think this whole Metaverse thing is going to be the same disaster as buying Occulus was – he's just doubling down on the same mistake because he loves the idea of it.   Maybe one day but I think we are more than 5 years away from a practical Metaverse – maybe 10. 


  27. FB up pretty big


  28. FB up but still lower than last Wednesday


  29. Or at least even with last Wednesday's close




  30. Talk of martial law, Insurrection Act draws notice of Jan. 6 committee






  31. Here is the link to the replay of this week's webinar

    https://youtu.be/PWwg1R1ccOg


  32. PHIL

    The GNRC email: Sell 2024 $180 put @$18 shows $25.75 on Interactive Brokers.