Testy Tuesday – Holding 3,840 is the Key to the S&P 500

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We had a technically constructive day yesterday. 

We held the Weak Retracement line at 3,840 and that then validates the 4,000 line (where we retraced from) as a firm mid-point to the S&P and, since that’s what we predicted it would be back in November – we could not be more pleased.  Meanwhile, the Mainstream Media is still 70% Doom and 25% Gloom with articles like this:

If this is the kind of news people are hearing and that shapes consensus then that consensus seeps into planning for business spending and then the Recession becomes real – even if it wasn’t before.  That’s all a Recession is – an economic slowdown – generally not accompanied by runaway inflation and high commodity priced driven by demand for Goods and Services exceeding supply.  

IBM, for instance, had record-high Revenues yesterday and they are down 6% ($130) despite beating bottom-line expectations.  Why?  Because currency fluctuations have impacted their cash-flow to $10Bn, vs $10.5Bn at the top end of their $10Bn-10.5Bn range previously forecast.  IBM’s CFO, Joe Kavanaugh said that, during the second quarter, it saw “significant movement” in the U.S. dollar, which resulted in s “6-point headwind to revenue growth.”

Is this a good reason to sell IBM?  No, it’s silly and we’ll be BUYING more IBM (our Stock of the Year) on this dip, though our target for our Trade of the Year was only $125 when we set the trade up in November:

IBM PSW Trade of the Year for 2022

Even as of yesterday’s close the $75,000 spread was “only” at net $38,800 with $36,200 (93%) left to gain if IBM can hold $125 into Jan, 2024.  Originally, we paid just net $3,750 – so we’re already up 10x and very happy but we also have a more aggressive IBM play in our Long-Term Portfolio that we can now look to improve upon.  

Still, IBM highlights an issue for our S&P 500 earnings since those companies make about 60% of their revenues from overseas and the strong Dollar will be a drag on all their earnings.  For some, it will be offset by lower Dollar costs on overseas expenses but IBM is mainly an IP company, so they got all of the detriments and none of the benefits.  

There will be lots of opportunities to buy good stocks that are down for bad reasons this quarter, so we’re going to have to pace ourselves…  

S&P 500 with 5% Rule

We still need to get over the 50-Day Moving Average at 3,927 to be “safe”.  If there is any sign of weakness the Banksters will be all over it as they haven’t been able to drive enough Retail Traders out of their positions to replace them with their High Net-Worth clients – that’s why you are hearing all these disappointing “trading revenue” comments from the IBanks though June 30th – they have been behind on calling the bottom, so now they are trying to force a new one so they can be right. 

 

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Phil would it not be a good idea to look at a IBM play today?

Good Morning.

Good morning! Looking at some CMG bear spreads prior to earnings

I like and own IBM, My brother has worked there for 30 years. I do think it gets too much attention. The 10 year chart is not impressive.

My father in law retired after 30 years with IBM – I met my wife of 39 years at a IBM R&D facility in South San Jose. She tells me stories about IBM days at Disneyland in So.Cal. when she was growing up… We own IBM shares as well and it has not done much in nearly 25 years…

LMT is back in the 380s. Fell to the 370s in premarket after missing earnings, but still red for the day.
I had exited when it was in the 430s, is this a good spot to reenter? Just planning a simple buy stock sell straddle.

IBM doesn’t do much – but that isn’t bad, selling the ATM straddle against the stock when it is in the 130s (even monthly) has been a very good income generator for years now.

Phil: Can you give me an update on your Boca Hemp either publicly or privately. I still think it is an interesting market. Also, any thoughts on NVDA. I have a 1/24 200/300 BCS .. thinking of rolling THE 200S down to 150s for $20 ($15 ITM). Thoughts? I know this is a high p/e company with may challenges, but LT think this will be aa winner.

No doubt IBM is profitable and a good options play. Anyone that has worked at IBM for decades is a survivor and likely feels that this could be their last year. This is probably true in most tech companies. I’m not sure that my retirement will be “voluntary”, at age 61 now.

From a 2/12/22 The New York Times article Making ‘Dinobabies’ Extinct: IBM’s Push for a Younger Work Force
Documents released in an age-discrimination case appear to show high-level discussion about paring the ranks of older employees.

By Noam Scheiber

Feb. 12, 2022
In recent years, former IBM employees have accused the company of age discrimination in a variety of legal filings and press accounts, arguing that IBM sought to replace thousands of older workers with younger ones to keep pace with corporate rivals.
Now it appears that top IBM executives were directly involved in discussions about the need to reduce the portion of older employees at the company, sometimes disparaging them with terms of art like “dinobabies.”
A trove of previously sealed documents made public by a Federal District Court on Friday show executives discussing plans to phase out older employees and bemoaning the company’s relatively low percentage of millennials.
The documents, which emerged from a lawsuit contending that IBM engaged in a years long effort to shift the age composition of its work force, appear to provide the first public piece of direct evidence about the role of the company’s leadership in the effort.
Edvin Rusis, a plaintiff in a lawsuit against IBM, applied for five internal positions after learning that he was about to be laid off but heard nothing in response to any of his applications.
“These filings reveal that top IBM executives were explicitly plotting with one another to oust older workers from IBM’s work force in order to make room for millennial employees,” said Shannon Liss-Riordan, a lawyer for the plaintiff in the case.

Ms. Liss-Riordan represents hundreds of former IBM employees in similar claims. She is seeking class-action status for some of the claims, though courts have yet to certify the class.

Phil were there any updates on PSW Investments. Didn’t see the K-1 and historically this is around the time it gets delivered…

Phil / Hedging

i understand you are bullish and expect the indices to go above their 50WMA at least until 4,100.

I had SQQQ 40-70, 60-80 BCS. Have been rolling 60 down to 50 100 at a time.

Had sold SQQQ Jan 2024 80 at 25.41. Now, it’s at 16. SQQQ Jan 2024 70 is at 16.95.

Should I roll 80 to 70 harvesting some profit?

Thanks for the quick reply.

May be I am missing something.

I had sold 80 for $25.41. I could now buy it back for 15.90. And, sell 70 for 16.95.

Wouldn’t I make $10.56 (($25.41 – 15.90) + (16.95 – 15.90)) by buying 80 back and selling 70 for giving up $10 in spread.

Thanks.

sk, I think the point is that you’re opening a bear call spread. If you look at the total cost, you’re going to get the calculation you came up with, but in terms of what it does to your protection, you should view it as a new position.

Last edited 2 months ago by JPH1121

Thanks.

Hi Phil, unrelated to the post, but could you please check my helpdesk ticket/email about membership/access? Thanks!