Follow-Through Friday at the Strong Bounce Lines

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SPX Dec 9 2022We made it!  

Yesterday we were looking for a Strong Bounce on the S&P 500 and this morning you can see how useful our 5% Rule™ can be in predicting the movement of the indexes.  The most important thing the 5% Rule™ does for us is it reminds us not to get excited about these little bounces – they are a natural part of a trend and only if they are conquered do we consider it an actual reversal.  

The more volatile Nasdaq came in at 11,637 at the close and our weak bounce line was 11,620 but this morning we have a strong overnight move in the Futures back to 11,702 and that’s almost to the Strong Bounce Line at 11,740 but we’re not likely to get there because AAPL failed $143 and I’m not seeing a catalyst today to move it over.  

Covid Dec 9 2022Also we have the weekend and the Dollar is below 105 and the Fed has a rate hike next week…  Lots of reasons to be cautious but how about this one:  

That’s a 50% increase in new Covid cases (reported) in the last two weeks in the US and 32% more globally.  Last Dec 8th, we were averaging 120,737 but by Jan 13th, our daily average had jumped up to 802,191 cases per day with spikes over 1M – that’s how fast this virus can spread.  Looking at the chart, I’d say we are about 50% more immune than last year but that’s still going to make for a nasty winter and China is in for a complete disaster, most likely.  

I know we all like to have the fairy tale that Covid has gone away but we’ve had more people infected in the last 12 months than in the 24 months before that.  

Covid2 Dec 9 2022

You can’t pretend when you are investing.  You have to see the World for what it is so you are able to best navigate the obstacles along the way and set up your portfolio to win under the conditions that lie ahead.  I’m not so much concerned for the US, where we are approaching herd immunity (because we’re the most infected country on the planet) but China’s population has relatively no exposure – just 1.8M cases out of 1.4Bn people (0.13%) so, for the other 1,398,200,000 people – it’s a brand new disease they have no resistance to.  

That’s the downside to a zero-tolerance property.  It makes sense if, in a year or so, you have a 100% effective vaccine or the virus goes away from the World but, if that doesn’t happen (and it did not) then you are back on square one trying to face down the virus. 

Xi’s math made sense, you can’t have 50M people needing hospitalization (we had 10M in US with 1/5th the population) – there aren’t enough ventilators in the World or other vital supplies hospitals needed.  Pushing the spread of the disease back has allowed him to give at least one dose of vaccine to 91% of the population – though the Chinese vaccines are not as effective as the ones we use.  

China has stepped up their vaccine program and are now vaccinating 2M people per day but, with 1.4Bn people, that’s 700 days to get to everyone.  And how fast can Covid start to spread as China re-opens?  Well just 30 days ago, China had less than 1M total cases, so 800,000 move in 30 days is pretty darned fast, right?  

Covid3 Dec 9 2022

They haven’t even officially re-opened yet!  And the worst thing about China going from 2M infections to 20M by March is that then creates an environment for more Covid variants – even ones that can elude our current vaccines in the US.  So this is not over until it is over and it’s very far from over – don’t forget that!  

Speaking of China, congrats to all who followed our Trade Idea for Hello Group (MOMO), which was:

They should do well if China does ease their Covid policies.  It does seem Biden and China are working out the accounting issues to keep Chinese companies on the US exchanges.  A nice way to play is with the 2024 $3 ($2.80)/5 ($1.80) bull call spread at net $1, which pays $2 (100% gain in 13 months) if MOMO simply stays above $5.  So, if you have $1,000 now and you want to have $2,000 to start off 2024, then buying 10 of those spreads would do the trick if all goes well.

If not, the net Delta of the two is just 0.16, so MOMO would have to drop $1.50 for you to lose $250 – which makes it a good stop if the $5 line fails.  Risk $250 to make $1,000 on an undervalued stock with almost it’s entire market cap in the bank?  Sounds good to me!  

As you can see, they blasted up to $6.79 yesterday (so you had all week to get in) so it looks very good for our anticipated $2 return and 100% gain – you’re welcome!  

Both LULU and COST just warned of slowing sales into the holidays and AVGO had a nice beat but said they can’t possibly say what will happen next year and pulled guidance – so let’s be careful out there and stay “Cashy and Cautious” and well-hedged into the Holidays.  

Have a great weekend, 

– Phil

“You thought the leaden winter
Would bring you down forever
But you rode upon a steamer
To the violence of the sun
And the colours of the sea
Blind your eyes with trembling mermaids
And you touch the distant beaches
With tales of brave Ulysses
How his naked ears were tortured
By the sirens sweetly singing
For the sparkling waves are calling you
To kiss their white laced lips” – Cream

 

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Phil.l / AVGO – hit it out of park

VMWR acquisition on track

Broadcom (NASDAQ:AVGO) shares gained more than 3% in premarket trading on Friday after the semiconductor company  fourth-quarter results that were seen as “particularly impressive,” given the operating environment and global economy.
Oppenheimer analyst Rick Schafer, who has an outperform rating and $720 price target on Broadcom (AVGO), noted the results were impressive, especially considering the commentary from its peers surrounding enterprise storage. Schafer also pointed out that Broadcom’s (AVGO) management talked up cloud growth for next fiscal year, with overall enterprise spending as “flattish” to up.
And with concerns that wireless revenue will be flat sequentially, due to Apple’s (AAPL) iPhone production issues, the company is still operating at a high level, Schafer explained, with its fiscal 2023 backlog covered at 100% despite the uncertain global economy. 
“We believe [management’s] strict scrubbing of orders safeguards [Broadcom] better than most from channel inventory surprise,” Schafer wrote in a note to clients.
On its earnings call, Broadcom (AVGO) said it still expects its proposed $61B acquisition of VMware (NYSE:VMW) to close next fiscal year. 
“We see [greater than] 10% cash-on-cash return and are bullish on [Broadcom’s] record of accretive M&A, execution, and [free cash flow] growth/return,” Schafer added. “Networking, wireless, broadband, and software franchises support stable growth. We remain [long-term] buyers.”
Truist analyst William Stein, who has a buy rating on Broadcom (AVGO) and raised his price target to $662 from $630 following the results, said the fourth-quarter results and guidance were good, but the dividend increase of 12.2% was seen as “slightly disappointing.”
“Investors hoped for explicit [calendar year 2023] guidance, explicit backlog, and explicit lead time commentary, but management was unwilling to provide these, considering well-documented macro headwinds (Covid shutdowns in China, rates, FX, etc.),” Stein wrote. 
Coupled with the fact that the dividend payout ratio was “slightly below” the 50% historical target, Stein said these issues balanced out “management’s otherwise surprisingly positive views.”

Good Morning.

Looking at new cars for our UCLA grad and she is now gainfully employed! 🙂

It’s down to a CRV and a CX5. The lots are filling up and we’ll have a great chance to buy a new car at a used car price!

Is this a good time to buy a car now? I sold off mine when the used car prices were crazy high some months ago, and now need to buy something

It matters what you are looking for. Mazda, Honda and Hyundai, all seem to be loading up their lots, here in So.Cal.
At this point, the dealers are hanging tight with sales at just MSRP, but then they try to load you up on extras and security devices.
Looking at prices at the local Carmax, it is laughable that they are still asking MSRP on their used cars….

Phil, do you mean Carvana?

KMX may not be a bad investment….

I sold my car to KMX, CVNA was crap who was paying less than 50% of KMX; KMX also was a quick and pleasant experience in Wayne (NJ)

as a Honda salesperson in central MN. We are still at MSRP. No one has 2021’s and extremely few 2022 in this area. Used cars are finally coming down, some harder than others. If you are thinking about new get a lock on your trade value and your interest rate now. One is going up and one is going down .

Hi Phil Trying to sort out the subscription renewal issues. I emailed admin a few days ago but got crickets.. Thanks Can they reach out to me?

Phil/AAPL Thanks for prev comments.. Trying to slowly tidy up AAPL pos.
Would you BB/roll the short Mar ’23 $150s while still green?
Been trying to roll longs to the ’25 $130’s as they come onside, .. only part way there.
TIA.

130 ’25 $150c ($35)
25 ’24 $150c. ($35)
40 ’25 $130c. ($42.2)
-140 ’24 $200c ($20.8)
-30 Mar $150c ($9.28)

Thks Phil, yes, am trying to roll to the $130s but wondering why you would choose to roll the ’25 $150s rather than the ’24 $150s first, which would seem to be more vulnerable?

PARA/Phil: Do you still like these guys, just debating closing out a losing trade or rolling? Any general thoughts on their prospects.