Which Way Wednesday – Fed Edition
by phil - October 30th, 2019 8:33 am
Things are going up, up, up – so why worry?
Things LOOK so good in the market that we've even capitulated on our CASH!!! position and moved some into new portfolios for Short-Term trades, Dividend trades and Earnings trades and our Butterfly Portfolio has always been open – as is our newer Hemp Boca Portfolio.
We wanted to go to CASH at the end of September in the old Long-Term, Short-Term and Options Opportunity Portfolios because they had done very well and we didn't want to risk it all into Earnings, Brexit, China Trade, Mid East Unrest, Impeachment and what looked like a Slowing Economy.
The market did take a nice dive just after (or maybe because) we cashed out in early October but, since then, Brexit has been delayed, Earnings haven't been too bad, China sort of has a deal with us, the Mid East is a disaster and getting worse – but no one seems to care, Trump is being impeached and no one seems to care and the economy is definitely slowing – and no one seems to care.
As a Fundamentalist, it's still kind of hard for me to want to take risks in this environment but I also have to go with the flow and the crowd is pouring back into equities so we'll take some quick dips, with as little risk as possible. Our Short-Term Portfolio has the most risk but also is getting the most reward – up 16.6% for our 2nd month already on just 4 trades so far:
We're using the STP to teach various options trading techniques to our Members. The BKNG trade is one of our Extended Butterflies and the MJ trade is an Income Producer as we look to collect $800(ish) every quarter for an additional $6,400 over 8 quarters – it's great the way small amounts can add up. That way, our $8,200 net cash entry drops to near zero and ANYTHING of value left in the spread becomes our profit – and it's a $45,000 spread if MJ climbs to $30 or more!
FCX is what we call an artificial buy/write, where we use the bull call spread with the short puts in lieu of…
 Twitter
|
LinkedIn
|
 del.icio.us
|
|
Tempting Tuesday – Introducing our Dividend Portfolio
by phil - October 29th, 2019 8:46 am
Dividends are very nice.
Over time, dividend-paying stocks tend to outperform the non-paying stocks by a pretty wide margin and they are an excellent way to build a retirement portfolio – even if you are off to a bit of a late start. That's because the dividends themselves are kind of like an investing discipline – forcing you to take profits off the table on a regular basis or at least re-investing the profits into a conservative stock.
Dividend stocks tend to be the one investors run to in times of trouble, making them outperformers when markets turn ugly as well. On Friday, we initiated a Dividend Stock Portfolio, starting with a virtual $100,000 and our first 3 trade ideas were for Ford (F), Signet Jewelers (SIG) and AT&T (T) and they haven't moved much yet so it's very easy to catch up with us:
Of course, dividend stocks aren't supposed to move that much, we're not in them for the gains (hence the low strikes on the short covered calls), we're in it for those dividend payouts:
- F is a net $5,780 entry that will be called away at $7,000 over $7 for a $1,220 (21%) gain and 0.60 ($600) per year in dividends is another 21% over two years so 42% return potential ($2,420) if Ford manages not to drop 20%.
- SIG is a net $5,650 entry that will be called away at $13,000 for a $7,350 gain (130%) and $1.48 ($1,480) per year in dividends is another 26.2% over two years so 182.4% return potential ($10,310) if SIG does not fall $4.75 (26.7%).
- T is a net $29,450 entry that will be called away at $35,000 over $35 for a $5,550 (18.5%) profit and the dividends are $2.04 ($2,040) per year which is another 13.8% over 2 years so 32.3% return potential ($7,590) on a very conservative target (10% below the current price).
Notice our big cash commtiment is on AT&T because it's a nice, safe stock to play and we'll pick up $7,590 in a stock we're pretty sure we'll keep for life but, overall, just these 3 stocks are going to make us…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Monday Market Momentum – Fed Hopes Keep Things Going
by phil - October 28th, 2019 8:35 am
AAPL $250!
That's where it looks like we're going this week as Apple (AAPL) closed at $246.58 and it up over $247 pre-market. At $1.14Tn, Apple is just a bit more valuable than Microsoft's (MSFT) $1.074Tn valuation but Apple made $59.5Bn last year while MSFT "only" made $39Bn so AAPL is quite the relative bargain and we will see just how much of a bargain on Wednesday evening.
That's not the only thing happening Wednesday, of course. On Wednesday we also get our next Fed Rate Cut – or else! Expectations are near 100% that the Fed will cut rates another quarter-point at Wednesday's meeting (2pm) and then Powell speaks at 2:30 to justify how record-low unemployment and record-high stock prices justify record-low interest rates and a record-high Fed Balance Sheet. He'll probably use the "Chewbacca Defense".
Meanwhile, AAPL stock is up $50 since August and, as a Dow component, it ads about 8.5 points per $1 gained and that, like Chewbacca, does not make sense but it's the way the Dow is structured so that $1 gained by $1.14Tn AAPL stock has the same weighting on the index as $1 gained by $50Bn Walgreens (WBA) or $37Bn Dow Chemical (DOW). Anyway, $50 x 8.5 is 425 Dow points and the Dow is up about 1,000 points so about half the Dow's gains are coming from Apple and that's true for the S&P and the Nasdaq as well.
We are waiting to see if other stocks pick up the slack – because that's what we'll need to break over to new all-time highs – Apple can't do it all unless it pulls a Tesla (TSLA) kind of move and pops 30% on earnings, which would be another $60 on AAPL. Of course, that would be ridiculous but so was TSLA's gain and this weekend the company went into a full-court PR press pushing everything from Solar Panels to Trucks to keep the momentum going as Musk looks to re-capture $380, which would put Tesla at $78Bn in market cap – "only" 80 times their best-case earnings projections for 2020 ($900M).
After losing $702M in Q1 and $408M in Q2 this year, TSLA announced on Wednesday night…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Faltering Friday – Amazon and Other Earnings Not Enough to Hold S&P 3,000
by phil - October 25th, 2019 8:28 am
We're slipping again.
Keep in mind, there's still the underpinning to the market that the Fed is going to save us next week with another rate cut on Wednesday. 40 S&P 500 companies reported mixed results yesterday with 3M (MMM), Ford (F), Twitter (TWTR), eBay (EBAY) and Amazon (AMZN) noteably cutting guidance and disappointing inverstors. MMM said "the macroeconomic environment remains challenging" and F mentioned lower volumes in China – a theme with many companies as Chinese Consumers begin to avoid American goods altogether.
With about 1/3 of the S&P 500 reporting so far, 81% of the companies reporting have beaten low expectations but still, we're on pace for a 4% decline from earnings a year ago, when the S&P topped out at 2,950 in October and fell to 2,350 (-20%) by Christmas. We are still very much Cashy and Cautious and maybe this time is going to be different but down 4% from the quarter when the markets dropped 20% is a good reason to stay on the sidelines, isn't it?
Not much is happening otherwise and we're coasting into the weekend but next week, as Friday is the 1st, we get our NFP report already and the Fed has the doveish John Williams speaking at noon and 2:30 that day – so I think they think they are going to need some spin. Other than Williams and Powell's speech on the 30th (2:30), there is no Fed Speak next week due to the meeting so we're on our own with the data – and earnings!
A lot of companies are having steep sell-offs on earnings but are they bargains or just CORRECTIONS – moving to more realistic prices. We looked at Twitter (TWTR) yesterday and decided it was simply moving to a more realistic price after a 20% drop back to $30 and Amazon (AMZN) is now more interesting at $1,750 but that's still $880Bn in Market Cap for a company that made "just" $10Bn last year and maybe $12Bn this year, despite last night's miss.
While that's still 20% growth, $880Bn/$12Bn is 73.33 so 73x earnings is what you are paying for AMZN, a stock that is growing 20% a year – so doubling every 4 years. That means we can expect 2024 earnings of $24Bn and 2028 earnings of…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Thursday Thrills – Key Earnings Reports Bring the Bulls Back
by phil - October 24th, 2019 8:46 am
Sure it was only $143M but it was enough to send the stock $8Bn higher in after hours trading, giving Elon Musk a 56x return on his book-cooking. Well, maybe it's legitimate – who can say these days. We sold short puts and calls in our Hedge Fund and $300 is right at the edge of our comfort zone on the calls – though we'll clean up on the puts – but now we'll have to see how it goes.
Still, my short bias aside, $300 for TSLA is $46Bn in market cap and they lost $1.1Bn in the first half so add $143M and now they've "only" lost $957M for the year and that's still "so far" as there's no actual evidence they can put together two consecutive quarters of profit. In fact, Revenues were down a bit but "cost cutting" led to a profit anyway – not necessarily account manipulation.
CapEx fell from $510M to $250M, for instance despite opening the China factory and ramping up production on the Model 3 and preparing for the Model Y – all things Musk claims to have accomplished without spending any money. TSLA does now say they have $5.3Bn in cash on hand, so it would make no sense at all if they go out to raise money – there was $383M in positive cash flow, in fact.
Tesla benefited by recognizing deferred revenue — money that had been set aside because it came from customer payments for features not yet activated, such as aspects of the Autopilot system. Autopilot uses radar and cameras to drive Tesla cars with little input from drivers. In September, Tesla activated the Smart Summon feature, allowing the company to recognize some deferred revenue in the third quarter – despite many saying the feature was nowhere near ready to roll out.
Tesla sold 97,000 cars in Q3 and are now guidling 360,000 for the year, at the lowest end of their 360,000-400,000 range they have been promising all year. Also, the mix of cars has shifted to a vast majority of Model 3s, accounting for…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Which Way Wednesday?
by phil - October 23rd, 2019 8:25 am
75 S&P companies have reported so far and 43% (32) have beaten expectations and the ones that have missed have been hit with average 3.9% drops vs the historic 2.4% so not much tolerance for failing to hit those expectations while the ones that beat have only gone up 1.6% – indicating that good news is mainly priced into the current prices. The Banksters have led us so far – now we have to see if Tech, Industrials, Consumer Goods, Energy and Services can hold up.
Caterpillar (CAT) is often regarded as a good proxy for the Global Economy and they just reported earnings that are down 8% from last year on 6% lower revenues AND they lowered their guidance to the $10.90-11.40 range, which is not bad for their $133 shares, which are already 20% down from last year's highs.
We like CAT but we'd like them a lot more around $110. Yesterday, we initiated a new, $100,000 Earnings Portfolio to give us something to do while we wait for a proper correction. As noted in yesterday's Morning Report, we went with Boing (BA) as our first official play and we added IRobot (IRBT) and Cliffs (CLF) as the day progressed:
Though BA didn't have much encouraging to say this morning, the lack of additional negatives has pushed the stock back to $350 so we're on our way to goal on that one already, which could net us a nice $13,250 (122%) profit at that level. CLF beat by a mile at 0.33 vs 0.24 expected and, keep in mind, that's just one quarter on a $7 stock – so silly! Our main premise there is a China deal will really get them going.
Unfortunately, we didn't win them all and IRBT was a big disappointment as tariffs are hurting them badly. We did think that was a possibility, which is why we did not sell puts initially but now we will sell 5 of the 2022 $35 puts for $10 ($5,000) and then spend $5 ($5,000) or less to roll the 2022 $45 calls down…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Toppy Tuesday – S&P Back to 3,000 – Again
by phil - October 22nd, 2019 8:33 am
Can things get worse for Boeing (BA)?
Since Thursday's close, BA has dropped $40, from $370 to $330 and that's 10.8% in two sessions so we'll watch the $333 line (10%) to see if they can getg back over that and then we'd look for a weak bounce at $340 and a strong at $348 but the news on BA has been very, very bad with two downgrades yesterday as rumors came out that BA had lied to regulators – leading to hundreds of deaths.
BA booked a $5.6Bn charge in Q2 and estimated the 737 Max grounding would cost them $8Bn overall but that was before the new revelations. BA makes $10Bn a year, usually, but lost $3Bn last quarter and they will report again tomorrow – so get ready for some fireworks. It's very unlikely we'll hear that "all is well" tomorrow and it's too risky to play short puts in this environment but, we can still play for an eventual recovery with a Bull Call Options Spread as the first trade in our new Earnings Portfolio:
- Buy 5 BA 2022 $300 calls for $72.50 ($36,250)
- Sell 5 BA 2022 $350 calls for $50 ($25,000)
That's net $11,250 on the $25,000 spread that is currently over $15,000 in the money so, if BA gets back over $350 by Jan, 2022, you will make $13,750 (122%), which is not bad money for 2 years. If BA is flat or goes lower, we can begin to recoup our money by selling short calls, like the Jan $330 calls, which are $20. Just selling 1 contract for those puts $2,000 in our pocket and we have 8 quarters to sell so it's very possible we can generate $16,000 worth of income while waiting for our $13,750 pay-off!
We decided to make a new $100,000 Earnings Portfolio, mostly for quick trades duing the season as we are mainly in cash and have plenty to play with. Yesterday, in our Live Member Chat Room, I suggested the following trade on TD Ameritrade (AMTD):
Let's make an Earnings
…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Just Another Manic Monday
by phil - October 21st, 2019 8:34 am
It's one long Sunday for me as I just flew in from California.
I left at 10pm, didn't sleep on the plane and now it's 8am and I find myself essentially continuing what I was saying last Monday (14th), when we flatlined at 2,965 after a very bad Friday sell-off. This Friday was not as bad, with the S&P finishing at 2,986 and we're still flirting with 3,000 – again. So it's the same old, same old with not much having changed over the weekend so earnings will be our primary focus for the week.
Lots of fun reports already and, so far, earnings have beaten low expectations, for the most part and we're into the meat of the S&P 500, with about 1/4 of the index reporting this week:
We'll keep an eye on the Tech Sector as the earnings there have been pretty erratic. Semiconductors rose 6.74% in Q3, topping all six industries in Tech. Semis are followed by Technology Hardware (+5.26%) in second place and IT Services (-3.19%) at a distant third. The worst Tech Sector Performer has been Software, whose quarterly return stands at a negative 16.3% but still many companies to report.
In June, Goldman Sachs issued a warning to “write off high-growth tech stocks,” according to a CNBC report – this was not heeded by the market as the Nasdaq is up about 800 points (10%) since June. The reasons for Goldman’s warning are double: they said that Technology stocks may be overvalued at their current levels, and that talks about potential regulatory changes from Washington may make stocks within the sector something of a “hazard.”
Keep in mind it's not about justifying the 10% move up from 7,200 (thowing out the spike) in the June dip but justifying the ENTIRE 60% move from 5,000 in the beginning of 2017 to 8,000 today. We ran an analysis of the top Nasdaq stocks back on April 17th, looking at whether or not the Nasdaq could justify 8,000 and we thought it could – and that was our bullish premise at the time but we cashed…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Friday Market Follies – Flirting with 3,000 into the Weekend
by phil - October 18th, 2019 8:35 am
Here we are again.
The S&P 500 is back to 3,000, the Dow 27,000, Nasdaq 7,950 and Russell 1,550 so all is well(ish) for the moment. Earnings have been, so far, on track for most of our early reporting companies but notable misses from big companies like AA, GS, UNP and ERIC have kept investors slightly concerned while the economic reports have generally been trending down.
We'll see the Leading Economic Indicators Report at 10am but it doesn't really matter as we have Kaplan at 9, George and Kaplan at 10, Kashkari at 10:30, Clarida at 11:30 and Kaplan again at 5pm so whatever message Kaplan is selling is one the Fed is looking to make sure is repeated over and over again.
I'm not sure what they are doing with Kaplan as his 9am is supposedly in Washington, DC while his 10am is scheduled for Denver but he's an economist, not a physicist – so he probably doesn't know that's not physically possible… On Wednesday, Kaplan said the Fed was "actively debating issuing a digital currency" so BitCoin fans may want to pay attention to his speeches as well.
Kaplan also "admitted" what I've maintained for years – that the Fed's ZIRP policy is a reaction to the US Government's $23 TRILLION in debt because each 1% of interest paid on bonds now translates to $230Bn out of the Government's budget. Kaplan also noted: “People around the world are working real hard to try to find alternatives to dollars and dollar infrastructure because the more they’re invested in that, the more susceptible they are to sanctions, tariffs and what’s going on right now.”
Meanwhile, China's GDP dipped to 6% and that's the official number – it's…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
Thrilling Thursday – A Brexit Deal (sort of) Brings Us back to 3,000 (again)
by phil - October 17th, 2019 8:34 am
Isn't this fun?
IBM had a big miss, Netflix had a big beat, the indexes and futures are all over the place and Boris Johnson has Schrodinger's Brexit but he dares not look in the box because – as long as he doesn't, he has a deal that is dead and alive at the same time – which is quite the sweet spot for a politician – very much like Trump's secret China deal we are still waiting for the details of.
Nonetheless the US Futures are back to yesterday's highs but that was based on the "Deal" that was touted at the EU open (3am, EST) but has already fallen apart as details are painting a less enthuiastic picture than we had overnight. That doesn't stop our beloved S&P from testing 3,000 though – so it makes a great short below that line (/ES Futures) with tight stops above.
We get the Philly Fed Report at 8:30, which is likely to be trending down from last monh's 12 and Industrial Production is likely to slip into contraction while Capacity Utilization was already a miserable 77.9% so 22.1% of our capacity is already idle – not a good thing at all… There's also some housing data but that's it until tomorrow's Leading Economic Indicators (probably flat) along with China's GDP and we have 6 Fed Speeches tomorrow, so we'll probably finish the week at the 3,000 line – somehow – so quick profit-taking on the /ES shorts.
On Tuesday at 11am, we put out a Top Trade Alert to our Members for the Marijuana ETF (MJ) at $18.40, which we added to our Short-Term Portfolio with the following spread:
- Sell 10 MJ 2022 $20 puts for $5.40 ($5,400)
- Buy 30 MJ 2022 $15 calls for $7 ($21,000)
…
|
Twitter
|
LinkedIn
|
del.icio.us
|
|
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site