Just Another Manic Monday as Congress Fails to Deliver Good News
by phil - March 23rd, 2020 8:15 am
I want free money NOW!!!
That's the word from Wall Street, which is in no mood to give Congress a couple of days to decide how to dole out $1.5Tn(ish) in stimulus spending for the first round of the bailout that has, so far, been bothering Americans for a month. Imagine how things will be in month 3! We left off Friday Morning with 246,275 global infections, 9,115 deaths and 84,506 recoverd and Italy was the rising star of the virus World with 35,713 infections and 2,978 deaths and the US had 14,250 infections.
This morning there are 349,211 Global Infections (42% more), 15,308 Deaths (68% more) and 100,165 Recoveries (18.5% more). So STOP listening to the news and their "expert" opinion makers and for God's sake stop listening to the Government and think for yourself. These are statistics – hard facts. If there is a 3 times faster rate of people being infected than are recovering – that's not good, if there is a 4x faster rate of people dying than recovering – that's not good either so, in general, your take on this weekend is "Not Good" and don't let people tell you otherwise.
Now, there are mitigating factors like more testing leads to more cases and sure, that's true but more testing doesn't lead to more deaths (hopefully) so that's a hard fact we need to pay attention to and lack of recoveries is a big concern and makes it seem kind of like BS when people try to assure you that most people get mild cases. If that's true, why have 233,738 people who have been infected stil not recovered?
No one is being honest with us – that's the main problem. One true thing we can isolate is 712 people on the Diamond Princess Cruise Ship got infected one month ago and, as of today, 567 recovered and 8 have died. It was a Princess Cruise Ship, so we can assume they were generally upscale passengers and generally older and it was early on – so they got the best possible care before hospitals began crowding up yet, one month later, 137 passengers (19%) have still not recovered (or died).
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TGIF – Hoping to End the Week on a Positive Note
by phil - March 20th, 2020 8:39 am
Hi ho silver!
During Wednesday's Live Trading Webinar (replay available here) we decided to go long on Silver at the $12 line and we were rewarded early this morning with an explosive run to $13, which netted a lovely $5,000 per contract for our Members, which is the same as the $5,000 per contract we gained on the S&P (/ES ) as it popped from our 2,400 line all the way to 2,500 this morning before also stopping us out – salvaging $4,000 gains at 2,480.
A lot of that rally is fading as we get close to the open and we won't be jumping in again until we see where the bottom is as we got very close to 2,300 on the S&P yesterday so we'd really love to see that again for another Futures entry. The Futures are an excellent way to make money in volatile markets but you have to take profits off the table as things turn around very quickly. The EU markets opened at 4am and everything went sour then, which is why we take the money and run on a good rally before then!
Remember, it's very easy to rally the Futures as they are very thinly traded and, once the exchanges open, the volume sellers take full advantage to finish selling what they were trying to get out of yesterday so, if we closed on volume to the downside and reversed in the Futures without any Fudamental changes – it's very likely that the selling will resume in the moring until (if) the sellers become exhausted. That's especially true in a market like this – where sellers simply can't find enough buyers to fully unwind their positions.
This morning we…
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Faltering Thursday – Fed, Stimulus Fail to Convince the Market
by phil - March 19th, 2020 8:31 am
Trillions of Dollars are being committed to "fix" the economy.
So far, the stock market is not buying it as we continue to have wave after wave of selling, though we are still inside our predicted range for the S&P 500 – it just feels very frustrating as we stuggle to get back over the -15% line at 2,420. This morning the Futures are down yet again as traders are not convinced the Government is doing enough either to calm the markets or fight the virus.
Very simply: What is their plan?
If you can't answer that question – then that's the problem, isn't it. The Government has failed to articulate a clear plan to the American people in either their response to the virus or their response to the economy. Without a clear vision of what is going to happen, traders get nervous and go to cash but there aren't that many people willing to trade their cash for stocks — so the prices keep dropping until they can find a buyer. You may be willing to hold onto Disney (DIS) at $85 because you think it's underpriced (it is!), but that doesn't stop your neighbor from selling it for $75, $65, etc…
But this is not price discovery, this is panic discovery because Disney is being valued at $160Bn at $85/share yet they made $11Bn last year on $70Bn in sales and they have $5.5Bn cash in the bank. So their operating cost is about $60Bn or $5Bn per month and let's assume we are shut down for March, April, May and June and DIS can't cut costs and generates ZERO revenues – which is silly as they still have ESPN and ABC and the Disney Channel, which should do very well with 300M people staying home all day.
Even if you assume they lose the whole $20Bn, they make $10Bn a year! The parks were not destroyed by a nuclear bomb – they don't need to be rebuilt – they just need to be cleaned! The movies will still come out – even if it has to be on TV. Still, if DIS loses $20Bn (and there is no bailout), they can just borrow $20Bn and pay back $2.2Bn a year for 10 years and that would impact…
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Hedging for Disaster – The Corona Crisis Continues
by phil - March 18th, 2020 8:51 am
Futures went limit down again.
QE Infinity and $1.2Tn of stimulus wasn't enough, it seems. Here's the problem – even if you give every man, woman and child in this country $2,000 a month ($600Bn) – where are they going to spend it?
Even if the US is that generous (we're not), what about the rest of the World? If every country doesn't do something similar, we're still looking at a global Recession. Recessions end when people goo back to work and things start getting back to normal. The problem is, there's no "normal" in sight at the moment.
As I keep saying – you have to fix the crisis first – NOT the economy!
This is like firemen showing up at a house fire and painting the house while the fire rages on - who cares about that?
As you can see from this 1934 cartoon, this isn't the first Government that's taken a crisis (the dust bowl at the time) and thrown money at it. Money didn't stop the farms from failing and money didn't solve the bread lines or the cascading unemployment that ended up destroying the economy in the Great Depression. The Trump Administration has been propping up the markets since 2017 and have already used all the Fed's firepower and put us $3Tn more in debt in 3 years of Trump and now, when we have an actual crisis – even $1.2Tn doesn't seem like enough to "fix" things.
Bloomberg reporters are reporting from their homes – how's that for inspiring confidence!? As I noted this morning in an Alert to our Members:
Sadly, we'll have to add more hedges today, in case 2,400 breaks down and we head for 1,800. Fortunately, that's down 25% so up 50% on SDS, which is already at $34 so $51 would be the target and the SDS May $35 ($7.50)/50 ($4.50) bull call spread is just $3 and pays $15 so 400% upside potential means we can get $100,000 back for each $25,000 and we just sold $81,000 worth of short puts in the LTP
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2,400 Tuesday – S&P Tests the Bottom of our Target Range
by phil - March 17th, 2020 8:33 am
How low can we go?
If 2,850 is our Must Hold Level (below which we are bearish – and for good reason apparently!), then 20% below that is the bottom of our range and that's 2,280 and the S&P 500 bottomed out at 2,350 yesterday so we're not quite there though we certainly attacked it with a running start as the index fell 325 points (12%) on heavy volume.
As I noted yesterday, while this is now close to 40% from the top, we had no business being at 3,400 in the first place so stop thinking we're going to bounce back to there – that would be silly. It's a lot more likely that 2,850 becomes the top of the new trading range and 2,280 should be the bottom but we're in panic mode now and the selling volume is still overwhelming the buying interest so we could go quite a bit lower – but it's going to be a great buying opportunity… at some point.
It's an incredible buying opportunity for people who still have cash to spend but a 40% drop in the market tends to make people very cautious. As I noted last Thursday, as we dipped to 2,480, our prefered way of bottom-fishing is to sell puts, because it puts CASH!!! in our pockets by simply promising to buy stocks for an additional discount – far below where they are trading today.
Since we're back near the bottom of our range (and, keep in mind, things can get worse), why don't we look at some more stocks we'd like to own if the World doesn't end?
?We are staying away from banks, insurance and travel stocks as we don't know how bad things will ultimately get and we will keep our entries small on the expectation we very likely may have to roll them or double down on them (or both) if the market drops another 20% but here's the kind of bargains we can engineer for ourselves in this kind of market. Do be aware that margin requirements can jump up as the stock goes lower so you should have the cash available to actually buy these stocks. ThinkOrSwim ordinary margin is noted for each item:
- Intel (INTC) – $44.60 is $190Bn
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Monday Market Mayhem – Limit Down (Again) as Fed 0% is NO HELP!
by phil - March 16th, 2020 8:19 am
We are limit down – again.
Since Europe is down about 7.5%, it's very likely we have further to fall at the open since Europe did not partake in Friday's "rally" and is now 5% below Thursday's lows so we could be looking at 20,000 for the Dow (down another 1,800 points from the Futures and down 3,000 points (13%) from Friday's close), S&P 2,300, Nasdaq 6,300 and Russell 1,050 – horrifying numbers.
Of course, things got much worse in 2008, when the Dow fell from 14,000 to 6,000 – that was down 57% and, so far, we're only down from 29,500 to 20,000 (expected) – that's "only" 32% so whoa, whoa, we're halfway there – maybe…
This is happening DESPITE the fact that the Fed cut their base rate to 0-0.25% over the weekend but they also cancelled their scheduled meeting this week and that bothered people as well as the Trump Administration's continuing inept response and lack of leadership. THIS is why I have been anti-Trump since the 2016 election – what did you really think was going to happen in a crisis with this President? Did you really think he was going to step up and provide the clear leadership and vision this country needs in a time of crisis?
So we have a complete crisis of confidence and that's why EVERYTHING is liquidating, including gold ($1,475), silver ($12.00 – a buy at this price!), copper, oil ($29.50 – a buy at this price), cattle (yes, cattle is down 45%), corn, soybeans, wheat – no asset is safe as people go to cash but the Fed Funds rates are now so low that you will soon have to PAY the banks to hold your money – yet another stealthy way Trump is going to tax the American people (and the tariffs are still on too).
The Dollar, as you can see, is down 1% today but up 3% in the past week, that's making it very expensive to convert your assets into CASH!!! but that's what people are doing at an alarming rate. Why, because they have NO CONFIDENCE that the Government can fix the virus problem and, as I said to our Members over the weekend:
I’m just keeping an eye
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Federally Fueled Friday – Fed Buys a Rally for $1.5Tn – Will it Last?
by phil - March 13th, 2020 8:04 am
After finishing down 2,000 (10%) points on the Dow and 260 (9.55%) on the S&P, this morning the Futures are limit up.
While that's exasperatiing – it can also be very profitable, especially as we played the 2,500 line bullish on the S&P 500 Futures (/ES) and they are now up over $4,000 per contract (you're welcome!) as /ES gains over 100 points in the Futures, hitting the 5% circuit breakers pre-market but there are no upside breakers in regular trading so we'll see how much of that 10% we can recovery now that stimulus talk is beginning to overwhelm virus talk – for today, at least.
We also have our long position on Oil (/CL) which is up another $1,600 per contract this morning as Oil crosses back over $33 and we've been playing those since $30 and already took half off at $32.50 so we're very comfortable letting those ride a bit further with stops back at $32.50 for now.
While $1.5Tn is nice, it may not be enough to keep things going as we're waiting to see what kind of other measures the Government is going to take and it needs to be something good into the weekend or we might sell back off into the close. We expected this, that's why we went long on 10 new positions during yesterday's carnage (see yesterday morning's PSW Report) and why we took the Futures longs but nothing has really changed and what we really need is a well-coordinated response to the virus that restores long-term confidence – that is worth more than any rate cut but, for this Government – it's a very tall order indeed.
Still, it's nice to take a break from all the down days and we've dropped 30% from the top which means, just to get a weak bounce, we need a 6% gain so 5% in the Futures is certainly not enough to get excited about – keep that in mind when people are talking about a 1,100-point (5%) rally in the Dow with bated breath.
Pouring more money on the fire is not going to make…
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Thursday Failure – Trump Shuts Travel, Provides No Solutions, No Stimulus – Market Tanks (again)
by phil - March 12th, 2020 8:35 am
Down and down we go.
The Futures are off another 5% this morning and that is their limit (like Monday) so it's very likely we're facing another trading halt at the open with a 7% drop in the indexes to start our day. The S&P 500 is already testing the 2,600 line 10% lower than it was at Tuesday's close (2,882)! This is already the bottom of the range I predicted for the S&P last night on Money Talk (part 2 is here). It's also 10% of the 15% that Goldman Sachs said we would fall yesterday – we just didn't think they meant "tomorrow"…
I decided to post part 2 of the interview because, rather than rehash all the doom and gloom you can hear from anyone this morining (I was all alone in my warnings last month) I want to be constructive and talk about all the great things we can buy. I am NOT ready to call a bottom yet – the markets could still drop substantially lower if this virus spreads out of control (as I said above) but, as I also said above – you have to be prepared for a move up as well as a move down though Trump's misadventures in crisis management last night do seem to make down the more likely case.
Still, we added three trade ideas to our Money Talk Portfolio and there are PLENTY of blue chip stocks that are going on sale AND the Volatility Index (VIX) is going to be in the 60s this morning and that makes it a fantastic time to SELL options – especially put contracts on stocks we REALLY want to own if they get cheaper.
We will stay away from banks, insurance and travel stocks as we don't know how bad things will ultimately get and we will keep our entries small on the expectation we very likely may have to roll them or double down on them (or both) if the market drops another 20% but here's the kind of bargains we can engineer for ourselves in this kind of market. Do be aware that margin requirements can jump up as the stock goes lower…
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Wednesday Weakness – $1.2 Tn in Payroll Tax Cuts Aren’t Enough to Stop the Slide
by phil - March 11th, 2020 8:16 am
What will it take?
Yesterday the Trump Administration announced that they will be seeking the ELIMINATION of Payroll Taxes for the rest of the year. The Government collects $1.26 TRILLION in payroll taxes so this is a $630Bn bonus for working Americans (the other $630Bn goes to the companies that pay matching funds) and, for Trump, this is his fairest tax cut yet, with only half the money going to corporations and rich people who don't need it - instead of the usual 90-100%.
Aside from the fact that this is yet another thinly-disguised tax break for corporations, NOT collecting $1.2Tn will push our annual deficit close to $2.5Tn – that's adding more than 10% in a single year! This is in reaction to a virus that, so far, has infected 1,039 Americans – we could just give each person who's infected $1.2Bn – that would make them feel better!
The Bank of England did an emergency rate cut this morning and India, South Korea and Malaysia are also considering cutting rates and our own Fed has a meeting next week along with Japan, Indonesia and the Philippines followed by Thailand and New Zealand at the end of the month. Thailand, Japan and China have already made stimulus moves and we're waiting on the ECB and Bank of Canada as well. MORE FREE MONEY FOR EVERYONE!!!
Yet the markets are not doing better at all. Despite yesterday's impressive "rally", we remained firmly on the sidelines as we never even came close to our "Weak Bounce" line at 2,960 and that's not even a recovery until we cross back over the "Strong Bounce" line at 3,070 and hold that for 2 consecutive days.
Failing to get back to the weak bounce line in the amount of time it took to fall below it (2 days) means you can kiss a V-shaped recovery goodbye and failing to make a weak bounce in the time it took you to fall from the top (2 weaks) means you are just consolidating for a move down – so that's what we're paying attention to at the moment.
With all this stimulus talk being bandied about, however, I did put out an Alert to our Members this morning to be on the look…
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Turnaround Tuesday – Market Bounces on Stimulus Hopes, Xi’s Visit to Wuhan
by phil - March 10th, 2020 8:12 am
China's President Xi went to Wuhan this morning.
The Communist Party leader arrived by plane in Hubei's capital for an "inspection of the epidemic prevention and control work" in the region, according to the official Xinhua news agency. China's most powerful leader since Mao Zedong is usually a daily fixture in state media but has stayed out of the spotlight for much of the crisis and assigned Premier Li Keqiang to oversee the response to the epidemic – a move copied by Trump, who put VP Pence in charge of US efforts.
China reported only 19 new cases on Tuesday, the lowest figure since it started publishing data on January 21 but there are those calling that data into question amid allegations there is a cover-up aimed at getting Chinese workers, especially farmers, back to work at the beginning of the crucial planting season – regardless of how safe it actually is.
President Trump stayed safe on the golf course yesterday but made it back in the evening to announce he will seek further tax cuts (duh!) and "very substantial relief" for his friends industries that have gained his favor been hit by the virus. As usual with Trump, rather than actually having a plan to announce – he was only promoting his next show with a teaser: "I will be here tomorrow afternoon to let you know about some of the economic steps, which will be major.” said our cartoon President.
Trump's press conference to announce a press conference tanked the Futures but then President Xi helped boost the markets later in the evening and, at the moment (8am) the Dow Futures are up 1,000 points, which is 4%, which is exactly what a weak bounce should be after a 20% drop according to our 5% Rule™ so let's not get too excited just yet…
We adjusted our hedges (as planned) but, otherwise, stayed pretty much on the sidelines in yesterday's carnage and will likely do the same today as we're certainly not buying into this weak (4%) bounce at the moment – especially on very low Futures volume.
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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.