Monday Market Momentum – On the Road to 3,300

Image result for china trade deal cartoonThe momentum is still going.  

It's still about trade as the Trump and Xi have figured out that the more they drag this on, the more the markets seem to like it.  This weekend, China said it would cut tariffs for Frozen Pork, Pharmeceuticals and some High-Tech Components as another step in the Trade Talks.  Of course China is cutting tariffs with 23 other countries that are in the China Free Trade Agreement as well but the US not being excluded is a nice touch.  

“If we cut tariffs only for the U.S., a lot of other countries would complain,” says Wang Huiyao, founder of Beijing-based think tank Center for China and Globalization, or CCG. “This is for China to answer their concerns and support open trade. China will not be criticized for being one-sided to the U.S.”

Still, that doesn't matter to US traders, who have 3,300 Fever for the S&P 500 and that should be getting close to Dow 29,000 so we can all get 30,000 Fever in Q1 as well.  We're still short on details but the US and China are supposed to sign their "Phase 1" deal in "early January" – so we have that to look forward too and I'm sure the markets will leap higher on that "news" as well.

As we get close to closing out the Decade it's amazing to think they S&P 500 was at 666 in March of 2009 and 333 is just under 5 TIMES that level – a gain of 395% for the decade and, more importantly, more than double our pre-crash high of 1,500 – which was also the pre-crash high of 2,000.  Both of those times, the S&P 500 was projected to keep going higher and both of those times it crashed more than 50% because, after all, what is the price of a stock other than a story people seem to like – for the moment?

As you can see on this monthly chart, we're up 50% in just three years AFTER more than fully recovering from the crash so, if we were irrationally exuberant then – I can't imagine
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PhilStockWorld December Portfolio Review

Image result for one million dollars animated gif$153,498!  

That's only up $1,445 since our last reveiw but it's only been three months and we're up 54% overall – not terrible for our Short-Term Portfolio.  As I said to our Members during our STP review on Thursday, in our Live Member Chat Room, the way we will start our Long-Term Portfolio is to simply add cash to the Short-Term Portfolio and rename it and then put a fresh $100,000 into the NEW Short-Term Portfolio.  After that, it's just a matter of moving the hedges over and we're all set for 2020.

At the moment, the longs in the STP are just smal positions we've been poking around with but there's lots to like for the long-term so they'll make a good base for the eventual $500,000 LTP.  The function of the $100,000 STP is to protect the $500,000 LTP but, at the moment, there is no LTP, so the STP is doing double-duty. 

As we made 52% in the first two months, I was not into taking chances into the holidays.  The indexes have been flying higher but there are still plenty of bargains to be had – our most recent Top Trade Ideas were for TOL (12/16), TD (12/12), M (12/9), CMG (12/6) and VALE (12/2) so we found 4 things we liked and a neutral spread on CMG this month.  In the STP, we added short puts on CSCO, an SQQQ hedge, CMG and VALE – leaving us well-diversified into the two slowest weeks of the year.  

Here's the consolidation of last week's reviews:

Short-Term Portfolio Review (STP):   $153,498 (53.5%) is flat to the last review as our hedges killed us and so did TSLA.  Still, I'd rather lock in a $50,000 gain over 3 months than risk giving it back so we got cautious after making ridiculous 2-month gains.  Next month, we can start an LTP by simply renaming this one and removing the short-term plays and the hedges and putting them in a new STP – see how easy that was – we already started our LTP – and it's our STP!  

  • Short puts – All


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Fa La La Friday – The Weekend Before Christmas

Image result for empty mall'Twas the weekend before Christmas and all through the mall, 

No shoppers were shopping – no shoppers at all!  That's right it's the last shopping weekend of the Retail Apocalypse and there are 9,302 less places to shop than there were last Christmas as that's the amount of store closings this year.  Thousands more store closings could be on the way in the coming years as online shopping continues to replace purchases at physical stores and eat into retailers’ profits. High debt levels and rent have also burdened traditional retailers

PaylessGymboreeCharlotte Russe and Shopko all filed for bankruptcy and closed a combined 3,720 stores, according to Coresight. The majority of those were because of Payless, which filed for its second bankruptcy in February and shuttered 2,100 US stores.  Discount chain Fred’s filed for bankruptcy in September and closed 564 stores. Forever 21 also filed for bankruptcy that month and said it will close up to 178 stores. Forever 21’s closures are not in Coresight’s report since they are not finalized.  Other retailers, such as Ann Taylor parent Ascena Retail, Family Dollar, GNC, Walgreens, Signet Jewelers, Victoria’s Secret and JCPenney, slashed their store footprints to save money and prop up higher-performing stores.  Family Dollar closed 359 this year, while Signet, the parent company of mall stalwarts Kay, Jared and Zales, announced 159 closures.

Image result for mall sales chartAccording to UBS, Online Sales are currently 16% of Retail Sales and will rise to 25% by 2026, which could, in turn, force up to 75,000 additional stores to close, including 20,000 clothing stores and 10,000 consumer electronic stores.  Moody's lowered its outlook on Department Stores heading into the holiday season but it shouldn't affect things much as retailers like Macy's (M), Kohls (KSS), Gap (GPS) and L Brands (LB) are already in the bottom 20 of the S&P 500 in 2019 performance. 

As you can see on the chart – it's not so much that ECommerce has really LOWERED the amount of shopping at malls as it has, very clearly, killed its growth.  Stores are closing, in large part, because the ambitions of the Retailers exceeded the reality of their ability to add sales over time
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Impeachment Thursday – Putin Backs Trump Says He has the Votes in Senate

How crazy is this?

At his annual end-of-year news conference in Moscow on Thursday, Putin denounced the impeachment proceedings as "spurious" and said the US Senate is unlikely to remove Trump. He said Trump's presidency is far from over as Republican lawmakers "are unlikely to want to drive out of power a representative of their own party."

To show off his puppeteering skills, Putin made words come out of Trump's mouth all the way in Michigan while having Trump flash the "White Power" sign to the crowd, who burst into applause.  Now, I don't know when we decided the "OK" sign was now the White Power sign and I'd love to give Trump the benefit of the doubt but it's not like he can't know that the OK sign is not OK – it's been a controversial topic involving his supporters all year long and just this weekend, West Point and  Annapolis launched investigations into students who flashed it during the Army-Navy game.  

This is not the first time Trump has been accused of flashing the White Power symbol during a speech and it's a very interestering time to be stirring it up again, what with him being impeached on the same day and all but Vladimir Putin says Trump should not worry as he can't see his GOP Senators reversing the votes he worked so hard to obtain.  

In the end, no Republican House Members voted to impeach the President and only 2 Democrats voted not to but, on Article 2 of the Impeachment (Obstruction), 35 Republican's did not vote rather than pretend the President did not obstruct Congress any of the 10 times he was cited for doing so in the Mueller Report.   Unfortunately for Trump, the leaves the House Vote 221 to 165 against him and that's 57% – more than enough to convict in the Senate.  

Image result for ok white powerI say we give Trump a pass on using the OK sign because maybe the President is just oblivious to current events or, if not, lacks the self-control to avoid making controversial gestures that are likely to be misinterpreted as support for the worst possible people or, even better
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Wary Wednesday – Boeing Production Halt Spells Big Trouble for Q1 GDP

I don't think people understand math.  

Boeing (BA) Sells $25Bn worth of airplanes per quarter and spends about $20Bn to make them so that's 0.1% off the $4.7Tn quarterly GDP right there but their suppliers also spend money and we're not even considering the impact of the layoffs and the hit we're going to get to inventories – which is also a negative on GDP.  Goldman Sachs (GS) estimates that an $18Bn reduction in inventory (not all BA planes are the Max) alone will knock 0.4% off Q1 GDP PLUS a good 0.1% from BA's lack of revenues (along with the chain of suppliers) so we're talking about a 0.5% reduction to a GDP number that was already projected to be barely above 1%.

Durable Goods and Manufacturing numbers will also take a huge hit so we're looking ahead to a string of bad reports – maybe even a bump in unemployment in the months ahead.  We are constantly amazed by how shocked traders seem to be by news that we could see coming a mile away so I will tell you now – while it is still a mile away – to prepare yourself for the shock of your fellow traders – who are ignoring this coming storm just like they've ignored all other storms to hit the market in the past year. 

Image result for struck by lightning animated gifWill this one matter?  It's hard to say.  There are plenty of people who go outside in lightning storms and very few are actually struck by lightning.  That doesn't mean it's safe to go out in a lightning storm and those who don't go outside are never struck by lightning while those who do are only rarely struck by lightning.  The people who stay inside are not foolish and the people who go outside are not really foolish either – as statistics are very much on their side.

Still, this is math and MATH is telling us that the Q1 GDP will be about 33% lower than the currently projected 1.5%, which means that no one seems to be taking into account the ACTUAL decision by Boeing to halt production through Q1.  Nothing is going to change that – once they shut production,…
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Tuesday’s Top Commodity Trades for 2020

Go KC!  

No, not the Kansas City Chiefs (who are #1 in the West) but /KC Coffee Futures, which are number one for our readers with a big $15,000 per contract gain at $142 - up from our September 25th entry at $100.  The lowest we dipped was $95.80, back in mid-October (/KCH20 is +$3 to the front-month chart) – staying just above our $95 stop line for the whole run and finally blasting off this month, well past our $122 goal.  At the time, I said in the Morning Report:

There's no ETF for Orange Juice but there is for Coffee (/KC) and we always love it below $100 and /KCH20 (March) is down to $102 and that makes for a fun play but you have to be willing to Double Down at $98 to average 2x at $100 with a stop at $95, which would be a loss of $375 per $1 or $1,875 per contract. So the risk is $3,750 but the reward, even at just $122 would be $7,500 on a single contract and /KC has been very good to us for two years now.

So, if the instructions were followed correctly, that's at least 2 contracts that are up $42 each for over $30,000 in gains in 3 months against a $3,750 risk – not bad for a quick commodity trade, right?  For those who are future-challenged, we also had a trade idea for the Coffee ETF (JO) as follows:

Coffee does have an ETF (JO) and, like SOYB above, we can pick up a spread that can give us a nice return. We think $100 (though it can dip below) is a good floor for Coffee as it's a point below which the farmers simply can't make money selling it. For the ETF, which is at $32.50, we can do the following spread:

  • Sell 5 JO March


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Monday Market Movement

We have a Trade Deal – now what?

Now there is going to be more pressure on the numbers, going forward, to show us genuine improvement and every Corporate Profit miss can't be excused by "tariff issues" but, other than that, life goes on.  Over the weekend, the US and China offially agreed to "Phase 1" of a trade deal but there are still 25% tariffs on $250Bn in Chinese goods and China hasn't cut tariffs on our goods at all.  Trump agreed to cut tariffs on $150Bn worth of Chinese goods from 15% to 7.5%, giving up $9Bn of his $77.5Bn tariff slush fund – as I predicted, Trump would not let that money go as he needs it to win the 2020 election.

Not only that but none of this actually goes into force until February so, for now, nothing at all has actually happened other than the US delaying the additional tariffs that were threatened to begin on the 15th.  As noted by the WSJ: "Neither government submitted a full text or even a detailed summary of the deal, hamstringing efforts to determine the winners and losers in the world’s two biggest economies or the quality of the agreement."

Chinese negotiators struck a more cautious tone. At a hastily arranged press conference at the main propaganda department in central Beijing, senior Chinese economy officials didn’t disclose much detail, except to confirm that both sides had reached an agreement in principle.

Vice Commerce Minister Wang Shouwen, one of China’s lead negotiators, said the U.S. had agreed to remove the remaining tariffs on Chinese products “in stages.” Mr. Lighthizer said there was no such agreement on that, and suggested China believes further reductions could be negotiated in later phases of the deal.

Overall, does this really seem like something that should be driving the markets to record highs?  We expected to see 3,300 on the S&P following a Trade Deal with China but since then, our expectations have been lowered and now traders are acting like this partial deal deserves the same sort of boost of market confidence that a full deal would have brought.  That's obviously ridiculous when you think about it and, very clearly, traders are not thinking about it


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Fabulous Friday – China Deal at Last!

chartDow 30,000 or 10,000? 

30,000 could happen now that we have our trade deal with China though, as you can see from the 1920s wedge (100 years ago next month!), it ain't over until the Great Gatsby sings.  Sure it's a stupid, pointless deal that has no teeth and is no better than what we had two years ago – before all the suffering – but, hey, it's a deal and, as President Trump noted in "The Art of the Deal":

"The final key to the way I promote is bravado. I play to people's fantasies. People may not always think big themselves, but they can still get very excited by those who do. That's why a little hyperbole never hurts. 

So we can expect to hear that this is "The best Trade Deal Ever."  We don't actually know what it is yet and nothing has, so far, been confirmed by China so it's possible the whole thing is nothing more than a way for Trump to distract us from today's Impeachment Vote – which he thought was going to happen late last night but was rolled over to this morning – infuriating the GOP – who worked so hard to drag yesterday's session long past bed time, so most Americans would miss it.

As to the "Trade Deal", although not fully announced, it seems that China is agreeing to purchase $50Bn worth of US Agricultural Products (they used to buy $40Bn anyway) in exchange for $50Bn worth of tariff reductions so, essentially – we are GIVING China $50Bn worth of Agricultural Products and the differenct to the Treasury will, of course, be paid by the American people – as usual.  What a deal!

As you can see from this IMF chart, clearly the damage has already been done and hopefully we're in time to undo it before things get worse – like 2008 worse…

I said a very long time ago the economy was suffering from "Self-Inflicted Wounds" and could easily recover if we simply stop this Trade War nonsense and Brexit nonsense and both look like they might end soon so now we'll
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Future Stock Thursday – Building a Portfolio for the 21st Century

MADUN K The future is now, old man. Face Facial expression Head Forehead Cheek Chin Male ChildThe Future is Now!  

I was posting some news on Tuesday in our Live Member Chat Room and McDonalds (MCD) was selling Artificial Beef (BYND), the Freeport LNG Terminal was coming on-line in Texas to supply Japan with Liquefied Natural Gas, Virgin Galactic (SPCE) got an upgrade based on Hypersonic Travel and Wal-Mart (WMT) is testing Autonomous Grocery Deliveries.  I wasn't looking for them but that was all in one morning's news, which led me to comment to our Members:

I'm thinking we should put together a portfolio of "Future is Now" stocks like SPCE – Something that represents the leader in each Future Field like CRSP, ISRG, etc…

As I noted in yesterday's Live Trading Webinar, it's tough to pick winners this early in the game but we can pick the sectors that are likely to be important in the next 10-20 years and then, within those categories, we can find stocks we currently think are a reasonable value within a growing sector.  In yesterday's Member Chat Room and during the Webinar, we came up with the following ideas:

  • Virgin Galactic (Space Tourism) – SPCE
  • TSLA
  • BYND
  • SPWR 
  • LMT (Fusion) 
  • DIS (entertainment) 
  • XYL (water treatment)
  • WM (more people, more waste)
  • CRSP
  • IBM (AI) 
  • QCOM (5G…) 
  • ISRG 
  • BLDP, PLUG, FCEL (not sure which)

 

IN PROGRESS

 

 

Federally Fueled Wednesday – Low Rates and Tariff Delays – What Can Go Wrong?

The Fed makes their final decision at 2pm.

We'll be doing our Live Trading Webinar at 1pm, EST so we'll be reacting to the FOMC announcement live but, other than yesterday's little dip, we've been chugging along so far this week and I think only bad trade news can derail us now.  

With this President, we won't know for sure until midnight on Sunday whether or not there will be another round of tariffs placed on China.  Yesterday morning there was a rumor the tariffs were delayed but now the signals are back to being mixed and the situation changes by the tweet.  Trump is busy at the moment, lashing out at anyone not helping to get him out of his impeachment mess but it's too late now and this will drag on into next year – but traders don't seem to care.

As it's December 11th, we only have a month to go on our "5 Trade Ideas to Make $25,000 in 5 Months" so we'd better go over them and see if it's worth risking over the volatile holidays.  We hedged our Member Portfolios last week but these were just 5 trade ideas to make money to spend for Christmas – so it really is time to take them off the table:

  • Sell 5 VAC April $85 puts for $5.70 ($2,850) 
  • Buy 7 VAC Jan $80 calls for $20 ($14,000) 
  • Sell 7 VAC Jan $90 calls for $12.80 ($8,960) 

The net cost of the spread is $2,190 and, if successful, it pays $7,000 at $90 or higher


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