Philstockworld October Portfolio Review

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-Term Portfolio Update (STP) – Submitted on 2017/10/19 at 3:20 pm:  $430,680 is down $56,347 on our hedges in the past month and that neatly negates about 2/3 of the LTP's gains so we're a bit more bearish than we were last time (in our paired portfolios) after making several bearish adjustments that were intended to move us to neutral.  

So, on the whole, we made about $25,000 despite ourselves, which is the strength of our model for selling premium.  The primary purpose of the STP is to protect the LTP – it's not supposed to make money in a bull market but it BETTER make a lot of money when we turn bearish.  Of course, it always has – that's why it's up 330% in 4 years despite usually being "wrong".

  • AMZN – They keep going for $1,000 and keep failing.  Our intention was to risk earnings but it's too scary so let's take the $13,208 profit in the hand and get out of the bush!  
  • FAS – Those financials are like a killer clown, they keep popping back up.  Still, the ultra ETF looks toppy and it's counterpart looks bottomy so we'll see what happens.  

  • ABX – A bullish offset, not worried. 
  • GOGO – Not too worried.
  • SBUX – Who wouldn't love a 20% discount on SBUX?
  • LABU – A real no-brainer when they get cheap!  Blasted past our target but earnings are dicey so let's cash our 10 extra long March $50 calls so we end up with a proper spread.  

  • SQQQ – 40 uncovered $23 longs is pretty aggressive.  Let's keep it that way.  At $30 (7% Nas drop), we


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Fabulous Friday – Nasdaq’s Big 4 Come Through

Wow! 

What a big day for tech as Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT) and Intel (INTC) all beat earnings estimates and all raised guidance – pretty much justifying the crazy Nasdaq run – 6,666 it is (see yesterday's Report)!  I hate to say it but it's not a bubble when earnings are blasting higher and all 4 of the big tech names are benefitting from the explosive growth of Cloud Computing and the Internet of Things.

I will be on Benzinga's Pre-Market Prep this morning – just in time to look over the GDP report and I'm sure we'll be discussing the Nasdaq and where we could go from here.  Last time I was on the show was September 29th and we discussed our Limited Brands (LP) spread, which has already moved up from $1,600 to $4,200, so up $2,600 (162%) in short order but only "on track" for our 800% projected gain.  

We also talked about using the Russell Ultra-Short ETF (TZA) as a hedge with 50 Nov $12 calls at $1.95 ($9,750), selling 50 $14 calls for 0.70 ($3,500) for a $1.25 ($6,250) net cost, which we offset by selling 5 Apple (AAPL) 2020 $130 puts for $11.20 ($5,600) to drop the net of the spread to $650.  Despite the rally, TZA is at $13.45 so the spread is $1.45 ($7,250) while the AAPL puts have fallen to $10 ($5,000) so net $2,250 is up $1,600 (246%), despite not even needing our hedge during this rally.  

Why does that work?  Because we are Being the House – NOT the Gambler and selling premium when we establish our spreads.  The only sure thing in the markets is that premiumd DOES expire – and that gives us an edge in every trade we make.  

This morning we discussed a variation of yesterday's long trade idea on Celgene (CELG):

  • Sell 5 CELG 2020 $80 puts for $9 ($4,500) 
  • Buy 10 CELG 2020 $80 calls for $30 ($30,000)
  • Sell 10 CELG 2020 $110 calls for $16 ($16,000) 

That trade nets you in for $9,500 and returns up top $30,000 for a $20,500 profit (215%) if CELG can get back over…
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Thrilling Thursday – Will Big Tech Justify Nasdaq 6,666?

Image result for nasdaq rally fangAmazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT) and Intel (INTC).

All four will report tonight and they make up 20% of the Nasdaq by weight (and AAPL, who are the rest of the Nasdaq that counts, reports on 11/2) so it's do or die for the index that's up 25% since the election but that's still only HALF of the move the FAANG stocks have made (Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and GOOGL), who are up 50% as a group since last November.

It's truly a market gong wild and we made some lovely profits on our shorts yesterday, nailing the move oil, as we had said to you in the morning Report:

Meanwhile, in our quest to join the Top 1%, we shorted Oil (/CL) Futures again at $52.50 and the EIA Inventory Report is at 10:30, so that will be fun.  We have Gasoline (/RB) shorts to at about $1.72 avg but they spiked to $1.738 overnight – so a rough ride.

Oil fell to $52 and that was good for gains of $500 per contract while Gasoline hit the $1.70 mark, which was good for gains of $840 per contract and then it bounced right back to $1.735 – so we shorted it again in our Live Trading Webinar but this time, we went with next month's /RBZ7 contract at $1.686 for our Webinar Trade (and you can see our volume spike on the chart!).  This morning, in our Live Member Chat Room, we used our 5% Rule to set goals for a pullback at $1.63, which would be a better than $2,000 per contract gain.  

While we usually don't share trade ideas with cheapskate readers during earnings week, the following trade is such a gift I simply have to tell you about it.  Barrick Gold (ABX) is our favorite gold company and we have them in all of our portfolios but, as an earnings play, I sent out a Top Trade Alert to our Members yesterday afternoon with a trade we discussed in our Live Trading Webinar:

ABX – In the Webinar we decided 50 2020 $15 ($3.45)/$22 ($1.35) bull call spread at net $2.10 ($10,500)


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What Now Wednesday – Jeff Flake Joins the Resistance

Viva la Resistance! 

Senator Jeff Flake gave a Hell of a speech on the Senate floor yesterday, calling for his fellow Senators to stand with him against the "impulses to threaten and scapegoat" which could turn the GOP into a party of "fearful, backward-looking people, " saying:

Reckless, outrageous, and undignified behavior has become excused and countenanced as "telling it like it is," when it is actually just reckless, outrageous, and undignified.

The notion that one should stay silent as the norms and values that keep America strong are undermined and as the alliances and agreements that ensure the stability of the entire world are routinely threatened by the level of thought that goes into 140 characters – the notion that one should say and do nothing in the face of such mercurial behavior is ahistoric and, I believe, profoundly misguided.

To which the President, of course, replied by theatening and scapegoating in a tweet:

This would be funny if it wasn't so tragic.  And don't think this doesn't affect the markets as losing 2 reliable Senate votes means Trump needs ALL 50 of the other Republican Senators to line up behind his agenda or nothing will be done – even with Pence's tie-breaker.  What that effectively does is put any one of those 50 Senators in the drivers seat to make demands because they can't afford to lose a single vote and, if one more Senator joins The Resistance – Trump effectively becomes a lame duck and his agenda goes out the Window. 

Remember how the Republicans told the Democrats they had to wait 18 months until the next election and "let the voters decide" who sits in the Supreme Court?  Well, now that turns around on them and Trump may not get those appointments he's been salivating over.  More to the point, why are we investing in stocks at all-time high valuations while our Government…
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Terrific Tuesday – Dow Blasts Higher on Caterpillar, 3M Earnings

2 companies.  

That's all it took this morning to blast the Dow 130 points higher pre-market.  Caterpillar (CAT) was up $10 (7%) and that added 85 Dow points and 3M (MMM) jumped $8 (3.5%) and added 64 points so that's 149 of 130 points added by just 2 of the Dow's 30 components – the rest are net negative.  What a silly index!  The combined market cap of CAT and MMM is $200Bn, only as much as GE but if GE dropped 10%, that would only subtract about 20 Dow points, because GE is a $22.50 stock.

So a $22.50 stock worth $200Bn dropping 10% on the Dow has 1/7th the impact of 2 other stocks with the same TOTAL market cap rising an average of 5.75% between them.  That doesn't just not make sense – it's stupid!  Think how easy it is to manipulate an index that has those kind of price distortions.  

Fortunately, we love these easily manipulated distortions.  Yesterday morning, in our Live Member Chat Room, we shorted the Dow (/YM) Futures as they tested 23,300 and we got a great drop to 23,225 which was good for gains of $375 per contract. 

Even if you don't have access to the Member Chat Room, in our morning's PSW Report, we gave you the long trade idea for /KC at $1.28 and that was good for $375 per contract by 10 am (and today it's back and we can play it again).   

Our other Trade Idea from the Monday Morning Report was:

Silver (/SI) is back to $16.90 and that's down 0.40 from Thursday's close but back to where we went long on Wednesday so why wouldn't we play it again (with tight stops below) as it was a $1,500/contract winner last time?  $16.75 should be the low-low, so that's where I'd look to try again if $16.90 fails and we'll follow up on this one into Wednesday's Live Trading Webinar.  

As you can see, a
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Just Another Manic Monday – Abenomic Edition

Go Japan!  

As you can see from the chart, the Nikkei is up 600 points (2.8%) since Thursday's close as Prime Minister Shinzo Abe's party retained its 2/3 majority in the Diet (Parliament) – though it doesn't REALLY matter as Japan, like the US, is actually controlled by large Corporations.  “Corporate Japan is determined to play a role in rebuilding our economy and is cooperating with the Abe administration’s strategy,” Sadayuki Sakakibara, chairman of Japan’s main business lobby Keidanren, said in a statement.. 

Either way, the end result is a continuation of Japan's ultra-easy money policies that have led the nation to over 1.2 QUADRILLION Yen of Debt, which is $12.5Tn(ish) and 250% of their annual GDP.  

Related imageThe reason no one is worried about the US being $20Tn in debt is because it's "only" 110% of our GDP and that means we can borrow another $20Tn and STILL look better than Japan but Japan is a ticking time bomb, where 24.3% of Government revenues went to debt service alone last year – and that's at these ultra-low interest rates.  Japan, by the way, like the US, gets 41% of their tax revenues from the Social Security contributions of an aging population and only gives back 17.9% but the people don't seem to mind – they just voted for much more of the same.  

Japan is able, so far, to sustain their massive debts because their current borrowing rate is essentially negative.  The Japanese people and even the Corporations consider it their duty to support the Government by buying bonds, and they do so at any price – even when the rates are costing them money to save.  Things will be fine for Japan as long as the rates stay below 0.5%, where they have been for the last 5 years but, over that, and the share of debt service goes up 12.5% with each half point of intererst – Japan is one credit downgrade away from a real catastrophe.

In theory, the negative rates are supposed to spur consumer borrowing and spending but, like in the US, low wages for the Bottom 90% have kept spending and prices stagnant and, like in the US, the Top 10%
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Fabulous Friday Finish – Markets Make New Highs

GE (GE) dropped guidance by 33%.

Not sure why I bother mentioning it, it's only a $200Bn leading industrial company so why shouldn't the Dow be up 100 points pre-market?  Makes perfect sense, right?  GE is a Dow component but it's stock is only at $23.50 so a 6.5% drop to $22 is only $1.50 and that's just 14 Dow points vs a 10% drop in IBM being $15 and adding 127 points the other day.  Get it?  No, nobody does, but it's still our leading market indicator so just play the game and don't ask too many questions.

We have been long on GE since June 27th and we have 2,000 shares at $27.40 in our Long-Term Portfolio but we sold the 2019 $25 calls for $3.75 and the $28 puts for $3.10 so our net entry on 2,000 shares was $20.55 but, if we get assigned another 2,000 at $28 (seems likely now), we'll have 4,000 shares at an average of $24.275.  Of course, then we will sell another round of calls – the 2019 $23 calls are now $2.40 so hopefully we'll get more like $3.50 for the 2020s when they come out.  That will keep our basis around $20 while we collect GE's fat 0.94 dividend so, as long as they don't cut it, we're happy to accumulate down here.  

Image result for dow jones original 12Either GE is going the wrong way or the Dow is and, this morning, we shorted the Dow Futures (/YM) in our Live Member Chat Room at 23,200.  If it turns out the Dow SHOULD be up 28% for the year, then I have to believe GE will find a way to reverse their 20% decline over the same period.  It's not just unusual that GE would diverge from the Dow by over 40% (almost 50% now) – it has NEVER happened, in the entire 121-year history (1896) of the Index (GE was one of the original 12 companies).  Never is a long time, folks – this time sure is different, isn't it?  

As we discussed in Wednesday's Live Trading Webinar – we're not "bearish" on the market, we're simply looking for a nice 5-10% correction that will make us feel better about…
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Faltering Thursday – Terror at Dow 26,000

Have we finally gone too far?  

Of course we have, what kind of question is that?  On the right is the SPY volume for the week and we haven't cracked 40M shares trading vs. an average of 62M this year, which is already half of last year.  This came on a day, yesterday, when the Dow popped 160 points but, as we noted in yesterday morning's PSW Report (and in our Live Trading Webinar), it was on the backs of just IBM and GS, while the other 28 stocks in the index were effectively flat.  So the very, very narrow "rally" continues but it can very easily be overwhelmed by any kind of volume selling and we called for more CASH!!! in our porfolios during yesterday's webinar – as this market may finally be approaching peak ridiculous.  

If it's not, we'll get back in but yesterday our Webinar Trade Idea was to short the Russell (/TF), which was 1,510 at the time (1-3pm) and this morning we fell all the way to 1,495, which is up $750 per contract and we took a $7,320 gain and ran in our Morning Alert to Members (also tweeted out) on our 12 contract play near the bottom (our average entry was 1,503.27 as we started earlier than the Webinar).  Still, it's not bad for a day-trade, right?  

We also played the Dow (/YM) Futures short at 23,100 and the Dow fell below 22,900 this morning and that was good for gains of $1,000 per contract and Oil (/CL), which we discussed shorting in yesterday morning's report (subscribe here so you don't miss them) which fell from our predicted spike of $52.50 on inventories all the way back to $51.50 this morning, also good for $1,000 per contract gain while our Webinar Gasoline shorts (/RB) at $1.65 are already up $840 per contract at $1.63 so – you're welcome!  

We also called a long on Silver (/SI) at $17 and that's popping this morning and Coffee (/KCH8) is already moving up but Natural Gas (/NGV8) is still under $3 and we love those next October contracts, especially
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Wonderful Wednesday – Dow 23,000 or Bust!

a chart of corporate guidance announcements over the past yearDoes anything matter?  

On the right is the Daily Guidance Oscillator, which shows how forward guidance is fading fast, unraveling the enthusiasm of August with only 28% of companies reporting issuing positive guidance and a whopping 39.4% going negative and the chart you see is the net trend difference between postive and negative guidance

The trend was this bad in July and the markets took a very small dip (2.5%) and in March it was worse and we dipped about 5% but we're up 10% from the March lows now and up 15% for the year so we'll stay on our toes and keep an eye on this indicator as more earnings reports come in.  80 of the S&P 500 report next week and another 240 next week so it's definitely crunch time.  

Another indicator we're watching closely is the Advance/Decline lines as we're seeing the game we discussed yesterday playing out where major index weights, like Apple (AAPL) are being used to prop up the indexes while the Fund Managers and Banksters sell off the bulk of their holdings.  The reason they do this is because holding up the index keeps the ETF money flowing in (from 401Ks, IRAs, etc.), which creates plenty of buyers for their small positions while they spend their money accumulating stocks they don't mind holding through a correction – like AAPL.

Notice that the number of stocks that were being sold and the volume of selling far outweighed the buying yesterday and also notice the most of our market gains come in the early morning Futures – where trading is very thin.  That's another Fund Manager trick – jack up the futures and the retail suckers rush in to chase the move while you sell off your holdings into higher volume.  

Jim Cramer had a nice video explaining how fund managers manipulate the market, noting it doesn't take much money to manipulate the markets using the Futures noting "It's a fun game, and it's a lucrative game" and "I would encourage anyone who is in the hedge fund game to do it because it's legal and a quick way to make money – and very satisfying." 


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Terrific Tuesday – Apple (AAPL) Tests $160 Again

The bull is back! 

Well, it never left but it paused for a day and that's something, right?  As is often the case when the markets need a lift, Apple (AAPL) is getting a boost and, since it's in the Dow, the $10 run this month has added 85 of the Dow's 1,000 points but, in the S&P 500, AAPL is a whopping 4% of the S&P 500's weight so the 6.66% run from $150 to $160 adds 0.25% to the S&P, which is up 100 points (4%) over that time.  In the Nasdaq, fuggedaboutit, as AAPL is closing in on 15% of the Nasdaq's total weight so adding 1% to the index all by itself from that run while the entire index is up 4% so 25% of the move comes from AAPL and probably another 25% from AAPL suppliers!  

Boosting some of the key components in an index through upgrades, M&A rumors or straight-up buying of the stocks is a great way to mask selling by Fund Managers and Banksters when they don't want to scare off the Retail Investors while they move to CASH!!! (have I mentioned how much I love CASH!!! lately?).  Yesterday, for example, the Nasdaq finished up but 1,514 stocks declined while only 1,370 advanced in the index.  A falling Advance/Decline Line is one of the things we watch for if there's going to be a correction, so we'll be keeping an eye on it during earnings but nothing to worry about… yet.

Meanwhile, it's earnings season and yesterday we got a beat from Schwab (SCHW) and SONC (SONC) although the latter blamed the hurricanes for any shortfalls.  KMG (KMG) and Netflix (NFLX) missed but Netflix was immediately forgiven by rabid fans, who are happily paying the 10% rate hike which will, hopefully, compensate for their profligate spending.  NFLX did add 4.5M new subscribers and, at $13/month, that's $702M/yr in new revenues added in just one quarter – not bad!  Unfortunately, they have also increased content spending by $1Bn/yr ($8Bn now) – so we'll see how things go for them but the bottom line is they burned $465M in cash last Q – not good.  

None of that stops the company from commanding a price…
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