This Week in Barrons: 6-28-2020:
Some Thoughts:
My little Black Book: 20 years ago I used to think: If I could just get a hold of Steven Spielberg’s address book, I could make a great movie. Then I realized that even if had the phone numbers and names, calling them up without establishing trust & connection wouldn’t be worth very much. Data has limited value without trust and connection. 20 years later, all the address books have been stolen. Everyone has all the data – it is no longer the competitive advantage. Identifying the right people (or spamming everyone) is easy and cheap – so that’s not a differentiator. So concentrate on establishing trust & connection, and allow the data to be the gatekeeper it always was.
Are you worth more or less than you were pre-COVID? TS got me thinking the other day: if the Pittsburgh Pirates were publicly traded – would they be worth more or less than they were pre-COVID? Okay that’s easy, but how much less – given they’re not playing baseball? My problem is that the Apple stores are still closed, but their stock is almost 10% higher than it was pre-COVID. Something doesn’t pass the ‘sniff’test. Apple is the world’s most widely held and closely followed company. So, it was either grossly undervalued prior to the pandemic, or we’ve all lost our minds? Does that mean the Pittsburgh Pirates were undervalued? Nah, I think we’ve all lost our minds.
The smart phone ushered in the work-from-home era. The WFH era was followed closely by the work-from-everywhere and then the work-all-the-time eras. Now that we ‘live at work’, our homes need to change so that we can also ‘live at home’.
Are you skilled, or just talented? Talent is something you’re born with, but a skill is something you develop. Talent is just ‘there’, but skill comes from commitment, practice, and self-discipline. Here’s where it gets messy:
- Who gets to be captain of the volleyball team: The tall kid, or the one who always practices and brings the most teamwork to the game?
- Who gets an ‘A’ in math: The one who breezes through the tests, or the one who asks intelligent questions and challenges the assumptions?
- Who gets into a fancy college: The one whose parents are alumni, or – you get the drift.
Our leaders talk about developing new skill sets, but continue to take the easy-way-out by rewarding talent. The good news is that with a complete system re-boot (due to COVID), we will finally get to enjoy watching ‘talent’ respond to people with ‘real skill sets’ pressing the ‘reset’ buttons.
The Market:
There was talk last weekend that pension funds may be rebalancing a ton of their positions, because their stock holdings exceeded their charter’s allotment. Maybe that was the case as we sold off aggressively last week. There is a tale of two tapes. One tape has the DOW below its 200-day moving average for two weeks, and can’t seem to rise above it. It also had the S&P above its 200-day for two weeks, but on Friday finally punctured through it to the downside. The next level lower on the S&P is its 50-day at 2980. The other tape has two opposing forces playing out. One marked by the end of the month, and also the end of the quarter – which normally causes portfolio managers to mark-up their stocks to make their portfolios look good. The other was the pension fund rebalancing, where Wells estimated pension fund stock sales to be between $35B and $76B, and the rebalance to bonds could be the largest in 6 years.
HL pointed out that If we look at the actual GAAP earnings for the tech sector – we will see a 10% decline YoY. This was considerably better than the S&P 500 whose earnings are down -66% YoY. Second quarter earnings are expected to be lower once again, but the story remains intact – ‘this recession is bullish for tech.’ Currently, tech stocks are pricing in a fairy-tale outcome: a V-shaped recovery with no impact from the deepest economic contraction and highest unemployment the world has seen since the Depression. A lot of us have difficulty believing this outcome. HL also mapped out a fictionalized portfolio comprised of: Apple, Microsoft, Amazon, the XLK (technology ETF), the ESPO (video gaming and eSports ETF), the XBI (biotech), and the IHI (medical device) ETFs.
InfoBits:
- A behavioral study found that… 75% of people selecting from a menu chose the first item – even when the menu items were reversed. And over 67% of everything selected comes from the first three items.
- The percentage of positive COVID tests… rose from 4.4% to 5.3% in heavily infected areas. Michael Osterholm said: “Americans should not be thinking about new waves, but rather about one continuous, ever-growing forest fire”.
- More COVID: Yesterday, the U.S. recorded its highest number of new cases since the pandemic began. +35 states now have case increases. Mississippi’s and Houston’s medical centers have hit their ICU bed capacity. And the surge has prompted +11 states to pause or pull back reopening plans.
- Sales of existing homes in May fell 9.7%... compared with April, and sales are down 26.6% annually. That is the largest annual decline since 1982, and the slowest sales pace since October 2010.
- Camping World (CWH) has been on a tear. It was $3.87 per share on March 18th, and closed on Friday at $27.95. A +600% return in 3 months.
- Apple announced that by year end… it will start shipping Macs that run on Apple chips. This brings the Mac much closer to their own portable devices, blurring the lines between computer, tablet and smartphone – and further strengthening Apple’s grip on its customer.
- Fastly… is a company whose technology helps consumers more rapidly view and retrieve data. It’s now the best-performing tech stock during the pandemic.
- Amazon went public in 1997… with $16m in revenue, and $438m in market cap.
- New York, New Jersey, and Connecticut announced… that they're requiring out-of-state visitors to quarantine for 14 days – if they come from one of at least 8 states with high infection rates.
- Nike’s sales tumbled… 38% this quarter – yeouza!
- Mastercard is shelling out $825 million to buy Finicity… a company that helps consumers control and direct access to their personal financial and banking information.
- Macy’s cut 3,900 more workers… and their stock is down 60% YTD.
- Exxon Mobil Corp is down 33% YTD… and 57% from its all-time high. At one time Exxon was the largest market cap company in the world. Now, it's not even 15% of the largest.
- GNC filed for Chapter 11 bankruptcy Friday. The stock rose as much as 60% during pre-market hours, and ended closing ‘up’ on the day – go figure.
- What if the social media ‘advertising model’ went AWAY? Facebook has come under growing pressure as more brands have announced they won't advertise on the social network until it does more to address hate speech and misinformation. Unilever, Coca-Cola, Verizon, Ben & Jerry’s, Patagonia, North Face and numerous other brands are boycotting the platform.
- Amazon has agreed to pay more than $1B… to buy the six-year-old autonomous car developer Zoox.
- There won’t be enough BEER for July 4th … Business Beer Daily reports.
- SF reports that a 65-year-old couple… retiring in 2019 will need to save $285,000 to cover healthcare costs over their remaining lifetime.
- Gap was the biggest winner in the S&P on Friday… ripping 18.8% on ridiculous trading volume. Kanye West signed a 10-year deal with the suffering clothing retailer, which could result in a huge payday.
Crypto-Bytes:
- Start With Gold Gunnar Jaerv, COO of First Digital Trust, said the tokenization revolution, which could reach more than $544T worth of assets, will be kicked off by tokenizing precious metals by paving the way for regulatory clarity and proving the effectiveness.
- PayPal's Crypto Plans Yesterday, it came to light that crypto functionality may come to PayPal and Venmo. This would instantly bring 325m users into the crypto marketplace. “This has the potential of becoming the biggest crypto on-ramp ever,” said Matt Greenspan, founder of Quantum Economics. “Amid this COVID-led market turbulence, crypto and gold have emerged as relatively safe bets for investors.”
Last Week:
Monday: It’s rumored that pension funds may need to sell about $1.5B in stock, to keep their charters in balance. That means that the stocks being held by pension funds have risen so much that the value of their stock portfolio exceeds the percentage split between stocks and bonds. So, they need to pare down the stocks and buy more bonds. There's quite a few chart set ups that caught my eye this am. I’m watching: VIR over $42.90, OPGN over $2.25, WING over $138.90, AHCO over $19.50, ARAV over $14.75, and HALO over $25.25 should be good for more. The metals are looking pretty good, so you might wish to consider SAND over $9.15, and CWH has cleared some congestion and could work over $28.40.
Tuesday: Most people probably aren't aware of the "thing" that happened once again last night. During an interview Peter Navarro, when asked if the trade deal with China was still intact, he said: "It's over." That sent the futures crashing, but then (like magic) the President came out and said that the China deal was intact and the futures immediately bounced back. Surely yesterday's action showed that there are sellers out there, but today the buyers came back and the Nasdaq actually set an all-time-high. So, in a time when the virus is resurfacing, when multiple cities are seeing violent riots, where tens of millions are still unemployed – the stock market is making all-time-highs. Really? So, what do we do now? I still think that ARAV over $14.75 would work, and a move in SAND over $9.50 would get me in.
Wednesday: I've wiped my eyes twice now, but for some reason I’m still seeing red on my screen. I mentioned yesterday that we might be close to at least a pause – could this be the beginning of it? If the intent is to square off some pension positions, we might want to shy away from the big names. VSTO (however) has broken out and looks good. VSTO is the parent company of a ton of outdoor sports companies, including ammunition manufacturers like CCI and Federal. Between people wanting to go outdoors, along with the demand for such products, VSTO is both a chart play and a story stock. So, I'm going to put out the entry levels, even though we might sink for a couple days. VSTO over 14.40, ARAV over 26.05, SAND over 9.50, and NEM over 59.90
Thursday: This week’s initial jobless claims reading came in at 1.48m. GDP remained at a minus -5%. Even the IMF is telling people that the two-month rebound in financial markets is vulnerable to a reversal because it's fueled by central banks and disconnected from the economic outlook. The S&P has rallied more than 35% from its pandemic low in late March, even as virus deaths mount, the U.S. is on lock down, and the unemployment rate soars. The IMF said that such rallies have occurred in past periods of significant economic pressure, only to quickly unwind. I do NOT think that this green opening holds, and we see some selling tomorrow. I'm in no big hurry to try and grab things in here. They suspended the Volcker Rule prior to the bank stress tests. I think this market still wants to be flat to red, so I will pass on trading today.
Friday: They buried the Volcker rule – which opens the door for the banks to do even more criminal activity in the markets. But then this morning the futures suggest that the DOW will open down about 150 points. What happens next? I think the appropriate answer is "who knows?" If I had to muster a guess, I'd say that we drift out the day red. This weekend has the ability to bring more bad COVID news, and it appears they’re selling us a little early. They're blaming the selling on the resurgence of COVID. I'm not so sure it's that, although it certainly contributes. I also think that pension fund rebalancing out of stocks and into bonds has a good bit to do with this action. Combine the two, and you can indeed have a pretty red day.
Weed:
- Canopy Growth… has high hopes for a legal cannabis market, even as COVID spreads. Despite challenges amid the pandemic, the Canadian company sees the global legal cannabis market expanding to $70B by 2023.
- When Canopy Growth acquired Acreage Holdings… the original sale price was approximately $3.4B. With adjustments, the deal now values Acreage’s equity at about $900m. Somebody just got a $2.5m haircut!
Next Week: Second Wave of Selling?
“We will, We will Rock You”… During many of the past trading sessions, 2 and 3 standard deviation moves were normal. Make no mistake, moves of 100 SPX points are NOT normal. This market is throwing off huge volatility. I think you can easily anticipate a 500 to 600 point move (inside of the Nasdaq) in the coming weeks. Be careful, and put hedges on. Do not get caught in the crossfire of the broader market.
When volatility speaks – Everyone listens: As you look across the VIX (/VX) readings for July (34.45), August (34.38) and September (34.17), you’ll notice that the numbers are high but flat. The market is trying to decide whether it’s going to be bullish or bearish. We are coming to an inflection point. If you look at other indicators like the VVIX (volatility of the volatility index), we are still trading at 128 – which remains above our danger line of 110. We are currently in the highest period of sustained volatility of all time. All of this is telling me that there is still tremendous risk in the marketplace, and that ‘Mr. Toad’s Wild Ride’ could begin at any time.
SPX options have daily expirations this week: Because of next week being a shortened holiday trading week, we have SPX option expiration every day. That will allow us to monitor the pulse of SPX volatility on a daily basis. Currently, the volatility in the SPX is building from 23% on Monday all the way to 33% on Thursday with the release of the latest initial jobless claims along with the dreaded JOBS REPORT.
Sector rotations & Expected moves: This week we saw virtual 100% correlation. The financials are down 27% YTD. In my opinion, IF we move higher it will be on the back of the FINANCIALS (XLF). Technology is up 11% YTD. IF we move lower, it will be due to TECHNOLOGY (QQQ).
XLF – Being down 27% YTD is really bad. Ever since the financials have pierced thru $26.50 on the XLF (currently at $22.58), they have continued to break down. If the marketplace is going to bounce higher, the financials will need to LEAD. The TRADE here is: a Back-Ratio Spread around July 31st, where you would: SELL -1 $23 call, and BUY +2 $24.5 Calls for a 15 cent credit. You WIN BIG if the financials move higher, and you don’t lose if they don’t.
QQQ – Technology is up 11% on the year. If the market moves lower, technology (QQQ) is going to be the sector that will be leading. The TRADE here is surrounding the monthly July QQQ options: Sell the 245 / 250 Call spread to finance the purchase of the 230 / 235 Put spread – for a 73 cent credit. You WIN if tech moves lower, and you don’t lose if it doesn’t. By doing both of these trades – you have your downside (QQQ) and your upside (XLF) covered.
Big Tech is still outperforming, but it took a hit w/ Facebook: Facebook could be damaged goods as it has broken thru the $220 level. Many of their advertisers have pulled out, and have brought their entire business model into question. When I combine that with the U.S. Government coming after GOOGL with ‘both barrels’, I sense a potential pull-back a comin’ in big tech.
Nike (NKE) bombed – next up = Lululemon: Nike’s revenues were down 38% and they could hold the key to the collapse of Lululemon. Nike remains within 10% of its all-time-high, so this marketplace is still very aware of the FED’s silent QE engine.
SPX Expected Move: On Friday we almost tagged the downside limit of the expected move. This coming week’s expected move is $101.00 over 4 trading days – so we’re still feelin’ the pain.
Looking Forward:
Know your Calendar: FOMC minutes on Wednesday – JOBS Report on Thursday.
Watch the Ranges: Know your expected moves. I wouldn’t be surprised in the next 3 weeks to see a 500 – 600 point move in the Nasdaq (QQQ).
SPX Gravity Points are coming back into play: If we pull back into 2980 on Sunday evening, we very well could see a second wave of sell-side activity hit on Monday.
Tips:
On Friday, the S&Ps lost their 200-day moving average. But this is a FED controlled market, so it isn’t the end of the world. We closed at 3009 on Friday, and the real test will be the 50-day moving average at 2980. If we lose that, we could then see some panic selling. So, 2980 is an important level. We are stupidly extended, and with the push for COVID lockdowns – we could easily see a move lower. My guess is that we at least test the 2980 level, and given the high but flat volatility figures – it’s anyone’s guess as to whether the level holds. My recommendation = play defensively.
HODL’s:
- First Majestic Silver (AG = $9.39 / in @ 9.15 = up 5%),
- Yamaha Gold (AUY = $5.21 / in @ $4.60 = up 25%),
- Canopy Growth Corp (CGC = $15.95 / in @ $22.17 = down 28%),
- DRD Gold (DRD = $15.12 / in @ $3.82 = up 295%),
- GBTC Bitcoin (GBTC = $9.70 / in @ $9.41 = up 3%),
- GOLD (GOLD = $25.87 / in @ 27.20 = down 3%),
- Hecla Mining (HL = $2.96 / in @ $2.36 = up 25%),
- KL Gold (KL = $38.72 / in @ 26.85 = up 44%),
- NovaVax (NVAX = $77.39 / in @ $7.24 = up 969%),
- New Gold (NGD = $1.34 / in @ $0.82 = up 63%),
- Pan American Silver (PAAS = $28.53 / in @ $13.07 = up 118%),
- Sandstorm Gold (SAND = $9.35 / in @ $9.12 = up 2%),
- SPY = in the July 2020 Strangle = $164 Put – sold the Call side.
- XLF = July 31st = SELL -1 $23 call, and BUY +2 $24.5 Calls for $0.14 credit
o You win if it explodes higher and you don’t lose if it doesn’t.
- QQQ = SELL the 245 / 250 Call Spread and
o BUY the 235 / 230 Put Spread for a net $0.73 debit
Crypto:
- Bitcoin (BTC = $9,250),
- Ethereum (ETH = $230),
- Bitcoin Cash (BCH = $230)
Thoughts: I still like the ‘smell’ of the precious metals in this market – and gold in particular. Now, I’m liking a lot of the miners, but rather than talk my own book – the risk / reward on the following trade seems to fit my risk profile. In the July monthly option series: SELL the 162 / 160 Put spread … in order to finance the purchase of the 168 / 170 Call spread. The trade will cost you 29 cents, and favors this market’s high volatility and further unrest.
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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-->Until next week – be safe.
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