Lyft (LYFT) is set to start trading on the Nasdaq this morning
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SPY
Current Consensus is calling for adj EPS of $1.40 on revenues +6% Y/Y to $13.2 bln.
YHOO pricing a 8.3% move on 25,300 contracts traded. Calls outpace Puts 2/1 with IV at 39.3% and 171% higher than their historical (30 day) average.
As expected, last week showed us a range bound week (inside week) following a 12% run up in the SPY. Action was quite volatile relative to the last few weeks with a couple of false breakouts and breakdowns.
SPY
The SPY was range bound last week with 20 and 200MA functioning as support. As highlighted last week the 2030 level has functioned as support for the SPX and 2070 has been resistance. After last week's inside week we're going to pause for a break to the upside above 2070 or a breakdown below 2025. My bias is that a new wave of leadership is forming in the markets and that this rally in gold can propel for a while longer. That said, the SPX/SPY is in a downtrend since May of 2015 with lower highs. We will in fact see as earnings season kicks into high gear and the banks start to report.
GLD GDX NUGT
As seen recently, gold has begun to break out as it broke its downtrend with a higher high and channel break. After a period of consolidation, it is apparent gold is ready to make its run again. As gold goes, so do its derivatives
IBB
As noted two weeks ago, the IBB bounced of its 50% retrace from the highs and has continued the run since. Our target of 285 was reached and we're now waiting for some consolidation before a potential run higher. A potential retrace to the downtrend is what we're potentially looking for.
LUV
Aggressive call buying into consolidation and this one is set to take off higher.
TSLA
After a torrid run up almost doubling its share price in approximately six weeks, TSLA finally hit resistance and started to turn lower.
AMZN
After a face rip week, last week saw some consolidation. We're working with a flat 200MA and a breakout above 604 to spark this thing.
XRT
After leading us on the way up, XRT has started to roll over as it hit resistance into its previous up trend.
CLF FCX
Both in a flag and looking to break up or down. (Bias Up)
WYNN
Ignore the "Fast Money" stupidity by the guy who has a 17% stop. Stick with trend until it's broken. Currently 97.5 has functioned as support and below that is the box breakout support of 96. Last week we saw some continued May C buying by the wise guys.
VMC
My favorite materials company out there. Period.
China
Some China names have recently caught a bid and my favorite setup at the moment is potentially BITA.
This is a former high flyer with recent accumulation volume.
XOP
This showed a break in 2014 and has been in a downtrend since. As of late however, it has showed some signs of stabilization in an attempt to get back to its down trend.
Basing for a potential break to the downtrend.
“I had made a mistake. But where? I was bearish in a bear market. That was wise. I had sold stock short. That was proper. I had sold them too soon. That was costly. My position was right but my play was wrong.”
As I write this, the markets have swung from 201 to 197.5ish back to 199 in the SPY. The swings have been wild and back and forth. Bulls will argue that the economy isn't as bad as people are making it out to be and central bankers are on your side (Super Mario). Bears will argue that we've come too far too fast and we're setting up for a violent failure, market breadth is dampened, and leaders/momentum is rolling over.
SO WHO IS RIGHT?
Well, and I mean this without it being a cop out, both parties are correct in their assessments. We're in a position now in the markets where our accustomed leadership is waining (think #FANG) and the bears have seemingly lost control in the last several weeks. This sets up for one of two possible scenarios;
- The bulls have regained control as we've tested the last trend and are back to resume an upward thrust
- This is the last stage grand hoorah before we obliterate everything in a cataclysmic ending
Well, technically there are three scenarios. But the third scenario is one that will yield back to the first two;
- We chop around in a range until the bulls or bears reclaim complete control and we continue in a directional path.
For people like us, this means we're left with limited options. The times of buy and hold are likely over -- at least until further notice. We've got a flat 100MA, 50WK MA 100Wk MA and 200DMA overhead. A literal tug of war between the bear and bull camps. Positions that have been on for years are starting to unwind (#FANG distributed and short covering in depressed energy assets). The moves are subsequently violent as those who look to get out are getting out and those who are finding "value" are getting in for "the next leg" whatever that means.
PERSPECTIVES
First of all, ignore all the bullshit you read/hear. It doesn't fucking matter. Having an opinion doesn't fucking matter. The only thing that matters is price.
As we see above, the SPY longer term monthly trend remained in tact with its most recent test of 1800. This case emboldens the bulls to make the argument that we are still in trend and we have corrected. Furthermore if you look below, you'll see a chart of previous bull market bursts and their respective PE ratios at the peak. In this market we have been trading between 16-18x for quite some time now and the overwhelming euphoric conditions have simply not been there.
SPY PE Expansion in Bull Markets
Markets like this are designed for those who are "professional" in demeanor and nature. Point your attention to the figure below to understand how markets like these (when/if healthy) will and do work.
As you can see from the figure above markets suck in both buyers and sellers at max pain points
Though the above illustrates a bullish outcome, the reverse is also very true. In many cases issues resolve to the downside. When that happens, market declines typically precipitate and escalate more violently than the upswings. With the bull market top currently closer than the recent lows, it's difficult from a risk reward perspective to buy the top expecting higher. Thus is the bear case. In addition, economic outlooks don't give an optimistic view.
In addition, we've seen earnings decelerate for more than a year now. Earnings beats are coming more and more from operational efficiency than revenue growth. That means businesses are getting leaner to beat expectations and not growing as fast. This deceleration in growth is troublesome because at some point companies need to continue to grow as there is only so much businesses can do to "trim the fat."
Again if you refer to the above charts, we have lots of overhead supply, MA's rolling over on larger time frames, and overall markets decelerating. Lack of breadth and leadership continues to be the theme and the previous outperformers are not participating.
In the end, we're at an inflection point. Either we see new market leadership and this will push us out of our most recent swoon. Or we will fail as economic conditions catch up with the deteriorating breadth/trend.
“Never permit speculative ventures to run into investments”
It goes without saying, even the least savvy market watcher can easily assert the correlation that oil and the markets as a whole have been trading in tandem. So when oil shot out of a cannon starting Thursday when it bottomed around 26.6 and moved all the way to 32/barrel it came as no surprise that it took the markets with it.
Whether it's up or down, it is human nature for market speculators to continue to try to find a bottom or a top in the current environment that were in. Speculation, in its most natural state, is done in such a way to avoid being the sucker. No one wants to be left holding the bag on the way up, and no one wants to miss the bounce on the way down. This peculiar, yet rather unfortunate state, is why we often see irrational buying when markets implode, and incessant top calling when markets sky. No man wants to be the "fool" in any/either circumstance.
Since the bounce in oil was all but telegraphed it puts the markets in an interesting position. It has been commonplace for oil and gas speculators to buy oil/gas when the weather gets cold and to cut it when weather gets warm again. So with the first blizzard of the year, and biggest one in years, combined with oversold conditions, risk in oil to the upside, and an overall market technical bounce, the bounce in oil futures was pretty much a "slam dunk."
Personally, I am of the mindset and the belief it is always best to avoid getting in the way of a train in motion (in this case oil moving lower). If you as a speculator believe that you can stomach whatever downside risk exists in oil, by all means have fun. From experience, I have learned that markets are significantly irrational and that they more than often overshoot beyond anyone's "rational" expectations.
With all that said, my bias on the overall markets currently is still bearish. That doesn't mean I am advocating blindly shorting, or suggesting that we are imminently going lower. I am simply looking at multiyear charts on multiple time frames in the SPY/SPX and CL_F and they still all look dismal.
DEEP SEA FISHIN'
This move lower in the markets in general was telegraphed by the transports in November of 2014 when the IYT topped out and began its imminent decline. (Not) Coincidentally, the WTI broke multiyear support that same month and has never looked back.
If we expand the charts to the start of the bull run in 2009 we notice that both these issues had stellar performances starting in 2009. The IYT advancing almost 400% (rough estimate) and WTI advancing nearly 335% (rough estimate again). The parallels here are fascinating with the most interesting caveat being that even with their sharp declines there is still room to run. Only recently did oil break its 2009 base bottom and the downtrend in the oil markets only calls for further downtrend in the IYT as shipping costs via trucking decrease in price with the falling price of gas.
TAKEAWAY
The main point I am making here is that trends don't happen overnight. Just like the IYT and WTI broke almost 1.5 years ago and we're only now reeling from their problems, a two day rally that was telegraphed doesn't reverse course. It is important to take things as they are, and to remain steadfast with the overall (larger) picture. My bias will remain negative on both oil and the markets so long as the larger picture for both these issues remains to the downside.
“The fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.”
If the Wall St. narrative runs its course, something definitely has to give with AAPL. The issue, which has traded poorly since making an all time continues to do so. If you have not yet, you should start to consider what your threshold tolerance for pain should be.
What was once a market leader, AAPL has certainly underperformed its peers this year. With stocks like AMZN NFLX and GOOGL all up substantially YTD it is only fair to wonder what is happening with AAPL (the stock, not the company). Before I dive in a little deeper I want to stress that I am a big fan of the company and believe that they are the most soundly run company that I've ever encountered. I liken Apple as the A student in the class. Eventually, the teacher gets accustomed to that student's stellar results and starts to only make commentary on his/her "poor" (A-) performance. The opposite is also true. There will always be students that are B/C students and when they start to perform up to the B/A level the teacher will be impressed more so than when the A student continues to make his/her marks. Let's focus on this first.
As humans, we're psychologically wired a certain way. Specifically, we like to believe that we are the purveyors of information and that we actually know more than our peers. Ironically however, it takes those same peers for us to get anywhere typically. That's why shit stocks like TWTR continue to find fools as they continue their landslide lower. In order for a market to be made, you need liquidity. In order for liquidity to exist, you need people on opposite sides.
It is very important to distinguish between Apple the company, and AAPL the stock. As I said above, the company is likely the best one we've ever seen and will ever see in our lifetime. Currently however, the stock is not. As highlighted a multiple times and most recently a week ago, the stock is currently and has been trading poorly. It does not matter what time frame you use on a chart, it is tough to find viable support in the issue. That said, that's not the biggest problem the stock may face. I use the word may because this company has been founded on innovation and can turn the corner at any point and regain their innovative ways. We can all speculate what we believe is in their pipeline, or what cutting a particular supplier may do, but at the end of the day we simply do not know.
GETTING "OVER"
Aside from poor performance and relative weakness to its peers, AAPL has another hurdle it may have to overcome. Up until now, the stock is still endeared in the eyes of Wall St. analysts. With 47 Buy ratings, 7 Holds, and 1 Sell, the stock is still heralded. Though this works in the favor of the company currently, it may end up "taking a bite" out of the stock in the future (if things precipitate to the downside).
Let me put that statement in basic terms for you. Currently, basically everyone and their fucking brother is positive on AAPL, and the stock still can't seem to perform. What happens when people who have been bullish all of a sudden get tired of the bull case and switch their tune? If the stock is not performing by then, it will likely start to really crumble.
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Another past positive and potential clusterfuck for them is the ownership stake by Carl Icahn. Upon announcement of the stock purchase, the stock rallied, and rallied hard to eventual all time highs. Icahn indicated that this purchase was again a "no brainer" like his NFLX transaction. Though this may be the case, the stock's performance has not been that way. So it will be interesting to see where he goes with this trade moving forward given quickly rising poor market sentiment.
THE SKINNY
At this point many speculate that part of the problem with how AAPL has been behaving/performing is in part due to their potential that this will in fact be the first holiday quarter in which the company does not see iPhone sales increases. Put another way, this will be the first time (allegedly) where the company sees a slowdown in iPhone sales year over year (COMPS).
That said, the stock is still cheap. Trading at <10x EPS. At this point it really depends on what type of investor/trader you are. If you are of the speculative variety and look for quick hitters, this is probably not the stock for you. If you are looking for value and for potential long term growth, this could soon provide you with the "no brainer" opportunity many see/saw in the stock. In my eyes, the stock is currently a "no touch" until it proves the 105/103 support zones are for real or clears 122.
As always, if you found any of this useful please share. Cheers!
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“Everything you need to know is right there in front of you.”
This morning was weird. The market felt heavy and tired. The bulls seemed exhausted and it appeared as though we'd get a late day fade such as the one we had yesterday. Earnings were missing left and right, market leaders were weighing on the market, everything "felt sluggish." I mean, even I called it this morning premarket. "$GS 175-176 support if it closes below that get ready to short it to hell."
Something strange happened this morning though, something different. This was the first time in a while that the market Bulls seemed to sucker the Bears in. As the SPY was fading later morning and our members were saying "Get ready for a fade!" the market internals were telling you something different. Stock heavyweights were not giving up support. AMZN wouldn't relinquish its grip on 547, GS moonshot off the lows, hell, even WMT caught a bid off its 3 year lows. Something was different, and I was letting everyone know "Don't expect the fade at the end of the day."
With the potential for a lack of tightening and possibility of another round of some form of easing, today's tape basically told the bears "Fuck you." The bulls which have been waiting for months for the floor to fall out underneath them decided to take a stand. They decided, for whatever reason, that today would be the day they put the onus on the bears and dare them to move. If you're a bear, this isn't good news.
This is the part of the year where things really start to ramp seasonally. I don't know if it's the cold air, the PSL mania, or all the scarecrows but something about the middle of October on usually gets things going. So with that said, we turned from Heel to Face and sometime around 12pm we went very very long.
GO WITH THE FLOW
I have news for you, the market is in fact rigged. There is no doubt about it, the big boys are in control of it and there is nothing you can do about it. That said, we have advantages that the big boys never have. We have the ability to switch our opinions on a dime and follow the money. Today was a classic example of that. Staying stubborn and not following the trend will blow you out of the water. But days like today are great for us as well because we can participate and stay in the action without risking much capital upfront. We're gonna take a look at some examples of this.
GS & FINANCIALS
This morning I highlighted GS support at 175 for members. We highlighted bias to the downside after an earnings miss and kept it on our radar. GS however decided to change the rhetoric and flipped a long off that 175. That flip along with commentary about growing organic loans from other banks sparked a fire in the space. You could have bought calls very cheaply today and walked away very very pleased if you were paying attention. This is just one example of how simply only knowing the support of a stock could help you capitalize even if your bias was initially incorrect.
GS JPM and XLF
IBB & BIOTECH
In the premarket the IBB looked like it was going to be the leader to the downside. With a subpoena issued to VRX, a heavy market, and with the IBB at support premarket this one appeared as though it was left for dead. Yet again however, buyers stepped in at support. Claiming 298 and riding it higher throughout the day, buyers continued and reclaimed the bear flag breakdown from the other day.
Bios up up and away.
F.N.G. AMZN
With NFLX missing ER last night you would think that the other betas would have been hit as well. That however wasn't the case as the beta cohorts really ramped, especially AMZN.
AMZN gapped higher with the market and appeared it was going to repeat what it went through yesterday where it lagged its internet peers. However, this time AMZN held support at 547 and started its catch up trade higher.
On the heels of poor #'s from NFLX and a bad revision from WMT buyers stepped in ahead of next weeks report and bid the stock to highs not seen since its last ER and its highest closing high ever.
Buying was relentless and lasted throughout the day. Expect this issue to resolve even higher before the company announces next week.
AMZN played "catch up" with its cohorts as it lagged the last couple of days.
SPY & QQQ
This face tearing rally sets us up for an interesting fourth quarter and moving forward. Specifically, the SPX/SPY closed on the highs of the week and appear to have taken out important resistance and setting up for a test of even higher resist.
The same can be said about about the triple Q's which have been the strength of the three indices. Let's take a look at the next levels we may test.
SPY & QQQ Verge of breakout and potential levels.
With the SPY closing above the 202.2 level that was a brick wall of resistance earlier in the week we are primed to test the next levels of support. Barring a cataclysmic fall tomorrow morning look for this market to test the higher highs soon. Remember, we have the flexibility to switch our opinions and positions more often than the big boys. Because of this ability, we can, and should make money going up and going down.
CURRENT BIAS: LONG WITH POTENTIAL FOR HIGHER HIGHS
““Men who can both be right and sit tight are uncommon.””
In the previous post we discussed the first known bubble (Tulipomania). In this post we will assess other more tangible examples that should help you forget the notion of "Now or never" with stocks you want to purchase.
BUBBLICIOUS
We've all at one point or another tried to blow the biggest bubble we can. We dance that fine line of trying to get it as big as we can without it snapping gum back in our face. The analogy of a bubble is quote symbolic, and in turn, quite perfect. When you're first blowing a bubble it takes quite a bit more effort than it does to actually pop it at the end. That said, there is also an inflection point where it doesn't take much effort to actually make the bubble get bigger. Physics takes over and the volume inside the bubble is optimal for growing it. That is of course until it's not.
If you recall from the previous installment we talked about the first known bubble, Tulip mania (or Tulipomania). Since it's hard to grasp relative to today's terms let's use stocks and indexes to illustrate what a bubble looks like and what happens when the gum snaps.
.COM (1995 - 2001)
Sure many of you have heard of the .com boom/bust but how many of you have actually taken the time to investigate just how big it really was? Fear not, we'll take a look at some of what went down during that era.
The point to take away from the above is not that there is any prediction about a foredooming situation in the markets. The point is that when markets start to break the accelerant behavior of the market selloff is vastly greater than the rising behavior in an uptrend.
Let's take a look at some individual names from the .com bubble. Most of these companies still exist today.
Some of these companies eventually recovered (AMZN AAPL) but most do not and never do.
HOUSING SUB PRIME
Soon after the dot com bubble dust settled we were in the middle of yet another cataclysmic bubble, the housing bubble. In many cases this was significantly worse than the dot com bubble because it impacted many sectors across the board and scarred many investors for years to come. Some of the stocks that were resilient through the .com collapse (namely banks) were absolutely obliterated after the housing crisis. Unlike tech stocks that were a “new paradigm” the housing market was built on the notion that “everyone needed a home” and that homes and investment property in general functioned as a “store of value” which was infinitely “safer” than the bogus paper of the .com stocks. Just like tech stocks however, these stocks and this sector was overplayed by the greed of the investors and facilitated catastrophe in the end.
Take a look at just how big some of these decays where.
As you can see, most of these names still have not recovered from that beatdown they suffered
POP
So what did we learn? We learned that typically when markets take off things get vertical pretty quickly and they last for multiple years. We also learned that when they break, they fucking break. The breach of trend is typically at least a 50% correction and that correction is much more violent than the uptrend. If the market leader turns out to be the cause of the bubble, that break is typically significantly more than the 50% correction and usually 80% or more is lost.
That said, we need to remember our rules. We need to stay disciplined when things break trend and learn to get out when our stops are blown. Even though we don't need anymore reminders, let's conclude by going over the basic flow of a bubble.
I’d like to end this by simply reminding you that this is not a forecast of doom and gloom to come. This is just an explanation to you that history has a funny way of repeating itself over and over again. Whether it’s tulips, railroads, tech stocks, housing or maybe the future cure for AIDS, investors have always and will always overplay their hands causing the majority to be left with the pain in the process.
With that said, the investment vehicles that are left standing at the end of the day have always, and without exception, fucking lasted through capitulation.
Let the games begin.
“The stock market is designed to fool the brightest of men.”
Bear markets are the hardest types of markets to profit from. More often than not, you do not know you are in a bear market until you've been ripped at the claws of it. On the flip side however, they are also the fastest markets to profit from (if you time them correctly). With that said, it is very important to remain disciplined and respect your stops.
With the markets set to open down ~1.5% let's take a look at a game plan and how we can possibly profit from it.
As the market goes up, remember "Leaders lead." And as it goes down, the same will hold true. It is no coincidence that as the IBB started slipping yesterday, so too did the market. If you extrapolate the larger trend on the IBB you'll see that not only are we in a downtrend, but we broke the slight uptrend we'd formed since August 24.
IBB Broke trend started on August 24th on the heaviest volume it's had in months. Looking at a current gap down as well to add to the pain. This is not a BTD (buy the dip) scenario. Here are key levels to look for.
Possible lines of "support" for IBB.
The IBB, like the market, is the sum of it's parts. That said, if you look at the former "leaders" of the IBB you'll see that they've quickly gone sour and turned to laggards. Namely AMGN.
AMGN has quickly gone sour since topping out in July. The issue has been consolidating with a 144-145 support line as of yet. It looks to gap down below that number pre-market. Of all the bios, this one to me is the weakest.
Aside from the IBB, the former market leaders are now lagging. With any hint of bad news spelling disaster, take a look at how TSLA behaved after topping against 272 yesterday. The issue looks to continue its downtrend today with a gap below 260. Look for 252 to function as support once yesterday's lows are breached.
TSLA failed again at the top of its range. It's also near breaking the rising trend it's set since August 24. Look for it to collapse if it takes out yesterday's lows.