Amazon.com (AMZN) is set to report Q1 earnings today after the close today followed by conference call at 5pm ET.
Viewing entries in
Stocks
Unlike many other companies, expectations for Facebook remain quite high. Failure to meet those expectations could cause a material decline in its stock, which is up 31% over the last 52 weeks.
Ad spending drives Facebook's top line, accounting for 95% of the company's revenue in 2015. FB is a barometer for how advertisers are spending and where they are allocating their advertising budgets.
Facebook has a large international presence with 86% of its 1.59 billion monthly active users at the end of 2015 residing outside the U.S. and Canada and 50% of its total 2015 revenue derived outside the U.S. and Canada. Facebook, then, will have some revealing insight to share on global economic activity and the impact of foreign currency on its operating results.
Facebook is a leadership stock for the Nasdaq and Nasdaq 100. The company and its stock serve as guides for the enthusiasm surrounding the growth of social media
- Facebook had 1.59 billion monthly active users as of December 31. Any company with that many users/customers warrants a closer look when it reports earnings.
FB 4th Quarter:
- Daily active users (DAUs) were 1.04 billion on average (+17% year-over-year); mobile DAUs were 934 million on average (+25% year-over-year)
- Monthly active users (MAUs) were 1.59 billion (+14% year-over-year); mobile MAUs were 1.44 billion (+21% year-over-year)
- The average price per ad was up 21% while total ad impressions increased 29% year-over-year; that was the first quarter since Q3 2013 that total ad impressions increased on a year-over-year basis
- Faces tougher comparisons given the strong 2015 performance
- 2016 will be another significant investment year for Facebook
- Guidance
- Non-GAAP expense growth of ~45-55% year-over-year
- Sees capex in the range of $4.0 billion to $4.5 billion
- Expects to see FX headwinds, particularly in the first half of the year due to tougher comparisons
Tough to be short this stock into earnings, especially at this point.
Affected Stocks:
- FB
- Alphabet (GOOG/GOOGL)
- Twitter (TWTR)
- LinkedIn (LNKD)
- Yelp (YELP)
- PowerShares QQQ Trust (QQQ)
- Global X Social Media Index ETF (SOCL)
FB is largest holding at 12.3% of assets
RESULTS:
Facebook beats by $0.15, beats on revs
- Reports Q1 (Mar) earnings of $0.77 per share, $0.15 better than the Capital IQ Consensus of $0.62; revenues rose 51.8% year/year to $5.38 bln vs the $5.26 bln Capital IQ Consensus.
- Advertising revenue increased 57% y/y to $5.2 bln.
- Daily active users (DAUs)- DAUs were 1.09 billion on average for March 2016, an increase of 16% year-over-year.
- Mobile DAUs- Mobile DAUs were 989 million on average for March 2016, an increase of 24% year-over-year.
Monthly active users (MAUs- MAUs were 1.65 billion as of March 31, 2016, an increase of 15% year-over-year.
Mobile MAUs- Mobile MAUs were 1.51 billion as of March 31, 2016, an increase of 21% year-over-year.
- Mobile advertising revenue- Mobile advertising revenue represented approximately 82% of advertising revenue for the first quarter of 2016, up from 73% of advertising revenue in the first quarter of 2015.
- Capital expenditures- Capital expenditures for the first quarter of 2016 were $1.13 billion.
- Free cash flow for the first quarter of 2016 was $1.85 billion.
🔥🔥MONSTER QUARTER, AGAIN. THEY'RE KILLING THEIR "COMPETITION"🔥🔥
Facebook announces proposal of new class of stock
FB announced that the board of directors has approved a proposal to amend and restate existing certificate of incorporation to create a new class of non-voting capital stock, known as the Class C capital stock.
If approved, it will issue two shares of Class C capital stock as a one-time stock dividend in respect of each outstanding share of our Class A and Class B common stock. This proposal is designed to create a capital structure that will encourage Mr. Zuckerberg to remain in an active leadership role at Facebook.
“The adoption of the proposal is subject to the approval of our stockholders at our 2016 Annual Meeting of Stockholders to be held on June 20, 2016.”
Facebook Conference Call Highlights
- Apps continue to show momentum.
- Mobile continues to drive growth.
- Mobile ads being driven by supply and demand; demand- investments to improve solutions
Q1 Avg Price per ad increased 5%; total ad impressions increased 50%; strong growth in mobile ad impressions.
- Will face tougher comps in 2016 given acceleration of ad growth in 2015
- Payment fees revenue will also see headwind even with Oculus; expects y/y decline.
- Expense Outlook remains unchanged at Non-GAAP growth of 45-55%; Amortization will be $700-800 mln; SBC $1.1-1.3 bln in 2016; CapEx will be at the high end of $4.0-4.5 bln range previously given; Q2 and FY16 tax rates should be similar to Q1.
FB breaks through all time high on stellar report, again.
$FB prints 119.44 ALL TIME HIGH after hours.
Sanmina (SANM) consensus stands at EPS of $0.56 on Revenues of $1.59 bln.
SANM is coming off a solid Q1 report. Its EPS were in line and its revenues actually missed expectations, but the revenue miss was expected. However, SANM operating margin was higher than expected and its Q2 guidance was also above consensus. The stock jumped 8% in reaction and has been a steady performer since as it would rally through a slew of key moving averages to push to $23.50.
Shares were ~30% higher from when it reported Q1 results. The stock has retraced back to its 50MA ahead of tonight's report. The decline is most likely some profit taking after a strong run during the quarter. The stock is sitting on its 50MA ($21.80) and has key support in the $21 zone.
Key Metrics
- Non-GAAP Operating Margin- Q1 came in at 4.0% which was 10 bps higher than expected. Investors would like to see this continue to rise.
- Share Repurchase- A tailwind for the Q1 results and it is expected to be a driver for Q2. SANM repurchased 1.4 mln shares for a total of $28.7 mln in Q1.
Q2 Guidance
- SANM said it expects revenue to be in the range of $1.55-1.65 bln.
- EPS is expected to be in the range of $0.55-0.59.
Q1 Recap
SANM reported Q1 (Dec) earnings of $0.58 per share, excluding non-recurring items, in-line with the Consensus of $0.58. Revenues fell 9.9% year/year to $1.53 bln vs the $1.59 bln Capital IQ Consensus.
- Ending cash and cash equivalents were $398.4 million
- Cash flow from operations was 62.7 million
- Repurchased 1.4 million common shares for $28.7 million
- Inventory turns were 6.2x Cash cycle days were 47.2 days.
- Co issued Q2 EPS guidance in the range of $0.55-0.59, excluding non-recurring items, vs. then-$0.52 Consensus Estimates. Co projected Q2 revenues in the range of $1.55-1.65 bln vs. then-$1.57 bln Capital IQ Consensus Estimate.
RESULTS
Sanmina beats by $0.07, beats on revs; guides Q3 EPS in-line, revs in-line
- Reports Q2 (Mar) earnings of $0.63 per share, excluding non-recurring items, $0.07 better than the Consensus of $0.56; revenues increased 1% year/year to $1.61 bln vs the $1.59 bln Consensus.
- Non-GAAP Operating Margin 4.10% compared to 4.00% in Q4.
- Repurchased 4.0 million common shares for $74.7 million
- Inventory turns were 6.5x
- Cash cycle days were 44.6 days
- Co issues in-line guidance for Q3, sees EPS of $0.61-0.65 vs. $0.61 Capital IQ Consensus Estimate; sees Q3 revs of $1.625-1.675 bln vs. $1.64 bln Capital IQ Consensus Estimate.
With poor earnings from $V $SBUX $GOOGL/$GOOG and $MSFT, the market had every reason to let the bottom fall out and collapse on Friday. Though we started lower, we ended the day slightly in the positive for the S&P 500. The Q's took it early but finished moderately lower. The A/D line continues to broaden and the market continues to catch a bid. Unlike the last couple of years, the broader market participation has been stellar and it seems every couple of weeks there is a rotation into a new group. The main focal point on Friday was the IWM which ended firmly in the green. Until this musical chairs of money rotation ends, there is no reason to believe that the bears have any semblance of control. There are two levels of support currently where dip buyers step in. Near the 9 and the 20MA's. It's important that the momentum continues and the market continues to churn higher as we've broken our downtrends (for now).
RAILS
Entire sector is seeing strength and is reversing its downtrend.
CP
Flagging at its downtrend line and at resistance.
UNP
Broke monthly downtrend and breaking into resistance.
KSU
TSLA
TSLA Flagging into support. 20D better hold.
Bull Flag, multi-day consolidation.
FEYE
Flagging and ready to break out.
Ready to rip
BIOS
All bio ETF's are ready to rip and some have started to move.
LABU IBB XBI JUNO CELG AMGN GILD
WLL
Basing for a breakout.
Basing for a breakout
QCOM
"Poor" earnings results but found support and bounced.
Breakout looming
Coca-Cola (KO) is scheduled to report Q1 earnings tomorrow, before the opening bell, at 6:55 ET.
Current Consensus is for Q1 EPS of $0.44 (-8% Y/Y) on revenues of $10.2 bln (-5% Y/Y).
Current Consensus is for FY 16 EPS $1.95 on revs of $42.3 bln
Last quarter, KO beat EPS by $0.01/share w/ revs in-line.
FY 16 Guidance from Last Q
- Organic revs expected to grow 4-5%
- Expects currency neutral income before tax, structurally-adjusted to grow 6-8% in 2016
- Expects net impact of acquisitions and divestitures to be a four-five point headwind to net revs
- Expect ~$2-2.5 bln in net share repurchases in 2016
- Expect comparable currency neutral EPS growth of 4-6%
- Expect to spend $2.5-3 bln on capex
- Due to structural changes, co anticipates slightly higher COGS and SG&A
- Co expect the benefit to equity income from Monster, Coca-Cola Beverages Africa and Coca-Cola European Partners to partially offset that impact at operating income, resulting in a three to four point negative structural impact to income before tax.
- Look for updates on the below two l/t initiatives
- $3 bln in productivity savings
- Additional Notables from Last Quarter
- Unit case volume was +3% YoY for Q4, and +2% YoY for FY 15
- Global price/mix grew 2% for quarter and FY 15
TECHS
The stock price has been in a steady uptrend since, rallying bounce on the 50 day 3 times during the last quarter. The stock is currently up ~9% on the quarter and is near its 50 day.
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.
“Successful trading is always an emotional battle for the speculator, not an intelligent battle.”
Alphabet, GOOG/GOOGL, just reported a beat in its most recent ER report and currently trades as the largest market cap company in the world today. This comes on the heels of a Facebook report that just crushed it, and an Amazon report that likely had Jeff Bezos silent for once. With that said, it's all systems go for the GOOG and it appears that their addition of Ruth Porat has changed the company's culture and impression on wall street to an "adult company."
Here are the #'s:
Alphabet beats by $0.58, beats on revs (752.00 +9.05)
- Reports Q4 (Dec) earnings of $8.67 per share, $0.58 better than expected of $8.09; revenues rose 18.5% year/year to $21.33 bln vs the $20.76 bln Capital IQ Consensus.
Aggregate paid clicks- Q4 +31%; Q3 +22.8%:
- Paid Clicks on Google websites- Q4 +40%; Q3 +35%.
- Paid clicks on member sites- Q4 +2%; Q3 -5%.
Aggregate cost per click- Q4 -13%; Q3 -11%:
- CPC on Google sites- Q4 -16%; Q3 -16%.
- CPC on member sites- Q4 -8%; Q3 -4%.
Revenue Segments:
- Google Website revenue +20% y/y
- Google Network Member websites +7% y/y
- Google Advertising +17% y/y
- Google Other Revenues +24% y/y
- Operating Expense as % of revenue 36% compared to 37% in prior year
- Free Cash Flow $4.31 bln compared to $2.81 bln in prior year
- TAC As a % of revenue 21% compared to 22% in prior year
This company just flexed its muscle and showed Wall Street (again) that it's not just some gimmick internet clicks company that can't turn profits. Furthermore, even at it's current valuation, the stock trades cheap ~20x forward and could create further room to the upside.
Investors continue to be rewarded for quality in the market even after wild swings that yield negative short term performance.
With its trend lines in tact, the measured move on this one suggest a 909 price target.
EXPECTATIONS
Even after a monster quarter by Facebook last week and the bar being set high, Alphabet was able to briskly hop over the expectations and deliver. An example of this is aggregate paid clicks which destroyed the streets estimates: (Aggregate paid clicks- Q4 +31%; Q3 +22.8%)
So what now for the stock? In the trade report put out yesterday we called for a +7% move in GOOG/GOOGL and a +$55 move in the issue. We were also long the weekly 760 C from last Wednesday and Next week 840/842.5 C.
I'd be a little surprised if this issue pressed like FB did. With market breadth nearing the top of a range and with this stock now the biggest market cap in the world, the law of large numbers does take effect at some point. On a longer time frame however I believe the trend is your friend and this company's new discipline and stellar performance should continue.
“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.
“Don’t trust your own opinion and always back your judgment until the action of the market confirms your theory.”
AS I write this U.S. index futures are getting obliterated. This comes in tandem of China's weaker yuan that has since created a rout in their equities just days before their Chinese New Year. This tumble has triggered their circuit breakers for the second time this week.
The ES_F index is down a little over 1% to 1961 on the lows. That's nothing in comparison to what's happening in China though where the Chinese stock exchanges shut down shop less than a half hour after they opened after the CSI 300 Index obliterated more 7% triggering another circuit breaker event.
The catalyst for the selloff in Asia comes after China's central bank cut its daily reference rate more than any other time since August. China's signaling to the rest of the world that they've got an increased threshold to do what it takes to shore up their weakening economic growth.
JENGA
China puts everyone else on edge Jenga style.
We've seen an accelerated retreat from risky assets to start the new year. With the riskiest equities taking it on the chin first. The index as a whole has already seen a 2.4% haircut and will presumably end the day and week lower than that.
This is a classic real life scenario of the popular game Jenga. With different blocks coming off the whole group one by one. Unlike Jenga however, we don't actually need to see these blocks come down. Financial markets are operating in fear that the yuan's sharp depreciation may only accelerate, which would signal that China's economy is even weaker than everyone believed. If that's the case we could see a spark of another wave of devaluations around all of Asia and in other key countries/economies.
With Wall Street closing at three month lows on steady volume, the signal is clear. Risk aversion is on the board. Asset managers are getting out of the riskiest assets and avoiding another shoe dropping on them. This risk aversion was only amplified by the overnight plummeting price of oil and the geopolitical concerns behind North Korea's nuclear test on Wednesday evening. And now we get this shit. Fuckin' China.
LINES
Let's take a look at some levels.
SPX has been in a downtrend on the daily. 1973ish and 1954ish are the next lines int he sand.
Above you we see the S&P 500 levels and downtrend on a daily basis. Below we'll see it on a weekly basis.
SPX weekly
DOWN DOWN DOWN
With all the turmoil and an absence of buyers in the market the bias remains to the downside. And with uncertainty as to how levered banks are and the level of exposure they may be facing when oil companies start going down this makes for a very troubled market situation. As I stated in the first post of the new year, the catastrophes that may lay buried underneath the oil madness are uncertain as of now and we should not try to pick bottoms. With a hint today that levels of credit default swaps in oil backed securities possibly being so high in some companies that bankruptcies and failures are nearly imminent, it goes without saying, get the fuck out the way.
It is quite obvious beyond that rhetoric that in some cases a chase for performance and growth may continue so it is my bias that we continue to trade opportunities to the long side as they present themselves while maintaining a downward bias.
“Patience is the key to success not speed. Time is a cunning speculator’s best friend if he uses it right.”
The market will make a fool out of anyone. Even when you are right, there will come a time where your patience is tested and you will subsequently question yourself. With the rush of bad news in Chipotle a few weeks ago you would have believed that the stock would be left for dead. The market was poised to make a mark out of anyone however and test the resolve of anyone who was waiting for damning news (myself included).
A little over a week ago I wrote about closing half of my $CMG positions. Not because I did not believe in all of the bearishness, but rather because the stock was not behaving how I would like. I also highlighted that we would wait for our cue to re-enter puts in the stock and play it for some more downside. A few days later we got our catalyst.
Jim Cramer had the Chipotle management on his show late last week. In the interview the CMG CEO told Cramer and his audience that the E.Coli scare has been contained and that it essentially would not trouble the company moving forward. The stock however, told a different story. The next day CMG gapped up into previous resistance and battled into the 10day yet again. From there, the stock sold off and continued to do so for three days. On that failure, I added to my existing position and used the high set as my stop.
CMG failed trend
With a little bit of luck, a lot of patience, and even more homework the trade did not present a failure or retest of trend of any kind. With the market's poor reaction to Aunt Yellen and her crew's rate hike decision the stock continued to prove a good one.
In Reminiscences of a Stock Operator the lead character Larry Livingston (Jesse Livermore's character) speaks on many occasion of being in a trade and watching the stock operators manipulate the stock. He comments on how he's been in the right trade and watched his paper profits all but evaporate. This is the scenario I found myself in prior to being given the opportunity to add to the position. There comes many times as a stock trader where your resolve will be tested. This scenario proved no exception. And with the price action staying consistent but the swings growing wild I would be lying if I told you I didn't question the trade. That said, the stock failed the highlighted level (again) and sure enough the weak tape was correct again as more E.Coli news circulated.
As important as it is to hold true to the setup it is equally important to take your profits when you are handed them. Without expecting any sort of news like this I/we would be foolish not to capitalize on this gift. With that said and with IV shooting through the roof I was able to clear off my books more than 40% of the position for stellar profits. The cost of the trade and then some was removed and I will continue monitoring the issue closely.
Here's a timestamped notice of the position and how it eventually turned out.
CMG position highlighted this morning.
Sign up for real time alerts, real time market insights, and real time actionable insights.
For the sake of keeping tabs, lets take a look at some important levels CMG will face moving forward.
CMG Weekly
DERIVATIVE
With a dwindling consumer base many of these customers will have to go elsewhere. People still have to eat, you know? That said, it is plausible that CMG competitors Moe's and Q'doba see an uptick in traffic YoY. It's also very likely that other fast casual dining options start to get more volume. So with that said, let's take a look at both JACK and PNRA:
JACK Rangebound
PNRA Constructive
Between the two charts, it appears that JACK provides the cleanest setup to the upside as the issue has been rangebound for several months now. PNRA also sets up nicely above 200/share.
We will keep an eye on the issues moving forward and look for a continuation. As always if any of this has been helpful please comment/like/share.
“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.
Click the "Join Now" button below to sign up for private content and real time actionable alerts.
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!
For real time actionable trade alerts and private site content.
“It is not good to be too curious about all the reasons behind price movements. ”
Like many, I spent a part of my weekend keeping tabs on what was going on in Paris. I tried my best to avoid 3rd part media outlets and tried to stick to raw data from a Reddit thread a friend of mine passed on to me. Going into Friday my bias was to the downside and with relentless selling pressure and support broken on Friday in SPX I saw no reason for that downside pressure to cease.
So with the news of a terror attack shortly after the market closed on Friday it was no surprise that stock futures accelerated their declines. And when they closed for the remainder of the weekend at 8pm on Friday, the markets were hinged on just how bad the news would be from Paris. Two days of pins and needles. When they finally reopened Sunday night those wanted to panic did. And with that sudden and slight panic we tested the 2000 support level on SPX and found support there. Monday's session followed this lead and the markets continued in uptrend fashion "business as usual."
Personally, I am not a fan of trying to find trades that require precise entries. I prefer broader time frame breakouts/breakdowns and find painting with a broader brush to provide the optimal risk reward for success. Monday's tape however provided great opportunity for "bottom fishing." Specifically with AMZN.
AMZN's stock just came off nearly a 10% decline from its all time high just this past Thursday. The issue was trading off nearly 53 points in just 1.5 sessions. This decline landed the stock near some critical support and gave us an entry opportunity. Again, I am typically the type of trader that finds broad based breakouts and breakdowns on multiple time frames, but could not resist an opportunity like this. I want to quickly assess the psychology of the trade and give a frame of reference to it for future potential finds like it.
If we take a look at both the daily and weekly charts for AMZN we notice that there is support near the 620 level on the issue. Furthermore, if we take a look at the 4 hour chart we see a solid trend line in tact and both support and 50 day support lined up again near 620. With this information, I assessed how the stock would behave on a five minute basis (MOMO) intraday chart.
As we can clearly see on the five minute chart, the issue found its support around 620 as we'd hoped. Specifically we saw three hammers on the five minute followed by higher lows and higher highs. Though our exact target of 620 was not necessarily tagged, that level was in fact tested and did in fact hold. That presented us with a beautiful combination of an opportunity.
The following combination is what I'd like to highlight:
-Approximate 10% retrace from ATH in just two sessions
-Wildly "oversold" conditions both in the market itself and in the issue
-Multiple time frame support alignment
-Multiple hammers against multiple support levels.
With that said, each one of these indicators alone would present for a good opportunity to the long side. Combined they presented a great combination for a very well defined trade. Moving forward, we are now able to see what sort of potential a trade like this may have.
“We want to perceive ourselves as winners, but successful traders are always focusing on their losses.”
I want to start by saying that even with today's nonsense I walked away from the table with a significantly profitable day. Not Wall Street billionaire or Oprah Winfrey Weight Watchers big, but big nonetheless.
I have been a trader in some capacity, whether amateur or professional, for over nine years now. In my time I've survived some crazy upswings and some violent turmoil. I've seen companies implode and others sustain astronomical gains. I've watched as CNBC has recycled and churned their fair share of pundits and "hot shots." Like all "viewers" I have my fair share of likes and dislikes, I've ridden the wave of "Fuck you Uncle Carl" to "Holy shit, uncle Carl!", and have watched the totem pole of the "Hot new hedge fund king" get churned.
With all that said, I've never seen anyone cross the airwaves (including Dan Nathan himself) in such privileged pejorative guile anywhere close to that of William "Bill" Ackman. Aside from his self absorbed attitude where even his billionaire peers hate his guts, I cannot recollect an instance in the last three years plus where that guy has been significantly right on anything. When I pour through his bio, I can't see anything really that screams "Brilliant" when it comes to trading or investing. I guess the MBIA thing maybe, yeah, maybe? 10% stake in Target? Well I guess if you have that kind of cash, yeah sure. The Barnes & Noble deal? Lol, really? That's all you got?
Before I go any further I want to take a moment and show a two graphs. I also want to remind everyone that no one individual is bigger than the tape. No matter what sort of self righteous Napoleon complex exists with them, they are just minnow in an ocean of whales.
Bubble Phases
These are the well known, repeated, and outlined phases of any stock market bubble and crash.
VRX
VRX Weekly
If you lay VRX over the phases of a bubble what do you get?
Fucking perfection.
Dear Bill, you privileged narcissistic asshole, you are fucking wrong. Admit it, move on.
The fun thing about the market is that even when you are right, but not right with the timing, you will go broke before you are actually right. I get it, you grew up in a privileged New York Real Estate family and are accustomed to hanging around people that were not on your level. But Billy, this is like the time where you bet your dad you'll get an 800 on your SAT. Except this time, your dad can't let you off the hook and you're fucking with other people's money. Not just your own. This isn't
Oh and Billy, take it from a guy who actually got a perfect test score and is used to being "The smartest guy in the room" (even with you in it). Doubling down on monopoly money at the tail end of a QE cycle is just lunacy. Especially when shit is broken. You might as well head to vegas "Playar."
Based on nothing more than your arrogance I hope to God you're wrong and this VRX is Enron 2.0. Just so I can stop hearing about you and your self adoration.
Aside from all this, I am just unsure how long this will last before people start to investigate if you're running a Ponzi Scheme the likes of which has not been seen since Bernie. Seriously, how is anyone as wrong as often as you are without any severe setbacks? Tick tock Billy, tick tock.
Currently NO POSITION in VRX.
“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.
“Markets can remain irrational longer than you can remain solvent.”
I'd like for you to read the quote at the top of the page and let it soak in. Take a few moments and read it over and over and out loud if you have to so that you can become a believer in that statement. There is no greater cause for money lost than conviction in the wrong direction. This post goes hand in hand with the first post of this thread "Stick to the Plan."
The purpose of this post is to reassure you that neither I, nor you, nor your mom, nor your best friend, nor Goldman Sachs, nor the Market Maker, nor Warren Fucking Buffett know where the market will ultimately go. We have our charts, our technical analysis, our valuations, and we play the odds but ultimately that is all we are doing -- playing odds in our favor.
The stock market's prices are strictly an indication of future value based on speculation. As such, the "game" of speculation is determined based on future favor. Simply put, an equity's price is basically what people are willing to pay for it now based on where think the company's value will go later. That said, how is a stock's price often determined? Let's address this below.
People often mistake a company's market cap as the value of the company. That is not only wrong, but it will certainly mislead you into believing a company is good/bad depending on its size. A company's market cap is simply the total dollar value of a company's outstanding number of shares. In layman terms, market cap is the total number of shares a company has x the stock price.
Market Cap Example: Company A has 500 shares available for sale at $2.00/share. Company A's Market Cap is $1000.00.
So what's the point? Why does any of this even f'ng matter?
The point of this is to remind you that when you're wrong (you being everyone, myself included) you need to admit defeat quickly and get out of your false assessment. Markets move irrationally, and when that irrational behavior takes over against you, it will cost you more than you'd typically imagine. I will highlight this irrational behavior below with several examples, some present and some from previous days. To start, I will highlight the craziest one of them all -- the Tulips.
TULIP0MANIA
For those of you who don't know, Tulip Mania or Tulipomania was a period during the Dutch Golden Age where in 1593 tulips (yes the flower) was brought over to Holland from Turkey. They started off as a novelty and the flower quickly became sought after and ultimately pricey. Fast forward a bit and the flowers contracted a virus called mosaic that didn't kill the flower, but instead changed them causing "flames" of color to appear on the flower petals. This made the flowers more "rare" and "unique" flowers. This ultimately drove the price of the flowers through the roof. The flowers were subsequently priced based on how their virus alterations were valued, or desired. Seriously, people were putting different prices on the same flower because they thought one was more valuable than the other. Soon after, everyone began "dealing in bulbs" and boom a speculative tulip market was created and believed to have no limits.
Bulb buyers (the garden centers of the past) soon started to fill up inventories for the growing season. This only limited the supply further and increased the demand and "scarcity" of the tulip.
That's when supply and demand took over and irrational exuberance set in.
Prices started rising so fast and high that people were selling and trading their land, life savings, and their loved ones (joking here... I think) so they can get their hands on more tulips.
Now if you think I sound like I'm crazy you're right. I sound like I'm fucking nuts. But sadly I'm not, and I'm not making it up either. That really happened. So how high do you think the cost of a tulip bulb went in the 1600's?
$20?
$30?
$50?
I wish it stopped there.
Prices moved nearly 20-fold in a month in an already insanely overpriced market. At it's manic peak, an average bulb could be sold for 160-200 Guilders.
Put into perspective at today's prices, tulip bulbs (even the bad ones) sold between $48,000 and $64,000.
Tulip prices From November 12 1636-May 1 1637.
The point I'd like for you to take away from this is that markets set themselves. Let your positions run as long as you can afford to, respect your stops, and never think you won't have another opportunity like this again. It takes two sides to make a market and in doing so the market is always binary and always wins. Secondarily, whether it’s tulip bulbs, houses, .com stocks, crypto assets, or any other future novelty that will come; this shit is nothing new. It is all the same. The intrinsic value of whatever asset you hold is determined based on the scarcity of the supply and the perceived value at any given time. With any asset or store of monetary value there is always an inflection point where the risk paradigm skews in favor of releasing the “asset” and returning to “cash.” Cash here is in quotation marks to account for the different permutations of “cash” that have existed and will exist throughout time.
In the next post we'll cover the previous story using other, more practical, examples.