Waiting: Sarge on Discipline

             I sat in my car last night. I was waiting outside of a Seven-Eleven convenience store. The most beautiful woman that I had ever seen was inside the store buying what she likes to call “coffee stuff”. I was thinking about the day’s trade… thinking deeply. Yesterday, we all saw the Dow Jones Industrials move rather robustly to the upside, while the S&P 500 for the most part remained flat and the Nasdaq Composite was simply taken out to the woodshed. Within the Industrials, it was the Transports that really took off. Within the Discretionaries, it was the multi-line retailers, and within the Financials, it was the banks. Shazam.
            On the other side of the coin, it got ugly… real ugly. Big-cap tech names. particularly the semi-conductors were rejected… in size… by the masses. Dare I even bring up what happened to the FAANG names? I took some profits earlier in the day in some of my semi-conductor names when I saw support levels failing. I also did some bargain hunting (We’ll see how that works out) when certain stocks that I do like at certain prices were clearly trading in a technically oversold state.
I Marveled
            I sat in that car, and marveled. I had the idea in my head that I had suffered a brutal beat-down on the session simply because I had focused on the stocks that had hurt my P/L. I scrolled through my numbers, and suddenly realized that because I was well-diversified, I had not suffered a beating at all. Much like the S&P 500, I was very close to flat for the day. I held enough shares in the retailers, in the banks, in the transports, and let’s not forget the energy shares to counteract the ugly performance turned in by some of my favorite 2017 stocks. Wow.
           Another case of time-honored, well-worn disciplines actually saving me from myself on a dangerous day. Thank goodness I shipped out to Parris Island when I was 17. Outstanding. The story continues. The crowd (also in my head) cheered.
           My wife returns to the car with her “coffee stuff”, and we head for home. It is now late, perhaps around 9pm. She goes her way. I head for my office. I have long since missed “Mad Money” on CNBC, but fortunately I DVR that show because I consider it essential preparation for the next day’s trading. That’s whether you make a living in this field professionally or not. Where did Jim Cramer go in his opening monologue last night? That’s right. Diversification. Man, was it nice to hear Jim zero in on precisely what I had been thinking about just minutes earlier.
           I often stand upon my soapbox, preaching the virtues of discipline in one’s approach to investing. I tell almost everyone who will listen. Usually though, I stress the importance of having an idea of what you are investing in, and what you are trying to accomplish. I often speak on price targets, and panic points. I speak on when you are allowed to change those levels, and how important it it to obey the levels to the exclusion of all emotion.
          I do not speak often enough on the value of diversification, though it is clearly just as important a discipline to be strictly followed as any other. Diversification prevents one from having too many eggs, or too much dough in any one basket…. and diversification saved my tail yesterday.


Good Evening,

The Gate Keeper

                        Kind of a tricky day, gang. Seemingly quiet. Seemingly. The action across equities markets was almost sort of dull outside of the energy space. That sector backed up more than one percent broadly, while major indices and most of the other sectors stayed fairly close to home. I could talk about Amazon. maybe I’ll leave that for tomorrow’s Recon.
                        The problem today was weaker WTI Crude. The commodity settled at 58.11, down 1.4% on the day. The positive take-away would be that the $58 level, which is one of those swinging gates that I often speak of had held. Unfortunately, the level has been pierced in after-hours trading. The next swinging gate to the downside is $54 in my opinion. Some smart folks see it as $55.
So, What’s The Problem?
                        Coming off of the holiday week, most in the business felt that an announced extension to the OPEC/non-OPEC deal would be forthcoming from Vienna this Thursday. Russia is supposedly on board with an extension. Supposedly. Reuters is reporting a planned significant increase in production from Russia’s Sakhalin-1 project come January. On top of that, analysts at Barclay’s  today warned that even if an extension were to be announced on Thursday, that the levels of production may not be agreed upon until much later. What the ?? That’s an uncertainty that caught quite a few traders by surprise. Oh, did I mention that the domestic rig count is screaming? Uh oh.
Defending Myself
                    What’s the kid to do? You know he already said he liked energy on national TV. Now, he’s got to figure it out. Three long positions in the space. One highly profitable … VLO. Bought that one is response to the hurricanes. That one had to be sacrificed to pay for the rest. Sold to you. Take badge 986.
                    Deep in the hole … SLB. Down small …. APA. Have been in the green on that one… twice. Sold some. Like the name a bit too much to sell it all. Need a cold winter so Natty Gas can do some of the lifting. Otherwise….
                    Doubled down SLB. Rounded out APA. Gonna need some love. Got an idea better than love. We’re going to have to sell (write) some options against these trouble-makers. Just to sort of diffuse the bomb.
Hate Risk?
                     You can knock off almost $1.30 off of your net average price by writing SLB March 65 calls. You can also sell APA April 45 calls for nearly 1.60. That’s some serious food for thought kids. Don’t mind taking on some more risk?  SLB December 15 60 puts are going for 75 cents, and similar APA December 15 38.50 puts are dragging in a rough 65 cents. Get paid to worry about buying stocks you already like at a discount. Life could be worse.
                     My preference when writing puts is to keep expiration dates close. I don’t mind throwing the long ball when selling calls. The only risk associated there is lost profit, but a put exercised against you can pour on the hurt. No promises, but I’m leaning toward selling some calls shortly after tomorrow’s opening bell. I may get crazy though. We shall see. Rock and roll.

Playing Ball, or Earnings… Safely.

Good Afternoon,
                          Just an idea, gang. Use it now. Use it elsewhere. Really, this is simply an effort to educate the folks who do something else for a living. Many of my home-gamer pals have indicated to me that they are not comfortable using or trading option. We’ll occasionally do stuff like this, until you are comfortable, my friends.

When You Don’t Have A Position

                Who doesn’t love video games? Well, recently … investors, that’s who. I am going to assume that you’ve seen the action in Activision Blizzard (ATVI) since that firm beat expectations last week for both Earnings per share, and revenue. The stock is a mere 9% off of the pre-earnings high. How about Electronic Arts (EA)? That stock remains almost 7% below the highs of late October. The difference there is that EA did not even bother to beat projected revenue, and guided weakly into their third quarter…. aka the holiday season.
                 You’ve heard of Take-Two Interactive. Rock Star Games? 2K? These are their labels. The end products? Grand Theft Auto, Max Payne, Midnight Club and Red Dead just to name a few. We could get into the fundamentals of this corporation, but that is not what this is about. This is about the cold-hearted mercenary that lives inside each and every one of us fighting the good fight with two fists, and trying to turn a buck in a risk controlled environment.
But, Still Want To Play Ball
                 TTWO reports after today’s close. There are twenty analysts that follow the name. They are looking for EPS of $0.74 on revenue of $510 to $512 million. Guess what? We don’t give a rat’s tail. We just want the stock to react. So, if the stock were to react by 5% to 9% overnight, that would imply a stock move of somewhere between 5.25 to 9.45, or a move down to a range of 96 to 99, or up to 110 to 114. A little hopeful? I get it, but how do we manage the risk while exposing ourselves to the potential of an overnight move?
Bear Call Spread
                 If you don’t like the stock, you could lay out the 3.60 for a 105 put that expires this Friday evening, or….what if you could expose yourself to some benefit in the case of the stock moving lower, while minimizing the downside risk inherent in the trade. Sounds good, right kids. Let’s illustrate.
Going into the close:
TTWO November 10 105 Calls are quoted around 3.40
TTWO November 10 103 Calls are trading around 4.40
      If one were to sell (write) the 103’s at 4.40, and purchase the 105’s at 3.40, that trader would:
1) Pocket a credit of $1.00 on the premiums paid.
2) Have to buy the stock at 103 if TTWO remained above that price.
3) Be able to buy the stock at 105 if if TTWO went even higher. In other words, the risk is limited to two bucks, but you already netted a dollar, so the risk is really just that single buck. The most you can profit or lose on this trade is a buck. The edge is that in this case, I suspect that the stock will go lower. The trade works similarly in the other direction if you feel differently.
      This is not the strategy of a home run hitter, gang. This is a singles hitters’ trick that does not allow you to get your face ripped off while regularly producing some revenue. Use only when you think you have an edge.

We All Bleed Red

Situation Misery

                     There will be no economics discussed in this space today. No investment strategies, not even political overtones.  I don’t want to hear your justifications. There are none. You are frustrated. Poor baby. So am I. So is everyone else. You’re angry, you’re scared. Okay. Do you know someone who isn’t? There is only one way this gets better. No excuses. Listen to the guy on your left. Listen to the gal on your right. They disagree. Their experience is different. Work together. Grow up.
                     The problem is, gang…. that we all bleed red. We are Americans. We are the great mosaic that results when different people of different viewpoints embrace freedom…. together. We are all entitled to our lives, to liberty, and to pursue happiness. No one person has the right, or the justification to deprive anyone else of those rights.
                     We have to try to understand each other, and when we can not, we have to accept that we will do so without losing mutual respect. To deprive someone else of their life, or to attempt to, is the ultimate show of disrespect, and the ultimate act of selfishness.
What Can We Do?
                  I don’t think anyone among us would deny that we have seen the progress of technology in our daily lives advance rapidly over the last fifty years or so. Many daily functions that at one time required social interaction, now require far less human on human contact. Is that a bad thing? I will remain non-judgmental on this, but I think that it’s easy for me to see a decline in aggregate social skills across our society since my youth.
                 There was a day that when you passed someone traveling in the other direction, that you had to acknowledge each other. Tip of the cap. There was a day that in order to communicate in real time, you had to speak. Nice weather we’re having. Is it possible that the lack of constant human contact has allowed the forces of hate to grow from a smoldering ember into a blazing inferno? Don’t get political on that point. Look inside.
                 We can make an effort to love. We have to. To look the disheveled homeless guy in the face when you pass. To shake the hand of a known enemy. To pray for each other with honestly positive intention. To care. We have to care. That flag has thirteen stripes, and fifty stars. It represents every single one of us across an entire nation. Almost all of us or our ancestors were kicked out of somewhere. Let’s genuinely worry about each other.
                 Let’s be that shining beacon on the hill that I know we truly are. Let’s become that perfect example of decency. Today.
                 Let us not be …..

Smack-Down Recon (Special Edition)

From the Dark

               Ever feel like you are being followed? Ever know it? You probably knew it was out there this week. Always is. Always watching. Quietly. Waiting for the right day. Then … Unleashed. The “Ugly Stick” is out, and it’s angry. Blood in the streets, or should I say “Blood on the Street”.
               Yes, the catalyst is obviously the abundant political risk. One story heaped upon another. Which straw will be the one that breaks the camel’s back? There are some that truly wish to find out. They certainly must not be long the equity market. There has been a certain level of faith out there, that things will get better, and that faith has been evident in our monthly consumer surveys, home-builder surveys, and regional manufacturing surveys. The soft data got this market to the point where earnings could take over, and helped sustain equities even through some rather rough macro. Auto Sales, Retail Sales, Consumer level inflation, even housing starts have all under-performed expectations.Bottom line… You put the whammy on sentiment, and pal, you have a problem.
               Down go the broader equity indices. Okay. Buying opportunity? Sure, I did buy small today, in some names that I felt the risk was indeed minimal. By no means did I try to do any more than get on base though. There will be no swinging for the fences this afternoon. Let’s pick this apart, and try to make some sense of the mayhem.
                 Actually it’s not just us, Europe took one in the teeth today as well. Proceed with the ugliness.
Financials. Whoo Doggie. Where ugly begins. I was starting to doubt my wisdom in dumping JPM. Now, I’m wondering why I held onto C and KEY. So, why this particular slice of pain so acute? Just take a look at the ten year, or any series of US Treasury debt products. Yields are collapsing. Probabilities of a June rate hike are collapsing. Every time that I think about cutting my portfolio bond allocation (currently 15%), I end up being glad that I did not act. Anyone else using a post-it to cover their P/L on their computer screen?
Small Caps. The little guys are US-centric, and for the most part, pay higher effective tax rates than the big boys. That is to their detriment of late, and especially today. A US dollar that is weakening against it’s peers,and the loss of faith in the ability of the Trump administration to push it’s agenda are no friends to the Russell 2000. Carry on.
Transports. Know what economic growth brings? Goods move. Resources move. People travel both for purposes of business, and pleasure. Commerce happens. When commerce happens, truckers truck, railroads hum, and shippers ship. Again, the loss of faith in the agenda is evident in this space. Dow theorists will note that this trend of under-performance by the transports has been in place well before today’s massacre.
Technology. Simply where there were fat profits to be taken, or protected. A place to raise cash. Add to that the now all but forgotten repatriation story, and obviously a re-pricing of these assets became a market story.
Industrials, Materials, Discretionaries. Down, down, down. Ditto. Ditto. Ditto.
             What looks good today? Gold, that’s what. Gold (7.5% allocation) is rocking it’s safe-haven status today. as for the rest of the commodity complex, Crude, Corn, and Wheat amongst others are just glad that the dollar is getting smoked. That safe haven status is also being extended to the already mentioned Treasury market, and to the bond proxies as well. It’s a beautiful day for the Real Estate, and Utility sectors. defensive minded Staples are also holding their own .. just barely.
              This is not the end of the world, but this may be the spot where traders are separated from those who can not. Being long names that increased in value while you owned them was the easiest thing in the world since early November. Back to normal, gang… but perhaps not yet. Now that political risk is expected, this becomes headline risk, and this will matter every day. I hope you enjoyed low volatility, and a microscopic VIX. I am no fortune teller, bit those days. for now… appear to have passed into history. Keep in mind, if you are having a rough day, that somebody else is dying of cancer, or dying of hunger, or simply dying of loneliness. If today’s market action is the worst that you have to deal, then count your blessings, for they outnumber your woes.
Sarge Out.

Market Wrap Tuesday

Good Evening,
                       A wrap of today’s market offered in response to specific request, but for all to share.
Fernando Valenzuela
                       Little bit of a screwy day. Not completely out of left field, but a little screwy nonetheless. The day began with UK Prime Minister calling for a snap election. This makes sense from her point of view, as she is dealing for the moment, from a position of strength. This also will push out the need for her to defend herself in another general election until 2022. That should make the Brexit negotiation that much smoother…. should…. unless the situation in Scotland becomes even more complicated. We’ll know more on 8 June. What we knew today was the Pound screamed higher, kissing 1.29 vs. the US Dollar at one point. FYI, the Euro, and the Yen also took flight against the greenback.
Nothing to See Here
                     The there were some disappointing quarterly earnings results. UAL dragged the Transports out back, while GS, and JNJ put the whammy on the DJIA. Should I mention HOG? Jeekies. Oh, the broader indices did fight back, and there were some notable winners, even among Dow components. UNH, for one responded very well to earnings. Broadly speaking though, the Financials took it on the chin with Health Care, while the Staples and the bond proxies stayed in the green.
Macho Man
                     The bond proxies? You bet your tail. With uncertainty in the UK, a tug of war in France, a planet mired in chaos, the reduced expectations for a June rate hike thanks to some lousy macro, and did I already say a planet mired in chaos?…. Treasuries ran wild, just like the late “Macho Man” Randy Savage used to. You know gang, every time I try to lighten my bond portfolio.. I end up getting cold feet…and every time… I’m glad for it.
                      It may be noteworthy, kids.. that both Oil, and Gold stayed near where they began despite all of that dollar weakness, and Crude had to make a nice comeback to just get there.
P.S. For all of you numbers junkies out there, IBM just reported a beat on EPS, and a miss on revenue. The stock is down 3.3% in the immediate aftermath.
P.S.S. I suddenly feel like a Slim Jim.
Positions in stocks mentioned: none. I left them out on purpose, but 4 for the top 9 on the Dow there, Chilly Willy.

Through the Window

               It was a cold January morning in 1983. What I saw through the window stopped me in my tracks. Still does when I think of it. The most beautiful girl that I had ever seen, or ever would see. Being loud, laughing, wearing a white T-shirt with black polka dots, and black jeans. It was as if I had been hit by lightning. Thirty-four years later, the image is as clear as it was that morning. That mental image still makes me hold my breath for a second. I went inside. I tried to talk to her. It wasn’t easy. I dated many girls back then, but this time …… I already knew the stakes were high. I could not screw this up. It would still take me four more years just to ask her out on our first date. That day was the first time I ever saw my wife. Want proof of God’s existence ?? There it is right there. I won’t get religious on you here, but there was something at work far greater than I.
              This morning I woke up on the right side of the dirt once again. I have a pretty good winning streak going in that regard. Today is the 28th anniversary of the day I married that girl. A purpose for life? You bet. For richer or poorer? Done both….. a couple of times over. In sickness and in health? Been there and back….. in spades. Children? Two young men that any man would be proud to call sons. To love someone…. To care for someone over a lifetime. What an honor !! What a responsibility !! I won’t bore you with a long note. I merely want to encourage young married couples to hang in there, if at all possible. Don’t give up, even when the world around you is an ugly place. Always remember that the girl (guy) you fell for, is still there. Right in front of you. Always was. Always will be.

Market Wrap Wednesday

Good Evening,
                       Technology shares outperformed the marketplace today, which is why the Nasdaq Composite ran away from the DJIA, and the S&P 500. That said, it’s hard to imagine a day coming after a severe sell-off that satisfies neither the bulls, nor the bears. No follow through, no rebound. No response to weak guidance from NKE (outside of that specific security, that was -7%). No response to a terrorist attack in London.
                       Walking on eggshells. Perhaps, after getting roughed up yesterday, investors (and algos) will wait until hard news on health care reform breaks before deciding which way to take the market’s next leg. There was a brief attempt at a rally in response to the Rep. Nunes’ press conference, but that was short lived.
Winners & Losers
                       Outside of the tech space, Treasuries, and thus most of the bond proxies found support… as did Gold. you could not exactly say that traders took off the safety trade. Telecom was an outlier, selling off badly, while the banks seemed to stabilize if not find a buy side. The US dollar remained weakfish, as did oil, illustrating just how bad the environment is right now for Crude. That said Crude remains well above the crucial spot just north of $47 a barrel, despite another large inventory build.
Trading Levels
SPX: Our 2337 level at the bottom of the chart was precise, as was our 2345 resistance that held into mid-morning. we were, however sloppy at the top. I gave you nothing between 2345, and 2358. A stone wall formed at 2352, a level that has held since 1pm on Tuesday, so there is clearly something there.
RUT: The 1349 level at the top was nearly perfect. and our 1342 level did truly work well for most of the day. Honestly, just missed 1335 support until it was real.

Market Wrap Tuesday

Good Evening,
Cometh the Ugly Stick
                       Whoa doggie. Guess that’s what risk feels like. Had almost forgotten. Remember the Ugly Stick? Yeah, the stick was out and about today, and he was laying down the hurt. The banks as a group gave up almost 4% on the day. The Small Caps surrendered 2.6%. The NASDAQ Composite? Ouch. In fact among the eleven sectors of the S&P 500, Financials, Industrials, Materials, Tech,, and Discretionary names all backed up more than one percent. Within the Industrial space, it was an especially bloody day for Aerospace & Defense (-1.7%), the Airlines (-3%), the Rails (-2%).The list goes on, and on.
The Return of Headline Risk
                      The point is that health care reform is seen as not likely to pass on Thursday. No health care reform, no budget. No budget, and the pillars of expected economic growth start to unravel. Tax reform, fiscal spending, repatriation… the whole ball of wax starts to crumble. When the whole ball of wax starts to crumble, so will confidence. Consumer, Small Business, Homebuilder… gone, gone, gone. Do you panic? No, I don’t think you do. Do you react? Probably. I went shopping,  but not with cash. I bought into the airlines and energy today, but I took more profits in the banking space earlier in the day to create the capital. I’m now skinny on banking, a little skinnier than I want to be if the agenda gets back on track, but if I need to get back into that space, the market will be open on the day I want to do so. It would have been a mistake in that case, but a mistake made for the right reason, and it preserved capital. Capital preservation was the name of this game.
Run to the Hills
                      Flight to safety is what they call the behavior seen across markets today… or you can call this the “deflation trade”. Kind of like that one. Banks, Industrials, Small Caps. Sold, sold, sold.  Treasuries, Gold, and Utilities… Take ’em, take ’em, take ’em.
Right Side of the Dirt
                      If you got hurt today, take it in stride. Remember gang, if you are still on this side of the dirt, and you still have your health, and your mind… well, then you are not really having all that bad of a day, now are you? Capital risk is part of the game we play, and generally speaking, it’s kind of fun. You’ll live.

Market Wrap Monday

Good Evening,
Sir, I’m Not Made of Steel.
                       Well, that was exciting. Tax reform. Deregulation. Fiscal spending. Repatriation. We will have none of that, thank you. Instead, we’ll take hour upon hour of “Russia interfered with the election” When did Russia begin interfering in US politics? Decades. Oh. Wire tap? Not legally. Yeah, well no kidding. Basically nothing new was undiscovered at today’s hearings, with the exception that there is an ongoing investigation that we all well suspected was underway already anyway. More time was spent avoiding answering questions than actually answering them. The markets, for the most part… yawned.
Round Up
                         Continued strength in US Treasuries has to be the day’s biggest story. Not only at the long end, where the ten year now yield just a bit more than 2.46%, and the 30 year is giving up less than 3.08%, but the yield on the closely watched two year note moved down to 1.288%. That wasn’t enough to save the bond proxies, though. The Utility sector gave up -0.7%, and Telecom backed up -0.4%. The Financials were again the weaklings (-0.9%), as banks and consumer finance type names took the brunt of the day’s action. As for the commodity space, Oil was once again hit with the ugly stick, though the Energy sector skated closer to the flat-line.
                          I don’t know if you kids will agree, but it is starting to feel like we are walking on egg shells. Stuck between not wanting to bail before reaching the promised land, and being sorry that you never bailed in case we just never reach it. You know how to ease that feeling, right? Sector Diversification, and purchased protection in the name(s) that scare you the most. In the meantime, for your other names (if you are not already), see which names you already own that have correlated options that might trade at anything resembling a decent premium. Go out on expiration if you must. Writing calls against holdings may not provide much, but it does provide something… and you may get away with it in a sideways market. Revenue… a whole lot better than a sharp stick in the eye.
Trading Levels
SPX: I gave you 2377 this morning. That was a little sloppy. Morning support showed up at 2375, and survived a multitude of rapid testing. After the breakdown, the index found resistance at 2376.
RUT: After the opening the slid, the small cap index gave you a range of 1381/1388 versus my range of 1382/1390. Sort of close, no cigar.