All posts by sarge986

Lunchtime Recon (Thursday)

Good Afternoon,
                          Crude Oil is yet again the story of the day. WTI broke below 49 early this morning, then made a nice run toward 50, but met stiff resistance at the level, and is now having trouble holding 49 at mid-day. Is there further downside? Possibly.. at least technically. Without a break and hold above 50, prices could hit 46 without further changing the actual picture. Just keep in mind, that as prices drop, so will production. Supplies will stop growing so rapidly should market prices for WTI maintain these levels.
                           In related news, the US dollar is well off of it’s highs. The DXY lost the 102 handle this morning, and met resistance on the first attempt to regain the spot. Treasuries are soft. The Two year is yielding more than 1.37% in preparation for next week’s rate hike, while the ten year benchmark now gives up about 2.58%
                            As for stocks, the S&P 500 is relatively flat. Most of the downward pressure is still coming from the Energy space, while Financials (being led by the banks) lead the winners. Health Care has remained resilient today, after an inconsistent showing since the political football started being kicked around in the headlines this week.
                            How does one survive this environment? I don’t tell anyone what to do, that’s dangerous…. but I am fairly open about what I am doing. I went back into the Energy space today. (Can’t call me yellow.) Is the timing right? Heck, if I knew that, I’d live on a beach somewhere, and talk about baseball all day. I rung the register on part of my tech portfolio (HPE) that stopped helping. That was a sizable holding for us. I had already been flat energy for a few days, which is fortunate. With proceeds from the sales of HPE (excellent trade), and LULU ( not so hot), we put about half of that dough to work. I would suggest nibbling, and leaving some powder dry. I nibbled my way back into SLB (quality, IMHO), and SN (purely speculative). Both are names that I’m comfortable with. We also sold (wrote) some VLO puts that expire tomorrow, so we may end up long that name as well. VLO is a quality name that I am more than Okay owning long term if I have too.
                            As to HealthCare, it’s tempting, but I’m not biting. If you must, my gut says to stay away from big pharma, and bio-tech. Too much political risk. Medical technology firms seem to be best in class these days.

Market Wrap Wednesday

Good Evening,
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The Ugly Stick
                       It’s not a fire sale, gang… but I bet this market has your attention. the Ugly Stick was out, and about today, and the Stick was angry. The lead story today would be Oil. Massive inventory builds do actually impact the supply/demand equation. What do you know? The good thing about WTI Crude threatening to go below $50 a barrel? They’ll produce less. OPEC tried. Their friends tried. It kind of, sort of worked for a while. That $50 support becomes resistance, and then we’ll see what’s what. Oh, did I mention dollar strength? Yeah… maybe we should stick to commodities. Gasoline, Gold, Silver, Corn, Wheat. Line ’em up. Now, knock ’em down. Stocks? Let’s go there.
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The Crowbar
                       The Energy sector obviously took a crowbar across the back, but they weren’t alone. Pressure on the bond market also put pressure on the bond proxies. Utilities, Real Estate, Telecom. Ugly. Winners? We actually had some of those. The Health Care sector. A little confusion in Washington goes a long way when you’re the 800pound gorilla in the room. Not to mention… wait for it… the retailers. Oh, take ’em. Suddenly, all the cool kids are headed to the mall headed to the mall. Macy’s (M), Nordstrom (JWN), Kohl’s (KSS), Foot Locker (FL), Signet (SIG), and Dollar General (DG). Take, take, take.
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Trading Levels:
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SPX: The index hit the wall at 2373, and finally got support at 2361. In both cases a tow point haircut from my level …  meaning that I didn’t help you all that much. On a moderately positive note, our 2366 spot did act as initial support, but failed to turn into an effective pivot throughout the afternoon.
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RUT: As for the small caps, our 1378, and 1371 levels worked extremely well for most of the day. A technical negative for the index would be that once the dam broke, support was never regained at any level, unlike the broader indices. Bear in mind that the index cracked the 50 day SMA, and now stands nine points below it.
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positions in stocks mentioned: short M puts, long KSS equity, short SIG puts

Market Wrap Tuesday

Good Evening,
                        I’m guessing that you felt that. I felt it too. Today’s final half hour got a bit rough. maybe more than a bit rough, as the fabled SPX 2367 level faced it’s fourth and most severe test of the session. The spot was actually pierced prior to regaining it’s footing in a spate of algorithmic short covering that lasted into the closing bell. The macro today was fugly. (If you never heard of fugly, DM me.) A 0.6% month over month increase in exports for January that included a 1.3% increase in auto exports couldn’t even begin to disguise a robust 2.3% increase in imports for the month. Down goes Frazier (Always rooted for Frazier against that draft dodger, btw), and down goes any and all Q1 GDP tracking models. The Atlanta Fed’s model is now zipping along at a crisp 1.3%. Oh, baby … Rock on.
                       Should we even go into January Consumer Credit? Not if we want to keep pretending that the US economy is scraping along at “full employment” LOL. Gonna need your entrenching tool to find the revolving credit number.
                        So, now the S&P 500 is resting on support, the very same spot that provided resistance throughout the last week of February. That’s right, last Wednesday’s screaming run to victory is gone. Poof. Get over it. Still haven’t been obliterated. I’d rather be where we are, then where we’ve been. My P/L agrees, though it is getting a little ornery. You really couldn’t blame a soul for taking their money off of the table, and playing with the balance, now could you. I mean, I only need clean water, a source of heat, and baseball. Most of the rest of you also need some dough. So, let’s take a look at the victims.
                       We have to begin with Health Care. Telecom and Energy took the more severe sector-wide beatings, but Health care is dominating the headlines, and it’s more interesting to boot. Did you see the SPDR Bio-tech ETF(XBI). Whooo doggie … -1.7% on the day. Pharma also danced the nasty after the president suggested more competition was need across the space in oder to lower prices (on Twitter, which also got hit in the teeth). Treasuries, Gold, and Oil all move toward the lower end of their month-long ranges.
                       Wasn’t anything in the green, Sarge? Info-Tech snuck across the goal line in decent shape, led by the semis, but kids… that’s going to be about it.
Trading Levels: We all know that our SPX levels were very close to spot on at both the top and the bottom of the chart. May revise the 2367 level a point or two lower. I’ll decide that when I study the charts tonight. Our RUT levels were very close to perfect. 1384 at the top, 1378 for support. Once the 1378 level cracked late in the day, the index found help at 1374. I had given you 1371. My bad.

Market Wrap Monday

Good Evening,
                       Stocks closed lower today, in a trading session that probably could have been much worse. Financials were perhaps the weakest sector, with particular focus on the banks and consumer finance names. The Materials sector was also among the day’s weakest. Only one of eleven sectors headed north for the day, and that was Energy. This despite slightly lower prices for Crude, and a stronger US Dollar. Remember that energy had a pretty solid week last week as well.
                      Small caps, and Transports were both hit with the ugly stick today. At least in the case of the Transports, this was due to a widespread beat-down levied upon the airlines after Delta (DAL) lowered expected Q1 operating margins at the Raymond James Institutional Investor Conference. Delta also lowered passenger revenue per available seat mile.
                      US treasuries sold off small, as yields for the ten year remained below 2.5% all day. Gold ended the day virtually unchanged.
Trading Levels
                       Back to the broader indices. There were a few moments this morning where traders wondered if the market was going to crack hard. I gave it a thought at the time myself. You know what got in the way? That SPX 2367 level. Like an impenetrable stone wall at the bottom of the chart. Equity markets rallied hard off of the level, and seemed to run right through that next 2375 level, only to then end up finding steadfast support at that spot from 1pm on into the closing bell.
                        Both of those levels were available for free in the Market Recon note at 7am this morning only at thestreet.com . Our Russell 2000 levels were just as sharp today as were the levels for the S&P 500. Just change the numbers to 1378, and 1384.

Trouble Under the Hood

Good Afternoon,
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Realization
                      I’m starting to realize something. Something that I’ve been acutely aware of for quite some time, but maybe due to my exposure to the mainstream media became less sensitive to. With what has been gradual improvement in the economy across a broad spectrum of data-points, the economy is still wildly inconsistent, and still badly underperforming. Nine long years, and we are not really right yet. The markets may have taken off after the US election in a bold step toward hope, but the economy itself still has to catch up to those markets.
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Cold November Rain
                      The November macro is pouring in right now, and the month is starting to look awful… one major step back from the progress that we thought we were finally starting to make. This morning, Housing Starts severely disappointed. True, October brought us the best numbers for Housing Starts since 2007, but that bright spot is now sandwiched between the two worst months since June of 2015. How inconsistent is that? Yesterday, Core CPI also disappointed, printing at 2.1% y/y. That’s is above the Fed’s goal, but this item typically runs about half of one percent higher than Core PCE, which is the Fed’s focus. This 2.1% print also equals the lowest rate for core consumer level inflation for this entire year.
                      Let’s go back to Wednesday. That’s the day that November Retail Sales disappointed, bringing lowered revisions to October’s data along with it. That report also showed a profound lack of fun. What do I mean by that? Yes people spent on gasoline, rent, medical care, but what did they stop spending on? Hobbies, sporting goods, music, and books… that’s what. Nobody spent on anything that they didn’t have to buy. Industrial Production kept pedaling backwards on Wednesday as well. November Industrial Production hit the tape at -0.4% m/m, and -0.6% y/y on not just manufacturing weakness, but weakness in the utilities as well. Capacity Utilization plummeted to 75%, after having rebounded from a multi-year low of 74.9% earlier in the year.
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Non-Participation
                      We’ve heard so much about our improving labor market, with it’s misleading 4.6% headline Unemployment Rate. First and foremost, wages have struggled to grow. Over the year average hourly earnings are indeed up 2.4%, which I guess is better than we have become accustomed to, but let’s not lose sight of the fact that those hourly earnings actually contracted in November from October. That does not happen in a tight labor market, and it does not happen in an economy that is approaching full employment. To cement just how tough it is out there… Participation is now 62.7%, which is a 2016 low. The number of multiple jobs holders now exceeds 8,107,000, which is an 18 year high. Those people now comprise 5.3% of the labor force, which itself is a seven year high. With a “non-participation” rate of 37.3%, this means that a whole lot of people are not working at all, while more people than have had to in a generation are working harder than ever. I imagine holding down second jobs is not something most people do for fun. I know, I’ve been there.
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Survival
                       The bottom line is that this recovery, if you even want to call it that, continues to be painful for most of America. This is why 98.4% of the counties in this country rejected the status quo on election day. Is the election of Donald J. Trump a “Hail Mary” pass? A desperate attempt to change something…anything? The perception is already in place that the economy will improve on the pillars of lower taxes, repatriated money, and deregulation. The way to navigate this is to be in the right spot, at the right time. That means being invested in what are now being referred to as “Trump stocks”. Too late? the markets may pause, but we’re going out at least six months here, probably even longer. From the financial space (banks, capital markets, consumer finance, and insurance). to the Industrials. If you believe in the growth – reflation story, then this is where business will be done. Examples of what may do well in finance, but still be affordable to the retail investor would be BAC, KEY, V, and DFS.  Within that Industrial sector, I think the Transports will continue to do well as businesses become more aggressive, and the president-elect begins to push for spending on infrastructure. I like the airlines, and delivery services to some degree. I like the railroads more, especially those that would be exposed to the coal space.  My favorites in this group are CSX, and NSC, but do think UNP still does well going forward.
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Positions in stocks mentioned: Long equity in BAC, KEY, and CSX

Doh !! Survivng a Goof

True Story.
                          The story you are about to read is true is one of those “Only me” stories. For those of you who don’t know me, I’m an Irish Catholic kid from Queens, NY. You can go ahead, and put the emphasis on Catholic. I practice the faith. I’m working all day today, and I’m having a good day, a really good day. Almost as good as yesterday. This market has made good days easy to come by of late. That is where the story makes an unexpected turn.
                           My wife (nice lass that she is) reminds me that today is a Holy Day of Obligation. Well, she’s right… it’s the Feast of the Immaculate Conception. I check the nearby church’s website, and I see that there is a 12:10 Mass, so I place a few bids and offers well away from the market in some names that I either am involved in, or am willing to be involved in. Then I hold my breath for about an hour and a half. One of those orders was a $73 bid for Express Scripts (ESRX). At the time, the last sale was around 74.25, so I wasn’t extremely worried about it. You can probably figure out the rest. I had an errand to run after church, and got back to the office at 13:20. I sit down at my desk.  Poof… the first thing I notice is that while my P/L for the day is still quite respectable, it’s not what it should be. No position of mine had moved all that much. Then I saw it. I had indeed paid 73 for ESRX. Citron Research had been tweeting while I was at Mass. Andrew Left was apparently going to lay the hurt on this stock, and do it after today’s close on CNBC. The stock was trading at $68. What do I do?
Choices.
                          Do I buy more to lower my average price? Do I sell the shares, and chalk it up to a lesson learned? (Don’t go to church ?? … Don’t take your eye off the ball ??) Do I go the expense of buying puts, and rest easy that I have at least controlled my potential for loss? Maybe I close my eyes, and hope the problem goes away? I actually tried that last one. Doesn’t work. Having an otherwise decent day/week does allow one to properly think through a course of action. So think I did.
                           With Citron Research tweeting about a $45 target, and knowing that the greatest potential for risk in either direction would occur between tonight’s close, and tomorrow’s opening bell, I took the best course of action I could come up with. I got long Dec 9 (tomorrow) 70 straddles for a net debit of 2.50. That’s lost money, but it’s also peace of mind. If ESRX gets hit by a Tsunami, I’m out at an effective price of 67.50. A kick in the pants for sure, but worse things have and will continue to happen. On the other hand, if the public rejects this negativity, and we see an overnight move higher, however unlikely…. I can load up for an effective cost of 72.50. Either way, I will be flat this name by tomorrow (Friday) night’s closing bell. I also have the option, should the stock go higher today, of taking a profit on the calls, knowing that I have downside protection due to my holding of the corresponding puts.
                            Stupid? Not really. Careless? Probably. Survivable? Definitely.

Market Recon Wednesday

Good Morning,
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The Elephant in the Room.
                       OPEC Secretary General Mohammed Barkindo got this party started early, apparently stating that a deal would in fact, get done today. Add to that some positive comments from Bijan Zangeneh (Iran’s Oil Minister), who had not been extremely cooperative in the past, and voila !! Crude prices were off to the races, reclaiming levels not seen in over 24 hours. (Oooh!!, Ahh!!) Scuttlebutt has it that a production cut is being bandied about that would exempt both Nigeria and Libya, and that the cartel is in contact this morning with non-OPEC producers, whose level of participation is unknown (at least by this guy) at this time. What is also unknown would be the exemption status of Iran, a nation that was rumored to be in line for such a benefit back in September. The bottom line, gang… is that there’s a lot of pressure here to get something done, something that sounds like more than window dressing. This pressure is going to be today’s driver. Without a deal, there is no ability to collude… and there is absolutely no cartel.
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A Lot on Your Plate Today.
                      As you lift that pretty head of yours off of the pillow this morning, you’ll soon realize that there’s a ton of macro-economic data on your plate today. If you read me, you know I have been skeptical of this economy every step of the way, but let’s call this what it is. Sure, we can find something negative in most spots if we really try. It’s not really so hard to support an agenda if you have one.
                      Our only agenda, however should be to excel within the environment provided. That environment is different now. It’s not just yesterday’s revision to Q3 GDP, and the Atlanta Fed’s projection for Q4, … it’s both Consumer Surveys, it’s the almost weekly improvement seen in the retail related Redbook, it’s Durable Goods, it’s home prices, and it’s all five major regional Fed district manufacturing prints hitting the tape in a state of expansion, supported by New Orders. Just makes my little heart burst with joy that this all started in an environment less conducive to growth than the one that we appear to be headed into.
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Trader Focus
                       Well, if that whole OPEC shindig, and that plate full of macro isn’t enough to rattle your cage, today is the final day of November. We’ve seen significant movement in just about everything from currency valuations, and yields to the major equity indices … not to mention all of the sector rotation. You’re going to have to deal with the month-end shuffle on top of all of those headline level events as mangers re-balance their books. the good thing is that you probably will not be bored. Go get ’em, gang.
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Reminder: This is the last day that my morning note will be published at sarge986.com  …  Tomorrow we move over to thestreet.com
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Macro
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08:00 – Fed Speaker: Dallas Fed Pres. Robert Kaplan, who will vote on monetary policy in 2017, has joined the chorus of central bankers preparing the marketplace for this anticlimactic rate hike that we’ll see in two weeks. Kaplan speaks this morning from New York City, and will take questions from the media.
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08:15 – ADP Employment Report (November): Expecting 162K, October 147K. The interesting thing here is just how sharp an indicator this item is for the all important Non-Farm Payrolls print. That fact is not readily identifiable to the naked eye upon release, but when smoothed out over time after revisions, the two are nearly identical. The BLS print is much more volatile, which is probably due to the fact that ADP, a corporation is simply more efficient than would be a government agency. After accepting that, over the last ten months, or simply 2016 YTD, Non-Farm Payrolls are averaging 184.5K (with a high of 292K, and a low of 11K), while the ADP number has averaged 182K (with a high of 205K, and a low of last month’s 147K). From a macro point of view, this data-point matters. From the market’s stance, it certainly matters to equity index futures traders, but will be absorbed by the time the 09:30 crowd gets going.
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08:30 – Personal Income (October): Expecting 0.4%, Sept 0.3% m/m.
08:30 – Consumer Spending (October): Expecting 0.5%, Sept 0.5% m/m. Income has suddenly started trending higher. That’s good. Spending has also started trending higher. That too is good. What’s not so hot, is when Income does not keep up with Spending. Income has failed to keep pace in five of the last six months, and as you can see, we are looking for more of the same today. We love an aggressive consumer, I mean who doesn’t?  The best consumer though, is a comfortable consumer, and I do think there is progress. The sub-components of yesterday’s Q3 GDP release support that. If you see side by side strength here today, the markets will cheer.
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08:30 – PCE Price Index (Oct): Expecting 0.3%, Sept 0.2% m/m 1.2% y/y.
08:30 – Core PCE Px Index (Oct): Expecting 0.1%, Sept 0.1% m/m 1.7% y/y.  There should be some movement in consumer based inflation for October, particularly at the headline. The year over year Core data is what market participants will be watching. Regardless of what hits the tape today, I think we all know what’s on the way. That said, you get a Core print above 1.7%, and you’ll get a spark in the markets. this is one of the single most important items in our macro-universe.
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09:15 – Fed Speaker: Federal Reserve Gov. Jerome Powell will speak twice today from the Brookings Institute in Washington. The day’s topic will be “Understanding Fedspeak”. Could have used a speech like this …oh, six or seven years ago. There will be a Q&A session after the speech.
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09:45 – Chicago PMI (November): Expecting 52, October 50.6. Although we have officially stated an expectation for this data-point today, the expectation here is actually quite meaningless.  The last time that the Chicago PMI printed within even 1.5 of consensus view was in August…. of 2015, and on more than a few occasions the miss was enormous. What’s real is the print itself, and we expect to see a sixth consecutive month of expansion in the Chicago region’s business conditions.
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10:00 – Pending Home Sales (October): Expecting 0.5%, Sept 1.5% m/m. This item is considered a leading indicator for Existing Home Sales, as new construction is excluded from the data. Though there is a loose correlation, this remains low on the totem pole for housing numbers as far as market impact is concerned. We expect only small net change for October, which is actually unusual for this volatile series.
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10:30 – Oil Inventories (Weekly): Exp +1.3M barrels, Last Week -1.3M barrels.
10:30 – Gasoline Stocks (Weekly): Exp +1M barrels, Last Week +2.3M barrels. Like the Chicago PMI, this is another space where expectations, and reality often have trouble coming close. The API prints released on Tuesday evenings are usually closer than is professional consensus. API is reporting a draw at the headline of -717K barrels for Crude. As far as Gasoline goes, API printed a 3.36M barrel inventory build. Crude drifted slightly higher last night in response to these numbers, but OPEC clearly will have more of an impact in this space today than will these silly fundamentals.
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11:45 – Fed Speaker: Federal Reserve Gov. Jerome Powell speaks publicly for the second time today, and for the third time in two days. Yes, he is still a permanent voting member of the FOMC.
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12:35 – Fed Speaker: Cleveland Fed Pres. Loretta Mester will speak on monetary policy, and the economy from Pittsburgh. Mester who will vote in December, but not in 2017 has been one of the FOMC most outspoken hawks for most of the second half of the year. Like Kaplan earlier, she will answer questions from the media today.
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14:00 – Beige Book: I don’t think we are on the lookout for anything shocking here today. We all know that this economy finally seems to be improving on several fronts. The surprise would be if anecdotal evidence compiled across twelve regional Federal Reserve districts failed to illustrate that image in the aggregate.
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Sarge’s Cash Levels
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SPX: 2218, 2211, 2204, 2195, 2187, 2180
RUT: 1348, 1339, 1334, 1327, 1319, 1314
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Wednesday’s Earnings Highlights
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Before the Open: AEO (.41)
After the Close: LZB (.38), GES (.14)