Category: Stocks & ETFs

Bears Fully in Control on Options Action $GOOGL $BA $XLE

 

Anyone who watches (or in my case, listens to the podcast) of Options Action you will not be surprised that there is a strong bias to the downside.  

However, this week April 20, the show went Full On Bear (FOB). There were three trades highlighted on Alphabet, Boeing and the S&P Energy ETF, XLE. Dan was FOB on GOOGL, thinking that it goes below 1000. and Carter Worth was FOB on the XLE and Mike was FOB with BA.  

To be fair, Mike was less bearish on the XLE buying a calendar put spread which bets on consolidation. Dan, of course, thinks you should buy . . . . wait for it . . . . A PUT SPREAD!  What a surprise. 

Mike’s trade on BA was also less bearish than Dan usually promotes as he sold a credit spread. This will also pay off in a consolidation. 

Don’t get me wrong, I can be bearish on stocks as well. In fact I buy some long dated put spreads when things go up. For instance I was buying some Apple put spreads with the stock trading around 178, because you never know what can show up around earnings. Now I can sell them for a profit. 

But being overwhelmingly bearish is just as bad as being irrationally exuberant. I think it’s just so prevalent on CNBC because it plays well into their overall theme of trying to scare the audience. This brings you back to watch more.  

It also sounds ‘smart’ to be bearish. It makes it seems like you have more information and more insight than the average analyst. 

Sometimes shadows are not bears, sometimes they are bulls and sometimes they are just shadows.  

When does diversification become a bad thing? $SPY $QQQ $IWM

The Animal Spirits podcast is fast becoming one of my favorites for keeping up to date on what’s happening in the financial world. I don’t think I am alone in this. I still watch CNBC mostly to catch Fast Money Halftime but even then, I mostly watch that show to see what Josh Brown’s take on the markets is.  

The common thread between these two sources is that Josh Brown, Ben Carlson and Michael Batnick are all relatively young guys and all three are associated with Ritholz Wealth Management.  

On the most recent podcast of April 11, Episode 24 they reference a quote from Lazlo Birinyi in the New York Times from October 24, 2009. “My issue with diversification beyond that (stocks and bonds) is that an incremental or arithmetic increase in the number of decisions you make leads to a geometric increase in the degree of difficulty (to outperform)”. 

This arose from a discussion on the story that Drew Brees lost several million dollars investing in diamonds thinking, or being advised, that diamonds would outperform stocks and bonds. 

How does this relate to us? Maybe if you are going to speculate on something outside of the traditional market such as art, or Bitcoin, or watches or diamonds, you should only invest what you are prepared to lose. Just assume the value is going to zero. I would only increase the size of my position if I was felt strongly that I knew the market in that asset.  

It’s not only about making money, it’s also about getting a good night’s sleep! 

Where’s the Outrage, Business Pundits? $AMZN $BABA $MELI

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I’ve said many times its best not to take political sides when you are investing or trading. 

That is not to say that you cannot or should not have political views, but that you should be agnostic so that your trades can be with less emotion than would otherwise be present. 

I still believe this, but this latest attack on Amazon by President Trump has me incredulous. What I don’t understand is why the rest of the financial news feed is not incredulous as well. I’ve only heard one on CNBC so far that seems to realize how nuts this is, Steve Leisman. 

You all know the story. Because Jeff Bezos, the founder and major shareholder in Amazon bought the Washington Post sometime back, President Trump is out to get Bezos (or as the reporting goes, “to f**k with him”) because he doesn’t like the coverage the Washington Post gives him as President.  

President Trump says that the USPS is losing money because of Amazon and that they are not paying their fair share of state and local taxes. 

This is Putin-esque. He is trying to do damage to a company he believes is controlled by Bezos as revenge or pay-back. This means that companies are no longer going to be rewarded for innovation, good deal making, or excellent execution, but instead whether or not Trump likes the founder.  

This is NOT a level playing field, this is picking winners and losers. This is trying to hurt one of the USA’s largest companies, largest employers and largest tax payers. Yet Trump institutes tarriffs to help much smaller steel and aluminum companies because he is tryiing to shore up the Rust Belt vote.  

If Obama had done this, there would have been howling from the financial news industry. Rick Santelli would have popped a vein on his head and Larry Kudlow would have banged the table. “Free market capitalism is the fastest path to prosperity”, right Larry? 

This sure doesn’t look that Free Market Capitalism to me and these fools need to be called out for it.  

Ultimately how does anyone choose which stocks to buy? Do we have to get a list from Trump? 

Bears Buckle Down. $AMZN $NFLX

So, the market finds itself in correction territory once again. That’s when the averages are down about 10% but not yet 20% which would be a Bear Market.  

The most recent selloff is being ascribed to the ‘Facebook Data Breach’. But in late January when the market started to roll over it was fear of inflation, manifested in good job numbers. We were just getting that behind us when President Trump tweeted that ‘trade wars are good and easy to win’.  

The real question is whether or not these events are really the cause of the sell off, or when the market sells off do we just look around and pick what we think is the cause. 

Take this morning, AMZN was down, below 1400 at 11:30. Why? Well CNBC’s answer was that Trump was going after Jeff Bezos because of his ownership of the Washington Post. Clips were played of him saying exactly that. 

Problem is, those clips were old, like 2 years old. He didn’t say them yesterday. In fact they could have played those clips on March 18 when AMZN was ringing the bell over 1600. 

I believe sometimes the market sells off, takes a breather, gets a bit nervous for absolutely no reason. Then the sentiment changes. It can happen both ways, up and down. 

However, the Bears always know the reason because they have been crowing about them all along. I’m sure you could find lots of Bears on March 18th saying AMZN was overvalued. 

Being Bearish always sounds smart. Bears are all about you not losing money, about preserving your portfolio and about getting a better price. Bears like technical analysis or fundamental analysis because you can find a Bear case in either one. 

But making money trading requires that you take some risk, that you put some money in a few areas that don’t fully make sense and is not obvious. 

Josh Brown retweeted a David Wilson (@TheOneDave) chart a couple of days ago. In 2003 when NFLX was mailing DVDs out one at a time, it would have been hard to imagine that today NFLX would have a market cap bigger than GE. 

I didn’t see that coming, did you? 

You know who else didn’t see it, for sure? NFLX Bears. 

The Middle Path $SPY $QQQ $IWM $DIA

It’s getting close to about six weeks since the start of the correction. SPY went from about 285 in the final days of January 2018 to a low of about 256 on February 9 or 10. 

There was a rebound to about 275 around February 25 or so and then another pull back to 265 around the first of March. 

Another rally to 277 and now we sit about 275. Let’s take a look. 

Here’s what I see, this looks like a couple of higher highs, after the pull back of course, and a couple of higher lows. This assumes this low holds at 275. 

Providing this happens I think we ultimately get back to the rally and a new high, maybe before the end of this month or the next.  

But until then I am banking a bit on us trading within a range from 275 to around 283. 

Since I am net long the SPY I am selling call credit spreads every time we have an intra-day rally. At the end of the day and selling occurs these spreads fall in value. 

Should we have more of a pull back, I will sell corresponding put credit spreads expiring on the same date as the call credit spreads and thus create iron condors for that date. 

Stocks can go up or go down or they can do the unthinkable. They can go sideways.