Securities Action of Wednesday, February 4, 2015 “SLIGHT SELL OFF ON WALL STREET!”

On the Securities Action of Wednesday, February 4, 2015

“SLIGHT SELL OFF ON WALL STREET!”

Slight sell off on Wall Street! Wednesday saw most major U.S. stock indices down by -0.20% to -0.40%. Volatility, as measured by the VIX rose +5.77% to 18.33. The S&P500 finished -8 points to 2,041, the DJIA was up +6.62 points to 17,673.  The S&PMidCap400 declined -0.44% to 1,467.  In fixed income, Treasuries traded higher, while high yield sovereigns and BB-rated high yield corporate debt traded lower; CCC rated fixed income saw price increases.  I believe the major U.S. stock indices will soon plow through previous all time highs, by three to four percent, before taking a few steps back, before making another advance higher.  I continue to remain bullish, and I believe energy shares and crude oil will trade in a volatile range, but will trade higher given a month or two or more, which I believe will lift all major U.S. Stock Indices to new highs.

Feb. 4, 2015, Major U.S. Stock Indices

Select Quotes of Interest, Feb. 4, 2015

[http://finance.yahoo.com/futures] Click here for an energy prices update]  Tuesday saw USO an etf of West Texas Intermediate decline by -6.83% to 18.28; This was a reaction to oil inventories data, that came in at nearly 80 year highs!  This according to the EIA.  I believe oil will remain very volatile; It settled at 48.61 per barrel (down -8.70%) on Wednesday.

In the Fixed income markets, see the graphic above to see how Treasury etfs traded (ZROZ, TLT, IEF, TIP) and how high yield etfs traded (EMB, PCY, HYG, JNK, and QLTC).  The 30 year Treasury yield closed at 2.39, and the 10 year Treasury Note yield closed at 1.89 [data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield. I continue to believe, and will reiterate, that if oil can stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I continue to believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.

The US Dollar traded higher versus the Ruble and the Euro on Wednesday; the Euro lost approximately -0.81%, as measured by the etf FXE.  GM also released its eps report on Wednesday morning; it handily beat expectations, and shares rose by +5.44% to 35.83.  I continue to believe the Ruble and the Euro are still too high, and will further deteriorate, making the dollar stronger. The U.S. Dollar can now be exchanged for a Euro at a cost of approximately $1.1354, and also can now be exchanged for 67.8995 Rubles, which is about two point eight Rubles and change more than yesterday.  [http://finance.yahoo.com/currency-investing]  Go here for an update on all major cross rates.

I believe the catalysts for today’s stock market loss were predominately lower oil and energy prices, as well as Greece sovereign debt pessimism increasing as Europe told Greece it could not back its bank debt with its sovereign debt as collateral;  Consequently, shares in Greece fell on their exchanges, and in the USA, an etf of Greek stocks etf ticker GREK, declined by -10.39% to 11.90.  I also believe that oil could prove to be very volatile; so perhaps an option strategy called an at-the-money straddle could be lucrative when choosing expirations about two weeks away.

Economic data releases on Thursday the 5th will see Initial Claims, the Trade Balance, Productivity, Unit Labor Costs, Natural Gas Inventories, Payrolls, the Unemployment Rate, Hourly Earnings, Average Workweek, and Consumer Credit economic data releases.

In notable eps reports releases I had speculated yesterday that CMG would be amusing, as would WYNN.  Both eps reports were released after the market close on Tuesday the 3rd. I had said that CMG may move by ±51.00 on Wednesday, during the full trading day after it reports eps. Wednesday the 3^rd saw CMG decline by -50.63 or -6.97% to 676 per share, and WYNN declined by -9.69 or -6.22% to 146.11 per share. I had suggested that perhaps a long bull call ratio back spread with net credit characteristics may be lucrative; Especially if also combined with a long bear put ratio back spread with net credit characteristics on CMG, placed today just a minute or two before the close (3:00PM Central Time) on February 3rd could prove to be lucrative.  It certainly was amusing to see what happened Wednesday.  

I continue to believe that long bull call ratio back spreads with net credit characteristics, initiated simultaneously with long bear put ratio back spreads with net credit characteristics (initiated just minutes before the closing bell) could prove to be a very lucrative trading strategy, when focused on “HYPE(!!!) stocks just prior to their eps releases.  Up and coming hype stock eps releases include TWTR, YUM, and LNKD.  Happy earnings speculation! 

I will reiterate that I’m currently bullish on the major U.S. stock indices, despite S&P Future vs. Fair Value currently indicating that Thursday may see stocks open down by -67 points.  I believe a theme of higher crude oil prices will potentially materialize over the next few weeks, if not becoming more of a longer term theme, for the next year, if not longer.  I also believe that the geopolitical risks involving Greece’s sovereign debt and interest payments will be resolved, and that Russia may stop sabre rattling soon.  This will bring about higher prices for stocks, and for all major U.S. stock indices, which could reach new all time highs very soon.  I also think that investors may begin selling longer duration and longer maturity fixed income of all kinds, and with the proceeds they may purchase stocks, resulting in higher yields on fixed income, and also higher stock prices.  Interestingly, I believe that the higher credit quality fixed income may sell off more than the lower credit quality fixed income.  I would base this upon the unprecedented sovereign yields worldwide and in the USA.  High yield fixed income yields are not at all time lows, but e.g. Treasury yields are at nearly all time lows.  To me this means that Treasuries at the long end, may suffer greater losses on a percentage basis versus their high yield counterparts.  For 2015 I am most bullish on equities within the Financials, REITs, and “Big Tobacco” sectors;  In fixed income I like high yield etfs e.g. EMB, PCY, JNK, HYG, and QLTC.  I’d likely trade deep in the money calls on stock indices, combined with high allocations to high yield fixed income.  Happy trading!

By Andrew G. Bernhardt

On the Securities Action of Tuesday, February 3, 2015 “BIG RALLY AT BROAD & WALL!”

On the Securities Action of Tuesday, February 3, 2015

“BIG RALLY AT BROAD & WALL!”

BIG RALLY ON WALL STREET! Tuesday saw a continuation of a broad based rally across the board on The Big Board. Volatility, as measured by the VIX imploded and was -10.81% to 17.33. The S&P500 finished up + 1.44% or +29.18 points to 2,050.03, the DJIA was up +1.76% or +305.36 points to 17,666.40.  The S&PMidCap400 rose +1.85%  or +26.75 points to 1,473.94.  In fixed income, Treasuries were down while high yield sovereigns and BB-rated high yield corporate debt rallied, while CCC rated declined.  The major U.S. stock indices are now within striking distance (about -1.7 to -2.4 percent) off their all time highs, which I think they will soon plow through by three to four percent, before taking a few steps back, before making another advance higher.  I continue to remain bullish, and I believe energy shares and crude oil will trade upwards, which I believe will result in higher shares across the board, lifting all major U.S. Stock Indices.

Feb. 3, 2015, Major U.S. Stock Indices

Select Quotes of Interest, Feb. 3, 2015

[http://finance.yahoo.com/futures] Click here for an energy prices update.  Tuesday saw USO an etf of West Texas Intermediate rise by +5.37% to 19.62.  This is the third day of gains, and USO is now +20.37% off of rock bottom.  I believe oil will go higher, over the short run and long run; It settled around 52 per barrel on Tuesday.

In the Fixed income markets, ZROZ traded lower, down -3.81% to 133.37, TLT traded down by -2.12% to 134.57, IEF traded lower by -0.84% to 109.30, TIP was down -0.46% to 115.02. EMB was up +0.54% to 112.09, PCY was up +0.38% to 29.00, HYG was up +0.57% to 90.72, JNK was up +0.49% to 39.03, and QLTC traded lower by -0.98% to 48.70. The 30 year Treasury yield settled at 2.37%, the 10 year Treasury yield settled at 1.79% [data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield]. I continue to believe, and will reiterate, that if oil can stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I continue to believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.

The US Dollar traded lower versus the Ruble and the Euro on Tuesday; the Euro gained approximately +1.30%, as measured by the etf FXE. I continue to believe the Rouble and the Euro are still too high, and will further deteriorate, making the dollar stronger. The U.S. Dollar can now be exchanged for a Euro at a cost of approximately $1.1479, and also can now be exchanged for 65.0995 Rubles, which is three Roubles and change less than yesterday.  [http://finance.yahoo.com/currency-investing]  Go here for an update on all major cross rates.

I believe the catalysts for today’s stock market gains were predominately higher oil and energy prices, as well as Greece sovereign debt pessimism mitigating.  I believe that oil shares and crude oil itself will trade flat to up, and that all major stock indices will trade higher.  I also believe that oil could prove to be very volatile; so perhaps an option strategy called an at-the-money straddle could be lucrative when choosing expirations about two weeks away.  Another strategy that may be lucrative on higher oil prices would be a married put trade, on e.g. the etfs XLE and/or USO, or on individual energy related shares, such as XOM, BP, CVX, BPT, COP, or RIG, etc.

Economic data releases on Tuesday were strong across the board; auto and truck sales reached the highest level going back several years.  Total vehicle sales came in 100,000 units greater than consensus estimates; 16.7 million units were sold. Wednesday the 4th will see MBA Mortgage Index, ADP Employment Change, ISM Services, and Crude Inventories economic data releases.

In notable eps reports releases I had speculated yesterday that CMG would be amusing, as would WYNN.  Both eps reports were released after the market close on Tuesday the 3rd. I had said that CMG may move by ±51.00 on Wednesday, during the full trading day after it reports eps. Fasten your seat belts, because it’s down STRONGLY in afterhours! I had suggested that perhaps a long bull call ratio back spread with net credit characteristics may be lucrative; Especially if also combined with a long bear put ratio back spread with net credit characteristics on CMG, placed today just a minute or two before the close (3:00PM Central Time) on February 3rd could prove to be lucrative.  Looks like that estimate and projection is going to materialize. I had suggested also that WYNN could perhaps move by ±7.70;  Looks like that’s going to materialize also. It will be amusing to see what happens Wednesday.  

Wednesday, after the close GMCR (which closed at 126.09 per share on Tuesday) reports eps; consensus estimates are for 89 cents per share. GMCR looks to me like it might move by about ±11.50 per share after reporting eps.  I continue to believe that long bull call ratio back spreads with net credit characteristics, initiated simultaneously with long bear put ratio back spreads with net credit characteristics (initiated just minutes before the closing bell) could prove to be a very lucrative trading strategy, when focused on “HYPE(!!!) stocks” (like GMCR, and many others) just prior to their eps releases.  Happy earnings speculation!

I will reiterate that I’m currently bullish on the major U.S. stock indices, because I believe that higher crude oil will lead the energy sector shares higher, dragging everything up with it.  This theme will potentially materialize over the next few weeks, if not becoming more of a longer term theme, for the next year, if not longer.  I also believe that the geopolitical risks involving Greece’s sovereign debt and interest payments will be resolved, and that Russia may stop sabre rattling soon.  This will bring about higher prices for stocks, and for all major U.S. stock indices, which could reach new all time highs soon.  I also think that investors may begin selling longer duration and longer maturity fixed income of all kinds, and with the proceeds they may purchase stocks, resulting in higher yields on fixed income, and also higher stock prices.  Interestingly, I believe that the higher credit quality fixed income may sell off more than the lower credit quality fixed income.  I would base this upon the unprecedented sovereign yields worldwide and in the USA.  High yield fixed income yields are not at all time lows, but e.g. Treasury yields are at nearly all time lows.  To me this means that Treasuries at the long end, may suffer greater losses on a percentage basis versus their high yield counterparts.  For 2015 I am most bullish on equities within the Financials, REITs, and “Big Tobacco” sectors;  In fixed income I like high yield e.g. EMB, PCY, JNK, HYG, and QLTC.  I’d likely trade deep in the money calls on stock indices, combined with high allocations to high yield fixed income.  I’d use longer dated expirations for the long deep in the money index calls. I like index calls because they have IRS 1256 contract status for preferential tax rates, versus etf options, which do not have IRS 1256 contract status.  I’d occasionally write calls against the long calls, writing front week (or two weeks out to expiration) expirations (repeatedly at my discretion- where I believe we may be at a peak… I’d sell ATM calls or slightly out of the money (by one to two percent) calls against the long calls), adjusting the trade into a long diagonal bull call debit spread.  This is “my two cents” on the markets, and investing, and eps speculation as of late.  Happy trading!

By Andrew G. Bernhardt

On the Securities Action of Monday, February 2, 2015

On the Securities Action of Monday, February 2, 2015

STOCKS RALLY ON WALL STREET!  Monday saw a broad based rally across the board on Wall Street. Volatility, as measured by the VIX imploded and was -7.34% to 19.42. The S&P500 finished up + 1.30% or 25.86 points to 2,020.85, the DJIA was up 1.14% or 196.09 points to 17,361.04 In fixed income, Treasuries were down while high yield sovereigns and corporate debt rallied.  I’m remain bullish and believe stock prices will go higher, lead by the energy sector, as I believe oil will trade higher from here.

Feb. 2, 2015, Major U.S. Stock Indices

The DJIA is now -4.10% off its peak reached at some point in the past 12 months, the S&P500 is -3.47% of its peak, the S&PMidCap400 is -2.10% off its peak, the Nasdaq Composite is -2.87% off its peak, and the Russell 2000 is now -3.76% of its peak, the Wilshire 5000 is now -3.15% off its peak. XLF, an etf basket of financials, was up +1.61% to 23.38, and now stands -7.00% off its peak reached in the past 12 months. XLE as basket of energy shares, was up +3.06% to 77.87. XLV, a basket of pharmaceuticals was up +0.56% to 69.66.  ICF a basket of REITs was up -0.03% to 103.80.  Crude oil traded up strongly, for the second trading day in a row, USO an etf of West Texas Intermediate, traded higher by +4.49% to 18.62.  USO stands down -52.79% off its peak reached at some point in the past 12 months, I believe in late June.  I believe oil will remain volatile, but I think that it has bottomed, and that higher prices of oil will drive energy sector shares higher, which will lead the market higher.

Quotes of Interest

[http://finance.yahoo.com/futures]  Click here for an energy prices update.

In the Fixed income markets, ZROZ traded lower, down -0.24% to 138.65, TLT traded down by -0.38%, IEF traded lower by -0.12% to 110.23, TIP was down -0.07% to 115.55. EMB was up +0.10% to 111.49, PCY was up +0.38% to 28.89, HYG was up +0.39% to 90.21, JNK was up +0.23% to 38.84, and QLTC traded higher by +1.78% to 49.18. The 30 year Treasury yield settled at 2.25%, the 10 year Treasury yield settled at 1.68% [data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield]. I continue to believe, and will reiterate, that if oil can stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I continue to believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.

The US Dollar traded slightly lower versus the Euro on Monday, the Euro gained approximately +0.32%, as measured by the etf FXE. I continue to believe the Ruble and the Euro are still too high, and will further deteriorate, making the dollar stronger. The U.S. Dollar can now be exchanged for a Euro at a cost of approximately $1.1335, and also can now be exchanged for 68.0945 Rubles.

[http://finance.yahoo.com/currency-investing] Go here for an update on all major cross rates

I believe the catalysts for today’s stock market gains were predominately higher oil, the release of the Federal Budget by the Obama Administration. The Budget proposal calls for an increase in defense spending of +4.50% from last year, and in sum is $3.99 trillion of expenditures, (+6.4% increase from last year) and with an estimated revenue stream of $3.53 trillion; The estimated deficit is projected to then be $474 billion dollars.  Government economists are estimating and projecting that deficits will be 2.5 to 3.5 percent of GDP annually for the next 10 years.

What we need is a President and Congress who will actually try to balance the budget and/or try to run a surplus.  The Executive and Legislative branches of Government shouldn’t crowd out investment and crowd out borrowing until there’s a panic in the markets and a recession; They borrow like there’s no tomorrow.  They are siphoning money away (by borrowing billions per day!) from other causes with their deficit spending.  We also need a Legislative Branch that doesn’t e.g. reduce regulations mortgage lending standards, to literally let anyone buy a home, as they did in 2000 through 2008.  This I believe set the USA up for a real estate downtrend which began in roughly 2003 or 2004, which ultimately took the rest of the economy downwards with it starting in late 2007 through 2009.  They shouldn’t have been able to buy these homes in the first place.  We also don’t need a Congress so foolish that it thinks it can punish financials (banks, brokerages, insurance, and reinsurance companies) with hefty fines, penalties, and indictments, from Federal Prosecutors at the DOJ, who crazily believe that their “crack down” on these financials will stop the economic cycle and prevent future recessions.  It was their idiocy of excessive borrowing, and changing of rules to let fools buy homes in the first place that caused the economic troubles of the late 2007 through 2009.  Their new regulations will do nothing but cause more trouble.  Increased lending standards that literally prevent spending (by limiting credit and limiting loans) is ridiculous.  Ben Bernanke couldn’t even refinance his home recently!  We need a “do nothing” Congress.  Lastly, I believe that Elizabeth Warren’s protections of the consumer are ultimately damaging these same consumers, by harming their investments.  We don’t need a Consumer Protection Financial Bureau, we need a Corporate Protection Financial Bureau.  What does Elizabeth Warren want ultimately?  Zero percent profit margins?!  Should all companies have to reorganize into a 501(c)-3 Corp?!  The Congress and its members needs to think at a higher level (or at least try).  This could perhaps start with higher standards for the LSAT (the law school admissions test) and for law schools in general, since most of our Congress is filled with lawyers.  It begins with education and higher standards. 

Also with the President’s budget release, I believe Obama is suggesting that he’d like to bring back foreign earnings of multinational corporations held offshore, by suggesting a new tax levied of 14% on those accumulated earnings and 19% on recently earned profits abroad, in an effort to have those earnings brought back to the USA.  The OMB projects and estimates that interest payments on our national debt (to debt currently at $18 trillion and 82 billion dollars) will be 13.5% of expenditures in 2025, up from just 6.5% today.  For “The Debt to the Penny,” (the total U.S. Federal Government Debt Outstanding) click here: http://www.treasurydirect.gov/NP/debt/current.  The $18 trillion of Federal Government debt doesn’t include State, County, Municipal or Local Debt, nor does it include private sector debt, or corporate, or agency debt.  Americans sure like borrow and spend!  There are few corporations on the S&P500 with zero debt. Click here for an article and listing of 26 companies with zero debt (as of May 29, 2014):  http://americasmarkets.usatoday.com/2014/05/29/debt-free-26-u-s-companies-shun-debt/

Click this link for a White House OMB website with many links on the Obama Budget: http://www.whitehouse.gov/omb/budget/Overview.  Click this link for a White House OMB release website with the entire Federal Budget (it’s 150 pages long, and is a PDF of 2.3 mb in size): http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/budget.pdf

Economic data releases on Monday were weak across the board, I believe fueling traders’ expectations that higher rates will be delayed by the FOMC. Also next week newsworthy reports will be Monday’s Personal Income and Outlays came in as expected at +0.30%, Personal Spending was weaker than expected at -0.30% (expectations were for -0.20%), Core PCE Prices came in as expected at 0.00%, ISM was slightly weaker than expected (at 53.5, while expectations were for between 54.7 and 55.0), and Construction Spending came in at +0.4% while economists were expecting +0.8% to +0.9%.

In notable eps reports due I think CMG will be amusing, as will WYNN, both eps are reports due after the market close on Tuesday the 3rd.  I believe that CMG may move by ±51.00 on Wednesday the day after it reports eps.  Yes, really fifty-one dollars of an increase or decrease in per share prices for CMG for Wednesday.  So fasten your seat belts!  We’re about to find out how many burritos were sold at CMG!  I believe that a long bull call ratio back spread with net credit characteristics may be lucrative; Especially if also combined with a long bear put ratio back spread with net credit characteristics on CMG, placed tomorrow just a minute or two before the close (3:00PM Central Time).  WYNN could perhaps move by ±7.70.  It will be amusing to see what happens.  Happy earnings speculation!

In other news, BP reported its quarterly eps, which beat expectations, but were lower than year ago (during the same quarter); BP reported $-969 million in earnings versus $1.51 billion a year ago.  BP traded higher Monday, up +2.65% to 39.86.  Looks to me like shares of BP reached rock bottom around January 12, 2015.  XOM traded higher as well, and Monday was up +2.47% to 89.58; CVX was higher Monday as well, +3.44% to 106.06.  XOM and CVX look to me like they may have bottomed on the 29^th and 30^th of this month.

I remain bullish, and believe that higher oil prices may lead the energy sector higher, which I believe will lift all major U.S. stock indices. 

Some energy sector stocks currently have very high dividend yields (which I’d caution could or may be cut, but then again, they may not be cut).  Checkout the yields on XOM yielding 3.20%, CVX yields 4.20%, BP yields 6.20, BPT yields 13.80%, and RIG currently yields 18.40%.  I believe that if oil has stabilized these stocks also have some room for major price appreciation of the shares over the long run (within a couple years).  Lastly, the etf XLE (a basket of energy related large caps) is currently -23.31% off its peak reached in late June of 2014 (101 and change was its peak, and closed Monday at 77.86).  XLE could be a winner going forward for traders and investors who are patient for a few years.  Happy trading.

Below are some more fun charts of economic data.

By Andrew G. Bernhardt