Presented by Greg Jensen, Jeff McAllister, and Scott Gillam/
Presented by Jeff McAllister and Scott Gillam.
Presented by Greg Jensen, Scott Gillam, and Jeff McAllister.
Presented by Greg Jensen, Jeff McAllister, and Eric Hale.
Greg Jensen: Good afternoon, everyone. Welcome to the OptionsANIMAL Weekly. This is Greg. Glad to be back with you once again. We’ve got a crew with us today. We’ve got Jeff. Glad to have you here.
Jeff McAllister: Thanks. Glad to be back.
Greg Jensen: As always. Mr. Hale?
Eric Hale: Aloha and mahalo.
Greg Jensen: Although Scott’s here, he just got his iPhone. It just knocked on his door, so we won’t hear from him at all. He’s distracted for the next hour.
Eric Hale: He was, “Ooh, ooh, I got to go. My iPhone just came.”
Jeff McAllister: Yeah, he’s been [crosstalk 00:00:34].
Eric Hale: Can we talk about your iPhone?
Greg Jensen: Maybe on a later date, yes. It is shattered, I’ll tell you that. Before we get in to talking about the market and the different exciting things that happened this week … and some not so exciting, to be quite honest … I need to remind everyone that the information in the presentation today is for educational and illustrative purposes only, and is no way any type of advice to buy any type of security or any type of recommendation to do so. Remember the options market does involve risk, and you should have a firm understanding of the rights, the risks, the obligations of your options trading instruments, as well as your primary and secondary exit points defined, before considering placing any type of trade.
I know you hear that disclaimer all the time. Please, please, for the sake of your portfolio, make sure you know what you’re doing before you jump into trades. It’s what the core of our education is about, is teaching you not to make the same mistakes, quite honestly, that most of us probably have to fess up to making ourselves, that sometimes those mistakes are painful. Please realize that it’s not always going to be the QE-driven punchbowl that we’ve had for the last few years. In fact, they told us it’s going to end soon, right? Just this week, they did. That was the, well, supposedly big event of the week. I actually think the biggest event happened today, quite honestly.
Eric Hale: Baba.
Greg Jensen: Good grief. Do you realize how big that company is already?
Eric Hale: Yeah, it’s crazy. It’s crazy. Nobody knows. It’s a Chinese company, and the books could be cooked. Nobody knows. Nobody knows.
Greg Jensen: It is bigger than JPMorgan. It’s bigger than Procter & Gamble. It’s bigger than Verizon already. Some people say it’s bigger than Facebook, but okay. You can make the same argument maybe about Facebook, that it’s not as legit, but let’s be honest. Facebook’s been around for a long time. Everyone knows who Facebook is, what it does. Alibaba’s bigger than Toyota. It’s bigger than HSBC. It’s bigger than Verizon.
In fact, there are only 15 companies in the world bigger than Alibaba right now. Chevron, PetroChina, Walmart, China Mobile, Novartis … Sorry, only 14. Royal Dutch Shell is in there twice. Royal Dutch Shell, General Electric, Wells Fargo, Johnson & Johnson, Berkshire Hathaway, Microsoft, Google, Exxon, and Apple. Those are the only ones bigger than Alibaba, and that’s just day one of the IPO. It’ll be real interesting to see where this thing decides to finally go.
I know it wasn’t all about Alibaba this week. It just happened to be the crown jewel of the market this week. Market continued to move higher. Dow up a solid almost two percent, 292 points this week. S&P up a solid 25, finished solidly back up above 2,000 for the week. I know last week we had talked, or maybe it was a couple weeks we talked ago, about the 2,000 number on the S&P didn’t really hold through. It had initially pushed through and failed to hold it, and maybe the fear was that it was going to roll back over. We’re solidly back up above again.
NASDAQ didn’t have as good of a week. Much of that, again, is blamed on Alibaba, though. A lot of the big funds, big institutions that have had money set aside to invest in tech stocks decided to dump some of their high flyers … the Netflix names of the world, the Teslas, the Intuitive Surgicals … and earmark a bunch of that money to go into the IPO today of Alibaba. Obviously, we saw that big move.
Again, solid move for the markets this week, at least good move if you’re a bull. If you’re still having onto the same camp that old Dr. Doom continues to preach, then you’re in trouble. In fact, he was out again today, right? Marc Faber? Is he Dr. Doom? There’s a few Dr. Dooms.
Jeff McAllister: I think there are a lot of them. No, he’s not “the” Dr. Doom.
Eric Hale: He’s Dr. Doom Gloom and Boom, right?
Greg Jensen: Doom Gloom and Boom, is that what it is?
Jeff McAllister: Scott’s showing me his iPhone.
Eric Hale: Nice.
Greg Jensen: There we go. Live feed of Scott with the iPhone.
Jeff McAllister: Can everybody see that?
Greg Jensen: Yeah, I’m sure they can. At least I can I see it, as well.
Eric Hale: Yes.
Jeff McAllister: Okay. Go ahead, Scott, open it up. We like to watch the kids open their Christmas presents.
Greg Jensen: That’s funny. That is funny.
Jeff McAllister: I’m surprised it’s still in the box. Yeah, don’t drop it. Don’t hit your head with it.
Eric Hale: There was a guy who got the first iPhone, and he came out of the store and the cameras were there, and he dropped it on the concrete. Did you see that one? [Crosstalk 00:05:54] out of the box, and fumbled it and dropped it.
Jeff McAllister: Did you see the guys who were waiting outside the iPhone store in Manhattan since September 1st?
Eric Hale: Come on.
Jeff McAllister: Yeah, it was on The Today Show this morning. Yeah, 19 days that they were out front. They were first in line.
Eric Hale: Wow.
Jeff McAllister: Yeah. That’s …
Eric Hale: [Crosstalk 00:06:13]. That’s fanboys, for sure.
Jeff McAllister: [Inaudible 00:06:16] people without a life. Anyhow, yeah, right.
Greg Jensen: We digress, but no, that was actually one of the events. It was one of the big events this week, as well.
Eric Hale: There it is.
Greg Jensen: Is the iPhone. I know preorders were last week, deliveries happening this week, and all the … Hey, it’s nice and thin. Good-looking phone right there. Looks like a Samsung.
Jeff McAllister: Yeah, it does look like a Samsung. Could have had a Samsung. Oh, [inaudible 00:06:47] a smaller one.
Greg Jensen: That’s right. That’s right. The markets were up for several reasons this week. Most of it had to do, I believe still, with what we had talked about last week was going to be the factor that moved the market, even though it came into be what we expected. The Federal Reserve meeting, the FOMC spoke this week. We got what we thought we were going to get.
In fact, maybe, to be honest, the bulls even got more what they wanted than the … Even just most of the market maybe was expecting the Fed to back off some of their verbage of the fact that they plan on keeping interest rates near zero for considerable amount of time. That verbage that stayed in their statement, I believe, is now going to encourage the bulls to say, “Okay, the Fed is still behind this. Yeah, they’re going to wrap up the QE next month, like we all know they’ve been planning on doing for quite some time, but just because they’re going to wrap up QE doesn’t mean they’re going to start raising rates right away.” I think you saw some of the bigger names start to get gobbled back up again.
Signs still point, quite honestly, that the fourth quarter could end really well, at least based on the commentary that I saw from the Fed. I know there was more than that just this week. Before we go into those individual things, Jeff, what was your general take on the market this week and really your commentary that you heard from Ms. Yellen and group?
Jeff McAllister: Just that everything was pinned on what was going to come out of the FOMC meeting, which, as you mentioned, it did. The markets reacted as you would expect, that basically there’s no change. Since there is no change, the course that we’re on shall continue.
The only thing that was in there that was a little bit more dovish than I think people were expecting was that she did mention that labor is not doing much of anything. In fact, they have not seen the improvements in the labor that they really want to see and that the inflationary figures … In fact, some of the numbers that came out this week with CPI and PPI were actually coming in a little bit less than expected. They’re not concerned about inflation. You have their dual mandate, which says to minimize unemployment and to minimize inflation. Both of those factors are such that there’s no reason at this point in time for them to be looking at raising interest rates.
I think that’s what the market really took away from that and why we’ve had the bullish reaction since then. There were some other little events this week, but as far as your question specifically, what I heard and what I thought was the takeaway from Janet Yellen’s testimony, or speech, rather, today, the release of the notes, or her commentary, was just about that. How about you, Eric?
Eric Hale: Exactly the same thing. Could have taken until the end of the century … I’m not [inaudible 00:09:51] saying century … the end of the decade for the balance sheet to get to where it needs to be. Normal rates could return in 2017. Of course, as always, it’s data driven, so no real surprises. You’re right, the market got what it expected and had a nice reaction. Yeah, nothing terribly exciting, just good to know, good to have that behind us. I think that paints a picture for where we’re going to go for the next year or so, at least.
Greg Jensen: Yeah, I think that’s one of the things that’s important to note. You said it there, Eric, that it really does paint a picture as to where we are going forward. I know there’s … I brought him up … Marc Fabers of the world. There are a lot of doom-and-gloom guys out there that say, in his words, there’s a bubble in everything everywhere. Maybe there is. Maybe there isn’t. I don’t think any of us know. What we really have to look at is we have to look at the market internals themselves.
Oftentimes, when you get conflicting reports … because again, you have the guys out there saying, “We’ve got all this debt, we’ve got all this … Everything’s in a bubble. Markets are at all-time highs.” Yeah, markets are at all-time highs, but markets being at all-time highs aren’t in and of themselves necessarily a bubble. Otherwise, the markets don’t ever go up, right? Markets have to set all-time highs. That’s a sign of growth.
You look back at the fundamental data that you see, and you see things like S&P earnings, like Jeff is bringing in here. You see that the S&P is continuing to post profits. In fact, pretty good profits. Are they the best profits ever? Are we seeing the fastest profit growth ever? No, but we’re still seeing profitability inside of the S&P 500. We are seeing stabilization in a lot of the different macroeconomic reports that we’re looking at. Quite honestly, there’s still not any other game out there that is offering any type of better yield. The 10-year note continues to just hover around the two and a half to 2.6 percent yield, and that’s not that exciting. All the other markets in the world, the same type of thing.
The game continues to be the S&P and publicly traded U.S.-based corporations. I think because of that, we’re going to, as Eric mentioned, the picture is painted that as long as the Fed will stay on the sideline with interest rates, like they said they’re going to, the bulls are still going to run. The markets are still going to move higher. You have to look at those market internals to try to help you gauge. Jeff, I don’t know if there was something specific you wanted to talk about here with the S&P earnings.
Jeff McAllister: I was pretty much just trying to illustrate the point that you were making about the … The talk about this being a bubble is probably based more on the fact that it’s been a five-year bull run, which just feels uncomfortable, than it is realistically about overvaluation, because we’re not overvalued. We’re not undervalued, either. We’re in the middle as the S&P 500 as a whole goes.
There are other issues that are going on at the moment that are outside of the S&P 500 and their earnings. If we look overseas a little bit, there’s been some slowing. In fact, the last meeting of the ECB, they actually eased a bit more and became more accommodative than they have. That’s not a sign of economic growth. In fact, it’s exactly the opposite. China this past week posted its worst industrial production capacity utilization numbers in six years.
We’re doing okay. I think this actually is part of the reason that the Fed, and as Eric said, is data driven. The Fed is not exactly chomping at the bit to raise interest rates, just because, while our economy does seem to be recovering … at least, corporate America is … the macro environment is still challenged by a lot of different things that are causing it to not recover as we’d like to see. I would feel a whole lot better about our own recovery if I started to see Chinese numbers starting to improve, but they’re steadily declining. Whether or not they’re just telling the truth now and they weren’t earlier, I don’t know. It’s almost impossible to say.
There are some things that are out there. I think that while we have to keep an eye on it, I don’t think we’re in a bubble, tying this back to what you were saying as far as our assets go. Worldwide, there are some issues that could upset the bullish run that we’re on. I don’t think it’s a serious revolution. We’re not facing a revolution at some point in the near term, but there are a lot of issues that are out there that could upset this bull run that we’ve been on. That’s why I wanted to bring this up, to show yeah, we’re doing okay, but let’s not put the blinders on and say, “Ooh, this is great. Everything’s fine,” because there are some trouble spots.
Eric Hale: Oh, you’re full of it. No, okay. I do think if there are going to be problems, they’ll probably come out of Europe. We could talk a little bit about that more. I was very pleased to see excellent earnings this week by Lennar. I know we’re not talking about stocks this week per se, but that is an indication. I don’t know that that was an anomaly, because we saw significant move in other equities or other housing companies, as well.
Yeah, there are signs. There’s a lot of room to go. You know full well that we are not where we need to be on employment. There’s lots of opportunity to grow. We still haven’t seen the recovery in housing that has to happen, I believe has to happen. Could we take another dip? Could we take a bubble? Could something happen overseas? We missed one today, or this week, as we found out. “It’s not Scottish. It’s crap,” right? What do you guys think of that?
Greg Jensen: I think that was one of those events that could have, as Jeff was mentioning, one of those external events that could have caused some potential … What’s the right word? Turmoil’s too strong of a … No, I suppose it could have turned into turmoil. The referendum was, at least viewed in the financial world, that it could have caused some upheaval. I think the biggest concern was the potential precedent that it would have started within potential other countries then maybe wanting to leave the Eurozone and other organizations out there. I don’t know, Jeff, if you’ve got a different opinion on the Scottish referendum. Obviously, they said no to it, so I guess they’re not leaving.
Jeff McAllister: Being Scottish and all, I think that it was more a thing about pride and just being concerned … not concerned, but just being annoyed with British rule for the past … what has it been, 150 years or something like that? Three hundred, ah. Couple more. It’s been a little while since I’ve been there, Peter. At any rate, yeah, I don’t think it … I don’t know. I don’t know. It’s like Quebec saying that they want to secede from the rest of Canada. For what? To what end?
Eric Hale: I didn’t know you were Scottish. I’m Scottish, too. My uncle actually traced us back …
Jeff McAllister: Get out of here, Roddy.
Eric Hale: … to William Wallace. Yeah.
Jeff McAllister: Come on, man.
Eric Hale: Aye. It’s true, you know.
Jeff McAllister: We do have a tartan. We have a crest and all that stuff. I can even throw a caber.
Eric Hale: Ah, McAllister.
Jeff McAllister: Aye, laddie. Okay, right. Back to the story of the film so far.
Greg Jensen: Let me tell you about … I was talking my dog … No, I’m just kidding.
Eric Hale: No, no, no. Tell the story. What happened to your iPhone? Because you’re getting an iPhone 6 now, aren’t you?
Greg Jensen: I am getting an iPhone 6. Let’s just put it this way. I’ll tell the story. Please bear with me for just … I’ll make it short, I promise. Walking my dog last night. I let him off leash and let him run through the sage brush. We walk up this mountain, right? He comes running back to me, and then I turn and see him nip at his butt. I’m like, “What is he doing?” Then they hit me, the wasps or hornets. It was dark enough I couldn’t tell which one it was.
One hit me in the neck, and then I immediately felt what it was. I was listening to a book on my phone, and I had my phone in my hand at the time. Then a wasp or, again, hornet hit me in the back of the head and stung me. Natural reaction was I tried to hit the wasp and smash it. Didn’t remember that my phone was in my hand. Actually broke my iPhone on my head last night, so yes. Does that make me Scottish?
Jeff McAllister: Yes.
Greg Jensen: Okay.
Jeff McAllister: Yes, absolutely. How could it not? I have a great joke, but it’s [inaudible 00:19:22], and I can’t tell it here.
Eric Hale: Is your head made out of steel or a rock?
Greg Jensen: Apparently.
Eric Hale: Yeah, that’s a [inaudible 00:19:33] you’re hard-headed. That’s proof.
Greg Jensen: Apparently. Anyway. Back to the markets. Back to what actually happened this week. To be quite honest, the Fed meeting, although it was, I still believe, what moved the market … There you go, shattered. That’s pretty much what it looks like, right there. Like I said, back to the Fed meeting. Although it was what did move the markets higher this week, it really wasn’t much of a story. We just got what we expected. There wasn’t really anything extremely out of the norm. We’ll wait and see. Maybe we’ll see, when they’re finally done with QE in the October meeting and when they’re wrapping that up, maybe we will see some more definitive commentary.
Quite honestly, I don’t think we will. I think these guys are so nervous, the Federal Reserve, for that matter. I think they’re so nervous about upsetting markets right now. They really don’t know how the market’s going to act once the stimulus is completely removed. I think they want to be very cautious, and I actually think they’re going to err on the side of too much inflationary pressure and too overheated of economy than err on the side of pulling back the punchbowl and putting the brakes to the economy too quick for the fear of sending back into another recession. I think that’s what, for the general … what I feel the Federal Reserve, where they’re leaning.
What that means is, whether you want to call it a rally or whether you want to call it a bubble, whatever, I believe that means that the markets most likely are going to continue on the bullish move until they come out and tell us and give us more definitive action and if they actually are going to start moving rates. Until then, let’s giddy-up. Fourth quarter’s almost here, right?
Jeff McAllister: Yeah. Time to go.
Greg Jensen: As far as the other economic events that were out this week, there were a handful of other ones. It wasn’t just all the FOMC meeting. We got Empire Manufacturing, which was really good number. Industrial production missed the expectation on that one. PPI and CPI were really non-events as far as the core number. In fact, arguably, the CPI was actually showing that there wasn’t any inflationary pressure at all. The job data, the initial claims for the week, was a beat, only 280,000 new initial claims for unemployment, which was below expectation. Philly Fed was right in line.
For the most part, we got mixed data, some good, some bad. I think the jobs data, although it’s only a weekly number, we’ve consistently seen numbers on the initial claims beating expectation, which could lead to a pretty good jobs report for the month of September once we get that first week of October. Anything jump at you specifically outside of those, Jeff, or any comments you had on those?
Jeff McAllister: I thought the Empire Manufacturing came in significantly stronger than expected in New York. It’s a pretty good gauge, a pretty good bellwether, so I was pleased to see that. Philly also came in pretty well. The core CPI and PPI coming in basically flat was one of the things that was of concern to Janet Yellen and to the FOMC, that they don’t have to rush off to raise interest rates at this point in time because we’re not facing an inflationary environment.
I would still caution everybody to look a little bit deeper. Why aren’t we facing an inflationary environment after all the stimulus? I’m not trying to go into the Dr. Doom camp. I think the market still continues to go up, but I don’t think that we’ve fixed some of the things that we need to be fixed. I don’t have a clue how to fix them, so don’t ask me. Eric, how do we fix them?
Eric Hale: Okay …
Jeff McAllister: Get everybody jobs.
Eric Hale: First you need to get everybody jobs. Then put them into houses. I did want to say, on the house issue here, the number came in lower than consensus. That number, it’s got a lot of volatility, especially over the past few months. That was the August number, and we had huge July. My consensus still stands. If we have a down next month, I’d be concerned, but I would expect next month’s going to be a good number. That’s all I want to say about that.
Greg Jensen: There were some earnings events this last week. I don’t know if you had specific slides about earnings before we go to next week.
Jeff McAllister: No, no.
Greg Jensen: There was one specific earnings event that, again, has me in the bull camp. Did you guys see FedEx’s number?
Jeff McAllister: No. I did hear that it was pretty darn good, though.
Greg Jensen: FedEx had a really good earnings report. Going into the fourth quarter, I think that is a very solid performance on their part with their earnings. They’re pretty bullish about the fourth quarter. Again, primarily base it on internet shopping and that they’re seeing traffic heat up there and going into the fourth quarter. I know my wife does her part on helping FedEx hit their numbers and Amazon hit their numbers.
Jeff McAllister: I think there was some sandbagging. They came out earlier, back in here, and revised lower. Do you remember that?
Greg Jensen: Companies don’t sandbag, Jeff.
Jeff McAllister: They don’t sandbag me personally, no, but they do tend to come out sometimes. Research in Motion used to do it, too, would come out and say, “Eh,” and then surprise everybody. We’d go right back to where we were. “Hey, it’s magic.” No, but that’s good. I’d have to look at the numbers a little bit better. I guess I’ll make that a stock to watch. Did you already have it …
Greg Jensen: I haven’t chosen my stocks to watch yet.
Jeff McAllister: Okay. I got it. Based on rumor [crosstalk 00:25:49] …
Eric Hale: Did I hear Greg say Research in Motion? [Crosstalk 00:25:52] …
Greg Jensen: Research in Motion, there you go.
Eric Hale: GRIM. RIM, I mean.
Jeff McAllister: GRIM, yeah, yeah. Let’s go play hockey.
Greg Jensen: They still make those things. What are those, BumbleBerrys or something? What are they called?
Jeff McAllister: We used to love them.
Greg Jensen: No kidding.
Jeff McAllister: Your CrackBerry. Okay.
Greg Jensen: Next week, next week, next week. Couple of pretty important economic pieces. Not a lot of news next week, but a couple of pretty big ones. Existing home sales, new home sales. These are important numbers. As you said, Eric, we have to see home sales grow stronger. We haven’t seen the type of growth really that we need to see for this to be as healthy of a recovery as we want it to. We’ll get a couple of those reports this upcoming week and existing and new-home sales.
FHFA housing price index, as well. Again, we all want to see our homes continue to go up in value. I say we all want to see our homes continue to go up in value. Obviously, those of us who actually own a home do. Those who are looking to buy homes maybe are saying, “Hey, slow down. I want to get into a house before they start to go up.” I think in general, we want to see the housing price index continue to move higher. Durable orders, obviously another important number. Expecting a big drop, but again, most of that’s due to our drop in planes, if I’m not mistaken, ex-transportation.
Eric Hale: There were a lot of planes dropping. Malaysian Air?
Jeff McAllister: Don’t say that.
Eric Hale: [Crosstalk 00:27:33].
Greg Jensen: Then, of course, GDP. GDP is a big number, as well, though this is just the third estimate. I think this is the one that’s the least important of when they release the GDP numbers.
Jeff McAllister: It’s a big number.
Greg Jensen: It is a big number.
Jeff McAllister: 4.6, that’s big. Huge. Of course, that’s a Q1. Okay, anyway. Yeah. Don’t forget the last one, 9:55 …
Greg Jensen: You’re here, though. I’ll let you take it. It’s yours.
Jeff McAllister: I am going to be just sitting on the edge of my chair waiting for Rick Santelli or Steve Liesman, or somebody else famous, to tell us all about the Michigan Sentiment, all 500 people that they bothered. Yeah. I think I’ll have some French toast. What do you think? It’s going to be 9:55 in the morning. Good time for a snack. Maybe some yogurt, I don’t know. Maybe I won’t watch it. To heck with it. It’s stupid. It’s dumb.
Greg Jensen: There you go. Eric, anything else you looking at specifically next week?
Eric Hale: No, I think you guys covered both of them for me.
Jeff McAllister: Both of them?
Eric Hale: [Inaudible 00:28:43] the two things [crosstalk 00:28:44] …
Jeff McAllister: It’ll probably be something external. If there’s anything that moves the market next week, it’s not going to be any of that. I don’t think any of that’s going to really move the market significantly. Probably head a little bit higher.
Greg Jensen: Very likely continue the melt up, as the term that I’m sure you’ve heard before. The markets are going to continue to climb, unless we see some external factor come out of nowhere and cause the markets to get a little bit worried. I don’t see that on my horizon. I don’t see that on my radar, so expectations are let’s keep the bull running.
Eric Hale: I got to add one thing, because I just flipped open my stock market …
Jeff McAllister: Almanac?
Eric Hale: Almanac. I did. I like to look at it at least once a week, see what’s coming up the next week. It makes an interesting point. It’s the end of Q3. Not technically. I guess technically, it’s the following week, but we start getting towards the end of a quarter, we see squirrelly things happen in the market because people do portfolio rebalancing, because they have to report out on a quarterly basis. Sometimes you see some squirrelly things. The comment here is that the end of September is prone to weakness from end of Q3 institutional portfolio restructuring. I don’t know. If you see a move down and you can’t point to something else, maybe that’s what it is and maybe not necessarily something to panic about. Maybe a buying opportunity.
Jeff McAllister: Maybe.
Greg Jensen: Maybe. It may be. The other factor that has been going on, and I think another interesting … we’ll call it interesting …
Eric Hale: Is that me?
Jeff McAllister: Yeah, that’s for you. Squirrel.
Greg Jensen: The other interesting factor that’s been going on in the market is the continued strength in the dollar. The dollar continues to move higher, and that’s been putting pressure, negative pressure, on almost all commodities right now. I know silver, if I’m not mistaken, actually broke the low, 18 dollars an ounce, today. I’m not sure where it finished. It did finish under 18 dollars an ounce, 17.93. Gold down another three and a half dollars, down to 12.26 an ounce. Continued weakness in the metals.
Oil, crude dropped back down again today after trying to find support here at around 92 dollars a barrel. The 92-dollar level on oil is a pretty important one, for those of you who want to be long oil right now and are expecting to bounce.
I said this in the midweek, and I think I said it last week in OA weekly, as well. I think long-term, we don’t want to see a continuation in the drop in the price of crude. I don’t remember very many times where we have had a worldwide global expansion, where we’re seeing growth and we’re seeing economies improve, where oil has been dropping at the same time. With the S&P moving higher and oil dropping, one of them is going the wrong direction. I don’t know which one right now, whether it’s oil is just trying to find support here at about 92 and is going to get ready for a bounce higher, or if it’s the S&P is approaching a top and we’re actually have got a lot of economic weakness in front of us, and oil is just being the frontrunner in that.
I don’t know which one it is right now, but I’m definitely watching the price of oil. I think personally that oil is going to find a bottom and it’s going to start trending back higher, because I do believe the economy is in recovery mode. It’s not just all manipulated, false numbers. I do think we are seeing some real, legitimate growth going on right now.
Doesn’t mean I’m right. I might be wrong, but that’s my gut feel, is that that’s what’s going on in the economy. With that, I think crude is going to find a bottom here, as well. If crude breaks down below 90 and trends lower with any type of momentum, I think that could mean bad things for the worldwide economy and thus, I believe, worldwide equity prices, as well. I am watching oil prices, as well, watching this 92-dollar level, seeing if it’s going to hold or not.
Okay. Anything else before we move on to our announcements or [crosstalk 00:33:19] …
Jeff McAllister: We’re ripping it up here today. There’s just not that much for us to talk about.
Greg Jensen: We could talk about the Seahawks losing last week.
Jeff McAllister: Yeah, yeah, yeah.
Greg Jensen: And the 49ers.
Eric Hale: The Bears.
Greg Jensen: The Bears. Bears.
Eric Hale: Bears.
Jeff McAllister: I was going through the terminal in San Francisco when the Bears were winning.
Eric Hale: That was unbelievable.
Jeff McAllister: That was pretty impressive.
Eric Hale: Yeah, even though Colin Kaepernick’s my quarterback in my fantasy league, I was happy.
Greg Jensen: Someone needs to figure out how to monetize fantasy sports better.
Eric Hale: They say it’s a billion-dollar business.
Greg Jensen: There’s an enormous amount of productivity wasted with fantasy sports, if that’s the way you want to look at it. The other way to look at it is there’s opportunity. There’s opportunity, because so many people love it. There is opportunity to build businesses around it. Anyhow.
Let’s talk about a few announcements. We do have a couple of announcements. September Trader Workshop is the 27th of September at noon Eastern Time. It’s going to be Emilu, and this says Ken …
Jeff McAllister: That’s my mistake.
Greg Jensen: It could be Charan.
Jeff McAllister: It’s Charan.
Greg Jensen: And it could be me, but I think it’s Charan.
Jeff McAllister: Do you want it to be you? I’m sure Charan’ll back off.
Greg Jensen: No, that’s fine. Let Charan do it. It is that time, though, Saturday the 27th of September, noon Eastern Time. For those of you who are in the Trader Mentor program, put that on your calendar.
The other one is November 7th and 8th, OptionsANIMAL Student Summit, Chicago. Just to reaffirm … I apologize, we haven’t got it all up on the website yet, because we’re still waiting for the fine details from the Chicago Board of Options Exchange … We are doing a CBOE tour, and it is going to be on Friday evening, not Thursday evening. It’s actually going to be on the Friday evening of Summit. We’ll get there on Friday. Right after we finish the OA Weekly that we will do live there from the summit, we’ll then turn and go as a group. We’ll make a big wave of pedestrians walking from the hotel over to the CBOE. It’s not that far of a walk, just across the river.
Jeff McAllister: We’re going to be chanting Scottish war songs, too, as we go.
Eric Hale: Excellent. I’m painting my face blue.
Jeff McAllister: Perfect. I’ll bring a kilt.
Greg Jensen: Again, put that on your calendar.
Eric Hale: That’s the 7th, right, of [crosstalk 00:36:14].
Greg Jensen: It is November 7th.
Eric Hale: Yep, yep. Cool.
Jeff McAllister: Awesome.
Eric Hale: [Crosstalk 00:36:21] been working on the content, too, right? We’ve been talking behind. I think we got some really good ideas, new content, new stuff that’s never been presented or updates. Not repeated stuff, anyway. Sounds pretty good.
Greg Jensen: Yeah, it’s going to be a fun presentation. I know I’ve talked to Jeff. You’re going to be doing a adjustment presentation, showing several adjustments on trades that you’ve done that have gone the wrong way.
Jeff McAllister: Yep. Yep. Eric wants me to change a word on the other one, so I’ll change it to “What’s up with weeklies?”
Greg Jensen: We’re doing, yeah, some content on weeklies. I’m actually going to be doing a fun presentation on the collar trade. I know you’re like, “You do the collar trade all the time.” Trust me, you’ve never seen this presentation on the collar trade. I keep getting the question … I’ve had several people come to me … In fact, I’m trying to remember. It was at the last summit. Several students came up to me afterwards and said, “I’ve always wondered, Greg, why you like the collar trade, and I finally get it. It’s finally clicked for it.” I know several of you have mentioned that here [inaudible 00:37:32] some presentations I’ve done on the collar trade, as well.
I’m going to give you, again, further depth, more reason as to why it is the trade I rely on, particularly when the markets throw you a curveball, particularly when the markets go into turmoil, but not always. I’m going to call it, actually, “The art of the collar trade.” We’re not going to talk about structure. We’re not going to talk about the stuff that you’ll learn in level five, when we talk about the collar trade. I’m going to talk about how it’s adjusted, when it’s adjusted, why I adjust it, and some specific rules I use surrounding it. Eric, I’m really looking forward to your presentation, as well, about how to be Mr. Buffett.
Eric Hale: Yeah. I think it’s going to be something that would be valuable, especially we talk about … He’s, hands-down, I think the best fundamental trader that’s out there. Arguably can be called the best trader ever. Really getting into the fundamentals and trying to help provide … My goal is that people will come away with some useful tools that make it real practical and explain how to go about doing it, and make it easy, is really the goal that I want to do, so you don’t have to. Minimize the effort and get the same result, is what I’m looking for.
Greg Jensen: Sounds good. Okay. Again, for those of you who are new to the program, have never attended a summit before, just a reminder, there’s no additional cost. You don’t have to pay to go to this. It’s all part of the tuition. Just come and join us. It’s going to be a fun event. November 7 th and 8th, put it on your calendar. We’ll look forward to seeing you there. Okay. Stocks to watch. Who wants to go first?
Jeff McAllister: I will.
Greg Jensen: Okay. Have at it.
Jeff McAllister: Sorry. Just looking at some comments going back and forth. I don’t need to see your stuff there, Eric. You can put that away. First up, FedEx. No, I’m not going to do that. I will be interested to see what FedEx does, but actually the first one up, and I know a lot of people will be asking about it, because American Airlines has been in a pretty good downtrend for at least the last two weeks, and there was a bit of a selloff today, too.
Nothing has changed fundamentally. There was a unionization by the gate agents and ticket agents that occurred, US Air, which is about a third of the complete American Airlines now, and two thirds had been nonunionized. They became unionized. Not really a fundamental event. We’ll see. I don’t really expect that they’re suddenly going to decide to strike and cause disruptions to the fundamentals, what’s going on in this significant recovery that’s occurring, at this airline as well as at Delta. We’ll have to wait and see from there.
If you’re a collar trader, if you’re a dollar cost averager, probably a pretty good entry point, right around here at 36. They are on track to make about five and a half dollars in net income per share. Do the math that puts the PE here at about, what, seven, or a little bit more than seven, which is well below industry standard and certainly below the S&P, which is running about at 18, so pretty undervalued. I think a lot of what happened this week … There is a lot of institutional support behind here. I think a lot of guys did exactly what you said earlier in the show, Greg, is that a lot of money got pulled out to go into the Alibaba.
We’ll see what happens next week with American. It is, technically, in a downtrend. There is nothing that has any significant influence or impact on the fundamentals of the company. I’m going to just continue to hold the position. I don’t typically add protective puts to American except around earnings, because it goes up and goes down. It ebbs and it flows. The amount of money that I may or may not get on the protective puts usually is not a significant enough amount to worry about it. The amount of premium that’s in the short calls has been pretty good, and it’s going to average about, I think, I’m looking at about 18 or 20 percent return just through covered calls, monthly covered calls on it this year. That’s the first one. That’s my opinion on that.
Next up, Mickey D’s. Mickey D’s came out boom today. Mickey D’s came out and said, “We’re going to increase our dividend significantly.” There’s not a lot of pressure in the media particularly to say McDonald’s is dead. I don’t think that’s true. Maybe the growth has slowed down, but it’s a good, solid company, and I expect that they will move higher. Sales were off. We’ll see whether or not it recovers. I’m not really too concerned about it long-term. I guess I should have given you the phonetics. American is alpha-alpha-lima. McDonald’s, mike-charlie-delta.
For a third one, Wells Fargo, about a week and a half ago, when it looked like there was some consolidation after the last bullish indications using the MACD and RSI. Wells Fargo has moved up considerably. I’m bullish on Wells Fargo. I think they do a good job. I think that in the long run, they have put behind them most of the issues that they’ve had with all the different mortgage problems. I think they do a good job. I like their balance sheet, and I like what they’re doing fundamentally. Obviously, the market has liked them this week, along with the U.S. dollar.
Those are my three. [Inaudible 00:43:35] whiskey-fox-charlie. I guess now I could use Eric’s, since he sent it to me.
Eric Hale: You know who else like Wells Fargo?
Jeff McAllister: Warren Buffett?
Eric Hale: Warren likes Wells Fargo.
Jeff McAllister: Yep, yep.
Eric Hale: Speaking of Warren, another equity that he likes is USB. By the way, did you know the guy that invented the USB, when he dies, they’re going to lower him down into the grave, his coffin, and then they’re going to have to pull it out and turn it 180 degrees, and put it back in.
Jeff McAllister: Uh.
Greg Jensen: That’s terrible.
Eric Hale: Tell me that’s never happened to you.
Greg Jensen: Every single time I put it in.
Eric Hale: Can’t they make a mark? One side’s a little darker. I’ve noticed that. Look for the one that’s darker. That one usually works. USB, U.S. Savings Bank. It came out a few weeks ago that this is one of the ones Warren has, and it’s taken a tremendous run. I’m kicking myself for not doing something here. We’re getting near the top of the range. I think it’s a very collarable stock. It’s got good liquidity. I only have, really, one equity right now, and that’s Apple. Everything else has been called away for me or I haven’t [inaudible 00:44:51] any new trades. I need to get some other positions and start using that cash, especially now that the Fed decision’s behind us. USB … it’s uniform-sierra-bravo … is a company that I’m looking at potentially getting a position in this week.
The next one for me took a big move down today and …
Jeff McAllister: [Inaudible 00:45:14].
Eric Hale: AIG, American International. Big move down today. The reason for that was that Jay Wintrob, who ran their life insurance and retirement services division, was a little upset because he didn’t get the CEO job, so he’s decided to leave the company. That really put a beating on the stock today. I’m not sure what that means. I’ve traded AIG in the past many times.
It’s on my watch list, which is very short, by the way. When I saw this move today, it drew attention. I’m not opposed to jumping in on an equity when it does something like this. Sometimes these moves are overstated. I don’t know that that reflects a fundamental change in the company. I’m going to do a little more research on it to see what impact that might have, and do some more reading, and check the press releases. Usually, in a company like that, it’s hard to believe that one person can have a tremendous impact on the company that would make it go bearish. These tend to be overreactions, and I sometimes like to jump on them. I’m watching alpha-india-golf, American International Group insurance, this week, potentially the same thing.
The third one that’s on my watch list is, speaking of Uncle Warren, bravo-romeo-kilo-dot-bravo, Berkie-B’s. Took also a significant move down today with a lot of volume. I personally think that this was probably a reflection of AIG. I think it was just a reaction that people had. It’s been on a tremendous tear here since August. Somebody flipped the switch in August, and you can see that we’ve decided we’re going to go bullish on AIG and keep going up and up and up. I like to wait for the pullbacks to buy it, so this might be the pullback.
I think that this is a relationship to the AIG. I think it’s sympathy off of the AIG. Berkshire Hathaway is not a holder of AIG, but they are in a very similar business. I don’t see why Wintrob leaving AIG would have a negative impact on Berkie, but I think a lot of times, traders see, “Hey, the largest insurance company’s going down. It’s the same business as Warren. Warren should be going down, too.” I need to do more research on that, but these are three that have piqued my interest over the weekend and could be looking at doing some trading on them next week. That does it for me.
Greg Jensen: All right.
Eric Hale: Pull up a day chart of Baba. Did we do that, B-A-B-A, Alibaba? By the way, options on Alibaba are going to be available on the 29th of this month. There’s no options yet. Can you do a …
Greg Jensen: Yeah, I was going to say, I don’t think [crosstalk 00:48:08] …
Jeff McAllister: It just [inaudible 00:48:09] at the open and stayed there.
Eric Hale: Yeah, in the opening, initial price, the IPO price is 68. Right? It’s up 25 dollars and 89 cents today. It should be interesting. Actually, Jeff, or Greg, I know that sometimes these IPO companies that you like to trade options when the options become available. Maybe I’ll softball that one to you, since we got a few more minutes.
Greg Jensen: Who would you rather trade, Alibaba or Twitter?
Eric Hale: Personally, neither. The people who underwrite the IPO, they want to see the stock stay up. Sometimes there’s opportunity [inaudible 00:48:53], I think, especially around selling puts.
Greg Jensen: I think what I’ve read with Alibaba … Again, do we know, do we trust … Again, it’s a Chinese company. We’ve got some big investors in it. We’ve got some big institutions who rolled a lot of money into Alibaba, versus some of the other Twitters and Facebooks, although there was some exposure there and they took some big positions. Obviously, Facebook has performed really well after their botched IPO.
Alibaba’s, I think, the real deal. I think once they start to trade options, as you said, I may actually venture into this one. I’m going to wait until they trade options, because it is a tech company. Two reasons. It’s a tech company, number one. It’s an ADR. Now, ADR is American depository receipt, for those of you who don’t know what that stands for. Essentially, I believe it’s Citigroup who is the one who’s holding the ADR for Alibaba. They usually have a sponsoring bank, their investment bank that typically runs the IPO for them. Like I say, I believe it’s Citigroup.
What happens is you’re actually trading an ETF, in a sense, that Citigroup has created with this ADR, and they’ve taken this public. It’s not unique to Alibaba. ADRs have been around for a long time. For those of you who have ever traded, I know Nokia, as an example. Nokia is an ADR. It’s officially a Finnish company, and they just happen to trade here on the New York Stock Exchange through the investment bank that took them public.
Anyhow, the Alibaba shares obviously had a huge move today. I’m going to wait until they have options available before I will touch them. I will probably even wait until the options market gets relatively liquid so that I can make sure I can get in and out of trades. Once I can, if I can see a few earnings reports and actually get an insight into this rumored giant that we’ve seen for so long that we all know Yahoo owns a huge stake in, this is, yeah, this is a potential tradable stock.
We’ll see. I’m going to wait, but definitely a stock … To be honest, it is going to be one of my stocks to watch for the next several weeks, because I want to watch it. I’m not going to trade it until the options market’s liquid enough, but I am going to be watching it. You almost have to with the size of it. Like I said at the start of the show today, it is enormous. It’s got a 235-billion-dollar market cap right out of the gate. It is a giant of a company now, so we’ll see.
My actual stocks to watch for the week is actually a stock that’s bigger than Alibaba, my first one, and it’s not Apple, although I watch Apple every week, because I do own a position in it. Getting close. Two more down the list. Not Google. CV … no. Mike-sierra-frank-tango. Microsoft. Had a really good day today, if you want to look at a one-day chart, but they’ve got a really good trend going. Microsoft is firing on all cylinders right now.
I believe their purchase last week of Minecraft, big-dollar purchase, but it’s a purchase in the right direction. Microsoft is making, I believe, some good strategic acquisitions right now. They’re finally using their cash wisely. I like where they’re going. I like the trend that Microsoft’s got. I like their fundamentals, and we’re almost to a 50-dollar stock again on Microsoft. I think that they can continue to go higher. This is a stock in the fourth quarter I don’t mind owning and actually think that the momentum can continue to push higher through the end of the year. That’s the first one on my list this week, is Microsoft.
I’m going to stay in the tech space with my next one, as well, though this one’s not as big as Alibaba. No, it’s not Research in Motion, but that’s good. They actually have earnings next week. It is mike-uniform. Unicorn. Mike-unicorn. Micron Technology has earnings next week. I think it’s on the 25 th, is the day Micron has earnings. Micron’s had a really good move the last couple of years. Again, you look at Micron’s stock from two years ago, or three … You might have to go back to a three-year chart. Let’s see what a two-year chart … Five-year will definitely show it. This is a stock that’s absolutely exploded since the beginning of 2013. This was a six- or seven-dollar stock, for years, it had been. They’ve been able to position themselves extremely well in the virtual memory space, and I believe still have pricing power to do a lot of things to continue to grow their earnings.
We will see next week. I do not currently have a position on Micron. I’m going to wait and see what their earnings report brings next week, and then I’ll probably look at playing either some type of bull put or maybe even a just outright buying the stock next week, to see where Micron goes over the next quarter. Definitely going to look in to see how their earnings are reported next week, on the 25th.
Last one on my watch list this week is big retail. Not Wally World, but another Seattle … I’m in Seattle. I got Microsoft and … I should have done Microsoft, Boeing, and Costco. [Crosstalk 00:54:55].
Eric Hale: Boeing’s in Chicago now.
Greg Jensen: Oh, that’s right. Boeing’s not up in Seattle anymore, are they? They’re still there, but they’re headquartered in Chicago now, aren’t they? Costco is my other retail play this next week. I like Costco positioning for the fourth quarter. They’ve had a nice move in the last couple weeks already, up to 126. I like the strength of the pattern of the chart this week. We obviously had a big move up from a couple weeks ago, from 120 up to 127, had a little bit of consolidation, and then we got met with some buying. We’ve actually been able to hold the five-day moving average, which is a, I believe, a positive thing.
I think Costco’s got the opportunity to continue to trend higher. Again, this is a stock I don’t mind owning in the fourth quarter in anticipation of the holiday shopping season. This is another one that’s definitely on my list right now and I’m watching rather closely. The ticker on that one is charlie-oscar-sierra-tango. That’s Costco, COST.
All right, that’s what I’ve got for the week. Eric, final thoughts before we wrap it up?
Eric Hale: Just always to find those primary/secondary exits. I say that for a reason. That’s it.
Greg Jensen: Jeff, final word to you.
Jeff McAllister: Have a great weekend, everybody. It’s good to be back on the show. See you guys on next Friday.
Greg Jensen: Scott, have fun with your iPhone this weekend. We’ll look forward to seeing you all again same time, same place, next week. Have a great week.
Presented by Greg Jensen, Scott Gillam, and Eric Hale.
Presented by Scott Gillam, and Emilu Bailes.
Presented by Greg Jensen, Eric Hale, and Scott Gillam.
Presented by Jeff McAllister, Eric Hale, and Scott Gillam.
Presented by Greg Jensen, Scott Gillam, and Emilu Bailes.
Presented by Greg Jensen, Jeff McAllister, and Scott Gillam.