Karen Smith: Okay. So greetings everybody. It’s lady K here. Can you hear me? Charan, if you’re speaking I can’t hear you, I don’t know. You can hear me, Scott. Okay. Horace, can I hear you?
Horace Taft: Yeah. Hi Karen, how are you doing?
Karen Smith: I’m good, how are you?
Horace Taft: I’m good.
Karen Smith: Thank you. Everybody says sound is good, can’t see anything. So Charan is having some technical difficulties and he will be right back with us. I’m sure he did all of the wonderful organizing of the slides and everything like that. So we’ll kind of hang out here. He might even be hearing this as I talk about this. So, before we get into that, let’s start out. I’ll do the standard disclaimer today, and that is that, in today’s broadcast, all of the information is intended for educational purposes only. Nothing that we say here should be construed ever as investment advice.
Karen Smith: We know that options do involve risk and as such they’re not suitable for all investors. Our rights, risks and obligations of options instruments should be fully understood by individual investors before entering any trade. I see Charan is working behind the scenes here to get joined with us. So how’s the new computer, Jeff? My new computer rocks so far. So some of know my son traveled out from Colorado Springs for thanksgiving and built a new really powerful, awesome desktop computer for me. I sat right next to him as he did this and he said, “Mom, it’s really simple. It’s just plug and play.” I can’t tell you how many times he said plug and play. And I said, “Yeah, it’s a little more complicated. Plug and play for me would be plugging something into the wall outlet.” But that’s all relative. Anyway. Thanks for asking, my computers is great. My big screens are awesome and all that kind of stuff. Yeah, kids can be great sometimes Robbie. I agree with that. So Charan I see you in here. Can you hear us? Can we hear you?
Charan Singh: Yeah I’m back. Well, I’m here. We were talking folks and then when I tried to share my screen I got booted out, I go to Webinar, I don’t know what happened. So welcome everyone. How are you doing Horace?
Horace Taft: I’m doing well, you know, it’s the middle of winter, right? Sunrise at 7:04, sunset at 4:30. So you gotta take your joy where you find it. And this was a joyous market in some ways this week, wasn’t it?
Charan Singh: It was, it certainly was. All right. As we begin, I want to remind everyone that the content of this presentation should not be considered as a recommendation to buy or sell a security. Our information is intended for educational purposes only. I don’t know what should be considered investment advice. Options involve risk and all sort of [inaudible 00:02:42] our investors, all rights and obligations of options should be fully understood by you individual investors before giving in to any trade. So yeah, joyous week. Like you said, right? Christmas came early, or I guess Jerome Powell gave us a good, nice gift, made wheat and the markets, I don’t know if it felt like that certainly yesterday, but the markets finish the week nicely, right?
Charan Singh: So, all the major indices, SNP, Nasdaq and Dow up about five percent. And whereas a week ago we were looking at SNP and there were times when the others were also negative for the year, they have now come back. So three to six percent gain for the year, but just a month to go. I guess my first question is, are we going to see a continuation? Are we going to see a rally? What do you think going into year end in January, Karen?
Karen Smith: Well, one of the two issues that have been plaguing this market in my opinion, was slightly resolved this week. And you just mentioned it and that has to do with the Fed. I don’t know if you gentlemen were listening to him or, have had the time to kind of look over what it is he said, I don’t see a significant change in anything that he said, but the market did and the computers took over. It was really fascinating if you were sitting in front of the computer, the minute that we got the words just below neutral, that obviously was in a lot of computer programs for this market because the SNP spiked about 20 points just immediately on that. And we all know, or I think we do that a lot of really fantastic rallies, bullish rallies in the marketplace start this way.
Karen Smith: They start with something called short covering, meaning all the bears that have been, as Scott said over here in our rumble chat have been having this fantastic meal for a couple of months now. They begin to run for cover. And so they have to buy back shares of companies that they have sold short and a lot of great rallies start that way. And I think that this one did as well. So that’s been one concern for this marketplace. The idea of how much further do we have to go and how many rate hikes do we have before the Fed sort of takes a break from that. The second of course is what’s happening this weekend. I know we’ll talk about this and that’s going to be the big G20 summit, in particular any conversation between President Trump and president Xi of China.
Karen Smith: And my only fear is that we had such a nice week that are we pricing in a positive result from that event this weekend and if for some reason we come away with less than what we want to see, does that mean that we turn around and start to head south again? We shall see. But I think it’s possible. I’m handicapping now that Santa could come to the house, closer to a 50, 55% chance a week ago. I was taking that down substantially because we just weren’t getting any sustainable balances. Horace, what did you make of in particular, Jerome or anything that you saw this week.
Horace Taft: Well, yeah. So the question of whether we get a bounce into year end, I’ll answer that. Let’s say I’ll do it after the salad course, but before the main entree is served because I think it all hinges on Saturday night and this absurd dinner, and the statement that comes out of it, or a lot of it hinges on that. And I couldn’t tell you … I have no clue what’s going to happen on Saturday night when trump and the president of China sit down. And I think that has a lot to do, at least with the next couple of weeks about where this market is going. I have a feeling, watching the close today, that there are a lot of people who were covering short positions going into the weekend in case there’s a happy resolution to this trade dispute. They don’t want to get caught on the wrong side of that, but I don’t think all of them covered.
Horace Taft: But it’s kind of ridiculous that we’re, at least from my point of view, we’re so dependent on a tossup. I don’t think that it’s possible to predict the outcome of this weekend with any certainty. And I do think it’s going to move the market dramatically. So, we’ll see what happens on Sunday after they issue a press release. I mean, how do you … And as Karen, I agree with you, Paul didn’t say very much differently, but he said the right words, whatever they were. And in a sense this whole week was kind of disheartening, right? Because you’re supposed to do fundamental analysis and invest in companies and trade companies based on their longterm value. And here we are up and down five or 600 points because of below normal or … I don’t know who’s going to dinner. It’s a little bit ridiculous. Charan, what’s your take on this?
Charan Singh: Yeah, you’re right. But it is … This bipolar, a binary event. Let me throw it back to you. What do you think are some strategies that could work here?
Horace Taft: Well, talk to Jeff. I think he did a great weekly trade. Anything that prices in movement. What I like is … It’s a double edged sword. A lot of the stocks I trade are so low that I have a hard time seeing them go lower. So, I’m looking for a fairly explosive move and if we get good news, now that the Fed has allegedly softened, I think there are a lot of people who are not positioned for this market to go higher. And so first you get the short covering, then you get the people who feel they’re missing out, I think he could see a pretty substantial run. But I wouldn’t want to bet on that yet. So I don’t know, you know, straddles, strangles, married puts, seem to make sense. I did some of those just in case we do get a severe pull back. How about you, Karen, if you’ve done any trading based on this binary event?
Karen Smith: I’ve done a lot of really short duration trading. Took things off today that I had partial profits and credit spreads, for example, that I had partial profits in. I went ahead and took them because I said, why carry this through this binary event that could go either way. I still have quite a few hedges in place, and it hasn’t been a good week for the hedges, but yet my portfolio is up on the week because those are hedges and your hedges are going to lose some when the market is bullish. But at the same time I don’t want to come in Monday morning to 500 points down on the Dow, which could happen by the way and say, why did I remove all of those protective instruments? You know, one of the interesting things this week was, especially on Wednesday when we had that explosive bullish move to the upside. The VIX barely changed the … VIX being that measure of fear measure of the level of protection one could say out in the marketplace.
Karen Smith: It barely moved down at all and then with the continuation of the bullishness yesterday and today, it’s still barely budged. What that tells me is, Horace, as you said, not everybody’s long this market yet, but also not everybody is removing those protective instruments at this point because this could reverse course and get really ugly really quickly. Again, it is possible. Charan, do you still? I know you do a lot of color trading and things. I’m assuming you still have protective instruments in place.
Charan Singh: Yes. In terms of trading what Horace said, [Mary 00:10:18] [Putts 00:10:18], probably my favorite trade right now, or a stock and a wide barefoot to reduce the cost of insurance or in the money covered calls with smaller location or something like that. Those are the kinds of things that make sense. I also removed short [putts 00:10:35]. You know, volatility has come down a little bit with near 18 on the VIX that shorted some putts couple of weeks ago. Got rid of them to get ready for this weekend, like you said, so Marry Putts to me probably more than straddled strangled or other types of trades. It also feels like from a trading point of view, a lot of bad news, whether it happens or not in the future is already been priced in, especially as of last week. Unless we get our disaster of a meeting, which Trump is usually …
Charan Singh: Even if it’s bad mouthing you on Twitter, he’s usually very friendly face to face. So it may just end up being the most highly anticipated event of the year that ends in a really no change or no more clarity than we have now. I think it would be really constructive if they, as my baseline case had been thinking that they’re going to delay raising tariffs to 25% because people are talking about that and changing supply chains. That process has already begun. And China’s noticing. So sorry, you were saying … Horace.
Horace Taft: No, I think that’s right. And you know, I found myself midweek. I just had to slap myself because I was thinking, okay, so Powell, quote unquote blinked and at least amended his statements. Our president has been blaming the Fed for the decline in the stock market, market went up. Does that embolden him to dig in and, just stop it. I just had to kind of just pull back from all that and say, you know what, I’m just going to put some Putts on. I have a lot of cash and we’ll see what happens. My problem is that with a definitive move this weekend, with a definitive statement, most of the move I think is going to occur before we get the market open. We’re going to get a lot of gap ups, we’re going to get a lot of guests, so it’s just very, very difficult to trade that in my opinion.
Charan Singh: So grab a case of Red Bull and stay at home.
Horace Taft: Or get a futures account, right? Although I don’t advocate that. Because then you can never see, those things never trade.
Charan Singh: I traded currencies awhile ago, over a decade ago and you are right. Something is happening at 3:00 in Japan in the morning for you, three in the morning. So what do you do? Any way. So, Karen, any thoughts on trading wise? Anything different that you’re doing now? Or it’s not doing much?
Karen Smith: No. I’d like to ask you a question to Charan, because you just said something that made me … I was thinking about this earlier today. You’ve been here at Options Animal the longest of the three of us and you traded through the last great bear market of 2008. I’m wondering if this kind of volatility, the fact that we’ve had to bearish events and in particular this last event where that buy the dip mentality that’s been in place for such a long time isn’t really there to the same degree? I think we could all agree with that. So I’m just curious, does this remind you of the prelude to 2008, say late 2007, early 2008 and this degree of volatility and things of that nature, especially because we have a lot of people here who perhaps never traded through something like that. So I’d love to get your perspective, what you remember about that and putting it into the context of today if you don’t mind.
Charan Singh: Yeah. Absolutely that’s a great question. You know, it’s Kinda like I don’t like getting wet and get river rafting or whatever, but if you imagine you’re in a part of the river where it’s stable and smooth and it’s just fun. And then before you get to that waterfall, maybe Bronx and other things more ripples. That’s what we are seeing more volatility. We saw it a couple of years ago, 2015 to 2016. Six months, seven month period. We had two big drop draw downs just like we’re having this year, but we are near the end of the economic cycle. That’s what’s different. 2008 we had a specific catalyst and you never know whether a big bear market crash has begun. You never know. I didn’t know that in … When bear sterns collapsed in March of 2008. But I think that happened for six months.
Charan Singh: So it’s slow, but they would have to be some catalyst. I mean everything in the economic data GDP for the current quarter, yes. I think it’s likely that we have a mild recession. Japan already had a negative GDP quarter. They have another one. They have a mild recession. That it is more likely, but for manmade reasons, like reasons that Congress or administration in this case with the China tariffs controls, because if supply chain starts to get disrupted, if this is not just a couple of quarter three quarter thing. Remember, this started in the summer, so a couple of quarters in, if this is a year or more long problem, we’re still talking about it in the summer of 2019, China will maybe see irreversible loss of business as 25% is going to be really massive, with the threat of more.
Charan Singh: So in the face of all of that, I think my longterm view is that if things got escalated, we probably do sell off to 250, 255 SPY, maybe even lower. But all trade wars end, and most of them don’t even last a year, as pressure on both sides mounts and there is no other way to move. So it’s a little bit different that way, right? Because 2008, nobody knew. I mean it was like 90 VIX which nobody had heard of or predicted that, that would happen. So, but colors work just the way they did 10 years ago. I’m trading differently, you know, if I have a color, I’m more willing to use short term, short putts to turn that long putt into a bear putt or a putt calendar or putt diagonal or bull putt or a ball putt …
Charan Singh: So there’s been some growth during that period, but it doesn’t feel like we have that major catalysts that will make the world go into a tailspin. And so I started buying a week ago, which is the first time really I’ve been buying anything it since this began on October third. And I bought the morning before the power of speech some positions, and those are worked out very nicely or at least not losing.
Horace Taft: So thanks for the email by the way. Thanks for letting me know. Appreciate it.
Charan Singh: It was just short term covered call type of trade on stocks. I got really beaten down, you know but … So look, the fact that we have catalysts that could make this market go up, that’s a big thing. We have three major capitalist. We only got one early. I thought we weren’t going to get the Fed say something raise. But say something calming and supportive and they already did that, three weeks ahead of schedule. The next thing we need to see his trade war resolution. We’re waiting for that eagerly for tomorrow. And then this because I think if interest rates start to climb up, this is very, very good looking chart to me because in the summer we broke to a new high on the 10 year yield and we chilled at that level for a good six months. And then we again moved up here at the beginning of the fourth quarter.
Charan Singh: And we are … This is just like what happened last time. So this is very, very good news. Money is leaving safety and finding risk. Facebook is up 11 bucks this week. So I think if we can get these … The treasury doesn’t spike up for another two, three, four months. I think the market slow gradual raises, everyone can adjust to that. Business is going to adjust to that up to some point too. So those are the three things that I’m watching. Do you guys watch the treasuries? I guess these days is impossible because CNBC talks about it every hour. Horace?
Horace Taft: Yeah. No, and that’s about it. Not particularly, although I should definitely watch it more. I just think that that perception is ruling right now more than these numbers on the screen basically. And we’re not so concerned where the rates are, I think where they are today, but where they’re going to be in six or eight months and it seems like the market had priced in the notion that Jerome Powell was simply going to drive us into recession just to show us that he could, which is absurd. So yeah, I watched him, but I don’t obsess about them. How about you Karen?
Karen Smith: Well, it’s curious because these moves are large for such a short timeframe and I had kind of not paid attention to that tenure for about a week and yesterday I looked and went, whoa, wait a minute. We’ve backed off of three and a quarter of that quickly, you know, they, they call the bond market the smart money. And a lot of times that the moves that you see in the bond market can sort of predicate what ends up happening in the stock market. So the Fed really controls the short end of the curve more than they do the long end of the carpet. I don’t know if you have the two intense spread in here, Charan or not and sort of where we stand with that. If not, it’s not a problem but-
Charan Singh: I can pull it up. It’s not moved all that much. So I think we’re in about 25 basis points. Maybe it’s different. I think that I saw it the last couple of days ago.
Karen Smith: Yeah.
Horace Taft: Can I ask … I’m sorry to interrupt you Karen. Can I ask you both a question about this since I’m new at this. If we’re seeing rates falling, I assume that’s in the 10 year, I assume that’s a product of people pouring money into the bond market.
Karen Smith: Yes. So bond [inaudible 00:21:06] to move inverse to demand is what you’re saying. Correct.
Horace Taft: So, there’s a lot … Seems to me there’s a lot of money that’s been flowing out of our markets into the bond market, with the assumption that we’re kind of at the end of the cycle in terms of stock appreciation, that money’s coming right out of there pretty quickly if we think we have another six months, 12 months of appreciation in the major markets. So I don’t know. Anyway, I interrupted. Go ahead, Karen.
Karen Smith: That’s a very good question. It’s a very fair question actually. So yes, absolutely. This is a safe haven, for how many years did we talk about Tina? That acronym of Tina. There is no alternative. Meaning, you know, how much of this market is about the fact that interest rates have been unbelievably low for such a very long time. There has been nowhere else to put money safely to get a return, things of that nature. And so as that tenure in particular begins to creep up and get to a three point two, five yield things of that sort, then all of a sudden there is potentially an alternative. Particularly when you look at the year at least where we sit today, and this could change dramatically soon as Monday for all intents and purposes, but you look at where we are in the stock market two big sell offs in the market hasn’t traveled very far in terms of appreciation.
Karen Smith: Those who have been, you know, by the SNP 500 sit back and collect, which has worked for long time, that’s not working. And we’ve got a lot of individual companies, big names, the Fang names, things of that nature that are not up on the year at this point. So you know, those are concerns under the hood and with all of this and something that is starting to get the attention of not just people like ourselves who do this on a daily basis, but in general. So I think that’s why you have seen money move into the bond market. But Horace, I agree short term, if we get some kind of resolution this weekend, there will be a rip your face off rally as they call it here in this market from year to year in potentially. And then we get into 2019 and that’s where it gets more interesting I think. So, yeah. What do you think Charan?
Charan Singh: Yeah. I mean, treasuries last point on this high levels of rates … I mean you can get, this is obviously a competitor to putting your money into stocks and this is the US Treasury, very safe. You could go lend your money to Apple or McDonald’s or some other company in the investment grade bond market and get a couple three percent above this and then jump bonds, even higher returns. So like if you could get for a reasonably well run company, four and a half, five and percent in interest by loaning them money. I mean where’s the market up? But last week we were down for the year. We’re up three percent for the year for all of this. That’s a serious threat, that five, six percent investment grade bond starts to look pretty good. And then also, obviously this is going to hurt the pocket books and then the bottom lines and the gross margins of businesses will have to borrow, especially who have short term agreements that may be coming up in a year or two.
Charan Singh: They’re going to go refinance and pay a lot more to finance that debt. So it’s a really tricky thing. This starts to move anywhere beyond three and a half percent in the next month or two or three. We’ll have major problems I think in the stock market because this is how recessions begin. Because, what’s the Fed going to do is inflation’s kicking in and wage growth is kicking in and things get really hot off of the tax cuts they’re going to raise. And that’s what people are worried about. So yeah, Jerome took a, you know, one step back, but man, it’s still pretty dicey out there because at the heart of it, it didn’t really say anything differently. He just said it masterfully and then did not involve the president. But like he’s the president’s best friend right now. Because look at what a week he …
Horace Taft: On the other hand, there has been slowing economic data. I mean, it’s not … He’s not just making this up, but we talked about that. I’ll let you go through the charts. I’m sure we’ll talk about some of them.
Charan Singh: No, go ahead.
Horace Taft: No, I mean I was looking at the initial claim. That it tends to be an indicator, everybody points to the two and 10. But initial claims tend to begin to rise as a recession. We had a tick up in those today, you know, the housing market has been … I don’t trade it, but the housing market seems to have been pretty soft. People aren’t buying houses, you know, rates are going up, et cetera, et cetera. So there’s indications that the economy isn’t hitting on all cylinders basically. So it makes sense …
Charan Singh: Sorry.
Horace Taft: No, it makes sense for him to walk back these interest rates until morale improves statement, you know.
Charan Singh: And then you think of the flip side of that guys, it’s … If the Fed is really saying we’re going to pause and wait, are they concerned about global growth? Are we … And if you look at-
Horace Taft: Right, right. This is when you go-
Charan Singh: I want to talk about the opposite.
Horace Taft: Yeah, I know that. And that’s when you can drive yourself crazy.
Charan Singh: So, the SNP is back at 200 day average price, is perfect, isn’t? Going into this weekend. And we have put in a double bottom on the Nasdaq. We didn’t quite have a double bottom, but we’re right back to the higher end of the range that we have set. And if you look at the February crisis or even the ones before that, the August 2015, we tend to have this gyration for awhile. We tend to set highs and lows for the next couple of months fairly quickly, and we have done that here at 2,800 and change on the SNP and about 26, 40 or so on the bottom. And we were kind of going to go through this now. The next big data points are going to be what the Fed says next month. And then of course, what happens within the first quarter, but we hear about the fourth quarter performance and guidance for 2019.
Charan Singh: That’s where I think the market, we may have a reason to find a footing and get to 3,000 back on the SNP, which is 2,900, 3,000 was kind of a lot of people’s target for the end of the year. I think that can still happen, but everyone is nervous as heck because, you know, economic expansions don’t last that long and we cannot keep going it alone if you’re up, and Japan and China’s slowing. So, there you go. Here’s the Dow Jones, very similar pattern, except this one has come up above the 200 day. Again, there’s fewer stocks here to it. It can move a little faster. There’s only 30 companies in the Dow. All of them met the RSI, have broken to the upside. And here’s the Nasdaq, which again was the big leader and has had some of the biggest red candles every time when the market’s down two percent.
Charan Singh: I’m talking about the SNP. That’s what I think of the market. Nasdaq is down three or three and a half. So it did make a lower low as opposed to a double bottom. It was just a day really. If you think about that one candle was the outlier. Everything else is in line with a double bottom. And, we’d come back up very, very nicely and on some volume. So for me it’s like a poker game, right? Well, you got to get a feel for it. So for me last week felt like, okay, like I have a little formal coming, you know, fear of missing out. I better established, especially on, like you said, Horace. Like the really beaten down stuff or stock that had really good earnings recently and gave good guidance. There’s no reason they should be down.
Charan Singh: So maybe there’s room to put in some money, is kind of how I took last week and this week. And, I’m back to being a nervous wreck again at the end of this week because who know what is next week’s gonna be like. So thank God for Putts and especially Mary Putts, so the Russell is one of my concerns, whereas why aren’t this popping? I don’t know if either of you guys create that, do you trade this Karen IWM or the Russell small caps?
Karen Smith: Sorry, I had myself muted there. I have in the past-
Charan Singh: I thought it got moved up a lot more, but it didn’t.
Karen Smith: Yeah. I have in the past, and I really started trading the IWM 2016, 2017 when the VIX was falling and we had no premium and I still wanted to do credit spreads because, the Russell or the IWM for the wrestle tends to carry higher levels of implied volatility. So I sort of transferred some of my trading to that in lieu of the spy. But then when February came around this year and things became more volatile, I sort of went back to the spy because I prefer to trade it. The fact that the Russell led us up after the election in 2016, it also sort of led us down here this year. This is a volatile entity. This is a volatile index compared to the others.
Karen Smith: It still has the same sort of formation, the double bottom, the potential of the inverse head and shoulders, all these kinds of things. I haven’t traded this since early this year because of that volatility, but I was thinking about it going into next week if all of the markets start to recover in tandem. This, this is a place I might consider again, but it’s not for the faint of heart. It can be rather volatile.
Charan Singh: That is really smart. So if you haven’t read it, small caps, these companies can suddenly make 30, 40, 80, 100% more money than the year before the quarter before. This are small company so they can grow really fast. So they move fast. Like think of First Solar as a solar company. That’s part of the Russell 2000. So that’s why the implied volatilities are high. That’s a pretty smart point. Bought that too. I mean if you are going to get the SNP when it’s down eight, nine, 10%, the Russell is like be big to half year. I think is about 16, 17%, double. So like you said, Karen, I mean if there is a resolution, I’m going to look at the 2016 election of Trump, Russell and Nasdaq’s, but especially the rest have moved a lot after that. So Horace, were you surprised that it’s not popping as much as … I would have thought we would have a really big candle today and there will be a leader but …
Horace Taft: Not so much. Not so much today. And to go back to Karen’s really good observation about the VIX not coming down, you know, you can rationalize that as we’ve all said, we’re leaving hedges in place, even adding hedges because we have this event this weekend. So I wasn’t too concerned that the VIX didn’t come down and no, I would expect this … The IWM to move, you know, precipitously to the upside if we get the all clear sign. But I’m not surprised it hasn’t yet. I do think they are affected by tariffs so we’ll see. And they were beaten up to the downside. So I’m not surprised. Anything hasn’t really leapt up this week because the last thing you want to do is by everything you can on Thursday and Friday, and then have our president stick a chopstick in the president of China’s eye on Saturday night and you know, how do you explain that to your clients? So we’ll see where it goes.
Charan Singh: How about train? Do I say transport’s doing pretty well, especially the [inaudible 00:32:47].
Horace Taft: Yeah. But go back a couple of days Charan, see that death cross where the Blue Line crosses bullet that. See I was talking about this in my live open forum when the market gets parish, anybody who can point out ominous things is given a megaphone and I think you had a death cross right there in the transportation index. Lasted all of two days, but there it was and I think there was probably a story on CNBC about it. So yeah. And this is bullish, right? I mean that’s a pretty good candle for today.
Charan Singh: On good volume too. Look at that. And it asks for the big game yesterday. This is, like I said, transport kind of makes sense. I really am kicking myself that I didn’t buy Delta, I’d talked about it like, okay, I’m close and then you know, it’s like 10 bucks instead.mSo it’s not uncommon. I’m sure I’m going to miss other moves too. But like with oil down as much as it has, this is a great boom for a lot of the components for especially the airlines who have so much to pay for. All right. So how about-
Horace Taft: Unless oil being down means that the global economy is slowing. This is the kind of thing. And so, you know, so there you go. Ignore the fact that we’re pumping 10 times what we used to pump, seven years ago, maybe this is a sign of global growth and all that. You really drive yourself crazy doing this. If you listen to all those little voices that tell you these things-
Charan Singh: It’s maybe less painful together, solid home depot and split yourself physically in half.
Horace Taft: I don’t recommend that.
Charan Singh: Because the things that hurt you the most are the things you know for sure. So you always have to think about the opposite. Then see if there’s any case in price action. I mean sometimes look, sometimes things don’t make sense, you know. How’s it that Delta is bad this week at home others are doing great. Okay. If it doesn’t make sense, investigate, you know, or don’t trade at least. Karen, do you trade oil?
Horace Taft: I do. I’ve had myself muted from the chopstick in the icon it because between that at the discussion rumbled cat and now we’re cutting ourselves with sauce. This has got to be one of the funniest shows of the year, I have to say gentlemen. Okay. So I will compose myself now.
Karen Smith: Just tighten it up. All right.
Horace Taft: Okay. You know what? I think it’s great to add a little levity and humor into this, right? Because it has been challenging. Let’s be honest. It can be frustrating to try to read all sides of this and figure out what a very bipolar market is doing and the thinking. So I think there’s nothing wrong with a little humor. It was fantastic chart. Yes I do trade oil. Yes. I have been astounded, quite honestly at how quick these equities, these companies involved in this space and oil itself has fallen in the past.
Horace Taft: You’re right, we would correlate this with economic slow down, global economic slowdown, which we have heard certainly from different to flash readings, not only in China, Europe, we’re now talking about Europe slowing down and things of this nature. So, but the fact that this is happening and yet the market is trying to stabilize is pretty fascinating. I’ve traded Slumber J., it’s my worst trade of the year. I’m in a college right-
Karen Smith: My second Horace.
Horace Taft: Yeah, I continued to. I’m sure you do too. I continued to call her trade that bad boy, but man, we are not getting anywhere very fast. Nobody wants it. And you know, you keep thinking, I’m sure you do to her and every level we have support for a few days. Things look good. You almost start to get almost a little bit excited and then there’s another leg down so, you know, until that stops, and until it stops in these charts, you know, I don’t know what to say.
Horace Taft: I mean, I think the fact that oil has had a few very … The commodity itself has had a few very volatile days dipping below $50 and yet recovering from that obviously that makes this 50 level really, really critical and important moving forward. And if we are to a unfortunately break that support, then I don’t know. I don’t know what that’s gonna mean. How low it can go. I know here in California of course we have all kinds of taxes on gasoline and things of that nature, but I hadn’t seen a lot of difference at the pump so far as oil has taken this decline. I don’t know if others have you had in other places across the country. But yeah, it’s pretty astounding when you see the speed of this bearishness. So, Charan, is Slumber J. all that you trade in the space or do you trade other things as well?
Charan Singh: Sometimes I trade XLE, pays a nice dividend, beautiful option chains. That’s the energy sector tracking UTF, that’s dominant in that. And then I trade Definers. I trade Oxy like you, I think you trade Oxy Occidental, sometimes I trade Phillips 66. I’ve actually owned that for some time. Yeah, all of them. But especially this Halliburton, Slumber J. oil service space. Look, OPEC is happening next Thursday. OPEC, that’s Russia I guess. And so there maybe something that comes out of that that causes at least a short term balance. We’re really far below 10% plus 12% below the 20 exponential almost. The level I’ll be watching for is about 50 cent, 50, 58.
Charan Singh: Because I think we can fairly rapidly, even next week, given that this is a commodity, it can move real fast. Look at the end of June, it went up, you know, like 10 bucks in 10 days. It can easily do that longer term is it going up? I don’t know because some of this is in fact the strength of the dollar. I mean dollars near highs again, so of course oil is down but also like week after week for weeks now, positive buildup in inventories in the US Specialist, which is what WTA has more sensitive to. So you know, and then there’s growth concerns that are here and other commodities too, but man, it has been unbelievable. I had to go back to almost 10 years ago to see something go that bad that quick. Certainly the velocity of the move here now it’s kind of, you know, holding. I think I had a vote back probably holds and maybe balances.
Charan Singh: Last week I said I don’t think I want to short oil anymore and, that’s probably a better risk reward to the upside. And this is part of the problem. Look at what happened October, November to the dollar. Look at what happened October, November, part of that is in there clearly because the strength of the dollar is a menace to oil, to company’s profitability, to our exports in GDP, is just a menace, but a lot of people along the dollar. And why not? I mean, I can think of any reason why you wouldn’t belong the dollar, given our currency yields so much more, give so much more interest and also as a safe haven.
Charan Singh: So all of this could come unwinding, you know, kind of come crumbling down next week. We have a double top, which we haven’t had one of those in a while in the dollar. And so, if there is some easing this weekend, all the emerging world is going up. The currencies of the emerging world are gonna bounce hard because they are sold to like multi year lows. Some of them multi decade lows. And that would be a catalyst for … There are so many people long here that we could have a large move down very, very quickly, something like this or even thicker. So I don’t know if that happens or not, but it would certainly drive commodities, oil included, gold … Because gold, look at how it’s been behaving.
Charan Singh: It’s not going down, there’s all the reason for it to be going down, but it’s kind of holding. And I think it’s kind of caught between, okay, the dollar is a little bit strong so I should go down but, hey look, interest rates came down so I should go up and then maybe inflation is coming. So maybe I should go up anyway, I don’t know, Horace do you trade any commodities so you have any comments on the dollar or any commodities that you’re looking?
Horace Taft: Are you … No. I don’t. I used to trade USO, now it’s an investment, and I’m waiting to add what I think is about, might mess this trade up. So, and I avoid other commodities. I don’t understand it and there aren’t enough fundamentals that would make sense to me, but I think everything you said makes a lot of sense. I mean it isn’t gold … If we were really worried about some systemic risk, wouldn’t this be a little more …
Charan Singh: People have a lot of other choices. See, they got the Bitcoin, they got the Swiss currency-
Horace Taft: Or Bitcoin.
Charan Singh: Yeah, you see? I think it’s robbing. Remember when Bitcoin was going crazy and there was this time when like Apple and others stock were like, “What’s going on?” Yeah. People are cashing out of winners and putting their money in Bitcoin. That happened last year a little bit. So yeah, it’s particularly cheap now given what happened in the summer I think so.
Horace Taft: Yeah. Yeah, we’ll see. I have a hard time understanding how low when I came into Options Animal, there was a trade constantly done where you sold the USO 30 Putts and I remember those days and those are far behind us and that’s just a fundamental change in the supply in the market. It’s kind of remarkable. So theoretically, you know, the low oil is tax as our president has said, it’s a tax cut for every American and maybe that’s helping, you know, boost consumer sentiment, I don’t know.
Charan Singh: What’s good for Americans is not always good for the stock market.
Horace Taft: Right.
Charan Singh: All right, so the VIX, you know, I have an explanation I think, and Karen, you kind of hinted at that, like why isn’t this thing going down to 15 given what happened on Wednesday didn’t move and like nothing is happening. If you look at where we were on Monday afternoon to where we are now, we’re barely moved because look, I mean I got rid of my short puts against my long puts on the SPY and other people I’m sure are looking at this binary event thinking like us and saying people who trade options saying, “Hey, you know what, maybe I’ll go buy some puts on the SPX or SPY.”
Charan Singh: And there’s demand, which is why given the five percent move the market had., the fixture really didn’t move that much. It was like 21 handle. It’s 18 and so it obviously it could go down to here on Monday. I wouldn’t be surprised at all if we had a massive 15, 20, 30% drop in the VIX in a day or two. That is not uncommon. And it’s conforming with the history of making almost always this is how the VIX works, it shoots up and that it makes lower highs and lower highs and low highs and it’s doing that. So that’s good. Sorry, go ahead.
Horace Taft: I was just going to say it could also be a 30.
Charan Singh: Yes. Although if it did get to the 30 as a trader, again depends on the news, if got that chopstick incident then yeah. Okay. There is a lot of [inaudible 00:44:43] between them, all bets are off, but like we are already been sold off to near 15 forward PE on the market. I think a lot of bad news as always is priced in and so unless the disaster happens, if there is a short term drop, I think that would be that bush bottom that people have been kind of … Have been looking for, you know, finally got frustrated of waiting two months and said, “Oh, you know, maybe they’ve got to do some trades where the volatility still around.” How about you Karen? Any thoughts on VIX or sentiment?
Karen Smith: Yeah. I couldn’t agree more. I don’t know about shooting to 30. Even if we get what the market should be, a negative conclusion to the G20 or just no transparency at all that kind of thing. I could see it going back into the mid twenties. I think 30 it would have to be something pretty cataclysmic to get us to that point, because I think the fact that it’s hanging in here to this extent, is what’s really remarkable. So I think if there isn’t continued upping that rhetoric, then I think that at the VIX could fall and the market might not even move all that great to that greater degree. So it’s going to be really interesting to watch this one, I think, early next week certainly.
Charan Singh: All right. Horace, how about you? Any stocks that you were watching or earnings, there is a few that I threw up that I haven’t listed or looked at as barometers of what’s going on in China.
Horace Taft: Not that I’m trading. I mean, I do want to point out the GM, you know, what did they cut? Fifteen thousand jobs? It’s depressing doing this, right? Because you see the press release come across and I don’t trade it or you pull up their chart and then bang, they’re up. This seems … Whatever. And then of course, you know, I do watch some of the software services, so CRM was a great earnings report, didn’t participate in that, but that was encouraging to me. How about you, Karen? Was there anything specific this week?
Karen Smith: No, I happened to glance at Tiffany because I’ve traded tapestry, although I haven’t traded tapestry since earlier this year. But wow, that was pretty disappointing I will say in the retail space. It’s nice to see CRM have earnings, have again and hang onto it because quite frankly there just haven’t been very many. And who knows if CRM, if Salesforce had reported four weeks ago, they might not have had this kind of result because it just seemed like everything. It didn’t matter what you said at the time, how good it was or how good your guidance was four weeks ago. Nothing was very rewarded. And so I think that the fact that they’ve come at the tail end of this sell off, at least to present was also helpful to these guys. But I don’t trade any of these, I do trade Micron, which is sort of close to Western Digital and the charts look really, really similar to one another. But, yeah, Charan, do you still trade tapestry or Tiffany? You said you watched them for the kind of try to …
Charan Singh: Yeah, you name a loser. I have it. Tapestry is moved down quite a bit. People are concerned and painting a pretty bleak picture of what will happen. We don’t know really what will happen. So at some point it will get cheap enough. I think it’s almost there. Look, it’s not bouncing very hard this week, but like if it dropped into the low thirties, I think it would be pretty close to a bottom. If you look at the long term charts of where this started bouncing from after their transformation started working. That was a few years ago. So look, if a recession is coming then this is not at a bottom.
Charan Singh: If we have a trade war that escalates or maintains for a while, then maybe it’s not at a bottom, but what happens usually is that after a big pricing and dropping off the multiple on the stock, then at some level an equilibrium between buyers and sellers is found and the stock may just go sideways for a couple of quarters, first three quarters as we seek on your direction. It feels like we’re pretty close to that, if not at that type of level for Tapestry. I think fair value is at least in the mid forties. So could it drop to the low thirties? Yeah, I think it will be pretty compelling.
Charan Singh: Unfortunately they work in the physical space, but then again, this is coach and tap, you know, Kate Spade and Stuart Weitzman and so there had been some supply chain issues and these are things that have long, long, long lead times. But the opportunity to take Kate Spade where it’s not been before, I think it’s phenomenal. So … All right, so with that, let’s take a look at economic events. Anything stand out besides what the Fed had to do and their minutes yesterday? To you Karen.
Karen Smith: Yes, absolutely. And that’s initial claims and Horace referred to it. I got kind of sad, I’ll be honest, when I saw the initial claims this week. And it’s not just because of this number, it’s because now we’re getting into consecutive weeks with this. We always say one day doesn’t make a trend in a chart for an equity, nor does one data point make a trend. But when you click through here on the hyperlink and you look, I don’t like what we’re seeing here. Now, granted, we know we’re at full employment. There’s going to be … There’s going to be some back and forth that’s natural. But remember it’s November. This is when companies are hiring, in particular retail, holiday season, things of this sort and yet we’re seeing this. So, that I wasn’t real happy about that. I have to say.
Karen Smith: GDP that’s … So it’s rear view mirror looking there. Although it wasn’t a good number and that’s great consumer confidence still, at least at this point. That’s good because I think we’re at a point now where we’ve had enough volatility in the market that it’s not, again, just those of us who do this for a living, but just the average individual investor is taking notice. I mean, I know when I’m out and people know what I do, they’re asking me questions and things about it. So the fact that it remained in there at a nice read is good. But yeah, it just feels like we’re flattening out at least in a lot of these economic data points, Horace, I think you even referred to that as well. The concern that, you know, are we topping? That’s the question. Are we topping in the economy? I mean, that’s the question moving forward, isn’t it? So, Charan, what do you think about that?
Charan Singh: Yeah, you know, the week started with not great news on the case that are 20 City Price Index, six months of slowing there. And then we got crude, which again, as I mentioned earlier, keeps building. I mean Definers kicked back in after their seasonal maintenance period that usually ends in September, October. But we’re not seeing draw downs. I don’t know how many weeks it’s been at least six weeks, maybe more. That’s unusual. And then I was really watching for PCE, that was going to be one of the important numbers were PCE prices are and the core and you know, it moderated a little bit. And that’s good news because if the Fed is already gung [Ho 00:52:28] and this is happening, you had Powell not given this speech this week and said what he said, and if inflation had come in hot people would have resumed the worst. I am watching initial claims.
Charan Singh: That’s something I remember from 10 years ago I was like, Huh? Like in facial, the economy is doing great and claims are like super low and they rose a little bit. So what? But there’s still near, I mean, right now, like same story, right? The claims are at like 40 some year lows. But the market responded badly to that kind of stuff. Because it signaled something slower in terms of economic growth, maybe company. Nobody knew what a session would come or that with every one of the catalysts, but it’s like a [Jenga 00:53:14] tower. Hard to predict when it’s gonna collapse. So you know, the fact is that overall, if you look at economic data, it’s not that bad. Could we have slowness and some softening and some lower growth period? Sure. We’ve had that before in the last.
Charan Singh: I mean not all of the last 10 years have been equal growth. So … Or he did something different or is there going to be another shoe to drop on top of this? So you know, data that more concurrent and not lagging Q for GDP for example, yesterday printed a two point six estimate, okay, it’s not bad, you know, I’ll take that and you know, we know that growth is slowed down but people are imagining that SMB companies are gonna grow earnings maybe four or five percent next year as opposed to what the analysts are claiming, which is nine to 10 percent next year. So that’s what the markets have been sold off because what the analysts are peddling, the market’s not buying, but first quarter I think that would be a very, very important earnings period. Probably the most important. This will start to give us some guidance into what’s happening, in corporate C-Suites. How about you Horace next week? Anything you’re looking forward to here or is it all going to be about Trump and Xi?
Horace Taft: Well, the first couple of days they’re all going to be a point about that. Obviously we have payroll on Friday, first Friday in a month. Is that right? Yes. So we get the payroll numbers. That’ll be a market mover for sure. And that’s pretty much it. I’m looking through this. I mean, obviously I’ll keep an eye on initial claims because that can be, you know, that same chart we look at with the two and 10 on the St. Louis Fed site, you run the leading indicators, put the gray bars for the recessions and sure enough they started taking up. So I’m sorry, your sad about it, Karen. That probably means you watch the market too closely, but I was thinking, you know, eventually we’ll have to have a party for the end of the bull market, but I don’t think we’re there yet.
Horace Taft: I just don’t, I’ll keep an eye on everything, but I still think we have one excessive ramp up to the upside before it all ends. And before I forget, you know, all this doubt that we’ve been talking about and it’s correct I think. This is a really hard market. Cash is a position, you know, and yes, you may miss out if we gap up three percent on Monday, but imagine how much more valuable that cash is if cashed gap down three percent. So just keep that in mind as you allocate stuff. You don’t have to be fully invested all the time. That’s what I got.
Charan Singh: Awesome. Perfect. Karen, did you want to comment on anything next week?
Karen Smith: No, I think you guys covered it beautifully.
Charan Singh: All right. So, they will be other data points. I will be watching and international too once we kind of running out of time. Here’s announcements for this next month. So this has already happened, I guess I didn’t.
Horace Taft: Yeah, Greg and I will be doing-
Charan Singh: So you are doing when?
Horace Taft: The December, but we haven’t set a date. So maybe one date it might be two dates. Hopefully by next week we’ll have a date.
Charan Singh: Sweet. And on my birthday, December seventh, Detroit one day summit, if you are near that area, please come and join us and bring friends. All right, with that stocks to watch, Horace, you want to go first?
Horace Taft: Sure. We’ll start with, let’s see, Sierra Echo, Lima Golf, Celgene just started a small position in this. Good earnings, good cashflow. These guys make primarily cancer drugs and I’m gonna spend some time learning more about these, but it’s a biotech pretty severely beaten up, and had a good day to day. So, this is one of the ones I’ll be watching in the couple of weeks. There we go. Let’s see. Yeah. So hopefully that 66, 67 is a tradable bottom and that’s what I’m counting on. So that’s my first stock, the second one, Alpha Tango, Victor, India, Activision Blizzard. I had high hopes for this yesterday and we had GameStop earnings last night and I think that stock got punished and I think people incorrectly assume that Activision still sells most of its product through GameStop and outlets like it they don’t. So they had a pretty bad day to day, but, this is another one of these stocks.
Horace Taft: It’s down close to 50%, 40% and still fundamentally sound. So this is one that I’m continually involved in and I’ll be watching this and that’s a nice big gap from 50 750 all the way up to roughly 64 bucks. So that’s my second stock. And the third one I’ve been watching, and trading with is the Tango Whiskey, Tango, Romeo, Twitter. Intraday charts really been interesting on this. There have been some big spikes down and bought back up. And I like the company, I like it longterm. I don’t know how much of this move is in sympathy with the beating that Facebook has taken. But I’ll be watching this. I have actually leaps in this thing out to 2020. I think I have a married put one of those big long put spreads char and protecting it. I’m willing to buy more at significantly lower levels, so I’ll be watching this one as well. Those are my three stocks for the week.
Charan Singh: All right. Thank you for that. How about you Karen?
Karen Smith: We’ll start with one that’s going to have earnings actually coming up. That’s gonna be Lulu Lemon, L-U-L-U. This is going to be interesting. I have to say, I do not own shares. Anything of that sort. I thought Lulu was overextended for quite some time. It’s very solid. The fundamentals here are very, very solid, but it’s just, I thought got ahead of itself and the chart now reflects that it’s had a really nice balance this week ahead of earnings. These guys may get lucky from that. That timing that I just mentioned, the fact that it, particularly if we come into the early part of the week, the markets are generally positive, then I think that that may help them out with this earnings. It’s just that, you know, if you look at a longer term chart here that, you know, this equity has more than doubled in the past year.
Karen Smith: I’m just concerned about, is a lot of the good news priced in. I won’t be trading it before. It will be after earnings. We’ll see what comes from that. But that’s gonna be an interesting one to watch for sure. A second is the SPY. I know I talk about it all the time. It’s because I trade it all the time and some of you know that, I have to animal trades going and the totality, if you put them together is an Iron Condor. So I have both the bull puts side from about a month, month and a half ago now I have the bear call side. So bull put hopefully won’t need to be adjusted even if we sell off because it’s so significantly out of the money they’re call, however, could have to be adjusted and I hope it does because if so, that means a lot of other traits I have going or working really well, so that would make me very happy.
Karen Smith: So, and look for that on Monday. By the way, those of you follow the animal trades. If we do get some sort of really big open, I’ll most likely be adjusting that on Monday if that were to come. And then finally another equity, it very exposed to China and I expect to see some volatility here. That’s Las Vegas Sands, LVS and I’ve done several animal trades on this one over the course of the year. I’ve owned shares, I’ve traded bearishly, I’ve traded bullishly. This has been an interesting one. I will say, we’re starting to get some positive technical here. Matt De RSI, five and 20, 55 is sort of this invisible ceiling right now. But once again, 60% of their revenue is from Macau in China.
Karen Smith: That’s why they’re having such difficulty, I think getting some momentum. If we get some resolution, I could see this one’s starting to reverse this longer term and this is a great dividend payer at these levels. Five percent I believe is the dividends on this now. So, this is one I’ll definitely be watching and most likely trading next week and next year for that matter. So those are my three charts.
Charan Singh: I’ve been looking at the LVS chart. I haven’t really delved into their fundamentals that much, but it sure looks really interesting. My first one, we mentioned this a little bit earlier, General Motors, so it was in the news again this week. We talked about it, I still think it’s cheap. I mean their report was phenomenal just before Halloween and they’re doing really well in China and again. Like Las Vegas Sands, they do a lot of business, not most of it. But a lot of business in China and they’re kicking forwards butt over there at the moment, because of what they have available in 40,000.
Charan Singh: So, you know, this will be, if there is steel, aluminum, China trade war relief, this will be a massive beneficiary, or they could spin out their GM Oro two point zero, the autonomous stuff and that would probably push them higher a lot. So I really like General Motors especially on good trade news. My second one is Bud. I really liked this also because number one, it’s really cheap, I think, and also if they’re dollar comes down, Bud will be a good beneficiary of that. If emerging market currencies start to come back, you know, have some strength that would be really good. Bud is gap down on earnings fell a little too much put in a double bottom, I see this stock could easily get into the eighties, mid eighties or higher.
Charan Singh: So I’d really like Budweiser. Another now they got some challenges. Obviously that’s why they’re down. But I think one of the bad news I can think of at the moment seems to be priced in and they will counter right? Remember when a company is squeezed, the managers have … Well they can respond, right? So Gilliad is the third one, this is one of the stocks that I did buy this week and because it looked like ridiculous at 66 and mid sixties and I didn’t buy it at the very bottom. But, I like Gilliad, I think it maybe go sideways. So I’m doing a covered call and I think this stock, if there is more, better market environment could do really, really well.
Charan Singh: And healthcare is doing really well and Gilliad is not. And it was on my list. So I was like okay, here’s the sector that’s working but a stock that hasn’t been, it looks like it’s starting to. All right with that final thoughts, Horace.
Horace Taft: No, everybody have a great weekend. You know, watch the news as much as you feel you need to and we’ll see where we are on Monday after Monday morning I suppose. It should be interesting. How about you Karen?
Karen Smith: Well, I want to thank both of you gentlemen and also our fabulous community because I got some really great belly laughs behind the scene here this afternoon, so that was fantastic. Thanks for being here, everybody. Enjoy your weekend. We’ll see you next week and it is going to be an interesting one for sure. Thank you.
Charan Singh: All right, thank you, Horace. Thank you, Karen. We’ll see you guys next week everyone. Have a great weekend. Bye. Bye.