You read my work. I thank you for that. Many of you reach out, either on social media, or through e-mail. One thing, no make that... a few things that I know about you is that you give a darn. I know that you pride yourself in your effort. So do I. We have this in common. We also feel pain when we put the work in, the 20 hour days, and then our decisions fail us. We take it personally. Oh, we'll joke about the beating, because we try not to show emotion. It's okay, my friends. It's okay, because we're going to get angry.
Now, let's do this together. Think hard. This may get ugly on a gut-check type level. I want you to remember the worst you ever felt... over anything. Let the hate build up inside. Now, remember how you rose and beat them.
If you read the stuff that I write, and the stuff that the other authors at Real Money write, then I know you fight your own battles, and I know that somewhere along the way ... that you, yes YOU, learned how to win. You beat something or someone that was supposed to beat you. Probably more than once. Now rise, and fight. How? Follow me.
Courage. Think it's funny? Get off the canvas, and face the day. Read the material. Do the chart work. Fear is for the wicked. The wicked shall be trampled. A full night's sleep is for those with the protection of long-term municipal employment. We have nobody to stand up for us. We will stand on our own.
Honor. We will never lie, cheat or steal. Haven't been the good guy in the past? Start right freaking now. We do things the right way all day, every day. Only once we seek purity of mind can we reach a mental state capable of building discipline. Discipline must become code.
Discipline. I preach on this often. Discipline becomes a life long crutch that one will never regret. This will save not only a trader, but anyone in any facet of life from allowing small errors in judgment to become catastrophic. You all know what I mean. Act when called for. Know ahead of time what you will do upon different outcomes. "Taking shots" is for the unprepared.
Commitment. Everyone look at a picture of a loved one. Right now. Would you die for them? You know you would. I know you would. Now, defend them. The task is clear. Defend those who depend upon you. That is really what this all comes down to. Most people are not able to make a go of doing what we do. You were the one who was born with both the brains and the guts. You made yourself mentally tough. Be that person. Become your greatest self.
Time to rip that ugly thing attached to your shoulders away from the disgusting thing you call a pillow. We've got work to do. There are several takeaways from last night's meltdown, and this morning's somehow positive overnight session.
1) The Russell 2000 is now -4% for the year, and 15% off of it's high for the year... despite a dollar strong environment.
2) The Nasdaq Composite gave up a whopping 4.4% just on Wednesday. While decliners beat advancers by a little less than 11 to 2, it does look like volume actually receded a bit up at Times Square.
3) Despite the speed and magnitude of the equity selloff, we still have not seen a significantly inverse move to the upside for the VIX and for gold futures that would for me indicate capitulation.
4) What is now most perverse is the process of price discovery at the point of sale. The powers that be got rid of the old, slower open outcry market model because a much higher level of transparency where every order is identified and represented at a centralized point of sale could not possibly be fair..... or maybe the idea was to internalize market flow. Nice going. What we do know is that price performance has been de-emphasized in favor of speed. I am sure that retirees across this great nation all favor micro-second execution of order flow over those pre-historic trading styles that took milliseconds.
5) This tells me that the now widespread passive (lazy) style of investment mixed with the speed and scale of program trading will leave the markets in a medium to longer-term state of volatility.
6) What would allow markets to become settled, and regain their footing? That's easy. Positive headlines. Such as.... A less aggressive central bank? News on trade? Less divergence across global monetary policies? Italian debt crisis kicked further down the road? A satisfactory Brexit deal? Improved macro? That's a lot to ask for, don't you think?
7) Improved macro? I know that many speakers keep telling you how strong the economy is, and at a headline level, it appears so. It becomes so obvious just from a rudimentary glance at the data, that this economy is past-peak autos, past-peak housing, perhaps past-peak retail, at or near peak earnings, and at or near peak margins. Late cycle?
8) It does not take a genius to see for oneself that the bond market does not trust domestic economic growth beyond two years out, and that this market is taking control of interest rates away from the central bank.
9) While this hurts right now, free market control is how credit should be priced, and a step away from the perverse policies that have polluted our recent concept of truth is a long term positive, at least for those attempting to properly assess risk.
We've Got Game
It becomes difficult for me to tell you where to run in these markets, because while I hate losing money, it causes me much, much more stress when folks follow me into a trade, and then they lose money. This is mostly because they do something else for a living, and given that this is my occupation, I am able to be a bit more agile than someone focused on something else.
While it has been, I think obvious to adjust one's portfolio to a more dangerous environment in a defensive way. Yes, Utilities and cash are what everyone thinks of, but this also prices one completely out of potential growth. A lot of names now suddenly present as dividend plays that maybe we do not think of in that way. I would be slow to dump any stock right now with a high dividend yield and a solid track record for paying those dividends. What comes to mind?
Amid the Tech Wreck...
Seagate Technology (STX) : Last sale 41.68... pays 6%, and has in recent memory always met the payout. The stock, like the group stinks right now. The annual payout is $2.52. Think of that. I have held this stock for years for this very reason. A trader needs to hide this one in a different portfolio so that the name does not impact daily P/L. This is strictly an income name.
Intel (INTC) : This name reports tonight, and has become a real dog. Not only do they need a new CEO, they need to consistently meet targets on product development. I am down to tag's ends on this position and have been for a bit. That said, I am seriously thinking about rebuilding this long on any broad industry weakness today. I expect the stock to pop should the firm ever actually name a CEO. Oh, and they also pay you 2.8% to own the shares.
From the Energy Debacle:
Royal Dutch Shell (RDS.A) yields 6.1%
British Petroleum (BP) yields 6%
Exxon Mobil (XOM) Yields 4.2%
Schlumberger (SLB) yields 3.8%... I am long to some degree all of these names. I added to my SLB on the closing bell last night, as that one has been my poorest performer in the sector. As the Saudis agree to take production closer to capacity, investment by the explorers and producers will become a necessity. I also trust the honesty of CEO Paal Kibsgaard. As for the other names here, I think them all to be worthy of some portfolio exposure, particularly Royal Dutch.
Speaking of Wrecks...
I am sure that you have noticed the positive results offered up by Ford Motor (F) last night. Yeah, they crushed revenue expectations. The ugly truth is that this revenue is down sequentially from last quarter, which was down from the quarter prior. Don't buy this name because the pick-up trucks are hot, if you must, buy this name for the 7.3% dividend yield. General Motors (GM) , a name that I have multiple positions in, pays out just under 5%. In my humble opinion, it's a slightly better, more well rounded firm. There is no doubt that we are past peak-autos. While I am willing to take on a hedged position in the one, I am not willing to be long both of these names.
On Health Care
Health Care, I believe was unfairly caught in the Wednesday carnage. While UnitedHealth (UNH) remains costly in dollar terms, the valuation is now loser to being in line with the broader marketplace. I look for entry there. I remain long my pharma plays... Abbott Labs (ABT) , Amgen (AMGN) , and Pfizer (PFE) . PFE, by the way, yields 3.2%, good enough for an annual payout of $1.36. Not bad for a $42 name.
Bear in Mind...
That both Alphabet (GOOGL) and Amazon (AMZN) report tonight. I remain long the latter, but did take off half of my position prior last Wednesday. Do I add that portion back now? In the mid 1600's maybe. The stock is higher this morning. This call will have it be an audible at the line of scrimmage. As for GOOGL, they turned their back on the Pentagon. They no longer exist in my world.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 211K, Last 210K.
08:30 - Goods Trade Balance (Sept): Expecting $-74.7B, Last $-75.8B.
08:30 - Durable Goods Orders (Sept): Expecting -1.3% m/m, Last 4.5% m/m.
08:30 - ex-Defense (Sept):
Expecting -0.1% m/m,
Last 2.6% m/m.
08:30 - ex-Transportation (Sept):
Expecting 0.3% m/m,
Last 0.1% m/m.
08:30 - Core Capital Goods (Sept):
Expecting 0.5% m/m,
Last -0.5% m/m.
08:30 - Wholesale Inv. (Sept-adv): Expecting 0.5% m/m, Last 1.0% m/m.
10:00 - Pending Home Sales (Sept):
Expecting -0.1% m/m, Last -1.8% m/m.
10:30 - Natural Gas Inventories (Weekly): Last 81B cf.
11:00 - Kansas City Fed Manufacturing Index (Oct): Last 13.
19:00 - Fed Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (MO) (1.07), (BUD) (1.03), (BMY) (.91), (CELG) (2.23), (CMCSA) (.61), (COP) (1.19), (HSY) (1.55), (IP) (1.50), (MCK) (3.29), (MRK) (1.13), (RTN) (2.05), (SHW) (5.76), (LUV) (1.08), (SWK) (2.03), (TWTR) (.14), (UNP) (2.09), (VLO) (1.97), (WM) (1.11)
(BP, Schlumberger, UnitedHealth, Abbott, Amgen, Alphabet, Amazon, Comcast and Raytheon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells BP, SLB, UNH, ABT, AMGN, GOOGL, AMZN, CMCSA or RTN? Learn more now.)