Nothing to do, but frown?
There were more than a few minutes (more like a few hours) mid-morning on Monday when the late, and indeed great, Karen Carpenter's voice cycled through the side of my head that deals with the daily madness that is Wall Street.
Well, if we didn't know where the algorithms that now control the point of sale were lined up before, we sure know now.
A sentient being might have decided that resistance would appear as the S&P 500 kissed the 2815 level. That spot has been part of the conversation. This outcome was actually likely, as this has been a tough neighborhood for the bulls every time they have made an attempt to get to the other side -- five tries since last October.
At that point, the action became unnatural... nothing but the overbearing weight of an anchor placed upon the point of sale. Speed. No regard whatsoever for what used to be a fiduciary responsibility to find the best price for the client, back when those pesky humans handled order flow.
Of course, once upon a time, speed of execution was measured in seconds, but that was far too slow.
Let me ask you this: What is better for the retiree, the family saving for tuition, the small business owner -- beating the average price, or maybe, just maybe, best execution?
It does not take a genius to realize that beating the average price becomes not just easier, but also self-fulfilling in a world where speed of execution can provoke momentum. The whole idea is to cause an avalanche. Mom and Pop still end up with a worse price for their merchandise than they should have.
Shhhhh... don't tell them what they don't know.
A method for price discovery that values speed above price? Congratulations.
I am old. I know that there was once a better way, a fairer way. Perhaps that makes me the fool. Well, then, I'll play that role. I can read charts, too. I care more than they do. I will work while they work. I will work while they rest. There is honor in this fight. They will lose, but they will think that they won, simply because all that they value is the P in their P-and-L. Again, congrats.
By the Way...
Unless the entire healthcare industry is going out of business, then opportunity is now falling into our laps. UnitedHealth Group Inc. (UNH) is a name that I have traded in that past but that had gotten away from me. With all the political risk now associated, if one can stomach some pain, this is a $244 billion-a-year company now valued at 14x forward-looking earnings that pays shareholder $3.60 a year just to hang around. This is not yet a trade idea, basically because the entire industry has become a falling knife.
That said, some kind of "Medicare for All" future for healthcare would certainly disrupt the industry. Given the political climate, this unpredictability is being priced into these shares. That is why I cannot invest in the name at this time. However, I can trade the name at these levels amid this volatility, and will likely take that road instead with UNH, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
Just a Number
The Communist Party clambake officially opened overnight in Beijing. You may know the event formally as the National People's Congress.
The weight of the nation's economic slowdown was evident as Premier Li Keqiang made clear that China was suddenly open for business more broadly than it ever has been before. Expect to see looser fiscal policy that will include tax cuts as well as increased defense spending. Expect to see less restriction placed upon foreign investment and expect less in the way of forced partnerships being placed upon non-Chinese firms trying to gain entry into Chinese markets.
Officially, China's GDP for the year 2018 landed at 6.6%. In his address, in front of the 3,000 or so in attendance at the Great Hall of the People, Li set the nation's target for GDP at a range of 6.0% to 6.5%, as the nation still feels around for a soft landing.
Are Chinese numbers trustworthy? We'll never know for sure, The thing we do know is that China is feeling the heat in acknowledging that steps need to be taken to properly participate in the global economy, and that normalization of the trade condition has become "Job One." Otherwise, that slower growth of 6% to 6.5% (even if only official) becomes too aggressive a goal.
For planet Earth, the question becomes just how robust Chinese, and thus global, growth will be even in a world where the Chinese government at least makes some kind of effort to play by the same rules as everyone else.
The Next Fight
Oh, in case you thought a trade deal with China would end the misery, think again. This Wednesday (tomorrow), U.S. Trade Representative Robert Lighthizer and his counterpart, European Trade Commissioner Cecilia Malmstrom, will meet for the fifth time to discuss better access to European markets for U.S. agriculture. Yes, there's a deadline here, too, coming up in mid-May. Expect some market volatility as these talks will extend to other arenas, such as the auto industry.
The European economy in general, and the German economy more specifically, have gone through a troubled winter. That makes these deliberations more likely to eventually produce a positive result than what might have been otherwise. You may have noticed that on Monday the U.S. restored the European Union to the bilateral equivalent of a nation state from a mere international organization. Obviously a diplomatic gesture ahead of these talks. More interesting at this point will be how the European Central Bank jawbones the economy and its own policy response this Thursday.
The Dust Settles
As you are well-aware if you read me daily, I addressed Salesforce.com Inc. (CRM) earnings ahead of the digits for Real Money on Monday. You already know I like the name, which is another holding of Cramer's Action Alerts PLUS portfolio, and that I like the cloud space in broader terms.
Well, the stock sold off fairly hard during the day and then again overnight after the results were released. You may recall that my suggested trade was to make an equity sale at or close to $160, while also putting on a $160/$170 bull call spread as well as the sale of a $147 put (all expiring this Friday) for a net debit of $2.56.
Obviously, as one who writes about his trades, I cannot front-run my own ideas. So, if an idea comes to me as I write, which often happens, then I am put at a competitive disadvantage as I must wait for publication even though my idea is at that point several hours older than it was when cranked out by my brain.
In the real-time execution of this trade idea, the equity portion had been taken off just above $158, while the options trades in their entirety (put on at those strikes with that expiration) ended up costing me $2.26... so at least I saved 30 cents there, after watching almost $2 wither in equity value.
You saw the numbers, right? CRM crushed it terms of fourth-quarter earnings per share and sales performance. The reason for the overnight weakness? First-quarter guidance is seen as slightly lower than forecast even though full-year guidance is, in my opinion, just fine. Indeed, the range given for full-year EPS puts the consensus view below the midpoint. That tells me something.
My spider sense spoke to me: "Steve,. you laid out $2.26 for the flexibility that these options trades allowed for you. Now, go buy back those shares sold on Monday morning."
In my book, buying these shares back anywhere below $155.80 will present as victory in terms of capital extraction. As I bang out this note, the shares trade more than a buck below that level. Even I can pull this off.... I'm just waiting for this morning note to reach publication first. Sarge out.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 5.2% y/y.
09:45 - Markit Services PMI (Feb-rev): Flashed 56.2.
10:00 - ISM Non-Manufacturing Index (Feb): Expecting 57.3, Last 56.7.
10:00 - New Home Sales (Dec): Expecting 591K, Last 657K SAAR.
14:00 - Federal Budget Statement (Jan): Last $-13.5B.
16:30 - API Oil Inventories (Weekly): Last -4.2M.
Today's Earnings Highlights (Consensus EPS Expectations)