Many market watchers weren't watching on Wednesday afternoon. They were in traffic. Those that were, did not trust the rally in place. After all, the rally did seem rather mild in response to the pressure placed on equity prices earlier this week. That selloff into the last hour of trade completely wiped out any hint of green for the Dow Jones Industrial Average, while leaving the other major indices with minor gains for the day. Perhaps most disheartening for the bulls was the fact that the Dow was led lower by two names normally seen as somewhat defensive in nature by investors -- Johnson and Johnson (JNJ) and Coca-Cola (KO) .
Granted, there were firm-specific reasons that each of these two names were taken out to the woodshed: KO was slapped with a Moody's downgrade on Tuesday afternoon and JNJ failed in a U.S. appeals court to block the expected October launch of several generic forms of the prostate cancer treatment drug, Zytiga.
For retail investors looking to score either or both of these names on the cheap, even now both stocks remain closer to the top of their charts than to the lower bound. From my perch, positively speaking, both names appear to be testing Fibonacci support levels, and both names sport nice dividend yields. But an investor that incorporates basic accounting fundamentals into decision making would, in my opinion, favor JNJ over KO, as Coke's Current Ratio and Quick Ratio appear to be falling rapidly quarter over quarter -- and are now at levels that make this old dog scratch his head.
In fact, from the third quarter of 2017 through Q3 2018, cash and cash equivalents on Coca Cola's balance sheet dropped from $27 million to $18 million. True, total debt declined over the same time span, but not nearly as quickly, and total assets fell alongside. Call me less than attracted.
Back to the broader markets. Should there be a Black Friday rally on volume, it will likely be very light. For any meaning to be associated with the move, traders would have to see some of that gap -- created as Monday turned into Tuesday -- fill in. In other words, trader would want to see the SPX 2,681 level taken and held going into the weekend.
The likelihood of such significant upward movement seems unlikely in the dark of early morning, as the dollar has gained some strength and equity index futures are trading moderately lower. The task is even more daunting for the blue-chips, as the DJIA would need to take and hold the 24,905 level.
Targeting a closing of that Monday to Tuesday gap would be more realistic for the Nasdaq Composite than for any of the other broader indices, but even that index that is obviously more weighted toward the information technology sector than the others would still need an upward move of some 45 points. Key to note here is that every single major index trades miles below their individual 50-day simple moving averages.
Thanksgiving evening. My third slice of pie. Trying to make room where there was none. Don't worry, my family uses fat-free whipped cream, so I'll be fine. Even this old sports fan had watched too much football for one day. The kid tried to watch the evening game, but by then there was simply no interest. So, dutifully, your pal checked on business news and the markets.
Apparently, plenty of other folks were also taking a break from pie and football. Those folks, however, were on their cell phones and they were buying stuff, lots of stuff. While photos of crowds waiting on line to enter malls and stand-alone big box retail outlets hit social media, countless others either did not leave the house, or used their phones for comparison shopping purposes while traversing the human masses. You know what this does, right? In my opinion this should create day-trading opportunity in the stock of Amazon (AMZN) .
According to Adobe Analytics, by early Thanksgiving evening (5 p.m. ET), online sales in aggregate were estimated at $1.75 billion (+28.6% y/y), and projected to possibly reach $3.7 billion. As the popularity of e-commerce only seems to expand, these will obviously be records. As this rising tide may lift many retail related boats, Amazon remains the poster child for online shopping, and I don't know about you, but the Amazon platform and Walmart's (WMT) website are always my first two "go-to's" when checking on prices.
As markets have deteriorated in recent weeks, I have found Amazon quite tradeable, offering a way to at least help mitigate losses felt elsewhere. Dangerous? Yes. In fact, I got caught myself Monday into Tuesday, and had to wait until Wednesday to get out of a trade just barely even that I had not intended to hold on to for two days. Such are the times we live in.
That said -- and yes, I still have a core position in this stock that is separate from my active book -- the key here, when trading a name like this extremely short-term, is to keep dollar amounts within one's parameters for risk tolerance. If a trader does not know how much dough they can lose in one sitting, then this trader cannot play this game until that question is answered.
In addition, if one trades around a core position like this, even if that trader already has longer-term target prices and panic points set for the investment, I strongly encourage much more conservative targets and panics for the short-term trade. If this becomes complex for the retail investor, I have no problem answering questions.
Way back when my sons were young, when it came time to shop for birthdays and holidays, I did not mind at all shopping for my children. Having been a kid myself, I knew exactly what kids like me would want under the tree. And my kids are a lot like me. We like sporting goods, history books and video games. With items in those categories in mind, a Dad really couldn't go wrong.
As time passed. my sons turned into men, and the way video games are sold evolved. I am really happy with how my kids turned out. As for the mall-based chain store known as GameStop, the jury may still be out, way out. I would not at this point be at all fired up.
GameStop popped on Wednesday afternoon in contrast to the broader marketplace, after selling off all month long. Why? The firm reached a definitive agreement to sell its Spring Mobile business to Prime Communications. This move, expected to close this year, is in line with the firm's ongoing strategic review. Spring Mobile operates 1289 AT&T (T) wireless locations and will raise $700 million.
What we do know is that video game sales, despite recent choppiness for related equities, posted a seventh consecutive month of gains across all categories in October. The good news? Software sales more than doubled year over year, while hardware and accessories also grew impressively. The conundrum for a firm like GameStop is how to grow their slice of a growing pie, when much larger outlets are willing and able to make these sales without the overhead associated with a physical presence.
GameStop will report the firm's Q3 results next Thursday. Industry expectations are for EPS of $0.57 on revenue of $2.03 billion. The only whisper I have seen is for a slight miss on EPS. There are three items specifically that steer me away from this stock. Most noticeably, the stock trades at just 4.9x forward-looking earnings. The probable cause? Aggregate analyst expectations for this name are for lower revenue for the fiscal year 2020 than for the fiscal year 2019. The analyst community tends to err on the side of optimism -- as you and I both know. This is clearly troubling.
The third glaring sign of caution would be the dividend yield. The firm pays out $1.52 per share annually ($0.38 quarterly). Kids, that is a yield of nearly 11.1%. With earnings due next week, investors would expect a declaration on the dividend to be made with the intent to execute the payout sometime in mid-December. I would expect some shareholder anxiety going into that announcement.
Should the dividend end up changing next week, I would think that the firm will not likely increase the payout. Best case for shareholders would be an announcement that leaves the payout as is. Is that what's best for the firm?
I think the play here might be a simple purchase of one (minimally) $13 put expiring next Friday (November 30). As this purchase would cost the bearish trader $0.54 (last sale), I would prefer to sell a put with a lower strike, creating a bear put spread, thus subsidizing part of the expense.
I just do not see any value in any such bids down below, so this becomes a plain-vanilla options trade. My thought on such an announcement is that the three-times-tested $12 support level may become an issue.
Economics (All Times Eastern)
09:45 - Markit Manufacturing PMI Flash (Nov): Expecting 55.6, Last 55.7.
09:45 - Markit Services PMI Flash (Nov): Expecting 54.8, Last 54.8.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 888.
Today's Earnings Highlight (Consensus EPS Expectations)
Before the Open: (PDCO) (0.37)