Advantage Point Newsletter - January 9th, 2018
• This Week's Trade Ideas:
Bullish Ideas: Merck and Co. Inc. > MRK > $57.00 Last. Buy the Jan. 26th 56 Calls for $1.80 or less with a close or anticipated close above $57.45 in an up market with expectations for continued strength in the major indices and IBB.
Bullish Mentions: None at this time.
Bearish Ideas: None at this time. The Great Global Melt-Up Mania Mode hasn’t subsided in the least.
Bearish Mentions: None at this time.
• Market Overview:
Paying more and more for stocks each day is all the rage. Despite things being historically awful for the “median American”, the stocks market is trying to “One Up” 1999! With all the games that go on these days, we’d be surprised if the corporate types lay an egg with Q4 earnings announcements which will flood the tape soon enough.
• Below the Radar:
Like many, we know that things are elevated but we also know that won’t matter until it does, and things could become even more elevated for longer than nearly anyone would guess! Keep that in mind as you read the balance of BTR…
• Options Academy:
The “stocking up” on out-of-the-money puts timing question comes up at times like these. Times when folks sense that the markets have become extreme. It’s a great idea to act on when trading a professional account but it can eat you alive otherwise. We’re on the record as to saying, “wait for some sign”, before doing it.
Another Year, Another Relentless Buying Streak - “Get your Great Melt-Up here!”
The Trade(s):
We strongly suggest attending tomorrow morning's Advantage Point Morning Call for full details with respect to these idea(s), last week’s and options education.
NOTE: Very slim offerings in the markets at present. Too many stocks have moved up and away on the bull side while it seems to early to go bear, especially with economic and earnings reports due out.
Bullish Ideas: Merck and Co. Inc. > MRK > $57.00 Last. Buy the Jan. 26th 56 Calls for $1.80 or less with a close or anticipated close above $57.45 in an up market with expectations for continued strength in the major indices and IBB.
Bullish Mentions: None at this time.
Bearish Ideas: None at this time. The Great Global Melt-Up Mania Mode hasn’t subsided in the least.
Bearish Mentions: None at this time.
Outlook:
The Great Global Melt-Up we sensed was unfolding continues unabated. We expect any and all economic reports to be “bullish”. We expect any and all earnings reports to be “bullish”. We expect guidance to be “bullish”. We expect historic levels of optimism to be “bullish”. This may be the first time in recorded stock market history that “everyone” was right! Things are excessive but there’s no sign of any technical weakness that would suggest to us it is time to pick a fight with this raging bull!
Technicals:
Will be discussed in-depth in the Advantage Point Morning Call webinar.
Fundamentals:
These trade idea(s) and mentions are technically-driven.
(Editor's note: This trade idea may be updated periodically, in keeping with market conditions. It is intended solely for educational purposes.)
Recap of Last Week:
Fortunately, last week we were nearly all bull save for a few complete-waste-of-time at-the-ready-bearish mentions!
Both official bullish ideas and another recent bullish idea we’re still tracking all moved up somewhat and, as we write, continue to try do so.
WLL and SYMC are above their triggers and with a little more push could be onto something! Prior idea, INFY, is FINALLY on the verge of entering a clearance zone and hopefully will, which could result in a turbo-effect kicking in for a much larger move.
Bullish mentions, GILD, VRX, and AMGN have all moved up nicely or to some degree. CELG did initially as well but has subsequently fallen off to a little below where we find out last Tuesday.
Bearish mentions UN/UL never had a chance at Melt-Up Fest 2018. They’re just about where we found them much the same as many other bearish mentions we’ve kept at the ready (for no reason at all it’s turned out!) What’s a preferably balanced long/short bull/bear to do in this elevated market? 😊
Remember, all recent and otherwise bearish mentions are there if and only if major market selling manifests itself for the first time since…no one can remember! If you want to take a flyer on one or two or more to balance out your holdings without the major market experiencing issues, that’s always your call. However, we’d suggest using puts in that case! 😉
Reminder: We’ll cover any prior ideas or mentions by request in this week’s webinar.
This week, our “Outlook” above is our overview! Well, almost! 😉
The Great Melt-Up we sensed continues unabated. We expect any and all economic reports to be “bullish”. We expect any and all earnings reports to be “bullish”. We expect guidance to be “bullish”. We expect historic levels of optimism to be “bullish”. This may be the first time in recorded stock market history that “everyone” was right! Things are excessive but there’s no sign of any technical weakness that would suggest to us it is time to pick a fight with this raging bull!
Paying more and more for stocks each day is all the rage. Despite things being historically awful for the “median American”, the stocks market is trying to “One Up” 1999! With all the games that go on these days, we’d be surprised if the corporate types lay an egg with Q4 earnings announcements which will flood the tape soon enough. With prices so high it would seem that stocks could be hit should earnings disappoint but now that we’re officially in a Melt-Up Mania Mode, even lackluster results may not be enough to take stock prices lower. We’ll just have to wait and see.
The “little room left” to the upside in the charts of major indices is mostly used up at this point! We’re only 5 full trading days in to 2018 and that’s how strong the “jam-job” has been! (SPYs above). We still believe that there should be significant overhead resistance in the major indices as we see that on all our bigger picture charts but as we’ve noted many times, that resistance may be swept away too as there are “no rules” or laws that can’t be broken, especially by this FED and this market! Even FAANG, which potentially had technical issues, dispensed with them quickly and forcefully! Fortunately, we know not to read too much into end-of-year light trade! Behold that ramp-job:
The FAANG gang held support just where they needed to and then sliced through resistance like it was butter!
Record after record continues to be made in nearly all major indices and in the FAANG mini-basket. The gang is also falling in love with many other stocks as well. They can’t get enough of them! The bottom line is that we must continue to “just go with the flow” until the flow changes!
There were just a few items out there again this week that we could seize upon. As noted last week, the early part of the year tends to be an optimistic time but even more so than “normal times”, if they still exist. The few meaty articles we came across focused on the wonderous times we live in and how > 20% annual stock market returns will be the new normal. That’s entirely possible in our view as things have been so detached and over-gamed for so long that few would notice how historically “unreal” that outcome would be in comparison to most of recorded US stock market history. If interest rates are kept absurdly low and the central banks continue to inject liquidity into the system and companies continue to buy back shares, not hire workers or pay existing workers more, and get away with sketchy accounting, all things are possible!
Like many, we know that things are elevated but we also know that won’t matter until it does, and things could become even more elevated for longer than nearly anyone would guess! Keep that in mind as you read the balance of BTR…
If you’re interested in economic musings from the son of John Kenneth Galbraith with respect to the state of things:
He’s not celebrating. It’s not our take but we’re in agreement with respect to the consumer and ever-expanding debt that’s needed to keep the party going:
Pardon James Galbraith if he sits out the celebration of Dow 25,000.
University of Texas economist Galbraith, the son of the famous Harvard economist John Kenneth Galbraith, believes mainstream economists and the Federal Reserve are too wedded to old ideas to see what is really going on in the economy. Specifically, Galbraith is worried that the consumer is the only game in town — and that can’t last.
We added the highlights above because we’re on board with that! The stock market masking or leaving regular folks behind has been one of our concerns since “Day 1” in the AP Newsletter. So here we go again on that subject as we let out a sigh:
Median Family Net Worth Under 1989 Level: Debt-to-Money Worst Since 62
As the stock market soars to new highs, here's some sobering statistics to consider.
The stock market is at an all-time high but Americans Owe More, Save Less, and are Poorer Than in Decades.
Negative Wealth Percentage On the Rise
So…there’s the picture on the Main Street side of the tracks. Here’s what’s happening on the other side, the Wall St. side of the tracks. The juggernaut cares not. This “wilding spree” is like few others:
The globally coordinated asset inflation melt-up is working like a charm!
How insane has it gotten in early 2018?:
"Stocks are surging and signs of receding skepticism are everywhere. Broker clients are adding stocks hand over fist. Price targets meant to last a year, last days."
That quote, is from this piece which is a must for perspective:
As are these graphics and snippets:
For those that would like to read up on why picking a fight too early with this monster might not be a good idea, Enjoy:https://www.sovereignman.com/investing/the-day-i-found-out-it-was-all-rigged-22811/
To put things in perspective, the average Price/Earnings ratio across the companies in the S&P 500 Index is now 26.36.
If you flip that number around, it means that the current profits of the average company in the S&P 500 are just 3.8% of its share price.
That’s pretty pitiful; it suggests that investors are paying way too much for shares, and receiving far too little profit in return.
Historically, today’s level is nearly 70% more expensive than the S&P 500’s long-term average Price/Earnings ratio.
And the only other times in history that it’s consistently been this high were just prior to the 2008 crash, the 2000 crash, and the 1929 crash.
The story is the same looking at other indicators.
The Cyclically-Adjusted Price/Earnings Ratio (or CAPE ratio) which adjusts earnings for inflation over a 10-year business cycle, is now 33.27, more than DOUBLE its long-term average.
In fact, it’s only ever been higher ONCE in history– during the dot-com bubble in the late 1990s.
The S&P 500’s average ratio of Price to Book Value is 25% higher than its long-term average. And the average Price-to-Sales ratio across the S&P 500 has never been higher… EVER.
Bank and Roll like an Early 2000 Nasdaq Player Should Have!
OA is very brief this week!
We will cover this in next week’s AP Morning Call Webinar.
The “stocking up” on out-of-the-money puts timing question comes up at times like these. Times when folks sense that the markets have become extreme. It’s a great idea to act on when trading a professional account but it can eat you alive otherwise. We’re on the record as to saying, “wait for some sign”, before doing it. For now, we just want to show how “vertical” this market has gotten and to suggest that folks wait for some technical sign before jumping in. We prefer the OTM Put Calendar as well. More on this when health issues permit next week!
If you have questions, ask away in this week's Advantage Point Morning Call webinar.