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Trading the Trend

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I don't want to derail Duc's thread so I will not post anymore on this theme after this post.

Your belief that China has never been a superpower is incorrect.

Here is a 1 minute video clip of the Chinese treasure ships from the Ming dynasty, perhaps the ships weren't as big as claimed, but they were significant and many:

 



Looks like tech's back on the menu boys!


I told you to wait until this week frog
 
Summary:



The issue is: will globalisation recede to such a point as to impede the TREND.

Currently we have:

(i) Pandemic;
(ii) Protectionism;
(iii) Nationalism;
(iv) Disinflation (but not deflation), financial panic;
(v) Advances in technology;
(vi) War

The conclusion is that (i) - (iv) and (vi) are currently of a mild type. They are not sufficient currently to derail the trend higher and ignite a true Bear Market. Are there issues? Of course.

jog on
duc
 
For the overall market:



There is always rotation within sectors. Hot becomes cooler, cold warms up. Individual names will always follow their own narratives, but they are also always caught up eventually in their sectors. Possibly they re-invent. If not, their sector's fundamentals catch up over time.

jog on
duc
 
duc: globalisation is coming to an end. the bretton-woods system is being dismantled. we are in the great transition.

Also, here's how the market closed last night:

 
over9k said:
duc:
1. globalisation is coming to an end.
2. the bretton-woods system is being dismantled.
3. we are in the great transition.
Click to expand...

1. And you have evidenced this how?
2. Well that ended August 1971, so not exactly burning news.
3. Transition from what to where?

jog on
duc
 
Banks...

Major banks kicked off second-quarter earnings season last week. Results, with the exception of Wells Fargo, were far better than expected. The result of big positive earnings surprises? Investors sold bank stocks, extending year-to-date losses.

Confused Wall Street denizens should blame the accountants. New rules are making it difficult for investors to understand how good bank earnings have been in pandemic-affected 2020.

Last past week, JPMorgan Chase (ticker: JPM), Bank of America (BAC) and Citigroup (C) beat consensus quarterly earnings estimates by almost 50%. It was a good quarter versus expectations. JPMorgan shares gained 0.6% in response. Bank of America and Citigroup shares fell 2.7% and 3.9%, respectively. What’s more, those three stocks are down 2.3% on average over the past week.

Wells Fargo (WFC) missed second-quarter earnings estimates. Its stock fell the most in response to earnings, dropping 4.6%. Wells Fargo shares are down 3.3% over the past week.

The Dow Jones Industrial Average and S&P 500, for comparison are up 2% and 2.6%, respectively, over the past week.

It seems as if investors punished bank stocks unfairly, but the big four banks earned just $5 billion in second-quarter pretax income, compared with roughly $34 billion in the second quarter of 2019. That’s a huge negative swing.

Earnings appear to have cratered, but that is only part of the story. Loan-loss provisions totaled $33 billion for the big-four in the second quarter of 2020. The provision for potentially faulty loans in the second quarter of 2019 was less than $5 billion.



The weak economy isn’t responsible for the $28 billion swing. New accounting rules mandate banks estimate, and recognize as an expense, all the losses they expect from loans the day loans are made. In the past, loan-loss recognition was far less aggressive.

The new rule is called “current expected credit losses methodology,” or CECL. It is pronounced like the name Cecil.

If accounting rules hadn’t changed, the big-four banks would have made roughly $28 billion in second-quarter pretax income—still lower than $34 billion earned in 2019. Would it have made a difference to the stocks? That, of course, is the million-dollar question. The big-four back stocks are down about 39% year to date, on average, worse than comparable returns of the S&P and Dow.

The economy, the pandemic and low interest rates are all reasons investors have avoided the sector. It is hard to pin everything on CECL. Investors may have to wait to see what the reaction is to bank loan-loss provisions in an improving economy to see how much the accounting change affected bank stocks in 2020.

When things are looking better and loans are repaid at a better clip than originally estimated, it is possible banks will have negative expenses—which is just like income—to make all the accounting math work. If stocks rise when that happens, the accounting regulators really are to blame for 2020 weakness.

jog on
duc

“[Accounting] reserves are reduced in two cases, most notably when the loans are actually charged off,” accounting expert Robert Willens said. When loans actually go bad, they don’t hit the income statement twice. The reconciliation happens on the balance sheet after the provision is made. “Beyond that, if the reserves prove to be too high, it is entirely possible that they could be undone.” Undoing reserves is, essentially, adding income earned in prior periods.

The goal of the new accounting rule, of course, is increased conservatism, which is usually a good thing for investors. But, apparently, it will take some getting used to.

 
Just looking at TSLA Options.



With 4 days to expiry and earnings on Wednesday (so 2 day remaining after earnings) and an IV of 180. Wow. Time to sell some Calls into earnings.



So these are 'kinda' in reach if there were blow-out earnings.

These however:



$2,100 for $20/contract.......really?



So TSLA would need to rise $500 by Friday. Even then the IV crush is going to be brutal. I could probably close out the next day and pocket close to 50% of the profit. TSLA will need some pretty out there guidance going forward to move to $2,100 on just earnings.

There is however this risk:



Really that should make no difference at all. However, with all the new crop of daytraders out of Robinhood etc, who don't actually know that it makes no difference, do they bid it up thinking that it will make a difference?

Normally I would offset by also selling PUTS. However, a bad miss, poor guidance and this stock could easily fall $500. The MMs would really take the opportunity to punish the stock to get it as low as possible for institutions wanting in at lower prices.

If I sell 100, I'll pocket just below 1/4M. for essentially 3 days holding.

I'll sleep on it and see what tomorrow brings.

jog on
duc
 
There's about 20 billion in shorts against tesla at the moment duc, it's an all time record.

I don't know the composition, but still...


I suspect some (anticipated) pretty epic earnings are priced in. And yes, I was talking about it becoming an index stock soon if it keeps running the way it is.

At asking price you need to crack what, 1810 before expiry to be in the green? And it's already at 1643 with earnings out in a couple of days? With the fact that everything else except virus data has been far better than expected for months, so tbh, I don't see why tesla isn't going to be as well.

The question is how much of that is priced in already. Unlike all my other tech, tesla didn't nosedive as everyone took profits last week & the couple of days preceding it. It just kept running.

edit: oh you want to sell some calls. derp.
 
Last edited:
The chart:



And last earnings 29 April (traded 30 April) the 1-day range was +/- $100. So $500 on a 3 day timeframe is possible, but it's still a bit of a stretch.

Still thinking.

jog on
duc
 
You'd be betting against 20 billion in shorts if you expect it to rally. Even though everything's reported better than anticipated lately (like, absolutely everything, earnings data, employment, everything except virus numbers), it kept running over the last 6-7 days when even my stay at home tech nosedived as everyone took profits into earnings season.

And you're absolutely right about the robinhooders etc. I suspect all the money in shorts is coming from institutions expecting to absolutely give it to them once it flips to the downside, but I'm only guessing.

Logic and sense have long since departed here.
 


If I'm selling CALLS, I want the price to either (a) decline or (b) not reach $1,200 by Friday.

jog on
duc
 
Er, yes?

We were talking about expectations, not desires.

Like I said, it kept running even last week when everything went south. So either it's in defiance of all the other activity, or it's in for a hell of a correction.

It probably IS due for a correction, but as for when is another question. I would have thought it had had it already, but nope.
 
This is what I was talking about RE: stay-at-home-tech duc:


Though I'd replace small & large with online vs in person.
 
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