Fear steps aside for a 2nd day. Time for some bottom fishing in banks and media and solar. Profit taking in Switzerland and in Consumer Staples. I love hedging trades that win by 100%. A few more covered calls written.
Portfolio News
Market Rally
US Markets continue to push higher off the back of stronger oil prices
Sentiment has got over the nerves of last week and focused back on the numbers the Federal Reserve talked about. The US economy is in good enough shape - the problems are elsewhere - no need to panic just yet. There are enough talking heads reminding investors that an inverted yield curve is not a good leading indicator and it can take time to flow to recession. It looks fine when you look back and avoid all the false signals.
This article quoting Mohamed El-Erian, former bond king at PIMCO suggests that there is unlikely to be a US recession in 2019 or 2020 (provided the Fed does not screw up). [Bold call]. The article also covers a survey of economists increasing the chances of recession in 2019 to 25% from 12% when surveyed in October 2018.
Takeovers
Lynas Corporation (LYC.AX): Australian rare earths explorer collects a hostile takeover offer from Wesfarmers - they reject it and price tumbles back after a 35% spike.
Resource investing ultimately comes down to access to capital. Wesfarmers brings capital and management rejects the offer. Whose interests are they protecting? Their own vested interests is almost always the answer - and the losers are the minority shareholders, like me.
Bought
JP Morgan Chase (JPM): US Bank. Averaged down holdings in one portfolio and topped up to be able to write covered calls. The sliding yield curve is not good for banks. However, JP Morgan has moved a long way from being reliant on net interest margin. With a big IPO season coming up - 200 IPOs are slated in 2019 and talk of a record capital raising surpassing 2000 mania - JP Morgan will earn a swag of fees from that.
Sunpower (SPWR): Solar. Sunpower share price was hammered with dual blows of Trump tariffs on solar panels and withdrawal of subsidies for solar installations in China (probably responding to the US tariffs). My long term view: European Union is making a renewed push on renewable energy. Australia's upcoming Federal election promises a big move too. Solar power is not going away - time to ride out the storm for the long haul. Averaged down entry price in one of my portfolios. Chart is showing some signs of life breaking the weekly downtrend that was triggered by the tariffs.
Sunpower has been one of the biggest losers of US tariffs, as most of their production is outside US. They have acquired facilities for US-based production since. Their estimate is the tariffs cost them $75 million - so much for helping US jobs - it is a US business.
https://www.farmprogress.com/energy/did-trumps-solar-panel-tariffs-help-industry
Is this the best way to participate - the orange line is Invesco Solar Power ETF (TAN), a market capitalisation weighted ETF. Largest holding is First Solar (FSLR) which is largely unaffected by the tariffs. I will come back to revisit the ETF components and pick some more stocks. The ETF has 23% invested in solar farms - also hard hit by tariffs pushing up installation costs.
Just so happens there is a report published today about the impact of all US tariffs. The number is $1.4 billion a month and all passed directly onto consumers in higher prices.
The Walt Disney Company (DIS): US media. Disney completed the acquisition of 21st Century Fox last week. Price is not really reflecting the value of the assets added and also took a dip with the launch of the Apple TV Plus offering. Market seems underwhelmed by the Apple offering - no real reason for Disney to drop. Averaged down entry price in one of my portfolios following Jim Cramer doing that in his Action Plus portfolio.
Sold
Swiss Re Ltd (SREN.VX): Swiss Insurance. Price has been holding above SFr 92 for some time closing at SFr 96.52. Sold December 2021 strike 92 call options for 3.3% blended profit since July 2017/April 2018. In that time Swiss Franc has appreciated against Australian Dollar 3 and 4% respectively effectively doubling the return. I ran out of patience and am holding strike 100 call options in this portfolio. I do still have December 2020 92 strikes in other portfolios.
A quick update on the charts showing this contract (blue rays). Price is clearly on a pink arrow scenario. Implied volatility has increased - explaining profit before the breakeven line.
The pink ray is breakeven for the 100 strike call options. Price will need to make more than one pink arrow move to get there. Good news is there is still quite some time to expiry. One could argue that price is on a green arrow scenario - that works a whole lot better.
Time to review all the contracts I have open and maybe roll them up into 2021.
Consumer Staples Select Sector SPDR ETF (XLP): US Consumer Staples. Sold January 2020 strike 52 call options for 112% profit since May 2018 against closing price of $55.66. I continue to hold this in other portfolios. Quick update on the charts shows price progressing well to 100% profit twice (implied volatility rise did take the closed trade above 100%)
The technical chartists will spot a head and shoulders pattern here with the right shoulder lower than the left = a sign of reversal. We need to see price make a higher high for the reversal to be negated. Going back to TIB240, I set this trade up as a hedging trade. The plan was to exit at 50% profit which was reached in July 2018. I did not and let it run to 100% and all the way back again. The trade now makes even more sense with lower yields and investors looking to be more defensive and seeking out dividend yield. More important for me is the number of times price has respected the support (dotted green line)
A quick update on the thesis using a buy:sell chart with S&P 500. XLP started outperforming in mid 2018 (perfect timing for my trade). One could argue that it is about to start doing that again once we get a lower low confirmed
Uncovered Puts
With quite a few call spread risk reversal trades made over the last few weeks and a number of naked put trades I have quite a large exposure to a market correction. Exposure in that I could be required to buy a lot of stock if the puts are assigned to me. I monitor the portfolio once a week formally - and measure the degree of risk if price is within 30% of the safety range. Table set out below in expiry order.
Key column to focus on is right hand safety now column. If that gets too tight the flag on the right goes RED.
- Tesla (TSLA): This is covered by a long 250 strike put with a later expiry
- Boeing (BA): was looking fine until a Soutwest Airlines (LUV) 737 Max 8 was required to make an emergency landing with engine trouble. Market panicked on an event unrelated to the grounding
- Ensco (ESV): Covered this by buying stock at $4.18. Rising oil prices will push this ahead provided Ensco does not run out of cash.
- General Electric (GE): Margin is wide enough and there is a long time to run for the transformation program to work.
Income Trades
Two new covered calls written
CVS Health Corporation (CVS): US Healthcare. Sold April 2019 strike 62 calls for 0.29% premium (0.26% to purchase price). Closing price $54.95 (lower than last trade). Price needs to move another 12.8% to reach the sold strike (easier than last trade). Should price pass the sold strike I book a 0.5% capital loss. With such a big margin, this trade feels like free money.
WisdomTree Japan SmallCap Dividend ETF (DFJ): Japan Small Caps. Sold April 2019 strike 70 calls for 0.81% premium (1.31% to purchase price). Closing price $67.76 (new trade). Price needs to move another 3.3% to reach the sold strike (new trade). Should price pass the sold strike I book a 65% capital gain. Options market in this ETF is very illiquid - I am the total trading volume and the open interest.
Cryptocurency
Bitcoin (BTCUSD): Price range for the day was $57 (1.5% of the open). Price makes an inside bar and then starts to move higher today.
It looks like it will make a higher high and this will confirm price two days ago as reversal to go higher to have another go at $4037.
Ethereum (ETHUSD): Price range for the day was $3 (2.2% of the high). Price too made an inside bar and propelled forward to make a higher high confirming the reversal away from the $132 support level. We would need to see several up days before being convinced about reaching for $160 resistance.
CryptoBots
Profit Trailer Bot Three closed trades (1.96% profit) bringing the position on the account to 7.07% profit (was 6.99%) (not accounting for open trades).
Dollar Cost Average (DCA) list drops to 3 coins with KNC moving off and onto profit after one level of DCA. I did move XLM off onto PT Defender as it was 5% down.
Pending list rises to 11 coins with XLM added and with 1 coin improving, 2 coins trading flat and 7 worse.
PT Defender increases to defending 11 coins with XLM added. QTUM and KNC have winning defence trades and ZIL is a new trade waiting for a sell.
New Trading Bot Trading out using Crypto Prophecy. No closed trades.
Currency Trades
Outsourced MAM account Actions to Wealth closed out 4 trades on EURJPY, EURUSD, AUDNZD for 0.16% losses for the day. Safe haven trade loses. Trades open on USDCHF, USDJPY, AUDCHF, NZDJPY (0.19% negative) are also all safe haven trades and with high carry costs.
Polish Zloty (EURPLN): Added a new short trade on Polish Zloty - thesis is Poland is growing better than Europe. As the trade is a positive carry trade I am happy to hold multiple positions (the original one is carrying a large positive swap interest).
I am looking for price to continue on the short term downtrend - the thesis is that the horizontal resistance will not be respected this cycle.
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search and CNBC. All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
March 26, 2019