This Isn't A Brag, Making Money Today Was Too Easy

by

Summary

If you followed me and didn’t run to value stocks you made the bulk of your gains this week on tech. In fact, I made nearly all of my weekly gains today. Sure I am in the red in some spec trades like my Expedia (EXPE) position, which I started buying way too high at 86, thank goodness I stayed with my discipline on starting very small and buying down. I am still underwater but, nearly everything else is either flat or getting fairly ripe for harvesting.

Either I am a genius, (assure you I am decidedly not), or we are about to have a big whoopsie.

I have often said and you have experienced this too, that the market seems to be diabolical. As soon as it seems that trading is like taking candy from a baby (what monster would do such a thing) it becomes a massacre.

You have often heard about the “pain trade” that means the direction that “hurts” the most is the way to go. For several weeks all you heard was that the pain trade was higher. In other words, you had to really face your fears and buy the market. The moment you get complacent in the direction of a market like this, that is when you need to get worried. Logically as you know, I have been against this level, and every time I expressed that bearish sentiment in a trade I’ve been skinned alive. Now, everyone is expecting the market to continue higher. President Trump was all bark against China, stuck to procedural details, and mostly harrumphing, so naturally, the market turned and ran way higher.

Well, going long today wasn’t painful at all.

So many tech names went from red to green. I would ask you to continue to generate cash by trimming a few shares of each older position. If you initiate new positions make sure that they are smaller than to amount you are returning to cash. Charge yourself a “broker fee” for each new trade and bank that amount away from your trading account. Every discount broker gives you a checking account. Sequester your cash hoard there, so you are not tempted to reuse that number until there is a significant sell off to buy into.

I am not calling for Armageddon, it’s very unlikely at this point.

I am saying this because according to a number of market commentators that I trust the estimate of cash on the sidelines is between $2 and $6 TRILLION dollars. A big chunk of this cash was removed from the stock market in February and March and it is looking for a moment to get back in. We also have the Fed, and they are buying every bond that isn’t nailed down. The entities they are buying these instruments from, have to reallocate that cash somewhere and with zero interest rates, the place to put these funds into is the stock market. So this is not a correction level of 10%, more likely a 2%-3% dip. However, if you are dancing on the edge like the typical trader 2% to 3% is gonna leave a mark. So be smart and generate some cash, and sell calls against your positions over 100 shares.

What will hurt the markets? Right now it’s probably China.

The easiest step is letting the legislative branch promulgate the rules that will oblige the exchanges to dump Chinese stocks.

I was shocked to see Alibaba (BABA) jump today as if the call for the elimination of Chinese stocks through rule-making is a benign development. Granted BABA might actually squeak by somehow in proving that it isn’t beholden to the Chinese Communist Party or that its books are totally compliant to FASB and Sarbanes-Oxley. Certainly, there is a whole host of Chinese companies that have no business to be on a US exchange. Exhibit A is Luckin Coffee. I clipped this quote:

China’s Luckin Coffee Inflated Sales With Firms Linked to Chairman The Wall Street Journal has published an investigative report on Chinese Starbucks rival Luckin Coffee. The newspaper said Luckin fabricated hundreds of millions of dollars in sales through companies affiliated with Luckin’s chairman, citing internal documents. Luckin’s employees also created fake transactions using fictitious customers attached to cell phone numbers. Some of the money was returned in the form of payments to suppliers linked to the chairman. The newspaper said Luckin was able to create a closed-loop of transactions that allowed it to inflate sales and expenses by recycling capital that moved in and out of its accounts.

My Take: the hutzpah of just blatantly manufacturing revenue belies a sense of entitlement to rip off US stock exchanges that is shocking. I assure you, this is not an isolated case. Just like when you find one cockroach you know there are thousands lurking ‘neath every crevice of your home. There are scores of rip-off Chinese companies that have floated stocks here and thought they could get away with it, and they knew that the CCP would shield them. It’s disgusting.

Dump Twitter (TWTR) and buy Snapchat (SNAP) and Pinterest (PINS).

Consider this a “pairs trade” though I really don’t expect you to short TWTR. My thesis is very simple, tweaking President Donald Trump by singling out his tweets may earn Jack Dorsey invitations in Hollywood, but it will invite all kinds of trouble for TWTR. Jack probably doesn’t care since he is moving to Africa, or maybe he is busying himself with Square (SQ) instead. What Jack either doesn’t understand or care about is that there is a bipartisan dislike for TWTR in the halls of Congress. Contrast that with PINS and SNAP and there is no issue. Not only do they not have regulatory issues, they are growing their DAU and revenue. Both have demographics that should continue to have appeal to marketers, with SNAP having a very young and otherwise hard-to-reach audience, and PINS appeals to individuals that like to create collections of cool stuff. That cool stuff is often branded items that others might want to buy. PINS is a unique e-commerce property, and SNAP is a clean marketing environment as opposed to TWTR that has a bunch of grumpy people who want to just yell at each other. I know I am oversimplifying, and in fact, TWTR has a lot going for it. If only its CEO had some real skin in the game and would do what is necessary to make TWTR a success. I was as interested in TWTR as I was with SNAP and PINS. I regret that now. Stay away from TWTR until this matter is resolved. As far as Facebook (FB) and Alphabet (GOOG, GOOGL) they have the heft to weather this storm, TWTR does not.

My Trades: I am long PINS and SNAP, I am decidedly NOT long TWTR. I am happily long Draft Kings (DKNG) in Call, I rolled them from 30 to 35 and now to 40. I rolled the short calls to 43. I have been adding to my VTIQ warrants and am excited about the news next week. I am stuck in EXPE but I want to develop this name over a few weeks so I'll just grin and bear it. (no pun intended)

Let me reiterate...

I am not calling for an imminent crash of the market. I have no reason to think so, other than we have been smashing through resistance. At some point, we are going to hit a pocket and that will get the ball rolling in the other direction for a short while. Better to sell some inventory now when it is easy then to do it while everyone else is running for the door. Just take it from an old hand, if trading starts feeling like easy money, you watch out!

Disclosure: I am/we are long EXPE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long PINS,, I have long CALLs in SNAP, and DKNG in CALL spreads