As of 4:21 p.m.

Closing Breadth

S&P 500 Sector ETFs

% Movers

Nasdaq 100 Heat Map

* An active trading sardine today, not an eating sardine day...

At 2:30 p.m. the S&P Index is +14 handles in a day that has been volatile — providing great trading opportunities.

And today I traded actively (and reasonably successfully) — in the Indices.

Over the last three days I featured the deteriorating breadth — and called upon that statistic in justifying an expansion of my short profile.

Here is today's breadth: 

Today's "things":

* I traded back and forth in the Indices' common and calls — too many trades to record here.

* I added to my small  (TSLA)  short as it climbed throughout the day. Covered very small for a loss.

* I added to my  (BA)  long under $151.

* I shorted more  (SBUX)  on a spike toward $99 and covered some on its retreat.

* I shorted more  (BAC)  in the morning, took some in on the dip and I am back shorting now.

* I should have kept my PEP short, too!

For the first time since 2020 Coca-Cola  (KO) , an investment short or ours, recorded lower organic growth (-1%) in Q3 2024 — the first time since 2020. The weakness was broad based geographically.

EPS benefited modestly from a positive mix.

I remain short.

More later.

* Now back net short the Indices...

With S&P cash +9 handles and +20 handles from the day's lows I am back in a net short delta-adjusted position in the Indices — selling the calls short again.

The shares of St. Joe  (JOE)  are down meaningfully (-6%) today.

The proximate cause for this is likely that Bruce Berkowitz has resigned as Chairman of the Board of Directors of the company.

The question becomes what will the Berkowitz controlled Fairholme Fund (Berkowitz's fund) do with the shares of St. Joe?

Will he stand pat, sell the shares outright, distribute the shares to his shareholders, etc.?

I don't have the answer to that!

Last month, on the rally over $60 I took the position down to very small long holding.

Reducing 2 Longs

I am reducing (JOE) $60.61 and (DIS) $94.55 longs — as upside reward vs. downside risk deteriorates.

Position: Long JOE (VS), DIS (S)

By Doug Kass Sep 19, 2024 12:00 PM EDT

The earnings report was in line with my expectations. 

The St. Joe Company Reports Third Quarter and First Nine Months of 2024 Results and Declares a Quarterly Dividend of $0.14 | The St. Joe Company

From Peter Boockvar:

The October US PMI rose a touch from September to 54.3 from 54. Manufacturing remained below 50 but was up at 47.8 from 47.3. Services continue to hold everything up at 55.3 vs 55.2 but keep in mind, this does not include retail for some reason as opposed to the ISM services index which does.

With services, new orders led the strength "fueled by rising domestic demand, which offset a marginal fall in export orders for services." With respect to the labor market, "The decline in service jobs was meanwhile only very modest, and often linked to the non-replacement of leavers rather than layoffs." This matches with what we're seeing in the jobless claims data outside of the two week spike for initial claims.

On the inflation front, "The rate of selling price inflation cooled especially sharply in the service sector, down to its lowest for almost 4 1/2 years." Input prices did ease but still "remained elevated by historical standards" and "well above the pre-pandemic average." Higher wage costs relative to pre Covid are a key reason.

In the manufacturing sector, new orders "fell at a reduced rate" but "the rate of loss of orders remained steep, with weaker than anticipated sales also often having caused an unplanned rise in unsold stock levels." Inventories rose as a result. Employment fell but "the drop in headcounts was smaller than reported in September."

With prices, they fell and "input cost growth fell to a 7 month low, attributed to lower fuel prices, reduced buying and competition among suppliers."

Also of note for both, "confidence in the longer, year ahead, outlook has improved as companies hope that a stabler post election environment is more conducive to growth. This is especially so in the manufacturing sector, where factories hope that the current soft patch in production and sales will reverse as the uncertainty caused by the political environment passes." We hope as well.

Bottom line, we're now about 2 years into this manufacturing recession with the inventory rebuild and lift in end demand still elusive but as read above, hopes are things are bottoming out. We'll see. On the services side, again, this doesn't include the retail sector which is a huge part of the US economy and I'm not sure why it is not included. We know retail is very mixed depending on which customer one is selling to.

New home sales totaled 738k in September, 18k more than expected and vs 709k in the month before, though revised down by 7k. The drop in mortgage rates in the month likely helped. Sales in the South drove about all of the upside and m/o/m gains. Prices are very volatile because mix is a huge driver. They were up 3.7% sequentially and 1.2% y/o/y. Months' supply was 7.6 months vs 7.9 in August and 7.6 in July.

Bottom line, we know the market needs more new build inventory to fill the dearth of existing homes on the market but a lot of it is coming from the bigger builders as they take share from the smaller ones. Also, builders have the ability to discount via mortgage buydowns and other incentives that existing homeowners don't have outside of just price. Also, with homes still expensive relative to one's income, the more volatile moves in mortgage rates are very likely impacting the timing of sales more so than ever.

On the whoosh lower I added back Index common —  (SPY)  at $577.23 and  (QQQ)  at $489.99.

I also took in the short Index calls I sold with the market higher in the morning.

I am now delta equivalent neutral in the Indices — I have a buy write on for November.

Volume

- NYSE volume 10% below its one-month average

- NASDAQ volume 13% above its one-month average

Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

More on Tesla  (TSLA)

* At $248 I am now medium sized short:

I have a research call between 10:45 and 11:30 a.m.

Radio silence.

Banks rolling over in a sea of green.

A market signpost?

I added to  (BAC)  and  (JPM)  shorts today.

With S&P cash -15 handles, I am adding to my short Index calls.

I added to  (SBUX)  short at $98.83

From Peter Boockvar:

Claims data

Off the mostly hurricane influenced lift in initial jobless claims in the prior two weeks, they fell back to 227k for the week ended 10/19, 15k below expectations and compares with 242k last week, 260k in the week before that and 225k before then. The 4 week average was 239k vs 237k last week.

Offsetting the still benign pace of firing's as measured here, and notwithstanding the two week jump, is the continued elevated level of continuing claims which rose to 1.897mm, up 28k w/o/w and that is the most since November 2021.

Bottom line, just as we have many mixed and uneven economic signals in terms of business activity, we also have them in the labor market with firing's modest but hiring's are as well.

On the opening I added (small) to my short Index calls.

douglas cassel

10 minutes ago

Doug K. The details of the Tesla story aside, can you give us some specifics of how you expect to manage a trade that goes against you? Although my analysis is usually less detailed than yours, I still have instances where I feel I am correct, but the market feels otherwise. Do you have strict stop limits(percentages, total amount), or do you go by feel when the losses mount? Are you willing to ride the trade for a long time, or do you stop after a given period? I guess your degree of conviction matters, but do you use strict rules or "feel"? Do you have rules about when to hedge, or do you hedge routinely?

In general, I find managing such loser trades among the most difficult part of my trading discipline, and any input will be helpful.

DK

Dougie Kass

STAFF

Good question

Shorts should be viewed as far more risky than longs (as discussed endlessly over the last two plus decades)

Most should not short anything.

Most should not short high beta stocks like TSLA in particular.

Answers:

I size the position properly - ie. very small

I tend to wait to add until EPS are announced (and stay very small), assess their quality (etc) and respond (now I am building up the short based on quality of EPS, accouting, etc)

I funnel, shorting on scales.

I have no strict stops but sizing is a stop so to speak

I have learned to respect the trajectory of cult stocks like TESLA so I even size smaller

I trade around core short - aggressively

Charts from 8:14 a.m. ET:

Upside:

-MNDR +19% (earnings)

-QS +17% (earnings, guidance)

-FREY +11% (selected by EUIF for €122M grant award to develop JV's Cathode Active Material manufacturing project in Finland)

-MOH +11% (earnings, guidance)

-WISA +10% (Data Vault Holdings Unveils DVHolo: A Next-Generation Hologram Product Suite Powered by ADIO in Partnership with HYPERVSN)

-CLS +9.8% (earnings, guidance)

-SDRL +8.9% (Transocean said to discuss merger with Seadrill)

-LC +7.8% (earnings, guidance)

-UPS +7.3% (earnings, guidance)

-LRCX +6.2% (earnings, guidance)

-ACIC +5.7% (estimates Q3 cat losses from Debby and Helene at ~$3.8M)

-OSIS +5.5% (earnings, guidance)

-TER +5.3% (earnings, guidance)

-VKTX +5.3% (earnings)

-PEGA +5.1% (earnings)

-LNN +5.0% (earnings, guidance)

-MGX +4.7% (presents Novel, Highly Specific and Efficient Adenine Base Editors for Broad Genome Editing at ESGCT)

-KKR +4.4% (earnings)

-MAT +4.3% (earnings, guidance)

-VC +3.3% (earnings, guidance)

-WHR +3.1% (earnings, guidance)

-RIG +2.9% (Transocean said to discuss merger with Seadrill)

-PASG +2.8% (presents Preclinical and Interim Clinical Data for PBFT02 in FTD-GRN at the European Society of Gene & Cell Therapy (ESGCT) 31st Annual Conference)

-ADT +2.6% (earnings, guidance)

-TMUS +2.4% (earnings, guidance)

-LH +2.3% (earnings, guidance)

Downside:

-NNE -11% (pricing of upsized $36M underwritten offering at $17/shr)

-CYH -8.8% (earnings, guidance)

-NTLA -7.2% (presents results from the Phase 2 Study of NTLA-2002, an Investigational In Vivo CRISPR Gene Editing Treatment for Hereditary Angioedema (HAE))

-CARR -5.4% (earnings, guidance)

-SLM -4.5% (earnings, guidance)

-NEM -4.4% (earnings, guidance)

-IBM -4.2% (earnings, guidance)

-BA -3.9% (striking workers reject deal proposal)

-UNP -3.1% (earnings, guidance)

-GGG -3.0% (earnings, guidance)

-ROL -3.0% (earnings)

-HON -2.7% (earnings, guidance)

-HOG -2.6% (earnings, guidance)

-ORLY -2.5% (earnings, guidance)

-HAS -2.1% (earnings, guidance)

Chart from 8:30 a.m.:

Spiegel on Tesla  (TSLA) ::

From Peter Boockvar:

The BoC/PMIs/Wash, rinse, repeat with yen/A bunch of interesting earnings comments

Yes, the Bank of Canada cut rates by 50 bps yesterday as expected to 3.75% but its 10 yr yield today is at the highest level since late July at 3.26%. Their reasoning for stepping up the cuts, "With inflation now back around the 2% target, Governing Council decided to reduce the policy rate by 50 bps to support economic growth and keep inflation close to the middle of the 1% to 3% range." And what comes next? "If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further." But, "We will take decisions one meeting at a time." It's the Canadian dollar that has mostly reflected the BoC dovishness with it trading at the weakest level vs the US dollar since early August.

It's going to be really interesting from here where long rates go not just in Canada but also around the world as central banks cut short term rates. In terms of messaging, does the long end believe the central banks are right in believing that inflation will stay down or instead they are stoking a resumption of a lift? Are the excessive global sovereign debt levels now mattering? I still expect a lot of inflation volatility in coming years and think that the overload of government debt now does matter (see gold) and long rates are still heading higher in fits and starts.

Today starts to bring us October PMI data from S&P Global. Japan's composite index fell back under 50 at 49.4 with manufacturing falling to 49 from 49.7 and services down to 49.3 from 53.1. S&P Global said "Firms often attributed the deterioration to a muted economy and subdued new order flows." Australia's was little changed at 49.8 vs 49.6 with both components little changed with manufacturing at 46.6 and services at 50.6.

The bright spot around the world continues to be India with manufacturing at 57.4 and services at 57.9.

The October Eurozone PMI didn't move much at 49.7 vs 49.6 in September as expected with continued weakness in manufacturing and relative strength in services. S&P Global said "The Eurozone is stuck in a bit of a rut, with the economy contracting marginally for the 2nd month running...At the country level, it can be noted that the deterioration of the situation in France was met by a slight moderation in the decline in Germany."

While the ECB continues to cut and likely wants to again in December, "Inflation in the services sector seems likely to stay elevated, as costs and selling prices in October rose faster than the previous month. This is probably due to persistent wage pressure, which impacts service providers especially hard."

After the recent selling, European yields are dropping, but not sure if in response to the data which was about in line or after a modest rally in Asian bond markets. US yields are down too after the 10 yr touched 4.25% yesterday. I mentioned the other day that 4.30% is the key level to watch as it's the 50% retracement of the moved to 3.60% from 5% last year.

The UK PMI held above 50 at 51.7 but down from 52.6 in the month before. It's economy is outperforming its regional peers. We do await the Keir Starmer budget and the uncertainty over taxes is impacting sentiment.

Wash, rinse, repeat when it comes to the yen? It strengthens when the BoJ gets relatively hawkish and makes a policy move and then immediately weakens when there is no follow through which is then followed by government jawboning. With it trading above 150 again vs the US dollar, the Japanese Finance Minster today said "We are seeing one-sided, rapid moves...We will closely monitor the foreign exchange market with a stronger sense of urgency, including watching for speculative trading."

Also helping the yen was the Governor Ueda comments yesterday at an IMF event where he still seems to want to hike rates again, though still hemming and hawing about the timing. He said "When there's huge uncertainty, you usually want to proceed cautiously and gradually. But a problem here is, if you proceed very, very gradually and create the expectation that rates are going to stay at low levels for a very long period, this could lead to a buildup of huge speculative positions, which could become a problem later." I say, the BoJ is already guilty of that exact worry.

A lot of earnings to go through.

From Hilton:

The company cited "softer than expected RevPAR performance" with 1.4% y/o/y RevPAR growth, "below our guidance range due to slower ramp in September following Labor Day, weather impacts, unfavorable calendar shifts, and ongoing labor disputes in the US."

In terms of breakdown in business, "Business transient RevPAR increased 2% with growth across both large corporates and small and medium sized businesses. Leisure trends continue to normalize, with RevPAR declining modestly from post pandemic peaks. Group RevPAR rose more than 5% y/o/y, led by strong demand for both corporate and social meetings and events."

They are seeing a lift though this month. "Weekday pace for October is tracking up more than 300 bps vs September's weekday pace, driven by solid business transient performance and group strength."

From Winnebago whose stock was down more than 10% yesterday:

"while the retail environment remains challenging in the short term, we anticipate gradual market improvement over the next 12 to 15 months." They place this hope on "projected easing of interest rates and decreased inventory levels in the motorhome RV category."

With guidance, "In light of the continued market uncertainty, we are being appropriately cautious out of the gate."

On their marine side (they own Chris Craft), "revenue was down in the 4th quarter primarily due to product mix and a decline in unit volume related to market conditions and dealer destocking, partially offset by targeted price increases."

Overall, "So at this time, I cannot point to a significant material impact in retail volume nor wholesale volume solely related to the move by the Fed here recently. Concerning your question about recent retail activity, my only comment there would be that retail continues to be challenging. Sluggish would even be probably the right word in a comp y/o/y context. And we have not seen a meaningful change in overall retail conditions since the end of our fiscal year, including the open house period in late September."

From Coca Cola, a stock we own, and a trip around the world:

"In North America, we generated robust top line growth...Consumers are responding well to sharper value messaging in away from home channels, and we're continuing to drive affordable premium packages across our total beverage portfolio to realize positive mix."

"In Latin America, volume was flat during the quarter as we cycled strong growth in the prior year."

"In EMEA, we saw improved performance in Europe and strong growth across many parts of Africa. The performance in Eurasia, Middle East and North Africa unfavorably impacted overall results."

"In Asia Pacific, despite weakness in China and a couple of markets in Southeast Asia, we grew organic revenue and comparable operating income."

In terms of the overall case volume that was a bit light relative to expectations, "July was the bump, and things improved in August through September."

On the US consumer, "there's a set of consumers exhibiting value seeking behavior. Whether they're looking for combo deals when they're away from home, particularly quick service restaurants, whether they're looking for getting lower price point purchases of beverages, whether that's a smaller pack size or a smaller number of packs in a multi pack...But there's just this. There's also strong purchasing power in other segments of the marketplace, which is somewhat self-setting. I mean, witness the strong momentum, for example, in Fairlife."

Not surprisingly, Blackstone Mortgage REIT is all bulled up with the Fed now cutting rates, notwithstanding the rise in long rates:

"Third quarter brought the long anticipated commencement of the rate cut cycle in the US. Across major developed markets, short rates are coming down, driven by cooling inflation. At the same time, economic indicators remain strong, supporting the prospect of a soft landing. For real estate, the combination of lower rates and a more benign outlook has created an inflection point in the cycle. Liquidity has returned to the market, normalizing cost of capital and bringing transaction activity off the sidelines. Real estate valuations have bottomed, with three consecutive quarters of increasing values. And with new supply down 40% to 75% across major sectors, longer term tailwinds are in place."

That last sentence is the precursor to eventually higher rents I say.

Bullish on China remains Las Vegas Sands, a stock we own, as they certainly have put their money where their mouth is. "We believe the Chinese economy will grow and flourish in the future. It remains steadfast and the Macao market will grow along with it. I believe that Macao market gross gaming revenues will exceed $30 billion in 2025 and grow from there." They have about half the market share in Macao. The retail side, particularly top end retail "has struggled" though in Macao. Their Singapore business on the retail side is doing better, along with having the most profitable casino in the world in Marina Bay Sands. They unveiled plans yesterday to build another in Singapore.

From Kering: "The quarter was challenging marked by a worsening macro backdrop weighing on consumer sentiment. This translated into persistently weak traffic."

From O'Reilly Automotive, the aftermarket retailer:

"Our comparable store sales increased 1.5% in the third quarter, as we faced broad based consumer pressures and a soft demand environment on both the professional and DIY sides of our business."

From Tesla:

Elon Musk started the call by pointing out that they are the only ones making money selling EVs "despite a very challenging automotive environment." And, we are still on track to deliver more affordable models starting in the first half of 2025."

And what does he expect for 2025? "I do want to give some rough estimate, which is I think it's 20% to 30% vehicle growth next year. You know, notwithstanding negative external events, like if there's some portion, mature events like some big war breaks out or interest rates go sky high or something like that, then we can't overcome massive force majeure events. But I think with our lower cost vehicles with the advent of autonomy, something like 20% to 30% growth next year is my base case."

Finally on what I'm going to cover here with respect to the flood of earnings which is overwhelming me, from IBM:

Their consulting business is where the soft spot is, "we continue to navigate an uncertain macro environment with results at the lower end of our expectations."

Here was their overall view of the macro, "Technology spending remains strong. Businesses view technology as a source of competitive advantage, allowing them to scale operations, improve productivity, and drive growth. However, a pause in discretionary spending is impacting our consulting business. This is due to economic uncertainty, which stems from several temporary factors, including geopolitical issues, upcoming elections, and the changing landscape of interest rates and inflation levels."

Shifting to stock market sentiment, it was a mixed bag w/o/w. The 'professional' newsletter writer surveyed in Investors Intelligence saw Bulls rise to 58.3 from 57.6 and Bears fell to 21.7 from 22. Getting closer to that extreme 40 pt spread. That's the highest Bull read since July and those expecting a Correction is near the lowest since June. Assume this is as of Friday. The more fickle AAII individual investor survey, likely through yesterday, was more subdued. Bulls fell 7.8 pts to 37.7 and that is the least since late May while Bears rose by 4.5 pts to 29.9, the most in 6 weeks. After touching 78 a few weeks ago, in the Extreme Greed area, the CNN Fear/Greed index closed yesterday at 62, in Greed vs a close of 70 one week ago.

Bottom line, with the mixed signals we're kind of in no man's land overall but quite a divergence between the two surveys measuring the mood.

I added to  (BA) under $151 after the rejection of the strike caused a drop in the shares.

The sharp drop in cost per vehicle is even more questionable as the more expensive Cybertruck was included in the mix this quarter.

After the prior disappointing quarters, Musk likely knew that everyone was keying on the margins in the auto business so he had every incentive to make the numbers work out.

All this and yet sales were slightly below expectations, the robotaxi event was a bust and Musk’s promise of a $25,000 car was abandoned. He desperately needed something positive.

I am accelerating my shorting over $242.

I believe that Musk’s claim that Tesla  (TSLA)  really cut costs as much as he says is spurious.

I think the company is playing with the depreciation account.

2Q PPE was $32,902M plus capex of $3,513M in 3Q equals $36,415M.

When one subtracts depreciation amortization and impairment of $1,348M this equals what you would expect 3Q quarter end PPE to be of $35,067M.

Yet reported PPE after the quarter was $36,116M, which is $1,049M HIGHER THAN $35,067.

This increase in the 2Q, using the same methodology, was much less. PPE was only $575M higher than the calculation compared to the $1,049M shown above.

Again, using the same methodology, in the first quarter PPE was only $184M higher than the calculation shown above.

Bottom Line

It is my view that Tesla is spending cash but calling it an asset and capitalizing it in PPE rather than expensing it.

In addition, the free cash flow increase is almost completely accounted for by the slowdown in the payment of incurred liabilities. AP rose by $1.6B in the quarter and accrued liabilities rose by almost $1B ($985 million to be exact!) Together this is $2.6 billion of the claimed $2.7 billion positive cash flow.

This is a highly suspicious pattern and that the company allowed only two positive analysts on the call to me... is telling.

I am expanding my short position above $240 now.

From my pal Larry:

This is a valuable resource for momentum-based short-term traders:

From JPMorgan:

US: Futures are higher with Tech leading, highlighted by TSLA's +10.9% rally after its bullish earnings release. Bond yields are lower and USD is weaker; 2-, 5-, 10-year yields are 3bp, 5bp, 5bp lower. Commodities, including oil, metals and Ags, are mostly higher: Oil +1.9%, Silver +1.8%, Aluminum +1.8%. Overnight, NVDA supplier SK Hynix posted record profit amid strong AI demand; NVDA +1.0%. BA fell 2.7% as its bid to end strikes fails.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, markets experienced a tech-led selloff, beginning with VRT’s order growth disappointment. For equities, the major near-term headwind is the continuous upward momentum in yields: despite a dovish tone from the Beige Book and housing data, 2y and 10y were still up 5bp and 4bp yesterday, respectively. Rates volatility also remain elevated as the MOVE index hit the highest level YTD on Tuesday. Treasury term premium continues to trend higher and is now back towards 2023 peak. The combination of higher yields, geopolitical/election risks, mixed earnings results so far and some nervousness ahead of Mag 7 earnings next week contributed to another risk-off move today.

Today, the key data point will be PMIs, along with another busy earnings calendar (including HON, KKR, SPGI, UNP, UPS). Feroli expects PMI-Mfg to print 47.5 vs. 47.3 prior and PMI-Srvcs to print 55.0 vs. 55.2 prior, both in line with the Street. Feroli does not expect many changes to the September report as regional surveys so far have produced mixed signals. If we see a material upside surprise (i.e., PMI-Mfg moves back above 50, or PMI-Srvcs above 56), there is room for markets to price a more hawkish path for the Fed. The continuous path higher in yields and elevated rates volatility may keep pressuring equities in the near-term. However, as we will enter the Mag 7 earnings next week, fundamental robustness and earnings strength should be back to the spotlight, particularly if we see some stabilization in yields. Overnight, NVDA supplier SK Hynix posted record profit amid strong AI demand. Positive outlooks from TSMC and SK Hynix earnings may suggest increasing signs of robust NVDA print (Nov 21).

I have sold  (SPY)  at $580.44 and  (QQQ)  at $492.12 in premarket trading (common).

“Trust the trend lines, not the headlines.”

- Bill Clinton

Bonus — Here are some great links:

Fewer Than 20% of Stocks Rise-Is That Bad? 

S&P Equal Weight vs. Cap Weight

Octoberphobia Strikes Again ('Jazzy' Jeff Hirsch)

* Of a Tesla kind...

Dougie Kass

12 hours ago

Shorting more TSLA now.

$233.27 cost basis

Dougie Kass

9 hours ago

adding at $239