Good Times, Bad Times
In the days of my youth, I was told what it means to trade with a plan.
Now I’ve reached the age, I’ve tried to use those investment tips the best I can. No matter how I try, I find my way to the same old jam…
Good times … bad times. We’ve all had our share. Even with the market in rally mode, some of us just can’t seem to care. But I’m telling you now, this isn’t the same old jam … if such a thing exists anymore.
Yes, November’s jobs data was weak, and U.S. economic data looks sketchy right now. But we can finally see the light at the end of the tunnel. Vaccines are rolling out. A new administration is rolling in — one that’s more likely to push for heavy stimulus spending … to put Main Street on the same recovery path as Wall Street.
And, according to JPMorgan, that market dip Great Stuff has waited for is just around the corner.
Ahhh … the buying opportunity! Finally!
Yes, finally. As JPMorgan puts it, there’s more to come from this bull market. While I’d haggle over calling this a true bull market just yet, arguing semantics at this point isn’t worth it.
The opportunity breakdown goes like this: JPMorgan believes that the “long equities” play is crowded right now … i.e., too many folks are bought in and entrenched in stocks. This leaves the market vulnerable to a correction, which JPMorgan believes will arrive in January.
The depth of this correction remains up in the air, but it will be driven by portfolio rebalancing among momentum traders, mutual funds and pension funds — all of which will see some risk heading into the end of the year.
But, JPMorgan says that the long equity trade is not yet overbought and that a correction would make this situation even more favorable: “Thus any equity correction in the near term would represent a buying opportunity as in our opinion we are only in the middle of the current bull market.”
So, while we’ve already had our good times and bad times … it seems we still haven’t had our share.
The key takeaway here is what Great Stuff has said for a while: A correction needs to happen before we can truly move higher once again to sustainable all-time high territory.
Once the bass drops on this market, it will be time to shift out of our cautious holding pattern and finally put some of that dry powder to work.
Editor’s Note: So … what’s a “less crowded trade?”
Spinoffs, hidden assets, small-cap opportunities, mergers, acquisitions — all types of special situations. These are the same kind of special situations that Wall Street pros have used to make billions.
And now you can have the opportunity to profit from it too! Just ask Wall Street vet Charles Mizrahi — click here to learn more!
The Good: Apple Core! Who’s It For?
Apple (Nasdaq: AAPL) is on the semiconductor warpath again.
According to media reports, the company is developing high-core-count Apple Silicon chips for a new line of high-end Macs.
Apple’s current line-up of in-house chips — the M1 Mac series — only offer four-core variants. But these new chips could have up to 16 cores!
And, as we all know, more cores on a semiconductor mean more processing power and faster computers.
Apple’s M1 line has already won praise for affordability, speed and power consumption. These new chips could seal the deal for in-house production at Apple.
Which begs the question: Apple core, who’s it for?
Who’s your friend?
Intel (Nasdaq: INTC)!
The current “top of the line” Macs all sport high-end Intel processors, but Apple’s latest news all points toward an eventual end to the Apple-Intel tie-up. Man, 2020 has not been Intel’s year at all.
But wait! There’s more…
Apple is also reportedly designing its own graphics processors in-house. Rumors indicate that these graphics chips range from 16- to 128-core designs. Watch out, Nvidia (Nasdaq: NVDA); it seems Apple is gunning for you as well.
AAPL rose just shy of 2% on the news, while INTC fell more than 4%.
The Bad: Buckaroo Bronco
Chalk up another casualty to the COVID-19 crisis. Ford Motor (NYSE: F) delayed the release of its much-anticipated Bronco SUV. At least … I assume it’s “much anticipated.” That’s what the financial media keeps telling me.
Is it wrong that I want a white Bronco to drive around slowly on the interstate? I’ll leave my gloves at home. Promise.
Anyway, Ford pushed the Bronco’s release back from spring to summer 2021, citing pandemic delays at key suppliers. Ford didn’t name those suppliers, however.
The company was supposed to start taking preorders for the Bronco today but pushed the preorder date back to mid-January.
The Bronco was a key part of Morningstar Analyst David Whiston’s bullish outlook on Ford back in October. The SUV, alongside the all-electric Mustang and the new F-150, will drive Ford toward a strong fiscal 2021 … if the U.S. economy doesn’t shut down due to COVID-19 like it did in March.
I won’t say that Whiston’s logic fell apart, but Ford is definitely strained by the pandemic at the moment.
F shares dropped more than 1% on the news before recovering to close off their session lows.
The Ugly: Kodak Moment
Remember back in September when Eastman Kodak (NYSE: KODK) investigated itself and found that it didn’t do anything wrong? You know, with that whole $765 million loan it got to produce pharmaceutical ingredients?
Well, the government agency that approved that deal — the U.S. International Development Finance Corp. (DFC) — just investigated itself. And guess what? It didn’t do anything wrong, either!
All together now in your best Gomer Pyle voice: Surprise, surprise, surprise!
Now, Kodak admitted in September that, while it didn’t do anything wrong, its executives were basically stupid in how they handled the loan announcement. But DFC said that its actions were by the book.
In fact, DFC’s inspector general, Anthony Zakel, found no evidence of conflict of interest nor “any evidence of misconduct on the part of DFC officials.”
Man, September seems so long ago. President Trump was still pushing the antimalarial drug hydroxychloroquine as a COVID-19 treatment back then. Part of Kodak’s production deal was to manufacture ingredients for hydroxychloroquine.
I wonder how all that will play out now…
So, Kodak investigated itself and found no wrongdoing. DFC investigated itself and found no wrongdoing. On a similar note, I investigated myself and found that, despite living in a house with three women, I did not leave the toilet seat up yesterday.
Naturally, investors were suspicious and sent KODK shares lower … just kidding! The stock surged more than 60%, despite any official word on whether or not the $765 million loan was still on the table.
Honestly, this situation is just ugly all around. If you have an appetite for risk, buying KODK puts following today’s rally might not be a bad idea.
How much would you pay for a metric ton of pure cocoa? Asking for a friend.
We’re diving into a seldom-mentioned corner of the market today — the futures market! (Distant shrieking.)
You know how, when you trade options, you have the right but not the obligation to buy or sell such-and-such stock? Yeah … commodity futures are “full obligation.” You’re locked in on that trade and will buy or sell the asset at expiry.
Other than your standard premarket Dow gyrations, we haven’t talked about these “options on crack” since this past June, when we dove into the “slice ‘em dice ‘em” cheese biz. Cheddar prices whizzed higher in what dairy commodities consultants called “the most volatility that we’ve seen in the cheese market ever!”
Now, what’s all this have to do with the price of cocoa in the Ivory Coast?
Well, everything! And thanks for the segue.
Cocoa futures are primed and rising like my blood sugar halfway through a pound of Hershey Kisses. But unlike the typical supply-and-demand factors that pepperjacked up the cheese market in June, this latest futures rally almost sounds like a confectionary concocted con.
Take a look at the past seven months in cocoa-futures prices for our Chart of the Week, courtesy of The Wall Street Journal.
That’s a choc-a-lot of volatility right there.
See that jump in November? Cocoa futures melted up 23% in just three weeks, right after the Halloween low (which, after the mounds of Reese’s wrappers piled up, was truly a low for us all … OK, just me).
When you’re talking about Big Candy, you’re talking about big buys. And Hershey (NYSE: HSY) was practically made for binging on the sweetness.
Cocoa producers from Ghana and the Ivory Coast (which together churn out about 61% of the world’s supply) accused Hershey and Mars of dodging a $400-per-ton surcharge from the region “that aims to lock in better margins for impoverished farmers while cutting down on deforestation and child labor.”
That’s the kind of move I’d expect from Nestlé … but Hershey and Mars? The shame. Hershey even committed $500 million to source all of its cocoa from Ghana and the Ivory Coast by 2025. Gotta recoup some of that cash somewhere, I guess…
So, the futures market it is, as Hershey tried to get its cocoa on the low-low through the New York exchange, which lifted this cocoa “spot price.” Though, on the PR front, the situation is a mixed bag of M&Ms for the surcharge-shirking sultans of sugar.
Mars’ spokeswoman was to the point: “Mars Wrigley categorically disagrees with any allegation that it has changed its cocoa-buying practices to avoid payment of the [living income differential],” she said.
Hershey, understandably, beat around the bush and didn’t comment on the deals directly. Instead, its spokesman highlighted that Hershey does base decisions “on hedging pricing fluctuations in the market and … ensuring sufficient supply to meet our needs well into the future, especially in times of uncertainty.”
Well … yes. That’s what futures are for, Charlie Brown. It’s why major airlines will scoop up oil futures like no one’s business — to hedge against rising oil costs, in a way.
It’s like explaining why you were speeding with “because my car traveled at a velocity greater than the posted limit, officer.” Duh…
The news and supposed scandal made but a lil’ dent in Hershey shares and the choco connoisseurs made up nice-nice with the Ivory Coast.
What do you think? Do you have your eyes on the candy prize … or are you cuckoo for cocoa commodities? Have you heard much about the futures market before? (‘Tis a silly place for “average” investors like us, I have to admit.)
Drop us a line with your thoughts at GreatStuffToday@BanyanHill.com.
Forgetting the sweet tooth for a sec, I know many of you are interested in options, though — aka “futures lite.” There’s never been a better time to play both sides of the volatility pendulum … whichever way it swings today. And if you’re new to options, a simple trading system is key.
Until next time, stay Great!
Editor, Great Stuff