Author Archives: Scalper1

Tesla Stock, Lifted By The Model 3 Launch, Hit By Model X Recall

Tesla Motors ( TSLA ) stock powered up in morning trading Monday in the afterglow of its Model 3 launch, then took a hit as a new Model X recall came to light. Tesla rose as much as 3.6% in the stock market today , then dipped and fluctuated in the afternoon, closing down 0.1% at 249.92 as the major stock indexes also edged down. Tesla stock is 14% off a Sept. 14 all-time high of 291.42. Tesla has climbed to an IBD Composite Rating of 61 out of a possible 99 and the stock is building the right side of a long, deep base — though Tesla’s string of quarterly losses is weighing its Composite Rating down. Tesla’s CR leads automakers, with Fiat Chrysler ( FCAU ) next at a 56, Ford ( F ) with a 53, General Motors ( GM ) with a 47 and China electric-car maker Kandi Technologies Group ( KNDI ) with a 46. Model X Recall Tesla said Monday that the recliner in a third-row Model X seat unexpectedly slipped in a seat-test strength test. Tesla issued a voluntary recall of 2,700 Model X vehicles, according to a Bloomberg report citing an email to affected customers . “Until the recall is performed, you may make full use of your Model X, although we ask that you temporarily not have anyone sit in the third-row seats while the car is in use,” Bloomberg reported the email as saying. The Model X crossover started shipping to customers in September. Recalls are pretty common. Carmakers issued 30 of them covering 6.9 million vehicles industrywide in February, the latest month tracked, according to a March research note by Stifel analyst James Albertine. Tesla’s still a startup, under the microscope for production quality and for how any recalls could potentially impact its necessarily large production ramp-up plans. Model 3 Launch Tesla’s first week of fully refundable $1,000 Model 3 reservations topped 325,000 , the company said early Thursday, saying that it would be “increasing Model 3 production plans.” Tesla noted that if all those reservations result in a sale, the batch would be worth $14 billion in revenue. Deliveries are scheduled to start in late 2017. In a research note April 1, Albertine said that his $325 long-term target price on Tesla stock “is predicated on a model assuming 200,000 units produced annually in 2020, which is substantially lower than TSLA’s guidance for 500,000 units annually. The initial Model 3 reservations reduce our concerns with respect to achieving management’s guidance at some point in the next 5-7 years, but given the complexity associated with vehicle manufacturing and the fact that TSLA has little incentive (besides investor appetite for delivery growth and GAAP profitability) to accelerate production at the expense of quality, protecting against the risk of a major recall.” How Soon Can Tesla Build 325,000 Model 3 Cars?

Facebook Stock Breaches 50-Day Support Amid Usage Fears, F8 Show

Loading the player… Facebook ( FB ) fell in quick turnover for a second session in a row amid concerns that users are not sharing as many personal posts. The Information reported last week that Facebook saw a 21% drop in original posts from mid-2014 to mid-2015, and that it is working to correct that decline. Meanwhile, privately held social media competitor Snapchat is all about personal shares. Facebook-owned Instagram is also a hub for personal posts. The social media giant has indicated that it’s just the type of sharing that has changed on its main platform, not the level of sharing. Facebook’s annual F8 developer conference begins tomorrow, where chatbots are expected to be a hot topic. That could open a new revenue stream for businesses looking to interact with their customers on a social platform. But tech giants still have a lot to learn when it comes to chatbots. Microsoft ’s ( MSFT ) experiment with teen chatbot Tay quickly went south. Facebook shares dropped 1.5%, breaching support at the 50-day line. A drop below the 50-day moving average in heavy volume is an especially bearish sign, but this move was in slightly above average trade. Shares are trading 7% below a cup-with-handle base buy point of 117.09. Microsoft is trading 4% below its late-December high and a consolidation buy point at 56.95, which is 10 cents above the high. The stock fell 0.2% Monday. Facebook last week rolled out its Live platform globally, with expanded features — edging into Twitter ’s ( TWTR ) realm, which includes its Periscope live streaming platform. Twitter is still searching for positive catalysts to revive its shares. Last week, it signed a pact with the NFL to live stream 10 Thursday Night Football games. Twitter is in an extended downtrend, trading 68% below its 52-week high. The stock dipped 0.8% Monday. Among other widely held tech stocks, Google owner Alphabet ( GOOGL ) is working on a cup-with-handle base with a 777.41 buy point. It’s trading 3% below that level, falling 0.3% Monday. And Apple ( AAPL ) tried to retake the 110 price level, but pared its gains to close up 0.3%. Apple is nearing its downward sloping 200-day line, but its recent attempts to retake that level have failed. Apple stock is 18% below its late-April peak. Image provided by Shutterstock .

Negative Rates Could Send S&P 500 To 925 If Not Eliminated

Unless the world’s central banks take immediate action to rid the world of the insidious NIRPs and negative interest rates, the likely outcome will be that all of the world’s income-producing assets will have to undergo significant markdowns. Should the yields of U.S. Treasury debt securities become negative, a meltdown of the global banking system and a crash of global markets might be inescapable. Should that happen the S&P 500 could potentially decline by more than 50% from its most recent 2,045 to 925. My calculation is based on what the S&P 500’s dividend yield was on March 9, 2009. The yen’s appreciation against all of the world’s major currencies since the bank of Japan instituted its negative interest rate policy (NIRP) on January 31, 2016 is signaling that a crash of the world’s markets could soon begin. After observing the most volatility that I had seen in my 40 years in the markets in early 2016, I conducted research on the crash of 2008. This led to my developing the NIRP Crash Indicator, which is powered by metrics that could have been utilized to predict the crash of 2008 and its V-shaped reversal. Throughout the month of March, the NIRP Crash Indicator’s signal remained a Cautionary Yellow. At the close of April 1, 2016 – the day the S&P 500 and Dow 30 closed at their highs for 2016 – the signal was elevated to Pre-Crash Orange. During the week ended April 8, volatility of the markets returned to February 2016 levels, with all of the major global market indices closing down by more than 1%. Following are reports that I have produced covering the negative rates crisis: The best solution to stop the spreading of NIRPs and negative interest rates is for central banks of the world to immediately enact or redact policies to abolish them. This would be the catalyst for the yields of the sovereign securities of Japan and Germany becoming positive. In the absence of this happening, a possible remedy to fight the NIRP and negative interest rate contagion could be the resetting of valuations of all income-producing assets to a discount in the marketplace as compared to their most recent valuations. The decline in valuations of income-producing assets would result in a significant increase in their yields. The yields increasing to sufficient levels should motivate safe haven and other investors to liquidate their holdings in negative- and low-yielding sovereign debt securities to purchase the less secure and much higher-yielding income-producing assets. The availability of significantly higher yields on income-producing assets would, hopefully, discourage safe haven and other savvy investors from “being fearful”, and encourage them to “become greedy”. With significant declines in the values of all less secured income-producing assets, and resultant increase in their yields, market forces would take over. The result would be that markets would drive down prices of treasuries and other sovereign debt securities, and their yields upward into substantial positive territory. Upon yields of the world’s sovereign debt securities skyrocketing, the demand for and prices of negative and low interest rate securities will collapse. The need for central banks to utilize NIRPs will have been completely exhausted. Case Study: American Electric Power versus 10-Year U.S. Treasury Note: To prove my theory and validate my suggested remedy, I conducted research on the share price and dividend yield behavior of the public utility company, American Electric Power (NYSE: AEP ), before and after the crash of 2008. I also focused my research on the price action and yields of 10-Year U.S. Treasury bonds over the same period. My focus was on a utility company because shares of a utility have always been considered the safest form of equity investments. If a utility bill is not paid, the electricity is turned off. For this reason, a utility’s dividend payments are reliable. Thus, the dividends of a utility company are much more secure than are dividends of any non-utility company. During the Great Depression, AEP was able to maintain and increase cash dividends. For these reasons, it is assumed that the yield for shares owned of a utility will always be lower than the yield that one might expect to receive from shares they hold of a dividend-paying, non-utility company. The shares of American Electric Power is a good example of a safe income-producing asset that could potentially motivate a holder of negative or extremely low interest rate sovereign securities to liquidate them to purchase its shares. With a current annual dividend of $2.24, and a most recent share price of $67.00, AEP has a yield of 3.39%. Based on how AEP’s yield and share price behaved before and after the crash of 2008, an increase of its yield to 10% would likely be sufficient to motivate a holder of low or negative interest rate sovereign securities to buy its shares. A decline in AEP’s shares by approximately $45, or by 66%, to a share price of $22 would increase its dividend yield to 10%. Should such a scenario unfold, it would be very similar to what happened to AEP’s share price and yield before and after the crash of 2008. The chart below graphically illustrates the share price and dividend yields of AEP over the last 10 years. On July 31, 2008, AEP’s share price was $27.84, and its annual dividend yield was 5.9%. From the end of July 2008 to March 9, 2009 – the same date that the S&P 500 Index (the Index) bottomed – AEP’s share price declined by almost $10 (or by 36%) to a 5-year low of $17.73 and to an equivalent dividend yield of 9.2%. Over the same period, the price of a 10-year U.S. Treasury note increased by 33%, and the yield fell from 4% to 3%. In June of 2009, three months after AEP’s share price had bottomed, the price of AEP’s shares had increased by 21% and its yield had fallen to 7.6%. Over the same three months, the price of the 10-year Treasury bond declined by 25% and its yield had gone back to the 4% from which it started a year earlier. Based on the opposite behavior of yields, the price action of AEP’s shares, and the 10-year Treasury notes from July of 2008 through June of 2009, it is very likely that holders of the notes were selling them to purchase shares of AEP and other high-yielding utility companies. See CNBC’s historical yields chart for 10-Year U.S. Treasury notes. My research confirms that holders of Treasuries and sovereign debt securities will sell them for less secure income-paying securities upon the yields increasing substantially. On April 8, 2016, the dividend yield for the S&P 500 – based on its close of 2,045 – was 2.1%. Under the assumption that the dividend yield of the Index would have to increase to 4.7%, which was the S&P 500’s yield when it hit bottom on March 9, 2009, the index would have to decline to 925 (based on its annual dividend rate of $43.00 on 12/31/15). The video below titled, “Why Negative Rates could send the S&P 500 to 925”, covers the content of this article, including AEP and the S&P 500. It also provides the rationale as to why I believe the final solution to rid the world of negative rates would require a significant mark-down of most of the world’s non-sovereign income producing assets. There are two concerns or questions that I have about whether or not 925 will be the final bottom for the S&P 500 should a significant markdown of non-sovereign income producing assets occur. The first is that I doubt the yield of 4.7% will be high enough to coax safe-haven investors out of their sovereign bond bunkers. Had the Obama administration not injected massive and immediate fiscal stimulus into the economy as soon as the new President was inaugurated, the S&P 500 would have probably fallen to a much lower level. It speaks volumes that American Electric Power and other utility companies had dividends yielding in excess of 9% at the March 2009 market bottom. After all, why would any red-blooded, dividend-seeking investor want to hold shares in a non-utility company having a dividend yield that is at a 50% discount to a utility? My other concern, or question is, “Will the S&P 500 be able to maintain its dividend rate?” Uncertainty within the energy industry, and the resultant recent volatility in the price of oil will make this more difficult. Also, a sudden and significant decline for the S&P 500 to even near 1,000 would likely induce a U.S. recession. Because many of the world’s economies are either in – or close to entering – a recession, a decline of the S&P to much lower than 925 could be the catalyst for the world entering its first economic depression since the 1930s. In 1930, a year after the crash of 1929, the S&P 500’s dividend rate went to an all-time high. By 1935, the index’s dividend declined by 44%. The S&P 500’s dividend rate did not eclipse its 1930 high until 1955. For the world’s safe-haven investors to liquidate their sovereign debt holdings will likely require that the yields on less secure income-producing assets, including the dividend paying S&P 500 and utility companies, increase to at least 10%. The world is much more financially fragile in 2016 than it was in 2009. The debt of the U.S. has doubled since 2008 from $10 trillion to $20 trillion. The world’s central banks have taken drastic actions to prop up their economies… to no avail. Until the negative interest rates are totally eliminated, investors will remain fearful. Based on my 40 years of experience, I predict that double-digit cash flow returns will be the minimum threshold required for savvy and conservative investors to no longer be fearful. Assuming that all of the world’s central banks that have instituted NIRPs do not repeal them, the issue would become how the resets of the world’s income-producing equity and non-sovereign debt markets – required to exterminate the NIRPs and negative interest rates – might take form? Will it be a swift crash, or a gradual correction? Based on my experience, it is not likely that the markdown will be from a cliff-dive. The correction would most likely occur with valuations of the markets ratcheting downward in stages. Markets would not likely bottom until late 2017, or early 2018 for two reasons, as follows: A correction of more than 40% from a market’s all-time high to its trough has historically taken time. There have been five such corrections over the last 100 years, as follows: 1919 to 1921, 1929 to 1932, 1973 to 1974, 2000 to 2002, and 2007 to 2009. (The four corrections, prior to the one ending in 2009, lasted at least 24 months.) Had massive fiscal and monetary stimulus not been applied in October of 2008, after Lehman filed for bankruptcy, this most recent correction would likely have lasted at least 24 months. If the dividend yield of the S&P 500 Index should go from a most recent 2% to 10% to kill the NIRPs and negative interest rates, the peak-to-trough decline of the Index would be 80%. The only other time over the last 100 years in the U.S. that a decline of more than 50% occurred was from 1929 through 1932. After the market had declined by an initial 40% in October of 1929, the market experienced six powerful rallies that generated trough-to-peak rallies providing returns ranging from 20% to 50%. When the market finally bottomed in the middle of 1932, it had declined by 90% from its 1929 all-time high. I would expect no less drama from a secular bear market that was likely birthed after the market hit an all-time high in May of 2015. The most important issue remaining is that of timing, and when the S&P 500 Index will begin to ratchet downward to new multi-year lows that could eventually take the Index to well below 1,000 by late 2017 or early 2018. The latest significant developments are the NIRP Crash Indicator going to an Orange Pre-Crash reading on April 1, 2016, and the heightened volatility that followed for the Japanese yen and all of the world’s major stock indices for the week ended April 8, 2016. They have increased the probability that the mark-down of the world’s income-producing assets will begin in 2016. Assuming that the renewed volatility proves temporary, there will be plenty of reasons for the market to have an excuse to go to new lows between now and the end of 2016. Extreme controversy surrounding NIRPs and negative interest rates will continue to escalate. Because NIRPs were created by the world’s central banks and bankers who have obtained rockstar status, the next downturn to lower lows will likely be fueled by public statements that will be made by central bankers about NIRPs, negative rates, stimulus, currencies and the health of economies, etc. From April through December of 2016, each of the world’s three leading central banks have six scheduled public policy meetings. The most probable outcome will be that the S&P 500 and the indices for the other global markets will hit new multi-year lows during some or all of the months the meetings are scheduled. Schedule of Remaining Policy Meetings of Central Banks for 2016 European Central Bank (ECB) Bank of Japan (BOJ) U.S. Federal Reserve (FOMC) April 21, 2016 April 28, 2016 April 27, 2016 June 2, 2016 June 16, 2016 June 16, 2016 July 21, 2016 July 29, 2016 July 27, 2016 September 8, 2016 September 21, 2016 September 21, 2016 October 20, 2016 November 1, 2016 November 2, 2016 December 8, 2016 December 20, 2016 December 14, 2016 Based on my analysis, I am recommending that the shares of the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) and the shares of its components be sold at their current prices. The shares of the companies that I am recommending be sold include NextEra Energy (NYSE: NEE ), Duke Energy (NYSE: DUK ), Southern (NYSE: SO ), Dominion Resources (NYSE: D ), American Electric Power, Exelon (NYSE: EXC ), PG&E (NYSE: PCG ), PPL (NYSE: PPL ), Sempra Energy (NYSE: SRE ) and Edison International (NYSE: EIX ). The share prices of the XLU and its components have increased by an average of 10% since the beginning of 2016 as a result of investors seeking shelter from the market’s extreme volatility. Investors have bid up the share prices of most utility companies to all-time highs since the start of 2016. Unfortunately, when the mark-downs begin, shares of utility companies will decline significantly along with all other non-sovereign income producing assets. Utility companies and related mutual funds, and ETFs should be sold, and should not be repurchased until negative interest rates have been eliminated. Sell Recommendations for Utilities and ETFs Utility/ETF Symbol Price @ 04/08/16 Utilities Sector SPDR XLU $48.85 Duke Energy DUK 79.77 NextEra Energy NEE 116.81 Southern SO 50.73 Dominion Resources D 73.04 American Electric Power AEP 66.01 Exelon EXC 34.70 PG&E PCG 59.30 PPL PPL 37.40 Sempra Energy SRE 104.24 Edison International EIX 70.69 Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.