To taper or not to taper?
That is the question the Fed will answer today, in the second to last meeting of 2021 (Dec 15th is last), so it's possible they will kick the can down the road again as GDP was a disappointing 2% but the market is at record highs and inflation is not only NOT transitory, but it's accelerating.
During his last meeting with Congress, Elizabeth Warren made it very clear to Jerome Powell that she was coming for his job if he didn't cut the crap and start doing something that favored the savers instead of the bankers. Just how much money would you be making if you could borrow people's money (which is what a bank does when you make a deposit) for 0.5% and then leverage it 10 TIMES (thank you Fed) and lend it to others at 3% (mortgage rates) KNOWING that the Government will bail you out if the mortgages fail? So that's 10x 3% is 30% and 10 x 0.5% (origination fees) is 5% is 35% back on their 0.5% loans. No wonder banks have record profits.
Speaking of record profits – our Oil (/CL) shorts just hit $82 for a $5,680 gain and $82 is certainly going to be bouncy and, since we fell from $85 (not quite), per our fabulous 5% Rule™: 20% of a $3 fall is 0.60 so $82.60 is going to be a weak bounce and $83.20 is the strong bounce line and, with inventories coming at 10:30 – it's not worth risking those gains.
The API Report showed a 2M barrel build in Oil and tomorrow, OPEC+ is expected to follow through with a scheduled 400,000 barrel/day increase in production – despite the lackluster demand. Oil shouldn't be at $80, let alone $85 and I still think we see the $70s again in the next week or two. After that, they'll bump us for Thanksgiving but then we can short it again. We set these shorting lines in last week's Live Trading Webinar (replay available here). There will be another one for our Members at 1pm, EST today where we'll have a chance to review today's EIA Report while we wait for the Fed Decision (2pm) and Powell's press conference after.
Speaking of the 5% Rule™, the S&P 500's next line is 4,610 and we're over that for the moment but it needs to hold (without failing) it for a couple of weeks before we capitulate and start looking at higher ranges. This critical test is coming during earnings season, which is good as we're getting a real-time valuation for the index:
Meanwhile, we're still expecting a pullback, at least for the run from 4,390 to 4,610 so 120 points up means 20% retraces of 24 points to 4,586 (weak) and 4,562 (strong) so with the S&P Futures (/ES) at 4,620 this morning – I like taking a speculative short here – with tight stops above – ahead of the Fed meeting where some people are bound to get nervous during the day.
We'll see how that goes and we'll see what the Fed decides this afternoon. Until then, nothing matters – other than BBBY being up 30% after making a deal with Kroger (KR), which is no big deal but sent the stock flying on the announcement. This will likely lead to other team-ups (like in superhero movies).
We do like BBBY and we're sorry we missed the chance to get back in as you could have bought the whole company for $1Bn last week. It was a Long-Term Portfolio pick and a Top Trade Alert from April, 2020 – congratulations to all who played (we cashed out early):
- Baird checks in on Bed Bath & Beyond (BBBY +17.2%) after the retailer's earnings reporte.
- "While we believe BBBY has enough liquidity to survive this downturn, the unprecedented demand shock adds another layer of complexity to what is already a difficult turnaround process,' reads the firm's update.
- Q2 and Q3 are seen dropping 5% to 20% from last year's levels.
- Barid keeps a Neutral rating in place and lowers its price target to $5 from $10 to reflect reduced EPS estimates.
- Previously: Bed Bath & Beyond +13% after slight sales beat (April 15)
Very tempting down here! I think, for the LTP, we may as well pick up the 50 of the BBBY 2022 $3 ($3.55)/10 ($1.45) bull call spreads at $2.05 ($10,250) and sell 20 of the 2022 $5 puts for $2.62 ($5,240) for a net $5,010 entry on the $35,000 spread so $29,990 (598%) upside potential if BBBY can get back to $10 in 20 months.
