Here is the transcript to this week’s Thursday Special Live Q&A chat. Join me next Wednesday at 2pm EST at https://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.
Hey everybody, just a reminder to register for my Money Show presentation in NYC on February 18 at 10:30am. https://secure.moneyshow.com/msc/nyot/registration.asp?sid=NYOT14&scode=034422 We’re going to have a TradingWithCody luncheon after my presentation. Make sure you actually use the link above to register though, so they know you came from me.
Howdy folks, let’s buckle up and go for a ride.
Q. When in the market going to have a 10% selloff? Seriously any guesses? Do you expect weakness during earning season? Sooner, later, or ???
A. Feet to fire, I would guess that late January or early February brings out some panic selling over who-knows-what and you’ll get your 5-10% pullback. And think about it right now — it WILL NOT be easy to buy into the next panic sell off.
Q. Cody, if you have the time, just a the-way-the-market-works question: who determines how far out puts and calls are made available? For instance, so far only out to June ’14 for IEF, but way out for TQNT? is it someone’s blind assessment as to where there’s a market for such?
A. The big sellside brokers like GS and even the littler brokers out there try to gauge demand for various options at various prices and various dates and then try to supply them.
Q. Saludo, the IEF puts we were buying around 105 did great and now I am looking at the IEF options and we can only go out until June ’14 ..what would you consider at this time? If anything, associated with the coming rise in interest rates by the FED? thanks! take care.
A. Yes, I’m about to roll my January $IEF puts out to June. I’ll be selling the last of our $105 strike January puts and will roll the price down to a $95 and100 strikes.
Q. First of all, let me be one of the many to say CONGRATS on your soon-to-be new daughter (boy is YOUR life going to change!) and THANKS for the Scutify opportunity. Just a couple of months ago, I jokingly suggested you let us get in at the ground floor — and it looks like you’ve come through. Best of luck to you.
A. Thanks to you and everybody else for all the kind words about my soon-to-be daughter. Believe it or not, your asking about letting TradingWithCody subscribers in on the Scutify opportunity at truly ground floor here stuck in my head and helped me come up with this idea, I’m sure. Thanks!
No better way to thank me than to get me shares at, say, 50cents?
Q. And, now, me. (sorry, screwed up on the typing) But I Do have a question: it’s about APOL (of course). I was way up (shorted it at $32.60), now ahead only 5% or so. Has your pessimism changed? Advice: Add to my short at this level…or bail?
A. My analysis about Apollo didn’t change one iota, and I still think that stock is doomed over the next five to ten years as their taxpayer-based model truly fractures as rates go higher and the government loses the ability to fund their little slush companies like Apollo. That said, the lemming Wall Street analysts did indeed puke up their sell ratings to neutral with explanations like this: “In a report published Wednesday, Compass Point analyst Michael Tarken upgraded Apollo Education Group (NASDAQ: APOL) from Sell to Neutral, raising its price target to $30.00 from $20.00. According to the report, the upgrade and price target rise followed APOL posting a second consecutive quarterly beat driven by lower than expected expenses. “We continue to expect top-line pressure for the foreseeable future driven by a mix of recruiting and regulatory challenges, but at this point, we believe the company’s capital and expense flexibility, combined with a reasonable valuation, warrant a more neutral view,” the report noted. “In addition, expectations for new start growth already remain low, and while we do expect pricing power to remain constrained, the company is more restricted from cutting tuition meaningfully given its elevated 90/10 ratio. Over the longer term, we continue to expect increasing competition from both traditional and non-traditional players will step up and impede the company’s forward growth rates, but for now, that should have less of an impact over the next 12 months.”
Q. Thanks for your ability to punctuate the fluff in corporate speak and analyst ratings. (Sell to Neutral ain’t that big!) So I’m now still sharing your pessimism. APOL is about 55 of my current portfolio. Putting it all together, might I want to add to my short position a bit?
A. APOL is 55 or 5% of your portfolio?
Ops- 5%
5% in a short position in this bubble blowing bull market is on the aggressive side of things for most any trader, in my opinion. In a bear market, I wouldn’t hesitate to have a 5% short position, but as you know, I’ve been betting on this ongoing bubble-blowing bull market since I came back to trading in 2010.
Thanks for the insight — the 5% “grew” to that with, for the moment, my pulling out of some stuff (gains and losses) year-end and then actually pulling cash out of my “stock basket.” So it seems bigger than it essentially has been.
Your explanation of how APOL got to 5% underscores how smartly you are getting the big picture of managing your money. Rock on.
Thanks, However, note there were losses included! Pandora and GDX ain’t on my here list these days. Hero list, that is. The dreaded APPL, too. But, feet to fire, having little daughters is where it’s at — so YOU rock on.
There will always be some losses. As I always remind you guys, the whole goal of investing/trading is have more winners than losers and to minimize the pain of the losses and maximize the gains of the wins.
Q. Just joking. I understand that about losses, even if sometimes kinda bigger than expected. Let me also ask, back on IEF puts: since I’ve essentially done what I can with June $96 strikes, are there any other good plays on the expected rate rise (maybe further out)?
A. Let me work on other higher-rate plays.
Q. Although the rate on the 10 year is below 3% now at 2.974, do you think a spike above 3% initially can spook the market and lead to a pullback?
A. I think that the market’s likely to ignore an arbitrary threshold of 3% in the 10-year but I do think the mainstream media might try to hype such an event up or something. I sent in a prediction to my old friend Jordan Kahn’s decade-old informal poll of money managers for my feet-to-fire expectations for the S&P 500 and the Treasury at the end of 2014 of “S%P: 2200 10-yr: 4.0%”
Q. Cody, would you rather be long or short Apple before earnings on Jan. 27? Jeff
A. Would rather be long than short AAPL common and/or AAPL call options before January 27 earnings. I’m holding my long-held AAPL common position steady for now personally though.
Q. Hi Cody. Maybe a naive question, but if everyone and their mother “knows” that APPL is going to have a smashing quarterly earnings report, why all the negative movement in the stock? Do you see this reversing before January 18 expirations? Is this recent downdraft related to January 18th at all in your opinion?
A. Not a naive question at all, and anybody who pretends they have an actual, factual answer for you on that question is lying. The market gives us opportunities to buy and to sell with its near-term moves and I am likely to take a little stab at some AAPL calls before the earnings report, but I will know ahead of time that any call options I buy will, as always, be a gamble that the market agrees with my trade before they expire.
Q. Cody – congratulations on your baby girl! and thank you for the Scutify shares – very cool! What are your thoughts on NFLX after the downgrade?
A. Netflix is so wildly valued at this time and has had such a huge move up over the last few years that while I still maintain an eventual $1000 price target on NFLX sometime before this latest stock market bubble truly pops, it’s not something I would want to either buy nor short right now at $350-$400.
Q. What are your thoughts on the upcoming IPO of Alibaba? Does 2014 look like a very good year for Chinese stocks?
A. I just wrote up a whole column full of analysis about what I think of China stocks and the best trading idea that I see right now for China stocks – A tale of two China stocks. Long story short (so to speak) is I suggest buying BIDU and shorting NQ as a pair trade.
Q. Cody, I was looking to REITs as they are trading near 52 week lows. I like ticker symbol: O (yield is 5.8%). I know rates are likely to rise this year, but not too much or not too fast in my opinion as the economy is still shakey. With that being said, do you have any thoughts on this asset class?
A. REITs have been benefitting disproportionately with all the real estate welfare policies for homeowners and bailouts for mortgage security holders and lenders and so on and so forth. I’m not comfortable buying REITs in general as the 90% income pass-through is an artificial limitation to the property manager’s ability to just run the dang company as best as possible for long-term investors.
Q. One other question. Thoughts on RFMD?
A. Handset business has slowed down a bit overall and inventories for RFMD’s down-chain are probably high right now making near-term targets questionable. I like TQNT better than RFMD right now as handset exposure for the portfolio.
Q. Why did you buy gold the other day? It’s been at those levels recently. Any catalyst?
A. I had a seller needing to unload their gold, giving me a price under even the current COMEX quote, which is still a good $100 or so below the actual price you can buy gold coins at most of the time.
Q. Hi Cody and Congrats on coming baby! what is your view for INTC reporting next thursday, time to position in call options? Take care and enjoy great days with young Willard!
A. I don’t think I’d buy near-term call options on the INTC coming report, as I don’t think there’s enough potential juice in the report to make the stock pop meaningfully enough. I do own longer-term INTC all options and INTC common and I think this time in two or three years the stock will be higher than it is now as the company will likely have good traction in mobile and tablets.
My brain’s got just a couple more answers for you, so two more questions is all I can handle today, I’m afraid.
Q. Your thoughts on CSCO?
A. Cisco would be tempting down near $20. Lots of cash, lots of cash flow, but risk that margins decline as software replaces some of the router business over the next few years. I’d probably start buying it near $20 though, but not til its closer.
Thanks, Cody. Good luck next week at the hospital. Exciting time…
Q. Cody, thoughts on SPLK and FIO?
A. SPLK is a remarkable growth story, and I’ve mentioned it here several times as a good Revolution Investment. I don’t personally own it yet and its awfully rich now, so not buying either. Meanwhile, FIO’s just wrecking itself fundamentally and in the market place and I don’t want to try to game a bounce on it.
And with that, he was gone. Here’s a video to keep you entertained before the close – Kiss’ biggest chart hit, ‘Beth,’ has been re-imagined as a ’70s-style dramedy in a hilarious video complete with actors playing the role of Peter Criss and a nagging wife imploring him to leave a recording session — because dinner is getting cold and the kids are driving her crazy. BETH
