They wear short shorts

Last week was filled with newsworthy events, but honestly I’m behind schedule and you’ve probably already read about them and don’t really need my opinions on them.

Earnings are the early favorite to be the main story for this week. We also have McAfee (MCFE.O) pricing and GM’s Hummer event. I’ll also have an eye on DraftKings as its IPO lockup period expires on Tuesday. In this week’s post, I decided to make up for my lack of charts last week and bombard you with them this week. Seriously though, there are a lot of things that caught my eye this week and not as many standout podcasts. I do have to say if you’re a fan of Annie Duke, her new book is out this week and she joined a bunch of podcasts to discuss. I shared an interview with her already last month on this topic, but if you liked that, as I do, you can find more from her this week. This week's post 

Earnings’ Watch

Of the names I was watching last week, performance was mixed. Ally Financial did well after reporting Friday morning. The stock opened up 1.3% and ended up 2.7% on the day. Alcoa was looking to be on the negative side, but the SmartEstimate and the mean converged during the week. Alcoa slightly beat EPS estimates, but still lost a lot of money and opened up down 12.6% on Thursday morning after reporting Wednesday afternoon. The stock did rebound a bit closing Thursday down 5.9% and ended the week down 3.7% from the highs before reporting. Citi was a mixed bag, so I’m glad I stayed away from that one. The beat on EPS, reported less Loan Loss provisions, but looked worse in non-performing loans. The stock briefly opened higher then took a turn to the down side ending the day down nearly 5% and the week down 6% from Monday’s close.

This week, earnings’ season is all warmed up and we’re getting into the middle innings. This week there are nearly 500 companies reporting in the US and Canada. There are a ton of big names reporting like Netflix, Chipotle, Tesla, Abbott Labs, Prologis, and Capital One, but here are a couple of names to watch for possible unexpected moves.

• Albertsons (ACI) is showing a 14.5% Predicted Surprise, or $0.03/share, on its EPS estimate. They report Tuesday and last week saw five brokers update their numbers. Two of which were significant upgrades. There hasn’t been too much activity in their options, but call open interest is 2.4x the size of puts.

• The Starmine estimate has Las Vegas Sands (LVS) with deeper losses than the Street. The Predicted Surprise on this name is a miss by $0.11/share or 17.1%. This is another name that a handful of analysts changed their numbers last quite in drastic fashion. Jefferies dropped to a $0.60 loss from -$0.34, Goldman from -$0.28 to -$0.50. Interestingly enough calls open interest is 1.6:1 more than puts and there are some lottery type bets out there in the higher strikes.

Best of the Week:

Talk about a late entry, the best thing I read last week came in as I was laying down to settle in for the night on Sunday. I was checking Twitter and found this thread from Raoul Pal. Raoul starts the Tweet storm off strong stating that digital currencies will be the biggest overhaul of the system since Bretton Woods, which came in 1944. You can read through the thread easily, but Raoul also shares a ton of extra links to support some of his statements. Raoul’s Real Vision released an interview from last month over the weekend where he talks with Alex Saunders to talk about the said coin based monetary system.

Central Bank Digital Currencies are coming

Reinventing the Monetary System with Decentralized Finance - Listening time 70 minutes

Best of the Rest:

Short selling is a fine art. It requires a lot of patience and a nose for particular situations. I found these two articles, which both talk about short selling and highlight different aspects around current conditions. Jason Goepfert highlights the aggregate shorts still in the market when looking at the underlying NASDAQ names. The second article from NASDAQ’s Insights team is not from last week, but it highlighting some of the trends we’re seeing today. I found the HFRI index performance numbers to be a little surprising. Based on Jason’s chart, I looked at the non-commercial positioning on the NASDAQ COT report. Looks like a bunch of traders tried to be short last month, but that didn’t work out and now they’re slightly long. I also used Eikon’s Portfolio Analytics app to compare average short interest for major US indices. I also did a few studies in the PORT app looking at the short interest of all US securities that are covered by our Starmine Short interest model, about 4,300 stocks, by market cap, sector and P/E. I’ve highlighted a few areas. Micro cap names had oddly low short interest. Health Care has the highest amongst the sectors. The weirdest though is the lowest positive quintile had the second highest short interest percentage.

Stock-market bets against Nasdaq index hit decade peak

How Short Selling Makes Markets More Efficient

Net Positions of Non-commercial trader in e-Mini NASDAQ futures and options. Right is just zoomed in on YTD.

Average Short Interest % of Shares outstanding of seven US indices

Short Interest % of Shares Outstand and Float by Market Cap, Sector, and PE. Also showing the Astec Bar score, which shows the cost to borrow on a 10 pt scale. 

Another great share from The Market Ear team was these charts from Goldman Sach’s Cross Asset research team. I didn’t have the time over the weekend, but I plan on looking this further.

https://themarketear.com/posts/cIzHZuNV7J/image/0

COVID numbers are on the rise again. I saw this table from The Market Ear team posted. Here at Refinitiv, we’ve gotten some good feedback from clients on our COVID-19 app on our desktop. Another app that I like to check in on is our HealthCare intelligence app, which is powered by our partners at Cortellis.

https://themarketear.com/posts/chX4nXd13l/image/0

One of the big events from last week was Amazon Prime Day. It was delayed due to COVID. This year I noticed a lot of competitors taking advantage of Amazon’s customer shopping by offering deals of their own. For example, I found a cordless drill on Amazon and when searching reviews I found the drill on Home Depot for the same price. It was clear price matching because different variations of the package I bought were much more expensive. Business Insider still puts Amazon’s sales at nearly $10B. Refinitiv’s retail expert, Jharonne Martis, wrote about Street expectations before the event and they are very strong for Q3 reporting this month and the Q4 numbers that include Prime Day.

Amazon Prime Day is Set to Boost Q3 Earnings Growth

Amazon Prime Day 2020 is estimated to bring in $9.91 billion in worldwide sales

Tesla was in the news last week because competition is starting to gain some traction. I saw this chart come across my Twitter feed. It’s only for Norway, but look how quickly Volkswagen caught Tesla once it’s product was ready. Tesla is being forced to cut prices to compete with lower cost competitors. I don’t know how they hold on to their market dominance. The Reuters BreakingViews article does as excellent job of explaining VW’s challenge.

Breakingviews - VW bid for Tesla’s crown rests on shaky optimism

Tesla responds to Lucid Air with another Model S price cut

Tesla's Race To The Bottom

I found a new person to follow on LinkedIn this week. John Burns puts out some great content around housing. Here’s a great post from this week. “84% of home builders raised price in September, a usually slower time of the year, per the monthly”

 Home Builders Raise Prices

This is a week behind, but I was reminded of it when I saw the site below with this table. If you’re interested in having exposure to Bitcoin, but in the form of equities, here are some places you can go. All this equals less than 3% of BTC outstanding, and 75% of this is in the ETP Grayscale Bitcoin Trust (GBTC.PK).

Square buys $50 million in bitcoin, says cryptocurrency ‘aligns with company’s purpose’

https://bitcointreasuries.org/

Like I said there will be a lot of charts. I saw these one from the Morning Brew and @PlanMaestro on Twitter and it was truly mind boggling. This is the sort of thing that makes this country great. So many businesses are failing due to COVID and the shut down of many things we’re used to, but others seem to be using this time as an opportunity. If you want even more charts click on the Tweet Storm link, as he shares 20 charts each Sunday.

U.S. Business Applications Surge 77% in Q3

https://twitter.com/PlanMaestro/status/1315317055646728197?s=20

Chris Cole is looking at volatility, per usual, this time the reflexivity between credit and liquidity. “A reckoning is coming in credit that has not been fully tamed by an excess supply of liquidity.”

Volatility in Equity Markets

The movies aren’t doing so well with COVID. Another Refinitiv analyst, Tajinder Dhillon, covers the indications the Starmine models showed on Cineworld leading into its demise. One could also use a similar methodology to look back on AMC after it warned that it could possibly run out of cash.

Cineworld shares ‘Skyfall’

AMC warns it could run out of cash this year

Aronson, Johnson, and Ortiz, otherwise known on the Street as the quant value shop AJO, is closing. They manage about $10B in assets, and it was as much as $31B in 2007. This is incomprehensible to me. I covered AJO in my short time at Societe Generale, and they were a prime client for us generating a ton of commissions. This just shows the damage the move to passive that Mike Green and Corey Hoffstein have talked about recently is causing. The article talks about a low rate environment making lending to the run in growth stocks, and that’s part of it too.

Value fund manager AJO to shut down after losses

I’ll leave you with this short post from the Evidence Based Investor.
WHAT GOOD INVESTING AND WINEMAKING HAVE IN COMMON

Thanks for reading. Have an exceptional week.

Michael