With all of two days left in the month of March and 1Q 2017, it certainly looks like March has been a sobering month for the S&P 500 and Dow Jones Industrial Average as both indices have shed gains over the last few weeks. We tend not to pat ourselves on the back as we recognize that self-serving comments can be a little cheesy, but in this case, the concerns we laid out in February came home to roost in March. As we shared yesterday, the disconnect between stock prices, economic growth and earnings expectations remains and we think it’s going to be a very bumpy earnings season in just a few weeks.

 

As investors have come around to our view, we’ve seen a radical change in the CNN Money Fear & Greed Index, which closed last night at 34 (Fear) from 70 (Greed) just 30 days ago. Even though the Volatility Index has traded off the last few days, as you can see in the chart below it’s not too far off year to date lows.

 

Given the above, we’re going to hang on to our ProShares Short S&P500 (SH) and ProShares Short Russell 2000 (RWM) shares and add ProShares Short Dow30 (DOG) shares to the mix. DOG shares are an inverse ETF for the Dow Jones Industrial Average, and are coming off their 52-week low given the strong move in the Dow over the last several months. As we saw in recent earnings reports from Nike (NKE), Target (TGT), FedEx (FDX), and last night LuluLemon (LULU), if this is what we’re in for it makes sense to add another layer of protection to the Select List.

• We are adding ProShares Short Dow30 (DOG) to the Tematica Pro Select List.
• Our price target on DOG shares is $20, and should the shares trade below their 52-week lows of $17.69 in the next several days we’re likely to scale into the position.

 

 

Getting back into Facebook calls

As we wrote yesterday in Tematica Investing, we see Facebook (FB) as a natural beneficiary of Alphabet’s (GOOGL) current bout of problems that centers on questionable YouTube content that has led to advertisers ranging from AT&T (T) and Verizon (VZ) to Volkswagen, Honda (HMC) and McDondald’s (MCD) to pull their ads from YouTube. Estimates put the potential revenue loss between $750 million to $1.25 billion, but we don’t think we’ll have a clear sense of the magnitude until we see how long those companies hold back their advertising spend with YouTube.

With several platforms at Facebook, including Facebook, Instagram and Messenger, that it continues to add increased functionality and monetization efforts, we see it as the natural beneficiary. This is especially the case given continued struggles at Twitter and Facebook adding features at Instagram that take aim at Snapchat (SNAP). As a reminder, Facebook continues to target live sporting events and other streaming capabilities, which could lead it to pick off TV advertising dollars. Finally, in a few weeks, Facebook will be holding its annual developer conference dubbed F8, which tends to be a showcase for new initiatives. Soon after the company will report its quarterly earnings and that has us eyeing the Facebook (FB) May 2017 $150 calls (FB170519C00150000) that closed last night at 1.85.

• We’re adding those Facebook (FB) May 2017 $150 calls (FB170519C00150000) calls to the Select Listand as we do that we’ll set a protective stop loss at 1.00. We’d be buyers of the calls up to the $2.25 level.
• As we do that we’ll set a protective stop loss at 1.00. We’d be buyers of the calls up to the $2.25 level.
• We’d be buyers of the calls up to the $2.25 level.

 

 

Still bearish on General Motors and Simon Property Group shares

While both General Motors (GM) and Simon Property Group (SPG) shares traded modestly higher over the last few days, we continue to be bearish on both. The latest data show auto incentives have soared, particularly at General Motors, which is likely to eat into profits. With Americans missing bank cards payments at the highest levels since July 2013, the delinquency rate for subprime auto loans hitting the highest level in at least seven years and real wage growth remaining elusive, the outlook for consumer spending looks questionable. This includes auto sales as well as brick & mortar retailers.

We’ve written about issues at a number of such retailers, but we continue to hear about more being in trouble. The latest additions include Gymboree, Claire’s Stores, Ascena (ASNA), and Bebe Store (BEBE). Factor in the yet to be felt pain of store closing from Macy’s (M), Sears (SHLD) and J.C. Penney (JCP), and we continue to see more downside than upside with SPG shares.

• We’ll continue to keep our short position in General Motors (GM), with a price target of $30. 
• Our buy stop order on GM remains at $40. As the shares continue to move lower, we’ll look to revisit our buy-stop loss further with a goal of using it to lock in position profits. 
• With retail pain likely to intensify, we continue to have a bearish view on SPG shares. Our price target on SPG remains $150 and our buy stop order remains at $190.
• As SPG shares move lower, we’ll continue to ratchet down this buy stop order as well.