If People Won’t Die, Will Bulls…? (KOL,FXI)
We were intrigued by a recent NBC News piece that pushed the notion that eternal life was actually available in the here and now world as we know it. Or, rather, that it soon will be. You can read the article yourself here, but the kernel of the piece is that technologies currently under development, including those that involve artificial intelligence and prosthetic bodies, will somehow, eventually, be able to absorb our finite human selves and allow us to be perpetuated in perpetuity!
There’s even one fellow named Kurzweil who claims the process, which he terms ‘singularity’, is already underway and should be near completion by 2029.
Will that make us better stock pickers, we ask? Will it allow us the better to pull a dust speck out of our eye, or scratch an arse-itch?
Those are the kinds of probing questions we’re asking here at Normandy Research.
OUCH! Bruno! You’re so rough!
Well, eternal life in a chipped-out body with synthetic skin is not exactly our idea of heaven. We’re more inclined toward the old fashioned world of flesh and blood, even if it does result in the inevitable.
But it got us thinking about all the artificial intelligence now employed by the math and computer PhDs on Wall Street, whose algorithmic buy and sell programs have all but taken over from the blood and guts, open outcry crowd on the floor of the NYSE.
Is it possible they’ve found a way to appropriately measure the tenor of trade and to contribute to it – even control it – to the extent that the indexes will always go up? Sure, they may rest from time to time, meander in a range maybe, but only so long as is necessary to efficiently absorb the buying and selling that we weak mortals need to engage in, and then immediately, profitably and artificially to begin the buying again.
Maybe we don’t have to wait until 2029 for that.
Yes, Hilgie, but because we prefer old school technologies and businesses that cater to basic human needs, we have to defer to our betters, and stick with the knitting that our mama taught us – the stuff that doesn’t leave us in knots.
And that means going w-a-a-a-a-y back for this week’s trade, to a time when steam engines and home heating relied on much simpler forms of combustion.
But before we get there, have a look at the following trades that require your attention …
The first was launched on August 31st in a letter called When the Bystander Wins, where we suggested a Shanghai trade that had you buy the FXI January 18th (2019) 50 CALL for $1.65, and pay for it with the sale of the FXI January 18th (2019) 39 PUT, then going for $2.49. Total credit on the trade was $0.84.
China Through the Roof!
FXI has grown like a black bamboo, and the initiative has borne fruit. The CALL currently trades for $3.03 and the PUT for $1.74. Sell the former and buy back the latter and you pull in $2.13 (including initial credit) on nothing laid out. Adjusted for minimal commissions gives you a profit of 1320%.
Made in the shade…
Our next bet was sent out on the 7th of September in a letter called NORTH KOREA PIZZERIA BALLERINA SHOP IKEA. There, we urged you to roll out a bad trade we made on TLT back in December, 2015. Today, we’re happy to report that the first part of the fix, namely, selling four (4) TLT October 20th 124 PUTs for $0.50, went over like a song. They all expired worthless and we look forward to seeing the rest do the same.
Now to this week’s dirt!
And downright dirty it is. We’re trading the dirtiest, most hateful of all investments this week, a rejuvenated sector emerging from a rash of bankruptcies with no more debt on the books and a healthy export market awaiting shipments – coal.
Simply put, it’s an industry on the mend. The Chinese have restarted importing supply from abroad, and that has given U.S. miners a shot in the arm. The steel industry, too, is seeing momentum, and that’s also supportive of coal prices.
Year over year revenues among the major producers as of mid-2017 was up 19% and a President supportive of rebuilding the industry has also helped. The current administration’s roll-back of regulations that have been hurting the coal industry have also added to the bottom line.
But it’s really from the demand side that we see the greatest prop for prices. Benchmark costs for the dusty black rock are up between 50% and 100% from a year ago.
More than that, the big name stocks in the sector all trade at or below Book Value and sport P/Es in the 8 range – very healthy numbers from a fundamental perspective.
Let’s look at a chart of the VanEck Vectors Coal ETF (NYSE:KOL) to get a better idea of the state of the industry.
KOL is presently completing a continuation pattern known as a ‘pennant’ (in red). We expect a break above the upper edge of the pennant to spur a new surge in buying. As of late, price has been moving in a tight band between $14.70 and $15.25, all the while working off an ‘overbought’ signal triggered back in July (in red), when a great many new buyers came in between $14.25 and $14.50.
And that’s where support is. The moving averages are also indicative of a bullish trend – fully unwound and trending higher.
Our trade for the week, therefore, is a bet on continued heat from the coal sphere.
And it looks like this –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
KOL currently trades for $15.15
Many happy returns,