Archives for April 2015

Apple’s Good Earnings Impacting Market

Earlier this week, Apple released a very solid earnings report beating analysts estimates on the top and bottom line, meaning the company had more revenue and profits than forecast. On the surface that should be a good thing and intuitively, you would think a boon to the stock. Apple opened at fresh all-time highs on Tuesday only to sell off immediately and close in the lower end of its daily range.

 
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Data miners have uncovered a solid trend that when the NASDAQ 100 is at or near new yearly highs when Apple reports, it becomes a selling opportunity for  both the stock and NASDAQ 100 index over the short-term. This further supports what I have written about for several weeks that the short-term is somewhat murky for stocks, but the intermediate and long-term remain solid.

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Fed Statement Day

Today ends the Fed’s two day meeting with no action taken. Analysts will parse that statement for clues about a possible September rate hike, but as I have said for a long time, the Fed should absolutely  not raise rates anytime soon. Oil is tame. Inflation is non-existent. Our economy is mediocre at best. Europe is teetering and Japan is, well, Japan.

Raising rates to have some ammunition for the future is the single most absurd argument I can recall. The Fed has plenty of outside the box tools to combat whatever monkey wrench is thrown our way. Ben Bernanke’s unprecedented are proof of this. Leave rates alone.

Trading wise, the model for today is +/- .50% until 2pm and then some strength, but the trend is a weak one now as opposed to a strong one six weeks ago.

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Short-Term Murkiness Continues

While I continue to be intermediate and long-term positive on the stock market, there remains a small cloud over the markets in the short-term. That usually means a pullback, which equals weakness to the tune of 3-7%. Market sentiment has become slightly less bullish, but not to the degree where I believe the next launch to all-time highs can begin.

Recent price action shows the S&P 500, S&P 400 and NASDAQ 100 poking to all-time highs and then being rejected by the bears. While that looks really ugly on a chart, historically, it usually just leads to some short-term weakness.

Additionally, the semiconductors have always been one of the better canaries in the coal mine for the tech sector and the overall stock market. Of late, we have seen all-time highs in the NASDAQ, finally eclipsing the Dotcom bubble nosebleed levels from 2000, but the semis are pinned roughly 100% away from the same level. That’s not troubling to me and won’t get repaired for years and years and years.

The short-term concern, which has been written about by data miners all over the Internet, is that the NASDAQ 100 has been rallying with the semis closing lower. Some days, we have seen the semis down more than 1% with the NASDAQ 100 higher and at yearly highs. Historically, that’s not healthy action and usually leads to a two to four week period of digestion or consolidation or sometimes outright weakness. However, I continue to believe that all dips and bouts of weakness are buying opportunities until proven otherwise. The climate for the bull market ending is simply not there.

This is the time to make a little market shopping list in case there is a small sale in May.

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Bears Having Their Day

Not even half a day of weakness and talk of the big C is out. The dreaded correction! It’s amazing that after a 73 month secular bull market, it’s still the most hated and disavowed bull ever. Yes, it’s now been 42 months since the last 10% correction, but markets don’t fall just because of age. Corrections occur to repair breaks and right now, there aren’t enough things broken to warrant a full fledged correction.

The most glaring concern is that the Dow Industrials continue to divergence from the Dow Transports and the Dow Utilities are even weaker. Coupled with sentiment, it makes the short-term murky as I have written about lately. Before you jump on the bears’ bandwagon, we have seen this picture before and it doesn’t end well for the bears. Weakness to the lower end of the trading range continues to be a buying opportunity until proven otherwise.

Don’t ignore the recent strength in banks, consumer discretionary and my very contrarian play in energy going forward. That’s not the kind of leadership you typically see if the stock market was in real trouble.

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Only Sentiment Holding Back Bulls

The markets begin a new week with a huge stream of earnings on tap including Intel, JP Morgan and Goldman Sachs. The European Central Bank is scheduled to meet and there are a number of important economic releases with inflation being front and center. On Friday, it’s April options expiration.

The major indices look neutral to positive as the S&P 400 and Russell 2000 are a whisker away from all-time highs while the S&P 500, NASDAQ 100 and Dow are in the middle of their ranges, but still looking good. New highs should be seen across the board before long.

Stock market internals continue to show strength which should insulate the market from anything more than a single digit pullback. Sentiment on the other hand is stubbornly optimistic and that’s the only short-term concern now which could lead to a pullback. I do like the famed investor Mohamed El Erian publicly spoke about being all in cash and that the Wall Street Journal and USA Today both ran stories about the first earnings decline since 2009. But we still need to see more improvement from the overly bullish options traders and sentiment surveys before another big leg higher can launch.

On the sector front, consumer discretionary and its sub sectors, retail and housing, remain market leaders. Once again, the banks are at the top end of their range and will try to break out. However, over the past year, attempted breakouts have selling opportunities as the bears successfully rejected attempt.

While treasury bonds are stuck in neutral with a lower bias, high yield bonds look constructive and that bodes well for the economy and stocks over the intermediate-term.

Finally, I am going to be on Fox Business’ Making Money with Charles Payne on April 14 from 6-7 pm as well as on CNBC’s Closing Bell at 3 pm on April 16.

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Dow Theory Warnings Continue

Several months ago, I wrote back to back articles about the Dow Theory trend change. You can view them below.

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20141103.pdf

Simply put, this analysis holds that the Dow Jones Industrials and Transports should move in lock step to confirm each intermediate-term move in the stock market. When one index see a relative new high, so should the other. The opposite is true at lows. When one index diverges from the other, it is a possible sign of a trend change. When both indices closes below a previous significant low that is considered confirmed change of trend.

Let’s look at the two charts below for some real life, recent examples. At the far lower left of both charts you can see the Ebola October lows where both indices closed below previous significant lows. By early December, they both went right back to new highs where the party began to fizzle.

Since early December, the transports have seen a progression of peaks that were each lower than the previous one where the industrials saw a clear trend of higher highs through February. With one index lagging the other, this is called a non-confirmation or divergence and warns that all is not perfect healthy. Of course, if and when the lagging index rallies to confirm the leader, this Dow Theory warning completely goes away. Right now, we have a series of caution flags since late 2014 without much in the way of price weakness.

Beyond the Dow Theory non-confirmation discussed above, the more serious warning is the Dow Theory trend change. This occurs when both indices close below previous significant or above previous significant highs. On the left side of the chart in October, both indices saw Dow Theory trend changes to the downside that were immediately reversed. In other words, the October warning failed.Today, the transports are getting close and should breach the low points seen from December through February. The industrials have another 600 points to go, but don’t dismiss that as out of the question. I do believe, however, that if the industrials fall much more to signal a negative Dow Theory trend change, it will be short-lived like we saw in October.
Although the Dow Industrials and Transports are not and have not been perfectly in sync for many months, the broad stock market has been acting okay and lacking most of major signs that the bull market is ending. More than likely, any weakness this quarter will be of the ending nature, completing the divergence seen in the two major indices as the Dow Industrials prepare an assault on 20,000.
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Q2 Begins Where Q1 Left Off

I hope you all enjoyed April Fool’s Day. I know I definitely did and the emails, calls and texts continue rolling in. Even the media called for an interview about my new gig! 🙂

The first quarter and the month of March rolled in like a bear and both rolled out like a bear, meaning that the bears had the upper hand at least in the short-term. During the middle of the quarter, the bulls were in firm control. The market certainly seems like it has transitioned into a trading range after February’s big surge. That’s not a bad thing.

When markets get overbought and sentiment is frothy, risk substantially increases. That can be worked off through a period of sideways movement in a range which frustrates both the bulls and bears, or it can be overcome by corrective action with a sharp pullback in prices. The former is what you most want to see during a healthy bull market.

While my intermediate and long-term views remain completely unchanged, the short-term is a bit murkier. The stock market doesn’t seem like it’s ready to explode higher by thousands of points just yet. That day is still coming, but I don’t think it’s right here. Rather, it looks like the trading range will continue and perhaps expand to the downside until we build up enough pessimism to launch another assault higher.

In the interim, it pays to watch sector leadership for future clues. There have been lots of good things happening, especially with the consumer as discretionary, retail and homebuilders have all led with biotech and healthcare. The latter two, which I remain long for full disclosure, went too far too fast and are now correcting sharply. On the laggard side, energy, which we also remain long in smaller size, has  been percolating nicely and seems poised to see a small breakout this month. Remember, every time oil has declined at least 50%, it rallied 50% from the low over the ensuing year. Something to continue to keep in the back of your mind.

In the very short-term, the government will release the March employment report tomorrow, Good Friday, when the markets are closed. Why they do this I have no idea. It makes little sense. The bond market and stock index futures market open for a brief period to disseminate the news and then close until Monday. The stock market remains closed. Rob Hanna from Quantifiableedges did some top notch research and found that when this release happens on Good Friday, Monday’s trading has outsized volatility. See his excellent work HERE

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Fox News Here I Come!

I am excited and thrilled to announce that I have signed a deal with Fox News to host my own TV show weekdays from 8 pm to 8:30 pm. As you already know, I have always enjoyed appearing on CNBC, Fox Business and Bloomberg, but the time is right to give this a go on my own, under my terms and my way. Apparently, there is a soon to be announced shake up at the network.

The content will be a spirited debate on areas of personal interest and expertise including a healthy dose of financial markets, economics, politics, the Fed, sports, wine and raising children. And when it gets too quiet and passive, religion will be discussed!

I look forward to sharing more details as they become available. For now, I will be reaching out to people on my email list as potential candidates to join the show as guests, regardless whether you share my opinions or have the wrong ones.

Have a great day!

 

 

 

 

 

 

 

 

 

 

 

Sloof Lipra