Archives for May 2019

Here We Go Again. A Fresh Tantrum

As you know I have been waiting for a better set up for the stock market to find a low. Specifically, as I mentioned the other day, I wanted to see more downside early in the day which led to a close that wasn’t in the bottom of the range. That would serve as a revisiting of the May 13 low. We saw that did happen on Wednesday and it should have at least stemmed the tide. However, as has been the case for the past month, markets remain on “Tweet Watch” from Donald Trump regarding his tariff tantrum. What a way for investors to manage money! At some point, however, stocks will begin to ignore this behavior although I do not think it will be on Friday with the latest attack on Mexico.

As Whitesnake wrote and sang beginning in 1987, Here We Go Again!

The important question is will stocks close at new lows for the week and at their lows for the month. Clearly, the bears are looking for an all out assault to force more selling after what looks to be another ugly down opening. At this point I can only say that it doesn’t have the feel of a rout, but I am just speculating. We shall see what comes after the open.

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Back in the Saddle. Bottom Getting Closer

Let me start by apologizing for going dark last week. I had a little accident with a tree and the tree won. I ended up in the hospital and just focused my work efforts on running our strategies and not doing any writing.

And after not publishing last week, not much has changed from where I left off in the markets. I was in the short-term pullback camp after the May 1 peak, but it looked like much of the damage was done into the May 13 low. I say “much” because the decline did not look complete on the 13th, even though a rally ensued. After Tuesday’s drubbing, the market is much closer and I am watching to see the major indices break to new lows, not close in the bottom 25% of their daily range and then stabilize.Risk on indices are leading on the downside so that will need to change as well.

Tomorrow, I will dive into sectors, high yields and some indicators worth watching down here.


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Tweet Watch Again

Although our models were flashing numerous green lights at the close on Monday, I wasn’t convinced that the final low was in. And nothing this week has made me feel any more comfortable. I am definitely not concerned about meaningful decline in the stock market, just that the 5% pullback doesn’t seem complete. Of course, you could push back and say that I am being too cute with such a relatively small decline and you would be right.

What bothers me is how the market bottomed, but that has been more the case of late during declines, mostly due to the machines doing so much of the trading today. The economic backdrop has been fairly strong with jobs, inflation and today’s 15 year high in consumer sentiment. Housing and auto remain weak, but they don’t seem to be spilling over into anything else yet. Don’t minimize the deal cut with Canada and Mexico today regarding the removal of tariffs.

Sector leadership has been good, but I certainly don’t like how weak semis have been over the past few weeks. The Dow Industrials and NASDAQ 100 are the unusual leadership couple in the major indices, but something will have to give there before month end.

I can’t believe I am going to finish with this, but I am sure many people will be on tweet alert this weekend. Just hard to believe…

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THE Bottom or A Bottom? Banks Looking Good

After Monday’s mauling by the bears the losses mounted to roughly 5% and was pretty much in straight line fashion since the May 1 FOMC meeting. In other words, for all the fire and brimstone by the bears, all we have see, so far, has been a normal, routine and what I will call “healthy” single digit, bull market pullback. Very little internal damage has been done.

The Dow Industrials said hello to its long-term trend, the average price of the last 200 days, but no other index has made that trip. You can see that line below in the pink. I am not viewing it as all that important.

At Monday’s close a whole of our models and indicators flashed green, meaning very favorable conditions ahead to own stocks. Since we take any defensive action ahead of the decline, we really didn’t have much dry powder to use on that new green signal.

One thing that bothers me is that stocks closed near their lows on Monday and jumped higher out of the gate on Tuesday. That’s a very atypical fashion to put in a bottom. I would rather have seen some more short-term weakness. As such, I am keeping that scenario open, where we may see another decline below Monday’s lows. Regardless of which scenario stocks follow, I remain firm that this is not going to be a full-fledged 10%+ correction and that the bull market is not over. Furthermore, all-time highs should be seen in Q3.

Sector-wise, although I still really like technology, I would rather buy it at lower levels with new money. The banks interest me right here and right now. Sentiment is poor on the sector and I don’t hear anyone talking them up. That’s the kind of trade I like. Additionally, it’s hard to argue with the behavior in the defensive area, specifically staples, REITs and utilities. They are certainly signaling slower economic growth and a thirst for yields.

I think I need to do a bigger update outside of the blog. Maybe tomorrow.

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Tariff Tantrum Continues

The markets’ tariff tiff/tantrum is now a full blown tantrum. “I don’t want tariffs! I don’t want tariffs! I don’t want tariffs!” The truth is, as I wrote about before, the markets were setting up to pause, digest or even pullback modestly after the Fed meeting on May 1. They were just looking for that excuse which came in a big way over the past week or so.

After another big down opening, stocks are continuing to slide lower, the sign of a heavy trading day; one that is unlikely to reverse. Technology is leading the way on the downside. I saw one of those clown floor traders talk about lower prices coming. He was the same guy who talked about a rally on Friday. I will never understand why the networks interview these order takers who don’t manage money, don’t do any research and just execute someone else’s opinions. They seem to be uniformly wrong at every turn.

Anyway, this pullback looks like your typical single digit bout of weakness that comes along every year in a bull market. It started from an all-high and the decline has been sharp. That’s not how bear markets begin. In just a few short weeks we have indices revisiting their average price of the last 200 days while others are seeing multi-month lows. Very typical of bull market pullbacks.

Assuming there isn’t a dramatic reversal late today, we have to be on the lookout for a turnaround on Tuesday. What we don’t want is a large gap higher on Tuesday that runs straight up into the close. That would cause me to look for another decline. Rather, the best thing for the bulls would be a moderate down open that reverses during the morning and traps the bears.

Finally, Uber came public on Friday and I had the same opinion regarding buying the stock as I did with Lyft. Stay away. I did a Special Report on hot IPOs in March and it still holds true for Uber and the rest. I’m just not interested in joining the parade of suckers buying from the smart people selling.

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Pullback Continues? All Eyes on Twitter. REALLY???

Lots of intra-day movement this week after stocks peaked on May 1 when the Fed concluded their two-day meeting. After 30 years in the business, I keep saying that few things surprise me anymore, but I have to say that watching traders and market participants glued to Twitter for any sign of tariff walk back by the president is certainly a first for me. I can’t imagine what the great investors of yesteryear are thinking as they down on us from up above. Are the masses really hanging on every tweet from the leader of the free world? Apparently so.

At this point, we have now seen the largest pullback since the epic Christmas low and it’s not even 4% yet. I am already seeing some preliminary signs of a low although they would be much better if stocks had a few more down days. You already know my conclusion. This is a normal, healthy and routine pullback that should be bought. The bull market isn’t over and it certainly is not a bear market as bond guru Jeff Gundlach continues to espouse. I like Jeff’s work and respect his track record of success in bonds, but he is way out of his lane regarding stocks as he usually is.

From here, I am going to offer two scenarios which I imagine your response to be “Well, DUH.”

1 – Stocks bottomed this morning and should begin a rally towards the old highs.

2 – Stocks have another few days to a week lower before bottoming.

I think those are the most likely paths to the end of June. The next rally should see tech, financials and transports lead which are all “risk on” sectors. The rally in high yield bonds shouldn’t be over either. Things still look pretty good, regardless of what may or may not be tweeted while I sleep. Friday should be a volatile day as we will either see Trump postpone the new tariffs and cause an early rally or forge ahead and then see some early weakness. I will continue to buy weakness.

In closing, I find the timing of the new tariff tiff oddly curious, coming on the heels of the Fed not accommodating Trump’s dovish wishes. As stocks pulled back, the odds of an interest rate cut towards the end of 2019 to early 2020 roe to 75%.


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Renewed Tariff Tiff/Tantrum from Tweet

We woke up today to one of those infamous tweets from the President. Surprisingly, without notice, he began targeting China and a renewal of the tariff tiff or tariff tantrum. As you know, I am so firmly against tariffs as an economic weapon because no one ever wins. It’s just about losing less. In a perfect world, there shouldn’t be any tariffs at all and each country’s goods and services should stand on their own merit.

As I have said all along, I fully understand why Trump has been taking this course, but I don’t agree with it. And if we can’t make a deal with China, something that the administration has been feverishly working on for many months, it won’t be hard to imagine expanding this battle into Europe. That’s not good.

As you would expect, our stock market is set to open sharply lower on the heels of global markets falling low to mid single digits. One thing I said to a reporter early this morning, 500 Dow points at 26,500 is not what it used to mean at 20,000, 15,000 nor 10,000. We’re talking about 2% which historically is just one normal up or down day in the distribution of daily returns.

The question now is, will this become the beginning of a decline or a short-term wonder.

Last week, I commented that I thought stocks had begun a period of digestion or even a mild pullback. I still think that’s the case and not the beginning of a meaningful bout weakness. If the data change, so will I, but with so much internal strength leading up to the recent peak, the odds still favor more upside.

Let’s not forget that the S&P 500 scored a marginal new high last week and the NASDAQ 100 saw a decisive new high. Large declines typically do not begin from all-time highs. They usually take time to rollover by declining and rallying.

Sector leadership remains very solid and the New York Stock Exchange Advance/Decline Line just scored its own all-time high. High yield bonds were in blue skies territory last week. In other words, the canaries were all alive and singing. Bull markets do not end with such positive behavior.

After the big down open, you can expect a quick bounce before the rest of the day begins to shake out. It’s much more important where stocks close and how they close than what happens in the first hour of the day.

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Powell Pours Cold Water

The Federal Open Market Committee (FOMC) concluded their two-day meeting on Wednesday with no change in interest rates, as expected. While markets initially reacted positively as the prospect for a rate cut later this year remained very real, Fed Chair Jay Powell, quickly and curiously doused cold water on those hopes, citing “transitory” low inflation. I call it “curious” because after countless years of historically low rates and multiple rounds of quantitative easing that created roughly $4 trillion of new money in the system, the Fed has failed to spark inflation above their 2% target for any meaningful period of time. So when Powell comments that the low inflation is temporary, it’s leaves you scratching your head a bit.

Conspiracy theorists probably believe that it was an attempt at payback to President Trump and his administration for the constant criticism of Powell. Taking it a step further, that same group may even posit that The FOMC will try and derail the economy ahead of the election to help defeat Trump. While this may make good water cooler gossip, I find the whole argument to be laughable.

Regardless of what Powell said or meant to say, the markets ended the day with a sharp reversal across the board. While one day reversals don’t have the bite they once did, I do think stocks have entered a short-term digestive period with either sideways action or a mild pullback starting. I wouldn’t be surprised to see a quick rally over the coming few days and then more modest weakness over the coming few weeks. May 1st had become a seasonally strong day for stocks with immediate weakness to follow. I think it’s likely we will see the opposite this year.

Given that I have been in Arizona with a jam packed schedule, I haven’t watched nor read to see what the pundits are saying about “Sell in May and go way.” May traditionally begins the weakest 6 months of the year and it’s often a media topic as to whether that needs to be heeded each year. Right now, the data don’t suggest any meaningful weakness like they did at the end of September. The bull market remains alive and in fairly good shape.


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