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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GDP Blows Out. Stocks Don’t React.

It seems like after a few frustrating weeks with the server migration, the blog is back online with all content restored. If you see anything that is  broken or clearly missing, please let me know. Thanks for your patience!

On Friday, the government released the first look at Q1 GDP and it blew away expectations, surging more than 3% when some “experts” were forecasting 0% growth and many were below 2%. Given the magnitude of the Q4 stock market decline and what has become traditional Q1 economic weakness, I thought GDP would be lucky to see 2% in Q1. In this case, I was happily wrong.

When I posted comments on Facebook about the GDP report, there were a few people who couldn’t wait to disavow the report as the economy was growing in the “wrong” areas and that I was “cherry picking” data to only highlight the good news. Additionally, I was accused of not looking at data impartially because I had some political agenda, if that’s even possible. Anyway, 30 years in the business, I have ALWAYS called it like I saw it, whether people agreed to not. And that’s exactly what I will do going forward. I made no bones about what I thought was a tectonic shift after the 2016 elections where the government would focus on pro-growth policies. I thought it would be very bullish for the economy and markets and I still do.

Interestingly, stocks did not react all that positively to the GDP surge. I have always said that what matters most is how markets react to news, not what the actual news is. In this case, it certainly looks like the market had already priced in better economic growth. Defensive sectors actually behaved better than economically sensitive ones which continued their mild pullback. And just as the masses were all getting so excited, so greedy about crude oil and energy, the sector saw a nasty reversal last week which should continue lower.

Markets may be quiet, but there is much going on beneath the surface. I still like transports and banks for the next leg higher. More on that later.

Glad to be back online.

97 degrees in AZ on Sunday. Rainy and 80 today.

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Sectors Strengthening. Buy the Pullback

First, I want to apologize for my inconsistent posting lately. We have been trying to migrate to a new and upgraded WordPress server at Godaddy and that has taken a lot longer than I thought. At first I didn’t realize that I couldn’t post new content until everything was migrated over and then I had to have Godaddy migrate everything over all over again. So, I am in limbo. Sorry about that.

Thankfully, the markets have been very quiet lately with a mild drift to the upside or downside for the major indices. Regardless, as I have written about all year, fresh all-time highs remain my forecast and I am not ruling out Dow 30,000 in the next 11 months.

Semis and discretionary remain the power sectors with the former going somewhat parabolic on the news of Qualcomm finally settling its longstanding feud with Apple over patent infringement. You can see the chart of the semis below. As I wrote about earlier this month when the transports were “percolating”, this key sector has really kicked it up a notch and further strength could really provide fuel for stocks to move higher into summer. Regarding the banks, they have been so beaten down and expectations are so low, they are interesting here, but until price action is more compelling, I will just continue to watch.

You may have noticed that the healthcare sector has been decimated lately as Bernie Sanders’ poll numbers have risen and talks of Medicare for all have been all over the news. While this issue isn’t going away anytime soon, the sector is presenting itself with a short-term trading opportunity right here and now. When I did a deep dive into the stocks, there were certainly a few I liked better than others and I will try to carve out some to discuss later this week.

The stock market bulls continue to do absolutely nothing wrong. Stocks look a tad tired, but that’s about it. Mild and modest pullbacks can be expected at any time and for any reason. However, until proven otherwise, all weakness is a buying opportunity.

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Still Bullish. Junk Bonds & Taxes

Stocks have definitely been quiet of late although that’s from a bull’s perspective from the inside looking out. There has been a very slight drift higher. From a bear’s perspective from the outside looking in, it must be painful first watching stocks relentlessly melt up and then continue to grind higher day after day after day. These types of markets wear on anyone holding cash waiting to invest. From my perspective, I have tried to do my best not to screw up my bullish outlook.

Looking at the major indices, it’s hard to make a seriously negative argument. Sure, I can poke some holes, but nothing significant. Of the four key sectors, the semis and discretionary continue to rock. Transports look like they want to pullback and then explode higher while the banks just frustrate investors. I think if the financials are going to shine, their time is coming this quarter.

While I have written about some recession concerns, the credit markets are not showing any worries. High yield bonds just keep making new highs day after day and week after week. Long before stocks peak and well before the economy peaks, I fully expect the junk bond market to put in a major high. We’re not even seeing junk bonds peak yet, so I have to laugh at all those Chicken Littles out there who yell that the U.S. economy has been in recession for months. That’s just not the case.

If I had to point to one somewhat dumb little supporting fact at just how strong stocks are, look no further than the strength leading up to tax day. While roughly 80-85% of the country saw their taxes fall in 2018, we know that those of us living in high SALT states like CT, NY, NJ, CA, IL & MA may see higher tax bills due today. I would have thought that would have caused a mild pullback to meet those liabilities, but maybe I am either overthinking it too simplistic in my analysis.

Anyway, today is tax day and it’s typically one of the strongest days of the year. I think the logic goes that investors make their IRA contributions at the very last minute and portfolio managers tend to invest that all at once. I actually reasoned that people sold some holdings to cover tax bill and sellers got exhausted before today. Who knows. I’m glad tax day is behind us. I do like seeing all that money in my checking account. That is, until the IRS pulls it and then cashes my April estimated tax check.

 

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Junk Bonds Say Full Steam Ahead

It’s been a fairly quiet few days for stocks after the better than expected employment numbers were released on Friday. The economy created 196,000 new jobs versus the 175,000 expected. As I wrote about then, I was expecting a strong number with a sharply higher revised number for February. While the former happened, the latter certainly didn’t as February was only revised higher from 20,000 to 33,000.

There’s nothing wrong the major indices. All looks fine. The four key sectors are split with semis and discretionary rocking and rolling, but banks struggling and transports looking like they want to burst higher. High yield bonds continue to quietly shock and surprise at all-time highs. I’ve been saying this for years, but certainly of late, bull markets do NOT end with behavior like this. Junk bonds usually top out long before the stock market. Risk on remains in place. The bears are and have been wrong.

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