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Weekly Market Recap Jan 13, 2019

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In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “flexible” and “patient” on the monetary policy.

The minutes from the recent Federal Reserve meeting were likewise “dovish”:

The release of Fed minutes revealed that some central-bank officials hard reservations about an interest-rate increase last month due to market volatility, though policy makers voted unanimously in favor of the move. They also recommended the Fed should be “patient” and stressed that “a relatively limited amount of additional tightening” is appropriate.

“The backdrop for stocks is positive, with earnings growth still projected to be healthy, while the Fed looks like it is pausing,” Michael Arone, chief investment strategist for State Street Global Advisors, told MarketWatch.

“Stocks are loving that central bank policy appears to be in an ultra-dovish mode,” wrote Edward Moya, chief market strategist at Oanda, in a note. “Inflation is low and under control and the main catalyst for the Fed’s ability to be patient.”

In economic news ISM services slowed much like manufacturing did the prior week with a reading of 57.6 from 60.6 in November – that is still highly expansionary.

For the week the S&P 500 gained 2.5% and the NASDAQ 3.5%.

Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.

The week ahead…

Earnings season begins anew. While numbers should be hearty, investors will be looking very closely at guidance as signs of global slowdown are in the air.   Retail sales would normally come out on Wednesday but the government shutdown likely will impact that release.

Index charts:

Short term: Some rotation here as the NASDAQ and Russell 2000 outpaced the S&P 500.  The NASDAQ is already back to it’s 50 day moving average.

Finally a very good week for the Russell 2000 – that would certainly be a change if character if this index which has been lagging for over a year took the reigns.

Wow – that is the highest reading I can recall on the the NYSE McClellan Oscillator – over 100!  Usually +70 is an extreme peak.

Long term: Still a lot of work to do but thus far the “V” shape bounce is back….

Charts of interest / Big Movers:

Monday, PG&E Corp (PCG) tumbled 22% on a Reuters report that the utility company was considering filing for bankruptcy protection.

Luxoft Holdings (LXFT) jumped 82% Monday after it was announced the company would be acquired by DXC Technology (DXC) for $2 billion.

Sears Holdings (SHLDQ) had an interesting Tuesday.  By close the stock soared 27% after a Wall Street Journal report that the company could still avoid liquidation via a $4.4 billion buyout plan proposed by billionaire Eddie Lampert. The stock had been down as much as 50% on reports earlier Tuesday that the company will seek liquidation.

Wednesday, Constellation Brands (STZ) slumped 12% after the beer, wine and spirits company issued disappointing guidance for fiscal 2019.

Macy’s (M) tumbled 18% Thursday after the retailer downgraded annual sales and profit estimates for 2018.

Friday, General Motors (GM) rose 7.1% after the auto maker said it expects 2018 earnings and adjusted free cash flow to beat expectations and provided an upbeat 2019 outlook.

Just wanted to note “pot stock” Tilray (TLRY) held up better than almost every equity during the first portion of the wave of – it took nearly a month of market turmoil for it to begin falling hard.  The stock had itself quite a day both Tuesday & Friday.

Have a great week and we’ll see you back here Sunday!



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Dana Cavalea Interview with Michael Covel on Trend Following Radio

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Dana Cavalea and Mariano Rivera
Dana Cavalea and Mariano Rivera

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Dana Cavalea is the former strength, conditioning and performance coach for the New York Yankees and author of, “Habits of a Champion, Nobody Becomes a Champion By Accident.” He started in baseball as an underperforming player, knowing he would never make it to the major leagues. In 2002, at 19 years old, he was given the opportunity to be a towel/weight room cleanup guy for the Yankee’s – he quickly jumped at the chance.

How did Dana make the move from towel guy to strength and conditioning coach? Core and functional training was just taking off in the world of sports. He committed himself to learning everything he could in that sports niche. Players would give him the chance to teach them different stretching techniques (on the side of their other training). His tips were working and players confidence in him and his confidence in himself snowballed.

Dana gave players two things other trainers weren’t providing: 1. He could find immediate ways to locate and alleviate pain. He took players like Jorge Posada and Derek Jeter and found where their pain was and gave them tips and tricks to help relieve some pain to get them on the field for their next game. 2. He built relationships with players outside of the stadium. Dana would go to breakfast, lunch and dinner with players and gain comradeship. When players know, like and trust you, you win them over.

As a New York native Dana grew up loving the game of baseball. And as a player himself, he always wanted to know what the pros “edge” was. His new book (and this podcast) is packed full of how players like Derek Jeter, Alex Rodriguez, Mariano Rivera, Mark Teixeira, Andy Pettitte, and Jorge Posada think. He shares what gives baseball’s elite players the edge needed to be a winner–lessons we can all use baseball players or not.

In this episode of Trend Following Radio:

  • Importance of routine
  • Derek Jeter
  • Talent vs. work ethic in pro sports
  • Science behind training
  • Yoga
  • Mindfulness
  • Meditation
  • Downshifting the nervous system

“Focus on the process and let the results create themselves.” – Dana Cavalea

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Weekly Market Recap Mar 10, 2019

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The non stop rally of 2019 finally hit some road blocks this past week.  The utter glee of a potential China-U.S. trade deal wasn’t enough for the market to rally on the same old news for yet another week; it has essentially rallied on that news for nearly a month.  “Patience” still makes everyone happy – but a dismal employment report Friday, the European Central Bank talking about more stimulus, along with horrid export data out of China had people a tad worried.

The ECB announced new measures to support a slowing economy, including a round of long-term loans to European financial institutions, while issuing a surprise pledge to hold off on any interest-rate increases until at least the end of the year.

China reported a 20% drop in February exports after a 9.1% gain in January. Officials blamed the plunge on sagging demand and some distortions from the Lunar New Year holiday. But economists said that even if those two months are added together, the data looked weak.

As we have been saying for about 6 months (lead by housing) it does seem the economic data is starting to get more sluggish and one wonders when the market sees that as a negative vs a positive i.e. the Fed will push up stock prices if we slow.  Looking out 2 years it does appear we are about to get hit with another flood of liquidity from central banks!

An avalanche of economic news this week – some of the highlights:

The Beige Book’s showed 10 of the central bank’s 12 districts seeing “slight-to-moderate” growth in late January and February. The partial government resulted in slower activity in about half of the districts, affecting a range of sectors, including retail, auto sales, real estate, restaurants, and manufacturing, according to the central bank.

“Trade wars are easy” and such….

The annual U.S. trade deficit soared to a 10-year high in 2018 of $621 billion, the Commerce Department said.  The deficit jumped nearly 19% in December to a seasonally adjusted $59.8 billion, according to a government report that was delayed by the government shutdown earlier in the year. That’s the single biggest monthly gap since October 2008.

The trade deficit with China shows no sign of shrinking. The U.S. ran a $419 billion deficit in goods with China in 2018, up almost 12% from a year earlier, based on U.S. Census figures. China accounted for almost half of the U.S. deficit in goods in 2018.

The Labor Department announced the U.S. economy added just 20,000 new jobs in February, well below the 178,000 forecast by economists.  Obviously a bit of a shock number but with the government shutdown, and wacky random outcomes month to month we will see what the revisions are down the road.   Construction was a big outlier to the downside which could be weather related.  The unemployment rate fell to 3.8% from 4%, while workers saw an 11 cent-an-hour increase in average hourly earnings, the largest gain since the end of the 2009 recession.

For the week, the S&P 500 shed 2.2% and the NASDAQ 2.5%.

We mentioned the breakout in Chinese stocks in last week’s recap – that continued…until Friday’s tragic reversal.

Here is the 5 day weekly intraday chart of the S&P 500 … not via Jill Mislinski.

The week ahead…

The market rally of the Federal Reserve (“patience”) has ripped off the heads of poor bears yet again.   Just in time for a pullback.  So we will see if this is some modest consolidation or one of those “the biggest rallies often occur within the context of downturns”.  Put another way, how many more times can we rally on Federal Reserve juice and the impending China-U.S. trade deal in the face of a very obvious slowing global economy.

Retail sales will be released this week – considering the dismal report last month, expect an upward revision and the short term oversold market can rally on that!

A lot of talk of the 10 year bull market will also ensue this week!

Index charts:

Short term: The S&P 500 at this point topped at our trend line which connected major lows in the index.  That’s pretty fascinating.

The Russell 2000 is was rejected by the 200 day moving average.

The NYSE McClellan Oscillator now calls for a cautious stance.  In fact we are short term oversold to begin the week.

Long term: If the S&P 500 is rejected at this level it might be the first long term stand bears have made in years.

Charts of interest / Big Movers:

Monday, shares of Children’s Place (PLCE) sank 10% after the children’s-apparel retailer reported fiscal fourth-quarter earnings and sales that were well below expectations.   The stock did recover decently the remainder of the week.

Wednesday, General Electric (GE) slumped 7.9% after Chief Executive Larry Culp told a broker-sponsored investor conference Tuesday that free cash flow in the industrial business would be negative in 2019.

Abercrombie & Fitch (ANF) rallied 20% after the apparel retailer beat fiscal fourth-quarter earnings and sales expectations and provided an upbeat outlook.

Thursday, Kroger (KR) sank 10% after the food-and-drug retailer announced fourth-quarter earnings that fell short of Wall Street expectations.

Friday, Big Lots (BIG) rallied 14% after the retailer reported fiscal fourth-quarter sales and profits that beat Wall Street estimates.

Have a great week and we’ll see you back here Sunday!



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Eric Dugan Interview with Michael Covel on Trend Following Radio

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Eric Dugan
Eric Dugan

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Eric Dugan is founder of 3D Capital Management, where he runs three primary systems: long only, long-short, and intraday long-short–using multiple global markets as inputs and indicators. His systems analyze the flow of markets around the world and attempt to identify how the action in a certain market will impact the S&P during U.S. trading hours. Eric has not missed a trading day since the inception of 3D Capital Management 11 years ago.

Eric had been working construction in 1992 when his best friend moved to Chicago to trade. Shortly after his friend left, he reached back out to Eric to give him a job. December of 1992 was Eric’s first visit to Chicago for an interview with famed trader Monroe Trout, and in January of 1993 he began his first day ever trading for Trout Trading.

Because Trout was a systematic trader, there was no real need to know “what” a trader was going to do, other than trade the system. Eric’s lack of knowledge of markets when he first started did not matter because the system was king. Eric worked for Trout Trading from 1993 – 1999. When Eric started he had zero experience and within a year he was manager of Pacific Rim desk at Trout Trading. He quickly learned how to identify weakness in the stock market, which has become his greatest asset throughout his career.

In this episode of Trend Following Radio:

  • Risk Control
  • Identifying trends
  • Profiting from weakness in the stock market
  • Trading world markets
  • Buying high and selling higher

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