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Weekly Market Recap Jun 24, 2018

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This was a second week of consolidation with generally good action in the Russell 2000 and NASDAQ.  The S&P 500 and DJIA suffered a bit more as TRADE WARS!!!(tm) fear affect companies in those indexes more than the companies in the former 2 indexes. Quite a few “gap ups” and “gap downs” this week as news overnight weighed on indexes.  A sample of this week’s fun:

After Beijing’s retaliation against U.S. planned tariffs on $50 billion worth of Chinese imports, Trump asked U.S. Trade Representative Robert Lighthizer late Monday to identify $200 billion more in Chinese products that could be subject to tariffs of 10%. The U.S. president also threatened to find $200 billion more worth of goods if China tried to retaliate against those additional tariffs.

“We’re still analyzing how much the trade policies, if they go through, would impact valuations and fundamentals. If tariffs continue to rise, that is a negative, and it could derail some of the confidence. However, so many issues like this either don’t end up happening, or they don’t happen in the worst-case scenario. A lot of what we’ve seen is just rhetoric, and if you try and trade off things like that, you’ll likely be wrong,” said Lance Humphrey, executive director of global multi-assets at USAA.

Seems like the Chinese market is taking these threats more seriously then U.S. markets.

For the week the S&P 500 closed down 0.9% while the NASDAQ retreated 0.3%.

Economic data was not market moving.

Worth showing the divergence of small caps which mostly are domestically focused (Russell 2000) vs the Dow Jones Industrial Average which is full of companies who sell internationally – here is a 1 month chart. (click to enlarge).  R2K up 3.5% vs DJIA -0.9%, in just 30 days!

Oil jumped Friday after members of the OPEC and other major producers struck a deal that would result in an effective rise in production of around 600,000 barrels a day, a figure that comes as a relief to bullish traders who feared a more aggressive increase.

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

The student loan bubble continues unabated…  a future crisis unfolding slowly but surely.

This chart only includes federal loans to students. Private loans increase the debt burden. The Federal Reserve Bank of New York regularly tracks household debt and credit. In their most recent update, they calculate student loan debt to be nearing $1.41 trillion.

Great infographic from Visual Capitalist on the major bull markets – the current one is about to be the longest in duration.  Here is a summary but the full infographic on the website is worth the click thru.

The week ahead…

As we said last week, trade wars stuff could be the main headline as economic data is light and we are in the gap between earnings seasons.

Index charts:

Short term: The S&P 500 held its breakout level at just over 2740 – watch that number next week.   The NASDAQ remains quite strong.

The Russell 2000 remains impressive.

The NYSE McClellan Oscillator has now been negative all week.  That’s a caution flag for short term traders.

Long term: Still very positive for the “buy and never sell” crowd.

Charts of interest / Big Movers:

Monday, Valeant Pharma (VRX) sunk 12.3% after the Food and Drug Administration failed to approve a lotion product intended to treat plaque psoriasis.   The stock had been on quite a run after a disaster 2017.

Rent-A-Center (RCII) jumped 22% Monday after it agreed to be taken private by Vintage Capital, a private and public equity firm, in a deal valued at about $1.365 billion.

Tuesday, Foundation Medicine (FMI) surged nearly 29% after Swiss health care group Roche Holding announced a $2.4 billion deal to buy the remaining shares of the genomic profiling group that it doesn’t already own.

Wednesday, Oracle (ORCL) fell 7.5% after an earnings beat was followed up by weak guidance.

Starbucks (SBUX) slumped 9.1% after saying it will close more coffee shops in an increasingly crowded U.S. market.

Friday, Red Hat (RHT) fell more than 14% a day after the software company gave a softer-than-anticipated quarterly outlook.

It is worth noting Etsy (ETSY) which we highlighted last week – this is called “holding a breakout”!

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



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Strategies & Ideas

Markets and Profit with Michael Covel on Trend Following Radio

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Do people really buy that many books? Yes!
Do people really buy that many books? Yes!

Michael dives into markets, profit and critics.

***

It might sound pedantic or perhaps that I am focusing on the extraneous, I am not: A speculator’s ability to receive a price they can count on as fact—is the foundation of markets. Said another way, with no price, humanity is back to cavemen beating each other with clubs. Austrian economist Ludwig von Mises puts price discovery’s value in perspective: “It is the very essence of prices that they are the offshoot of the actions of individuals and groups of individuals acting on their own behalf. The catallactic concept of exchange ratios and prices precludes anything that is the effect of actions of a central authority, of people resorting to violence and threats in the name of society or the state or of an armed pressure group. In declaring that it is not the business of the government to determine prices, we do not step beyond the borders of logical thinking. A government can no more determine prices than a goose can lay hen’s eggs.”





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Weekly Market Recap Jul 15, 2018

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The NYSE McClellan Oscillator flipped to black late in the week prior to the last, and usually that bodes well short term.  Indeed that foreshadowed a nice week. TRADE WARS ™!!!! certainly seems like a “sell the rumor, buy the news” event.

“Given the rhetoric over the past few weeks, it seems like the probability of a trade war has increased. However, in the short term I still think there’s a relatively low probability that one will actually occur. And in the meantime, U.S. economic data has been good, and the Street knows this will be a good year for earnings,” said Scott Wren, senior global equity strategist for Wells Fargo Investment Institute.

“With the prospect of a positive earnings season ahead of us, investors seem to have forgotten the threat of further trade tensions,” said Konstantinos Anthis, head of research at ADS Securities, in a note Tuesday.

Wednesday was the one day the indexes took a hit (momentarily) after the White House late Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods.

The new tariffs won’t take effect for at least two months, administration officials said, giving U.S. industry time to comment on the products selected for levies — and for the two sides to start a new round of talks.

“This is different from the other trade announcements, because the size is significantly larger, and because China is unable to directly reciprocate at $200 billion because they don’t import that much. It’s unclear what it might do next, but it is clearly another step closer to a full-blown trade war,” said David Carter, who oversees about $2 billion as chief investment officer at Lenox Wealth Advisors.

Bloomberg reported late Wednesday that officials from both countries have raised the prospects of restarting a conversation at a high level.

Earnings season began in earnest Friday with financials – earnings are set to explode this quarter on the back of massive tax cuts enacted late last year.   Economic reports for the week were not market moving.

For the week the S&P 500 gained 1.5% (two weeks in a row) and the NASDAQ 1.8% (after a 2.4% increase the prior week)

Oil looked crazy strong a week ago – this was quite a drop but still, sitting on a nice moving average.

Copper continues to look like crud.

FAANG stocks go up, news at 11 – yada yada yada.

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

Per Statista here are the top 10 global apps for iPhone.  This list makes me feel very old… and very American. 🙂  i.e. “what the heck are 7 of these??”

Kylie Jenner is apparently almost a billionaire…. uhhh.

Kylie Cosmetics debuted two years ago with $29 “lip kits” and, according to Forbes, has ballooned into a beauty industry icon valued at nearly $800 million. Forbes wrote that the company has sold more than $630 million worth of makeup, including roughly $330 million in 2017 alone.  For scale, Jenner has 111 million Instagram followers – more than twice as many as Barack and Michelle Obama combined. According to Mintel data, 55 percent of consumers ages 18 to 23 used social media or YouTube to get information on beauty brands.

The week ahead…

Earnings season heads into overdrive the next few weeks – if estimates are any indication, they should be blockbuster.

Retail sales hit Monday with expectations of a 0.5% increase.  Trump – Putin face off in Vegas!! Oh wait, Helsinki.

Federal Reserve Chairman Jerome Powell is set to deliver his semiannual monetary policy report to the Senate Banking Committee on Tuesday and is likely to testify in front of the House Financial Services Committee thereafter (though that hasn’t been confirmed).

The testimony comes a little over a month after the Fed raised interest rates on June 13 for the seventh time since the end of 2015. Powell’s comments are likely to add more dimension and texture to the institution’s monetary-policy strategy, as it looks to bring interest rates to a more normal, precrisis level and delever its asset portfolio, which became bloated to the tune of some $4.5 trillion during the height of the 2007-09 asset-backed fueled blowup.

Index charts:

Short term: Very choppy on the S&P 500 of late but a new “higher high” (a high higher than the previous high – in this case early June) was hit.  NASDAQ same story but now all time highs.

The Russell 2000 is in an interesting spot.  This has been the leader for quite a while – we have a “double top” right now… that doesn’t mean it’s going to confirm.  We could just be in a “sector rotation” away from domestic companies to international ones who have suffered due to trade war fears.  But it’s certainly something to keep a close eye on.  If a new high is not reached here it will be something to note.

The NYSE McClellan Oscillator was in the black all week but just there at the end of the week – watch this one close as well.

Long term: Still very positive for the “buy and never sell” crowd.

Charts of interest / Big Movers:

Monday, CTI BioPharma (CTIC) tumbled 14% after it said a late-stage trial of a treatment for the blood cancer non-Hodgkin lymphoma failed to meet its main goals.

Wednesday, Fastenal (FAST) surged by 10% after the company late Tuesday said its board raised the quarterly dividend to 40 cents a share from 37 cents a share. The fastener manufacturer also reported better-than-expected second-quarter earnings of 74 cents a share.

Thursday, software company CA (CA) rallied nearly 19% trade after chip giant Broadcom (AVGO) confirmed late Wednesday it has agreed to take over the software company for $44.50 a share. Broadcom sank 13.7%.

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



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Jerry Muller Interview with Michael Covel on Trend Following Radio

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Jerry Muller
Jerry Muller

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Jerry Muller is a professor of history at The Catholic University of America, where he has taught since 1984. His latest book is “The Tyranny of Metrics.” Quantifying metrics can be a good thing, however, it can easily go too far and have great consequences.

Jerry sees pitfalls of focusing too much on metrics everywhere – schools, hospitals, even venture capital. Children gear their learning toward beating a test rather than intellectually developing their mind. Doctors fixate on standardized performance measures, rewards and punishment, and publicized accountability. The system encourages and sometimes requires doctors to game the system. Venture capitalism, the very field where creativity should prosper, tends to foster an anti-creative atmosphere. Investors want to see data to back up a new product so they can see proof of a future profit. The problem? New innovations don’t have data because they have never been seen before in the marketplace.

Using metrics in schools, hospitals, and business can be extremely useful depending on what context it is used, but alone they are not enough. Human development as well as human experience should be weaved into the equation. Michael and Jerry finish the podcast up talking metrics in China, how it has lead to gaming the system and taken a toll on developing research.

In this episode of Trend Following Radio:

  • Intrinsic motivation
  • Tyranny of metrics
  • Metric fixation
  • Metrics in law enforcement
  • Metrics in health industry
  • Managerial ideology
  • Powerpoint presentations
  • Metrics in China

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