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Weekly Market Recap Jun 3, 2018

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After 2 weeks of low volatility, that variable was introduced back into the holiday shortened week!  Another change from 2017 when almost every week was a low volatility week.   That said, small caps (Russell 2000) and tech stocks held in quite well and we don’t have any major technical change in the indexes – more on that later.

“Political drama in Italy” was what caused some ruckus Tuesday when traders returned from the long break.

“Today’s selling is happening on a larger volume, which is concerning. It means that investors are now worried about contagion from the fallout in Italy,” said Joe Saluzzi, partner and co-head of equity trading at Themis Trading.

And then Wednesday it was “not so much” as indexes rebounded.  With a “gap up” pre market. (A coalition government was formed later in the week).

“The fact that the market is shrugging off Italy’s political drama suggests that maybe it was a crowded trade that was being unwound and not something more serious,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

Ah, she is a mercurial beast.

Thursday, TRADER WARS!! ™ were back on the forefront as the U.S. decided to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico.  Canadian Prime Minister Justin Trudeau said Ottawa would impose a 25% tariff on steel imports from the U.S., a 10% tariff on aluminum and other U.S. goods.

Friday, a Trump tweet about the employment data led to a “gap up”.

For the week the S&P 500 closed up 0.5% while the NASDAQ added 1.6%.  Second straight week of big outperformance by the NASDAQ.

Wednesday, the first revision of Q1 gross domestic product  showed the U.S. economy grew a touch softer than originally reported, mainly because of a slower buildup in inventories. GDP was trimmed to an annual 2.2% pace from 2.3%.  The Federal Reserve said in it’s “beige book” that the U.S. grew “moderately” from late April to early May.  ISM Manufacturing rose to 58.7 which is a quite strong number.

Friday’s employment report was a bit more positive than expectations with 223,000 new jobs created in May, while the unemployment rate fell to 3.8%. Wage growth was modest, with the yearly rate of pay rising to 2.7% from 2.6%.

“The market wanted a goldilocks jobs report and that’s exactly what May’s report was. The economy is still adding jobs but wage growth and inflation are not at extreme levels,” said Lisa Erickson, head of traditional investments for U.S. Bank Wealth Management.

“The latest jobs numbers only reaffirm the Fed’s plan to raise interest rates twice more this year — one in June and one in September, with a 50/50 chance of third hike in December,” said Wouter Sturkenboom, senior investment strategist at Russell Investments.

Probably the most interesting part of the report was Trump “front running” the news with a tweet that many read as signaling positive…

Financials had a rough week as the drop in Treasury yields hurt prospects for some fatter margins.

These market favorites just look so strong again….

Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.  (please note she transposed the words Thursday & Tuesday)

A lot of you folk are borrowing a LOT of money on new cars!

In the first quarter of this year, the average monthly loan payment for a new vehicle climbed $15 compared with last year, hitting an all-time high of $523, according to Experian. The credit analysis company’s review of new and open auto loans for the first three months of this year found buyers of new cars, trucks and SUVs borrowed an average of $31,453 — also a record high.

Experian says the average length of an auto loan in the first quarter was just over five years and nine months.

The week ahead…

Tuesday brings ISM Services but overall it appears not too much eye opening lays ahead outside of TRADE WARS!!(tm) – we’ll see if volatility dies down.

Index charts:

Short term: The S&P 500 remains mostly range bound and has for a few weeks, meanwhile the NASDAQ is looking a bit more spiffy of late.

The Russell 2000 has been the best of the bunch.  So far in 2018, the Russell is up 7.3% to the S&P 500’s 2.3% rise.

The NYSE McClellan Oscillator remains in a positive spot.

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

Charts of interest / Big Movers:

Wednesday, retailer Michael Kors (KORS) skidded 11% after the fashion house posted its results but investors are more concerned with weak sales growth going forward.

Meanwhile, Dick’s Sporting Goods (DKS) jumped 26% after the retailer reported first quarter earnings and revenue that beat expectations and raised its guidance.

Thursday, General Motors (GM) surged 12.9% after the car maker said the SoftBank Vision Fund plans to invest $2.25 billion in its self-driving unit.   Now the company just needs to announce it is using “block chain” to develop the self driving cars and the stock should double overnight.  Or was that a 2017 thing???

Hmmm even the discount retailers are getting hit on earnings – #AMAZON’D

This one has been in a death spiral for years – Sears Holdings (SHLD) fell 12.5% after the department store chain swung to a fiscal first-quarter loss and revenue fell sharply.   Seems like a likely candidate to some day be #TOYSRUS’D.

Yoga pants are still in fashion and Lululemon (LULU) late Thursday reported forecast-beating earnings and issued better than expected guidance.

Zuora (ZUO) soared 21% after the business-subscription software company late Thursday announced results and an outlook that topped expectations.

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



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Strategies & Ideas

Jonathan Tepper Interview with Michael Covel on Trend Following Radio

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Jonathan Tepper
Jonathan Tepper

Subscribe to Trend Following Radio on iTunes

Jonathan Tepper is co-author of “The Myth of Capitalism: Monopolies and the Death of Competition.” He is chairman of Variant Perception, a macroeconomic research group catering to asset managers and co-founded Demotix, a citizen-journalism photo newswire.

Tepper notes — Google and Facebook control over 70% of all search and linkage within the internet. Their algorithms are biased and guide users to go where they want them to go. Most need Google or Facebook to login to certain websites. So on a platform as vast as the internet, where is the competition?

There’s a lot of smart, wealthy, entrepreneurial focused people around the world – why are they not fighting back? There is virtually no interest by people in Silicon Valley to get into the search engine game. Any small competitor that tries to insert themselves into the industry gets bought out by their larger sized competitors. Jonathan encourages capitalism and companies becoming monopolies because of organic growth. Unfortunately, this is rarely how companies grow. Monopolies are usually formed due to political advantages and strong economic footholds. Jonathan describes the economy right now as “fake capitalism.”

What will it take to overturn a Google or Facebook or Amazon? Will they be dominating for the next 30 years? The central point of evolution is competition – the struggle for survival. In a perfect world, companies with the best and strongest traits would survive while the old and fat companies would die off rather than continue to thrive because of crony capitalism. Only time will tell if these mammoth sized companies will continue to push boundaries and prosper or if a younger more creative company will overthrow them.

In this episode of Trend Following Radio:

  • Technology monopolies
  • Capitalism
  • Airline monopolies
  • Anti trust laws
  • Federal Reserve
  • The banking system
  • Fake capitalism
  • The Antitrust Paradox
  • Patents

“Economic freedom is essentially a per-requisite to political freedom.” – Jonathan Tepper

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Weekly Market Recap Dec 09, 2018

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Bears are certainly showing the type of strength we haven’t seen in a long time.   A week ago at this time futures were surging on news of a “truce” for 90 days between China and the U.S. in their trade spat.  But the charts were still not saying lovely things despite a major rally the week prior.   And by Tuesday, darkness had descended back on the indexes, with another gut punch Friday.    A lot of emphasis was put on a long term Treasury yield dropping below a shorter term Treasury.

On Monday, the yield on five year government debt slid below the yield on three year debt, a phenomenon which has preceded previous recessions, and a sign that investors are more confident about current than future economic growth as the Federal Reserve raises rates.

The “two year” vs the “ten year” Treasury yield a lot of people like to watch and that hit its narrowest spread in 11 years.

There is no rush to be involved heavily in this market until this volatility sorts itself.    The obvious near term “upside drivers” now would be (a) a real trade peace between U.S. and China and (b) the market’s favorite thing – an easier Fed; in this case that would entail signals to the market that the rate hikes forecast for 2019 are no longer in the cards.   The latter is ALREADY being floated out to the investing community as the Fed has become a lackey for the market the past 20 years.

It’s always helpful to watch what major sectors are “strong” – in this case the type of sectors that institutional money flees into – utilities and consumer staples are holding up.

Meanwhile “growthy” areas like tech and industrials are sagging.

This whole move down was started by a spike in yields such as the 10 year – even with a big retreat this past week, the market did not respond positively.

This week was almost the exact opposite of the week prior with ~5% moves in the indexes either way week to week!  Now that’s some good ole volatility.  This week it was downward with the S&P 500 sinking 4.6% and the NASDAQ 4.9%.

On the economic front, ISM Services still came in a very healthy 60.7.  Readings over 60 aren’t too common; anything over 50 signals expansion.  Of course the market is a forward looking indicator.

As to the November employment data, the Labor Department estimated a gain of 155,000 vs expectations closer to 190,000.  The unemployment rate held steady at 3.7%, as expected. Average hourly earnings grew 6 cents per hour from October, or 0.2%, just shy of expectations, and grew by 3.1% year-over-year, their highest rate since 2009.

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

The week ahead…

Fun fact – there have been 57 1% moves in the S&P 500 in 2018 vs the very strange year of 2017 where the snoozer market only offered up 8 such days!  In terms of 2% moves, there were 0 in 2017, while there have been 16 in 2018.

The last Fed meeting comes the week after this (Dec 18-19) and one would expect more “leaks” about how 2019 is going to be more dovish than people expect.

Other than waiting for the leaks, watching the “flattening” yield curve will preoccupy the minds of many.

Index charts:

Short term: The S&P 500 spent exactly 1 session over our trend line (and the 200 day moving average) before getting crushed.  NASDAQ didn’t even try to go above the 200 day.  Looking at recent lows now becomes important – if those break, it would not be a positive.

The Russell 2000 still looks putrid.  It is now facing lows of February!

The NYSE McClellan Oscillator spent much of last week in the black actually – but for now this is not an indicator we are going to focus on a ton as the charts are saying negative things for now.

Long term: The NASDAQ is the chart that interests me as it has such a well defined channel.  Last week we said “So it appears 7500 is a good number to watch as a rally up and through that level would signal the index getting back in a channel it has been in for years!”

That didn’t happen – in fact the index got within a few points of 7500 – then was soundly rejected.  This is why charts are fun to evaluate.

Charts of interest / Big Movers:

Another rough week in brick & mortar retail:

Thursday, Children’s Place (PLCE) plunged 13%, hitting 13-month lows, after the retailer cut its earnings and margin outlook for the full year.

Friday Big Lots (BIG) traded down 23.1%, after a wider-than-expected third-quarter loss.

Also Friday, Ulta Beauty (ULTA) slumped more than 13%, after a Thursday evening earnings release that predicted weaker holiday sales that analysts hoped.

Altria announced it would take a 45% ownership stake in the cannabis firm Cronos Group (CRON).

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



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Follow the Opportunity with Michael Covel on Trend Following Radio

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Michael Covel
Michael Covel

Subscribe to Trend Following Radio on iTunes

Trust but verify. Do you listen to media, teachers, etc. and blindly trust the information given? When listening to information or insight it is ok to trust, but you must verify. The vast majority of people choose to never second guess the source.

Michael’s first aha moment with looking outside the box was discovering the turtle story. There were a few things that caught his interest about the story–the trading experiment was seemingly repeatable, that systematic kind of trading was teachable and doable for anyone, and many of those involved in the experiment had moved on and made fortunes. Discovering trend following through the turtles led to many other avenues for Michael, including this podcast. Michael shares some of those insights learned over the years, including what he has learned during the evolution of this podcast.

In this episode of Trend Following Radio:

  • Turtle story
  • Bayesian mindset
  • Going with the flow
  • Open to new opportunities
  • Trend following philosophy
  • Holy grails

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