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Weekly Market Recap May 27, 2018

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The second week in a row of low volatility which is usually advantage bulls.  Monday saw a nice spike up for indexes and then the other four days of the week the range was very narrow.  Monday’s rally was due to the lessening chance of TRADE WARS!!(tm):

Treasury Secretary Steven Mnuchin said over the weekend that the Trump administration would delay implementation of tariffs on Chinese goods and “put the trade war on hold” while working out details of a deal between the countries.  At the end of trade negotiations that weekend, China agreed to buy larger amounts of U.S. goods to help narrow the trade deficit between the two economies, but didn’t agree to the specific U.S. target of $200 billion.

News was generally quiet but we did get the Fed minutes late Wednesday which were considered market positive.

Federal Reserve officials in their meeting in early May confirmed they planned to raise interest rates in June and were not concerned they were behind the curve on inflation.

“Most participants judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation,” the minutes said

Although inflation hit the Fed’s 2% target in the latest reading for March, for the first time in a year, officials were not convinced it would remain there for long.

“It was noted that it was premature to conclude that inflation would remain at levels around 2%, especially after several years in which inflation had persistently run below the Fed’s 2% objective,” the minutes said. Only a “few” officials thought inflation might move “slightly” above the 2% target.

For the week the S&P 500 closed up 0.3% while the NASDAQ added 1.1%.

Outside of some housing reports, economic news was sparse.

Treasury yields dropped back down the 2.9% range this past week after popping to 3.1% the week before.

The dollar chart continues to strengthen.

After FIVE+ weeks of great action in the oil chart we finally saw some stumble Thursday, and then a sharp reversal Friday as there were reports that OPEC and Russia may increase production.

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

Apparently there are 101 people with over $1M in student loans….

Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.  While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.

Warren Buffet’s empire in one infographic (click to enlarge)

The week ahead…

Markets will be closed Monday in observance of Memorial Day.  Friday brings ISM manufacturing and the May employment report with 190K jobs expected to have been created.

Index charts:

Short term: The S&P 500 is consolidating while the NASDAQ tipped its head over this trend line connecting highs of the year.

The Russell 2000 held its breakout.

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:

Tuesday, home builder Toll Brothers (TOL) slumped 9.6% after the building company posted a 10% fall in second-quarter profit on higher impairment charges, and said gross margin fell.

Micron Technology (MU) rallied 6.4% Tuesday after the company raised its third-quarter outlook and announced a large stock-buyback program.

It was a good week for “luxury” as Tiffany & Co (TIF) jumped 23% Wednesday after it reported first-quarter results that came in above expectations .  Meanwhile Ralph Lauren (RL) rallied 14% after it posted fourth-quarter earnings and revenue that topped analyst forecasts.

Friday, Foot Locker (FL) soared nearly 20.2% after profit and sales for the sportswear maker beat forecasts.

Zoes Kitchen (ZOES) plunged 40% after the restaurant chain posted a bigger-than-expected first-quarter loss.

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



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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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