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Weekly Market Recap Nov 4, 2018

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Words rarely spoken the past few years:  “The market was due for a bounce back after some intense selling.”  Modest selloffs Monday and Friday bookmarked 1%+ rallies Tue-Thu on the S&P 500.  It’s not so much the rally during a selloff to examine as the action after the rally.   So we should have a good amount of information at this time next week – bears have been so used to rallies just continuing straight up the past half decade plus so we’ll see if there is a change in nature.  Aside from fixing some technical damage bulls would want to see a significant drop in volatility.

October once again struck as one of the trickiest months on the calendar for markets:  The S&P 500 shed 6.9% for its biggest monthly decline since September 2011, while the NASDAQ dropped 9.2% in October for the biggest fall since November 2008.

(Far) across the pond, we mentioned the bullish “outside reversal” day a few weeks ago in the Chinese market – despite the selling in U.S. markets this reversal held up and the Chinese market looks like it has put in a short term bottom at least!

For the week the S&P 500 gained 2.4% while the NASDAQ added 2.7%.

In economic news, Monday the government announced consumer spending rose 0.4% in September, matching forecasts. Incomes rose a smaller 0.2%, the smallest rise in 13 months.

Thursday, ISM Manufacturing fell to a six month low of 57.7 vs economists’ expectations of 58.7.  Still a very strong number.

Friday, the government reported job gains of 250,000 in October, beating economists’ expectations for payrolls to rise by 202,000. The unemployment rate remained flat at 3.7%, while the report showed year-over-year wage gains rising to 3.1%, slightly above the consensus estimate of 3%.

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

The week ahead…

Earnings season is slowing down but still some heavy hitters coming in.  For technical traders, let’s see the nature of the bounce in duration and strength!  Mid term elections hit Tuesday and China – U.S. trade talk speculation continues.   The Federal Reserve meets this week and is widely expected to raise rates at next month’s meeting.

Index charts:

Short term: Similar stories on both the S&P 500 and NASDAQ although the S&P 500 is in a tad better shape as it’s back near a trend line that connects the major lows of 2018.  However both remain below the 200 day moving average, although not far off.

This Russell 2000 is still far off from the 200 day moving average and soon enough we have the danger of the 50 day moving average crossing below the 200 day which is seen as a negative.  This has been the worst performing of the indexes of the past half year, if not longer.

The NYSE McClellan Oscillator turned positive for the first time in 2 months.  Let’s see if it sustains – if so that would be a positive.  A bit too early to jump on that bandwagon considering the state of the indexes but we should know better in a week how to judge this.

Long term: This past week’s rally in both the S&P 500 and NASDAQ helped push them to/near some support trend lines.  Again – next few weeks will be interesting – if markets reverse back down that will mean a clear break of very long term support lines and mark a stark change in character.  If indexes rally, we’ll be back to business as “usual”.

Charts of interest / Big Movers:

Monday, Red Hat (RHT) jumped 45% after IBM said it would acquire the open-source software company for $190 a share in a cash deal.

Tuesday, General Electric (GE) sunk 8.8% after it slashed its dividend and reported disappointing third-quarter results but announced a restructuring of its power business.  The rest of the week didn’t go too well either!

Blast from the past Akamai Technologies (AKAM) surged 17% Tuesday after the firm beat third-quarter estimates and raised its fourth-quarter guidance and full-year outlook in an earnings release Monday evening.

Under Armour (UAA) jumped 25% after the company announced third-quarter earnings and revenue that beat analysts’ estimates.

Wednesday, General Motors (GM) jumped 9.1% after third-quarter earnings and revenue came in above expectations.

Thursday, Wynn Resorts (WYNN) soared 12% following an SEC filing that indicated that the firm will take out a $500 million loan that will be used in part to buy back stock.

Friday, Apple (AAPL) sunk 6.6% after the tech giant posted results that were better than expected but disappointed on its outlook. It also said it would no longer disclose unit sales of its products for investors, as it has for more than a decade.

Starbucks (SBUX) rallied 9.7% Friday after the firm posted same-store sales growth of 4%.

GoPro (GPRO) shares tumbled the most in almost 10 months Friday, after giving an outlook for sales in the holiday period that missed analysts’ estimates.

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

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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

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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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