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Weekly Market Recap Oct 28, 2018



Market action continues to be weak and real damage has been done technically.  Selling Wednesday and Friday was particularly harsh, with an oversold rally in between.  But the “buy every dip and make bears cry” mindset seems to have disappeared for the moment.

“We’ve had this massive shift in sentiment in recent months from ‘the market can do no wrong,’ to ‘the market can do no right,’” said Amanda Agati, co-chief investment strategist at PNC Financial Services Group.

The triple overhang of trade uncertainty, Fed rate increases, and slowing global growth are “causing investors to jump on any bad news, or even just mediocre news, to punish stocks,” Lance James, senior portfolio manager at RBC Global Asset Management, told MarketWatch.

While some of the most dramatic rallies can happen within the context of a correction, those with a short to intermediate term view still would be wise to view the near term with caution. And for the first time in a long time there is some cautionary tales out there even on the long term charts.

(Far) across the pond, please note the Chinese market did not hit a new low and the “outside reversal” day to the upside we noted last week is still holding sway.  That said if things get ugly from here, that could fall away quickly.

For the week the S&P 500 fell 3.9% while the NASDAQ fell 3.8%.  The S&P 500 is now down for the year while the NASDAQ is still up 3.8%.

Sales of newly constructed homes swooned to the lowest since December 2016.  The charts of the housings stocks have been telling us about this slowdown well in advance!

The Fed’s Beige Book showed that wages and prices are rising in the central bank’s 12 districts but not faster than a “modest to moderate” pace and that the economy expanded at a “modest to moderate” pace.  Still, the Fed’s account of the business atmosphere helped to reinforce the view for skittish investors that trade clashes are a genuine, creeping threat to the economy.

The Commerce Department reported that the U.S. economy grew 3.5% in the third quarter, beating forecaster estimates of 3.4%.

The European Central Bank on Thursday reaffirmed its plan to end the asset-buying program at the heart of its quantitative-easing strategy in December provided data show inflation remains on track to eventually meet its target. The ECB left interest rates unchanged and repeated that they will remain at present levels “at least through the summer of 2019.”

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

The week ahead…

Earnings season continues but all eyes will be focused on the health of the market in general.  ISM Manufacturing and the monthly employment data will be released Thursday and Friday respectively.

Index charts:

Short term: We expanded our short term charts out to over a year to give some context.  For the S&P 500, a trend line connecting lows of early 2018 has been broken and to even begin talk of a healthy market would entail that level being recovered along with a move back above the 200 day moving average.   Not too different on the NASDAQ.  One note for the longer term – there is a “gap” in the NASDAQ chart down there near 6000 – at some point…some day… that should get filled.  Doesn’t mean in this correction.

This Russell 2000 is just in rough shape and not too far from 2018 lows.

The NYSE McClellan Oscillator continues to tell us to be cautious as it has for 2 months now.  Last positive reading was in August!

Long term: Finally some fireworks in the long term charts as some support levels were broken this week.

Charts of interest / Big Movers:

Monday, American Railcar Industries (ARII) soared 51% after the company announced said it would be acquired by a fund managed by investment firm ITE Managment LP. Under the terms of the deal, valued at $1.75 billion, ITE will pay $70 for each share of the company.

Tuesday, Caterpillar (CAT) fell 7.6% after the industrial giant reported profits and revenue ahead of analysts expectations but offered guidance that was below consensus.

McDonald’s (MCD) rose 6.3% after announcing third-quarter results.  When “boring safety stocks” stocks like McDonald’s begin to lead the market it’s not a great thing.

Wednesday, Texas Instruments (TXN) fell 8.2%% after the chip company released third-quarter results late Tuesday.

AT&T (T) shed 8.1% Wednesday, after the telecommunications and media giant reported third-quarter earnings that missed expectations but sales that beat.

Thursday, Tesla (TSLA) soared 9.1%, after the electric-car maker produced the largest quarterly profit in the company’s history.

Ford (F) rose 9.9% Thursday – its best day in 9 years – after reporting better-than-expected earnings after Wednesday’s close.

Twitter (TWTR) soared 15.5%, after the company posted earnings and revenue beats for the third quarter, though a 9% decline in monthly active users was a sharper drop than analysts expected.

Advanced Micro Devices (AMD)  sunk 15.5% Thursday after the firm reported revenue and an outlook that missed expectations Wednesday, after the close.

Amazon (AMZN) closed below its 200 day moving average Friday for the first time since early 2016 after it posted a record profit but sales disappointed.   Guidance for next quarter was also not to the market’s liking.

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

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Strategies & Ideas

Weekly Market Recap Jan 20, 2019




After entering the week quite overbought, indexes took a small retreat Monday before hurling back upwards.  This is typical of the “V” shaped moves up after any significant selloff, we’ve seen most of the past decade and watching them unfurl is quite amazing actually.  Thought maybe this time would be “different” but not so much.  So two week’s ago we asked “Has the Fed solved all the market’s problem in 1 speech?” – and thus far the market has answered resoundingly yes.  The word of the year thus far in 2019 is “patience” as that simple insert into a speech change the whole complexion of everything.

China has also been busy stimulating; on Tuesday:

An announcement from the People’s Bank of China that it would increase efforts to spur their economy by improving credit availability for smaller companies and a pledge by the Chinese Ministry of Finance to cut taxes and ramp up infrastructure spending helped to buoy market sentiment.  The comments come a day after China’s trade data came in weaker than expected, underlining worries that the country’s economy was locked in a downturn that could weigh on global expansion amid a protracted tariff spat between China and the U.S.

Thursday, the Wall Street Journal reported that the Trump administration was debating whether to ease tariffs on Chinese imports in a bid to calm markets.  Meanwhile Friday, a Bloomberg report said that Chinese officials have offered to increase imports from the U.S. by $1 trillion over the next six years, a plan that would reportedly bring the U.S. trade deficit with China to zero by 2024.

Not too much on the economic front but it is worth noting the Beige Book for anecdotal commentary:

The Beige Book showed eight out of 12 Federal Reserve districts reporting modest to moderate growth. However, the degree of optimism appears to be waning, in part due to financial-market volatility and rising interest rates.   On prices, “most” districts reported firms were seeing rising input costs, but said firms were “mixed” on whether they could pass these higher costs to customers. High tariffs were seen as one factor in increased expenses, along with higher prices for materials and freight.

For the week the S&P 500 gained 2.9% and the NASDAQ 2.7%.

Is that an inverse head and shoulders formation on the oil chart?

Twilio (TWLO) is already back to new highs.

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

The week ahead…

Earnings kicks into gear.  Regurgitating the thought of the prior recap: “We enter the week extremely overbought”.

Index charts:

Short term: No matter how many times you see it, when these 180 degree turns happen in the market, they can take the breath away.

Another very good week for the Russell 2000 – so far 2019 has been excellent for this index which suffered in 2018.

Small capitalization stocks had a miserable final four months of 2018, with the small cap oriented Russell 2000 index falling 27% from its Aug. 31 high to its nadir on Dec. 24, more than doubling the losses produced by the S&P 500 index over the same period.

This chart is startling – rarely do you ever see the the NYSE McClellan Oscillator over 70 for a day; currently it’s been sustained over that level for over a week.  For 70, this is an extended run in the 100s.  Wow.  Here is a 3 year NYMO chart to show how rare this is – last time we can see any action of a similar sort it was 2016.

Long term: The “V” is on…

Charts of interest / Big Movers:

PG&E Corp (PCG) was in last week’s recap, and we’ll repost it this week as it tumbled 52% Monday after the gas and electric company said it plans to file for bankruptcy on or about Jan. 29.

Gannett (GCI) rallied 21% after private equity firm MNG announced an unsolicited bid to buy the owner of USA Today, valuing the company at $1.4 billion.

Netflix (NFLX) jumped 6% Tuesday after the video streaming company said it would raise U.S. prices by 13% to 18%, the biggest rise since launching its streaming service 12 years ago.

Blue Apron Holdings (APRN) surged by more than 45% Tuesday after the meal kit company predicted it would reach profitability on an adjusted-Ebitda basis in the first quarter and full year 2019.

Bank of America (BAC) gained 7.2% Wednesday after the bank reported revenue and profitabove average analysts’ estimates.  Similar spike for Goldman Sachs (GS).

Sears Holdings (SHLDQ) soared 56% Wednesday after Chairman Eddie Lampert prevailed in a bankruptcy auction for the struggling department store chain with an improved takeover bid of roughly $5.2 billion, according to reports.

Tesla (TSLA) slumped 13% Friday after the company announced job cuts and warned on profits.

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

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John Lin Interview with Michael Covel on Trend Following Radio




John Lin
John Lin

Subscribe to Trend Following Radio on iTunes

John Lin is founder and CEO of Grasshopper, a high frequency trading firm providing liquidity in global markets. Grasshopper was founded in 2006 and is heavily driven by technology and innovation. After graduating with an Engineering degree from Cornell University, John worked his way up from a clerk position in the Chicago Mercantile Exchange. Since then, he’s lived and traded internationally in London and Tokyo, and currently lives in Singapore.

John is one of the last traders fortunate enough to have floor experience on the CME. He got a job as a runner on the CME floor in the early 1990’s and from there he learned invaluable lessons on trading, discipline and respecting the market. What made John so interested in trading in the pits? He saw the pits as capitalism ground zero.

Over the years, with technology changing, John has had to adapt his trading style accordingly. John has gone through a gradual transformation in his trading – starting with his 15 year career on the trading floor where he interacted heavily with people to 100% computer driven high frequency trading. He has taken his experience from his early years of trading and poured it into his current companies. As a trader, you are taught you’re never bigger than the market. John knows he is always listening to the market when he trades, not trying to beat it.

In this episode of Trend Following Radio:

  • Trading in the pits
  • Nick Leeson
  • Singapore legal system
  • Barings Bank – 1995
  • High frequency trading
  • Crypto currency
  • Interfacing with technology

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Weekly Market Recap Jan 13, 2019




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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