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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 Nov 11, 2018




This past week was saw another positive move up by bulls – especially in the Dow and S&P 500; the NASDAQ was not quite as enthusiastic.   Wednesday’s rally was on the legs of an election that was seen as market friendly or at least not as bad as it could have been.   Essentially – paying people a lot of money to get nothing done the next 2 years – woo hoo!

The market is interpreting Wedneday’s result as insuring that “no big things will get done,” in Washington between now and 2020, Craig Birk, chief investment officer at Personal Capital told MarketWatch. “The market appreciates the relative certainty of the slow legislative agenda.” he said.

“As President Trump plans his 2020 reelection campaign, a gridlocked Congress is unlikely to deliver any notable wins to help expand his agenda. Therefore, Trump will likely focus on his broad executive powers to affect trade and national security,” wrote Dec Mullarkey, managing director, investment strategy, Sun Life Investment Management, in a research note.

We are still seeing quite a bout of volatility – usually rallies that will last will settle into some sort of “calm” so we are not there yet.   In fact the move to the upside got so extreme mid week that the NYSE McClellan Oscillator actually went to overbought levels for the first time since spring (more on that below).

Nothing of note from the Federal Reserve Thursday – exactly as expected:

In a statement that was largely intact from its September meeting, the Fed said, “The Committee expects further gradual increases in the target range for the federal funds rate.” It also said the risks to the economic outlook “appear roughly balanced” and noted that inflation remains near its 2% target.

The absence of any major changes to its commentary suggests that the central bank plans to raise interest rates in December and plans three hikes next year, in line with market expectations.

Massive drop in oil the past few weeks!  Some contrasting thoughts on the implication of this selling can be found here.

U.S. crude oil prices settled in bear-market territory on Thursday, defined as a drop of at least 20% from a recent peak, and that decline may invite questions about the health of demand and the vitality of economies around the globe. Along with other key commodities, oil has often been used as a gauge of world wide vitality.

Willie Delwiche, investment strategist at R.W. Baird, said in an interview with MarketWatch that the oil’s bear market could be spooking investors. “Oil being down could be a sign that the global economy is in a tough spot,” he said.

For the week the S&P 500 gained 2.1% while the NASDAQ added 0.7%.

In economic news, the ISM services index slipped to 60.3 in October, down from 61.6 in September, but beating the 58.6 average estimate.  Still a very strong reading – anything over 50 marks expansion.

We don’t normally mention this one but Friday the producer-price index for October rose 0.6%, versus the consensus estimate of 0.2%. Excluding volatile food and energy prices, producer prices increased by 0.5%.  That’s a very “hot” number and one the Fed would be interested in.

Here is the 5 day weekly “intraday” chart of the S&P 500 …not via Jill Mislinski.

This is a great infographic from Statista about those representatives we just elected.  The number of committee hearings about you know…actual policy… has fallen off a cliff vs 25 years ago.

Over time the legislative process has been breaking down, with less legislation getting into committees. According to Pro Publica, the count of committee hearings dealing directly with legislation has dropped significantly between the 101st Congress, governing between 1989-1990, and the 114th Congress, governing between 2015-2016. The number of Senate committee hearings dealing with legislation has fallen by about 85 percent over this period… the 114th Congress conducted about 72 percent fewer committee hearings dealing with legislation than the 101st Congress did.

The week ahead…

Earnings season is coming to an end and we are in a bit of an impactful economic news drought here aside from retail sales hitting Thursday.  Technical traders should be watching how these recent rally acts – can markets go sideways for a while before a new leg up.  Or was that rally the oversold bounce and can bears – for the first time in eons – impart their will over a sustained period of time.

Index charts:

Short term: The S&P 500 obviously had the better week – both indexes crossed over their 200 day moving averages but only the S&P 500 held it by end of week.  So the question of the week of course is “is this the beginning of the rally or was THAT the oversold bounce?”  These next few weeks will be very interesting as a bullish take can be we have an “inverse head and shoulders” forming (if the market can go sideways for a bit) while a bearish take would require another bout of selling – and then creating a new low below the one seen at end of October.  No one knows today but those are some of the things to watch!

This Russell 2000 continues to act poorly – this long trend line connecting lows of August 2017 and February 2018 served as resistance this week – the index rallied to it and was rejected.  The 200 day moving average is about to get crossed by the 50 day moving average which is seen as a negative in technical terms as well.  This chart reflects the smaller and mid sized public companies in the country – which are far less multi national – so it’s interesting to observe how much weaker it has been this past year.  Especially if you believe markets forecast the future ….

The NYSE McClellan Oscillator is in the black – not only that it hit its first overBOUGHT level since Spring Wednesday.  It’s difficult to quite trust this with the technical damage done on the charts but usually it does signal a positive sign when it’s positive.

Long term: The S&P 500 looks to be in decent shape here but the NASDAQ continues to trail at the bottom end of this long term channel so it’s the one to keep an eye on the next month.  Any reversal back down that sustains would mark a big change in character.

Charts of interest / Big Movers:

CVS (CVS) rose 5.7% Tuesday after the drugstore and health care company announced 6.7% same-store-sales growth for the third-quarter.

E.l.f. Beauty (ELF) rallied 19.2% Tuesday, after its Monday-evening earnings report showed the cosmetics company producing third-quarter projections for revenue and profits that were better than expected. The firm also raised its full-year guidance for 2018.  Now we eagerly await results from Hobbit Beauty….

Generic drug maker Mylan (MYL) rose 16.1%, after the pharmaceutical company announced Monday evening that its profits more than doubled in the third quarter from the year previous.

Michael Kors (KORS) tumbled 14.6%, after the fashion luxury group missed revenue expectations in a Wednesday morning earnings release.

Office Depot (ODP) popped 24% after the company announced revenue and sales figures Wednesday morning that beat analysts’ third-quarter estimates. The office-goods retailer also raised its full year guidance for 2018.

Wynn Resorts (WYNN) sank 13% Thursday after an earnings call late Wednesday during which CEO Matthew Maddox said he anticipates a “soft” market in the fourth quarter for its Macau business line.  Been a rough 6 months for this stock!

TripAdvisor (TRIP) surged 15% Thursday after it released better-than-expected earnings.

Yelp (YELP) tumbled 26.6% Friday, after the companymissed Wall Street sales targets and lowered fourth-quarter guidance, in a Thursday evening release.

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

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Peter Boettke Interview with Michael Covel on Trend Following Radio




Peter Boettke
Peter Boettke

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Peter Boettke is economist of the Austrian School. He is currently an economics and philosophy professor at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU. His newest book is “F. A. Hayek: Economics, Political Economy and Social Philosophy (Great Thinkers in Economics).”

Peter got hooked on economics during college after being hired for his first job – digging pools. He saw taxes being taken out of his pay and personally felt the negative effects. The philosophy behind why his checks were being garnished didn’t sit well with him. Rather than be frustrated, he got fascinated with the way economics worked and quickly saw there was something obviously wrong with the way government was ran. Along with signing up for all the economics classes he could, Peter went to the library and read. He had “a-ha” moments in those reading sessions that has molded him to be the economist he is today.

Michael and Peter touch on a broad scope of topics including: What is Peter’s perspective on President Trump’s view of trade wars and tariffs? Should intellectual property be protected? What is rent seeking and how does it relate to Jeff Bezos? What separates the American entrepreneurial spirit from entrepreneurs overseas?

In this episode of Trend Following Radio:

  • Trade deficits
  • Trump politics
  • Politics in the marketplace
  • Zero sum game
  • Jeff Bezos and rent seeking
  • The market for privileges
  • Merchant class mentality

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Weekly Market Recap Nov 4, 2018




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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