AUG 25 – TUESDAY MARKET COMMENTS

Today is 108 market days from the 3/23 low. Check for consistent ranking within the past 21 days for new commitments.    

Europe and Asian rose over night with US$, Treasuries and gold falling and futures moving higher. Another major bear capitulated forecasting a year-end high. “The equity market has traded soft under the surface of the headline indices, which are now being driven by just one stock—Apple.” – Morgan Stanley

The graph is from SentimenTrader. The options market is “all greed no fear”! As their data shows, Gamma exposure, a measure of sentiment in the options market, has surpassed levels, which in the past resulted in sizable market downturns.

Apparently AAPL has completely replaced GM as the bellwether of the U.S.

Sell side momentum was above average for Monday in my stock scans giving a weak, down side bias that has been replaced with this morning’s optimism.

The S&P gained one percent pushing through the psychological resistance at 3400.  The S&P is back in overbought territory with RSI above 70.  This is the highest RSI since June when a surprising one-day 6% drop occurred. 

Sector rotation dominated returns on Monday as tech surrendered its leadership.

Overall, this remains positive.

Vaccine fast-track hopes elevated S&P and COMPQX to new highs. Hong Kong has the first case of re-infection and MRNA hopes soon to sell vaccine in Europe. FDA commissioner misspoke about plasma efficacy but apparently Mr. Market wasn’t listening.

Leon Cooperman closed his hedge fund in 2018 but is very concerned about the damage of the massive debt expansion of the past year. Not having recovered fully from 2009, the ability to service government debt is increasingly difficult with a federal deficit nearly 15% of GDP.

High grade corporate debt continues growing. The bigger you are, the easier it is to borrow. For airlines, the frequent flyer miles are actually collateral for new debt. What would you get in a default? Free flights on a bankrupt airline?

China promises, again, to honor the trade agreement with the U.S. Jack Ma reports the trade conflict has made his promise of one million U.S. jobs impossible to fulfill.

A lack of supply, record-low mortgage rates, and de-urbanization are driving a suburban housing boom which will probably be confirmed in housing data to be released today.

WTI is largely unchanged even though storms have closed 82% of oil and 57% of gas production in the gulf.

DJI is less industrial and more tech as XOM gets the boot.

Maybe there is an end coming to the domestic terrorism that has been reigning in Democrat run cities.

Regards,
Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635

AUG 24 – MONDAY MARKET COMMENTS

Today is 107 market days from the 3/23 low. Check for consistent ranking within the past 21 days for new commitments.   

The Macro Risk analysis is a relative performance of the pairs to indicate general investor sentiment.

Friday’s results indicate risk-on in four comparisons. TLT reverted to risk-off status after last week’s TLH dominance.

Rising TLT value versus SPY is associated with investor concern for market risk. This week’s rotation from TLH seems to be a continuation of the recent trading range since it is not confirmed with additional short-term indications.

A profit taking pull-back is always probable at market highs. Friday’s breadth on the NYSE was 2:1 negative. Declining issues dominated the day never approaching even. The S&P closing at a record high was not consistent with the 15 minute negative tick count which increased throughout the session. The rally remains very narrow dependent on a few stocks.

A profit taking pull-back is always probable at market highs. Friday’s breadth on the NYSE was 2:1 negative. Declining issues dominated the day never approaching even. The S&P closing at a record high was not consistent with the 15 minute negative tick count which increased throughout the session. The rally remains very narrow dependent on a few stocks.

Futures were helped with a 18 tech IPOs starting trading on Chinese markets. This is a financial gauntlet to compete for U.S. and other sources of capital. Expect a gap up at the open.

The iPhone was introduced in 2007, AAPL’s P/E is approaching the 2007 extended level and a major contributor to index advances.

S&P closed Friday charting a new all-time high. Gains were driven by technology the SPDR ETF (XLK) returning to RSI overbought territory.

Support remains at the rising 20 & 50-SMAs which are now 2% and 5% lower.

In spite of a rising number of declining issues, Piper suggests the S&P closes even higher at year end with a shift to financials and cyclicals.

As mentioned in my daily updates, momentum has been weakening.

Component concentration is driving the index higher. We’ll take a closer look at this in Tuesday’s webinar.

Closes above the new high may create capitulation by the skeptics still holding cash. The resulting surge would make the next marginal buyer harder to find increasing the risk of a draw-down. For now, the slow grind up remains more likely than a significant drop. Half of S&P members remain above 200-SMA which, by definition, remains bullish. Recent Fed minutes suggest accommodative stimulus will continue. See comments below regarding the absence of bears.

Earnings season is nearly over with 95% of companies reported. YOY earnings are down 50% and quarterly sales – YOY – is minus 11%. Not to worry. Prosperity is just a quarter or two ahead.

Government shut down commerce. It must begin easing operational restrictions if small business can survive reopening.

If GS is correct that 25% of furloughed staff will be permanently unemployed, it is a major stumbling block for economic revival.

Lumber is an intermediate indicator of economic health.  When in demand, construction industries are expanding and employing massive numbers of people in related trades. Three directly related ETFs are ITB, Wood and XHB. Our Global and Aggressive Portfolios have positions in XHB.

Payroll leads to consumption driving our economy.

Increasing housing sales in July were the best on record.

“Cash is King” actually means something in the corporate world. Having committed massive cash to stock buy-backs in the last decade, many CEOs were caught short of cash when the China virus resulted in a global shut down. They borrowed to stay alive but are still burning through cash. The hoped for “V recovery” is, even in the Fed’s view, unlikely. Now, cash must be used to service the debt instead of capitalizing on opportunities ahead, further compounding the death knell of the hoped for “V.”

Straight up is every investors dream. It is much easier to see on weekly charts. This week completed the fourth consecutive weekly advance – the longest this year due to a growing sense of optimism over recent economic data releases.

With the S&P breaking its previous high, the bear market is dead. If the bears aren’t dying off, they are hibernating as sellers and have been pushed into covering their short bets. Short positions are at a 16-year low. Isn’t that a contrarian indicator? Just askin’.

The lack of short covering will make advancing to new highs more difficult.

A caller on Saturday’s radio show asked why it took so long for companies to adopt WFH? Part of the reason is “we’ve never done it that way.” The pandemic broke open the standard operating “box” as the catalyst forcing WFH processes. There are still seven major hurdles for effective, productive WFH.

Need some extra cash?

Apparently hanging around TSA airport checkpoints can be profitable.

TSA collected $926,105 of abandoned cash in 2019.

Regards,

Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635

AUG 21 – FRIDAY MARKET COMMENTS

Today is 106 market days from the 3/23 low. Consider ranking of past 21 days for new commitments.

Futures have fluctuated over the past hour in line with mixed economic news in Europe and the STOXX.

Momentum has fallen rapidly this week. Prices for the three major indices are consolidating above the 20-SMA. With uncertainty over the Jackson Hole meeting next week which is  unlikely to offer expanded stimulus.
A push through resistance will be difficult without a surge of buyers. My daily scans show a lack of buyers and low institutional activity. There is a lack of new money coming in to the market. Investors are redeeming mutual funds and rebalancing retirement fund allocations for higher commitment to bonds over equities. Along with options expiration, an excess of sellers increases short-term down side risks.

Yesterday, confidence in a speedy economic recovery was impaired with an unexpected rise in unemployment claims. IRS forecast of 37.2 million fewer employees next year than in 2019 didn’t help.

Depressed prices for INTC are attractive to the company’s management as an accelerated buyback program was announced.

The market advanced with technology reviving its leadership with financials and energy dropping further.

 Momentum indicators continue to negatively diverge from price, hinting of waning upside pressures.

S&P PE is 26 – 44% higher than the past ten years’ average – is concerning major managers. Ironically, the multi-decade mis-managed Illinois Teacher’s Retirement System management is concerned about the disconnect of prices from fundamentals. Many big institutional managers share our concern for the awakening of a hibernating bear.

coalition of NYC landlords seeking a return of various tenants has not been warmly received by major employers who are functioning fairly well with WFH. Expect years to pass before the Big Apple returns to health. Social distancing combined with low mortgage rates has added strength to the suburban real estate markets across the country. The downside exists for those who will find themselves among the permanently unemployed and facing a forced home sale or foreclosure.

Most of the headlines this morning are connected to Biden’s nomination and related political accolades for the Dem’s virtual convention by major media commentators. I am leaving those easily found articles for whoever may be interested.

“Risk means more things can happen than will happen” is from a GMO white paper that I have linked to several times this week. If you have not opened the link, I have attached the article for your weekend reading.

Regards,

Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635

AUG 20 – WEDNESDAY MARKET COMMENTS

Today is 105 market days from the 3/23 low.

Wednesday, the indexes moved sideways in consolidation. The Dow, IWM and NYSE indexes weakened. My momentum Buy and  Sell Scans were well below average. Small lot buyers have been disappearing leaving the HFTs with less to feed on. The new high in the S&P needs more confirmation before assuming resistance has been removed.

Futures indicate a weak opening following markets in Asia and Europe.

The 10-year T was 0.65% and gold flat after yesterday’s US$ revival.

The rise in gold is usually associated with rising inflation and interest rates. Many correlations have been altered with Fed market intervention, and gold’s correlation is no exception. Massive debt is debasing currencies supporting “gold bug” long-term rationale for a move higher.

The S&P shed just over four-tenths of one percent, pulling back from an all-time intraday high just short of 3400 at 3399.54 charted before the Fed notes were released. 

Intraday action broke below the 50-SMA. For daily bars, the 20 and 50-SMAs remain supportive.

Minutes from the Fed were released discouraging equity investors and reviving currency investors. The Fed made a subtle shift in its commitment to “whatever it takes” policy.

The major points are:

  • The Fed is still very concerned about the sustainability of the recovery
  • Many members voiced concern about the costs and limitations of yield curve control in the current environment. They may shy away from targeting or capping yields unless market conditions change.
  • They still believe significant financial stability risks exist, especially in the small and mid-cap arena.

The fiscal conservative nature of the Greatest Generation has not been passed down to later generations as way to handle financial difficulties. In hard times, Americans don’t save but will spend no matter the circumstances.

Major U.S. retailers net revenue forecasts were too conservative. Though not all firms were celebrating as L Brands’ sales declined 20%.

WMT report was accompanied by a statement of caution for the next quarter if Federal payroll support isn’t continued. HD’s CEO is more optimistic.

NVDA’s chip sales surpassed gaming revenue officially making it a data chip company. TGT has worked for years to improve its on-line operation which paid dividends in the midst of the pandemic.

Apple’s revenue increased by 2.2% while EBITDA is flat. The entire gain this year is due to multiple expansion. Its PE is now 36, double that at its March lows, and outside the 15-20 range for the last five years.

I have previously suggested that as FANMAGs have been market drivers, watching these companies’ charts could foretell a major correction. The NYSE has an index of 10 tech behemoths which we can track in TC2000 as NYFANG.

TrimTab Investment Research released data showing the highest insider sales since ’06.

Jobless claims data will be released this AM. The numbers remain depressing but the trend has been improving since April.

In February, there were 6M unemployed. Today the number is 30M – five times greater. U of Chicago estimates 40% of layoffs are permanent making a quick return to a pre-Covid normal very difficult.

This is likely compounded with bankruptcies and entrepreneurial reticence to make new investments in plant and labor.

Watch for TSLA to adopt NIO’s new sales model of leasing the battery in your new car reducing front end purchase costs.

Sorting out the daily influx market data has driven some participants to heavy drinking. Or so I’ve been told. The magic elixir for the hangover has been found in Finland and confirmed with randomized, double-blind studies.

Regards,

Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635