Today is 124 market days from the 3/23 low. The Run from the Bottom has ended. I am now using shorter screens for new positions while we pinball around between the 20 & 50-SMAs.

As with aerodynamics, rising too rapidly causes loss of lift in the market when inflows falter and QE sleeps. Speculation is a function of FOMO which, as in all fun rides, must end.

Trading ranges dominate conditions as stocks seek support and stability. The whipsaw environment is likely HFT frontrunning the Fed. Reading up on “the Fed Drift” and its impact on stock prices may be helpful.

The NYSE open is red following Asia and the STOXX’s sinking with Powell not offering the “next dose of a secret solution” in “better than ever” QE. Today will be the 10^th trading day of retracement by tech with XLK trapped between the 20-50-SMAs as seasonal weakness continues into October. Support for XLK is lacking in Stochastics, Williams %R, Volume and BOP and closed Wednesday at BBand 1-STD which does not appear to provide support.

Per the statement: “With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well-anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.” 

 The Fed’s news on Wednesday was that there is no real news about rates remaining at zero to “create jobs and inflation” as if 10-years of failure is about to be reversed. The statement expanded loopholes which failed to reassure global markets.

 Powell has repeated that Congress needs to pass more “stimulus” which remains stalled in DC politics. It seems the Fed is the global policy driver as BOJ maintained low rate policy but is more optimistic about growth prospects, as well as Indonesia, Taiwan and the ECB.

Consumption has been supporting the economy due to the government payroll stimulus which has ended and unlikely to have Congress agree on any major extension prior to the election. Retail sales declined in August lacking the momentum that began in March. Building material/garden equipment, furniture, health/personal care, sporting goods/hobby, and grocery store sales month-over-month was weaker than seasonal norms, although the year-to-date change for each remains above average.

The acceleration in manufacturing is slowing and is increasing the realization that a V recovery is more hope than reality. Unemployment data update today is expected to confirm the same thing.

Transports are gaining momentum with a new high that did not hold at EOD for IYT. Still a positive. You can read the areas of support in the attached file.

Employers wanting staff back in the office are facing opposition. Apparently, returning to “city life” is no longer a draw.

Even if a vaccine is approved and the distribution system works as planned, cooperation among the public is doubtful as only 37% were innoculated during the ’17-’18 flu season. Covid-19 is what follows 18, 17, 16… While the initial reaction was likely justifiable given the “models,” once the primary model was discreditted, the shut down became political instead of science. Along with Fed injections, capital markets are messed up.

Oil fell back to $40. OPEC meets today about more cuts to reduce global stocks. Restricting output is hard as all members need more money and the USA holds the production trump card. With decades of excessive cash flow, OPEC were late to build refineries. Who needs whom has reversed.

Like to ski powder?
Goldman’s CEO has his Aspen 13k square foot, 83 acre get-away ready for your go-bag.

Regards,

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

Today is 123 market days from the 3/23 low. The Run from the Bottom has ended. I am now using shorter screens for new positions while we pinball around between the 20 & 50-SMAs.

The bias remains positive though examination of the 15 minute charts reveal fairly consistent selling through the day. Tuesday put-call ratio ended bullish at 0.69.  After seven sessions with a slight bias towards protective put options. However, below .70 suggests a reversion to the mean.

The 20/50-SMA trading range continued with the majority of listed securities range bound or declining. Retail investors have been largely missing.

Foreign markets turned up overnight and contribute to higher futures this AM. Perhaps the nearly 10M barrel drop in crude stockpiles is providing optimism for growing demand with price bump to $39 in NY. Futures are up while JPM expects $200B to dump equities by month’s end as institutional portfolios do quarter-end rebalancing presenting another buying opportunity.

Momentum scans are nearly absent of activity. Classified as void.

HFTs generated most of the activity on Tuesday. Retail investors may be out of funds or lost enough to become discouraged or doubting the “markets always go up” mantra. If “voids” continue, Pro shorting activity (which currently looks like day trading) will increase with longer commitments.   

Bank stocks face ongoing difficulties in a low rate environment.

Today we get MMT update from J. Powell with the expected statement to affirm no rate changes for a few more years.

The Fed is trapped. A rate hike or significant reduction in its balance sheet has generated market drops followed by reversing back to expansive policies. This continues sinking the US$ value as outstanding debt expands to levels that the global financial community is finding unimaginable. Market are focused on the Fed’s inflation target of 2% and becoming tolerant of a higher print before tightening. With a decade of failing to achieve its target, should we believe the Fed has such “power”?

Five year Ts at 0.25%.

“Warp Speed” has generated unprecedented efforts to generate a vaccine for Covid-19 which President Trump will be achieved “next month.” Wonder why the Wuhan Virus is now Covid-19 other than not offending Xi? It is #19 of Covid type flus. A recent study claimed 80% of the population already has some level of immunity due to exposure to previous strains. Elderly and respiratory impaired should be cautious. China expects a vaccine to be ready in November.

JPM has been returning staff to NYC offices only to have an employee test positive for Covid-19 resulting in re-thinking the decision.

OECD upgraded the 2020 expected pandemic damage from -6% to -4.5%. The improved forecast was due to better USA unemployment and data from China being better than expected.

Various US entities are pushing forward to anti-trust litigation against FB and GOOGL. BA has more troubles as scrutiny is ahead over deception on the Max crash issue.

Irrational? Yes.

Bid up stock with falling earnings. Huh? My finance book must be missing a chapter.

The tech dominance may be due to the low capital option commitments made by retail investors on phone apps.

A $1,500 two week option on AAPL requires a firm such as SoftBank to buy $200,000 of the stock which must then be hedged. And we tend to think 3X is leverage!

The China trade war remains a real deal. The US trade deficit is increasing and China is winning.

Year-end shopping is expected to grow, though at a lower rate than last year (when employment was massive).

Increasing debt over the last two decades has been in the junk category.

Regards,

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

Today is 121 market days from the 3/23 low. Check for consistent ranking within the past 21 days for new commitments OR Jack’s 5-10 day rule as he explained in the session on 8-25. (Jack is already @ 40% cash).

Futures moved up this morning with news that NVDA purchased SoftBank’s chip division for $40B. Arm is the division annually selling chips and software for one billion cell phones. UBS and Credit Suisse are exploring a merger raising a question in my mind if the ’07-’08 bank problems have emerged in a troubled Europe.

ORCL outbid MSFT for the purchase of TikTok.

Persistently growing demand for oil has come to an end. BP released its forecast out to 2050 for post-Covid scenarios.

The 50-SMA was penetrated Friday by the S&P with the COMPQX closing below it. Selling over the past few weeks has been faster than seen in prior drawdowns. The pattern lately has been a big up day followed by more lower closes.

We are in transition with our data giving conflicting directions of both short and long.

Friday data had a beginning shift to shorting by some institutional banks. A minor correction is affecting the highly speculated index components. The majority of the market is not trending up. The downside is frequently interrupted by investment banks trying to maintain bullish indices. Retail buyers activity has slowed giving HFTs less to front run. On the positive side, both the VIX & VNX declined.

Our Macro asset class screen for the trailing 21 market days reveals that GLD is the only one above our cash benchmark.

The Advance/Decline data continues in a downtrend. The US$ weakened but remains in its trading range.

Giving the popular tech stocks a nickname, FANGMANTIS is 25.5% of the entire US stock market.  The remaining 3,415 names, collectively, are negative for the year. 

Increasing sales of used cars accounted for 40% of the rise in inflation. Owners equivalent rent continues dropping. Some labor sectors are rebounding but the deflationary trend has not changed. AMZN expands its hiring with another 100k in the US and Canada in addition to the 33k tech and corporate positions announced last week.

Data always lags and does not yet reveal falling earnings, delinquencies or bankruptcies.

The “V” recovery is still Mr. Markets bet against a slow recovery. Stock buybacks have been a major driver of market advances in recent years. Falling revenues may force an end to this activity along with increasing focus on wage disparity between officers and the workforce.

In Saturday’s webinar, we referred back to a 1999 interview of Scott McNealy, CEO of Sun Microsystems, making a point that his stock at 10X earnings was a ludicrous proposition.  

Food for thought.

The probability of having a vaccine by year end has improved as the AZN/Oxford trials resume.

Regards,

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

Today is 119 market days from the 3/23 low. Check for consistent ranking within the past 21 days for new commitments OR Jack’s 5-10 day rule as he explained in the session on 8-25.

Mayor de Blasio has more problems as major businesses pressure him to solve the City’s problems. On the left coast, BA has more problems with 787 airframe production. Fear not. The plane will be routinely inspected for wing fairing failure. Go back to sleep.

While the futures are up today, though lower than an hour earlier, there is continuing deterioration in the broad market led again by tech.

ORCL gained with growing demand for cloud services due to WFH.  European markets are mixed while the US$ slips against a basket of currencies along with Treasuries.

Thursday, I added a 5% position in SH in the aggressive portfolio which tolerates a high turn-over rate. The majority of the 5000 listed stocks are in bearish patterns, trading ranges or trending down to retest lows. The bounce ups are banks trying to support the big-name companies that are most heavily weighted on the averages. “This has been the worst five days for the S&P 500 where the index still closed above its 50-DMA since 1934.” –  Bespoke

 If the S&P breaks the 50-SMA, adjust your thinking for broader shorting. For now, resistance remains at the 20-SMA.

Prior to the pandemic, Visa expected around a 25% bankruptcy filing from the Millennials this year. If that occurs, it is likely to show up in the next earnings loss reserves.

Investor sentiment turning bearish as Flow of Funds report shows mutual funds losing 7.8B in redemptions and bonds benefitting with inflow of 5.9B.

With tail risks of both inflation and deflation, stagflation similar to the ‘70s may be the result finally pushing commodities out of an decade long bear market.

The reality of an extended recovery popped up again in the unemployment numbers. The 884,000 seems to be an improvement, but the low number was due to a change in methodology. State claims aren’t falling. The Dems aren’t entertaining any proposal from Republicans. A resolution for a “stimulus” prior to the election is unlikely. MSFT reported increased hacker activity directed at our election.

In 2015 we had two short-lived market drops: Brexit and Yellen’s rate hike which ended in early ’16. Well, Brexit is still pending but deteriorating negotiations with the EU have lost the market’s attention as the Brit’s economy seems healthy.

WFH is creating nostalgia for records which are outselling CDs. This is another for the “Who’da thunk it?” category. I scrapped my last record player more than a decade ago because there was no longer a source for a new needle.

China’s demand for oil is still falling. Expected global recovery is not as vigorous as predicted as crude lacks terra firma storage facilities. With oil storage now on barges, the domestic energy industry has more downside ahead.

Need some proof that BDs don’t like clients holding cash? UBS is raising fees on accounts with big cash balances.

The hype over NKLA is dissipating as claims of extensive fraud surface.

In the unknown category: Will the world trust a nasal spray vaccine developed in China to deal with a Chinese generated virus?

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

The 15 minute chart shows a lack of green volume.   Making new highs much less recovering to the last high will be difficult without more green volume.