Wednesday, January 9, 2019

Stocks Keep Rising, But Major Speed Bumps Are Dead Ahead

Bored yet?

Since bottoming out the day before Christmas (December 24), the major US indices have gained in eight of the last ten sessions, including today's smallish gains.

While going eight for ten to the upside certainly sounds impressive, there is a small problem. The NASDAQ. S&P 500, Dow Industrials, and NYSE Composite are all trading below their 50-and-200-day moving averages. What's more troubling is that those averages are inverted, with the 50 below the 200, as all of the charts show the so-called "death cross" occurring variously between late November and mid-December.

This is troubling to chartists because the rallies have produced some ill-placed optimism in the minds of some investors, mostly affecting those passive types with 401k, retirement, IRA and other "hands off" accounts.

So, while everybody is cheering the fantastic performance of stocks in the new year, there are major speed bumps dead ahead. Turning around inverted moving averages is the kind of heavy lifting for which the PPT was created and how the Fed came up with various forms of money creation, such as QE, QE2, Operation Twist, and other variants of magical fiat money.

Earnings season is about to kick into high gear next week, and expectations are not all that rosy, though, if one tracks home builders, like Lennar (LEN), which missed expectations but still managed a gain today of nearly eight percent. Of course, the stock is just off its 52-week low, so there's an outside chance that everybody, all at once decided it was too cheap to pass up.

So, the question is whether the PPT or the Fed or the Bank of Japan or the ECB, or all of them are of like mind and will buy with open arms every stock that looks like a sure loser over the next four to five weeks.

There's an old adage in the investing world, that posits, "don't fight the Fed." This time it appears to be for real and the Fed, from the speeches and off-the-cuff quotes by some of the regional presidents, is in a fighting mood.

Dow Jones Industrial Average January Scorecard:

Date Close Gain/Loss Cum. G/L
1/2/19 23,346.24 +18.78 +18.78
1/3/19 22,686.22 -660.02 -641.24
1/4/19 23,433.16 +746.94 +105.70
1/7/19 23,531.35 +98.19 +203.89
1/8/19 23,787.45 +256.10 +459.99
1/9/19 23,879.12 +91.67 +551.66

At the Close, Wednesday, January 9, 2018:
Dow Jones Industrial Average: 23,879.12, +91.67 (+0.39%)
NASDAQ: 6,957.08, +60.08 (+0.87%)
S&P 500: 2,584.96, +10.55 (+0.41%)
NYSE Composite: 11,778.42, +62.19 (+0.53%)

Tuesday, January 8, 2019

PPT And/Or The Fed Working Overtime To Keep Stocks Elevated

Not exactly proof, but here's a mainstream article calling out the central banks for market intervention, otherwise known as manipulation, or, preventing a crash.

Call it anything you want, including PPT, but there are surely unseen forces at work. Consider, if you will, that since central banks have the power to goose markets upwards, they also possess the power to depress them. Sobering thought, isn't it?

Valuation will become a concern this year as soon as earnings reports commence. First quarter reports may not be all that impactful, but second quarter corporate earnings and revenue reports may validate the theory that a combination of easy fed policies, low interest rates, buybacks, and a willingness to believe that the Fed would backstop any sizable decline were responsible for the last ten years of gains.

If some of the more astute forecasters are correct, an earnings and profit recession is due sometime in 2019, and the likelihood of such an occurrence will accelerate throughout the year. If corporations are going to slow down in 2019, stocks should follow, but, in the parallel universe that has become Wall Street and end of the business cycle as we once knew it, anything could happen.

The rally since Christmas appears to be based on just about nothing. Noting that, how long it will last has only one correct solution. Out will last until holders of stocks find a comfortable exit price because the major indices are still in correction.

Dow Jones Industrial Average January Scorecard:

Date Close Gain/Loss Cum. G/L
1/2/19 23,346.24 +18.78 +18.78
1/3/19 22,686.22 -660.02 -641.24
1/4/19 23,433.16 +746.94 +105.70
1/7/19 23,531.35 +98.19 +203.89
1/8/19 23,787.45 +256.10 +459.99

At the Close, Tuesday, January 8, 2019:
Dow Jones Industrial Average: 23,787.45, +256.10 (+1.09%)
NASDAQ: 6,897.00, +73.53 (+1.08%)
S&P 500: 2,574.41, +24.72 (+0.97%)
NYSE Composite: 11,716.23, +110.27 (+0.95%)

Monday, January 7, 2019

Volatility Tamped Down By PPT A Probable Cause For Monday's Dullness

Chip stocks (NVDA, ADM) led the big gain on the NASDAQ, but the session overall was lackluster, with a dip at the open and a weak close.

Investors are still unconvinced the volatility of the past few months has abated. Today felt more like a temporary reprieve rather than a new paradigm. There's also the very good possibility that the Plunge Protection Team (PPT) is still active, especially considering the quick turnaround this morning. It was classic insider action, like hitting sellers over the head with a sledgehammer.

The PPT has absolutely no subtlety about it which makes their intrusions somewhat obvious, as has always been the case, even back in the days when people thought they were a myth or some kind of financial urban legend. As it turned out, the PPT was always a real thing, and a threat to fair, unmolested, open markets. Now that they've been out in the open for at least a decade, not much is left to the imagination. US markets - and, likely, almost every other market in the world - have been highly manipulated by central banks and governments working in cahoots and that's unlikely to end soon.

With friends like these in markets and the preponderance of investments in stocks, investing today is riskier than it has ever been. Who wants to play in a casino knowing that the dealer has the ability to cheat at any time? As unsuitable as it is for large money players to intervene at times of crisis, it's even worse when they do so at the drop of a hat, or, as the case may be, a few thousand points on the Dow.

It's not pleasant to witness wild swings in entire indices on a regular basis, which is why so many individual investors are so jaded. They know their money is at extreme risk all the time. There has to be a better way, and there used to be, prior to the financialization era we currently are enduring, before everything from mom's mortgage to pizza stocks are part and parcel of every fund's basic needs.

The trouble with markets today are the real probability that in the case of an extended bear market, the entire global financial system would simply implode. It keeps more than just a few heads at the IMF, BIS, and the Fed from sleeping well at night.

Dow Jones Industrial Average January Scorecard:

Date Close Gain/Loss Cum. G/L
1/2/19 23,346.24 +18.78 +18.78
1/3/19 22,686.22 -660.02 -641.24
1/4/19 23,433.16 +746.94 +105.70
1/7/19 23,531.35 +98.19 +203.89

At the Close, Monday, January 7, 2019:
Dow Jones Industrial Average: 23,531.35, +98.19 (+0.42%)
NASDAQ: 6,823.47, +84.61 (+1.26%)
S&P 500: 2,549.69, +17.75 (+0.70%)
NYSE Composite: 11,605.96, +72.62 (+0.63)

Saturday, January 5, 2019

Weekend Wrap: Friday's Big Gains Offset Thursday's Huge Loss, Dow Up Just 105 In 2019

Wall Street's week straddled 2018 and 2019, as Monday's session was the last of the prior year, and Wednesday, Thursday, and Friday starting off the new year.

Thus, the following final closing prices for the major indices, which will be instructive as we plow through the weeks, months, and quarters ahead:

Dow Industrials 12/31/18: 23,327.46
Dow Transports 12/31/18: 9,170.40
NASDAQ 12/31/18: 6,635.28
S&P 500 12/31/18: 2,506.85
NYSE Composite 12/31/18: 11,374.39

Two big trading days happened back-to-back, in opposite directions. Thursday's (1/3) downdraft was largely attributable to Apple's announcement that revenue for its fiscal first quarter (4th quarter) results would come in well below analyst estimates. December PMI from the ISM was also a contributing factor, insinuating a slowdown in the general economy, much of it tied to US-China trade tensions.

A blowout December jobs report was responsible Friday's about-face. Words from Fed Chairman Jerome Powell added fuel to the ascending fire. Powell stated quite plainly that the Fed was going to be flexible about raising rates and drawing down its balance sheet, which is pulling $50 billion a month out of the bond market.

After all was said and done, the week was just so-so, though the bias was obviously trending positive. There's some inkling of manipulation and coordination of and by the PPT, especially since the Fed was so compliant with its dovish commentary. Nobody really wants a bear market, and the data from Friday's release of the December non-farm payroll report (312K actual vs. 122K projected) suggests that the economy is humming right along and President Trump's promise to create more US jobs is being kept.

The Fed's jawboning was well-timed, coming a day after a confidence-shaking 660-point drop on the Dow, but the remarks by Chairman Powell won't be the last time the Fed has moved the goal posts in search of expediency.

Dow Jones Industrial Average January Scorecard:

Date Close Gain/Loss Cum. G/L
1/2/19 23,346.24 +18.78 +18.78
1/3/19 22,686.22 -660.02 -641.24
1/4/19 23,433.16 +746.94 +105.70

At the Close, Friday, January 4, 2019:
Dow Jones Industrial Average: 23,433.16, +746.94 (+3.29%)
NASDAQ: 6,738.86, +275.35 (+4.26%)
S&P 500: 2,531.94, +84.05 (+3.43%)
NYSE Composite: 11,533.34, +342.90 (+3.06%)

For the Week:
Dow: +370.76 (+1.61%)
NASDAQ: +154.34 (+2.34%)
S&P 500: +46.20 (+1.86%)
NYSE Composite: +242.39 (+2.15%)

Thursday, January 3, 2019

Stocks Slammed, Bonds Rally As Global Slowdown Fears Rise

Apple computer, maker of the iconic iPhone, was the cause of much of today's equity angst, as the tech giant warned that fourth quarter sales were likely to come in under revenue estimates.

Apple CEO Tim Cook issued a letter late Wednesday to investors advising that a slowdown in China sales would cause fourth quarter revenue to decline 4.8% year over year to $84 billion, well below analyst estimates. It's not that Apple is losing money - far from that - it's just not making as much as expected. Shares of Apple (AAPL) were down nearly 10% on the news, the largest one-day loss in six years.

Combined with a report from the Institute for Supply Management (ISM) that had December's PMI fall by the most since the financial crisis of 2008, stocks were on the defensive all day long. The report concluded that December PMI fell from 59.3 to 54.1, a descent of 5.4%. While anything over 50 is considered expansion, the falloff is considered to be a harbinger of worse data to come, as many participants in the survey blamed trade tensions with China as a leading cause for the slowdown.

Thus, the 1000+ point gain from December 26 was cut down by two-thirds on Thursday, just a week later, sending the Dow and other major indices closer to bear market territory once again.

January has gotten off to a horrible start, as though December's rout hadn't ended, which, of course, would be correct. Losses on stocks are only just beginning. By March of this year, expect stocks to be another 10-15% lower than where they stand today, and, even then, with signs of a global slowdown flashing red, a bottom won't likely be put in until the market has flushed out all of the weak hands and sent fund managers scurrying in even greater numbers to cash and bonds.

Presently, the treasuries are telling an interesting story about the economy. While the Federal Reserve insisted on raising rates four times in 2019, the bond market has expressed extreme displeasure, sending the yield on the 10-year note to 2.56%, down ten basis points just today, marking the lowest yield since January of last year. Additionally, short-maturity bills spiked (thanks to Fed hikes at the low end) with the one-year yielding 2.50%, as compared to 2.39% for the 2-year and 2.37% for the five-year note. Inversion in accelerating at the short end of the curve.

While this is traditionally not the pairs that signal recession, that distinction belonging to the 2s-10s spread, it is highly unusual. Bond traders are saying they don't want to issue longer-term, for fear that the economy will weaken as time progresses. The 30-year also was slammed lower, yielding 2.92%, down five basis points from yesterday.

2019 is looking to be an even worse year for equity investors, and a rout in the stock market could cause panic to spread to many diverse levels of economic activity. A recession within the next three to twelve months is looking more a certainty with each passing day.

Dow Jones Industrial Average January Scorecard:

Date Close Gain/Loss Cum. G/L
1/2/19 23,346.24 +18.78 +18.78
1/3/19 22,686.22 -660.02 -641.24

At the Close, Thursday, January 3, 2019:
Dow Jones Industrial Average: 22,686.22, -660.02 (-2.83%)
NASDAQ: 6,463.50, -202.43 (-3.04%)
S&P 500: 2,447.89, -62.14 (-2.48%)
NYSE Composite: 11,190.44, -193.09 (-1.70%)