Update 68: Consumer Stocks Stall/Stock Market Rollover This Week?
Consumer Stocks Stall/Stock Market Rollover This Week?
November 9 2019 OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
The big 3 Stock Market Indices all hit all time highs this week (S&P-Nas-Dow) with the Transports & Russell still lagging behind albeit moving higher as well. In fact; the proverbial train left the station in the Transports at the start of Oct as railroads like UNP has gone from 150 to 180 in 6 weeks. My point is that we have come screaming up in the last 6 weeks in a lot of markets discounting as Jaimie Dimon said a “pretty rosy” outcome of many of the challenges on the horizon. Money managers are sitting on all their gains and with year end bonuses at risk should we sell off I would think hedging or locking in gains at the first smell of smoke may be in the cards. Our base case has been that hedging the S&P stocks into 2950-3100 made sense and we are at the upper limits of that zone. While Transports & Russell have improved and VIX is under 14-15; my instincts tell me that it may be like when the DXY was breaking a bit above the top of our range (99) and then sold off sharply. If not 3300-3600 S&P is possible spike. Next week-retail sales plus earnings from Cisco, CBS, Walmart, Nvidia, AMAT, Tencent-JD.com, plus inflation #’s (CPI_PPI), Fed guys.
STOCK MARKET
Prices stretching short term tech indicators (RSI), valuations (yields have risen), and lower volumes this week. The consumer is 2/3 of economic growth and basis debt, visa activity, employment numbers; they certainly have been carrying the load left behind but the failures of cap ex and business investment. Of course with a who knows what’s next trade policy being made up as we go it is understandable that CEO’s would be hesitant to make too many moves without a better understanding of what’s on the horizon. Some say CBS, VIAB, CSCO, JWN, M are ones to monitor this week while caution to ROST & TJX if trade deal struck anytime soon. Bottom line is there are reports that one of the great investors of all time (Warren Buffett) is sitting on a Record Amount of Cash ( estimate 122 Bill)and that one his measures of valuation of overall stock price is the ratio between Wilshire 5000 Index and GDP which suggests that valuations are at levels not seen since the internet bubble of 2000 and without a new theme to fuel the elevated valuations. Unending QE and new tricks could come on stream to sustain things but the buy back money and tax cuts interest rate cuts and now trade deals with questionable ability to enforce may not be enough. So with Buffett info and valuations favoring caution should we consider locking in or hedge/protect gains?…contact us at [email protected] to hear more.
BOND MARKET
As we said the 135 level on TLT was and is key as yields accelerated higher this week toward 2% on the Treasury. Europe is dumping RECORD amounts of debt on the market ( up 13%+ over last year and EXCEEDED the RECORD 1.27 trillion issued in 2017. Next week one firm is offering 28 billion in corporates and spreads between corporates & treasuries are very tight meaning you are not getting paid a lot to take on the additional risk. Rates in Europe are a joke & the leveraged loan market is showing cracks while the re-fi market could heat up as well with mortgage rates dropping. REITS & Utilities have sold off because of the rise in yields…IF YOU FEEL…that the move 135 TLT & 2% yield on the 10 yrs is about over…then those 2 defensive sectors could offer a discounted value at this time. Our view is that it would make sense if it were accompanied by a sell off in stocks by late this week.
US DOLLAR
Well the yields rising sharply this week on US Treasuries certainly sent the dollar bears running back into their caves this week. Our base case remains that the range of ballpark 99-95 which coincides with the 52 week range continues but news that China is starting to embrace block chain technology and Bitcoin and exchanges to provide liquidity should cause one to pause about the future of the US Dollar as the standard for international settlements. The ECB head made a compelling argument in Jackson Hole about digital currency so the future of the almighty dollar with a 24 trillion dollar national debt may no longer be certain.
CRUDE OIL
As we said this ARAMCO IPO is a big deal but a wild one as valuations range from 1,2 trillion to 2.2 trillion..a wide disparity. But we felt a bounce in oil stocks could happen and it did ass XOM, RDS.A, BP among others got a lift. Big dividend payers but if we can’t start closing above 60-65 crude then the dead cat bounce may be just that. Base case still range 60-50 until proven otherwise.
GOLD-SILVER
As stated the base case remains breakout was 1350 and short term blow off to 1520-1580 zone which coincided with resistance from former lows of 2012. Expected a retracement & consolidation toward 1450-1475 worst case 1350-1400 which we are getting. This week we took out last month’s lows…..remember the general philosophy of trading a longer term uptrend is to buy the dips. We have broken the 50 day moving average and are pointing toward the 200 day but it remains intact. The fundamentals of the admin wanting a lower dollar for trade and the FED wanting higher inflation we believe keeps the bull story alive. Ditto Silver.
SOYBEANS
Well it looks like President Trump wants to sign the China Deal while riding a tractor in blue jeans in a Iowa grain field:):):)..whether that comes to pass is probably not as important as China BUYING like the President said they would. Base case remains that the yearly lows around 8 could be a low for awhile if we can clear the price resistance at 9-950 & 10 on a closing basis. So far only 9.
Contact us at [email protected] with any explanations/opinions you need.
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