A Pause in the Rally

I update each Saturday with my view of the stock market for the next few weeks.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Crude oil inventories fell by 4.7 million barrels in the July 14 week to 490.6 million, paring down the year-on-year gain by 0.5 percentage points to 0.4 percent.  In a positive indication for the July employment report, initial jobless claims fell a very sharp 15,000 in the July 15 week to 233K.  Housing permits gave the index of leading economic indicators a major lift in June which posted a 0.6 percent gain.

It was a light week for economic data.  With the crude oil inventory falling, oil price should increase a bit which it has.  This data looks encouraging.

Geo-Political:

The world seems pretty stable.  Nobody is talking about N Korea.  Europe seems to be getting their economy stable and showing some growth, finally recovering from the financial crisis.  There are still problems in spots in Europe, like Italian banks and the Greek budget.  Europe has turned away from Austrian school austerity to cure the patient, and backed off harsh efforts to balance the budget in the middle of a recession.  This is why their recovery has lagged so far behind the US recovery.  They are just getting around to cleaning up their banking crisis in places like Italy.

“26 JUNE 2017

Italy’s long-simmering banking crisis has erupted again. The emergency plan to wind down two Venetian lenders at a cost of up to €17bn is a fiasco of the first order.

While the Italians have let the crisis fester, the underlying cause is the unworkable policy regime imposed by the EU authorities themselves.

Had Brussels and Frankfurt let Italy nationalize Veneto Banca and Banca Popolare di Vicenza on flexible terms two years ago, the crisis could have been contained with less damage to the Italian economy and at far lower cost to the state.

The emergency plan unveiled by EU regulators on Friday night bails out senior bondholders and depositors above €100,000, leaving Italian taxpayers to foot the bill.”

http://www.telegraph.co.uk/business/2017/06/26/italys-17bn-bank-crisis-fruit-unworkable-eu-policies/

We bailed out the banks in the US in 2008 and while some are philosophically opposed, as a practical matter it was probably necessary.  The depositors were kept whole, the stockholders were wiped out, and the bond holders were kept whole when they should have taken a bigger haircut in my opinion.  But the bottom line is that the nation needs a banking system, and it needs one that the citizens have faith in.  Small business don’t go to the stock market to fund their operation and expansions, they go to their bank, and it has to have depositor money or small business can’t get the loans they need.

In the US, the failure by Republicans to come up with a better healthcare proposal along with the on-going investigation into Trump – Russia ties, is a cloud over the stock market.  Can this administration govern?  Our system in congress is set up to rule through compromise between the two parties; that’s the way it worked for two centuries.  The hard liners in the republican party have vowed not to compromise and it is very hard to get ANYTHING done, even things that clearly need to be done.  This worries people, and people who are worried about the ability of their government to function sanely will not be so bullish on the economy, nor the stock market.  This is a long term risk.

Technical Analysis:

The market has rallied nicely into good earnings, as expected.  Some things had gone up too far to fast, and I sold out of the big tech names I bought a few weeks ago in the tech selloff.  This week will be the biggest reporting week of the earnings season.

Technically, we did not get fully overbought with the RSI (top of chart) resting at 66 after peaking at 68.  That will work to limit upside progress unless earnings are gangbuster.  MACD (bottom of chart) is still in the earnings driven uptrend which is positive.  Price action is up at the top of the rising channel (2 black lines on upper right of the chart), and that will provide resistance to rising at a faster rate.  I was glad to see last week that the 12 month trailing GAAP PE on the S&P fell to 23 and change, which is still moderately overvalued, but a little less than it has been.

2017 07 22

I lightened up quite a bit last week.  I hope the market rises through earnings season and if it does I will slowly add SPY back, but the market didn’t feel right to me last week.  Microsoft announced great earnings, then dropped the next day.  All the good news had been priced into the stock before the earnings call.  How many other stocks are out there like that?

Looking beyond earnings season, there is a possible battle on the debt ceiling that hard line republicans loath voting for (but they can get democrat votes so they will get that done IMO), and a budget debate.  What to do about healthcare is still a problem.  Everyone agrees we should do some tax reform, but everyone has a different idea on what that actually means.  In reality we will probably get some compromise on it, but that would make it smaller than most people would like to see.  All these fights will go on through the summer and into fall.  There is ample opportunity to frustrate and scare the public, which is not good for the market.

So, I took a lot off the table after a nice run in July.  If we don’t hit a down pocket, I’ll be buying back in slowly to SPY and looking at some oil and oil service companies that I can buy cheap.  I’ll look for those that pay a dividend.

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Long Term – July 2017

Once a month, on a Wednesday around mid-month (15th or the next week), I will put up a long term view of the market.  This is provided for investors who don’t want to trade secondary swings in the market, but would like to exit the stock market when a bear market begins, or enter the market when a new bull market begins (change in the primary trend).  In the blog, they will always have a title called “Long Term (month) (year)”, so you can use your browser “Find” function and easily find them.

Economics:

GDP – The Atlanta Fed July 14 estimate for Q2 GDP is 2.4%.  We know those numbers are not that good, but this late in the cycle they do improve.  The real first estimate will be out in two weeks, so this estimate should give us an idea.

Annual GDP growth has been stable for a few years at a 2% annual rate.  This GDP number supports the assertion that the bull market continues. 

Year Quarter GDP %
     
2017 Q1 1.2
2016 Q4 2.1
2016 Q3 3.5
2016 Q2 1.4
2016 Q1 .8

 

Fed interest rates – (no change from last month) The Fed raised the Fed Funds rate by a quarter of a point at the June meeting on top of the quarter point hike at the March meeting.  Longer term rates have been moving down, flattening the yield curve.  This is somewhat concerning.  Do the bond traders look at the soft economic data and smell a recession, prompting them to buy bonds to lock in today’s relatively high yield?  Today’s yield is historically low, but relative to the yield if a recession set in and the Fed lowered rates, the rate could be viewed as relatively high on a short term trading basis, if the economy weakens.

Short term interest rates are in an uptrend, but nominal rates are historically lowThe slide in long term rates is worth watching, but to date, rates still support the long term bull market.

 

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
July 18, 2017 1.1 1.8 2.3 2.9
June 20, 2017 1.1 1.8 2.2 2.8
May 17, 2017 .9 1.8 2.3 2.9
Apr 18, 2017 .9 1.7 2.2 2.8
Mar 15, 2017 .9 2.1 2.6 3.2
Feb 15, 2017 .6 2.0 2.5 3.1
Jan 18, 2017 .6 1.9 2.4 3.0
Dec 21, 2016 .6 2.0 2.6 3.1
Nov 15, 2016 .4 1.6 2.2 3.0

 

Valuation:

PE on S&P 500 – The current 12 month trailing GAAP PE on the S&P 500 is 23.6, down slightly from 24.3 last month.  I used 4 quarters of earnings with the most recent being Q1 2017.

This remains moderately overvalued relative to my trimmed 30 year average of 19.

In a bull market, stocks can remain overvalued for years, so this is not a sell indicator, but it is a cautionary sign.

S&P earnings – For Q2 2017, the estimated earnings growth rate for the S&P 500 is now 6.8%.  With 6% of the S&P having reported, 80% have beaten their estimated EPS.  Q1 earnings grew a strong 13%.

This indicator is supportive of the bull market.

Age of primary move, bull or bear market – The bull market is 8.3 years old, which is a long bull market by historical standards.  In and of itself, this is meaningless.  It does provide some perspective that one should keep in mind.

Geo-Political:

The global economy is relatively quiet at the moment and most regions show slow steady growth.  China was a concern a year ago as the government cut back on their infrastructure investment, but they have provided stimulus and their economy is performing better now.

Domestically, with the difficulty the republicans are having dealing with healthcare and the problems the administration faces with the probes into Russian interference in the 2016 election, there could be some malaise overhanging the market due to questions whether Trump can deliver on promises he made, and which the market has risen on.

Global geo-politics is supportive of the bull market.

Technical:

Technically the S&P continues to run in the bull market channel it has been in for the last 8 years.  RSI at the top of the chart is overbought at 77, and MACD is leveling out and the histograms are weakening ever so slightly.  Technically, on a longer term basis, the market should have a hard time mounting big gains.  However, since it is a long term chart, the market can remain overbought for months, just look at 2013 and 2014.  Also realize that those persistent good gains occurred when the valuation was much lower.  The market is trading in a tight range while running in the middle of the channel so there is ample room for the market to go up or down from here, and it should not be a big surprise.

The market’s price action supports the thesis that the long term bull market remains in force. 

2017 07 18 sp long term

Conclusion:

The stock market remains in a bull market technically, and there is nothing in the general economy, in Fed policy, or in the global geo-political realm to overturn that conclusion.

Rich Comeau, Rich Investing

Rally into Earnings

I update each Saturday with my view of the stock market for the next few weeks.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market.  You can always scroll down a few weeks and find the latest “Long Term” update.

I’ll post the monthly Long Term update on Wed. the 19th.

Economy:

Crude oil inventories fell sharply by 7.6 million barrels in the July 7 week to 495.4 million, 0.9 percent above the level in the same period a year ago.  Initial jobless claims held little changed at 247,000 in the July 8 week.  In what is one of the very weakest 4-month stretch in 60 years, core consumer prices could manage only a 0.1 percent increase in June. This is the third straight 0.1 percent showing for the core (ex food & energy). Total prices were unchanged in the month with food neutral and energy down 1.6 percent.  Retail sales fell an unexpected 0.2 percent in June.  Economic expectations are falling while current conditions remain high, a combination that the consumer sentiment report warns points to economic slowing ahead. The consumer sentiment index fell a sharp 2 points in the preliminary results for July to a much lower-than-expected 93.1.

That’s not a good week.  We need to see some inflation in the system, because with a national debt at $20 trillion and growing by half a trillion per year, the only way to service the debt will be to try and pay it off with cheaper inflated dollars.  Over 20 years, if everyone’s salary doubled and so did tax receipts, we may start to pay some of the debt down.  It will probably take a “driver” to cause that to happen, like a weakening dollar, to make the US get its house in order.

Geo-Political:

“2017-07-14 SYDNEY — A survey of chief financial officers, in Australia has found this week that confidence in the global economic outlook is still riding high, despite the many challenges present around the world.

The Deloitte Access Economics report stated that a greater number of Australian business leaders are positive on the strength of the Chinese economy, and its subsequent positive impact on the fortunes of the Australian economy.

“The strong performance of the Chinese economy has boosted optimism among Australian CFOs, who rate it as having a positive impact, net plus 25 percent, on the Australian economy in the first half of 2017,” the report said.”  http://www.chinadaily.com.cn/business/2017-07/14/content_30116057.htm

You have to keep an eye on China, and currently it is doing OK.  The rest of the world seems to be doing fairly well also.  I don’t see any imminent threats from abroad.

Technical Analysis:

The market had a good week.  I started buying two weeks ago around the bottom of the last 2% correction and I continued to buy last week.  Around the bottom of the correction which hit “tech” hard, I bought some fine tech companies at rare discounts and they recovered last week.  After the special situations in individual companies dried up, and in order to get money into the market quickly, I just bought the market by buying SPY.  SPY is large and liquid and you can easily move large amounts of money in and out of it.

Earnings season is underway and it is expected to be good.  JPM beat estimates on profit, then its stock price fell and took down the other bank stocks on Friday, but the rest of the market did well.

Technically (see Chart), RSI rose to 62, but it has a way to run before becoming overbought at 70.  MACD is turning up which is a good sign.  The market continues to run in the new rising channel, the two black lines on the upper right portion of the chart.  We see the S&P is bumping up against the top of the channel, which will provide some resistance.  I hope the market powers through the resistance and moves higher on the back of strong earnings, but there is no guarantee.  I am in the market and hoping the good earnings reports continue.  When earnings season slows down in early August to mid August, we could see weakness creep in due to an absence of good news.  When to sell and lighten up?  If you want to buy low and sell high, we need to be thinking about when to sell, but it looks too early for that.  You can watch the charts daily on your own at www.stockcharts.com in the free charts section.  I pay for an annual subscription which lets me keep a few lists of charts and lets me annotate charts and save them so I can track progress.

2017 07 15

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Enter – The Earnings Season

I update each Saturday with my view of the stock market for the next few weeks.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market.  You can always scroll down a few weeks and find the latest “Long Term” update.

Today I’m going to post more charts and write less.

Economy:

ISM’s manufacturing index is back on fire, with the index jumping nearly 3 points to a much higher-than-expected 57.8, the strongest since August 2014.  ISM’s non-manufacturing sample continues to report extending strength with the index up 5 tenths in June to 57.4 which tops Econoday’s high estimate for 57.1.  Factory orders fell 0.8 percent in May vs Econoday’s consensus for minus 0.5 percent.   Initial jobless claims rose 4,000 in the July 1 week to 248,000 which nevertheless is steady and safely within Econoday’s consensus range.  The June employment report shows a significant upgrade to job growth but a flat line for average hourly earnings with nonfarm payrolls surging 222,000 in June and revisions to prior months adding another 47,000.

Geo-Political:

N Korea is hot, but won’t erupt in the near term, I don’t think.  Trump wanted China to help, but they won’t despite what they say, they like to see the US squirm, and see US influence in eastern Asia diminish.  Same with Russia and the US.  So, N Korea progresses and gets a nuke, we do nothing, and N Korea can’t use the nuke (just like everyone else) except as a deterrent to being nuked.  Or, N Korea progresses and gets a nuke, we attack N Korea, and N Korea inflicts heavy damage on S Korea with the conventional artillery that can reach Seoul from the N Korea side of the DMZ.  My opinion is the former, N Korea gets a nuke and ICBM, then behaves like everyone else who has them, which means they can’t use it for first strike for fear of losing their nation in retaliation.

Technical Analysis:

First, let’s look at what has happened to the dollar lately:

2017 07 07 dollar

The dollar is dropping like a sinker.  Why, especially in light of the rise in Fed Funds by the Fed over the last year?  One factor is that Mario Draghi at the ECB wants to end Quantitative Easing in the EU and begin to normalize rates in Europe.  While our Fed raising interest rates should strengthen the dollar, the Euro is strengthening faster than the dollar based on Draghi’s comments.  I don’t think it should be this way, since our Fed has ACTUALLY RAISED RATES 4 TIMES ALREADY to NONE for the ECB, and I trust PERFORMANCE over rhetoric.  But I don’t have enough money to get a vote.  I would not be surprised to see the dollar rally when Draghi is afraid to raise rates, but the weak dollar should help US multi-national’s revenue and profits when they start reporting on 7/10.  This gives me some optimism going into earnings season, and I was a buyer this past week.  I’m expecting a good 4-week window so I added SPY.

Here’s a chart of the German 10 Yr. bond:

2017 07 07 DE 10 Yr

You can see that the rate on the German 10 Yr. was negative most of last year, then it moved up to a range of .2 – .5% per year, and now it has just jumped up above that range to .58%.  Someone is taking Draghi seriously, and this probably has something to do with skittish stock markets around the world.  If the central banks all decide it is time to normalize interest rates and they act in coordination, one prop will be pulled out from under the stock market, that of insanely cheap money.  This should not cause a bear market, but it could cause a correction at some point if bond yields become an actual competitor to stocks.

Now, to the S&P (this always means the S&P 500 in my writing, unless specified otherwise), and I use the S&P as my proxy for “the market”.

2017 07 07

We see the RSI (top of chart) is sitting at 50 (right side) which is neutral, but in a declining pattern.  MACD (bottom of the chart) is in a declining mode.  We are in a bull market, in a correction, but recent corrections have been minor.  We are entering earnings season which is usually good, and Factset is projecting an 11% rise in earnings over last year which should be good.  The market is overvalued on a PE basis, but it has room to get more overvalued, it can move up from moderately overvalued to severely overvalued, since it’s a bull market.  Price action wise, we are in the middle of the channel, corrections have been weak, and eanings kick off next week.

I was a buyer on weakness last week, going into what is expected to be a strong earnings season.  If that works out, I’ll buy more SPY.

Now one last chart for the good boys and girls who made it this far, GOOG:

2017 07 07 GOOG

We see a 10% correction in a new economy advertising juggernaut that has excellent earnings and growth.  Then we see a rally back from below the 50-day moving average (blue line moving upward).  Looks like a good entry point.  The PE at 31 is a little rich, but it is nowhere near the 180 PE on Amazon.

The question will be what happens when earnings season substantially ends around mid August.  There’s a debt ceiling battle out there, but it will get settled, although the networks could scare some folks for a while, but it is a bridge to be crossed later.

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Minor Correction So Far

I update each Saturday with my view of the stock market for the next few weeks.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Aircraft had been the strength but is now the weakness for durable goods orders which, pulled down by a second straight downswing for commercial aircraft, fell 1.1 percent in May.  The first-quarter GDP was still weak but does get an upgrade with today’s third estimate, now at a 1.4 percent annualized rate vs 1.2 percent and 0.7 percent in prior estimates.  Jobless claims remain solidly stable at historic lows. Initial claims did inch 2,000 higher in the June 24 week but the 4-week average fell slightly to 242,250 and continues, as it has for the last 2 months, to hold in a tight range near 240,000.  Corporate profits rose a revised 11.5 percent year-on-year in first-quarter 2017.  The consumer sentiment index regained some momentum in the second half of the month, rising to a final 95.1, however June shows tangibly less strength than the 97.1 in May.

It is a mixed picture this week, durable goods orders down (this is future sales), revised first quarter GDP up (but remember that is history, nothing about going forward), employment stable, and consumer sentiment down.

Geo-Political:

Russian mischief:

“July 1, 2017 – Ukraine said on Saturday that Russian security services were involved in a recent cyber attack on the country, with the aim of destroying important data and spreading panic.

The SBU, Ukraine’s state security service, said the attack, which started in Ukraine and spread around the world on Tuesday, was by the same hackers who attacked the Ukrainian power grid in December 2016. Ukrainian politicians were quick to blame Russia for Tuesday’s attack, but a Kremlin spokesman dismissed “unfounded blanket accusations”.

Cyber security firms are trying to piece together who was behind the computer worm, dubbed NotPetya by some experts, which conked out computers, hit banks, disrupted shipping and shut down a chocolate factory in Australia.

The attack also hit major Russian firms, leading some cyber security researchers to suggest that Moscow was not behind it.

The malicious code in the virus encrypted data on computers, and demanded victims pay a $300 ransom, similar to the extortion tactic used in a global WannaCry ransomware attack in May. But Ukrainian officials and some security experts say the ransomware feature was likely a smokescreen.”  http://www.cnbc.com/2017/07/01/ukraine-points-finger-at-russian-security-services-in-recent-cyber-attack.html

For at least 20 years, I have thought the future of warfare is cyber warfare.  We have become so dependent on the internet for commerce, and the infrastructure is so vulnerable and unseen, that at very low cost one can inflict severe damage to a nation’s economy.  We’ll still have planes and aircraft carriers and tanks, but they will be for local conflicts.  I don’t think we’ll see all that mass on battlefields in huge conflicts, because with satellite, we know where everything is, and our weapons to destroy implements of war have become so effective and deadly.  Conventional global war simply does not pay off anymore.  Cyber war can pay off, since it is so cheap to deploy.

With all of our great technology, why can’t we secure today’s systems?  Today’s internet servers are based on two main operating systems, Unix derivatives and Windows Server.  Both of those operating systems originated as single user systems and security was not needed when there was just one user; obviously you had access to everything on “your computer”.  As processors became faster, they were wasted unless the computer power could be shared among multiple users.  That created the problem, how to keep user A from seeing user B’s data.  Security was not a day-one issue, and the operating system was not designed to provide airtight security even if that is what was desired in the future.  Now, we have basically, afterthought and grafted on security, but clearly it has not closed all the loopholes, and in a rube-goldberg approach, when we close one loophole, another is frequently created.  The problem is not unsolvable, but what is probably required is a major re-write of the operating system, a “Secure Unix” and Windows, where security service is a primary objective of the operating system, like IBM did in the 1970’s with their MVS operating system.  You still don’t hear of IBM mainframes being hacked.  I have left out one important piece of this, and that is the IT professionals who administer these systems.  The operating system can have all the security services available, but if the humans don’t effective USE the services, the system is probably not secure.  This was a big part of my career, so I thought I’d get up on my soapbox for a minute.

Does this have anything to do with investing?  Not directly, but indirectly, it is one of the largest “potential disasters” out there, and one day the markets could take a big hit if several major financial institutions were compromised simultaneously, demonstrating a major weakness in our financial markets.  I think my readers should know a little about this.  It’s a reality of the world today.

Technical Analysis:

The stock market was just marking time this week, up one day, down a bit more the next day.  The short term trend looks down.  The republicans are struggling with a healthcare plan that is not too “mean”, and it is preventing them from tackling the promised tax “reform”.  Some say that we may only get a tax “cut” rather than reform.  If the republicans cut the tax rate on corporations, but remove some of the tax deductions they have handed out over the years to special interests (the ones with enough money to hire a lobbyist to go get them a deduction), those big corporations will not like it.  Ohhh, what to do?

The stock market “Trump rally” from Nov. to March was predicated on Trump delivering what he promised in the campaign, and the improvement in corporate profitability that would come from those policies.  Now the market is struggling with the possibility that what gets delivered is much smaller than what was promised.  If all we get is tax cuts, but all the current deductions remain in place, then the deficit will rise and the national debt will continue to rise at a more alarming rate.

Technically, the market appears to remain in a weak position.  The S&P has moved down from 2450 to 2423 and is in a small corrective phase so far.  RSI (top of chart, see Glossary if you are not familiar with the term) has moved down to 50 which is neutral, and many times is a short term bottom in a strong bull market, but while we remain in a long term bull market, it is not exhibiting short term strength since March.  MACD (momentum indicator, bottom of the chart) is in a downtrend, a negative short term.

2017 07 01

The FANG stocks had a correction, then a rally back, and now are correcting again.  I would be a buyer, but if the small correction we are in turns into something more serious, these stocks could come down quite a bit more.  If we got a serious correction I would definitely pick some of these up.

My Valeant Pharma took a big jump up on good news and I sold out with a nice profit.  It looked like they priced in a year of good news.  I’ll look to buy back in lower, or at least when it is not so overbought.  I picked up Exxon this week, lower than where I sold out a few weeks ago.  I also sold a July 28 XOM 77.5 Put and I will either earn the option premium or buy some Exxon shares near 77.  I started a small position in SPY since recent pullbacks have been small, and would sell it if we rally back to overbought, and add to it if the correction goes lower.  Remember, the long term view is that we are still in a bull market.

Once in a while I like to check where my readers are from, and the list below shows how many unique IP addresses, by city, reacted to my facebook notices in the last 30 days.  Obviously it is heavy with people from Texas and Louisiana since that is where I grew up and worked, but there is a growing following from around the country and a few international visitors.  This does not include readers who are not on facebook but have found the blog through Google searches, word of mouth, or another national forum that I post on.  It also gives no indication how often these people visit.  Thank you for your interest in my blog!  It encourages me to continue writing, and I find a huge benefit to myself in that I become more organized, and the dedicated “think time” forces me to clarify for myself what I am doing, and more important, WHY I am doing it.  You are important to me!

City                                                     Your Followers

Houston, TX                                      15

Lafayette, LA                                      5

Barker, TX                                           3

Chicago, IL                                          2

Mandeville, LA                                   2

San Antonio, TX                                  2

The Villages, FL                                   1

Dingley, VIC, Australia                       1

Abita Springs, LA                                1

Arnaudville, LA                                   1

Cupertino, CA                                       1

San Jose, CA                                          1

Metairie, LA                                          1

New Iberia, LA                                     1

New Orleans, LA                                  1

Slidell, LA                                               1

Hamtramck, MI                                     1

North Las Vegas, NV                             1

House, NC                                               1

Nebo, NC                                                 1

Grove City, OH                                        1

Oklahoma City, OK                                 1

Kampala, Kampala District, Uganda  1

Cinco Ranch, TX                                       1

College Station, TX                                   1

Friendswood, TX                                      1

Gresham, TX                                             1

Santa Cruz, CA                                          1

Jersey Village, TX                                     1

Katy, TX                                                      1

Kyle, TX                                                      1

Highlands Ranch, CO                               1

San Marcos, TX                                          1

Sealy, TX                                                     1

Spring, TX                                                  1

Thomaston, TX                                          1

Winchester, TX                                         1

Clarkston, WA                                            1

Bainbridge Island, WA                             1

Zürich, Switzerland                                   1

Duisburg, Nordrhein-Westfalen, Germany  1

Jennings, LA                                                 1

Madison, MS                                                 1

Clifton, TN                                                     1

Sugar Land, TX                                             1

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Dullsville

I update each Saturday with my view of the stock market for the next few weeks.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Crude oil inventories fell 2.5 million barrels in the June 16 week to 509.1 million, 1.8 percent above the year ago level.  Initial jobless claims came in at 241,000 in the June 17 week which is right at Econoday’s consensus for 240,000.  The index of leading economic indicators started the year off fast but has been slowing the last two reports, at an as-expected 0.3 percent gain in May with April revised 1 tenth lower to a 0.2 percent gain.

Housing has been sliding which adds importance to May’s very solid 1.1 percent rebound in existing home sales to a higher-than-expected 5.620 million annualized rate.  Following Wednesday’s strength in existing home sales was Friday’s very solid gain for new home sales which rose 2.9 percent to a 610,000 annualized rate that is near Econoday’s top estimate. The report also includes a sharp 24,000 upward revision to April which now stands at 593,000.  The real surprise in the report is enormous strength in selling prices. The median surged 11.5 percent in the month to $345,800. The year-on-year increase is 16.8 percent.

These are all good numbers, with the rebound in home sales particularly good.

Geo-Political:

The US shot down a manned Syrian jet that appeared to be moving to attack US backed troops.  They also downed two Syrian drones this week.  Russia has responded by cutting off some communications with the US about their flight operations in Syria, which will increase the risk for both countries.  While concerning, it has not shaken the stock market.

Technical Analysis:

It was a quiet week for the S&P, that masked an active week at the sector level.  Healthcare and biotech boomed on the unveiling of the Senate healthcare proposal, while oil stocks retreated on the falling oil price.  After a selloff in tech last week, we saw a recovery in the big tech stocks this week.  I have a low ball bid on Exxon that has not hit, but the experts think oil will fall further.  I picked up some Valeant Pharmaceutical this week, it has been beaten down for a few years but they have a new CEO and John Paulson is the biggest owner through his hedge fund and he joined the Valeant board last week, which gave the stock a boost.  That is probably a 3 year turnaround, but if you look at its chart, it looks like we are past the bottom.

Technically the market is in high neutral with the RSI at 59, on its way down from 70.  MACD is trending down.  The market price is still holding near the top of the channel it has been in for the last few months, not a particularly good entry point.

2017 06 24

The market has been incredibly dull since the Trump rally played itself out in March.  The market is up 2% in the succeeding 4 months.  There has been good action in individual stocks, but not the market in general.  One has to wonder if the rally in the FANG stocks (Facebook, Amazon, Netflix, Google) has not left reason behind and could be a sign of a blowoff top.  After all, the S&P 500 12 month trailing GAAP PE is 24, moderately overvalued.  When investors lose all fear of the market and throw money at anything, usually the end of a bull market is near.  In 1996 Fed chairman Allan Greenspan said the stock market was characterized by “irrational exuberance”, but it did not peak until early 2000, 4 years later.  It does not look that way to me right now, except in selected names.  But it is something to keep an eye on.

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Long Term – June 2017

Once a month, on a Wednesday around mid-month (15th or the next week), I will put up a long term view of the market.  This is provided for investors who don’t want to trade secondary swings in the market, but would like to exit the stock market when a bear market begins, or enter the market when a new bull market begins (change in the primary trend).  In the blog, they will always have a title called “Long Term (month) (year)”, so you can use your browser “Find” function and easily find them.

Economics:

GDP – The Bureau of Economic Analysis released the second estimate of Q1 GDP and it improved quite a bit over the first estimate, from +.7% to 1.2% growth.  Q1 is always weak due to bad weather up north, so a low number is not necessarily that bad an indication.  We actually did better than 2016 when the weather was quite bad.  Q4 GDP was also upgraded from 1.9% to 2.1% growth, still a bit weak for Q4.

Annual GDP growth has been stable for a few years at a 2% annual rate.  This GDP number supports the assertion that the bull market continues. 

Year Quarter GDP %
     
2017 Q1 1.2
2016 Q4 2.1
2016 Q3 3.5
2016 Q2 1.4
2016 Q1 .8

 

Fed interest rates – The Fed raised the Fed Funds rate by a quarter of a point at the June meeting on top of the quarter point hike at the March meeting.  Longer term rates have been moving down, flattening the yield curve.  This is somewhat concerning.  Do the bond traders look at the soft economic data and smell a recession, prompting them to buy bonds to lock in today’s relatively high yield?  Today’s yield is historically low, but relative to the yield if a recession set in and the Fed lowered rates, the rate could be viewed as relatively high on a short term trading basis, if the economy weakens.

Short term interest rates are in an uptrend, but nominal rates are historically lowThe slide in long term rates is worth watching, but to date, rates still support the long term bull market.

 

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
June 20, 2017 1.1 1.8 2.2 2.8
May 17, 2017 .9 1.8 2.3 2.9
Apr 18, 2017 .9 1.7 2.2 2.8
Mar 15, 2017 .9 2.1 2.6 3.2
Feb 15, 2017 .6 2.0 2.5 3.1
Jan 18, 2017 .6 1.9 2.4 3.0
Dec 21, 2016 .6 2.0 2.6 3.1
Nov 15, 2016 .4 1.6 2.2 3.0

 

Valuation:

PE on S&P 500 – The current 12 month trailing GAAP PE on the S&P 500 is 24.3, up from 23.5 last month.  I used 4 quarters of earning with the most recent being Q1 2017 (98% of companies have reported.  Earnings stopped coming in, and the market has rallied over the last month, driving up the valuation.

This remains moderately overvalued relative to my trimmed 30 year average of 19.

In a bull market, stocks can remain overvalued for years, so this is not a sell indicator, but it is a cautionary sign.

S&P earnings – For Q2 2017, the estimated earnings growth rate for the S&P 500 is 6.5%. Nine sectors are expected to report earnings growth for the quarter (source is Factset).  Q1 earnings grew a strong 13%.

This indicator is supportive of the bull market.

Age of primary move, bull or bear market – The bull market is 8.2 years old, which is a long bull market by historical standards.  In and of itself, this is meaningless.  It does provide some perspective that one should keep in mind.

Geo-Political:

The global economy is relatively quiet at the moment and most regions show slow steady growth.  The N. Korea issue continues to simmer.  There is an optimism in Europe emerging that has been absent in recent years:

http://markets.businessinsider.com/news/stocks/European-Shares-Seen-Higher-On-Growth-Optimism-1002061974

Global geo-politics is supportive of the bull market.

Technical:

Technically the S&P continues to run in the bull market channel it has been in for the last 8 years.  RSI at the top of the chart is overbought at 73, and MACD is leveling out and the histograms are weakening ever so slightly.  Technically, on a longer term basis, the market should have a hard time mounting big gains.  However, since it is a long term chart, the market can remain overbought for months, just look at 2013 and 2014.  Also realize that those persistent good gains occurred when the valuation was much lower.

2017 06 20 Long Term

The market’s price action supports the thesis that the long term bull market remains in force. 

 

Conclusion:

The stock market remains in a bull market technically, and there is nothing in the general economy, in Fed policy, or in the global geo-political realm to overturn that conclusion.

Rich Comeau, Rich Investing