Next Up, 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.

If you would like to be notified via email when I post a new blog entry, you can “Follow” my blog by clicking on the Follow button at the bottom right hand corner of your screen.  You may have to scroll up or down a bit for it to appear, but click on it and enter your email address.  You do not have to have a wordpress account to follow a blog.

Economy:

Weakness in the South pulled down new home sales in August as it did in last week’s existing home sales report. New home sales fell sharply in the month to a 560,000 annualized rate vs an upward revised rate of 580,000 in July and a downward revised 614,000 in June.  Weakness in the hurricane states of Texas and Florida pulled down consumer confidence to 119.8 in September, a level however that is still unusually strong.  A second straight jump in capital goods leads what is a mostly very strong durable goods report where the August headline rose 1.7 percent.  Second-quarter GDP proved strong, at an as-expected 3.1 percent annualized rate for the third estimate driven by consumer spending at a 3.3 percent rate.  Hurricane effects are apparent in weekly jobless claims data but are far from overwhelming. Initial jobless claims rose 12,000 in the September 23 week to a 272,000 level.  Corporate profits, at an annualized rate of $1.77 trillion in the second estimate for the second quarter, rose 7.4 percent compared to second-quarter 2016.  Consumer sentiment ends this month about where it was at mid-month, at 95.1 for September which is strong but still down a sizable 1.7 points from August. Hurricane effects are likely behind the easing as respondents in Florida and Texas reported doubts about their financial situation.

This is all good considering the effect that the hurricanes had.

Geo-Political:

I’ve reviewed Russia, China, European Union, and the US lately.  Today let’s look at Italy.

Why look at Italy?  Germany and France are the big guns in the EU and they have led the recovery in Europe.  You expect the weaker economies to lag, but eventually they need to recover.  At this point, the fact that the weaker economies are doing well really tells us more good news than hearing Germany is doing well.  Germany is supposed to be doing well and that is not new news.  Positive movement in Italy really is good news for the EU.

“September 26, 2017 – Italy’s economy seems to have gathered pace on the back of the broader recovery in the EU. Recently released data for Q2 shows that the economy posted a third consecutive 0.4% quarter-on-quarter expansion, underpinned by resilient household spending and a rebound in fixed investment, which is benefiting from lower corporate taxes. Data for the first two months of Q3 suggests the economy has broadly maintained its pace of growth. Both business and consumer confidence improved in August, and manufacturing PMI recorded its strongest reading in over six years on higher orders and output. The improved economic performance is benefiting the still-troubled Italian banking system, which saw its stock of bad debt falling in July to the lowest level since 2014. That said, growth remains weak compared to other Eurozone countries, and the economy continues to suffer from stagnant productivity growth and a heavy tax burden, while public debt continued to rise in July.” 

https://www.focus-economics.com/countries/italy

Technical Analysis:

It was time to clean up the chart, so here it is.

We’re in a nice uptrend since the election.  It’s been over a year since we’ve had a 10% correction so lots of folks are a bit concerned about that (me included), but when everyone is worried about it stocks tend not to get overbought too much.  It is when people become complacent that things get overbought and then correct.

We had an ever so slight pullback of about 1% and then the market moved higher and set a new all-time high on the S&P.  I have not jumped in whole hog, but I was buying on Thur. and Friday, XLF (financials ETF) and XLK (technology ETF) (ETF is defined in the glossary, check it out).  I think with a new record high, sentiment will be positive and that may carry us through to earnings season which starts around Oct. 10.  Earnings for the S&P are expected to be up 4.5%, and the weak dollar will be a tailwind.  The two hurricanes may dampen some activity, but I think the market will give stocks a pass if the guidance for Q4 is good.  Interest rates on the long end have ticked up a bit, which favors the banks ability to improve their net interest margin (profits), and that is why I bought into XLF.  I’ll probably add holdings like SPY next week.

I sold my XOM for a small profit and dividends.  Oil has run up far and fast and I wonder how much farther it has to go?  The Saudi’s are supporting the price in the low $50’s by cutting their production and that does not give me a lot of confidence about the near term future for XOM to extend to the upside.  Two years ago the Saudis were flooding the market with crude to drive the price down and bankrupt the US small frackers, in order to get the price back up.  That did not work.  The larger companies bought the small weak ones, and the US can frack as many wells as ever.  The Saudis clearly don’t know everything about the oil patch, or they took their action for some other reason that we don’t know about.  But, the facts show the oil patch is a crazy market with price able to be manipulated by the big boys.  Also, countries are moving to ban gasoline cars in the future.  It’s a way off, but it is not good in the long run for the major oils:

“Sep. 11, 2017 – China is preparing to put the brakes on gasoline and diesel cars.

The country, home to the world’s largest auto market, is working on a plan to ban the production and sale of vehicles powered solely by fossil fuels, officials say.

The Chinese government is following in the footsteps of countries like India, France, Britain and Norway, which have already announced plans to ditch gas and diesel cars in favor of cleaner vehicles in the coming years.

Regulators haven’t decided yet when the Chinese ban would take effect, but work has begun on a timetable, according to China’s vice minister of industry, Xin Guobin.

He warned carmakers they need to adjust their strategies to the changing situation, according to state-run Chinese news agency Xinhua.”

http://money.cnn.com/2017/09/11/news/china-gas-electric-car-ban/index.html

I will probably buy some XOM in the future, but only from technically oversold levels.

Technically, the market is in overbought territory with the RSI (upper right of chart) at 69 (70 is overbought).  I don’t like to enter the market when it is overbought, but the market just had a chance to go down after starting the 1% pullback, and it did not go down.  Look at Feb. where the market stayed overbought for 3 weeks, hitting an RSI high of 80.  MACD (lower part of chart) is interesting.  After weakening for a weak, it has turned up and it never really gave a sell signal.

I started buying cautiously last week and plan to add more this week.

Seasonally, we are coming up on the better half of the year (usually, but not always, nothing is absolute), from Nov. 1 to May 1.  The guidance for the next year is usually too rosy, but people usually buy into it.

2017 09 29

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

Soft Patch

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.

Wednesday I posted the monthly long term update and you can scroll down as it is the next entry below this one if you are interested.

If you would like to be notified via email when I post a new blog entry, you can “Follow” my blog by clicking on the Follow button at the bottom right hand corner of your screen.  You may have to scroll up or down a bit for it to appear, but click on it and enter your email address.  You do not have to have a wordpress account to follow a blog.

Economy:

Reflecting hurricane weakness in Houston, existing home sales came in at the low estimate in August, at a 5.350 million annualized rate for a 1.7 percent monthly decline.  Crude oil inventories rose 4.6 million barrels in the September 15 week to 472.8 million, 0.2 percent below the level a year ago.  Initial jobless claims fell sharply by 23,000 to 259,000 in the September 16 week, but may reflect the inability of displaced workers in hurricane hit states to file claims.  The index of leading economic indicators rose a solid 0.4 percent in August.  The Fed left its key lending rate unchanged at 1%-1.25%, which was widely expected, but said it would start unwinding its $4.5 trillion balance sheet in October.  The Fed also stuck to its forecast of 4 rate hikes before the end of 2018, including one before the end of this year, so it is clear we should plan on a ¼% hike in December.

The economy looks good and any weakness can be explained by the hurricanes.

Geo-Political:

N Korea remains the hot spot and both rhetoric and actions pose risks to the market.  With the US lacking any good military options since N Korea has been aided by China and Russia in the past, I think ultimately we will see N Korea with an ability to strike the US with a nuclear bomb.  N Korea looks at the US overthrow of Saddam Hussein in Iraq and Gadhafi in Libya, both of whom gave up their nuclear programs, and believes they must have a nuclear capability to deter the US from attempting regime change in N Korea.

Technical Analysis:

The market corrected ever so slightly this week.  I had lightened up the week before and so far that looks good.  RSI fell from overbought to 62 which is still near overbought.  MACD looks like it is rolling over to a short term sell, with the histograms in retreat.  Pullbacks have been shallow and I don’t expect anything major.  I want to get back in before earnings season starts around Oct. 10.

2017 09 23

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 September 2017

Once a month, on the Wednesday following the 15th of the month, 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 relatively soon after a bear market begins, or enter the market after 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 BEA in its second report of GDP for Q2 increased from 2.6% to 3.0%, a nice quarter indeed.

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 Q2 3.0
2017 Q1 1.2
2016 Q4 2.1
2016 Q3 3.5
2016 Q2 1.4
2016 Q1 .8

 

Fed interest rates – The Fed has been on hold, but the bond markets have gyrated around, with longer rates falling for a couple of months before beginning their latest move back up to near prior levels.  Internationally, other central bankers are talking about normalizing their interest rates (which would allow our rates to drift up), and domestically our Fed will begin the slow process of reducing their balance sheet by not replacing  some maturing bonds.  This will increase the supply of bonds in the market, which usually results in lower prices for bonds and higher yields.

Short term interest rates are in an uptrend, but nominal longer term rates remain historically low.  Rates still support the long term bull market.

 

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
Sep 20, 2017 1.1 1.8 2.2 2.8
Aug 16, 2017 1.1 1.8 2.3 2.9
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 24.0, up slightly from 23.4 last month.  I used 4 quarters of earnings with the most recent being Q2 2017 (which 98% of companies have reported).

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 – The current forecast of earnings for Q3 from Factset is 4.5% vs. the prior year’s Q3, revised down from 7% as of 6/30.  This follows earnings increases of 13% and 10% for Q1 and Q2.  The S&P was in an earnings recession for over a year in 2015/2016 and recent comparisons to that timeframe have been relatively easy.  Now that we have a few quarters of more normal earnings, the comparisons will get tougher and that could weigh on the market in the future, in spite of the slight tailwind to the market based on the weak dollar.

This indicator is supportive of the bull market.

Age of primary move, bull or bear market – The bull market is 8.5 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 situation re-heated the last month with their hydrogen bomb test and latest missile test.  The potential is out there for a “black swan” event; something could happen that nobody has ever seen.  I am not planning on it, but you cannot totally discount it.

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 (top of the chart) is in overbought territory at 77, not a good long term entry point.  MACD (momentum, bottom of the chart) is flat, but the histograms have shrunk ever so slightly.  The market is having a hard time pushing upward at this time.  For a patient long term investor, I’d wait for a better entry point, unless you are buying an individual stock where the story for that company is currently compelling.  It does not appear to be true for “buying the market, like SPY” at this time.  The price action on the SPY is right in the middle of the channel it has been running in, giving it room on the upside and downside, without changing the outlook in general.

The S&P moved higher this month and set a new record high above 2500 which shows the long term bull market has strength.

2017 09 20 Long Term sp

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

New Record on the S&P!

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.

Wednesday I will post the Long Term update for Sept.

If you would like to be notified via email when I post a new blog entry, you can “Follow” my blog by clicking on the Follow button at the bottom right hand corner of your screen.  You may have to scroll up or down a bit for it to appear, but click on it and enter your email address.  You do not have to have a wordpress account to follow a blog.

Economy:

For the first time since February, core consumer prices did not come in below expectations, hitting the consensus with a modest but useful 0.2 percent gain. Overall prices rose 1 tenth more than expectations at an energy-inflated 0.4 percent.  Initial jobless claims fell back 14,000 to a 284,000 level that is on the low end of Econoday’s consensus range (this is being impacted by hurricanes in TX and Fla.).    Headline retail sales fell 0.2 percent which is near Econoday’s low estimate.  The consumer sentiment index for September fell to 95.3 vs 96.8 in August, impacted by the hurricanes.

It was a light week for data, but everything meets expectations.

Geo-Political:

I have talked about China’s effort to transition from a government sponsored infrastructure building economy to a consumer led consumption economy.  This will take time, and as the government slows spending on its projects, it will observe what happens on the consumer side.  As the economy slows, the government will step in and stimulate, which is necessary in the transition phase.  The question is, how much debt can the government run up while supporting the transition?  The Chinese juan is not the reserve currency of the world, the US dollar is.  While being the reserve currency seems to allow the US to run up an almost limitless amount of debt without destroying the dollar, the yuan does not have such protection.  There are concerns about what can happen in China if they continue to run up their debt.

“May 1, 2017 – SHANGHAI (Reuters) – China’s level of leverage is rising at an “alarming pace”, particularly in the finance sector, a senior central bank official said in a commentary, amid growing concern by the country’s senior leaders over financial security.

The official Xinhua news agency on Monday cited Xu Zhong, head of the People’s Bank of China’s (PBOC) research bureau, as saying the country needed to deleverage at a “proper pace” to reduce financial sector debt and avoid systemic financial risk.

“China’s overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector,” Xu said. The original commentary was published in business journal Caijing Magazine.

Xu said high levels of stimulus spending from government paired with poor corporate management and financial supervision were key factors causing rising levels of leverage, Xinhua said.

He added the government should stick to “prudent and neutral” monetary policy, reduce emphasis on economic growth targets, and improve corporate governance so authorities did not have to step in so frequently to help companies out.

“Financial security is achieved via reforms, not bail-outs,” Xinhua reported Xu as saying.

Last week President Xi Jinping called for increased efforts to ward off systemic risks and help maintain financial security. Analysts say financial risk and asset bubbles pose a threat to the world’s second-largest economy if not handed well.”

http://www.reuters.com/article/us-china-economy-debt/china-leverage-rising-at-alarming-pace-central-bank-official-idUSKBN17X1BD

There are always risks out there.  We have to keep out eyes open and be on the lookout for them.

Technical Analysis:

The market had a nice pop up on Monday then went sideways to slightly up the rest of the week.  The S&P set a new record high, good news.  Republicans in congress are working on tax reform, but for every corporate sector helped, other sectors are threatened to have their tax break eliminated, so there is also opposition from many in the corporate sector.  The market likes the idea that a deal can be done, and this helps the market inch up, but the reality that it will probably be a small deal limits the progress.  Earnings season will start up in 4 weeks, which lately has been good for the market.  Estimates are that earnings will be 5% higher in Q3 than for the year earlier, which is one of the lower increases we have seen lately.  This is expected because 2 years ago an earning recession started, partially due to the strong dollar, so comparisons were easy the last year as earnings recovered.  We are now entering a period where the comparisons will be more difficult.  The dollar has weakened substantially this year, and that makes our goods more attractive overseas, so that puts a tailwind behind the market.

Technically, RSI (relative strength, top right of chart) has risen to 65, moderately overbought and not a good entry point.  MACD (momentum, lower right of chart) is rising in a near term bullish sign.  The price at 2,500 is now in the top half of the channel the market has been in the last few months, and while it could run up farther, the short term swing trading risk is rising.  I took money off the table to protect my recent gains.  I sold the index ETFs but kept most individual stocks that I bought for a specific reason, like GOOG which has been just idling around lately but remains a solid growth company.

2017 09 16

Seasonally we are approaching the good half of the year, when the market tends to be stronger from Nov. 1 – May.  I think it is “new year optimism”, and higher earnings forecast for the new year.  Sometimes those higher earnings forecasts come true (usually) and sometimes they don’t, but people seem to allocate their funds based on them.

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

Holding

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 ran late with the update today.  There has been an explosion of mold spores in the air in Houston since the Hurricane Harvey flooding, and it is affecting my sinuses and it seems to make me sleepy.

If you would like to be notified via email when I post a new blog entry, you can “Follow” my blog by clicking on the Follow button at the bottom right hand corner of your screen.  You may have to scroll up or down a bit for it to appear, but click on it and enter your email address.  You do not have to have a wordpress account to follow a blog.

Economy:

Not too hot and certainly not cold is the ISM’s non-manufacturing report for August where the composite index came in at a very solid 55.3 (anything over 50 shows growth).  More than 50,000 claims from Texas fed a giant and surprisingly unexpected 62,000 jump in initial jobless claims for the September 2 week to 298,000.  Hurricane Harvey shuffled up inventories of crude oil and products in the September 1 week, with crude oil inventories up 4.6 million barrels to 462.4 million, 3.8 percent below last year’s level and the first weekly increase since June 23.

There were not a lot of statistics this week, but nothing scary.  The rise in crude oil inventory should reflect the fact that refineries along the gulf coast were shut down after Harvey.

Geo-Political:

The hydrogen bomb that N Korea detonated last weekend put a damper on the market this week, resulting in the big selloff on Tuesday.  Since then there was no follow thru to the downside.

The deal that Trump cut with the democrats in the oval office this week on the debt ceiling and hurricane relief is one of the most bizarre I have seen.  With Paul Ryan, Mitch McConnell and Steve Mnuchin all sitting there and recommending against the short term deal that Trump agreed to, Trump sided with the democrats and approved a 90 day extension of the debt ceiling, with the hurricane relief included.  After Trump summoned numerous representative and senators to vote for his repeal/replace bills on Obamacare, he indicated he has no loyalty or solidarity to the republicans by abandoning them and siding with the democrats.  Trump has been publicly critical of Ryan and McConnell, and now he sided with Pelosi and Schumer.   Why?  There are a couple of possible explanations.  First, the president needed a “win” on something.  The consequence of failing to extend the debt ceiling is a government shutdown, and during that time all effort would be expended on getting some debt ceiling compromise done to re-open the government, so nobody would be working on tax reform.  A second explanation could be that the president is telling Ryan and McConnell that he is not really a republican, that he wants to do things rather than sit in gridlock done on party lines, and if he has to, he could carve a majority out of the moderate republicans and democrats and govern from the center of congress (not necessarily to be confused with the center of the nation).  This has been anathema to the republican party for two decades as they opposed Bill Clinton and Obama.  To break the gridlock in Washington, Trump may want to try something new.   I wonder how that’s going to sit with the alt-right?

There really are 4 parties in the US today, masked over by 2 party names.  There are the establishment republicans, tea party (now called Freedom Caucus) republicans, establishment democrats (Hillary voters), and progressive democrats (represented by Bernie Sanders).  We used to be able to get compromises with the old 2 party system, but that has become more difficult with the current 4 party structure.  That’s just my opinion.

Technical Analysis:

The market decisively moved above the downward correction channel two weeks ago and has remained above it.  One of the big concerns was the debt ceiling issue in congress but that has apparently been solved for 90 days.

Technically, the market looks like it is in fair shape.  The little correction has worked off some of the overbought leaning of the market and RSI (top of chart) is down to 51, which is neutral.  I’m more inclined to be a buyer with RSI at 50 than when it is at 60.  MACD (bottom of chart) is moving upward although it has slowed that move, but it is still a positive.

2017 09 09

One factor that is getting mentioned on CNBC is the effect of the FED injected liquidity following the financial crisis, and the new role that Exchange Traded Funds (like SPY and sector funds like XLV, XLE, IBB etc.), money can move so easily into the market.  When you buy these ETF’s, as they get more money, they have to buy the underlying stocks, and since these are “market weighted” generally, they will buy more of the stocks with the higher market capitalization.  So, the megacaps, like Amazon, Google, and Apple will have the price of their stock pushed up whether they deserve it or not, because people have money to invest and the ETF’s make it easy to put it to work.  It always helps to understand how the markets are working.  In the next bear market, that will play out in reverse and we could see some amazing drops in the megacap stocks.

I am just holding what I have presently.

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

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.

This was an interesting week with the visit from Huricane Harvey.  Our street flooded knee deep Sunday night after 15″ of rain that day and 9″ the day before.  Luckily we stayed dry.

I hope everyone has a nice Labor Day weekend!

Economy:

The second-quarter GDP proved to be very solid, revised 4 tenths higher in the second estimate to a 3.0 percent annualized rate.  Corporate profits rose 8.1 percent year-on-year in second-quarter 2017.   Crude oil inventories continued to plummet in the August 25 week, falling 5.4 million barrels to 457.8 million, 7.6 percent below the level in the same week last year.  Jobless claims remain at historic lows with initial claims coming in at 236,000 in the August 26 week vs a revised 235,000 in the prior week.  Unit vehicle sales faded noticeably in August, to a 16.1 million annualized rate from 16.7 million in July, which is the lowest rate since February 2014.  ISM’s manufacturing composite easily exceeded expectations, at 58.8 vs Econoday’s consensus for 56.6.  August consumer sentiment came in at 96.8, up nicely from July’s 93.

August payroll growth, though solid, missed expectations while wage data clearly disappointed. Nonfarm payrolls rose 156,000 in the month vs Econoday’s consensus for 180,000. Revisions are negative with July revised 20,000 lower to 189,000 and June down 21,000 to 210,000. The unemployment rate reflects the softness, rising 1 tenth to 4.4 percent.

Overall, the economy is doing fine.

Geo-Political:

Looking at Russia this week:

“August 11, 2017

The Russian recovery continued to pick up steam in the second quarter of 2017. A preliminary estimate released by the Federal Statistics Service (Rosstat) on 11 August showed that GDP increased 2.5% year-on-year in Q2. The result followed a meagre 0.5% expansion registered in Q1 and notably outshot market analysts’ expectations of a 1.8% increase. More detailed data including a breakdown of components will be released on 29 September.

The economy is expected to return to growth in 2017 after two years of falling activity, thanks to recovering private consumption and fixed investment. Higher oil prices should also help shore up government revenues and support exports. Economists project that the economy will expand by 1.3% in 2017, which was left unchanged from last month’s forecast. For 2018, analysts see GDP growth accelerating to 1.7%.” 

http://www.focus-economics.com/countries/russia/news/gdp/economy-gains-momentum-in-q2

I am sure Russia suffers under sanctions from the US and our European allies, but they must think that achieving their territorial aims in Ukraine are more important than allowing their economy to prosper.  I don’t like to see Russia in too bad a shape, because when people or nations are put in very bad positions, they sometimes do unpredictable and crazy things.  That is usually very bad.  The current situation is OK.

Technical Analysis:

It was a good week, up every day.  In the week ended 8/25, the market was moving sideways, and despite negativity the market would not go down.  Often if it won’t go down, it will go up.  I started by buying some quality stocks that had pulled back, like GOOG.  Last week’s report talked about the market being in two channels, a larger up channel (black lines on the right side) and a smaller correction channel (purple lines, right side).

Let me mention a rule of thumb that is useful, it is the “3 day rule”.  If the market is moving down and we get an up day, it does not mean anything, on any given day the market could be up or down.  But technically, if you suspect a possible change of intermediate term direction, 3 days in the new direction is needed to increase the possibility that the direction has changed.

Given that I had some technical help, I was a buyer every day and Wed. I was a heavy buyer.  It appears we are out of the correction as the market has moved decisively above the correction purple channel.

Small caps had been hit harder than large caps in the correction, so I included some IWM (Russell 2000) with my purchases of SPY, as I thought small caps would have more room to the upside and that has worked well.

Technically (see chart), RSI at the top is at a bullish 60 and it has a way to go before we become overbought.  MACD (bottom of chart) has bullishly turned up, good for those in the market.

I think the market has further to go on the upside, but where might it end?  We’re near the record high, and we could stall making a double top, and that would be bad.  We could push higher and set a new record high for a week or two, then the politicians could kill the rally with scare talk about the debt ceiling and a govt. shutdown, if they are particularly crazy this year.

I’m in for a while.

2017 09 02

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