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.
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Hopefully you have a three-day weekend this weekend and I hope everyone gets to enjoy it. We’re having good weather in Houston, as long as your river stayed in its banks on Wednesday.
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Fourth-quarter GDP is revised 4 tenths higher in the third estimate to a 2.9 percent annualized rate. After-tax corporate profits fell a year-on-year 6.0 percent in the fourth quarter to $1.68 trillion. Initial jobless claims fell 12,000 in the March 24 week to a lower-than-expected 215,000 and the lowest level in 45 years. Consumer sentiment held strong the last two weeks of the month as the final March index came in at a 14-year high of 101.4.
The good numbers show the risk of a recession is very low at this time, which is good for the stock market.
Wall St. wonders how China will retaliate against the US for us placing tariffs on some of their exports to us. Moving to dislodge the US dollar as the defacto world’s reserve currency could be one way.
“China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing’s efforts to establish its currency internationally.
Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.
A pilot program for yuan payment could be launched as early as the second half of this year, two of the people said.
Regulators have informally asked a handful of financial institutions to prepare for pricing China’s crude imports in the yuan, said the three sources at some of the financial firms.
“Being the biggest buyer of oil, it’s only natural for China to push for the usage of yuan for payment settlement. This will also improve the yuan liquidity in the global market,” said one of the people briefed on the matter by Chinese authorities.
China is the world’s second-largest oil consumer and in 2017 overtook the United States as the biggest importer of crude oil. Its demand is a key determinant of global oil prices.
Under the plan being discussed, Beijing could possibly start with purchases from Russia and Angola, one of the people said, although the source had no details of anything in the works.
Both Russia and Angola, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia.”
Being the world’s reserve currency is a huge advantage to the US, supporting the value of the dollar despite our perennially high deficits. It is not necessary for the yuan to replace the dollar as the world’s reserve, but to be seen as a viable alternative would take some buying pressure off the dollar and thereby weaken it. With the administration driving up the deficit in the face of good economic times, that could lead to more dollar weakness and higher inflation in the US.
Another interesting week! Monday was a big up day, then Tuesday was a big down day. Then the market stumbled around looking to see if it could stabilize, which it did, followed by a decent up day on Thur. to end the trading week.
I updated the chart to clean it up, keeping the old uptrend lines (blue). We see the tax cut euphoria in Dec. and Jan., followed by the inflation and Fed rate hike worries in Feb. and March.
It appears to me we have entered a trading range (green lines) from 2575 to 2800. Whichever way the market decisively breaks out of the range will probably set the intermediate term trend. I also observe that buy and hold investors can’t make money in a range-bound market, but this is ideal for a swing trader. Last year with little volatility I under-performed the market, but this year in a more volatile environment I am out-performing the market by not suffering through the downdrafts. Last year there were almost no downdrafts at all.
For the trading range scenario to hold true, the market needs to hold above 2575, or at least the recent intraday low of 2530. If it fails to hold those levels, we have a large problem on our hands and will have to figure out what it is. But, last week appeared to be basing at the low end of the range, following a successful test of the early Feb. low. That looked good.
RSI is around 40, closer to oversold territory and still a decent entry point for the short term. MACD looks like it may be bottoming as the histograms are just beginning to recede.
Last week I began to buy on Monday and bought more on Thur. I bought a lot of IVV, and some XLF and XLK, along with INTC and CSCO. The low-ball buy orders did not hit, oh well. I sold some 4/13 XOM 70 Puts a few weeks ago that I still hold and hope to collect that option premium, we’ll see. Selling Puts at market oversold periods is fun, but you have to have the cash to buy the stock if your Put gets assigned, or you have to sell the Put prior to expiration and take your loss if the trade goes against you. I don’t recommend options trading to everyone, but it is pretty entertaining.
I’m aiming at the 4/10 start of earnings season and expecting a rally. Whether the market goes up or down, I have dry powder that will get deployed. Earnings for Q1 are expected to be up by about 15% on the back of the first quarter of earnings under the tax cut, and I just find it hard to see the market going down on excellent real earnings, unless a hot war breaks out somewhere (bullets or trade war).
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Rich Comeau, Rich Investing