A Good Week

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 lose your bookmark to the blog, google “Rich Investing and it should show up on the first page or so.  The more often you google it and hit the link, the higher it will show in your results.

I recently added a feature to the blog, a hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window.  The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text.  For this to work out best, in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up.  Then size each window to about half of your monitor size.  My thanks to the reader for an excellent suggestion that I hope has value for all of my readers!  As an additional benefit, if you bookmark the link you can look at the chart each day of the week to see how the market is progressing to certain milestones, like breaking through the purple downtrend line currently on the chart.  If you trade, this will get the information to you sooner.  If you like this or have a question about it, send me an email at sharplet@gmail.com .  I’m not sure how often the location of the graph will change, but I’ll update the link when it does.

Economy:

Factory orders for April were down .8% on weakness in aircraft orders, but aircraft orders are irregular in timing and sometimes skew the number.  The ISM non-manufacturing index for May was strong at 58.6.  Initial jobless claims for the June 2nd week were 222K, in line with last week and a generally low number.  The economy looks good.

Geo-Political:

The biggest international risk I see is the trade disputes provoked by Trump.  Tariffs are just beginning to hit, as well as retaliation.  Whether this brings any resolutions, or an escalation from a skirmish into a trade war, remains to be seen.  This is going to linger for a while and inject volatility into the market for a few months.  Generally it will be a negative for the markets until we see what the new reality is.

The view from China:

“June 2, 2018 – Tuesday evening’s unexpected White House announcement to push forward with $50 billion worth of fresh tariffs for Chinese goods has created yet more uncertainty over the future of a trade resolution between the countries. However, whilst it may not result in any immediate change in China’s negotiating position, it has certainly cast doubt over the true intentions of the Oval Office.

The competing voices of parties whispering in the President’s ear, all seeking their own brand of retribution against China, has created a climate where observers, including Beijing, simply don’t know what’s coming next. Whilst Congress push for strict punishment on national security grounds, the mind of the President seemed until this week to be fixed on the trade imbalance.

Instead of a directed plan of attack and consistent narrative, the deficit, intellectual property, national security, and illiberal markets have all been swirled together, with emphasis swinging from one issue to the next with each passing week. Chinese foreign ministry spokeswoman Hua Chunying was correct on Wednesday when she said the move “damages the US’s national credibility” – but not in the sense of sticking to commitments: its getting harder to believe any justification the US gives.

The latest announcement seems to show that the President’s attention is back on intellectual property, after the bilateral trade imbalance briefly took centre stage as the administration’s principal grievance. The duties of 25% will target goods “imported from China containing industrially significant technology,” read the White House’s official release, making special reference to China’s ambitious industry renovation project “Made in China 2025”. The new tariffs will be applied by invoking Section 301 of the Trade Act of 1974, which identifies four main circumstances under which punitive protectionist measures may be taken: forced technology transfer; state-directed acquisition of sensitive US technology for strategic purposes; requiring licensing at less than economic value; and outright cyber theft. The statement also reiterated its intention to pursue a trade case made against China at the World Trade Organisation regarding the protection of sensitive US technology.

For many on Capitol Hill, the combined threat to US technological hegemony posed by unfair practices and the aggressive top-down Made in China 2025 initiative is the core problem that Trump has so far failed to address in his dealings with China.”

https://chinaeconomicreview.com/the-us-doesnt-know-what-it-wants-so-how-can-china/

Technical Analysis:

In a nice up-week for the market, it was significant that we decisively broke above resistance that was a small double-top at 2740.  The market is showing strength again following 4 months of correction.

Technically, RSI (top of chart, see glossary) is at 65, which is near overbought (70 is overbought).  During the 4 month correction we did not get over 60, so this is encouraging.  MACD (bottom of chart) is trending up so that is also positive.  Price action is positive having broken through the resistance at 2740.  We’ve been in a trading range (the green lines) for 4 months from 2580 to 2800 and the next question is will we break through the trading range top at 2800, which would be very positive.  If that is achieved, new record highs are not that far up at 2870.

The picture is positive, but getting decisively through the top of the trading range can be difficult.  On a short term basis, with the market nearing overbought, the possibility of a small pullback comes into play.  The Fed meets June 12-13, with a quarter point rate hike expected.  I don’t think it will rile the market since it should be baked in.  Earnings season will start around July 10, and earnings are expected to be excellent on the back of the corporate tax cut.

2018 06 08

Click this link to open the chart in a separate window.

I don’t like to buy in heavily into an overbought market because the prospect of a correction looms.  But in a bull market, an overbought market can get more overbought.  What to do?  Don’t get eaten up by fees; most brokerage houses offer some ETF’s that can be bought for free.  At Fidelity, IVV is an S&P 500 ETF that you can buy for free and it is free to sell if you hold for over 30 days.  I’ll make small daily purchases while the market is in an uptrend and has just broken through a resistance level that kept me from being more fully invested.  I have a lot of dry powder and that’s my plan.  I bought some KRE and XLF (regional and larger banks) last week since they had corrected hard, and I felt there was more value there than in the tech sector where things look overbought.  I’ll keep buying in slowly as long as the uptrend continues, and get ready to sell when the upward momentum stops.

In the last earnings season, earnings were excellent but they did not propel the market higher because it had already run up so much in Dec./Jan. on the tax cut news.  Hopefully we will do better in the upcoming earnings season.  The market has settled into the uptrend channel (blue lines) of the last year, a more sustainable growth rate.  I’d like to have more money in the market by July 10.  This idea, having a timing sense of what is going to happen in the market a few weeks down the road, and having a plan of what you would like to do in advance, should be helpful to many investors.  I don’t talk to many people who make the effort to try and “look ahead” to natural events that can move the market and make a plan to handle the situation.

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, or send me an email, my address is on the “About” page at the top of the blog.

Rich Comeau, Rich Investing

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