Rally Up to the Downtrend Line

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.

You may notice that I am using a new font for the blog.  A friend and reader suggested that I try to darken the text to make it a little easier to read.  The fonts are provided by WordPress, so I looked through my 20 choices and I thought this one looked a little darker.  Thanks to my friend, and I hope you all like it!

Economy:

Existing-home sales ran at a seasonally adjusted annual rate of 4.99 million in December, the lowest rate since November 2015. Sales were down 6.4% for the month, and 10.3% lower than the year-ago rate.  Initial jobless claims, a rough way to measure layoffs, fell by 13,000 to 199,000 in the seven days ended Jan. 19, the lowest since 1969.  The leading economic index fell 0.1% in December, perhaps another sign the U.S economy has slowed according to the Conference Board. The index fell in two of the three final months in 2018 (three consecutive drops in the LEI can foretell a recession about 6 months out).

We are still getting economic reports from non-government entities like the Conference Board, but all government reporting is delayed.  Employment looks good, but the other 2 reports are weak.  The US economy shows clear signs of slowdown, so it is not the time to be too aggressive here.

Geo-Political:

The government shutdown ended Friday afternoon, so that should give the market a boost on Monday.

We’ve focused on China, but there is not much new to report this week; it seems the two teams are working on solutions and that is good.  Most watchers think the most likely case will be some progress by March 1, no doubling of tariffs, and extend the date 90 more days and keep working.  I think the market would like that scenario.

In Europe, the news is not so good, things continue to slow down.  From this week’s ECB meeting news conference:

Jan. 24, 2019 – The European Central Bank (ECB) took no action Thursday, but President Mario Draghi warned that growth risks in the region had shifted to the downside due to a number of external factors.

“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility,” Draghi said at a press conference.

Draghi also reaffirmed the central bank’s stance to keep key interest rates at their present levels through the summer of 2019 and “longer, if necessary.”

The euro plunged to a one-month low, trading 0.5 percent lower against the dollar after Draghi also acknowledged that near-term data are likely to be weaker-than-expected.

Last month, the central bank formally brought an end to its $2.6 trillion bond-buying program, meaning purchases fell from 15 billion euros a month to zero. It marked a historic moment for the bank as it brought an end to the crisis-era policies in the euro zone, despite coming at a difficult time for Europe.

The ECB, however, kept its plans to reinvest cash from maturing bonds for an extended period of time beyond its next interest rate hike. These purchases are designed to keep borrowing costs down through to sometime in 2021.

https://www.cnbc.com/2019/01/24/ecb-interest-rate-decision-january-2019.html

So the ECB has ended their QE program of buying bonds each month, but have not begun the process of normalizing interest rates nor shrinking the central bank’s balance sheet.  Until interest rates rise in the Eurozone, there will be plenty of buyers for US bonds and that will tend to keep longer term interest rates from rising too rapidly.

Over the last year we have moved from “global synchronized growth” to “global slowing”, and that is showing up in the stock market.

Technical Analysis:

The S&P was up about 1% this week, making five straight winning weeks.  So far it is a nice rebound from the hard three-month selloff of Oct. – Dec.

Technically, we are in a precarious spot.  RSI at the top of the chart is at high neutral at 61, but in this correction whenever we have reached that level the market has pulled back.  We have not been strong enough to go up to 70 and hit a true overbought level.  That presents an opportunity to move forward and show a sign the correction is ending, or to fall back indicating the correction is still on.  For momentum we use MACD at the bottom of the chart, and the trend lines are up, but the histograms are declining showing weakness in the advance at this stage.  The price action is up against the purple down-sloping trendline of the correction, and that is the key battleground.  I’m sure all the computer programs are looking at the same trendline and it will be interesting to see what they do with it next week.  Half of the Dow Jones Industrial Average reports earnings next week, and earnings have been coming in pretty good so far, although guidance for Q1 has been a little weak for some companies.

2019 01 26

Click THIS LINK to open the chart in a separate window.

I bought a small piece of SPY and EEM and if the market can get and stay above the downtrend line, I would keep buying, but nothing too big while we are still in the correction zone.  I would also take profits when things get overbought, at a more aggressive rate than when the market is in more bullish mode.  There is still overhead resistance at the 200 day moving average of 2740 and the recent highs at 2810.

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.

You can use the 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.  To do this 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.  If you bookmark the link you can look at it each day of the week to see how the market is progressing to certain milestones.

Rich Comeau, Rich Investing

Two Major Concerns Are Resolving

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.

The monthly Long Term update was posted on Wed. so to read it just keep scrolling down at the end of this week’s report.

Economy:

Many economic indicators are being delayed due to the government shutdown.  The University of Michigan said its consumer sentiment index in January skidded to a reading of 90.7 in January from 98.3, which is the worst reading since October 2016.  The causes are believed to be reports of a global economic slowdown, the trade war with China, lack of clarity from the Fed on interest rate policy, and the significant selloff in the stock market.  When the consumer gets rattled, they spend less and that will affect GDP negatively.  Initial jobless claims, a rough way to measure layoffs, declined by 3,000 to 213,000 in the seven days ended Jan. 12, still in the historically low range.

Geo-Political:

Friday we got some positive news from China on the trade talks and the stock market rallied nicely.

Jan. 18, 2018 –  China has offered a six-year boost in imports during its ongoing talks with the U.S., officials familiar with the matter told CNBC.

Chinese officials made the offer during negotiations in Beijing earlier in January, Bloomberg News reported. China would increase its annual import of U.S. goods by a combined value of over $1 trillion, the officials told Bloomberg, which was first to report on the import boost offer.

China pegged its proposal to buy more U.S. goods through 2024 to President Donald Trump’s hopes of being re-elected in 2020, the sources told CNBC.

The U.S. had a trade deficit of $323 billion with China in 2018. This deal would aim to reduce that annual trade difference to $0 by 2024, one of the officials told Bloomberg.

Stocks rose to their highs of the day when news of the offer hit Wall Street.

https://www.cnbc.com/2019/01/18/china-to-offer-path-to-eliminate-trade-imbalance-with-us-report.html

It’s a positive indicator, but no deal is done.  Equalizing the trade balance is one US objective, but protection of US intellectual property is another.  Nothing was mentioned about the IP protection, but it was mentioned a couple of weeks ago that the Chinese were working on a new law to provide safeguards to US companies.  I can’t believe that in the complex relationship between the worlds two largest economies, that all of our differences will be resolved in these 90 day talks, but it appears that substantial progress can be made.  Just keep in mind that a reversal is also possible.  For now, I’m optimistic about what can be achieved by March 1, and that is good for the stock market.

Technical Analysis:

We had a nice 4% rally this week as the Fed has reassured markets on monetary policy, and positive comments from China on trade talks.

Technically, we cleared first resistance at 2625 (the green line), which was the two previous lows from Nov. and Dec. and the 50-day moving average (blue wavy line).  Now we are up against another resistance level, the purple downtrend line, and if we clear that, we will hit resistance at the 200-day moving average (red wavy line).  RSI at the top of the chart is just above the top of the range it has been in for the 3 month correction, but just above at 61 and in high neutral territory.  Momentum shown by MACD at the bottom of the chart is strongly positive in the short term.  The price action is very interesting, having cleared first resistance and now up against the resistance of the downtrend line.  If the news on the China trade front remains positive, with the Fed having softened its tone, the market would have resolved the two major factors that brought on the correction.

A retest of the late Dec. low remains a possibility, and in fact desirable from my point of view.  A pullback that remains above 2350 would constitute a “higher low” and provide the bottom of a new up-channel.  That’s what I would like to see, but I often don’t get what I want.

I cleaned up the chart as the old one was getting too busy.

2019 01 19

Click THIS LINK to open the chart in a separate window.

I didn’t do much this week.  I sold a Feb 68 XOM Put since oil is rising, XOM was at an interim low but has turned up recently, and I would not mind owning a few shares at 68.  I picked up some DAL, FEYE, SSYS, and V.  Next week I may start to nibble at SPY, very slowly.  I may miss the tail end of the run-up, but I won’t get hurt real bad if the retest on the downside happens.  If we get a successful retest, I plan on buying.

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.

You can use the 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.  To do this 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.  If you bookmark the link you can look at it each day of the week to see how the market is progressing to certain milestones.

Rich Comeau, Rich Investing

Long Term – Jan. 2019

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 – Third quarter GDP was revised down a bit from 3.5% to +3.4% for the third estimate on Dec. 21.   Through three quarters, the average GDP growth is 3.2%, a nice growth rate.

The Jan. 16 update from the Atlanta Fed on GDPNow for Q4 is +2.8%, which is a good number that would drop growth for the year to 3.1% which is still a good number.

Annual GDP growth had been stable for a few years at a 2% annual rate and moved up a bit in 2017 to 2.6%.  This GDP number supports the assertion that the bull market continues. 

Year Quarter GDP %
2018 Q3 3.4
2018 Q2 4.2
2018 Q1 2.0
2017 Year 2.6
2017 Q4 2.9
2017 Q3 3.2
2017 Q2 3.1
2017 Q1 1.2
2016 Year 2.0
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 .25% to the range of 2.25 – 2.5% on Dec. 19, as expected, but they also indicated they see only two rate hikes in 2019 instead of the three they previously discussed.

Following the 12/19 press conference, the market proceeded to sell off hard.  Various Fed governors came out and softened the language saying they would be “data dependent” and not raise rates if the economy weakened.  Investors had been concerned that if the economy slowed due to the China trade war that the Fed was not indicating that it could cut rates to support the economy.  The Fed also indicated more flexibility on slowing the runoff of their balance sheet (as Fed owned bonds matured, selling them into the private market).  The market took the signs of greater Fed flexibility positively and we have rallied off of the late Dec. stock market low.

I was getting too much data in the table below and I thought readers would ignore it.  I decided to average the data for each quarter that was over a year old.  In that way I can keep a lot of meaningful data, and the reader will not have to wade through too much detail.  At least that is the plan.  Eventually I can average 4 quarters of data and keep some “years summary” data.  Then I can revisit the plan in 10 or 20 years, if I’m still blogging!  🙂

While rates are rising, I do not see a hostile interest rate environment.  For now, rates still support the long term bull market. 

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
Jan 16, 2019 2.4 2.6 2.7 3.1
Dec 19, 2018 2.4 2.6 2.8 3.0
Nov 21, 2018 2.1 2.9 3.1 3.3
Oct 17, 2018 2.1 3.0 3.2 3.3
Sep 19, 2018 1.9 3.0 3.1 3.3
Aug 15, 2018 1.9 2.7 2.9 3.0
Jul 18, 2018 1.9 2.8 2.9 3.0
2018 Q2 1.7 2.8 2.9 3.1
2018 Q1 1.5 2.6 2.8 3.1
2017 Q4 1.2 2.1 2.4 2.8
2017 Q3 1.1 1.8 2.3 2.9
2017 Q2 .9 1.8 2.2 2.8
2017 Q1 .7 2.0 2.5 3.1
2016 Q4 .5 1.8 2.4 3.0

 

Valuation:

PE on S&P 500 – The current 12 month trailing GAAP PE on the S&P 500 is 18.5, down from 20.3 last month.  I used 4 quarters of earnings with the most recent being Q3 2018.

This metric is neutral due to the recent correction in stock prices, relative to my trimmed 30 year average of 19.

This valuation is based on the Jan. 9th market price, after its recent significant drop.  The market is not overheating in this late stage of the expansion, which is good.  On the other hand, one might reasonably ask why the market did not do better in 2018 with the strong economic performance.  Higher interest rates from the bond market are starting to attract investment that a few years ago would have flowed into stocks.  This has the natural effect of lowering the P/E that investors are willing to pay for riskier stock investments, relative to bonds.  Also, the stock market rose following the Trump election on the PROMISE of what he would do, and the benefits of deregulation and tax reform.  Those effects are fully in the market now, and we are looking at a possible slowing of GDP growth and earnings, and negative effects of the China trade war.

In a bull market with valuation at the long term average level, this indicator is supportive of the bull market.

S&P earnings – The latest earnings estimate from Factset is for 10.6% higher earnings for Q4 than in the prior year (revised down from 13% last month).  These downward forecast earnings revisions are why I prefer to use trailing estimates for the valuation just above, because the trailing estimates DO NOT CHANGE, they are facts.  The forward looking estimates are useful, but you must take them with a grain of salt.  Look around at the world and see what else is going on.  Are the estimates too high?

This indicator is supportive of the bull market, but if estimated earnings for 2019 are continually marked down, volatility will continue.

Age of primary move, bull or bear market – The bull market is 9.8 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:

Tension between Saudi Arabia (Sunni center) and Iran (Shiite center) has reached a level that bears watching, centered in the Yemen conflict (noted Dec. 2017).

In the US, we are approaching the point in the investigation into Russian meddling in the 2016 US presidential election where we will find out whether charges will be filed against the president’s closest advisors.  At that point a constitutional crisis could emerge.  A constitutional crisis is not a given, but if it occurs, I would expect the stock market to retreat for a while. (noted January 2018)

Trade wars are in effect with China and the EU.  I think some of the objectives Trump pursues are valid, but I am not confidant the method being used is the best.  This is causing serious pain to some segments of the economy, notably anyone that uses steel to make their products, and for farmers trying to sell their products.  Growth is slowing in both Europe and China.  This is already a small negative for the economy, but currently the reports out of China on trade talks with the US are mildly positive.

Global geo-politics is supportive of the bull market, currently.  The trade issues are less supportive of the bull market than a year ago.

Technical:

January has been a good month so far, up about 5%.

Technically the market if flashing a caution sign on a long term basis.  Clearly we have had a significant correction the last 4 months.  However, we have not violated the long term uptrend channel decisively in both magnitude and duration.  The RSI at the top of the chart is at 52 which is neutral.  On a long term basis, if the downturn is a correction and not the start of a primary bear market, we could be near the bottom.  Momentum shown by MACD at the bottom of the chart is still in a downtrend, which is a negative.  The price action is questionable, having violated the bottom of the uptrend channel, but the market has rallied in January and if this does not get worse, it may show the bull market remains intact.

Both the 50-month and 200-month moving averages are rising and the market action remains above both of them, a positive sign on a long term basis.

2019 01 16 long term

The market’s technical indicators support the thesis that the long term bull market remains in force, however that support is the weakest it has been in over six years.

Conclusion:

The stock market remains in a long term 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.  However, the price action of the market has dipped below its long term uptrend lower level and this is a significant danger.  If this persists it would indicate the primary trend of the market has changed.

 

Long Term Issues to Keep in Mind:

Federal Deficit:  (Negative – Noted Jan. 2018)  It will go up despite the republicans saying that if the tax cut bill is “dynamically scored” using “possible” increases in economic activity, it will hold down the deficit by increasing tax receipts.  This has not been shown to work in the past.  With the Fed no longer buying the US government debt that is currently running at $650 billion per year, and will likely expand to $750 billion per year, who is going to buy that debt, and what interest rate will they demand before committing their capital to that investment?  If that causes interest rates to rise unexpectedly fast and high, that would pose a significant risk to the US economy.

With the ECB ending their QE bond buying by the end of 2018, and probably beginning to raise rates in 2019, this may divert some buyers of US treasury bonds to Euro bonds, and that would put upward pressure on US interest rates (noted June 2018).

The total national debt exceeds $20 Trillion, and as interest rates rise, the component of the annual budget allocated to “interest on the debt” will increase, putting pressure on existing programs, or increasing the deficit.  If the deficit is allowed to rise too much in good economic times, the value of the dollar will fall and that is inflationary which is usually bad.

Rich Comeau, Rich Investing

Rally – 2% Up 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.

The monthly Long Term update will be posted on Wed. the 16th.

Economy:

The ISM non-manufacturing index fell to 57.6 last month from 60.7 in the prior month. The index had hit a 21-year high of 61.6 in September, meaning it fell from a torrid pace to a brisk one.  Initial jobless claims, a rough way to measure layoffs, declined by 17,000 to a seasonally adjusted 216,000.  The consumer price index slipped 0.1% in December to mark the first decline in nine months, driven by the low price of oil.

Overall, the economy remains in good shape, but upsets are occurring in isolated segments, like homebuilding which is slowing due to higher rates.

Geo-Political:

This week’s trade talks with China seemed to go well.

Jan. 9, 2019 –  China’s Foreign Ministry said Wednesday that its trade talks with the United States had concluded, and that results would soon be released.

The length of the negotiations, which extended into an unexpected third day, suggests the serious nature of the discussions, the ministry said.

Asian stocks jumped after the talks were extended for an unscheduled third day, fueling optimism that the world’s largest economies can strike a trade deal to avoid an all-out confrontation that would severely disrupt the global economy.

Ted McKinney, U.S. Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, addressed the negotiations earlier in the day to reporters at the delegation’s hotel, saying “I think they went just fine.”

It’s been a good one for us,” he said without elaborating.

https://www.cnbc.com/2019/01/09/us-trade-delegation-wrapping-up-meetings-in-china-hopes-of-deal-build.html

Concluding a trade deal with China would be the best thing that could happen for the stock market, avoiding the disruption that higher tariffs would bring if a deal is not reached.  Both countries are being hurt, so I think a deal will happen.

The second major issue affecting the markets has been the Fed raising interest rates and normalizing its balance sheet, allowing the bonds we bought in the aftermath of the financial crisis to be sold into the private sector.  The Fed had indicated we would have 3 rate hikes in 2019, but backed off to 2 at the December meeting, and since the selloff following those comments, the Fed has made more dovish comments that it will be data dependent and could pause the rate hikes to see what effect all the previous hikes are having.  We clearly see the slowdown in housing.  The Fed has also sounded a more dovish tone regarding the runoff of the balance sheet.  As bonds mature in the Fed portfolio, if they are not bought again by the Fed, and private entities must buy them (corporations, individuals, and foreign buyers), liquidity is decreased and those entities can’t spend those dollars in commerce or the stock market.  There is also a demand by private investors for a higher return which puts pressure on bond yields to rise.

The important point about the Fed actions today is that they MUST BE DONE.  They must be done because the Fed used extraordinary means in the aftermath of the financial crisis.  Now we must take the medicine.  If you ask, well why did the Fed use extraordinary means, the answer is they did not want a re-run of the great depression, which was a real risk in 2009.  I never saw anyone put forward a practical solution other than what was done.  Some said we should have just let the banks fail, and the auto industry fail, and investors would have bought the pieces out of bankruptcy and built stronger companies.  Who has a lot of confidence in that alternative?  Not me.  Maybe it would have worked, but how shocked would Americans have been?  What other industries would have failed as scared Americans pulled in their horns and quit spending?  Nobody has ever given a coherent assessment of how low the bottom of the US economy would have been reached.  No responsible politician or financier has ever addressed that, and for a good reason, it was not practical and it entailed too much risk as nobody knew how much damage to the economy would occur under that scenario.  So, the Fed did what it did in 2009 and for a few years after, and now we MUST slowly undo it.  Don’t blame Jerome Powell (the Fed Chairman), he is doing what logically he must do.

Technical Analysis:

The market continued its recovery, up 2% last week.  The Fed has tried hard in several addresses to sound more dovish on rate hikes and the runoff of the balance sheet, and the stock market likes it.  The trade talks with China progress, and at least no bad news is coming from them.  Those are the two biggest problems we are facing.  On the downside, tariffs still are increasing costs for many American companies, and in earnings season starting this week we need to see what this means to their current profits and forward guidance.

Technically we can see a recovery beginning, but the question is will it have staying power.  Look at Relative Strength Index (RSI) at the top of the chart.  It is at 52 which is neutral in normal mode, but we are in correction mode and 52 can be “overbought” and time for a correction.  In this correction when the RSI has hit the 50 level, it has headed back down.  This made me very cautious toward the end of the week, and for safety reasons I lightened up, I took some of the profits I made the last few weeks since the Dec. bottom.  The market could go higher, but earnings season looms as a wildcard and profits were very strong last year at this time due to the tax cut, so comparisons will be difficult.  The dollar has weakened the last couple of weeks, but from a high level and it will still pose a headwind.  Momentum shown by MACD at the bottom of the chart is in a strong uptrend from the deep oversold bottom in late Dec.  Price action is negative, with the 50-day moving average below the 200-day moving average, and the price is below both of them.  The price will hit resistance at the 50-day moving average at 2625, just 1% up from here.  That is also the level of the little double bottom that had provided support in Nov. and Dec. (see the green horizontal dashed lines, the bottom one).  Old support becomes resistance.  It will be illustrative how the market acts at that resistance level.  If it fails to break above, then we will probably get a retest of the recent low at 2350, which would be a good thing if it is a successful test and remains above 2350.  I’m cautious.

One of these days I should clean up the chart, but I enjoy this one, it is so illustrative of the gyrations the last year, I’m going to keep it a while longer.

2019 01 12

Click THIS LINK to open the chart in a separate window.

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.

You can use the 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.  To do this 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.  If you bookmark the link you can look at it each day of the week to see how the market is progressing to certain milestones.

Rich Comeau, Rich Investing

Volatility

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.

Economy:

Initial jobless claims, a rough way to measure layoffs, climbed by 10,000 to a seasonally adjusted 231,000 in the seven days ended Dec. 29.  The Institute for Supply Management said its manufacturing index fell to 54.1% last month from 59.3%. The last time the index has fallen more steeply was in October 2008, at the height of a U.S. financial crisis.  Sales of new vehicles in the U.S. rose slightly in 2018, defying predictions and highlighting a strong economy.  Automakers reported an increase of 0.3% over a year ago to 17.27 million vehicles.  The U.S. gained a whopping 312,000 new jobs in December to bring total employment gains in 2018 to a three-year high of 2.64 million (this is a surprising strong number, it could be revised down next month, let’s watch).  If it is not revised down, the Fed decision to hike the Funds rate would appear justified, at least somewhat.  Unemployment ticked up to 3.9%.

Geo-Political:

This week, we’ll just talk about China and Apple.  Apple on Wed. after the market close, pre-announced a significant revenue miss, down from a forecast $91 billion, to $84 billion for Q4.  That’s huge.  CEO Tim Cook said it was 100% iPhone sales in China that caused the miss.  I don’t think that is exactly right, so let’s discuss.

The miss by Apple is 7%.  The strong dollar caused 2% of the miss, according to Cook, just on the exchange rate.  There are currently no tariffs on iPhones by China, so that is not directly the problem.  However, there are reports of managers suggesting to their employees that during the trade war they should buy Huawei phones.  Around the country, others may have reached that conclusion on their own.  Some of Apple’s problems belong to Apple.  They have been very aggressive raising prices, and many have wondered when they would hit the tipping point of being too expensive.  They may have hit it.  The Huawei phone has caught up close to Apple, and it costs about half.  This has nothing to do with China, but Apple has not introduced a new compelling product in a long time.  The watch has been underwhelming in its market penetration, although it continues to gain feature and new sales.

The US trade delegation is meeting with the Chinese on Monday and Tuesday to see what they are doing and whether they are trying to meet US demands.  It is not clear what if anything China will ask of the US.  Both economies are hurting, so there should be some impetus for both sides to make a deal by March and put out some positive spin when this meeting ends.  But, stranger things have happened.  The president cannot like the tenor of the US stock market.

Technical Analysis:

The market was slammed down on Thur. by the Apple earnings miss, then it rallied strongly on Friday after Fed Chairman Powell indicated greater flexibility on raising rates this year.

Earning season gets into high gear on the 15th when JP Morgan and Wells Fargo report.  Today the financials rallied with the rest of the market, is good news coming from the banks?

Technically, things are up in the air.  RSI at the top of the chart is about neutral at 48, but considering the red line horizontal channel it has been in, it could also be considered overbought during this correction.  MACD has just turned up, a good sign for the short term.  Maybe the worst is over?  Price wise we have rallied off a deeply oversold bottom in late Dec., but nothing is proven.  The little rally off oversold was to be expected.  I made a little peanut money.

2019 01 04

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What did I do this week?  Not much.  I bought CD’s and Treasuries with some 30-day money that matured (I was waiting for the Fed’s hike on 12/19 to capture that extra ¼ point).

I don’t plan to do anything big until after JPM reports on the 15th.  If they say business is good, and the rest of the market picks up on that, I’ll probably keep buying in slowly.

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Rich Comeau, Rich Investing