Another Record High

I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back).  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 primary bear market, 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:

Existing home sales slipped 1.7% in June, reflecting ongoing weakness in the U.S. housing market despite a sharp drop in mortgage rates.  Existing-homes sold at a 5.27 million annual pace last month, down from 5.36 million in May.  The annual sales pace in June for new single-family homes in the U.S. rose 7% last month to 646,000, for the first gain in three months.  The monthly average of initial claims for unemployment declined by a small amount of 5,750 to 213,000.  Durable-goods orders rose 2% last month.  The first estimate of Q2 GDP was 2.1%, down from 3.1% in Q1.

It was a mixed week of data.  I don’t see a reason for a big selloff, nor for the stock market to rocket up.

Geo-Political:

Next week, the US and China will hold their first trade talks in 3 months, following the meeting between Trump and Xi at the G20 conference in June.

There is a global economic slowdown going on and most believe this was started by the trade war Trump started, first with steel tariffs that hit Canada and Mexico along with China, then by the tariffs directly placed on Chinese goods coming into the US.  You can see this in the ragged economic statistics being reported by the government each week, and in the slowdown in the quarterly GDP reports starting in 2018 Q4.

Rupert Thompson, head of research at Kingswood, an investment manager, said:

The ECB left policy unchanged at today’s meeting and all but committed itself to easing at its meeting in September. Draghi emphasised that the risks to growth remain on the downside, inflation remains muted and the 2% inflation target is symmetric – implying that an overshoot would be tolerated to compensate for past undershooting.

https://www.theguardian.com/business/live/2019/jul/25/investors-ecb-european-central-bank-economic-stimulus-brexit-interest-rates-euro-sterling-pound-dollar-business-live

There are many interesting observations on the ECB statement.  They basically announced a rate cut for September.  Their economies in Europe are slowing.  Inflation is still low, below their 2% target.

Today I’ll talk about the lack of inflation.  The old theory of inflation is that it came from “loose money policy” of too low interest rates and growing the money supply much faster than the GDP was growing.  Over the last decade we have proven that false, since we’ve had historically low interest rates and historically high deficits, yet inflation does not take off.

If we go back to the high inflation 1970’s, what was true about the economy that is not true today?  It is said that the US standard of living adjusted for inflation peaked in the 1970’s.  Labor unions were strong, wages were at an inflation adjusted peak, and American consumers had a good amount of “discretionary income”.  The women’s movement brought the advent of “two income families” and life was good.  Then the pressure began to mount against the US.  We say the entry of Japanese car makers into the US and they took significant market share from the “big 4” (GM, Ford, Chrysler, American Motors – who can forget the “Gremlin”?).  American Motors died, with its popular Jeep division bought by Chrysler.  Japan took over consumer electronics and the market for high end optics.  CEO’s could not negotiate lower wages with the unions, so they began to close factories and move production offshore.  Union membership is 80% lower today than in its heyday.  Inflation marched on in the last 40 years, but wages did not keep up and today even two income families struggle to raise a family and send the kids to college without incurring significant debt.  Woe unto the family that is not lucky and incurs a serious illness.  Finances today are usually shaky, and much of that comes from a multi-decade effort to break the power of the labor unions and bring down wages.  In the process, Americans have lost much of their “discretionary income”.   When you lose your discretionary income you don’t run out and buy things unless you absolutely NEED them, not just because you WANT them.  With less “buy pressure” in the economy, companies have lost pricing power.  If companies raise prices, they usually lose customers.  Of course the internet has also been a force against inflation enabling customers to shop nationally for the best price, helped by companies like Amazon.

The overall nature of the economy now is such that where the Fed used to think they could stimulate a bit of inflation by lowering interest rates, they see that they cannot.  Lowering interest rates can stimulate inflation if people have enough discretionary income to consume at a higher rate, but if the consumer does not feel they can consume at a higher rate because they don’t have enough discretionary income, lowering the interest rate will not do any good.  To an extent, the central bankers are losing control of the economy and the nature of the economy has changed enough in our lifetimes that merely adjusting the Fed Funds rate up or down a little no longer has a predictable effect on the economy.  That should give us all a pause.

Technical Analysis:

The S&P posted a gain of 1.4% this week, on a good week for corporate profits, and closing at an all-time high.  Most companies are beating the lowered estimates that are designed so the companies can beat them.  What bothers me is that the talking heads on TV don’t give you the whole picture, and they don’t talk about this fact reported from Factset:

Earnings Growth: For Q2 2019, the blended earnings decline for the S&P 500 is -1.9%. If -1.9% is the actual decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016.

https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_071919.pdf

Things are not as rosy as they appear to be on CNBC.

On to the technicals, which are good.  RSI at the top of the chart is in high neutral at 63.  MACD at the bottom of the chart is trending down slightly showing the market is losing momentum, a short term negative.  Price action is positive, but the rise in price is slow, hence the declining MACD.

2019 07 26

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

The bottom line is it looks like the market wants to go up for now, buying the idea that beating a lowered earnings estimate is a good thing, even if it is lower than last year’s earnings.  I don’t expect that to change while earnings are coming in, but August and Sept. are dangerous months.

What am I doing?  I continued to buy in slowly.  My buys are much smaller than in the last few years.  I tend to favor dividend payers like CSCO, INTC, MRK.  I’ve made daily small buys in SPY that are profitable so far.  I had bought a little GOOG and enjoyed the $100 per share pop in that stock and promptly sold out at 1260, and will look for another buying opportunity.

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 to the chart you can look at it each day of the week to see how the market is progressing to certain milestones.  The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.

Rich Comeau, Rich Investing

Tepid Earnings

I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back).  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 primary bear market, 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 if you follow those, just scroll down past the end of today’s update.

Economy:

Retail sales increased 0.4% last month, the fourth consecutive month of gains.  The four week average of initial jobless claims slipped by 250 to 218,750.  The leading economic index fell 0.3% in June to mark the biggest decline in three years, suggesting U.S. growth is likely to be softer in the months ahead.  Consumer sentiment edged up to 98.4 this month from 98.2 in June, according to a preliminary reading from the University of Michigan.

The economic data is not frightening, but it is uniformly poor.  There is not one single positive stat this week.  It is not possible to forecast a vibrant economy in the face of these readings.  For the stock market, there are more risks than usual.  The positive spin on the market is that it is not dangerously overvalued, and interest rates are so low that money has to enter the stock market to get a decent return, as long as the stock market remains in bullish mode and does not switch to a bear market.  There is no indication that the market has switched to bear mode, but one must at least consider the possibility that it will in the future.  It has been so long since the last bear market that some folks may not realize that there will be another one.

Geo-Political:

This week you get another break, a short section on geo-politics.  It’s not that I am not interested.  Over the last six months I have shown many good articles showing what is going on, and right now the major situations are not changing that much.  There is still a trade war with China, the global economy is slowing, and that slowdown seems to be backing up into the US.  All the central banks are easing monetary conditions to try and ward off a more serious downturn.  The situation with Iran is warming up, but oil prices are not surging because the US can produce much more oil than in the past thanks to fracking.

The important question is with the global economy slowing, will central bank easing be effective in stimulating the economy?  In order for consumers to feel like spending, they need a stable good paying job, and then low interest rates will help lubricate the economy.  It is not as simple as just low interest rates.

If you are interested in the geo-political environment in more detail than this week’s topic, scroll down a few weeks and read through some recent articles in the geo-political section.

Technical Analysis:

The stock market corrected by 1% this week.

Technically the chart is mildly negative for the short term.  RSI at the top of the chart is falling at 56 which is in the neutral range.  Momentum shown by MACD at the bottom of the chart is starting to trend down, also a short term negative.  The price action is negative for the short term, starting a correction, but we don’t know if it will be a large or small one.

Earnings are coming in rather tepid, small beats on lowered expectations.  Then there is the occasional big negative surprise, like Netflix disappointed and was taken down 10% overnight.  That was a very high PE stock and the risk is greatest in the high PE stocks if they disappoint.

Now, think about this chart in the context of the economic data we see in the US, and in the context of the global slowdown from the geo-political section.  I can make a case for a significant correction, easier than I can make a case for a significant rise in stocks.

2019 07 20

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

What am I doing?  I sense more risk than reward in the market so I hold lots of cash.  I sold my small position in SPY early in the week at a small profit.  All of my July options expired on Friday and on most I kept the option premium on covered calls, and the stock.  I had sold a BA 340 Put and kept that option premium, which will keep me in box wine for a few months  🙂  .

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 to the chart you can look at it each day of the week to see how the market is progressing to certain milestones.  The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.

Rich Comeau, Rich Investing

Long Term – July 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 – First quarter GDP was 3.1%.  The inflation number used for Q1 was light compared to Q4, and that accounts for much of the GDP increase quarter over quarter.

The Atlanta Fed GDPNow estimate for Q2 GDP is 1.6% as of July 16, a big step down from Q1.  The BEA will release the first estimate of Q2 GDP on 7/26, and the Fed is expected to cut the Funds rate by a quarter point on 7/31.

Annual GDP growth had been stable for a few years at a 2% annual rate and moved up a bit to 2.6% in 2017 and 2.9% in 2018.  This GDP number supports the assertion that the bull market continues.  

Year Quarter GDP %
2019 Q1 3.1
2018 Year 2.9
2018 Q4 2.2
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 left the Fed Funds Rate at 2.0 – 2.5% in June as expected.  Commentary from the Fed has been dovish while remaining on pause, and the markets have liked that, helping fuel the stock market rally so far this year.   Chairman Powell’s recent testimony before congress sounds like the Fed will cut the Funds rate by a quarter of a percent on 7/31.

The big question regarding the expected July rate cut is whether this will be just one cut, or the first cut in a series of cuts.  If it is the first of a series, it would indicate that growth is slowing more than the average investor realizes.

Fed policy supports the assertion that the long term bull market continues.

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
July 17, 2019 2.4 1.9 2.1 2.6
June 19, 2019 2.4 1.8 2.0 2.5
May 15, 2019 2.4 2.2 2.4 2.8
Apr 17, 2019 2.4 2.4 2.6 3.0
Mar 20, 2019 2.4 2.4 2.6 3.0
Feb 20, 2019 2.4 2.5 2.7 3.0
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

 

Valuation:

PE on S&P 500 – The current 12 month trailing GAAP PE on the S&P 500 is 21.5, unchanged from last month.  I used 4 quarters of earnings with the most recent being Q1 2019.

This metric is moderately elevated relative to my trimmed 30 year average of 19.

This indicator is supportive of the bull market since the valuation is not extreme.

S&P earnings – For Q2 2019, the estimated blended earnings from Factset for the S&P 500 is forecast to be roughly flat compared to last year, for the second quarter in a row.  Companies are mentioning the impact of the strong dollar on depressing earnings from overseas by a couple of percent.

This indicator is neutral to 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 10.4 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).  The US has ratcheted up pressure on Iran, sending a carrier group to the region (May 2019).  Iran has begun attempts to disrupt oil shipments in the Persian Gulf and has begun to enrich uranium beyond the limits of the Nuclear Agreement that the US dropped out of, which is a destabilization to the region.

Robert Mueller has issued his report and no serious indictments came out after Roger Stone.  The report was made public on 4/18/2019.  This will be kept alive through the 2020 election in my opinion.  If the House decides to impeach, it will put a drag on the stock market.

Trade wars are in effect with China and the EU.  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 to China.  Growth is slowing in both Europe and China.  This is already a small negative for the economy and if these are not fixed soon this can degrade and threaten the global economy.  Whether the global slowdown backs into the US economy will be revealed in late July when the first read on Q2 GDP is released.  If that is weak, it could lead to a market selloff.

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:

Technically, the market is in good shape on a long term basis.  RSI at the top of the chart is in high neutral position at 62.  Momentum shown by MACD at the bottom of the chart is neutral and headed sideways on the longer term basis of this chart.  The price action is neutral, right in the middle of the channel it has been in for a decade.  The bull market remains in effect, but it has weakened since last fall.

2019 07 17 Long Term

The market’s technical indicators support the thesis that the long term bull market remains in force.

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. 

The earnings projections from Factset for 2019 Q2 and Q3 are flat to low single digit increases vs. the prior year’s respective quarters.  That will limit upside progress in the stock market this year.

 

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 $22 Trillion (early 2019), 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

S&P 500 Tops 3,000

I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back).  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 primary bear market, 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. 7/17.

Economy:

I will make a minor change in my weekly update on initial jobless claims.  In the future I will only report the 4 week average, as it has less noise in it and less noise is a good thing.  The more stable monthly average of new jobless claims slid by 3,250 to 219,250. The four-week average usually gives a more accurate read into labor-market conditions than the more volatile weekly number.

The consumer price index rose 0.1% in June and the increase over the past 12 months slipped to a four-month low 1.6% from 1.8%.  Inflation is low and that will give the Fed some cover for the expected late July rate cut.

Geo-Political:

The China trade war has fallen to the background a bit, and expectation of a Fed rate cut now dominates stock market action.  Chairman Powell testified before congress for two days this week and all but guaranteed a rate cut, widely expected to be .25% in late July.  Earnings are coming in OK except for a few exceptions (ILMN was warned), but the big dogs start reporting next week with all eyes on the big banks like JPM, BAC and C.

Analysts are forecasting that China GDP will come in at +6.2% in Q2, the slowest in 27 years.  To an extent, it is clear the trade war is impacting China.  On the other hand, if we go back 10 years, GDP growth was in the 15% annual range.  Part of the slowdown is natural; their economy has been slowing for years, as it should.  When you have a backward economy and the government steps in to support modernization, any GDP growth is a large percentage.  As the economy grows and gets bigger, the same amount of growth that was a big percent becomes a smaller percentage as the base economy has grown.  China has been reaching out to area nations for several years with a program called “Belt and Road Initiative” (BRI) where they will finance infrastructure improvements if they get the contract to build the infrastructure.  They have been building relations with many countries through Asia and Africa.  The US is their largest trading partner, but certainly not their only one.

What the US risks in the trade war is access to the largest single consumer base in the world, the 1.3 billion people in China.  That is what the US wanted when President Reagan opened trade with China nearly 40 years ago.  Later, US CEO’s figured out they could tap the significantly lower labor cost in China and break the back of US unions, which they have successfully done.  The US CEO’s want their patents and intellectual property protected, and they want access to the 1.3 billion consumers in China.  We would like to have both, but if we continue to have difficulty reaching a deal with China and we have to pick one or the other, which will be pick?  I still think it is incumbent on CEO’s to protect their IP.

Technical Analysis:

The stock market continued a slow rise, up 1% on the week to an all-time record close of 3013 on the S&P 500 on Friday.

Technically there is a lot to like about the chart.  It is clear that the potential triple top at 2950 has been exceeded and is no longer resistance to the upside.  The market has powered ahead for two weeks.  RSI at the top of the chart is overbought at 70.  The risk of a correction to the downside is there, but the opportunity to become more overbought also exists since the long term trend is still bullish.  Momentum shown by MACD at the bottom of the chart is still positive and rising.  Price action is positive having traded above resistance at 2950 for two full weeks.  The bias is that the market seems to want to move higher.  The concerns are that the market is overbought and corrections can come anytime now.  The price has also moved well above the 50-day moving average (blue line at 2890), and many times the market will “revert to the mean” by coming down a bit.

Notice how the China trade war has left the headlines and the market is ignoring it, and only focused on the Fed indication that it will deliver a rate cut on July 31.  I think there are risks out there, but the market seems to be successfully ignoring them for the time being.  The other question with the Fed rate cut is will they cut only one time in late July by ¼ point, or will that cut be the first of a series of cuts?  With GDP last year at 2.9%, very low unemployment, and the stock market at record highs, why would the economy need a rate cut?  The answer is slowing growth globally, including in the US.  This is viewed as a “pre-emptive” rate cut.  Will a quarter point rate cut do anything to rescue the US economy, if it needs rescuing at all?

So, the bias seems upward right now, but there are risks out there.

2019 07 12

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

What am I doing now?  Last week I said if the market continued to move up I would be buying in slowly, and focus on SPY.  That is what I did.  I am glad to see a big recovery in my SQ shares and I sold a covered Aug. 16 90 call against them, just picking up a little extra yield on the shares.  I’ll continue to buy small amounts of SPY (I actually buy IVV because at Fidelity it is commission free to buy) and keep a close Trailing Stop Loss % order under it, one or two percent trail amount.

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 to the chart you can look at it each day of the week to see how the market is progressing to certain milestones.  The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.

Rich Comeau, Rich Investing

Pop Above the Triple Top

I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back).  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 primary bear market, 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:

The Institute for Supply Management said its manufacturing index slipped to 51.7% in June from 52.1% in the prior month and down from the low 60’s last year, the slowest growth in two years (anything above 50 shows growth).  Initial jobless claims, a rough way to measure layoffs, fell by 8,000 to 221,000 in the seven days ended June 29, which is still in the low range of history.  The ISM non-manufacturing index slipped to 55.1% last month from 56.9% in May, the lowest reading in the last year.  Factory orders in May fell 0.7%, the second straight decline and third in the last four months.  The U.S. added a robust 224,000 new jobs in June, rebounding from a recent lull, although June is usually a strong month for new hires with so many college graduates starting their first job, and companies hiring students to support summer tourism business.  The unemployment rate ticked up to 3.7%.

We have gone from all economic indicators showing healthy growth a year ago, through a period where some indicators were positive and some negative, until now when most indicators are shrinking.  They are shrinking from high levels to lower positive levels that still show growth, just at a slower rate.  Hopefully the economy will pick back up, but if not, the slowdown in growth could eventually turn to negative growth and a recession.  We are not there, but a warning flag is waving.  The president wants to blame the slowing on the Fed for not dropping interest rates, but he fails to mention the negative effect his trade war with China and steel tariffs that hit Canada and Mexico which are hurting the economy.

Geo-Political:

The US Fed is widely expected to cut the Fed Funds rate by a quarter of a point late this month, while in Europe the ECB is expected to signal in July that they anticipate a rate cut in September.  This indicates central bank concern about the strength of the underlying economies.

Technical Analysis:

The stock market gained about 2% this week, on the strength of positive comments from the meeting in Osaka by President Trump and Xi of China.

Looking at the chart below, technically the news is generally good.  RSI at the top of the chart has risen to 70 and is fully overbought, a short term negative.  Momentum shown by MACD at the bottom of the chart is rising and positive for the short term.  Price action is positive, having broken above resistance at the triple top shown by the three horizontal acqua blue lines at the 2950 level and set a new all-time high.

So, everything is fine, right?  Not so fast my friend.  While price action has broken above the triple top, I am concerned it could be a false buy signal.  This pop up is not based on good news about China trade, it is based on the absence of bad news.  The US will not increase tariffs on $300 billion of Chinese goods.  That is good news in one way of looking at it, but in actuality, it is just the absence of bad news.  Then we kick the can down the road on the hard discussions.

Earnings for Q2 begin next week and I don’t expect them to fall off a cliff.  Factset is calling for a flat quarter of earnings versus last year’s Q2.  Beyond the earnings themselves, the more important factor will be what CEO’s project as guidance for the rest of 2019.  If that is cautionary, we will see a selloff.  If guidance is good, we should see modest gains by the end of the year.

2019 07 06

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

What did I do this week?  I bought back some covered calls last week (buy to close order) that were set to expire on 7/19, but I was able to buy them back cheap and then sell an August covered call at a higher price.  I have done that with Square where my position is under water.  It was a quiet week.

I will continue to monitor Q2 earnings and the market action, and if the market continues to want to rise, I would slowly start buying some small positions in SPY and protect it with a close TRAILING STOP LOSS order.

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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 to the chart you can look at it each day of the week to see how the market is progressing to certain milestones.  The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.

Rich Comeau, Rich Investing