Near All-Time High on S&P

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 occurred at a 5.38 million seasonally-adjusted annual pace, down from a better-than-expected 5.50 million in August, while sales were 3.9% better than the prior year’s September.   New home sales decreased 0.7% on a monthly basis in September to a seasonally-adjusted annual rate of 701,000.  The monthly average of new jobless claims dipped by 750 to 215,000, a low overall number.  Orders for durable goods dropped 1.1% last month, the first dip in the last 3 months.  The U. of Michigan index of consumer sentiment was revised down to 95.5 in October from an initial reading of 96; the index peaked at 101 in 2018.

Housing is strong after being spurred by the Fed’s interest rate cuts and good consumer sentiment.  Weakness in durable goods orders shows weakness in manufacturing and that business is hesitant to proceed with investment in the uncertain trade war environment.  It’s a mixed picture.

Geo-Political

Today we look at the overall global economic picture in the brief article below that does a good job capturing the big picture.  It’s OK, but not inspiring.

October 15, 2019 – The World Economy: Synchronized Slowdown, Precarious Outlook

The global economy is in a synchronized slowdown and we are, once again, downgrading growth for 2019 to 3 percent, its slowest pace since the global financial crisis. Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions. We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and by structural forces, such as low productivity growth and aging demographics in advanced economies.

In the October World Economic Outlook, we are projecting a modest improvement in global growth to 3.4 percent in 2020, another downward revision of 0.2 percent from our April projections. However, unlike the synchronized slowdown, this recovery is not broad-based and remains precarious.

The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods. In addition, the automobile industry is contracting owing also to a variety of factors, such as disruptions from new emission standards in the euro area and China that have had durable effects. Overall, trade volume growth in the first half of 2019 has fallen to 1 percent, the weakest level since 2012. 

https://blogs.imf.org/2019/10/15/the-world-economy-synchronized-slowdown-precarious-outlook/

Technical Analysis:

The stock market was up a half percent for the week, good, but not real good considering we are in the middle of earnings season.

Technically the condition of the market has improved over the last couple of weeks.  RSI at the top of the chart is high-neutral at 60 and rising.  Momentum shown by MACD at the bottom of the chart is rising, a short term positive.  The price action is positive after several weeks of small gains.  A key technical factor will be whether the S&P which is sitting right on a new all-time high, can push up above it and break out above the Aug. / Sept. double top.  My guess is yes it can.  Then the question will be how much higher it can push, and recent history, the last 2 years, shows that the market has not pushed much higher before falling back in correction.  That is what I expect to happen again.

I don’t like this market enough to be highly bullish.  The analysts have set the bar of expected earnings so low (based on what the companies tell them they are likely to do, I don’t have much faith in the analysts) that 80% of companies are “beating the estimates”, lowered though they may be.  Then the talking heads on TV just talk about each company “beating estimates” and make that sound good.  They don’t mention the fact that overall, the S&P is projected to have earnings 4% below last year, which is not good. (This is my quarterly rant on this topic)

A few companies are doing very well, growing revenue and profits, and those have done so well they can carry the whole S&P 500, and you know them, they are the FANG stocks (Facebook, Amazon, Netflix, and Google).  Netflix has hit trouble with competition entering the space, and their stock is down.  Of course there are others as well, but a relatively small set of stocks is accounting for a large percent of the rise in the S&P.

The news items that have been driving the markets are China and interest rates.  The Fed will meet next week and the market thinks they will cut by another ¼%.  What if they pulled an upset and paused?  The China trade mini-deal is a weenie by any standard.  The market is taking this as something significant, like a “change in direction of the negotiations” from degeneration to improvement.  It is unknown even if a deal will be signed (I think it will), and if it is signed it is unknown if it really is a change in the direction of the talks, or China just taking what they can get now as a temporary help for themselves, even though they know they won’t give on the serious issue of IP protection.  I don’t know, but I don’t think the TV heads know either, remember they have to fill up 24 hours a day, seven days a week, 365 days a year, so they speculate so they can talk.  At this point it is just speculation.

2019 10 26

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

What am I doing?  I’ve been cautiously buying.  The market has been in neutral mode, RSI is not overbought, and the talking heads talk a lot more about the beats than the misses.  The market has been rising slowly in the ongoing earnings season, where most stocks are beating estimates.  It’s about time to stop buying if you are not watching your stocks closely, and start thinking about when to take profits.  I will wait until we get closer to the end of earnings season.  But, the Fed failing to provide the interest rate cut, or failure to sign the China trade deal, would be a negative for the market.

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

Lackluster Market

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. and is just below this post, so just scroll down to read it.

Economy:

Retail sales fell 0.3% last month, ending a streak of six straight strong gains.  The four week average of new unemployment claims rose by 1,000 to 214,750, a low amount.  The leading economic index slipped 0.1% in September and fell for the second month in a row.

All the statistics this week are poor, not very poor, but minimally poor.  The one that stands out is the second month of LEI being negative.  The general rule is that three straight months of a negative LEI forecasts the start of a recession six months out.  It’s not an absolute rule (there are none), just a rule of thumb that has often been true (but not always).  It’s another reason to be cautious in here, and wait for next month’s reading; we may not get three months of decline of the LEI at all.

Geo-Political:

The British Parliament passed a bill requiring Boris Johnson to request an extension of the Brexit talks with the EU.

The US / China talks look good for the mini-deal, but the mini-deal is not much of a deal.  Trump did not want a series of mini-deals, as it extends the time required to get to the meat of the intellectual property discussions.  China wins round one and they hope they never get to the intellectual property discussions.

Oct. 19, 2019 – Chinese Vice Premier Liu He said on Saturday that will work with the US to address each other’s core concerns on the basis of equality and mutual respect, and that stopping the trade war would be good for both sides and the world.

The two sides have made substantial progress in many fields, laying an important foundation for the signing of a phased agreement,” Liu, also the chief negotiator in the trade talks, told a virtual reality conference in Nanchang, the capital of southeastern Jiangxi province.

“Stopping the escalation of the trade war benefits China, the U.S and the whole world. It’s what producers and consumers alike are hoping for,” Liu said in a rare public speech about the trade war.

China and the United States reached a limited deal last week toward ending the trade war that has roiled global markets and hammered world growth. Both sides are working toward a written agreement.

China’s third-quarter economic growth slowed to an annual 6.0%, its weakest pace in almost three decades as the bruising trade war hit factory production and investment sentiment.

Liu said on Saturday that China will step up investment in core technologies to accelerate economic restructuring, adding economic prospects remain “very bright.”

“We’re not worried about short-term economic volatility. We have every confidence in our ability to meet macroeconomic targets for the year,” he said.

https://www.cnbc.com/2019/10/19/us-and-china-made-substantial-progress-at-trade-talks-vice-premier-liu-he.html

I like the dragging out of the mini-deal negotiations as it is neutral to the stock market and puts the emphasis on earnings during this reporting season.  The bad news is that in general (not for every company), earnings are projected to be lackluster.  Another interesting little item is the Chinese wording, “equality and mutual respect”.  Every time Trump has bashed China publicly, he has gotten no deal.  The Chinese have come back and said they are willing to deal on the basis of equality and mutual respect.  Notice that Trump has not bashed China publicly.  He is trainable, he is running for re-election and he needs a deal of some sort.

Technical Analysis:

The market managed a small gain for the week, less than 1%.

Technically the market remains in neutral.  RSI at the top of the chart is flat at 55, which is neutral territory.  Momentum shown by MACD at the bottom of the chart is moving sideways and that is neutral.  Price action is positive since the low two weeks ago, but it is butting up against the small double top from August and Sept.  The question is, can we break through the double top decisively and set a new all-time high?  Even if we do set an all-time high, in the last two years when we do, the subsequent gains have been minimal.  This bull market is old and has looked tired, pulled down by concerns over the trade war with China.

2019 10 19

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

What am I doing?  Not much.  The time to buy was 3 weeks ago at the interim low.  I didn’t sell anything last week, but I will look at it this week.  Facebook, Amazon and Google have led the market for years now, but there is much talk in Washington about breaking them up, and that has been a drag on their stock price.  The valuation on Amazon is sky high and that limits my enthusiasm for the stock.  I own a little FB and sold a covered call at 200 against the shares.  I will watch with interest to see if we break above the small double top and if so, I’ll buy a little SPY and keep a close stop order on it.  It we fail to break above the double top, I will look to lighten up a bit.

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 – October 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 – The third estimate of Q2 GDP was +2.0%, unchanged from the second estimate.

With the China trade war, we are seeing some slowing of economic growth in China, Asia, and Europe.  So far, it is not a serious problem in the US, although clearly our economy has slowed and the manufacturing sector purchasing managers index (PMI) is showing contraction.

The latest Atlanta Fed GDPNow estimate for Q3 GDP is +1.7%, down a bit from last month’s estimate.

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 Q2 2.0
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 cut the Funds rate by ¼% on 9/18.  The stock market barely reacted, perhaps because the Fed language was not dovish in terms of any future rate cuts.

Bond yields have risen a little in the last month on waning fears of an imminent recession.  Mortgage rates are down vs. 2018 which helps housing, and the declines in interest rates across the board will help stimulate the economy a bit.  This is not an all-clear, as the economy still has to contend with tariffs.

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
Oct. 16, 2019 1.9 1.6 1.8 2.2
Sept 18, 2019 1.9 1.7 1.8 2.2
Aug 21, 2019 2.2 1.5 1.6 2.0
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 21.7, down from 22.3 last month.  I used 4 quarters of earnings with the most recent being Q2 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 – Factset on Oct. 11 projected the blended earnings decline for the S&P 500 for Q3 will be -4.6%, and that will not inspire the stock market.

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 10.6 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.  A new threat to Trump’s presidency is the flap over Trump’s request that Ukraine investigate Hunter Biden’s board membership on a Ukrainian gas company, while withholding $400 million of military aid.

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.

Anthony Scaramucci in the Republican Party has openly called on the party to discuss replacing Trump on the ticket for 2020 (August 2019).  Trump’s poll numbers are very low, and if the republicans believe that Trump has no chance to win the presidency in 2020, they will move to replace him.  This is very preliminary and it may not go anywhere, but it bears watching.

Boris Johnson, the new British prime minister, threatens to force England out of the EU on a “hard Brexit” if necessary.  This will be temporarily disruptive to the markets until they figure out exactly what the implications of a hard Brexit really are, if it does occur (Sept. 2019).

Global geo-politics have degraded from supporting of the bull market to neutral.

Technical:

Following the August China Trade War scare, the market has stabilized.  The Fed cut their Funds rate by ¼% in September, and that helped a little, but the market appears to be just marking time.

Technically the market appears to be in neutral mode.  RSI on the long term basis (which is DIFFERENT from the short term weekly chart that I post) is neutral and moving sideways (see the top of the chart).  Momentum shown by MACD at the bottom of the chart is moving sideways so it’s in neutral.  The price action is relatively flat and in neutral mode.  I added a black line showing how the market price action has leveled out over the last two years.  This could be a broad top forming in the market, but there is no guarantee of that.  Given the age of this bull market, it would not be surprising.  Let’s keep an eye on it and I’ll leave that line on the chart.

Currently there is nothing to overturn the thesis that the long term bull market remains in effect.  The price remains in the channel this bull market has been in for the last 10 years.

2019 10 15 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, market valuation, in Fed policy, or in the global geo-political realm to overturn that conclusion. 

 

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

Mini China Trade Deal

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 Wed. the 16th.

Economy:

The monthly average of new jobless claims edged up by 1,000 to 213,750,  a low number.  The consumer-price index was flat in September, marking the smallest change since January, while the 12 month change was +1.7%.  The Fed FOMC minutes from their Sept. meeting were released and they did discuss the possibility of a recession.  They did not say it was probable, but there were a few concerning signs in the data they watch.  The Fed forecast is for GDP slightly above 2% this year and next.

Geo-Political:

There is a bit of optimism in Europe for negotiating a Brexit deal with England, but it must be finalized in the next couple of weeks.  https://www.bbc.com/news/uk-politics-50016853

A mini trade deal with China in principle was announced on Friday.

Oct. 11, 2019 – Trump announces “phase one” trade deal reached with China

The U.S. has reached a preliminary trade deal with China, President Donald Trump announced Friday. 

As part of the deal, China has agreed to some intellectual property protections and will step up U.S. agricultural purchases. In return, the U.S. will suspend a tariff hike scheduled for October 15 on roughly $250 billion in Chinese imports. 

No decision has been made about whether to proceed with another round of U.S. tariffs on Chinese imports, mostly consumer goods, slated to take effect on December 15, U.S. Trade Representative Robert Lighthizer told reporters.

The White House said the two sides made some progress on the thornier issues, including China’s lax protection of foreign intellectual property. But more work will have to be made on key differences in later negotiations, including U.S. allegations that China forces foreign countries to hand over trade secrets in return for access to the Chinese market. The deal also does not address Huawei, the Chinese telecom giant that has been blacklisted by the U.S.

Mr. Trump said the deal would result in an additional $40 billion to $50 billion in farm purchases by China. 

So far the agreement is in principle only. The deal will take three to five weeks to put on paper, officials said. And despite the ceasefire, a broader trade deal faces significant obstacles, according to analysts with Eurasia Group, a political risk consultancy.

“National security hawks in the U.S. are determined to show that no trade agreement will stop the U.S. from confronting China on other issues in the relationship, including technology competition, Hong Kong, Taiwan and the South China Sea,” they said in a report. “President Donald Trump’s willingness to moderate U.S. actions in these areas is likely limited.”

https://www.cbsnews.com/news/trump-china-trade-trump-meets-with-chinese-vice-premier-liu-he-today-2019-10-11-live-updates/

In the short run this is good news.  However, if you are a business CEO, there is not enough meat on this bone to clarify what business action you need to take.  Will the original tariffs come off?  Will new tariffs go on, such as those scheduled for Dec. 15?  Will existing tariffs that are staying on be increased?  Will everything be resolved if we wait long enough and go back to normal?  Will there be fallout in the consumer base in China where they mentally avoid US products because of the trade war?  CEO’s will not see enough in this deal to lift the uncertainty that has held their capital spending in check this year.

I think the market will see this as a nothing-burger and the malaise will return.  The only positive is that the two sides found “something” to agree on, no matter how small.  All the big important issues were kicked down the road.

Technical Analysis:

The market ended the week up 1% on the China trade deal news.

Technically the market remains in neutral according to the chart.  RSI at the top of the chart rose slightly to a still-neutral 52.  Momentum shown by MACD at the bottom of the chart remains in a downtrend, although the histograms are shrinking and if momentum gathers a little strength it could crossover to positive.  Price action in the very short term is positive, but over the intermediate term it is neutral, dominated by the double top in August and September.

I think excitement over the trade deal will diminish while it is committed to paper over the next month.  Next week is a big week for earnings (as are the next three weeks), and expectations are rather low.  I am sure some companies will have big upside surprises, but there will be some misses as well.  They call this a “stock pickers market”, and just buying the indexes will probably not be very exciting.

2019 10 12

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

What am I doing?  Swing traders should hold stocks or an index for several weeks or months and I am opting for shorter holding periods (weeks).  I try to buy on market pullbacks and sell into strength.  A key to the market will be whether it can break out above the double top at 3025.  However, when these breakouts to new all-time highs have occurred in the last two years, they have not resulted in significantly higher levels.  We could be looking at a broad multi-year top forming in the market; come back on Wed. to see the ten year chart in the monthly Long Term update.

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

Chop, Chop

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 (ISM) said its manufacturing index fell to 47.8% last month from 49.1%, marking the lowest level since June 2009 when the Great Recession ended (above 50 shows growth, below 50 shows contraction).  The ISM also said its non-manufacturing index fell to 52.6% last month from 56.4% in August.  The monthly average of new jobless claims was unchanged at 212,500,  just a little above its 2008 post recession low.  Factory orders fell 0.1% in September.  The economy added 136,000 new jobs in September, the slowest pace of job growth in four months.  The U.S. unemployment rate dropped to 3.5%, the lowest rate since December 1969.

The decline in stock price this week was driven by the weak data from the ISM manufacturing index which showed contraction in that sector of the economy.  Manufacturing accounts for only 11% of GDP, but once one major sector of the economy begins to shrink, that can spill over into other sectors.  The larger non-manufacturing index showed growth, but clearly that growth is slowing.  Friday the market liked to increase in jobs in the economy since it was much better than some had feared.

Geo-Political:

It has been a while since we looked at exactly what the performance of the Chinese economy is, and it is poor.

July 15, 2019 – China’s economic growth has slumped to its lowest level in nearly three decades as the world’s second largest economy feels the effects of a prolonged trade war with the United States.

The country’s gross domestic product grew at 6.2% in the quarter ended June, the slowest quarterly growth rate since 1992 and down from 6.4% in the previous quarter, according to government figures released on Monday.

And the Chinese economy will continue to face “downward pressure” in the second half of this year, the country’s National Bureau of Statistics said in a statement.

“The Chinese economy is still in a complex and grave situation,” it said. “Global growth has slowed and external uncertainties are on the rise.”

https://www.cnn.com/2019/07/15/economy/china-gdp-growth/index.html

That may look like good growth, but it is down from 10% just 10 years ago.  Both the US and China need a deal to end this tariff war.  But, Trump has injured himself with the effort to enlist Ukraine to tarnish the image of Joe Biden.  China has withstood the US effort to pressure them into a deal, and with Trump weakened, it would be good negotiating strategy to try and take advantage of that weakness and only offer a very poor deal in order to see just how desperate he is for a deal.  I would come in very friendly, say I want a deal, then not offer very much.  I would hold firm on my initial offer, actually have gone in with the plan to accept no harsh deal, and let time go by and see if the US position changed as Trump comes under more pressure domestically and as the 2020 election approaches and he needs an accomplishment to tout.  So, IMO we get no deal at this meeting (starts Thur. Oct. 10), which will be mildly disappointing to the markets.

https://www.cnbc.com/2019/09/26/china-trade-talks-set-to-resume-oct-10.html

It is interesting that Saudi Arabia nor the US has responded overtly to the Iranian attack on the Saudi oil processing plant.  That suggests the US does not want to expand that conflict at this time.  The US has backed Iran into a corner by backing out of the nuclear deal and re-imposing sanctions on Iran, which is devastating their economy.  Iran cannot fight with the US on the battlefield, but it has proxies throughout the Middle East and could cause much pain with guerilla type attacks.

Technical Analysis:

Despite the volatility, the stock market was roughly unchanged on the week.  The weak ISM manufacturing data was offset by a good jobs report and favorable non-manufacturing report.

Technically, the chart is negative for the short term.  The primary worry is the potential double top at 3020 formed in August and September.  RSI at the top of the chart is neutral at 50, while momentum shown by MACD at the bottom of the chart is negative and falling, although the two day rally on Thursday and Friday has the histograms shrinking and the faster moving black line looking like it might turn up, which would be a positive if it occurs.  The price action remains negative despite the two day rally.

2019 10 05

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

What am I doing?  I did a very little buying last week, picked up a little DUK.  Rates are falling and most expect the Fed to cut rates some more because of the global slowdown.  If we get a recession in the US and stock prices fall, retirees like me will need income.  That is why utilities are one sector of the stock market that is performing very well.  I don’t like the nose bleed levels of the sector and will protect the stocks with a trailing stop loss order.

Earnings start with the big banks this week, and they are expected to be underwhelming.  I continue to look for “fallen angels”, stocks that I would like to own but usually trade too high.  You have to look at the FANG stocks (FB, AMZN, NFLX, GOOG) which have produced so much value in the stock market the last decade, and on this pullback wonder if they are due for a rally going into earnings.  There are congressional investigations into anti-trust violations against them and that has also put a cloud over the stocks until it is clear what type of regulation the US may impose on some of them.  NFLX faces new competition from Disney and Apple streaming TV services and I don’t like it currently.  The dollar is very strong currently and that will put a bit of a headwind on profits of the multi-nationals.

Relative to earnings I am not expecting much.  Looking forward, I am concerned about the slowing global economy.  I am not expecting a deal out of the China trade talks (although we may get some nice talk).  CEO’s are not investing because of all the uncertainty, poor growth and uncertain tariff situation.  I don’t expect a crash, nor a big rally, but if we did get a big move it would be more likely to the downside.  This keeps my trades smaller than in the past when the uptrend was more clear, and my holding duration is shorter.  If I get a nice profit I am more inclined to take it quickly.

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