Monday 30 April 2018

The mystified mainstream

US equity indexes closed on a broadly weak note, sp -21pts (0.8%) at 2648. The two leaders - Trans/R2K, settled -1.2% and -0.9% respectively. VIX settled +3.4% at 15.93. Near term outlook threatens early Tuesday weakness to around sp'2639, but then a powerful swing back upward, with soft target of the 2720s.


sp'daily5



VIX'daily3



Summary

US equities began the week on a moderately positive note, but the buyers just weren't there, and there was a morning reversal, with all indexes turning moderately lower into the afternoon.

Despite the equity swing lower, volatility remained relatively subdued, with the VIX settling in the upper 15s.
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The mystified mainstream

The headline on the lunchtime show...


So, why aren't earnings pushing stocks higher? Well, obviously... much of it was already priced in. Further, stocks don't have to generate new historic highs every day, week, or month? Have you noticed across the last few years, that the mainstream get pretty damn twitchy at times, when the market hasn't generated at least one index high every few days?

The econ' and equity bulls have nothing to prove. Yes, price action has been very volatile since late January, but again... sporadic retracements have to be expected, even as earnings have come in more superb than expected.

Yours truly has few concerns. As noted at the weekend, price structure is a giant triangle, and it offers broader upside this summer/early autumn. Original big target of sp'2950/3047 zone remains valid.
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April comes to a close.
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Saturday 28 April 2018

Weekend update - US equity indexes

It was a marginally bearish week for US equity indexes, with net weekly declines ranging from -0.62% (Dow), -0.50% (R2K), -0.37% (Nasdaq comp'), -0.28% (Trans), -0.10% (NYSE comp'), to -0.01% (sp'500). Near term outlook offers further upside (if choppy) of around 2%, whilst the m/t trend remains bullish.


Lets take our regular look at six of the main US indexes

sp'500


The sp' settled the week effectively flat at 2669. Underlying MACD (blue bar histogram) cycle ticked higher for a third week. At the current rate, we'll see a bullish cross in mid May. Price structure since late January is a triangle, aka.. a bullish wedge/pennant. The broader bullish trend from early 2016 is absolutely still intact.

Best guess: s/t upside to test upper descending trend, which will be in the 2720s next week. Its very possible we'll then swing lower, but not below the April 2nd low of 2553. Original big target of 2950/3047 still looks valid for the summer/early autumn, not least if we see an upside break from the triangle in May/June.
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Nasdaq comp'


Tech saw a choppy week, settling moderately lower, -0.37% at 7119. Its notable that despite 'beyond superb' earnings from companies like INTC, MSFT, and AMZN, the Nasdaq still settled net lower. Tech remains the strongest sector/index in the US market.


Dow


The mighty Dow was the laggard this week, settling -0.62% at 24311. The Dow saw a break of descending trend last week, but it wasn't remotely decisive. Things really only get bullish >25500.


NYSE comp'


The master index settled -0.1% at 12594. It is notable that the NYSE comp' is trading outside of the descending trend. It does bode rather well for the rest of indexes in May. Alarm bells only if <12k.


R2K


The R2K settled -0.5% at 1556. Upper trend/resistance will be around 1600 next week/early May. Any weekly close >1600 will offer new historic highs into early summer.


Trans


The 'old leader' - Transports, settled -0.28% at 10549. Only bearish <10k. The more cautious bulls will wait to chase higher, with a weekly close >10750, which is only 2% higher. Keep in mind, higher WTIC/fuel prices will be an increasing concern into the summer, as we saw this past week within the airlines.



Summary

All six of the main US indexes saw net weekly declines, if only fractional.

Price structure since late January (in most cases) is a triangle, aka, bullish wedge, and leans to further sig' upside in the summer/autumn.

YTD price performance:


Tech remains the strongest index, net higher for the year to date by 3.13%, whilst the sp'500 is -0.14%. The laggard is now the NYSE comp' at -1.68%. Its notable that the Transports is only -0.59%, which is somewhat impressive when you consider higher WTIC/fuel prices.
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Bond yields

This past week saw much attention on the US 10yr bond yield.


We saw a new multi-year high of 3.03%, just 1bp shy of the Dec'2013 high. Its still very possible we'll see some months of chop around 3.00%, before a sustained upward push. Technically, big price cluster magnet is 3.50/3.75, back to levels from early 2011. If you believe the fed will raise rates another three times between now and spring 2019, that zone would be a very realistic target. Higher rates are of course bullish for the financials. 
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Looking ahead

Another truck load of earnings. In addition to energy:  AGN, MCD (Mon'), MRK, UAA, AAPL (Tues'), TSLA, SPOT, MA (Wed'), APRN, DWDP (Thurs'), BABA (Fri).


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M - Pers' inc/outlays, Chicago PMI, Pending home sales
T - Vehicle sales, PMI/ISM manu', construction
W - ADP jobs, EIA report'

There will be an FOMC announcement at 2pm, no change in policy can be expected. There will NOT be a press conf'.

T - weekly jobs, intl' trade, product/costs, factory orders, PMI/ISM serv'
F - Monthly jobs

*the only fed official scheduled is Dudley on Friday, at some Bloomberg event. Its possible some comments might be made on rate hikes, but the market is assuming a June hike, along with the QT program that continues to develop, toward net sales of $50bn a month.
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Friday 27 April 2018

Chop into the weekend

US equity indexes closed somewhat mixed, sp +2.97pts at 2669.91. The two leaders - Trans/R2K, settled +1.3% and -0.1% respectively. VIX settled -5.1% at 15.41. Near term outlook offers upside to the sp'2720s.


sp'daily5



VIX'daily3



Summary

US equities opened moderately higher, but the gains failed almost immediately, with some cooling to 2659 in late morning. From there... choppy upside into the mid afternoon, and then micro chop into the weekly close.

Volatility was naturally subdued, melting lower for a second day, with the VIX settling in the mid 15s.
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Late April... not so great.

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Thursday 26 April 2018

Strength on earnings

US equity indexes closed broadly higher, sp +27pts (1.0%) at 2666. Nasdaq comp' +1.6% to 7118. The two leaders - Trans/R2K, settled -0.9% and +0.5% respectively. VIX settled -9.0% at 16.24. Near term outlook offers upside into the weekend, lead by tech.


sp'daily5



VIX'daily3



Summary

Equities opened moderately higher, and after a somewhat shaky start, the market built significant gains into the afternoon. The mood was notably far lighter within the mainstream, especially in regards to bond yields. Today's strength was further helped as earnings continue to come in beyond superb.

With higher equities, the VIX melted lower, settling in the low 16s.

Considering the market reaction to earnings in AH, especially from INTC and AMZN, Friday will likely open sig' higher. The only uncertainty... the first print for Q1 GDP. If Mr Market likes that number (consensus is for +2.0%), we should see further gains into the weekend.
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Whispery spring skies

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Wednesday 25 April 2018

Midweek swings

US equity indexes closed rather mixed, sp +4pts at 2639. The two leaders - Trans/R2K, settled +1.0% and -0.2% respectively. VIX settled -1.0% at 17.84. Near term outlook still offers weakness to sp'2604, before whipsawing upward into/across May.


sp'daily5



VIX'daily3



Summary

US equities opened fractionally higher, but saw an immediate reversal, with a morning low of 2612. From there, a great deal of chop, leaning upward in the afternoon to 2645, and settling at 2639. Near term outlook offers one final wave lower to around 2604, before whipsawing back upward.

Santelli, noting bond yields continue to claw upward



Volatility was choppy, opening at 18.14, and climbing to 19.84, before cooling into the close. Sustained VIX >20 looks unlikely in the near term.
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Tuesday 24 April 2018

Yields used as an excuse

US equity indexes closed significantly lower, sp -35pts (1.3%) at 2634 (intra range 2683/17). The two leaders - Trans/R2K, settled -2.1% and -0.5% respectively. VIX settled +10.3% at 18.02. Near term outlook offers a full gap fill to sp'2604, before swinging back upward.


sp'daily5



VIX'daily3



Summary

Yesterday saw the sp'500 settle with a black-fail candle. Indeed, many individual stocks (including CAT) settled Monday with a black-fail candle. Those are inherently subtle warnings of s/t bullish exhaustion, and lean to the bears. Not always... but often.

Today opened moderately higher, with an early high of sp'2683, but with the 10yr yield hitting 3.00%, the sellers started to appear...

Santelli noticing the 10yr finally testing 3.00%

Lets be clear though, today's weakness was nothing especially dramatic. The VIX didn't even hit the key 20 threshold. Indeed, if you looked at the daily chart for the sp'500 yesterday, you should have noticed we had a handful of downside equity price gaps due to be filled. Today's yield at 3.00% was just used as an excuse the market needed for some sig' cooling, before swinging back upward.

If Wed' opens higher, I'd look for renewed cooling to around sp'2604, with VIX 19/20s, whether tomorrow or Thursday.
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US 10yr bond yield, monthly


Regardless of the s/t, a move to at least 3.50-3.75% looks due on a 3-12mth outlook.That will clearly be a downward pressure on equities, but that doesn't necessarily mean equities will be net lower by year end/early 2019.

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Monday 23 April 2018

The lone maniac strikes again

US equity indexes closed a little mixed, sp' +0.15pts at 2670.29. The two leaders - Trans/R2K, settled +0.4% and -0.1% respectively. VIX settled -3.2% at 16.34. Near term outlook is uncertain, and will be dependent on the 10yr yield, and whether the mainstream can cope with >3.00%, or are briefly upset.


sp'daily5



VIX'daily3



Summary

US equities opened in minor chop mode, and it remained very subdued. There was moderate cooling in the mid afternoon, with the Friday low broken under, but settling above. The settling black-fail candle does lean s/t bearish, and we still have three partly unfilled downside gaps to 2604.

It was a mixed day for volatility, seeing a morning peak of 17.56, but despite equities breaking a lower low in the afternoon, the VIX didn't pick up, and even settled fractionally lower in the16s.
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The lone maniac strikes again

Micron Tech' (MU) was moderately higher in pre-market, trading a little better than the main market. Then the lone maniac, aka Timothy Arcuri of UBS appeared once again, touting cyclical/dram concerns. His target on Micron is $35, which is a very considerable way lower, even below the key 200dma.

see: https://seekingalpha.com/news/3347591-micron-minus-1_7-percent-ubs-analyst-sees-weak-2019-nand-dram

Indeed, the same guy appeared just a few weeks ago... see: https://www.barrons.com/articles/buy-intel-dump-micron-advises-ubs-1522963364

The retail amateur (yours truly included) doesn't stand a hope in hell against this kind of sporadic nonsense from one of the 'smart guys' from a recognised (if partially failing) institution.

Keep in mind, Nomura-Instinet and Robert W. Baird are both seeking $100, with Cowen $65, and Mizuho at $70. QCOM and INTC have earnings this Wed' and Thurs' respectively. Both should come in fine, and should offer another reminder that 'cyclical concerns' for the semi-conductor industry are grossly misplaced right now. 

MU, monthly


Suffice to add, Micron stock remains m/t bullish, but having lost psy'50 (again), next giant support isn't until the breakout threshold of $36/37s. For now, annual EPS of around $11 isn't seen as worth much by Mr Market. Truly. Bizarre.
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No sunshine for the Micron Bulls.
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Saturday 21 April 2018

Weekend update - US equity indexes

It was a bullish week for US equity indexes, with net weekly gains ranging from 2.0% (Trans), 0.9% (R2K), +0.6% (Nasdaq comp'), +0.5% (sp'500, nyse comp'), to +0.4% (Dow). Near term outlook offers further upside of 2-3% into early May.


Lets take our regular look at six of the main US indexes

sp'500


Despite ending the week on a moderately weak note, the sp' still saw a net weekly gain of 13pts (0.5%) to 2670. The weekly candle is somewhat spiky, but we do have a higher high and higher low, which leans to upside into end month/early May. Soft target is the 2740/50 zone.

However, its important to note that if the US 10yr yield breaks/holds above 3.00%, the equity market will almost certainly re-price. Most natural target would be the 2470/50 zone, which is some 7.5-8.0% lower. There is a notable unfilled 'legacy gap' from Sept'11 2017 of 2474/61.
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Nasdaq comp'


The Nasdaq was pressured into the weekend by negative AAPL chatter, but still managed a net weekly gain of 0.6% to 7146. Big support around 7k, with major upside resistance in the 7400s.


Dow


The mighty Dow was the laggard this week, gaining just 102pts (0.4%) to 24462. Note that declining trend/resistance from the Jan' high of 26616 was fractionally broken. It does lean s/t bullish, with soft target of 25400/500s.


NYSE comp'


The master index climbed for the third week of four, settling +0.5% at 12607, notably just shy of the key 10MA. S/t bullish to the 12900/13000 zone.


R2K


The R2K gained a borderline significant 0.9% to 1564, with an intra high of 1592, which was notably close to the Jan' historic high of 1615.


Trans


The old leader saw a very significant net weekly gain of 209pts (2.0%) to 10578. There was a notable fractional break of descending trend/resistance from mid January'. Considering rising WTIC/fuel prices, the weekly gain was especially impressive.



Summary

All six of the US indexes saw a second consecutive week of gains.

The Transports lead the way higher this week, whilst the Dow was the laggard.

Price action since late January is still rather choppy, as volatility remains relatively elevated.
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The 10yr yield

Friday saw the US 10 year bond yield hit 2.96%, the highest level since Jan'2014. That was clearly one reason the equity week ended on a somewhat bearish note. After all, the mainstream are still spooked at the notion of the 10yr approaching the psychological threshold of 3.00%. Indeed, psy' thresholds do matter!



I want to be crystal clear on the following...

-A higher bond yield is neither a 'good' or 'bad' thing. Bond prices (and their yields), like equities, are largely determined by supply/demand factors. Inherently, a rise in bond yields does make equities less attractive. However, as the chart above shows, you can have times when yields and equities rise together.

-The yield curve means little, even if inverted. Much is made of the yield curve in the mainstream, but it doesn't necessarily equate to anything in the 'real world'. Just because the 10yr yield is only marginally less than the 30yr yield doesn't directly mean a recession is due.

-Keep in mind there is still a great deal of ongoing global QE, and some of that money flows into the US, and that will affect bond prices/yields. Further, the central banks themselves will periodically meddle in the bond market (whether directly, or via their 'institutional friends'), to skew prices/yields.

-The US Fed's QT program (set to max out at $50bn a month from October onward) is increasing the supply of bonds, and thus is inherently an upward pressure on bond yields.

-rising bond yields, the 'normalisation', is arguably a very good thing. Do we really want interest rates (and related bond yields) at near zero in perpetuity? I would hope few, if not none of you, want that. 
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A sideline consideration...

The Trump administration has decided to further raise govt' expenditure and cut taxes, and thus increasing the deficit. More govt' T-bonds will be issued. An increased supply of bonds saturates the market... reducing bond prices, and that inherently pushes up bond yields.

The US president is (likely unknowingly) digging a rather big hole for himself, and the broader US populace. The bigger the deficit, the more bonds will be issued, and the higher bond yields will go. That in turn will pressure equities, at least to some degree. The net effect on equities doesn't necessarily mean net annual declines.
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I'll merely conclude by saying that it seems a given the 10yr yield will break >3.00%. Will it be next week, in May, or even some considerable time beyond? I don't know, as I don't have a Delorean. I can say though, when it happens, equities will be very significantly whacked lower, if only for a short while.
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The ultimate sell signal


Its a generally overlooked issue, but it is the case that once the fed cut rates, that is when alarm bells do merit being sounded. For the moment, the econ-data is coming in broadly fine, with corp' earnings beyond superb. A rate hike in June should help to bolster confidence, and of course, the financials especially benefit from such hikes. Until then.... yours truly has few concerns.
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Looking ahead

Another very busy week with a truck load of earnings. Most notable: GOOGL, CAT, FB, F, QCOM, AMZN, MSFT, INTC (Thurs'), CVX, XOM


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M - Existing home sales
T - Case-Shiller HPI, New home sales, consumer con'
W - EIA report
T - Weekly jobs, durable goods orders, intl. trade
F - GDP Q1 (first estimate), employment cost, Chicago PMI, consumer sent'

*there are no fed officials scheduled, as the blackout period will be in effect, ahead of the next fomc meeting of May 1-2.
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*the next post on this page will likely appear 6pm EST on Monday.

Friday 20 April 2018

Cooling into the weekend

US equity indexes closed broadly lower, sp -22pts (-0.8%) at 2670. The two leaders - Trans/R2K, settled -0.8% and -0.6% respectively. VIX settled +5.7% at 16.88. Near term outlook offers renewed upside to the sp'2740/50s.. so long as the 10yr yield remains <3.00%.


sp'daily5



VIX'daily3



Summary

US equities opened in minor chop, and saw weakness into the afternoon. There was a largely failed attempt at a latter day rally. Its notable that despite ending the week on a bearish note, the sp' still saw a net weekly gain of 13pts (0.5%).

With weak equities, volatility climbed for a third consecutive day, settling in the upper 16s.
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Another summer day in the latter half of April. Bullish!
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Goodnight from London
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*the weekend post will appear Sat'12pm EST, and will detail the US equity indexes

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