Welcome to this week’s edition of State of the Markets with Seth and Wayne. Please click the link to review the video where we discuss all facets of the daily and weekly market action, assessing the various macro and micro market elements. Below is the outline for easy browsing and navigation. In addition to our weekly State of the Markets video, please review our daily, Technical Market recap by clicking the link.
Outline: State of the Markets
- Market is presently working off of overbought conditions with an elevation in volatility. Brief discussion on Boeing (BA) driving Dow Industrials. (0-3 minutes in)
- Discussion on contango, shift in focus to back month/m2/April VIX Futures contracts. Currently, UVXY has m1/m2 and swaps within the funds Assets Under Management (AUM). UVXY has deleveraged after Volmageddon from 2X to 1.5X. Only 12 days until m1 expires and m2 rolls forward. Brief look at realized/historic volatility (HV). All the hedging activity and the “eyes on SPX 2,800” can actually produce a self-fulfilling market pullback. Need earnings results to guide markets longer-term (3-14 minutes in)
- The U.S. spike heavily on Thursday and after the ECB signaled no rate hikes until at least early 2020. Euro plunged. ECB also signaled that economic risks were now pointed to the downside as opposed to the former “balanced risk” characterization. The rise in the U.S. Dollar index hurts U.S. corporate earnings because nearly 50% of revenues come from overseas sales. If U.S. Dollar remains strong on a YOY basis, investors will be forced to consider organic results vs. foreign currency exchange impacted earnings. (ex-FX impact). (14-20 minutes in)
- Economic data is rolling in with unemployment claims lower by 3,000 this past week and ADP growing private sector payrolls by 180K+. Government shutdown still affects economic data. Pay attention to the revisions in the upcoming Nonfarm Payroll report. Brief introduction to the Linkdin Workforce Report. Market likely needs to see at least 150 new jobs created in February. Anything less may result in a negative reaction from investors. (20-31 minutes in)
- S&P 500 broke below its 200-DMA on Thursday. What is/are the reasons to buy the market presently. Volume has been very low throughout the 10-week rally and earnings are not set to be delivered again until late April 2019. Market could pullback 3-5% or great if momentum is found and algo-triggered programs designate key levels on the way down. Have a shopping list of equities to buy, layering strategy is a favorable during market declines.
- Recession & technical bear market unlikely as the degree of uncertainty is less than in Dec. 2018 now that FY19 EPS are realized to slow, but not decline. (31-40 minutes in)
- Briefly revisit the S&P 500 Box from Q4 2018. We have traveled back to resistance at the 2,800 level and now have begun a distribution phase as opposed to an accumulation phase in the market, which is healthy. During distribution phase, trading activity is lightened.
- Discussion on Volatility trading and strategy employed that focuses on liquidity vs. targeting price levels. Small positions with small profits in abundance accumulate over time to deliver strong returns! (31-47 minutes in)
- By and large, retail earnings results have been strong. Target (TGT) beat on top and bottom line and gave strong guidance, above that of analysts’ estimates. We like TGT on pullbacks to possibly add. Macy’s (M) not an ideal short unless it uptrends with uneven fundamentals.
- Costco (COST) beat earnings expectations after the closing bell and shares rose some 5% in after hours. (47-58 minutes in)
- S&P 500 weekly expected move this week is $33/points which has already been achieved. Less relevant remainder of trading week. Next week is looking like a $40+/point expected move. Can calculate from .SPX options chain starting week Mar 11.
- Media programming, should a deeper market retrenchment/pullback ensue, will likely march out permabears. Remember, the bears achieve more clicks and viewership than the bulls.
- Keep some cash on the sidelines to put to work during the market pullback. Expect and be prepared for near-term market turbulence.
- Be sure to review Finom Group’s weekly Research Report (Published every Sunday morning. Subscription required).
- Finom Group has launched their Trading Room platform for Premium Members. The Trading Room link is provided daily through our private Twitter Feed (Subscription required.
Great write up and presentations and analysis gentlemen. Friday morning I would appreciate some market guidance via TWTR as to how the NFP may affect the market movement (especially the Vol complex) for the day (hopefully available by 9AM est), as I will be away from a PC intermittently while getting to and on a long flight. Any pointers and general info would be greatly appreciated. Many thanks as always! : )
@ethan TWTR might find $27 range in a downturn. I’d prefer FB given its size, earnings power, dominance and guidance for the year. Layered approach for either stock is going to be best approach. VOL could get a pretty strong charge if the NFP underwhelms. If it comes inline or better than expected, I don’t see much upside for the market and the reasons have been outlined in the SOTM. A lot of negativity from China’s data overnight and coupled with the Eurozone economic slowdown may prove too much for U.S. market to overcome. It will likely prove a time to pause and let the market play itself out. Of course, will be looking for a potential good set up intraday.