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Newsletter

Daily Newsletter, Monday, 3/18/2019

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Adrift!

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Stocks continue to drift higher on hope and optimism, sources say concrete progress has been made on trade. The sources include the Xinhua News Agency and South China Morning Post but still no word on what the progress is, how close to a deal we are, or when to expect a Trump/Xi summit. If things unfold the way it looks like they will we'll find out the answers to all those questions at about the same time...at some time in the future.

Market Statistics


Today's action was calm and quiet, nothing to spark selling and nothing really to spark buying either. The major indices opened the day flat and moved marginally higher as traders shift focus to the FOMC. The FOMC is meeting this week with an expected policy statement and press conference on Wednesday. The committee isn't expected to alter policy but the members are expected to lower their dot plots and effectively take a 2019 rate hike off the table.

The odds of policy change for this year are drastically different than they were just a few months ago, instead of a possible 3 hikes this year we're now looking at a growing chance (about 30%) for a rate cut by December. The risk in that outlook is the trade talks, a positive resolution to trade talks could (will eventually) reinvigorate economic activity and that will put rate hikes back on the table.


There is not a lot of data due out this week other than the FOMC meeting. What we will get includes Factory Orders, the Philly Fed MBOS, Leading Indicators, and Existing Home Sales. The good news is that the data we will get is nearly 100% from the 1st quarter if delayed by the Government Shutdown.

Economic Calendar

The Economy

Today's economic calendar sparse. The only official data point is the NAHB Home Builders Sentiment which held steady over the last month. The index reading came in at 62 for the last month, flat from the previous, while internal changes offset each other. Sales of single-family homes rose 2 points to 68 and outlook for sales jumped 3 points to 71 but those gains were mitigated by a 4 point drop in buyer traffic. Traffic came in at only 44, well below the 50-level, and is near the 12-month low. While decent, the mix of internal data is worrisome, low levels of buyer traffic don't bode well for future sales.

I ran across some interesting labor data I thought I would share. Turns out the official U.S. data doesn't include jobs in the marijuana industry because weed is still Federally illegal. Even though the employees of legally operating (at state level) marijuana facilities are paying Federal tax (as are their employers) the 64,399 jobs created last year did not get included in the data. Last year's jobs figures are 44% higher than the previous year and driven by the widening spread of medical and recreational legalization. The cannabis industry is the fastest growing labor market in the U.S.

There are 211,000 total, legal, marijuana jobs in the U.S. right now, job growth in the sector is expected to continue at double-digits for the next 5 to 10 years (depending on how quickly Federal legalization is passed). Counting all jobs directly linked to marijuana and those associated with the industry there are nearly 300,000 Americans working in the marijuana industry today. With this in mind, and Senator Corey Booker's (D, Presidential Candidate) Marijuana Justice Act reintroduced to the Senate, I think cannabis will be a hot topic this campaign season.

Moody's Survey of Business Confidence fell -0.7 points to 11.6 in the last week. The decline puts business confidence back to the lowest levels since just after the Global Financial Crisis. Mr. Zandi makes note of confidence stabilizing but I don't think four weeks of data at this level is enough to call stable. The sentiment is hurting from trade uncertainty and likely to remain under pressure until a trade deal is announced. European market sentiment is the worst with Brexit uncertainty growing to a crescendo. The UK has voted to stave off a hard/no-deal Brexit but it hasn't solved the underlying problem.


The Q1 earnings cycle is underway if off to the usually slow start. So far there have been four reports and all four companies have beaten the estimates. First quarter earnings growth outlook continues to decline however falling another -0.2% this week. First quarter growth is now expected in the range of -3.6% which equates to about 0.0% when you factor in the amount by which earnings are expected to beat the analyst's consensus. All eleven sectors have been revised lower over the past three months with those with the most exposure overseas faring the worst.


The outlook for earnings growth in 2019 is still not awesome but sentiment may be stabilizing at least. The consensus for 2nd quarter growth fell a tenth to only 0.1%, not good because it is on the cusp of turning negative, but the 3rd and 4th quarter held steady. Better than that, the 3rd quarter was revised up a tenth and outlook for the full year 2020 was revised up a tenth. I still think it is too soon to call the earnings bottom regarding sentiment and estimates but this weeks data is encouraging. I think we'll see earnings and outlook bottom sometime this cycle, possibly going into the 2nd quarter cycle, and that is my target for the start of another extended market rally.


The Dollar Index

The Dollar Index held relatively steady in today's session. The index fell less than -0.20% to test support in the middle of its trading range and support is still there. The index is wound up between $95.50 and $97.50 while traders wait on this week's FOMC meeting. The indicators are mildly bearish but more consistent with range-bound trading than anything else. A move lower, or higher, may be on the way but that direction is dependent on the Fed. Longer-term the trading range may continue to dominate prices.


The Gold Index

Gold likewise held steady in today's action and is likewise wound up waiting on the FOMC. The metal is holding near the $1,300 level after falling from resistance last week and looks like a move lower is the more likely scenario. The indicators are mixed but, in light of the extreme bearish peak printed over the first two weeks of this month, a retest of the $1,280 level is very likely. A move below $1,280 would be bearish, a move above $1,300 will not rule out a retest of $1,280 just push it off further into the future.


The Gold Miners ETF moved lower in today's session and set a new one-week low below the short-term moving average. The ETF is moving down from a third peak formed between the $22 and $23 level this year. The peak may be the right should of a Head and Shoulders reversal but a reversal, full reversal, is not yet indicated. The MACD and stochastic are mixed but suggest range-bound trading should be expected if not a move lower. If the ETF does move lower my target for support is $21.50 which would also be the neckline of the Head and Shoulders if it is broken.


The Oil Index

Oil prices moved higher today on news from OPEC. Member Saudi Arabia says the cartel may need to extend cuts past the June target in order to fully tighten markets. The statement comes after OPEC decided to cancel the April meeting citing no reason to end production cuts now so no need to have a meeting. Prices for WTI moved up more than 1.5% on the news and were further aided by signs of drawdown at the Cushing facility. Data show supplies fell more than 1 million barrels in the last week but I take this with a grain of salt, the Cushing data and EIA data are not always in line with each other. Regardless, WTI is moving on up and heading toward resistance at $60 and $64.


The Oil Index has begun to move out of its consolidation range. The index gained more than 1.5% and set a new 3.5 month high. The move is supported by the indicators and oil prices so should have legs. The first target for resistance is the long-term moving average near 1,330, a move above that would be bullish. With OPEC+ doubling down on cuts I will not be surprised to see oil prices move up to $72 or higher, and the Oil Index move up to 1,400 and 1,500 over the next six months to the end of the year.


In The News, Story Stocks and Earnings

Boeing is still in the news. There are now multiple government agencies probing and investigating procedures in the 737 approval processes. The DOT, in particular, is looking into potential lapses. Investigators say there are similarities between the two 737 Max-8 crashes which is not good news for Boeing. The scope of the fix is hard to ascertain, Boeing says it is a software issue but the experts can't agree if it will be days, weeks, or months until the jets are cleared for use. Shares of Boeing fell nearly -3.0% intraday but were able to halve the loss by the close of the session. The stock is still showing signs of support at the long-term moving average, so long as that holds Boeing's long-term rally is probably still alive.


Shares of Facebook fell -3.0% today as key analysts downgrade the stock. Needham lowered shares of FB from buy to neutral citing the impact of privacy enhancement, Bank of America lowered its price target to $187 citing the same concerns. This news comes after a number of important execs leave the company and cast doubt on its long-term success. Today's action was halted at the long-term moving action but the indicators are bearish so a move lower is possible. A fall below the long-term 150-day EMA could take the stock down to $150 and close the gap formed at the last earnings announcement.


Piper Jaffray upped its price target for Chipotle Mexican Grill to $725. According to them the company is an outstanding recovery story and expect to see ongoing efforts continue to improve fundamentals. Piper also sees the international arm of the business morph into a franchise story. That all may be true but it assumes the company will not have another food-borne illness scare. Because it focuses on fresh ingredients it is only a matter of time before they do.


The Indices

The indices moved up in today's session and, in most cases, look like they could keep drifting higher in the near term. The risk is that there are worrying divergences that jibe with my view this leg of the rally is nearing its end. The day's leader is the Dow Jones Transportation Average with a gain of 1.01%. The transports created a medium-sized green candle showing support at the pair of moving average that is not confirmed by MACD. The indicators are consistent with a bullish shift in momentum but are not yet showing a bullish signal. A move higher may create that signal but resistance is at 10,675 and may cap gains in the near to short-term.


The S&P 500 advanced nearly 0.40% to close shy of the day's high but at a new 5.5 month high. The indicators are consistent with a bullish swing in prices but momentum remains bearish and stochastic is divergent so a prolonged rally is not expected. A move higher may find resistance at the 2,875 level, a move above that may retest the all-time high.


The NASDAQ Composite also moved up to set a new 5.5 month high as it extends its Vee-bottom recovery. The index is supported by bullish indicators but both MACD and stochastic are noticeably divergent from the high. This does not necessarily mean that a price peak or reversal has been reached but it is a warning sign I know and love. Prices may continue to rise in the near-term but resistance targets exist at 7,800 and 8,000 that may cap gains. If the index retreats from today's level support may be found at 7,600.


The Dow Jones Industrial Average brings up the rear in today's session with a gain of 0.25%. The blue-chip index formed a small green candle moving up from last week's support with mixed indicators. Stochastic is bullish but MACD is still bearish which suggests consolidation within a range. A move higher may find resistance just above the 26,000 level, a move above that would be bullish but there are only about 1,000 points before hitting the all-time high where resistance is likely to be stronger.


The markets moved higher today but, like I said last week, I am dubious of its motivation and how high it will be able to go. The indications are mixed, the action is weak, the trade deal is priced in, and the outlook for earnings this cycle is not good so consolidation, rotation, profit-taking, and correction are what I see in the near future. The good news is that we're getting closer and closer to the next really big rally and I think it will start this year, maybe as soon as next quarter. I am firmly bullish for the long-term, cautiously neutral for the near-term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Let the Price Chasing Begin

by Jim Brown

Click here to email Jim Brown

Editors Note:

We could be poised for a significant FOMO rally if the headlines remain tame. Today was a good day in the market and it could be the start to a good week. Now that the S&P is well over prior resistance the 2,930 historic high is the next target and there is nothing in its way. The historic high will act like a price magnet ahead of a China trade deal as long as the commentary remains positive. Once at that level we could see a pause.

The big cap techs stocks were much more reserved today with Facebook the biggest negative impact. Amazon and Broadcom were the leaders.

 

New positions are only added on Wednesday and Saturday except in special circumstances.


NEW DIRECTIONAL CALL PLAYS

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NEW DIRECTIONAL PUT PLAYS

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In Play Updates and Reviews

Confirmation

by Jim Brown

Click here to email Jim Brown

Editors Note:

The 10-point gain on the S&P was strong confirmation of the breakout over 2,815. If you remove Boeing from the equation the Dow would have been up triple digits. Even the Russell gained 10 points. This was a good day for the market and suggests we are going higher.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


CRM - SalesForce.com
The long position was entered at the open.


Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

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BEARISH Play Updates

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