| TAOST Wrap Week Ended Friday 8 May 2020 |
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Just think... "I suspect that a lot of the stress we see around us arises from the cognitive dissonance set up by one side of the brain hearing very plausible spin while the other side knows it just ain't so."
-- David Palmer |
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Greetings Traders:
A very Happy Mother’s Day to all the mothers reading this. Also… a special Happy Mother’s Day to “the only mother many children ever know.” It’s 1 thing to mother a child you brought into the world… A great thing mind you, but 1 thing. It’s also a special thing to parent a child to whom you didn’t give life… maybe even more so. So if you're one of those people mothering a child or children you didn't birth, I see and salute you as well.
Ok... I'm off my soap box... I took a break for a bit from publishing this email as it's a lot of work... and most of you had gone kinda silent. But a couple of you reached to ask "what the..." So here it is again.
I hope it's useful.
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Cognitive dissonance [the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change], sums up my view about the current market. The disconnect between the stock market and the economy seems to grow wider and wider each day. Despite all the negative economic announcements and headwinds, the markets manage to keep pushing higher.
Personally, I think 45's administration is buying the market straight up. He knows he can't win in November with a crap stock market AND a crap economy... so I think he has the Treasury Department actively buying the market via intermediaries. That's cool for now... but if the market can really get going to the downside again... look out below.
But I'm not 1 to gossip, so you didn't hear it from me.
On the economic front, the big story of the week was once again the employment report. For the month of April, the unemployment rate rose to a record 14.7% (eclipsing the previous record of 10.8% for data tracing back to 1948; and getting close to the 25% rate experienced during the Great Depression) and payrolls dropped by 20.5 million. Not surprisingly, the sectors of the economy you expect were hit hardest… leisure and hospitality lost 7.7 million jobs, while retail trade lost 2.1 million. There was no broad sector that was immune from job losses though, as even the healthcare industry lost 1.4 million jobs.
And it’s not just in the U.S. where we are seeing these types of numbers. According to the International Labor Organization, 1.6 billion workers in the informal employment sector are in danger of losing their livelihoods because of the pandemic. And what's really concerning is the second derivative affects of what this could mean for the health of the world’s population. Based on a UN report, it shows that the number of starving people worldwide could double this year to some 265 million and that by the end of the year, half a billion people could be pushed into destitution because of the pandemic. Nearly 1 in 5 young children in the U.S. are reportedly food insecure - a rate three times has high as the worst figures during the Great Recession.
Beyond the Employment report, the U.S. trade deficit widened 11.6% in March to a seasonally adjusted $44.4 billion, snapping two months of narrowing. Other data showed that services businesses experienced their steepest drop in activity in April since the last recession and U.S. government recorded a budget deficit of $737 billion last month, as spending was more than double what it was a year earlier and tax revenue dropped 55% from last year.
On a more "uplifting" note, a new survey of Fortune 500 CEOs, showed that 63% of them believe that the crisis would accelerate their technological transformation and are being blown away by some of the things they are seeing, like five-year projects being completed in just months. One thing is for sure, the pandemic has increased the importance of information and technology and that is something that should have positive widespread implications for years to come.
Except, of course, for the employees of said companies... |
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Select Index, ETF & Stock Results From Friday 8 May 2020 |
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1 day [Friday's] results...
I include this sheet most weeks for those of you still stuck on stupid believing 8%/year is heroic performance on all of your $. Remember, these numbers are for just 1 day.
Yes, these are mostly leveraged products... but they just means you should play tighter with your risk... Not avoid playing at all. |
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In Sum
For the week, the Dow gained 2.5%, the S&P 500 rose 3.5% and Nasdaq rallied 6%. The S&P has now rebounded more than 30% from its lows and is just 13.5% away from its record high, while the Nasdaq Composite has climbed more than 35% off its lows and is now up 1.6% for the year.
S&P 500 3.5%, Nasdaq 6% |
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| | The S&P500 Index remains mired inside TAOST Magnet Zone. That said, if last week's action continues, we're likely to see price breach the top of the zone. What it does from there is anyone's guess. To be clear, my posture on the market remains the same [bearish] unless and until the structure changes... and that only happens if we clear that top and hold above/accelerate higher. |
| | | CNN Investor Sentiment [Fear & Greed Index] |
| This gauge is inching toward balanced [50] with the economy in shambles. Not good.
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| | | I noted several weeks ago that there would be a helluva bounce off the noted extreme. I'd say we've gotten said bounce, but now the market has to prove out.
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| | | The VIX did it's job by collapsing which allowed equity prices to explode higher... remember, the VIX has an inverse relationship with stock prices... VIX goes up, stocks go down and vice versa.
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| | % Stocks Above 200 Day Moving Average Weekly |
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This Internals measure remains weak and looks to be simply a bounce.
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- The European Union will need more than a trillion euros to rebuild its economy, according to European Commission President Ursula von der Leyen, and will present a formal proposal for the fund by Thursday. Yes, that's trillion... with a T.
- Argentina's economy minister argues in an op-ed that the country simply cannot afford to pay back its debts, perhaps setting the stage for other emerging markets to contest debt obligations.
- Colleges around the U.S. are making plans to welcome students back to campus this fall — afraid they'll be headed for financial catastrophe if they remain closed. Of course... wouldn't want to put student health and well-being above all else. Trust me... if my kids were college age, they would NOT be showing up on campus in the fall unless things are substantially different... i.e., better with respect to 'rona.
- Hong Kong Airport Rolls Out Cleaning Robots And Full-Body Disinfection Booths. Although the antimicrobial coating is currently being used only by the airport employees involved in the sanitizing protocol, reports suggest that the coating will be introduced into public life soon. Hmm... so I'm supposed to just let them spray me with a batch of chemicals... voluntarily... Hard pass.
- The U.S. Patent and Trademark Office has ruled that only "natural persons" can be listed as the legal inventor on a valid patent filing. The decision followed two patent applications—one for a flashing light and another for a food container—that were conceived by an A.I. system called DABUS which was created by something called the Artificial Inventor Project. The takeover continues...
- A clearer picture is emerging as to what the U.S. debt load will look like for 2020 after the Treasury announced it would borrow a record $3T this quarter to subsidize economic rescue efforts due to COVID-19. That's on top of first-quarter borrowing of $477B and an anticipated $677B for the third quarter. All the red ink (national debt is near $25T) has some worried about a potential debt crisis and sparked talk about deflation/inflation. Here again... that's trillion... with a T. Anyone else remember the good old days when we talked of debt in terms of millions?
- At least 160 antibody tests manufactured for COVID-19 entered the U.S. market without previous FDA scrutiny on March 16 because the agency felt emergency authorization was warranted. Now, the FDA will require them to meet standards for accuracy. Tests will need to be found 90% "sensitive," or able to detect coronavirus antibodies, and 95% "specific," or able to avoid false positive results. Haste makes waste...
- The number of U.S. mortgages in forbearance increased again in the last full week of April, but new requests slowed significantly from the pace earlier this year, data released on Monday, by the Mortgage Bankers Association showed. A total of 3.8 million homeowners are now in forbearance plans, accounting for 7.54% of all mortgages.
- The European Commission has revised down its growth projections by around nine percentage points, from the forecast it provided last fall. Now it's looking at a contraction of around 7.5% this year, and growth of around 6% next year.
- U.S. factory orders posted a record drop in March with new orders for manufactured goods down 10.3%, a seasonally adjusted $445.8 billion, the biggest month-to-month fall in records dating to 1992.
- More than 20% of respondents who regularly use buses, subways and trains said they would stop doing so, and 28% said they would use them less often, according to an IBM study of consumer behavior. Only 20% huh?
- About 30% of the approximately 125 issuers S&P rates in the retail and restaurant sectors now hold credit ratings that imply at least a 1-in-2 chance of default.
- California has become the first state to borrow money from the federal government so it can continue paying out rising claims for unemployment benefits. The Golden State borrowed $348M in federal funds after receiving approval to tap up to $10B for this purpose through the end of July.
- China has just suffered its first quarter of economic contraction since the 1970s. Millions of jobs have been lost, and the coronavirus pandemic has hampered businesses for more than three months.
- Germany's top court ruled that some actions taken by the country's Bundesbank to participate in the ECB's €2.7T bond-buying program were unconstitutional, and not backed by the EU treaty.
- States like Georgia, Oklahoma and South Carolina have begun lifting their lockdowns in a bid to get their economies up and running. Data shows that’s no guarantee that economic activity returns. Economic stats in those states show only meager signs of life, Emily Badger and Alicia Parlapiano of The Times’s Upshot note. The share of small businesses operating in Georgia, and the hours worked in them, hasn’t changed much since the state eased restrictions on April 24. But I bet their rate of infection has moved higher...
- The Small Business Administration has reportedly capped loans from its Economic Injury Disaster Loan program to $150,000, down from $2 million, and blocked nearly all new applications. Wait... what?
- FDA pulls approval for dozens of mask makers. More than 60 manufacturers in China lost their approval to export N95-style masks to the U.S. after federal officials said they found a number of low-quality products from those companies.
- Economists expected German exports to fall 5% in March—instead, they got an 11.8% drop. That's the biggest fall in German exports since records began three decades ago. Germany's government is expecting the economy to shrink by 6.3% despite all the measures taken to soften the coronavirus's blow.
- The Bank of England has forecast that the coronavirus crisis will push the UK economy into its deepest recession in 300 years, per the Financial Times. The report sees an almost 30% drop in the first half of 2020, "the fastest and deepest recession since the 'great frost' in 1709.”
- Parents across the U.S. are delaying vaccinations for their children that they would typically pursue. They are fearful of exposure to the coronavirus and other illnesses in doctors’ offices, or have lost their jobs and health insurance. The immunization rate for all recommended childhood vaccines declined about 40% in the U.S. from late February through mid-April. Hey, maybe 45 should be in a hurry to reverse this 40% number instead of re-opening the economy too soon.
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TNX - 10 Year Note Interest Rate |
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Interest rates remain below 1%... and are likely to move even close to 0 given the chart structure.
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GLD - Gold Trust Gold Shares |
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Stocks and gold both continue to move higher... I'm thinking the 2 have to diverge at some point.
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XLF - Financial Sector ETF |
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Now hear this... as long as the financials stay negatively structured, the stock market's rise is a house of cards.
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This pattern still looks likely to resolve lower...
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JNK - High Yield [Junk] Bond ETF |
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Nice bounce to resistance... but who wants to buy the high yield bonds of highly leveraged companies right now... Yeah... neither do I.
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BRN - Brent Crude Oil Futures |
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Below you'll find stock news and the associated charts. |
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Uber is cutting about 14% of its workforce. In an SEC filing, it said the layoffs are part of a planned reduction in operating expenses “in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic and its impact on the company’s business.” The stock still looks like sh...tuff. Lower Lows and Lower Highs don't often lead to higher prices.
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Lyft is in even worse shape. I suspect it fails at that horizontal resistance line [previous support] and collapses anew. I wonder when we start hearing the Uber for Lyft consolidation rumors...
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Elon is certified, but the stock continues to push higher...
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Surviving airlines (and other too big to fail businesses) will be good plays at some point... but not yet...
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Apparently for all it's demand, Zoom is not super profitable. I wonder how long the market will be forgiving...
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Facebook has created an open domain chat bot—one that can hold a conversation on virtually any subject—that comes tantalizingly close to passing the Turing Test. In blind tests, 49% of human evaluators said they would prefer to keep chatting with Facebook's A.I. software, which it calls Blender, instead of an actual person. Who needs humans anyway right? Price blew through TAOST Magnet Zone... very likely support now.
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Amazon is reportedly looking to acquire some of the assets of satellite internet startup OneWeb, which recently filed for bankruptcy. Amazon’s interest is likely tied to its Project Kuiper initiative to put 3,236 satellites in orbit. Nice pullback toward support here... a bit further and will suggest a good long entry.
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Apple blew through it's magnet zone as well after a hard bounce at support... and is very likely to use that area as support now.
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| NFLX looks like it's ready to launch... again. The pullback [to support] was sharp so you likely missed it. I wouldn't chase it here though. |
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Alphabet considered buying Zoom [ZM], but decided to compete instead... bad news for Zoom. Price is trying to pull away from that horizontal resistance line and turn it to support.
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Select Economic Announcements: |
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As always, make up your own mind and, more important, minimize your risk no matter what you do.
KIS,
The Simple Trader
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Copyright The Art of Simple Trading, LLC All Rights Reserved |
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