| TAOST Wrap Week Ended Friday 7 February 2020 |
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Just think... "Reports of my death have been greatly exaggerated."
Mark Twain & The Current Bull Market |
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Greetings Traders:
Last week we saw a pretty massive and aggressive rally from the lows of this most recent modest pullback to fresh all time highs. In addition, the end of week action suggested we're likely to see more of the same this upcoming week.
Be sure to read the P.S. at the end for a bit of a personal message from yours truly. |
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Select Index, ETF & Stock Results From Friday 7 February |
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In Sum
After two straight weeks of losses, the markets managed to rebound in impressive fashion this first week of February. Investors were able to put aside their ongoing concerns around the spreading of the coronavirus and focus the positive earnings releases, economic surprises and news that China will begin cutting tariffs.
S&P 500 +3.2%, Nasdaq +4%, DJIA +3%
On the earnings front, Pinterest, Uber and Disney all surprised with better-than-expected results driving their stocks higher (see below for more details). Twitter reported a mixed bag as its revenue broke past the billion-dollar mark for the first time, but net income and EPS were significantly lower. And Alphabet’s results beat analyst’s profit estimates, but fell short on revenues.
On the economic front, it was a busy week as well. In the U.S., the Institute of Supply Management’s manufacturing index for January indicated a return to growth for the first time since July. And separate surveys in Asia and Europe showed promising results as well. However, it’s important to note that these surveys were largely completed before uncertainty over the coronavirus disrupted world-wide trade and supply chains.
The U.S. trade deficit narrowed in 2019 for the first time in six years. Exports declined for the first time since 2016 and imports fell more sharply resulting in the shrinking of trade deficit by 1.7% to $616.8 billion. China lost its rank as the top U.S. trade partner, falling to third place behind Mexico and Canada and trade in goods rose faster with Vietnam than with any other large trading partner.
Although tariffs and trade policy are playing a large part in the shifting trade picture, the American shale boom also has a lot to do with the recent decline. Since the start of 2018, U.S. petroleum exports are up a little more than 30%, while all other goods are down almost 2%.
On Friday, the Labor Department reported that the economy added 225,000 jobs last month (better than the 158,000 expected). The unemployment rate rose to 3.6% from 3.5% as more people entered the labor force and began looking for work. Over the past three months, the U.S. economy added an average of 211,000 jobs and job growth was revised higher in the last four months of 2019. The construction industry saw a large increase in jobs, while factories experienced the smallest gain for the sector since 2010. The share of the population working or looking for work reached a seven-year high. Among prime-age workers (25-54) the share of the population with a job was the highest since 2001. Note: This is usually 1 of many signals of an economic top... jobs are so plentiful that even those who had given up are being drawn back into the job market.
Also, this week, 45 addressed the nation with his State of the Union speech. Despite some of the theatrics in the background, the crux of the presentation (as expected) focused on highlighting the "economic gains" under his administration. I will leave it at that... grudgingly.
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| | | CNN Investor Sentiment [Fear & Greed Index] |
| | We swung from Fear to modest Greed just that quickly. |
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| Nothing suggestive here... |
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- 45 was, as expected, acquitted in the Senate following a nominal trial that allowed neither evidence nor witnesses. The only Republican to break ranks, on one of the two articles, was Mitt Romney—apart from that, it was a straight partisan affair.
- More than a dozen Chinese provinces have announced an extension of the current Lunar New Year holiday by more than a week as the nation attempts to halt the rapidly spreading coronavirus that has so far claimed 362 lives, all but one in China. The areas accounted for almost 69% of China's gross domestic product in 2019, according to Bloomberg.
- China’s central bank on Monday lowered key interest rates while injecting a large amount of liquidity into the banking system in a bid to support the economy.
- China said it would cut tariffs on $75 billion of U.S. imports in half as part of efforts to implement a recently signed trade agreement with Washington. The tariff cuts set to take effect on Feb. 14 come amid growing doubts about Beijing’s ability to follow through on the phase-one trade deal, in which China has pledged to boost its purchases of American goods and services by $200 billion over two years. That said, anyone who thinks this is over is an orange faced fool. I suspect China will have a very long memory on this.
- Energy today accounts for just 3.8% of the value of the S&P 500—down from 16% in 2008. With crude trading near $51 a barrel - after a slump of about 16% in January - OPEC and its allies are considering calling an emergency meeting. Potential dates being discussed are Feb. 8-9 and Feb. 14-15, though for now the next regular meeting on March 5-6 remains on schedule.
- Russia is supporting a recommendation to deepen OPEC+ oil supply curbs amid falling demand for crude as China battles a coronavirus outbreak. The proposal could lead to a provisional cut in output of 600,000 barrels per day, which is about 0.6% of global supply and would extend current curbs of 1.7M bpd. It would also pave the way for OPEC to bring forward to February a ministerial policy meeting planned for early March to formalize the decision.
- Is your city’s pension fund a little short? Marijuana might help. The past dozen years have been hard on state and city tax revenues and public-worker pension funds. Even when the economy and stock market recovered after the financial crisis, superlow interest rates weighed on pension plans. So, with recreational cannabis now legal in 11 states, public officials are looking to emulate California, where local governments collected $1.86 billion from cannabis sales in 2018 and nearly as much in the first three quarters of 2019, according to consulting firm HdL Cos.
- Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012, posing a fresh setback for a market that is already showing signs of strain. Chinese were by far the biggest foreign sellers of U.S. office towers, retail centers, hotels and other commercial property, unloading $20 billion more than they bought, according to data from Real Capital Analytics. But investors from Japan, Canada, the U.K. and elsewhere were also active sellers last year. Their exodus is putting new pressure on the market as property values have leveled off, new state and federal regulations are kicking in and many investors see few catalysts to push prices much higher after a long run.
- Alaska's permanent fund since 1982 has granted each resident a no-strings-attached dividend—$1,600 in 2018. That's led to more babies. "Primary results suggest that the dividend increased fertility and reduced the spacing between births, particularly for females in the 20-44 year age group.
- Democrats in the U.S. House of Representatives are proposing a nationwide electric vehicle charging network. Reps. Alexandria Ocasio-Cortez (D-NY) and Andy Levin (D-Mich) unveiled the “EV Freedom Act,” which would create a network of high-speed charging stations within five years.
- Central banks are hurrying the pace at which they are looking at issuing their own digital currencies (known as CBDCs), as Facebook's push to launch its own crypto raises questions over who will control money supply in the decades ahead. "The Fed is conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC," Governor Lael Brainard told the Stanford Graduate School of Business. Leaders of six major central banks, including the U.K., the eurozone, Japan, Canada, Sweden and Switzerland, are also undertaking joint research on cryptos and may hold their first meeting in Washington in mid-April.
- Battery-electric vehicles made up 8.2 percent of all car sales in France for the month of January. Among all vehicles sold in France, the Renault Zoe supermini electric vehicle was the third best-selling model. Battery-electric plus plug-in hybrid vehicles collectively made up about 11 percent of all vehicle sales in the country.
- Uber and Postmates want to stop a landmark California law that they say threatens their business models, but a judge signaled today that she’s inclined to reject a request to temporarily shield the companies from Assembly Bill 5, which aims to convert gig-economy workers into employees with benefits.
- The White House is working with U.S. technology companies including Microsoft, Dell and AT&T to create advanced software for next-generation 5G telecommunications networks, in a bid to blunt the dominance of China's Huawei Technologies.
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TNX - 10 Year Note Interest Rate |
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Interest rates suggests they will continue falling in the near term.
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GLD - Gold Trust Gold Shares |
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Gold continues to defy convention as it continues to push higher... alongside equity markets.
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Bitcoin is hanging right around the psychologically important $10,000 level. The falling trendline is the next level of resistance.
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JNK - High Yield [Junk] Bond ETF |
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JNK suggests there's still plenty of appetite for risk.
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BRN - Brent Crude Oil Futures |
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No wonder OPEC is considering an emergency meeting.
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VIX - S&P 500 Volatility Index |
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| Volatility fell back from last week's spike... pretty much as expected. |
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Below you'll find select stock news and the associated charts. |
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Twitter reported a mixed bag as its revenue broke past the billion-dollar mark for the first time, but net income and EPS were significantly lower. As tech platforms prepare for the 2020 presidential election, Twitter said it will begin labeling tweets containing synthetic or deceptively edited forms of content and will remove any manipulated media "likely to cause harm." Earlier this week, YouTube announced it would remove any content that has been doctored and may pose a "serious risk of egregious harm," while TikTok issued a broad ban on "misleading information." Facebook is further removing deepfakes and some other manipulated videos from its websites, but will leave up satirical content.
For my 2 cents, the stock is still negatively structured here... And by the way, has anyone considered what happens to active users if the Twitter Gangster In Chief is voted out? |
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US Global Jets ETF [JETS] |
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United Airlines and American Airlines said they were halting flights until Feb. 20, citing a lack of demand. Both airlines and several other global carriers had previously halted service to the Chinese mainland.
Boeing, China, etc., but this etf looks set to make a move higher. Trade what you see, not what you think. |
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Uber's stock rose 6% in extended trading on Thursday after announcing a fourth-quarter loss that was narrower than analysts had expected. The firm also moved its EBITDA profitability target to Q4 2020, ahead of its original promise of profitability in 2021. The company also suspended 240 user accounts in Mexico to combat the spread of coronavirus. The company said that the users rode with two drivers who came into contact with a passenger possibly infected with the virus. While there are no confirmed cases of coronavirus in Mexico, the country’s health ministry said an Uber driver carried a passenger from Los Angeles who was infected with coronavirus, based on information from U.S. authorities. Also... a judge signaled that she’s inclined to reject a request to temporarily shield Uber and Postmates from Assembly Bill 5, which aims to convert gig-economy workers into employees with benefits.
Uber continues to buck all and climb the Wall of Worry... |
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McDonald’s said that it’s testing kiosks at a small number of U.S. restaurants that let customers order Happy Meals and shakes by talking to a digital assistant. It’s part of a broader push by McDonald’s to incorporate advances in computers that understand language into its franchises and into its mobile apps.
Tracing a classic chart pattern. |
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Macy’s plans to close 125 department stores over three years. The move is an admission that a fifth of its locations can’t thrive as shoppers buy more online and make fewer trips to the mall.
If you have money tied up [long] in this kinda retail play go to the restroom, look in the mirror and slap yourself silly. |
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Disney made a strong entrance into the streaming video wars, reaching 28.6M paying subscribers on Disney+ just three months after its launch. It took Netflix, the largest streaming platform, years to reach that number, though it currently has more than 67M subs across the U.S. and Canada.
Must be where some of that NFLX $ is going. |
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| A pretty impressive short covering rally... I won't say much as I posted about it during the week more than once on FB and Reddit, but would you believe there are those dead set on trying to short this stock again? |
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| In case you're wondering, looks like this pattern is still gonna play out. |
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I would act surprised, but I don't believe in lying unnecessarily. Looks like there's plenty more.
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Apple says ‘no’ to Project Maven. When Apple recently bought the A.I. startup Xnor.AI earlier this year, the iPhone-maker inherited the company’s work with the Pentagon’s Project Maven initiative, which encompasses the use of A.I. to analyze imagers collected by military drones. Now, tech publication The Information reported that Apple terminated the startup’s work with Project Maven, implying that Apple has no interest in pursuing lucrative military contracts like Amazon or Microsoft.
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| Everyone from Disney to Apple coming for Netflix, but traders don't think the stock is done yet as evidenced by the chart. |
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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 Trader
P.S. As a bit of an aside as it's not at all market related... I lost someone important to me this week. It's for the best as she was hospitalized and there was no chance of recovery. Now you're good people, so I know you send your sympathies... which I appreciate. But it would be all the more meaningful if this little note reminds you to go LIVE... Tell your people you love them... Better yet, show them. Do something nice for yourself. Basically, don't wait... go get it. Remember, life is short and none of us are getting out of here alive. |
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