pebblewriter

Month: August 2020

  • Breakout or Headfake?

    Today’s post could be an extension of yesterdays, with more beneficiaries of the shutdown such as Target and Lowes reporting big beats.  Winners and losers.

    Curiously, ES failed to make a new high yesterday even thoughy SPX briefly rose above its February highs.

    You’ve always had to worry about predatory traders and specialists trying to catch momentum traders offsides, pushing above resistance in order to stop out shorts and draw in fresh meat.  These days, the players have expanded to include predatory HFTs, algos, central banks, the US Treasury, politicians, etc. The list of “interested parties” is long and distinguished, and most of them have access to plenty of free capital.

    So, as we always ask when SPX reaches new highs: breakout or headfake?

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  • Winners and Losers

    Watching WMT this morning and wondering what it all means?  After surging nearly 7% on blowout earnings, the stock has given up all its gains after the company’s commentary confirmed the obvious: there are winners and losers in a pandemic.

    Unlike many of its general retailer competitors…Walmart sells groceries, meaning they were allowed to remain open even during the worst of the virus’ spread. They also have a substantial online business, helping them offset the slowdown in in-store shopping. Last, customers who might otherwise have run out of money when laid off received checks from the government which allowed them to continue shopping for low-priced essentials.

    The problem WMT faces, of course, is what happens now that these checks have stopped. Will the stock recouple with the economy? Moreover, will the overall market recouple with the economy?

    The old adage that “the market is not the economy” has never been more true. Pundits and politicians see major indices push to new highs and declare that the worst is over. The reality is that the AMZNs and WMTs of the world are simply taking market share from the millions of small businesses that couldn’t stay alive for the past five months.

    For all the major retailers which have declared bankruptcy so far this year…

    …there are hundreds of thousands which have done so with no fanfare nor headlines in the WSJ. They slip quietly away into insolvency as their PPP money (if they were able to obtain it) runs out and the bank account runs dry.  They’re not publicly traded, so they don’t affect the market. But, the effects will be felt sooner or later. And, more will join their ranks as the country continues to fail the coronavirus marshmallow test.

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  • Empire Manufacturing: Not so Fast

    The NY Fed’s Empire Manufacturing survey missed by a mile. The August General Business Conditions index fell to 3.7 versus 15 expected and 17.2 in July. While employment, input prices and selling prices edged slightly higher, the average workweek, unfilled orders and inventories all declined.

    VIX’s nightly pump and dump, however, has futures solidly in the green. Can it hold?

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  • Retail Sales Miss: Aug 14, 2020

    The retail sales rebound stumbled in July, coming in at 1.2% versus 1.8-2.0% expectations and last month’s 8.4% blowout. YoY, July saw an increase of 2.7%. Of course, July included stimulus payments to consumers which, with Congress leaving town for the rest of the month, are looking less and less likely.

    And, AMZN, the retail colossus which can do no wrong, has now put in 5 lower highs since reaching our upside target on Jul 13.Futures are off only slightly, reflecting another overnight pump and dump in VIX.

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  • New Highs Inevitable?

    The algos are still threatening new all-time highs, this time egged on by the “wonderful” news that only 963,000 new unemployment claims were filed last week and only 15.5 million Americans are currently drawing unemployment.

    It didn’t hurt that VIX made several sudden plunges in the past hour and that the USDJPY is threatening to break out again.

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  • Charts I’m Watching: Aug 12, 2020

    Given stocks’ reaction to the bond market’s reaction to the PPI beat, it’s not surprising that the 2s10s has scurried back to the relative safety of 52 bps.

    But, TNX has still broken out, and the market is justifiably nervous about the implications of higher rates. CPI comes out at 8:30. And, for the first time in a while, folks might actually pay attention to the Treasury budget numbers at 2:00.

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  • Update on COMP: Aug 11, 2020

    COMP: the index that thinks it’s a beanstalk. It’s heavily weighted toward stocks which have done particularly well in the face of the global pandemic: AAPL, MSFT, AMZN, FB and GOOGL. So, a reversal at current levels would be a big deal.

    Investors might wish to know, then, that it just bumped up against a chart feature that suggests a reversal.COMP did a pretty good job of paying attention to channels over the years — at least until 2018. As we noted in our March 2018 update {see: Update on COMP], it had just arrived at our 7619.21 target – the top of a long-term channel and an important Fibonacci extension level. Our comments at the time:

    …with a FOMC rate hike due out tomorrow and more on the way, the range of possible outcomes is broad — from new highs to the next lower Fib level at 6227.06.

    It reversed as forecast, but pushed back above 7619 in June. The breakout was strong enough, but it fell back below 7619 in October, tagged our 6227 target, then spent almost a year trying to break out once and for all.By February 2020, it had popped nearly 30% above 7619. Then came the pandemic. The 33% plunge caught many true believers by surprise – though there were plenty of warning signs in both the index and its major components.

    The recovery was even more spectacular, with COMP gaining 68% since March 23. Given the amount of money that’s been thrown at the market, investors could be forgiven for believing the rally has plenty of room to go.

    The charts suggest otherwise.

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  • PPI’s Big Beat

    PPI was expected to tick 0.3% (0.1% core) higher in July. Instead, headline PPI soared 0.6% and core popped a stunning 0.5% – the highest since October 2018.

    The impact on stocks has been muted so far, as the market is still giddy over the potential release of what is essentially a Phase 1 vaccine out of Russia. The impact on bonds, however, has been significant. 10Y yields have broken out of a long, slow decline.

    When you’re piling on debt (with record-setting duration) the way the US is, higher interest rates are not good news.

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  • Update on Currencies: Aug 10, 2020

    In our last update on currencies [see: Currencies, a Turning Point] we noted that DXY was in danger of breaking down as EURUSD was approaching strong overhead resistance. Since then, DXY’s rising purple channel dating back to 2010 did, in fact, break down… …at the same time that EURUSD reached our upside target at 1.19. USDJPY, which by now would normally have cratered, is stuck in a holding pattern in an attempt to hold NKD above its 200-DMA. With real bond yields negative and nominal yields barely does the US dollar have more downside? And, what are the implications for equities?

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  • NFP Beats

    NFP increased by 1.76 million in July, beating estimates of 1.48 million. Futures popped on the news, almost turning green before deciding it was a non-factor – perhaps as Trump had already spilled the beans earlier in the week. Or, perhaps it was due to most of the job gains coming in food service and retail – categories which are susceptible to large downturns if slowdowns and shutdowns continue to make a comeback.

    The unemployment rate dropped from 11.1% in June to 10.2% in July, while U6 dropped to 16.5% – still a stunningly large number of unemployed Americans whose benefits have plunged in the past week.

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