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Thursday, March 28, 2024

Monday Market Movement

Now what?

I wish I knew.  As I said in the Weekly Wrap-Up, we've been stuck in a range – which has been fine for us as 60 of 80 trade ideas from the last 2 weeks were winners and will be more so if we flatline or head south from here, as that's how we've been playing the market.  It's not that we WANT the market to fall, just like your doctor doesn't WANT you to have the flu.  But, when you show up at the office with a sore throat, headache, fever and congestion – he's going to tell you you have the flu and write you a prescription to help you get better.  That's what we do!  We analyze the market symptoms and determine a course of treatment.  We don't need to be bullish or bearish on any given day as it's far, far more satisfying to be right.

In Member chat this morning, we were discussing leap strategies regarding entries on (in this example) KO and we looked at the benefits and pitfalls of trying to establish positions at the top of a big run.  I mentioned that KO is not something I'd be looking at now as they are too near the highs and don't have any particular near-term growth catalyst (and the strong dollar may hurt their earnings, which are more than 50% international). 

In the Wrap-Up you'll see that the kind of long plays we went for were more beaten-down stocks that we still like long-term like SPWRA, VLO, RMBS. WFR, PARD…  Even in a great bull market like this one that may or may not be topping, there are still plenty of bargains to be had and, if we don't see any good ones today, it's still better to wait until earnings and bargain-hunt there rather than buy stocks just because your cash is burning a hole in your pocket (we went to mainly cash the last 2 weeks and many members are getting antsy already).  

Actually, having cash in US Dollars may be an excellent investment at the moment as those dollars could gain 10% as the dollar bounces back.  Commodities have certainly continued to fall over the weekend with gold at $1,141, oil at $74.71, siver back to $18 and copper $3.18 (our watch level was $3.20).   Futures are pretty lame overall, down about 0.3% at 7:30 but we’re still above our levels so don’t get too excited if you are a bear just yet.

        Dow S&P Nasdaq NYSE Russell Trans HSI Nikkei  FTSE  DAX 
Fri Close  10,388  1,105  2,194  7,182  602  1,926  22,324  10,167 5,289  5,785
27.5% Up 10,500 1,127 2,242 7,380 615 2,113 22,421 11,787 5,381 5,894
Recnt High 10,549 1,120 2,190 7,241 625 2,045 23,100 10,397 5,396 5,888
2.5% Down  10,128 1,077 2,139 7,002 587 1,878 21,766 9,913 5,157 5,640
July Base 8,200   880  1,750  5,600  480  1,650  17,500  9,200  4,200  4,600 
25% Up  10,250  1,100 2,187 7,200 600 2,062 21,875 11,500 5,250 5,750
Retrace 9,840 1,056 2,100 6,720 576 1,980 21,000 11,040  5,040 5,520

As I was looking at this chart, I decided to change the normal 2.5% up row (2nd from top) to the more relevant at the moment 27.5% up from the July base series, which is a more accurate reflection of levels that must be taken in order for us to take a move up seriously.  Notice that only the Russell has recently even broken that level in the past few months and they are now one of the indexes closest to failing the 25% line, just behind the NYSE, who already broke down.

As we've been tracking for a month now, the FTSE 5,250 represents a global negative if crossed below while the DAX 5,750 represents a bullish sentiment if held.   The Nikkei is closing the gap that was bothering me on the Dow (and now you can see why those EWJ calls made sense as upside protection) but the Hang Seng failed to hold 22,500 today and bounced just under our upside watch level in afternoon trading but, ultimately, failed as the market there fell 173 points on the day

Banks and the commodity pushers they speculate on have been leading the decliners in Asia and Europe.  The Nikkei got a pass as they are, like us, an import economy but, unlike us, they don't have a big mining and commodity sector to drag them down after leading the market higher like we do.  That's why EWJ was a good play for what we expected to happen – the stronger dollar popping the commodity bubble and causing a general global sell-off.  Keep in mind China's Yuan is pegged to the dollar so Chinese exports get more expensive when the dollar goes up, making Japan even more competitive

Over in Europe, Germany scrambled to pump another $12.5Bn into the economy while parliament was still in session, just a little spending money for the holidays.  One of the big news items holding Europe down today (and it may not do well for our industries either) as expectations mount that the US EPA is about to formally declare carbon dioxide to be a pollutant

An "endangerment" finding by the Environmental Protection Agency could pave the way for the government to require businesses that emit carbon dioxide and five other greenhouse gases to make costly changes in machinery to reduce emissions — even if Congress doesn't pass pending climate-change legislation. EPA action to regulate emissions could affect the U.S. economy more directly, and more quickly, than any global deal inked at this week's Copenhagen conference, where no binding agreement is expected. Electricity generation, transportation and industry represent the three largest sources of U.S. greenhouse-gas emissions.

[Climate]

The spokeswoman said that the EPA is confident the basis for its decision will be "very strong," and that when it is published, "we invite the public to review the extensive scientific analysis informing" the decision.  EPA action would give President Barack Obama something to show leaders from other nations when he attends the Copenhagen conference on Dec. 18 and tries to persuade them that the U.S. is serious about cutting its contribution to global greenhouse-gas emissions.  The vast majority of increased greenhouse-gas emissions is expected to come from developing countries such as China and India, not from rich countries like the U.S. But developing countries have made it clear that their willingness to reduce growth in emissions will depend on what rich countries do first. That puts a geopolitical spotlight on the U.S.

So we're going to be watching our carbon levels as well as watching our market levels to see which way things go.  We have already shorted the Transports last week (IYT) and we're already short the Dow (DIA) so this climate bill may just be the straw that breaks the camel's back this week.   Dubai still isn't off the table and metals and oil can fall hard, especially if we get a short-squeeze going on the dollar, which may become pronounced if we hold 76 today

We are not light on data this week with Consumer Credit today but then we have to wait until Wednesday for Wholesale Inventories followed by the usual Jobs Report on Thursday and Trade Data but Friday is unusually busy with Import/Export Pricing, Michigan Sentiment, Business Inventories and, the Big Kahuna for the week, November Retail Sales, which we already know were not good but that won't stop people from being surprised all over again. 

Volume should be light so anything can happen but we'll be watching copper at the $3.20 line and oil at $75 to see if things are really breaking down from a demand perspective.  As discussed in the Wrap-Up, we went into the weekend still loaded for bear but, if the levels do hold – we're going to have to respect that and we'll add some more upside plays, mainly to cover as we're not flipping until we have clear break-outs. 

We talked a lot about jobs last week and I wanted to leave you with this video, from Mish's great article on real unemployment numbers we carried over the weekend:

 

 

 

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