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Wednesday, February 21, 2024

Will We Hold It Wednesday? My Rangeish Outlook

What a pretty picture "THEY" painted yesterday! 

I titled yesterday's post "8,900 or Bust" and it did look like a bust around lunch as we tested our hold targets of Dow 8,800 (8,811 was the low), S&P 946 (944), Nas 1,860 (1,892), NYSE 6,200 (6,084) and Russell 530 (518) but, just after 1pm, a miracle occurred and the buy programs kicked in, leading to an absolutely frenzied finish that brought us right around our upside targets of Dow 8,878 (finished at 8,915), S&P 956 (954), Nas 1,909 (1,916), NYSE 6,231 (6,154) and Russell 535 (525). 

Both the Russell and the NYSE were pumped up near their breakout targets first thing in the morning but both failed there and both broke below "must hold levels."  Keeping an eye on our levels allowed us to make bullish plays on ZION (hedged to $10.16 and another at $9), IWM (that one stopped out), C (bull call leaps) and CAL (hedged to $7.50).  We also added more YUM calls in our $5,000 Virtual Portfolio as well as a bearish ratio backspread on WFC, expecting them to have rough internal numbers, as are many banks this Q (something that kept us from being too bullish overall).  We covered all this bullishness by half uncovering our long DIA puts, still wary of a pullback but ready to re-cover (flipping bullish) if the Dow holds the nonsense move they made into the close.  As I said yesterday – keep up the nonsense for a couple of days in a row and it starts looking like firm support. 

Eps beat rate   BespokeAs we were discussing in Member Chat last night, perhaps it's not all nonsense.  Take a look at this visualization of earnings beats by Bespoke.  I said back when we went bullish two weeks ago that we need 66% of the S&P to beat estimates in order to sustain a rally and we are now well ahead of that pace with almost 72% of the reporting companies coming in BTE.  How bearish can you be in the face of such overwhelming results?  Yes the expectations were low and yes the "beats" are still coming in with revenues that are about 20% or so lower than last year but 20% is not 40%, and that's how far off the top our markets still are.  These numbers are market FACTS, as opposed to the rumors and panic that took us down to the low end of our trading range just two weeks ago, when I literally had to fight the bears off with a stick! 

In general, I am neither bullish nor bearish – I am rangeish as we have settled into the trading range around Dow 8,650 (5% up is 9,100, 5% down is 8,200) that I predicted almost a year ago as the "right" level for the markets given our outlook for the economy.  There is certainly nothing in this quarter's earnings so far to change our view on the lower end of our range and we still haven't had the move we need from our two broad indexes (Russell and NYSE) to justify us moving our midpoint higher to accommodate a move by the indexes over the June highs.  If we can get through the next 2 weeks of earnings with results like the ones on this chart – THEN we need to rethink the market's value but, until then, I remain rangeish and we will keep selling at the top and buying at the bottom until some real evidence dictates otherwise.

Currently in the market, there are good bull cases to be made and good bear cases to be made and every day we get "evidence" that adds to the argument for one side or the other.  Do you know what that means?  That probably means we are at a proper point of equilibrium.  Markets don't HAVE to go up or down violently by 20% or more.  Sometimes (in 9 out of 10 years on average) they stay within a fairly narrow trading range, moving up or down slowly over time.  While it's possible that program trading and other "black box" systems like the one stolen from GS may mean we will never return to calmer markets – I will point out that the market was fairly violent during the run up ahead of and after the great crash of 1929 and then proceeded to do nothing all that exciting at all for 40 years.  We entered a violent upswing in the late '90s, dropped down, came back and dropped down again – very similar to the move into 1930 and then again in 1937 but that second dip led to 7 years of flat-lining followed by 25 years of general market improvement. 

Historic Dow Jones Chart

Notice there is nothing that was predicted in this chart, from 2004, that has really been violated other than that silly bubble spike up that was driven by GS and other commodity pushers looking to steal all the peoples money, wipe out their competition and take over the government.  Now that they've accomplished all that, we are back to business as usual, very likely in a decade-long consolidation between 7,200 and 11,700.  Currently, we are in the lower end of that range but this chart is measured in years, not weeks and investors with a long-term view are very likely to be rewarded.  Previous consolidation periods lasted 18, 13 and 15 years – this one began in 2000 and is 9-years old.  Will it be the shortest consolidation on record?  Will it be the first time since the dark ages that the world economy regressed over 20 years and began to shrink long-term?  If not, then we are likely to be range-bound for quite some time and I urge you to consider that you don't have to be bullish OR bearish – it's OK to be rangeish…

Asia continued along the upper end of their range this morning with the Nikkei adding 1% and the Shanghai moving up another 2.6% after taking a few days to rest.  The Hang Seng looked OK but someone had a bad lunch and came back selling, dropping the index 400 points into the close and down 1.3% for the day.  I said to members yesterday, if the rally is going to break, it will likely start in China but the mainland index is up so not really a strong signal so far.  However, the mainland stocks were led by STIMULUS as solar companies and the chip stocks that supply them jumped up as China launched a massive plan to subsidize utility-scale solar power projects

That's right, while the US makes a lot of pretty promises about building a solar future, China quickly laps us by actually doing something about it, naming the initiative "Golden Sun," with a goal of installing at least 500 megawatts of solar farms in the next 36 months – enough to power roughly 400,000 US homes so perhaps 1M Chinese homes (they use less energy per capita).  In a notice posted on the Ministry of Finance website Tuesday, the government said it would subsidize 50 percent of the costs of building a solar power project and transmitting and distributing the solar power from that project. The incentive would go up to 70 percent for projects in remote areas without connections to the grid. The government didn't provide a budget for carrying out the initiative.  China is looking at installing 10 gigawatts of solar energy capacity by 2020, and some analysts expect more than 2 gigawatts of new generation could be added by 2011.  In related news, I will be heading off to China to build a rural solar power project as soon as I find someone with the other 30%! 

Other good news out of Asia is RECORD profits by LG Electronics, thanks to "robust sales of cellphones and flat-screen televisions."  Gee, and Apple had such "robust" sales of IPhones that they are running out of them.  What recession?  In the second quarter ended June 30, net profit rose 62% to 1.15 trillion won ($919 million) from 707 billion won a year earlier. Global sales rose 13.8% to 14.50 trillion won from 12.74 trillion won while operating profit rose to 1.13 trillion won from 856 billion won. The result was sharply higher than the average forecast of 743 billion won in a Dow Jones Newswires poll of seven analysts.  "Second-half earnings will be better," said Kwon Sung-ryul, an analyst at Hana Daetoo Securities.  Meanwhile, over in India, software giant Wipro posted a BTE 12% increase in profits and forecast a sequential growth in revenue from information-technology services in the current quarter, after posting two successive quarters of declines, underscoring recent optimism the worst from the global slowdown is over for Indian software firms. "We are starting to see the first signs of stability in the business as ramp downs start to taper off and volumes start to stabilize," Wipro's billionaire chairman, Azim Premji, said in a statement.

Europe is off very slightly ahead of our open (9am) and news is still mixed over there.  France had good consumer spending numbers, up 1.4% in June and, most importantly, up 1.2% from last June!  Of course France didn't have a stimulus last year, which I had pointed out gave the US impossible comps in retail sales and was one of the main reasons we were buying into the sell-off in early July as the bear case was largely based on "poor" US retail comparisons – silly old bears!  French Finance Minister Christine Lagarde said Tuesday the country was "at a turning point and that signs of a recovery were emerging in industrial and service sectors."   EU factory orders were not as bright, dropping 0.2% in May and down 30.1% from last May, worse than expected over there!

So we will wait and see how our levels go today but there's still plenty of room for bargain hunting.  BA's earnings were solid and they do have a "fix" for the Dreamliner so I love them long time!   Jan $40 calls are $5.50 and a nice way to enter BA and I like them so much I'd also sell the Jan $40 puts naked for $3.40 as we don't mind owning them for net $36.60 if put to us.



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