Weekend Profit Navigator May 3

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Tickers discussed: SPY QQQ IWM  Select SPDR Sector Charts   Strategy & Tactics

The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Let it come to you

Have you ever noticed that when you want / need a stock to go up or down and you wish for it to go in your direction, it rarely does?  It’s like that with everything. It is only when you quit wishing and hoping and let nature’s natural order flow do things come to you. If you’ve done your work and are trading your plan things will work out.

Earnings

Last week saw the bulk of the most important mega-cap companies report. Still there will be interesting names to watch this week.  W / DIS / PINS / BYND/ EA / SHOP / SQ / PTON / ROKU / UBER / TTD /  are several I will be watching.

Headlines of the Week

  • Unemployment initial claims top 30M over past 6 weeks implying a 21-22% unemployment rate
  • Buffett was bullish airlines before he wasn’t as Berkshire sheds their stake in all their airlines.
  • AAPL forgoes guidance for the first time in a decade; AMZN signals added costs due to CoVid and investment cycle to dig into Q2 profits
  • $FB / $GOOGL  mostly shine as AD revenues were better than expected and MSFT continues to hit on all cylinders
  • FOMC continues to signal “whatever it takes” posture but dials back bond purchases from $10B to $8B a week.
  • Trump ramps rhetoric on China’s COVID culpability and threatens fresh tariffs or penalties
  • Oil stabilizes but over-production will be a continuing overhang.

GDP drops the most since 2008 but is nothing compared to what is projected for Q2 ( neg 15 – 25% )

Chemical Activity Barometer

The Chemical Activity Barometer is a sensitive and accurate measure of economic activity. Data on this series goes all the way back to the 1920’s. You can see the steep drop off in activity that will no doubt get worse in Q2 as the effects of the economic “full stop” become fully apparent.

Consumer spending

Consumer spending came to a standstill and as you can see, the pullback dwarfs anything seen in the last 60 years.  It’s been my contention that whenever we come out of the other side of this, the consumer will go into a “save and protect” mode as they de-lever their personal balance sheets by boosting savings rates and dialing back spending. Since consumer spending is 70% of the economy, any reduction in spending will ripple through the economy.

Pre-CoVid to Post-CoVid World

The list below is not intended to be an exhaustive list, but more big sweeping trends and food for thought

  • Corporations transition from highly levered balance sheets toward balance sheet repair via de-leveraging
    • Fewer Buybacks ( if any ) and suspended or reduced divvys
    • You may see less corporate travel as virtual meetings are seen as effective and efficient
    • Ditto, although possibly to a lesser degree, more work-at-home positions and a reduction in office space demand
  • Globalization >>>> De-Globalization
    • This trend shift was already underway; CoVid accelerates the process.
  • Supply Chains
    • Efficiency at all costs migrates to resiliency which is more expensive
    • Corporations never saw the risk of global supply chains
    • I think you’ll see companies get away from sole source suppliers and being locked into a single country of origin.  This will add costs to the end product.
    • You will see a wide array of products designated as vital to National Security.  Certain drugs etc. You’ll see more of these items “brought home “
  • Accelerated demise of mall-based retail, especially those with underdeveloped online presence
  • Strong companies with strong balance sheets and access to capital markets are poised to get stronger
    • The alternative to this thesis is that the FED through policies and low rates will prop up these weak companies that still employ millions, thus turning them into zombie companies.
  • Consumers will dial back spending and will begin to over-save and will make the recovery slower.

Is the rally over?

To be brief, too early to tell. Although the chasm between main street and Wall Street remains as large as ever, the FED still is lurking with gobs of liquidity to keep the asset bubble inflated. I don’t think they’ll be able to keep everything inflated forever and that the realities of the economic destruction will catch up to the market, but the timing is tricky. We could wander around at / near present levels for weeks. I don’t feel the need to be loaded to the gills with shorts with the timing remaining foggy. I think we will know when the tide changes. THe Q’s remain strong and as long as FAAMG remain largely untouched it will be tough for the indexes to fall even as stocks under the surface continue to struggle.  If you dig into the stocks that rallied early last week, it was all junk. Airlines, Cruise lines, Restaurants. etc.  Not many names of consequence. Many of those names gave up much of the wins Thursday and Friday. I will be watching IWM closely. The small caps went risk off late in the week. If they continue to falter, it may be a tell on the broader market. THe line in the sand remains $125. Above ok for bulls, below it gets more dicey.

Let’s suspend judgement on this rally and wait for more information. Loads of people calling for the retest of the lows and you know what happens when everybody is calling for something. You rarely get it. Stay fluid and flexible; let price lead the way, not some narrative we or someone else came up with.

Strategy and Positioning

Now that the big FAAMG names have all reported any massive earnings related results that could move markets is in the rear view mirror. I continue to be light on positions. I do have small shorts on ES, QQQ,  IWM and XLF but I emphasize small. We have not yet taken out key support levels so I remain cautious on piling into shorts. I remain long Gold and Gold Miners.  There will be plenty of time to build short exposure going forward if that’s the way price wants to go.  The first eighth is an expensive eighth to catch so I am fine waiting to see if the advance continues or a reversal is afoot. I am happy giving up that eighth and hopping on once the direction is clearer.  It’s anyone’s game here.

The Oscillators

Early week, the oscillators again spiked into the extreme over-bought levels giving caution to those wanting to get / stay long. As I’ve said previously many times, when NYMO / NAMO move to the extremes either on the short side or the long side, they are ticking time bombs that warrant special attention to either cover shorts or exit long positions because a pending reversal is close. Now that the rubberband tension has been released somewhat after the Thursday and Friday sell off, this particular indicator loses efficacy. Now there is room to go either higher or lower short term. Generally speaking if we look to prior periods, the indicators tend to work their way down after extreme conditions.

SPDR Sector Review

XLB

XLC

XLE

XLF

XLI

XLK

XLU Daily

XLV

XLY Daily

 

Equities

$SPX Broadening Top

Price was rejected on the touch of the 61.8% Fib and 40week ema. Bears need a followup week of selling to give more validity to the case of a sustainable reversal. Bulls need to hold the support band at 2720 – 2700 or risk letting things get away from them.

SPY Daily

Follow the chart annotations for specific levels and commentary.

$SPY Weekly

$QQQ Daily

$QQQ Weekly

IWM Daily

$IWM Weekly

 

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