Stock market updates- 6 Stocks I’m Buying Into This Stock Market Pullback

6 Stocks I’m Buying Into This Stock Market Pullback

Okay, so we are getting some traction lower within the short term trading horizon. Note that I highlighted my concerns with equity money flows last week.

The move lower is nothing to write home about just yet but it is allowing me to add some to existing long positions, while starting a couple new ones.

So what do I like here?

Note that I typically start positions at 1/4 size with few exceptions. That said, I’m starting JetBlue Airways (NASDAQ:JBLU) at a 1/2 size position today.

This has been a weak move lower so far in the broad markets. It’s currently around 10 to 1 lower early on but not in the size which would be indicative of panic. It’s important to remember that markets do fall on an absence of buyers.

 

My current trading plan/actions:

I’m adding to positions in Merck (NYSE:MRK), Abbott Laboratories (NYSE:ABT), Baxter International(NYSE:BAX), 20+ Year Treasury Bond ETF (NASDAQ:TLT)

I’m starting longs in JetBlue Airways (NASDAQ:JBLU), Freeport McMoRan (NYSE:FCX), Halliburton (NYSE:HAL)

 

Remember, these are my opinion and my analysis.  Here’s a look at the charts:

JetBlue – JBLU 60Min Chart

 

JetBlue – JBLU Daily Chart

 

Freeport McMoRan – FCX Monthly Chart

 

Halliburton – HAL 60Min Chart

halliburton stock chart hal trading analysis january 30

 

20+ Year Treasury Bonds ETF – TLT Monthly Chart

 

Do not allow your political ideology to cloud your trading investment decisions! Look at markets for what they are not what they should be.  Thanks for reading.

 

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER.

Stock market updates – Money Flows Highlight Elevated Risk In U.S. Equities

January 25, 2017

Will this sideways consolidation of the so called Trump rally lead to another leg higher or will it fail and take S&P 500 (NYSEARCA:SPY) and the broader markets materially lower? Stock market updates 

That is the question of the day and maybe of the year. The market seems to have taken a wait and see attitude at the current levels waiting to see the pace and tenor of the Trump administration’s rollback of regulations and Obama era executive orders.

As I look at quantitative readings, there has been a material slow down in money flow to the market as far back as mid November 2016. The contradiction of weakening internals and climbing index levels is a tough concept for young traders to grasp. So as fewer and fewer stocks continue to propel the broad indices, the market becomes much more vulnerable to sharper pull backs.

Of course, this vulnerability doesn’t always materialize into pullbacks, sharp or otherwise, but as traders, our number one job is to manage risk and managing risk goes beyond positional risk but to portfolio risk in general. In short, I consider this a generally “risky” broad market environment. Again, that opinion is supported by quantitative readings as stocks are being sold more aggressively into highs than they have been bought into lows.

The result of this type of market action is cumulative and tends to reach a point where rotation runs its course and market participants run out of attractive sectors where to put capital to work. Defensive sectors and Treasuries (NASDAQ:TLT) begin to outperform as the broad equity market corrects. We seem to be nearing such point now.

S&P 500 Chart

spy s&p 500 chart analysis traders january 24

 

20+Year Treasury Bonds Chart

tlt-20-year-treasury-bond-chart-etf-trading-january-25

 

How much and how far remains to be seen. I believe this pullback, if indeed one materializes shortly, will be a buying opportunity in select sectors that I feel are going to outperform this year such as Big Cap Healthcare (NYSEARCA:XLV) and Pharma.

Health Care Sector ETF (XLV)

xlv-health-care-etf-stock-trading-chart-january-25

 

Thanks for reading.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER.

All About the Brightest, Tastiest Fruit of Them All … Apple!

All About the Brightest, Tastiest Fruit of Them All … Apple!

Apple (AAPL) is obviously the most systemically important company on the planet today. The bull market over the past couple of years has been predicated on two very clear factors, one is quantitative easing by the Fed and the other is Apple continuing its meteoric success. Take one or the other away and we have to ask much different questions in order to formulate an investment opinion in the current market.

The Fed has promised QE for as long as is needed

This action has masked some real “sins” in today’s market while the Fed’s “grand experiment” unfolds. With this onslaught of liquidity, anybody managing money has bought shares of the most hyped (for good reason) company in the history of companies! The growth in Apple’s market value over this year alone is staggering and generally speaking its success is also based on two factors.

The first is the fact that the company puts out great products that everyone wants to own and the second is that it has been one of the better managed corporations in modern financial history. Add beta chasing liquidity to the mix and you have an explosive combination.

Recently the stock has faltered.

It is down nearly 10% from its high of the year and some are rightfully questioning its staying power. The launch of the iphone 5 has been lackluster (from the perspective of what we expect from Apple) and there have been some technical gremlins which are unusual for this company. For traders, even for traders who do not trade AAPL (me) the performance of this stock is crucially important because of its weighing in the broad indices and the impact that this company has on peripheral names, those companies whose business model is dominated by supplying Apple with components and services.

My take is that if Apple doesn’t work in the current market environment, the market in general doesn’t work. Like I mentioned above, the bullish thesis here is a double pronged spear, take one out and the other falters. It won’t be the case forever, but it is the case now.

Looking at a price chart of Apple

reviewing the past couple of years of price action, there is a clear pattern of sharp pushes higher followed by periods of choppy consolidation or as some call digestion. These have invariably been periods where weaker hands handed over shares to stronger hands at lower prices only to see sharp continuations of the upward momentum move. Nothing wrong with this action whatsoever.

Those trading, speculating on short term moves will be much less tolerant of price swings against them and are going to be the first out the door. That is trading 101. Those with a longer timeframe will revert to the fundamental argument that Apple stock is “cheap” and use weakness to build positions.

Since 2011 we have had 8 such periods where shares changed hands, from weak to strong, in this profit taking/shake out action. All eight times the stock managed sharp rises while trying to lasso the runaway train and catch the corrective downturn has been difficult (putting it mildly).

We are at another important juncture with Apple.

There are many questions regarding the potential for a more structural change in the fundamental outlook for Apple and end of year profit taking from those managers heavily invested in the name is a strong possibility. So far I don’t see it. There has been very little selling pressure in the name beyond what we would characterize as normal profit taking by small specs. From a quantitative perspective, the stock has not traded beyond 2 standard deviations from its 40 day moving average for very long before a sharp reversal.

Could this be the “IT” moment? Of course it can, but it has been an unwise bet for some time and in my opinion one that has major implications for the broad market.

 

 

 

Stock market updates – Rotation Rotation Rotation

Stock market updates- Markets got a “debate bounce” yesterday on Mitt Romney’s performance in the first of three debates and today markets are getting a bounce off of the much (much) better than expected jobs data. So markets go up on pro Romney data points and they also go up on pro Obama data points…Stock market updates

The takeaway from yesterday session was the solid internal action with advancing issues outpacing decliners by a 3 x 1 margin and all major indices up around 1%. The participation was broad based with the laggards leadings while the relative strength sectors remained constructive. Volume was strong coming in better than Wednesday’s levels. Another characteristic of yesterday’s rally was that the traditional risk on sectors participated in the bullish action with Gold, Silver and the miners outperforming.

Today’s action, while positive judging by the headline figures, is very different in comparison. The first anomaly is that the metals, the poster children for the risk on rally, have not participated. The GLD, SLV and the GDX have been the major laggards of the session. Another stark anomaly is that the relative strength sectors and particularly the leading names within these sectors (Apple) have underperformed by a wide margin. Again I mentioned a couple of days ago that having the recent laggards catch up is healthy for the market as long as the relative strength names are hanging in and not abandoning their bullish posture. When we see action as we are seeing today with laggards leading and relative strength breaking down, we have to wonder and be cautious because historically these types of moves are more akin to the later stages of a rally than one that is about to take a leg higher. It is still too soon to make a definitive call on this but we want to keep an eye on whether this dynamic unfolds further into next week. To be clear, the laggard sectors I am referring to are Financials, Homebuilders and the Industrials.

One major exception has been the transportation sector. The sector is making a solid move after underperforming for nearly all of this year. It has performed well on recent risk on and risk off days on a relative basis and seems ready to resolve higher. This is a solid bullish indicator for the overall strength of the market and frankly, the economy for that matter. Whether the recent action is a dead cat bounce (my apologies to cat lovers) or a solid fundamental shift for the sector remains to be seen but nonetheless it is, so far, a nice bullish surprise.

The broad technical outlook tells me that 1460 is the level that needs to hold on a closing basis today. We want to see some bullish momentum build although that may be a lot to ask on a Friday, but a solid hold of 1460 into the weekend would bode well for next week. So far in the session it seems that traders are going to opt for safety, meaning out of the better performers on the last few sessions back into utilities and other defensive sectors. Not sure that will hold the broad S&P 500 above this 1460 level but also not something completely out of character for a Friday.

Bonds particularly high yield and corporates continue to be in heavy demand keeping new issuance well above expectations. This dynamic of corporations issuing bonds and buying back their stock floats has been a strong catalyst for the broad market and the reason both equities and bonds have had their day in the sun over the past couple of years. With money pouring out of equity funds into bond funds, managers continue to drive demand for bonds which corporations are glad to meet. Sell long term debt at ridiculously low rates to fund stock buybacks is a strategy that doesn’t take much effort to sell to shareholders. I expect this action to accelerate into next year and is a bullish catalyst many pundits are not talking up as I believe they should.

In short, I do believe that the very top of the capitalization curve, the S&P 100 companies, will continue to be steady performer into year end and should outperform the more speculative sectors such as the small caps.

 

 

Markets Showing Cracks… Time to Tighten Stops

Markets Showing Cracks…

The current market action may be telling us that the summer rally which started on June 4th could be heading into its late stages. Over the past several weeks, the strong relative strength stocks have been flat to slightly lower at best. While there have not been major breakdowns in most of these stocks, the lack out performance is concerning. Take Apple for example which has been up substantially all year. Over the past several weeks the action in the stock has been downright lethargic while the stocks that have rallied have been the laggards, particularly financials which accounted for much of the gains in the indices for September.

While I do account that some rotation is good and some of these laggard names have been really beat up, the fact remains that laggard leadership is not such a great indicator for further gains. This strength in laggards is usually something we see at the latter stages of a rally. So, some rotation is good to work off short term overbought conditions and fulfill some measure of reversion but it has been several weeks now and markets will begin to “notice” should things remain as such.

In general terms, the reaction to QE3 has been lackluster.

Besides the first day push higher, markets have generally been working off the advance and we are not standing much above the pre- announcement market levels. The most surprising non performer has been the basic materials sector and energy. I would (did) expect the reaction to these announcements to have been much more energizing for these sectors.

Along with this lack of enthusiasm stands the fact that we have seen some pick up in volume during periods of decline which suggests some selling pressure may be building. Distributive selling is not what we want to see so soon following a major “risk on” announcement. Again, a few days of this type of action is ok…more than a few is another issue all together. Some of these “lines in the sand” in various high relative strength names have to hold for us to believe another solid leg higher can be sustained.

The most likely scenario considering the above is a pullback to test the 1400 level on the SPX

sooner rather than later. With earnings season around the corner and a crucial (aren’t they all) jobs report on Friday, we may very well give up some ground across the board. This, should it be contained at 1400, would be a good thing for the market and refresh the uptrend. A deterioration much below 1395 would open the door to some more dramatic selling.

I am not sure I want to go there yet either. The truth of the matter is that the effects of this additional liquidity on the market place have not yet even begun to be felt and the Fed will have its “cake” and eat it too as the old saying goes. Asset price inflation is coming, like it or not and this should still mean higher equity and commodity prices. As always, we have to be careful for what we wish for! That also means a much weaker dollar and higher prices at the gas pumps…

The small cap sector

is a good barometer for domestic growth and is not nearly as dependent on QE as their larger cap cousins. The small caps had diverged from the broader large cap sector and underperformed all summer until early last month when they turned the corner and narrowed the divergence quiet a bit. The problem is that the group has recently begun to underperform the broad large cap sector and has failed at some long term important technical levels.

Should this sector break down once again and revert the recent bullishness, markets would most likely take it as a sign that the bulls have failed to gain solid foothold in the market and sell off.

 

 

Earning – A Wide Angle Lens Look At The Upcoming Quarter

Wide Angle Lens Look At The Upcoming Quarter

Time to take a “wide angle” view of this market to get our bearings on where we stand heading into this last quarter of the year. It has been a tough trading year for most hedging strategies as the “one way” up market has, so far this year, made alpha generation a very tough affair and beta chasing the order of the day. The outlook heading into year-end is book cased by two very strong arguments. As I mentioned above, there is no denying that many money managers are going into this quarter behind their benchmarks and the scenario for a year end “mark up” in equities could be a real catalyst for the bulls.

The resolution of the extreme uncertainty that will come about by the outcome of the elections should also be supportive of a push higher no matter who wins the election. Business and markets in general can deal with a tremendous amount of obstacles but one thing that it often has trouble with is lack of visibility or uncertainty. Make no mistake about it, the outcome of the elections will make a huge difference in the market environment going forward but the difference is from “good to better” as opposed to “good versus bad” in my opinion.

The effect on the economy

going forward by which side wins the elections will be drastically different in my opinion but the market will deal with that in due course. The ever more dovish Fed stands ready with gazillions of dollar at the beckon call of financial markets and the “Bernanke Put”, which investors have come to rely on so heavily, stands ready to bailout markets.

The recent throw the kitchen sink announcements of QE should provide ample liquidity which banks will gladly throw put to work in the stock market.

Against this rosy backdrop lies the ever worsening domestic and Global economies. The slowdown that started to rear its ugly head back in March of this year has escalated and the recent economic data points have been worsening.

Corporate earnings are also on the downside

many companies have slashed earnings outlook for the 4th quarter which was heavily weighted in the overall projections for the S&P 500 year end EPS targets. This fundamental slowdown in earnings growth will weigh on a market trading near multi year highs.

Headline risks abound.

The situation in Europe is far from over and markets are vulnerable to shock events from this crisis. Like it or not, this risk premium will be with us for a while and will keep multiples pegged to the lower extremes of the recent trend.

The political brinksmanship we are sure to see in dealing with the fiscal cliff later this year will augment that headline risk premium as I am fairly certain it will be a drawn out affair particularly if President Obama wins re-election and the Republicans maintain control of the House.

Finally from a technical standpoint…

markets are going into the quarter somewhat overbought. The one way move higher since early June had pushed the S&P 500 into real overbought levels at 3 standard deviations from its 34 week moving averages. This had not happened since early April of 2010, a period that was soon followed by a sharp pullback. We have backed off of this extreme over the past 2 weeks but could very well consolidate some more.

From a price perspective…

we are right at the midpoint on the 1 standard deviation regression channel from the March 2009 lows and the recent highs. From this vantage point, a move lower is very probable and my first major downside target here would be 1375 on the SPX. The stochastic oscillator and the accumulation/distribution histogram have shown some signs that support this thesis.

So, from a broad perspective, there you have it. There are several compelling reasons to be either bullish or bearish here. Figuring out when to be either is the name of the game.

 

 

Wide Angle Lens Look At The Upcoming Quarter

Time to take a “wide angle” view of this market to get our bearings on where we stand heading into this last quarter of the year. It has been a tough trading year for most hedging strategies as the “one way” up market has, so far this year, made alpha generation a very tough affair and beta chasing the order of the day. The outlook heading into year-end is book cased by two very strong arguments. As I mentioned above, there is no denying that many money managers are going into this quarter behind their benchmarks and the scenario for a year end “mark up” in equities could be a real catalyst for the bulls. The resolution of the extreme uncertainty that will come about by the outcome of the elections should also be supportive of a push higher no matter who wins the election. Business and markets in general can deal with a tremendous amount of obstacles but one thing that it often has trouble with is lack of visibility or uncertainty. Make no mistake about it, the outcome of the elections will make a huge difference in the market environment going forward but the difference is from “good to better” as opposed to “good versus bad” in my opinion. The effect on the economy going forward by which side wins the elections will be drastically different in my opinion but the market will deal with that in due course. The ever more dovish Fed stands ready with gazillions of dollar at the beckon call of financial markets and the “Bernanke Put”, which investors have come to rely on so heavily, stands ready to bailout markets. The recent throw the kitchen sink announcements of QE should provide ample liquidity which banks will gladly throw put to work in the stock market.

Against this rosy backdrop lies the ever worsening domestic and Global economies. The slowdown that started to rear its ugly head back in March of this year has escalated and the recent economic data points have been worsening. Today’s Chicago PMI was one of the worst reports I have seen in a while. The Fed had reason to go so big and if the data points are any indication, we may be headed to another recession in 2013. Corporate earnings are also on the downside and many companies have slashed earnings outlook for the 4th quarter which was heavily weighted in the overall projections for the S&P 500 year end EPS targets. This fundamental slowdown in earnings growth will weigh on a market trading near multi year highs.

Headline risks abound. The situation in Europe is far from over and markets are vulnerable to shock events from this crisis. Like it or not, this risk premium will be with us for a while and will keep multiples pegged to the lower extremes of the recent trend. The political brinksmanship we are sure to see in dealing with the fiscal cliff later this year will augment that headline risk premium as I am fairly certain it will be a drawn out affair particularly if President Obama wins re-election and the Republicans maintain control of the House.

Finally from a technical standpoint, markets are going into the quarter somewhat overbought. The one way move higher since early June had pushed the S&P 500 into real overbought levels at 3 standard deviations from its 34 week moving averages. This had not happened since early April of 2010, a period that was soon followed by a sharp pullback. We have backed off of this extreme over the past 2 weeks but could very well consolidate some more. From a price perspective we are right at the midpoint on the 1 standard deviation regression channel from the March 2009 lows and the recent highs. From this vantage point, a move lower is very probable and my first major downside target here would be 1375 on the SPX. The stochastic oscillator and the accumulation/distribution histogram have shown some signs that support this thesis.

So, from a broad perspective, there you have it. There are several compelling reasons to be either bullish or bearish here. Figuring out when to be either is the name of the game.

C.J. Mendes

cjm

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