Bulldoodoo, Mr. Market

Wall of Worry – Why am I sending this email out at 3:55a.m. ET? What am I doing up staring at charts at 3:55a.m. ET? I’m habituated to all things market and pay attention to what they’re doing overseas. Plus, I have a vested interest.

The narrative in the financial arena is now “a new bull market.” By using the word bull, I have insight into what they mean.

Media would have me believe that the reason for the last three-day pop is due to the idea that the market, a forward-looking discounting mechanism for future cash flow, is looking past Q2 and starting to discount the rebuild of Q3 and Q4.

 Only time, not CNBC or Bloomberg, will tell if that bull plays out.

 Oh, and one thing you need to know about market gurus, there’s a saying on Wall St., “If you’re going to predict, predict often.” So I’m sure any and all predictions will change.

 The chart action on the SPY, DIA, & QQQ (proxies for the indices) hit or just pennies away from a downward pointing 20day sma. In short, this is a relief rally, in my opinion. Relief rallies can be powerful and misleading in that they end up as shown in hindsight as a bull trap.

 Terms like relief rally or bull trap may sound like Wall St. bulldoodoo, but traders know them to be real. If you’re new to the market in this environment, just make the observations over the next few days.

 The thought comes to me that if things are so glowing looking forward, who’s selling to the current buyers? The investors and traders who didn’t sell during the March 9-13 period, which if you note is where price level is as of Thursday, March 26, at least for the QQQ. March 13 and yesterday show me a double top while resting near the 20day sma. Under current circumstances, I’m playing that bearishly.

 Did I mention the VIX was at 65?

By the way, give me some feedback.

Facts Do the Heavy Lifting

Facts are doing the heavy lifting in this stock market

What does a rising stock market tend to do as it powers its way to new highs? It tends to push higher as long as prospects seem favorable. What makes for favorable prospects on Wall Street?

Weekly positive economic headlines act like time-released medicine for the stock market. Each ongoing encouraging headline acts as a confirming stimulus that business growth will continue to expand.

That was your crash course in why the stock market goes up and hints at what historically makes a market go down.

The Market Climbs a Wall of Worry

Considering the fact that interest rates are moving higher, but still historically low, in spite of the Sep. 26, 2018 rate hike, shouldn’t the market be more concerned about the rising cost of capital? Eventually, the markets will care deeply about rising rates but only when the economic muscles (data points) start to contract.

Capital demand indicates that earnings should continue to grow. Yet, market participants are becoming increasingly aware that growth comparisons, as measured by corporate earnings, should become more difficult to beat. The implication, at that point, is that the business cycle expansion is topping out, or worse, lacking a new stimulus, has topped.

The adage, “No man’s life, liberty or property are safe while the legislature is in session,” may be starting to ring true.  The fact is that the political climate is at a low boil, for now. The market cares more about the data it sees than political drama affecting egos but not the economy.

Stubborn political divide tends to mean that nothing will change for now. The status quo remains which means no uncertainty. The market doesn’t fear being upset by legislation because political gridlock assures nothing gets done. It actually lessens uncertainty, but it is still good Kabuki theatre.

The market’s working theory is that it will not be the proverbial frog in the 2018 cauldron. The market feels that trade and tariff issues will be resolved favorably. Even though tariff news is still making the occasional headline de jour, any selloff in the market is quickly bought. Why would mega money managers do that? There’s no outstanding strong correlated data that tariffs have indeed had major negative effects.

When the economic cauldron is drained, the residue would appear to spell uncertainty. The market hates nothing more than uncertainty. Nothing. With that in mind, what does the overall upside behavior of this 2018 market tell us?

Is it different this time?

Seeming to confirm an oft-repeated Wall Street phrase that “this time is different,” a reference to 2016 to present time period dripping with angst and uncertainty, it seems that the uncertainty became a countervailing floatation device. The market has held on to that working theory for the last two years, certainly since November 2016.

To market observers, the constant buying of pullbacks in price spells confidence.

Rewards from the tax stimulus plan of December 2017 are still working their way through the economy. Depending on who you read, the expectation is that this stimulus should fade by 2020. Two years is a long time for markets.

Confidence in the monthly economic data points serves to give the market both purpose and direction. In other words, just as Mr. Market seems to meet Chicken Little pointing to a falling sky, money streams back into the market with positive data thereby confirming the confidence.

News, like GDP growth jumping from 2.2% in the first quarter to 4.25 in the second is market fuel. The most recent Fed estimate is 4.4% in the third quarter of 2018. The market powers itself higher on future earnings growth potential. Period.

Need proof? First quarter SPX (S&P500) earnings were up 25.0%, along with 8.6% revenue growth, and second quarter SPX earnings were up 25.05%, with 10.0% revenue growth, says FactSet.com. The end result? The SPX is up ~9.0% since the end of June 2018.

Facts do matter, whereas opinions are often wrong in this market.

Uncertainty is inherent in the stock market because every minute of every day offers up a new market (the chaos theory butterfly effect).  Currently, uncertainty is weaker than positive expectations which move markets on real positive data.

As a Bottom Line

The bullish conspiracy continues:

• Low interest rates
• Earnings growth
• Strong sales growth
• The benefit of the lower tax rates

Meanwhile, the bearish perspective percolates with assorted mixed results showing developing cracks in previously positive economic trends, but nothing has changed major trends. The pace of growth will matter somewhat. But unless the equilibrium point where interest rates actually make earnings expansion less trustworthy, this market will follow its current uptrend.

Are predator bears, looking for a major sell-off, out there? Of course. But until they can get the bandages off their burnt paws to change the trend, bulls are in charge.

 

 

T’was Not Grandma Killed By Reindeer

We were wrong. It was not grandma that was killed by the reindeer in the Christmas classic  by Randy Brooks. It was Santa!

Mr. Claus would never have let his herd of traders hanging by hopium for the last four days as they fervently subscribed to tradition. The Stock Market Almanac I’m sure mentions this long-held belief that after Santa finishes his rounds filling up on cookies and milk, disbursing a trillion items (mostly for Amazon) that he saunters down Wall Street pumping up stock prices. Not unlike Janet Yellen et al but you get the idea.

As I write, Santa has exactly sixty minutes to pump up a lot of stocks.

Wall Street always has a response. After 4:00pm ET, Wall Street will bring out the right response: What? No Santa Claus rally. The January Effect is coming. The January Effect is coming.

According to the Stock Trader’s Almanac, the January Effect is a trend where small-cap stocks tend to outperform large-cap stocks from mid-December through the first few months of the new year.

Tax-loss selling, which often appears at the end of a year, marks the low of the worst-performing small-cap stocks. As expectations rise, they are set for better price action, at least short-term.

It is now after 4:00pm ET. Santa is on life support if you accept that this so-called rally actually extends into the first two trading days of January.

Santa… can you hear me?

Stand back.

Defibrillator.

Clear.

 

 

 

What Kind Of Santa Rally Is This?

In a world where sometimes you’re the windshield, sometimes you’re the bug, we have thirteen trading hours left to the week, the month, the quarter, the half, and the year.

U.S. equity futures point to a higher open in the premarket action, the next to last trading day of 2017. I do

expect bullishness, no matter how weak, going into Friday and then maybe Jan. 2-3. That would define this year’s Santa Rally. Yet, bullish sentiment, as measured by aggressive buying, isn’t there. Still, the charts will lead the way showing sentiment as always.

Of note is today’s 1:00pm ET, 7-year bond auction: will a poor auction spook the market like yesterday’s 5-year auction did? Does the bond market really sense weakening economic activity or is it all based on Chinese news.

As mentioned, details on any infrastructure rebuilding, if announced early in January, could continue upside bubbling in this already overvalued market. Recent economic data is a little wishy-washy, after all, and the market is NOT ignoring it, as witnessed by the bond market and dollar action this week.

Still, this IS the stock market. This is all normal in an abnormal year. FOMO (fear of missing out) has been one factor holding us up, but we will need those encouraging infrastructure detailed announcements (from whatever source) to push us higher without a pullback of sorts.

That’s why the earnings season will be so critical as always. The market, we are told, is incredibly expensive. Trading at 25.80 times earnings for the last twelve months of earnings, the SPX is indeed pricey. The great equalizer in this chess game, as always, will be the fourth quarter earnings reports which start surfacing Jan. 17, 2018.

 

One thing I know after being involved in these markets since the earth’s crust started to cool, optimism may drive momentum but it ultimately needs verifiable data as a food source to continue its upward trek. After all, what better time for the market to perform its magic trick than when everyone is on one side of the trade, as now.

Pull the rug, says I, Mr. Market. Give those of us who have not been in this roaring upside of 2017 a chance to buy the dip. The deep dip.

The Babble Of Babel Blubbers On

You want the truth? You can probably handle the truth!

Maybe it’s just me. I think financial media are entertainment and not a whole lot more.

I know many CNBC and Bloomberg TV devotees point to the insight they believe those two provide as priceless. (Would you pay for it?)

I play and work this market every day. I’ve done so for thirty-plus years. I mean sitting at the pc pre-market through the day in a now broken down uncomfortable executive chair until the close and then some.

So, you say get a life. I say this is my life; way too busy to get a new chair busy.

One of the things I’ve learned over the years of bleeding eyes, a result of intense chart-reading, permanent skin wrinkles from scrunched eyebrows and squinting eyes focusing on red/green digits, is that the daily reads of the financial media are not all that helpful.

Indeed, there are well written in-depth articles where the deep dive was worth the time it took to read. I learned something. I paid the price of admission with my time and the author rewarded me with a nugget or two of knowledge.

However, I find that’s not true of all the articles I read from http://www.marketwatch.com and http://www.zerohedge.com.

If you visit those sites, it is akin to reading the Washington Post and Russia’s Pravda or Izvestia for insight on the same global political topic. You can imagine you’d get a different perspective from each.

I use any number of mainstream online sites for market news and insight: Bloomberg, Seeking Alpha, Motley Fool, Market Watch, Barron’s, Zero Hedge, Benzinga, etc.

I read MarketWatch.com, Barrons.com, ZeroHedge.com, and Briefing.com.  I thoroughly enjoy that basic but frustrating clash of attitude and market outlook between MarketWatch (general) bullishness vs. the bearish (always) cynical ZeroHedge.

On a pay-for basis, I prefer Briefing.com. Show me some neutrality coming to the market for the day as Briefing.com does. Businessinsider.com, never; but that’s me.

Reading MarketWatch and ZeroHedge, I’m allowed to divide by two, turn to the East, bark at the moon, take a knee, and then have an opinion. Somewhere between those two extremes lies something that I can, hopefully, latch on to, perhaps trust enough, to act on.

From both those extremes and the other usual suspects, I read filler about how the future’s so bright we need to wear shades to if you don’t have your prepper shelter… kiss your ass goodbye by 5:00pm ET.

Writers don’t work for free unless they’re publishing a manifesto to replace global governments. (No, it’s not ready yet.)

Financial writers are paid to write, fill the space, draw the eyeballs, over and over and over again about where they think AAPL or the SPX price is going to in the future. Every day they present their edited thoughts to draw eyeballs to the lead, the ultimate reward for editor and writer.

My complaint is that I get 95 to 98% filler replaying the backstory in most articles before I get the nugget(s) of new development(s). Frankly, save me the time and just give me a heading/topic/issue that I can continuously check-in with and get my one line update. Or is time no longer money?

I know the rules of journalism, maybe the Chicago Manual of Style 17th Edition, insist that it be done, i.e., add filler as much as you can way, but come on, these folks are paid by the word or salary?

 The tower babels on, the blustering babble continues, and I waste time reading what I already know. The bleating goes on.

Well, as I said…. maybe it’s just me.

This Is Your Stock Market On Drugs

I’m not the only bear out there.  This is your market. Yes, there are major issues as shown, but what if this guy is right?

There’s no way I agree with Tim Knight’s view, but it almost seems that way, doesn’t it? Remember, Tim is a huge bear as well.

 

Moving right along… we will NOT get a “sell, sell, sell” warning from Wall Street. Hell, we’ve been getting them for over a year from some of the biggest money managers out there- nothing so far.

 

Your charts are your only friend. Why? Because that’s real money moving in and out and you are paid on being right as to the direction (trend) of price movement. Yes, there are less and less stocks participating; yes, as the article points out, there are less leading sectors participating; yes, the smaller stocks (IWM) are lagging big time.

 

Still, if you’re paid to trade with the trend, even though, participation is waning, you have to trade with trend… albeit, as I suggest, smaller size while maintaining a known reversal trade ready to execute.

 

You are playing in a risk game. You are trying to understand economics (not exactly a precise science, in fact certainly not a science) in 2017 which in no way looks like economics prior to 2007. The fact is there are waaaaaaay too many variables to ponder and so we read what we can, understanding what we can, appreciating what we see divided by the number of articles read for the week, and place our bet. (I do hate using that word, but what else can it be called? Even a hedged bet has potential for loss.)

 

Now, why would I talk like that, stressing the risk? Because, unlike neophytes in this market, my first question is NOT how much can I make on this trade, BUT how much can I lose on this trade? I have a very clear understanding of working capital and preservation of same… without it, I’m out of the game altogether.  I’m VERY willing to risk it, but on my terms.

You see the indices trying for new highs. That’s nice. There’s only one thing wrong:

Any and all markets, whether the indices, metals, and bonds are tradable over any time period. Do you know what you’re doing considering your time view?

 

Stalk your trade. Plan your trade. Execute your plan.

Bovine, Ursine, Donkey, or Elephant Dung: It All Stinks.

Here you are at the Wall Street Pirate looking for a prized nugget of Wall Street trading wisdom. You want a trade tip, maybe learn some trading tricks, or how to avoid traps, and/or you want new trade techniques.

But is that really why you’re here?

Maybe you stumbled onto this page searching for pictures of bulls, bears, donkeys, or elephants. My guess is that ‘looking for pictures of dung’ would be a long shot.

Aren’t you really here because you can’t find anything to read, anywhere, in any language or publication that does not contain the letters t, r, u, m, and p? That’s what I thought.

Now, as long as you’re here and for whatever reason…

In the stock market, we refer to participants as being either a farm animal, a bull, or a forest dweller, a bear.

It’s a simple concept. If you’re positive on the market, you’re bullish. Bulls fight by charging with lowered heads and then lifting that massive, horned head upward to strike their opponent.

In the market, the opponents of hoofed bovine are known as bears (furry-pawed ursine). These bears are not to be confused with Smokey, Yogi, or Boo Boo.

Every minute of every day the bovine herd fights off a sloth of ursine for control of the market. (Yes, a group of bears is called a sloth. Go figure.)

Market bears expect markets to go down. Lumbering bears can still be fast and are known for fighting by swiping their powerful massive clawed-paws downward.

On their respective Facebook pages, I’m sure bovine and ursine describe their relationship as “it’s complicated.”

It may be economic activity that jolts the market animals into action in one direction or another, but often that jolt comes from the actions of two other animals… another farm animal, the donkey, and a jungle animal, the elephant.

It does conjure images of stubborn Democrats and powerful Republicans respectively, doesn’t it? (Be my guest, transpose the adjectives describing either party.)

Why the donkey and elephant? “…cartoonist Thomas Nast used the donkey in his newspaper cartoons, helping to establish it as the symbol of the Democratic Party. And it was Nast who provided the Republicans with their elephant. … In an 1874 cartoon, Nast drew a donkey clothed in a lion’s skin – scaring off the other animals at the zoo.”

In the off-chance that you’re not aware of the stock market’s advance since the 2009 lows to present, and/or from the November 2016 election to present… the gains for the Dow Industrials are 241% and 24% respectively.

The market animals dance to the tune of the political animals since they control fiscal policy, how tax money is spent. It doesn’t matter to the donkeys and elephants that they are 21 trillion dollars in debt.

The market animals must keep bubbling the market upward.

The market gain mentioned is considered by assorted ursine gurus as “overvalued, and too expensive.” They await a market correction any day now. The problem is they’ve been in that expectation mode since 2015.

If you’re a market participant or market junkie, or if you’re a political news junkie that can’t get enough social media discussions, distractions, or if you’re just a gossiper of anything and everything… know this: Whether your animal is the bull, bear, donkey, or elephant whose respective dung looks like, well, a heaping pile of shit… it all stinks.

Something is very wrong with the markets and the animals know it.

Something is very wrong with the political system and the animals know it.

Still, the largest animal herd of all, the sheeple (whose own dung apparently does not stink, just ask them) have yet to smell it all for what it is… bull, bear, donkey, and elephant shit.

And it all stinks.

Stock Market Paradigm Shift

“I care not what puppet is placed on the throne of England to rule the Empire, …The man that controls Britain’s money supply controls the British Empire. And I control the money supply.” Baron Rothschild advice given to the ECB and FOMC.

 After today, a paradigm shift in our market has occurred, in my humble opinion. Not just any old shift, a paradigm shift. I’ve always understood that by adding the word paradigm it somehow makes it seem incredibly different, incredibly important. We’ll see.

We are seeing the end of central bank support in Europe, which started the selling today, as well as the posturing of our Fed to hike rates, as Mr. Lacker says, as soon as November. You saw the market reaction… stocks, bonds, gold, currency, all down.

• **U.S. stocks retreat on specter of ECB QE tapering
• **The dollar has stepped over an important threshold
• **And some of you think the market is boring? Not hardly. How does that look like boring?

I’ll go one opinion further and say that I believe a November rate hike is exactly what we’ll get, after the election.

Since both GOP and Dem candidates have been forecast to cause a correction (crash).. what better plan can the Fed ask for: raise rates in November, allow the crash (correction), blame it on the politicians.

You can day trade, swing trade, or position trade… but you have to be in the market to even have a chance at making money while putting your money at risk. Oh, and when you’re in the trade, you have to manage that trade.

It all makes sense at some point since there is method to the madness.

U.S. Steel Corp. Is Too Heavy

Summary

Even next week’s Organisation for Economic Co-operation and Development meeting regarding global steel capacity and pricing won’t help.

All steel manufacturers are not created equal. Management, operations, and technology combine to make a difference.

In the end, earnings and management do matter. U.S. Steel Corp. is a short.

Originally submitted on April 17, 2016

Since 1901, U.S. Steel Corporation (NYSE: X) has evolved its operations into three major segments: Flat-rolled steel – for use in automotive, consumer, industrial service, and mining markets; U.S. Steel Europe – for construction, container, appliance, oil, petrochemical, and transportation; finally, the Tubular segment goes to oil, gas, and petrochemical markets.

Recent Upside in The Steel Industry – Demand or Luck?

So far this year, U.S. Steel Corp. stock is up 200% from the February low. That’s considered pretty good when a company is, you know, actually making money. U.S. Steel Corp. is not, so what gives?

I believe the recent upside is luck.

See the full article at SeekingAlpha.com.

Bear Toast To Bull Boast- 1995 Redux

The Baltic Dry Index measures the rise or fall of fees charged by shippers to move raw material. Why would shippers feel they could charge more unless things were improving?

The shipping company stock charts are trending up on those higher fees.

Charts are unemotional, unbiased, non-opinionated… real money moving in and out leaves a trail shown on the charts as a trend. What do we see?

You cannot see my grimace as I smack the keyboard with bandaged paws. My bear paws were burned, stomped on, and gored by bulls that frankly I thought were running solely on Fed supplied hopium. How else could we explain so many “V” bounces in the last three years?

In the end, does it matter why it happened? I think most market participants will point to the Fed and zero interest rates; the end result was too many too hot to handle flaming “V” bounces.

At this point, however, I want to explain why, when these bandages come off, I hope I’ve morphed and see hooves rather than paws.

See the full article at SeekingAlpha.com.