SENTIMENT
—-Since many are asking…—-
—–Yesterday morning, we told you that sentiment had turned decidedly bearish and that it was this type of sentiment that leads to good bounces. Just because sentiment turns bearish does not mean markets will bounce. It just sets the conditions for a bounce.—–
—–This morning, futures are strong. There really isn’t any big news to account for it but are sure everyone will come up with a reason. Our take? Not only were markets stretched and extended to the downside but just about all our sentiment indicators had turned bright red.—–
—–Put/calls…without getting too technical, normally, people are optimistic. Normally, call buying is higher than put buying. Calls bet on the upside. Puts bet on the downside. Put buying went to an extreme level in past days…AFTER the drop. When EVERYONE goes one way bearish…—–
—–The national media, who has been spending all their time calling people racist, all of a sudden became mavens on the markets. Do you think they were talking bullish or bearish? When the national media who wouldn’t know a stock from a bond join in the fray talking crashes and recessions and yes, inverted yield curves…—–
—–The downtown Orlando Trump protesters who usually have signs calling for impeachment and claiming racism, had signs this week “TRUMP MARKET CRASH,” TRUMP RECESSION!” When the man on the street is all of a sudden all bearish and talking markets…—–
——Permabears came out of their caves all at once telling us the end of the world is AGAIN at hand. When these permabears show up…—–
—–The DOW was already down 2,000 points in a couple of weeks. When the Dow is already down 2,000 points in a couple of weeks and all these sentiment indicators show up…the conditions are such that good bounces could occur. Again, doesn’t mean it has to but it does mean conditions are such. On top of that, major indices were down to vital support. After coming straight down, a normal place to be defended.—–
—–So, we bounce this morning. Keep in mind, this is all shorter-term stuff. Keep in mind, we are still dealing with tweets. We are still dealing with contractions in important areas around the globe. We are still dealing with what bond markets may be saying. We are still dealing with paper thin trading. We will know a lot more on the strength of any bounce. We will know a lot more if the many areas and many names that just broke support can quickly retake support. For now and we mean, for now, we bounce. If at any time the recent lows do get taken out, get out the fork but looks like that is for another day…we think!——
RANDOM THOUGHTS ON EVERYTHING
Never forget one of our most important mottoes: IT’S NEVER BAD UNTIL THE MARKET SAYS SO.
Did you notice the national media seemed overjoyed by the big drop yesterday? They seemed happy talking about a possible recession. Must be watching a little too much Bill Maher. Speaking of that, capitalist Elizabeth Warren seemed all thrilled because recently she said a downturn is coming. Of course, if a downturn does come, much of it will be because of the debt capitalist Warrren and the rest created throughout the years. Cause the problem and then predict problems are just ahead.
After yesterday’s action, markets are massively oversold. Sentiment has become decidedly bearish. The permabears are all out calling for their end of world scenarios. Inverted yield curves…recessions…deflation…and all that crap. Just because markets are beyond oversold and sentiment is bearish, it does not mean markets have to bounce. It just means the conditions are there for a good bounce.
This whole inverted yield curve crap did not come out of thin air. It has been moving that way for quite a while. It was just a matter of when. The fact is this 2 year/10 year is problematic as it does have a great record.
Over 600 new yearly lows. This is amazing since major indices are only down in the mid-teens. It just tells you how weak markets are underneath the surface. We have highlighted for you how weak the small and mid-caps have been relative to the large caps. We have highlighted for you how weak foreign markets have been.
Overpriced, over-hyped, money losing IPOs are now being scorched. This leads us to another one of our mottoes: IN BEARISH MARKETS, THE CURTAINS COME DOWN ON MOST COMPANIES THAT LOSE MONEY. You may not know this but a ton of money losing IPOs that came public in the last year are now down 30,40,50% and even more. We have been quoted as saying UBER stock should be in the teens. It may be headed that way.
This latest drop started with President Trump putting the 10% tariffs on China…July 31. Up until then, major indices were near highs. As usual and as we told you, he has already pulled back the tariffs on the most important products but the market may just be pissed off enough that they don’t care. Too many flip-flops?
Cisco Systems smacked in after hours today. On its China business: “We’re being uninvited to bid!” “We’re not being allowed to even participate anymore.” Don’t worry! It’s only Cisco Systems. Trade wars are easy!
We can blast the fed. The president should not. Think about this. The president called the number 1 money man in the world “clueless.” And he thinks markets will be happy about this? If the president stopped jawboning the fed, maybe they will cut sooner rather than later.
Speaking of that, we continue to believe an intra-meeting rate cut is coming if markets take another leg down. WITH THE 10 YEAR UNDER 1.6, THE FED HAS PLENTY OF COVER TO CUT NOT ONLY 1/4% BUT 1/2%. Every day they wait is another day they are way behind the curve. The fed cannot help the economy at this point but can possibly help markets…possibly!
If at any time the recent lows get taken out, expect institutions to recognize the next leg down leading to more selling. We said these same words on December 7, 2018, right before another major leg down in that bearish phase.
PRE MARKET LOTS OF NOISE
—-So…the president inadvertently rolled back his “fibs” on tariffs yesterday as he abruptly changes his mind on very important products. In his own words, he states that he is worried about the costs to consumers during the holidays because of the tariffs. Again, tariffs are paid by the importing business who has a choice to eat the cost or pass it on to consumers. Case closed.—-
—–We do not pretend to be Milton Friedman but we do think we have a pretty good feel for what is going on in the economy, not only here but around the globe. For the past year, we have stated we are much more worried about Europe and Asia. The worries are coming to fruition as for starters, Germany is now looking to be in contraction mode. Due to the fact that Germany is perceived to be the engine of Europe, it begs the question what about the rest of Europe? China? We don’t believe a word that comes out of China on their numbers but leave no doubt, their economy has been heading south.—–
—–This leads us to the U.S. economy. Our stance has not changed. We have believed growth was slowing but not to the point of real trouble. We are now entertaining trouble. We suspect the slowing of global growth is affecting. We suspect the confusing and ever-changing policy of this president is affecting. We suspect the diminishing effect of central banks is affecting. We suspect the asinine, asiten, aseleven out of control government debt is affecting. (Did you hear that Kudlow…who used to abhor debt and deficits but now thinks they are no big deal?) Stay tuned. The bond market is now screaming at the top of its lungs that softness lies ahead. These interest rate moves should not be shrugged off. ——
——The president, for the umpteenth (don’t even know if that’s a word) time, changed his mind abruptly yesterday. Markets jumped on the latest change of stance. But to our eyes, we suspect there is more time and price for this correction. How long? Don’t know. How bad? Don’t know. We just believe the upside is limited here as foreign markets act terrible and our market remains below resistance with many areas in their own private bear markets. At the very least, we suspect things will remain “mushy!” If at any time the big 4 large cap indices break below the 200 day moving average, look out as that will only invite some serious institutional selling as they recognize another important level has been given up. So far, just a less than thrilling correction.—–
—–We have been to Hong Kong on more than a few occasions. It really is one of the great cities of this world. Do not underestimate the seriousness of what we are all seeing in real time. We keep our fingers crossed for the best but fear the worst as China is showing they want to take over in every way, shape and form, 28 years before “the deal” between the two was set to expire. —–
—–Next up…more rate cuts! Yipppeeee!—–
MR BLUSTER STRIKES AGAIN
—-Mr. Bluster strikes again.—-
—-We have taken some heat in recent weeks when we take on this president for changing his mind based on the market and its moves. Sorry! We do not want a president who would change economic policy off of a few percent to the downside. You don’t believe us? How many times were new tariffs going to be put on China only to be taken off? How about those European auto tariffs that were taken off 4 days before they were supposed to go in effect without any negotiation? How about those tariffs on Mexico that went away after a few days? We have stated that we expected the latest round of tariffs to go into effect on September 1st…NOT to go into effect. Just look at past performance.—-
—–“””The United States Trade Representative (USTR) today announced the next steps in the process of imposing an additional tariff of 10 percent on approximately $300 billion of Chinese imports. On May 17, 2019, USTR published a list of products imported from China that would be potentially subject to an additional 10 percent tariff. This new tariff will go into effect on September 1 as announced by President Trump on August 1. Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent. Further, as part of USTR’s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles. Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing. USTR intends to conduct an exclusion process for products subject to the additional tariff. The USTR will publish on its website today, and in the Federal Register as soon as possible, additional details and lists of the tariff lines affected by this announcement.””””—–
—–Health, safety, national security and other factors? We are not stupid Mr. President! This has nothing to do with health, safety, national security and other factors. The president, once again, backed away from new tariffs because of market deterioration.—–
—–We are not complaining about this move. We hate tariffs. And yes Mr. president, business and consumer pay for the tariffs. Why do you think you paid off the farmers with $28 billion of our tax dollars? We are complaining because we cannot stand policy based on market movement. This is not ordering carpet and tile for hotels. There will come a day where this becomes a “boy who cried wolf” market. There will come a day where markets have had enough with this “Sybil”-like economic policy which changes with market winds. There will come a day where markets do not believe a word that comes out of this president’s mouth.—–
—–On cue, markets get back what they lost yesterday…and more. Technology leads today as technology was just excused from detention. APPLE (AAPL) rallies up 5% immediately. (Would like to see Tim Cook’s phone logs as we are sure he has been talking to the president on this.) The good news is that the President backed away from stupidity. The bad news is that one day the market will not trust a word from Mr. Bluster and then watch what happens with markets.—–
PRE MARKET
Uh…yesterday was a bad day.
Yesterday, the big 4 indices could not get back above the 50 day and now look headed towards the 200 day.
The 200 day had better hold.
China/Hong Kong is a problem. We are with the people of Hong Kong but not when they shut down the airport. They only hurt themselves. We worry about a disproportionate response by the Chinese government.
Argentina is a problem. In early primary, pro-business dude not good…socialist makes big headway. Go look at AGT. A big wow.
Fewer and fewer names working. More and more names breaking first line of support.