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Trading the Trend

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Updating after the market close:



We had a jump in volatility. Always a possibility as it moves away from that trendline, to snap back towards that trendline. You could also argue some support (not shown) but the lots of little squiggles.



This is the weekly TRIN. We have (technical) space to move a bit lower. We are however in the vicinity of support.



This was (is) the problem area of the market: the 50SMA for a number of sectors. Again, space (technically) for further downward pressure, but, could go up.



The 20SMA is in a much better place. It will however be governed by the 50SMA I believe in this instance.



We have 67% above the 50SMA. That it is pretty healthy. We have 90% New Highs. Very healthy. Still 60% below 200SMA, definitely not what we want to see.



We have over the last 5 trading days moved sharply higher. We may have some time based consolidation, but I don't think we have a sharp re-trace. We'll see.

The important takeaway however is that the 'Trend' is intact. This is a pause, retrace, ready for the next move higher. The macro picture remains solid and intact, which is always the primary starting point. Day-to-day fluctuations are the bailiwick of the day trading brigade and do not concern us overmuch.

The sectors today:



Tech. not leading the pack today. Consumer Staples: WMT, KO, PG.

jog on
duc

 
FWIW:

Out of nowhere. The stock market was by no means having a good day, but it wasn’t a bad day either. Then the last hour of trading started—and it got ugly fast.

The Dow Jones Industrial Average dropped 396.85, or 1.5% while the S&P 500 fell 1.1%, and the Nasdaq Composite, which had been positive around 2:15 p.m., declined dropped 0.9%. The Dow gave back all but 62.82 points of Monday’s 459.67-point gain. The S&P 500 and the Nasdaq snapped five-day winning streaks.

It’s hard to pinpoint exactly what caused the day to go from consolidation after a big gain to giving back nearly all of Monday’s gains. There was no economic data released, nothing that came out about the coronavirus, nothing that should have caused the selling to accelerate.

Was it a sudden realization that coronavirus continues to spread in places like Florida and Texas, and is showing no signs of slowing down? Unlikely, since that could be said just about any day.

Was it headlines from Fed Vice Chair Richard Clarida, who said that the path of the U.S. economy will depend on the coronavirus, that the Fed can do more with its balance sheet and that a double-dip recession is not the base case? None of that was exactly new, or should have been market moving.

Was it reports suggesting that the Trump administration is seeking a $1 trillion stimulus package to be passed by August? That should have been good news, though maybe dollar amount was a disappointment considering Democrats have passed a $3 trillion plan in the House.

Was it the fact that the S&P 500 had been on a five-day winning streak, and winning streaks have to end sometime? Not even Amazon.com (AMZN) and the other FAAMNGs can go up every day.

“There was no particular news to account for the selling on Tuesday,” writes Stephen Todd of Todd Market Forecast. “It looked like profit taking and a sense that perhaps stocks had come too far in a short amount of time.”

jog on
duc



 
Nice balanced article.

The U.S. economy added a more-than-expected 4.8 million jobs in June. Yet nearly 20 million Americans remain out of work.

The June jobs report brings to a close the first half of 2020 with the same dissonant note that has been so familiar during this extraordinary year. The coronavirus pandemic, which has sickened 2.6 million Americans and killed over 128,000, brought swaths of the U.S. economy to a virtual halt and threw it into recession, knocking the S&P 500 down 34% into a bear market. The stock market then called the recovery before the economic data started to corroborate it, with the S&P 500 re-entering a bull market and now within striking distance of pre-virus prices.

Still, the economy is far from normal and will take a long time to absorb the millions of unemployed workers who will hold down consumer spending, threaten corporate profits, and weigh on strained state and local budgets. What’s more, the viral threat remains, casting a cloud over the economy and markets.

The conversation over recent months, at least as far as economics and markets go, has been dominated by a debate over the shape of the recovery. There is the V-camp, the U-camp, and the W-camp. Some have gotten more creative, calling for something resembling a Nike swoosh or a reverse square root sign (√, in reverse).

We began the second half of 2020 with hope building that the recovery will resemble a V, as lockdowns in many parts of the country were relaxed sooner than predicted and consumers have shown a willingness to return to normalcy despite the pandemic.

But these improvements have come at a cost. Covid-19 cases are surging, prompting companies and states to reverse or delay reopenings and giving consumers a renewed sense of caution. The pandemic’s course and the responses to it will determine what happens to the U.S. economy over the back half of the year and beyond.

While hiring in May and June showed momentum in a recovery from the worst of the pandemic lockdown, says David Kelly, chief global strategist at J.P. Morgan Asset Management, “investors should recognize that we are still very far from a healthy job market and that a recent resurgence in the pandemic will make further progress slower.”

To try to piece together a second-half outlook for the U.S. economy and stock market, Barron’s looked to a half-dozen strategists. Here’s what they say.

Against a backdrop of slower progress, it’s easy to get bearish. While economic data over the past month have mostly surprised to the upside, suggesting the recovery began earlier and has been more robust than anticipated, data are lagging. Already even the June jobs data are stale given the resurgence in coronavirus cases and reopening rollbacks. Over the past week, Arizona, California, Georgia, and Texas all reported a record number of daily Covid-19 infections. California is closing bars and indoor dining again in many of its counties, and New York City said it would delay its reopening of indoor dining.

On top of the uncertainty around the virus—the continuation of the first wave, the magnitude of a second that many believe will come this fall, and the timing and efficacy of a vaccine—is a laundry list of other interconnected unknowns. Will schools and day-care centers open in the fall, or will working parents continue to lack child care? Will Congress extend the enhanced unemployment benefits, set to expire July 31, that have helped plug the hole in household income and spending? Will state and local governments receive adequate aid to fill budget gaps given the loss of tax revenue? And of course there is the presidential election in November.

“My outlook isn’t disastrous, but I’m not terribly optimistic, either. ”

— Brian Singer, head of dynamic allocation strategies at William Blair
The unusual degree of uncertainty confronting consumers and investors may constrain economic activity for the rest of the year and keep a lid on the stock market, says Brian Singer, head of dynamic allocation strategies at William Blair.

“My outlook isn’t disastrous, but I’m not terribly optimistic, either,” Singer says, adding that we’ve probably seen stock-market highs for the year. He says much of the trouble in the economy isn’t so obvious, given that small businesses hit hardest by the pandemic aren’t publicly traded, meaning much of what’s driving the economy isn’t driving the market.

Strategists say a bear case would feature a delay in a widely available Covid-19 vaccine until 2022 and strict, coordinated lockdowns to stem coronavirus cases that pick up this fall. A much deeper economic contraction and potentially another stock market correction would follow.

Under its bear-case scenario, Morgan Stanley has minus 10.2% penciled in for its 2020 gross-domestic-product forecast. Oxford Economics has minus 17.2% for its bearish projection. Meanwhile, Michael Kantrowitz, chief investment strategist at Cornerstone Macro, predicts a 20% decline from current levels in the S&P 500 in his bear case. That would translate to roughly 2500 and make stocks in the defense, utilities, and consumer-staples sectors more attractive while consumer discretionary and industrial stocks would become unattractive, he says. Katerina Simonetti, a senior portfolio manager at UBS private wealth management, estimates 2800 for the S&P 500 by year-end should everything go wrong.

Base Case
We’re not inclined to get too pessimistic just yet. The strategists Barron’s interviewed aren’t counting on a bear-case scenario, either. Kantrowitz, for example, puts 50% odds on his base case and splits the rest between his bull and bear cases.

Base-case scenarios across Wall Street share a few assumptions. First, the coronavirus is something Americans will have to live with for an extended period. Second, the Federal Reserve will continue to do whatever it takes to support the economy and financial markets. And third, Congress will pass additional aid to households and businesses to the tune of at least $1 trillion.

“We’re still in irrational exuberance territory for equities. ”

— Michael Kantrowitz, chief investment strategist at Cornerstone Macro
Under her baseline scenario, Simonetti sees a gradual lifting of lockdown restrictions coupled with the existence of a vaccine or therapy by fall, and the mass production of a treatment by mid-2021. Together, that would lead to a sustainable economic recovery by the third quarter of this year and a return to normal activity by the end of the first half of next year. She in turn expects S&P 500 earnings to improve by the end of 2020, adding up to a target for the index of 3300.

The most likely picture includes a stock market that chops sideways from here as social distancing remains strict and reopenings stop and start, Kantrowitz says. Unemployment will remain in the double digits through December, and economic data will look less impressive as the virus lingers and bursts in activity from April’s bottoms fade.

“We’re still in irrational exuberance territory for equities,” he says, adding that the S&P 500 trading at such an expensive multiple against this backdrop makes stock-picking more important after a long boom in passive index investing. The forward price/earnings ratio for the S&P 500 is at 22.1, not far off its peak in 2000.


He’s not alone. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, predicts the S&P 500 trades between 2900 and 3200 for the rest of the year and is telling clients the index is expensive, crowded, and increasingly concentrated in a small handful of tech names.

“We’re just not interested in owning the S&P 500,” Shalett says. That’s despite Morgan Stanley’s conviction in a deep V-shaped recovery over the next four to six quarters. The market anticipated a lot of the good news we’ve gotten, and now corporate earnings need to catch up, she says, encouraging stock-picking in areas leveraged to the economy.

Instead of owning the S&P 500, Shalett favors financial, materials and energy stocks because they’re cheaper than the broader market while leveraged to the economic recovery and correlated with rising inflation. (Strategists agree inflation will remain at bay over at least the next two quarters—some say much longer—before beginning to bubble.)

Kantrowitz, meanwhile, prefers industrial and consumer discretionary stocks under his baseline scenario for the second half and is betting growth will continue to outperform value, while Simonetti likes mid-caps across telecom, health care, and food.

Bull Case
While we’re not overly pessimistic, it might be a good time for bulls to rein in their optimism. Their case for the economy and stock market assumes the worst is behind us. Rising Covid-19 case numbers in states that reopened early and subsequent reopening rethinks are casting doubt that a bull scenario can be achieved. To get there, strategists say it would take a vaccine that is widely available before the end of 2020—as opposed to mid-2021—coupled with a second wave of infections in the fall that is much smaller than the first.

Simonetti says her bullish scenario, which she considers unlikely, includes an S&P 500 target of 3500. “In our upside scenario, everything is going right,” she says, leading to a return to “absolutely normal” activity by the fourth quarter of this year. Even then, she expects unemployment to remain above 10%, despite ongoing stimulus efforts and improving corporate earnings that would be part of such a scenario.

Data from Apple show mobility across the country has improved significantly since April, the only full month of nationwide lockdowns, mostly thanks to increased driving that is offsetting declines in walking and the use of public transportation. Strategists at Morgan Stanley say their bull case includes faster reopenings and greater mobility, which would lead to a normalization of economic activity. If all that were to happen, they say U.S. GDP would be down 2.1% for 2020.

“We’re going to get through this, but how many jobs will come back, how many businesses will reopen, how long before we get back to [pre-virus] GDP and earnings per share ”

— Peter Boockvar, chief investment officer at Bleakley Advisory Group
The Catch-22 is that achieving such a scenario relies on a robust recovery that itself risks more infections and renewed shutdowns. On this front, Cornerstone’s Kantrowitz says two numbers he’s watching are raising red flags. The rising positivity rate, or the percentage of people testing positive, is leading to higher hospital occupancy rates that could trigger more shutdowns, he says. Given how much of the increasingly tenuous recovery the market has priced in since March lows, Kantrowitz doesn’t see the S&P 500 above 3400 even under his best-case scenario.

There is more to the idea that there’s a bearish lining in a bullish scenario. Peter Boockvar, chief investment officer at Bleakley Advisory Group, says that if there’s a vaccine by October, the stock market will love it. But the bond market won’t, potentially triggering a rise in global interest rates that would make relatively high stock market valuations harder to justify and ballooning corporate, household, and government debt balances more problematic. A vaccine that arrives sooner than later will help bring back demand, but it would also bring forward inflation pressures, he says, effectively transforming a bullish outcome into a bearish one.

“We’re going to get through this, but how many jobs will come back, how many businesses will reopen, how long before we get back to [pre-virus] GDP and earnings per share?” Boockvar asks. “The market has had a hall pass, looking past bad data and focusing on the reopening.” He added that investors have to consider changes in consumer behavior and the possibility that companies will try to do more with less.

Whether the U.S. economy takes off from here or stumbles through the end of the year, there is one thing strategists agree on: The S&P 500 is likely to trade in a pretty tight range for the rest of 2020. It’s from there that things will get more interesting, as the unknowns piling up reveal themselves.

jog on
duc

 
So in news that is no surprise to me at all, even on a green day tech still leads the pack.



It's the same on both red and green days - tech's the best place to be. Highest gains, lowest losses. It's the best place to be in BOTH scenario's.

My stay-at-home tech hasn't even dropped on red days. I've had one red day in the last month.

But nah, no trend here at all. I've identified absolutely NOTHING.
 
Sorry, can't hear you over the sound of me being right and you being wrong.
 
So we have internal divergences within the various sectors. This is always worth paying attention to. Usually the information comes with a slight lag which allows for timely action.

In the past few days, the S&P 500 has made a lower high, unable to reclaim its early June highs. While price has not made a push higher, the index's cumulative A/D line has. The S&P 500's cumulative A/D line reached its highest level since February 21st on Monday before yesterday's weak breadth led to a slight drop. As for the individual sectors, Consumer Staples, Financials, Health Care, and Materials are all experiencing the same dynamic in which the cumulative A/D line has made a new high while price has not done the same.

On the other hand, Consumer Discretionary has seen the opposite occur in which price has made a new high, but the cumulative A/D line has not confirmed the move as it sits firmly below its prior highs from early June. As for the other sectors like Technology, Real Estate, and Utilities, these have seen price and breadth moving hand in hand with one another. For Tech, those trends have been upwards while the more defensive Real Estate and Utilities sectors have been trending sideways at best in recent months.



I track these daily on a market basis. Occasionally on the sector basis, because it is less usual to see such divergences in sectors.

If we look at Consumer Staples. We know included within Consumer Staples are all of these various sub-sectors:



It is a bit of a mission to go through all of the stocks and see what is where re. performance. Easier to simply buy the ETF. Given the signalled under-performance, you'll get a fair bang for your buck this way as the sector generally is underpriced as compared to some individual stocks. For example WMT and KO are in this sector. They have both been fairly neutral (boring) in their price for the last 6wks or so. They are very large cap. stocks. I suspect that their underperformance has held the sector back in the same way that AMZN, GOOG, et al have powered their respective sectors higher (and the overall market).

So when we have the more common scenario: ie. rising price falling A/D, we know that that is an early warning of lower prices. Here we have the much less common lower price higher A/D line. What we should see are higher prices with a bit of a lag. How long a lag? That is the $ question. Usually we measure in weeks.

Plenty of areas in the market to look at that still offer potential that you don't need to chase. There will be rotations. There always are. It is a jog, not a sprint.

jog on
duc

 
What is not driving the market higher (currently) are share buybacks:



Which means, this will (again) pick up later this year or possibly 2021.

Share buybacks are largely used to offset Option grant based dilution. Unless you believe that CEOs have become less greedy moving forward, expect the return. This will again, add a buying pressure under stocks.

jog on
duc
 
And:
Though COVID-19 still dominates headlines, it seems some are now seeking new worries. So far, they seem to have found two: swine flu and, um, the Bubonic Plague. The former has circulated through Chinese hog farms for over a decade, occasionally infecting people. The latter turned up in a shepherd in Inner Mongolia. Don’t be shocked if either stays in the headlines for a while—or if other diseases hit the headlines with the words “pandemic potential,” which have accompanied most of the swine flu coverage. One regular feature of new bull markets is the near-universal tendency to fight the last war. Heightened awareness of every illness percolating in a corner of the world doesn’t mean a new disease is set to truncate this recovery.

For now, there is no evidence this strain of swine flu is circulating broadly among humans. As Bloomberg highlighted, research suggests it has infected “dozens” of people since 2016, and it is getting headlines now solely because of a research report noting that it has characteristics making it a pandemic “candidate.”https://www.fisherinvestments.com/e...r-a-pandemic-repeat-is-already-starting#_edn1 That doesn’t mean it is likely to cause a pandemic, much less one on the scale that would inspire a mass global lockdown. The last swine flu pandemic, in 2009, didn’t. As for the plague, it is actually fairly normal for a handful of cases to turn up in rural areas each year, typically arising from human contact with infected wildlife. As The New York Times pointed out, even the US averages seven cases annually.[ii] Additionally, while society’s view of the plague is shaped by history books’ depictions of the Black Death in the middle ages, in this day and age it is a highly treatable bacterial infection.

But we aren’t here to play armchair epidemiologist. Rather, we thought it worth highlighting how utterly typical this behavior among investors—seeking a repeat of the last bear market’s cause—is in early bull markets. As a general rule, investors spend much of a bull market on the lookout for a repeat of whatever caused the last bear market—a phenomenon called fighting the last war. In the bull market that ran from 2009 to 2020, investors were on perpetual alert for “the next Lehman Brothers” or “the next 2008.” Early on, many feared Alt-A mortgages were the second shoe set to send stocks far lower and kill off any recovery. Later, it led to mini freakouts and a litany of think pieces on distressed auto loans, student loans, collateralized loan obligations, leveraged loans, junk bonds, Energy sector bonds and Italian banks. None caused the next bear market. But all received heaps of scrutiny. In the 2002 – 2007 bull market, all eyeballs were on Technology stocks for any renewed signs of froth. That even lingered into the most recent bull market, with people parsing every uptick in IPO activity for hints of Dot-Com Bubble Version 2.0. But Tech euphoria didn’t cause the next bear market, either.

When the investment world gets laser focused on a certain issue, that issue generally loses its power. Surprises move markets, and as investors fight the last war, they drain its surprise potential. We see that happening now with diseases. It wasn’t the simple existence of the novel coronavirus that caused this year’s bear market—it was society’s response. It was the choice to shut down basically the entire developed world economy for several weeks, which forced markets to price in the sharpest economic contraction on record. No one expected that in February because it had never happened before. But now, with the memory still fresh—and the reality of lockdowns still being lived in several cities—it seems almost everyone expects it. We won’t go so far as to say a second mass global lockdown wouldn’t be a problem. It could be. But it would have to be something hugely major (repetition intended) to be worse than what people expect and pack a severe punch.

We are big history fans, and in our study of past bear markets, we have found that two bear markets rarely have the same cause. When everyone stays busy fighting the last war in a bull market, it creates an opening for some other negative to squeak through unnoticed. So while vigilance is always a good trait, being hyper vigilant for the next bearish pandemic probably won’t be the ticket for long-term investing success. Taking some time to look where others don’t—for opportunities as well as risks—will likely prove a more fruitful endeavor.

jog on
duc

 
So intra-day on a weekly basis TRIN:



We have the potential for continued weakness, but the probabilities are shifting towards higher prices and stocks shaking off this current selling. Combine that with the divergence in the A/D line through various sectors and we have the makings of a nice move through previous highs, to challenge the all-time high in SPY.

jog on
duc
 
ducati916 said:
Essentially why the MSFT, AMZN, GOOG, et al will crush the ZM et al.

https://stratechery.com/2020/the-slack-social-network/

jog on
duc
Click to expand...

You should probably be more specific here as I don't own slack and never did for precisely many of the reason(s) in the article.

Slack is like dropbox - nothing that really differentiates it from what microsoft can (and did) offer. 5 seconds of google will show you what happened to dropbox and slack once microsoft announced its competition vs what happened with zoom.

There's a lot of ease-of-use advantages that zoom has over ms teams, as well as actual functionality itself. There's also the whole existing player vs new entrant thing with a networked good. Zoom can also have 5x as many people on a call vs microsoft teams even now, and then there's the public broadcast cross platform etc etc stuff. It's a bit of an ak-47 of video conferencing.

You'll also notice that amazon has not laid waste to ebay either, despite it being dozens of times the size.

Just in case you missed it, here's what I own:



You'll notice that there's a few big names missing (facebook, google, apple just off the top of my head). I haven't just gone & broad swathe bought everything without actually looking into things like it seems you think I have. It has taken me weeks and weeks and weeks to get to this point. You'll notice I don't have a great deal of overlap in competitors and of those I do, they're typically the biggest players in the market that have weathered a lot of storms and yet are still here. You know - resilient.

I've been trading since sitting in lecture theatres on my laptop during the gfc. I am not new to this. I can recognise that there are plenty of things you can do/tell/determine that I can't and vice-versa, and I really wish that you'd do the same.
 
Last edited:
over9k said:
Sorry, can't hear you over the sound of me being right and you being wrong.
Click to expand...

There is a lot of information around trading psychology and how it works with some basic rules you need to follow so you continue to function making good decisions.

Investing of course has similar but some different psychology issues.

One particular destructive behaviour that applies to both is the need to be right. It is the death of any investor / trader longer term.

The need for feed back to validate our selves is common but has no place in the markets particularly when discussing positions or methods.

The market is your competitor not other participants on this forum, the point of discussions is in fact to hear the other side (remember markets have buyers and sellers they all exist here on this forum) so that a handle can be kept on our market bias.

The only time aggression is required on market threads is when a spruker turns up other than that be nice, its fun, we all want to hear your reasoning, not interested in what you are making or losing its of no interest (unless humour is involved).

I think you have some thing to offer hope you can adjust longer term it will help in life as well.
 
IFocus said:
One particular destructive behaviour that applies to both is the need to be right. It is the death of any investor / trader longer term.
Click to expand...
I'll broaden that to say it's death in most contexts.

Business, personal relationships, any form of work from professional to manual labour, etc.

It's always better to get to the truth regardless of whose idea it was. That the views expressed by ducati916 are sometimes at odds with my own thinking are precisely why this is such a valuable thread.
 
You're aware that my posts have been entirely responsive, right? Do I really need to go back and find all the various snarky quotes, digs, and everything else that have been thrown my way?

I've never started a fight (physically or verbally) in my entire life, but to pick a fight and then claim I'm the problem when you get a response you're not used to is classic crybullying.
 
Bank Foreclosure data:

Black Knight's Mortgage Monitor, is painting a weaker picture of the US housing market as 4.3 million of all loans are late or in foreclosure. In their release of May data on Monday, the company reported 7.76% of all mortgage loans are now delinquent. That is up from 6.45% in April and the second-largest monthly increase on record behind the 3.1 percentage point increase from March to April of this year. The delinquency rate is now at its highest level since December of 2011.



Of the 4.3 million loans that are delinquent, 200K have moved into foreclosure. As shown below, that leaves both the foreclosure rate and the number of new foreclosures at record lows. While that would normally be a sign of strength, as we have highlighted in the past, foreclosures are low because there has been a moratorium on them. That trend is likely to continue at least for the next couple of months as the FHFA recently extended foreclosure and eviction moratoriums through the end of August from the end of June.



Breaking down non-current loans based on the severity of their delinquency offers some interesting insights. In May, 40.7% (1.75 million) of all non-current loans were delinquent by 30 days. That was down significantly from 69.5% (2.5 million) of all non-current loans the prior month. But the share of non-current loans that are more seriously delinquent (by 60 or 90+ days) rose meaning many delinquent loans remain late on a payment. The number of loans delinquent by 60+ days roughly quadrupled from 427K in April to 1.734 million in May. In total, more than 40% of non-current loans are delinquent by at least 60 days. Loans even more seriously delinquent (90 days) also rose in May to 631K, which works out to 14.6% of all non-current loans and up from 12.8% in April.

Overall, while the number of non-current loans is up, newly delinquent loans as a percentage of total delinquencies declined due to the fact that many borrowers who had previously failed to make payments continued to be delinquent on their loans. Additionally, although there was not a major uptick in new delinquencies in May, that could change in the next few months as forbearances come to an end. In the report, Black Knight noted the schedule for forbearances, and holding constant any extensions, nearly half of all forbearances were set to expire in June with another quarter ending in July.

For the banks, obviously this needs to be monitored.

jog on
duc
 
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