The Underground Stock Party

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Posted: Jun 05, 2018 10:37 AM
The Underground Stock Party

Whoomp, there it is!
Party-people!
Yeah, Tag Team music, in full effect!

Although you never want to get overconfident as an investor, the action in the market and its mixed leadership hint at a lot more room on the upside.

Yesterday, the NASDAQ Composite joined the Russell 2000 in the all-time category, powered by those household tech names.

Market Breadth - extremely bullish, combined NYSE and NASDAQ:

  • 416 new 52-week highs
  • 71 new 52-week lows

Confident Shoppers - Not Ready to be Owners Yet

Although tech will grab the headlines because of billion-dollar merges and new record highs, consumer stocks are still killing it with a stealth rally. I have been pointing this out for weeks. Even consumer discretionary winners Amazon (AMZN) and Netflix (NFLX) couldn’t match percentage gains for Under Armour (UAA), Target (TGT), Ulta Beauty (ULTA), and Kohl’s (KSS).

I believe business investment is a major difference-maker, especially when it comes to a strong economy versus a pedestrian economy. In fact, consumers must step up despite anxiety earlier in the year.

I know the experts are worried about higher gas prices and the spike in products from trade negotiations and tariffs, but I think the warning is currently overdone. The fact is that the economic momentum is substantially ahead of those fears.

That said, investors aren’t nearly as confident in the role of an investor as they are as consumers. 

According to the American Association of Individual Investors (AAII), investor bullishness backed off recently from a 13-week high, as neutrality continues to be the dominant position. The pros always point to individual investors as contrarian indicators, which is bogus considering how many times the pros have called for the market to correct over the past 18 months, and how few of the billion-dollar hedge funds have outperformed the market.

I know…they’re supposed to under perform the market.

I just implore folks to know that this market is open to anyone that wants to be part-owner of Great American (occasionally non-American) businesses. Hint: you want to.

Today’s Session

The key earnings report this morning comes from Navistar, a leading maker of trucks, including Class-8.  The company was number four in market share, but management’s comments suggest they gained share during the quarter.

Moreover, management was able to hike guidance based on macro developments and micro industry trends.   Most encouraging is the pace of retail truck orders. 

  • Industry Retail Trends (units)
  • Class- 6 to 8 380,000 to 410,000
  • Class- 8 280,000

The company’s numbers match up with the two key industry observers.  ACT saw 35,600 truck orders in May, up 110% year to year, and 2.5% from the previous month.  I incorporate FTR in our modeling, which pulled back in April, but it is still up more than 50% from a year earlier.

The broad market looks like it will consolidate gains as it seeks the next catalyst.