New Market Leadership

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Posted: Jun 08, 2018 10:44 AM
New Market Leadership

It was a sluggish session overall yesterday, but breadth pointed to core strength, while we learned a couple of things about the market and investors.

S&P 500 Index

-0.07%

 

Consumer Discretionary (XLY)

 

+0.29%

Consumer Staples (XLP)

 

+0.56%

Energy (XLE)

 

+1.52%

Financials (XLF)

 

+0.25%

Health Care (XLV)

 

+0.08%

Industrials (XLI)

 

+0.30%

Materials (XLB)

-0.51%

 

Real Estate (XLRE)

 

+0.00%

Technology (XLK)

-0.93%

 

Utilities (XLU)

 

+0.70%

 

Leadership

The market has been riding the coattails of technology for years, especially in 2017 where just five names accounted for a majority of the overall gains.  Maybe we got a glimpse into the possibilities of a rally composed of different leadership.

  1. Investors don’t have to run to the sidelines once they ring the register on technology
  2. The herd is large with little critical thinking but can be nimble when spooked

Case in point, there were only two losing sectors yesterday, my beloved material names and technology.  Sharp declines on big volume in tech underscore the notion that the momentum crowd doesn’t ask questions on the way up or the way down. 

It was brutal. 

Breadth

But market breadth was essentially bullish pointing to core strength in leadership names.

NYSE saw more winners than losers as 166 names hit 52-week highs against 57 new lows.

NASDAQ had fractionally more losers than winners, but there were 275 new 52-week highs against only 31 lows.

Message of the Market

There is lots of talk about rotation, as the NASDAQ took it on the chin.  I have to say however, over the last three months, its hasn’t been the most dazzling index.  The Russell 2000 has gotten some attention, but those brick and mortar retailers have rocked them all. 

I actually asked subscribers to take profits on a few names but looking for value in the industry.

Index Perofmance

Year to Date

3 Months

NASDAQ

10.6%

2.8%

Dow Jones Industrial Average

2.1%

1.4%

S&P 500

3.6%

1.2%

Russell 2000

8.6%

6.1%

Retail Index (XRT)

8.7%

9.7%

 

The search for value focused on energy stocks as crude edged up 1.68%.  At some point, these oil stocks are going to rally higher, and everyone should have exposure. I think West Texas Intermmediate has to get to $73.00 for the true value in the underlying equityes to be realized.

The big question is could this market rally without tech?  Its hard to imagine going from the locomotive to the caboose, but there will be more pressure this morning.

Reports out of Asia that Apple has warned its suppliers of a 20% decline in new iPhone parts orders is adding to the pressure.  We’ve heard this before and almost everytime the reports proved to be incorrect.

It’s been a strong week for the market, so yesterday’s weakness and early morning pressure today are needed to test the resolve. 

For the Dow Jones Industrial Average, there could be a test of 25,000 as support because it has been such an important technical number, but I don’t think that happens as money rotates into Blue Chips and value. 

Group of Seven Showdown

I think Justin Trudeau's posturing is almost comical, l but it also hides the fact Canada hasn't been a fair trading partner with the United States.  My tweet from yesterday underscores the fact Canada has massive tariffs to protect its key industries.

Tweet

Charles V Payne

?@cvpayne

I know tariffs don't work but why does Canada have these tariffs?

270% dairy

69.9% Sausage

57.8% Barely Seed

49% Durum Wheat

26.5% Bovine/Meat

18% Table Linen

Why did Canada create "ingredient strategy" tariff in 2015?

To protect those important industries and curb US imports.

June 7, 2018

18,000 Likes

A New Group of Six: Don’t Make Me Laugh

I find Justin Trudeau comments that the other leaders are prepared to create a new organization without the United States a hollow threat and a big time diss at the fact America is the most important nation in any of these global alliances, including the G7, UN, NATO.

The G7 stated goal is to focus on economic governance, international security and energy policy.   We know America is the nation that’s stopping tyrany from being unleashed onto the world.  This year, the United States will become the number one producer of crude oil as Canada continues to squeeze crude out of sand.

This year GDP estimates in trillion USD:

  • $1.8 Canada
  • $2.9 France
  • $4.2 Germany
  • $2.2 Italy
  • $2.9 United Kingdom
  • $5.2 Japan 
  • $19.2 Total
  • $20.4 United States

Dreams of another CP-TPP

Trudeau was able to carve out some special goodies from the CP-TPP after America bowed out, including protectionism in the guise of supporting “cultural industries.” Could he be aiming at another coup?

Canada pushed for those special provisions making the case that “you don’t do trade in the 21 century like you did before.”  When the deal was signed (without any IP protections), Canadian Minister of Trade, Francois-Philippe Champagne, bragged: “We got a better deal for Canada.”

Ultimately, I think America can forge better trading arrangements with our friends and foes  Sadly, it seems this ham-fisted approach was the only way to achieve them.