Market_Recon_TSP1_KL
The bottom hit a little more than two weeks ago. Terms like “correction” and even “bear market” were bandied about. With the advent of algorithmic trading and the significantly decreased human participation, dips like that have multiplied and grown in depth. I’ve said and written it before, the traditional parameters for those terms, 10% and 20% off of recent highs, that were created during slower and more thoughtful markets, just don’t hold up in the modern era.
These parameters need to be adjusted to something like 15% and 30%. The process of price discovery or market model, if you will, just does not compare. Where you once had a centralized, slower, and far more thoughtful process, we now have a fractured, headline reacting, momentum-focused market where speed and dislocation are not only a byproduct of the process but also the intent. I won’t go into a deep rant as I have in the past, but think about it.
The war with Iran, if it is nearing a conclusion, as it seems, was very short. Financial markets overreacted. Why? Because high-speed, keyword-reading algorithms that have been designed to force price overshoot are what runs this market. This is with little commissions or non at all. Woo hoo. The small investor might not have to pay the middleman, but that investor also has no one sticking up for them. They now, unless they are quite cagey and have nerves of steel, likely pay a premium for inventory and receive less when liquidating than they might have in the past. Just an opinion.
This Morning’s Latest on War
Reuters is reporting that Iran is considering or has made a proposal to allow commercial vessels to sail freely through the Strait of Hormuz without risking attack as long as they stick to the Omani side of the passage. What kind of hair is on this proposal and if this includes the removal of mines from the stretch was unknown at the time of publication.
Marketplace
Markets rallied yet again as the U.S. and Iran are believed to be considering a two-week ceasefire extension to the two-week ceasefire that I believe will expire this coming Tuesday. Even as these discussions appear to be moving in the right direction, the U.S. Navy has now set up a full blockade that is believed to have allowed zero ships that stopped at Iranian ports to pass on Wednesday. The U.S. is also deploying more forces to the Middle East region as these talks progress, likely as a show of force or a willingness to continue with hostilities should the need arise.
On Wednesday, the S&P 500 gained 0.8% to close at 7,026, which was a new record-high close. The Nasdaq Composite gained 1.59% to close at 24,016, also a new record high close. The rally, though, was not as broad as it has been in recent days. The Dow Transports stumbled, giving back 1.49% as Avis Budget (CAR) was taken to the woodshed for a beating of 3.8% followed by a 3.5% loss by Ryder (R) . The small- and mid-cap indexes turned in a mixed performance as well, posting daily results that ranged from -0.27% to +0.3%. Elsewhere, Treasury yields moved slightly higher, while WTI Crude prices traded sideways to slightly higher.
Related: The Rally That Nobody Trusts
Breadth
Just four of the 11 S&P sector SPDR ETFs posted gains on Wednesday led, again, by Technology (XLK) , and followed by the Discretionaries (XLY) . The Industrials (XLI) and Materials (XLB) led the losers for the session. For the day on Wednesday, growth led, as it has throughout this rally, outperforming defensives. The cyclicals turned in a mixed performance for the day.
Winners beat losers by a mere seven-to-six margin at the NYSE, but by a more comfortable three-to-two at the Nasdaq. Advancing volume took a 59.3% share of composite NYSE-listed activity and a more commanding 73.8% share of composite Nasdaq-listed trade. Aggregate trading volume increased again as it has for days now. On a day-over-day basis, volumes across Nasdaq-listings were up 12.1% and across NYSE-listings were up 4.9%. Activity picked up across the membership of the S&P 500 as well….
Readers will see that our “two-day” reconfirmation of the bullish trend is now a “three-day” reconfirmation of the bullish trend. Relative Strength appears ready to kiss what would traditionally be considered technically overbought territory, while the daily moving average convergence divergence appears to be close to sending an even stronger bullish signal should the 26-day exponential moving average cross above the zero-bound.
Another Econo-Boost?
Markets were aided by the release of another strong macroeconomic data-point on Wednesday, though this one was regional in nature. The New York Fed’s Empire State Manufacturing survey blew away expectations with a headline print of 11 for April. Consensus had been for something close to 0.3, up from -0.2 for March. Important components of the survey such as new orders and shipments soared, while employment and average workweek showed steady improvement.
The only real negative in the report was in prices, which continued to rise. On Thursday, the Philadelphia Fed will release their regional manufacturing survey for April. Philadelphia has been outperforming New York for months now and ios generally considered a more important report by economists. This morning’s release will be focused upon.
From Cars to Weapons?
The Wall Street Journal and the Financial Times both reported on Wednesday that before this war even started, the U.S. Department of War/Defense had held discussions with both Ford Motor (F) and General Motors (GM) concerning how companies with large industrial facilities could contribute broadly to weapons procurement should the need to re-arm rapidly arise. The talks covered parts for complex systems and implementing advanced manufacturing techniques.
GE Aerospace (GE) and Oshkosh (OSK) have apparently also been contacted. Ford did not comment. GM made a statement to the FT: “For more than 100 years, GM has supported America’s security, safety, and those who protect our nation. While that commitment continues, we do not comment on speculation.”
Tesla About to Rock?
Shares of Tesla (TSLA) traded 7.6% higher on Wednesday. The stock is still down year to date, but that was Tesla’s best day in more than nine months’ time. Is there more left in the tank? The company reports this coming Wednesday. I don’t like when stocks run into earnings, but the technicals are shaping up nicely here.
Readers will see that as TSLA has broken out of a downtrend illustrated here by a Raff Regression model, the stock has hit resistance at its 50-day simple moving average. Though the 21-day EMA has been retaken, which has re-engaged the swing crowd, the 50-day line and the 200-day line currently stand at $391 and $398 respectively. The taking and holding of these two lines would likely force portfolio managers with a financial interest in the name to expand on their long-side exposure. Both Relative Strength and the daily moving average convergence divergence are improved; both show plenty of potential room to the upside.
Economics
(All Times Eastern)
08:30 – Initial Jobless Claims (Weekly): Expecting 215K, Last 219K.
08:30 – Continuing Claims (Weekly): Last 1.794M.
08:30 – Philadelphia Fed Manufacturing Index (Apr): Expecting 10.5, Last 18.1.
09:15 – Industrial Production (Mar): Expecting 0.1% m/m, Last 0.2% m/m.
09:15 – Capacity Utilization (Mar): Expecting 76.4%, Last 76.3%.
10:30 – Natural Gas Inventories (Weekly): Last +50B cf.
The Fed
(All Times Eastern)
08:35 – Speaker: New York Fed Pres. John Williams.
10:35 – Speaker: Reserve Board Gov. Stephen Miran.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: ABT (1.15), BK (1.93), SCHW (1.39), KEY (.41), PEP (1.54)
After the Close: AA (1.51), NFLX (.77)
At the time of publication, Guilfoyle had no position in any security mentioned.