The Monday Wrap

The Monday Wrap

Macro:
 Pending Home Sales beat, Dallas Fed contracted, but beat.
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1) Every major Equity index gave up anywhere from 2% to 2.5% on the day, as Greece, Puerto Rico, and Chinagave traders plenty of reason to sell stocks.  Exacerbating the sell-off, at least for the Financials were diminishing odds of the Fed’s implementation of an interest rate hike later this year.
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2) Financials may have been your worst performing sector, but the beat-down was broad based.  Materials, Health Care, Consumer Discretionary, and Info Tech all gave up more than 2%.
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3) Utilities, down half of a percent were easily the best sector on the day, supported somewhat by the safe haven seeking surge in Treasuries.
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4) Trading volume was heavier than usual, which is saying something given that Friday was the Russell Rebalance, and tomorrow is the end of the quarter.

Market Recon Monday

Good Morning,

                     I’m going to go out on a limb and guess that today’s release of Pending Home Sales for May isn’t what’s on your mind this morning.  If it is, you must work in real estate.  If you work in the financial markets, then Greece is what’s on your mind first and foremost, and secondly…..maybe…the interest rate cut made by the PBOC over the weekend that did not rescue Chinese stock markets.
                     OK, Greece will almost certainly miss their 30 June deadline at this point (Never say never).  Greek banks will not open today, and likely will be closed at least a week, or until a resolution, or maybe the lack of a resolution becomes clear.  Then what?…….Every headline will carry exaggerated weight in the marketplace as we pass 30 June, and approach the 5 July referendum on the bailout plans that have been proposed. (The Tsipras government is recommending a “No” vote).  If the people vote “yes”, I can’t imagine the Tsipras government surviving.  If the people vote “No”. then they’ll default, and probably leave the EMU down the road.  The only guarantee  is that something will happen that we haven’t thought of yet.
                     FYI, more than a billion euros were withdrawn from ATM machines in Greece this past weekend, and all over the country, those machines ran out of cash as worried people stood in line desperately trying to get to their money.  No lines today however, as the people seem resigned to the fact that there is none available,  There is misery, and miserable people rebel.
                     If you are not aware of what is going on in the futures markets this morning, you may want to take a peek.  It’s ugly out there, but far less ugly than it was overnight.  Followers of the S&P 500 should find out early today if the lower end of the range that we have been in since early April will hold.  Like I said a while back, we are range bound, until we are not range bound.  We may leave our zone of safety today, but the futures market has indicated that there is support a rough percent lower than where markets closed on Friday.    Bottom line is that this week may be short, but it will not be fun.
                     As you might expect, US, British, and German sovereign debt products are experiencing the safe haven benefit that they usually do when seas get rough.  On the other hand, Italian, and Spanish debt have a very different experience in times like this.  What does Arthur usually say?  “Stay nimble”???  He’s got that right.  Good luck, gang.
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Sarge’s TRADING LEVELS
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SPX: 2107, 2099, 2090, 2084, 2079, 2073, 2068, 2057
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RUT: 1283, 1278, 1272, 1266, 1257, 1253, 1248, 1243

The Friday Wrap

The Friday Wrap

Macro: U of M Consumer Sentiment Beat.
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1) Hard to say what the market did today.  Every index tells a different story.  The S&P 500 (what most traders refer to as “the market”) closed virtually unchanged.  The Nasdaq Composite gave up 5/8 of a percent, while the Russell 2000 gave up a quarter of a percent in the midst of it’s re-weighting.  In case anyone out there still follows the DJIA,that average gained a third of a percent on the day thanks to the surge in NKE, thus proving it’s own illegitimacy as a measure of market performance.  Why the media beats that drum, I’ll never know.
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2) Trading volume was very heavy today, supported by the Russell Rebalance.
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3) Utilities had a nice day, particularly Gas Utilities, while Tech stocks got the beat-down led by the 18% obliteration of MU.
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4) Treasuries gave up some turf today, with the US 10 year inching it’s way back within sight of 2.5% yields.

Market Recon Friday

Good Morning,

                     I was not going to lead with China, but…..my oh my.  This morning, the Shanghai Composite was absolutely shredded to the tune of 7.4%.  That index is fast approaching a 20% decline in just a couple of weeks.  Today’s trade was no better for the Shenzhen market, which was down 7.9% today, and is now more than 20% off of it’s peak.  Has the bubble burst?  Smells like it.  The Chinese Central Bank injected cash into the system this week, but it was too little, too late.  Valuations obviously had gotten out of control, and Margin debt is now 8.5% of the composite value of mainland shares. (Yikes)  The recipe is certainly there for continued contraction, but I’m glad that I don’t have to make a call on this one, and I’m not gonna.

                     What do you, the trader type need to know about this fine Friday?  Other than the fact that today is the annual June Russell Rebalance extravaganza?  Just two other things matter at all, and they both pale in comparison to what will transpire at today’s closing bell.  At 10am ET, the University of Michigan will release their final June number for Consumer Sentiment.  Two weeks ago, this item surprised to the upside with a pretty strong 94.6 tag.  The expectation for today is that they can hold this number.  The other item of the day is a speech by KC Fed Pres. Esther George, who tends to be hawkish, from Kansas City at 12:45 ET.  She is not a voting member of the FOMC this year.
                    Now, what to make of the Russell Rebalance?  If you’re new to this sport, it comes down to this, very simply….Russell reconstitutes their indices (Russells 1000, 2000, and 3000) just once a year.  Adding up all of the funds tracking these indices, the total dollar value is well over $4 trillion bucks.  The Russell 3000 represents virtually the U.S. stock market in it’s entirety, so it’s not really a factor here.  The 1000, and 2000 represent larger cap stocks, and smaller cap stocks respectively.  As Russell adds stocks to, or deletes stocks from these indices, said funds tracking these indices are forced to reconstitute their funds accordingly at the same time.  This forces huge volume, and volatility going into, and on the close of business on the day that the changes go into effect.  That day happens to be today.  The Russell 2000 will see the most additions, and deletions.  Sectors most impacted today will be Health Care, and the Financials.  This is typically the highest volume day of the year for floor traders.
                    I know today is important to you.  I sincerely hope that each, and every one of you may earn your keep today.  When it’s done, you will be exhausted, but at least it will be Friday night.  Remember, you don’t walk alone.
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Sarge’s TRADING LEVELS
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SPX; 2120, 2113, 2107, 2099, 2090, 2084
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RUT: 1295, 1288, 1283, 1278, 1272, 1266

The Thursday Wrap

The Thursday Wrap

Macro:
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Core PCE on consensus, Initial Jobless Claims on consensus, Consumer Spending beat, Personal Income slight miss. Service Sector Flash PMI miss, KC Fed negative.
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1)  All of the major Equity indices meandered their way lower throughout the day, with the Russell 2000 closing nearly unchanged.  Trading Volume improved to what we could call “below average”.
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2) Things got even uglier for the Transports, with the Railroads again being among the ugliest.
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3) Health Care was easily the leader today, and the Providers were easily their leader after the Obama-Care ruling, and some takeover talk.
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4) Treasuries sold-off, but avoided closing at their lows for the day.  Oil gave up a dollar intra-day.

Market Recon Thursday

Good Morning,

                     You’re up against a lot of fairly significant factors that are likely to impact your trading session.  There are not one, but two Federal Reserve Governors slated to speak publicly this morning.  Daniel Tarullo will speak at 8am in New York City.  He’s expected to discuss regulation, so chances are that he’ll pass by unnoticed.  Jerome Powell will be in Kansas City, and he too, is expected to speak off topic today (markets wise), but you all know what his words did to the markets on Tuesday.  Both of these dudes obviously are voting members of the FOMC, so there is a need to know when they are about. We all love data, right? So, on to the macro it is.
                      Your little heart will pound this morning at 08:30 ET, when you will be deluged with data.  Weekly Initial Jobless Claims, Personal Income, Consumer Spending, and both headline & Core PCE will rain down upon you in an instant…….and they are all important.  Let’s slow this down, and go item by item in order of potential impact to you, the trader type.
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PCE (May): Expect the headline to look a little hot at first glance, maybe 0.3% m/m, but it is the Core print that is Fed Chair Janet Yellen’s favored measure of Consumer level inflation, and it should be yours too.  Almost all economists are looking for a m/m increase of 0.1%, with a very tight range.  Anything else at all will surprise.
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Consumer Spending (May): We expect auto sales to be the catalyst here for a monster pop to 0.7% growth m/m from no growth in April.  If this proves to be the case, it will be the best month for this item since April of 2014.
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Initial Jobless Claims (weekly):  Always a high profile release, the projection today is for 272K.  That would be right inline with recent weekly releases.  The range spans from 268K to 278K.
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Personal Income (May): Here’s one that we all have a rooting interest in.  Happily, we also expect the best print seen in quite some time for this one.  We’re looking for a 0.5% print in this space, which would be the nicest monthly pop since August of 2014.  Unhappily,this would also would fail to keep up with Consumer Spending.
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                     Markit will print their Service Sector Flash PMI at 09:45; traders won’t care.  Weekly Natural Gas Inventories are due at 10:30 ET.  Specific traders will care very much.  The Kansas City Fed will spit out their Manufacturing Index at 11am ET.  Traders don’t care about that one either.  Earnings ??  Really ??  We don’t have a lot of releases on the docket, but there are a few scheduled for today that you’ve all heard of.  BKS (-.33) reports before the opening bell, but we’ll hear from the bigger fish after the close today.  That’s when NKE (.83), and MU (.56) will hit the tape.  I am flat all of these names, and their derivative products.  Good luck today, gang.
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Sarge’s TRADING LEVELS
SPX: 2135, 2128, 2120, 2113, 2106, 2098, 2090
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RUT: 1299, 1295, 1289, 1283, 1278, 1272, 1266

The Wednesday Wrap

The Wednesday Wrap

Macro:  Q1 GDP revised to -0.2% q/q SAAR, Weekly Crude Inventories contracted more than expected.
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1) The DJIA, and Russell 2000 both surrendered close to a full percent on the day, putting blue chips, and small caps in the same boat.
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2) The S&P 500, and Nasdaq Comp. both gave up almost three quarters of a percent.  Trading volume improved slightly, but still has to be considered paltry.
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3) No sector was spared today’s sell-off.  Consumer Staples did out-perform the general marketplace, while theTransports, and Materials were easily the ugliest.  Railroads in particular were mauled.
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4) With trouble re-emerging for Greece, Treasuries enjoyed safe haven status, and had a nice day.

Market Recon Wednesday

Good Morning,

                     As I start typing out this note, Greece’s creditors (The IMF) have apparently rejected the latest proposal made by Greece.  As you might expect, there has been some early zigging in the markets, when you may have been looking for some zagging.  Greek (and European) equities have turned south, as have our futures markets.  Same goes for the debt markets, with the exception being made for those who enjoy safe haven status.  These guys may talk about tonight, or tomorrow as deadlines, but we all know that 30 June is when the big bill is due.  The two sides still have to agree on pensions, and the Value Added Tax.  They likely will take all the time that they can while playing chicken with each other.  Until then, all we have is headline manipulation, which does push the financial markets around.  Seems legit.  Or not.  Oh, and even if a deal is struck, the whole ball of wax has to get through the appropriate legislative bodies.  That should be real fun.

                     Today, at 08:30 ET, we will get our final revision to Q1 GDP.  This is an economist’s event, not a trader’s event.  It is however, still very interesting.  Unless we get some kind of crazy number that demands an emergency policy meeting, and mid-day rate hike from the FOMC (Yes, gang, we actually got those when I was a younger man), it really is not a trade-able event.  Last month, this item was revised down from +0.2% to -0.7%.  Keep in mind, there are a lot of bells and whistles attached to this item,  The growth, or lack thereof, is first measured on a quarter over quarter basis, then it is seasonally adjusted, and annualized.  Most economists seem to expect  this revision to print closer to 0% today, with -0.2% apparently the consensus.  The range spans from -0.4% to +0.1%.  It would be funny (I guess) if the economy never really contracted in the first quarter after all.  After that, at 10:30 ET, the weekly Oil Inventories print is expected to sport an eighth consecutive contraction in supply.  Bear in mind that Gasoline Inventories are also part of this release, and they surprised to the upside last week.
                     Now, I want you to look in the mirror, or the darkened window on your subway train….or just close your eyes.  Think about the man, or woman that you are; that you’ve become.  You’ve hung in there well.  So, stay in there.  Rise.  Dig that trench.  Here is where we make that stand.  Look to your left, and to your right.  We’ve all got tough stuff, but together is the only way we win.  Pay attention to each other.  Love each other.  Now, go do this thing.  God bless.
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Sarge’s TRADING LEVELS
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SPX: 2147, 2135, 2128, 2120, 2113, 2106, 2098
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RUT: 1308, 1304, 1299, 1294, 1289, 1283, 1278

Market Wrap Tuesday

The Tuesday Wrap

Macro: 
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Core Durable Goods just missed consensus, while the headline missed badly.  The  FHFA HPI, and the Markit Flash PMI both missed.  New Home Sales, and the Richmond Fed both beat.
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1) Federal Reserve Gov. Jerome Powell indicated that the Fed could be on schedule to raise the Fed Funds Rate in September (told you), and possibly do it again in December.  This put a lid on Equities, jacked up the US Dollar, put  a dent in Treasuries, and crushed the Utility sector.  Words do count.
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2)  The major Equity indices closed nearly unchanged (up small) on pitiful volume, as optimism over Greek debt talks kept a floor under the market.

Market Recon Tuesday

Good Morning,

                      The European economy is roaring?  Well that may be something of an exaggeration, but the numbers that we are seeing this morning are impressive.  Flash PMI’s for both the Manufacturing & Service sectors out of France? Beat, beat.  Germany? Beat. beat.  Ok, how about the EMU in general? Beat, beat……no way.  Here’s a good one….Italian Retail Sales?  Beat !!…and beat solidly.  Like the fictional ballplayer Roy Hobbs in the movie, “The Natural”, these guys are suddenly hitting every pitch they see.  Maybe they’ll take a swing at the latest pitch from Greece.  We have a full plate of macro here on this side of the pond today.  Let’s see if this trend can continue.

                     As far as that plate of macro goes, there are several items on the menu today.  We’ll start out at 08:30 ET with a fairly high focus release, and that would be May Durable Goods Orders.  When it comes to this one, the core print, which omits transportation, is the key print.  Without transportation we are looking for month over month growth of 0.6%.  With it, the expectation is for -0.6% m/m.  For the core print, if it works out this way, that would put together a three month winning streak.  Winning streaks rule.  Next, the retail crowd will get their Redbook at 08:55 ET.
                     At 9am, we’ll see the FHFA House Price Index for April, and at 09:45, Markit will print their Flash Manufacturing PMI.  Our Flash PMI’s are not the market impacting events that Europe’s are.  The crowd will notice neither of these items, so you don’t have to either.  What you will have to be cognizant of will be May New Home Sales at 10am ET.
                     We’ve already seen encouraging May data for Housing Permits, and Existing Home Sales, so why not an improvement in this space to something like 525K, from last month’s 517K on a seasonally adjusted, annualized basis?  The skew slightly favors a miss on this today, but it is very close.  You will also get the Richmond Fed Manufacturing Index at 10am.  This one can go either way.  Sometimes the crowd notices it, and sometimes they don’t.  For some background, this month has already seen a miss for the Empire State, and a Beat for the Philly Fed.  We are looking for a positive 3 here today.
                     Just a heads up.  You do have one Fed speaker on the docket today, and it’s an early one.  Federal Reserve Gov. Jerome Powell will speak from Washington D.C. at 8am about decisions currently facing the FOMC, so it will be relevant.
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Sarge’s TRADING LEVELS
SPX: 2147, 2135, 2128, 2120, 2113, 2106
RUT: 1304, 1299, 1293, 1288, 1283, 1278

Sarge's Trading Levels