Market Recon Tuesday

Good Morning,
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Tightening Cycle.
                        Today will mark the return of Fed Speak as a threat to the marketplace, as we’ll hear from two voting members of the FOMC currently filling slots with permanent voting rights. We keep hearing that the “WIRP”, or the probability of an increase in the Fed Funds Rate at the December meeting culminating on 14 December is 100%. The CME website also tracks this data. The CME is reporting a “mere” 94% chance. Regardless, what I think is far more interesting than trying to figure the odds of an increase at this meeting is that, at least according to the CME, there is close to a 19% chance of a second hike by the (Ides of) March 15th meeting. FYI, there is no January meeting this year; the first policy announcement of 2017 will come on 1 February. By then. some of this year’s leading hawks will have left the committee to be replaced by seemingly more dovish crew. Seemingly, with a new administration in place.
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Dollar / Oil / Energy.
                       The US Dollar is gaining some strength today, negatively impacting gold, and oil in the early going. Of course, there are other factors slapping oil around. For one, energy traders are again starting to doubt OPEC’s ability to even put together a meaningless agreement filled with exemptions for multiple members. (These guys are even more entertaining than academics playing the role of central banker) That said, the energy sector appears to have been ahead of the game yesterday, but the game is not over. Before tomorrow’s meeting comes to a bone jarring end, expect to see both elation, and disappointment as speculation, and manipulation run rampant. I wouldn’t even trade the space over the next two days, unless I was 100% okay with being wrong. This is not something you bet the tuition on.
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The College Football Playoffs.
                        Was it a first down? It really didn’t look like it to me, but it was razor close, and even on replay….still too close to overturn. I am not here to plead anyone’s case for playoff inclusion, at least not anyone currently in the top ten. Has anyone taken a look at Western Michigan? I know, I know… they play in a lesser conference. So what? These guys are 12-0, and are mired way back toward the back end of the top fifteen, surrounded by teams with two or three losses. This Western Michigan team still has a conference championship game to play. What if they win that game, and win a bowl game.  Is there going to be a 14-0 team filled with over-achieving, probably under-recruited kids left out? This is where big time sports fails the little guy. Maybe they don’t really belong in a final four playoff. Maybe they get crushed. Maybe, just maybe they don’t. They deserve the chance to be beaten on the field.
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Publishing Note: Don’t forget, we’re moving over to TheStreet on Thursday.
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Macro
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08:30 – GDP (Q3-rev): Expecting 3.0%, Q3 adv 2.9% q/q SAAR. In the advance release, Q3 showed significant improvement over Q2, at least at the headline. The oddity, at least to me, was that Personal Consumption Expenditures (the strength of that weak second quarter) put it’s second worst quarter in two and a half years to the tape. The strength in this report came from Durable Goods (two straight), and Exports (which came out of nowhere), namely agricultural (soybeans) exports. The expectation for today is that these strengths will not be revised lower, and the report will not be hurt by Gross Domestic Income, which we have not seen yet. A significantly downward revision could change market sentiment, based on the Fed’s ability to carry forth with their intent.
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08:55 – Redbook (Weekly): Last Week 1.0 y/y. This item may get more notice than usual today. Black Friday numbers came in a little sloppy for many brick and mortar retailers. When measured year over year, this item has been on the rise since early October, and like I always tell you… this number stays above 0.5%, and nobody will focus on it.
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09:00 – Case-Shiller HPI (September): Expecting 5.2%, August 5.1% y/y. This data is sliced and diced several different ways. For example, home prices out west have outperformed all year, while the northeast has continued to struggle mightily. The headline number is the one that the marketplace will notice. That specific item has seen it’s growth stall in the low to mid 5% range, but it is still growing steadily. HPI’s are not a game changer for equity markets, but are on that next level as far as sentiment goes.
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09:15 – Fed Speaker: New York Fed Pres. William Dudley is set to speak on Puerto Rico’s economic situation from San Juan. Dudley is a permanent voting member of the FOMC, who has made an effort to prepare markets for a hike in the Fed Funds Rate in two weeks. he will open himself up to a Q&A session after this speech.
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10:00 – Consumer Confidence (November): Expecting 100.8, October 98.6. Consumer based surveys always have the potential to move markets. This one missed in October after significantly out-performing both it’s own expectations, and the U of Michigan’s Consumer Sentiment numbers for several months prior. That Sentiment print absolutely popped on Wednesday, and we look for a Trump rally inspired boost in confidence here today as well.
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13:40 – Fed Speaker: Federal Reserve Gov. Jerome Powell will speak on the outlook for the US economy to the economic Club of Indiana. Powell is a permanent voting member of the FOMC, and spoke two weeks ago on the prospects of a potentially tougher environment for international trade going forward. Powell will answer questions after this speech.
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Sarge’s Cash Levels
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SPX: 2224, 2215, 2204, 2194, 2187, 2180
RUT: 1349, 1339, 1332, 1327, 1319, 1314
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Tuesday’s Earnings Highlight
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Before the Open: TIF (.67)

Market Wrap Monday

Good Evening,
                       The breeze felt different today. Not horrible. Different. This certainly did not feel like the end of the world.  Trading volume was light, the retreat was orderly, and in a way quite purposeful. First, and foremost… the US Dollar took a breather (hooray), and US Treasuries found a bid (phew !!). In fact, Treasuries found a few bids. These two factors did a lot of what you would think that they might do. Gold firmed up, The Utility sector was the day’s clear winner, and then there was Oil. Oil….hmm.
                       WTI Crude roared today. Hopes of an OPEC deal? Really? Is that why the Energy sector, and the Railroads were led out to the woodshed? Could Crude be trading off of the Dollar, and it’s underlying dependent stocks trading off of OPEC hopes and fears? I’ll let you know when I know. In the meantime, there was much profit taking among the Small Caps, and the Financials (particularly the banks after Jefferies downgraded C & WFC). People who suddenly find themselves with found money, and little protection…will take that money off of the table. It’s okay, and it’s healthy.

Market Recon Monday

Good Morning,
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Cyber Monday.
                        Today, (as if you didn’t know) is known as Cyber Monday. The catalyst for this moniker was that plenty of folks (since the invention of the internet) went back to work on the Monday after Thanksgiving only to continue shopping on-line after kicking off their holiday season on Black Friday. These cute nicknames may persist, but consumer behavior has clearly continued to evolve. Surveys are starting to show that internet based shopping grew on Black Friday by more than 20% year over year, while actual foot traffic through brick and mortar retailers retreated an approximate 1%. In addition, less actual money may have been spent, as on-line (especially mobile) shopping seems to be more target specific, lending itself less to peripheral, or impulse purchasing. Remember, today’s 15 to 24 year olds are comfortable shopping this way. These kids also grew up in hard times. They don’t spend thoughtlessly.
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This Week.
                       Today may provide little in the way of earnings, or “red star” macro-economic events, but make no mistake, the week ahead is heavy in data.  Not only will the next four days pack together a Q3 GDP revision, the PCE Price Index, ISM manufacturing, the Beige Book, and at least seven Fed speakers from a domestic point of view, but there will be high-end external threats as well. Wednesday brings the OPEC circus to town, as well as Chinese PMI numbers, German Retail Sales, and European inflation data. Then next Sunday, Italians will vote in their constitutional referendum. OPEC (likely to disappoint) rumors, and polls (Don’t trust the polls) out of Italy will slap Crude prices, and currency exchange values around throughout the week. there could also be a safe-haven effect here.
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Sell The News?
                         We’ve already been buying the rumor. Where are these potential road blocks? What is the news?
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1) The OPEC meeting that will either fail completely or produce an agreement with so many holes in it as to be useless?
2) That Italian referendum that will either strengthen the Italian central government (and the Euro), or produce even more uncertainty?
3) The ECB policy meeting on 8 December when Pres. Mario Draghi either announces an extension to the ECB’s QE program or makes sure markets understand that they are going to have to?…. Then if that extension looks and smells like a tapering.
4) The FOMC policy meeting on 14 December when folks realize that more than one rate hike (more like a tightening cycle) is being priced in?
5) Donald Trump’s presidential inauguration on 20 January, when folks realize that his proposed policies may actually take a while to implement?
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Trader Focus.
                          Don’t get me wrong. There’s still plenty of reason for market optimism going forward, but those policies, such as lower corporate tax rates, and repatriated money are not right around the corner. On every position initiated you already have both a target price, and a panic point, right? (Trading discipline 101) Stick to your intent. What is immediate, in a broad sense is the investor sentiment that has brought us here. The US share of planet earth’s market cap is now at a 10 year high. Put protection (as to the SPY) is at a six month low. According to surveys I’ve seen, the percentage of individual investors describing themselves as bullish has more than doubled from less than 25% to a rough 50% just since the US election. The “America First” trade has undeniably been a rousing success. Danger lurks? Danger always lurks. Simply put, most of you suddenly have something to protect, but you have not yet protected it. There is money to take off the table, and a series of news events with the potential to rattle some cages.
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Publication Note: Sarge’s MARKET RECON will be moving to TheStreet as of this Thursday…. December 1st.
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Macro
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10:30 – Dallas Fed Manufacturing Index (Nov): Expecting 1.7, Oct -1.5. This item will not impact your day as a trader. There is, however… something interesting going on here. We look for the “headline” General Activity Index to print in positive territory today. The last time that Dallas actually hit the tape in a state of expansion was way back in December of 2014. To put it bluntly…. this series is trying to end a 22 month losing streak. On top of that, NY, Philly, Richmond, and KC have all already printed in expansion this month. The last time all five of these “major” Fed regional manufacturing data-points all printed positive together was one month earlier… in November 2014. (The Empire State was negative at the headline in December that year.)  Hopefully, conditions in Dallas are already as bad as they can possibly get thanks to the rebound in Crude prices since last year. We’ll see today.
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Sarge’s Cash Levels
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SPX: 2224, 2216, 2205, 2194, 2187
RUT: 1355, 1349, 1340, 1333, 1327
 
Monday’s Earnings Highlight
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After the Close: THO (1.23)

Market Recon Wednesday

Good Morning,
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Coming in Hot.
                        Aggregate Euro-Zone Manufacturing is showing signs of an awakening. Not only did the EMU’s flash PMI for November beat consensus, but France hit the tape in expansion (at least at this flash) for the second consecutive month after spending most of the year down in the 47/48 range. In case you were unaware, the service sector had already been running rather warm across Europe. What does this mean? It could very well mean an upward bump for EMU Q4 GDP, which has been running at around 1.6% y/y for most of 2016, after performing slightly better in 2015. Is 2% “a Bridge too Far”? The ECB’s next policy meeting is slated for December 8th, where I would think an extension to the current quantitative easing (QE) program will be announced. The impact to the American trader will be based on what that extension looks like… be it a tapering, or a continued “forward march”. The impact on the DXY, which is heavily weighted toward the Euro will not be insignificant.  One more fly in the ointment will be the Italian referendum vote on December 4th, which nobody on this side of the Atlantic is paying any attention to. What it boils down to, in comparatively simplified terms for us would be something like a constitutional battle over state’s rights. After populist votes in the UK , and the US, anything is possible, and we already know that polling is useless.
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You Know This, but New Kids may Not.
                         Earnings season is for the most part in the rear view mirror, but due to the shortened work week, we are faced with an absolute plethora of macro-economic data for the day. Like our esteemed (or maybe not so esteemed) central bankers, a large portion of the trading public (professional & retail) may just take their collective eyes off of the ball. True, you can trade from anywhere these days, and people are reachable unless they make an attempt not to be.  That said…later today, and especially on Friday, there may be a spot or two where market inefficiency makes a rare appearance. If you are the hunter, good luck. If you are going to be watching football for four to four and a half days, then you need to button up tight (hedge yourself). Weekends at long enough. Extended weekends are dangerous.
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Trader Focus.
                         One thing you have to keep in mind is that round numbers like 19,000, and 2200 mean absolutely nothing to us. They are just numbers on a chart, and to be honest, nobody, but nobody trades off of the DJIA. We care about performance in the credit markets, currency valuations, policy direction, and money flows. Yes … I know stock valuations are high, but they are only a lagging indicator. I look at PE ratios… I am not discounting them, but they are merely a symptom of the demand and supply equation. The patient is already either sick or healthy by the time this is obvious. The already mentioned money flows control that just mentioned equation, which itself is simply the result of sentiment. There it is…. sentiment. What is moving the needle on sentiment? Right now it’s policy direction, but it can be anything from inflation expectations to whether the old NFL or the old AFL wins the Super Bowl. Watching, listening, and putting in the homework has never been more important. Talk to people of all walks. Hear them.
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Macro
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08:30 – Durable Goods Orders (October): Exp 1.5%, Sept. -0.1% m/m.
08:30 – Dur Gds Orders ex-Transp (October): Exp 0.2%, Sept 0.2% m/m.
08:30 – Core Capital Goods (October): September -1.2% m/m.  Durable Goods will be one of two “red star” macro-economic releases set for today, the other being New Home Sales. The headline number here is always volatile, and has made a habit of both missing expectations, as well as printing in contraction this year. There, however does seem to be some life in areas of manufacturing of late, and we still expect to see stronger data for November than we are used to. Offsetting that will likely be already weak October data that is revised lower still. This data will impact Q4 GDP expectations.
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08:30 – Initial Jobless Claims (Weekly): Expecting 250K, Last Week 235K. As we have two “red star” events today, we also have several “no star” events. the first of three consecutive such releases, Initial Jobless Claims have lost their ability to impact the marketplace due both to the regularity of the series, and the lack of the ability of those who are underemployed to even file when losing income.
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09:00 – FHFA HPI (September): Expecting 0.6%, August 0.7% m/m. This is the second of our series of three irrelevant data-points, at least as far as the marketplace is concerned. Due to the narrow scope of this item, covering only single family homes with loans backed by either Fannie Mae or Freddie Mac, the HPI to watch is Case-Shiller. That release is scheduled for next Tuesday.
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09:45 – Markit Manufacturing PMI Flash (Nov): Exp 53.5, October-f 53.4. This one might actually get some attention, though it usually does not. Being that the ISM does not flash, and that the regional Federal Reserve districts have gone 4 for 4 in terms of expansion and New Orders in the manufacturing space, this could get a (an extremely) tertiary look.
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10:00 – New Home Sales (October): Expecting 592K, Sept 593K.This is one series where there is undeniably visible strength. How important are New Home Sales? Loans, demand for skilled labor, furniture, landscaping, countless trips to Home Depot and Lowes. The multiplier effect on a local economy is both endless, and repetitive every time a New Home is sold. As with Durable Goods this morning, this item will both get a look from the markets, and move the needle on GDP. Expect to hear from the Atlanta Fed in a couple of hours.
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10:00 – U of M Consumer Sentiment (November-f): Flashed 91.6. After putzing around below trend for most of the second half, October Sentiment took a step toward the similar Confidence series with it’s highest print since June. Ironically, Confidence took a step backwards last month. What does it mean, when two very similar items spend long segments of time in disagreement? No really… I’m asking you. The marketplace does tend to react to this item. There is a lot out there today, but there also could be a lack of players (liquidity).
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10:30 – Oil Inventories (Weekly): Exp +300K, Last Week +5.3M barrels.
10:30 – Gasoline Stocks (Weekly): Exp +600K, Last Week +700K barrels. The rapidly growing supply has been a weight upon WTI Crude. That said, OPEC whispers have more to do with the speculatory nature of pricing right now than anything fundamental. The American Petroleum Institute has been a far better indicator of Wednesday’s oil number than any kind of professional consensus in recent weeks. Last night, the API reported a draw in Crude inventories of -1.3M barrels, but a surprise build in the gasoline space of 2.7M barrels. WTI is up half of one percent this morning in response.
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11:00 – Natural Gas Inventories (Weekly): Exp 40B cf, Last Week 30B cf. I’ve started to enjoy telling you each and every week about the never ending growth of supply in the Natural Gas space. I doubt Energy traders are enjoying it much. Today, we look for, and expect the 16th consecutive weekly build, as well as the 31st build in the last 32 weeks.
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14:00 – FOMC Minutes. I do not think anything that comes out in these Minutes will surprise anyone. Fed Funds Rate futures are now pricing in a 100% chance of an increase at the meeting that will end December 14. About the only way the Fed could surprise us at this point would be to announce a half point increase at that meeting. Boston Fed President Eric Rosengren, as the only voting member of the committee not to stand by any conviction at the last meeting will provide today’s entertainment.
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S&P Cash Trading Levels
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            Last night, the index sharply was repelled as it approached 2205, so we’ll keep that one in place. The mid-day bounce came at 2194, a point above my expectations, so we’ll adjust. Quite simply, the levels have been almost precise over the last week and a half or so. (Over the last four years or so) While algorithms have simplified trading for many, they are in such heavy demand that in aggregate, they have become clumsy, returning the advantage in performance to the human trader. Go team !!
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2224, 2216, 2205, 2194, 2187, 2180
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Wednesday’s Earnings Highlights
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Before the Open: DE (.38)
After the Close: Preparing the stuffing. Happy Thanksgiving, gang.
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Note: I do not intend to publish on Friday.

Market Recon Tuesday

Good Morning,
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Sub-Five Minute Mile
                     This game sure is more fun when equity markets are on the run…. and I think you have to at least mention it when the S&P 500, DJIA, Nasdaq Composite, and Russell 2000 all hit all-time intra-day highs, and close at all-time record on the same day. This had not happened since December 31, 1999. Apparently, the smart money was not nearly as worried about a worldwide Y2K systematic technology failure as were the rest of us.
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Such a Deal
                     Though equity markets in aggregate moved higher yesterday, there was a serious change in leadership, which is at least very interesting. The Energy sector ripped, as WTI Crude ripped, and Crude is on another tear this morning, btw. Materials, and Utilities also out-performed. These sectors responded well to a (thank goodness) pause in the onward march of the US Dollar against it’s competitors, as well as bargain hunters hunting down some of those lower bond prices. As far as Crude and Energy are concerned, many OPEC players are saying the right things, or intentionally allowing certain scraps of information to leak out of an ongoing “pre-meeting” meeting in Vienna. This morning, an official from the Nigerian delegation told reporters that he expected to see the groundwork for a production cut laid out this week. While this may or may not be intentional, the market impact is undeniable. Exemptions ?? Shhhhhh.
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We’ve Got Legs
                      The most blatantly optimistic signal to come out of yesterday’s record setting push was the positive performance of the sectors, and industries that had led since the election (though they did not lead). Within Financials… the Banks, Consumer Finance, and Capital Markets all shaded green, while inside the Industrials sector, not only did Aerospace & Defense keep up as did Air Freight & Logistics, but Railroads, and Construction/Engineering names actually out-performed the broader indices. Game on. Then there’s the impact that the much strong dollar, possibly less regulation, and protectionist policies coupled with economic growth is having on Small Caps. Whoa. Pauses are inevitable, but I am not paring longs on anything other but a stock specific basis for now. Oh, and shorts are only synthetic, through long puts for now. No holding stop signs up in front of steam rollers.
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Allocation Changes
                      In an effort to provide at the most simplified level, a skeleton for personal allocation that will allow for appreciation without getting one’s face ripped off, I’ve tweaked the entire model since it’s last publication. Almost all of you know that I took gold back down to 5% from 7.5% when it crossed through 1305  on the way down. That 5% stands for now, and will be moved back up to 7.5% when either one of two targets is reached. I am going to jack equities up to 55%, from 47.5%, which s still low, but we are conservative here, because we are family types. This is grocery/broken water heater money. Bonds will be cut to 15% (still kind of high) from 17.5%, with the concentration split between Treasuries, Munis, and some Corporate. Still absolutely no junk !!! Cash will be cut to 25% from the 27.5% that we had it at going into the election. Cash is always high in this space. We’re regular people here, not daredevils. Should the opportunity arise to take the gold allocation back up, that money will come out of cash.
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Thanksgiving Bonus: No Fed speakers are scheduled to get in the way today for the first time since November 3rd. There are no Fed Speakers scheduled for the rest of the week.
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Macro
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08:55 – Redbook (Weekly): Last Week 0.9% y/y. We’re starting to see some momentum in this space, at least on a year over year basis. Six of the last seven weekly prints have been at least acceptable when measured against my 0.5% minimum target, and the last three have all showed steady improvement upon each other, successively. Look for a slight slowing in the pace of that growth today, but still above our goal.
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10:00 – Existing Home Sales (October): Expecting 5.43M, September 5.47M SAAR. Existing Home Sales have averaged just above 5.4M units a month when seasonally adjusted, and annualized for 2016. Unlike New Home Sales, and now Housing Starts that have heated up in recent months, this item, which is easily the largest slice of the housing pie.. has continued to go sideways. In fact, this item has gone sideways now for close to two and a half years. An upward surprise here today after what we saw last week, would be very encouraging. The market doesn’t need it, though.
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10:00 – Richmond Fed Manufacturing Index (November): Expecting 1, October -4. November seems to be a better month than we have seen for large slices of American manufacturing in quite some time. New York, Philadelphia, and Kansas City have all printed in expansion at the headline level, and New Orders were a strength for all three, particularly in Philly. The last month that four of the five major regional Fed District manufacturing prints hit the tape above zero was way back in January of 2015.
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Tuesday’s Earnings Highlights
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Before the Open: ADI (.89), BKS (-.39), CPB (.95), DLTR (.78), HRL (.45), MDT (1.11)
After the Close: GME (.47), HPE (.60), HPQ (.36)

Market Recon Monday

Good Morning,
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Dollar Valuations / Yields
                        The US dollar is somewhat softer this morning. To keep things in perspective, the DXY is still hovering above 101, and the WSJ Dollar Index is still close to 91.5. At the same time … US Treasuries, Gold & Oil have all found bids in the zero dark hours of Monday morning. If the hopes and dreams of lower (Personal & Corporate) taxes, increased spending, rapid growth, and inflation that Donald Trump’s election has unleashed on the hearts and minds of the investing public actually do come to some sort of realization, it becomes likely that some of the shifts in investor behavior that we have seen will continue, although in slower motion.. in their general directions. That does mean that the Fed’s one quarter point a year tightening cycle does pick up the pace in 2017. Markets, we are told (by everyone) have come too far, too soon. Market prices are the result of demand and supply at a given moment in time. They are never “too far” in that moment. When you and the tape disagree… guess who’s right?  As for “too soon”, that is quite possible. The bond market is ahead of the Fed for now.  Bear in mind, that while tightening does force yields higher, and thus… dollar valuations higher that (drum poll, please) higher yields, and higher dollar valuations will also inevitably attract foreign investment, (which has been lagging of late), slowing said retreat.
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Sector Movement
                        The President-elect is two months away from taking office, and will not have a magic wand at his disposal on January 20th. Financials, Small Caps, and Industrials will all likely have to digest their recent moves. Sector related charts in these arenas will become stretched. and eventually start to make better sense to the trained eye. The Energy sector will move on rumor for another ten days or so, and then react sharply in response to the results of the OPEC meeting next Wednesday. I would think the greater risk in this space to be to the down side, particularly if WTI moves higher ahead of the meeting on rumor. There is the double edged risk here of a “sell the news” event, regardless of the actual news. Discretionary names, particularly well known retail names will also will likely be in play heading into Black Friday, and carrying through Cyber Monday. This is something that I would think you would want to play though the options markets, and leave your capital either on the bench, or better deployed elsewhere.
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Numbers
                        For a holiday week, we are not without a decent amount of market impacting type macro-economic data-points. There’s nothing on the docket today; then there’s only really October Existing Home Sales tomorrow. On Wednesday, when you’re thinking about American football, and how you will possibly sit across the table from that worthless puke of a relative that voted differently than you .. we’ll see Durable Goods Orders, New Home Sales, Consumer Sentiment, Oil Inventories, and the FOMC Minutes, so you’ll probably have to focus on something other than your dear cousin. Btw, Durable Goods are expected to show improvement, and will impact Q4 GDP expectations, which are already on the rise (Currently running at 3.6% according to the Atlanta Fed) thanks to last Thursday’s print for Housing Starts.
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Economics
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08:00 – Fed Speaker: Federal Reserve Vice Chair Stanley Fischer will speak this morning from New York City.  Fischer, a permanent voting member of the committee, spoke last week on enduring market liquidity…. veering away from policy talk. The Vice Chair is expected to “go there” today, covering monetary policy, inflation, and growth.
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S&P Cash Levels
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             You’ll notice that these levels have not changed for a few days. I don’t change things until they stop working. That said, the 2187, and 2180 levels have been absolutely spectacular for the better part of a week now. For futures traders, fair value is currently -1.35.
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2205, 2193, 2187, 2180, 2172, 2165
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Monday’s Earnings Highlights
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Before the Open: TSN (1.16)
After the Close: SINA (.36), WB (.20)

The Trader

The Trader
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                 A greasy slice of wax paper floats across the street, caught in the windy cross-currents of a quiet city corner. No one is there to notice.
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                The alarm has been set for 4am….. just in case. The trader rarely needs that alarm. Global equity markets, debt markets, currency markets, and domestic futures markets are all in motion. The trader reads. The trader watches. The trader reads some more. The trader learns.
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                The trader has been fired, laid off, tried many different things. The trader learns to overcome….  always, above all…. the trader learns. period.
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Fearless? Not quite.
Aggressive? Every day.
Love? For the love of the game, for the love of those for whom one is sworn to protect.
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Victory? Sometimes.
Defeat? Never…. Not a chance.
Discipline? From start to finish. From birth to death.
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Algorithms took an early lead, and made friends disappear.
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Still Learning. Always adapting.
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Those algos, and those who write them think that they are the predators. That is good. Let them rest. Let them sleep right up until that alarm. They will forget how to be hungry.  Sometimes the hunter becomes the hunted.
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Hate? On bad days.
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How was your P/L today ?? Last week?? Last month ??
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That quiet city corner has now become quite crowded.
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Ring the bell.

Market Recon Friday

Good Morning,
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Gold.
                       Physical gold bottomed out just above the 1200 spot on Thursday. I still see a strong case for gold in the long-term, but I do get that most of us live in real time. We only talk about physical gold here, because the rest of that space is fine as a trading vehicle, but will not do anything for you on the day that you realize that you’re going to have to fight your neighbor over a rusted can of beans. Yields are trending higher, meaning that interest rates are already higher. Understand that at least. The FOMC (the tail) increasing the Fed Funds Rate is simply a formality. The bond market (the dog) has already made that decision for them.  Where does gold get interesting again? I think this is a dangerous spot, unless the current rotation in our markets is complete. Not likely. A failure to hold somewhere in the high 1190’s probably allows gold to drop as far as the 1155/60 range, and then we’re talking about 1110/20. I probably wait until we see 1115, or if this premise is wrong… 1305 before taking my allocation back up to 7.5% from it’s current 5%. If you have not already lowered your allocation in this space, I would not necessarily do anything at this level as long as the last sale is still above your average point of entry.
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Trader Focus.
                     Speaking of the current rotation. We all know by now, that cash levels are down. Money has been put to work ahead of the Santa Claus rally (still a month away), and the early January inflow. Does this rally still have legs? Yes, I believe so. Are traders going to take profits when they realize they’re looking at found money? I am. I doubt that I stand alone in that mindset. You only feed your family if you actually ring the cash register. That said, yesterday the S&P 500 closed 35 points above Monday’s low. Financials, Discretionary names, and obvious slices of the Industrials have continued to out-perform. Now Tech even seems to be catching up. The coming of lower corporate tax rates, and repatriated money is still out in the future, while intense activity in currency exchange markets is right here, right now. Fourth quarter earnings are going to get a beat-down, and make valuations look skewed going into the first half of 2017.
                       A move higher will continue to require hopium…. and odds are that there is enough hopium to make it work. Never let yourself forget that markets don’t have to be rational. Price discovery is simply the end result of demand and supply at any given micro-second. Rational thought will always eventually return to the pricing mechanism, key word…..eventually. The retail investor is talking about these markets. People that never talk the stock market are asking questions again. While that type of activity usually presents danger, it also usually brings with it, an explosive top. Sometimes very explosive. A rocky, nerve-wracking road will traveled, but my portfolio will remain net long until the S&P 500 hits 2300…. or bust. Whichever comes first.
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Macro
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05:30 – Fed Speaker: St. Louis Fed Pres. James Bullard spoke on banking this morning from Frankfurt. Bullard is a voting member of the FOMC, whose recent leanings towards at least a one time increase in the Fed Funds Rate have been clear.
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09:30 – Fed Speaker: Kansas City Fed Pres. Esther George will speak on the place of oil in this economy from Houston, Texas. George, who will vote in December has been the Fed’s most ardent supporter of increasing the Fed Funds Rate throughout the year. She will take questions from the audience.
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09:35 – Fed Speaker: New York Fed Pres. William Dudley speaks again today from New York City. Yesterday, Dudley, who is a permanent voting member of the FOMC did acknowledge that while the modern era’s move away from traditional full time employment has lowered Unemployment that it may be increasing the level of worker vulnerability. Does that mean that he understands why the Phillips Curve hasn’t worked out the way it was supposed to? Sounds like it. Maybe he can explain it to the Fed Chair who just does not seem to get it.
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10:00 – Leading Indicators (October): Expecting 0.1%, September 0.2% m/m. This item is likely headed for it’s fourth positive monthly number in five months. Not that it matters. You have never in your career heard a trader or an investor say “What are they looking for?” regarding this data-point. The series is irrelevant.
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11:00 – Kansas City Manufacturing Index (November): October 6. KC has now printed in expansion for two consecutive months for the first time since a fourteen month stretch that ran from January 2014 through February 2015. On top of that, the strength has been right where you want it… in New Orders.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week total 568, oil 452. Last week, the number of US rigs sort of took a breather, adding two oil rigs, and cutting three gas rigs. This number can impact crude prices, though there are many factors that are probably a bigger deal in the space right now.
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13:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan speaks from Houston, Texas at the same conference that KC Fed Pres. Esther George spoke at this morning. Earlier this week, Kaplan who will vote in January sounded quite hawkish. Like George this morning, Kaplan will open himself up to questions.
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21:45 – Fed Speaker: Federal Reserve Gov. Jerome Powell is set to speak tonight on trade and emerging markets from San Francisco, California. Powell is permanent voting member of the FOMC, whose term runs through 2028, so get used to him.
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My S&P Cash Levels
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2205, 2193, 2187, 2180, 2172
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Friday’s Earnings Highlights
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Before the Open: ANF (.25), BKE (.52), FL (1.10)
After the Close: Maybe a good night for a disgusting plate of nachos.

Market Recon Thursday

Good Morning,
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Trade Idea.
                       October Retail Sales were released on Tuesday morning. The Non-Store Retailer sub-component printed at a 1.5% month over month increase, well ahead of the headline increase of 0.8% m/m. That same slice of retail sales is now sporting year over year growth of 12.9% vs. the headline print of 4.3%. AMZN is the undisputed king of non-store retail (In full disclosure, this author is long AMZN equity), but there’s a fight on the way. We all know that WMT, which reports this morning, bought Jet in order to ramp up it’s market share in e-commerce. TGT earnings hit the tape yesterday, and the stock ran 6.4%. Why? Not because y/y revs were -6.6%. Yes, the firm did beat expectations for both quarterly EPS & Revs, but why? E-commerce. That part of the business grew 26% for the quarter, and puts TGT’s e-tailing business on the playing field with the mighty AMZN. I go to the stores. That’s how I figure out what people are buying, and what they’re paying. WMT is still crowded, TGT not so much, at least not out by me. They both are going to fight, neither will surrender. They have in common.. awesome national distribution. At least one of these two will rise a as a long-term player on both sides of the ball. There’s at least a seasonal trade here. Let the earnings related over-reaction die down a little. Maybe take a limited shot going into Black Friday, and get flat about two weeks ahead the actual Christmas holiday. You can then hedge this money with a long-dated straddle in a delivery service company such as UPS. UPS rolled off a table last December, and also at the end of 2012. The stock rallied hard into year’s end in 2011, 13, and 14. a tough nut to crack, yes. Much easier just to play the volatility, but go out pretty far on expiration, so you give yourself some time to be right…. just in case you’re wrong.
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Send in the Clowns.
                     Federal Reserve Bank Chair Janet Yellen will testify today before the Joint Economic Committee of our esteemed legislators. The text will be released at 8am, but the real fun will start when the questions begin. The apparent December rate hike, and the trajectory of wage growth and consumer level inflation will obviously be covered. The reaction of the marketplace to Donald Trump’s electoral victory will certainly get a look, as will her opinion on economic possibilities going forward now that a different direction seems obvious. The good doctor will likely impact the trading session whether she means to or not.  New York Fed President William Dudley speaks twice today, as does Chicago Fed President Charles Evans, and Fed Gov. Lael Brainard. Today’s speeches will take the number of public speaking events made by Fed Officials this week to 15…. and there are five more speeches scheduled for tomorrow. Those currently serving aboard the FOMC haven’t asked for my advice, though I have made it available time and time again. We all know that opportunities to normalize on schedule without severely hurting the economy were missed in 2013, and 2014. We all know that politics, unfortunately played more of a role than it should have. A lower profile would be my current advice. Instead of trying to sound like you know (because we know you do not), maybe walk around with your sleeves rolled up, a pencil tucked in your ear, and carry around a bunch of marble notebooks. That way, we think you’re working.
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Trader Focus.
                     Janet Yellen, the ongoing transition in Washington, the CPI, and WMT may be our headline makers today, and the reason why the cogs that run our engine run the way that they do. That said, currency exchange rates, Treasury yields, and WTI Crude remain the focus. So, stay focused. Anything you do in the equity space is reliant upon those four extremely variable underlying values right now. Play accordingly. There’s some profit taking in parts of the marketplace that have run wild post-election, without really hurting the broad market indices. That’s noteworthy. Small Caps have stalled for three days, without coming in. Can they? Sure. You’ve been punched in the mouth before. You’ve probably had a great week and a half. Stay nimble (shout out to Arthur). Protecting yourself is costly. A lot less costly than getting your face ripped off.
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Macro
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08:30 – CPI (October): Expecting 0.4%/1.6%, September 0.3% m/m 2.2% y/y.
08:30 – Core CPI (October): Expecting 0.2%/2.2%, September 0.1% m/m 2.2% y/y. For traders, this will be the most important slice of macro released on what will be a very active day. This is not the Fed’s preferred measure of consumer level inflation, but is obviously closely watched by all, even those aboard the FOMC. There are concerns here. Many believe that inflation has taken hold, but then you had a disappointing print at the Core for September on a year over year basis, which is how central bankers look at this. Just yesterday, though not truly comparable, October PPI acted like a pea rolling off of a table.
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08:30 – Housing Starts (October): Expecting 1.167M, September 1.047M SAAR.
08:30 – Building Permits (October): Expecting 1.185M, September 1.225M SAAR. What’s important here are Starts. Permits are something of a leading indicator, but are imperfect as they can not be counted on. The 2016 average for starts is 1.15M SAAR (Seasonally adjusted annualized rate), which amazingly the series really has not strayed very far from all year… until last month. September’s print here was the weakest since April of 2015. With homebuilder optimism so strong, you would expect (hope) that this data-point gets back on track today, and brings a upward revision to it’s most recent past. This item is important enough to warrant marketplace attention.
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08:30 – Initial Jobless Claims (Weekly): Expecting 257K, Last Week 254K. Barring some kind of bone-jarring surprise, this one will not impact our markets. Part-time labor, and the ever growing legion of multiple jobs holders have skewed the importance of this release as those unfortunate realities have also rendered the Unemployment Rate, and the Phillips Curve less than relevant in the modern era. The four week moving average now stands at just less than 260K.
08:30 – Philadelphia Fed Manufacturing Index (November): Expecting 6.3, October 9.7. Philly is a little more important than most of the other regional Fed district manufacturing releases., and Philly has printed in headline expansion for three consecutive months. Philadelphia can impact the markets, but on a day that has this item competing for attention with inflation, housing starts, and the Fed Chair, it may get a pass from investors. New Orders and Shipments have been strong here. My concern is that Inventories in the Philly region have been in contraction for months, and if there was a serious need to reshelf in the district, this may have slowed Shipments, and Delivery Times. Most of the street is around 8.0 here today, I am slightly lower at 6.3.
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08:50 – Fed Speaker: New York Fed Pres. William Dudley will actually speak twice from the New York Fed. First on “International Macro & Finance” at 8:50, and then on the “Evolution of Work” (That should be a doozy) at 9:10. Dudley has a permanent vote at the FOMC. Just a thought on the “Evolution of Work”… Why don’t we ask some guy who had to re-invent himself, or some single mom holding down two jobs rather than the president of the New York Fed? Crazy thought, I know….. what the heck would they know?
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10:00 – Fed Speaker: Federal Reserve Chair Janet Yellen will testify before the Joint Economic Committee of the US Congress. Yellen’s testimony will undoubtedly impact the markets in some way, as she will be asked about the already telegraphed December rate hike, consumer level inflation, and almost certainly about market reaction to, and the potential economic future concening the surprise election of Donald trump to the US presidency.
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10:30 – Natural Gas Inventories (Weekly): Expecting +41B cf, Last Week +54B cf. Natural gas has rallied mildly with much of the commodity complex since the US election. Still, Nat Gas is a long way from those heady days of …. oh say.. late October. The fundamental problems here will not be alleviated anytime soon as we expect to see a fifteenth consecutive weekly build, and a thirtieth build in the last 31 weeks.
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12:30 – Fed Speaker: Federal Reserve Gov. Lael Brainard will also speak from the New York Fed on the “Evolution of Work”. At least William Dudley did actually work in the private sector. Brainard is a permanent voting member of the FOMC.
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14:45 – Fed Speaker: Chicago Fed Pres. Charles Evans is set to speak from Chicago. An openly dovish Fed official in the past, Evans seems more than alright with a December rate hike. Evans, however will not vote on such matters until  January.
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Thursday’s Earnings Highlights
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Before the Open: BBY (.47), HP (-.43), SPLS (.34), WMT (.96)
After the Close: GPS (.60), WSM (.77)

Market Recon Wednesday

Good Morning,
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The Rock.
                        So, Senator Barbara Boxer introduces a bill to abolish the electoral college, and move the presidential election toward a popular vote. I try very hard to not get political in my written word, and I try to keep my preferences to myself but doesn’t this seem like a futile waste of time coming from a US Senator representing what is easily the largest state? I mean, for this bill to pass, this would require her colleagues, particularly in the Senate where all states are equal, to voluntarily vote against the best interests of their constituents. I am not commenting on the merits of this idea, nor the lack of merit, but unless the junior Senator from California is a rock, she knows that the electoral college benefits most of the other states, and this is simply a disingenuous attempt to gain favor within her party and among her supporters.  Ain’t politics grand?
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Whirlwind.
                        Did you enjoy your blustery day? Your blustery week? Markets continue to try to price in everything that comes with new policy direction, without getting too far out on a limb. After all, what if the game plays out a bit differently than the script? I mean quantitative easing was supposed to produce consumer level inflation way back when I was a much younger man. Sometimes, markets, and economies just don’t play along. So, as our marketplace prices in a beast-like US Dollar, consumer level inflation, higher interest rates, repatriated money, OPEC’s nonsense and most of all…..  drum roll please…. a potential 15% US corporate tax rate (music, please), a rally that was at one time in the ninth inning, now appears…. at least to this kid from Queens to have decided to pay an unscheduled double header. Volatility that leaves that horrible feeling in your stomach because you failed to go home flat (or did go home flat) ?? Sure… guaranteed. A general northerly direction on an extended, possibly sharper trend?  I think so. The powerful greenback will be our enemy, but everything else is our friend until it doesn’t work. I am going to raise my S&P 500 target soon, perhaps within a week or so. Just haven’t placed it yet.
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Macro
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04:00 – Fed Speaker: St. Louis Fed Pres. James Bullard spoke this morning on monetary policy from London, England. This morning, Bullard indicated that he believes one hike (this December) may be enough to get the job done. Formerly the most erratic member of the FOMC, this has been his consistent message for close to six months now.
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07:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari speaks this morning from New York City. Kashkari does not vote this December, but will in 2017. That said, he is not expected to go into monetary policy today, and  is expected to discuss protecting taxpayers in a “too big to fail” scenario.
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08:30 – PPI (October): Expecting 0.3%, September 0.3% m/m.
08:30 – Core PPI (October): Expecting 0.2%, September 0.2% m/m. Expectations are for some pricing strength at the producer level for the second consecutive month. Loom for the headline to come in stronger than the Core due to increased Energy prices last month. The PPI does not directly impact the marketplace. The CPI this Thursday is a far bigger fish.
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09:15 – Industrial Production (October): Expecting 0.2%, September 0.1% m/m.
09:15 – Capacity Utilization (October): Expecting 75.5%, September 75.4%. Industrial Production has been anything but productive in the US for some time now. We saw a positive number in this space in September, and hope for another today. Manufacturing as a sector has been mildly improving of late, so there is hope. Industrial Production has contracted in seven of the last twelve month, but a print at consensus today would make it four out of five on the plus side. Look for Utilization to inch higher. A strong print here will impact the markets more so than something on the weak side.
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10:00 – NAHB Housing Market Index (November): Expecting 63, October 63. This one is also known as “The Homebuilder Optimism Index”. It’s supposed to be something of a leading indicator for New Home Sales (next week), and Housing Starts (tomorrow). I don’t see a month to month comparison necessarily there among the three, but the three way trend often does line up. Btw, 63 is a really strong number in this space.
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10:30 – Oil Inventories (Weekly): Expecting +900k barrels, Last Week +2.4M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -550k barrels, Last Week -2.8M barrels. Crude roared back yesterday, taking back most of November in one session. Still a long way from October levels, what could help other than those rumors floated yesterday about Saudi-Russian cooperation would be a surprise draw at the headline here today. What is hurting oil prices this morning was the unexpected (but, becoming routine) 3.6M barrel inventory build reported by the API last night.
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16:00 – TIC (September): Expecting $28B, August $48.3B. this measure of cross-border investment is interesting, but is so dated by the time of it’s release that it is no help to market participants trading in real time. We do expect to see an overall net increase in the space today, but when focusing on Treasuries.. we have seen the two largest holders China and Japan reducing their holdings in recent months. Keep in mind this info is way ahead of last week’s election.
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17:30 – Fed Speaker: Philadelphia Fed Pres. Patrick Harker speaks tonight on the purpose and functions of the Federal Reserve Bank from the perspective of the city of Philadelphia. There is expected to be a Q&A session afterward. Harker will have a committee vote as of January.
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S&P Cash Levels
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The 2180, and 2172 levels were indeed spectacular yesterday.  Fair Value this morning is -2.16.
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2193, 2187, 2180, 2172, 2165
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Wednesday’s Earnings Highlights
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Before the Open: LOW (.97), TGT (.83)
After the Close: LB (.40)