Comments Off on Weekly Market Analysis – 17 September 2018 BMO

Weekly Market Analysis – 17 September 2018 BMO

WEEK IN REVIEW – 10 to 14 September 2018 :
Wind in the Sails

Wall Street returned to its winning ways this week, powering through trade-related headlines and Hurricane Florence, one of the strongest storms to hit the Carolinas in decades. The S&P 500 advanced 1.2%, the tech-heavy Nasdaq Composite rose 1.4%, and the blue-chip Dow Jones Industrial Average climbed 0.9%.

Hurricane Florence was largely the talk of the week, forcing residents near the Carolina coast to either pack their bags or hunker down. The storm weakened to a Category 1 from a Category 4 before it made landfall on Friday though, which helped the market keep a positive bias. WTI crude futures were once up nearly 4.0% on the week, but gave the majority of that back as the storm weakened.

Meanwhile, on the trade front,the White House confirmed reports that it has proposed a new round of trade talks with China – a proposition that was welcomed by Beijing. However, President Trump muddied the waters a bit with a tweet on Thursday, saying the U.S. isn’t under pressure to make a deal with China; rather, China is under pressure to make a deal with the United States.

China’s major stock index, the Shanghai Composite, fell 0.8% this week, touching its lowest level since January 2016.

Separately, President Trump is reportedly considering a second meeting with North Korean leader Kim Jong-un ahead of the November midterm elections. The two leaders held a historic summit in June, but relations have cooled since, due to North Korea’s unsatisfactory progress towards denuclearization.

In U.S. corporate news, Apple (AAPL) unveiled a trio of new iPhones – iPhone Xs ($999), iPhone Xs Max ($1099), and iPhone Xr ($749) – at its annual product event on Wednesday, extending last year’s high-end iPhone X line, which was created in celebration of the iPhone’s 10th anniversary. Apple shares added 1.2% on the week.

The top-weighted technology sector was among the top-performing groups this week, rebounding from last week’s disappointing performance, with a gain of 1.8%. In total, ten of eleven groups finished in positive territory. Cyclical sectors generally outperformed, although the heavily-weighted financial space did not, finishing lower by 0.4%.

On the data front, investors received some influential inflation data this week, including the core Producer Price Index for August and the core Consumer Price Index for August. The core PPI declined 0.1%, while the consensus expected an increase of 0.2%, and the core CPI showed a less-than-expected increase of 0.1% (consensus +0.2%).

Those readings helped to ease fears that the Fed might have to be more aggressive in raising rates in order to keep the economy from overheating.

In monetary policy, a trio of central banks released their latest policy decisions this week, including the European Central Bank, the Bank of England, and the Central Bank of Turkey. Both the ECB and the Bank of England kept interest rates unchanged, as expected, but Turkey’s central bank increased its benchmark rate to 24.00% from 17.75%, attempting to stabilize the beleaguered Turkish lira.

The Fed is expected to raise rates by 25 basis points at its September 25-26 policy meeting, with the market placing the chances of a rate hike at 100%.

(Economic Excerpts from Briefing.com)

Wednesday 12 September

Fed releases Beige Book: Fed sees economy expanding at a moderate pace in recent weeks. Most districts note concern on trade.

August Core PPI M/M -0.1% vs +0.2%: Producer Price Index Rolled Back in August

The Producer Price Index for final demand declined 0.1% in August (consensus +0.2%) and so did the index for final demand, less food and energy (consensus +0.2%).

The decline in the final demand index was attributed to a 0.1% decrease in prices for final demand services, which was led by a 0.9% decline in the index for final demand trade services, which measures changes in margins received by wholesalers and retailers. The index for final demand goods was unchanged.

The key takeaway from the report is that it will soothe some burgeoning inflation concerns, as the monthly declines led to a moderation in producer price inflation on a year/year basis. The latter point notwithstanding, the market is apt to maintain its view that the Federal Reserve remains on course to raise rates two more times this year.

Thursday 13 September

Initial Claims and Continuing Claims Still Running Low (Very Low). 

Initial jobless claims for the week ending September 8 decreased by 1,000 to 204,000 (consensus 210,000).  Continuing claims for the week ending September 1 decreased by 15,000 to 1.696 million.

The key takeaway from the report is that the four-week moving averages for initial claims and continuing claims are at their lowest level since 1969 and 1973, respectively.

August Headline CPI M/M +0.2% vs +0.2% consensus. August Core CPI M/M +0.1% vs +0.2% consensus.

Total CPI increased 0.2%, as expected, while core CPI, which excludes food and energy, increased 0.1% (consensus +0.2%).

The key takeaway for the market is that there was a moderation in the year-over-year growth rates for total CPI and core CPI. That won’t alter the prevailing view that the Federal Reserve is likely to raise rates two more times this year, yet the moderation is apt to be seen as a data point that could keep the Federal Reserve from tightening rates too rapidly.

Friday 14 September

Retail Sales in August Fail to Live Up to Expectations

Total retail sales rose just 0.1% (consensus +0.4%) on the heels of an upwardly revised 0.7% increase (from +0.5%) in July. Excluding autos, retail sales jumped 0.3% (consensus +0.5%) following an upwardly revised 0.9% increase (from +0.6%) in July.

The upward revisions to the prior month helped mitigate some of the headline disappointment for August, yet the key takeaway from the report is that consumer spending is up and will continue to support real GDP growth in the third quarter.

Industrial Production Rises for Third Straight Month in August

August Industrial Production +0.4% vs +0.4% consensus
August Capacity Utilization 78.1% vs 78.3% consensus

Industrial production increased 0.4% in August, as expected, following an upwardly revised 0.4% increase (from 0.1%) in July.  August marked the third straight month that industrial production has increased.  The capacity utilization rate increased to 78.1% (consensus 78.3%) from a downwardly revised 77.9% (from 78.1%) in July.

The key takeaway from the report is the understanding that factory output was unchanged, excluding the gain in motor vehicles and parts.

Business Inventories Rise in July, as Expected

Total business inventories increased 0.6% in July, as expected, after increasing 0.1% in June. Total business sales increased 0.2% after increasing 0.3% in June.

The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Friday 14 September
Upbeat Week Ends on Flat Note

The stock market saw limited movement on Friday, ending a positive week on a flat note. The S&P 500 (unch) settled just above its flat line, locking in a 1.2% gain for the week. The Dow (unch) and Nasdaq (-0.1%) also finished near their flat lines, ending the week with respective gains of 0.9% and 1.4%.

Equities started the day just above yesterday’s closing levels, but relative weakness in a handful of rate-sensitive sectors and a mixed showing from other groups kept the market near its unchanged level. The underperformance in groups like utilities (-0.5%), telecom services (-0.4%), and real estate (-0.9%) was owed to overnight and early-morning selling in Treasury futures, which lifted the 10-yr yield to a six-week high just below the 3.000% area.

The broader market treaded water during early trade, thanks to gains in cyclical sectors like financials (+0.7%), industrials (+0.5%), and energy (+0.6%). The S&P 500 was on the verge of climbing to a fresh high around noon, but a Bloomberg report, indicating that President Trump is seeking to impose tariffs on $200 billion worth of imports from China despite the recent efforts to revive trade talks, sent the broader market to a session low.

In addition to pressuring stocks, the news weighed on offshore yuan and helped the U.S. Dollar Index (94.94, +0.42) climb to a fresh high, trimming this week’s loss to 0.4%.

Afternoon trade saw a slow climb off session lows, but the S&P 500 was not able to revisit its high, as heavily-weighted groups like consumer discretionary (-0.3%) and health care (-0.3%) struggled. For its part, the top-weighted technology sector spent the session near its flat line, ending little changed.

The market received just two earnings reports between yesterday’s closing bell and today’s open. Adobe Systems (ADBE) climbed 2.3% to a fresh record after beating earnings and revenue expectations while Dave & Buster’s (PLAY) rose 7.9% to a 13-month high after beating quarterly expectations and initiating a quarterly dividend of $0.15 per share.

Treasuries ended the day with losses, though intraday action saw the complex climb off mid-morning lows. The 10-yr yield rose three basis points to 2.99% after approaching its August high (3.02%) in early trade.

Investor participation was fairly consistent with the past two sessions as 762 million shares changed hands at the floor of the New York Stock Exchange.

Market Internals – Friday 14 September

Dollar: Skid Snapped

The U.S. Dollar Index closed up 0.5% at 94.95, locking in its first advance since last Friday. The greenback saw some early-morning weakness, which pressured the Index to a level not seen since the end of July. The Index climbed off its low during the European session, accelerating to a fresh high after the release of a Retail Sales report for August (actual 0.1%; consensus 0.4%), which missed estimates, but included an upward revision to the July reading. The Index built on its advance during the Friday U.S. session, trimming this week’s loss to 0.4%.

Bonds: 10-Yr Yield Flirts With 3.00% Again

U.S. Treasuries ended the week with losses across the curve. Treasury futures faced some selling pressure during overnight trade, as Hong Kong’s Hang Seng continued climbing off this year’s low while equity markets in Europe also recorded gains. Treasuries followed their lower start with a slip to fresh lows after the release of an August Retail Sales report (actual 0.1%; consensus 0.4%), which was below estimates, but contained an upward revision to the July reading. A bit more selling in mid-morning trade briefly lifted the 10-yr yield to its highest level (3.003%) since the start of August, but midday action saw Treasuries edge up from their lows. The rebound accelerated after Bloomberg reported that President Trump is seeking to impose tariffs on another $200 billion worth of imports from China despite the recent efforts to revive trade talks. The midday bid returned Treasuries to their opening levels, where they remained until the close. The slope of the yield curve faced flattening pressure over the course of the just-completed week, as the 2s10s spread compressed to 21 bps from last Friday’s 25 bps while the 2s30s spread tightened by six basis points to 35 bps.

The yield curve flattened as the shorter maturities’ yields made greater gains. The spread between the 5s10s narrowed to 9bps from 12bps the previous week while the 10s30s narrowed to 14bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 82.46, marginally lower than 82.59 the previous week.

WTI oil bottomed at 67.54 and settled the week at $68.99. The spread between WTI and Brent widened for a sixth week to $9.10 from $9.08 the previous week.

EIA petroleum data for the week ended September 07

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.3 mln barrels from the previous week. At 396.2 mln barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories increased by 1.3 mln barrels last week and are about 8% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 6.2 mln barrels last week and are about 3% below the five year average for this time of year. Propane/propylene inventories increased by 1.2 mln barrels last week and are about 11% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 10.1 mln barrels last week.

Natural gas inventory showed a build of 69 bcf vs a build of 63 bcf in the prior week. Working gas in storage was 2,636 Bcf as of Friday, September 7, 2018, according to EIA estimates. This represents a net increase of 69 Bcf from the previous week. Stocks were 662 Bcf less than last year at this time and 596 Bcf below the five-year average of 3,232 Bcf. At 2,636 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased +7 to 1055 following last week’s status quo.

Metals: Gold, Copper fight back

Agriculture: September 2018 USDA WASDE report:

Corn and wheat prices drop, while soybeans are modestly higher following monthly WASDE report 0n Wednesday. Here are a few key highlights from the report:

Note: I know it looks like Wheat and Soy swapped prices but its not a mistake. At Friday’s settlement;

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD
Week 38 (September 17 to 21)

The DOW, NASDAQ and S&P500 are expecting a rock and roll week ahead.

According to our 5, 10 and 15 year seasonal models, the SPY and DIA should be divergent on Monday, bullish on Tuesday, bearish on Wednesday and moderately bullish on Thursday. The DIA should finish Friday slightly divergent while SPY should be bearish.

Benchmarks (21 year average) for wk38:

Key Economic Dates

Week 38

In the coming week, the most important releases for the US are building permits and housing starts, existing home sales and flash Markit PMIs. Elsewhere, the BoJ interest rate decision, Japan trade and inflation, UK and Euro Area consumer prices and flash Markit PMIs for the Eurozone, France and Germany will also be in the spotlight.

Mon 17 September

Tue 18 September

Wed 19 September

Thu 20 September

Fri 21 September

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

COMMENTARY

I am bullish for the coming week (hope I don’t regret it) especially after the past week’s drop. I won’t be hanging on to anything for too long and will be watching for signs that the September market sell-down might be imminent.

That wasn’t too wild and I didn’t live to regret it. America’s economy still looks solid. With two likely rate hikes between now and the end of the year, there’s little else that concerns me with regard to the economy’s state of health for now.

I am still expecting a September market correction, mostly because I suspect there’s more than enough reason for portfolio dumping in the second half of the month. Even though the benchmarks have been making gains, the broader market doesn’t seem to agree as seen in its internals. Volumes haven’t fallen off a cliff but are considerably lower than the first half of the year, as can be expected leading into the October Effect.

Expect a volatile week ahead. If this market is as resilient as I think it is, we should se e moderate gains this time next week. But I won’t count out the start of the September correction closer to expiration Friday.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Analysis – 10 September 2018 BMO

Weekly Market Analysis – 10 September 2018 BMO

WEEK IN REVIEW – 03 to 07 September 2018 :
Three-Week Rally Comes to an End as Tech Shares Slide

Investors returned from the extended Labor Day weekend in a selling mood, pulling stocks away from last week’s record highs. The S&P 500 ended the week with a loss of 1.0%, while the tech-heavy Nasdaq Composite dropped 2.6%. The Dow Jones Industrial Average showed relative strength, but still finished lower by 0.2%.

The week kicked off with Amazon (AMZN) becoming the second U.S. company, after Apple (AAPL), to reach a market cap of $1 trillion and with Nike (NKE) unveiling a controversial ad for the 30th anniversary of its “Just Do It” campaign that features Colin Kaepernick, the former San Francisco 49ers quarterback credited with starting the national anthem protests. Amazon soon fell back after touching the $1 trillion milestone on Tuesday though, ending the week with a market cap of $952 billion.

On the Gulf Coast, residents braced for Tropical Storm Gordon to make landfall, which it did on Tuesday evening. Oil prices rallied in anticipation of the storm disrupting crude production, but gave back all of those gains after the storm turned out to be less damaging than feared. Oil prices then fell further on Thursday when the EIA’s weekly inventory report showed a 4.3 million barrel drop in crude stockpiles, but a 1.8 million barrel jump in inventories of gasoline. In total, WTI crude futures lost 2.9% this week, settling Friday at $67.76/bbl, and the oil-sensitive energy sector lost 2.3%.

The top-weighted information technology sector also underperformed this week, dropping 2.9%. Within the group, social media names were in focus after Facebook’s (FB) COO, Sheryl Sandberg, and Twitter’s (TWTR) CEO, Jack Dorsey, testified before the Senate Intelligence Committee on Wednesday morning, defending their efforts to prevent election meddling. Mr. Dorsey also appeared before the House Energy and Commerce Committee in the afternoon, rebuking allegations that Twitter promotes certain political ideologies. The hearings didn’t produce any new information of note, but that didn’t prevent Facebook and Twitter shares from tumbling 2.3% and 6.1% on Wednesday, respectively.

On the trade front, U.S.-China trade tensions resurfaced at the tail end of the week, as many thought the White House would impose tariffs on $200 billion worth of Chinese goods on Thursday at midnight following the end of a public comment period. That didn’t happen, but President Trump did raise the stakes on Friday, saying that he’s got another tranche of tariffs on $267 billion of Chinese goods “ready to go” if Beijing retaliates to the $200 billion tranche.

On a related note, trade talks between the U.S. and Canada resumed this week after the two sides failed to reach an agreement last Friday, but investors were skeptical that a deal would get done after President Trump tweeted on Saturday that there’s “no political necessity to keep Canada in the new NAFTA deal.” As of Friday’s closing bell, officials still had not reached an agreement.

In economic data, the Employment Situation report for August crossed the wires on Friday morning, causing some knee-jerk selling due to a higher-than-expected increase in average hourly earnings (+0.4% actual vs +0.2% consensus), which ignited some fears that inflation might be picking up. However, the realization that the economy is still strong, evidenced by a larger-than-expected increase in nonfarm payrolls (+201K actual vs +187K consensus) and an unemployment rate of 3.9%, helped keep losses in check.

As for the Fed, Friday’s jobs report virtually locked in a September rate hike and increased the chances of a December rate hike to 79.8% from 72.8% on Thursday.

(Economic Excerpts from Briefing.com)

Tuesday 04 September

ISM Manufacturing Index for August Hits Highest Level Since May 2004

The ISM Manufacturing Index for August checked in at 61.3% (consensus 57.6%), which is the highest level since May 2004. The dividing line between expansion and contraction is 50.0; and August marked the 24th consecutive month of expansion. The key takeaway from the report is that manufacturing activity is robust and consistent with a strong economy.

Wednesday 05 September

Trade Deficit Increases in July, Will Be a Drag on Q3 GDP Growth

The trade deficit widened to $50.1 bln in July (consensus -$50.6 bln) from an upwardly revised $45.7 bln (from -$46.3 bln) in June. That was the largest monthly increase in the deficit reportedly since 2015.

The key takeaway from the report is twofold: (1) the widening deficit will create a drag on Q3 GDP growth and (2) the July report is going to fan the Trump Administration’s flames about trade matters as it showed an increase in the deficit with both the European Union and China.

Thursday 06 September – Initial Claims Just Keep Getting Better

Initial Claims 203K vs 214K consensus; Prior 213K. Initial claims for the week ending September 1 decreased by 10,000 to 203,000 (consensus 214,000), which is the lowest level of initial claims since December 6, 1969.  Continuing claims for the week ending August 25 decreased by 3,000 to 1.707 million. The key takeaway from the report is that it is consistent with a tight labor market, as employers appear reluctant to cut payrolls.

Friday 07 September – Wage Growth Picks Up in August; Highest Since May 2009

The biggest surprise in the August employment report was the 0.4% increase in average hourly earnings. That pushed the year-over-year rate to 2.9%, which is the highest since May 2009. The wage growth should be regarded as good news, yet the key takeaway for the market is that it will keep the Fed in a tightening gear, which most likely includes two more rate hikes before the year is done.

Friday 07 September
Stocks Slip Following Jobs Report, Tariff Talk

Stocks slipped on Friday, giving the bears a clean sweep for the abbreviated week, after the Employment Situation report for August showed a stronger-than-expected increase in average hourly earnings and after President Trump threatened yet another round of tariffs on Chinese goods. The S&P 500 finished lower by 0.2%, while the Dow Jones Industrial Average and the Nasdaq Composite lost 0.3% apiece.

The Employment Situation report for August crossed the wires early Friday morning, showing a 0.4% rise in average hourly earnings (consensus +0.2%), which pushes the year-over-year rate to 2.9% – its highest level since May 2009. That ignited fears that inflation may be picking up more than expected, as that may force the Fed to be more aggressive in raising rates.

Equity futures dipped lower following the release, but the market didn’t stay down for long, with the S&P 500 fully reclaiming its opening loss of 0.4% about an hour into the session. However, President Trump sent stocks back to their opening levels around midday after saying that he’s got another tranche of tariffs on $267 billion of Chinese goods “ready to go” if China retaliates to a U.S. bid to impose a tariff on an additional $200 billion of Chinese goods (which hasn’t happened yet, but is expected by many to come to fruition soon).

In the end, the S&P 500, which traded as high as +0.2% and as low as -0.5%, settled near the middle of its trading range. 10 of 11 S&P sectors finished in negative territory, with health care (+0.2%) being the lone exception. The lightly-weighted utilities (-1.2%) and real estate (-1.2%) spaces were the worst performers, but losses were modest in general, with no other group dropping more than 0.5%.

The top-weighted technology space outperformed for much of the day, but eventually finished in line with the broader market, losing 0.3%. Within the space, Broadcom (AVGO) rallied 7.7% after reporting better-than-expected earnings for its fiscal third quarter. Meanwhile, Apple (AAPL) dropped in the late afternoon, settling lower by 0.8%, following headlines that the Trump administration’s proposed tariff list may cover a wide range of the company’s products.

In other corporate news, electric automaker Tesla (TSLA) tumbled 6.3%, hitting a five-month low, after its Chief Accounting Officer announced his resignation after just a month with the company and following headlines that its Chief People Officer will not be returning from her leave.

Looking at other markets, U.S. Treasuries sold off on Friday after the release of the August jobs report, sending yields higher across the curve. The yield on the Fed-sensitive 2-yr note jumped six basis points to 2.69%, and the yield on the benchmark 10-yr note also rose six basis points, closing at 2.94%. Elsewhere, the U.S. Dollar Index rallied 0.4% to 95.34, and WTI crude futures slipped 0.1% to $67.76/bbl.

Market Internals – Friday 07 September

Dollar: Dollar Index Climbs

The U.S. Dollar Index was up 0.4% at 95.42, before closing at 95.34 on Friday. The Index was on track for its third consecutive decline in overnight action on Friday, but the bulk of the overnight loss was reclaimed in early-morning trade. The Index extended its rebound after the release of a stronger than expected Employment Situation Report for August (actual 201K; consensus 187K), which included faster than expected average hourly earnings growth (actual 0.4%; consensus 0.2%). The Index overtook its morning high in midday trade, receiving another boost after President Trump said that another round of tariffs on $267 billion worth of goods from China is “ready to go.” Thanks to Friday’s advance, the Dollar Index locked in its first weekly gain in a month, having climbed 0.3% since last Friday.

Bonds: Strong August Jobs Report Sends Treasuries Lower

U.S. Treasuries ended the week with losses across the curve after the 2-yr note slid to a fresh decade low while longer tenors also retreated, though they are still above this year’s lows. Treasuries started the day with modest losses and continued sliding after the release of a better than expected Employment Situation Report for August, which not only strengthened expectations for two more hikes in 2018, but also boosted the likelihood of another rate increase in March 2019 to 47.7% from 38.1% yesterday. Treasuries hovered near their lows into the afternoon, and while the market saw some buying after President Trump told reporters gathered aboard Air Force One that another round of tariffs on $267 billion worth of imports from China is “ready to go”, those gains were surrendered in late trade. The threat of fresh tariffs on goods from China boosted the dollar against offshore yuan, leaving the Chinese currency within 1.5% of this year’s low. On a somewhat related note, President Trump also said that trade negotiations with Japan will be opened.

The yield curve rose and steepened as the long end made greater gains. The spread between the 5s10s widened to 12bps from 11bps the previous week while the 10s30s remained unchanged at 16bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 82.59, lower than 83.74 the previous week as Energy, Metals fell.

WTI oil fell after 2 weeks of gains, settling at $67.75. The spread between WTI and Brent widened for a fifth week to $9.08 from $7.62 the previous week.

EIA petroleum data for the week ended August 31

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.3 mln barrels from the previous week. At 401.5 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 1.8 mln barrels last week and are about 7% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 3.1 mln barrels last week and are about 6% below the five year average for this time of year. Propane/propylene inventories increased by 2.0 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 3.6 mln barrels last week.

Natural gas inventory showed a build of 63 bcf vs a build of 70 bcf in the prior week- nat gas initially pops a little higher following this data. Working gas in storage was 2,568 Bcf as of Friday, August 31, 2018, according to EIA estimates. This represents a net increase of 63 Bcf from the previous week. Stocks were 643 Bcf less than last year at this time and 590 Bcf below the five-year average of 3,158 Bcf. At 2,568 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count remained unchanged at 1048 following last week’s increase by 4.

Metals: Fall back

Agriculture: Corn and Wheat bounce, Soy falls some more

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD – Week 37 (September 10 to 14)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be very bullish on Monday and Tuesday, divergent on Wednesday and moderately bullish on Thursday.

DIA should finish the week bullish on Friday but SPY is expected to be bearish on Friday.

I don’t know if I can trust the Stock Trader’s Almanac for the coming week because there are obvious errors in the weekly data and trivia for their Benchmarks (21 year average) for week 37. The most glaring error is that it states Friday 14 as Triple Witching Friday.

Key Economic Dates

Week 37

In the coming week, the US will publish inflation rate, retail trade, industrial production and the preliminary reading of Michigan consumer sentiment. Elsewhere: UK monthly GDP and unemployment; Japan final GDP growth; China inflation, industrial production, retail trade and fixed asset investment; and interest rate decisions from the ECB, the BoE and the Central Bank of Turkey.

Sun 09 September

Mon 10 September

Tue 11 September

Wed 12 September

Thu 13 September

Fri 14 September

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

COMMENTARY

Has September begun its bearish nature already? I’m thinking that its early days yet and that it can get more bearish as the month  moves into its second half. The possibility of portfolio dumping is very real given that the market has really underperformed this year. The recent two-month run on the S&P and tech components will give the fund managers a reason to dump as the spectre of a bear market next year looms real. (Stocks are in ‘the danger zone’)

I am bullish for the coming week (hope I don’t regret it) especially after the past week’s drop. I won’t be hanging on to anything for too long and will be watching for signs that the September market sell-down might be imminent.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

OR  download our promo slides here:
The Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Screen Shot 2017-10-01 at 1.38.39 PM

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Comments Off on Weekly Market Analysis – 04 September 2018 BMO

Weekly Market Analysis – 04 September 2018 BMO

WEEK IN REVIEW – 27 to 31 August 2018 :
Going Deeper Into Record Territory

After returning to record territory last Friday, the S&P 500 trekked even higher this week, adding 0.9% in total. The tech-heavy Nasdaq outperformed, adding 2.1%, and the Dow also advanced, tacking on 0.7%. Investors dealt with a flurry of trade-related headlines this week, especially in regards to NAFTA negotiations.

The U.S. and Mexico reached a bilateral trade deal on Monday, a headline that sent Wall Street to new all-time highs. Canada then entered the discussions to try to work out a deal with the United States, but the two sides weren’t able to reach an agreement by President Trump’s Friday deadline. However, the White House said late on Friday that talks will resume next week.

In other trade-related news, Wall Street registered its only loss of the week on Thursday following reports that President Trump wants to move forward with tariffs on $200 billion worth of Chinese goods as early as next week. In addition, the president said in a Bloomberg interview that the EU’s offer to eliminate auto tariffs does not go far enough and compared the EU’s trade policies to those of China.

Meanwhile, on the earnings front, investors once again received quarterly results from a number of retailers this week, including results from well-known companies like Dollar General (DG), Best Buy (BBY), lululemon athletica (LULU), Dollar Tree (DLTR), Ulta Beauty (ULTA), Tiffany & Co (TIF), and Burlington Stores (BURL).

The results came in mostly better-than-expected, but guidance was more mixed, leaving the SPDR S&P Retail ETF (XRT) with a modest weekly gain of 0.3%.

Away from earnings, Amazon (AMZN) climbed to new records and crossed the $2000 mark for the first time ever after Morgan Stanley raised its target price for the online retail giant to $2500 — a new Street high. Meanwhile, Apple (AAPL) also hit new records, helped by investing legend Warren Buffett, who said he’s recently bought more shares of the world’s largest tech company.

Tesla (TSLA) also made headlines, moving lower after its CEO, Elon Musk, announced that he’s abandoned plans to take the electric automaker private.

As for the sector standings, seven groups finished the week in the green and four groups finished in the red. The top-performing sectors were technology (+2.0%), consumer discretionary (+1.8%), and health care (+1.0%). Conversely, telecoms (-1.7%), consumer staples (-0.5%), and utilities (-0.6%) finished at the back of the pack.

Also of note, there were some important pieces of economic data released this week, including the second estimate of Q2 GDP (+4.2% actual vs +4.0% consensus) and the July reading of the core PCE Price Index (+0.2% actual vs +0.2% consensus), which is the Fed’s preferred measure of inflation. Neither report elicited much of response from the stock market though.

With August now in the books, it still appears very likely that the Fed will raise rates at its September meeting, with the CME FedWatch Tool placing the chances at 98.4%.

U.S. markets will be closed on Monday in celebration of Labor Day.

(Economic Excerpts from Briefing.com)

Wednesday 29 August – Q2 GDP Revised Up with Second Estimate

The second estimate for Q2 GDP checked in at 4.2% (consensus 4.0%) versus the advance estimate of 4.1%. The Q2 GDP Deflator also pushed up to 3.2% (consensus 3.0%) from the advance estimate of 3.0%.

The key takeaway from the report is that it included a downward revision to personal spending growth (from 4.0% to 3.8%) that was offset by a higher estimate for nonresidential investment growth, government spending, and a downward revision to imports, which are a subtraction in the calculation of GDP.

Thursday 30 August – Initial Claims Rolling Along at Low Levels

Initial claims for the week ending August 25 increased by 3,000 to 213,000 (consensus 214,000) while continuing claims for the week ending August 18 decreased by 20,000 to 1.708 million. The key takeaway from the report is the recognition that the four-week moving average of 212,250 for initial claims is the lowest since December 13, 1969, underscoring the strength in the labor market.

Thursday 30 August – Personal Income and Spending for July Keep Economy on Solid Growth Track

Personal income for July increased 0.3% (consensus +0.4%), personal spending jumped 0.4% (consensus +0.4%), the PCE Price Index increased 0.1% for the second straight month, and the core PCE Price Index, which excludes food and energy, rose 0.2% (Briefing.com consensus +0.2%).

The key takeaway from the report is twofold: (1) the spending increase puts Q3 GDP on a solid growth track and (2) the year-over-year increase in the PCE Price Index (+2.3% vs. +2.2% prior) and the core PCE Price Index (+2.0% vs. +1.9% prior) will keep the Federal Reserve on its tightening track in September.

Friday 31 August – August Chicago PMI 63.6 vs 63.0 consensus, July 65.5

The MNI Chicago Business Barometer, otherwise known as the Chicago PMI, dipped to 63.6 in August (consensus 63.0) from a six-month high of 65.5 in July.  The dividing line between expansion and contraction is 50.0.

Despite the dip, the key takeaway from the August report is that manufacturing activity in the Chicago Fed region remains robust.

Friday 31 August
Stocks Hold Steady Despite No U.S.-Canada Trade Deal

Friday’s trading session – the last session ahead of an extended Labor Day weekend – was an eventful one in terms of trade-related headlines, but a largely uneventful one for the major averages, which finished roughly flat. The S&P 500 (unch) added less than a point, the Nasdaq Composite (+0.3%) advanced modestly, and the Dow Jones Industrial Average (-0.1%) finished slightly lower.

All eyes were on Washington, where U.S. and Canadian officials were scrambling to get a trade deal done by President Trump’s end of Friday deadline. The two sides weren’t able to reach an agreement, but the White House then said talks will extend into next week. The extension was unexpected, as President Trump has said he’d be willing to move on without Canada if a deal wasn’t in place by Friday.

Nonetheless, the news helped the market recover modest losses from earlier in the day, which were extended after The Toronto Star released “off the record” remarks that President Trump made during a Bloomberg interview on Thursday, including an acknowledgement that he’s not making any compromises in the trade talks with Canada.

U.S. Trade Representative Robert Lighthizer announced late in the afternoon that President Trump has officially notified Congress that he wants to sign a trade agreement with Mexico, which agreed to a bilateral deal with the U.S. on Monday, and potentially Canada, in 90 days. The deals are aimed at replacing the North American Free Trade Agreement, which has been in place since 1994.

As for the 11 S&P 500 sectors, almost all of them finished within 0.5% of their unchanged marks. The energy sector (-0.7%) was the lone exception, falling in tandem with the price of crude oil; WTI crude futures slid 0.5% to $69.84/bbl. Energy finished August at the bottom of the sector standings with a monthly loss of 3.8%; for comparison, the S&P 500 added 3.0%.

In earnings news, lululemon athletica (LULU) and Ulta Beauty (ULTA) advanced 13.1% and 6.4%, respectively, after releasing their quarterly results, but Big Lots (BIG) dropped 10.1% after reporting lower-than-expected profits and guidance for FY19.

Looking at other markets, U.S. Treasuries advanced, pushing yields lower across the curve, with the benchmark 10-yr yield slipping one basis point to 2.85%; the U.S. Dollar Index climbed 0.4% to 95.05, its best level in a week; and the CBOE Volatility Index, often referred to as the “investor fear gauge”, slid 3.2% to 13.10.

Market Internals – Friday 31 August

Dollar: Dollar Index Reclaims 50-Day Average

The U.S. Dollar Index was up 0.4% at 95.12, to end a volatile month on a modestly higher note. The dollar held its ground in overnight trade on Friday, but began rallying during the latter portion of the European session, accelerating its advance after weakness in Italian debt lifted the country’s 10-yr yield (3.24%) to a level not seen since Italy’s 10-yr yield spiked to 3.39% in late May. In addition to rallying against the euro, the greenback has had a strong showing against commodity currencies, pressuring the Aussie to a fresh 2018 low. The Dollar Index has reclaimed its 50-day moving average (95.01) to add 0.6% for August after being up 2.6% for the month at its highest point on August 15.

Bonds: Long Bond Surrenders Intraday Gain Ahead of NAFTA Update

Shorter-dated U.S. Treasuries ended the week on a higher note while longer tenors surrender their gains in afternoon action. The trading day started with modest gains after an overnight rally in Treasury futures amid renewed focus on trade. Recall that a report released on Thursday afternoon reminded investors that the next tranche of tariffs on $200 billion worth of imports from China is likely to go into effect next week. In addition, there was some speculation about the longevity of the agreement President Trump made with European Commission President Jean-Claude Juncker to suspend tariffs while negotiations take place, after President Trump said that it would be insufficient for Europe to remove tariffs on auto imports if other barriers remained in place. The comments were made during an interview with Bloomberg.

Treasuries extended their gains during the first hour of trade, moving higher alongside the U.S. dollar. That advance took place as weakness in Italian debt lifted Italy’s 10-yr yield (3.24%) to a level not seen since the country’s 10-yr yield spiked to 3.39% in late May. The morning rally was followed by a small intraday pullback, but the 10-yr note surrendered the bulk of its gain while the long bond turned negative during the final minutes of the action, in a move coinciding with an announcement that Canada’s Foreign Minister Chrystia Freeland will hold a press conference at 16:30 ET (Friday) to discuss the results of NAFTA negotiations. The late selling returned 10s and 30s to little changed while 2s and 5s finished the session near their highs.

The yield curve rose across the board, steepening slightly at the long end. The spread between the 5s10s remained unchanged at 11bps from 11bps the previous week while the 10s30s widened to 16bps from 15bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.74, higher than 83.69 the previous week as Energy,  Corn and Wheat make gains.

WTI oil rose for a second, settling at $69.80. The spread between WTI and Brent continued to widen for a fourth week to $7.62 from $7.10 the previous week.

EIA petroleum data for the week ended August 24

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.6 mln barrels from the previous week. At 405.8 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories decreased by 1.6 mln barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories remained virtually unchanged last week. Distillate fuel inventories decreased by 0.8 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 2.6 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 1.7 mln barrels last week.

Natural gas inventory showed a build of 70 bcf vs a build of 48 bcf in the prior week. Working gas in storage was 2,505 Bcf as of Friday, August 24, 2018, according to EIA estimates. This represents a net increase of 70 Bcf from the previous week. Stocks were 646 Bcf less than last year at this time and 588 Bcf below the five-year average of 3,093 Bcf. At 2,505 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by 4 to 1048 following last week’s decrease by 13.

Metals: Fall back

Agriculture: Corn and Wheat bounce, Soy falls some more

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE MONTH AHEAD

September is the last month of Quarter Three, the “worst” quarter of the financial year. September has the reputation of being the most bearish month of the trading year. 

September 2018 is the shortest trading month of the year with only nineteen (19) trading sessions and one public holiday. September tends to start bullish in the first two weeks, becomes bearish and volatile in the third week and ends the month in typical unpredictable fashion, often selling down in the final week.

September Trivia

~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD – Week 36 (September 03 to 07)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be expecting a divergent and volatile week ahead:

Benchmarks (21 year average) for wk36:

Key Economic Dates

Week 36

In the coming week, the US will release the jobs report, trade balance, ISM PMIs, ADP employment and factory orders. Elsewhere, important data include: UK Markit PMIs; Japan household spending; China foreign trade and Caixin PMIs; and Australia interest rate decision, GDP growth, trade balance and retail sales.

Sun 02 September

Mon 03 September

Tue 04 September

Wed 05 September

Thu 06 September

Fri 07 September

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

COMMENTARY

August has been a reliably bearish month over the last 30 years but this year’s August Bear was driven away by very good Q2 earnings and a still-lofty US economy. It closed the last week in rather volatile fashion.

Asian and European markets closed out the week to the downside in the light of increasing trade war pressure following Thursday’s reports that President Trump intends to move ahead with tariffs on $200 billion worth of Chinese goods as early as next week. In addition, separate reports said that Mr. Trump has rejected an offer from the EU to eliminate tariffs on automobiles.

President Trump criticized the EU on Thursday, leading to speculation that his agreement with European Commission President Jean-Claude Juncker to suspend tariffs while negotiations take place will be short-lived. Yesterday’s reminder about the likelihood of another round of tariffs going into effect next week was followed by comments from President Trump, who said the United States could leave the World Trade Organization if the WTO doesn’t “shape up.

With regard to the U.S.-Canada trade talks, Thursday’s selling carried over into Friday’s session as investors awaited news from Washington, where U.S. and Canadian trade officials were scrambling to reach a deal by President Trump’s end of day deadline. U.S.-Canada trade discussions appeared promising earlier in the week, but seem to have soured a bit as of late, especially following a Toronto Star report, which accused President Trump of making inflammatory “off the record” remarks in a Bloomberg interview on Thursday.

According to The Star, Mr. Trump said that he is not making any compromises in the trade talks with Canada, but he doesn’t want to say that publicly because “it’s going to be so insulting they’re not going to be able to make a deal.” Traders are still waiting to see how the drama will play out, although some have likely already left to get a jump start on the Labor Day weekend.

SUMMARY

It is a shortened week in the month that has a reputation for being bearish. It is also going to be a very short month in which we will be having loads of significant macroeconomic events that will lead up to the final Earnings Season in October.

Expect increased volatility with lower volumes as September has regularly offered in the past. I remain cautiously bullish and will still keenly be watching for the first signs of a correction that the month so famously presents almost every year.

Happy Hunting!

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The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

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Comments Off on Weekly Market Analysis – 27 August 2018 BMO

Weekly Market Analysis – 27 August 2018 BMO

WEEK IN REVIEW – 20 to 24 August 2018 :
Back to Record Territory

The S&P 500 advanced 0.6% this week, closing Friday at a new record high for the first time since January 26. Political uncertainty, trade ambiguity, and strengthened expectations for two more rate hikes this year all failed to dissuade motivated buyers, who pushed stocks higher in three of the week’s five sessions.

As for the other major averages, the Nasdaq and the Russell 2000 also notched new records, adding 1.7% and 1.9%, respectively, while the Dow climbed 0.5%.

The week started on a mildly positive note, with stocks ticking higher on Monday and Tuesday, but investors were cautious over the next two sessions, largely due to the legal woes of President Trump’s former campaign manager, Paul Manafort, and longtime personal lawyer, Michael Cohen.

Mr. Manafort was convicted of tax and bank fraud on Tuesday afternoon, while Mr. Cohen pleaded guilty to a range of charges, including tax fraud and excessive campaign contributions, and implicated the president directly by saying that Mr. Trump directed him to pay two women hush money “for the principal purpose of influencing the election.”

It’s too early to say what these developments will mean for President Trump’s political future, but it’s worth noting that the president chose to say, in regards to the situation, that the market would crash “if I ever got impeached” and that “I don’t know how you can impeach somebody who has done a great job.”

Moving on to the trade front, two days of trade talks between the U.S. and China wrapped up on Thursday without any visible sign of progress. President Trump said beforehand that he wasn’t expecting much to come out of the talks, which marked the first official negotiations since a breakdown nearly three months ago.

In monetary policy, President Trump reiterated his displeasure with the Fed on Monday, saying he was “not thrilled” with Fed Chair Jerome Powell for raising rates.

Two days later, the Fed released the minutes from the July/August FOMC meeting, which only strengthened the expectation that the U.S. central bank will hike rates at its September meeting, with officials saying in the minutes that it would likely “soon” be appropriate to raise rates.

Then, on Friday, Fed Chairman Powell gave a speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, saying that gradual rate hikes remain appropriate. Mr. Powell also expressed confidence in the economy and said he doesn’t see any signs of inflation getting out of hand.

Seven of eleven sectors advanced this week, with cyclical groups showing relative strength. The energy sector (+2.6%) was the top performer — rebounding from last week’s 3.6% tumble — helped by an increase in crude prices; West Texas Intermediate crude futures climbed 4.2% this week to $68.66 per barrel.

Meanwhile, the consumer discretionary sector (+2.0%) also outperformed amid a steady flow of retail earnings. TJX (TJX) jumped 4.7% on Tuesday after reporting better-than-expected results, while Lowe’s (LOW) and Target (TGT) added 5.8% and 3.2%, respectively, on Wednesday after also beating estimates.

On the downside, the four declining sectors were consumer staples (-1.8%), utilities (-1.4%), telecom services (-0.7%), and real estate (-1.1%).

(Excerpts from Briefing.com)

Wed 22 August – Fed releases minutes from July 31/August 1 FOMC policy meeting

Thu 23 August – Initial Claims Remain Near Recent Levels (210K vs 217K consensus)

Fri 24 August – S&P Notches First Record Close Since January

Friday was a record-setting day for the stock market, with the S&P 500 (+0.6%) notching its first record close (2874.69) since January 26. The Nasdaq (+0.9%) also registered a fresh record finish, as did the small-cap Russell 2000 (+0.5%). The Dow (+0.5%) advanced, but finished about 3.0% below its January record high.

The market extended opening gains after Fed Chairman Jerome Powell didn’t say anything upsetting in his speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. Mr. Powell reiterated that gradual rate hikes remain appropriate, adding that he doesn’t see any signs that inflation is getting out of hand.

On the international front, investors brushed off news that two days of trade talks between the U.S. and China ended on Thursday without any visible sign of progress. That result was expected as President Trump said beforehand that he didn’t believe much would come from the negotiations.

Separately, President Trump tweeted on Friday afternoon that he’s asked Secretary of State Mike Pompeo not to go to North Korea because there has not been sufficient progress with respect to the decentralization of the Korean Peninsula. The stock market had a muted reaction to the tweet.

Wall Street’s gains were broad-based on Friday with 10 of 11 sectors advancing.

The lightly-weighted materials sector (+1.2%) was the top-performing group, followed closely by the top-weighted technology sector (+1.1%). Within the tech space, software company Autodesk (ADSK) spiked 15.3% after reporting better-than-expected earnings and revenues on Thursday evening.

In other earnings news, retailers dominated the headlines once again with Gap (GPS) and Foot Locker (FL) tumbling 8.6% and 9.2%, respectively, and Buckle (BKE) dropping 4.5% in reaction to their quarterly results. Conversely, Ross Stores (ROST) ticked up 0.1%.

The consumer staples sector (-0.2%) was the lone decliner, but financials (+0.3%), industrials (+0.4%), and utilities (+0.4%) also underperformed.

Looking at other markets, U.S. Treasuries finished slightly lower, pushing the benchmark 10-yr yield up one basis point to 2.83%. Meanwhile, the U.S. Dollar Index gave back nearly all of Thursday’s rebound, dropping 0.5% to 95.05, and West Texas Intermediate crude futures jumped 1.2% to $68.66/bbl.

Market Internals – Friday 24 August

Dollar: Dollar Index Revisits 50-Day Average

The U.S. Dollar Index was down 0.6% at 95.13, hovering just above its 50-day moving average (95.02) once again. The greenback surrendered a portion of Thursday’s gain in overnight trade, dropping to a fresh session low after the release of Fed Chairman Jay Powell’s speech from the Jackson Hole Symposium. The speech was largely in-line with expectations, as Chairman Powell acknowledged that continued rate hikes are warranted as long as economic growth remains on track. Mr. Powell did not discuss currencies in his remarks. The Dollar Index is on track to surrender 1.0% for the week.

Bonds: Treasuries Yawn at Comments from Jackson Hole

U.S. Treasuries ended Friday on a slightly lower note after reclaiming the bulk of their opening losses. Treasuries ticked lower in overnight trade, widening their losses ahead of the release of Fed Chairman Jay Powell’s speech from the Jackson Hole Symposium. However, those losses were mostly reclaimed after Mr. Powell’s speech fit largely in-line with the market’s view of monetary policy. The Fed Chairman said he believes that increasing rates in gradual fashion will remain appropriate if growth stays on its current path. Mr. Powell did not discuss trade and did not talk about the expected impact of Fed policy on emerging markets. Pressure on the yield curve persisted, briefly compressing the 2s10s spread to a new cycle low of 19 bps. However, the 2s10s spread returned to unchanged by the end of the session, ending the week at 22 bps, three basis points tighter when compared to last Friday.

The yield curve flattened more as the longer maturities’ yields fell more than the shorter maturities’ yields. The spread between the 5s10s tightened to 11bps from 12bps the previous week while the 10s30s tightened to 15bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.69, higher than 83.35 the previous week as ABCDE

WTI oil snapped a seven week losing streak, settling at $68.72. The spread between WTI and Brent continued to widen for a third week to $7.10 from $5.92 the previous week.

EIA petroleum data for the week ended August 17

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.8 mln barrels from the previous week. At 408.4 mln barrels, U.S. crude oil inventories are at the five year average for this time of year. Total motor gasoline inventories increased by 1.2 mln barrels last week and are about 6% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 1.8 mln barrels last week and are about 7% below the five year average for this time of year. Propane/propylene inventories decreased by 0.9 mln barrels last week and are about 13% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 2.5 mln barrels last week.

Natural gas inventory showed a build of 48 bcf vs a build of 33 bcf in the prior week. Working gas in storage was 2,435 Bcf as of Friday, August 17, 2018, according to EIA estimates. This represents a net increase of 48 Bcf from the previous week. Stocks were 684 Bcf less than last year at this time and 599 Bcf below the five-year average of 3,034 Bcf. At 2,435 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by 13 to 1044 following last week’s status quo.

Metals: All recover

Agriculture: Grains Resume Seasonal Weakness

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD – Week 35 (August 27 to 31)

According to our 5, 10 and 15 year seasonal models, the SPY and DIA will be expecting a divergent and volatile week ahead:

Trivia:

Benchmarks (21 year average) for wk35:

Key Economic Dates

Week 35

Next week the US will publish the second estimate of GDP growth, personal income and spending, PCE prices, and pending home sales. Elsewhere: UK monetary indicators; Eurozone inflation; Japan retail sales and industrial output; China official PMIs; and Canada, India and Brazil GDP growth rates.

Mon 27 August

Tue 28 August

Wed 29 August

Thu 30 August

Fri 31 August

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

So the market breaks higher highs in a month that’s not supposed to be bullish and is about to go into a month that’s supposed to be the year’s most bearish. There is nothing ordinary about what’s going on and I shouldn’t be surprised either as the macros still favour a bull market.

The yield curve, on the other hand is still a cause for concern and I will be watching it closer than ever as we get into September, especially if September shows its usual signs of declining.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

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The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

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Comments Off on Weekly Market Analysis – 20 August 2018 BMO

Weekly Market Analysis – 20 August 2018 BMO

WEEK IN REVIEW – 13 July to 17 August 2018 :
Hodgepodge of Headlines Helps Fuel Rebound

The S&P 500 advanced 0.6% this week – recouping last week’s modest decline – amid a host of retail earnings, more volatility in the Turkish lira, and another (minor) chapter in the U.S.-China trade war saga. The blue-chip Dow outperformed the S&P 500, rallying 1.4%, but the tech-heavy Nasdaq lagged, losing 0.3%.

Retailers stepped up to the earnings plate this week, with Walmart (WMT), Home Depot (HD), Macy’s (M), Nordstrom (JWN), Advance Auto (AAP), and J.C. Penney (JCP) all reporting their quarterly results. The market’s reaction to the reports was mixed.

In the session immediately following their respective earnings releases, Walmart spiked 9.3%, Home Depot lost 0.5%, Macy’s plunged 16.0%, Nordstrom spiked 13.2%, Advance Auto climbed 7.8%, and J.C. Penney plunged 27.0%. On a related note, the July Retail Sales report came in better-than-expected, showing a month-over-month increase of 0.5% (Briefing.com consensus +0.1%).

Non-retail names reporting earnings this week included Cisco Systems (CSCO), NVIDIA (NVDA), and Deere (DE). Cisco Systems and Deere rallied in the session immediately following their releases, adding 3.0% and 2.4%, respectively, but market-darling NVIDIA tumbled, losing 4.6%, after disappointing guidance overshadowed upbeat results.

In other corporate news, Tesla’s (TSLA) chief executive, Elon Musk, attempted to clarify last week’s tweet about taking Tesla private, saying that his claim that funding has been secured is based on repeated conversations with Saudi Arabia’s sovereign wealth fund. Mr. Musk also did a high-profile interview with The New York Times, in which he discussed his personal struggles, calling this past year “the most difficult and painful” of his career. Tesla shares ended the week lower by 14.1%.

In currencies, the Turkish lira followed up last Friday’s 16% plunge with another slide on Monday, touching a new all-time low against the U.S. dollar, but then rebounded for the next three sessions. That streak ended with another tumble on Friday, but the currency still finished with a weekly gain of 6.1%.

On the trade front, reports that the U.S. and China will resume trade talks by the end of the month helped equities rally on Thursday. The talks will mark the first official negotiations since a breakdown two months ago, but it’s worth noting that the talks are expected to be between low-level officials. In addition, The Wall Street Journal reported late on Friday that Chinese and U.S. negotiators are planning talks to try to end their trade disagreement ahead of multilateral meetings between President Trump and President Xi in November.

Elsewhere, West Texas Intermediate crude futures tumbled 2.5% to $65.94 per barrel this week, touching a fresh two-month low on Wednesday after the Energy Information Administration’s weekly inventory report showed an unexpected build of 6.8 million barrels. The drop in oil prices weighed on the energy group, which finished at the bottom of the sector standings with a loss of 3.6%.

Most S&P 500 sectors finished the week in positive territory, with less-risky, countercyclical groups – including consumer staples (+3.2%), utilities (+2.5%), and telecom services (+3.7%) – leading the charge. The top-weighted technology sector underperformed, shedding 0.2%, but remains 2018’s top-performing group with a year-to-date gain of 15.6%.

(Excerpts from Briefing.com)

Wed 15 August – Industrial Production & Capacity Utilisation

Thu 16 August – Initial Claims & Philly Fed

Fri 17 August – Leading Indicators

Fri 17 August – Positive Trade Headlines Fuel Late Uptick

The S&P 500 advanced 0.3% on Friday, securing a weekly gain of 0.6%, helped by a Wall Street Journal report that Chinese and U.S. negotiators are planning talks to try to end their trade disagreement ahead of multilateral meetings between President Trump and President Xi in November. The Dow added 0.4% on Friday, and the Nasdaq ticked up 0.1%.

Friday’s gains were broad-based, with all 11 S&P sectors closing in the green. The industrials (+0.6%), materials (+0.7%), consumer staples (+0.7%), and real estate (+1.0%) sectors were the top performers, while consumer discretionary (+0.1%), financials (+0.2%), and technology (+0.2%) finished at the back of the pack.

Stocks opened roughly flat and stayed largely unchanged until the afternoon when the WSJ report crossed the wires, pushing the market to new highs.

In corporate news, Tesla (TSLA) tumbled 8.9% following a New York Times interview with its CEO, Elon Musk, in which he discussed his personal struggles, calling this past year “the most difficult and painful” of his career. The NYT also reported that some of Tesla’s board members are concerned over Mr. Musk’s use of Ambien and recreational drugs.

On the earnings front, NVIDIA (NVDA) and Applied Materials (AMAT) tumbled 4.9% and 7.7%, respectively, after they reported worse-than-expected guidance, which overshadowed their better-than-expected earnings. The Philadelphia Semiconductor Index lost 0.7%.

Conversely, Nordstrom (JWN) spiked 13.2% after reporting above-consensus earnings and guidance for FY19, and Deere (DE) climbed 2.4% despite missing bottom-line estimates and issuing below-consensus guidance for the current quarter.

Away from stocks, the Turkish lira lost 3.6% against the U.S. dollar, ending its three-session rebound, and U.S. Treasuries spent most of the day in the green, but finished the session little changed. The yield on the benchmark 10-yr Treasury note finished flat at 2.87%.

Market Internals – Friday 17 August

Dollar: Dollar Index Pulls Back

The U.S. Dollar Index was down 0.4% at 96.30, turning negative for the week. Overnight action saw a pullback in the Dollar Index, which coincided with an uptick in the yuan. The yuan is not in the Dollar Index basket, but the overnight uptick was followed a jump in the euro, pound, and Australian dollar, which pressured the Dollar Index. The Index reclaimed the bulk of its loss in Friday’s early-morning trade, but slid to a fresh low a few hours later. Friday’s decline is the Index’s first weekly loss in four weeks, though the Index was only down 0.1% since the end of last Friday’s session.

Bonds: Afternoon Pullback Produces Flat Finish

U.S. Treasuries ended the week on a flat note after trade-related news prompted some late selling. The afternoon pullback prevented 10s and 30s from recording their third consecutive week of gains. Early action saw Treasuries oscillate near their opening levels, making for a mostly quiet trading day. However, the complex backed off session highs during the last 90 minutes of action, after The Wall Street Journal reported that officials from the U.S. and China would like to resolve disagreements over trade in time for multilateral meetings in November. The late report gave a boost to offshore yuan (USD/CHN -0.5% to 6.828), helping the Chinese currency secure its first weekly advance in ten weeks and only the third higher finish for the week out of the past 18 weeks. The dollar gave way to other currencies as well, causing the Dollar Index to extend its decline to 0.6% from 0.4% before the news. The yield curve ended the week at a slightly flatter level, as the 2s30s spread compressed to 41 bps from last Friday’s 42 bps while the 2s10s spread tightened by a basis point to 25 bps.

The yield curve flattened slightly as the 2 and 5-yr maturities gained 1bps more than the 10 and 30-yr. The spread between the 5s10s tightened to 12bps from 13bps the previous week while the 10s30s remained unchanged at 16bps from 16bps the previous week.

Commodities 

The Bloomberg Commodity Index settled at 83.35, lower than 84.23 the previous week as Oil and Metals continued their seasonal weakness. Lumber was the strongest commodity, up almost 7% at a three-week high.

WTI oil locks in a seventh straight weekly loss, settling at $65.91, on weaker demand outlook while Brent registered its third straight week down. The spread between WTI and Brent continued to widen for a second week to $5.92 from $5.18 the previous week.

EIA petroleum data for the week ended August 10

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.8 mln barrels from the previous week. At 414.2 mln barrels, U.S. crude oil inventories are about 1% above the five year average for this time of year. Total motor gasoline inventories decreased by 0.7 mln barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.6 mln barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 3.4 mln barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 17.4 mln barrels last week.

Natural gas inventory showed a build of 33 bcf vs a build of 465 bcf in the prior week. Working gas in storage was 2,387 Bcf as of Friday, August 10, 2018, according to EIA estimates. This represents a net increase of 33 Bcf from the previous week. Stocks were 687 Bcf less than last year at this time and 595 Bcf below the five-year average of 2,982 Bcf. At 2,387 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count remained unchanged at 1057 following last week’s increase of of 13.

Metals: All lower

Agriculture: Grains Bounce

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD – Week 34 (August 20 to 24)

According to our seasonal model, the SPY and DIA will be expecting a divergent week ahead:

Trivia:

Benchmarks (21 year average) for wk34:

Key Economic Dates

Week 34

This week the Fed, the ECB and the RBA will publish the minutes of their last monetary policy meetings. Key economic data include: US existing and new home sales, durable goods orders and flash Markit PMIs; UK CBI factory orders; Eurozone flash Markit PMIs; and Japan inflation rate and flash Manufacturing PMI.

Mon 20 August

Tue 21 August

Wed 22 August

Thu 23 August

Fri 24 August

Sat 25 August

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

With two weeks remaining in August, the month has yet to rear its bearish nature. The benchmarks, for now, remain range-bound  with the exception of NASDAQ that seems to have come up against a formidable resistance at 7,900 while S&P is stuck below 2,850 and the DOW at 25,650.

U.S. economy is still lofty and showing no signs of failing anytime soon. By most measures, the economy is as strong now as it has been in decades. Hiring is strong, unemployment is low, households and business are confident and stocks are rising again. Any headwinds are likely to come from off-shore threats such as the tariff-tango and trade wars. Crisis in emerging markets like Turkey rarely hurt the U.S. economy but there have been a few events such as the “Asian contagion” in 1997 and a Russian default in 1998 when the danger become global.

Then you have the Federal Reserve. The central bank has been raising the cost of borrowing in the U.S. by lifting interest rates. Europe and Japan may also tighten monetary policy. Minutes of the August-ending meeting are due for release this Wednesday. If the Fed moves either too fast or too slow, the results could be painful for the economy. Already, higher rates appear to have dampened home sales and construction. The Fed Chair, Jerome Powell’s speech on Friday 24 August will be keenly watched for hints as to what the Fed is likely to do in the coming September FOMC Monetary Policy meeting.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive environment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Update – 13 August 2018 BMO

Weekly Market Update – 13 August 2018 BMO

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WEEK IN REVIEW – 06 July to 10 August 2018 :
Rattled by the Lira

The S&P 500 started the week on a positive note, extending last week’s winning streak and coming within 0.5% of its January 26 record high. However, the index struggled in the back half of the week, especially on Friday amid a sharp drop in the Turkish lira, eventually settling with a weekly loss of 0.3% — its first weekly loss since late June.

As for the other major averages, their performances were mixed, with the tech-heavy Nasdaq climbing 0.4% and the blue-chip Dow dropping 0.6%.

Eight of eleven S&P sectors declined this week, with industrials (-1.0%), materials (-0.9%), consumer staples (-1.9%), and real estate (-1.9%) leading the retreat. On the flip side, consumer discretionary (+0.8%), information technology (+0.3%), and telecom services (+0.7%) were the three advancing groups.

In corporate news, Tesla (TSLA) rallied on Tuesday after CEO Elon Musk tweeted that he’s considering taking the company private for $420/share and has already secured funding to do so. However, shares gave back nearly all of those gains following headlines that the SEC is investigating whether Mr. Musk’s funding claim is truthful.

Meanwhile, on the earnings front, Dow component Walt Disney (DIS) slid 2.2% on Wednesday after missing quarterly earnings estimates, and Snap (SNAP) tumbled 6.8% during the same session after its better-than-expected results were overshadowed by a decline in daily active users (DAUs). This week’s wave of Q2 reports was the last big wave of the Q2 earnings season.

The week was light in terms of economic data, but investors did receive some influential readings on inflation. The July Consumer Price Index and the July core Consumer Price Index, which excludes the volatile categories of food and energy, came in as expected, both showing month-over-month increases of 0.2%. On a year-over-year basis, total CPI is up 2.9% and core CPI is up 2.4%.

In short, the report showed that consumer inflation trends are running above the Fed’s longer-run target, providing further support for additional rate hikes this year.

The Turkish lira took center stage on Friday, dropping more than 15% against the U.S. dollar. That drop, which comes after the U.S. and Turkey failed to reach an agreement regarding the release of American pastor Andrew Brunson, created concerns over the financial health of banks with heavy exposure to economically-struggling Turkey.

Out of desperation to stabilize the currency, Turkey’s president, Recep Tayyip Erdogan, asked citizens to convert their holdings of gold and foreign currencies, especially the U.S. dollar, into lira. U.S. President Donald Trump responded by increasing economic pressure, doubling tariffs on steel and aluminum imports from Turkey.

(Excerpts from Briefing.com)

Thu 09 August – Initial Claims & Producer Price Index

Fri 10 August – Consumer Price Index; Core CPI Highest Since 2008

Fri 10 August – Turkish Lira Rattles Investors Around the Globe

A plunging Turkish lira sent shock waves through global equity markets on Friday, causing concerns over the financial health of lenders with heavy exposure to the economically-struggling country. The S&P 500 lost 0.7%, dropping into the red for the week (-0.3%), and the Nasdaq (-0.7%) and the Dow (-0.8%) suffered similar declines.

The lira was down nearly 16% against the U.S. dollar at Wall Street’s closing bell, weighed down by continued tensions between the U.S. and Turkey, which made no progress during talks this week regarding the detainment of American pastor Andrew Brunson, who is accused of supporting a group blamed for an attempted coup in 2016.

Trying to stop the bleeding, Turkey’s president, Recep Tayyip Erdogan, encouraged citizens to convert their holdings of gold and foreign currencies into lira on Friday morning. However, President Trump swiftly responded by turning up the pressure, announcing that he’s authorized a doubling of tariffs on Turkish steel and aluminum.

Stock markets in Europe and Asia ended Friday with sizable losses, although China’s tariff-ridden Shanghai Composite finished flat. Investors in the U.S. flocked to the Treasury market, sending yields lower across the curve. The benchmark 10-yr yield, for instance, dropped eight basis points to 2.86%, a fresh three-week low.

The drop in yields – and, more specifically, the flattening of the yield curve – weighed on the financial sector (-1.2%), which finished with materials (-1.4%) at the bottom of the sector standings. 10 of 11 sectors finished in the red, with energy (+0.3%) being the lone exception, helped by a 1.3% rise in WTI crude futures ($67.67/bbl).

Within the tech space (-0.8%), chipmakers were particularly weak with Intel (INTC) losing 2.6% after being downgraded to ‘Sell’ from ‘Neutral’ at Goldman, and Microchip (MCHP) tumbling 10.9% after issuing disappointing revenue guidance. The PHLX Semiconductor Index declined by 2.5%.

Friday’s batch of corporate earnings — which also included results released Thursday evening – was the last heavy batch of the Q2 earnings season. In addition to Microchip, Dropbox (DBX) declined after reporting its results, losing 9.8%, but both Planet Fitness (PLNT) and Overstock.com (OSTK) rallied, adding 6.5% and 7.9%, respectively.

Looking ahead, next week’s earnings lineup is retail-heavy with Walmart (WMT), Home Depot (HD), Macy’s (M), Nordstrom (JWN), J.C. Penney (JCP), Advance Auto (AAP), and Dillard’s (DDS) all on the docket.

Market Internals – Friday 10 August

Dollar: Dollar Index Surges to Fresh 2018 High

The U.S. Dollar Index was up as high as 0.9% at 96.39 on Friday, looking to end the day at its highest level since early July 2017. The Dollar Index finished Thursday’s session within striking distance of its mid-July high (95.65), cruising past that level in overnight action. The overnight rally accelerated notably after the Turkish lira plunged to a fresh record low against the dollar, widening this week’s loss to 23.0%. The lira fell beneath the overnight low in morning action, which kept the euro under pressure due to worries about the exposure of large European banks to the Turkish economy.

Bonds: Treasuries Jump Amid Emerging Markets Angst

U.S. Treasuries climbed for the third consecutive day on Friday, ending the week on a sharply higher note. Treasury futures built on yesterday’s gains during overnight action, accelerating their advance amid significant weakness in the Turkish lira, which led to concerns about the impact of the lira’s swoon on European banks with exposure to Turkey. Treasuries pulled back from their opening levels in morning trade, but it wasn’t long before the market resumed its climb, continuing the advance into afternoon trade. The daylong flight to safety likely included a fair share of short covering, considering last week’s Commitment of Traders report from the CFTC showed record-level net short positioning in longer-dated Treasuries. Today’s action exerted pressure on the slope of the yield curve, flattening the 2s10s spread by three basis points to 26 bps, just two basis points shy of the cycle low. For its part, the 2s30s spread compressed by a basis point to 42 bps.

The belly of the yield curve fell  against the 2-yr maturity, flattening the curve for the week. The spread between the 5s10s remained unchanged at 13bps from 13bps the previous week while the 10s30s widened to 16bps from 14bps the previous week. The 2s5s tightened to 13bps from 19bps the previous week.

 Commodities 

The Bloomberg Commodity Index settled at 84.23, lower than 84.90 the previous week as Oil, Silver, Copper and Grains fell. 

WTI oil climbs back above $67 but settles lower for the sixth straight week for its worst losing streak in three years. The spread between WTI and Brent widened to $5.18 from $4.72 the previous week.

EIA petroleum data for the week ended August 03

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 mln barrels from the previous week. At 407.4 mln barrels, U.S. crude oil inventories are about 1% below the five year average for this time of year. Total motor gasoline inventories increased by 2.9 mln barrels last week and are about 4% above the five year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 1.2 mln barrels last week and are about 10% below the five year average for this time of year. Propane/propylene inventories increased by 0.1 mln barrels last week and are about 13% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 3.3 mln barrels last week.

Natural gas inventory showed a build of 46 bcf vs a build of 35 bcf in the prior week- nat gas spikes. Working gas in storage was 2,354 Bcf as of Friday, August 3, 2018, according to EIA estimates. This represents a net increase of 46 Bcf from the previous week. Stocks were 671 Bcf less than last year at this time and 572 Bcf below the five-year average of 2,926 Bcf. At 2,354 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count increased by 13 to 1057 following last week’s decrease of 2.

Metals: Copper continues its seasonal weakness

Agriculture: USDA releases WASDE report, Grains close lower for the week

Read the entire report here: World Agricultural Supply and Demand Estimates

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 33 (August 13 to 17) on the DIA begins very bullish on Monday, becomes mildly bearish mid week and ends mildly bullish on Friday

The SPY starts the week bullish, becomes very bearish on Wednesday and ends very bullish on Friday.

Benchmarks (21 year average) for wk33:

Key Economic Dates

Week 33

In the coming week, the US will publish retail trade, industrial output, housing data and Michigan consumer sentiment. Elsewhere, important releases include: UK inflation, wage data, unemployment and retail trade; Germany Q2 GDP growth; China industrial output, retail sales and fixed asset investment; Japan foreign trade; Australia business and consumer morale, and employment figures.

Mon 13 August

Tue 14 August

Wed 15 August

Thu 16 August

Fri 17 August

Earnings – August 13 to 17

Second quarter earnings season is wrapping up with 91% of the S&P 500 having reported quarterly results.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

Last week; “If the last two weeks have been divergent and wild, then the coming week should see some normalcy return.”

I take that back … there is nothing “normal” about what’s going on with Turkey. If this thing becomes systemic, we’re possibly looking at another Greek-styled meltdown. Maybe not as terrible as Greece but the contagion could lead to worse things in the Eurozone.

So just when we thought the crazy earnings season was ending and that things would return to normal, we now have something else to excite the market. The drama never ends in Q3.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Weekly Market Update – 06 August 2018 BMO

Weekly Market Update – 06 August 2018 BMO

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WEEK IN REVIEW – 30 July to 03 August 2018 :
Apple Becomes First $1 Trillion Company

Stocks climbed this week as investors digested the Fed’s latest policy directive and Apple’s (AAPL) quarterly earnings report, which helped boost the company’s market cap above the unprecedented $1 trillion mark. The S&P 500 advanced 0.8%, and the tech-heavy Nasdaq rose 1.0%. The Dow lagged though, adding just 0.1%.

The Fed left interest rates unchanged as expected on Wednesday, keeping its target range at 1.75% to 2.00%, and characterized the economy as strong, signaling that the central bank is still on track to raise rates two more times this year. The next rate hike will likely come in September, with the CME FedWatch Tool placing the chances at 93.6%.

Overseas, the Bank of Japan and the Bank of England also held policy meetings this week. The BoJ decided to leave its ultra-loose monetary policy intact, but the BoE voted to raise rates for just the second time in a decade and surprised some by saying it anticipates raising rates further despite the looming uncertainty over Brexit.

In Washington, President Trump ordered his top trade representative to consider increasing proposed tariffs on $200 billion worth of Chinese goods to 25% from 10%. Beijing threatened to retaliate with tariffs on about $60 billion worth of American goods. The news didn’t have much impact on U.S. markets, but China’s Shanghai Composite lost 4.6% for the week, retesting a nearly two-and-a-half year low.

On the earnings front, Apple gobbled up all the attention after releasing its fiscal Q3 results on Tuesday evening. The world’s largest tech company beat earnings and revenue estimates and issued positive guidance for Q4, helping to restore faith in FAANG names after a disappointing report from Facebook (FB) last week.

In response, Apple shares rallied 5.9% on Wednesday and then another 2.9% on Thursday, making Apple the first ever company with a market cap of $1 trillion.

Tesla (TSLA) shares also soared, spiking 16.2% on Thursday, after above-consensus revenues, reaffirmed guidance, and an apology from CEO Elon Musk for last quarter’s abrasive earnings call helped the electric automaker overcome a larger-than-expected earnings per share loss of $3.06.

As for economic data, the July Employment Situation report was released on Friday, showing a below-consensus increase in nonfarm payrolls (157K actual vs 190K consensus). However, the June increase was upwardly revised to 248K from 213K, helping to offset the disappointing headline figure. Average hourly earnings increased 0.3%, as expected, and the unemployment rate ticked down to 3.9%.

The key takeaway from the report is, when accounting for the revisions and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%, it’s essentially the same ‘Goldilocks’ report that the market cheered last month.

(Excerpts from Briefing.com)

Thu 02 August – Initial Claims 218K vs 220K consensus; Prior 217K

The weekly initial jobless claims count totaled 218,000, while the consensus expected a reading of 220,000. Thursday’s tally was above the unrevised prior week count of 217,000. This is the 178th straight week they have been below 300,000. As for continuing claims, they declined to 1.724 million from a revised count of 1.747 million (from 1.745 million).

Wed 01 August – FOMC reiterates economic activity has been rising at a strong rate

The Fed left interest rates unchanged as expected, keeping its target range at 1.75% to 2.00%, and characterized the economy as strong, signaling that the central bank is still on track to raise rates two more times this year. The next rate hike will likely come in September, with the CME FedWatch Tool placing the chances at 91.2%.

Fri 03 August – Stocks Climb on Jobs Report Friday, Extending Weekly Gains

Stocks added to their weekly gains on Friday as investors took the July Employment Situation report in stride, pushing the S&P 500 higher by 0.5%. The Dow Jones Industrial Average advanced 0.5% as well, and the tech-heavy Nasdaq ticked up 0.1%. Small caps struggled though, sending the Russell 2000 lower by 0.5%.

The monthly jobs report showed the economy added 157K nonfarm payrolls last month, less than the 190K that the consensus was expecting. However, the June increase was upwardly revised to 248K from 213K, helping to offset the disappointing headline number for July. Meanwhile, average hourly earnings increase 0.3% as expected, and the unemployment rate ticked down to 3.9%.

In short, the July Employment Situation report was essentially the same ‘Goldilocks’ report that the market cheered in June when accounting for the revisions and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%. Equity futures slipped following the release, but the reaction was pretty mild overall.

The S&P 500 opened the session a tick higher and trended sideways for much of the morning before climbing to new highs in the afternoon. Countercyclical sectors, which are generally seen as less risky, led the charge, with consumer staples (+1.2%) closing near the top of the sector standings, helped by Kraft Heinz (KHC), which rallied after beating both top and bottom line estimates.

In other earnings news, CBS (CBS), Take-Two (TTWO), DISH Network (DISH), and GoPro (GPRO) rallied after their releases, while Activision Blizzard (ATVI) and Shake Shack (SHAK) sold off.

The top-weighted technology sector held the broader market back in early action but eventually picked up the pace, closing higher by 0.3%. Energy was the only sector to finish Friday in negative territory, losing 0.5% and extending its weekly loss to 1.8% — the worst among the 11 sectors.

Looking at other markets, U.S. Treasuries climbed on Friday, sending yields lower across the curve; the benchmark 10-yr yield dropped three basis points to 2.95%. Meanwhile, West Texas Intermediate crude futures slid 0.8% to $68.48 per barrel, and the U.S. Dollar Index finished flat at 95.00, just below a 13-month high.

Reviewing Friday’s economic data, which included the Employment Situation report for July, the June Trade Balance, and the July ISM Services Index:

Market Internals – Friday 03 August

Dollar: Dollar Index Remains Buoyant

The U.S. Dollar Index was down 0.1% at 95.10 after surrendering a slim gain. Overnight dollar strength put the Dollar Index on track for its fourth consecutive advance, but the euro, pound, and other major currencies rebounded in morning trade, putting the greenback’s streak in jeopardy. Still, the Index closed for its second consecutive weekly advance, having added 0.4% since last Friday. The most notable activity took place outside the Dollar Index basket, as the People’s Bank of China fixed the yuan at an eleven-year low, but later announced that the foreign exchange risk reserve requirement ratio will be increased to 20.0% from 0.0%. The announcement accelerated a rebound in the yuan, which began a few hours after the lower fix. On a side note, Chinese officials have identified $60 billion worth of imports from the U.S. that could become subject to new tariffs.

Bonds: 5-yr Note Leads Treasuries Higher

U.S. Treasuries ended Friday on a higher note, which helped all tenors register modest gains for the week. The trading day started on a mixed note as shorter tenors opened in negative territory while the 10-yr note and the 30-yr bond started modestly higher. However, the entire complex climbed after the release of a July Employment Situation report, which missed headline estimates, but stayed true to trend, especially when factoring in upward revisions to readings from the previous two months. In addition, morning trade was highlighted by news indicating Chinese officials have prepared a list of $60 billion worth of U.S. goods that may become subject to new tariffs. Treasuries marked session highs in mid-morning trade and revisited those levels just ahead of the cash close. Afternoon action saw some flattening in the yield curve, but the 2s10s spread still ended the week three basis points wider, at 32 bps. For its part, the 2s30s spread expanded to 46 bps from last week’s 42 bps.

The yield curve steepened for the week as the shorter maturities’ yields fell against the longer maturities’ yields. The spread between the 5s10s widened to 13bps from 11bps the previous week while the 10s30s also widened to 14bps from 13bps the previous week. 

 Commodities 

The Bloomberg Commodity Index settled at 84.90, higher than 84.84 the previous week as grains made great gains while energy and metals consolidated to the downside. 

WTI oil closes above $68/barrel for a second week. The spread between WTI and Brent narrowed to $4,72 from $5.60 the previous week to break a three-week widening streak.

EIA petroleum data for the week ended June 27

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.8 mln barrels from the previous week. At 408.7 mln barrels, U.S. crude oil inventories are about 1% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.5 mln barrels last week and are about 3% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 3.0 mln barrels last week and are about 11% below the five year average for this time of year. Propane/propylene inventories increased by 1.8 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 10.6 mln barrels last week.

Natural gas inventory showed a build of 35 bcf vs a build of 24 bcf in the prior week- nat gas spikes. Working gas in storage was 2,308 Bcf as of Friday, July 27, 2018, according to EIA estimates. This represents a net increase of 35 Bcf from the previous week. Stocks were 688 Bcf less than last year at this time and 565 Bcf below the five-year average of 2,873 Bcf. At 2,308 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by 4 to 1044 following last week’s increase of 2.

Metals: Precious weakness persists, Copper falls

Agriculture: Wheat strengthens for a fourth week

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 32 (August 06 to 10) on the DIA tends to start the week bearish then turns very bullish on Wednesday before turning bearish again on Thursday and closing the week out very bearishly on Friday.

The SPY tends to start the week bearish on Monday, more bearish on Tuesday then turns very bullish on Wednesday before turning bearish again on Thursday and closing the week out very bearishly on Friday.

Benchmarks (21 year average) for wk32:

Key Economic Dates

Week 32

In the coming week the US will be publishing inflation rate, producer prices and JOLTs job openings. Elsewhere, important releases include: UK Q2 GDP growth, business investment, industrial production and trade balance; Germany factory orders, industrial output and foreign trade; Japan Q2 GDP growth, household spending and machinery orders; China trade balance, inflation and producer prices; and interest rate decisions from Australia, New Zealand and the Philippines.

Mon 06 August

Tue 07 August

Wed 08 August

Thu 09 August

Fri 10 August

US – CPI and Core CPI m/m

Earnings – August 06 to 10

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

On 22 July, I wrote; “The coming week is the first of three very heavy weeks of earnings reports … Expect volatility to go through the roof with wild swings amidst this jittery and nervous market.

The coming week is the last of the three most busiest weeks of the most volatile earnings season in the trading calendar. While most of the big name players have already called their numbers, we still have some significant names remaining on the earnings call-sheet.

This will be a week that is light on global macro news and the US is devoid of any market moving data. Wall Street is likely to renew its concerns over the U.S.’s trade spats with China while being optimistic over economic and corporate earnings that have been outstanding by most measures.

If the last two weeks have been divergent and wild, then the coming week should see some normalcy return. The market should finish lower for the week as investors would have digested the jobs reports thoroughly over the weekend to realise that “not-as-bad-as-expected” is still bad by any measure.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:

Pattern Trader™ Introductory Session

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

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Trading On Predictability & Eventuality

Some of the most common questions I get from the public are;

All these questions demand that I be a fortune-teller, which I obviously am not. For reasons I’d rather not get into, the majority of the public have been under the influence of self-styled gurus, mass/social media and the internet. The impression they get is that the financial market strategy is to get a jump on everyone else if they could find the secret to knowing the future.

Most resort to technical analysis (with lagging indicators) while others look at what the big players are doing (ironically, by reading dated news). Some get so caught up in sales pitches that they actually buy into expensive software and subscriptions thinking that they found the edge that will get them ahead of the pros and even the market itself.

The truth is, if it was so effective, you’d probably not be able to afford it, realistically speaking. If it were so simple, it wouldn’t have the edge anymore because everyone would be using it. It if were that great, there’d be more rich people than those who are losing.

However, there is profitable and simple strategy that keeps your risk low and is more consistent that any indicator, screener or scanner. You only need to use a little common sense to know how you can profit from the market by knowing what habitually moves prices and when these movements usually take place.

PREDICTABILITY 

The market, especially in the US, Europe and Japan, is mostly a seasonal and cyclical creature. There are sectors and industries that move according to changes in weather and seasons such as agriculture, mining, retail apparel and energy. These are reliably seasonal by nature and will (more often than not) trend at certain times of the year every year.

Then there are those that have a cyclical nature as a result of their business cycle, annual events, scheduled news releases or conferences, etc, such as financials, aerospace, transports and construction. These also happen several times a year every year just as the broader market also has its own annual cycle of reliably bullish, bearish and volatile periods. Not all seasonal and cyclical trades go up. In fact, there is quicker money to be made in bearish cycles.

The strategies for such trades can range from weekly executions to fortnightly to monthly to quarterly, depending on your risk appetite/profile.

The reliability of each season and/or cycle can be measured to give the trader a read on the level of risk in that trade. Obviously, the higher the reliability level, the less risky the trade. But that doesn’t mean that low reliability factors are not tradable – there are strategies that can be employed to reap a profit even in low reliability factors.

There are also a host of securities that tend to trend predictably and reliability when certain macroeconomic factors are in place. Such trends tend to be longer term which is great for the medium to long term investors.  

EVENTUALITY

Ever so frequently, good securities with sound fundamentals take the occasional hit. Depending on the circumstance, such events usually don’t kill the security. Having an understanding of macroeconomics will help determine if and when the security is likely to find a bottom and recover from its lows.

This is a very reliable strategy that is low risk, predictable and very manageable in that entries are easy to identify and exits have already been pre-determined. It is a strategy that doesn’t rush you into taking a position hastily and allows you to book profits along the recovery process. 

Of course, one must know the security well and have done all the proper research and planning to ensure the eventual return of the price from whence it fell.

The great news is that such opportunities are frequent and often in the headlines. Thus, you don’t have to go looking high and low for good trades when its right in front of you. The trouble is identifying them and how to turn that information into low risk cash. 

TAKE A CHANCE, MANAGE THE RISK

Obviously, there is no trading/investing without risk. Thus, it is imperative that we measure our risk factors before placing the bet. The good news its that such strategies don’t have to be complicated and stressful. But they do require a high level of discipline, research and planning. Common sense will tell you that nothing good can come from being haphazard and unprepared. The planning also includes contingencies should something unexpected happen. This could be in the form of a derivative hedge, price-to-price hedge, counter-trades and the good old fashion stop/cut loss in worst case scenarios.

These strategies are also affordable with a US$5,000 account with stops that are conservative and controllable. After all, the market will give you what it wants to give you – you have no control over that. However, you have 100% control over what the market can take from you. Thus, keep your losses small and let your profits run.

And that’s how you stay profitable and consistent without the need for sophisticated analyses and unreliable chart-guessing.

Copyright © Pattern Trader™ by Conrad Alvin Lim. All Rights Reserved 

~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, come for our three-hour Introductory Session. It will be the most educational preview you will ever attend.

Register here:
Pattern Trader™ Introductory Session

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Comments Off on Why The Pattern Trader™ Still Rocks After 12 Years

Why The Pattern Trader™ Still Rocks After 12 Years

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

This is what graduates have to say …

“Conrad has a way of teaching that makes it fun and easy to understand. Through his passionate and interactive teaching style, he has successfully set up a very conducive learning environment. The course is very comprehensive as it covers everything from the introduction to the stock market, to macroeconomics, fundamental analysis, right down to the individual stock and options trading strategies.

Not only that! He also covers psychological and financial management which is always taken for granted. A community platform is also created for all the students to post questions and share their learning journey.”

Ting See Hung

~~~~~~~~~~~~~~~~~~~~~~~~~~~

“The Pattern Trader Tutorial is very comprehensive as it covers everything from the bigger picture such as macroeconomics to individual trading strategies, right down to the art of writing a detailed trading plan that we can put into action

I really enjoyed Conrad’s extensive sharing of his life’s experiences. Many interesting concepts were taught in a way that is easy to understand. This program also includes well-thought out assignments that helps us reduce our learning curve.

Apart from the knowledge imparted, I have made friends with people sharing the same goals as me, which is beneficial to my learning journey and growth as a trader in the future. I am now more confident in pursuing my goal to be a competent trader.

All in all, I would say that the Pattern Trader Tutorial™ is definitely value for money.”

Jessica Ng

~~~~~~~~~~~~~~~~~~~~~~~~~~~

“I really enjoyed Conrad’s Pattern Trader Tutorial™ because not only did he share lots of trading techniques, but he also shared with the class the rich history, culture and stories behind many trading terms & jargon. In addition, Conrad also provided a lot of explanations to the reasoning behind his strategies and why he does certain things a certain way.

For the amount paid, It is value for money compared to the other courses I have attended, and I am glad that my friend introduced me to the Pattern Trader Tutorial™.

I would highly recommend it to anyone who is interested in trading.”

Kee Joo Yee

~~~~~~~~~~~~~~~~~~~~~~~~~~~

“Even though I am only 22 years old and have not attended courses in Economics in school before, I am still able to understand how the market works and the inter-relationship between the different components of the market and the economy.

Conrad is a very down-to-earth person who will answer all your queries. You will learn everything from macroeconomics to technical analysis, options, and equities, Conrad even posts up motivational posts on Facebook. After the tutorial, homework is given. All the content provided in the course is backed by valid real-world explanations.

Apart from being taught how to trade, we are also taught Financial Management and Psychological Management. Throughout the entire Tutorial, Conrad showed us real-life applications to the content taught in the Tutorial and guided us step-by-step.

Truly, the Pattern Trader Tutorial is really the most holistic syllabus you will find, and this is definitely the only Tutorial you will ever need to attend.”

Allison Yee

~~~~~~~~~~~~~~~~~~~~~~~~~~~

Make a huge difference in your financial life by considering the Pattern Trader™ Tutorial. Learn more about the Tutorial by coming to our three-hour Introductory Session on 21st August at 7pm. It will be the most educational preview you will ever attend.

Register here: Pattern Trader™ Introductory Session

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the November 2018 batch is here:
Pattern Trader™ Tutorial – November 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Copyright © Pattern Trader™ by Conrad Alvin Lim. All Rights Reserved 

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Comments Off on Weekly Market Update – 30 July 2018 BMO

Weekly Market Update – 30 July 2018 BMO

Screen Shot 2017-06-28 at 3.00.52 PM

WEEK IN REVIEW – 23 to 27 July 2018 :
Facebook Flop Steals Trade-Deal Thunder

Stocks moved mostly higher this week, sending the S&P 500 within 1.5% of its January 26 record high, with investors focused on a potential U.S.-EU trade deal and the latest batch of Q2 earnings, which featured results from high-flying FAANG names like Facebook (FB), Amazon (AMZN), and Alphabet (GOOG).

The S&P 500 advanced 0.6%, and the Dow Jones Industrial Average climbed 1.6%. The tech-heavy Nasdaq struggled, however, losing 1.1%, due in large part to Facebook’s 19% plunge on Thursday – which marked the biggest-ever one-day drop in market value for a U.S.-listed company (-$119.1 billion).

Facebook tumbled in response to its Q2 earnings report, which showed below-consensus revenues and slowing user growth, due in part to the #DeleteFacebook movement following the Cambridge Analytica data scandal. In addition, the social media giant also issued below-consensus revenue guidance. However, Google’s parent company Alphabet and internet-retail behemoth Amazon helped balance things out with better-than-expected results.

Still, the top-weighted technology sector, which houses most FAANG names, was the worst-performing group this week, diving 1.2%. Conversely, financials was among the top-performing spaces with a gain of 2.0%, benefiting from a rise in interest rates; the yield on the benchmark 10-yr Treasury note climbed six basis points to 2.96%.

On the data front, the preliminary reading for second quarter GDP showed an annualized increase of 4.1%, in line with the Briefing.com consensus estimate and the best reading since the third quarter of 2014. Consumer spending was the main engine of growth, increasing 4.0% and contributing 2.69 percentage points.

In politics, President Trump met with European Commission President Jean-Claude Juncker at the White House on Wednesday. Stocks spiked that afternoon on headlines that Mr. Trump has secured trade concessions from the EU, including a pledge to import more soybeans and natural gas from the U.S. and to improve market access for U.S. medical devices. The two sides also decided to table auto tariffs while they continue to negotiate.

The European Central Bank decided on Thursday to keep its key policy rate unchanged, as expected, and reiterated that net asset purchases will likely cease at the end of December, with the reinvestment of principal payments continuing for an extended period of time thereafter.

Looking ahead, the Federal Reserve will release its latest policy directive on Wednesday. The market isn’t expecting a rate hike, but investors will be interested to see what the central bank has to say about future rate increases this year; currently, the market is anticipating two additional hikes by year’s end.

(Excerpts from Briefing.com)

Wed 25 July Initial Claims 217K vs 215K; Prior revised to 208K from 207K

The weekly initial jobless claims count totaled 217,000, while the consensus expected a reading of 215,000. The tally was above the revised prior week count of 208,000 (from 207,000). Continuing claims declined to 1.745 million from a revised count of 1.753 million (from 1.751 million).

Friday: Tech Tumble Trims Weekly Gains

Stocks started Friday stable, but began tumbling in the afternoon, with tech shares pacing the broad-based retreat.

The tech-heavy Nasdaq dropped 1.5%, ending the week lower by 1.1%. The S&P 500 and the Dow also declined, losing 0.7% and 0.3%, respectively, but managed to keep in positive territory for the week (+0.6%; +1.6%). The small-cap Russell 2000 underperformed (-1.9%), extending its weekly loss to 2.0%.

All eyes were on Amazon (AMZN) coming into Friday’s session, with investors hoping that its better-than-expected Q2 earnings report could restore some faith in FAANG names, which lost a lot of momentum on Thursday due to Facebook’s (FB) earnings-induced plunge.

Amazon was up around 4.0% in pre-market trading, but weakened substantially intraday, trimming its gain to just 0.5% by the closing bell. The petering out didn’t do much good for the bulls, which, just a few days ago, were looking to ride another FAANG-led rally back into record territory.

The top-weighted technology sector finished a ways behind the ten other groups on Friday, losing 2.0%. Intel (INTC) weighed heavily on the group as concerns over its slow roll out of next-generation chips overshadowed its better-than-expected Q2 earnings report. Twitter (TWTR) was also a drag on the tech space, plunging 20.5%, after reporting a decline in monthly active users and disappointing guidance.

No other sector lost more than 0.9%, and three groups – financials (+0.2%), consumer staples (+0.2%), and telecoms (+1.9%) – actually finished in the green.

Health care (-0.7%) ended near the bottom of the sector standings, with Merck (MRK) slipping despite upbeat earnings results. Energy (-0.5%) was another decliner following a mixed post-earnings performance from Chevron (CVX) and Exxon Mobil (XOM).

Elsewhere, U.S. Treasuries finished the week with a modest rally, pushing yields lower across the curve; the benchmark 10-yr yield slipped two basis points to 2.96%. Meanwhile, WTI crude futures broke a three-day win streak, dropping 1.3% to $68.72/bbl, and the U.S. Dollar Index ticked down 0.1% to 94.45.

Reviewing Friday’s economic data, which included the preliminary reading of Q2 GDP and the final reading for the July University of Michigan Consumer Sentiment Index:

Market Internals – Friday 27 June

Dollar: Slim Overnight Gain Surrendered

The U.S. Dollar Index was down 0.1% at 94.69, revisiting levels from Thursday afternoon. The Index held its ground in overnight trade, overtaking Thursday’s high during the early portion of Friday’s European session. However, the Index pulled back after the release of a second quarter GDP report (4.1%; consensus 4.1%) that was in-line with expectations. The Index continues hovering near its low in afternoon trade, on track to add 0.3% for the week.

Bonds: Treasuries Tick Higher Ahead of Busy Week

U.S. Treasuries ended Friday on a higher note, putting a modest dent in losses recorded earlier in the week. Broadly speaking, the Friday session was quiet with the bulk of the action unfolding in morning trade. Treasuries started the day with slight losses that were reclaimed promptly after the release of a second quarter GDP report (actual 4.1%; Briefing.com consensus 4.1%), which pointed to a strong annualized rate of growth, but not as strong as some speculated at the beginning of the week. To be sure, the second quarter reading was strong enough to support the belief that the Federal Reserve will remain undeterred from steady tightening, which will eventually weigh on growth. The market will receive the latest FOMC Statement next week, but a rate hike is not expected due to the lack of a press conference after the policy meeting. Keep in mind that starting in 2019, every FOMC meeting will be followed by a press conference. Treasuries backed off their session highs in mid-morning trade, hovering inside a narrow range until the close.

The 2s10s spread tightened by a basis point for the week (to 29 bps) while the 2s30s spread also ended the week one basis points tighter, at 42 bps. Next week will be unusually busy on the central banking front, considering the market will receive the latest policy statements from the Bank of Japan (Tuesday), Reserve Bank of India (Wednesday), Federal Reserve (Wednesday), Central Bank of Brazil (Wednesday), and Bank of England (Thursday).

The yield curve flattened for the week as the shorter maturities’ yields gained against the longer maturities’ yields. The spread between the 5s10s narrowed to 11bps from 13bps the previous week while the 10s30s remained unchanged at 13bps from 13bps the previous week. 

 Commodities 

The Bloomberg Commodity Index settled at 84.84, higher than 83.68 the previous week as energy and grains find some strength. 

WTI oil closes above $68/barrel for the week. The spread between WTI and Brent widened for a third week to $5.60 from $4.81 the previous week.

EIA petroleum data for the week ended June 20

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.1 mln barrels from the previous week. At 404.9 mln barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.3 mln barrels last week and are about 4% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 0.1 mln barrels last week and are about 13% below the five year average for this time of year. Propane/propylene inventories decreased by 0.8 mln barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 9.7 mln barrels last week.

Natural gas inventory showed a build of 24 bcf vs a build of 46 bcf in the prior week. Working gas in storage was 2,273 Bcf as of Friday, July 20, 2018, according to EIA estimates. This represents a net increase of 24 Bcf from the previous week. Stocks were 705 Bcf less than last year at this time and 557 Bcf below the five-year average of 2,830 Bcf. At 2,273 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 2 to 1048 following last week’s decrease of 8.

Metals: Precious weakness continues, Copper bounces

Agriculture: Wheat strengthens for a third week

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THE WEEK AHEAD

Week 31 (July 30 to August 03) on the DIA tends to volatile with a very bearish Tuesday and ending with week very bullishly on Friday on our 5, 10 and 15 year averages.

The SPY tends to be very bullish on Monday but becomes bearish on Tuesday and Wednesday before becoming flat for the rest of the week on our 5, 10 and 15 year averages.

Benchmarks (21 year average) for wk31:

Key Economic Dates

Week 31

In the coming week the Fed, the BoE and the BoJ will decide on monetary policy. Other important releases include: US jobs report, trade balance, personal income and spending, PCE prices and ISM PMIs; UK monetary indicators and PMIs; Eurozone GDP growth and inflation; Japan unemployment and consumer confidence; and China PMIs.

Mon 30 July

Tue 31 July

Wed 01 August

Thu 02 August

Fri 03 August

Earnings – July 30 to August 03

Just over 52% of the S&P 500 has reported earnings so far. Second quarter earnings are currently expected to grow 21.4% with sales up 9.1%. Third quarter earnings are expected to grow 20.8% with sales up 7.3%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE MONTH AHEAD

August is the second month of Quarter Three, the “worst” quarter of the financial year. August and September are the most bearish months on record. 

August 2018 is the longest trading month this year with twenty-three (23) trading sessions and no public holidays. August tends to start out bullishly but becomes volatile mid month and becomes bearish in the final week of the month.

August Trivia

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

Last week, I mentioned that this would be the first of three weeks when earnings season gets crazy. This is especially so in quarter three. However, I never expected it to be this divergent. I have not seen this many consecutive days where the benchmarks have been so divergent.

I reckon more volatility lies ahead in the coming week and that it will be more than just earnings that will gyrate the market. With the Japanese, UK and US central banks calling out their latest rate decisions within the week along with a slew of employment numbers, things are going to look more divergent and bearish than the past week.

So strap in tight, hang on for dear life and hold your breath because it is going to be a very bumpy ride!

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The Pattern Trader™ Tutorial
is coming back to PENANG, Malaysia in October!!

 

Register here to attend the
Preview to get our Early Bird offer:
Pattern Trader™ Tutorial
Penang Introductory Session

 

 

Details of the October Batch can be found here:

PTTPG07, OCTOBER 2018 (Penang)

<<<<<==>>>>>

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive enviroment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life, consider the Pattern Trader™ Tutorial.

If you want to know more about the Tutorial, download our promo slides here: The Pattern Trader™ Tutorial 2018

Send your queries, requests, bookings to:
ptt.finscents@gmail.com

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The schedule for the October (PG) 2018 batch is here:
Pattern Trader™ Batch PG07 October 2018

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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