Our President’s Comments

05/25/18

Internal Markets Commentary

Fed News

  • The slightly dovish Fed minutes seemed to help the S&P 500 to reversed earlier losses to close in positive territory for the day (+0.32%). US economists believes the minutes indicated that a further rate hike should be expected in June but that the Committee is not in a rush to clearly signal a more hawkish trajectory at this juncture. In the details, the minutes noted that “most participants judged that….it would likely soon be appropriate…to take another step in removing policy accommodation”. On balance, the minutes didn’t seemed to be too concerned about an overheating economy and inflation over shooting. It noted that a temporary period of inflation “modestly above 2% would be consistent with the committee’s symmetric inflation objective…” and that “it was premature to conclude that inflation would remain at levels around 2%….” On the labor market, the minutes noted the Employment cost index for 1Q indicated the strength in the labor market was “…showing through to a gradual pickup in wage increases, although the signal from other wage measures was less clear.” while many participants commented that overall wage pressures were still moderate or were strong only in industries and occupations…”

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Asian Markets

  • Markets were broadly lower with the Nikkei (-1.23%), Kospi (-0.27%) and Shanghai Comp. (-0.04%) all down while the Hang Seng rebounded modestly (+0.07%). In the US, President Trump has ordered the Commerce Department to investigate whether car and truck imports threaten national security, to which Bloomberg cited unnamed sources that suggest these investigations under Section 232 could lead to higher tariffs. Back in early May, Trump told US car markers he was planning to impose tariffs of 20-25% on some imported vehicles. Elsewhere, the Secretary of State Pompeo seemed to be easing his demands on North Korea, now calling for the regime to take “credible steps” towards denuclearization rather than give up its weapons program immediately.

World Equities

  • They were all lower, weighed down by softer PMIs, Italian politics and rising US / China trade tensions. Across the region, the DAX (-1.47%), FTSE (-1.13%) and Stoxx 600 (-1.10%) were all down, although the latter is still up 0.9% on an YTD basis. Elsewhere, the VStoxx jumped 16.0% to 15.06 and has been back above the VIX (12.58) for three out of the last four trading sessions after a few months of mostly being below. Despite the softer European session, US bourses turned around to close modestly higher after the FOMC minutes (S&P +0.32%; Dow +0.21%; Nasdaq +0.64%). In the retail space, Target dropped -5.7% post poor results, but Tiffany & Co. (+23.3%) and Ralph Lauren (+14.3%) rallied post a beat on earnings.

 

Economic Calendar Releases

  • Market Focus: Aircraft orders have been very strong and a one-month cooling is expected to make for a deceptive decline in headline durable goods which otherwise may very well prove very solid.
  • 2-Yr FRN Note Settlement
  • Durable Goods Orders: Underlying strength is the call for durable goods orders which, however, is not expected to be evident at the headline level where a 1.2 percent decline is Econoday’s consensus, one reflecting expectations that aircraft orders, which have been very strong, will finally pull back. Ex-transportation orders, which exclude aircraft, were flat in March and solid improvement is the call for April, at a consensus gain of 0.6 percent. A decline in core capital goods was a disappointment in the March report and a 0.7 percent rebound is the April consensus.
  • Jerome Powell Speaks
  • Consumer Sentiment: The consumer sentiment is expected to hold steady at a solid 99.0 in the final reading for May, in what would be little changed from April’s 98.8. Year-ahead inflation expectations in this report have been edging higher.
  • Charles Evans, Raphael Bostic, and Robert Kaplan Speak
  • Baker-Hughes Rig Count
  • SIFMA Rec. Early

 

Our Technical Analysts’ Commentary 

SPX Daily Chart 

  • Participants once again supported the S&P 500 on dips, limiting the damage caused by the cancellation of the talks between the US and North Korea. The index fell 0.2% to end at 2727.76. The total intraday range was 24.59 points.
  • The failure of opponents to take advantage of the adverse news demonstrates their losing strength. This points to a possible move to the upside.
  • The index has been stuck in a very tight range of 2701.91-2742.1 for the past few days. A breakout7 of this range should carry the index to 2800. On the other hand, a break below the range will cause the sink the index to 2640-2660 levels. Inside the range, volatile action will continue.
  • Even on a major decline, the number of stocks at new 52-week highs has quickly dropped into double digits, showing that market participants are nervous to carry long positions at higher levels.  These participants are quickly taking profits on any dip, fearing a large fall. Therefore, we shall await a confirmed break out above 2742 before buying short-term positions for our portfolio.

Market Data

  • 1467 stocks advanced on the NYSE; 1478 stocks declined. 66 stocks made new 52-week highs; 48 stocks made new 52-week lows.
  • 1398 stocks advanced on the Nasdaq; 1522 stocks declined. 116 stocks made new 52-week highs; 47 stocks made new 52-week lows.

SPX Intraday Chart

  • The first couple of hours belonged to the downside. With aggressive selling, the index broke below the 2712 support level. However, momentum could not be maintained at the lower levels as assertive buying came into play.
  • The index continued to climb during the remainder of the day.
  • Today, the participants will want to break out of 2742, while opponents will attempt to defend it. On the downside, 2708-2712 remains a strong support23.

 

Glossary

  1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
  2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
  3. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
  4. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
  5. Break – a rapid and sharp price decline
  6. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines
  7. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
  8. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
  9. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
  10. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
  11. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
  12. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
  13. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
  14. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
  15. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
  16. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
  17. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
  18. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
  19. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
  20. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
  21. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
  22. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
  23. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
  24. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

 

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05/24/18

Internal Markets Commentary

  • President Donald Trump canceled his planned summit with North Korean leader Kim Jong Un that had been scheduled for June 12 in Singapore, citing “tremendous anger and open hostility” in recent statements from Pyongyang. Trump communicated his decision in a letter Thursday to Kim released by the White House. North Korea hardened its rhetoric toward the U.S. earlier Thursday, lashing out after remarks by Vice President Mike Pence and the White House national security adviser, John Bolton, that had compared the country with Libya. Choe Son Hui, vice-minister of Foreign Affairs, called Pence a “political dummy” and his comments “unbridled and impudent,” according to an English-language statement from North Korea’s state-run KCNA outlet. Choe warned her nation was prepared for a “nuclear-to-nuclear” showdown if the U.S. didn’t follow through on the summit. “We can also make the U.S. taste an appalling tragedy it has neither experienced nor even imagined up to now,” she said, warning that she would recommend Kim cancel the summit if U.S. officials didn’t curb their language. Secretary of State Mike Pompeo told the Senate Foreign Affairs Committee shortly after the letter was released that he was “still optimistic” the U.S. and North Korea would reach a historic deal. Pompeo said the U.S. had tried in recent days to put teams together to prepare for the meeting and “we had received no response to our inquiries from” the North Korean government. Kim Eui-kyeom, spokesman for South Korean President Moon Jae-in, said in a text message Thursday night in Seoul that his government is still “trying to figure out” Trump’s intention on the summit. The highly anticipated summit had been cast by the White House as an opportunity to stave off a military conflict with North Korea and showcase Trump’s ability to make progress where his predecessors had struggled. The president has openly entertained the idea that he could have been awarded the Nobel Peace Prize had the meeting led to a peace agreement between North Korea and the U.S. and South Korea. The countries are technically still at war. But Trump ultimately ran into the same diplomatic quandary that has flummoxed U.S. presidents for the past 25 years: the inability to persuade a stubborn regime to give up a nuclear program that it regards as key to its survival.

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Economic Calendar Releases

  • Market Focus:  FHFA data are likely to showcase one of the strongest areas of the economy — home prices. But home sales, the latest update coming from today’s existing home sales report, have been less spectacular.
  • Weekly Bill Settlement and 52-Week Bill Settlement
  • William Dudley and Patrick Harker Speak
  • Jobless Claims: Initial claims are expected to come in at 220,000 in the May 19 week in what would be a small increase from 222,000 in the prior week. The 4-week average in the prior week, at 213,250, marked a 49-year low. Low readings in this report are consistent with strong demand for labor.
  • FHFA House Price Index: The FHFA house price index is expected to rise 0.6 percent in March, extending its run of strength this year. The year-on-year rate, at 7.2 percent in February, was just off January’s 4-year high at 7.4 percent.
  • Existing Home Sales: At a consensus annualized rate of 5.600 million, existing home sales in April are expected to hold onto the strong gains in March and February. Recent gains aside, resale trends have been flat with year-on-year readings still in the negative column.
  • EIA Natural Gas Report: Natural gas product prices are determined by supply and demand – just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this may lead to increases in natural gas prices. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for natural gas may not be as strong. If inventories are rising, this may push down natural gas prices.
  • Kansas City Fed Manufacturing Index: A modest fall back to 22 is the May consensus for the Kansas City manufacturing index which jumped 9 points in April to 26. Both new orders and backlog orders were unusually strong in April which points to gains for production and employment in the May report.
  • 4-Week Bill, 3-Month Bill, 6-Month Bill Announcements
  • 7-Yr Note Auction
  • Fed Balance Sheet: This report is likely to get increasing attention as the Federal Reserve normalizes its balance sheet, that is reduce it from the $4.5 trillion peak reached in October 2014. This peak was reached after the Fed, in an effort to hold down long-term interest rates and in turn stimulate the economy, began in late 2008 the direct purchases of U.S. Treasuries and mortgage-backed securities in unconventional policy known as quantitative easing. The complete unwinding is expected to take several years with the final balance sheet total still not targeted but widely projected in the $2.5 trillion area. The impact of the process, if any, would likely first be felt in the Treasury and mortgage-backed markets, where there will be one less major buyer, with ripples following in other markets including stocks. This is the first such unwinding of its size attempted by a central bank.
  • Money Supply 

 

Our Technical Analysts’ Commentary

SPX Daily Chart

  • The S&P 500 recovered quickly from the lows and managed to close in the green by 0.32%, ending the day at 2733.29. The total intraday range was 23.79 points.
  • The sharp recovery from the lows is an encouraging sign, showing that participants are willing to buy on dips.
  • There will now be an attempt to break out of the 2742 levels, which will be another positive.
  • The 2700 levels are likely to act as a strong support on any fall. A higher floor is a sign that the markets are ready to move up.
  • We shall wait for the next two days to confirm a break of the 2742 levels before resuming our purchases. On the upside, we do not expect a huge move. 2800 should act as a hurdle and if that is crossed, the lifetime highs will be another major resistance21. Therefore, once the markets move up, we shall look to take profit on a few positions that we have purchased at lower levels. We will shift to cash or buy defensive positions above 2800 as we do not anticipate the index to break out to new highs this year.

Market Data

  • 1528 stocks advanced on the NYSE; 1402 stocks declined. 35 stocks made new 52-week highs; 55 stocks made new 52-week lows.
  • 1563 stocks advanced on the Nasdaq; 1353 stocks declined. 90 stocks made new 52-week highs; 47 stocks made new 52-week lows.

SPX Intraday Chart

  • The index gapped down at the 2712 levels, which was well supported. Two further attempts to break below this level were unsuccessful.
  • The first-half of the day was spent in consolidation9, and the second-half saw a sharp move up, which helped the markets end in the green.
  • Today, there will attempts to break out of the 2742 levels, yet it might prove to be a resistance point.
  • On the downside, support23 is at 2720 and 2712 levels.

 

Glossary

  1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
  2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
  3. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
  4. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
  5. Break – a rapid and sharp price decline
  6. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines
  7. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
  8. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
  9. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
  10. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
  11. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
  12. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
  13. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
  14. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
  15. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
  16. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
  17. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
  18. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
  19. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
  20. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
  21. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
  22. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
  23. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
  24. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

 

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