Commentary: Paul Ebeling on Wall Street


FLASH: Last week the market was in consolidation mode and tested the 50-Day MA’s and bounced and…

  • Employment report showed solid jobs growth in July
  • Major averages found buying support at 50-Day MAs

INDUSTRY WATCH Strong: Real Estate, Utilities, Consumer Staples Weak: Information Technology, Energy, Materials

The CBOE Volatility Index has come down from prior levels. Currently, the VIX is up 0.7 pts, or 4.4%, to 18.61. On the week + 50%.

US stocks consolidating the big move opening up the Dog Days of August, everybody that is anybody on Wall Street is off on holidays til after Labor Day

Friday, White House economic adviser Larry Kudlow praised the Fed’s decision to lower interest rates this week, saying the central bank was moving in a positive direction towards Zero – 0.25%

The Fed has ended its quantitative tightening. That’s a big step in the right direction,” Mr. Kudlow told reporters at the White House. “I don’t see any inflation.”  And the Fed stopped draining the liquidity from the system 2 months early.

Traders Friday kept bets that the Fed will follow this week’s interest-rate cut with further policy easing next month to counter any economic impact from an escalating US-China trade dispute, even as a government report showed US employers were already slowing hiring in July.

Traders of short-term interest-rate futures are now pricing in about an 80% chance of a rate-cut next month, and about a 70% chance of a further reduction in December, according CME Group’s FedWatch tool that uses futures contracts tied to the Fed’s policy rate to generate estimates of traders’ views.

Those bets are little changed from Thursday, when President Trump’s surprise vow to hike taxes on Chinese imports starting 1 September unleashed strong crowd buying in interest rate futures markets.

Only 24 hours earlier, those markets had slashed bets on future rate cuts after Fed Chairman Powell described Wednesday’s quarter-percentage-point interest rate cut as an insurance police rather than the start of a lengthy easing cycle.

A report Friday showed US job growth slowed in July and manufacturers slashed hours for workers, but still showed the underlying labor market is healthy.

If it were not for concerns about the economic situation abroad and market/political pressures, the Fed would be hard pressed to make the conventional economic arguments for further interest rate cuts in the months ahead, but that is not the case now.

Friday, the major US stock market indexes finished at: DJIA -98.41 at 26485.01, NAS Comp -107.05 at 8004.08, S&P 500 -21.51 at 2932.05

Volume: Trade on the #NYSE came in at 884-M/shares exchanged

  • NAS Comp +20.6% YTD
  • S&P 500 +17.0% YTD
  • Russell 2000 +13.7% YTD
  • DJIA +13.5% YTD

HeffX-LTN’s outlook for the major US stock market indexes is Neutral to Very Bullish for the week ending 2 August 2019, as the market is oversold.

And this week

DJIA futures sold off sharply Sunday night, along with S&P 500 futures and NAS Comp futures, as China’s RMB Yuan dove to a record low.

That follows a volatile week for this stock market rally as new Trump Tariffs escalated the China trade dispute. Apple stock, chipmakers, many retailers and apparel maker such as Best Buy were hit hard due to their exposure to Trump Tariffs. If China aligns the new tariffs will not go into effect on 1 September, if not they will.

The Big Q: Is this a pullback or the start of a correction?

The Big A: The market is very oversold in here and perhaps it will rally off of the 50-Day MAs and regain momentum. The major indexes could bounce, if only for a time, after several days of losses. But the stock market rally has struggled since early Y 2018 whenever the China trade dispute has escalated. The big fall in China’s RMB Yuan suggests Beijing is ready to raise the fighting. If they do the Fed will too.

Caution, do not try to guess what the stock market will do next, pay attention to what the stock market is doing now.

These are the Dog Days of August and anybody who is anybody on Wall Street is gone till at least 4 September.

Take what the market gives, knowing that there will always be another trade.

You always sell a stock when you’re down 7%-8%, but savvy investors have cap losses before that.

With solid winners, consider taking full or partial profits to lock in gains.

When the stock market rally does regain momentum; next week, next month or next year, you want to be ready. The watch-list might include recent stocks sold during the pullback.

Again, it is your money, so your responsibility.

Have a terrific week.

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