Caution Signs Persist - Bulls Indifferent

After bad weekend news from PIR and AAPL, WMT missed expectations in the premarket Tuesday.  This caused a gap down at the open.  However, after a sideways grind in the morning, the bulls slowly climbed back up all afternoon.  The SPY closed down 0.26%, the DIS down 0.54%, and the QQQ up 0.04%, which was another all-time high close for the NASDAQ.  The SPY and DIA printed indecisive candles, while the QQQ was more bullish.  However, all three major indices are looking at least like they are consolidating, if not even a little toppy over the last four candles.

On the news front, CNBC reported that company stock repurchases (buybacks) are down so far this year in the slowest start since 2013.  This indicates companies are holding on to their cash, which is usually an indication of their own concern or at least uncertainty over their future performance.  As a point of reference, buybacks are down 30% from 2019 levels.  However, to be fair, 2019 was a record-breaking year for buybacks.

After hours, GS reported a study that found that almost all of the entire market’s earnings growth for Q4 came from the five mega-cap tech companies (AMZN, AAPL, MSFT, FB, and GOOG).  Russell 2000 earnings fell 7%, the S&P 500 earnings grew 2% on average…but those 5 companies (which are included in the S&P) were up 16%.  The report went on to say that those 5 stocks now comprise 18% of the S&P500 market cap and the growth has not been this concentrated since the 2000 tech bubble burst.

On the coronavirus front, MDLZ reopened some of its manufacturing plants in China as did GM and FCAU.  However, the W.H.O. continues to say it is too early to determine whether the spread is slowing inside China.  As another example, Adidas says seen an 85% drop in their business activity (sales and manufacturing) in the last month.  The impact numbers themselves continue to grow as now more than 75,000 confirmed cases have been reported and the death toll has risen to over 2,000 globally. Bear in mind that most of those cases are in China.

Overnight, Asian markets were green across the board.  In Europe, the bulls are running as well with green in all the major bourses.  As of 7:45 am, U.S. futures are also pointing toward a higher open of between a quarter and half a percent in the major indices.

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Wednesday’s major economic news includes Jan. Building Permits, Jan Housing Starts, and Jan. PPI (all at 8:30 am), as well as the FOMC Minutes release (2 pm).  There are also a number of Fed speakers during the day.  On the earnings front, ADI, ETR, GRMN, GPC, and DISH all report before the open.  ALB, CAR, XEC, ES, HST, MOS, PXD, O, SNPS, and WMB report after the close.

The bulls have seemed to be running low on energy for the last few days.  However, there is has been no evidence that the bears can take advantage of this lack of bullish momentum.  This morning it looks like the bulls may try another little push.  The trend certainly remains bullish and all the major indices are still very near their all-time highs.  However, we need to keep in mind that markets have been indecisive for a few days now.

So, remain cautious and continue to be nimble or hedged.  Just keep consistently taking profits and moving stops.  Plan the trade and trade the plan.  Don’t chase or get complacent and let a profitable position (or several) go South.  As traders, our job is to keep producing those singles and doubles, hit an occasional home run among a string of strikeouts.

Ed

Swing Trade Ideas for your consideration and watchlist: BYND, HOME, TWTR, CNC, IPG, AKAM, BLL, CTSH. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.

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