If Punting, Do We Play it Safe With TINA or Gold?

Commentary

Trading in equities yielded mixed results. The SP-500 closed in positive territory while the Nasdaq-100 lagged from declines in Information & Technology and Healthcare, two of the market’s strongest sectors. A rotation appears to be occurring into Energy and Industrials as buyers rebalance portfolio risks based on “speculation” that the economy may improve sooner and/or simply a preference for relatively cheaper valuations.

In approximately one month, Covid19 cases have doubled globally to more than 20 million. Governments, most especially the US, struggle to contain its spread. In fact, the US suffered a major psychological blow to its economy as the corona virus claimed a new casualty: College football’s Big 10 season, a vital source of revenue and jobs in atypically economically resilient segments of America society and culture. Meanwhile, elementary and high schools within county and city districts are preparing to reopen, in lieu of the potential for a 2nd wave of Covid19 to cause even greater economic damage.

In somewhat perverted logic, this almost guarantees lower interest rates and benign volatilty due to Fed intervention to stabilize markets. While the music plays, investors have no choice except to dance with TINA (there is no alternative). Well, not exactly… Despite not being socially acceptable, there is an “alternative” and her name is Gold and she belongs to the commodities family. She also has a tangibly distant cousin called Real Estate. Neither of these are getting along very well with the US Dollar as they find its ego way over-inflated.

Lastly, the V-shaped equity rally suggests an imminent spillover into the small-cap Russell 2000 and Dow Transports as the gap between their respective 50-day and 200-day moving averages compresses (which is merely another way of forewaring bulls to be on the lookout for another “Golden Cross” to bear.

Performance Summary

market performance summary for major stocks, bonds, currencies, commodities and real estate indexes
ETF major sector performance summary

Market Moving Events

Bullish

  • Political / Coronavirus: After Congress failed to reach an agreement on a 2nd round of stimulus aid, President Trump declared an executive order over the weekend to extend economic aid for unemployment benefits, eviction protection, student loan relief, and a payroll tax deferral.
  • Economy / US / Labor: JOLTS June-2020 @ 5.889mm vs estimates @ 5.288mm and prior revised @ 5.371mm. Current # of unemployed seeking jobs @ 17.75mm. Quits rate @ 2.598mm vs prior @ 2.067mm.
  • Equities / US / Investor Sentiment: TD Ameritrade IMX July-2020 @ 4.63 vs prior @ 4.55. The “investor movement index” confirmed that retail investors increased their exposure to equities for a 3rd consecutive month and continue to prefer allocating capital to information technology and healthcare sectors. Net buying patterns emerged in Tesla (TSLA), Apple (AAPL) and Microsoft (MSFT) while selling patterns were evident in Facebook (FB), Costco (COST), Fedex (FDX) and United Airlines (UAL).
  • Earnings / Internet Commerce: Mercadolibre Inc (MELI) actal EPS @ 1.11 vs estimates @ 0.10 and prior @ -0.44.
  • Earnings / Materials: International Flavors & Fragrances (IFF) actual EPS @ 1.36 vs estimates @ 1.28 and prior @ 1.62.
  • Earnings / Real Estate: Simon Property Group (SPG) actual EPS @ 0.83 vs estimates @ 0.64 and prior @ 1.43.
  • Earnings / Utilities: Duke Energy (DUK) actual EPS @ 1.08 vs estimates @ 1.03 and prior @ 1.14.

Bearish

  • Geopolitical / China: China’s Foreign Ministry announced sanctions on 11 US officials “who behaved badly on Hong Kong-related issues” in response to last Friday’s US actions exacted against 11 Chinese officials who may have curtailed political freedoms in Hong Kong.
  • Economic / Sports: The Big Ten cancelled its entire college football season due to the unabated surge in Covid19 which has the potential to reduce or eliminate large sections of the US economy and further erode consumer activities.
  • Earnings / Consumer Discretionary: Royal Carribean Cruises (RCL) actual @ -6.13 vs estimates @ -4.82 and prior @ -1.48.
  • Earnings / Energy: Occidental Petroeum (OXY) actual EPS @ -1.76 vs estimates @ -1.67 and prior @ -0.52.

Neutral

  • Earnings / Utilities: PPL Corp (PPL) actual EPS @ 0.55 vs estimates @ 0.55 and prior @ 0.67.

Technical Analysis Summary

  • Equities: The SP-500 continued to make new highs and appears on its way to testing February-2020 resistance @ 3393.52. Meanwhile, consolidation in the Nasdaq-100 is carrying over from last Friday as it logged in a new 5-day low. The VIX is maintainng support @ June-2020 lows.
  • Bonds: Treasury rates nudged up slightly to make new short-term highs after recently boucing off of April-2020 support levels on Friday.
  • Currencies: A potential breakout in the US Dollar remains in play while the Yen and Euro may be attempting bearish reversals to correct their overextended their advances.
  • Commodities: The uptrend in Gold is just beginning to consolidate as the US Dollar corrects its oversold position. Regardless of demand or lack thereof, Crude Oil continues to consolidate.
  • Real Estate: The DJ Real Estate Index is in a neutral trading pattern and most likely building a base in preparation to challenge resistane at its June-2020 high.

Signing off….


After-Market Notes

*Check back periodically as this page is sometimes updated at the discretion of the editor.

Potential Market Moving Events

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Positive Earnings Surprises

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Negative Earnings Surprises

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Earnings In-Line with Estimates

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