Rough Week On The Street As Uber Flops.
Anyone that has every purchased a stock or bond knows that the market never goes in the same direction forever. This past week was a prime example. Worries about international peace, trade agreements between China and the United States, Ubers IPO, Rocket man firing missiles again and whether President for life Mr. Putin’s eight goals scored in a hockey game that featured some retired NHL players should constitute a record.
In any case the equity markets suffered through their worst week of 2019. The first four sessions were basically down and Friday started out like it was going to top off a nasty week, but buyers came to the rescue late in the day after Treasury Secretary Steven Mnuchin told the press that talks over the tariff of Chinese goods were “constructive”. In addition, our favorite Tweeter said that tariffs that he had just introduced “may or may not be removed in the future”. As usual the markets never announce themselves they just happen.
Information technology stocks led the way on the downturn with shares of the big tech companies off more than 3.5% for the week. Of course, they also led the equities up for the first four plus months of the year. Even after the bad week, the S & P 500 average is still up more than 15% in 2019. People have a short attention span and all of the negative news will be forgotten when something good happens on Monday or Tuesday. Technicians would view Friday as a near term blow off and an excellent buying opportunity.
On the other hand, 2109 is starting to resemble 1999 when it comes to initial IPO’s. Uber was the most anticipated release so far this year and it fell flat on its face. Even with lowered expectations it took almost three hours to find enough liquidity to open the stock that was priced at $45. When the first trade hit the tape, it was at $42 down roughly 7% from its initial asking price and closed out the day at that level. Lyft, the other big tech IPO is still struggling with its shares down more than 17% from opening day.
Why do I think that 2019 is starting to look like the dot com bubble in 1999? Because none of the big IPO’s are making any money and their business models don’t seem to work. Unless they can find a new way to deliver their product they will continue to be the new Tesla. People are buying into the idea again that you don’t need to make money, you just need to have a good idea and take it public. Remember “new economy old economy” from the late 90’s? Well don’t be surprised if you are seeing it again!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Someone told me I can write credit put spreads to hedge my portfolio is that right?
Answer: As the option markets have evolved over the past 25 years as the use of weekly options has gained acceptance. This allows many investors the chance to use weekly credit put spreads in combination with longer based serial puts to create a synthetic short position in the market that has very little or no time decay. This wasn’t possible even five years ago, but it is now a strategy that I teach to students that want to learn advanced trading and protect their individual stocks or portfolios from downside risk.
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
T-Notes
Even with the worst week of 2019 in the equity markets, there has been no flight to quality. This market continues to look for a direction. Even with the Fed stating that it is not going to raise rates during the remainder of 2019, the ten-year has not broken out to the upside. This past week is typical of the price action we have been experiencing for the past two months. Since it rallied at the end of the week to finish on a high note, we will continue to hold our long position.
Crude Oil
Crude saw little price action in response to the selloff in equities. It has been locked in a tight trading range for the past couple of weeks and continues to make a series of lower highs. The volatility has been reduced, but this market has a tendency to suddenly wake up and become very volatile. Until we get a better idea of price direction we will stay on the sidelines.
Gold
You would have thought with the selloff in equities and global tensions mounting that Gold would be the beneficiary in this type of environment. However, the market could seem to care less. The precious metal found some legs at long term support and had a reasonable rally but is now stuck in tight congestion on very low volatility. It looks like it wants to break out above near term resistance but can’t quite seem to muster the support. We will stay with our long position.
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The Big Three Commodities Contracts
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The Market Edge Market Timing Models
| Market Timing Models | Current Reading | Prior Week | Connotation | ||||
| Cyclical Trend Index (CTI): | 3 | 5 | Positive | ||||
| Momentum Index: | 5 | 7 | Positive | ||||
| Sentiment Index: | 1 | -1 | Neutral | ||||
| Strength Index – DJIA (DIA): | 51.7 | 48.3 | Positive | ||||
| Strength Index – NASDAQ 100 (QQQ): | 55.9 | 54.9 | Positive | ||||
| Strength Index – S&P 100 (OEX): | 56.3 | 50.0 | Positive | ||||
The Market Edge ‘Market Posture’, which has been Bullish since the week ending 4/18/2019 (DJIA 26559.54) remains Bullish at this time.
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