You would think that a market showered with fantastic news would go up.
That has certainly been the case in recent weeks.
Corporations reported the best quarterly earnings in three years. Business sentiment is ebullient.
Apple (AAPL), Amazon (AMZN), and Facebook (FB), the market’s biggest firms, announced record profits and saw their share prices soar to new all time highs.
Yet here we are sitting in one of the narrowest trading ranges in history for the past two months, some 2.72%. The Volatility Index (VIX) hit a low of $9.90, a decade low.
So what gives?
Quite simply, the US economy is undergoing a growth dip which investors are clearly unwilling to sell into.
They won’t lighten up on stocks because they believe that the weak Q1 0.70% GDP growth rate will soon flower into a robust 3.0% rate or better in Q2.
The big institutions are too large to move out of positions and back in over such a short time frame. To do so would risk missing the next leg up and get them fired.
To us traders, three months sounds like a lifetime. To the big guys it is mere seconds.
Even me, in my ever sober cautiousness, think shares could tack on another 2.8%-4.8% to the 7.2% they have brought in so for in 2017.
So why bother?
It’s better to just turn off the TV and read some cheap novel.
What is particularly disturbing with this analysis is that the global commodities and currency markets are saying that the complete opposite is going to happen.
The complete collapse in oil, copper, gold, and silver last week are signaling an imminent global recession. The yellow metal in particular gave our Trade Alert service an overnight spanking with its nosedive.
A weak dollar is screaming at us that there is no chance of a raise rise this year.
Who is right? Stocks, or the rest of the world?
We shall see.
That leaves the day traders in charge, who relentlessly buy every dip and sell every rally for ever declining profit margins.
No wonder things have gotten so boring!
Certainly the April Nonfarm Payroll Report indicated that the economy is stronger than weaker.
The big figure came in at 211,000. Taking the headline Unemployment Rate down to a new decade low at 4.4%
Any chance that the Federal Reserve is NOT going to raise interest rates in June has just been firmly erased from the board.
Leisure and Hospitality gained 55,000 jobs, Health Care picked up 47,000, and Business Services were up 39,000.
The U-6 Long Term Structural Unemployment Rate plunged to 8.6%.
From what I am hearing from the subscribers I call every day, there are now chronic shortages of labor of every sort, including truck drivers, agricultural workers, skilled mechanics, welders, engineers, electricians, plumbers, computer technicians, and nurses.
Anyone in these professions can get a job in 48 hours, if they want one.
One thing there is definitely NOT a shortage of is stock market newsletter writers. They seem to grow like weeds.
We are coming to the tag ends of the Q1 reporting season, with three quarters of firms already done. All the marquee names are out.
Hertz (HTZ) reports on Tuesday, Kohls Corp. (KSS) on Thursday, and JS Penny (JCP) on Friday. Maybe Penny’s hopes no one will notice by coming out on a Friday afternoon.
It will also be a very thin week on economic data reports.
On Monday, May 8th, at 10:00 AM EST, the first report of the week is the April Labor Market Conditions Index which should come in red hot with every measure of employment at a decade low.
On Tuesday, May 9th at 10:00 AM EST, we receive the JOLTS Report for April, which should be similarly healthy.
On Wednesday, May 10th, at 10:30 AM EST, the weekly EIA Petroleum Status Report is out, probably with dreadful news.
On Thursday, May 11th, at 8:30 AM EST, we learn the Weekly Jobless Claims. Last week’s number was essentially unchanged close to a 43 year low.
On Friday, May 12th at 8:30 AM EST, we learn April Retail Sales, another dreadful figure.
Wrapping up the week at 1:00 PM is the Baker Hughes Rig Count, which has been up for most of the last year, boding ill for oil prices. Last week saw a doubling of year earlier rig numbers, and 15 straight weeks of rises.
Good luck and good trading!
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ABOUT THE AUTHOR
The Diary of a Mad Hedge Fund Trader is written by John Thomas, one of the founding fathers of the modern hedge fund industry.
Seeing the incredible inefficiencies and severe mis-pricing offered by the popping of multiple bubbles during the Great Crash of 2008, and missing the adrenaline of the marketplace, he returned to active hedge fund management. With The Diary of a Mad Hedge Fund Trader, his goal is to broaden public understanding of the techniques and strategies employed by the most successful hedge funds so that they may more profitably manage their own money.
John graduated from the University of California at Los Angeles (UCLA) with a degree in biochemistry and a minor in mathematics in 1974. He moved to Tokyo, Japan to join a Japanese securities house as a research analyst, becoming fluent in Japanese. In 1976 he was appointed the Tokyo correspondent for The Economist magazine and the Financial Times. For the next seven years he published thousands of articles about the economies, companies, and leaders of Asia. He was one of the first American correspondents to cover China during the Cultural Revolution.