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At the Edge of Chaos: Stocks Oversold Ahead of Earnings Season, Yet Few Buyers Lurk

Bond traders have talked themselves into believing the Fed will kill the economy just as stock traders are starting to think that a fading economy could…

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Bond traders have talked themselves into believing the Fed will kill the economy just as stock traders are starting to think that a fading economy could be a good thing, since it would cause the Fed to ease rates. But be that as it may, stocks are stuck in the mud–so oversold that it's hard for short sellers to pound them down further while, at the same time, there aren't enough buyers to move prices decidedly higher.

Certainly, the current scenario could change, especially if more buyers emerge. Yet as earnings season develops, the odds of earnings misses and early announcements of upcoming earnings could easily derail any rally.

Of course, the problem, at this point, is that no one knows how much of a bad earnings season is already baked into stock prices. This is why staying cautious is the most reasonable course of action.

What are Oil Prices and Transportation Stocks Telling Us?

Oil and gasoline prices usually trade in different directions from transportation stocks. But what does it mean when they both move in tandem?

We are in an interesting junction in the MELA system (M–markets, E–economy L–life and financial decisions and A–Algos), as the interplay between the fall in the stock market and the economy may be reaching a make-or-break point. Of course, that's because the main financial engine of the economy, the stock market, is getting crushed. In this section, I will be looking at the relationship between fuel prices and the state of the trucking industry.

Recent economic data suggests that consumers are pulling back on their expenses significantly. Consider the following:

  • Consumer confidence is near record lows
  • The Atlanta Fed's GDP model is forecasting (-2.1) growth in Q2. If true, this would mean we are in a recession, since Q1 GDP growth was (-)1.6%;
  • Other regional Federal Reserve banks, in their periodic surveys, are also registering rapid economic growth. In the case of the Dallas Fed, the comments from businesses surveyed were fairly dramatic;
  • The Meta (FB) CEO has reportedly told his employees to tighten their belts and that layoffs are coming;
  • ISM and PMI data, as well as moderately rising jobless claims, are also showing a slowing in the economy.

The U.S. Ten Year note yield (TNX) has crashed below 3% again, suggesting that there is a growing number of investors that is betting that the Atlanta Fed and the rising amount of data predicting a slowing economy is correct.

And although inflation is a monetary phenomenon–too much money chasing too few goods–it's hard to argue with the tangible effect of high gasoline prices on individual pocketbooks. Which is why the recent decline in the price of oil and gasoline is worth looking at as the summer driving season develops.

Recently, we've seen a break in West Texas Intermediate (WTIC) below $110 per barrel from its highs near $130 earlier in the year.

For its part, gasoline at the wholesale spot level has dropped to the $3.50 per gallon range. Roughly speaking, that type of drop should lead to retail prices falling below $5 per gallon, give or take some.

In my area, I'm seeing regular gasoline selling at around $4.55-$4.85 per gallon, but prices have begun to creep up. Premium and diesel have not backed off much at all.

All of which brings me to the trucking sector, where the headlines are grim, but stock prices are not falling much further. Case in point, shares of Old Dominion Freight Lines (ODFL), a nationwide freight and logistics firm, seem to be attracting a bit of money these days. In fact, the activity in non-West Coast ports is rising rapidly, which may account for the slight improvement in trucking company share prices as investors price in an increase in demand for their services. Indeed, the data suggests that there is no real slowing in port activity. And that means that somebody is buying products from abroad.

So, the question is, why? Is this the last gasp of the COVID-19 inventory buildup? Are some businesses expecting an economic resurgence at some point in the future? Perhaps a third, more ominous, possibility is that some are fearing a further worsening of the international order and are stocking up on goods just in case. On the other hand, it's always darkest before the dawn. Either way, we may be pleasantly surprised–or unpleasantly fooled. No matter what, it seems that we're about to find out fairly quickly, as events in MELA unfold at the speed of light.

Final thought: What happens if oil and gasoline prices rebound as investors start to price in a Federal Reserve easing cycle?

Welcome to the Edge of Chaos:

"The edge of chaos is a transition space between order and disorder that is hypothesized to exist within a wide variety of systems. This transition zone is a region of bounded instability that engenders a constant dynamic interplay between order and disorder." – Complexity Labs

For more on a risk-averse approach to trading stocks, consider a FREE trial to my service. Click here.

I have recently posted a new Your Daily Five video for StockCharts TV, in which I suggest that the market's liquidity problems may be easing. Check it out here:

NYAD Perks Up as VIX Rolls Over

The NYAD Advance-Decline line (NYAD) recently made a new low and remains in a downtrend, but it is trying to move off of its recent bottom. So, if NYAD can climb back above its 20- and 50-day moving averages, we could have a more convincing rally.

Meanwhile, the CBOE Volatility Index (VIX) has rolled over, while NYAD is rising. This is a more normal relationship and is mildly bullish at this time. A rise in VIX means rising put option volume, a bearish development for stocks.

The S&P 500 (SPX) may be in the early stages of a bottoming process. But we still need to see an SPX close above 3900-4000, as that would bring in more money from the sidelines. Very stiff resistance awaits at 4100 and above.

The Nasdaq 100 index (NDX) remains fairly weak, failing to hold above its 20-day moving average, with more overhead resistance at the 50 day and the 12500 area. On the bright side, Accumulation Distribution (ADI) is trying to perk up. This means that short sellers are paring their positions. Unfortunately, On Balance Volume (OBV), which was improving, rolled over again.

12,000 remains tough resistance for NDX.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition – Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading

Good news! I've made my NYAD-Complexity - Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.


Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe's exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked…

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked by the NY Fed Consumer Survey extended their late 2023 slide, with 3Y inflation expectations in January sliding to a record low 2.4% (from 2.6% in December), even as 1 and 5Y inflation forecasts remained flat, moments ago the NY Fed reported that in February there was a sharp rebound in longer-term inflation expectations, rising to 2.7% from 2.4% at the three-year ahead horizon, and jumping to 2.9% from 2.5% at the five-year ahead horizon, while the 1Y inflation outlook was flat for the 3rd month in a row, stuck at 3.0%. 

The increases in both the three-year ahead and five-year ahead measures were most pronounced for respondents with at most high school degrees (in other words, the "really smart folks" are expecting deflation soon). The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at all horizons, while the median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined at the one- and three-year ahead horizons and remained unchanged at the five-year ahead horizon.

Going down the survey, we find that the median year-ahead expected price changes increased by 0.1 percentage point to 4.3% for gas; decreased by 1.8 percentage points to 6.8% for the cost of medical care (its lowest reading since September 2020); decreased by 0.1 percentage point to 5.8% for the cost of a college education; and surprisingly decreased by 0.3 percentage point for rent to 6.1% (its lowest reading since December 2020), and remained flat for food at 4.9%.

We find the rent expectations surprising because it is happening just asking rents are rising across the country.

At the same time as consumers erroneously saw sharply lower rents, median home price growth expectations remained unchanged for the fifth consecutive month at 3.0%.

Turning to the labor market, the survey found that the average perceived likelihood of voluntary and involuntary job separations increased, while the perceived likelihood of finding a job (in the event of a job loss) declined. "The mean probability of leaving one’s job voluntarily in the next 12 months also increased, by 1.8 percentage points to 19.5%."

Mean unemployment expectations - or the mean probability that the U.S. unemployment rate will be higher one year from now - decreased by 1.1 percentage points to 36.1%, the lowest reading since February 2022. Additionally, the median one-year-ahead expected earnings growth was unchanged at 2.8%, remaining slightly below its 12-month trailing average of 2.9%.

Turning to household finance, we find the following:

  • The median expected growth in household income remained unchanged at 3.1%. The series has been moving within a narrow range of 2.9% to 3.3% since January 2023, and remains above the February 2020 pre-pandemic level of 2.7%.
  • Median household spending growth expectations increased by 0.2 percentage point to 5.2%. The increase was driven by respondents with a high school degree or less.
  • Median year-ahead expected growth in government debt increased to 9.3% from 8.9%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 0.6 percentage point to 26.1%, remaining below its 12-month trailing average of 30%.
  • Perceptions about households’ current financial situations deteriorated somewhat with fewer respondents reporting being better off than a year ago. Year-ahead expectations also deteriorated marginally with a smaller share of respondents expecting to be better off and a slightly larger share of respondents expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.4 percentage point to 38.9%.
  • At the same time, perceptions and expectations about credit access turned less optimistic: "Perceptions of credit access compared to a year ago deteriorated with a larger share of respondents reporting tighter conditions and a smaller share reporting looser conditions compared to a year ago."

Also, a smaller percentage of consumers, 11.45% vs 12.14% in prior month, expect to not be able to make minimum debt payment over the next three months

Last, and perhaps most humorous, is the now traditional cognitive dissonance one observes with these polls, because at a time when long-term inflation expectations jumped, which clearly suggests that financial conditions will need to be tightened, the number of respondents expecting higher stock prices one year from today jumped to the highest since November 2021... which incidentally is just when the market topped out during the last cycle before suffering a painful bear market.

Tyler Durden Mon, 03/11/2024 - 12:40

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Spread & Containment

A major cruise line is testing a monthly subscription service

The Cruise Scarlet Summer Season Pass was designed with remote workers in mind.

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While going on a cruise once meant disconnecting from the world when between ports because any WiFi available aboard was glitchy and expensive, advances in technology over the last decade have enabled millions to not only stay in touch with home but even work remotely.

With such remote workers and digital nomads in mind, Virgin Voyages has designed a monthly pass that gives those who want to work from the seas a WFH setup on its Scarlet Lady ship — while the latter acronym usually means "work from home," the cruise line is advertising as "work from the helm.”

Related: Royal Caribbean shares a warning with passengers

"Inspired by Richard Branson's belief and track record that brilliant work is best paired with a hearty dose of fun, we're welcoming Sailors on board Scarlet Lady for a full month to help them achieve that perfect work-life balance," Virgin Voyages said in announcing its new promotion. "Take a vacation away from your monotonous work-from-home set up (sorry, but…not sorry) and start taking calls from your private balcony overlooking the Mediterranean sea."

A man looks through his phone while sitting in a hot tub on a cruise ship.

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This is how much it'll cost you to work from a cruise ship for a month

While the single most important feature for successful work at sea — WiFi — is already available for free on Virgin cruises, the new Scarlet Summer Season Pass includes a faster connection, a $10 daily coffee credit, access to a private rooftop, and other member-only areas as well as wash and fold laundry service that Virgin advertises as a perk that will allow one to concentrate on work

More Travel:

The pass starts at $9,990 for a two-guest cabin and is available for four monthlong cruises departing in June, July, August, and September — each departs from ports such as Barcelona, Marseille, and Palma de Mallorca and spends four weeks touring around the Mediterranean.

Longer cruises are becoming more common, here's why

The new pass is essentially a version of an upgraded cruise package with additional perks but is specifically tailored to those who plan on working from the ship as an opportunity to market to them.

"Stay connected to your work with the fastest at-sea internet in the biz when you want and log-off to let the exquisite landscape of the Mediterranean inspire you when you need," reads the promotional material for the pass.

Amid the rise of remote work post-pandemic, cruise lines have been seeing growing interest in longer journeys in which many of the passengers not just vacation in the traditional sense but work from a mobile office.

In 2023, Turkish cruise line operator Miray even started selling cabins on a three-year tour around the world but the endeavor hit the rocks after one of the engineers declared the MV Gemini ship the company planned to use for the journey "unseaworthy" and the cruise ship line dealt with a PR scandal that ultimately sank the project before it could take off.

While three years at sea would have set a record as the longest cruise journey on the market, companies such as Royal Caribbean  (RCL) (both with its namesake brand and its Celebrity Cruises line) have been offering increasingly long cruises that serve as many people’s temporary homes and cross through multiple continents.

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International

This is the biggest money mistake you’re making during travel

A retail expert talks of some common money mistakes travelers make on their trips.

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Travel is expensive. Despite the explosion of travel demand in the two years since the world opened up from the pandemic, survey after survey shows that financial reasons are the biggest factor keeping some from taking their desired trips.

Airfare, accommodation as well as food and entertainment during the trip have all outpaced inflation over the last four years.

Related: This is why we're still spending an insane amount of money on travel

But while there are multiple tricks and “travel hacks” for finding cheaper plane tickets and accommodation, the biggest financial mistake that leads to blown travel budgets is much smaller and more insidious.

A traveler watches a plane takeoff at an airport gate.

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This is what you should (and shouldn’t) spend your money on while abroad

“When it comes to traveling, it's hard to resist buying items so you can have a piece of that memory at home,” Kristen Gall, a retail expert who heads the financial planning section at points-back platform Rakuten, told Travel + Leisure in an interview. “However, it's important to remember that you don't need every souvenir that catches your eye.”

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According to Gall, souvenirs not only have a tendency to add up in price but also weight which can in turn require one to pay for extra weight or even another suitcase at the airport — over the last two months, airlines like Delta  (DAL) , American Airlines  (AAL)  and JetBlue Airways  (JBLU)  have all followed each other in increasing baggage prices to in some cases as much as $60 for a first bag and $100 for a second one.

While such extras may not seem like a lot compared to the thousands one might have spent on the hotel and ticket, they all have what is sometimes known as a “coffee” or “takeout effect” in which small expenses can lead one to overspend by a large amount.

‘Save up for one special thing rather than a bunch of trinkets…’

“When traveling abroad, I recommend only purchasing items that you can't get back at home, or that are small enough to not impact your luggage weight,” Gall said. “If you’re set on bringing home a souvenir, save up for one special thing, rather than wasting your money on a bunch of trinkets you may not think twice about once you return home.”

Along with the immediate costs, there is also the risk of purchasing things that go to waste when returning home from an international vacation. Alcohol is subject to airlines’ liquid rules while certain types of foods, particularly meat and other animal products, can be confiscated by customs. 

While one incident of losing an expensive bottle of liquor or cheese brought back from a country like France will often make travelers forever careful, those who travel internationally less frequently will often be unaware of specific rules and be forced to part with something they spent money on at the airport.

“It's important to keep in mind that you're going to have to travel back with everything you purchased,” Gall continued. “[…] Be careful when buying food or wine, as it may not make it through customs. Foods like chocolate are typically fine, but items like meat and produce are likely prohibited to come back into the country.

Related: Veteran fund manager picks favorite stocks for 2024

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