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Economics

The Tail Is Wagging The Dog; Big Plunge Ahead

Normally, the stock market is humming along and we have indicators all supporting the sustainability of that move higher. But things aren’t normal right now. It started with the rotation into defensive sectors to lead the S&P 500 higher on that last..

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Normally, the stock market is humming along and we have indicators all supporting the sustainability of that move higher. But things aren't normal right now. It started with the rotation into defensive sectors to lead the S&P 500 higher on that last final leg in December. These types of signals do not provide me a guarantee, they simply help me to manage risk. Once I saw the defensive leadership spurring the S&P 500 to new all-time highs, I'd seen enough. The fundamental red flags were already out there with rising inflation and the Fed turning more hawkish, but I don't buy and sell based on those. I need to see it on the charts and in November and December, I began to see exactly that. Wall Street turned to defense and when they play defense, they do it like the 1985 Chicago Bears.

This is just the start of the problems we face ahead.

Technical breakdowns have been occurring by the hour and as more technicians sell and begin shorting, that'll start a period of disbelief. After all, we've been going straight up since March 2020. The Reddit folks don't even know what a correction looks like, let alone a bear market. Sentiment has reached heights of bullishness that we've never seen before and, unfortunately, could result in a stunning and painful drop here in Q1.

As the Volatility Index ($VIX) heats up, you should expect big moves in both directions, but for now, I'd view the U.S. stock market as downtrending until we can reset sentiment.

Equity Only Put Call Ratio ($CPCE)

The CPCE is a big problem. Options traders have been pouring into calls, despite the fact that they've been growing more and more expensive. The VIX is a measure of expected volatility. When the VIX rises as the S&P 500 rises, it's a warning because it means that the stock market is growing much more nervous even though prices continue to rise. Historically, that's a pretty significant warning sign. Since 2018, we've made four consecutive tops (all-time highs) with four consecutive higher VIX readings. Eventually, that will catch up with us and it is....now. As the VIX rises, options see their premiums rise and they become more expensive. Yet options traders just keep buying them - at any price. It reminds me of someone buying crack. They don't care what the price is, they just have to have it. Many retail options traders are greedy. They can't step back and look at the big picture. They don't know when to tone it down. They just buy because the only way to make a LOT of money is to keep buying calls.

Well, in a bear market, that strategy is one that will ruin a lot of traders. Unfortunately, I see it coming.

So let's look at a couple charts. The first one may be a refresher to some of you, but it's important not to lose sight of it to keep everything in perspective. Perspective will be critical over the next 3-6 months, in my opinion.

S&P 500 - 15 year weekly chart:

I see many similarities to the 2013-2016 period. A straight up market with weekly negative divergences and very bullish sentiment. In 2015 and 2016, you can see the drops that took us back fairly close to that blue-dotted centerline in the 13-year trend higher. The 2007-2009 financial crisis and the March 2020 pandemic established key long-term trend support, while we've seen several tests of that blue-dotted centerline. I'd consider that to be the real downside potential during any period of selling. That number, right now, is close to 3500 on the S&P 500, which is another 20% or so lower from current prices. I don't believe we'll reach that rising dotted line, but we could get close.

It's important to understand that we see significant swings in sentiment and investor psychology in the stock market and it can have VERY significant implications on market performance in both the short-term and long-term. We have experienced a run up in U.S. equities like very few others. The S&P 500 was at 2191 in March 2020 and just recently set an all-time high at 4818 on the second trading day of this year. That's a 120% gain in 22 months! Even if we consider the S&P 500 all-time high of 3393 on February 19th, before the pandemic collapse, the S&P 500 still rose 55% from that date through January 2nd. Given the massive run up, don't you think it's at least possible that the market could trend lower for awhile?

I believe the biggest problem we face is that we need to reset sentiment to a more bearish level before the stock market can truly take off again. We've simply been too bullish in the options world and we're about to pay the price.

At the far left side of the chart, back in 2012 into 2013, you can see the CPCE dropping over time - moving from a bearish sentiment to a more bullish sentiment. That change in sentiment drove the S&P 500 soaring higher. But the red-dotted vertical lines both highlight changes from extreme bullish sentiment readings to more bearish readings. I think it's significant that the transition began in 2014, but market bottoms weren't reached until bearish sentiment peaked. I believe that's the road we have ahead. We are in the midst of sentiment transitioning. In weather parlance, we have to go from a Category 3 hurricane approaching to a Category 5 devastation. When it's approaching, you think, "how bad can it really get?" But after it's hit, you just look around at the ruins. Is it worth the risk to take that chance? That's the question I'd be asking myself right now.

I do believe there are investments that will work while we make this transition and I'll feature one of them on Monday morning in my free EB Digest newsletter. If you're not already a subscriber, simply CLICK HERE and type in your name and email address. It's that simple. There's no credit card required and you may unsubscribe at any time.

Enjoy your weekend and happy trading!

Tom

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Philly Fed: State Coincident Indexes Increased in 50 States in April

From the Philly Fed: The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for April 2022. Over the past three months, the indexes increased in all 50 states, for a three-month diffusion index of 100. Additiona…

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From the Philly Fed:
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for April 2022. Over the past three months, the indexes increased in all 50 states, for a three-month diffusion index of 100. Additionally, in the past month, the indexes increased in all 50 states, for a one-month diffusion index of 100. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index increased 1.1 percent over the past three months and 0.3 percent in April.
emphasis added
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Click on map for larger image.

Here is a map of the three-month change in the Philly Fed state coincident indicators. This map was all red during the worst of the Pandemic and also at the worst of the Great Recession.

The map is all positive on a three-month basis.

Source: Philly Fed.

Philly Fed Number of States with Increasing ActivityAnd here is a graph is of the number of states with one month increasing activity according to the Philly Fed. 

This graph includes states with minor increases (the Philly Fed lists as unchanged).

In April all 50 states had increasing activity including minor increases.

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Economics

Finding Shelter in an Inverse ETF

As the old saying goes, “What goes up must come down.” Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued…

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As the old saying goes, “What goes up must come down.”

Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, tech stocks, including semiconductors, were the darlings of the investment world. That is, it seemed as if the sky-high valuations of some tech stocks were sustainable in an atmosphere of seemingly perpetual growth.

That, of course, was not the case, and the too-good-to-be-true valuations were quickly brought down to earth by the forces of inflation and tight monetary policy. As a result, the tech-heavy Nasdaq entered a free-fall that has not yet found a bottom.

At the same time, that does not mean that we should abandon the sector as a lost cause. One such way to play the sector during its downhill slide is the exchange-traded fund (ETF) Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS).

As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down. Specifically, SOXS provides three times leveraged inverse exposure to a modified market-cap-weighted index of semiconductor companies that trade in American markets by using swap agreements, futures contracts and short positions.

While the index’s holdings are weighted by market capitalization, the fund’s managers cap the weights of the top five securities in the portfolio at 8% each. The weight of the remaining securities is capped at 4% each.

As of May 24, SOXS has been up 0.37% over the past month and up 24.73% for the past three months. It is currently up 60.47% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $258.15 million in assets under management and has an expense ratio of 1.01%.

In short, while SOXS does provide an investor with a way to invest in an inverse ETF, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

The post Finding Shelter in an Inverse ETF appeared first on Stock Investor.

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