Summer Mondays Aren't Always Quiet

 | Aug 11, 2017 | 4:35 PM EDT
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Everybody's working for the weekend. The immortal words of Loverboy continue to ring true in the markets. Summer Fridays tend to be the lowest volume days on the New York Stock Exchange, and the talking heads on CNBC always wax eloquently about "traders heading to the Hamptons for the weekend."

Summer Mondays are not necessarily as serene, and if you will recall, the mini-crash of 2015 happened on an August Monday. So, portfolio managers try to hedge their positions going into the weekend, and it seems as if the all-powerful "machines" that increasingly control trading have been programmed with that logic, as well.

So, all eyes will be on the geopolitical situation this weekend, with the always unpredictable Kim Jong Un dominating headlines. Despots are not really "investable," so the bias has to be towards portfolio protection. He's probably more likely to sport an attractive hairstyle than to act rationally, so this is a threat that should not be ignored.

The other main catalyst for August's continuation of the Trump Jump is also ending. The deadline to file 10-Qs for large companies that follow a calendar year has passed this week, and even the smallest companies (my stock in trade) have to file 10-Qs by the end of the day Monday. So, there will be a few stragglers reporting in the next few weeks such as Cisco and a few more retailers that follow January fiscal years, but, in the main, the earnings fuel for the current bull run will be exhausted until October.

So, there are some company and industry specific ideas that I think will move to the fire as we hit the dog days of late August:

I still think Google (Alphabet) (GOOGL) is a short. The culture wars that have been exposed this week are going to keep GOOGL in the news for the wrong reasons. Without venturing into politics, the idea that a large public company would terminate an employee for expressing opinions that go against those of the majority is simply chilling. That's not why I shorted GOOGL, though. I still cannot believe that the market has not heeded Alphabet CFO Ruth Porat's warning from the second-quarter conference call about continuing pressure on margins. GOOGL is facing pricing pressure, especially in mobile, a factor that Twitter (TWTR) flagged several quarters ago. Thus, EPS estimates for GOOGL are too high, and until that changes, the shares are ripe for selling.

I look for oil prices to slowly and somewhat stealthily head back through the $50/barrel mark on the West Texas Intermediate benchmark. Please read the excellent column by my colleague Dan Dicker from earlier this week for details on the supply issues that will be facing U.S. oil consumers in the second half of 2017. Though we both follow energy I don't always agree with Dan's theses -- there's no groupthink at Real Money, unlike the situation in Mountain View -- but I think he was spot-on with his most recent analysis. As exploration and production companies -- especially the smaller independents -- pull back on rig usage in the second half, monthly production growth will evaporate.

Finally, I believe bonds will continue to perform well. I'm seeing the 10-year U.S. Treasury yield quoted at 2.19% as I write this, and any kind of geopolitical shock could send us through the 2% mark again. With much less fanfare than their equity alternatives, bonds have posted a strong performance thus far in 2017, and I look for that to continue as we move into the fall.



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