• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Railroaded Transports, Musk's AI Musings and Microsoft at Hand: Market Recon

And just why do we have a federal debt ceiling, anyway? An argument for doing away with it.
By STEPHEN GUILFOYLE
Jul 18, 2019 | 08:43 AM EDT
Stocks quotes in this article: NFLX, CSX, UNP, KSU, NSC, TSLA, NVDA, INTC, MSFT, AMZN, DHR, HON, MS, PM, STI, UNH, COF, CHWY, CRWD, SWKS

Last Licks

We've all been there. Tension in the street. All seems to have settled down, then suddenly someone who was not even there at the start throws a punch. Mayhem ensues.

In a way, that's what the action seemed like around Wednesday's closing bell. Prices had softened going into the close. Then wham. Somebody threw a haymaker. Wow. The Dow Industrials, the S&P 500, the Nasdaq Composite. They all closed at the absolute bottom of their daily range. A few minutes later, we all knew that there was something seriously wrong with Netflix Inc. (NFLX) . Oh, but the Dow Transports? That index followed Tuesday's 1.8% bull run with a bearish 3.6% mauling on Wednesday. Within the transports, the Dow Jones U.S. Airline Index gave up 3.85%, but still resides near the top of its chart.

However, CSX Corp. (CSX) was driven to the nether regions by investors, who pushed that stock below both its 50- and 200-day simple moving averages (SMAs). That created a broad and severe reaction that was felt across that entire growth-reliant industry. The beating taken by the rails on Wednesday was simply epic in nature, as the Dow Jones U.S. Railroad index surrendered 7.16%.

With the rails on their heels, this group will remain in focus (along with several other groups) as Union Pacific Corp. (UNP) posts results Thursday morning. Investors will hear from Kansas City Southern (KSU) on Friday and Norfolk Southern Corp. (NSC) next week.

While the broader indices did surrender some turf as the transports were hit and while the president expressed unhappiness in regard to whether there is a developing potential for the U.S. and China to actually get anywhere on the path toward a trade deal, the fact is that trading volume contracted at both the New York Stock Exchange (NYSE) and Nasdaq market sites on Wednesday from Tuesday, so we do not have that other shoe dropping across the marketplace just yet. Institutions have not -- at least not yet -- started to flee equities broadly. My guess would be that badly disappointing data for June housing starts, and especially June building permits, kept these investors in their socks as bad news is good news as far as monetary policy watchers are concerned.

Ticking Time Bomb?

Probably not. We seem to always worry about the debt ceiling, and then the "imaginary" crisis passes uneventfully, or even eventfully, but quickly is forgotten until the next time. Downgrades do happen. Not that they mean much in retrospect.

Treasury Secretary Steven Mnuchin has already warned the nation. The federal government could run out of cash by early September. Why is that a big deal in mid-July? Simple. The House of Representatives goes on recess at the end of next week, July 26, while the Senate hangs in there until Aug. 2, a week later. Of course neither legislative body will be back to doing the business of the people prior to early September. (But keep voting yourselves pay increases. Nice work if you can get it.) Both chambers return to their "grueling" agendas on Monday, Sept. 9.

Speaker of the House Nancy Pelosi has set a deadline of this Friday (tomorrow) for the legislative and executive branches of government to reach an agreement on increasing the limit of federal borrowing as well as on new spending levels. Here's a crazy idea. Being it's essentially meaningless, why do we even have a debt ceiling? We never stick to it, yet it manages to slow down spending and creates unnecessary questions around the quality of the credit of the U.S. government.

You can still haggle over spending all you want, but get rid of the ceiling. Pelosi would like to have something vote-able on the House floor by next Thursday, giving representatives at least a full day to get something on the tape.

In the meantime, "concerned" investors purchase U.S. 10-year notes in response to weak-looking June building permits.

No Thank You

Tesla Inc. (TSLA) CEO Elon Musk made the news again. I listened; he sounded very sharp. Humans need to enter into a symbiosis with artificial intelligence (aka AI) or will be left behind. That was the gist.

Hmm. Left behind by whom? The robots? The idea is to connect the human brain to this AI via a neural lace of ultrathin electrodes that will capture as much information from the brain as possible. The wiring... um, I mean electrodes.. must be super thin, very flexible, and number in the thousands to provide sufficient bandwidth. Again, hmm?

While I can see researching ways to combat and better cope with disability or serious illness, someone suffering from any number of maladies might just look forward to a symbiotic relationship with a system that might react in a way messaged by the brain, especially if the body is unable. My prediction will

be that AI will remain among the hottest areas of investment moving forward. Obviously. That places value back on some of the semiconductors such as Nvidia Corp. (NVDA) or Intel Corp. (INTC) , and certainly on the software/cloud-type names, though I don't know how many volunteers will be found initially to have their brains wired in this way. Before we are assimilated into the Borg, I will likely disappear into a wilderness environment sans all technology.Just a thought.

Microsoft Earnings

Microsoft Corp. (MSFT) reports after the closing bell on Thursday. Expectations at the headline are for earnings per share of $1.21 on revenue of $32.77 billion. That should be good for 9% sales growth. Whispers are for a minor beat at Microsoft, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.

Perhaps more focused on than the top and bottom lines will be the performance of the Azure cloud. I have long written that as capex returns to the economy that digitization of data is where much of that corporate expenditure has to go, and Microsoft is perhaps the best-positioned firm anywhere to manage a hybrid cloud (on premise/off premise) environment for these businesses. It deserves the 26x forward earnings at which the stock trades. The significant competition for the business cloud comes from Amazon.com Inc.'s (AMZN) Amazon Web Services (AWS). Each quarter, investors watch for the gap between the two to close. Thursday evening will be no different.

As one quickly sees, Microsoft has worked its way toward the top trend line of my Pitchfork, a line that the shares have never tested since the creation of the cross-bar late in 2018. In June 2019, MSFT broke out of a short basing pattern (orange) and has stalled just a few percentage points above pivot.

I am long this stock with a $160 target price and a $120 panic point that I think I will raise now from the bottom of that base to the top (also the 50-day SMA). So, my panic point now will be $131.

This is another one of those names that we have been in for a while, so we do have something to protect. A $140 call expiring this week, went out last night at a mere 89 cents and may be worth less as Thursday's trading session progresses. That might be an inexpensive way to enhance any upside reaction that might be created by the numbers this afternoon.

Economics (All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 215K, Last 209K.

08:30 - Philadelphia Fed Manufacturing Index (July): Expecting 4.8, Last 0.3.

10:00 - Leading Indicators (June): Expecting 0.1% m/m, Last 0.2% m/m.

10:30 - Natural Gas Inventories (Weekly): Last 81B cf.

The Fed (All Times Eastern)

09:30 - Speaker: Atlanta Fed Pres. Raphael Bostic.

14:15 - Speaker: New York Fed Pres. John Williams.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (DHR) (1.16), (HON) (2.08), (MS) (1.16), (PM) (1.32), (STI) (1.46), (UNP) (2.15), (UNH) (3.46)

After the Close: (COF) (2.87), (CHWY) (-.07), (CRWD) (-.48), MSFT (1.21), (SWKS) (1.34)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Guilfoyle was long UNP, MSFT, NVDA and INTC equity and AMZN calls.

TAGS: Bonds | Earnings | Investing | Stocks | Software & Services | Technology | Transportation | Real Money

More from Stocks

Lithia Motors Could Correct Before Making New Highs

Bruce Kamich
Apr 19, 2021 2:15 PM EDT

Consider a correction to be a buying opportunity.

The Market Has Been Forgiving for Way Too Long

Timothy Collins
Apr 19, 2021 2:09 PM EDT

At some point, the momentum and frothy traders will return, but the current action should be a solid lesson.

Bad Markets Don't Scare You Out, They Wear You Out

James "Rev Shark" DePorre
Apr 19, 2021 1:40 PM EDT

If the S&P 500 was acting like the majority of small-caps we would be calling this a bear market.

T-Mobile's Charts Are About to Ring Dollar Signs

Bruce Kamich
Apr 19, 2021 1:30 PM EDT

Here's our latest technical analysis and trading strategy on TMUS.

Jim Cramer: For GameStop, It's Now All About the Plan

Jim Cramer
Apr 19, 2021 12:37 PM EDT

With George Sherman out as CEO, everything, including every mistake, is now on Ryan Cohen.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:05 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How recency bias and the Pareto Principle impact y...
  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login