"My great concern is not whether you have failed, but whether you are content with your failure."
--President Abraham Lincoln
The Complexity of Unrealized Risk
Not Complexity Theory. We have discussed that before. Complexity Theory is more about risk hidden -- networks seemingly unrelated, camouflaged, but connected in perhaps unexpected ways and bearing danger increased exponentially through leverage.
There are other kinds of danger, my friends. Open, understood danger, still neglected, still ignored. Ahh, the human brain, and its aversion to unpleasantness. Why think of worst-case scenarios. They only cost money. Until one wishes that one had prepared more thoroughly.
Quietly, U.S. and Japanese military leaders play out various scenarios at the table top level. No, they are not playing Risk. The games are as I said "more complex" and include not just military, but economic, and socio-political outcomes.
At the human level, U.S. and Japanese Naval and Air Forces work together in joint exercises in and over the South China and East China Seas. Such cooperation began under the administrations of President Trump and Prime Minister Abe. They continue into the administrations of President Biden and Prime Minister Suga.
On the other side of the world, Switzerland places a $6.5 billion order for 36 F-35A fighter jets. The aircraft is manufactured by Lockheed Martin (LMT) and runs on engines built by Raytheon Technologies (RTX) .
The F-35A was chosen to replace the Swiss Air Force's aging fleet of F/A-18 Hornets made by Boeing (BA) and F-5 Tigers made by Northrop Grumman (NOC) . The F-35A was chosen over the updated F/A-18A Super Hornet, again made by Boeing with engines manufactured by General Electric (GE) , the Airbus (EADSY) Eurofighter, and the Dassault Rafale.
Switzerland becomes the 15th nation to join the F-35 program, which, for those unaware, is the only fifth-generation fighter mentioned here. The others are all souped up versions of fourth-generation fighters. On deck, is Finland with an expected $11 billion to spend on updating their own fleet of fighter craft. All of the above-mentioned fighters are under consideration for that deal, as well as the Gripen, manufactured by Saab.
Back to Asia.
Chinese President Xi takes a defiant tone, addressing his nation from Tiananmen Square from above a portrait of Mao Zedong in commemoration of the 100th anniversary of the Chinese Communist Party. Xi vows "resolute action to utterly defeat any attempt toward Taiwan independence." Obviously, it sticks in both Xi's and the party's side that Taiwan has been autonomous of mainland rule since 1949. Chinese military aircraft have been crossing into Taiwanese airspace on a regular basis in recent weeks and months. A dangerous game.
From Taipei, the Taiwanese Mainland Affairs Office stated, "The only way to positive interactions and the sustainable development of cross-straight relationships is to abandon attempts to impose a political framework on Taiwan and intimidate Taiwan militarily."
Time to pick up some defense contractor type names?
The group has been out of favor. The only one I am still in is Kratos Defense (KTOS) and I would like to personally thank ARK Invest's Cathie Wood for her support of that stock at this time.
All kidding aside, Lockheed is trading close enough to its three-month lows after suffering a mini (or swing traders') death cross (21-day exponential monthly average (EMA) crossing below the 50-day simple moving average (SMA)). Still, retaking both of those lines remains very possible, and could cause a mini-golden cross in short order.
Buy a few shares of Lockheed Martin? I think I may already be late.
Put It in the Books
End of the month, quarter and half. From above, the session appeared quiet. Again. The S&P 500 tacked on 0.13%, while the Nasdaq Composite failed to make a new all-time closing high, giving up 0.17%. Small-to mid-cap indices did little more. Yet, trading volume exploded higher both at the New York Stock Exchange as well as the Nasdaq Market Site.
For the third time in less than two weeks, trading volumes were heavy for reasons borne of the calendar, not of conviction as a triple-witching expiration was followed by the Russell index reconstitution followed by the end of the quarter/half. How peculiar that the last day of a calendar can still drive frenzied activity given that most folks interested enough to do so can follow their money on a daily or even real-time basis these days, thanks to modern technology.
Among those major indices, the Nasdaq Composite scored an increase of 9.5% for the quarter just ended (5.5% just for June), while the S&P 500 added 8%. The Dow Industrials? Just 4.5%, the Dow Transports just 1.7%. Yet, those Dow Transports lead all major large-cap indices year to date, up just less than 19%, while the Dow Industrials, S&P 500, Nasdaq Composite, and Nasdaq 100 are all up between 12.5% and 14.4% for 2021.
The Fear Factor
We all think of Amazon (AMZN) as a behemoth, willing to disrupt all in its path. Conqueror of worlds. Afraid of nothing. Except maybe the new Chair of the FTC (Federal Trade Commission) Lina Khan.
Amazon filed a petition with the FTC on Wednesday. The company believes that Khan had "already made up her mind that the company was a threat to competition, having built her academic and professional career in large measure by pronouncing Amazon liable for violating the antitrust laws."
In short, Amazon wants Lina Khan to recuse herself from any investigation involving the company, as she has been critical of the company in the past. To be honest, I am long Amazon, but I really do not have a dog in this fight.
It would appear to a lay person (not a lawyer) that Amazon makes a fair point here. As an investor, however, I believe that Amazon is well on its way to being a dominant player in everything it touches. I also believe that the sum of the parts may be greater than the value of the whole.
Leave Amazon alone? I remain long. Break up the firm into parts? I remain long. That's what I think about that.
You kids see the action in Lands' End (LE) on Wednesday? The stock closed up $6.78 to $41.05 (+19.8%) on no news. In fact, I haven't seen any corporate news for more than two weeks. "Only" 6.3% of the float was held in short positions as of June 15, so this was no short squeeze on the last day of a quarter or anything like that.
We do have a classic looking cup-with-handle pattern breakout that did not create a gap while forming, but did leave both Relative Strength as well as the stock's daily Moving Average Convergence Divergence (MACD) looking rather extended.
Can you trust this move?
The equity started moving higher at the open on Wednesday and kept on moving in that direction all day long. So far, LE has only given a few cents back overnight. What I did see was some very large equity trading volume both for Wednesday as well as for a very similar looking day on June 2, which was earnings related.
In addition, options trading volume exploded for Land's End on Wednesday, enough contracts traded in one day to represent close to 45% of the equity's average monthly trading volume. Especially active were the $40 calls expiring two weeks from Friday (June 16).
Does somebody know something that I don't know? Am I missing something? Sure looks like it.
Kool & The Gang
Don't forget... OPEC and OPEC aligned oil producers meet today (Thursday) to decide the next phase of their production policy.
Exxon Mobil (XOM) remains my "big oil" pick. Mostly because they have been forced to realize that they need to evolve.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 385K, Last 411K.
08:30 - Continuing Claims (Weekly): Last 3.39M.
09:45 - Markit Manufacturing PMI (June-F): Flashed 62.6.
10:00 - Construction Spending (May): Expecting 0.5% m/m, Last 0.2% m/m.
10:00 - ISM Manufacturing Index (June): Expecting 61.0, Last 62.2.
10:00 - U of M Consumer Sentiment (March-F): Flashed 102.0.
10:30 - Natural Gas Inventories (Weekly): Last +55B cf.
The Fed (All Times Eastern)
No public appearances scheduled.