Some pundits refer to it as reading the tea leaves. I consider it something more like tracking animals in the forest. Often very difficult to ascertain. Like finding a print in the soil, often what's important might be vague. How recent? How heavy? Dog? Big cat? Bear? They all look different, yet similar.
In good quality terrain, it's easier to differentiate. After a little rain or some wind erosion, sometimes not so much. We don't always know, but just like in financial markets, there are signs that signal ahead based on past experience, which is why we always look not only at price, but also at clues that might hint at behavioral swings.
Being able to follow a trail and figure out just what one is looking at has never been more important now that the market model itself has evolved so much over the past decade. It is more important than ever that speed of execution has been prioritized over the purity of price discovery as the primary function of the financial marketplace.
You'll recall that on Thursday morning I threw at you in Recon two levels that I felt were key, yet possibly unattainable for the day -- the 50-day simple moving averages (SMAs) for the S&P 500 and the Nasdaq Composite. Twenty-four hours ago, those levels were 2930 and 7982, respectively. This morning those levels stand at 2933 and 7992. The point is that for each of our two broadest large-cap indices, these levels were taken.
You often hear (or read) me talking about a "take and hold." Now comes the hold part that may be more difficult than we think after three successive up days as we head into a late summer Friday.
Reading trading volume has become quite tricky. Volume declined at both major exchanges on Thursday from Wednesday. That said, trading volume remains elevated as both the S&P 500 and the Nasdaq Composite have enjoyed seven consecutive days where aggregate constituent volume exceeded the 50-day simple moving average of the volume itself. However, the average volume of these past three up days has been lower than the average of the four down days that came prior.
Ummm, there were six straight down days, Sarge. Glad you pointed that out. The first two days, though they came close to a market top, were from a volume-related viewpoint insignificant.
The conclusion would be that fund participation, though certainly engaging, has been at least slightly lower on the upside than it was on the downside. You can read this two ways. Dry powder? That's bullish. Less than convinced? That's bearish. I think in this headline-driven trading environment that there will be some apprehension, regardless.
Keep your eyes on the 50-day SMAs. Those crack, and these kids will lighten up going into the weekend. Those lines hold and so will they. It's what they've been trained to do, and they don't have as much discretionary authority as they used to.
Equity markets ran for three overt reasons on Thursday, the same reasons why there was some claw-back on safe-haven seeking. Chinese exports seriously beat expectations for July, and there was loose talk regarding German fiscal policy that made the rounds on Wall Street. Those reasons are "growth hopeful". The other clear reason was the People Bank of China's maintenance of the yuan at weaker than 7 to 1 levels, which is not optimal, but shows that there is at least a line in the sand somewhere.
Friday morning the headlines are less rosy. After Thursday night's closing bell, the Trump administration held off on approving licenses for U.S. companies wishing to resume doing business with Chinese telecom giant and leader in 5G technology, Huawei Technologies. This would be in response to China suspending agricultural purchases from U.S. farmers.
Remember the whole gang war analogy? Constant response. In better times, Huawei was good for about $11 billion in purchases from U.S. technology companies. This negative news is likely to impact shareholders of Qualcomm Inc. (QCOM) , Intel Corp. (INTC) and Micron Technology Inc. (MU) specifically more so than other firms, but possibly the entire semiconductor space thanks to the wonders of passive investment.
Yes, the environmental phenomenon of a preference for intellectual laziness has permeated all reaches of society. Perhaps the greatest threat to humankind is now a mass repudiation of individual thought. Alas, that is a discussion is better left for a different place and time. Then again, those needing to hear would refuse.
In other headline news, the populist government in Italy appears to have come to an end after just 15 months. This has put the whammy on equity prices in Milan. Roughly 800 miles away, the U.K. Office for National Statistics went to the tape with a plethora of simply awful-looking monthly (June) and quarterly (Q2) macroeconomic data. This includes a negative number for GDP for the first time since 2013. Halfway to recession. That leads me to the next paragraph.
The Seedy Hotel Accord
In 1985, the U.S. dollar was successfully devalued through a multinational, coordinated intervention in currency markets agreed to at the Plaza Hotel in New York City. That accord has been making the rounds recently in financial circles both in print and on air as currency wars have certainly heated up.
Does that agreement that seemed to work, at least from a U.S. perspective, lay the groundwork for a semi-solution? Perhaps.
We see German politicians discussing a complete change in that nation's fiscal policy. Why? No growth. We see the British economy in actual contraction, half way to recession. Why? Uncertainty ahead of Brexit. We see Japan unable to sustain acceptable levels of growth for generations. Why? Demographics. We see China regularly pedaling backward in an effort to engineer a soft landing. Why? Over-leverage. We see emerging and frontier economies struggling with debt denominated in, or pegged to, the U.S. dollar.
We're not going to any fancy hotel. We're going to do this right and meet at the seediest hotel that we can find and maybe spring for a stale continental breakfast. The idea has merit, however. All these problems may or may not have been created by the trade war between the U.S. and China, but they have been exacerbated by slowing global economic growth, and this trade war is the nastiest impediment in the way of turning a corner.
So what if... what if the U.S. trade team were to offer a suspension of the implementation of these scheduled Sept. 1 10% tariffs and a promise to review already implemented tariffs that bear no impact upon national security in exchange for China suspending the halt to agricultural purchases as well as reviewing structural behaviors that present as barriers to entry in Chinese markets? The rest of the planet then does their part through a coordinated attack on the U.S. dollar. The Bank of England, European Central Bank, Bank of Japan, People's Bank of China and the Federal Reserve would all do their part.
Is it that easy? Of course not. The Bank of Japan is already dealing with a stronger yen than it would like. It might balk. But at what price -- growth?
Other central banks could cooperate if in their best interest to do so. Selfishly, even agreeing to meet would provoke tradeable momentum. I may not be the smartest kid on the block, but it's time to stop whining. We need everybody thinking about solving problems. I know this is simplistic. This is just meant to help seed the thought process of others. That said, I'm very serious about the seedy hotel. Just an idea.
Upon seeing second-quarter financial results for Uber Technologies Inc. (UBER) Thursday night, three letters, five words and three numbers came to mind: LOL. SOLD to you. Take badge 986.
Gee whiz. Can a public firm perform any worse? Put your hand down, Kraft Heinz (KHC) , I see you.
Remember how I told you that I picked up a few shares of UBER in response to Wednesday evening's results for Lyft Inc. (LYFT) that supported the idea that market-share levels had held throughout the quarter as the addressable market for this industry appeared to grow? Yeah, about that. I'll be flat UBER before you read this, as the shares have given back all of Thursday overnight and appear to be trading ballpark where they were 24 hours ago.
Uber reported a GAAP per-share loss of $4.72, missing by more than a buck and a half, on revenue of $3.17 billion. That number did show year-over-year growth of 14.4%. However, that number also badly missed expectations and presents as the sixth consecutive quarter of rapidly decelerating sales growth for the firm. Uber posted a quarterly net loss of $5.24 billion, much larger than the loss of $878 million posted for the same quarter last year. There are some big reasons for what looks like a horrific number. These would include both $3.9 billion in stock-based compensation expenses related to Uber's initial public offering (IPO) and $298 million is driver appreciation awards also tied to the IPO.
There is some good news. Adjusted quarterly EBITDA printed at a loss of $656 million, easily beating expectations of -$979 million. Gross bookings came to $15.8 billion, up 31% from last year. Gross bookings are what Uber takes in prior to paying drivers and restaurants. The number of active customers is up 30%, while then number of trip taken grew 35%. so the market is indeed still expanding.
That said, CEO Dara Khosrowshahi spoke about narrowing losses over coming years. How exciting. The fact is that this firm is seriously burning cash. Firms can really only get away with that for a while if they can truly be called "growth stocks."
Is UBER a growth stock? Not right now, it isn't. I think it's fine for traders to play the name short term. Investors however... you and I both know that there are better things to do with your money.
Economics (All Times Eastern)
08:30 - PPI (July): Expecting 2.4 % y/y, Last 2.3 % y/y.
08:30 - Core PPI (July): Expecting 1.7% y/y, Last 1.7% y/y.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 770.
The Fed (All Times Eastern)
No Public Events Scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)