I'm going to go out on a limb and guess that most of you have watched a parade, or seen seen some close order drill in person. You have likely noticed that at some point, those marching, upon command will march in place, still in step, until given a further command. This is called marking time. The purpose of such movement is to regain proper cover (directly behind the marcher to your front) and alignment (flush with the marcher to your side). "40 and 4 all around." Once everything looks okay, or the leader figures out where he or she wants to go, the unit will move out, still in step.
Major U.S. equity indices marked time on Monday. A little this way, a little that way, mostly on light volume. Ever since the bloodbath of October of 1987, I'll take a Monday like this anytime -- after a risk-off Friday that accelerates into the closing bell. Think that day was traumatic? Thirty-two years later, it still creeps into my thoughts while the rest of the planet sleeps. So yeah... I guess so.
Financial markets adjusted to the newly inverted yield curve, which has gone back and forth a bit, as best as could be hoped, just one day after a forced algorithmic reaction to the initial change in the environment. The S&P 500 has given up the crucial 2815 level that was so painstakingly fought over.
The 2785 level provided support twice on Monday. We'll find out on Tuesday the significance of that spot. The lower trend line of the Pitchfork that we had drawn for you a couple of weeks back is now broken. An upside catalyst could be found technically, should the last sale remain above the 50-day and 200-day Simple Moving Averages. Over several trading sessions, that could pull the 50 above the 200, creating a Golden Cross, which would in turn provoke a bullish algorithmic response.
Some traders did seem to find solace in the outperformance of the small-caps on Monday. I'm not saying that this was fool's gold, but there are a couple of items on the chart for the Russell 2000 that caution me still.
You'll notice the resistance that the small-cap index met at the 50-day SMA on Monday. You should also notice the failure of the index to reach a typical cup-with-handle buy point in late March, after the handle portion had appeared to form in the early part of the month.
This could be an inverted head-and-shoulders pattern. That would be bullish. However that neckline is a long way off at this point. First, we have to worry about even reaching that spot, which would show as resistance if approached. The chart over the same time period for the Dow Transports is very similar. These two slices are obviously growth-performance-related securities groupings.
Hot Potatoes
There are two easy fixes here, both out of your control. The clean way is for first-quarter macro to simply look better than it has. The Atlanta Fed's GDPNow model is tracking the first quarter at annualized growth of 1.2%, well above where that snapshot was only two weeks back. Tuesday morning, the Census Bureau releases February data for Housing Starts. This will certainly impact the model. On Wednesday, January's Trade balance hits the tape in full, followed by a very big macro day this Friday. That day, economists and investors alike will have to interpret January Consumer Spending and February New Home Sales.
This all matters as far as growth and inflation models are concerned. You can bet your tail that the Atlanta Fed will revise its real-time snapshot in response to each and every one of these events. I am tracking now as many as eight Fed speakers over Thursday and Friday. Think that's an accident? Think again.
If the macro doesn't pull prospects higher for domestic growth, and with yield seekers from abroad now likely increasing demand for the long end of the U.S. Treasury curve (as the total amount of global debt trading with nominally negative yields has vaulted back over $10 trillion, with Germany falling into the abyss), un-twisting the short end, as I have explained until I am blue in the face, remains the best option. Philadelphia Fed President Patrick Harker (not a 2019 policy voter) touched on this earlier today from Frankfurt.
This is the underlying economic picture. In response to negative earnings growth expectations for the quarter, built upon very pedestrian revenue growth, equity markets will need to rely upon multiple expansion. With central bankers in panic mode, they'll likely get just that.
Power Tie
Perhaps the only thing worse than the designated hitter rule is a sloppy Wall Street. I am struck. This is not market related, yet it is. First, Goldman Sachs (GS) relaxes the firm's dress code. Then, an article in the Wall Street Journal suggests that men (not this one) might find it acceptable to wear Lululemon (LULU) pants to the office. By the way, LULU reports on Wednesday this week after the close. We read how younger adults love comfort, how corporate executives have gone business casual. Well, aren't they just darling?
One thing I understand well, I think, is discipline. If one allows oneself to cut corners here or there, one will eventually cut corners everywhere. Go ahead. Dress casual. Wear sandals for crying out loud. I will be in my office working before you rise every day. I will be in my office working after you hit the rack. Every day. I will work on charts every weekend. Somewhere in the middle of my work day, I will still manage to run several miles. I will still hit the gym. I will eat healthy food, and when I'm done... I will eat your lunch.
Why? Motivation. Dedication. Code. Where I come from, you either show up ready to rock or you go home. Worthless and weak. That's the easy way. I see you didn't shave again today. How cute. I may not always have the best idea. I may not be the smartest kid in the room (better be a crowded room), but I will always look like my chosen profession matters to me... because it does. On to victory.
Quick Hits
1) I truly wish that Apple (AAPL) had worked healthcare into Monday's dog and pony show. My trade for Monday did not work, but this long is in fine shape (my opinion) moving forward. I am most intrigued by the digital credit card, it's ability to drive hardware sales, and the subscription gaming platform. The magazine seems silly. I'll wait to judge the TV.
2) Tesla (TSLA) -- the stock looks awful. The name bottomed just below $250 twice in 2018, and is now almost 130 points off of the December highs at a last sale of $260.42. Smart folks I speak to are telling me that they feel they can short this name on any bounce. I have not taken a bite recently myself, but if that $250 spot cracks, anything could happen. On Monday, RBC Capital Markets cut estimates for Model 3 deliveries by roughly 8%, and dropped the target price to $210. Joseph Spak, the analyst at RBC, also sees "muted growth" for 2019 and 2020. My opinion is that short interest, though down, remains too high to go that route unless done so in measured size and with slim allowance for mark-to-market loss.
3) How interesting it is that McDonald's (MCD) is investing $300 million in the purchase of Dynamic Yield, an Israeli artificial intelligence firm. Can artificial intelligence work in the quick-service restaurant business? Maybe it will. Perhaps many variables impact consumer decisions at the point of sale. Time of day? Weather? Prep time? Improved inventory control? This story, I will watch with the fascination of a youngster. The stock has to crack $189/$190 to the upside to get me fired up.
Economics (All Times Eastern)
08:00 - Fed Speaker: Philadelphia Fed Pres. Patrick Harker.
08:30 - Housing Starts (Feb): Expecting 1.21M, Last 1.23M SAAR.
08:30 - Building Permits (Feb): Expecting 1.31M, Last 01.345M SAAR.
08:55 - Redbook (Weekly): Last 4.9% y/y.
09:00 - Case-Shiller HPI (Jan): Expecting 4.2% y/y, Last 4.2% y/y.
09:00 - FHFA HPI (Jan): Expecting 0.3% m/m, Last 0.3% m/m.
10:00 - Richmond Fed Manufacturing Index (March): Expecting 12, Last 16.
10:00 - Consumer Confidence (March): Expecting 132.2, Last 131.4.
13:00 - API Oil Inventories (Weekly): Last -2.133M.
20:30 - Fed Speaker: Boston Fed Pres. Eric Rosengren.
