Spirit of The Season
Twas the half day before the break, when all across the floor
Not a trader was stirring, except , maybe three, or maybe four
Their badges were pinned upon their chests with great pride
For transparent markets leave nothing to hide.
The opening bell would ring aloud, customarily at the appointed time
Could it be that yet again, equity prices would climb?
Crowds would be thin, some already on their way
To see those they love on such a significant day
Performance will matter, we all know that is true
Maybe just this once, less so for this crew
Ring that next bell early, so all might retire
... if just for today, to warm by their fire
Happy Hanukkah to some, a Joyous Kwanzaa to others
For my family, Merry Christmas will be how we greet
Faith and culture aside, we're all sisters and brothers
On Wall or at Main, a fact true on each street
Seasons Greetings to you, I wish thee good health
Today, your spirit counts more so than some wealth.
What Did You Expect?
A holiday week. A Monday coming off of a quadruple witching Friday. Equity prices were hot, trading however was thin. Oh, don't get me wrong. Money made, money lost... it's all real. With decreased participation comes both increased opportunity, and increased danger. No problem with playing the game, just know the game you play. That said, volatility for the most part, did not make an appearance on Monday. The Dow Jones Industrial Average moved higher more so than broader market indices on the strength in Boeing (BA) that materialized on renewed hope for the firm's ability to square itself away as a change in leadership was implemented, on strength in 3M Company (MMM) as famed JP Morgan analyst Steven Tusa publicly expressed less pessimism regarding the name, and on continued strength in Apple (AAPL) as Wedbush Analyst Daniel Ives took his price target up to $350 from $325.
Though trading volumes did fall below 50 day SMAs for the major indices, the Nasdaq Composite moved higher for a ninth consecutive day. Though the headliners may have been a couple of industrial names, it was the Energy sector that led the marketplace, and it was oil services that led Energy. Don't look now, but suddenly there is a certain level of demand for both Schlumberger (SLB) and Halliburton (HAL) . It doesn't hurt that WTI Crude futures have been able to hang onto that $60 handle for about a week and a half, even with the U.S. dollar showing some strength versus its peers in aggregate over the past week or so.
I found it almost stunning, the reaction visible in the financial media in response to the November data for Durable Goods Orders released by the Census Bureau on Monday. While true that a headline print of -2.0% month over month might appear awful, the fact that ex-defense the number put to the tape was a crisp +0.8% m/m versus expectations of a flat print. It was as if some of these folks never looked into a headline number before.
Of course, with the federal budget (and the National Defense Authorization Act itself) and screaming uncertainty, defense sending slowed significantly in November. It had to. I mean, gee whiz, core capital goods orders (non-defense, ex-aircraft) printed in positive territory for the month. Much ado about nothing here, and certainly no key takeaway in regards to monetary policy. Defense spending will be back. I promise.
Don't Look Now
Gold is suddenly trading at six week highs, I see $1495 a troy ounce for the physical variety in early morning trade. Significant? Maybe. Probably, with the U.S. dollar index only increasing for about a week now. The shiny stuff runs into some chart traffic up in the $1510 to $1515 range. That's where this gets interesting in terms of finding resistance versus breaking out. A little dollar weakness as is being thrown around in economic circles right now? I wouldn't bet against it.
"The board of directors decided that a change in leadership was necessary to restore confidence in the company moving forward as it works to repair relationships with regulators, customers and all other stakeholders." That comes straight for the statement made by Boeing as CEO Dennis Muillenberg had been removed from his position in response to the firm's extended fallout in the wake of a year long grounding of its now infamous 737-Max jetliner, following two fatal crashes involving the aircraft.
Muilenberg will be replaced by David Calhoun, a long-time board member who replaced Muilenberg as Chairman just two months ago. Lawrence Kellner, another long-time director will replace Calhoun as Chairman. The move came in general after a year of global frustration that included timelines not met, and quite honestly resulted in depressing US GDP. The pressure ratcheted higher after the New York Times reported that Muilenberg had been reprimanded by FAA Chief Stephen Dickson last week for pressuring the agency to move a little more quickly in approving the 737-Max airliner's return to the skies.
Let's not forget that just ahead of this event, Boeing's Starliner "space taxi" failed to achieve the proper orbit over the weekend necessary to reach the International Space Station on a test mission. That itself came just days after Moody's cut its unsecured debt rating for Boeing to A3 from A2, while shifting the outlook from Stable to Negative. A few days earlier than that, Boeing had been forced to halt production of the 737-Max. In polite words, things weren't going the right way for Boeing.
Upon taking the reigns, new CEO David Calhoun called regulators, members of Congress, clients, and suppliers in order to pledge the firms commitment to work with all of them transparently. Does this take a while, although it already has? I think it has to. Can investors trust forward looking projections made by the analyst community? I can't.
Still, I entered into a long position during pre-opening trade on Monday immediately, once the halt in trading had been lifted. Not exactly a no-brainer, but in my opinion, a starting point. Legged in with about a 20% of what would be my intended position size were this to be an investment. I am not in love. Let's be clear on that. For me, right now, this is still just a trade.
My net basis in this name is $333.42. I see a $10 profit, or I see my net basis threatened, and I am out of here in a heartbeat. I'll take the money for a quick profit, but I am not willing to let Boeing cost me money. Already long? I would then see $320, the base of a nearly year long period of consolidation as the spot that must absolutely hold, and that's important.
It would be nice to think that perhaps Boeing might be on the right track, but we might be talking about trying to steer an iceberg here. I have no doubt that Calhoun will work diligently, but that may uncover warts, or worse, realistic timelines. Anything could happen, and I mean anything. Oh, and I have a suggestion. Maybe completely re-brand the class of jetliner at the forefront of all this news. Are you the consumer willing to be the first one back on the 737-Max? I'm not, and yes, I am going to look up what kind of plane I am on, which I never used to do. Once all agree that the plane is safe, how about using the McDonnell Douglas name. Call it the DC or MD whatever you want. Just change the name.
"We believe 200 million units could be the starting point for 5G Apple smartphone demand." That comes from David Ives, the highly rated Wedbush analyst with the street high $350 price target on shares of Apple. Ives sees a rough 350 million of the 900 million installed iPhone base as being in the window for an upgrade once Apple releases at least five new iPhone models in the year 2020.
As this is the holiday season, we'll just cool our jets and let the Airpods and Apple Watches do the talking. I expect to see a strong holiday season for Apple, which is why I recently increased my target price to what now looks to be a very pedestrian $310 per share. I was in an Apple Store last week. I was simply amazed by how hard it was to get into the store due to overcrowding, and I was also simply amazed by how willing so many people were to wait considerable times for a salesperson to be able to address them. That was impressive.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 4.6% y/y.
10:00 - Richmond Fed Manufacturing Index (March): Expecting 5, Last -1.
16:30 - API Oil Inventories (Weekly): Last +4.7M.
The Fed (All Times Eastern)
No public appearances scheduled for today.