Top Advisors Corner

Gene Inger: The Inger Letter April 22, 2016

Gene Inger

Gene Inger


A tremendous divergence - exists aside the economic realities in the USA and the level of the S&P; that got so extended in a persistent performance quest by a slew of bankers and money managers fretting that they can't make money this year. And in the 'policy environment' that persists (relative complacency masking the truly jittery deliberations at the Fed). 


Bulls rationalization, should the Fed move to increase rates at the June Meeting, or perhaps surprise markets by doing so in April to head-off early Summer angst just days before the BREXIT vote in the UK (is sparking debate we assess).

To normalize (hike) now is something they (dedacted; just giving guest readers a slight idea of the topics we address and then analyze for impact); a tremendous divergence against the Bank of Japan, ECB, or perhaps whatever they agreed to (secretly) at G20 in Shanghai. An absence of fiscal movements to help carry the load of growth, is an inherent problem too.

Then on-top it you had real nonsense these last few days (two weeks overall), where baseless oil-rumors, even when they were roundly refuted, allowed the markets to head higher, sort of like being lofted into near-space orbit with a jet, but no rocket engine to keep the propulsion going. Essentially that's sidelined money, to the extent they could cajole it fueling the move aside short-covering, is basically spent. Like fuel for a rocket; when spent it drifts back toward Earth.

Bottom-line: markets are focused on 'reversion to mean' trades; and not just all the Wall Street worries about 'how' banks will make more money. Selling rallies is what the market has been doing this week; despite bullish rationales, as often are based on the idea of Money Supply and a nervous Fed alone holding it up. 

Yes the Fed cannot behave in an isolated way from the global sluggishness; and as you saw after ECB non-bazooka statement this morning, and Draghi's rather glib news conference; the Dollar firmed and stocks retreated in the wake. Now it will fall upon the FOMC next week to (prospective thinking ahead of the FOMC).

In this mix we have suggested a sort of 'front-selling' of rallies, because heavily loaded money managers (securities industry tactics in doing this are observed; along with how this likely impacts the upcoming Summer market pattern too). 

And it's also a reason the current short-sale June S&P guideline from 2104 is both recognition of accelerated (unsustainable) pops earlier that invited fading; along with a possibility managers concerned about 'sell in May, and go away', might be tempted to front-sell gradually, as noted in the last couple days. The breakout was there; but we called it a 'fake-out breakout'. 

In-sum: after the Bell, you had almost-predictable sub-par reports from lots of household name stocks, from Microsoft, to Starbucks, to VISA, to Alphabet (of course Google). 

Daily action - called for a Thursday fade after some efforts to rebound. Those efforts were mediocre at best; and we were able to stay with our now-excellent June S&P short-sale from the 2104 level, throughout the day and into Friday.

We spotted what became a silly euphoric mode, with stocks clearing resistance based on nothing but rotation to keep things alive; while observing an underlying tone of the market that clearly was changing. We focused on the phony rumors in the oil sector. More pertinent was spotting weakness in technology last week.  

Even areas like social media must fight for share now. So it's not just Microsoft, Oracle, Adobe, IBM, Intel, Facebook, or Apple (with China restricting them; as is a big deal). And it's not just Netflix versus Amazon; or the competitive pressures with over-the-top movie distribution; but most of the other 'web services' (Cloud) data providers. Only Apple's somewhat insular (described beyond China risk). 

Oh .. you don't have much of a tech advance without some of those leading it. And tomorrow (Friday) we have Honeywell, GE and Caterpillar. They may be a bit mixed; but some expect too much (even Honeywell can be impacted by more share lost to foreign supplies of certain electronics to Airbus for-instance, though they retain their share too). Caterpillar has been impacted by a few problems; of course much is 'said' to be currency related; but also relates to global slowing. It may be that area that impacts GE (if anything) as many aircraft engine sales are sometimes lost to Rolls Royce (although Airbus will install others, often it's up to the carriers who are more concerned about 'parts' interchangeability than price, or brand, as they want fleet consistency or commonality), while some nations at this point have deferred new nuclear power plant installations; so that can bite. 

But I don't think this market is so narrow to focus on specifics; what managers in this case should see is a pattern. (That's what this topical portion focuses on.)   

Yes pundits will call for rebounds (citing how IBM or Intel clawed back); or they will ascribe it to the shift to the 'Cloud' world. Careful about that; it could well be true for months or a year or two ahead; but in the shorter run rallies are good spots (tactical expectation for the 'smart money' crowd).

For now we continue this week's retained guideline June S&P 2104 short-sale; carrying a breakeven mental stop at present.  Lopsided positioning - ahead of OPEC's highly-probable disarray, proved the undoing of any bearish expectations within minutes of Monday's opening (hence setting-the-stage for a solid intraweek rally until it came unglued Wednesday).

Technically, the S&P was bouncing along daily-overbought for quite some time during March, including the last few weeks during which I encouraged patience; we needed to get through irregular reactions (alternating moves) and enter the projected higher risk April-May time-frame. 

Battlegrounds are fluid - as multiple dynamics are going on; with outcomes favoring the downside bias in the April-May time-frame; forecast for weeks to be 'risk-off' overall. Aside monetary policy neutralized with split Fed-head views; there isn't much of a 'floor' under this. We're short from June S&P 2104. 

Enjoy the weekend and join us!

Gene
 
Gene Inger
www.ingerletter.com