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Morning Commentary

Rocket Ship Needs Booster

By Charles Payne, CEO & Principal Analyst
10/18/2017 9:44 AM
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It was another record day for the stock market. The Dow Jones Industrial Average tickled 23,000; in fact, several times during the session, it was the third fastest time in history that the index rallied 1,000 points.  Before you begin to think this is too exuberant, consider that the percentage gain was significantly higher the two times prior:

In yesterday’s session, the internals were anything but exuberant as there were five hundred more decliners than advancers on the NYSE, and close to eight hundred more losing stocks than winners on the NASDAQ.

Market Breadth

Advancers

Decliners

NYSE

1,197

1,695

NASDAQ

1,060

1,851

The one big problem for the market is finding value and leadership. Most cheap stocks are cheap for a good reason and that makes them unlikely to lead the market higher. However, the rotation yesterday out of tech and into restaurant stocks was underscored by a desire to adjust risks.

There was a 15% trading range for Sonic (SONC), which posted mixed results and tumbled out the gate, only to reverse midway through the session; just about every name in the industry saw their shares climb as well.

Speaking of reversals, health insurers popped big at 2:00 PM on yesterday when word came of a possible bipartisan deal on Obamacare.  While we know there is still work to be done, it is clear investors are spying the industry for an entry point.  On that note, UnitedHealth Group (UNH) was up big on strong earnings.

After the closing bell on Tuesday, International Business Machines (IBM) posted its 22nd consecutive quarter of declining revenue, but earnings crushed consensus, sending shares of Big Blue higher.  In addition, Cloud business was up 20%; however, I still think they’ll have to do better for a sustained rally.

NAFTA News

After five rounds of talk, the parties involved in the North American Trade Agreement (NAFTA) negotiations are getting antsy as the discussion has been extended into the first quarter of 2018.

The trade ministers only agree as they remain far apart on key issues. 

With this in mind, we should begin to consider what happens if the deal is scrapped.

There is no doubt that there has been a big sucking sound in the heart of America, particularly in manufacturing. There are a few, such as the U.S. Chamber of Commerce that used to highlight manufacturing job gains in the ensuing years after the NAFTA went into effect back in January 1994.

By March 1998, there were 822,000 additional manufacturing jobs.

Those jobs began to slide and collapsed during the 2001 recession. As of September 2017, there are 4.4 million fewer manufacturing jobs.

With that being said, there are reasons why dismantling the NAFTA carries a tremendous amount of risks. Canadians and Mexicans buy a lot of stuff made in the United States, which means it supports a lot of jobs.  I’m not sure about the number range, which goes from 5 million noted by the Wilson Center to 15 million by the U.S. Chamber of Commerce.

America exported close to $500 billion in goods and services to NAFTA partners last year.  We need a better and smarter deal, but how do we change the wheels moving on this tractor trailer without making things worse?

U.S. Trade 2016
Mexico

Exports

$229.7 billion

Imports

$294.1 billion

Deficit

$64.4 billion

 

U.S. Trade 2016
Canada

Exports

$266.8 billion

Imports

$277.8 billion

Deficit

$11.0 billion

 

Today’s Session

We’re going to have a great start to the session this morning thanks to Big Blue, which blew away the street, but there are other elements to its explosive move into the open.

The street is looking for stocks that haven’t gone up yet, and this is a well-known name that many have waited years to find an entry point.   Down 22% in the past year and 6% in 2017, IBM has a natural attraction for value buyers and bottom-fishers. 

IBM is also in the bitcoin/blockchain game, which could be huge especially as management is still playing catch up in the cloud.

Moreover, technicians will like the reverse head and shoulders formation.

IBM

This morning, I left my house a half an hour later than normal and endured the commute from hell.  I took every shortcut I could and even discovered a couple new turns I hope never to have to use again.  I also saw three trucks from United Rental (URI).

Folks that have followed me for years know I’ve been in love with the company for a long time.  They report after the close, and while any company posting results carries higher-than-normal risks, I think this is the earnings play those with a certain risk tolerance should consider.

The street is looking for next year’s earnings to be $11.64, but three months ago the consensus was $10.57.  That upswing should be reflected in numbers released after the bell today.

There is a building boom that isn’t going to stop anytime soon, and this company is leading the way with equipment, as most builders would rather rent than buy as they make big beats on the further urbanization of the nation.

 


Comments
CHAS.....I just wanted to say for the terrific, common sense, concise & very informative info you post every day!! Glad things worked out @ FOX ( I want O'reiily back ,too) U R a GREAT GUY!!

John Guenther on 10/21/2017 11:56:18 AM
 

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