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Morning Commentary

Solid Reversal In Play

By Charles Payne, CEO & Principal Analyst
4/11/2018 9:21 AM
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The market rally not only held on Tuesday, but it also cleared yesterday’s intra-day high point. That was a critical technical challenge. The next hurdle for the Dow Jones Industrial Average is 24,610. 

 

Sector Watch & Message of the Market

While investors were mesmerized by Mark Zuckerberg’s testimony to two Senate committees, the market rally held up very nicely. 

Technology

Facebook (FB) shares rallied 4.5%, but there were other tech names making even bigger moves as investors finally pounced on oversold names. On the momentum side, Nvidia (NVDA) rallied big time as it was down lately after another volley from a well-known shorter pressured shares.  The last time the stock was attacked by the short community, it took a big hit, and then came back huge.

Other oversold tech names up big yesterday were names notorious for volatility, including Seagate Technology (STX), Micron Technology (MU), and Advanced Micro Devices (AMD).

Materials

Material names had a great day, which is largely in part to metals, which continue to come on strong, in part to sanctions on Russia and several Russian companies, including the world’s largest aluminum producers outside of China. Alcoa Corp (AA) has been a beneficiary, and Freeport-McMoRan (FCX) was the biggest percentage winner yesterday.

Energy

Energy was the best performing sector as crude oil surged 3.4%, taking West Texas Intermediate (WTI) to $65.58. Oil-related stocks are extremely oversold, and a close above $67.00 could spark a surge in share values.

Note: defense sectors, real estate, and utilities were lower yesterday, which is a good sign of confidence.

 

S&P 500 Index

 

+1.67%

Consumer Discretionary (XLY)

 

+1.21%

Consumer Staples (XLP)

 

+0.23%

Energy (XLE)

 

+3.31%

Financials (XLF)

 

+1.50%

Health Care (XLV)

 

+1.69%

Industrials (XLI)

 

+1.53%

Materials (XLB)

 

+2.06%

Real Estate (XLRE)

-0.68%

 

Technology (XLK)

 

+2.46%

Utilities (XLU)

-0.77%

 
 

China Syndrome

Tuesday was a very good session for the market, which held early gains even as doubters suggested China’s trade overture was more of a nod and a wink than a blink from President Xi Jinping.  I’m in the latter camp because China has grand ambitions, which means the country has to walk a delicate balance of abusing the system while trying to generate the kind of reputation needed to go along with having the world’s reserve currency.

Let’s face it. That’s the grand plan, and now China is confident enough to believe it can be more open about their goals as their rationale is if Americans can vote to be great again. Surely, it’s okay to admit your country wants to rule the world. With this in mind, I suspect there will be continued nuances to this situation, but China will do more than just provide lip-service to gain the reputation it wants to go along with future military and economic abilities.

Today, watch for crude inventories and consumer price index news to move the market absence of any headline stuff that has nothing to do with the economic fundamentals of the country.

Today’s Session

Equity futures were lower when President Trump issued tweets aimed squarely at his old pal Vladimir Putin.  Now we are bracing for retaliation in Syria and the potential to see increased military intervention in that country. 

Meanwhile, the CPI number this morning was benign with respect to inflation; although, the news didn’t help equities.

Highlights from Zuckerberg Testimony

Most of the Senators at the hearing were in over their heads with respect to technology, as the last gadget that caught their fancy was the ‘Close n Play.’

Facebook spread more money around the folks at yesterday and today’s hearings than Russia did on influencing the US elections.

Cruz on "public neutral forum" worried about censorship of conservative voices and causes by company and its 20,000 screeners.

Blumenthal on "willful blindness" of FTC consent decree and lack of attention to privacy concerns.

FTC Decree

Facebook is barred from making misrepresentations about the privacy or security of consumers’ personal information; … [and is] required to obtain consumers’ affirmative express consent before enacting changes that override their privacy preferences.

Facebook is obligated to keep the promises about privacy that it makes to its hundreds of millions of users. Facebook’s innovation does not have to come at the expense of consumer privacy. The FTC action will ensure it will not.  FTC Chairman Leibowitz

Zuckerberg said the company is responsible for content, which goes against previous claims and other social media and tech (Google and Twitter) companies that don’t want any whiff of scrutiny as media companies.

I suspect the company has been put on notice, but there will not be a lot of regulations at the moment.  That doesn't mean there can't be knee jerk action taken that could be even harsher with a future breech or scandal.  Ironically, some lawmakers seemed leery of Zuckerberg's acceptance of some regulations and they think he may want the government to erect de facto barriers to entry for would-be future competitors.

The stock rallied during the hearing, so Wall Street seems to believe Zuckerberg won in part because so many Senators had no clue how the service works.   The stock enjoyed its best session in more than two years, and Zuckerberg’s net worth increased by $3.0 billion.   I saw some FB share price targets lowered slightly this morning.

We would like to see an intraday reversal, so this is a good day to test the market.

 

 


Comments
I agree with your opinion that Senators were in over their head, but I also took away the opinion that Mr. Zuckerberg is not fully aware of what is going on in his own company. His "team" will fill him, the Senators and the public in on the inner workings of Facebook.

Cheryl on 4/11/2018 10:12:20 AM
IMHO Mr. Zukerberg came off as unlikable based on he did not communicate with any passion his responsibility to protect users privacy. I wonder if there might be a disruptive company that would communicate a commitment and model to better protect privacy

Ron Zybura on 4/17/2018 6:16:17 PM
 

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