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Morning Commentary

Big Buy Signal

By Charles Payne, CEO & Principal Analyst
9/14/2018 9:45 AM
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I’ve been waiting since the week before Labor Day for a sign from deep-pocketed idle funds, and I think we finally got it in the final minutes of trading on Thursday. With 15 minutes to go in the session, the Dow Jones Industrial Average surged 40 points higher. The index didn’t get back to the high of the session, but it’s clear big buyers waited and then pounced.

With all due respect, I don’t think that was ma and pa rushing in before the close. Instead, I think some very smart investors are jockeying, and many more are itching to buy this market. It’s clear efforts to lull sellers have failed. I think it’s a harbinger of a breakout that unleashes a lot of buying.

Market Breadth

There are no more resistance points for the Dow Jones Industrial Average to get back and test 26,616, and I think it happens real soon. Moreover, those would-be headwinds like trade and higher interest rates will become tailwinds.

Talk about irony – I hope the doom-and-gloom crowd or those simply rooting for failure haven’t spooked you out of the market.

My Concerns

Market breadth was slightly better than recent sessions, but still cautious. I suspect contrarians might like this. However, the kind of leg higher I’m looking for needs wider participation and less selling. The breadth can change on a dime, as more folks believe the train is leaving the station without them again.

One area that could help is the financial sector, which has been a disaster this year. Yesterday, regional banks looked awful.

Leadership Beyond Tech

That being said, we continue to see funds flow into sectors beyond technology. Yesterday, Health Care (XLV) continued its strong one-month surge, led by Boston Scientific (BSX), an old favorite of mine.  Industrials (XLI), which have been the strongest performers in the past 30 days, were paced by Flowserve Corp (FLS) and defense contractor stocks. Tech came back to lead by semiconductor names, but the sector has trailed badly.

I think we need technology and transportation names to be big parts of the next leg higher, but this market has proven it won’t collapse when tech stocks stall.

One Month Sector Performance

Symbol

Gain

Consumer Discretionary

XLY

3.94%

Consumer Staples

XLP

3.29%

Health Care

XLV

3.41%

Industrials

XLI

4.18%

Technology

XLK

1.51%

 

Market Breadth

There are no more resistance points for the Dow Jones Industrial Average to get back and test 26,616, and I think it happens real soon. Moreover, those would-be headwinds, like trade and higher interest rates, will become tailwinds.

Talk about irony – I hope the doom-and-gloom crowd, or those simply rooting for failure, haven’t spooked you out of the market.

My Concerns

Market breadth yesterday was slightly better than recent sessions, but still cautious. I suspect contrarians might like this. However, the kind of leg higher I’m looking for needs wider participation and less selling. The breadth can change on a dime, as more folks believe the train is leaving the station without them again.

One area that could help is the financial sector, which has been a disaster this year. Yesterday, regional banks looked awful.

Chinese tech stocks are staging a strong rebound: Tencent (TCEHY)+10%, Alibaba (BABA) +10%, and Baidu (BIDU) +9% are optimistic over a trade deal meeting. Their problems began long before the trade skirmish, and these names look extremely oversold. They could be good trading candidates.

Today’s Session

The advanced read on retail sales in August came in below estimates, but there is a giant caveat.  July was initially reported +0.5%, but it has been revised higher to +0.7%, which mitigates the disappointment; but, trends are important.  I expected a stronger read on building materials and garden supplies, but I am pleasantly surprised about electronics.  Restaurants continue to impress (Dave & Buster’s posted strong financial results and guidance last night).  Clothing has been weak in several data releases, so make sure to make portfolio adjustments accordingly.

Retail Sales

M/M Change

Y/Y Change

Headline

+0.1%

+6.65

Ex-Autos

+0.3%

+7.3%

Ex- Gasoline

-0.1%

+5.5%

Autos

-0.8%

+4.0%

Furniture

-0.3%

+3.5%

Electronics

+0.4%

+3.5%

Building Materials

+0.0%

+3.3%

Grocery

+0.0%

+4.3%

Health & Personal Care

+0.5%

+4.9%

Clothing

-1.7%

+6.5%

Sporting Goods

+0.2%

-3.9%

Department Stores

-1.0%

-0.7%

Miscellaneous

+2.3%

+3.3%

Internet

+0.7%

+10.4%

Restaurants

+0.2%

+10.1%

 

Our thoughts and prayers go out to all the people in the path of Hurricane Florence. 


Comments
Great

Don. Haden on 9/14/2018 12:43:39 PM
Great Show!
I missed your commentary on Aurora Cannabis Inc?
Should I Buy,Sell,Hold
Thank you.

Mark Feller on 9/18/2018 6:53:46 PM
This was a great catch Charles. We may indeed finally be breaking out of the stealth rally. I am writing this on the 20th 7 days after this post. New highs and many emerging markets are starting to rally. Thanks for the great call.

Dale on 9/21/2018 12:20:51 AM
 

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