I’ve been writing and talking for weeks about making a list and refining that list. I’ll go into it more now.

Our work is based on three types of analysis.

• Fundamentals

While macro inputs must be accounted for, which means that questions over tariffs and potential tariffs can tweak the modeling, the market just exited out of an earnings period that allowed investors to reassess fundamentals. That work is done.

• Technical

Then we look at the technical analysis. Honestly, it’s tough on the way down once the 50-day moving average fails to hold. However, certain resistance levels are established that will inform how aggressive we want to get during the rebound.

• Behavior

On this note, the behavior of the market is critical, and it means watching the tape and reaction to news closer than ever. On that note, what caught my eye yesterday was the Dow rebounding from the cusp of a big collapse to rally into positive territory each time as well as right before the closing bell rang.

Resolve and Buy Signals    

On Sunday night, the Dow Jones Industrial Average was sporting a loss nearing 200 points, but it opened higher and rallied 100 points. 

That rally fizzled and reversed into a 100-point loss, only to bounce again on word of a potential Fed rate cut. It was only a blip on the screen when the entire market was pulled lower by stocks that were the equivalent of the Avengers superheroes.

The only thing left was to see if stocks could rally into the close, and while the Dow finished higher, I need to see all the indices up and at the highs of the session to feel good. I appreciate the resolve and rotation into beaten-down industries like retailers.

Market Breadth

There were more winners than losers. More stocks had high 52-week lows than highs. New lows were an improvement over Friday’s session, which saw serious selling pressure.

NYSE

• 1,936 advancers, 2.86 billion Up Volume & 100 New Highs
• 1,041 decliners, 1.06 billion Down Volume & 113 New Lows

NASDAQ

• 1,630 advancers, 1.29 billion Up Volume & 58 New Highs
• 1,475 decliners, 1.26 billion Down Volume & 170 New Lows

It was all about investors fleeing burning towers of momentum names and finding shelter anywhere else.

NASDAQ

The recent pullback of the NASDAQ isn’t quite on par with the upset loss of former heavyweight boxing champ Anthony Joshua - it’s still quite stunning. It’s an example of “live by the sword, die by the sword”.  The NASDAQ and the NASDAQ-100 (NDX) rely heavily on five momentum names less than other indices.

Index Share	NDX	S&P
MSFT	11.11%	4.13%
AAPL	9.67%	3.41%
AMZN	10.21%	3.19%
FB	5.00%	1.84%
GOOG	4.55%	1.47%

While those hard-hit momentum names are still lumped in with Technology, they trade as a part of Communications Services, which took a drubbing yesterday. Conversely, Materials were up huge, but Communication Services is 10.4% of the overall market, whereas Materials are about 1.5%. Nonetheless, there were more winning sectors than losers, which is a positive trend, as investors resisted parking all funds on the sidelines and eschewed paltry bond yields.

S&P 500 Index		-0.28%
Communication Services (XLC)		-3.14%
Consumer Discretionary (XLY)		-0.84%
Consumer Staples (XLP)	+1.26%
Energy (XLE)	+1.28%
Financials (XLF)	+0.65%
Health Care (XLV)	+0.24%
Industrials (XLI)	+0.68%
Materials (XLB)	+3.15%
Real Estate (XLRE)	+0.38%
Technology (XLK)		-1.75%
Utilities (XLU)	+1.00%

Portfolio Approach

I’m reiterating my opinion that it’s important for folks to have cash and be ready to deploy that cash – very soon.

Communication Services	Consumer Discretionary	Consumer Staples
1	3	1
Energy	Financials	Healthcare
1	2	1
Industrial	Materials	Real Estate
2	3	0
Technology	Utilities	Cash
3	0	3

Today’s Session

“Reports of my death have been greatly exaggerated” Mark Twain

The news is always more interested in disasters than in positive stories.  More recently, however, the focus has been on potential disaster while completely ignoring good news.   The last couple of weeks has seen several misses on key economic data, but there has also been positive data, including reports that have been better than Wall Street consensus.

Case in point, yesterday, May 2019 vehicle sales posted the first monthly gain of the year despite a string of predictions the industry would drive off a cliff. Many big auto companies don’t post these results, but the number three and four makers did.

Toyota +3.2%

• Camry +20.8%
• Rav4 +13.9%
• Tacoma +6.8%

Fiat +2.1%

• Ram +33.0%

Interest rates averaged 6.10% from 6.27% in April, and average monthly payments are at a record $559.0.  Experts have been calling for peak auto for more than three years, so it stands to reason there will be a slowdown in vehicle sales.  Another disaster, which had been predicted, once again didn’t materialize.

Vehicle Sales

Fed Rate Cuts? 

From CME below:

• Federal funds futures imply traders see 53% chance of Fed cut in July vs 18% chance week ago.
• Traders see about 85% chance of Fed cutting rates in September vs 48% chance a week ago.
• Traders see about 97% chance of Fed cutting rates in December vs 77% chance a week ago.
• Traders see about 80% chance of Fed cutting rates twice or more by year-end vs 70% week ago.
• Traders see 6% chance Fed lowering rates below 1% by mid-2020.

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