Things to know Monday, December 2, 2019

by KENNY POLCARI

Things you need to know:

  • Nothing new on trade (yet) – Markets rising
  • Better economic data out of China and Europe
  • Black Friday “Online Sales” top $7 billion – what were “In-Store Numbers?”)
  • Oil rebounding after last week’s mashing
  • Try the Chicken Scarpariello

Stocks surged to a one of largest monthly gains since June. Indexes ended the month higher by better than 3% for the Dow and S&P, while the Nasdaq rallied by 5.25% and the Russell added 5%. What is keen to note here is the performance by the Russell 2000, which is a US centric SMID index (Small and Mid-Caps).

Recall that the Russell had made an all-time high of 1740 on August 31, 2018, before the year end collapse that shook markets and investors to their core during the fourth quarter meltdown. While the Dow, S&P, and Nasdaq have all regained all of the losses and then some, the Russell has struggled to catch up. This is why this latest move is important. The index has pierced all three major trend lines (50, 100 & 200 Day Moving Averages), like its brethren. Unlike its brethren, the Russell continues to have trouble piercing the old high (the Dow, S&P, and Nasdaq pierced those old highs in April and June of 2019) and catching up to the larger multi-national indexes. It has yet to move up and through its previous high created on August 31, 2018, but the breakout move that happened on Nov 25: the surge up and thru the October 2018 levels is getting everyone excited…

And this is important why? Because it means that the rally we have been living is broadening out to a larger base. It is now drawing in the US centric small/mid cap stocks and analysts are giddy with excitement.

Ari Wald, Technical strategist at Oppenheimer had this to say:

“The dynamics of this market are changing. The definition of this new uptrend that’s developing is that pullbacks should be shallower and shorter lived and the upswings should be stronger.”

In fact, if you look at it, global markets are surging as well. I have been pointing this out over the past month. Germany, Italy, France, Spain, Eurozone, Japan, Australia, and Russia are all making new highs as the global economy appears to be firing on all cylinders. And now, it’s no longer just US large multinationals that are stealing the headlines. It’s all of the US large cap, mid cap, AND small cap. While the latest move for the Russell is still far from the all-time highs (still 7% below), the move is positive but we WILL need to see these gains hold if this story is to continue…

The news last week was mostly positive. China acknowledged that they must address the IP and forced technology transfer issue. They said that they were taking steps to address it which led Donny to “make nice” (or at least that was the attempt). Remember, Dec. 15 is only 13 days away so someone better do something, otherwise China is gonna get hit again with higher tariffs. Lonny Musk introduced his “CyberTruck,” which had its own issues, and then claimed that he had some 250,000 “pre-orders” for this thing, pre-orders that required a $100 down payment, all which is refundable before the delivery date sometime in 2021. So let’s just do the math: $100 x 250,000 = $25,000,000 FREE MONEY LOAN that these cult followers just gave to Tesla. I mean, Lonny isn’t paying interest on this money is he? But he does have access to this “line of credit” courtesy of the Tesla groupies. And then stocks made new highs and the Russell picked its head up, causing more excitement. The US congress passed the Hong Kong human rights bill which the President signed, causing China to scream “FOUL BALL!” putting the trade talks into jeopardy. The latest economic data in the US was positive, the yield curve is NOT inverted, and talk of a recession is nothing but a distant memory.

Far left candidate Elizabeth Warren is now trending lower in the polls while slightly less far left candidate “Petey B” is trending higher. To make it just a bit more interesting, NY’s Mikey Bloomberg and MA’s Former Governor, Devy Patrick both jumped into the race hoping to bring the conversation to the “CENTER.”

And then came BLACK FRIDAY, small shopping Saturday and today is Cyber Monday, followed now by Travel Tuesday. It’s a joke really, everyone marking this stuff UP only to slash those prices and pretend like they marked it down, while maintaining relatively strong margins. We will begin to hear today what the results were and are expected to be and like I said last week. This shortened holiday shopping season (which is BS too because “holiday sales” have been running for weeks now) is expected to be the first “trillion dollar” season in history, so stay tuned. Breaking news: Black Friday “online” sales are said to top $7.4 billion, and we haven’t gotten the “in store” numbers yet.

Overnight, better manufacturing numbers out of China and Europe suggesting an economic acceleration is helping to send market higher around the globe. Excitement that the US and China will reach a “deal” in the next two weeks is building because if they don’t then China can expect an additional 15% tariff on $156 billion worth of Chinese products on the 15th. (Apple though, is most likely exempt as Timmy Cook pointed out to the President two weeks ago that the imposition of tariffs would hurt Apple)

Economic data today includes: US Markit Manufacturing PMI exp 52.2 and ISM Manufacturiing PMI exp of 49.2, one showing expansion while the other suggests contraction. Later in the week we will get ADP employment numbers on Wednesday and then the NFP numbers on Friday. Both expected to show substantial increases over last month (think part-time holiday work).

US futures are UP, UP and Away! Dow futures +106 points, S&Ps are up 11 points, Nasdaq is ahead by 24 points, and the Russell is up 9 points. All eyes focused on trade. China is once again saying that all tariffs must be cancelled in order to move ahead on a Phase One deal, while the US says “not happening.” So let the countdown begin. I’m sure that we will get an 11th hour reprieve. The market is all but telling you that.

It appears that we are about to test last week’s high of 3153 on the S&P. The question is: will we pierce it in light of the trade talks or will we get stuck? Either way, we will know the answer this week. If we are able to push through, then the markets are telling you that a deal is all but done, if we struggle then it is unclear whether a deal will be announced prior to Dec 15. But if you want my opinion, I say they will announce it (again).

Oil is trending a bit higher this morning after last week’s mashing. Oil was down 6% through Friday and is up 2% this morning partly on trade talk hopes and partly on a technical bounce. It seems to have found support at both the 50 and 100 Day Moving Averages.

Gold is down $9 at $1462/oz as it reacts to what it expects will be a trade announcement sometime in the next two weeks. $1462 appears to also be a level where there is demand, so I think it’s ok here. If we don’t get a deal and the angst rises, then expect gold to rally back to the $1500 level where both the 50 and 100 Day Moving Averages are converging.

Take good care.

Kp

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