Good Breadth Or Bad Breadth
Equities start the day lower for what is one of the weakest, lamest excuses ever: “too far too fast”. When we can’t find a reason for a selloff the default is either “too far too fast” or “more sellers than buyers.” Both are equally pedantic and both can be roughly translated as “I have no idea but I need to say something because OMG WE’RE LOWER.” I mean sure, the bounce has been impressive but you know what’s equally as impressive? Breadth. My friend @hmeisler writes on it all the time (check her latest here) but my other friend @williedelwiche writes on it too and what he found on Friday could bode well for the future. What he and other are starting to see is a cumulative effect of “breadth thrusts” that have a really good forward track record (zoom the table on his tweet upper left corner). For those of you playing at home a “breadth thrust” is just a large number of stocks rising at the same time and hitting certain thresholds (just go with it...Wall St loves random terms like this). Willie pointed out of that we got one on Friday and that we should sit up and take notice. Now all of this doesn’t mean we won’t retest the lows or that the market won’t do something completely insane making us all look like idiots but if we use these measures of broad price movement to guide our thinking it definitely tips into the “if this happens then things usually get better from here” category (check this tweet from @wgeisdorf too). Hey…we’ll take it right?
After the open we put “too far too fast” into our rear view mirror because, again, it’s a dumb reason to sell overnight. The low of the session was one minute after the open as we rallied on a couple things. First, WMT reported 4th Q earnings and blew them away. To be honest if you wanted a more meaningful look at consumer spending late last year this is probably preferable to that insane outlier Retail Sales number. Hey…wanna know what one of WMTs bright spots is right now? Online sales, which reached $10B for the first 9 months of their fiscal year. Not bad, I mean AMZN is still larger but companies like WMT aren’t afraid of Bezos and his crew. Second, we rallied off a better than expected housing number (NAHB). You guys know how much I love housing as an indicator so it’s good to see sentiment perking up there. Ok what else…winners were FCX, NBL, NEM, CTL, and WMT. Losers EA, ALLE, IFF, CAG, and HUM. You know who went ex-div today? Karl Lagerfeld, the fashion juggernaut. Now look, I don’t know much about fashion, I still wear khakis and Mickey Mouse polos but I do know that 1) one of my guilty pleasures is a fashion movie The Devil Wears Prada. When Miranda dresses down people I revel in it, I mean who doesn’t love that scornful look she has and 2) This quote by Karl drove a dagger thru my heart: “Sweatpants are a sign of defeat. You lost control of your life so you bought some sweatpants.” Uhhh…ummm…***sulks home to put on his sweatpants and eat doritos while crying***
The rest of the day saw fresh highs but a last minute selloff landed us closer to unchanged, 2,780 +0.16%. There’s a phrase that says “if the US sneezes the World gets a cold,” and I truly believe that’s the case. The US consumer carries the world on its shoulders from time to time as it buys and consumes and drives the World’s largest single economy. So are we sick or close to being sick? Let’s let Brett Biggs, the CFO of WMT, answer that from their conference call today: "This is Brett. I'll start off. The consumer, I think, still feels pretty good to us. You see all the numbers that we see. Wages are still pretty good; unemployment rates low; gas prices are down year-on-year. So, there's a number of things, I think, are still working in favor of the consumer. Like you mentioned, we're watching it, as we always do we're monitoring it in making sure that we're in the right place with the customer”. Does the most important retailer (and largest private employer) in the biggest most powerful economy in the World sound nervous to you? They don’t to me. I know that can change but ???
Final Score Dow +4bps, S&P500 +15bps, Nasdaq +19bps, Rus2k +33bps.
- Succinct Summation of the Day’s Events: Still grinding higher as breadth expands and people on the sidelines have to be thinking “D’OH”
- This is absolutely the link of the day, in fact I debated having this as my only link. A 30year vet of Schroders in London gives us a bit of wisdom (if you have an institutional slant to your job you should 100% be reading this). These two were my favorites 1) I have never found a way to consistently make money shorting stocks and 2) Only price pays. I think the way I would phrase it is that price accurately reflects prevailing sentiment. Some think it’s supply and demand, I think it’s Socionomics/social mood, but regardless, whether you believe it’s wrong that it’s trading up at $100 when your fair value is $50, it’s irrelevant. If you want to trade it, the price is $100. You may think it’s wrong, but that is the price. In terms of reflecting current sentiment, price is always right.
- Say you got a lump sum of money…should you invest it as a lump sum or dollar cost avg it? Nick examined that question: “What if the market crashes right after you invest? Wouldn’t it be better to average-in over time (i.e. dollar-cost averaging/DCA) to smooth out any unlucky timing on your part? Statistically, the answer is no”.
- You gotta be kidding me with this Brexit sh*t. Come on, enough already. The “Brexit Box”, retailing at 295 pounds ($380), provides food rations to last 30 days, according to its producer, businessman James Blake who says he has already sold hundreds of them. Look, this is a first world nation, home to the best chocolate (Cadbury), amazing hotels (the Ned), a passion for 0-0 football matches (ugh) and really horrible pub food (ex fish n chips, I’ll give you that). STOP IT, BRITAIN WILL BE FINE.
- Speaking of good food, how much do you love Bang Bang Shrimp? I mean everyone does so learn how to make it (it’s so easy)
- The author of this article attempts to explain why Bear markets are getting shorter: “Second, information flows and trading strategies are becoming more sophisticated all the time. Investors react to information instantly, and the measurements of where value lies have become more and more accurate. When a market plunges, there is plenty of capital waiting to be deployed to buy shares that are suddenly a lot cheaper. The recovery therefore comes around a lot faster.” Dear reader, I am about to give you a bit of wisdom gleaned from the extremely talented PMs I covered for 2 decades. In a bull market someone will always be there to buy what you’re selling, in a Bear market that’s not true. I know what the author is trying to say but make no mistake, in a grinding bear market capital can suddenly get very scarce.
- I mean who ISNT gonna watch this Motley Crue NFLX drama? I can’t wait
I have a bit of inspiration for you tonight. Put on a pair of headphones or listen to this video in a silent room because you will feel voices coursing through your soul. Imagine listening to this live, I bet it was incredible, the music just keeps soaring higher and higher.
Have a good night