More of a Rocky Balboa Market That Takes Hits and Keeps On

07/10/2018 3:26 pm EST

Focus: MARKETS

Gene Inger

Editor, The Inger Letter

A last hurrah or not for the near-term: the stock market remains at an extended level, primarily due to strong Oils, and rotation into undervalued (or perceived not ludicrously-valued) stocks, in a slight broadening out, writes Gene Inger Monday night.  

 

At the same time, we’re on the prowl for new volatility in the market. This is not necessarily leading to a catastrophe like so many super-bears and even a few major institutions persistently are warning of last year and this year.

For us, holding core positions is fine, while cutting back on spikes as a necessary way to build liquidity to take advantage of volatility due soon.  

Reuters: PepsiCo, oil help extend Wall Street rally Tuesday. S&P at 4-month high.

How soon has always been the question following the ragged series we’d looked for all Winter and Spring, which I eventually labeled rinse & repeat. The leveraged Wall Street crowd dared not let this break, lest the trap door risk would rear its head again sort of like early February’s hit). At the moment that trap door is at least 100 handles below the S&P 500 (SPX) now.   

This next go-round depends on a myriad of things going right, going wrong or for that matter what usually happens, a gray area neither black or white of course.

That’s part of why there are mixed views here, and also why the surveys of confidence rise or fall on business’s take on trade progress. (It means more than peace talks or the Iran nuclear issue for this market.)

It’s also just ahead of an expected solid 2nd Quarter earnings flow. And there’s a seasonal pattern that often has a market firming into early-mid-July, and then it gets rocky.

So far, it’s more of a Rocky Balboa market that takes hits and keeps on, if you will. This also contributes to complacency and a sort of arrogance that even the big brokers are too pessimistic. The game is being well-played.

I have written a few times about buybacks and how that not only boosts the superficial earnings reports, but repeatedly revitalizes additional executive compensation, by virtue of pushing shares up. It’s not just opinion. Filings show the increased insider selling in the biggest companies shortly after their shares periodically advanced following rounds of buybacks.

That’s of course not a technical indicator, but it is part of why this market behaves, as it has and does.

Once interest rates really start firming that game has a shorter lifespan by the way. (If it’s not on the wane sooner anyway, as the majority of insiders sell strength but only on restricted plans that limit it.)  

Technically this market has elevated the game a bit by moving over the standard deviation inflection of 2740-60 basis September S&P. So now it will press 2800 (barring existential news and Brexit is not such news) with perhaps some shifts related to Trump’s upcoming European trip. Now he’s becoming a distraction for PM May as she has domestic challenges with her soft Brexit that presumably the EU (and London’s mayor) like better.

Oil remains firm and should, but not significantly higher unless the Iranian forces illegally nudging into the exclusion zone of Syria near the Israeli and Golan territories fail to respond to calls from Israel, Egypt, Jordan, Saudi and Russia (the latter who enabled Iran and Hezbollah to maraud around the area) to withdraw.

Iran refuses even as Russia demands it, not just us. Then there is the Yemen conflict, which risks becoming sort of a Somalia situation for the Saudis, and our hands are not entirely detached from the conflict. At the same time the radical wing of Iran is threatening Persian Gulf Oil traffic and if they actually do anything, well that obviously is an instant crisis.    

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