Valentine Day Massacre Ends on Rally of Love

February 15, 2018 KDelta Stocks, Speculator No Comments

02-15-18     The CPI report came in a bit hot and sent the market sharply lower on Valentines Day as we expected as the Valentines Day Massacre was overwhelmed by the an interest rate loving rally. The Dow fell a whopping 500 points in minutes after the report revealed inflation was above consensus. However, despite interest rates rising all day, stocks rebounded steadily, regaining all their losses and much more by the end of the same day. While stock indices are still 5 to 6% off their late January record highs, it’s impressive to see such equity strength while inflation and interest rate fears are nearing a crescendo. Earnings have been stellar this reporting season and the guidance is good. Economic indicators show an accelerating economy with rising unfilled orders and delays in shipping due to rapid demand increases. When earnings season fades at the end of February and more wage inflation data arrives in early March, we may see another setback in stocks, but for now we are encouraged by the news response syndrome of stocks to inflationary data. The main psychological concern that remains is the lack of fear based selling by investors that didn’t have time to become pessimistic. The highest confidence buying waves in stocks begin “after” investor pessimism reaches a peak, when the selling energy is exhausted.

02-13-18      Valentines Day could be a pivotal day. The CPI report @8:30AM EST we have been warning about for weeks has potential to be a 2nd trigger (after the wage inflation trigger report 2/02/18) for a new leg lower in stocks. Should the overall monthly CPI = less than 0.3%, stock prices may actually surge higher. If the report indicates a 0.5% or higher increase or a “core” CPI minus food & energy at 0.4% or higher, then stocks should fall hard. (In between these numbers could be neutral or negative) Our view is that in the first 4 or 5 months of 2018, core CPI should have upward pressure that elevates the fear of higher interest rates and curtails equity market appreciation.

02-12-18       Stocks fell into a old chart forecast for February below the 10% correction level (13%). The 23000 low end of our chart was tested last week. A rebound was expected into Feb’ 12th-14th before renewed selling. So far Dow prices have rallied over 1,400 points from Fridays intraday low to Mondays high! These huge swings should be expected periodically during a “normal” market correction of 10%+.  Volatility indices like the VXX. The highest risk is with Stock Inverse ETF’s such as XIV, SVXY and ZIV.  Since November we have been talking of the first correction since 2016 beginning in January/February 2018 and we still feel this decline needs more time. As much as stocks panicked to the downside, it was too quick to scare investors out of their long positions – almost the identical psychology inverted, that occurred when Trump was elected and prices surged without a pullback to Buy.

02-05-18    Market meltdown that began with Wage inflation fears is climaxing late today & Tuesday (Feb’ 6th) as automated computer program stop loss selling takes over liquidation phase. Overseas/overnight selling may spill over into further intraday selling in US markets tomorrow. Flight to quality is now sending Bond yields lower and the Dollar higher. VIX (VXX) volatility should quickly climax this week. This kind of correction isn’t unprecedented in a good economy as in 2011 when prices fell 18% in 2 weeks, but required 7 months to regain record highs. Total 2011 decline was 22% in the SP Index with a very healthy economy and less stock market over-exuberance than today. Current 2018 correction “intraday” has already hit the magnetic 10% level on the Dow. Look for an initial low this week with more bottom testing in 2nd half of February.

02-03-18    For a couple of months we have discussed our forecast for the first real correction since Trump was elected is due during the 1st qtr’ 2018 earnings reporting period from late January to late February. We expected wage inflation fears to escalate by mid-February. However, the first warning shot was February was Feb’ 2nd with the Wage report revealing the fastest inflation in 8 and a half years at 2.9%.  We should have escalated our warnings last week, as the stock market used these wage concerns and higher GDP forecasts as a key trigger to sell on rapid Fed rate hike fears. Benchmark stock indices are now 4% lower from their recent record highs after a whopping 666 Dow points decline Friday. Indices are nearing the key test of our 5% trigger support where we feel all rallies can be sold for traders and used for partial hedging (SDS or VXX) for investors. Despite excellent earnings and economic growth, we expect a deeper dive into March after discounting borrowing rate headwinds. 

01-23-18     We continue to view this period into mid-February as a higher risk time for earnings euphoria saturation. While our stock list remains quite attractive and our benchmark is the S&P 500 Index (SPY), the focus should be on ETF’s with extra geographical weighting in Emerging markets (EEM, RSX, EWZ, EWC, EPOL) and Europe (VGK, EWG)  and China (FXI). Mid month Wage reports beginning Feb’ 14th should present fears of inflation worth considering hedging fully invested portfolios with a short to medium term focus. A several month pause into the spring looks likely, especially if the 5% correction level is tested. VXX and SDS are basic hedging ETF vehicles for more nimble traders when the inflection period arrives. 

01-15-18       This past year we have been very Bullish, especially through quarterly earnings seasons. Too many waiting for the ~5% correction to Buy. As we have said many times in recent months, whenever a 5% correction arrives, it means the market will likely dive deeper and longer to scare Buyers back to the sidelines. 

01-03-18    Strong seasonality in a very positive economic news environment in the US & Globally still bodes well for stocks in January. Corrections beyond 3% will increase in odds by March with potential for over 10% correction in the 1st half. Currently there are still too many looking for any pullback to Buy heavily. 2800 to 2900 S&P target is consensus for 2018.

11-14-17   Our current expectation remains that more serious corrections of 10% or more will hold off until the 1st quarter of 2018.  Tech stocks are among the most vulnerable in these declines.  2018 should mark a shift to commodity and financial stocks after a more serious market correction is completed in the 1st half of the year.


Stocks we favored in 2017

BLD Topbuild : USCR   US Concrete : STRL    Sterling Construction : PNR  Pentair  :  MMM    3M : WM Waste Mgmt’  : BA  Boeing :  CGNX  Cognex  : CNC  Centene :  GVA  Granite Construction   : PPG Industries :  PLD  Prologis  : DCT  Industrial Trust : AMZN  Amazon :  BABA  Alibaba  :   CBG  CBRE  Group   :     ANET Arista Networks  : VMW    VMWare  : Nutanix NTNX   : EQIX Equinix  : BOX    :  RHT RedHat  :  ADBE Adobe  :  ZBRA – Zebra Tech’   :  CRM    :  GOOGL   Alphabet   :  DXC Tech   :  NTNX  Nutanix  :   COR  Coresite   : IBM  :   AAPL   Apple  :  NEWR   New Relics  :  ZAGG   :  PANW Palo Alto Networks  :   ON   On Semi   :  OLED Universal Display  :   Vantiv VNTV   :   PYPL PayPal    :  V  Visa  :  MA  Mastercard   :  GPN  Global Payments  :   Accenture ACN   :  UNH  United Healthcare   :  TFX   Teleflex   :   EXAS  Exact Sciences  :  A  Agilent  :  ISRG Intuitive Surgical  :  ABT Abbott lab     PODD Insulet   :  XPO Logistics  :  UNP   Union Pacific   :  OLLI  Ollies  :  Starbucks SBUX   :  STZ Constellation Brands   :  IDTI  Integrated Devices  :  TTWO Take 2 Interactive   :    CFR Frost    :  WTFC wintrust fin’    :   ALGN Align tech   DWDP  Dow Dupont  :     

US Indexes – ETF’s:  SPY  :  QQQ  :  XLK  :  IWR  : XLF   :  KRE  :  KOL : PEJ


Disclaimer and Notice:  This report may contain information on investments that are high risk and have substantial risk of principal loss.  It is for informational purposes only. Statements in this communication are not statements of fact are merely opinions or forward looking statements from a potentially biased source(s) that involve known and unknown risks, uncertainties and other factors that could cause actual future results to differ materially from any prior or projected results. Statements in this communication may be inaccurate and/or unsuitable for you.  You must perform your own due diligence.  Your investment decisions should always be made based on your specific financial needs, suitability, objectives, goals, time horizon and risk tolerance.  Any decision is at your sole discretion and at your sole risk.  You are advised to consult with your individual investment and tax professionals before making any investment.  Past performance is no guarantee of future results.

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