richinvesting posted: " I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly "Long Term" update will be on the second Wednesday of each month, and th"
I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly "Long Term" update will be on the second Wednesday of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market.
If you lose your bookmark to the blog, google "Rich Investing" and it should show up on the first page or so.
Economy:
New-home sales dropped 6.6% in June to 676,000 annual rate, hurt by high home prices and limited supply of new homes. Durable goods orders for June were up .8%. Initial jobless claims for the prior week were 400K, near the pandemic low. The first estimate of Q2 GDP is +6.5% which is strong. Consumer spending in June was up 1%. The U. of Michigan consumer sentiment index for July was 81.2, up slightly.
Rant alert on.
There was negative commentary on CNBC about initial jobless claims "missing the estimate" of 380K. Oh my god, the actual was 20K above the "estimate"! AND, Q2 GDP was only +6.5%, well below the "estimate" of 8.5%!!! These folks act like their "estimate" is some sort of religiously significant number, not to be violated. Balderdash! It's just a guess, well a somewhat educated guess, but a guess nonetheless. The initial jobless claim of 400K is in line with recent recovery lows, and it is an OK number. Q2 GDP at +6.5% is great, normal GDP numbers are in the range of +2 to +3% for anyone who remembers normal. It's almost as if someone wants to create a negative view of the economy by estimating high, then complaining about a miss. Both numbers are fine.
Geo-Political:
The Fed ended their July meeting on Wednesday and at the press conference, Chairman Powell did not announce any big changes. The Fed funds rate remains unchanged, as do the asset purchase plans. Inflation is running a little hotter than the Fed expected, but employment is below target so they will let inflation run a little hot until employment improves. Some Fed watchers disagree with this loose Fed policy, and think inflation in the future could become a serious problem, worse than today's unemployment. We'll see, but the bad news is that if the Fed watchers are right, we're making a mistake and correcting the mistake (high inflation) could be more painful than today's problem with moderately high unemployment.
The Fed just gets ONE MECHANISM, the Fed Funds rate, to manage an economy whose structure changes over time. The US has changed from an agricultural economy to an industrial one, and now on to an information economy. The population has tripled in the last 70 years. Demographics have changed as medicine allows people to live on average ten years longer than in the 1950's. The level of international trade has skyrocketed over the years. And the Fed has one mechanism to manage the economy, the Fed Funds Rate! Just how well do you think it works? Does it work just as well as it did in the 1950's? Or, when the Fed cuts interest rates to zero, is it like taking an aspirin and seeing if everything is ok in the morning (does the economy really heal itself over time, sort of like a common cold)? It brings to mind a childhood memory of Dorothy finding out the truth about the Great and Powerful Wizard of Oz…. Just think about it folks, what's the truth?
The bipartisan infrastructure bill is still alive and being negotiated, with notable progress last week on a bill of about $1 trillion. Everyone agrees we need to fix our bridges and highways, and expand broadband access. And we need to pay for it, and not just dump more on the national debt.
Technical Analysis:
For the week the S&P 500 was down marginally, about .5%.
Technically (see chart below) the market looks good. RSI at the top of the chart is neutral at 60. Momentum shown by MACD at the bottom of the chart is neural. The price action is positive.
Notice that I have updated the chart a bit, I went back to 2020 and came forward as before, and I included data points that were outside the previous channel. This is OK on a long term trend, as new data comes available, it needs to be included. The channel is a little wider, and the rising wedge is still there, but not as tight as before.
Last week was much anticipated with AAPL, GOOG, MSFT, and AMZN reporting. They all reported huge increases in revenue and earnings, except AMZN which got punished, but their stock prices did not soar. It appears the market had priced in the good news. So, the question becomes, as Q2 earnings reports come finish up, what will hold the market up, or propel it higher? Will the surge in Covid delta variant slow the economy down enough to cause a correction?
What am I doing? I did a little bargain hunting and added a little to F, GM and TSM. I sold some Puts to try and pick up PFE on a pullback. I intentionally did not sell covered calls on some stocks over the last two weeks, because I was waiting for them to announce earnings. I thought the earnings would be good, the stock price would pop up, and then I would sell the call and collect more premium for it, or sell at a higher strike price, and either would be to my advantage. That worked out well. When dealing with options, earnings announcements are significant events and you should try to use them to your advantage. I am cautious about a correction, but earnings continue to roll in and they are generally good. We have a couple more weeks of earnings reports. Next week I plan to buy QQQJ, not the NASDAQ 100, but the next 100 smaller companies. The tech giants appear fully valued, so hopefully the smaller companies will be growing faster. I will split my purchases into ten pieces and buy every day, then place a trailing stop loss percent order under the ETF to protect from a correction. I do that in an IRA account so my income tax work is minimized.
----------------------- If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.
I would like to call your attention to a page of my blog called "CLASSICS". It is located at the top of the blog, on the banner just under the title. The banner has links to "Home", "About", and now "Classics". These are articles that I wrote one time for the blog, but they are valuable insights at all times for investors. I will announce in the weekly blog when I add a new classic.
Your comments and questions are always appreciated, so feel free to comment using the "Leave a Comment" feature just under the title of the post.
You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update.
I am a retired person and preserving capital and seeking income are important objectives for me. I also want a growth component to my portfolio, while minimizing major risk. My style of investing will not suit everyone. I like to sleep well at night.
WordPress.com
No comments:
Post a Comment