One
and done. Russia’s invasion of
Crimea had a long-lasting aeffect on the stock market for a grand total of…1
day. The S&P 500 dropped less
than 1%, gold rallied 1.6%, treasuries rallied 0.75% and oil rallied almost 2%,
trading at it’s highest level since September. But, by the very next day, all in Ukraine was forgotten,
when the S&P traded to new all-time highs, rallying 1.5%, and gold, bonds
and oil all cratered. The rest of
the week was quiet until February non-farm payrolls were reported. Last week, I mentioned that I was
looking for 160,000 jobs, but the actual number came in at a surprisingly high
175,000. While that number may
sound great compared to December and January, and given the daily Polar Vortex
this winter, the unemployment number was still relatively weak when compared to
the monthly average last year of 194,000.
But it was weak because of the weather. If people can’t get to interviews because of 1-foot snow
storms, then they can’t get hired.
So while the jobs number is still not great, I am not concerned about
the economic growth trajectory.
The unemployment rate ticking up 6.7% from 6.6% is actually a good sign
for the economy because more people are starting to look for jobs again,
showing the confidence in the ability to actually get a job again. What wasn’t good news was how the market actually reacted. The immediate reaction in the futures
market was a rally in stocks and a sharp sell-off in gold and treasuries. But, as soon as the stock market
opened, stocks began to sell off, and gold and treasuries gained a little bit
of ground back. Investors took the
opportunity to take profits off the table going into the weekend, as they didn’t
want to be caught being on wrong side a Putin maneuver. So with the stock market selling off on
a much better-than-expected jobs number, how do you play the upcoming week?
There isn’t a lot of market-moving
macroeconomic data this week, so take the week to evaluate your portfolio and
look to raise some cash to buy the next stock or stocks that you have your eye
on. I am not convinced that the
problems in Ukraine are over because Putin, who has bitch-slapped Obama over
the last few years, has no respect for any US ally and will do what he wants,
when he wants. I also didn’t like
the price action on Friday (more on this in the next paragraph), eventhough I
attribute it more to profit taking ahead of the weekend and not to an economy
struggling to find it’s footing. When
I look at what traded higher and lower on Friday, the market was held up on the
back of the financial stocks like JPMorgan, Goldman Sachs, and Morgan
Stanley. The bank stocks have led
the stock market since the 2009 rally began, outperforming the S&P by
almost 100%. They were also the
stocks that led the rally out of the whole since the early February lows. The XLF (Financial sector ETF) has
outperformed the S&P by about 2% since that time, and that is what you need
to keep your eye on for overall market direction. If the banks start to breakdown, then I would look to be a
seller of stocks that you currently have big gains in. The stocks that underperformed were all
of the high-flying momentum names that you know, like Tesla, Facebook, Twitter,
Pandora, and Netflix. Any weakness
in these names should be used to buy them if you are looking for an entry
point. I still like Tesla the most
and would be a buyer around $230.
On
Friday, after trading higher and then lower throughout the day, the S&P
closed up 1 whole point, putting in a doji candlestick chart formation (when a
stock opens and closes at about the same price, but trades higher and lower
throughout the day). Anytime you
see that technical formation, it indicates that a volatile price move is
imminent. The last time there was
a doji formation in the S&P was on January 22, which preceded a 6% drop
over the following 2 weeks. While
I do not expect that kind of move lower, I can easily see investors continuing
to cash-in on big gains pushing the S&P down to 1850 or 1.5%. Why do I say 1850? Not only is that the mid-point of the
Putin Invasion, but was also the 2013 high, and acted as resistance this year,
really until the market powered through last Tuesday. That would be a healthy pullback for the market and a good
entry point if you were looking to get in.
Last week I recommended buying Disney
if it pulled back to $77 because of the Ukraine news, but unfortunately it
never got that low. If you are
still looking to get in, I would buy half your position Monday morning, and buy
the other half if it pulls back.
They announced on Friday that they signed a long-term partnership
agreement with Shanghai Media Group Pictures to collaborate on movies
specifically tailored to China. These
movies will contain all the great features of a Disney film, but will have
specific Chinese elements. This is
a huge deal for Disney since China’s film industry is the 2nd
largest in the world behind the US and PWC is forecasting it to grow by 23%
this year. I am now looking for
Disney to trade up to $98, which represents about a 20% gain from Friday’s
close.
Without
much US economic data coming out this week, keep your eye on the XLF. The market will go where the financials
go. Use this week to take some,
but not all, profits in stocks that have rallied much more than you
expected. If you have losers in
your portfolio, take some time this week to do some research. Forget about where those stocks have
gone and worry more about where they are going to go in the future. This past week, I took some profits in
gold (GLD) and treasuries (TLT), but didn’t sell all of my position because of
my reasoning above. I still think
there is some downside in the stock market and gold and bonds offer up protection. I also sold my full position in Anadarko
Petroleum since I put that position on only as a trade and got more than I
expected from it.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Visa (V), Macy’s (M), Southwest Airlines (LUV),
Boeing (BA), Gold (GLD), Treasuries (TLT), long CORN, long SOYBEANS, long
NASDAQ.
Jeff Lewison
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