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Market Downturns

Hat tip American Funds

Strike Eagle Over Iraq

F-15E-Strike-Eagle-05-14-2018

From Strategypage.com:  A U.S. Air Force F-15E Strike Eagle flies over Iraq on May 5, 2018. The F-15E is a dual-role fighter designed to perform air-to-air and air-to-ground missions. An array of avionics and electronics systems gives the F-15E the capability to fight at low altitude, day or night, and in all weather. (U.S. Air Force photo by Staff Sgt. Corey Hook)

Driving Season Is Just Around The Corner

And it’s going to be the most expensive in years.  US Gas Prices have moved up to $2.91 (national average), highest level since early 2015.

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How do domestic gas prices stack up?  Not so bad actually:

Venezuela: $0.03

Saudi Arabia: $2.06

Russia: $2.64

US: $2.91

Mexico: $3.82

Australia: $4.13

Brazil: $4.35

India: $4.37

Canada: $4.49

China: $4.50

Japan: $4.91

South Korea: $5.50

Spain: $5.83

UK: $6.41

Germany: $6.42

France: $6.89

Italy: $7.11

Hong Kong: $7.93

Hat tip Charlie Bilello

 

Has Pepsi Reached A Bottom?

pep

The weakness in consumer staples has reached extreme levels this month.  At the early May lows the XLP(Select Sector Consumer Staples Fund)had fallen 17% from the January 2018 peak far out pacing the SP 500’s pullback(-9%).  This steep sell off has created a number of very low risk entry opportunities. 

Pepsi, the number 3 weighting(9%)in the XLP, is a solid buy candidate.  Last Wednesday PEP printed its lowest close since January of 2016 after dropping over 20% from the January 2018 peak.  This steep decline drove shares into deeply oversold territory.  PEP’s weekly MACD indicator reached levels not seen since Q1 of 2009.  

Trading notes:

PEP is working on a higher weekly low after four straight lower weekly lows.  An indication of easing downside momentum.

PEP sports one of the highest dividend yields in the sector(3.8%).

An important hurdle in the coming weeks is the $99.30 area(last week’s high).

A current levels PEP is a relatively low risk buy.  A close back below last week’s low($95.95)would send a clear warning sign that a more drawn out basing pattern is ahead.

At time of publication we are long PEP in some managed accounts.

 

Texas Is Tops

This should not come as a surprise.  Texas wrapped up 2017 with the fastest-growing economy in the U.S:

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Hat tip WSJ.com

Bonds Break

tlt

The TLT(20+ Year Treasury Bond Fund) took out major support today.  The index closed at its lowest level since July of 2015.  More downside, considerably more downside, could lie ahead.  The TLT has a long way to travel before reaching oversold levels. 

We are long TBF and TBT(Ultra-Short 20+ Year Treasury Bond Fund) in some managed accounts.  Both of these inverse funds have performed quite well as the bond market has sold off this year:

tbt

 

Sentiment View

1.) AAII’s(American Association of Individual Investors) neutral reading has been above 40% for 3 straight weeks for first time in 10 months.

2.) Outflows from small cap equity funds: 14 consecutive months (Morningstar).

3.) BAML(Bank of America/Merrill Lynch) Global Fund Manger Survey lowest equity exposure in 18 months.

As contrarians, this is certainly good news.

Hat tip Ryan Detrick

Record High Spread

Interest rates have certainly been a focus of late, and for good reason.  Here’s an interesting stat:  The spread between the 10 Year US Yield versus the 10 Year German Yield is at a record:

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US 10-Year Yield: 3.08%

German 10-Year Yield: 0.64%

Spread at a record high: 2.43%

As always, great stuff from Charlie Bilello of Pension Partners

The Long End Continues To Hold Major Support

tlt

The TLT(20+ Year Treasury Bond Fund)has been under intense pressure this week.  The index began to weaken on Monday before getting slammed yesterday.  This high volume breakdown drove the TLT back down to a major support zone that has held up extremely well over the last few years.  The $116.50 to $117.00 area marked major lows in 2016 and 2017 as well as the February, April and May lows this year.  The steady pressure so far this year has certainly softened up this key zone but until this area is convincingly taken out it should be given a great deal of respect.  A close below $116.00 would do a great deal of damage. 

tyx

The inverse of the TLT action is the TYX(30 Year Treasury Yield Index).  This index has not been able to convincingly clear 3.2% since the summer of 2015.  The 2015, 2016, 2017 and multi-month 2018 highs have been capped by the 3.2%-3.25% area.  This zone is weakening as well this year as pullbacks from heavy resistance become less deep.  Until cleared 3.25% should continue to be respected as major resistance.  A TLT move below $116.50 would likely drive the TYX to new multi-year highs. 

At time of publication we do not have a position in TLT.

Rates Rising, 10’s At New 2018 Highs

The TNX(10-Year Treasury Yield Index)is surging today.  The TNX is now trading at its highest level since July 2011:

tnx

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