From last week’s Lund Loop;
As the news flow changes day by day - sometimes moment by moment - the market reacts, overreacts, and then corrects.
If you combine that action with summer malaise when the market is usually trendless, it sets us up for a lot of chop in the coming months.
And chop we got this week. Unfortunately, we ended the week on the downside of that chop.
Let’s go to the charts.
S&P 500 Index (SPX)
The SPX ended the week down, confirming that we are still in a short-term downtrend.
We are holding right above a support level and could get a bounce here. If not, and we lose this level, we probably go down (at least) to the 100-day moving average.
There is a case being made among some that the SPX is in the process of forming the handle part of a cup and handle pattern.
I’m a bit skeptical of that analysis because if I remember my O’Neil correctly (How to Make Money in Stocks), there are some missing criteria.
First, a cup-and-handle pattern should have a rounded bottom, whereas the SPX currently has a V-bottom.
Second, there should be an extreme volume pullback in the handle area, which we haven’t seen.
Lastly, the pattern is really only applicable on a weekly chart, where the handle needs a minimum of seven weeks to be valid - which we’re nowhere close to.
NASDAQ-100 Index (NDX)
The NDX, which was once a leading index, is now lagging, trading just above the 100-day moving average.
A lot of this weakness is due to the price action in its component sectors and stocks. Let’s take a look at some of them.
VanEck Vectors Semiconductor ETF (SMH)
The SMH has just been KARUSHED in the last few weeks. It’s currently trading below all four moving averages and support levels and is definitely moving into an intermediate-term downtrend.
I’d like to see a solid bounce in this ETF next week, but it doesn’t care what I think.
Same deal here with market leader AAPL - below all MAs, support, and in a downtrending channel.
Both FB and AMZN are hanging in there, holding just above minor support. But if the market goes, these will go with it, making them good short candidates on a break lower, with a target of their respective 100-day moving averages.
Dow Jones Industrial Average (DJIA)
Though still technically in a range, the DJIA is not looking very inspirational here.
Russell 2000 ETF (IWM)
The IWM has been on my trouble list since the failed breakout earlier this month. Now it’s below all four MAs - and worse - has broken below the bottom of its recent range.
This index needs to bounce back up into that range and hold or things could get real ugly, real quick.
S&P 500 Volatility Index (VIX)
This is a puzzle. Despite the weakening of the overall market, the VIX hasn’t confirmed by rallying as you would expect.
That’s good, but as we saw just a couple weeks back, this thing can rocket higher in a flash.
iShares Trust China Large-Cap ETF (FXI)
From last week;
No matter how bad the tariff war reflects on our stock market, it’s twice as bad on the Chinese market. You can see here that the FXI has moved straight down, with no indication that it’s stopping anytime soon.
The FXI didn’t stop this week, moving to new lows. It is probably due for a bounce, but it's hard for me to argue that it won’t eventually test that lower support level at some point.
iShares Switzerland (EWL)
Meanwhile, EWL hits fresh 52-week highs. Go Switzerland!
Financial Sector SPDR (XLF)
The XLF still looks reasonably good, but we’re going to need it to rally if the market is going to move higher.
SPDR S&P Homebuilders ETF (XHB)
XHB too, not looking that bad, as its pullback has been orderly and on decreasing volume.
US Dollar Currency Index (DXY)
CBOE Interest Rate 10-Year T-Note (TNX)
This week the DXY put in a small double top and TNX broke into fresh lows.
SPDR Gold Trust (GLD)
GLD is now in a confirmed intermediate-term downtrend.
West Texas Oil (WTIC)
Oil took a big hit this week, dropping 7.7% and weighing on energy stocks. That has created some short setups in the sector - one of which we will see later.
ETFMG Alternative Harvest ETF (MJ)
MJ is now in a short-term downtrend.
From last week;
Bitcoin is showing some of the volatility it’s known for after a stellar run. It needs some sideways, basing action before it tries for new highs.
That basing action began this week as BTC continues to digest its recent move up.
The S&P 500 index slid for a third consecutive week - the first time since December - falling 1.17%, while the Dow was off 0.69% and the NASDAQ Composite tanked 2.29%.
The best asset class returns this week were Government Bonds (+0.48%) and the worst was US Small Caps (-1.76%).
U.S. Treasury yields declined, providing a boost for the rate-sensitive utility and real estate sectors.
Economic data releases in April and May have put pressure on Q2 U.S. GDP projections, with the current forecast right at2 percent growth.
Durable goods orders declined 4.1% in April, driven by volatile aircraft orders and a drop in motor vehicle sales.
April’s housing sales data disappointed, though the recent drop in mortgage rates may provide a boost in the months ahead.
Potential market-moving data next week: Consumer confidence (Tues) and GDP numbers (Thu).
*Click any chart to enlarge. Please read disclosures at the bottom of this page. All charts courtesy of TradingView.
One of the most important things a trader can learn is to identify what type of market they are in.
The current market is choppy, which means - unlike the previous four months - it’s not a good environment for swing trading, so most traders should just be sitting on their hands and/or raising cash until the dust settles.
Unless otherwise indicated, the following setups are best suited for day trades or very short-term swings (2 to 5 days).
There are also a number of things you should be doing in this type of market to minimize your risk, like trading smaller and adjusting your stop placement.
Another good way to help filter out the volatility is to avoid buying breakouts - or shorting breakdowns - during the first 30 minutes of the trading day when overnight orders get filled.
That rule can be extended to 60 minutes on Mondays when the deluge of weekend orders get executed. Using this rule may cause you to miss an entry or two, but it will more likely prevent you from getting whipsawed out of many more positions.
Okay, before we get to this week’s setups, let’s do a quick review.
Apache Corp (APA)
Last week we only had one clear trigger, but it was a good one as the short setup in APA delivered a 10.13% return, aka, a lot of Lund Loop subscriptions 😜.
Now to the coming week.
Cleveland Cliffs (CLF)
As we mentioned before, the weakness in oil is hurting energy stocks. CLF is trading below all major MAs and looks like it's about to roll over.
It has tested this support level three times and a break below it would be a good short entry point.
CROX shoes are ugly, and so is their chart. Below all MAs, the stock has consolidated sideways after a big drop. A break below that range would be a good short entry.
Pulte Group (PHM)
PHM has created a flag upon flag pattern here, which truth be told, is more prone to failure than a pure bull flag.
But with the overall market weakness, I like the relative strength this stock is showing. If the market gets a good bounce, watch for an upside breakout here.
There are a lot of things I like about this chart, including the “W” bottom from October to March, the continued attack of the overhead resistance level, and the dry up in volume on this orderly pullback.
If market conditions improve and price breaks out of that small downward channel, this could be a decent swing trade.
We had SNAP on the list last week with the idea that we could be seeing a major trend change taking place. If it can hold over the small downtrend line - and the market doesn’t fall off a cliff - this could be a decent swing.
McCormick & Co (MKC)
A spice stock, right? Hey, we go where the technicals take us, and MKC is defying the market and resting near all-time highs. That’s good technical behavior, which makes this stock a swing candidate on a move higher.
Market & Trading Links:
If you trade crypto you also need to stake it. (AVC)
Some stats that show the economy is slowing. (Econbrowser)
Big market moves and how they f**k with your head. (Wall Street Journal)
We are not in a tech bubble. We are not in a tech bubble. We are NOT in a tech bubble. (Morningstar)
How about some investing lessons from a no-name fund manager who has crushed the market over the last decade? Warren who? (MarketWatch)
This week, billionaire entrepreneur Robert Smith vowed to pay off the student loan debt for Morehouse College graduates. But what about the tax man? (Washington Post)
Why technical analysis doesn’t work. Wait, what? (Mathematical Investor)
Hedge funds are now starting to invest in startups and private equity 🤔. (Geek Wire)
16 things long-term investors can learn from traders. (Fundoo Professor)
There is a new activist stock exchange and its got some lofty goals. (Vox)
Recently, while ushering my son out the door and into the car for our daily drive to school, we had an interesting exchange.
“Dad, can I bring my iPad?” he began.
“No pal,” I replied, “you don’t need to bring your iPad.”
“What about my Switch?”
“What about my iPhone?”
“Well, can I play with your phone?”
“No. Look buddy, we’re just taking you to school, you don’t need all that stuff for a two-minute car ride!”
Finally loaded up and mobile, I glanced into the rearview mirror and spied a face that split the difference between petulant and adorable.
“What’s wrong,” I inquired.
“I don’t know why I just couldn’t bring something with me, it’s so boring sitting back here.”
You know those moments in life when you remember telling yourself you will never turn into your parents but know you're about to anyway? This was one of those moments.
“Look, when I was your age…”
Jesus Christ, did I say that out loud? I thought.
“When I was your age, I didn’t have all these devices. There were no iPads, or Switches, or smartphones. None of this technology existed when I was a kid.”
Then I threw out the line that should come with a pair of slippers and a bottle of Ensure;
“You know you’re fortunate to be living in these times.”
Without skipping a beat, he replied to me in a soft and gentle voice, “So are you dad!”
And he was right - more so than he knew - because living in “these times” was the only reason he was alive.
“It’s not happening. We are not getting pregnant.”
I was aware of this fact but hadn’t attached the urgency to it with which my wife delivered this statement.
Our first child, my daughter, had been created quickly, and in the old-fashioned way, to which no Luddite could protest. There was nothing cutting edge about the process, and it followed the same template as when I first attempted it in the backseat of my VW bus at junior prom – when pregnancy definitely wasn’t the desired outcome.
But the second time around, despite all our best efforts to add one more Lund to our brood, it was not as simple. At first, we actively ignored the issue, assuming that eventually, it would just “happen.” But as days turned into months, and then months to years, the process began to take a toll on us – but more so on my wife.
It seemed as if nature was playing out a cruel biological hoax on her - driving the maternal instinct to procreate to such an extent that it defined her entire self-worth, while simultaneously withholding that which she felt would make her whole, another baby. It was devastating to watch and, I could only imagine, infinitely more so to experience.
After three unsuccessful years passed, we finally admitted to ourselves that nature was not on our side. And as we were both staring down the barrel of forty, neither was time. Fortunately, after consulting with a fertility specialist, we learned that technology was - in the form of Intrauterine Insemination, or IUI.
The critical element of the IUI process is a “contribution” - provided by me, on demand, in the comfort of the restroom at the doctor’s office. Once delivered, the sperm – c’mon now, that’s what they’re called – are washed, which is no easy task given that from tip to tail they are about half the width of a human hair.
The washing separates the slow movers from the more motivated ones and is done by spinning them in a high-speed centrifuge. I was concerned that my child would be born dizzy, but our doctor assured me that would not be the case.
Our appointments were scheduled once a month during consecutive days on which a computer algorithm had concluded we had the best chance for success. And they were always first thing in the morning, which was a big problem for me because this was 2008, right in the middle of the Financial Crisis.
I was trading full-time – with no other source of income – and the stock market had fallen off a cliff. Volatility is usually good for traders, but I had never seen this type before, and it was killing me.
So I’d sit with my wife in the waiting room each day, trying to be as supportive as possible, while simultaneously attempting to monitor the imploding markets on my flip phone, hoping the loving smile on my face would belie the fact that I was losing thousands of dollars per minute.
Day after day, as I watched the fate of the world’s financial system hang in the balance, another disturbing financial thought never seemed to be too far away: IUI was not covered by our insurance, which meant it was cash on the barrelhead each time we left the doctor’s office.
Suffice to say, my mental plate was constantly full. However, one day, it overflowed.
Up until that point, we had done everything by the book to make sure IUI was a success. But it wasn't. It hadn’t worked.
Sliding open a glass partition, the receptionist called out, “Mr. Lund?” which was the signal for me to get out of the on-deck circle and take my turn at bat. Today, after having struck out in the three previous months, I was asked to venture - for the fourth time - into that dreaded restroom, one time more than is recommended with IUI.
Conventional medical wisdom said that if my little guys hadn’t gotten the job done by the third try, chances are IUI wasn’t going to work. At that point, you must make a move up to the big leagues and give in vitro fertilization a try at twenty-five grand a shot. Did I mention that none of this was covered by insurance?
Rising from my seat, I began the most surreal part of this process. As men, we spend the better part of our adolescent years acting like we don’t do it - and attempting to avoid detection when we do do it. Most of us become experts at this, covering our tracks like pros, aware that one errant crunchy sock left in the hamper by mistake could give us away.
But in the IUI scenario, I had to walk through a waiting room filled with women, take a sample cup from the receptionist, and go down the hall past all the nurses to the restroom.
And everybody knew what I was going to do in there.
I’m sure some people get turned on by bathroom fixtures, but that has never really been my thing. Nor is losing my ass in the stock market very stimulating.
I think it is safe to say that I reached my nadir of self-worth while sitting in the doctor’s restroom that day, watching the markets implode on my crappy pre-smartphone, as a plastic cup with my name on it mocked me from across the room.
There I was in that cold, white, sterile bathroom, my net worth plummeting, convinced that everybody on the other side of the door was snickering at me, and only having one more attempt before we’d have to break the bank with IVF.
Astronauts and Super Bowl quarterbacks don’t know the pressure I was under. And a sudden knock on the door by the nurse didn’t help.
“Are you doing okay in there Mr. Lund?”
“Yeah, yeah, I’m fine. Hey, do you have anything out there that, well, could help me out?”
“I’m not sure what you mean?”
“Come on, you know. Like some ‘reading’ material.”
“No sir, we don’t do that here.”
“Look, it doesn’t have to be Playboy. Just give me a US Weekly or People. Anything with J-Lo in it.”
“I’m sorry, sir.”
At that point, I would have taken Martha Stewart’s Living.
But I knew it was now or never, so I had to go deep, digging farther back into my mental Rolodex than I’d ever gone before. I was determined to — no pun intended — pull this thing off, for God, country, and the American way of life.
All I needed to do was to find the right imagery and hold that focus for between five and seven and a half minutes, and I would be golden.
Initially, though, nothing seemed to resonate. Random memories of ex-girlfriends and one-night stands danced through my head, but none did the trick. Then, in a stroke of genius, I decided to mine that rich vein of firsts.
I started with the first time I had sex, but that was too obvious, so I progressed to other firsts. First glimpse of a nude magazine, first adult movie, first Sears catalog (lingerie section), and even the cover of the first Go-Go’s album.
All these memories, like erotic truffles, were buried just below the surface, and not unlike a foraging pig, I was able to root them out - and with them, I found success.
Swaggering back through the reception area with my chest puffed out and head held high, I placed the cup on the ledge of the receptionist’s window and rapped on the glass with the back my hand as if to say, “mission accomplished.”
That fourth time was the charm.
A few weeks later an early pregnancy test gave us the news we were hoping for, and a blood test at the doctor's office confirmed it. We were pregnant.
And then we waited.
For three anxiety-filled months, we waited, until one day, in a room where only the glow from a 3D ultrasound machine broke the darkness, we first saw our nascent son.
The months leading up to his birth were not all smooth sailing. We thought we lost him twice – a story in itself – and my wife went into labor a month early, while we were at the Hoover Dam – a novel and perhaps movie of the week by itself.
It took a lot of science, a lot of technology, and most of our savings, but he made it, eventually growing into that same boy who turned 10 yesterday - and chides me sweetly from the backseat.
It’s Good, It’s Good
The personal computer was a great invention, but an empty vessel until the first killer app was created. (BBC News)
This short - and I mean, real short - story by Kurt Vonnegut, Jr. should be required reading by every man, woman, and child in America. (Tenellen)
Speaking of science fiction, this is a fascinating chronicle of George Orwell’s race to finish Nineteen Eighty-Four before he died. (The Guardian)
I’d forgotten how good a drummer Dave Grohl is. This reminded me. (YouTube)
When you watch a loved one descend into madness. (The New Yorker)
The Monroes were a group of extremely talented musicians who made catchy new wave songs filled with lyrics just too melodramatic to become hits. And after one listen you’ll be humming this song all day long. (Spotify)
Thanks to science, our kids might live forever. But we’ll probably miss out on immortality. So how should we feel about being the last mortals? (The Times Literary Supplement)
Aerial photos of surfers riding the biggest waves on Earth. (My Modern Met)
NPR’s Terry Gross interviews the King of Gross. (NPR)
15 years ago the singularly greatest hand of poker was played. (YouTube)
Thanks for reading this week’s edition of The Lund Loop.
I want to hear your opinion on these, or any other topics you see fit to pontificate on.
So drop me a line.
If you arrived here by accident, happenstance, or magic, make sure that you become a paid subscriber to The Lund Loop to have it automatically delivered to your inbox once a week - isn’t technology great?
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Talk to you soon,
P.S. It should go without saying - but I’ll say it anyway - all opinions expressed here in The Lund Loop are my own personally and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.