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How to Recognize a Blow Off Top

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Good Morning,

 

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • How To Recognize a Blow Off Top
  • Don’t Sleep on Inflation?  (PPI Just Hit a Multi-Year High)

Futures are slightly lower as markets digest yesterday’s rally following a mostly quiet night of news.

News on COVID-19 was mixed as China did another “diagnostic change” and the number of COVID 19 cases fell, while in South Korea the number of infections rose.  But, markets still view the transmission rate of the disease  as peaking (and this assumption is what’s driving markets higher – and it’s also the greatest source of near term risk for stocks if the situation changes).

Economic data was sparse but German GfK Consumer Climate and British Retail Sales both beat estimates, although neither is moving markets.

Today there are two notable economic reports, Jobless Claims (E: 211K) and Philly Fed (E: 12.0), and as remains the case, the stronger the data, the better (markets will especially be looking for confirmation of the strong Empire report from Philly Fed).   There is also one Fed speaker, Barkin at 1:20 p.m. ET, but he shouldn’t move markets.

Please email info@sevensreport.com if you have any trouble downloading today’s Report.

Tom Essaye Quoted in CNBC on February 19, 2020

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The lack of a guidance update can mean “mean the company doesn’t have much of an idea how big…” said Tom Essaye, co-founder of The Sevens Report. He noted, however, the market will look through any earnings disruption as long as it is limited to the first quarter of 2020. Click here to read the full article.

Earnings Still Matter

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What’s in Today’s Report:

  • Earnings Still Matter: What Apple’s Guidance Cut Means for Markets

Stock futures are higher with global shares this morning as new cases of the coronavirus in China continue to fall while hopes for stimulus support tentative risk-on money flows.

China’s government is reportedly connecting IT companies with manufacturing facilities to help supply chain operations return to normal as soon as possible while speculation for more stimulus measures continues to rise.

Looking into today’s session, there are two economic reports to watch: Housing Starts (E: 1.420M) and PPI (E: 0.1%), and a slew of potential Fed catalysts.

The main focus will be the FOMC Meeting Minutes due out at 2:00 p.m. ET however there are also multiple Fed officials schedule to speak: Bostic (8:10 a.m. ET), Mester (8:30 a.m. ET), Kashkari (11:45 a.m. ET), Kaplan (1:30 p.m. ET), and Barkin (4: 30 p.m. ET).

The big risk for the market is any sort of hawkish surprise as investors have priced in a consistently dovish Fed for the foreseeable future and that remains one of the primary support pillars for stocks trading at current multiples.

Tom Essaye Interviewed with Yahoo Finance’s Brian Sozzi on February 11, 2020

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“In the short-term, there are two things holding this market up. One, expectations of a dovish Fed. And it’s the expectation of a global economic rebound. If either one of those come into doubt, the market is going to…” Sevens Report Research founder Tom Essaye said on Yahoo Finance’s The First Trade. Click here to watch the full video.

Tom Essaye Quoted in CNBC on February 11, 2020

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“It’s still an opportunity for a surprise, and given an expected perma-dovish Fed is one of the two pillars of this rally, we need to watch Powell’s…” wrote Tom Essaye, editor of the Sevens Report. Click here to read the full article.

Jerome Powell

What Outperforms If Stocks Trade With a 20X Multiple?

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What’s in Today’s Report:

  • What Outperforms If Stocks Trade With a 20X Multiple?

Global equity markets are rallying as the spread of the coronavirus continues to slow while statistics show that Sanders victory in the New Hampshire primary increases the odds of a “market-friendly” Trump reelection in 2020.

Eurozone Industrial Production was soft in December with the headline falling -2.1% vs. (E) -1.8% but optimism for a 2020 economic rebound is offsetting the poor data point.

There are no notable economic reports today however there are two Fed speakers ahead of the bell: Harker (8:30 a.m. ET) and Daly ( 9:00 a.m. ET), while Powell will testify before Congress for a second day (10:00 a.m. ET).

Outside of the Fed speakers today, the Treasury will hold a 10-Yr Note auction at 1:00 p.m. ET and as has been the case recently, any sizeable moves in the bond market, especially that impact the yield curve, could influence stock trading in the afternoon.

Commodities Update and Powell Preview

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What’s in Today’s Report:

  • Powell Testimony Preview
  • Commodity Bears and a Gold Bull

Stock futures and most international equity markets are higher today as the spread of the coronavirus reportedly slowed to a two week low in China and investors looked ahead to Powell’s testimony before Congress today.

Economically, the NFIB Small Business Optimism Index rose 1.6 points to 104.3 vs. (E) 103.2 in January underscoring continued positive sentiment among U.S. business owners.

Today, there is just one economic report: JOLTS (E: 6.775M) which will leave investors primarily focused on Powell’s Testimony before the House Financial Services Committee at 10:00 a.m. ET and it will be important for the markets that he remains decidedly dovish with his commentary.

In addition to Powell, both Quarles (12:15 p.m. ET) and Bullard (1:30 p.m. ET) will speak in the early afternoon, Wall Street time.

Lastly, there is a 3-Yr Note Auction at 1:00 p.m. today and the results could affect the yield curve (specifically the 10s-2s) and as has been the case over the last 9 months, any significant moves in the curve could impact equity markets.

Tom Essaye Quoted in Unseen Opportunity on February 7, 2020

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But that hasn’t exactly been reflected in this morning’s trading activity. Some analysts, like The Sevens Report founder Tom Essaye, believe that the jobs gain was already priced-in by automated trading firms.

“I don’t think it was anything surprising because we had very good ADP number and good jobless…” Essaye said. Click here to read the full article.

Health Technician

Tom Essaye Quoted in CNBC on February 7, 2020

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Worried Healthcare Technician

“I don’t think it was anything surprising because we had very good ADP number and good jobless claims. So people were expecting a good number. Overall, what the jobs number is saying about the economy is what we already know…” said Tom Essaye. Click here to read the full article.

How Far Are Investors Willing to Stretch?

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What’s in Today’s Report:

  • How Far Are Investors Willing to Stretch?
  • Weekly Market Preview:  Wuhan virus updates, Fed testimony.
  • Weekly Economic Cheat Sheet:  An Important Look at Consumer Spending This Week

Futures are slightly higher following a quiet weekend of news.

Wuhan virus related fears receded further over the weekend as the virus continued to spread, but at a slower pace than before and experts think the transmission rate of the disease has peaked.  Additionally, factories in China will gradually reopen this week, potentially limiting any economic fallout.

Economic data was sparse overnight although Chinese CPI rose 5.4% vs. (E) 4.9%, which should reduce hopes of any additional, large scale stimulus from Chinese authorities.

Today there are no economic reports and no Fed speakers, so focus will remain on any Wuhan virus headlines.  The key right now is the factory re-openings in China.  As long as there isn’t any news that implies factory re-openings will be delayed beyond this week (and in doing so put more pressure on the economy) than Wuhan virus related fears should continue to decline.