Tug of War: Short and Long Run

February 13, 2018.

Wall Street firms are buying their stocks back and in so doing are likely to inject more fuel into the market rebound over the coming weeks. That likelihood is all the more pronounced as the strong earnings season comes to a close and also, as the market rides the wave of the Trump tax reform which has left more money on the balance sheets of American firms.

The S&P 500 jumped 1.39% on Monday, its second consecutive day of gains, giving Wall Street a measure of confidence after experiencing its worst trading week in two years. The index primarily benefitted from the surge of 4% in the stock of Apple (AAPL) and the 3.5% jump in the stock of Amazon.

Now, with most companies having already released their Q4 2017 results – most of them succeeding in trouncing analyst forecasts – what they’re doing now is either continuing or raising their clip of stock buybacks. That, in its own right, is something that should give the market greater stability.

The big test on the S&P 500 came this past Friday, when the index succeeded in jumping past the 200-period EMA – a significant technical level it gravitated back to after having tumbled 11.8% since its last historic high on January 26^th.

Daily Summary: The Dow Jones rose 1.7%, the S&P 500 jumping 1.39% and the NASDAQ tacking on 1.56%.

Despite two days of gains, in our estimate, the correction is not yet over. This past Thursday, the stock market officially entered correction territory, recording a decline of over 10% since the latest high. When push comes to shove, this is a tug of war between short-term, negative momentum, and long-term fundamentals. The long-term fundamentals will win out, but volatility is part of the equation, and has not yet abated.

On the S&P 500, 52 stocks rose to new 52-week highs, 8 dipping to new yearly lows; on the NASDAQ, 24     stocks recorded new 52-week highs, 43 falling to new yearly lows.

About 8.13 billion shares changed hands on U.S. exchanges, compared to the 8.5 billion average over     the last 20 trading days.

Tuesday: Despite two days of gains, there are hurdles that the market still has to overcome. First-off, the continued climb in governmental bond yields which indeed fell slightly yesterday, but which had nonetheless frightened the market last week. Likewise, there’s a chance that the economy is too strong, which means that inflation is hot, a fact that could bring the Fed to hike rates faster than expected.

We would be happy to see the market get back to “the meat and potatoes,” what’s really important, i.e. earnings reports. Key companies will be releasing their reports today before the opening bell: PEP, GNRC, and UA. After closing, investors will focus on the numbers of BIDU and TWLO.

Apple (AAPL), today, will be in focus with its annual stockholder meeting at 12:00 N.Y. time.

The small business optimism index will be released before the opening bell at 6:00 N.Y. time.

Tuesday’s Hot Stocks: MOH, CHGG, RNG, G, VIPS, PEP, TRU, UA, GNRC, AAPL

IPOs: None

Have a great trading day!

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