Positive trading day as chop continues

Notes from Tuesday’s Trading: 

Positive earnings lead to positive futures, and positive futures led to positive open. Positive economic data led to a move higher. In the end it was a positive day for the broad indexes. Why the shift in sentiment yet again? Some credit the Obama’s speech yesterday afternoon and some say the risk of war with Russia are subsiding. The headlines are full of reasons that investors have been wiling to step back into the risk trades of the market short term. Whatever the reason we are still no out of the woods and the worries are just as real as they have always been. Bottom line we have to remain patient and let this all unfold moving forward. This remains a news driven market short term.

CPI was up 0.3% and in line with expectations. The good news is the breadth of the inflation narrowed across the economy. This is still a concern, but for now remains somewhat muted. Home prices rose 0.4% in May (latest report) and that is good news from some and not so good news for buyers. Existing home sales were better than expected up 2.6% or 5.04 million home sold in June. Overall positive economic data and hopefully less stress for investors looking forward.

Positive day for all and we will see how it all unfolds tomorrow as we have one up day and one down day to start the week.

Chart Notes:

The chart below is of Natural Gas (UNG) the commodity. The decline has been slow and steady, but down nonetheless. The build in inventory is one reason for the decline in prices, but the outlook is another. Without an uptick in demand it would be assumed the inventories would continue to rise. Thus, the price is falling again in an attempt to prompt usage or demand to rise. The price has now declined below $4 MM/BTUs. Weather is not cooperating as temperatures are below normal globally and that keeps the supply building as producers have not slowed production to meet the lower demand. First Trust Natural Gas (FCG) is the stocks selling natural gas and they have fallen 8% versus the commodity being down 21%. That discrepancy will have to be dealt with in time. Either gas will rise in price or the stocks will fall in value if this trend continues. Watch for which side to play going forward.


Notes to Note:

  • Treasury bonds continue to receive money flow as the yields fell to 3.25%. Bonds are showing the signs of gains as investors wanting to take risk off and protect principle are rotating money to safety. This trend has been in play for some time, but the recent rotation has pushed TLT to new 12 month high. Despite the move higher in growth stocks today the yields started higher, but faded and bond prices rose. The fear factor is still in play for now according to the activity.
  • Volatility short term has surfaced and the day-to-day anxiety is the challenge more than the move higher overall. The news is driving the daily moves and that is not good overall as it signals a lack of direction.
  • Gold and oil took a break from the headlines, but remain on our watch list for the moves higher.
  • Natural gas fell another 2.1% on the day. Higher inventories remains the issue. The consumption levels are not growing and evidently production is, creating a surplus in inventory. This was the challenge last time natural gas fell to $3 per btu.  The decline has pushed the price lower and could remain this way for the foreseeable future. Short trades (KOLD) in the commodity have done nicely. FCG has now pushed back to the May levels of support. If price continues to decline this sector will struggle as well.
  • Microsoft missed earnings in their report after-hours. There revenue was higher than expected and the miss on earnings was attributed to the Nokia acquisition. This write down could be ignored as the 18k jobs eliminated going forward could give investors a positive outlook. Stock fell initially and then bounced back into positive territory. One to watch in the morning for what impact it will have on the broad markets.
  • Apple topped expectations on strong iPhone sales hitting double digit growth for the second quarter. The earnings were $1.28 and well ahead of the $1.07 expected. Stock was trading slightly lower on the report after-hours. Another one to watch for the morning influence.

Practice Patience and Protect Principle.