#$fez

Several key equity trendline tests are underway across the European region.

The past few editions of our #TrendlineWednesday feature on Twitter have not exactly been the most intriguing we’ve ever posted. In fact, it has been a challenge at times recently to even find enough candidates to publish the feature. This week, however, is a different story. Compelling trendline developments abound in the financial markets -- with no area sporting more critical trendline tests than the European equity markets. Here is a sample of some of those key tests underway.

The STOXX Europe 600 Index is testing its post-2009 Up trendline…again.

The German DAX is also testing its post-2009 Up trendline…again.

And the French CAC-40 is testing its post-Brexit Up trendline.

Each of these developments is worthy of its own dedicated blog post. The fact that we are observing coordinated trendline tests across those key markets tells us that this is potentially a key juncture. So is this another buying opportunity -- or have these markets worn out the support of their respective trendlines?

At The Lyons Share, we have been very consistent in our analysis and views toward Europe. In a Premium Post, we reiterate those views and provide an update, in light of the present developments. We also share which markets around the region that we favor -- and which ones we’d avoid.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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France’s benchmark CAC-40 stock index is breaking out to 10-year highs.

We’ve noted in recent weeks a slew of European stock bourses  (e.g., Norway, Italy, Finland) breaking out, or attempting to break out, to new long-time highs. You can now add France’s CAC-40 Index to that list as it is breaking out to new 10-year highs this week.

Related Post: September 1, 2017: Key Line Saves French Stocks From Further Damage (PREMIUM-UNLOCKED)

This breakout is no surprise for TLS members as we’ve been expecting it for some time. But what’s next for French stocks? Let’s get one thing straight — a breakout to decade highs is not a bearish development. But what is the potential here?….and what’s the best way to play it?  An important component of those answers lies in the proximate cause of the breakout.

It’s no secret that the recent deterioration in the Euro has put a bid into the Eurozone’s stock markets. Thus, should the budding rally in the U.S. Dollar continue further, it could very well be a tailwind for Eurozone equities — though, not necessarily for U.S.-based European equity funds. The currency effect can act as a major drag on whatever gains do accumulate as a result of equity price gains. A quick comparison of the CAC-40 versus the iShares France ETF (EWQ) will make that point quite clear. So don’t be surprised if your position in EWQ fails to keep pace.

For more on how to take advantage of these breakouts in Europe, or if you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Plus, our SPRING SALE (25% OFF!!) is going on now so it’s a great time to sign up! Thanks for reading!

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European equity indices are testing key levels of bull market support.

The recent (ongoing?) equity correction has not merely been a U.S. event. Most stock markets around the globe have also suffered drawdowns in concert with the U.S., to varying degrees. Some have experienced mere “flesh wounds” while others have really taken it on the chin. Falling into the latter category would be European stocks, broadly speaking.

Most of the core European markets got hit every bit as hard, or harder, than the U.S. Perhaps the most discouraging thing, though, is that they have yet to rebound nearly as sharply as much of the U.S. market has. And, in fact, in the recent re-test/retracement, many core European markets actually dropped below the levels of their early February correction lows. On one index in particular, this re-test has brought it down to a potentially very key area.

As presented earlier in our #TrendlineWednesday feature on Twitter and StockTwits, the popular broad European index, the STOXX Europe 50, has now dropped down to where it is testing the Up trendline stemming from its March 2009 lows.

Some technical tests are obviously more important than others. While many of the major U.S. indices have tested various trendlines and other manners of support on a shorter-term basis, this test by the STOXX 50 is a bit more significant. This is a test of the integrity of its 9-year bull market. A failure here may well lead many technicians to trash some their European exposure.

On the other hand, this support level may be just what the doctor ordered for European equities which have had a rough start to their year. The trendline may serve as a rally springboard as it did at the early 2016 and Brexit lows. Although, even if it bounces, the region’s present under-performance may be cause for a relatively short-lived rally. Either way, the reaction of the STOXX 50 at this level certainly bears watching.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including our strategy for European equities as well as insights into what we’re looking to buy and sell and when. Thanks for reading!

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France’s CAC-40 is testing the support of one of the financial markets’ most prolific trendlines.

As many readers are aware, we have a regular feature on Twitter and StockTwits each week called “#TrendlineWednesday”, featuring some of the most noteworthy current trendline developments in the financial markets. As we mentioned on Twitter the other day, there are some weeks when it takes considerable effort to find even a handful of trendline developments meeting the “noteworthy” criteria. Other weeks, there are so many noteworthy trendlines in play that several big ones can’t even make the cut. The latter situation would describe this week. And among the abundance of interesting examples is perhaps the most prolific trendline in all of the financial markets currently being tested: a long-term Down trendline on France’s CAC-40 stock index.

The trendline at hand stems from the CAC-40′s all-time high in 2000 and connects (on a linear scale) the peaks in 2007 and 2015. Back in April, at the time of the presidential elections in France, the CAC-40 found itself again testing the 17-year Down trendline. Following the elections, the CAC-40 finally hurdled the long-term trendline -- and in dramatic fashion, gapping up by more than 4%.

After brief follow-through into early May, the CAC-40 began a long, steady descent back toward the breakout level of the trendline. As markets and securities tend to do, eventually, the CAC-40 filled the April 24 gap a couple weeks ago. All that was really left was to test the broken trendline, presently intersecting near the 4995 level. On Tuesday, amid the North Korea-inspired market jitters, the CAC-40 finally did test the trendline again, making a low of 4995.07 before immediately bouncing.

Presently, the CAC-40 is trading at 5135, up nearly 3% in a straight line off of its trendline test. For those who still think this type of analysis is some kind of voodoo, the odds of a random precise reaction off of a 17-year trendline like this would be astronomical. We’re happy to have them continue to think these kinds of events are random and that markets are efficient and all that stuff. That’s what gives the rest of us an edge.

So what’s next for the CAC-40? Naturally, as long as the trendline, i.e., former resistance, continues to act as support, expect the CAC-40 to continue its bounce. Beyond that, in a premium post at The Lyons Share, we lay out our specific strategy for taking advantage of this opportunity, including the key levels to watch on the upside and the downside.

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share, where we are currently running our PRE-“FALL” SALE. The SALE ends September 4 so considering the discounted cost and a potentially treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

Photo is of part of The Maginot Line, a line of fortifications, obstacles, and weapon installations built by France in the 1930s to deter invasion by Germany.

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August 7, 2017

(@archpics)

I suspect that this will be the view of many readers for the week. It is a good time to take a break. 2nd quarter earnings are in the books, Congress and the White House are out until September and the Fed is sizing up waders and fishing poles for that annual break to Jackson Hole on the 24th of August. As we glide into the end of summer, we can go knowing that Q2 earnings were better, but stocks had a more difficult time navigating the numbers. The U.S. economy continues to show signs of slowing but not as bad as the U.S. Dollar is fearing, so shift some of that blame to Washington uncertainty. The International stock markets still look like the easier bet from both a momentum and valuation perspective. Energy stocks are so unloved that if the sector was a football team, they wouldn’t even be able to get a matchup on Thursday night. Meanwhile the rest of the U.S. stock market just keeps very slowly grinding sideways to slightly higher. When Congress returns on September 5th, they will be taking on the Debt Ceiling and Tax Reform. Hopefully they can at least tackle the former or else the market could decide to grind in a different direction. Have a great break everyone.

Friday jobs data shows that the economy continues to bounce around 200,000 jobs created monthly…

(@ukarlewitz)

Further detail showed a Goldilocks job report with growth with low inflation…

In terms of job growth, the July jobs report soundly beat expectations, showing the addition of 209,000 nonfarm payrolls (Briefing.com consensus 181,000). However, in terms of wage growth, investors received another unimpressive reading as the report showed an increase of just 0.3% in average hourly earnings (Briefing.com consensus +0.3%). In other words, it was another ‘Goldilocks’ report.

Investors have rallied around these ‘Goldilocks’ reports in the past as they’re not hot enough to raise rate-hike concerns that are typically present amid a pick up in economic activity and not cold enough to give investors a reason to question the state of future economic growth.

Rate-hike expectations did shift up a tad following the July jobs report with the fed funds futures market assigning an implied probability of 50.4% to a December rate hike, up from 46.8% on Thursday.

U.S. Treasuries sold off in a curve-steepening trade following the release, leaving the 10-yr yield (2.26%) and the 2-yr yield (1.35%) higher by four basis points and one basis point, respectively. Meanwhile, the U.S. Dollar Index (93.35, +0.65) rallied 0.7% to eke out a modest victory for the week (+0.3%).

In the equity market, the heavily-weighted financial sector (+0.7%) outperformed from start to finish, settling the session at the top of the leaderboard.

(briefing.com)

Will this new stronger employment data point help turn the U.S. Dollar higher? We will all be watching very closely…

(Stockcharts.com)

Two thirds of the U.S. Economy is tied to Services so last week’s downturn in the ISM Non-Manufacturing Index is worth watching…

(WSJ/Daily Shot)

The miss of the Services ISM data as well as July auto sales kept the Economic Surprise Indexes in check during the week…

(WSJ/DailyShot)

While GDP may have a current headwind, given the ongoing ISM manufacturing data there should be few worries on the horizon for negative GDP growth…

The chart above is one of my enduring favorites. It shows that the ISM manufacturing index does a pretty good job of tracking the growth rate of the economy. What’s especially nice is that the index comes out with a relatively short lag of just a week or two, whereas we usually have to wait months to get a read on the economy. What it’s saying now is that GDP growth in the current (third) quarter is likely to be in the range of 2-4% annualized. That won’t necessarily mean that the underlying pace of growth is picking up though; it’s more likely that some faster reported growth in the current quarter which will make up for the relatively weak growth of recent quarters. Such is the volatile nature of GDP stats.

(Scott Granis Blogspot)

Can valuations hold to these higher levels if U.S. growth continues to slow?

(Yardeni.com)

To read the full 361 Capital Weekly Research Briefing, please click here

July 31, 2017

I love the earnings reporting season. I want to see the report cards of companies and then I want to see the surprise and reactions from the portfolio managers who own (or don’t own) those companies. In high school and college, I used to love to play poker for coins but nothing can compare to sitting around a global table of investors looking to buy and sell companies based on an earnings release or conference call. And there is nothing scarier than being long a name that knocks the cover off only to have the stock decline meaningfully. (If you don’t know who the sucker is at the table…)

Investors today cry about the lack of volatility in the indexes. They should try and look away from their SPY position and peek under the hood during the reporting season to see where volatility lives and breathes. This reporting season has had its share of ups and downs. Overall, the numbers look good but the reactions remain a varied scatter with the Industrial and Financial areas seeing more weakness while Tech and the Consumer sectors have been better received. Hopefully you are using the volatility to upgrade your portfolio for the next projected move. I have been through over 100 reporting seasons so far in my career and with the help of my Peloton cycle, I hope to be around for another 200+. Now back to the earnings.

According to Bespoke, another decent reporting season is underway…

(@bespoke)

And just as one would expect, companies beating earnings are seeing better price action than those that missed earnings…

Since the reporting season got underway, here is how the sectors have fared…

The most memorable disappointments came early with those big bank reports and then were followed with several industrial misses (like GE and the Transports to point at some). The Utes, REITs and Energy have yet to really get reporting so chalk those moves up to moves in Bonds and Oil prices. Definitely a bulk of winners in the Tech and Consumer spaces.

Here is last week’s list of big movers in the S&P 500…

As you can see, the list is 90% earnings driven. Need some VIX?

For the week, the decline in the U.S. Dollar led to more gains overseas and in gold.

Among sectors, a bit of a reversal during the heaviest week of earnings with Semis and Biotech leading at the bottom…

Nifty Fifty? Not yet…

@Callum_Thomas: 5. It’s far from the dot-com peak, but note how the top 10 companies almost = 20% … h/t @LeutholdGroup

To read the full 361 Capital Weekly Research Briefing, please click here

The German DAX is testing the level of its April breakout to all-time highs.

While its “all eyes on U.S. stocks” today given technology’s trip back behind the woodshed, there are developments going on in other markets that probably merit one’s attention. Bonds and currencies, for example, are undergoing some potentially pivotal moves at the moment. Additionally, there are some interesting things developing in international stocks as well. Not the least of these is the fact that the German DAX Index is presently testing the level of its April breakout to all-time highs around 12,400.

The DAX initially forged a top in the 12,400 range (specifically, 12,391) back in April 2015, following an explosive Europe-wide breakout earlier in the year. That was “all she wrote” as far as those heights were concerned, however, as the German market would spend the full next 2 years trading below those levels. Finally, this past April, the DAX was able to surmount its 2015 peak.

After a bit of follow through higher, the DAX has spent the last 2 months meandering sideways. Today, largely lost amidst the “tech wreck” on Wall Street, the DAX came back to test the level of its April breakout to all-time highs, recording a low of 12,396. If April’s breakout was legitimate and a new durable up-leg is in the cards, we should see the DAX successfully hold this test of the ~12,400 level, or at least in the vicinity.

We always have to allow some leeway for overshooting such key levels, but there is enough potential support in this general area that it should be enough to prop up prices upon this initial test. In addition to the former highs, we see the following support levels in this vicinity:

Early April highs ~12,375

23.6% Fibonacci Retracement of the December-June rally ~12,360

61.8% Fibonacci Retracement of the April-June rally ~12,330

In short, look for the DAX to hold support in this general 12,300-12,400 vicinity. Such a hold would be the first step in launching the next up-leg to the rally that kicked off in December. On the other hand, a failure to hold would not necesarilly put an end to the 6-month rally. However, it would likely open up downside to a test near the 12,000 level prior to trying another rally attempt.

If you want the “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share.

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