Category Archives: Commentary

Major Topics of Interest

Trump

Trump

The election is finally over. Much to the establishments chagrin Donald Trump is now President Elect of the United States. Personally I and my friends are happy campers but the other half of the country thinks Hitler is manifest in the land.

The problem for us traders/investors is do we get into the market now and stay in or get out and stay out.

The big money backed Hillary Clinton because she was in their pocket. That made her a sure thing for them. If they needed legislation or a presidential push to favor their business interests she would be there for them. Although the democrats bill themselves as the party of the people in the last 25 years they have reversed rolls with the republicans and become the party of big money.

In the meantime the republicans moved from fiscal conservatives to cowards who were willing to do anything to win an election. Because Donald Trump exposed the republicans for the two-faced *%#holes they have been for the last 30 years and the democrats slipped into communism a complete neophyte on the political scene won election to president of the U.S.A.

Although I think Donald Trump is what the country needs to straighten out our fiscal and social problems at this time, I also think he will be very disruptive to our economic markets for the first year or two of his term.

You may have noticed that when the FBI dropped their email investigation last Friday the DJIA jumped more than 300 points. Conversely when it became apparent the Trump was going to become president elect the DJIA futures dropped more than 900 points in the overnight trading on the international markets. That was big money’s reaction to not getting what they wanted and expected. I expected three or four days of trading down but was surprised to see the DJIA only down about 350 at 6:30 the next morning and then ending the day with a 317 point gain. Quite a reversal. I think the reversal was caused by we, the people.

So, should we sit on the sidelines or jump in now. Truthfully I am torn by this decision because the Donald is going to be a big market/economic disrupter.

On the one hand he will be great for the country in the long run, but on the negative side Donald will immediately on entering office dismantle and rebuild the health care system, he will start building a wall between us and Mexico, hopefully institute E Verify to stop employers from hiring illegally immigrants.

On the positive side, he will lift restrictions on the oil industry, cancel billions in funding to climate change boondoggles, renegotiate NAFTA and cancel many of Obama’s executive actions.

These are only a few samples. But every one of these actions would have a huge impact on the market on any given day or week or month. As you read the plus and minus paragraphs, realize that I could switch one into the other and they would still be mostly valid.

As we all know the markets are a forward looking mechanism and these things and more are going to disrupt investors outlook.

For those who feel they must be in the market (what your broker will tell you) I wouldn’t put more than half of your cash in and I would put a stop market order in just under the 18000 area.

The markets have been overpriced for quite some time and we are long overdue for a major correction. This is an excellent opportunity for this to occur.

Yesterday and today (currently up 222) we are experiencing euphoria based on not being inflicted with an even more corrupt government and possible getting a president who could actually straighten some of the problems out.

Dave C

What’s up Here??? Part 2

On 9/2/2016 I make a post about bad economic numbers driving the market higher that day. That big day was caused by the market precipitants relief that this relieved pressure for an interest rate increase by the FED.

On Wednesday,  9/7/2016 the FED concluded a two day policy meeting in which they voted for no interest rate increase, as expected. On Thursday a couple of interest rate hawks who are members of the FED spoke out and opined that the economy had strengthened  and inflation was rising. These are two major factors that determine a raise in interest rates. They said, or inferred, that a rate increase was overdue. Even though they are non-voting members of the FED these prognostications scared the crap out of market precipitants, ie banks, hedge funds and other large money managers. These are the folks that move the markets.

blog-indu-60m-2-9-2016

The chart above shows us a 394.46 point decline in the market (Dow Jones Industrial Average) on Friday, 9/7/2016.

When I looked at the CME FED Watch Tool on Friday the expectation of a rate in September had moved up from 15 percent to 76 percent. These are the expectations and these are the numbers the market trades on.

Personally I don’t think there will be a rate increase before the election in November because of the effect it would have on the election. I would certainly look at such a move as an attempt to manipulate the result of that election.

For those of you who might have been in doubt about the effect of interest rates, or the expectation of a change in interest rates, you can now lay that thought aside.

Dave C

DAN

Dan has had a nice run from $9.80 to $14.89 as of this moment, 9/7/2016. When was the last time a component of your IRA was up 50 percent. A few days ago it broke through resistance at $14.63 but couldn’t hold it. Today it moved sharply higher.

blog-dan-d-9-7-2016

Next resistance is at $16.35, $18.05 and finally $22.13.

Dana Inc manufactures driveline components for everything from light vehicles to heavy duty offroad equipment. If the auto business should start to fall I would put a tight stop on this little puppy.

Please note the cup and handle formation on the daily chart above. The breakout was at $12.63.

blog-dan-w-9-7-2016

Here we have the weekly chart that shows us a hammer as the bottom candlestick on the chart. A hammer is an excellent reversal signal. For those of you trying to learn to read charts these are both great signals. This ability will give you much more confidence in your trades.

Dave C

What’s up here???

08:31
July Trade Balance -$39.5 bln vs -$43.0 bln Briefing.com consensus
08:30
August Average Workweek 34.3 vs 34.5 Briefing.com consensus
08:30
August Unemployment Rate 4.9% vs 4.8% Briefing.com consensus
08:30
August Nonfarm Private Payrolls 126K vs 175K Briefing.com consensus
08:30
August Nonfarm Payrolls 151K vs 180K Briefing.com consensus; Prior revised to 275K from 255K
08:30
August Average Hourly Earnings M/M +0.1% vs +0.2% Briefing.com consensus

Courtesy of Briefing.com

With the exception of the July Trade Balance all these numbers are bad.

Below is a chart of the SPY pre-market movement this morning.

blog spy 5m 9-2-2016

The large (huge) candlestick at seven thirty CDT occurred when the reports came out.

Let’s start with the fact that expected consensus numbers are what the market reaction is keyed to.

Average Workweek came in at 34.3 versus consensus of 34.5.

Unemployment rate was 4.9 versus consensus of 4.8.

Nonfarm Private Payrolls were 126K versus175K.

Nonfarm Payrolls were 151 versus consensus of 180.

Average Hourly Earnings Month over Month were 0.01 versus consensus of 0.02.

All were worse than expected. So why the big rise in the market?

Remember all the chatter from the FED (Federal Reserve) and their various governors in the last month or so about finally pushing through an interest rate hike. This had become the consensus of the market. Things were looking up and a rate hike was long overdue. As most of you know higher interest rates are a drag on a higher market because of the higher cost of borrowing money which raises the cost of doing business.

The report this morning sharply reduced the chances of an interest rate hike in the near future. The change in expectations is the reason the market popped 120 points this morning.

Dave C

 

Fibonacci Retracements ans Extensions

Fibonacci Retracement and Extensions

Fibonacci (Leonardo Bonacci) was an Italian mathematician born in 1170 who died between 1240 and 1250. In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers. In trading 38.2, 61.8. 100, 138.2 and 161.8 are the strongest and most popular numbers of the sequence used.

In my experience they don’t work worth a crap. 50 and 100 are the only numbers that work and they are not part of the Fibonacci sequence. What do work are 50 and 100 percent retracements and extensions.

 

Tutor Perini Oversold

February 6, 2016Commentary

Tutor Perini Oversold

TPC

TPC next reports quarterly earnings on Feb. 24, after the market close. On Jan. 22 they pre-announced that FY15 would be significantly below prior guidance. Prior FY15 GAAP EPS guidance had been $1.90-2.10 and was reduced to$ 0.85 to 0.90.

Tutor Perini management’s reasons for the miss were due to significant project charges at Five Star Electric recorded in the third and fourth quarters and a  previously disclosed adverse court decision in the third quarter of 2015 related to long-standing litigation from a 2011 acquisition.

They went on to say that they see FY16 diluted EPS of $1.90-2.20, versus Capital IQ non-GAAP consensus of $2.40, and revenue of $5.1 billion to $5.6 billion, versus Capital IQ consensus of $5.37 billion.

It’s unfortunate that everything doesn’t go the right way all the time. TPC had some unanticipated problems with the Five Star Electric contract and made a mistake several years ago buying a company with outstanding liabilities. That’s all behind them now.

I saw the sum of all this information as a great buying opportunity and bought TPC on Jan. 22. With nine times average daily volume, I think TPC is now in strong hands and has already moved up more than 25 percent from the low of $10.16. If it will retrace a little bit, I would like to add more around 12 bucks.

FY16 guidance of $1.90 to $2.20 gives us a forward P/E of 6.7 at today’s closing price of 12.78.

TPC should be back to business as usual with a price of $19.50 within six months and $24 to $26 within 18 months.

Since this little debacle on Jan. 22, Tutor Perini has signed $1.232 billion in new business.

Dave  C

 

The buy was made on 1/22/2016 and posted in real time at $10.41. The high to date, 7/19/2016 is $25.98, good enough for me.

tpc daily fib

 

 

This is what allowed me to develop a target on stock that was in new all time low territory.

 

The channel break down that gave me the outside parameters at $19.54 and $14.97 was a four months old channel when it broke through $14.97 on January 7, 2016. The difference between $19.54 and $14.97 is $4.57. That is the amount you can expect the stock to move down before it rebounds.

tpc week fib

 

That makes the target $10.40. The low that day was $10.16, close enough for me.

Now we have the weekly chart of TPC.

Let’s not forget that the fundamentals were in line here also.

blog tpc wk 2016

Centene reports Q2 (Jun) results, revs in-line; raises FY16 guidance  (75.26)

7/26/2016, 6:14:36 AM ET

Reports Q2 (Jun) earnings of $1.29 per share, excluding Health Net acquisition related expenses and amortization of acquired intangible assets, may not be comparable to the Capital IQ Consensus of $1.09; revenues rose 97.9% year/year to $10.9 bln vs the $10.81 bln Capital IQ Consensus.

The second quarter of 2016 includes a $0.19 per diluted share benefit related to the 2015 risk adjustment and reinsurance reconciliations under the Affordable Care Act in connection with our health insurance marketplace business.

Co raises guidance for FY16, sees EPS of $4.20-4.55 (prior $4.00-4.35), may not be comparable to the $4.21 Capital IQ Consensus Estimate; sees FY16 revs of $39.4-40.0 bln (prior $39.0-39.8 bln), may not be comparable to the $39.72 bln Capital IQ Consensus Estimate.

Adjusted diluted EPS excludes Health Net acquisition related expenses of $1.00 to $1.05 per diluted share and amortization of acquired intangible assets of $0.50 to $0.55 per diluted share.

Operating cash flow of $(420) million for the second quarter of 2016, reflecting an increase in premium and related receivables of approximately $600 million due to the timing of June capitation payments from several states.

Courtesy of Briefing.com

The highlighted phrase above is a death knell for an earnings report.

CNC beat on their EPS, beat on their revenue and had growth of 97.9 percent. They also raised their guidance for FY16 to $4.20 to $4.55, a raise of 20 cents.

To make matters worse their revenue growth prior to this earnings report average 35 percent this year and about 50 percent last year. With revenue growth at 35 percent and forward earnings of $4.20 that values CNC at (35 x $4.20) $147.00.

blog cnc 5m 7-26-2016

 

 

CNC is in the health care sector where I currently own two stocks that I bought at P/E’s of 2.7 and 3. I do not want to own another health care stock.

I am willing to day trade it. This would be a price action trade with a strong value component.

blog cnc 1m 7-26-2016

With stock moving this quickly I use market orders to enter. The reason is that I have determined (rightly or wrongly) that now is the time to get in. My stop price is just under the low of the day at $63.39.

The circled green candle is where I entered at $64.09. I entered at 8:57 and exited at 9:18 at $68.98 with a profit of $4.89. The five minute chart above gave me the target. The Fibonacci retracement from yesterday’s close to this morning’s lows were the parameters of the Fibonacci measurement.

I could keep adding to this list of Fibonacci measurements on a daily basis. These are very common moves all across the land of trading. When I research a trade I always do several Fibonacci studies on the daily and weekly charts. These are especially useful when they coincide with existing support and resistance levels.

Needless to say this was a day trade and I used the 5 minute chart to generate a exit target. Take note that  I sold 37 cents short of the target. That’s because the closer you get to the target the more selling pressure there is. CNC topped out at $69.24  and dropped to $67.60 in five minutes. I learned long ago not to be a pig and to take my money and run when targets are hit.

Next time we talk about Fibonacci I will go into more detail on where the parameters are and what other options are available with Fibonacci.

Dave C.