May 1, 2019

Monthly cycle momentum is building positively into the end of April. The longer-term cycle backdrop continues to improve with the percentage of stocks rising (positive) and monthly momentum continuing to strengthen heading into month-end, from 11% at the end of December to an April month-end value likely to be just above 50%. This data continues to signal that the rebound that began from the S&P’s secular uptrend at its 200-week moving average in December is still early on in what appears to be a ‘normal’ 4-year cycle.

The S&P is at new highs, but other risk-on barometers are consolidating and correcting. These opportunities have a likelihood of a pause/pullback developing, heading through Q2. While the Technology sector dominated, the S&P 500 and Nasdaq have continued to trend higher as other markets are consolidating. The Russell 2000 peaked in late February while other more cyclical barometers such as the Shanghai Composite corrected 7%, and Oil broke its 2019 uptrend. We view these pullbacks as tactical opportunities rather than the beginning of a longer-term decline. In fact, after a two-month consolidation, a move by the Russell 2000 above the Q1 highs near 1602 would be a positive technical event and likely signal a rotation toward more cyclical groups, notably Financials.

05-01-2019 SPY

 

The nation's economy grew at an annualized rate of 3.2% in the first quarter of 2019, according to the initial, or "advance," estimate of the gross domestic product (GDP) from the Bureau of Economic Analysis. In the fourth quarter, the GDP expanded at an annualized rate of 2.2%. Increases in government spending, private inventory investment, and exports helped drive the growth in the first quarter. On the downside, first-quarter figures showed that residential investment slowed, as did consumer spending and business fixed investment (e.g., machinery used in production, such as computers, software, heavy equipment, etc.) compared to the prior quarter. A couple of points to note from this report are that consumers spent less, particularly on big-ticket items such as motor vehicles, and net exports (i.e., the trade deficit) increased as exports accelerated while purchases of imports slowed.

  • For the week ending April 20th, there were 230,000 claims for unemployment insurance, an increase of 37,000 from the previous week's level, which was revised up by 1,000.
  • According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended April 13.
  • The advance number of those receiving unemployment insurance benefits during the week ending April 13th was 1,655,000, an increase of 1,000 from the prior week's level, which was revised up by 1,000.

This week’s HCM Optimized Trend Indicator (OTI) stock of the week is Humana Inc. (HUM). Yahoo Finance says “Humana Inc., together with its subsidiaries, operates as a health and well-being company in the United States. The company offers medical and supplemental benefit plans to individuals. It also has contract with Centers for Medicare and Medicaid Services to administer the Limited Income Newly Eligible Transition prescription drug plan program; and contracts with various states to provide Medicaid, dual eligible, and long-term support services benefits.” This stock has been on a gradual descent since late 2018 after reaching highs of more than $350/share. As the chart below shows, the OTI placed a sell signal when HUM was trading around $320/share, and with the current trading price of roughly $250/share, we have plenty of reason to believe that OTI users will be pleased with the results. Some other notable signals were the buy in September 2014, the buy in October 2016, and the buy in January 2018. We think the OTI has done an admirable job with HUM, and we are eagerly awaiting the next signal on this stock. Way to go OTI!

05-01-2019_HUM_Web

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