September 4, 2019

HCM-BuyLine Alpha 09042019

 

The markets are in a very defined trading range between 2840 and 2950. Furthermore, the market is above the HCM BuyLine® and continues to trade in a back and forth pattern. With the S&P back to resistance at the upper end of its August trading range near 2940-2950 and its 50-day moving average, yet another pullback appears likely leaving the S&P bound within this trading range. Initial trading support is at the 15-day moving average (2893), followed by the low end of the August range near 2822. We expect some new chop into Q3 followed by an upside acceleration into Q4.

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China just blinked, not once but twice, stating last week that they would not retaliate at this time after tariffs were placed on additional Chinese goods. The U.S. officials have yet to agree on a date for a visit to Washington this month, and the two countries still have not decided on basic terms of re-engagement, but it appears talks are taking place for a September meeting. China, the largest U.S. trading partner last year, has fallen behind both Mexico and Canada in 2019 amid the increasing tariffs and heightened uncertainty about when -- or if -- the trade war will be resolved.

Hong Kong leader Carrie Lam said today that she will withdraw a contentious extradition bill that has sparked months of mass protest. This withdrawal will be seen as a positive move because escalated protests have been a potential disruptor to the global economy. Some people have also feared this could hinder U.S. and China trade talks.

Gross Domestic Product (GDP) growth was revised in Q2. It was down slightly to a 2.0% annualized rate from 2.1% originally, in line with the consensus. This is notably weaker than the 3.1% growth rate in Q1, confirming that economic activity has lost momentum. On a y/y basis, real GDP was up 2.3%, matching our projection for the full year. We recognize a downside risk to our projection from escalating trade tensions and slower global growth.

  • The ISM Manufacturing Index dropped 2.1 points in August, its fifth decline in a row, to 49.1. This is the lowest level since January 2016, and its first reading below 50 since August 2016.
  • The consensus was for a modest 0.2-point pullback to 51.0.
  • While this confirms that manufacturing has slipped into contraction territory, the broader economy is holding up.
  • Our key recessionary level for this indicator is 48.0 in our Recession Watch Report.
  • The ISM estimates that its latest index reading corresponds to 1.8% real GDP growth annually.
  • We estimate a slower 1.4% growth rate, based on data from the current expansion only.

This week’s HCM Optimized Trend Indicator (OTI) stock of the week is Tyson Foods, Inc. (TSN). Yahoo Finance says “Tyson Foods, Inc., together with its subsidiaries, operates as a food company worldwide. It operates through four segments: Beef, Pork, Chicken, and Prepared Foods. The company processes live fed cattle and live market hogs; fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, as well as case ready beef and pork, and fully-cooked meats; and raises and processes chickens into fresh, frozen, and value-added chicken products.” This stock is down roughly 7% today after a disappointing earnings call, but don’t look past the fact that the OTI made three fantastic recommendations in approximately the past two years. The buy, sell, and subsequent buy from 8/2017 to today speak for themselves and the importance of having a non-emotional process of getting in and out of a position. There were several other good recommendations on this stock as well, but we will let you investigate for yourself below. Way to go OTI!

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