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Two Retail stocks for next months: KR and ROST



The Kroger Co. KR, $23.92.



This stock is especially important in these days of Trade War escalation, using it as a hedge, due Kroger operates retail food and drug stores manufacturing its own products, so, unlike other retail stores, have little exposition to ChinaLast week, I emphasize that retailers could fuel a next market bullish rally, due great July Retail Sales report.

Kroger is near 20% down this year, however, the company reports decent Q1 earnings, showing that its CEO Mac Mullen probably finds a way to reverse after an ugly 2018 (-26%) a bad year for all the retail sector. An early August' upgrade from Pivotal Research fuels the stock from the $21 level, "a cheap price enough for a buy" as they said. And also last week 
announces a test concept with Walgreens WBA, expanding its Express store-within-a-store pilot in Tennessee. Seems interesting.

Technically, the stock is finally breaking the resistance line of its downtrend channel that began in March. Yesterday its price rises near 3% and closing above the Ichimoku cloud but still is below the key SMA200 average, and needs to confirm the breakout this week. At $24.40 level is where I place last week my buy-alert, with a target price of $27.50.


Daily chart of Kroger KR, showing how breaks today its quarterly bearish channel. Needs to confirm this upper move this week, before its Q3 earnings report on September 11th.






Ross Stores Inc. ROST, $104.57


Last week, this popular discount retailer reports its Q2 earnings and show acceptable numbers but Wall Street didn't digest them well (closes -4%, but in a market sell-off day) with this stock as do recently with other retail stores earnings reports. Both EPS and sales, again beat consensus, its operating margin was better than expected, but lowers its full-year guidance (Ross usually did that with guidances!), due to new China' 10% tariffs, which is its main issue in the short-term if Trade War escalates more.  

Despite this, analysts maintain many hold or buy ratings (Wells Fargo, Citigroup, MKM Partners, Morgan Stanley, Jeffries, Bank of America) and other also raised them, as Deutsche Bank and Guggenheim. No one downgrade, no one lowers rating: good signal for a post-earnings trade, due Ross is doing very well, and taking advantage of the pullback this week


Technically, all 2019 its price is moving in an uptrend channel (+29% YTD)  above its SMA200 average and Ichimoku cloud. Since July is ranging between $102-108 and today is  testing its SMA50 average. The bias is bullish, so, I set my buy-alert this week at $104.60 its monthly-pivot, close to its all-time high at $108.20.


Ross Stores ROST daily chart showing its year bullish channel. Analysts believe the stock can continue its bullish bias during the rest of the year.

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Markets: quick review of the last, choppy, week


Market Pulse.

U.S. equities were on track to finish higher for the week until China unveiled a new round of retaliatory tariffs and President Trump vowed to respond, unnerving markets.  In this new episode of escalating trade tensions, China announced that it would impose tariffs ranging from 5% to 10% on $75 billion of U.S.goods in two batches, effective on September 1st and December 15th, including a 25% tariff on U.S. cars. 
The S&P500 (SPX) finished Friday down  2.59%, concluding the volatile week down 1.4%.  The index is now down 4.5% for the month of August and 6.0% lower from the record high it reached in July.  The Dow Jones Industrial Average fell 2.4% on the day and finished down 1.0% for the week.   
At the annual central bank summit in Jackson Hole, Fed Chairman Powell left the door open for another rate cut when the committee meets next month, acknowledging the risks to global growth from trade uncertainty.  
An inverted yield curve (when long-term rates are below short-term) continues to cast a shadow on stocks amid fears that it’s signaling an imminent recession.  
Long-term rates have dropped below short-term rates in small part because the outlook for growth has waned, but also in large part because negative rates abroad have attracted buyers of U.S. Treasuries pushing yields lower than they otherwise would be.


Trying to find new supports for the SP500, the rounded 2,820 seems important as during all August its price is bouncing in that level. If the plunge continues this week, the SMA200 average is powerful support for this week. Only Trade War' good news could convert SPY in a good "buy-the-dip" trade.




Futures Markets for today.

After a whippy week, U.S. equity futures are picking up where they left off last week, amid growing concerns over the U.S.-China trade war.  S&P 500 futures (/ES) initially opened 1.0% lower last evening after President Trump stated at the G-7 summit in France that American companies were ‘hereby ordered’ to look for alternatives to China and that he could declare the escalating U.S.-China trade war as a national emergency.  Futures turned positive after Mr. Trump said China had called U.S. trade officials and asked to get back at the table for talks.  
Economic data out this week includes the durable goods report for July, the Consumer Confidence survey for August, and the Bureau of Economic Analysis is expected to revise down its initial estimate of second-quarter U.S. GDP growth to 1.9%, on Thursday.  
Finally, personal income and outlays data, along with Chicago PMI is due out on Friday. There are just a few earnings left for the second-quarter with Best Buy (BBY), Dollar General (DG), Dollar Tree (DLTR), Burlington Stores (BURL), Ulta Beauty (ULTA) and Campbell's Soup (CPB) all reporting this week.   As of this writing, U.S. crude oil futures (/CL) are 0.3% higher near $54.80 a barrel and S&P 500 futures (/ES) are 0.7% higher near 2875.

(Text is taken from TradeWise Market Blog.)

Main world economic events for this week August 26 to 30th. Keep an eye in U.S. Gross Domestic Product (Thursday) and the PCE Index (Friday), the favorite inflation indicator for the Fed. Thanks to @econoday.

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Trade War escalation today: some notes


The most awaited news on Wall Street today, the Powell's speech in Jackson Hole, was almost forgotten by investors and traders, due he didn't tell nothing new, but most because today the Trade War reached its peak of intensity. A round trip of attacks via tweets that ended with both countries, U.S and China, raising their tariffs, and with Trump ordering companies in his country not to have commercial relations with China and start looking for other countries (as if it were easy to find a similar market!). Wall Street plunges with all this news in a strong sell-off: the SP500 SPX closes -2.59% at 2,847.11

Some notes: 


- Whoever says that the world is not headed for a global recession, lies. It is unavoidable.
- It is no longer interesting to look at the inverted yield curve in the US on a daily basis, hoping to read that the risk of recession decreases: the Trade War is getting worse and has no solution in the short term. 
- The economy deceleration is global and many world central banks are already taking action, some strongly (Japan, Eurozone), others lukewarm (the US with the Fed).
- But, finally, the Fed can do little by lowering rates or steeping the curve if the war deepens even more. 
- Those who must decide this conflict seem misplaced. On the one hand, Trump, altered and impulsive, believes that with his tweets he can intimidate the Chinese, and they have already shown that they know how to counterattack. And Powell does not seem to have the necessary skills for the job, besides he does not know how to handle the many discrepancies between the Fed Presidents that make the Fed look very disoriented and especially slow. 


Powell again defrauds investors without any important decision during Jackson Hole speech. Same words, less action, nothing new.




More ideas:


- The Yuan will be the protagonist in the coming weeks. The Chinese government handles it, and at any time it can be lowered again. Today is already above 7 in its ratio with the dollar. Trump wants to do the same with the dollar but the Fed does not leave it. 
- China is the holder of the largest amount of US treasury bonds. If Trade War sharpens, they can think of starting to sell them massively in the secondary market, increasing their offer and lowering their price, or what is the same, increase their yield, which would be a nuclear explosion for the already giant U.S. public debt. But, also for the Chinese make this play also involves many financial dangers. 
- The Fed can weaken the dollar without rate-cuts, through some quantitative-easing QE: create dollars, buy bonds, accelerate the economy, and be very cautious with the inflation evolution. The formula was applied successfully after the housing crisis of 2008.
- Trump and his Trade War will have consequences on U.S. internal growth. Is illogical pretend to have strong growth, the stock market in all-time highs and a reducing fiscal deficit during a Trade War. Previous experiences suggest that the only reliable way to reduce the trade deficit is to push the economy into a recession. 
- So, if nobody favors, why both countries continue with this awkward trade war?


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Keep an eye on Retail Sector


Seems incredible, due to its past performance struggling an entire year, but now the retail sector could fuel the next bullish rally on Wall Street if it happens. You know, essentially, retail sales cover the durables and nondurables portions of consumer spending. And consumer spending typically accounts for about two-thirds of GDP and is, therefore, a key element in economic growth. And Wall Street stocks love strong economic growth, best if it comes without excessive inflation as the current environment.

Now, some of its main and iconical stores had great earnings this season, beginning last week with Walmart WMT, and continuing this week with Home Depot HD, Target TGT, and Lowe LOW. The ETF that follows this sector (XRT) hit historical lows past week, but after those company results, and also a nice Retail Sales July report, a buy-the-dip trade here isn't a bad idea now

Check below the highlights: all major readings easily surpass the consensus.  More: the non-stores sub-sector monthly sales jumped 2.8 percent following gains of 1.9 and 2.3 percent in the two prior months. This component is dominated by e-commerce which is making increasingly greater gains at the expense of brick-and-mortar stores. Department stores have been one of the victims (remember Sears last year) but not in July with a 1.2 percent sales jump. 

Is a turn next in the retail sector? It's likely. And if Trump is considering tax cuts in payrolls or capital gains, and then approves them, due to its reelection, the sector XRT could explode.
Probably the best Retail Sales report of the year. Could a turn is next in this sector?





Technically, the price was at a low at $37.46 last week, below the up trendline that acts as a year-support. With all the year ranging (its ADX is below 20) between $40 and $46, now finally the retail sector show some positive feelings that could raise its price, first above its uptrendline support at $40.30, and then above its moving averages (specially the SMA200 at $44) that would be decisive to reaffirm a bullish bias in this ETF. Now its price is recovering due to reports and earnings mentioned above. The bullish signal would be given by the cross in the MACD line. So, after Jackson Hole decisions, an entry long in the short-term in this sector could be a profitable trade.

Charts helps, but I always check first the fundamentals and news before a trade, and this week the FOMC and Jackson Hole are decisive before making any trade. Management risk is the key.

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Today Retail Earnings take pressure off the Fed


When Jackson Hole was becoming an obsession for Wall Street, this week’s retail earnings come to calm the waters and tell the market that the U.S. economy probably isn't cooling as hard and fast as it is believed. It's well known that the Trade War without solution, the inverted yield curve, the fall in the yield of bonds globally (see graph) and, the threat of recession are factors that should scare any economy and regardless, the US consumer sector, key in every economy, seems to flow well. 

Yesterday Home Depot HD was up 4% after good Q2 results reaffirming its guidance for this year. And today, at premarket, Target TGT exploits more than 18% after beat EPS and sales with a wide margin, with raises forecast and reaching all-time highs.The same happen today with Lowe LOW (+ 12%) another great retail chain, beats EPS and sales and affirms guidance. 

The next data of Housing this week can reaffirm this perception of the US economy. Finally the Fed now has less pressure (except Trump's tweets) to lower rates and this can be seen today that the FOMC Minutes begin and Friday with Powell in Jackson Hole.



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JPMorgan: stocks could outperformance into month-end


JPMorgan's Marko Kolanovic said investors are questioning how much of recent equity moves can be attributed to increased recession risk vs. technical flows in this environment of poor liquidity.

JPM's analysts have reasoned that more than half of the recent move in interest rates and inversion of the yield curve was caused by technical drivers (convexity hedging of mortgages, bank portfolios, and variable annuities in poor liquidity conditions) and less than half of the move can be explained by fundamentals such as the growth, inflation, and monetary policy outlook. "This is an important data point for equity investors, as moves in rates (e.g. yield curve inversion) significantly impact investment sentiment," 

Marko wrote, "by looking at various systematic flows in equity markets, we find similar results – i.e. that more than half of equity moves were driven by systematic rather than fundamental trading."Looking at systematic equity flows during (and as a result of) the Wednesday 14th August sell-off, JPMorgan estimates that around USD 75bln of programmatic selling, with around 50% of it coming from index option delta and gamma hedging, around 20% from trend-following strategies, around 15% from volatility targeting strategies, and the remaining 15% from other products (e.g. levered/inverse ETFs, etc.). "While these outflows would have represented about 25% of futures daily volume, in an environment of low liquidity they can be a dominant driver of price action," Marko says, noting that in particular, during August, market depth of S&P 500 futures dropped to near all-time lows. "Within one index point on the S&P 500 (from mid-market), on average there were just around 900 e-mini futures contracts bid/offered – i.e. an approximately USD 130mln sell order could have moved the market by ~1 index point. We estimate that S&P 500 index option hedging flows were likely the single most important driver of price action during both the selloffs and rallies last week.





"What is the current investor positioning, and what type of flows can we expect going forward? "Hedge fund equity beta is currently near all-time lows, in its quarter-percentile. Trend following strategies and volatility targeting strategies also have low exposure, both in their respective 27th percentiles. All else being equal, such low positioning is positive for equity performance going forward," Marko says, adding that "low positioning also reflects negative market sentiment, with the past two readings of the AAII Bull-Bear spread at -22% and -27%, not far from the lows seen in Dec’18 (-28%) and Feb’16 (-29%) that both marked market bottoms."Marko says that equity flows will, to a large extent, be driven by developments around trade, and hence the market will likely continue to be dominated by market disruptive tweets and announcements related to the trade war, which are difficult to foresee. 

On the positive side, Marko says JPM is expecting some stabilization in market volatility as dealers’ gamma positioning is now close to neutral (from a sizable short position last week), and this may reduce volatility and marginally improve liquidity."JPMorgan also expects some marginal stabilization, and perhaps a reversal of volatility targeting outflows. "Given the large outperformance of bonds over equities this month, equity inflows are likely to occur next week," noting that it had recently discussed fixed-weight trigger rebalances may have cushioned the market selloff even before calendar month-end (given the large divergence between stock and bond prices), but typically portfolio rebalances happen at month- or quarter-end, "Marko says that even after the stock market recovered some of the losses from last week, we could still see equity inflows and outperformance into month-end. "Bonds delivered their strongest performance in over seven years and are up around 5% MTD, and equities are down around 2% MTD," adding that as things stand, "this performance divergence leaves fixed-weight portfolios around 2% underweight equities, and suggests they are likely to do a sizeable rotation out of bonds and into equities into month-end."JPM's model suggests that these flows could drive a further 1.5% to 2% of outperformance for equities next week - this figure could change, the bank notes based on this week’s performance of stocks and bonds.

(Taken from JPMorgan strategist, Marko Kolanovic conference call, today )



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Trump pressures the Fed again



Given that a definitive trade agreement with China, and the end of the Trade War, is more complicated than ever (moreover, I see it impossible to realize this year), Trump heads his weapons to 'the real enemy at home', as said with those words: the Fed. 

Today, as he is now a reliable economist (its mention of "the crazy inverted yield curve" was really hilarious), "suggested" urgent decisions: a rate cut of 100 bps (!!)  and also a Quantitative easing. He does not ask little. I agree with him that their economy is the best in the world, but that fact must be endorsed with good economic policies, which I believe the Fed has been doing until today, without taking care the usual aggressive tweets from the President.






Is sure Powell knows he needs to steepen the yield curve and would lower rates next month (the 10-year T-Bond yield TNX is at historic lows, near 1.6%), but also he is evaluating the entire economic environment. The U.S. consumer sentiment of the economy is doing fine, as shown last Walmart WMT earnings (taking usually as a benchmark of U.S. consumer spending) and also the good Retail Sales numbers for July. In the other side, the industrial production isn't doing so well, as it last report shows. And now is a trending in the global economy (Japan and Eurozone mainly) the negative interest rates for the bonds, a crazy situation in which we are paying a bank for saving our money. 

Complicated panorama. So a good idea would be to check the Housing data this week (Existing Home Sales on Wednesday) and New Home Sales on Friday. This could clarify if the recession is really here or just in the yield curve inversion chart.



World economic calendar for this week, taken from econoday.com. 
FOMC Minutes and Housing reports would drive the markets.



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The big question: what will happen to the SP500 in the following weeks?



With the SP500 correcting today very strong (SPX +1.28% now) for the second consecutive session since its sell-off last Wednesday, the big question on Wall Street is if this rebound is reliable, that is, if finally, its pullback finished, reaching a short-term low at 2,825. Can you take advantage of the occasion buy-the-dip trades right now? 

JPMorgan JPM publishes it clearly today: don't buy the dip until September. Personally, as trader, I think it's the healthiest and cautious decision. World central banks reducing its interest rates (near in 30 countries this year), an inverted yield curve in the benchmark US T-Bond 2/10 spread (a clear signal of the beginning of a recession sharpen by the Trade War), are so strong economic signs to set aside. 

Some private indicators, as the Fear & Greed Index from CNN Business show its number in 26. As it is a contrarian indicator, the buy signal is activated only in values below 20, but take note that it's ascending from its last week value in 23 (extreme fear) and 44 (fear) since one month. Panic is not yet in the markets.


One of the most popular free market indicators is the Fear & Greed from CNN Money,  well followed by smart investors. 




Same behavior shows the Hulbert Stock Newsletter Sentiment Index from the recognized investor Mark Hulbert: below zero show market in capitulation and an ideal place to make a buy-the-dip trade. Also check that the market rebound in June, matches with this indicator in that month: today we are at the same level. Hulbert told, about the actual stock market situation: Undoubtedly, the market could recover before such low readings are recorded. But if it does, that rally will be built on a relatively weak feeling base.  Agree.


The HSNSI index is approaching the zero level, usually a buy signal, as it works as a contrary indicator.


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SP500 technical levels to follow in the short-term


A quick analysis to the daily chart of the SP500 (not shown) reveals its two main levels to check for the next sessions: as support, the key SMA200 average at near 2,800, also a psychological level. And as resistance, the 61.8% of its Fibonacci (at 2949.25) of its last pullback from August, as this level is probably the most important and followed retracement view by traders and investors. So, in the recent volatile behavior, it could reach some of these levels soon.

Now SPX is touching the 50% retracement, and overbought, with Stochastic above 90. But informed traders know that the Stochastic could stay many days, or weeks, above the level 80 due as the greed that involved traders in that point. Not the same happens in low levels, below 30, where fear is the main sentiment with peaks as its main pattern if panic comes. The 1-hour chart above shows it more clear.


Fibonacci retracements are important to draw after a complete pullback because Wall Street use them heavily, been 61.8% its favorite support. Check how difficult is for the SPX to overcome it.



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