Market Ignores Boeing Bust

Market Breadth

Yesterday was the best session in a couple of weeks, although there is still a high number of 52-week lows on the NASDAQ.

NYSE

• 2,156 advancers
• 815 decliners
• 238 new highs
• 32 new lows
• 2.51 billion up volume
• 961 million down volume

NASDAQ

• 2,218 advancers
• 905 decliners
• 141 new highs
• 90 new lows
• 1.5 billion up volume
• 483 million down volume

On the same day, Boeing (BA) had a kitchen-sink quarter, where the stock initially fended off a horrendous earnings report, only to get crushed when the CEO laid out the worst-case scenario that included potentially halting production of the 737 Max, the broad market got stronger into the close.

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The Russell 2000 Index was the performer yesterday. I’ve been spying this index, which includes a lot of household names that have recently sold-off. The index breaks out above 1,615, and investors should have exposure.Russell 200

Investor Sentiment

Individual investor sentiment has been guarded all year, and even the recent rally in bullishness leaves it only fractionally above the first reading of 2019. Conversely, bearishness has declined from 42.8% to 28.6%, which is below the historic average.  But there is no irrational exuberance, as the number of investors, who are saying they are “neutral” on the market, has climbed to 35.4% from 24.2%.

Master of the Universe Slipping Through Black Hole

I guess it is fair to say individual investors are indifferent; and yet, they are more optimistic about the market than professional investors. Now, a lot of people must play catch up, especially the money managers that can’t keep saying they missed the rally out of an abundance of caution and fear. Hedge funds have really struggled and are paying the price.

In June, 57% of hedge funds reported net redemptions, marking the fifth consecutive month of redemptions. Long/Short funds saw $5.71 billion in net redemptions in June, bringing the 2019 redemption to $23.1 billion. Nonetheless, Long/Short is still the largest segment of the industry with $761 billion under management.

Facebook

After the close, Facebook (FB) wowed, but once again, the specter of government investigations held the shares back.

•             Average revenue per user: $7.05, estimate $6.87

•             Daily Active User (DAU): 1.59 million, estimate 1.58 million

•             Monthly Active User (MAU): 1.24 million, estimate 1.24 million 

When the company mentioned the Federal Trade Commission (FTC) has opened a formal antitrust investigation, the initial +$12 per share pop was almost wiped out.

Portfolio

We are close to fully vested in the model portfolio but have lots of highly profitable positions that we are reassessing.

Today’s Session

ECB: More Stimulus on the way

Draghi: "We expect interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to our aim over the medium term"

Draghi: "The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim"

Draghi: "A significant degree of monetary stimulus continues to be necessary for financial conditions to remain very favourable and support the euro area expansion, the ongoing build-up of domestic price pressures and headline inflation developments over the medium term"

Draghi: "Outlook is getting worse and worse in manufacturing"

Draghi: "The lingering of the uncertainty is by it self a materialisation of one of the risks"

US Economy: Durable goods

•             Headline 2.0% estimate 0.5%

•             Ex-transportation 1.2 estimate 0.2%

•             Business investment 1.9 estimate 0.2%

Mixed earnings results will anchor the market at the start of trading.