• China and QE

    Last week was all about the Fed's promise of an early QE and Options expirations.
    On Friday, the market pulled back on the news that the Chinese delegation was cancelling the coming visit, but this doesn't change the general picture: a deal with China will be signed and in any case, the Fed will restart liquidity injections sooner than anyone expects.



    Both sections of the S&P500 fell on Friday, but large caps were weaker than the rest of the market.



    Even though the NQ8 sector was rather negative, Its money flow is still way above negative territory.
    I feel that this selling was more carried over due to options expiration.



    The Cumulative Tick itself is still well above its average line, which is market bullish.



    Treasuries were bought on Friday, but the general TEV pattern did not change to bullish... yet.





    On the commodities front, we can see that copper, which had been displaying a good accumulation, suddenly fell under intense selling pressure due to the China related news.



    Both oil and Nat gas look rather weak here and hence I would not be long energy stocks.





    Conclusions:

    I believe that Friday's pullback will not prevent the market from testing its recent highs.
    Liquidity is available, even though the repo market looks somehow fragile.
    The Fed has shown that it is in control.

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    As a side story, I will write a few lines about my current positions:



    Long BMY

    BMY is a large drug company that purchased CELG. Because this deal entered some issues related to the disinvestment of some CELG activity, both stocks looked weak last month, but when CELG announced that it had sold one of its activities, both stocks moved higher and I re-entered the BMY position that I had sold a few days earlier. BMY with its acquisition is one of the market leader. Its P/E is around 11.

    We can see below that the stock is being accumulated.



    Its supply pattern is very stable below 10% (My research has shown that stocks that have a Supply level below 10% are prone to move higher simply because existing shareholders are unwilling to sell.) This Supply pattern is typical of a very large company that offers dividends and moves slowly higher.



    1/2 Long BEAT

    BEAT is a telemetry (health care) company that offers good sales growth and an attractive P/E. The problem of that company is that it lost 50% of its valuation since February. This means that even though the EV pattern looks positive, there is a high supply of shares. I target to sell at around $46, before we reach the strong supply.





    1/2 Long DXC

    DXC is a rather large (130,000 employees) information technology services. The company has lost 70% of its market value in the past Year, but it is profitable with a low P/E and replaced its CEO.

    I bought on a combination of a positive EV pattern and a very low supply.



    We can see below that there are two blocks of investors: those who bought after the drop down to $30 and those who bought much higher and are locked-in. My idea is to sell at around $37, just ahead of the big supply of shares, but if we fall below $31.3, then the most recent investors could decide to cut their losses.



    Short DBI

    DBI is a Shoes manufacturer/retailer. The stock is in a downtrend, but bounced back to resistance while under a negative EV pattern.



    I have a stop above the Upper Boundary of the current downtrend. If this level breaks, then the trend could reverse to an uptrend. However, since the EV pattern is rather negative, I believe that the price has more chances to fall from here. The more it will fall, the more shares will be made available by the most recent buyers who will need to cut losses.

    Comments 1 Comment
    1. stharp's Avatar
      In this twisted world of scattered news, the TD Ameritrade news provided this hint on trade talk cancellation: I have paraphrased, during talks, some the Chinese will not be going to visit a hog farm! Coming from an errant tweet from a Montana farm organization, not the US trade panel. And the market scatters like frightened pigeons.

      Two negotiating sessions over the two days between the U.S. and Chinese delegations covered agricultural issues and the strengthening of China's intellectual protections and forced transfer of U.S. technology to Chinese firms, Reuters reported (https://www.reuters.com/article/us-u...-idUSKBN1W40E1). Some of the Chinese delegation were to visit US farming regions over the weekend but the Montana Farm bureau tweeted that the visit was cancelled (https://af.reuters.com/article/commo.../idAFL2N26B12B).

      (https://twitter.com/FirstSquawk/stat...96007329079298)

      The cancellation came as U.S.-Chinese trade talks were held in Washington and U.S. President Donald Trump said he wanted a complete trade deal with the Asian nation (http://www.marketwatch.com/story/tru...ade-2019-09-20), not just an agreement for China to buy more U.S. agricultural goods.