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$SPY: Fed induced rally hiccupsThe 6 week rally from the low on Mar 23 appears to be digesting the gains or struggling for direction, as you see fit. $SPY ended lower for the week, down -2.65% on Friday on a very low volume day as most of the exchanges worldwide were closed for Labor day holiday. The critical 61.8% retrace and gap resistance is acting as a wall at present. The US markets started May poorly, especially the small caps (IWM), which was trounced for -3.97%. FED induced rally appears to be running out of steam. $SPY has lost the 20 EMA. Price and momentum are diverging. Cycles are pointing to a low around 3rd week of May. Story stocks like $AMZM, $ZM, $TDOC, strong sectors like semiconductors (SMH) -4.71% are likely trading heavy due to anticipated 2nd round of tarriff war with China. These geo political tensions, alongwith economic devatation from Covid-19, does not bode well for the markets for the near future. Technically the markets are showing weakness, though a supportive tweet or further FED stimulus can again rip the markets higher.
AMEX:SPYShort
by insyyte
When Trump Made America Great Again - SPXSP:SPX TVC:SHCOMP AMEX:VEU TVC:SX5E AMEX:VEU 1, Vertical lines: Thin Orange is Trump wins election. Thick Orange is start of Trump presidency 2. Chart Lines: White is USA stock market, S&P500 Blue is the European “Dow Jones”, Euro Stoxx 50 Orange is the market cap weighted index of the entire planet’s stock markets (the 44 countries with capital markets), except the S&P 500. “All World minus USA” ETF. Red is China stock market. Summary: Between January 29th and May 24th, 2018, The U.S. went from lagging the World’s stock market to clearly leading the Earth’s stock. I propose this is a direct result of the announcement and implementation of Tariffs. 1st with $50B of tariffs on China on March 22nd, 2018. - I had initially thought this was due to Brexit (Britain exiting the European Union), However, the Brexit vote happened in June 2017, and actually seems to have boosted their markets. - For symmetry, and to compare apples 2 apples, this chart is in log percentage format.
AMEX:SPYLong
by jgeno
Acuity Brands: Business Uncertainties from Tariffs and WagesAcuity Brands: The Business Uncertainties from Tariff and Wage Inflation I last mentioned Acuity Brands (AYI), a lighting and building management solutions company with $3.7B in net sales in 2018, three months ago. At that time, I described a good risk/reward setup to go long the stock post-earnings. AYI shot nearly straight up from there. The stock broke through resistance at its 200-day moving average (DMA) and gained as much as 34.7% before peaking intraday in September. While I only participated in a portion of that run-up, I am glad I did not overstay my welcome. Fast forward to last week: AYI suffered a massive post-earnings gap down. The stock lost 16.3% and sliced right through 200DMA support after the 50DMA gap down. Sellers closed the week confirming the bearish breakdown. AYI has now almost erased its entire incremental gain from July earnings. {Chart: Acuity Brands (AYI) looks set to reverse all its previous post-earnings gains after a disastrous earnings report that sent the stock crashing through its 50 and 200DMAs} This moment is critical for the stock. AYI hit an all-time high in August, 2016 and sold off pretty steadily from there (on a monthly basis) until reaching a 4-year low in May, 2018. If AYI completes a full reversal of its gains from July earnings, then the stock greatly increases its risk of resuming the downtrend from the all-time high. AYI’s earnings report was interesting for a lot more than the technical disaster. The company also delivered some telling remarks about today’s inflationary environment. The company begain its conference call by launching right into the bad news. From the Seeking Alpha transcript: “While our results for the fourth quarter and the full year were records, we had higher expectations coming into 2018. Market conditions for growth were far more subdued than most had originally anticipated, especially for larger commercial projects and deflationary pricing persisted throughout the year, while cost pressures were far more significant than most had forecast, particularly in the fourth quarter.” The general market environment hindered the business: “Based on the information from various data collection and forecasting organizations, we believe the overall growth rate for the fourth quarter as measured in dollars for lighting in North America was flat to slightly down, continuing the sluggish trend over the last several quarters… We believe the lighting industry will continue to lag the overall growth rate of the construction market, primarily due to continued product substitution to lower priced alternatives for certain products sold through certain channels.” For the fourth quarter and full-year, the company sported record revenues and diluted earnings but significantly lower operating profit and margin. The cost pressures came from multiple inflationary fronts including tariffs and wages. Emphasis mine… “Another significant factor impacting our adjusted gross profit and margin was higher input cost for certain items, including electronic and certain oil-based components, freight and certain commodity-related items, particularly for steel. Many of these items experienced dramatic increases in price in the fourth quarter due to several economic factors including enacted tariffs and wage inflation due to the tight labor markets. We estimate the inflationary impact of these items reduced our adjusted gross profit in the quarter by more than $20 million, lowering our adjusted gross profit margin by 200 basis points and reduced adjusted earnings per share this quarter by $0.38… …we expect employee-related costs will continue to rise as we enter fiscal 2019 as markets for certain skills remain tight contributing to a rise in wage inflation…” AYI also explained that it sources from China about 15% of its components and finished goods which are subject to the new import tariffs. Freight costs are an increasing burden. The combination of rising oil prices and the rising wages that come from a severe shortage of truck drivers are driving freight rates skyward. Shipping a lower-value product mix is exacerbating the shipping burdens. As we would expect, AYI is scrambling to mitigate these costs by finding alternative suppliers and production sources, improving productivity, and increasing prices. The company announced price hikes last month and new price increases go into effect on October 15th. Assuming the new 25% bump in tariffs on Chinese imports goes into effect on January 1, 2019, AYI will raise prices yet again. IF AYI makes these price hikes stick without losing much demand, then the stock could represent a great buying opportunity. Better margin numbers should start appearing by the second fiscal quarter 2019. AYI cautioned that a lot uncertainty surrounds the potential impact of the cost pressures. For example, the inflationary pressures from tariffs caught the general industry by surprise as participants have experienced a deflationary environment for a “handful of years.” The demand impacts are hard to assess: “It is not possible for us to precisely determine what the potential impact tariffs will have on demand as it is a very complex situation impacted by numerous factors including currency fluctuations and political outcomes.” As the inflationary adjustments unfold, I will watch the technicals for signs of renewed buying interest. The company itself is one source of buying. AYI repurchased 2M shares at a cost of $298.4M in its fiscal year 2018. AYI still has 5.2M shares left under its repurchase authorization. I have to assume the company will aggressively buy shares in the coming months given the current stock price of $130.99/share is well below the average cost basis of $149.20/share of the to-date repurchased shares. Finally, it is possible tariffs could HELP AYI although the company did not specifically say so. In the conference call AYI pointed out that the Chinese government is subsidizing lighting companies who are undercutting price for lower-value fixtures. This competitive pressure is important because, as noted earlier, some of AYI’s customers are downshifting to these lower-valued products. AYI is determined to compete – “We will not yield this space for many strategic reasons” – and this competition represents one more important risk factor for the business. Overall, AYI is one more cautionary tale about the unanticipated impacts of today’s new inflationary environment. Given that financial markets are generally ignoring most potential fallouts from the expanding trade war between the U.S. and China, this earnings season should deliver many more surprises like AYI’s. Be careful out there! Full disclosure: no positions For more, see One-Twenty Two by Dr. Duru
NYSE:AYI
by drduru