Alpha Trader

With hosts Aaron Task and Stephen Alpher taking the week off, this week's Alpha Trader features Seeking Alpha Marketplace head Daniel Shvartsman chatting with Michael Gayed of the Lead-Lag Report.
The question at hand, asks Gayed: Is the Fed going to win in its fight against the massive deflationary forces facing the economy? Gayed thinks not. Instead, he believes we're in a perpetual period of lower rates, disinflation, and market volatility. It's time for investors to get "tactical," he says.
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This week's Alpha Trader podcast with hosts Aaron Task and Stephen Alpher features a return appearance by Wall Street technician and current Realmoney.com columnist Helene Meisler. Following that, it's Seeking Alpha's Daniel Shvartsmann talking tech with Chaim Siegel of Elazar Advisors and Nail Tech Earnings.

That we might have hit a "V-shaped" bottom a couple of weeks back is generating plenty of chatter, but Meisler has spent her time studying a few other bear markets. What she found is that bottoming is a process that's likely going to take some time - weeks, if not months.

To try and draw a picture, Meisler says the pattern tends not to be a "V," nor will it be a "W," but instead try to imagine the symbol for a square root.

Among the indicators Meisler is looking at are moving averages, and not just for stocks. She takes note of AAII Investor Sentiment data, and the four-week moving average of bears a couple of weeks back got to 50% - the big bull move ensued shortly after. To gauge for when this rally might be petering out, keep an eye for when the average of bears begins to turn noticeably lower.

Next up, Shvartsman and Siegel discuss whether the tech sector can continue to outperform. Siegel's approach is more trader-oriented, so he doesn't look for relative outperformance, but instead talks about why the sector has upside for the long term. He breaks down the various inputs the market will be looking at as earnings season begins, and which quarter will matter most. Lastly, he shares why he likes the video games subsector.
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This week's Alpha Trader podcast features a return appearance by J.C. Parets of All Star Charts. Following Parets is a special report on Simon Property Group (SPG), with Seeking Alpha's Daniel Shvartsman talking with Julian Lin of the Best of Breed Marketplace service.
Parets tells hosts Aaron Task and Stephen Alpher that the recent action in stocks is looking like a classic bear market bounce. Why? To name a few reasons: The list of stocks, sectors, and global indices making 52-week lows continues to grow, breadth expansion continues to the downside, and the leading sectors of the bounce were defensive ones like utilities and consumer staples.
In a new bull market, we'd instead be seeing sectors like tech, communications, industrials, consumer discretionary, and financials leading the way. Then there's the bond market, and with it continuing to make all-time highs (yields hitting all-time lows), Parets just isn't buying the bull market argument.
One other indicator: Parets wants to be a buyer when 15% of stocks are trading above their 200-day moving average. Right now, we're at 6% and headed lower (this was recorded prior to Monday's 7% gain for the averages).
Next up, Julian Lin sits down with Daniel Shvartsman to discuss his outlook for the roughed-up mall sector.
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This week's Alpha Trader features hosts Aaron Task and Stephen Alpher talking with Jim Bianco of Bianco Research about the "nationalization" of large swaths of the financial markets.
Prior to the chat with Bianco, Task and Alpher mull the major bounce in stocks over the past few sessions. They note that the bear markets of 2000-2002 and 2007-2009 had any number of "face-ripping" rallies, only to reverse and make new lows shortly after. The easy call for now is that this too is another face-ripper, but Task reminds that we've seen plenty of historic moves this year. It's probably not likely, but maybe the trillions being thrown around by the Fed and the government did help put the bottom in last Monday.
In case anyone forgot, Bianco reminds that the Fed is only allowed to buy securities directly guaranteed by the federal government. What's unique about the current rescue plan is the central bank's move to buy investment-grade corporate bonds and ETFs that mostly hold such bonds. How? By creation of a special purpose vehicle which the Treasury has capitalized, and the Fed has made financing available to.
So here we are. What started in 1987 - when Alan Greenspan ended the crash by stating the Fed's willingness to support markets - has progressed over the years to the point where now the central bank (in conjunction with the Treasury) has had to more or less nationalize financial markets in order to stop the bleeding.
Any number of market watchers over the past thirty years have looked at exploding government deficits, and come away bearish on bonds. Jim Bianco isn't one of them. The massive stimulus program this time around, however, might have Bianco changing his tune. The new spending alone is going to make the current $1T deficit seem puny, and if it happens to work - if the economy gets moving again - we're bound to see some move higher in inflation.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Jeff Macke about retail amid the pandemic panic.
Prior to the chat with Macke, Task and Alpher mull the speed with which markets have plunged through any number of bazookas fired by the Fed (Editor's note: Roughly 48 hours after the recording of this podcast, the Fed announced an even larger bazooka - unlimited QE, the purchase of corporate paper, and a dusting off of the financial crisis' TALF facility - markets continue lower).
Goldman Sachs on Friday predicted a 24% annualized contraction in Q2 GDP, and then St. Louis Fed President Jim Bullard over the weekend said he thought GDP might contact 50%, with the unemployment rate rising to 30%.
The best advice might be to try and not pick a bottom, with Task and Alpher noting the financial crisis low didn't come for several months after the Lehman collapse, any number of Fed interventions, and the passage of TARP. Very slowly putting money to work might be the way to go.
"There is no way to value equities on future cash flows in this situation," says Jeff Macke. "It's not even possible to pretend. We don't have enough information." Run away from anyone telling you they can figure things out, says Macke, and run doubly fast from any company management saying they can offer reasonable guidance.
If you want to see who is on top of things right now, check and see who has updated their app, suggests Macke. Business isn't usual for anyone, but it'll give you an idea of which players are still fulfilling orders, still getting at least some facsimile of their business done. He notes a place like The Gap (GPS), which already had plenty of work to do in its online business - that's going to be really hard to do when there's a "goose egg" on the top line.
As for possible changed consumer behavior, Macke reminds that more than half the stuff sold on Amazon (AMZN) doesn't come from Amazon. Should the current situation continue a lot longer, the product you order off of Amazon may or may not show up, and you may not know anything about whoever sold it. This could be an advantage for Target (TGT) and Walmart (WMT) with their well-developed supply chains, and ability to stand behind what they sell.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the market panic from COVID-19, and chatting with The Schork Report's Stephen Schork about the crash in crude oil.
Editor's note: This podcast was recorded late last week - prior to the market's 10% gain on Friday, 12% loss on Monday, and 100 basis point Fed rate cut in-between.
The speed of the market decline has shaken everybody up, but Task and Alpher figure there are a couple of things we can count on. One is that the Fed will somehow stumble its way into making sure that the liquidity is there for the financial system to continue operating. The other is that instead of trading or rushing to pick a bottom, those who spend their time researching and putting together a solid buy list of names will be rewarded.
Be greedy when others are fearful is the Warren Buffett maxim, and while The Oracle may not yet have hit the "buy" button, it's a near-certainty his next move(s) will be the purchase of sizable chunks of good businesses selling at discount prices.
Spying a drop in demand prior to the coronavirus, and then the growing pandemic compounding those issues, Stephen Schork had already been bearish on oil prices, and fully expected OPEC to reach an agreement on a production cut at that fateful meeting about 10 days ago. That didn't happen thanks to Russian intransigence, and the Saudis responded hours later by launching an all-out price war, sending crude crashing well below where Schork's bearish models had forecast.
So why would Russia not go along with production cuts? The answer may lie in Russia's (not to mention Saudi Arabia's) desire to take American shale producers down a notch or three. Schork notes U.S. oil production is up 10% Y/Y, making the U.S. the globe's largest producer, not to mention a sizable net exporter of black gold. The battle for market share is on.
As for American shale producers, many of them are over-leveraged, and won't survive this shake-out. Some will go bankrupt, some will get taken over, but major consolidation is on the way. That's good news for big players like BP (BP), Shell ([[RDS.A]], [[RDS.B]]), and Exxon (XOM) who are going to be able to pick up great acreage at fire-sale prices.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the market fallout from the coronavirus with LPL Financial's Ryan Detrick and the economic fallout with RSM's Joe Brusuelas.
Editor's note: This podcast was recorded on Friday March 6th - prior to the weekend collapse in the oil price adding to the coronavirus panic.
Detrick has been prepping clients for a pullback for some time, and he notes the correction at the time of recording (just over 12%) was roughly inline with other annual peak-to-trough measures in recent years. What's unusual this time is the massive flight to safety as seen in the huge declines in Treasury yields.
Yes, says Detrick, there will be an economic slowdown coming up, but stocks and yields at the moment are pricing in something way more than that. What may put a stop to the selloff might not even have to be good economic news, but instead just less-weak-than-feared data.
Were you aware that stocks in China - ground-zero for the coronavirus - are at two-year highs? Whether or not one believes the government figures that the damage from the coronavirus has been contained, says Detrick, the financial flows don't lie - money is moving into Chinese shares.
Bottom line, says Detrick, the earnings yield on the S&P 500 is in the neighborhood of 5%, while the 10-year Treasury yield is below 1%. That's a spread of more than 400 basis points - one of the cheapest reads on that measure going back 70 years. Cheap can absolutely become cheaper, but Detrick and team are telling clients stocks will outperform bonds over the next 12 months.
It's a highly unusual three-way shock facing the U.S. economy, says Joe Brusuelas - that's a supply shock, a demand shock, and a market shock. Even with all that, he's not expecting a recession, but instead an H1 slowdown to less than 1% growth (mostly to be seen in Q2 data).
The Fed cut was necessary, says Brusuelas, even if it might be ineffective at addressing the causes of the recent troubles. The issue, he argues, is that nothing - for now - is moving on the fiscal side, and that's what's really going to be needed to combat this slowdown.
Going forward, these shocks are going to manifest themselves in bankruptcies and unemployment, particularly as it relates to small- and medium-sized enterprises. The president and Congress are going to need to work together and be creative. This president and this Congress? Yes, says Brusuelas, and if things get bad enough, the two branches will find common ground to get things through. Even something like the payroll tax break that's been bandied about is a great idea. Brusuelas reminds that this was a feature of the crisis response in the Obama administration, so there is some precedent.
Brusuelas looks at plenty of indicators, but if he had to pick just one it would be the 13-week moving average of initial jobless claims. When it moves above 242K, it's time to get worried. While only about 212K now, the layoffs at the West Coast ports have begun, says Brusuelas. He figures it'll take about 2-3 weeks before those begin to translate into the jobless claims numbers.
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This week's Alpha Trader podcast features Westwood Capital Managing Partner Dan Alpert, who has a bit of a variant perception of last week's coronavirus-related market panic.
The selloff, Alpert suggests, has more to do with where markets stood prior to the coronavirus making such loud headlines. He reminds that the SARS and Ebola scares didn't affect risk assets all that much. Markets prior to last week were too perky and ready for a correction - the coronavirus provided the excuse to sell.
Also at work, says Alpert, is a "recognition of pre-existing weakness." Economic growth in China was already slowing thanks to massive overcapacity, massive infrastructure build, and massive real estate build. The virus will be contained at some point, but that's not going to cure the necessary China slowdown.
Mulling a possible policy response in the U.S., Alpert doesn't expect a fiscal boost to be able to get through in a presidential election year. The Fed could cut rates, but Alpert reminds we've already been at zero-to-negative real rates for many months (Editor's note: Podcast was recorded on Friday 2/28. The Fed announced an emergency 50-basis point rate cut on 3/3). A move might inspire some confidence and a market bounce, but will do nothing to boost investment or economic activity.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking tech - particularly "new paradigm" tech - with Mark Hibben of Rethink Technology.
Before that, the hosts chat about the rapidly developing coronavirus situation. What's sure to be a very sizable economic slowdown - in China, of course, but clearly also spreading elsewhere - can no longer be denied. That's bringing Fed rate cuts in 2020 back into play, and while Fed speakers are playing it cool for now, it seems just a matter of time before they signal their readiness to move.
While market averages (at least until Monday) have mostly brushed off these concerns, Task takes a look at the stocks other than mega-caps Microsoft, Apple, Google, and Amazon, and popular high-flyers like Tesla and Virgin Galactic. What he finds is that the bear market is well underway for more than half of the Nasdaq.
Hibben is keeping his eye on the coronavirus as well. His base case, for now, is that this is a one quarter event. Even if stretches to two quarters - i.e., a real recession - Hibben would welcome the opportunity to buy the dip in favored names like Apple (AAPL), Nvidia (NVDA), TSCM (TSM), and Microsoft (MSFT).
What Hibben calls new paradigm semiconductor companies (mostly Apple, but others as well) are those that design most of the processors put into their products. At first derided as a Steve Jobs folly, Hibben argues that the move to make custom chips has been perhaps the major reason for the massive profits at Apple over the last decade. Apple's chief competitors, Samsung [[(SSNLF), (SSNNF)]] and Huawei have now followed suit.
Is Amazon (AMZN) new paradigm? Yes, says Hibben, who argues that the most important server processor introduced last year did not come from either AMD (AMD) or Intel (INTC), but from Amazon (AMZN), which in December announced the Graviton 2 based on ARM architecture. It's claiming 40% higher price performance than options from either AMD- or Intel-based options.
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This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher chatting with Kevin Simpson of Capital Wealth Planning.
For a few months now, Task and Alpher have held that the Fed successfully engineered a soft landing in 2019, leading to a healthy bull market, a la 1995. The action of late though has them questioning whether we're now closer to a bubbly late-1999 scenario. They remind that Cody Willard was on the podcast just weeks ago making the bull case for names like Tesla (TSLA), Virgin Galactic (SPCE). They've both gone parabolic since, making even Willard wonder whether things have gotten too perky.
With plenty of other news surrounding markets, many didn't pay attention to Fed Chair Jay Powell's congressional testimony, but - in a time of record-low unemployment, minuscule interest rates, record-high equities, and a $1T government deficit - he called on Congress to do more to support the economy. It indicates that another recent Alpha Trader guest, Tony Dwyer had it right when he argued about a sea change in thinking at the Fed - the central bank has given up the inflation battle and is instead laser-focused on not allowing a Japan- or Europe-like deflationary environment take hold. Invest accordingly.
Acknowledging the hit to earnings from the coronavirus for plenty of the large-cap dividend growers he likes to hold, Kevin Simpson reminds it's not likely to affect the long-term profit power of players like Disney (DIS), Home Depot (HD), and Walmart (WMT). A writer of calls on the names he holds, Simpson recently had his Apple (AAPL) called away. A longtime owner of Apple, Simpson says it's not the first time he's been out of the stock during its run higher. It remains one of his favorite names, and he expects to be able to buy it back cheaper than it is today.
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