On this week’s show, Karl discusses the recent strength in the stock market but why a technical setup may cause a short-term drop. Plus, is trading all it’s cracked up to be?
Hey everybody, welcome to the Eggerss Report, Your Investing Playbook. Thanks for joining me, we appreciate it, as always. Hey, our telephone number’s 210-526-0057. Our website, eggersscapital.com, e-g-g-e-r-s-s capital.com. And you’re going to find a lot of information on there. We always like your feedback. So if there’s something that you like to see, or want to see, or don’t like to see, let us know what that is.
We did a survey a couple of years ago to people that are on our blog, and I got some interesting feedback. But just things like, do you like more technical articles? Do you want more charts and graphs? Do like kind of some of the learning how to analyze companies? Or, do you like financial planning articles and content? In terms of thinking about Social Security, analyzing your Social Security benefits, or looking at retirement benefits or Roth conversions. We try to cover all these things, but it’s always interesting to know what you like or dislike about … not just the podcast, but everything that we put on the website.
And really most of you, from the feedback we get is you do like the variety of things we put on there. And we really just … Basically we put things on there when they come up. So we may be talking about taxes around this time of year, or we’re talking about the Federal Reserve when they’re raising or not raising interest rates. Whatever the case’s, we’re talking about it when it is appropriate, but we do like your feedback.
And again, there’s lots of ways to connect with us. Of course, we have the podcast, which is once a week. We do it on Saturday mornings, and lots of ways to get it. There are so many podcast apps out there. Things like Overcast, or things like Apple podcast, or Stitcher, Spotify. A lot of you use Spotify to listen to music, and our podcast is on there. So make sure you go check that out.
Of course, we have a YouTube channel; youtube.com/karleggerss, where we give short 3, 4, 5 minute tips on various things. And again, if you want to get this information, the best way is just to go to the website eggersscapital.com, and click on the blog button there, and you can sign up for it. So make sure you do that. And again, if you just want to use the old fashioned telephone, 210-526-0057.
Alright, with that being said, another good week for the markets. I mean, what are you going to say about this? We’re almost very, very close to all-time highs. Now think about that. We’re only barely in March, and here we were in Christmas Eve, after a 20% drop in the markets, and it’s all but vanished. And fortunately, hopefully, you’ve been listening throughout that time, and you know we were trying to stay the course, wasn’t a fun time, but we were adding in various scenarios, in various strategies, adding two positions, or adding to our models, and we felt like the bull market was continuing. Very difficult time, but we’ve had a violent snapback.
And there’s many folks that I know that are out of the market and are frustrated. You can feel it, you can see it, the bears are trying to talk this market down, but it’s going higher. So we’ll get into that in just a minute for the week.
You did see you know about 2% gains on most of the major averages, almost 3% for the small caps, emerging markets up 3.5%. And now we’re talking about teens, year to date for the market, if you’re all stocks in the teens. The NASDAQ’s up 20% year to date.
And we did see this week, really the only areas that got hurt were consumer staples and utilities. And that’s actually a good thing, if you’re a bull. You don’t want to see those things leading the way because they were for a while.
Now, in terms of the things that made the most money this week, and we’ll go through those in just a minute here … There it is, just popped up … So the things that were the big winners were Bitcoin, number one over 31% this week. So the crypto is making a little bit of a comeback. And I made a comment on Twitter, which by the way, if you want to follow me on Twitter, it’s @karleggerss, k-a-r-l-e-g-g-e-r-s-s. I made a comment on there, that it would not surprise me to see the cryptocurrencies continue on a run and making substantial gains. Not because I’m some expert, and I’m Uber bullish, it’s just because of typical bubbles and crashes and post crash dynamics.
We had a bubble at the end of ’17, where high schoolers were trading their savings, their hard earned money in crypto currencies, and bragging about it only to see it fall 90%, 95%, 98%, and then it’s been quiet. Nobody wants to talk about it anymore.
And that’s just the time where you could be starting a second run, not a bubble this time, but more of a move that isn’t as parabolic as it was before. So we’ll see. We’ll see how that goes. Again, I’m not predicting, it’s just wouldn’t surprise me to see that. But that was definitely your big winner on the week.
And then we saw some really big gains out of semiconductors up almost 6%, new highs for semiconductors. I mean, if you go back to Christmas Eve, semiconductors are up almost 40% from Christmas Eve, phenomenal. And guess what else made a lot of money this week? And full disclosure, we own this ETF in our aggressive growth strategy, Mexico ETF. All the talk about Mexico this week and yet the Mexico ETF up almost 6%. And technically looks great breaking out.
Airlines had a huge week, oil up over 5%, home construction up 5%. The banks at 5%, steel. I mean, are these the things that bear markets and recessions are made of? I don’t think so.
What was down this week? Treasuries, consumer staples. Those were in the negative this week. And if we kind of look at what happened this week, we did see the markets got off to a good start to the second quarter, over 300 point gain. China manufacturing data. Sunday night was better than expected. That’s a big, big deal. Now, you can say, “Hey, are those real numbers? Do we really believe that? I don’t know. I mean, maybe they’re fake. Who knows? But if they’re fake, they’ve been fake. But whatever the fake number was, it’s better. The fake number’s improving. But that was a big deal. The market really, really like that.
And then we saw Tuesday market flat pretty much across the board. We saw President Trump threatening to close the border. And of course you heard what’s going to happen with commerce, and would that affect the economy? Of course, that would be a bad deal. No doubt about it.
And then Wednesday, China came out … Remember their manufacturing data came out Sunday night. Tuesday night, their services number came in, and it was better than expected. And so the market kind of had this upward bias that kind of faded a little bit throughout the day. Thursday, another good day. And we continue to see all throughout the week, progress on China trade, progress on China trade.
So it sounds like … and this has mainly been coming from the US side … But we did see Friday morning, ‘China hails new consensus on trade.’ So now the Chinese are saying that there may be an imminent ‘deal.’ We’ll see. But certainly when you combine Chinese better economic data with a trade deal, it’s the market like that.
Now, we did see Friday 196,000 jobs created. Remember how awful I think there were 20,000 jobs created in the month of February, probably due to the government shutdown and things of that nature. But bottom line is, the jobs were 196,000 jobs created in March, and last month was revised up by 13,000.
Okay, not a huge mover, but you do continue to see this upward bias. Why is that? Well, again, we’ve been talking about it week after week after week. And what it is, is a pretty simple formula, which is the Federal Reserve is off the table. They’re not raising interest rates. The economy, and despite people calling for a session, we’ve been saying we don’t see a recession, and even some of the bear’s data. Theirs is turning positive, so you have that combination plus a potential trade deal. The markets going up and will probably surpass new highs.
Now, we are seeing for you technicians, you know what this is, a head and shoulders pattern. What’s a head and shoulders pattern? A head and shoulders is not just a shampoo guys and gals. A head and shoulders pattern is simply the market goes up, it falls, and then later on it goes up to a new high. So that’s your head, and then it falls, and then the second time it comes back up, it goes up, and it forms the right shoulder. And if it rolls over, it’s a classic topping pattern. If you look at the stock market, as you listen to this, unless you’re listening to it three months from now, you will see a potential head and shoulders pattern where we made an all time high back in the fall.
Actually, I take that back, we made an all time high in February of ’18, first of all, then we fell and then we made a new all time high in the fall of 18, in October, that was higher. That was the shoulder then the head. Then we had that dramatic sell off in the fourth quarter. And now we’re heading back, and we’re not quite at the new highs, but if we break to new highs, technically that would be much better for the bulls. Because if we just start going down from here, we could see a significant sell off.
But I think based on everything I see I continue to believe we will go to new highs in the coming months, and we are still in a bull market, still. And if you have new money to put to work, do you want to wait for a pullback? Sure, you could wait for a little pullback. But if you have a lot of money on the sidelines, and its intention is to be in the stock market, at least average in, because the stock market, if you continue to wait, you see what’s happening here. The market’s up 20% from the lows.
So, there’s even a better chance right now, from the futures markets that the Fed cuts rates, then raises rates. And there’s talk now of quantitative easing. Did you think we’d be hearing about that? Should we be hearing about that at this stage of where we are in the economy?
And it’s a little … I got to admit, this is a little disturbing when … The President can say he wants rates to not be high. And of course, he’s on record as saying that they were too low, several years ago. But now that he’s president, of course, no president wants to be in office when they’re raising interest rates because eventually it’s going to catch up and slow the economy down.
So he’s saying, “We need rates to be lower, we need lower rates, we need lower rates.” The Fed probably … I don’t know if they listen to him or not, but they stopped raising rates. And then, you hear Larry Kudlow, “We need two rate cuts immediately.” And Stephen Moore, who’s being considered for the Fed. And we need two rate cuts immediately. But these same folks are saying the economy is so great.
So with the federal funds rate in the twos, how can the economy be great, and yet you want them to cut rates right now? That doesn’t jive. You can’t have your cake and eat it too, because one of those things will catch up to you.
Either you keep rates too low too long, and the economy is fantastic, and the rates will go up, or you keep them so low that there’s inflation. At some point one something has to give. Now, are rates appropriately priced right now? Who knows? The market would say, “Yes, because of the fact that the 10 year yield isn’t really doing much. It’s still stuck below 3%. But you can’t say the economy’s fantastic, and it’s roaring, and everything’s so great, and yet we should be cutting interest rates, because eventually that will come back to bite you. So is the Fed independent or not?
Most would say no. Most would say no, based on what we’re seeing. So we’re hearing all that talk, but at the end of the day, the economy has been, as we’ve been saying, decelerating for the last several months, at the same time, the Fed was raising rates. And if you go back and listen to our podcast, literally, two, three years ago, we said the combination of a Fed hiking, and an economy slowing wouldn’t be good for stocks. And that’s exactly what we had in the fourth quarter.
So the fact that the economy continued to decelerate in the First quarter, but the Fed stopped, that’s why the market ran up. And now if you get the Fed not doing anything, and we get better economic data and the economy starts to really accelerate, and we get a china trade deal, I think we continue to go to new highs.
So longer term things, we’re looking at continuing to point to a bull market. But again, for you technicians, you cannot help but see this big head and shoulders pattern. So is it possible we have some sort of correction? We’ll do. If you look at many, many indicators, they get to these what’s called exhaustion points, which is really technical jargon, for things don’t go straight up, or straight down in the stock market. At some point, the short term traders say, “You know what? We need to lean the other way and lock in profits. And so, the buying will slow down or the selling will slow down, depending on which direction the market’s going.
And this market’s been straight up. I mean, we had one bad week, really, about four or five weeks ago, that’s it. We’ve been going straight up since Christmas Eve. So we’re very close to the highs. And if you think about it … I mean, look at the stuff that … Again, look at the stuff that’s leading this year. Oil’s up 36%, you have biotech up 31%, semiconductors at 29%. We’re talking year to date. I mean, three months. These things are on pace for like 120% this year, which obviously won’t continue, I don’t think, at that pace.
Home construction, 23%, railroads 23%, steel stocks 20%, aerospace and defense 20%, industrials 20%. It’s quite amazing. The things that are down this year, interest rates, natural gas, silver, and that’s it, on my screen, as far as major areas.
And we’re seeing this global rebound as far as stocks are concerned. If you look at the emerging markets as well, breaking out this week, technically, throughout their highest level in several months. If you look at the developed nations, those are moving up to new highs in the last several months as well, going up to the highest levels they’ve been at since October.
Now, you may say, “Wait a second, I’ve been reading that Germany’s economic numbers are weaker. Italy … All these countries seem to be struggling.” Again, what’s factored in? Do you? What don’t you know? We know that, and so the market knows that. So it’s looking forward saying, “Is there going to be improvement or is there going to be stimulus? Given to these countries, more stimulus and that’s why it’s going up.
But it is crazy that … I hope that people aren’t buying stocks based on the hopes that we get quantitative easing here in the United States again. I would hope. I’m buying stocks, number one, because I believe that the profits of companies continue higher. I believe that they’re not overly expensive. And I believe that based on my technicals, and all the other work we do, we see a bull market continue.
Now, having said that, are we choosier today than we’ve been in the past? Yes, when it comes to owning specific areas, or stocks, we own the general market. But we also own very specific areas and a lot of our portfolios that we think are cheap. And I’ve mentioned this before, and I’ll mention it again, that there are some very expensive areas that are bubbles right now. They’re expensive and those stocks are going to hit in the future, in our opinion. Major sectors like utility stocks.
On the flip side, there are areas that are very cheap, and nobody really wants them, and they’re still … They’re off their lows, but they’re not where the stock market is. Where the market’s about to make a new high, these are still deeply discounted. So, I want to buy good deals, and I want to sell the expensive areas.
But that’s not to say we don’t own some momentum or own just the market in general. But again, be very careful what you own, in terms of the weights. Because I think people that are passively buying indices, at some point will be in for a rude awakening when some of these stocks get really hit. And that’s what you own. So I do think you have to be a little choosier.
But we have a broad based rally happening right now. By the way, real quick on these recessions … Somebody brought up a good point. Have you seen … There haven’t been any recessions when you have unemployment doing what it’s doing. Unemployment always turns up before you get a recession. Always, and it’s not happening right now.
Now if you look at things like some retail sales, which are the areas, and companies are growing versus not, there’s some issues there. I think there are some people that think we’re going into recession, there’s others that are saying, “Yeah, we don’t see recession today, but what we do see is a vulnerability. Our economy is very vulnerable to a shock.” And I think that’s what you saw with the government shutdown.
So, if China and the US said, “You know what? This isn’t going to work, and we’ll shut the Mexican border down, maybe our economy couldn’t withstand that, and we go into recession.
So the economy because we’re not growing, that fast is vulnerable. And I agree with that. I think it’s vulnerable, and there’s certainly things to worry about. But I don’t worry about a recession. And like we’ve said before, the recession doesn’t mean doom and gloom. I mean, something’s got to recess at some point. -0.01% two quarters in a row is a recession, but it’s basically just not moving. So it comes down to, what are you paying for stocks, or your investments, and so forth.
Now, I want to switch gears for just a minute.
I want to talk about really the problem with trading and I’ll be brief on this. Many of you have been following my work for well over 10 years. And you know that I like to trade. I think that certainly, I am a technician by my makeup. There’s people in my office, my staff, that are CFA’s, they can tear down companies and balance sheets and income statements, and they don’t really … the charts aren’t really a big deal to them.
To me, it’s just the way I look at things. I’ve just kind of grown up looking at charts. And I think that it’s a good balance to look at a chart when entering and exiting a position while taking in consideration your goals and taking in consideration the fundamentals of what you’re buying. So I like this kind of hybrid approach.
But the problem with trading for the most part is that it’s not practical. There’s too many false alarms a lot of time. How do I know this? Because the market’s near an all time high. And I’ve said this before, the market’s at an all time high, it’s near an all time high, going back in history. So how can you argue that doing anything other than buying is productive.
So again, it all boils down to when do you need your money? If you need your money next month, yes, timing matters big time. If I don’t need the money for the next 20 years, doesn’t matter as much. And I think what happens is with trading, if you have a successful trade, and you sell something and you go, “Good job, I made 15% in a month on the stock, look at me,” we all feel that, it’s great. Let’s lock in profits.
But then what do you do with that money? Does it sit there in the money market while the rest of the market keeps going up? Because then you would have been better off not only you may be paying taxes on that gain, if it’s not an IRA, but it’s sitting there earning very little when it could be still in something else.
So when you sell something, longer term, you got to find a place to put it. Now, if you do things perfectly, you obviously sell at the top and buy at the bottom, but we know and I think you know if you look in the mirror, that it’s pretty rare to do that.
I would say we did an excellent job in the fourth quarter by having a larger in our growth strategy, we had a 15% cash position that we got out at a reasonable time when the market was falling. And then after it fell pretty dramatically, we started averaging that money back in, and we made our last buy on Christmas Eve. It doesn’t work much better than that.
But even so, you think about the cash we had had to come from a sale, right? If something, so timing’s very important. And a lot of studies suggest that you’re not better off dollar cost averaging, that you’re better off putting in lump sums.
So this whole notion of trading, what’s hard about it is that, you have to continue to be productive all the time with it. And I’m not saying don’t trade, but I’m saying have a balanced portion in your life, have a core piece that’s in the market. If you don’t need that money for the next 15-20 years, that chunk should be in the market, in some form or fashion. If you want to trade around, that’s fine, especially when there’s really good opportunities. Things that are just a softball pitch, fine. I mean, there’re softball pitches all the time. And when the value’s realized, you can take profits on that, especially if there’s something better to buy.
But you do have to think about transaction fees, which aren’t as big a deal these days, but you have to think about taxes, and how long that money is going to be sitting out of the market. And so trading is very, very difficult. Why do you think all these folks that say they do a lot of trading, sell courses doing it? That’s where they make their money. They sell DVDs, online courses, they sell webinars. They sell red light, green light, that’s where they make their money.
And I’ve mentioned this before, I have sat in studios, I’ve sat on exchanges, doing TV interviews next to some of these people, and they all tell me, they have mutual funds, they own ETFs, they have, ‘long term portfolios.’ The trading is a small portion of their life. And they do it … I don’t know. I mean, it’s just their business … But they have majority of their money in a long term portfolio.
So all I’m saying, the point of this is that have balance or buckets, and if you want to trade some, fine, but many times I see people get way over done in a trade, or they’re sitting in cash for too long, or they’re paying tremendous amount of taxes. And at the end of the day, they would have been better off writing through some volatility. So I think where you do your trades, when, how much, are all really important factors.
We can help you with that, we’d love to help you with that. But again, just keep in mind that sometimes trading isn’t all it’s cracked up to be. So just a little little tidbit on that.
Hey, don’t forget our website, eggersscapital.com. Our telephone number’s 210- 5260-0057. Love to get your feedback, like I mentioned earlier, and tell us your likes, dislikes, and also share the show with a friend. Why don’t you pay it forward this week? Share the podcast with a friend, say, “Hey, you need to go listen to this, maybe there’s something in there for you. We’d appreciate it. We’re always growing our audience. We get all kinds of questions from people in all different locations. That always surprises me. But that’s the internet nowadays, thanks to the internet.
Anyways, have a wonderful weekend, and we will see you back here next week on The Eggerss Report; Your Investing Playbook.
Take care, everybody.
Get our latest market commentary by subscribing to our blog here.
To subscribe to the Eggerss Report via the Itunes Store, click here.
This show is for entertainment only, and the information provided by the host, guests, and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research before you make those decisions.
As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.