More of the Same as the Markets Re-Price the Risk

Good morning- investors/traders focused on the negatives again yesterday - sending the mkt into a tailspin.....the Dow swung some 460 pts from high to low ending the day down 165 pts while the S&P swung 47 pts from high to low ending the day down 28 pts at 2699 (this is key), the Nasdaq got whacked as well falling 166 pts and ending the day ON THE LOWS (not bullish) - as investors took money out of tech names in preparation for what some think may be the beginning of a broader pullback....even the Russell got smacked – falling 28 pts or 1.7%.

Here we go again.... concerns over trade policy with a looming July 6^th deadline, concerns of FED policy, concerns of an inverting yield curve and what that means for the broader economy, concerns over the very crowded tech trade and concerns over 2Q earnings all lead investors/strategists/analysts to consider what’s next.    Yes - None of these issues are new.... they have always been simmering on the back burner - so when the mkt begins to FAIL TECHNICALLY then it’s like someone just turned the heat up from simmer to high......
 
Yesterday - the S&P could not hold the line at the 2-key technical trend line supports - 2716 (50 dma) and 2701 (100 dma) - and this is now cause for some concern.... look - On Monday the mkt sold off hard - it pierced both levels and then managed to rally into the bell to close above it.... BUT I said that this was now going to be a focus......why?  Because ‘technically’ we had broken increasingly important trendline supports....and this causes a host of trading firms - hedge funds, quant firms, HFT firms to consider the next move.  On Tuesday - I said
 
“if the mkt fell out of bed – we needed to hold the line at 2710 ish….as this represented trendline support…no while we did break it during the day – we did manage to rally and close above it by the end of day…so another test of this level is NOT out of the question at all…and not that it will happen today – but it will happen as both investors and traders feel it out.”  
 
And yesterday we tested these levels again and it is going to be important to see if the buyers will defend those positions.... Well - they did not.... the buyers chose to back off a bit and let the sellers get more anxious.... risk management systems sounded the alarm bell once we broke trendline support and now - like it or not - the long term trendline or the 200 dma is now in sight......that level?  2665.. which is only 30 pts lower on the S&P or just over 1% from here....and so the stage has been set. 
 
Treasuries, Energy XLE + 1.34%, and utilities XLU + 0.48% were three sectors that bucked the trend ...all seeing money pour into them as tech XLK – 1.6%, industrials XLI – 0.81%, consumer discretionary XLY – 1.3%, financials XLF – 1.2%, Healthcare XLV – 0.85% all got beaten up.  And that makes perfect sense....
 
Energy because the talking heads are once again selling you on the story that demand is outstripping supply and even though OPEC did vote to increase production last weekend - the increase was well below what the mkt expected - so - they weave a story of despair, long lines at the gas pump and increasing home heating oil prices for next winter....WTI surged - up and thru $72 barrel – now at a new 2018 high and at levels not seen since July 2014....which is a bit ridiculous considering that we (The US) are pumping and producing oil at record amounts - so much so that we are exporting record amounts to countries around the world.....and as we know - the world is awash in oil - so it’s called manipulation - but that is another story.  In fact CNBC.com runs with an oil story that says that while prices surged – ‘physical mkts remained well supplied despite record demand and ongoing disruptions’ – in fact between the US, Russia and OPEC – the world is pumping 33 mil barrels per day/everyday….Russia and OPEC are at near capacity so the story goes that there is a smaller margin of safety if demand should suddenly surge again…….thus the move in oil is that supposed anticipation of pressure on supply……Remember that the Saudi’s are still in the process of taking Saudi Aramco public in what is expected to the event of the century – so THEY need oil prices closer to $100 vs. closer to $50…..And while the fall of 2018 was the target – they might push that off until early 2019 so they can get prices closer to $100/barrel. 
 
Utilities saw buyers because of their steady and high dividend payouts - so if you want exposure to stocks and want some protection of income – utilities are always a safe bet. 
 
Tech continues to come under pressure as investors/traders once again look to these names and use them as a source of cash at a time when there is concern over the next move for the mkts and Industrials?  Do we have to discuss that?  Think trade tensions – although Donny has BACKED off some of some of his demands (which is different than softening apparently) and appears to be doing just as the playbook suggests – cause maximum amount of pain and then come to the middle – then EVERYONE is a winner!
 
Financials? – continued uncertainty over trade and what that will do the global economy is taking its toll on this group…. XLF is now at the lows of the year – having broken thru all support trendlines and is struggling to regain its composure….so when the news is all negative – you can expect an overreaction in sectors that are already weak as they are expected to weaken even more….    
 
This morning – US futures are UP 10 pts in early trading as the thrashing around continues…. there was no news overnight to change the tone really – emerging mkts got whacked again and European mkts are weak.   – this is once again a bounce back rally…..as the mkt tries to stabilize right here…..Look Donny did come out yesterday and say that the trade talks are still ‘negotiations’ and that is helping the tone just a bit – because negotiations means that there is still room to talk and that is slightly bullish….….but if you want my opinion – it is more technical now….as the mkt tries to hold trendline support vs. anything else…Yes – negative headlines won’t help and positive ones will only help a little bit – my sense is that the table is set – a test of the long term support is the ‘special on the menu’ – do not be surprised to see the mkt rally and then fail at 2716 – which now represents resistance. 
 
 
The O’Neil Methodology now says The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq staged downside reversals on above average volume, adding a sixth and seventh distribution day, respectively. The S&P 500 closed below its 50-DMA and is now just 1.2% above 200-DMA support which has held through numerous tests this year. A close below that level will result in a downgrade of the U.S. market to a Downtrend. The Nasdaq is now trading 5% off highs and testing support at the 50-DMA after picking up four distribution days in the last seven sessions. We continue to recommend a cautious and patient approach as both leading ideas and the major averages have yet to stabilize. This has resulted in the removal of six U.S. Focus List ideas in the last four sessions, taking the count down to 68 ideas. 
 
Sector Movement (Rotation Chart): Over the last five sessions, Utility (+2.9%), Energy (+0.5%), and Consumer Staple (flat) are leading, while Consumer Cyclical (-4.2%), Technology (-4.2%), and Transportation (-4.4%) are lagging.
 
European mkts are all lower FTSE -0.14%, CAC 40 -0.47%, DAX -0.62%, EUROSTOXX -0.65%, SPAIN -0.33% and ITALY -0.61%.
 
Gold continues to bleed……and is now testing the December 2017 lows of $1,251.  As discussed in prior notes last week.  Once it broke $1,285 – it was all over…. The stronger dollar is not helping and while trade tensions should help gold rally – it is not…. look for gold to hold right here…if it breaks below $1,251 – then the next stop is the July 20174 lows of $1,230.
 
Eco data today includes the final revision of 1Q GDP and exp are for it to remain unchanged at 2.2%....

Pork Cutlet Milanese

Love this dish…
 
You start by making the Tomato Bruschetta  - get some nice ripe plum tomatoes - maybe 7 or 8.......dice and add to a glass bowl.....3 or 4 cloves of garlic....now crush two of them and then slice the other two - add to bowl.....fresh basil - chopped, s&p, olive oil and diced red onion......(I love red onions so the more the merrier - but you figure it out...) - cover and let marinate...do not refrigerate....
 
Next the Pork Cutlets – Pound thin then Rinse and pat dry.  Beat a couple of eggs and set aside.  Prepare a bowl with Italian seasoned homemade breadcrumbs - set aside. Prepare a bowl with flour – set aside.  Make the assembly line – Flour, Egg wash then breadcrumbs.
 
Pour some olive oil in a broiling pan and turn broiler on high. You want enough so that you cover the bottom of the pan – but you do not want the cutlets bathing in oil…...place the rack on the second level below the broiler.
 
Dredge the cutlet in the flour then dip in the egg wash and then dredge in the homemade breadcrumbs making sure to coat well on all sides.  When the oil is hot - place the cutlet in the broiler pan and turn over so that the seared breadcrumbs are now under the broiler.  Cook for about 5 mins or until a nice golden brown.  Flip the cutlet and broil the other side - another 4 / 5 mins or so.  Remove.
 
 Now the presentation.... You need to make a bed of greens on the plate - maybe fresh spinach, or arugula, or Boston bib - you can mix or use just one.... Next place the broiled cutlet on top in the middle - looks good no?
 
Now - using a spoon - add the bruschetta on top of the cutlets - this is a colorful dish...you have the green from the greens and you have the red from the tomatoes.... It is like eye candy.......
 
Serve with a red wine of your choosing.... I like a Chianti Classico with dish - but you can choose whatever makes you happy.
  
Buon Appetito.