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Overbought markets at a standstill in lackluster Friday trading

Written By | Jul 22, 2018
NYSE trading floor plus overbought markets

Trading action on the floor of the New York Stock Exchange (NYSE). Public domain image via Pixabay. CC 0.0 license.

WASHINGTON. It was a slow, lackluster Friday on Wall Street, dominated by trading action lacking all conviction. It wasn’t surprising that stocks staged a photo finish at the 4 p.m. bell. The three major averages closed very slightly to the negative, about as close to flat line as you can get. Overbought markets persistently signal they want to resolve to the downside.

Overbought markets and market bias

But the current overbought markets aren’t that overbought. Yet to get them moving, either we get a late summer rally soon. Or we get one of those sickening August swan dive declines, where investors get savagely clobbered without any advance warning.

As for now, we remain afflicted by the current trading environment utter stasis. In the midst of Q2 earnings season – mostly a good one, the bias of stocks tilts positive. But the action feels negative.

Even our favorite ETFs (discussed in the concluding article of yesterday’s ETF trilogy) were looking anemic as we limped toward Friday’s close. Maybe they’ve become another casualty of Wall Street’s chronically overbought markets. Meanwhile, sellers are hitting our portfolios’ two black sheep stocks – Allergan (trading symbol: AGN) and Alibaba (BABA). Nothing new there.

The “fear factor” in financial stocks

What is weird, though, is that President Trump’s jawboning against the Fed, re: their relentless and possibly unnecessary rate hike regime, oddly seems to have juiced at least one pair of financial stocks. The entire group, including these stocks, has lagged badly in recent months because the Fed wasn’t hiking interest rates fast enough.

(For newbies to this column, higher interest rates generally mean higher bank profits, though those rates don’t help consumers at all.)

Anyhow, as a result of the Fed’s current Hoover Era attitude toward interest rates, our two current bank holdings, JP Morgan Chase (symbol: JPM) and Regions Financial (RF) of Alabama traded in the green today. This after a week-long battering by banking industry bears.

RF landed in the green even though the bank missed earnings estimates by a penny. (That usually condemns a stock to death row, at least until investors commute the sentence.) But RF closed up 15 cents per share Friday nonetheless.  With all the science and data crunching analysts and investors alike put into stock picking, weirdness and irrationality still dominate 2018 trading patterns.

High-yield investments remain stable. When they should be sinking

Speaking of weirdness and irrationality, even in a rising interest rate climate, investments like our preferred stocks continue to remain stable or gain just a bit of altitude in this environment. Ditto our other high-yielding fortifications, including some utilities. These “bond equivalents” are supposed to go down in a rising interest rate environment. Why are they behaving counter to the trend?

Does someone know something we don’t? We’ll try to find the answer. Stay tuned. Maybe it’s just because many of these investments keep hitting selling squalls before bouncing again. This may prevent them from turning into just another statistic in our overbought markets theory.

Vodaphone’s tale of woe

On the other hand, our good-sized investment in the ADRs of dominant British telco Vodaphone (VOD) acts like it’s on life support. We sincerely wish that it had remained comfortably within our current overbought markets scenario. Instead, these share have become badly oversold. That’s at least in part due to the resignation of the company’s successful CEO after the last quarterly earnings report.

Advisory services tell us we should have a substantial chunk of our portfolio in “foreign stocks.” But every time we try, even via ETFs, this widely disparate stock “sector” stays flat or down.

Still, Vodaphone remains on an excellent earnings trajectory. The shares boast a high semi-annual yield, and VOD like it should be a winner. But over the last quarter, traders in this stock have dumped shares of VOD like there’s no tomorrow. Shares did close up Friday, a measly 17 cents, to stand at $23.45 per ADR (American Depository Receipt). That’s off a sickening 30 percent or so from its 52-week high in February.

But with a PE now under 11 and a dividend yield of nearly 8 percent, what gives? Maybe it’s just the current hatred of the few remaining national and international telcos. Perhaps the birth of a new investment sector, scheduled for “delivery” in September, may change the fate of these lagging shares and those like them.

More on the soon-to-be “Communications Services” sector

The gradually shifting of that anemic stock sector index to include “communications” stocks – you know, like Netflix (symbol: NFLX) – might change attitudes toward this sector.  To follow that action currently, we hold a small number of shares in the new Communications Services Select Sector ETF (XLC), which also includes Netflix and other “communications” stocks in addition to telcos like AT&T (T).

Vodaphone isn’t currently in this list. Yet its shares could find some life once the new Telco Index replacement gets into action in September. XLC already holds the shares most likely to end up in the new index.

Tariff-toons and America’s real security problem

Otherwise, the financial press still continues to harp on the tariffs President Trump continues to pile on imports from countries like China that have clobbered our exports for years. It’s almost like they’re waging a Reagan-esque economic “Cold War” against us. And maybe they are, according to Michael Collins, the deputy assistant director of the CIA’s East Asia mission center.

Collins told an audience at the recent Aspen Security Forum that

“China is waging a “quiet kind of cold war’ against the United States, using all its resources to try to replace America as the leading power in the world, a top CIA expert on Asia said Friday.

“Beijing doesn’t want to go to war, he said, but the current communist government, under President Xi Jinping, is subtly working on multiple fronts to undermine the U.S. in ways that are different than the more well-publicized activities being employed by Russia.

“‘I would argue … that what they’re waging against us is fundamentally a cold war — a cold war not like we saw during THE Cold War (between the U.S. and the Soviet Union) but a cold war by definition.”

If, after growing their economies massively at our great expense for years, countries like China refuse to address the issue, let’s see how they like it. We’ve lost far too many jobs to this predatory government and many others over the years.

Soros, fellow globalists and Deep Staters are still lurking

Even worse, mega-wealthy globalists (like George Soros) continue to push this absurdly unfair (to the U.S.) business pattern. They continually strive to shift production to those countries that accommodate their plan by paying their workers slave wages.

It’s grimly hilarious that these globalists effectively preach some form of Marxism while they destroy the ability of workers to support their families.

We never thought Marxism could be perverted and used as a tool by rich industrialists against the working class. But Soros and his gang of remorseless pirates have somehow managed to do so. Hence, “Democratic Socialism” – an oxymoron if there ever was one – has become their answer.

Donald Trump has experienced 24/7 fury from these wealthy pirates because he appears to have called their bluff just in time to save the average Joe, in this country at least, from a return to serfdom.

America’s new, two-front economic Cold War

It’s this epic, oligarch-led “Cold War” that’s also got markets baffled. Current earnings numbers are generally telling them to be bullish. But Soros, his mega-wealthy pals, his wholly-owned politicians and media hacks, and the Deep State in general have been allowed to become so powerful that sellers in this market are already convinced that Trump – and everybody else – will lose to this irresistible force. We shall see in the weeks and months ahead.

That’s why our currently overbought markets may remain treacherous for a long period of time. (Before they get oversold.) Epic battles like those against the Chinese and the shadowy globalists aren’t won quickly – or cleanly – by either side. This is more like trench warfare, WWI-style.

It generally takes long term, steady, relentless attrition to win this kind of battle. Most voters don’t like anything that’s long term. And that’s what clouds our investing crystal ball.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17